Document

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File No. 001-34995
 
Preferred Apartment Communities, Inc.
(Exact name of registrant as specified in its charter)
 
Maryland
27-1712193
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3284 Northside Parkway NW, Suite 150, Atlanta, GA 30327
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (770) 818-4100
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer  ¨            Accelerated filer  x            Non-accelerated filer  ¨            Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No  x
The number of shares outstanding of the registrant’s Common Stock, as of July 31, 2016 was 24,214,804.



 
PART I - FINANCIAL INFORMATION
 
 
 
 
INDEX
 
 
 
 
 
 
 
Item 1.
Financial Statements
Page No. 
 
 
 
 
 
1

 
 
 
 
2

 
 
 
 
3

 
 
 
 
4

 
 
 
 
6

 
 
 
Item 2.
36

 
 
 
Item 3.
67

 
 
 
Item 4.
67

 
 
 
 
 
 
Item 1.
Legal Proceedings
68

 
 
 
Item 1A.
Risk Factors
68

 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
68

 
 
 
Item 3.
Defaults Upon Senior Securities
68

 
 
 
Item 4.
Mine Safety Disclosures
68

 
 
 
Item 5.
Other Information
68

 
 
 
Item 6.
Exhibits
68

 
 
SIGNATURES
69

 
 
 
 
70





Preferred Apartment Communities, Inc.
Consolidated Balance Sheets
(Unaudited)
 
 
June 30, 2016
 
December 31, 2015
Assets
 
 
 
 
 
 
 
 
 
Real estate
 
 
 
 
Land
 
$
206,706,147

 
$
141,729,264

Building and improvements
 
1,079,949,148

 
733,417,442

Tenant improvements
 
7,443,986

 
5,781,199

Furniture, fixtures, and equipment
 
112,147,819

 
86,092,408

Construction in progress
 
1,696,177

 
609,400

Gross real estate
 
1,407,943,277

 
967,629,713

Less: accumulated depreciation
 
(71,760,464
)
 
(48,155,874
)
Net real estate
 
1,336,182,813

 
919,473,839

Property held for sale (net of accumulated depreciation of $0 and $5,838,792)
—

 
33,817,081

Real estate loans, net of deferred fee income
 
181,287,965

 
180,688,293

Real estate loans to related parties, net
 
97,769,345

 
57,313,465

Total real estate and real estate loans, net
 
1,615,240,123

 
1,191,292,678

 
 
 
 
 
Cash and cash equivalents
 
5,717,111

 
2,439,605

Restricted cash
 
23,146,020

 
12,539,440

Notes receivable
 
16,929,381

 
18,489,247

Note receivable and revolving line of credit due from related party
 
24,010,987

 
19,454,486

Accrued interest receivable on real estate loans
 
13,751,480

 
14,294,648

Acquired intangible assets, net of amortization of $33,598,998 and $27,032,157
 
27,532,024

 
19,381,473

Deferred loan costs for revolving line of credit, net of amortization of $163,819 and $791,002
 
419,668

 
488,770

Deferred offering costs
 
4,699,537

 
5,834,304

Tenant receivables (net of allowance of $463,283 and $434,773) and other assets
 
25,562,202

 
11,314,382

 
 
 
 
 
Total assets
 
$
1,757,008,533

 
$
1,295,529,033

 
 
 
 
 
Liabilities and equity
 

 
 
 
 
 
 
 
Liabilities
 
 
 
 
Mortgage notes payable, principal amount
 
$
957,087,042

 
$
668,836,291

Less: deferred loan costs, net of amortization of $3,513,390 and $2,021,696
 
(13,588,680
)
 
(8,099,517
)
Mortgage notes payable, net of deferred loan costs
 
943,498,362

 
660,736,774

Mortgage note held for sale
 
—

 
28,109,000

Revolving line of credit
 
28,500,000

 
34,500,000

Term note payable
41,000,000

 
—

Less: deferred loan costs, net of amortization
(55,456
)
 
—

Term note payable, net of deferred loan costs
40,944,544

 
—

Real estate loan participation obligation
 
13,997,758

 
13,544,160

Accounts payable and accrued expenses
 
18,548,928

 
12,644,818

Accrued interest payable
 
2,633,222

 
1,803,389

Dividends and partnership distributions payable
 
8,272,974

 
6,647,507

Acquired below market lease intangibles, net of amortization of $2,227,174 and $1,578,205
 
9,734,618

 
9,253,450

Security deposits and other liabilities
 
3,956,465

 
2,836,145

Total liabilities
 
1,070,086,871

 
770,075,243

 
 
 
 
 
Commitments and contingencies (Note 12)
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
Stockholders' equity
 
 
 
 
Series A Redeemable Preferred Stock, $0.01 par value per share; 1,050,000
 
 
 
   shares authorized; 688,788 and 486,182 shares issued; 683,545 and 482,964
 
 
 
shares outstanding at June 30, 2016 and December 31, 2015, respectively
6,835

 
4,830

Common Stock, $0.01 par value per share; 400,066,666 shares authorized; 23,692,178 and
 
 
 
  22,761,551 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
236,922

 
227,616

Additional paid-in capital
702,363,652

 
536,450,877

Accumulated deficit
 
(16,789,931
)
 
(13,698,520
)
Total stockholders' equity
 
685,817,478

 
522,984,803

Non-controlling interest
 
1,104,184

 
2,468,987

Total equity
 
686,921,662

 
525,453,790

 
 
 
 
 
Total liabilities and equity
 
$
1,757,008,533

 
$
1,295,529,033


The accompanying notes are an integral part of these consolidated financial statements.
1



Preferred Apartment Communities, Inc.
Consolidated Statements of Operations
(Unaudited)
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Rental revenues
$
30,966,738

 
$
14,720,482

 
$
59,222,337

 
$
27,861,602

Other property revenues
4,308,360

 
2,157,800

 
8,068,443

 
4,127,567

Interest income on loans and notes receivable
6,847,724

 
5,582,871

 
13,789,883

 
10,457,957

Interest income from related parties
3,731,122

 
1,627,674

 
6,509,062

 
2,986,216

Total revenues
45,853,944

 
24,088,827

 
87,589,725

 
45,433,342

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Property operating and maintenance
4,356,923

 
2,545,578

 
8,378,285

 
4,624,937

Property salary and benefits reimbursement to related party
2,516,605

 
1,308,832

 
4,880,068

 
2,426,405

Property management fees (including $1,140,603, $563,567,
 
 
 
 
 
 
 
 $2,211,691, and $1,043,618 to related parties)
1,356,409

 
655,139

 
2,584,430

 
1,225,545

Real estate taxes
5,494,608

 
2,327,472

 
10,668,049

 
4,404,149

General and administrative
1,191,520

 
463,298

 
2,111,472

 
921,502

Equity compensation to directors, executives and consultants
618,867

 
577,543

 
1,229,292

 
1,167,851

Depreciation and amortization
17,969,975

 
7,927,849

 
33,316,701

 
15,873,277

Acquisition and pursuit costs (including $39,222, $37,636, $106,353
 
 
 
 
 
 
 
and $84,641 to related party)
2,490,566

 
669,342

 
5,143,271

 
1,092,934

Acquisition fees to related parties
274,176

 
1,098,471

 
385,056

 
1,858,771

Asset management fees to related party
2,958,991

 
1,570,956

 
5,725,077

 
2,921,846

Insurance, professional fees and other expenses
1,571,514

 
644,202

 
2,878,495

 
1,349,754

Total operating expenses
40,800,154

 
19,788,682

 
77,300,196

 
37,866,971

 
 
 
 
 
 
 
 
Contingent asset management and general and administrative expense fees
(451,684
)
 
(809,159
)
 
(721,285
)
 
(1,155,119
)
 
 
 
 
 
 
 
 
Net operating expenses
40,348,470

 
18,979,523

 
76,578,911

 
36,711,852

 
 
 
 
 
 
 
 
Operating income
5,505,474

 
5,109,304

 
11,010,814

 
8,721,490

Interest expense
9,559,501

 
4,688,468

 
18,454,331

 
9,065,583

 
 
 
 
 
 
 
 
Net (loss) income before gain on sale of real estate
(4,054,027
)
 
420,836

 
(7,443,517
)
 
(344,093
)
Gain on sale of real estate, net of disposition expenses
4,271,506

 
—

 
4,271,506

 
—

Net income (loss)
217,479

 
420,836

 
(3,172,011
)
 
(344,093
)
 
 
 
 
 
 
 
 
Consolidated net (income) loss attributable to non-controlling interests
(7,961
)
 
(4,276
)
 
80,600

 
5,423

 
 
 
 
 
 
 
 
Net income (loss) attributable to the Company
209,518

 
416,560

 
(3,091,411
)
 
(338,670
)
 
 
 
 
 
 
 
 
Dividends declared to Series A preferred stockholders
(9,444,282
)
 
(4,090,557
)
 
(17,326,017
)
 
(7,263,454
)
Earnings attributable to unvested restricted stock
(4,824
)
 
(5,424
)
 
(6,275
)
 
(12,287
)
 
 
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(9,239,588
)
 
$
(3,679,421
)
 
$
(20,423,703
)
 
$
(7,614,411
)
 
 
 
 
 
 
 
 
Net loss per share of Common Stock available to
 
 
 
 
 
 
 
common stockholders, basic and diluted
$
(0.40
)
 
$
(0.17
)
 
$
(0.88
)
 
$
(0.35
)
 
 
 
 
 
 
 
 
Dividends per share declared on Common Stock
$
0.2025

 
$
0.180

 
$
0.395

 
$
0.355

 
 
 
 
 
 
 
 
Weighted average number of shares of Common Stock outstanding,
 
 
 
 
 
 
 
basic and diluted
23,325,663

 
22,215,663

 
23,154,702

 
22,015,928


The accompanying notes are an integral part of these consolidated financial statements.
2



Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity
For the six months ended June 30, 2016 and 2015
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A Redeemable Preferred Stock
 
Common Stock
 
Additional Paid in Capital
 
Accumulated (Deficit)
 
Total Stockholders' Equity
 
Non-Controlling Interest
 
Total Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
 
$
1,928

 
$
214,039

 
$
300,576,349

 
$
(11,297,852
)
 
$
289,494,464

 
$
2,087,410

 
$
291,581,874

Issuance of Units
 
1,209

 
—

 
120,848,968

 
—

 
120,850,177

 
—

 
120,850,177

Redemptions of Series A Preferred Stock
 
(14
)
 
599

 
(684,636
)
 
—

 
(684,051
)
 
—

 
(684,051
)
Issuance of Common Stock
 
—

 
5,479

 
5,487,829

 
—

 
5,493,308

 
—

 
5,493,308

Exercises of warrants
 
—

 
1,194

 
1,134,297

 
—

 
1,135,491

 
—

 
1,135,491

Syndication and offering costs
 
—

 
—

 
(13,781,636
)
 
—

 
(13,781,636
)
 
—

 
(13,781,636
)
Equity compensation to executives and directors
 
—

 
24

 
184,530

 
—

 
184,554

 
—

 
184,554

Vesting of restricted stock
 
—

 
392

 
(392
)
 
—

 
—

 
—

 
—

Conversion of Class A Units to Common Stock
 
—

 
1,042

 
695,050

 
—

 
696,092

 
(696,092
)
 
—

Current period amortization of Class B Units
 
—

 
—

 
—

 
—

 
—

 
983,297

 
983,297

Net loss
 
—

 
—

 
—

 
(338,670
)
 
(338,670
)
 
(5,423
)
 
(344,093
)
Reallocation adjustment to non-controlling interests
 
—

 
—

 
356,220

 
—

 
356,220

 
(356,220
)
 
—

Distributions to non-controlling interests
 
—

 
—

 
—

 
—

 
—

 
(99,528
)
 
(99,528
)
Dividends to series A preferred stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($5.00 per share per month)
 
—

 
—

 
(7,263,454
)
 
—

 
(7,263,454
)
 
—

 
(7,263,454
)
Dividends to common stockholders ($0.355 per share)
 
—

 
—

 
(7,863,076
)
 
—

 
(7,863,076
)
 
—

 
(7,863,076
)
Balance at June 30, 2015
 
$
3,123

 
$
222,769

 
$
399,690,049

 
$
(11,636,522
)
 
$
388,279,419

 
$
1,913,444

 
$
390,192,863

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
 
$
4,830

 
$
227,616

 
$
536,450,877

 
$
(13,698,520
)
 
$
522,984,803

 
$
2,468,987

 
$
525,453,790

Issuance of Units
 
2,026

 
—

 
202,456,260

 
—

 
202,458,286

 
—

 
202,458,286

Redemptions of Series A Preferred Stock
 
(21
)
 
—

 
(1,854,531
)
 
—

 
(1,854,552
)
 
—

 
(1,854,552
)
Exercises of warrants
 
—

 
8,155

 
8,387,549

 
—

 
8,395,704

 
—

 
8,395,704

Syndication and offering costs
 
—

 
—

 
(23,857,575
)
 
—

 
(23,857,575
)
 
—

 
(23,857,575
)
Equity compensation to executives, directors and consultants
 
—

 
44

 
231,956

 
—

 
232,000

 
—

 
232,000

Vesting of restricted stock
 
—

 
151

 
(151
)
 
—

 
—

 
—

 
—

Conversion of Class A Units to Common Stock
 
—

 
956

 
647,642

 
—

 
648,598

 
(648,598
)
 
—

Current period amortization of Class B Units
 
—

 
—

 
—

 
—

 
—

 
1,024,298

 
1,024,298

Net loss
 
—

 
—

 
—

 
(3,091,411
)
 
(3,091,411
)
 
(80,600
)
 
(3,172,011
)
Class A Units issued for property acquisition
 
—

 
—

 
—

 
—

 
—

 
5,072,659

 
5,072,659

Reallocation adjustment to non-controlling interests
 
—

 
—

 
6,435,718

 
—

 
6,435,718

 
(6,435,718
)
 
—

Distributions to non-controlling interests
 
—

 
—

 
—

 
—

 
—

 
(296,844
)
 
(296,844
)
Dividends to series A preferred stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($5.00 per share per month)
 
—

 
—

 
(17,326,017
)
 
—

 
(17,326,017
)
 
—

 
(17,326,017
)
Dividends to common stockholders ($0.395 per share)
 
—

 
—

 
(9,208,076
)
 
—

 
(9,208,076
)
 
—

 
(9,208,076
)
Balance at June 30, 2016
 
$
6,835

 
$
236,922

 
$
702,363,652

 
$
(16,789,931
)
 
$
685,817,478

 
$
1,104,184

 
$
686,921,662


The accompanying notes are an integral part of these consolidated financial statements.
3


Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
Six months ended June 30,
 
 
2016
 
2015
Operating activities:
 
 
 
 
Net loss
 
$
(3,172,011
)
 
$
(344,093
)
Reconciliation of net loss to net cash provided by operating activities:
 
 
 
 
Depreciation expense
 
23,973,536

 
11,507,799

Amortization expense
 
9,343,165

 
4,365,478

Amortization of above and below market leases
 
(593,455
)
 
(341,328
)
Deferred fee income amortization
 
(492,490
)
 
(367,406
)
Deferred loan cost amortization
 
1,393,318

 
700,833

Decrease (increase) in accrued interest income on real estate loans
 
543,167

 
(896,557
)
Equity compensation to executives, directors and consultants
1,256,296

 
1,167,851

Gain on sale of real estate
 
(4,271,506
)
 
—

Other
 
(1,067
)
 
(9,872
)
Changes in operating assets and liabilities:
 
 
 
 
(Increase) decrease in tenant receivables and other assets
 
433,419

 
9,405

(Decrease) increase in accounts payable and accrued expenses
 
3,374,618

 
2,136,764

Increase in accrued interest payable
 
883,490

 
50,145

Increase in prepaid rents
 
(44,077
)
 
275,169

Increase in security deposits and other liabilities
 
233,357

 
44,055

Net cash provided by operating activities
 
32,859,760

 
18,298,243

 
 
 
 
 
Investing activities:
 
 
 
 
Investments in real estate loans
 
(75,603,964
)
 
(46,515,765
)
Repayments of real estate loans
 
27,695,229

 
18,772,024

Notes receivable issued
 
(8,051,980
)
 
(3,044,871
)
Notes receivable repaid
 
9,615,213

 
9,897,319

Note receivable issued to and draws on line of credit by related party
 
(18,653,990
)
 
(8,413,133
)
Repayments of line of credit by related party
 
13,842,681

 
5,198,392

Acquisition fees received on real estate loans
 
2,249,137

 
1,138,713

Acquisition fees paid on real estate loans
 
(1,124,226
)
 
(569,356
)
Acquisition fees paid to real estate loan participants
 
—

 
(24,665
)
Acquisition of properties
 
(404,186,508
)
 
(199,211,216
)
Disposition of properties
 
10,606,386

 
—

Additions to real estate assets - improvements
 
(4,000,551
)
 
(1,656,383
)
Proceeds from sale of fixed assets
10,000

 
—

Payment of deposits for property acquisitions
 
(11,194,950
)
 
(1,288,375
)
Decrease in restricted cash
 
(4,291,485
)
 
(1,855,932
)
Net cash used in investing activities
 
(463,089,008
)
 
(227,573,248
)
 
 
 
 
 
Financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
249,840,000

 
137,688,000

Payments for mortgage notes payable
 
(4,692,524
)
 
(1,433,487
)
Payments for deposits and other mortgage loan costs
 
(9,616,676
)
 
(1,987,114
)
Proceeds from real estate loan participants
 
135,398

 
3,712,031

Proceeds from lines of credit
 
195,500,000

 
71,900,000

Payments on lines of credit
 
(201,500,000
)
 
(96,400,000
)
Proceeds from Term Loan
 
46,000,000

 
32,000,000

Repayment of the Term Loan
 
(5,000,000
)
 
(32,000,000
)
Proceeds from sales of Units, net of offering costs and redemptions
 
180,446,649

 
108,573,262

Proceeds from sales of Common Stock
 
—

 
5,381,848

Proceeds from exercises of warrants
 
9,380,346

 
796,751

Common Stock dividends paid
 
(8,750,488
)
 
(7,548,190
)
Series A Preferred Stock dividends paid
 
(16,284,348
)
 
(6,684,424
)
Distributions to non-controlling interests
 
(170,630
)
 
(74,440
)
Payments for deferred offering costs
 
(1,780,973
)
 
(893,960
)
Net cash provided by financing activities
 
433,506,754

 
213,030,277

 
 
 
 
 
Net increase in cash and cash equivalents
 
3,277,506

 
3,755,272

Cash and cash equivalents, beginning of period
 
2,439,605

 
3,113,270

Cash and cash equivalents, end of period
 
$
5,717,111

 
$
6,868,542

 
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.
4


 
 
 
 
 
Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continued
(Unaudited)
 
 
 
 
 
Six months ended June 30,
 
 
2016
 
2015
Supplemental cash flow information:
 
 
 
 
Cash paid for interest
 
$
16,231,180

 
$
8,314,605

 
 
 
 
 
Supplemental disclosure of non-cash activities:
 
 
 
 
Accrued capital expenditures
 
$
1,369,091

 
$
641,333

Writeoff of fully depreciated or amortized assets and liabilities
 
$
1,124,625

 
$
249,440

Dividends payable - Common Stock
 
$
4,772,587

 
$
4,012,322

Dividends payable - Series A Preferred Stock
 
$
3,320,938

 
$
1,479,463

Partnership distributions payable to non-controlling interests
 
$
179,449

 
$
50,465

Accrued and payable deferred offering costs
 
$
1,172,932

 
$
641,614

Reclass of offering costs from deferred asset to equity
 
$
3,699,985

 
$
1,544,106

Bridge loans converted to mezzanine loans
 
$
—

 
$
3,417,688

Extinguishment of land loan for property
 
$
6,250,000

 
$
—

Mezzanine loan balance applied to purchase of property
 
$
—

 
$
10,000,000

Fair value issuances of equity compensation
 
$
3,134,281

 
$
2,291,551

Offering cost reimbursement to related party
 
$
222,206

 
$
382,664



The accompanying notes are an integral part of these consolidated financial statements.
5

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements
June 30, 2016



1.
Organization and Basis of Presentation

Preferred Apartment Communities, Inc. was formed as a Maryland corporation on September 18, 2009, and elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, effective with its tax year ended December 31, 2011. Unless the context otherwise requires, references to the "Company", "we", "us", or "our" refer to Preferred Apartment Communities, Inc., together with its consolidated subsidiaries, including Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership. The Company was formed primarily to acquire and operate multifamily properties in select targeted markets throughout the United States. As part of its business strategy, the Company may enter into forward purchase contracts or purchase options for to-be-built multifamily communities and may make real estate related loans, provide deposit arrangements, or provide performance assurances, as may be necessary or appropriate, in connection with the development of multifamily communities and other properties. As a secondary strategy, the Company also may acquire or originate senior mortgage loans, subordinate loans or real estate loans secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest not more than 20% of its assets, subject to any temporary increase unanimously approved by its board of directors, in other real estate related investments such as grocery-anchored shopping centers, as determined by its Manager (as defined below) as appropriate for the Company. The Company is externally managed and advised by Preferred Apartment Advisors, LLC, or its Manager, a Delaware limited liability company and related party (see Note 7).

As of June 30, 2016, the Company had 23,692,178 shares of common stock, par value $0.01 per share, or Common Stock, issued and outstanding and was the approximate 96.4% owner of the Operating Partnership at that date. The number of partnership units not owned by the Company totaled 886,168 at June 30, 2016 and represented Class A OP Units of the Operating Partnership, or Class A OP Units. The Class A OP Units are convertible at any time at the option of the holder into the Company's choice of either cash or Common Stock. In the case of cash, the value is determined based upon the trailing 20-day volume weighted average price of the Company's Common Stock.

The Company controls the Operating Partnership through its sole general partner interest and conducts substantially all of its business through the Operating Partnership. The Company has determined the Operating Partnership is a variable interest entity, or VIE, of which the Company is the primary beneficiary. Substantially all of the Company's assets and liabilities are held by the Operating Partnership. New Market Properties, LLC, a wholly-owned subsidiary of the Operating Partnership, owns and conducts the business of the Company's grocery-anchored shopping centers.

Basis of Presentation

These unaudited consolidated financial statements include all of the accounts of the Company and the Operating Partnership presented in accordance with accounting principles generally accepted in the United States of America, or GAAP. All significant intercompany transactions have been eliminated in consolidation. Certain adjustments have been made consisting of normal recurring accruals, which, in the opinion of management, are necessary for the fair statement of the Company's financial condition. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The year end condensed balance sheet data was derived from audited financial statements, but does not include all the disclosures required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 14, 2016.
    

6
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2016


2.
Summary of Significant Accounting Policies

Acquisitions and Impairments of Real Estate Assets

The Company records its initial investments in income-producing real estate at fair value at the acquisition date in accordance with ASC 805-10, Business Combinations, which requires that all consideration transferred be measured at its acquisition-date fair value. The aggregate purchase price of acquired properties is apportioned to the tangible and identifiable intangible assets and liabilities acquired at their estimated fair values. The value of acquired land, buildings and improvements is estimated by formal appraisals, observed comparable sales transactions, and information gathered during pre-acquisition due diligence activities and the valuation approach considers the value of the property as if it were vacant. The values of furniture, fixtures, and equipment are estimated by calculating their replacement cost and reducing that value by factors based upon estimates of their remaining useful lives. Intangible assets and liabilities for multifamily communities include the values of in-place leases and above-market or below-market leases. Additional intangible assets for retail properties also include costs to initiate leases such as commissions and legal costs.

In-place lease values for multifamily communities are estimated by calculating the estimated time to fill a hypothetically empty apartment complex to its stabilization level (estimated to be 92% occupancy) based on historical observed move-in rates for each property, and which approximate market rates. Carrying costs during these hypothetical expected lease-up periods are estimated, considering current market conditions and include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates. The intangible assets are calculated by estimating the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. The acquired in-place lease values are amortized to operating expense over the average remaining non-cancelable term of the respective in-place leases. The amounts of above-market or below-market lease values are developed by comparing the Company's estimate of the average market rent to the average contract rent of the leases in place at the property acquisition date. This ratio is applied on a lease by lease basis to derive a total asset or liability amount for the property. The above-market or below-market lease values are recorded as a reduction or increase, respectively, to rental revenue over the remaining average non-cancelable term of the respective leases, plus any below market probable renewal options.

The fair values of in-place leases for retail shopping centers represent the value of direct costs associated with leasing, including opportunity costs associated with lost rentals that are avoided by acquiring in-place leases. Direct costs associated with obtaining a new tenant include commissions, legal and marketing costs, incentives such as tenant improvement allowances and other direct costs. Such direct costs are estimated based on our consideration of current market costs to execute a similar lease. The value of opportunity costs is estimated using the estimated market lease rates and the estimated absorption period of the space. These direct costs and opportunity costs are included in the accompanying consolidated balance sheets as acquired intangible assets and are amortized to expense over the remaining term of the respective leases. The fair values of above-market and below-market in-place leases for retail shopping centers are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) our estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the leases, taking into consideration the probability of renewals for any below-market leases. The capitalized above-market leases and in place leases are included in the acquired intangible assets line of the consolidated balance sheets. Both above-market and below-market lease values are amortized as adjustments to rental revenue over the remaining term of the respective leases, plus any below market probable renewal options.

Estimating the fair values of the tangible and intangible assets requires us to estimate market lease rates, property operating expenses, carrying costs during lease-up periods, discount and capitalization rates, market absorption periods, and the number of years the property is held for investment. The use of unreasonable estimates would result in an incorrect assessment of our purchase price allocations, which would impact the amount of our reported net income. Acquired intangible assets and liabilities have no residual value.

The Company evaluates its tangible and identifiable intangible real estate assets for impairment when events such as declines in a property’s operating performance, deteriorating market conditions, or environmental or legal concerns bring recoverability of the carrying value of one or more assets into question. The total undiscounted cash flows of the asset group, including proceeds from disposition, are compared to the net book value of the asset group. If this test indicates that impairment exists, an impairment loss is recorded in earnings equal to the shortage of the book value to the discounted net cash flows of the asset group.


7
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2016


Loan Coordination Fees

Amendment Number One to the Fifth Amended and Restated Management Agreement, which was effective January 1, 2016, replaced the acquisition fees which were paid to the Manager upon the closing of the acquisition of a property with loan coordination fees, which are intended to reimburse the Manager for costs incurred related to negotiating and securing mortgage debt financing on acquired properties. Acquisition fees were recognized in full at the date of acquisition. Loan coordination fees are recognized over the term of the associated loan using the effective interest method in cases where mortgage financing is obtained at the closing date of the property acquisition. If no debt financing is utilized in conjunction with a property acquisition, the loan coordination fee is recognized in full at the date of property acquisition, in the Acquisition fees to related parties line in the Consolidated Statements of Operations. If debt financing is obtained subsequent to the acquisition, any incremental deferred loan coordination fee earned is recognized over the term of the associated loan using the effective interest method.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with guidance provided by ASC 505-50, Equity-Based Payments to Non-Employees and ASC 718, Stock Compensation. We calculate the fair value of equity compensation instruments at the date of grant based upon estimates of their expected term, the expected volatility of and dividend yield on our Common Stock over this expected term period and the market risk-free rate of return. We also estimate forfeitures of these instruments and accrue the compensation expense, net of estimated forfeitures, over the vesting period(s). We record the fair value of restricted stock awards based upon the closing stock price on the trading day immediately preceding the date of grant. For awards of equity compensation which have market performance vesting conditions in addition to multiple tranches of service period requirements, the Company utilizes the straight-line expense attribution method.

New Accounting Pronouncements    

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a single comprehensive revenue recognition model for contracts with customers (excluding certain contracts, such as lease contracts) to improve comparability within industries. ASU 2014-09 requires an entity to recognize revenue to reflect the transfer of goods or services to customers at an amount the entity expects to be paid in exchange for those goods and services and provide enhanced disclosures, all to provide more comprehensive guidance for transactions such as service revenue and contract modifications. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. ASU 2014-09 may be applied using either a full retrospective or a modified approach upon adoption. The Company is currently evaluating the impact this standard may have on its financial statements.

In February 2015, the FASB issued Accounting Standards Update 2015-02 ("ASU 2015-02"), Consolidation (Topic 810): Amendments to the Consolidation Analysis. This new guidance specifically eliminates the presumption in the current voting model that a general partner controls a limited partnership or similar entity unless that presumption can be overcome. Generally, only a single limited partner that is able to exercise substantive kick-out rights will be required to consolidate the limited partnership. ASU 2015-02 is effective on January 1, 2016 and early adoption is permitted, including adoption in an interim period. The new standard must be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity/capital as of the beginning of the period of adoption or retrospectively to each period presented. The Company's adoption of ASU 2015-02 had no impact on its consolidated financial statements.

In January 2016, the FASB issued Accounting Standards Update 2016-01 ("ASU 2016-01"), Financial Instruments—Overall (Subtopic 825-10): Recognition and measurement of Financial Assets and Liabilities. The new standard's applicable provisions to the Company include an elimination of the disclosure requirement of the significant inputs and assumptions underlying the fair value calculations of its financial instruments which are carried at amortized cost. The standard is effective on January 1, 2018, and early adoption is not permitted for the applicable provision. The Company does not expected the adoption of ASU 2016-01 to impact the Company’s consolidated financial statements. 

In February 2016, the FASB issued Accounting Standards Update 2016-02 ("ASU 2016-02"), Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASC 842 supersedes the previous leases standard, ASC 840 Leases. The standard is effective on January 1, 2019, with early adoption permitted. The Company is in the process of evaluating

8
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2016


the impact of this new guidance but does not expected its adoption to materially impact the Company’s consolidated financial statements. 

In March 2016, the FASB issued Accounting Standards Update 2016-09 ("ASU 2016-09"), Compensation—Stock Compensation
(Topic 178): Improvements to Employee Share-Based Payment Accounting. The new standard's provisions applicable to the Company include allowing the entity to make an accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures of equity compensation awards when they occur. Previous guidance required entities to estimate the number of awards that are expected to vest. The standard is effective on January 1, 2017, and the Company adopted ASU 2016-09 on January 1, 2016 pursuant to the allowed early adoption provision. The Company does not expect the adoption of ASU 2016-09 to materially impact the Company’s consolidated financial statements. 

In June 2016, the FASB issued Accounting Standards Update 2016-13 ("ASU 2016-13"), Financial Instruments—Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires financial instruments carried at amortized cost to be presented at the net amount expected to be collected, utilizing a valuation account which reflects the cumulative net adjustments from the gross amortized cost value. Under existing GAAP, entities would not record a valuation allowance until a loss was probable of occurring. The standard is effective for the Company on January 1, 2020. The Company is presently evaluating the impact the adoption of ASU 2016-13 will have on the Company’s consolidated financial statements. 

3. Real Estate Assets
The Company's real estate assets consisted of:
 
 
As of:
 
 
6/30/2016
 
12/31/2015
Multifamily communities (1)
 
23

 
19

Units
 
7,706

 
6,136

Retail shopping centers
 
22

 
14

Approximate square feet of gross leasable area (2)
 
1,960,000

 
1,279,000

 
 
 
 
 
(1) The acquired second phase of the Summit Crossing community is managed in combination with the initial phase of this community and the two are therefore considered a single property, as are the three assets that comprise the Lenox Portfolio. Includes one student housing community as of June 30, 2016.
(2) The Company also owns approximately 47,600 square feet of gross leasable area of ground floor retail space which is embedded within the Lenox Portfolio and not included in the totals above.

On September 8, 2015, pursuant to a recommendation by the Company's investment committee, the Company took action to market for sale both phases of its Trail Creek multifamily community located in Hampton, Virginia. On February 24, 2016, the Company reclassified the following real estate assets and the mortgage note payable for Trail Creek from its held and used multifamily segment to property held for sale on its consolidated balance sheets. On May 19, 2016, the Company closed on the sale of Trail Creek to an unrelated third party. The purchaser will not be considered a related party to the Company on an ongoing basis by virtue of its acquisition of Trail Creek. The carrying values of the significant assets and liabilities of Trail Creek reclassified at December 31, 2015 and at the date of disposition were:
 
 
5/19/2016
 
12/31/2015
Real estate assets:
 
 
 
 
Land
 
$
4,200,000

 
$
4,200,000

Building and improvements
 
30,892,259

 
30,881,025

Furniture, fixtures and equipment
 
4,647,117

 
4,574,848

Accumulated depreciation
 
(6,034,171
)
 
(5,838,792
)
 
 
 
 
 
Property held for sale
 
$
33,705,205

 
$
33,817,081

 
 
 
 
 
Liabilities:
 
 
 
 
Mortgage note payable
 
$
28,109,000

 
$
28,109,000


9
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2016



The Company acquired the following multifamily communities during the six months ended June 30, 2016 and 2015:
Acquisition date
 
Property
 
Location
 
Approximate purchase price (millions) (1)
 
Units
 
 
 
 
 
 
 
 
 
1/5/2016
 
Baldwin Park
 
Orlando, Florida
 
$
110.8

 
528

1/15/2016
 
Crosstown Walk
 
Tampa, Florida
 
$
45.8

 
342

2/1/2016
 
Overton Rise
 
Atlanta, Georgia
 
$
61.1

 
294

5/31/2016
 
Avalon Park
 
Orlando, Florida
 
$
92.5

 
487

6/1/2016
 
North by Northwest (2)
 
Tallahassee, Florida
 
$
46.1

 
219

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,870

 
 
 
 
 
 
 
 
 
2/13/2015
 
Avenues at Cypress
 
Houston, Texas
 
(3) 

 
240

2/13/2015
 
Avenues at Northpointe
 
Houston, Texas
 
(3) 

 
280

5/21/2015
 
Venue at Lakewood Ranch
 
Sarasota, Florida
 
$
47.4

 
237

6/24/2015
 
Aster at Lely
 
Naples, Florida
 
$
52.5

 
308

6/30/2015
 
CityPark View
 
Charlotte, North Carolina
 
$
32.7

 
284

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,349


(1) Purchase prices shown are exclusive of acquired escrows, security deposits, prepaids, and other miscellaneous assets and assumed liabilities.
(2) A 679-bed student housing community located adjacent to the campus of Florida State University in Tallahassee, Florida.
(3) Avenues at Cypress and Avenues at Northpointe are referred to collectively as the Houston Portfolio, which was acquired for approximately $76.0 million.

The purchase prices approximated the fair value of the acquired assets and assumed liabilities. The Company allocated the purchase prices to the acquired assets and liabilities based upon their fair values, as shown in the following table. These purchase price allocations were based upon the Company's best estimates of the fair values of the acquired assets and liabilities, but are preliminary and are subject to refinement for a period of up to one year from the closing date of each transaction.

10
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2016


 
2016
 
North by Northwest
 
Avalon Park
 
Overton Rise
 
Baldwin Park
 
Crosstown Walk
Land
$
8,281,054

 
$
7,410,048

 
$
8,511,370

 
$
17,402,882

 
$
5,178,375

Buildings and improvements
34,355,922

 
80,558,636

 
44,710,034

 
87,105,757

 
33,605,831

Furniture, fixtures and equipment
2,623,916

 
1,790,256

 
6,286,105

 
3,358,589

 
5,726,583

Lease intangibles
799,109

 
2,741,060

 
1,611,314

 
2,882,772

 
1,323,511

Prepaids & other assets
79,626

 
99,297

 
73,754

 
229,972

 
125,706

Escrows
1,026,419

 
3,477,157

 
354,640

 
2,555,753

 
291,868

Accrued taxes
(321,437
)
 
(394,731
)
 
(66,422
)
 
(17,421
)
 
(25,983
)
Security deposits, prepaid rents, and other liabilities
(159,462
)
 
(207,623
)
 
(90,213
)
 
(226,160
)
 
(53,861
)
 
 
 
 
 
 
 
 
 
 
Net assets acquired
$
46,685,147

 
$
95,474,100

 
$
61,390,582

 
$
113,292,144

 
$
46,172,030

 
 
 
 
 
 
 
 
 
 
Cash paid
$
12,831,872

 
$
30,474,100

 
$
20,090,582

 
$
35,492,144

 
$
13,632,030

Mortgage debt
33,853,275

 
65,000,000

 
41,300,000

 
77,800,000

 
32,540,000

 
 
 
 
 
 
 
 
 
 
Total consideration
$
46,685,147

 
$
95,474,100

 
$
61,390,582

 
$
113,292,144

 
$
46,172,030

 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2016:
 
 
 
 
 
 
 
 
 
Revenue
$
470,000

 
$
664,000

 
$
1,387,000

 
$
2,344,000

 
$
1,287,000

Net loss
$
(7,000
)
 
$
(656,000
)
 
$
(581,000
)
 
$
(1,610,000
)
 
$
(514,000
)
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2016:
 
 
 
 
 
 
 
 
 
Revenue
$
470,000

 
$
664,000

 
$
2,303,000

 
$
4,756,000

 
$
2,339,000

Net loss
$
(7,000
)
 
$
(656,000
)
 
$
(832,000
)
 
$
(2,738,000
)
 
$
(967,000
)
 
 
 
 
 
 
 
 
 
 
Cumulative acquisition costs incurred by the Company
$
401,000

 
$
1,314,000

 
$
116,000

 
$
1,846,000

 
$
320,000

Remaining amortization period of intangible
 
 
 
 
 
 
 
 
 
 assets and liabilities (months)
5.5

 
10.5

 
4.5

 
2.5

 
3.5

 
2015
 
CityPark View
 
Aster at Lely
 
Venue at Lakewood Ranch
 
Houston Portfolio
Land
$
3,558,793

 
$
7,675,409

 
$
3,791,050

 
$
7,162,226

Buildings and improvements
23,797,764

 
37,661,901

 
37,574,391

 
54,217,075

Furniture, fixtures and equipment
4,562,148

 
6,132,384

 
5,375,690

 
13,078,872

Lease intangibles
737,790

 
1,030,306

 
669,369

 
1,571,827

Prepaids & other assets
99,124

 
106,717

 
80,201

 
150,326

Escrows
211,428

 
—

 
401,294

 
362,332

Accrued taxes
(105,756
)
 
(23,413
)
 
(216,252
)
 
(212,601
)
Security deposits, prepaid rents, and other liabilities
(40,152
)
 
(64,689
)
 
(35,157
)
 
(99,181
)
 
 
 
 
 
 
 
 
Net assets acquired
$
32,821,139

 
$
52,518,615

 
$
47,640,586

 
$
76,230,876

 
 
 
 
 
 
 
 
Cash paid
$
721,139

 
$
18,518,615

 
$
16,830,586

 
$
25,452,876

Real estate loan settled
10,000,000

 
—

 
—

 
—

Mortgage debt
22,100,000

 
34,000,000

 
30,810,000

 
50,778,000

 
 
 
 
 
 
 
 
Total consideration
$
32,821,139

 
$
52,518,615

 
$
47,640,586

 
$
76,230,876

 
 
 
 
 
 
 
 
Three months ended June 30, 2016:
 
 
 
 
 
 
 
Revenue
$
913,000

 
$
1,312,000

 
$
1,153,000

 
$
2,185,000

Net loss
$
(2,000
)
 
$
(13,000
)
 
$
(53,000
)
 
$
(186,000
)
 
 
 
 
 
 
 
 
Six months ended June 30, 2016:
 
 
 
 
 
 
 
Revenue
$
1,826,000

 
$
2,643,000

 
$
2,329,000

 
$
4,341,000

Net loss
$
4,000

 
$
(73,000
)
 
$
(97,000
)
 
$
(618,000
)
 
 
 
 
 
 
 
 
Cumulative acquisition costs incurred by the Company
$
276,000

 
$
438,000

 
$
889,000

 
$
1,142,000

Remaining amortization period of intangible
 
 
 
 
 
 
 
 assets and liabilities (months)
0

 
0

 
0

 
0


11
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2016


The Company acquired the following grocery-anchored shopping centers during the six months ended June 30, 2016:
Acquisition date
 
Property
 
Location
 
Approximate purchase price (millions) (2)
 
Gross leasable area (square feet)
2/29/2016
 
Wade Green Village (1)
 
Atlanta, Georgia
 
$
11.0

 
74,978

4/29/2016
 
Anderson Central
 
Greenville-Anderson, South Carolina MSA
 
(3) 

 
223,211

4/29/2016
 
East Gate Shopping Center
 
Augusta, Georgia MSA
 
(3) 

 
75,716

4/29/2016
 
Fairview Market
 
Greenville, South Carolina
 
(3) 

 
53,888

4/29/2016
 
Fury's Ferry
 
Augusta, Georgia
 
(3) 

 
70,458

4/29/2016
 
Rosewood Shopping Center
 
Columbia, South Carolina
 
(3) 

 
36,887

4/29/2016
 
Southgate Village
 
Birmingham, Alabama
 
(3) 

 
75,092

5/16/2016
 
The Market at Victory Village
 
Nashville, Tennessee
 
$
15.6

 
71,300

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
681,530


(1) See Note 7 - Related Party Transactions.
(2) Purchase price shown is exclusive of acquired escrows, security deposits, prepaids, and other miscellaneous assets and assumed liabilities.
(3) The six grocery-anchored shopping centers are referred to collectively as the Southeastern Six Portfolio, which was acquired for approximately $68.7 million.

The purchase prices approximated the fair value of the acquired assets and assumed liabilities. The Company allocated the purchase prices to the acquired assets and liabilities based upon their fair values, as shown in the following table. These purchase price allocations were based upon the Company's best estimates of the fair values of the acquired assets and liabilities, but are preliminary and are subject to refinement for a period of up to one year from the closing date of each transaction.
 
Market at Victory Village
 
Southeastern Six Portfolio
 
Wade Green Village
 
Land
$
2,271,224

 
$
14,081,647

 
$
1,840,284

 
Buildings and improvements
11,872,222

 
48,598,731

 
8,159,147

 
Tenant improvements
402,973

 
993,530

 
251,250

 
In-place leases
847,939

 
4,906,398

 
841,785

 
Above-market leases
100,216

 
86,234

 
107,074

 
Leasing costs
253,640

 
992,143

 
167,541

 
Below-market leases
(198,214
)
 
(1,069,877
)
 
—

 
Other assets
157,775

 
600,069

 
10,525

 
Other liabilities
(179,546
)
 
(437,008
)
 
(59,264
)
 
 
 
 
 
 
 
 
Net assets acquired
$
15,528,229

 
$
68,751,867

 
$
11,318,342

 
 
 
 
 
 
 
 
Cash paid
$
6,278,229

 
$
43,751,867

 
$
6,245,683

(1) 
Class A OP Units granted
—

 
—

 
5,072,659

(2) 
Mortgage debt
9,250,000

(3) 
25,000,000

 
—

(4) 
 
 
 
 
 
 
 
Total consideration
$
15,528,229

 
$
68,751,867

 
$
11,318,342

 
 
 
 
 
 
 
 
Three months ended June 30, 2016:
 
 
 
 
 
 
Revenue
$
160,000

 
$
1,091,000

 
$
254,000

 
Net loss
$
(18,000
)
 
$
(227,000
)
 
$
(109,000
)
 
 
 
 
 
 
 
 
Six months ended June 30, 2016:
 
 
 
 
 
 
Revenue
$
160,000

 
$
1,091,000

 
$
337,000

 
Net loss
$
(18,000
)
 
$
(227,000
)
 
$
(152,000
)
 
 
 
 
 
 
 
 
Cumulative acquisition costs incurred by the Company
$
109,000

 
$
644,000

 
$
295,000

 
Remaining amortization period of intangible
 
 
 
 
 
 
 assets and liabilities (years)
8.1

 
4.4

 
2.7

 


12
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2016


(1) The contributor had an outstanding $6.25 million bridge loan secured by the property issued by Madison Wade Green Lending, LLC, an indirect wholly owned entity of the Company. Upon contribution of the property, the Company assumed the loan and concurrently extinguished the obligation.

(2) As partial consideration for the property contribution, the Company granted 419,228 Class A OP Units to the contributor, net of contribution adjustments at closing. The value and number of Class A OP Units to be granted at closing was determined during the contract process and remeasured at fair value as of the contribution date of February 29, 2016. Class A OP Units are exchangeable for shares of Common Stock on a one-for-one basis, or cash, at the election of the Operating Partnership. Therefore, the Company determined the fair value of the Units to be equivalent to the price of its common stock on the closing date of the acquisition.

(3) The Company assumed the existing mortgage in conjunction with its acquisition of The Market at Victory Village. See note 10.

(4) Subsequent to the closing of the acquisition, the Company closed on a mortgage loan on Wade Green Village in the amount of $8.2 million. See note 10.



The Company recognizes depreciation and amortization expense over the estimated useful life of its tangible and intangible assets. The Company's consolidated amortization and depreciation expense consisted of:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Depreciation:
 
 
 
 
 
 
 
 
Buildings and improvements
 
$
7,832,592

 
$
3,586,070

 
$
14,613,736

 
$
6,811,368

Furniture, fixtures, and equipment
 
4,937,888

 
2,581,304

 
9,359,800

 
4,696,431

 
 
12,770,480

 
6,167,374

 
23,973,536

 
11,507,799

Amortization:
 
 
 
 
 
 
 
 
Acquired intangible assets
 
5,184,271

 
1,756,605

 
9,318,164

 
4,360,418

Deferred leasing costs
 
10,032

 
—

 
14,889

 
—

Website development costs
 
5,192

 
3,870

 
10,112

 
5,060

Total depreciation and amortization
 
$
17,969,975

 
$
7,927,849

 
$
33,316,701

 
$
15,873,277


4. Acquired Intangible Assets and Liabilities
 
The Company recorded the following acquired lease intangible assets and liabilities and related accumulated amortization, as of
June 30, 2016 and December 31, 2015:
 
June 30, 2016
 
December 31, 2015
 
Multifamily
 
Retail
 
Total
 
Multifamily
 
Retail
 
Total
In-place leases
$
31,529,592

 
$
20,909,327

 
$
52,438,919

 
$
24,704,733

 
$
14,439,414

 
$
39,144,147

Above-market leases
—

 
1,666,393

 
1,666,393

 
—

 
1,386,254

 
1,386,254

Customer relationships
1,335,417

 
—

 
1,335,417

 
1,588,277

 
—

 
1,588,277

Lease origination costs
78,786

 
5,611,507

 
5,690,293

 
78,786

 
4,216,166

 
4,294,952

  Acquired intangible assets
$
32,943,795

 
$
28,187,227