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, 2017
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
paca11.jpg 

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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨   Accelerated filer x   Non-accelerated filer ¨   Smaller reporting company ¨ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 27, 2017 was 32,668,731.



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

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
Item 2.

 
 
 
Item 3.

 
 
 
Item 4.
72

 
 
 
 
 
 
Item 1.

 
 
 
Item 1A.

 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
72

 
 
 
Item 3.
Defaults Upon Senior Securities
72

 
 
 
Item 4.
Mine Safety Disclosures
72

 
 
 
Item 5.
Other Information
73

 
 
 
Item 6.
Exhibits
73

 
 
74

 
 
 
 
75






Preferred Apartment Communities, Inc.
Consolidated Balance Sheets
(Unaudited)
 
 
 
 
 
 
 
June 30, 2017
 
December 31, 2016
Assets
 
 
 
 
 
 
 
 
 
Real estate
 
 
 
 
Land
 
$
311,350,832

 
$
299,547,501

Building and improvements
 
1,621,575,150

 
1,513,293,760

Tenant improvements
 
33,544,458

 
23,642,361

Furniture, fixtures, and equipment
 
149,377,900

 
126,357,742

Construction in progress
 
13,045,259

 
2,645,634

Gross real estate
 
2,128,893,599

 
1,965,486,998

Less: accumulated depreciation
 
(127,310,989
)
 
(103,814,894
)
Net real estate
 
2,001,582,610

 
1,861,672,104

Real estate loans, net of deferred fee income
 
234,031,624

 
201,855,604

Real estate loans to related parties, net
 
159,357,590

 
130,905,464

Total real estate and real estate loans, net
 
2,394,971,824

 
2,194,433,172

 
 
 
 
 
Cash and cash equivalents
 
13,055,897

 
12,321,787

Restricted cash
 
47,905,398

 
55,392,984

Notes receivable
 
17,296,399

 
15,499,699

Note receivable and revolving line of credit from related party
 
22,620,235

 
22,115,976

Accrued interest receivable on real estate loans
 
24,871,043

 
21,894,549

Acquired intangible assets, net of amortization of $56,616,712 and $46,396,254
 
81,455,656

 
79,156,400

Deferred loan costs on Revolving Line of Credit, net of amortization of $776,614 and $422,873
 
1,736,201

 
1,768,779

Deferred offering costs
 
5,351,680

 
2,677,023

Tenant lease inducements, net of amortization of $107,375 and $14,904
 
7,408,163

 
261,492

Tenant receivables (net of allowance of $559,873 and $663,912) and other assets
 
22,860,026

 
15,310,741

 
 
 
 
 
Total assets
 
$
2,639,532,522

 
$
2,420,832,602

 
 
 
 
 
Liabilities and equity
 

 
 
 
 
 
 
 
Liabilities
 
 
 
 
Mortgage notes payable, net of deferred loan costs of $24,759,432 and $22,007,641
 
$
1,400,670,042

 
$
1,305,870,471

Revolving line of credit
 
38,500,000

 
127,500,000

Term note payable, net of deferred loan costs of $5,590 and $40,095
 
10,994,410

 
10,959,905

Real estate loan participation obligation
 
18,598,928

 
20,761,819

Deferred revenues
 
16,029,840

 
—

Accounts payable and accrued expenses
 
25,525,913

 
20,814,910

Accrued interest payable
 
3,443,723

 
3,541,640

Dividends and partnership distributions payable
 
12,731,472

 
10,159,629

Acquired below market lease intangibles, net of amortization of $5,729,048 and $3,771,393
 
29,065,548

 
29,774,033

Security deposits and other liabilities
 
6,571,096

 
6,189,033

Total liabilities
 
1,562,130,972

 
1,535,571,440

 
 
 
 
 
Commitments and contingencies (Note 11)
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
Stockholders' equity
 
 
 
 
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050,000
 
 
 
   shares authorized; 1,064,054 and 924,855 shares issued; 1,043,551 and 914,422
 
 
 
shares outstanding at June 30, 2017 and December 31, 2016, respectively
10,436

 
9,144

Series M Redeemable Preferred Stock, $0.01 par value per share; 500,000
 
 
 
   shares authorized; 7,850 and 0 shares issued and outstanding
 
 
 
at June 30, 2017 and December 31, 2016, respectively
79

 
—

Common Stock, $0.01 par value per share; 400,066,666 shares authorized;
 
 
 
32,420,391 and 26,498,192 shares issued and outstanding at
 
 
 
June 30, 2017 and December 31, 2016, respectively
324,204

 
264,982

Additional paid in capital
 
1,065,382,200

 
906,737,470

Accumulated earnings (deficit)
 
9,038,150

 
(23,231,643
)
Total stockholders' equity
 
1,074,755,069

 
883,779,953

Non-controlling interest
 
2,646,481

 
1,481,209

Total equity
 
1,077,401,550

 
885,261,162

 
 
 
 
 
Total liabilities and equity
 
$
2,639,532,522

 
$
2,420,832,602


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,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Rental revenues
$
48,241,306

 
$
30,966,738

 
$
93,604,827

 
$
59,222,337

Other property revenues
8,821,245

 
4,308,360

 
17,257,356

 
8,068,443

Interest income on loans and notes receivable
8,490,327

 
6,847,724

 
16,438,138

 
13,789,883

Interest income from related parties
5,338,035

 
3,731,122

 
10,151,927

 
6,509,062

Total revenues
70,890,913

 
45,853,944

 
137,452,248

 
87,589,725

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Property operating and maintenance
7,198,159

 
4,356,923

 
13,736,798

 
8,378,285

Property salary and benefits reimbursement to related party
3,218,870

 
2,516,605

 
6,247,220

 
4,880,068

Property management fees (including $1,571,448, $1,140,603,
 
 
 
 
 
 
 
$3,005,919, and $2,211,691 to related parties)
2,060,774

 
1,356,409

 
3,962,557

 
2,584,430

Real estate taxes
7,680,277

 
5,494,608

 
15,584,078

 
10,668,049

General and administrative
1,653,999

 
1,191,520

 
3,159,509

 
2,111,472

Equity compensation to directors and executives
871,153

 
618,867

 
1,744,255

 
1,229,292

Depreciation and amortization
28,457,001

 
17,969,975

 
53,283,190

 
33,316,701

Acquisition and pursuit costs (including $0, $313,398,
 
 
 
 
 
 
 
$0 and $491,409 to related party)
5,000

 
2,764,742

 
14,002

 
5,528,327

Asset management fees to related party
4,864,397

 
2,958,991

 
9,376,911

 
5,725,077

Insurance, professional fees and other expenses
1,376,545

 
1,571,514

 
2,667,949

 
2,878,495

Total operating expenses
57,386,175

 
40,800,154

 
109,776,469

 
77,300,196

 
 
 
 
 
 
 
 
Contingent asset management and general and administrative expense fees
(170,838
)
 
(451,684
)
 
(345,920
)
 
(721,285
)
 
 
 
 
 
 
 
 
Net operating expenses
57,215,337

 
40,348,470

 
109,430,549

 
76,578,911

 
 
 
 
 
 
 
 
Operating income
13,675,576

 
5,505,474

 
28,021,699

 
11,010,814

Interest expense
16,397,895

 
9,559,501

 
31,406,598

 
18,454,331

Loss on extinguishment of debt
888,428

 
—

 
888,428

 
—

 
 
 
 
 
 
 
 
Net (loss) before gain on sale of real estate
(3,610,747
)
 
(4,054,027
)
 
(4,273,327
)
 
(7,443,517
)
Gain on sale of real estate, net of disposition expenses
6,914,949

 
4,271,506

 
37,639,009

 
4,271,506

Net income (loss)
3,304,202

 
217,479

 
33,365,682

 
(3,172,011
)
 
 
 
 
 
 
 
 
Consolidated net (income) loss attributable to non-controlling interests
(96,823
)
 
(7,961
)
 
(1,095,889
)
 
80,600

 
 
 
 
 
 
 
 
Net income (loss) attributable to the Company
3,207,379

 
209,518

 
32,269,793

 
(3,091,411
)
 
 
 
 
 
 
 
 
Dividends declared to Series A preferred stockholders
(15,235,138
)
 
(9,444,282
)
 
(29,621,185
)
 
(17,326,017
)
Earnings attributable to unvested restricted stock
(5,736
)
 
(4,824
)
 
(7,441
)
 
(6,275
)
 
 
 
 
 
 
 
 
Net (loss) income attributable to common stockholders
$
(12,033,495
)
 
$
(9,239,588
)
 
$
2,641,167

 
$
(20,423,703
)
 
 
 
 
 
 
 
 
Net (loss) income per share of Common Stock available
 
 
 
 
 
 
 
to common stockholders, basic and diluted
$
(0.40
)
 
$
(0.40
)
 
$
0.09

 
$
(0.88
)
 
 
 
 
 
 
 
 
Dividends per share declared on Common Stock
$
0.235

 
$
0.2025

 
$
0.455

 
$
0.395

 
 
 
 
 
 
 
 
Weighted average number of shares of Common Stock outstanding,
 
 
 
 
 
 
 
Basic and diluted
29,893,736

 
23,325,663

 
28,423,171

 
23,154,702


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-month periods ended June 30, 2017 and 2016
(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, 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 and directors
 
—

 
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 Stockholders' Equity, continued
For the six-month periods ended June 30, 2017 and 2016
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A and Series M Redeemable Preferred Stock
 
Common Stock
 
Additional Paid in Capital
 
Accumulated Earnings(Deficit)
 
Total Stockholders' Equity
 
Non-Controlling Interest
 
Total Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
 
$
9,144

 
$
264,982

 
$
906,737,470

 
$
(23,231,643
)
 
$
883,779,953

 
$
1,481,209

 
$
885,261,162

Issuance of Units
 
1,471

 
—

 
146,845,540

 
—

 
146,847,011

 
—

 
146,847,011

Redemptions of Series A Preferred Stock
 
(100
)
 
3,578

 
(3,912,002
)
 
—

 
(3,908,524
)
 
—

 
(3,908,524
)
Issuance of Common Stock
 
—

 
38,955

 
58,345,263

 
—

 
58,384,218

 
—

 
58,384,218

Exercises of warrants
 
—

 
14,620

 
17,676,806

 
—

 
17,691,426

 
—

 
17,691,426

Syndication and offering costs
 
—

 
—

 
(18,299,399
)
 
—

 
(18,299,399
)
 
—

 
(18,299,399
)
Equity compensation to executives and directors
 
—

 
—

 
246,535

 
—

 
246,535

 
—

 
246,535

Vesting of restricted stock
 
—

 
155

 
(155
)
 
—

 
—

 
—

 
—

Conversion of Class A Units to Common Stock
 
—

 
1,914

 
1,676,579

 
—

 
1,678,493

 
(1,678,493
)
 
—

Current period amortization of Class B Units
 
—

 
—

 
—

 
—

 
—

 
1,497,720

 
1,497,720

Net income
 
—

 
—

 
—

 
32,269,793

 
32,269,793

 
1,095,889

 
33,365,682

Reallocation adjustment to non-controlling interests
 
—

 
—

 
(660,678
)
 
—

 
(660,678
)
 
660,678

 
—

Distributions to non-controlling interests
 
—

 
—

 
—

 
—

 
—

 
(410,522
)
 
(410,522
)
Dividends to series A preferred stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($5.00 per share per month)
 
—

 
—

 
(29,674,234
)
 
—

 
(29,674,234
)
 
—

 
(29,674,234
)
Dividends to mShares preferred stockholders
 
—

 
—

 
(89,491
)
 
—

 
(89,491
)
 
—

 
(89,491
)
Dividends to common stockholders ($0.455 per share)
 
—

 
—

 
(13,510,034
)
 
—

 
(13,510,034
)
 
—

 
(13,510,034
)
Balance at June 30, 2017
 
$
10,515

 
$
324,204

 
$
1,065,382,200

 
$
9,038,150

 
$
1,074,755,069

 
$
2,646,481

 
$
1,077,401,550



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


Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
Six months ended June 30,
 
 
2017
 
2016
Operating activities:
 
 
 
 
Net income (loss)
 
$
33,365,682

 
$
(3,172,011
)
Reconciliation of net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation expense
 
39,063,687

 
23,973,536

Amortization expense
 
14,219,503

 
9,343,165

Amortization of above and below market leases
 
(1,561,873
)
 
(593,455
)
Deferred revenues and fee income amortization
 
(804,532
)
 
(492,490
)
Lease incentive cost amortization
 
92,471

 
—

Deferred loan cost amortization
 
2,649,602

 
1,393,318

(Increase) decrease in accrued interest income on real estate loans
 
(2,976,494
)
 
543,167

Equity compensation to executives and directors
 
1,744,255

 
1,256,296

Other
 
189,400

 
(1,067
)
Gain on sale of real estate
 
(37,639,009
)
 
(4,271,506
)
Loss on extinguishment of debt
 
888,428

 
—

Changes in operating assets and liabilities:
 
 
 
 
Decrease (increase) in tenant receivables and other assets
 
(3,619,041
)
 
433,419

(Increase) in tenant lease incentives
(7,239,142
)
 
—

Increase in accounts payable and accrued expenses
 
4,136,539

 
3,374,618

Decrease (increase) in accrued interest payable
 
(159,833
)
 
1,072,770

Net cash provided by operating activities
 
42,349,643

 
32,859,760

 
 
 
 
 
Investing activities:
 
 
 
 
Investments in real estate loans
 
(70,319,643
)
 
(75,603,964
)
Repayments of real estate loans
 
9,866,000

 
27,695,229

Notes receivable issued
 
(3,728,561
)
 
(8,051,980
)
Notes receivable repaid
 
1,967,124

 
9,615,213

Note receivable issued to and draws on line of credit by related party
 
(14,978,535
)
 
(18,653,990
)
Repayments of line of credit by related party
 
14,254,008

 
13,842,681

Origination fees received on real estate loans
 
834,888

 
2,249,137

Origination fees paid on real estate loans
 
(417,444
)
 
(1,124,226
)
Acquisition of properties
 
(191,992,655
)
 
(404,186,508
)
Disposition of properties, net
 
118,241,692

 
10,606,386

Additions to real estate assets - improvements
 
(7,763,257
)
 
(3,990,551
)
Deposits paid on acquisitions
 
(919,534
)
 
(11,194,950
)
Decrease (increase) in restricted cash
 
7,108,164

 
(4,291,485
)
Net cash used in investing activities
 
(137,847,753
)
 
(463,089,008
)
 
 
 
 
 
Financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
156,280,000

 
249,840,000

Repayments mortgage notes payable
 
(116,052,865
)
 
(4,692,524
)
Payments for deposits and other mortgage loan costs
 
(6,038,969
)
 
(9,616,676
)
Payments for mortgage prepayment costs
 
(817,313
)
 
—

Proceeds from real estate loan participants
 
165,840

 
135,398

Payments to real estate loan participants
 
(2,466,500
)
 
—

Proceeds from lines of credit
 
97,000,000

 
195,500,000

Payments on lines of credit
 
(186,000,000
)
 
(201,500,000
)
Proceeds from Term Loan
 
—

 
46,000,000

Repayment of the Term Loan
 
—

 
(5,000,000
)
Proceeds from sales of Units, net of offering costs and redemptions
 
128,699,644

 
180,446,649

Proceeds from sales of Common Stock
 
56,115,635

 
—

Proceeds from exercises of warrants
 
14,900,868

 
9,380,346

Common Stock dividends paid
 
(11,711,273
)
 
(8,750,488
)
Series A Preferred Stock dividends paid
 
(28,990,642
)
 
(16,284,348
)
Distributions to non-controlling interests
 
(393,699
)
 
(170,630
)
Payments for deferred offering costs
 
(4,458,506
)
 
(1,780,973
)
Net cash provided by financing activities
 
96,232,220

 
433,506,754

 
 
 
 
 
Net increase in cash and cash equivalents
 
734,110

 
3,277,506

Cash and cash equivalents, beginning of period
 
12,321,787

 
2,439,605

Cash and cash equivalents, end of period
 
$
13,055,897

 
$
5,717,111

 
 
 
 
 

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


 
 
 
 
 
Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continued
(Unaudited)
 
 
Six months ended June 30,
 
 
2017
 
2016
Supplemental cash flow information:
 
 
 
 
Cash paid for interest
 
$
28,811,760

 
$
16,231,180

 
 
 
 
 
Supplemental disclosure of non-cash activities:
 
 
 
 
Accrued capital expenditures
 
$
2,131,921

 
$
1,369,091

Writeoff of fully depreciated or amortized assets and liabilities
 
$
386,825

 
$
1,124,625

Lessee-funded tenant improvements, capitalized as landlord assets
 
$
16,199,730

 
$
—

Dividends payable - Common Stock
 
$
7,539,376

 
$
4,772,587

Dividends payable - Series A Preferred Stock
 
$
5,145,030

 
$
3,320,938

Dividends payable - mShares Preferred Stock
 
$
47,066

 
$
—

Dividends declared but not yet due and payable
 
$
11,820

 
$
—

Partnership distributions payable to non-controlling interests
 
$
211,781

 
$
179,449

Accrued and payable deferred offering costs
 
$
431,470

 
$
1,172,932

Offering cost reimbursement to related party
 
$
220,268

 
$
222,206

Reclass of offering costs from deferred asset to equity
 
$
1,751,975

 
$
3,699,985

Extinguishment of land loan for property
 
$
—

 
$
6,250,000

Proceeds of like-kind exchange funds for dispositions
 
$
31,288,252

 
$
—

Use of like-kind exchange funds for acquisitions
 
$
31,288,252

 
$
—

Fair value issuances of equity compensation
 
$
4,088,499

 
$
3,134,281

Mortgage loans assumed on acquisitions
 
$
57,324,227

 
$
—

Noncash repayment of mortgages through refinance
 
$
65,000,000

 
$
—



The accompanying notes are an integral part of these consolidated financial statements.
6

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements
June 30, 2017



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 loan investments secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest a lesser portion of its assets in other real estate related investments, including other income-producing property types, senior mortgage loans, subordinate loans or real estate loan investments secured by interests in other income-producing property types, or membership or partnership interests in other income-producing property types 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 6).

As of June 30, 2017, the Company had 32,420,391 shares of common stock, par value $0.01 per share, or Common Stock, issued and outstanding and was the approximate 97.3% owner of the Operating Partnership at that date. The number of partnership units not owned by the Company totaled 901,195 at June 30, 2017 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 Operating Partnership'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. New Market Properties, LLC owns and conducts the business of our grocery-anchored shopping centers. Preferred Office Properties owns and conducts the business of our portfolio of office buildings. Preferred Campus Communities was formed to acquire off-campus student housing communities. Each of these entities are wholly-owned subsidiaries of the Operating Partnership.

Basis of Presentation

These 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 a fair presentation of the Company's financial condition and results of operations. 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 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 1, 2017.
    
2.
Summary of Significant Accounting Policies

Acquisitions and Impairments of Real Estate Assets
When the Company acquires property, it allocates the aggregate purchase price to tangible assets, consisting of land, building, site improvements and furniture, fixtures and equipment, and identifiable intangible assets, consisting of the value of in- place leases


7
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2017


and above-market and below-market leases as described further below, using estimated fair values of each component at the time of purchase. The Company follows the guidance as outlined in ASC 805-10, Business Combinations, as amended by ASU-2017-01.
Tangible assets
The fair values of land acquired is calculated under the highest and best use model, using formal appraisals and comparable land sales, among other inputs. Building value is determined by valuing the property on a “go-dark” basis as if it were vacant, and also using a replacement cost approach, which two results are then reconciled. Site improvements are valued using replacement cost. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. 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.
Identifiable intangible assets
In-place leases
Multifamily communities and student housing properties
The fair value of in-place leases are estimated by calculating the estimated time to fill a hypothetically empty apartment complex to its stabilization level (estimated to be 93% 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.
Grocery-anchored shopping centers and office buildings
The fair value of in-place leases 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 calculated 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.
Above-market and below-market lease values
Multifamily communities and student housing properties
These values are usually not significant or are not applicable for these properties.
Grocery-anchored shopping centers and office buildings
The values of above-market and below-market leases are developed by comparing the Company's estimate of the average market rents and expense reimbursements to the average contract rent at the property acquisition date. The amount by which contract rent and expense reimbursements exceed estimated market rent are summed for each individual lease and discounted for a singular aggregate above-market lease intangible asset for the property. The amount by which estimated market rent exceeds contract rent and expense reimbursements are summed for each individual lease and discounted for a singular aggregate below-market lease intangible liability. The above-market or below-market lease values are recorded as a reduction or increase, respectively, to rental revenue over the remaining noncancelable term of the respective leases, plus any below-market probable renewal options.
Impairment assessment
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. When qualitative factors indicate the possibility of impairment, the total


8
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2017


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 fair value, calculated as the discounted net cash flows of the asset group.
Revenue Recognition
Multifamily communities and student housing properties
Rental revenue is recognized when earned from residents of the Company's multifamily communities, which is over the terms of rental agreements, typically of 12 months’ duration. The Company evaluates the collectability of amounts due from residents and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of residents to make required payments then due under lease agreements. The balance of amounts due from residents are generally deemed uncollectible 30 days beyond the due date, at which point they are fully reserved.
Grocery-anchored shopping centers and office buildings
Rental revenue from tenants' operating leases in the Company's grocery-anchored shopping centers and office buildings is recognized on a straight-line basis over the term of the lease. Revenue based on "percentage rent" provisions that provide for additional rents that become due upon achievement of specified sales revenue targets (as specified in each lease agreement) is recognized only after the tenant exceeds its specified sales revenue target. Revenue from reimbursements of the tenants' share of real estate taxes, insurance and common area maintenance, or CAM, costs are recognized in the period in which the related expenses are incurred. Lease termination revenues are recognized ratably over the revised remaining lease term after giving effect to the termination notice or when tenant vacates and the Company has no further obligations under the lease. Rents and tenant reimbursements collected in advance are recorded as prepaid rent within other liabilities in the accompanying consolidated balance sheets. The Company estimates the collectability of the tenant receivable related to rental and reimbursement billings due from tenants and straight-line rent receivables, which represent the cumulative amount of future adjustments necessary to present rental revenue on a straight-line basis, by taking into consideration the Company's historical write-off experience, tenant credit-worthiness, current economic trends, and remaining lease terms. The Company may provide retail and office building tenants an allowance for the construction of leasehold improvements. These leasehold improvements are capitalized and depreciated over the shorter of the useful life of the improvements or the remaining lease term. If the allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue. Determination of the appropriate accounting for the payment of a tenant allowance is made on a lease-by-lease basis, considering the facts and circumstances of the individual tenant lease. When the Company is the owner of the leasehold improvements, recognition of rental revenue commences when the lessee is given possession of the leased space upon completion of tenant improvements. However, when the leasehold improvements are owned by the tenant, the lease inception date is the date the tenant obtains possession of the leased space for purposes of constructing its leasehold improvements. For our office buildings, if the improvement is deemed to be a “landlord asset,” and the tenant funded the tenant improvements, the cost is amortized over the term of the underlying lease as rental revenues. In order to qualify as a landlord asset, the specifics of the tenant’s assets are reviewed, including the Company's approval of the tenant’s detailed expenditures, whether such assets may be usable by other future tenants, whether the Company has consent to alter or remove the assets from the premises and generally remain the Company's property at the end of the lease.

Acquisition Costs

Through December 31, 2016, the Company expensed property acquisition costs as incurred, which include costs such as due diligence, legal, certain accounting, environmental and consulting, when the acquisition constituted a business combination. As described below in the section entitled New Accounting Pronouncements, Accounting Standards Update 2017-01 was adopted by the Company effective January 1, 2017, which changed the definition of a business. Under this new guidance, most property acquisitions made by the Company will fall within the category of acquired assets rather than acquired businesses. This distinction will cause the Company to capitalize its costs for acquisitions, allocate them to the fair value of acquired assets and liabilities and amortize these costs over the remaining useful lives of those assets and liabilities.



9
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2017


New Accounting Pronouncements

In May 2014, the 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. The new standard may be applied retrospectively to each prior period presented or prospectively with the cumulative effect, if any, recognized as of the date of adoption. The Company anticipates selecting the modified retrospective transition method with a cumulative effect recognized as of the date of adoption and will adopt the new standard effective January 1, 2018, when effective. The Company is currently evaluating the pending guidance but does not believe the adoption of ASU 2014-09 will have a material impact on its results of operations or financial condition, primarily because most of its revenue is rental operations, to which this standard is not applicable. The Company does provide significant non-rental services to its residents and tenants related to ancillary services and common area reimbursements. The Company is continuing to evaluate the impact the adoption of ASU 2014-09 will have on its results of operations and financial condition.

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. The adoption of ASU 2016-01 will not impact the Company's results of operations or financial condition.
 
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 standard, ASC 840 Leases. The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently evaluating the impacts this standard will have on its results of operations and financial condition.

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 currently evaluating methods of deriving initial valuation accounts to be applied to its real estate loan portfolio. The Company is continuing to evaluate the pending guidance but does not believe the adoption of ASU 2016-13 will have a material impact on its results of operations or financial condition, since the Company has not yet experienced a credit loss related to any of its financial instruments.

In August 2016, the FASB issued Accounting Standards Update 2016-15 ("ASU 2016-15"), Statement of Cash Flows—(Topic 326): Classification of Certain Cash Receipts and Cash Payments. The new standard clarifies or establishes guidance for the presentation of various cash transactions on the statement of cash flows. The portion of the guidance applicable to the Company's business activities include the requirement that cash payments for debt prepayment or debt extinguishment costs be presented as cash out flows for financing activities. The standard is effective for the Company on January 1, 2018. The adoption of ASU 2016-15 will not impact the Company’s consolidated financial statements, since its current policy is to classify such costs as cash out flows for financing activities. 

In November 2016, the FASB issued Accounting Standards Update 2016-18 ("ASU 2016-18"), Statement of Cash Flows—(Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents when reconciling the beginning and ending amounts in the statements of cash flows. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The Company plans to adopt ASU 2016-18 on January 1, 2018. The Company currently reports changes in restricted cash within the investing activities section of its consolidated statements of cash flows and does not expect the adoption of ASU 2016-18 to impact its results of operations and financial condition.



10
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2017


In January 2017, the FASB issued Accounting Standards Update 2017-01 ("ASU 2017-01"), Business Combinations - (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business and provides further guidance for evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. ASU 2017-01 is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The Company adopted ASU 2017-01 as of January 1, 2017. The Company believes its future acquisitions of multifamily communities, office buildings, grocery-anchored shopping centers, and student housing properties will generally qualify as asset acquisitions. To the extent acquisitions are deemed to be asset acquisitions, acquisition costs have been and will be capitalized and amortized rather than expensed as incurred. The impact of the adoption of ASU 2017-01 was a increase of approximately $0.5 million of the Company's reported net loss available to common stockholders for the three-month period ended June 30, 2017 and an decrease of approximately $2.7 million of the Company's reported net income available to common stockholders for the six-month period ended June 30, 2017 than it would have under previous guidance.

In February 2017, the FASB issued Accounting Standards Update 2017-05 (“ASU 2017-05”), Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which provides guidance for recognizing gains and losses from the transfer of nonfinancial assets and for partial sales of nonfinancial assets, and is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2017.  The new standard may be applied retrospectively to each prior period presented or prospectively with the cumulative effect recognized as of the date of adoption and the Company currently expects to adopt ASU 2017-05 utilizing the prospective method but is continuing to evaluate the impact the adoption of this accounting standard will have on its financial statements.

3. Real Estate Assets

The Company's real estate assets consisted of:

 
 
As of:
 
 
6/30/17
 
12/31/16
Multifamily communities:
 
 
 
 
Properties (1)
 
25

 
24

Units
 
8,074

 
8,049

New Market Properties (2)
 
 
 
 
Properties
 
33

 
31

Gross leasable area (square feet) (3)
 
3,477,941

 
3,295,491

Student housing properties:
 
 
 
 
Properties
 
2

 
1

Units
 
444

 
219

Beds
 
1,319

 
679

Office buildings:
 
 
 
 
Properties
 
3

 
3

Rentable square feet
 
1,094,000

 
1,096,834

 
 
 
 
 
(1) The acquired second phase of the Summit Crossing community is managed in combination with the initial phase and so together are considered a single property, as are the three assets that comprise the Lenox Portfolio.
(2) See note 12, Segment information.
(3) 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 January 20, 2017, the Company closed on the sale of its 364-unit multifamily community in Kansas City, Kansas, or Sandstone Creek, to an unrelated third party for a purchase price of $48.1 million, exclusive of closing costs and resulting in a gain of $0.3 million, which is net of disposition expenses including $1.4 million of debt defeasance related costs. Sandstone Creek contributed approximately $1.2 million and $(0.6) million of net income (loss) to the consolidated operating results of the Company for the six-month periods ended June 30, 2017 and 2016, respectively.


11
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2017



On March 7, 2017, the Company closed on the sale of its 408-unit multifamily community in Atlanta, Georgia, or Ashford Park, to an unrelated third party for a purchase price of $65.5 million, exclusive of closing costs and resulting in a gain of $30.4 million, which is net of disposition expenses including $1.1 million of debt defeasance related costs plus a prepayment premium of approximately $0.4 million. Ashford Park contributed approximately $2.3 million and $0.4 million of net income to the consolidated operating results of the Company for the six-month periods ended June 30, 2017 and 2016, respectively.

On May 25, 2017, the Company closed on the sale of its 300-unit multifamily community in Dallas, Texas, or Enclave at Vista Ridge, to an unrelated third party for a purchase price of $44.0 million, exclusive of closing costs and resulting in a gain of $6.9 million, net of disposition expenses including $2.1 million of debt defeasance related costs. Enclave at Vista Ridge contributed approximately $9.8 million and $(0.1) million of net income (loss) to the consolidated operating results of the Company for the six-month periods ended June 30, 2017 and 2016, respectively.

The carrying amounts of the significant assets and liabilities of the disposed properties at the dates of sale were:
 
 
Sandstone Creek
 
Ashford Park
 
Enclave at Vista Ridge
 
 
1/20/2017
 
3/7/2017
 
5/25/2017
Real estate assets:
 
 
 
 
 
 
Land
 
$
2,846,197

 
$
10,600,000

 
$
4,704,917

Building and improvements
 
41,859,684

 
24,075,263

 
29,915,903

Furniture, fixtures and equipment
 
5,278,268

 
4,222,858

 
2,874,403

Accumulated depreciation
 
(4,808,539
)
 
(6,816,193
)
 
(3,556,362
)
 
 
 
 
 
 
 
Total assets
 
$
45,175,610

 
$
32,081,928

 
$
33,938,861

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Mortgage note payable
 
$
30,840,135

 
$
25,626,000

 
$
24,862,000

Supplemental mortgage note
 
$
—

 
$
6,373,717

 
$
—


Multifamily communities acquired

During the six-month periods ended June 30, 2017 and 2016, the Company completed the acquisition of the following multifamily communities and student housing property:
Acquisition date
 
Property
 
Location
 
Approximate purchase price (millions) (1)
 
Units
 
 
 
 
 
 
 
 
 
2/28/2017
 
Regents on University (2)
 
Tempe, Arizona
 
$
53.3

 
225

3/3/2017
 
Broadstone at Citrus Village
 
Tampa, Florida
 
$
47.4

 
296

3/24/2017
 
Retreat at Greystone
 
Birmingham, Alabama
 
$
50.0

 
312

3/31/2017
 
Founders Village
 
Williamsburg, Virginia
 
$
44.4

 
247

4/26/2017
 
Claiborne Crossing
 
Louisville, Kentucky
 
$
45.2

 
242

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,322

 
 
 
 
 
 
 
 
 
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 (3)
 
Tallahassee, Florida
 
$
46.1

 
219

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,870

(1) Purchase prices shown are exclusive of acquired escrows, security deposits, prepaids, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.
(2) A 640-bed student housing community located adjacent to the campus of Arizona State University in Tempe, Arizona.
(3) A 679-bed student housing community located adjacent to the campus of Florida State University in Tallahassee, Florida.


12
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2017


The Company allocated the purchase prices and, for acquisitions that closed subsequent to January 1, 2017, capitalized acquisition costs, to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocations were based upon the Company's best estimates of the fair values of the acquired assets and liabilities.
2017 Multifamily Communities acquired
Broadstone at Citrus Village
 
Regents on University
 
Retreat at Greystone
 
Founders Village
 
Claiborne Crossing
 
 
 
 
 
 
 
 
 
 
Land
$
4,809,113

 
$
7,440,934

 
$
4,077,262

 
$
5,314,862

 
$
2,147,217

Buildings and improvements
34,180,983

 
40,058,727

 
35,336,277

 
32,853,763

 
30,551,646

Furniture, fixtures and equipment
6,299,645

 
3,771,432

 
9,125,302

 
5,907,345

 
7,027,257

Lease intangibles
1,624,752

 
2,344,404

 
1,844,476

 
1,421,197

 
1,268,810

Mark to market debt assumption asset
893,385

 
—

 
—

 
—

 
4,447,751

Prepaids & other assets
744,970

 
808,045

 
871,684

 
938,419

 
1,120,728

Escrows
67,876

 
—

 
101,503

 
—

 
—

Accrued taxes
(108,286
)
 
(71,856
)
 
(139,046
)
 
—

 
(115,728
)
Security deposits, prepaid rents, and other liabilities
(24,887
)
 
(377,735
)
 
(108,573
)
 
(103,204
)
 
(130,850
)
 
 
 
 
 
 
 
 
 
 
Net assets acquired
$
48,487,551

 
$
53,973,951

 
$
51,108,885

 
$
46,332,382

 
$
46,316,831

 
 
 
 
 
 
 
 
 
 
Cash paid
$
18,237,551

 
$
16,488,951

 
$
1,660,888

 
$
1,438,320

 
$
19,242,604

Use of 1031 proceeds
—

 
—

 
14,237,997

 
13,289,062

 
—

Mortgage debt
30,250,000

 
37,485,000

 
35,210,000

 
31,605,000

 
27,074,227

 
 
 
 
 
 
 
 
 
 
Total consideration
$
48,487,551

 
$
53,973,951

 
$
51,108,885

 
$
46,332,382

(1 
) 
$
46,316,831

 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2017:
 
 
 
 
 
 
 
 
 
Revenue
$
1,087,000

 
$
1,422,000

 
$
1,209,000

 
$
1,003,000

 
$
733,000

Net income (loss)
$
(719,000
)
 
$
(1,553,000
)
 
$
(687,000
)
 
$
(507,000
)
 
$
(827,000
)
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2017:
 
 
 
 
 
 
 
 
 
Revenue
$
1,460,000

 
$
1,894,000

 
$
1,298,000

 
$
1,003,000

 
$
733,000

Net income (loss)
$
(793,000
)
 
$
(1,895,000
)
 
$
(931,000
)
 
$
(705,000
)
 
$
(827,000
)
 
 
 
 
 
 
 
 
 
 
Capitalized acquisition costs incurred by the Company
$
458,000

 
$
290,000

 
$
383,000

 
$
1,103,000

 
293,000

Acquisition costs paid to related party (included above)
$
24,000

 
$
60,000

 
$
56,000

 
$
8,000

 
22,000

Remaining amortization period of intangible
 
 
 
 
 
 
 
 
 
 assets and liabilities (months)
35.3

 
1.5

 
8.5

 
8.5

 
90.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) The Company's real estate loan investment in support of Founders Village was repaid in full at the closing of the acquisition of the property.


13
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2017


2016 Multifamily Communities acquired
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 (1)
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, 2017:
 
 
 
 
 
 
 
 
 
Revenue
$
1,471,000

 
$
2,047,000

 
$
1,313,000

 
$
2,351,000

 
$
1,292,000

Net income (loss)
$
(69,000
)
 
$
(1,047,000
)
 
$
(121,000
)
 
$
(686,000
)
 
$
(88,000
)
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2017:
 
 
 
 
 
 
 
 
 
Revenue
$
2,936,000

 
$
4,015,000

 
$
2,579,000

 
$
4,714,000

 
$
2,590,000

Net income (loss)
$
(202,000
)
 
$
(2,280,000
)
 
$
(267,000
)
 
$
(1,270,000
)
 
$
(129,000
)
 
 
 
 
 
 
 
 
 
 
Cumulative acquisition costs incurred by the Company
$
378,000

 
$
1,315,000

 
$
115,000

 
$
1,848,000

 
$
319,000

Remaining amortization period of intangible
 
 
 
 
 
 
 
 
 
 assets and liabilities (months)
0.0

 
0.0

 
0.0

 
0.0

 
0.0


Grocery-anchored shopping centers acquired

During the six months ended June 30, 2017, the Company completed the acquisition of the following grocery-anchored shopping centers:
Acquisition date
 
Property
 
Location
 
Approximate purchase price (millions) (1)
 
Gross leasable area (square feet)
4/21/17
 
Castleberry-Southard
 
Atlanta, Georgia
 
$
17.6

 
80,018

6/6/17
 
Rockbridge Village
 
Atlanta, Georgia
 
$
20.3

 
102,432

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
182,450

 
 
 
 
 
 
 
 
 
(1) Purchase prices shown are exclusive of acquired escrows, security deposits, prepaids, capitalized acquisition costs and other miscellaneous 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. The purchase price allocation was based upon the Company's best estimates of the fair values of the acquired assets and liabilities.



14
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2017


New Market Properties 2017 acquisitions
 
Castleberry-Southard
 
Rockbridge Village
Land
 
$
3,023,731

 
$
3,141,325

Buildings and improvements
 
13,471,240

 
15,666,091

Tenant improvements
 
670,376

 
278,340

In-place leases
 
990,663

 
1,249,694

Above market leases
 
123,084

 
59,267

Leasing costs
 
464,544

 
301,761

Below market leases
 
(1,081,145
)
 
(332,725
)
Other assets
 
67,899

 
7,136

Other liabilities
 
(162,499
)
 
(89,212
)
 
 
 
 
 
Net assets acquired
 
$
17,567,893

 
$
20,281,677

 
 
 
 
 
Cash paid
 
$
2,306,703

 
$
6,031,677

Use of 1031 proceeds
 
3,761,190

 
—

Mortgage debt
 
11,500,000

 
14,250,000

 
 
 
 
 
Total consideration
 
$
17,567,893

 
$
20,281,677

 
 
 
 
 
Three months ended June 30, 2017:
 
 
 
 
Revenue
 
$
246,000

 
$
110,000

Net income (loss)
 
$
(88,000
)
 
$
8,000

 
 
 
 
 
Six months ended June 30, 2017:
 
 
 
 
Revenue
 
$
246,000

 
$
110,000

Net income (loss)
 
$
(88,000
)
 
$
8,000