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 September 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
paca14.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 October 31, 2017 was 36,692,002.



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

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
Item 2.

 
 
 
Item 3.

 
 
 
Item 4.
74

 
 
 
 
 
 
Item 1.
74

 
 
 
Item 1A.
74

 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
74

 
 
 
Item 3.
Defaults Upon Senior Securities
74

 
 
 
Item 4.
Mine Safety Disclosures
74

 
 
 
Item 5.
Other Information
75

 
 
 
Item 6.
75

 
 
76






Preferred Apartment Communities, Inc.
Consolidated Balance Sheets
(Unaudited)
 
 
 
 
 
 
 
September 30, 2017
 
December 31, 2016
Assets
 
 
 
 
 
 
 
 
 
Real estate
 
 
 
 
Land
 
$
345,110,008

 
$
299,547,501

Building and improvements
 
1,802,229,802

 
1,513,293,760

Tenant improvements
 
45,208,781

 
23,642,361

Furniture, fixtures, and equipment
 
183,879,719

 
126,357,742

Construction in progress
 
11,946,666

 
2,645,634

Gross real estate
 
2,388,374,976

 
1,965,486,998

Less: accumulated depreciation
 
(147,799,077
)
 
(103,814,894
)
Net real estate
 
2,240,575,899

 
1,861,672,104

Real estate loans, net of deferred fee income
 
243,974,963

 
201,855,604

Real estate loans to related parties, net
 
165,229,952

 
130,905,464

Total real estate and real estate loan investments, net
 
2,649,780,814

 
2,194,433,172

 
 
 
 
 
Cash and cash equivalents
 
17,054,190

 
12,321,787

Restricted cash
 
50,645,432

 
55,392,984

Notes receivable
 
18,287,857

 
15,499,699

Note receivable and revolving line of credit due from related party
 
24,063,639

 
22,115,976

Accrued interest receivable on real estate loans
 
27,726,412

 
21,894,549

Acquired intangible assets, net of amortization of $64,043,523 and $46,396,254
 
86,295,192

 
79,156,400

Deferred loan costs on Revolving Line of Credit, net of amortization of $960,072 and $422,873
 
1,548,798

 
1,768,779

Deferred offering costs
 
6,025,155

 
2,677,023

Tenant lease inducements, net of amortization of $251,941 and $14,904
 
11,914,367

 
261,492

Tenant receivables (net of allowance of $488,953 and $663,912) and other assets
 
34,377,412

 
15,310,741

 
 
 
 
 
Total assets
 
$
2,927,719,268

 
$
2,420,832,602

 
 
 
 
 
Liabilities and equity
 

 
 
 
 
 
 
 
Liabilities
 
 
 
 
Mortgage notes payable, net of deferred loan costs of $26,994,828 and $22,007,641
 
$
1,569,569,425

 
$
1,305,870,471

Revolving line of credit
 
43,000,000

 
127,500,000

Term note payable, net of deferred loan costs of $5,806 and $40,095
 
10,994,194

 
10,959,905

Real estate loan participation obligation
 
17,877,914

 
20,761,819

Deferred revenue
 
23,361,489

 
—

Accounts payable and accrued expenses
 
34,298,797

 
20,814,910

Accrued interest payable
 
4,099,239

 
3,541,640

Dividends and partnership distributions payable
 
13,729,774

 
10,159,629

Acquired below market lease intangibles, net of amortization of $6,858,914 and $3,771,393
 
31,691,040

 
29,774,033

Security deposits and other liabilities
 
8,946,216

 
6,189,033

Total liabilities
 
1,757,568,088

 
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; 1,141,331 and 924,855 shares issued; 1,115,616 and 914,422
 
 
 
shares outstanding at September 30, 2017 and December 31, 2016, respectively
11,156

 
9,144

Series M Redeemable Preferred Stock, $0.01 par value per share; 500,000
 
 
 
   shares authorized; 12,396 and 0 shares issued and outstanding
 
 
 
at September 30, 2017 and December 31, 2016, respectively
124

 
—

Common Stock, $0.01 par value per share; 400,066,666 shares authorized;
 
 
 
35,597,744 and 26,498,192 shares issued and outstanding at
 
 
 
September 30, 2017 and December 31, 2016, respectively
355,977

 
264,982

Additional paid-in capital
 
1,157,030,161

 
906,737,470

Accumulated earnings (deficit)
 
9,079,810

 
(23,231,643
)
Total stockholders' equity
 
1,166,477,228

 
883,779,953

Non-controlling interest
 
3,673,952

 
1,481,209

Total equity
 
1,170,151,180

 
885,261,162

 
 
 
 
 
Total liabilities and equity
 
$
2,927,719,268

 
$
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 September 30,
 
Nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Rental revenues
$
50,072,135

 
$
37,319,207

 
$
143,676,962

 
$
96,541,544

Other property revenues
9,334,939

 
5,221,887

 
26,592,295

 
13,290,330

Interest income on loans and notes receivable
9,673,536

 
7,194,742

 
26,111,674

 
20,984,625

Interest income from related parties
5,819,589

 
3,801,501

 
15,971,516

 
10,310,563

Total revenues
74,900,199

 
53,537,337

 
212,352,447

 
141,127,062

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Property operating and maintenance
7,900,753

 
5,504,848

 
21,637,551

 
13,883,133

Property salary and benefits (including reimbursements of $3,199,836,
 
 
 
 
 
 
 
 $2,790,335, $8,995,087 and $7,670,403 to related party)
3,402,623

 
2,808,402

 
9,649,843

 
7,688,470

Property management fees (including $1,576,118, $1,444,518,
 
 
 
 
 
 
 
$4,582,037, and $3,656,209 to related parties)
2,053,446

 
1,724,411

 
6,016,003

 
4,308,841

Real estate taxes
7,705,706

 
4,789,085

 
23,289,784

 
15,457,134

General and administrative
1,701,574

 
1,144,256

 
4,861,083

 
3,255,728

Equity compensation to directors and executives
863,412

 
638,414

 
2,607,667

 
1,867,706

Depreciation and amortization
28,903,770

 
21,664,363

 
82,186,960

 
54,981,064

Acquisition and pursuit costs (including $0, $89,631,
 
 
 
 
 
 
 
$0 and $141,548 to related party)
—

 
1,357,537

 
14,002

 
6,885,864

Asset management fees to related party
5,147,606

 
3,759,084

 
14,524,517

 
9,484,161

Insurance, professional fees and other expenses
1,156,056

 
1,338,343

 
3,820,010

 
4,216,838

Total operating expenses
58,834,946

 
44,728,743

 
168,607,420

 
122,028,939

 
 
 
 
 
 
 
 
Contingent asset management and general and administrative expense fees
(655,944
)
 
(736,960
)
 
(1,001,864
)
 
(1,458,245
)
 
 
 
 
 
 
 
 
Net operating expenses
58,179,002

 
43,991,783

 
167,605,556

 
120,570,694

 
 
 
 
 
 
 
 
Operating income
16,721,197

 
9,545,554

 
44,746,891

 
20,556,368

Interest expense
16,678,418

 
12,234,174

 
48,085,016

 
30,688,505

Loss on extinguishment of debt
—

 
—

 
888,428

 
—

 
 
 
 
 
 
 
 
Net income (loss) before gain on sale of real estate
42,779

 
(2,688,620
)
 
(4,226,553
)
 
(10,132,137
)
Gain on sale of real estate, net of disposition expenses
—

 
—

 
37,635,014

 
4,271,506

Net income (loss)
42,779

 
(2,688,620
)
 
33,408,461

 
(5,860,631
)
 
 
 
 
 
 
 
 
Consolidated net (income) loss attributable to non-controlling interests
(1,119
)
 
86,484

 
(1,097,008
)
 
175,045

 
 
 
 
 
 
 
 
Net income (loss) attributable to the Company
41,660

 
(2,602,136
)
 
32,311,453

 
(5,685,586
)
 
 
 
 
 
 
 
 
Dividends declared to preferred stockholders
(16,420,996
)
 
(11,015,706
)
 
(46,042,181
)
 
(28,341,723
)
Earnings attributable to unvested restricted stock
(4,302
)
 
(6,159
)
 
(11,743
)
 
(12,434
)
 
 
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(16,383,638
)
 
$
(13,624,001
)
 
$
(13,742,471
)
 
$
(34,039,743
)
 
 
 
 
 
 
 
 
Net loss per share of Common Stock available
 
 
 
 
 
 
 
to common stockholders, basic and diluted
$
(0.49
)
 
$
(0.56
)
 
$
(0.46
)
 
$
(1.45
)
 
 
 
 
 
 
 
 
Dividends per share declared on Common Stock
$
0.235

 
$
0.2025

 
$
0.69

 
$
0.5975

 
 
 
 
 
 
 
 
Weighted average number of shares of Common Stock outstanding,
 
 
 
 
 
 
 
Basic and diluted
33,539,920

 
24,340,791

 
30,147,497

 
23,552,951


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



Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity, continued
For the nine-month periods ended September 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
 
2,289

 
—

 
228,248,476

 
—

 
228,250,765

 
—

 
228,250,765

Redemptions of Series A Preferred Stock
 
(153
)
 
5,922

 
(4,506,174
)
 
—

 
(4,500,405
)
 
—

 
(4,500,405
)
Issuance of Common Stock
 
—

 
49,067

 
76,755,412

 
—

 
76,804,479

 
—

 
76,804,479

Exercises of warrants
 
—

 
33,875

 
43,343,382

 
—

 
43,377,257

 
—

 
43,377,257

Syndication and offering costs
 
—

 
—

 
(26,725,432
)
 
—

 
(26,725,432
)
 
—

 
(26,725,432
)
Equity compensation to executives and directors
 
—

 
—

 
357,300

 
—

 
357,300

 
—

 
357,300

Vesting of restricted stock
 
—

 
216

 
(216
)
 
—

 
—

 
—

 
—

Conversion of Class A Units to Common Stock
 
—

 
1,915

 
1,676,579

 
—

 
1,678,494

 
(1,678,494
)
 
—

Current period amortization of Class B Units
 
—

 
—

 
—

 
—

 
—

 
2,250,367

 
2,250,367

Net income
 
—

 
—

 
—

 
32,311,453

 
32,311,453

 
1,097,008

 
33,408,461

Reallocation adjustment to non-controlling interests
 
—

 
—

 
(1,146,165
)
 
—

 
(1,146,165
)
 
1,146,165

 
—

Distributions to non-controlling interests
 
—

 
—

 
—

 
—

 
—

 
(622,303
)
 
(622,303
)
Dividends to series A preferred stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($5.00 per share per month)
 
—

 
—

 
(45,791,950
)
 
—

 
(45,791,950
)
 
—

 
(45,791,950
)
Dividends to mShares preferred stockholders
 
—

 
—

 
(250,231
)
 
—

 
(250,231
)
 
—

 
(250,231
)
Dividends to common stockholders ($0.69 per share)
 
—

 
—

 
(21,668,290
)
 
—

 
(21,668,290
)
 
—

 
(21,668,290
)
Balance at September 30, 2017
 
$
11,280

 
$
355,977

 
$
1,157,030,161

 
$
9,079,810

 
$
1,166,477,228

 
$
3,673,952

 
$
1,170,151,180





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


Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity
For the nine-month periods ended September 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
 
3,233

 
—

 
322,937,157

 
—

 
322,940,390

 
—

 
322,940,390

Redemptions of Series A Preferred Stock
 
(43
)
 
588

 
(3,020,673
)
 
—

 
(3,020,128
)
 
—

 
(3,020,128
)
Issuance of common stock
 
—

 
1,973

 
2,858,311

 
—

 
2,860,284

 
—

 
2,860,284

Exercises of Warrants
 
—

 
15,163

 
16,181,146

 
—

 
16,196,309

 
—

 
16,196,309

Syndication and offering costs
 
—

 
—

 
(38,220,013
)
 
—

 
(38,220,013
)
 
—

 
(38,220,013
)
Equity compensation to executives and directors
 
—

 
56

 
352,472

 
—

 
352,528

 
—

 
352,528

Vesting of restricted stock
 
—

 
228

 
(228
)
 
—

 
—

 
—

 
—

Conversion of Class A Units to Common Stock
 
—

 
956

 
647,642

 
—

 
648,598

 
(648,598
)
 
—

Current period amortization of Class B Units
 
—

 
—

 
—

 
—

 
—

 
1,542,182

 
1,542,182

Net loss
 
—

 
—

 
—

 
(5,685,586
)
 
(5,685,586
)
 
(175,045
)
 
(5,860,631
)
Class A Units issued for property acquisition
 
—

 
—

 
—

 
—

 
—

 
5,072,659

 
5,072,659

Minority interest in joint venture
 
—

 
—

 
—

 
—

 
—

 
450,000

 
450,000

Reallocation adjustment to non-controlling interests
 
—

 
—

 
6,914,403

 
—

 
6,914,403

 
(6,914,403
)
 
—

Distributions to non-controlling interests
 
—

 
—

 
—

 
—

 
—

 
(476,293
)
 
(476,293
)
Dividends to Series A preferred stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($5.00 per share per month)
 
—

 
—

 
(28,341,723
)
 
—

 
(28,341,723
)
 
—

 
(28,341,723
)
Dividends to common stockholders ($0.5975 per share)
 
—

 
—

 
(14,200,114
)
 
—

 
(14,200,114
)
 
—

 
(14,200,114
)
Balance at September 30, 2016
 
$
8,020

 
$
246,580

 
$
802,559,257

 
$
(19,384,106
)
 
$
783,429,751

 
$
1,319,489

 
$
784,749,240

















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


Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
Nine months ended September 30,
 
 
2017
 
2016
Operating activities:
 
 
 
 
Net income (loss)
 
$
33,408,461

 
$
(5,860,631
)
Reconciliation of net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation expense
 
60,845,325

 
39,387,351

Amortization expense
 
21,341,635

 
15,593,713

Amortization of above and below market leases
 
(2,394,233
)
 
(1,118,329
)
Deferred revenues and fee income amortization
 
(1,526,037
)
 
(725,913
)
Amortization of market discount on assumed debt and lease incentives
 
364,439

 
—

Deferred loan cost amortization
 
3,906,753

 
2,431,809

(Increase) decrease in accrued interest income on real estate loans
 
(5,831,863
)
 
(3,374,473
)
Equity compensation to executives and directors
 
2,607,667

 
1,867,706

Gain on sale of real estate
 
(37,635,014
)
 
(4,271,506
)
Loss on extinguishment of debt
 
888,428

 
—

Other
 
189,400

 
56,582

Changes in operating assets and liabilities:
 
 
 
 
(Increase) in tenant receivables and other assets
 
(7,818,433
)
 
(1,230,183
)
(Increase) in tenant lease incentives
(11,889,912
)
 
—

Increase in accounts payable and accrued expenses
 
11,640,777

 
8,843,052

Increase in accrued interest and other liabilities
 
2,349,282

 
2,258,193

Net cash provided by operating activities
 
70,446,675

 
53,857,371

 
 
 
 
 
Investing activities:
 
 
 
 
Investments in real estate loans
 
(119,225,599
)
 
(123,427,150
)
Repayments of real estate loans
 
42,495,393

 
36,672,482

Notes receivable issued
 
(6,249,749
)
 
(8,730,166
)
Notes receivable repaid
 
3,506,767

 
12,895,101

Note receivable issued to and draws on line of credit by related party
 
(25,740,403
)
 
(25,821,121
)
Repayments of line of credit by related party
 
23,468,017

 
23,791,676

Origination fees received on real estate loans
 
2,592,766

 
2,695,961

Origination fees paid to Manager on real estate loans
 
(1,296,383
)
 
(1,374,828
)
Acquisition of properties
 
(455,619,414
)
 
(740,597,973
)
Disposition of properties, net
 
118,237,697

 
10,606,386

Additions to real estate assets - improvements
 
(12,200,993
)
 
(7,613,065
)
Deposits refunded (paid) on acquisitions
 
2,428,908

 
(3,118,370
)
Decrease (increase) in restricted cash
 
5,389,992

 
(9,070,073
)
Net cash used in investing activities
 
(422,213,001
)
 
(833,091,140
)
 
 
 
 
 
Financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
332,427,500

 
479,494,000

Repayments of mortgage notes payable
 
(121,065,587
)
 
(7,748,011
)
Payments for deposits and other mortgage loan costs
 
(11,579,899
)
 
(15,400,974
)
Payments for mortgage prepayment costs
 
(817,313
)
 
—

Proceeds from real estate loan participants
 
224,188

 
5,575,484

Payments to real estate loan participants
 
(3,466,500
)
 
—

Proceeds from lines of credit
 
190,000,000

 
357,136,020

Payments on lines of credit
 
(274,500,000
)
 
(309,636,020
)
Proceeds from Term Loan
 
—

 
46,000,000

Repayment of the Term Loan
 
—

 
(35,000,000
)
Proceeds from sales of Units, net of offering costs and redemptions
 
201,799,430

 
287,830,612

Proceeds from sales of Common Stock
 
74,213,118

 
2,810,156

Proceeds from exercises of Warrants
 
39,430,314

 
19,831,294

Common Stock dividends paid
 
(19,250,649
)
 
(13,523,075
)
Preferred stock dividends paid
 
(44,889,676
)
 
(26,735,870
)
Distributions to non-controlling interests
 
(605,479
)
 
(350,079
)
Payments for deferred offering costs
 
(5,420,718
)
 
(3,476,989
)
Contribution from non-controlling interests
 
—

 
450,000

Net cash provided by financing activities
 
356,498,729

 
787,256,548

 
 
 
 
 
Net increase in cash and cash equivalents
 
4,732,403

 
8,022,779

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

 
2,439,605

Cash and cash equivalents, end of period
 
$
17,054,190

 
$
10,462,384

 
 
 
 
 

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


 
 
 
 
 
Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continued
(Unaudited)
 
 
Nine months ended September 30,
 
 
2017
 
2016
Supplemental cash flow information:
 
 
 
 
Cash paid for interest
 
$
43,493,263

 
$
26,569,933

 
 
 
 
 
Supplemental disclosure of non-cash activities:
 
 
 
 
Accrued capital expenditures
 
$
2,531,863

 
$
1,125,774

Writeoff of fully depreciated or amortized assets and liabilities
 
$
620,201

 
$
149,288

Writeoff of fully amortized deferred loan costs
 
$
—

 
$
826,359

Writeoff of assets due to hurricane damages
 
$
7,939,095

 
$
—

Lessee-funded tenant improvements, capitalized as landlord assets
 
$
23,818,305

 
$
—

Dividends payable - Common Stock
 
$
8,158,256

 
$
4,992,038

Dividends payable - Series A Preferred Stock
 
$
5,481,080

 
$
3,885,123

Dividends payable - mShares Preferred Stock
 
$
90,438

 
$
—

Dividends declared but not yet due and payable
 
$
33,094

 
$
—

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

 
$
179,449

Accrued and payable deferred offering costs
 
$
479,441

 
$
690,643

Offering cost reimbursement to related party
 
$
324,638

 
$
482,871

Reclass of offering costs from deferred asset to equity
 
$
2,193,139

 
$
6,080,235

Fair value of OP units issued for property
 
$
—

 
$
5,072,659

Extinguishment of land loan for property
 
$
—

 
$
12,500,000

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

 
$
3,152,312

Mortgage loans assumed on acquisitions
 
$
57,324,227

 
$
43,103,275

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
September 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 September 30, 2017, the Company had 35,597,744 shares of common stock, par value $0.01 per share, or Common Stock, issued and outstanding and was the approximate 97.5% owner of the Operating Partnership at that date. The number of partnership units not owned by the Company totaled 901,195 at September 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 portfolio of grocery-anchored shopping centers. Preferred Office Properties, LLC owns and conducts the business of our portfolio of office buildings. Preferred Campus Communities, LLC owns and conducts the business of our portfolio of 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)
September 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)
September 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 Preferred Office Properties, 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 (including, effective July 1, 2017, a 1% acquisition fee), 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)
September 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. In addition, the evaluation of non-lease components under ASU 2014-09 will not be effective until Accounting Standards Update No. 2016-02, Leases (Topic 842), ("ASU 2016-02") becomes effective (see further discussion below), which will be first quarter of 2019 for the Company. The Company has determined that approximately 90% of its revenues from its New Market Properties and office building segments are derived from either long-term leases with its tenants or reimbursement of property tax and insurance expenses, which are excluded from the scope of the ASU 2014-09. Of the remaining 10% of New Market Properties and office building segment revenues, the majority is comprised of common area maintenance (“CAM”) reimbursements, which is a non-lease component under ASU 2014-09 and therefore within its scope of adoption. Based on management's assessment to date, the Company does not expect the timing of the recognition of reimbursement revenue and other miscellaneous income to change as a result of the new guidance, though certain classifications will change between rental revenue and tenant reimbursements. Similarly, the Company's multifamily communities segment derives the majority of its revenues from rental operations, to which this standard is not applicable. However, the Company does provide non-rental services to its residents related to ancillary services and is currently evaluating the various revenue streams to identify any potential sources which may require bifurcation and reclassification. 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 and supersedes the previous standard, ASC 840 Leases. The standard is effective on January 1, 2019, with early adoption permitted. The Company anticipates adopting ASC 842 utilizing the modified retrospective method and is continuing to evaluate 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. 


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



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.

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 an decrease of approximately $3.4 million of the Company's reported net income available to common stockholders for the three-month period ended September 30, 2017 and a decrease of approximately $6.1 million of the Company's reported net loss available to common stockholders for the nine-month period ended September 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 under the modified retrospective method, with the cumulative effect recognized as of the date of adoption. The Company currently expects to adopt ASU 2017-05 utilizing the modified retrospective method and is continuing to evaluate the effect the adoption of ASU 2017-05 will have on its results of operations and financial condition.



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


3. Real Estate Assets

The Company's real estate assets consisted of:

 
 
As of:
 
 
9/30/17
 
12/31/16
Multifamily communities:
 
 
 
 
Properties (1)
 
29

 
24

Units
 
9,086

 
8,049

New Market Properties (2)
 
 
 
 
Properties
 
37

 
31

Gross leasable area (square feet) (3)
 
3,854,196

 
3,295,491

Student housing properties:
 
 
 
 
Properties
 
2

 
1

Units
 
444

 
219

Beds
 
1,319

 
679

Preferred Office Properties:
 
 
 
 
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.

Storm-related costs

The Company sustained damages at its Stone Creek multifamily community from Hurricane Harvey during the third quarter. The resulting impact required the write-off of approximately $6.9 million in depreciated real estate assets. Additional storm-related costs included approximately $217,000 during the three-month period ended September 30, 2017 for the related insurance deductible, lost rent, and other related costs.

Multifamily communities sold

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 $(0.9) million of net income (loss) to the consolidated operating results of the Company for the nine-month periods ended September 30, 2017 and 2016, respectively.

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 $0.6 million of net income to the consolidated operating results of the Company for the nine-month periods ended September 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 $(0.2) million of net income (loss) to the consolidated operating results of the Company for the nine-month periods ended September 30, 2017 and 2016, respectively.


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



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 nine-month period ended September 30, 2017, 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
 
SoL (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

7/26/2017
 
Luxe at Lakewood Ranch
 
Sarasota, Florida
 
$
56.1

 
280

9/27/2017
 
Adara Overland Park
 
Kansas City, Kansas
 
$
45.5

 
260

9/29/2017
 
Aldridge at Town Village
 
Atlanta, Georgia
 
$
54.2

 
300

9/29/2017
 
The Reserve at Summit Crossing
 
Atlanta, Georgia
 
$
30.9

 
172

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,334

(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.





13
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 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
 
SoL
 
Retreat at Greystone
 
Founders Village
 
Claiborne Crossing
 
Luxe at Lakewood Ranch
 
Adara Overland Park
 
Aldridge at Town Village
 
The Reserve at Summit Crossing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land
 
$
4,809,113

 
$
7,440,934

 
$
4,077,262

 
$
5,314,862

 
$
2,147,217

 
$
4,851,844

 
$
2,854,466

 
$
7,122,413

 
$
4,374,721

Buildings and improvements
 
34,180,983

 
40,058,727

 
35,336,277

 
32,853,763

 
30,551,646

 
43,694,577

 
31,005,403

 
34,683,056

 
20,968,236

Furniture, fixtures and equipment
 
6,299,645

 
3,771,432

 
9,125,302

 
5,907,345

 
7,027,257

 
7,338,151

 
11,024,144

 
10,735,231

 
4,970,893

Lease intangibles
 
1,624,752

 
2,344,404

 
1,844,476

 
1,421,197

 
1,268,810

 
1,014,150

 
1,279,589

 
2,270,915

 
925,176

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

 
1,387,129

 
604,973

 
779,945

 
384,220

Escrows
 
67,876

 
—

 
101,503

 
—

 
—

 
—

 
—

 
—

 
—

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

 
(115,728
)
 
(404,690
)
 
(308,299
)
 
—

 
—

Security deposits, prepaid rents, and other liabilities
 
(24,887
)
 
(377,735
)
 
(108,573
)
 
(103,204
)
 
(130,850
)
 
(57,933
)
 
(31,941
)
 
(143,024
)
 
(43,246
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net assets acquired
 
$
48,487,551

 
$
53,973,951

 
$
51,108,885

 
$
46,332,382

 
$
46,316,831

 
$
57,823,228

 
$
46,428,335

 
$
55,448,536

 
$
31,580,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash paid
 
$
18,237,551

 
$
16,488,951

 
$
1,660,888

 
$
1,438,320

 
$
19,242,604

 
$
18,535,728

 
$
14,578,335

 
$
5,185,142

 
$
3,333,770

Use of 1031 proceeds
 
—

 
—

 
14,237,997

 
13,289,062

 
—

 
—

 
—

 
—

 
—

Mezzanine loan conversion
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
12,253,394

 
8,171,230

Mortgage debt
 
30,250,000

 
37,485,000

 
35,210,000

 
31,605,000

 
27,074,227

 
39,287,500

 
31,850,000

 
38,010,000

 
20,075,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total consideration
 
$
48,487,551

 
$
53,973,951

 
$
51,108,885

 
$
46,332,382

 
$
46,316,831

 
$
57,823,228

 
$
46,428,335

 
$
55,448,536

 
$
31,580,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
1,168,000

 
$
1,412,000

 
$
1,215,000

 
$
1,029,000

 
$
1,035,000

 
$
877,000

 
$
32,000

 
$
1,000

 
$
—

Net income (loss)
 
$
(621,000
)
 
$
(1,213,000
)
 
$
(789,000
)
 
$
(508,000
)
 
$
(836,000
)
 
$
(679,000
)
 
$
(179,000
)
 
$
(219,000
)
 
$
(105,000
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
2,628,000

 
$
3,305,000

 
$
2,513,000

 
$
2,032,000

 
$
1,767,000

 
$
877,000

 
$
32,000

 
$
1,000

 
$
—

Net income (loss)
 
$
(1,414,000
)
 
$
(3,108,000
)
 
$
(1,719,000
)
 
$
(1,213,000
)
 
$
(1,663,000
)
 
$
(679,000
)
 
$
(179,000
)
 
$
(219,000
)
 
$
(105,000
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capitalized acquisition costs incurred by the Company
 
$
458,000

 
$
290,000

 
$
383,000

 
$
1,103,000

 
$
293,000

 
$
759,000

 
$
646,000

 
$
602,000

 
$
354,000

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

 
$
60,000

 
$
56,000

 
$
8,000

 
$
22,000

 
$
561,000

 
$
455,000

 
$
542,000

 
$
309,000

Remaining amortization period of intangible
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 assets and liabilities (months)
 
38.4

 
0

 
5.5

 
5.5

 
126.1

 
6.5

 
9.5

 
13.5

 
11.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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.



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


2016 Multifamily Communities acquired
 
North by Northwest
 
Avalon Park
 
Overton Rise
 
Baldwin Park
 
Crosstown Walk
 
City Vista
 
Sorrel
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land
 
$
8,281,054

 
$
7,410,048

 
$
8,511,370

 
$
17,402,882

 
$
5,178,375

 
$
4,081,683

 
$
4,412,164

Buildings and improvements
 
34,355,922

 
80,558,636

 
44,710,034

 
87,105,757

 
33,605,831

 
36,084,007

 
35,512,257

Furniture, fixtures and equipment
 
2,623,916

 
1,790,256

 
6,286,105

 
3,358,589

 
5,726,583

 
5,402,228

 
6,705,040

Lease intangibles
 
799,109

 
2,741,060

 
1,611,314

 
2,882,772

 
1,323,511

 
2,100,866

 
1,495,539

Prepaids & other assets
 
79,626

 
99,297

 
73,754

 
229,972

 
125,706

 
167,797

 
—

Escrows
 
1,026,419

 
3,477,157

 
354,640

 
2,555,753

 
291,868

 
599,983

 
623,791