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
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20192020
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐    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
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
apts-20200930_g1.jpg


Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
Name of each exchange on which registered
 
Common Stock, par value $.01 per shareAPTSNYSE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Series A Redeemable Preferred Stock, par value $0.01 per share
Warrant to Purchase Common Stock, par value $0.01 per share
Series M Redeemable Preferred Stock, par value $0.01 per share
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 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 30, 2019November 4, 2020 was 45,812,502.

49,900,555.


PART I - FINANCIAL INFORMATION
INDEX
Item 1.Financial Statements
Page No.
 
Condensed Consolidated Balance Sheets (unaudited) – as of September 30, 20192020 and December 31, 2018
2019		2
Condensed Consolidated Statements of Operations (unaudited) – Three Months and Nine Months Ended September 30, 20192020 and 2018
2019		3
Condensed Consolidated Statements of Stockholders' Equity (unaudited) – Three Months and Nine Months Ended September 30, 20192020 and 2018
2019
4

Condensed Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended September 30, 20192020 and 2018
2019
8

Notes to Condensed Consolidated Financial Statements (unaudited)
10

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
51
50 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
77
78 
Item 4.
Controls and Procedures
78
79 
PART II - OTHER INFORMATION
78

Item 1.Legal Proceedings7879 
Item 1A.Risk Factors7879 
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds7881 
Item 3.Defaults Upon Senior Securities7881 
Item 4.Mine Safety Disclosures7881 
Item 5.Other Information7981 
Item 6.
Exhibits
7981 





















Preferred Apartment Communities, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
     
(In thousands, except per-share par values) September 30, 2019 December 31, 2018
Assets    
Real estate    
Land $607,055
 $519,300
Building and improvements 3,117,087
 2,738,085
Tenant improvements 151,960
 128,914
Furniture, fixtures, and equipment 321,478
 278,151
Construction in progress 11,242
 8,265
Gross real estate 4,208,822
 3,672,715
Less: accumulated depreciation (382,479) (272,042)
Net real estate 3,826,343
 3,400,673
Real estate loan investments, net of deferred fee income and allowance for loan loss 356,272
 282,548
Real estate loan investments to related parties, net 25,214
 51,663
Total real estate and real estate loan investments, net 4,207,829
 3,734,884
     
Cash and cash equivalents 86,177
 38,958
Restricted cash 61,032
 48,732
Notes receivable 17,698
 14,440
Note receivable and revolving lines of credit due from related parties 23,959
 32,867
Accrued interest receivable on real estate loans 27,877
 23,340
Acquired intangible assets, net of amortization of $140,832 and $113,199 147,649
 135,961
Deferred loan costs on Revolving Line of Credit, net of amortization of $681 and $180 1,454
 1,916
Deferred offering costs 2,804
 6,468
Tenant lease inducements, net of amortization of $3,128 and $1,833 19,972
 20,698
Receivable from sale of mortgage-backed security —
 41,181
Tenant receivables (net of allowance of $0 and $1,662) and other assets 60,948
 41,567
Variable Interest Entity ("VIE") assets from mortgage-backed pool, at fair value 610,248
 269,946
     
Total assets $5,267,647
 $4,410,958
     
Liabilities and equity    
Liabilities    
Mortgage notes payable, net of deferred loan costs and    
          mark-to-market adjustment of $42,642 and $40,127 $2,561,837
 $2,299,625
Revolving line of credit 50,000
 57,000
Real estate loan investment participation obligation —
 5,181
Unearned purchase option termination fees 5,050
 2,050
Deferred revenue 40,663
 43,484
Accounts payable and accrued expenses 58,762
 38,618
Accrued interest payable 7,853
 6,711
Dividends and partnership distributions payable 22,429
 19,258
Acquired below market lease intangibles, net of amortization of $21,677 and $15,254 53,033
 47,149
Prepaid rent, security deposits, and other liabilities 19,253
 17,611
VIE liabilities from mortgage-backed pool, at fair value 585,837
 264,886
Total liabilities 3,404,717
 2,801,573
     
Commitments and contingencies (Note 11)    
     
Equity    
Stockholders' equity    
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050   
   shares authorized; 2,047 and 1,674 shares issued; 1,932 and 1,608   
shares outstanding at September 30, 2019 and December 31, 2018, respectively19
 16
Series M Redeemable Preferred Stock, $0.01 par value per share; 500   
   shares authorized; 91 and 44 shares issued; 90 and 44 shares outstanding   
at September 30, 2019 and December 31, 2018, respectively1
 —
Common Stock, $0.01 par value per share; 400,067 shares authorized;   
45,335 and 41,776 shares issued and outstanding at   
September 30, 2019 and December 31, 2018, respectively453
 418
Additional paid-in capital 1,861,446
 1,607,712
Accumulated (deficit) earnings —
 —
Total stockholders' equity 1,861,919
 1,608,146
Non-controlling interest 1,011
 1,239
Total equity 1,862,930
 1,609,385
     
Total liabilities and equity $5,267,647
 $4,410,958

Preferred Apartment Communities, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except per-share par values)September 30, 2020December 31, 2019
Assets
Real estate
Land$657,286 $635,757 
Building and improvements3,361,174 3,256,223 
Tenant improvements175,400 167,275 
Furniture, fixtures, and equipment357,010 323,381 
Construction in progress23,677 11,893 
Gross real estate4,574,547 4,394,529 
Less: accumulated depreciation(542,161)(421,551)
Net real estate4,032,386 3,972,978 
Real estate loan investments, net of deferred fee income and allowance for expected
loan loss of $10,480 and $1,460307,033 325,790 
Real estate loan investments to related parties, net of deferred fee income and allowances for expected
loan losses and doubtful accounts of $3,548 and $1,4162,568 23,692 
Total real estate and real estate loan investments, net4,341,987 4,322,460 
Cash and cash equivalents30,337 94,381 
Restricted cash65,690 42,872 
Notes receivable2,894 17,079 
Note receivable and revolving lines of credit due from related parties9,011 24,838 
Accrued interest receivable on real estate loans24,784 25,755 
Acquired intangible assets, net of amortization of $177,348 and $149,896133,297 154,803 
Deferred loan costs on Revolving Line of Credit, net of amortization of $1,362 and $849879 1,286 
Deferred offering costs4,721 2,147 
Tenant lease inducements, net of amortization of $4,902 and $3,56718,655 19,607 
Investment in unconsolidated joint venture6,851 0 
Tenant receivables and other assets91,956 65,332 
Total assets$4,731,062 $4,770,560 
Liabilities and equity
Liabilities
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $48,376 and $42,807$2,765,793 $2,567,022 
Revolving line of credit33,000 0 
Term note payable, net of deferred loan costs of $0 and $5110 69,489 
Unearned purchase option termination fees1,164 2,859 
Deferred revenue36,909 39,722 
Accounts payable and accrued expenses66,283 42,191 
Deferred liability to Former Manager23,373 0 
Contingent liability due to Former Manager14,867 0 
Accrued interest payable8,538 8,152 
Dividends and partnership distributions payable20,971 23,519 
Acquired below market lease intangibles, net of amortization of $31,511 and $23,65554,483 62,611 
Prepaid rent, security deposits, and other liabilities34,823 20,879 
Total liabilities3,060,204 2,836,444 
Commitments and contingencies (Note 11)
Equity
Stockholders' equity
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 and 2,161 shares
   issued; 1,991 and 2,028 shares outstanding at September 30, 2020 and December 31, 2019, respectively20 20 
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 103 and 5 shares
   issued and outstanding at September 30, 2020 and December 31, 2019, respectively0 0 
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued;
  91 and 103 shares outstanding at September 30, 2020 and December 31, 2019, respectively1 1 
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 13 and zero shares
   issued and outstanding at September 30, 2020 and December 31, 2019, respectively0 0 
Common Stock, $0.01 par value per share; 400,067 shares authorized; 49,901 and 46,443 shares issued and
outstanding at September 30, 2020 and December 31, 2019, respectively499 464 
Additional paid-in capital1,882,149 1,938,057 
Accumulated (deficit) earnings(210,218)(7,244)
Total stockholders' equity1,672,451 1,931,298 
Non-controlling interest(1,593)2,818 
Total equity1,670,858 1,934,116 
Total liabilities and equity$4,731,062 $4,770,560 
The accompanying notes are an integral part of these condensed consolidated financial statements.


2
Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
         
(In thousands, except per-share figures) Three months ended September 30, Nine months ended September 30,
  2019 2018 2019 2018
Revenues:        
Rental revenues $101,817
 $84,500
 $289,647
 $235,314
Other property revenues 3,232
 2,443
 8,922
 5,791
Interest income on loans and notes receivable 12,608
 13,618
 35,989
 37,576
Interest income from related parties 2,546
 3,671
 9,980
 12,310
Miscellaneous revenues —
 —
 1,023
 —
Total revenues 120,203
 104,232
 345,561
 290,991
         
Operating expenses:        
Property operating and maintenance 14,928
 12,893
 38,186
 31,805
Property salary and benefits (including reimbursements of $4,681, $4,501,        
  $12,973 and $12,040 to related party) 5,360
 4,911
 14,845
 13,038
Property management fees (including $2,565, $2,344, $7,534 and $6,604 to related parties) 3,534
 2,998
 10,174
 8,530
Real estate taxes 12,870
 10,597
 37,914
 30,635
General and administrative 1,898
 2,221
 6,425
 6,019
Equity compensation to directors and executives 305
 796
 922
 2,881
Depreciation and amortization 46,239
 44,499
 137,191
 127,210
Asset management and general and administrative expense fees to related party 8,611
 7,234
 24,649
 20,096
Loan loss allowance —
 3,029
 —
 3,029
Insurance, professional fees and other expenses 3,453
 1,713
 8,671
 5,166
Total operating expenses 97,198
 90,891
 278,977
 248,409
         
Waived asset management and general and administrative expense fees (3,081) (1,934) (8,505) (4,583)
         
Net operating expenses 94,117
 88,957
 270,472
 243,826
         
Operating income before gains on sales of real estate and trading investment 26,086
 15,275
 75,089
 47,165
Gains on sales of real estate and trading investment —
 18,605
 4
 38,961
Operating income 26,086
 33,880
 75,093
 86,126
Interest expense 28,799
 25,657
 83,166
 68,972
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools 591
 131
 1,316
 185
Loss on extinguishment of debt (15) —
 (84) —
Gain on sale of real estate loan investment —
 —
 747
 —
         
Net income (loss) (2,137) 8,354
 (6,094) 17,339
Consolidated net (income) loss attributable to non-controlling interests 59
 (216) 138
 (456)
         
Net income (loss) attributable to the Company (2,078) 8,138
 (5,956) 16,883
         
Dividends declared to preferred stockholders (29,446) (22,360) (82,527) (62,801)
Earnings attributable to unvested restricted stock (5) (5) (14) (13)
         
Net loss attributable to common stockholders $(31,529) $(14,227) $(88,497) $(45,931)
         
Net loss per share of Common Stock available        
to common stockholders, basic and diluted $(0.71) $(0.35) $(2.02) $(1.16)
         
Weighted average number of shares of Common Stock outstanding,        
basic and diluted 44,703
 40,300
 43,703
 39,598

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


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the three-month period ended September 30, 2019
(Unaudited)
               
(In thousands, except dividend per-share figures) Series A and Series M Redeemable Preferred Stock Common Stock Additional Paid in Capital Accumulated Earnings Total Stockholders' Equity Non-Controlling Interest Total Equity
               
Balance at July 1, 2019 $19
 $442
 $1,784,197
 $—
 $1,784,658
 $(488) $1,784,170
Issuance of Units 1
 —
 116,827
 —
 116,828
 —
 116,828
Issuance of mShares —
 —
 17,156
 —
 17,156
 —
 17,156
Redemptions of Series A Preferred Stock —
 9
 (2,886) —
 (2,877) —
 (2,877)
Exercises of warrants —
 2
 2,480
 —
 2,482
 —
 2,482
Syndication and offering costs —
 —
 (13,553) —
 (13,553) —
 (13,553)
Equity compensation to executives and directors —
 —
 155
 —
 155
 —
 155
Conversion of Class A Units to Common Stock —
 —
 112
 —
 112
 (112) —
Current period amortization of Class B Units —
 —
 —
 —
 —
 150
 150
Net income (loss) —
 —
 —
 (2,078) (2,078) (59) (2,137)
Contributions from Minority Holders —
 —
 —
 —
 —
 2,050
 2,050
Reallocation adjustment to non-controlling interests —
 —
 305
 —
 305
 (305) —
Distributions to non-controlling interests —
 —
 —
 —
 —
 (225) (225)
Dividends to series A preferred stockholders              
($5.00 per share per month) —
 —
 (30,094) 1,983
 (28,111) —
 (28,111)
Dividends to mShares preferred stockholders              
($4.79 - $6.25 per share per month) —
 —
 (1,430) 95
 (1,335) —
 (1,335)
Dividends to common stockholders ($0.2625 per share) —
 —
 (11,823) —
 (11,823) —
 (11,823)
Balance at September 30, 2019 $20
 $453
 $1,861,446
 $—
 $1,861,919
 $1,011
 $1,862,930
Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per-share figures)Three months ended September 30,Nine months ended September 30,
2020201920202019
Revenues:
Rental and other property revenues$114,831 $105,049 $338,271 $298,569 
Interest income on loans and notes receivable10,649 12,608 34,495 35,989 
Interest income from related parties609 2,546 3,750 9,980 
Miscellaneous revenues608 0 4,560 1,023 
Total revenues126,697 120,203 381,076 345,561 
Operating expenses:
Property operating and maintenance19,278 16,493 52,919 43,236 
Property salary and benefits (including reimbursements of $0, $4,681, $1,430
and $12,973 to related party)6,054 5,360 16,965 14,845 
Property management costs (including $0, $2,565, $894 and $7,534 to related parties)983 3,534 4,028 10,174 
Real estate taxes and insurance16,078 14,474 48,109 42,646 
General and administrative7,898 1,364 23,109 4,171 
Equity compensation to directors and executives582 305 1,058 922 
Depreciation and amortization51,794 46,239 153,096 137,191 
Asset management and general and administrative expense fees to related party0 8,611 3,099 24,649 
Provision for expected credit losses(152)0 5,463 0 
Management internalization expense577 818 179,828 1,143 
Total operating expenses103,092 97,198 487,674 278,977 
Waived asset management and general and administrative expense fees0 (3,081)(1,136)(8,505)
Net operating expenses103,092 94,117 486,538 270,472 
Operating (loss) income before gain on sale of real estate and loss from
unconsolidated joint venture23,605 26,086 (105,462)75,089 
Loss from unconsolidated joint venture(120)0 (120)0 
Gain on sale of real estate, net3,261 0 3,261 4 
Operating (loss) income26,746 26,086 (102,321)75,093 
Interest expense29,879 28,799 90,608 83,166 
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools0 591 0 1,316 
Loss on extinguishment of debt(518)(15)(6,674)(84)
Gain on land condemnation49 0 528 747 
Net loss(3,602)(2,137)(199,075)(6,094)
Consolidated net loss (income) attributable to non-controlling interests108 59 3,515 138 
Net loss attributable to the Company(3,494)(2,078)(195,560)(5,956)
Dividends declared to preferred stockholders(35,909)(29,446)(104,601)(82,527)
Earnings attributable to unvested restricted stock(96)(5)(109)(14)
Net loss attributable to common stockholders$(39,499)$(31,529)$(300,270)$(88,497)
Net loss per share of Common Stock available
to common stockholders, basic and diluted$(0.79)$(0.71)$(6.21)$(2.02)
Weighted average number of shares of Common Stock outstanding,
basic and diluted49,689 44,703 48,351 43,703 


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


3
Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity, continued
For the three-month period ended September 30, 2018
(Unaudited)
               
(In thousands, except dividend per-share figures) 
Series A and
Series M Redeemable Preferred Stock
 Common Stock Additional Paid in Capital Accumulated Earnings Total Stockholders' Equity Non-Controlling Interest Total Equity
               
               
Balance at July 1, 2018 $14
 $397
 $1,430,713
 $—
 $1,431,124
 $2,353
 $1,433,477
Issuance of Units 1
 —
 100,877
 —
 100,878
 —
 100,878
Issuance of mShares —
 —
 8,199
 —
 8,199
 —
 8,199
Redemptions of Series A Preferred Stock —
 7
 (49) —
 (42) —
 (42)
Exercises of warrants —
 4
 4,572
 —
 4,576
 —
 4,576
Syndication and offering costs —
 —
 (10,842) —
 (10,842) —
 (10,842)
Equity compensation to executives and directors —
 —
 135
 —
 135
 —
 135
Conversion of Class A Units to Common Stock —
 —
 20
 —
 20
 (20) —
Current period amortization of Class B Units —
 —
 —
 —
 —
 661
 661
Net income (loss) —
 —
 —
 8,138
 8,138
 216
 8,354
Reallocation adjustment to non-controlling interests —
 —
 391
 —
 391
 (391) —
Distributions to non-controlling interests —
 —
 —
 —
 —
 (271) (271)
Dividends to series A preferred stockholders              
($5.00 per share per month) —
 —
 (13,883) (7,948) (21,831) —
 (21,831)
Dividends to mShares preferred stockholders              
($4.79 - $6.25 per share per month) —
 —
 (339) (190) (529) —
 (529)
Dividends to common stockholders ($0.255 per share) —
 —
 (10,383) —
 (10,383) —
 (10,383)
Balance at September 30, 2018 $15
 $408
 $1,509,411
 $—
 $1,509,834
 $2,548
 $1,512,382


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the three-month period ended September 30, 2020
(Unaudited)
(In thousands, except dividend per-share figures)Redeemable Preferred StockCommon StockAdditional Paid in CapitalAccumulated EarningsTotal Stockholders' EquityNon-Controlling InterestTotal Equity
Balance at July 1, 2020$21 $493 $1,917,212 $(206,724)$1,711,002 $(1,006)$1,709,996 
Issuance of Series A1/M1 preferred shares0 0 42,352 — 42,352 — 42,352 
At-the-market issuance of common stock0 6 4,608 — 4,614 — 4,614 
Redemptions of preferred stock— 0 (33,823)0 (33,823)0 (33,823)
Syndication and offering costs— — (4,127)— (4,127)— (4,127)
Equity compensation to executives and directors0 0 512 0 512 0 512 
Conversion of Class A Units to common stock0 0 (2)0 (2)2 0 
Current period amortization of Class B Units0 0 0 0 0 70 70 
Net loss0 0 0 (3,494)(3,494)(108)(3,602)
 Contributions from non-controlling interests0 0 — — 0 (98)(98)
Reallocation of non-controlling interest to Class A Unitholders0 0 202 0 202 (202)0 
Distributions to non-controlling interests0 0 0 0 0 (119)(119)
Distributions to Class A Unitholders0 0 0 0 0 (132)(132)
Dividends to Series A preferred stockholders
($5.00 per share per month)0 0 (32,964)0 (32,964)0 (32,964)
Dividends to mShares preferred stockholders
($4.79 - $6.25 per share per month)0 — (1,547)0 (1,547)0 (1,547)
Dividends to Series A1/M1 preferred stockholders
($5.00 and $5.08 - $5.92 per share per month, respectively)0 0 (1,398)0 (1,398)0 (1,398)
Dividends to common stockholders ($0.175 per share)0 0 (8,876)0 (8,876)0 (8,876)
Balance at September 30, 2020$21 $499 $1,882,149 $(210,218)$1,672,451 $(1,593)$1,670,858 

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







4

Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the nine-month period ended September 30, 2019
Condensed Consolidated Statements of Stockholders' Equity, continuedCondensed Consolidated Statements of Stockholders' Equity, continued
For the three-month period ended September 30, 2019For the three-month period ended September 30, 2019
(Unaudited)(Unaudited)(Unaudited)
              
(In thousands, except dividend per-share figures) Series A and Series M Redeemable Preferred Stock Common Stock Additional Paid in Capital Accumulated Earnings Total Stockholders' Equity Non-Controlling Interest Total Equity(In thousands, except dividend per-share figures)Redeemable Preferred StockCommon StockAdditional Paid in CapitalAccumulated EarningsTotal Stockholders' EquityNon-Controlling InterestTotal Equity
              
Balance at January 1, 2019 $16
 $418
 $1,607,712
 $—
 $1,608,146
 $1,239
 $1,609,385
Issuance of Units 4
 —
 369,416
 —
 369,420
 —
 369,420
Balance at July 1, 2019Balance at July 1, 2019$19 $442 $1,784,197 $0 $1,784,658 $(488)$1,784,170 
Issuance of Series A preferred sharesIssuance of Series A preferred shares1 0 116,827 0 116,828 — 116,828 
Issuance of mShares —
 —
 46,765
 —
 46,765
 —
 46,765
Issuance of mShares0 0 17,156 0 17,156 — 17,156 
Redemptions of Series A Preferred Stock —
 26
 (8,014) —
 (7,988) —
 (7,988)
Redemptions of preferred stockRedemptions of preferred stock0 9 (2,886)0 (2,877)0 (2,877)
Exercises of warrants —
 8
 10,066
 —
 10,074
 —
 10,074
Exercises of warrants0 2 2,480 0 2,482 0 2,482 
Syndication and offering costs —
 —
 (43,795) —
 (43,795) —
 (43,795)Syndication and offering costs0 0 (13,553)0 (13,553)0 (13,553)
Equity compensation to executives and directors —
 —
 471
 —
 471
 —
 471
Equity compensation to executives and directors0 0 155 0 155 0 155 
Conversion of Class A Units to Common Stock —
 1
 676
 —
 677
 (677) —
Conversion of Class A Units to common stockConversion of Class A Units to common stock0 0 112 0 112 (112)0 
Current period amortization of Class B Units —
 —
 —
 —
 —
 451
 451
Current period amortization of Class B Units0 0 0 0 0 150 150 
Net income (loss) —
 —
 —
 (5,956) (5,956) (138) (6,094)
Contributions from Minority Holders —
 —
 —
 —
 —
 2,050
 2,050
Reallocation adjustment to non-controlling interests —
 —
 1,231
 —
 1,231
 (1,231) —
Net lossNet loss0 0 0 (2,078)(2,078)(59)(2,137)
Contributions from non-controlling interestsContributions from non-controlling interests0 0 — — 0 2,050 2,050 
Reallocation of non-controlling interest to Class A UnitholdersReallocation of non-controlling interest to Class A Unitholders0 0 305 0 305 (305)0 
Distributions to non-controlling interests —
 —
 —
 —
 —
 (683) (683)Distributions to non-controlling interests0 0 0 0 0 (225)(225)
Dividends to series A preferred stockholders              
Dividends to Series A preferred stockholdersDividends to Series A preferred stockholders
($5.00 per share per month) —
 —
 (85,078) 5,727
 (79,351) —
 (79,351)($5.00 per share per month)0 0 (30,094)1,983 (28,111)0 (28,111)
Dividends to mShares preferred stockholders              Dividends to mShares preferred stockholders
($4.79 - $6.25 per share per month) —
 —
 (3,405) 229
 (3,176) —
 (3,176)($4.79 - $6.25 per share per month)0 — (1,430)95 (1,335)0 (1,335)
Dividends to common stockholders ($0.785 per share) —
 —
 (34,599) —
 (34,599) —
 (34,599)
Dividends to common stockholders ($0.2625 per share)Dividends to common stockholders ($0.2625 per share)0 0 (11,823)0 (11,823)0 (11,823)
Balance at September 30, 2019 $20
 $453
 $1,861,446
 $—
 $1,861,919
 $1,011
 $1,862,930
Balance at September 30, 2019$20 $453 $1,861,446 $0 $1,861,919 $1,011 $1,862,930 


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


















5

Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity, continued
For the nine-month period ended September 30, 2018
(Unaudited)
               
(In thousands, except dividend per-share figures) 
Series A and
Series M Redeemable Preferred Stock
 Common Stock Additional Paid in Capital Accumulated Earnings Total Stockholders' Equity Non-Controlling Interest Total Equity
               
               
Balance at January 1, 2018 $12
 $386
 $1,271,040
 $4,449
 $1,275,887
 $4,879
 $1,280,766
Issuance of Units 3
 —
 311,719
 —
 311,722
 —
 311,722
Issuance of mShares —
 —
 21,768
 —
 21,768
 —
 21,768
Redemptions of Series A Preferred Stock —
 11
 (9,112) —
 (9,101) —
 (9,101)
Exercises of Warrants —
 10
 12,943
 —
 12,953
 —
 12,953
Syndication and offering costs —
 —
 (32,043) —
 (32,043) —
 (32,043)
Equity compensation to executives and directors —
 —
 413
 —
 413
 —
 413
Conversion of Class A Units to Common Stock —
 1
 870
 —
 871
 (871) —
Current period amortization of Class B Units —
 —
 —
 —
 —
 2,468
 2,468
Net income —
 —
 —
 16,883
 16,883
 456
 17,339
Reallocation adjustment to non-controlling interests —
 —
 3,571
 —
 3,571
 (3,571) —
Distributions to non-controlling interests —
 —
 —
 —
 —
 (813) (813)
Dividends to Series A preferred stockholders              
($5.00 per share per month) —
 —
 (40,655) (20,913) (61,568) —
 (61,568)
Dividends to mShares preferred stockholders              
($4.79 - $6.25 per share per month) —
 —
 (814) (419) (1,233) —
 (1,233)
Dividends to common stockholders ($0.76 per share) —
 —
 (30,289) —
 (30,289) —
 (30,289)
Balance at September 30, 2018 $15
 $408
 $1,509,411
 $—
 $1,509,834
 $2,548
 $1,512,382



Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity, continued
For the nine-month period ended September 30, 2020
(Unaudited)
(In thousands, except dividend per-share figures)Redeemable Preferred StockCommon StockAdditional Paid in CapitalAccumulated EarningsTotal Stockholders' EquityNon-Controlling InterestTotal Equity
Balance at January 1, 2020$21 $464 $1,938,057 $(7,244)$1,931,298 $2,818 $1,934,116 
Cumulative adjustment to reflect the adoption
of ASU 2016-13		— — — (7,414)(7,414)— (7,414)
Issuance of Series A preferred shares1 0 64,483 — 64,484 — 64,484 
 Issuance of Series A1/M1 preferred shares1 0 110,946 — 110,947 — 110,947 
At-the-market issuance of common stock— 6 4,608 — 4,614 — 4,614 
Exercise of warrants0 0 8 0 8 0 8 
Redemptions of preferred stock(2)28 (82,058)0 (82,032)0 (82,032)
Syndication and offering costs0 0 (20,775)0 (20,775)0 (20,775)
Equity compensation to executives and directors0 0 864 0 864 0 864 
Conversion of Class A Units to common stock0 1 1,381 0 1,382 (1,382)0 
Current period amortization of Class B Units0 0 0 0 0 194 194 
Net loss0 0 0 (195,560)(195,560)(3,515)(199,075)
 Contributions from non-controlling interests0 0 — — 0 103 103 
Reallocation of non-controlling interest to Class A Unitholders0 0 (773)0 (773)773 0 
Distributions to non-controlling interests0 0 0 0 0 (119)(119)
Distributions to Class A Unitholders0 0 0 0 0 (465)(465)
Dividends to Series A preferred stockholders
($5.00 per share per month)0 0 (97,272)0 (97,272)0 (97,272)
Dividends to mShares preferred stockholders
($4.79 - $6.25 per share per month)0 — (4,903)0 (4,903)0 (4,903)
Dividends to Series A1/M1 preferred stockholders
($5.00 and $5.08 - $5.92 per share per month, respectively)0 0 (2,426)0 (2,426)0 (2,426)
Dividends to common stockholders ($0.6125 per share)0 0 (29,991)0 (29,991)0 (29,991)
Balance at September 30, 2020$21 $499 $1,882,149 $(210,218)$1,672,451 $(1,593)$1,670,858 

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














6

Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
(In thousands) Nine Months Ended September 30,
  2019 2018
Operating activities:    
Net (loss) income $(6,094) $17,339
Reconciliation of net (loss) income to net cash provided by operating activities:    
Depreciation and amortization expense 137,191
 127,210
Amortization of above and below market leases (4,525) (4,297)
Deferred revenues and fee income amortization (4,024) (3,103)
Purchase option termination fee amortization(6,900) (6,554)
Noncash interest income amortization on MBS, net of amortized costs(696) (185)
Amortization of market discount on assumed debt and lease incentives 1,492
 1,152
Deferred loan cost amortization 4,752
 5,213
(Increase) in accrued interest income on real estate loan investments (7,888) (4,385)
Equity compensation to executives and directors 922
 2,881
Gains on sales of real estate and trading investment (4) (38,961)
Cash received for purchase option terminations 1,330
 5,100
Loss on extinguishment of debt 84
 —
Gain on sale of real estate loan investments, net (747) —
Non-cash payment of interest on related party line of credit (637) —
Mortgage interest received from consolidated VIEs 13,398
 3,429
Mortgage interest paid to other participants of consolidated VIEs (13,398) (3,429)
Loan loss allowance —
 3,029
Changes in operating assets and liabilities:    
(Increase) in tenant receivables and other assets (12,379) (3,518)
(Increase) in tenant lease incentives(570) (6,786)
Increase in accounts payable and accrued expenses 22,399
 14,470
Increase in accrued interest, prepaid rents and other liabilities 730
 3,369
Net cash provided by operating activities 124,436
 111,974
     
Investing activities:    
Investments in real estate loans (74,668) (145,413)
Repayments of real estate loans —
 141,729
Notes receivable issued (5,399) (5,949)
Notes receivable repaid 2,169
 8,941
Note receivable issued to and draws on line of credit by related parties (30,434) (39,377)
Repayments of line of credit by related parties 26,222
 28,566
Proceeds from sale of real estate loan investment, net 747
 —
Origination fees received on real estate loan investments1,347
 2,919
Origination fees paid to Manager on real estate loan investments(674) (1,459)
Purchases of mortgage-backed securities (K program), net of acquisition costs(18,656) —
Mortgage principal received from consolidated VIEs5,024
 705
Purchases of mortgage-backed securities(12,278) (4,739)
Proceeds from sales of mortgage-backed securities53,445
 —
Acquisition of properties (442,415) (662,918)
Disposition of properties, net —
 83,636
Receipt of insurance proceeds for capital improvements746
 412
Additions to real estate assets - improvements (34,251) (36,288)
Deposits (paid) refunded on acquisitions (952) 3,552
Net cash used in investing activities (530,027) (625,683)
     
Financing activities:    
Proceeds from mortgage notes payable 329,905
 386,559
Repayments of mortgage notes payable (106,728) (66,875)
Payments for deposits and other mortgage loan costs (6,738) (7,150)
Proceeds from real estate loan participants —
 5
Payments to real estate loan participants (5,223) (4,372)
Proceeds from lines of credit 240,200
 362,100
Payments on lines of credit (247,200) (348,200)
Repayment of the Term Loan —
 (11,000)
Mortgage principal paid to other participants of consolidated VIEs (5,024) (705)
Proceeds from repurchase agreements 4,857
 —
     
     
The accompanying notes are an integral part of these condensed consolidated financial statements.




 
Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows - continued
(unaudited)
     
(In thousands) Nine Months Ended September 30,
  2019 2018
Repayments of repurchase agreements (4,857) —
Proceeds from sales of Units, net of offering costs 380,016
 303,391
Proceeds from exercises of Warrants 9,875
 16,553
Payments for redemptions of preferred stock (7,995) (9,033)
Common Stock dividends paid (33,617) (29,488)
Preferred stock dividends paid (80,339) (61,093)
Distributions to non-controlling interests (686) (762)
Payments for deferred offering costs (3,386) (2,862)
Contributions from non-controlling interests 2,050
 —
     
Net cash provided by financing activities 465,110
 527,068
     
Net increase in cash, cash equivalents and restricted cash 59,519
 13,359
Cash, cash equivalents and restricted cash, beginning of year 87,690
 73,012
Cash, cash equivalents and restricted cash, end of period $147,209
 $86,371
     
     
Supplemental cash flow information:    
Cash paid for interest $76,563
 $62,207
     
Supplemental disclosure of non-cash investing and financing activities:    
Accrued capital expenditures $3,952
 $2,379
Writeoff of fully depreciated or amortized assets and liabilities $210
 $1,768
Writeoff of fully amortized deferred loan costs $1,850
 $—
Lessee-funded tenant improvements, capitalized as landlord assets $—
 $11,796
Consolidation of assets of VIEs $270,669
 $—
Consolidation of liabilities of VIEs $270,669
 $—
Dividends payable - Common Stock $11,823
 $10,377
Dividends payable - Series A Preferred Stock $9,534
 $7,426
Dividends payable - mShares Preferred Stock $714
 $170
Dividends declared but not yet due and payable $358
 $216
Partnership distributions payable to non-controlling interests $225
 $272
Accrued and payable deferred offering costs $252
 $322
Offering cost reimbursement to related party $384
 $1,438
Reclass of offering costs from deferred asset to equity $7,508
 $2,008
Loan receivables converted to equity for property acquisition $47,797
 $—
Fair value issuances of equity compensation $719
 $4,972
Mortgage loans assumed on acquisitions $41,550
 $47,125
Noncash repayment of mortgages through refinancings $65,607
 $37,485


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity, continued
For the nine-month period ended September 30, 2019
(Unaudited)
(In thousands, except dividend per-share figures)Redeemable Preferred StockCommon StockAdditional Paid in CapitalAccumulated EarningsTotal Stockholders' EquityNon-Controlling InterestTotal Equity
Balance at January 1, 2019$16 $418 $1,607,712 $0 $1,608,146 $1,239 $1,609,385 
Issuance of Series A preferred shares4 0 369,416 0 369,420 — 369,420 
Issuance of mShares0 0 46,765 0 46,765 — 46,765 
Redemptions of preferred stock0 26 (8,014)0 (7,988)0 (7,988)
Exercises of warrants0 8 10,066 0 10,074 0 10,074 
Syndication and offering costs0 0 (43,795)0 (43,795)0 (43,795)
Equity compensation to executives and directors0 0 471 0 471 0 471 
Conversion of Class A Units to common stock0 1 676 0 677 (677)0 
Current period amortization of Class B Units0 0 0 0 0 451 451 
Net loss0 0 0 (5,956)(5,956)(138)(6,094)
Contributions from non-controlling interests0 0 — — 0 2,050 2,050 
Reallocation of non-controlling interest to Class A Unitholders0 0 1,231 0 1,231 (1,231)0 
Distributions to non-controlling interests0 0 0 0 0 (683)(683)
Dividends to Series A preferred stockholders
($5.00 per share per month)0 0 (85,078)5,727 (79,351)0 (79,351)
Dividends to mShares preferred stockholders
($4.79 - $6.25 per share per month)0 — (3,405)229 (3,176)0 (3,176)
Dividends to common stockholders ($0.785 per share)0 0 (34,599)0 (34,599)0 (34,599)
Balance at September 30, 2019$20 $453 $1,861,446 $0 $1,861,919 $1,011 $1,862,930 

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






7

Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)Nine-month periods ended September 30,
20202019
Operating activities:
Net loss$(199,075)$(6,094)
Reconciliation of net loss to net cash provided by operating activities:
Depreciation and amortization expense153,096 137,191 
Amortization of above and below market leases(6,145)(4,525)
Deferred revenues and other noncash revenues amortization(3,710)(4,720)
Purchase option termination fee amortization(4,896)(6,900)
Amortization of equity compensation, lease incentives and other non-cash expenses3,027 2,414 
Deferred loan cost amortization5,177 4,752 
Non-cash accrued interest income on real estate loan investments(9,208)(10,206)
Receipt of accrued interest income on real estate loans10,179 2,318 
Gains on sales of real estate loan investments, net0 (751)
Gain on sale of real estate and land condemnation(3,789)0 
Loss from unconsolidated joint venture120 0 
Cash received for purchase option terminations4,800 1,330 
Loss on extinguishment of debt6,674 84 
Non-cash payment of interest on related party line of credit0 (637)
Mortgage interest received from consolidated VIEs0 13,398 
Mortgage interest paid to other participants of consolidated VIEs0 (13,398)
Increase in provision for expected credit losses5,463 0 
Changes in operating assets and liabilities:
(Increase) in tenant receivables and other assets(15,769)(12,379)
(Increase) in tenant lease incentives(382)(570)
Increase in accounts payable and accrued expenses46,821 22,399 
Increase in deferred liability to Former Manager22,851 0 
Increase in contingent liability15,013 0 
Decrease in accrued interest, prepaid rents and other liabilities(249)730 
Net cash provided by operating activities29,998 124,436 
Investing activities:
Investments in real estate loans(42,193)(74,668)
Repayments of real estate loans71,146 0 
Notes receivable issued(793)(5,399)
Notes receivable repaid15,012 2,169 
Note receivable issued to and draws on line of credit by related parties(9,624)(30,434)
Repayments of notes receivable and lines of credit by related parties4,546 26,222 
Proceeds from sale of real estate loan investment, net0 747 
Origination fees received on real estate loan investments882 1,347 
Origination fees paid to Former Manager on real estate loan investments0 (674)
Purchases of mortgage backed securities (K program), net of acquisition costs0 (18,656)
Mortgage principal received from consolidated VIEs0 5,024 
Purchases of mortgage backed securities0 (12,278)
Proceeds from sales of mortgage-backed securities0 53,445 
Acquisition of properties(185,970)(442,415)
Proceeds from sale of interest in unconsolidated joint venture19,221 0 
Return of capital from investment in unconsolidated joint venture12,250 0 
Receipt of insurance proceeds for capital improvements0 746 
Proceeds from land condemnation787 0 
Capital improvements to real estate assets(39,158)(34,251)
Investment in property development(50)0 
Deposits paid on acquisitions(1,227)(952)
Net cash used in investing activities(155,171)(530,027)
The accompanying notes are an integral part of these consolidated financial statements.
8

Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continued
(Unaudited)
(In thousands)Nine-month periods ended September 30,
20202019
Financing activities:
Proceeds from mortgage notes payable377,749 329,905 
Repayments of mortgage notes payable(173,409)(106,728)
Payments for deposits and other mortgage loan costs(10,911)(6,738)
Debt prepayment and other debt extinguishment costs(5,733)0 
Payments to real estate loan participants0 (5,223)
Proceeds from lines of credit321,000 240,200 
Payments on lines of credit(288,000)(247,200)
Repayment of the Term Loan(70,000)0 
Mortgage principal paid to other participants of consolidated VIEs0 (5,024)
Proceeds from repurchase agreements0 4,857 
Repayments of repurchase agreements0 (4,857)
Proceeds from the sales of Preferred Stock and Units, net of offering costs and redemptions159,096 380,016 
Proceeds from exercises of Warrants24 9,875 
Payments for redemptions of preferred stock(82,003)(7,995)
Proceeds from sale of Common Stock4,522 0 
Common Stock dividends paid(33,271)(33,617)
Preferred stock dividends and Class A Unit distributions paid(104,428)(81,025)
Payments for deferred offering costs(10,669)(3,386)
Contributions from non-controlling interests99 2,050 
Distributions to non-controlling interests(119)0 
Net cash provided by financing activities83,947 465,110 
Net increase (decrease) in cash, cash equivalents and restricted cash(41,226)59,519 
Cash, cash equivalents and restricted cash, beginning of year137,253 87,690 
Cash, cash equivalents and restricted cash, end of period$96,027 $147,209 
Supplemental cash flow information:
Cash paid for interest$84,172 $76,563 
Supplemental disclosure of non-cash investing and financing activities:
Accrued capital expenditures$6,067 $3,952 
Writeoff of fully depreciated or amortized assets and liabilities$2,473 $210 
Writeoff of fully amortized deferred loan costs$2,828 $1,850 
Consolidation of assets of VIEs$0 $270,669 
Consolidation of liabilities of VIEs$0 $270,669 
Noncash extinguishment of notes receivable$20,865 $0 
Dividends payable - Common Stock$8,876 $11,823 
Dividends payable - Series A Preferred Stock$9,954 $9,534 
Dividends payable - mShares Preferred Stock$1,097 $714 
Dividends payable - A1/M1 Preferred Stock$545 $0 
Dividends declared but not yet due and payable$499 $358 
Partnership distributions payable to non-controlling interests$130 $225 
Accrued and payable deferred offering costs$38 $252 
Offering cost reimbursement to related party$40 $384 
Reclass of offering costs from deferred asset to equity$4,338 $7,508 
Loan receivables converted to equity for property acquisition$0 $47,797 
Noncash contribution of property into an unconsolidated joint venture$38,443 $0 
Fair value issuances of equity compensation$6,461 $719 
Mortgage loans assumed on acquisitions$0 $41,550 
   Noncash repayment of mortgages through refinances$86,669 $65,607 
Operating lease liabilities assumed from Former Manager$15,912 $0 

    The accompanying notes are an integral part of these consolidated financial statements.
9
Preferred Apartment Communities, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 20192020
(unaudited)





1.
Organization and Basis of Presentation

1.Organization and Basis of Presentation

Preferred Apartment Communities, Inc. (NYSE: APTS) is a Maryland corporation formedreal estate investment trust engaged primarily to ownin the ownership and operateoperation of Class A multifamily properties, and, to a lesser extent, own and operate student housing properties, grocery-anchoredwith select investments in grocery anchored shopping centers, and strategically located, well leased classClass A office buildings, alland student housing properties. Preferred Apartment Communities’ investment objective is to generate attractive, stable returns for stockholders by investing in select targeted markets throughoutincome-producing properties and acquiring or originating real estate loans. As of September 30, 2020, the Company owned or was invested in 125 properties in 15 states, predominantly in the Southeast region of the United States. As part of our business strategy, we may enter into forward purchase contracts or purchase options for to-be-built multifamily communities and we 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.  As a secondary strategy, we may acquire or originate senior mortgage loans, subordinate loans or real estate loans secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest a lesser portion of our assets in other real estate related investments, including other income-producing property types, senior mortgage loans, subordinate loans or real estate loans secured by interests in other income-producing property types, membership or partnership interests in other income-producing property types as determined by our manager as appropriate for us.  At December 31, 2018, the Company was the approximate 97.9% owner of Preferred Apartment Communities Operating Partnership, L.P., the Company's operating partnership. Preferred Apartment Communities, Inc. has elected to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended, commencing with its tax year ended December 31, 2011. The Company iswas externally managed and advised by Preferred Apartment Advisors, LLC, or its Former Manager, a Delaware limited liability company and related party until the Company acquired the Former Manager and NMP Advisors, LLC, or the Sub-Manager, or the Internalization, on January 31, 2020. Prior to the Internalization transaction, according to the Sixth Amended and Restated Management Agreement, effective as of June 3, 2016, among the Company, the Operating Partnership (as defined below), and the Former Manager, or the Former Management Agreement, the Company paid acquisition fees and other fees and expense reimbursements to the Former Manager. Following the Internalization transaction that closed on January 31, 2020, the Company no longer pays any fees or expense reimbursements to its Former Manager or Sub-Manager (see Note 6).


As of September 30, 2019,2020, the Company had 45,335,04349,900,555 shares of common stock, par value $0.01 per share, or Common Stock, issued and outstanding and was the approximate 98.2%98.5% owner of the Preferred Apartment Communities Operating Partnership, L.P., the Company's operating partnership, at that date. The number of partnership units not owned by the Company totaled 856,409742,413 at September 30, 2019 2020 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 controlscontrolled the Operating Partnership through its sole general partner interest and conductsconducted substantially all of its business through the Operating Partnership until January 31, 2020. Beginning February 1, 2020, the Company conducts substantially all of its business through PAC Carveout, LLC, or Carveout, a wholly-owned subsidiary of the Operating Partnership. Carveout intends to elect to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended, commencing with its tax year ended December 31, 2020. The Company has determined the Operating Partnership is a variable interest entity, or VIE, of which the Company is the primary beneficiary. The Company is involved with other VIEs such as through its investments in mortgage pools from the Freddie Mac K Program, as discussed in Note 4. 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 indirect 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. The year endThese condensed balance sheet data wasfinancial statements were derived from audited financial statements, but doesdo not contain all the disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2019. 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 results of operations for the three and nine months ended September 30, 2020 and 2019, are not necessarily indicative of the results that may be expected for the full year. 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.

During the first quarter of 2020, there was a global outbreak of a novel coronavirus, or COVID-19, that has had and will continue to have an adverse impact on economic and market conditions and trigger a period of economic slowdown in the United States and globally. The potential reach, severity and duration of impacts of the COVID-19 pandemic will cause our estimates and forecasts of future events to be inherently less certain. Actual results could differ from those estimates. Amounts are presented in thousands where indicated.


As permitted by10
Preferred Apartment Communities, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020



Reclassification Adjustments

The Company recorded certain reclassification adjustments on its Condensed Consolidated Statement of Operations for the practical expedient within ASC 842, Leases, three-month and nine-month periods ended September 30, 2019, to conform prior period presentation to the Company has elected to reportcurrent presentation reflective of the lease component and non-lease componentsinternalized structure as one single component within the line entitled Rental Revenues on the Company's Consolidated Statements of Operations. Reimbursement revenue was previously presentedshown in the Company’s Other Property Revenues line item. For presentation purposes, the Company has reclassified its revenue from reimbursements from the Other Property Revenues line into the Rental Revenues line for all periods presented.table below. None of these reclassification adjustments were due to error or misstatement.
For the three-month period ended September 30, 2019
(in thousands)As reported in Quarterly Report on Form 10-Q at September 30, 2019Reclassification adjustmentsAs reported in Quarterly Report on Form 10-Q at September 30, 2020
Rental revenues$101,817 $(101,817)$0 
Other property revenues$3,232 $(3,232)$0 
Rental and other property revenues$0 $105,049 $105,049 
Operating expenses:
Property operating and maintenance$14,928 $1,565 $16,493 
Real estate taxes$12,870 $(12,870)$0 
Real estate taxes and insurance$0 $14,474 $14,474 
General and administrative$1,898 $(534)$1,364 
Insurance, professional fees and other expenses$3,453 $(3,453)$0 
Management internalization expense$0 $818 $818 


For the nine-month period ended September 30, 2019
(in thousands)As reported in Quarterly Report on Form 10-Q at September 30, 2019Reclassification adjustmentsAs reported in Quarterly Report on Form 10-Q at September 30, 2020
Rental revenues$289,647 $(289,647)$0 
Other property revenues$8,922 $(8,922)$0 
Rental and other property revenues$0 $298,569 $298,569 
Operating expenses:
Property operating and maintenance$38,186 $5,050 $43,236 
Real estate taxes$37,914 $(37,914)$0 
Real estate taxes and insurance$0 $42,646 $42,646 
General and administrative$6,425 $(2,254)$4,171 
Insurance, professional fees and other expenses$8,671 $(8,671)$0 
Management internalization expense$0 $1,143 $1,143 
    

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10
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)




2.Summary of Significant Accounting Policies

2.Summary of Significant Accounting Policies
Variable Interest Entities

Impairment Assessment
A variable interest entity,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 “VIE”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 undiscounted cash flows of the property, including proceeds from disposition, are compared to the net book value of the property. If this test indicates that impairment exists, an impairment loss is an entity that lacks sufficient equityrecorded in earnings equal to finance its activities without additional subordinated financial support from other parties, or whose equity holders lack the characteristicsshortage of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is definedthe book value to fair value, calculated as the party who has a controlling financial interest in the VIE through the (a) power to direct the activitiesdiscounted net cash flows of the VIE that most significantly affect the VIE’s economic performance, and (b) obligation to absorbproperty.

Current expected credit losses or right to receive benefits of the VIE that could be significant to the VIE. The Company assesses whether it meets the power and benefits criteria and in performing this analysis, the Company considers both qualitative and quantitative factors, including the Company’s ability to control or significantly influence key decisions of the VIE and the obligation or likelihood for the Company to fund operating losses of the VIE. The determination of whether an entity is a VIE, and whether the Company is the primary beneficiary, may involve significant judgment, including the determination of which activities most significantly affect the entities’ performance, and estimates about the current and future fair values and performance of assets held by the VIE. If the Company determines that it meets both the power and benefits criteria of the VIE, the Company is deemed to be the primary beneficiary of the VIE and the Company consolidates the entire VIE entity in its consolidated financial statements. For those VIEs which arise from the Company's investment in mortgage-backed securities and which the Company consolidates, it elects the fair value option, under which the assets and liabilities of the consolidated VIE are carried at fair value. The periodic changes in fair value are included in the earnings of the Company and are reported on the line entitled Change in fair value of net assets of consolidated VIE from mortgage-backed pool on the Company's Consolidated Statements of Operations. See Note 4 for discussion related to the Company’sreal estate loan investments in subordinate tranches of collateralized mortgage-backed pools and Note 15 for fair value disclosures related to a consolidated VIE related to these investments.
Real Estate Loans


The Company carries its investments in real estate loans at amortized cost with assessments made for possible loan loss allowances in the event recoverability of the principal amount becomes doubtful. If, upon testing for possible loan loss allowances, the fair value result of the loan or its collateral is lower than the carrying amount of the loan, an allowance is recorded to lower the carrying amount to fair value, with a loss recorded in earnings. The balances of real estate loans presented on the consolidated balance sheets consistthat consists of drawn amounts on the loans, net of unamortized deferred loan origination fees and current expected credit losses.

On January 1, 2020, the Company adopted ASU 2016-13, that replaced the incurred loss model with an expected loss model for instruments measured at amortized cost, and requires entities to record credit allowances for total expected future losses on financial assets at the outset of each loan. For each loan loss allowances.

Interest income onin which the Company is the lender, the amount of protection afforded to the Company is estimated to be the excess of the future estimated fair market value of the developed property over the developer’s related obligations (including the Company’s mezzanine or member loan(s)), other loans senior to the Company's, the expected future balance of accrued interest and any other obligations related to the project’s funding. The excess represents the amount of equity dollars in each real estate loans and notes receivableproject plus profit expected to be realized by the developer on the project, both of which are in a subordinate position to the Company's real estate loan investments. This numeric result is recognized on an accrual basis over the livesexpressed as a percentage of the loansproperty's expected future fair value (a "loss reserve ratio"), which is then pooled into ranges of loss percentages that was derived from company-specific loss experience. The product of this indicated loss reserve ratio and the expected fully-funded balance (inclusive of an expected future balance of accrued interest) is the initial total expected credit loss reserve. Over the life of the loan, the initial reserve is reevaluated for potential reduction at the achievement of certain milestones in construction and lease-up progress as the project approaches completion and the loan approaches maturity, given no unforeseen degradation in project performance or notes. Infailure to adhere to the event that aterms of the loan or note is refinanced withby the proceeds of another loan issuedborrower/developer. Finally, the loss reserve may be further refined by the Company any unamortized loan fee revenue from the first loan will be recognized as interest revenue at the date of refinancing. Loan origination fees applicable to real estate loans are amortized over the lives of the loans as adjustments to interest income using the effective interest rate method. The accrual of interest on all these instruments ceases when there is concern as to the ultimate collection of principal or interest. Certain real estate loan assets include limited purchase options and either exit fees or additional amounts of accrued interest. Exit fees or accrued interest due will be treated as additional consideration for the acquired project if the Company purchases the subject property. Additional accrued interest becomes due in cash to the Company on the earliest to occur of: (i) the maturity of the loan, (ii) any uncured event of default as defined in the associated loan agreement, (iii) the sale of the project or the refinancing of the loan (other than a refinancing loan by the Company or one of its affiliates) and (iv) any other repayment of the loan.

Evaluations for the possible need for loan loss allowances are performed for each real estate loan investment at least quarterly. Loan loss allowances are needed when it is deemed probable that all amounts due will not be collected according to the contractual terms of the loan. Depending upon the circumstances and significance of risk related to the collectability of the loan, management may determine that (i) the loan should be accounted for as a non-accrual loan because recovery of all contractual amounts due are deemed improbable and that any amounts subsequently received will be used to reduce the loan’s principal balance, (ii) in the event of a modification to the loan granted by the Company as a concession to the borrower who is experiencing financial difficulty, result in the need to apply troubled debt restructuring (“TDR”) accounting guidance, and/or (iii) an allowance for loan loss is required for the loan based upon the value of the underlying collateral and the Company’s evaluation of a possible shortfall with regards to the loan’s repayment based upon an estimated sales price, additional costs (if necessary), estimated selling costs, and amounts due to all lenders.any subjective qualitative factors deemed pertinent and worthy of reflection.
In connection with the surveillance review process, the Company’s
The Company implemented this new guidance by applying this model to its existing portfolio of real estate loan investments using the modified retrospective method and in doing so, recorded a cumulative effect adjustment to retained earnings on January 1, 2020. See note 4.

The Company's notes and lines of credit receivable are assigned an internal risk rating. The internal risk ratingsunsecured and so are based onassessed for expected future credit loss by individually assessing the loan’sexpected profit from current statusdevelopment projects in progress, as compared to underwriting for certain metrics suchwell as total expected construction cost if overruns are noted, construction completion timing if there are delays, current cap rates within the


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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



MSA, leasing status, rental rates, net operating income, expected free cash flow, and other factors management deems important related to the ultimate collectabilityviability of the loan. The final internal risk ratings are influenced by other quantitative and qualitative factors that can result in an adjustment to the ratings. Each loan is given an internal risk rating from “A” to “D”.  Loans rated an “A” meet all present contractual obligations and there are no indicators which would cause concern for the borrower’s ability to meet all present contractual obligations. Loans rated a “B” meet all present contractual obligations, but exhibited at least one indication of a negative variation from the underwriting for the loan and/or project. Loans rated a “C” exhibit some weakness that deserves management’s close attention and if uncorrected, may result in deterioration of repayment prospects. For these loans, management performs analyses to verify the borrower’s ability to meet all present contractual obligations, including obtaining an appraisalpersonal guarantees of the underlying collateral for the loan. Based on the available collateral to satisfy the Company’s outstanding principal and interest contractually due, we may provide for an allowance, move the loan to non-accrual status for future interest recognition or continue monitoring the loan. For loans rated a “D”, the collection of all contractual principal and interest is improbable and management has determined to account for the loan as a non-accrual loan and, if appropriate under the circumstances record a loan loss allowance.borrowers.


The Company's real estate loan investments are collateralized by real estate development projects and secured further by guaranties of repayment from one or more of the borrowers. The Company's lines of credit receivable are typically only collateralized by personal guaranties, but occasionally may be cross-collateralized by interests in other real estate projects. As a result, the Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, as well as the financial and operating capability of the borrower. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan, and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the overall economic environment, real estate sector, and geographic sub‑marketsub-market in which the borrower operates are considered. Such impairment analyses are completed and reviewed by management, utilizing various data sources, including periodic financial data such as property operating statements, occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, capitalization and discount rates and site inspections.


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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

See the Revenue Recognition section of this Note for other loan-related policy disclosures required by ASC 310-10-50-6.

Purchase Option Terminations


The Company will occasionally receive a purchase option and/or a right of first refusal on the underlying property in conjunction with extending a real estate loan investment to the developer of the property. The purchase option is oftenin some instances at a discount to the to-be-agreed-upon market value of the property, once stabilized. If the Company elects not to exercise the purchase option and acquire the property, it may negotiate to sell the purchase option back to the developer and receive a termination fee in consideration. The amount of the termination fee is accounted for as additional interest on the real estate loan investment and is recognized as interest revenue utilizing the effective interest method over the period beginning from the date of election until the earlier of (i) the maturity of the real estate loan investment and (ii) the sale of the property.


Revenue Recognition


Multifamily communities and student housingResidential properties


Rental revenue is recognized when earned from residents of the Company's multifamily communities,residential properties, which is over the terms of the rental agreements, typically of 9nine to 15fifteen months’ duration. The Company evaluates the collectability of amounts due from residents and recognizes revenue from residents when collectability is deemed probable, in accordance with ASC 842-30-25-12. The Company disclosed bad debt expense within the Property Operating and Maintenance expense line item in prior periods, but recorded the reduction in revenue against Rental Revenues and Other Property Revenues, as applicable, for the current period.


The Company evaluated the various ancillary revenues within its multifamily leases, including resident utility reimbursements. Having met the criteria that (i) the timing and pattern of transfer for the lease component and associated non-lease components are the same and (ii) that the lease component, if accounted for separately would be classified as an operating lease, the Company has elected the practical expedient under Lease Accounting, ASC 842, Leases,paragraph 10-15-42A,10-15-42A, to elect reporting the lease component and non-lease components as one single component under Rental Revenues recognized in accordance with ASC 842. Lease components such as petwithin the rental fees and parking rental fees as well as non-lease components such as utility reimbursements were previously presented inother property revenues line on the Company’s Other Property Revenues line item. For presentation purposes, the Company has reclassified


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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



its revenue from these revenue sources into Rental Revenues for all periods presented, for comparability.of Operations. Revenue from utility reimbursements are considered variable lease payments and are recognized in the period in which the related expenses are incurred.


Grocery-anchored shopping centers and office properties
Our retail leases have original lease terms which generally range from three to seven years for spaces under 5,000 square feet and from 10ten to 20twenty years for spaces over 10,000 square feet. Anchor leases generally contain renewal options for one or more additional periods whereas in-line tenant leases may or may not have renewal options. With the exception of anchor leases, the leases generally contain contractual increases in base rent rates over the lease term and the base rent rates for renewal periods are generally based upon the rental rate for the primary term, which may be adjusted for inflation or market conditions. Anchor leases generally do not contain contractual increases in base rent rates over the lease term and the renewal periods. Our leases generally provide for the payment of fixed monthly rentals and may also provide for the payment of additional rent based upon a percentage of the tenant’s gross sales above a certain threshold level (“percentage rent”). Our leases also generally include tenant reimbursements for common area expenses, insurance, and real estate taxes. Utilities are generally paid by tenants either directly through separate meters or through payment of tenant reimbursements. The foregoing general description of the characteristics of the leases in our centers is not intended to describe all leases and material variations in lease terms may exist.

Our office building leases have original lease terms which generally range from 5five to 15fifteen years and generally contain contractual, annual base rental rate escalations ranging from 2% to 3%. These leases may be structured as gross where the tenant’s base rental rate is all inclusive and there is no additional obligation to reimburse building operating expenses, net or NNN where in addition to base rent the tenant is also responsible for its pro rata share of reimbursable building operating expenses, or modified gross where in addition to base rent the tenant is also responsible for its pro rata share of reimbursable building operating expense increases over a base year amount (typically calculated as the actual reimbursable operating expenses in year one of the original lease term).


Base rental revenue from tenants' operating leases is a lease component revenue in the Company's grocery-anchored shopping centers and office properties and 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.

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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

Revenue from reimbursements of the tenants' share of real estate taxes, insurance and common area maintenance, or CAM, costs represent non-lease component revenue. Having met the criteria that (i) the timing and pattern of transfer for the lease component and associated non-lease components are the same and (ii) that the lease component, if accounted for separately would be classified as an operating lease, the Company has elected the practical expedient under ASC 842, Leases, paragraph 10-15-42A, to elect reporting the lease component and non-lease components as one single component under Rental Revenuesrental and other property revenues recognized in accordance with ASC 842. Reimbursement revenue and percentage rent were previously presented in the Company’s Other Property Revenues line item. For presentation purposes, the Company has reclassified its revenue from reimbursements into Rental Revenues for all periods presented, for comparability. Revenue from reimbursements are considered variable lease payments and are recognized in the period in which the related expenses are incurred. The Company does not record income and offsetting expense for certain variable costs paid directly to third parties by lessees on behalf of lessors.


Non-lease components which do not qualify under the practical expedient primarily include percentage rent, lease termination income and other ancillary revenue (e.g. storage revenue,application fees, license fees, late fees and tenant billbacks). These items are recorded under Other property revenues. 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 evaluated 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. In performing a detailed review of each tenant, we determined if the balances were paid in the subsequent month, if if the tenant had requested rent relief in the subsequent month due to COVID-19 circumstances, if the tenant was a credit tenant that was not typically late, and if the tenant had a security deposit on hand. If collection of substantially all of the outstanding balance is not probable, the tenant's rental revenue is recognized on a cash basis and all accrued balances are written off to rental revenue.

The Company evaluates the collectability of these amounts and recognizes revenue related to tenants where collectability is deemed probable, in accordance with ASC 842-30-25-12. The Company previously recorded bad debt expense within the Property operating and maintenance expense line item, and uponUpon adoption of ASC 842, on January 1, 2019,the Company began recording amounts not deemed probable of collection as a reduction of rental revenues and other property revenues, as applicable.


In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of COVID-19. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated with the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 on lessees is a lease modification under Topic 842, Leases. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 is a modification can then elect whether to apply the modification guidance (i.e. assume the relief was always contemplated by the contract or assume the relief was not contemplated by the contract). Both lessees and lessors may make this election. The Company is evaluating its election on a disaggregated basis, with such election applied consistently to leases with similar characteristics and similar circumstances. The future impact of the Lease Modification Q&A is dependent upon the extent of lease concessions granted to tenants as a result of COVID-19 in future periods and the elections made by the Company at the time of entering into such concessions. The Company elected to account for rent deferments provided to our residents and tenants, which were primarily related to a change of timing of rent payments with no significant changes to total payments or term, as a deferred payment in which we continue to recognize rental revenue on the existing straight-line basis over the remaining lease term and recognize any changes in payment through lease receivables, which is recorded in tenant receivables and other assets in our condensed consolidated balance sheet. Any deferment agreements which resulted in a significant change in lease term were accounted for as a modification under ASC 842.

The Company may provide grocery-anchored shopping center 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


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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



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 properties, if the

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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

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 with a corresponding recognition of 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.


Gains on sales of real estate assets


The Company recognizes gains on sales of real estate based on the difference between the consideration received and the carrying amount of the distinct asset, including the carrying amount of any liabilities relieved or assumed by the purchasing counterparty and net of disposition expenses.


Lessee accounting


The Company has evaluated its leases for which it is the lessee to determine the value of any right of use assets and related lease liabilities. All of these leases qualify as operating leases. The Company has three3 ground leases related to our office and grocery-anchored shopping center assets, one of which had been recorded at fair value on the Company's balance sheet at acquisition due to a purchase option the Company deemed probable of exercising. These ground leases generally have extended terms (e.g. over 20twenty years with multiple renewal options) and generally have base rent with CPI-based increases. The Company evaluated its renewal option periods in quantifying its asset and liability related to these ground leases. In determining the value of its right of use asset and lease liability, the Company used discount rates comparable to recent loan rates obtained on comparative properties within its portfolio. The Company is also the lessee of office space for its corporate headquarters and of furniture and office equipment, which generally are three to five years in duration with minimal rent increases. The Company’s right of use asset and related lease liability in accordance with ASC 842-20-30 related to these ground leases are recorded within the Tenant Receivables and Other Assets and the Security Deposits and Other Liabilities line items of the balance sheet, respectively. The Company is also the lessee ofLease expense for ground leases and furniture and equipment leases such as office equipment which generallylocated at the Company's properties is included in the consolidated statements of operations within property operations and maintenance and expense for office rent and furniture and office equipment in the Company's corporate headquarters are threeincluded in general and administrative expense. See note 12 for more disclosures related to five years with minimal rent increases. The Company determined that the relatedCompany's right of use assetassets and lease liabilityliabilities.

Investments in joint ventures

The Company’s joint ventures primarily consist of co-investments with institutional and other real estate operators, consistent with its core business. These joint ventures typically obtain non-recourse third-party financing on their property investments, thus contractually limiting the Company’s exposure to losses primarily to the amount of its equity investment; and due to the lender’s exposure to losses, a lender typically will require a minimum level of equity in order to mitigate its risk. As of September 30, 2020, the Company has a partial ownership interest in one multifamily community, two student housing properties, three grocery-anchored shopping centers and two office buildings. Of these investments in joint venture, only one grocery-anchored shopping center is accounted for as an investment in an unconsolidated joint venture. The Company evaluates its investments in joint venture and consolidates those in which it has controlling financial interest and records limited partners’ ownership interest and share of net income as non-controlling interest, under the voting interest model. The Company accounts for its furnitureinvestments for which it does not have a controlling financial interest as an investment in an unconsolidated joint venture under the equity method of accounting. All investments in joint venture have been evaluated for factors which may indicate a variable interest entity and equipment leasesdetermined none met such criteria.

Investments in unconsolidated joint venture are recorded initially at cost and subsequently adjusted for cash contributions, distributions and our share of earnings and losses. To recognize the character of distributions from equity investees within its Condensed Consolidated Statements of Cash Flows, all distributions received are presumed to be returns on investment and classified as cash inflows from operating activities unless the Company’s cumulative distributions received less distributions received in prior periods that were immaterial.determined to be returns of investment exceed its cumulative equity in earnings recognized by the investor (as adjusted for amortization of basis differences). When such an excess occurs, the current-period distribution up to this excess is considered a return of investment and classified as cash inflows from investing. Cash from loan proceeds received from the placement of debt on a property included in investments in unconsolidated joint venture are presented in cash flows provided by investing activities in the accompanying Condensed Consolidated Statements of Cash Flows.


On a continuous basis, management assesses whether there are any indicators, including the underlying investment property operating performance and general market conditions, that the value of the Company’s investments in unconsolidated joint


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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)




ventures may be impaired. An investment’s value is impaired only if management’s estimate of the fair value of the investment is less than the carrying value of the investment and such difference is deemed to be other-than-temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the estimated fair value of the investment. Estimated fair values which are based on discounted cash flow models include all estimated cash inflows and outflows over a specified holding period, capitalization rates and discount rates utilized in these models are based upon unobservable rates that the Company believes to be within a reasonable range of current market rates.

New Accounting Pronouncements

StandardDescriptionDate of AdoptionEffect on the Consolidated Financial Statements
Recently Adopted Accounting Guidance
ASU 2016-02, Leases (Topic 842)

ASU 2018-11, Leases (Topic 842) Targeted Improvements

ASU 2016-02 requires a lessor to separate lease components from non-lease components, such as maintenance services or other activities that transfer a good or service to our residents and tenants in a contract.

In July 2018, the FASB issued ASU 2018-11 which allowed for a practical expedient for lessors to elect, by class of underlying assets, to not separate lease and non-lease components if both (1) the timing and pattern of revenue recognition are the same for the non-lease component(s) and related lease component and (2) the combined single lease component would be classified as an operating lease.

Additional practical expedients were also provided for under ASU 2018-11 related to expired or existing leases.

January 1, 2019
Having met the criteria that (i) the timing and pattern of transfer for the lease component and associated non-lease components are the same and (ii) that the lease component, if accounted for separately would be classified as an operating lease, the Company has elected the practical expedient within ASU 2018-11, as codified under ASC 842-10-15-42A, to elect reporting the lease component and non-lease components as one single component under Rental Revenues recognized in accordance with ASC 842. This change had no material effect on the timing of revenue recognition.

The Company has also elected to implement the package of practical expedients provided within ASU 2018-11, as codified under ASC 842-10-65-1(f), which allows the Company not to reassess whether expired or existing contracts contain leases, its lease classification, and any related initial direct costs.

ASU 2018-20, Leases (ASC 842), Narrow-Scope Improvements for LessorsASU 2018-20 eliminates the requirement to record income and offsetting expense for certain variable costs paid for by lessees on behalf of lessors.January 1, 2019The Company no longer records income and expense for property taxes paid directly to the taxing authority by a lessee based on this standard. The effect is a reduction of other property revenues and of property tax expense, with no effect upon net income/loss.
Recently Issued Accounting Guidance Not Yet Adopted
ASU 2016-13, Financial Instruments - Credit Losses (ASC 326)
ASU 2016-03 ("CECL") changes how entities will measure credit losses for most financial assets, including loans, which are not measured at fair value through net income. The guidance replaces the existing incurred loss model with an expected loss model for instruments measured at amortized cost, and requirerequires entities to record credit allowances for financial assets rather than reduce the carrying amount, as they do today under the other-than temporary impairment model.January 1, 2020We are currently evaluating the potential impacts of the new guidance and proposed amendments to the new guidance on our consolidated financial statements. The new guidance specifically excludes financial assets measured at fair value through net income. The Company elected the fair value option for its Freddie Mac K Program investments. Therefore, we expect the impact
Implementation of the new guidance on accounting for financial assets will bewas limited to our real estate investmentloan investments. We have developed a model that derives a reserve ratio based upon the amount of financial protection afforded each instrument. For each loan in which we are the lender, the amount of protection afforded to us is estimated to be the excess of the future estimated fair market value of the developed property over the commitment amount of each loan (including other loans senior to the Company’s), inclusive of accrued interest and notes and revolving linesother related receivables. The excess represents the amount of credit.equity dollars in each real estate project, which are in a subordinate position to our real estate loan investments. We expect to implementimplemented this new guidance using the modified retrospective basis by recording a cumulative effect adjustment to retained earnings on January 1, 2020. 2020 of approximately $7.4 million.


StandardDescriptionDate of AdoptionEffect on the Consolidated Financial Statements
Recently Issued Accounting Guidance Not Yet Adopted
ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting
The new standard enables affected entities to elect from a series of practical expedients designed to ease the transition from referenced base rates within contracts designated to be replaced by Reference Rate Reform.The amendments are effective March 12, 2020 through December 31, 2022.ASU 2020-04 will potentially be applicable to the Company's variable-rate debt instruments for which the Company is the borrower, which bear interest at a spread over the 1-month London Interbank Offer Rate (1-month LIBOR). Among the practical expedients are the option to elect prospective adjustment of the effective interest rate, foregoing reassessment of any instruments under loan modification rules. The Company is monitoring developments pertaining to Reference Rate Reform and does not currently anticipate ASU 2020-04 to have a material effect on its results of operations.




1516
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)



3. Real Estate Assets


The Company's real estate assets consisted of:

As of:
September 30, 2020December 31, 2019
Residential properties:
Properties (1,2)
44 42 
Units12,936 12,256 
Beds6,095 6,095 
New Market Properties:
Properties (2)
54 52 
Gross leasable area (square feet) (3)
6,208,278 6,041,629 
Preferred Office Properties:
Properties (2,4)
9 10 
Rentable square feet3,169,000 3,204,000 
(1) The acquired second phases of CityPark View and Crosstown Walk communities are managed in combination with the initial phases and so together are considered a single property, as is the Regent at Lenox Village within the Lenox Portfolio.
(2) One multifamily community, two student housing properties, two grocery-anchored shopping centers and two office buildings are owned through consolidated joint ventures. One grocery-anchored shopping center is an investment in an unconsolidated joint venture.
(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 is not included in the totals above for New Market Properties.
(4) Excludes our 251 Armour property, comprising 35,000 rentable square feet that is under development and our 4th & Brevard land parcel, that is slated for future development.

  As of:
  September 30, 2019 December 31, 2018
Multifamily communities:    
Properties (1)
 34
(1) 
32
Units 10,245
 9,768
New Market Properties:    
Properties 
 50
(2) 
45
Gross leasable area (square feet) (3)
 5,644,427
 4,730,695
Student housing properties:    
Properties 8
 7
Units 2,011
 1,679
Beds 6,095
 5,208
Preferred Office Properties:    
Properties 9
(2) 
7
Rentable square feet 2,913,000
 2,578,000
     
(1) The acquired second phases of CityPark View and Crosstown Walk communities are managed in combination with the initial phases and so together are considered a single property, as are the Lenox Village and Regent at Lenox Village assets within the Lenox Portfolio.
(2) One property is owned through a consolidated joint venture.
(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 is not included in the totals above for New Market Properties.


Impacts of COVID-19 Pandemic

Multifamily communities sold


The COVID-19 pandemic emerged in December 2019 and has since spread globally, including to every state in the United States. On March 13, 2020, the United States declared a national emergency. Since that time, efforts to contain the spread of COVID-19 have intensified. Several countries, including the United States, have taken steps to restrict travel, temporarily close businesses and issue quarantine orders. The restrictions have resulted in impacts to earnings for commercial real estate, which in turn is expected to affect asset valuations to some degree. The Company haddoes not consider this event to be a triggering event for purposes of impairment, since no salesevidence of multifamily community assets during the nine-month period ended September 30, 2019.

On September 28, 2018, the Company closeddeclining valuations of any consequence have emerged to cause a triggering event, as evidenced by step one analyses performed on the salea sample of its 216-unit multifamily community in Philadelphia, Pennsylvania, or Stone Rise, to an unrelated third party forproperties from each segment. The Company found a purchase pricesignificant amount of approximately $42.5 million, exclusive of closing costscushion between the asset’s book value and resulting in a gain of $18.6 million. Stone Rise contributed approximately $0.5 million of net income to the consolidated operating results of the Companyundiscounted cash flows for the nine-month period ended September 30, 2018.

On March 20, 2018, the Company closed on the sale of its 328-unit multifamily community in Raleigh, North Carolina, or Lake Cameron, to an unrelated third party for a purchase price of approximately $43.5 million, exclusive of closing costs, and debt defeasance-related costs and resulted in a gain of $20.4 million. Lake Cameron contributed approximately $0.2 million of net income to the consolidated operating results of the Company for the nine-month period ended September 30, 2018.


properties evaluated.


1617
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)





The carrying amountsCompany's monthly rent collections for the three-month period ended September 30, 2020 continue to improve across the Company's segments compared to the three-month period ended June 30, 2020, with a more pronounced improvement in collections for in-line retail tenants, whose businesses were closed during periods with state or local operating restrictions. Many tenants have reopened as restrictions were lifted and monthly rent collections are beginning to increase. Within our multifamily communities, the Company offered rent deferral plans for the months of April, May, June and July 2020. Any deferred rents would be due over the remaining lease term of the significant assetsindividual tenants. For retail and liabilitiesoffice tenants, the company evaluated all delinquent receivable balances by performing a detailed review of each tenant. In this review, we determined if the balances were paid in the subsequent month, if tenant had requested rent relief in the subsequent month due to COVID-19 circumstances, if the tenant was a credit tenant that was not typically late, and if the tenant had a security deposit on hand. If the likelihood of the disposedtenant submitting payment was deemed to be less than probable based on the aforementioned criteria, we determined the tenant as being an “at risk” tenant and revenue would be recognized on a cash basis.

The Company's average recurring rental revenue collections before and after any effect of rent deferrals for the third quarter 2020 were approximately 99.0% and 99.0% respectively for multifamily communities, 99.5% and 99.8% for office properties atand 95.2% and 96.6% for grocery-anchored retail properties, respectively. Rent deferments provided to residents and tenants primarily related to a change of timing of rent payments with no significant changes to total payments or term. The Company has deferred approximately $0.8 million, or 0.7% of total rental and other revenues for the datesthree-month period ended September 30, 2020. In addition, the Company’s revenues were reduced by approximately $1.7 million, or 1.4% of sale were:rental and other revenues for the three-month period ended September 30, 2020 due to additional bad debt reserves related to the COVID-19 pandemic.

  Lake Cameron Stone Rise
(In thousands) March 20, 2018 September 28, 2018
Real estate assets:    
Land $4,000
 $6,950
Building and improvements 21,519
 18,860
Furniture, fixtures and equipment 3,687
 3,292
Accumulated depreciation (7,220) (6,722)
     
Total assets, net $21,986
 $22,380
     
Liabilities:    
Mortgage note payable $19,736
 $23,520

Multifamily communitiesResidential properties acquired


During the nine-month periodsperiod ended September 30, 2019 and 2018,2020, the Company completed the acquisition of the following multifamily communities:
Acquisition datePropertyLocationUnits
8/8/20193/31/2020ArtisanHorizon at VieraWiregrassMelbourne,Tampa, Florida259392 
9/18/20194/30/2020Five OaksParkside at Westchasethe BeachTampa,Panama City Beach, Florida218288 
680 477
1/9/2018The Lux at SorrelJacksonville, Florida265
2/28/2018Green ParkAtlanta, Georgia310
9/27/2018The Lodge at Hidden RiverTampa, Florida300
875



The aggregate purchase prices of the multifamily acquisitions were approximately $117.0 million and $165.6 million for the nine-month periodsperiod ended September 30, 2019 and 2018 respectively,2020 were approximately $141.2 million, exclusive of acquired escrows, security deposits, prepaids, capitalized acquisition costs and other miscellaneous assets and assumed liabilities. The Company acquired no multifamily communities during the nine-month period ended September 30, 2019.





1718
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)



The Company allocated the purchase prices and 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.

Multifamily Community acquired during the nine-month period ended
(In thousands, except amortization period data)September 30, 2020
Land$12,945 
Buildings and improvements100,113 
Furniture, fixtures and equipment26,284 
Lease intangibles5,968 
Prepaids & other assets24 
Accrued taxes(437)
Security deposits, prepaid rents, and other liabilities(384)
Net assets acquired$144,513 
Cash paid$99,476 
Mortgage debt, net45,037 
Total consideration$144,513 
Three-months ended September 30, 2020
Revenue$2,883 
Net income (loss)$(1,832)
Nine-months ended September 30, 2020
Revenue$5,258 
Net income (loss)$(4,018)
Capitalized acquisition costs incurred by the Company$4,085 
Acquisition costs paid to related party (included above)$0 
Remaining amortization period of intangible
 assets and liabilities (months)11.5

  Multifamily Communities acquired during the nine months ended September 30,
(In thousands, except amortization period data) 2019 2018
     
Land $9,264
 $18,410
Buildings and improvements 87,098
 116,767
Furniture, fixtures and equipment 19,806
 27,905
Lease intangibles 2,647
 5,681
Prepaids & other assets 75
 238
Accrued taxes (477) (684)
Security deposits, prepaid rents, and other liabilities (118) (342)
     
Net assets acquired $118,295
 $167,975
     
Cash paid $78,295
 $55,015
Mortgage debt, net 40,000
 112,960
     
Total consideration $118,295
 $167,975
     
Three months ended September 30, 2019:    
Revenue $842
 $3,851
Net income (loss) $(522) $(1,286)
     
Nine months ended September 30, 2019:    
Revenue $842
 $11,481
Net income (loss) $(522) $(4,978)
     
Capitalized acquisition costs incurred by the Company $1,771
 $3,117
Acquisition costs paid to related party (included above) $1,216
 1,685
Remaining amortization period of intangible    
 assets and liabilities (months) 8.9
 0
     



StudentThe Company had no acquisitions of student housing properties acquired

Duringproperty assets during the nine-month periodsperiod ended September 30, 2019 and 2018, the Company completed the acquisitions of the following student housing properties:2020.

Acquisition date Property Location Units Beds
         
3/27/2019 
Haven49 (1)
 Charlotte, NC 322
 887
         
5/10/2018 The Tradition College Station, TX 427
 808
5/31/2018 The Retreat at Orlando Orlando, FL 221
 894
6/27/2018 The Bloc Lubbock, TX 140
 556
         
      788
 2,258
         
(1) The Company effectuated the acquisition via a negotiated agreement whereby the Company accepted the membership interest in the Haven49 project entity in satisfaction of the project indebtedness owed to the Company. See Note 4.

The aggregate purchase price of the student housing property acquisitions forDuring the nine-month period ended September 30, 2019, was approximately $92.4 million. The aggregate purchase pricethe Company completed the acquisition of theHaven49, a 322-unit, 887-bed student housing property acquisitions foradjacent to the nine-monthUniversity of North Carolina at Charlotte. The Company effectuated the acquisition via a negotiated agreement whereby the Company accepted the membership interest in the Haven49 project entity in satisfaction of the project indebtedness owed to the Company. See Note 4.














1819
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)



period ended September 30, 2018 was approximately $197.0 million. Purchase prices shown are exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

The Company allocated the purchase pricesasset's fair value and 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.
Student housing property acquired during the nine-month
period ended
(In thousands, except amortization period data)September 30, 2019
Land$7,289 
Buildings and improvements68,163 
Furniture, fixtures and equipment16,966 
Lease intangibles983 
Accrued taxes(158)
Security deposits, prepaid rents, and other liabilities(2,579)
Net assets acquired$90,664 
Satisfaction of loan receivables$46,397 
Cash paid2,717 
Mortgage debt, net41,550 
Total consideration$90,664 
Three-months ended September 30, 2020
Revenue$2,042 
Net income (loss)$36 
Nine-months ended September 30, 2020
Revenue$5,980 
Net income (loss)$307 
Capitalized acquisition costs incurred by the Company$1,016 
Acquisition costs paid to related party$936 
Remaining amortization period of intangible
 assets and liabilities (months)0
  Student housing properties acquired during the nine-month periods ended September 30,
(In thousands, except amortization period data) 2019 2018
     
Land $7,289
 $23,149
Buildings and improvements 68,163
 146,856
Furniture, fixtures and equipment 16,966
 27,211
Lease intangibles 983
 2,493
Below market leases —
 (54)
Prepaids & other assets —
 309
Accrued taxes (158) (942)
Security deposits, prepaid rents, and other liabilities (2,579) (719)
     
Net assets acquired $90,664
 $198,303
     
Satisfaction of loan receivables $46,397
 $—
Cash paid 2,717
 92,212
Mortgage debt, net 41,550
 106,091
     
Total consideration $90,664
 $198,303
     
Three-month period ended September 30, 2019:    
Revenue $1,914
 $4,500
Net income (loss) $32
 $(1,260)
     
Nine-month period ended September 30, 2019:    
Revenue $3,529
 $13,103
Net income (loss) $(1,892) $(5,313)
     
Capitalized acquisition costs incurred by the Company $1,016
 $2,555
Acquisition costs to related party $936
 $1,970
     
Remaining amortization period of intangible    
 assets and liabilities (months) 0
 0



On July 29, 2019,March 20, 2020, we entered intodelivered a purchase and sale agreementwritten termination notice to sell sixthe prospective purchaser of 6 of our student housing properties for their failure to a third party. A non-refundableconsummate the purchase. Accordingly, we received an additional $2.75 million of forfeited earnest money deposit has been placed into an escrow account by the purchaser and we anticipate the sale to close in the near future. See note 16 for discussion regarding an amendment to this agreement.as liquidated damages.




















1920
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)






New Market Properties assets acquired


During the nine-month periods ended September 30, 20192020 and 2018,2019, the Company completed the acquisition of the following grocery-anchored shopping centers:
Acquisition datePropertyLocationGross leasable area (square feet)
1/17/201929/2020GaytonWakefield CrossingRichmond, VirginiaRaleigh, North Carolina158,31675,927 
3/19/2020Midway MarketDallas, Texas85,599 
161,526 
1/17/2019Gayton CrossingRichmond, Virginia158,316 
5/28/2019Free State Shopping CenterWashington, D.C.264,152
6/12/2019Disston PlazaTampa - St. Petersburg, Florida129,150
6/12/2019Polo Grounds MallWest Palm Beach, Florida130,285
8/16/2019
Fairfield Shopping Center (1)
Virginia Beach, VirginiaVA231,829
913,732
4/27/2018Greensboro VillageNashville, Tennessee70,203
4/27/2018Governors Towne SquareAtlanta, Georgia68,658
6/26/2018Neapolitan WayNaples, Florida137,580
6/29/2018Conway PlazaOrlando, Florida117,705
7/6/2018Brawley CommonsCharlotte, North Carolina122,028
516,174
(1) Property is owned through a consolidated joint venture.


The aggregate purchase price of the New Market Properties acquisitions for the nine-month periodperiods ended September 30, 2020 and 2019 was approximately $27.7 million and $178.5 million. The aggregate purchase price of the New Market Properties acquisitions for the nine-month period ended September 30, 2018 was approximately $113.1 million. Purchase prices shown aremillion respectively, exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.





2021
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)



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.
New Market Properties' acquisitions during the nine-month periods ended September 30,
(In thousands, except amortization period data)20202019
Land$9,328 $57,916 
Buildings and improvements12,264 101,873 
Tenant improvements2,099 8,230 
In-place leases3,043 16,080 
Above market leases107 2,759 
Leasing costs1,237 5,768 
Below market leases(359)(10,537)
Prepaid taxes and other assets61 98 
Security deposits, prepaid rents, and other(249)(748)
Net assets acquired$27,531 $181,439 
Cash paid$19,640 $65,526 
Mortgage debt7,891 115,913 
Total consideration$27,531 $181,439 
Three-month period ended September 30, 2020
Revenue$678 $3,976 
Net income (loss)$5 $(997)
Nine-month period ended September 30, 2020
Revenue$1,723 $13,094 
Net income (loss)$59 $(2,126)
Capitalized acquisition costs incurred by the Company$470 $4,022 
Capitalized acquisition costs paid to related party (included above)$249 $1,799 
Remaining amortization period of intangible
 assets and liabilities (years)10.28.0
  New Market Properties' acquisitions during the nine-month periods ended September 30,
(In thousands, except amortization period data) 2019 2018
     
Land $57,916
 $33,290
Buildings and improvements 101,873
 67,595
Tenant improvements 8,230
 5,225
In-place leases 16,080
 7,795
Above market leases 2,759
 1,383
Leasing costs 5,768
 3,152
Below market leases (10,537) (4,359)
Other assets 98
 33
Security deposits, prepaid rents, and other (748) (963)
     
Net assets acquired $181,439
 $113,151
     
Cash paid $65,526
 $64,918
Mortgage debt 115,913
 48,233
     
Total consideration $181,439
 $113,151
     
Three-month period ended September 30, 2019:    
Revenue $4,235
 $2,663
Net income (loss) $(330) $(134)
     
Nine-month period ended September 30, 2019:    
Revenue $6,413
 $8,023
Net income (loss) $(800) $(401)
     
Capitalized acquisition costs incurred by the Company $4,022
 $1,612
Capitalized acquisition costs paid to related party (included above) $1,799
 $1,164
Remaining amortization period of intangible    
 assets and liabilities (years) 8.3
 7.3


The Company recorded aggregate amortization and depreciation expense of:
Preferred Office Properties assets acquired
(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,
2020201920202019
Depreciation:
Buildings and improvements$29,050 $25,509 $85,811 $72,686 
Furniture, fixtures, and equipment12,817 12,296 38,132 37,961 
41,867 37,805 123,943 110,647 
Amortization:
Acquired intangible assets9,510 8,169 27,873 25,732 
Deferred leasing costs368 217 1,132 670 
Website development costs49 48 148 142 
Total depreciation and amortization$51,794 $46,239 $153,096 $137,191 


During the nine-month periods endedAt September 30, 2019 and 2018,2020, the Company completedhad recorded acquired gross intangible assets of $310.6 million, accumulated amortization of $177.3 million, gross intangible liabilities of $86.0 million and accumulated amortization of $31.5 million. Net intangible assets and liabilities as of September 30, 2020 will be amortized over the acquisitionweighted average remaining amortization periods of the following office buildings:approximately 7.2 and 8.7 years, respectively.

Acquisition datePropertyLocationGross leasable area (square feet)
7/25/2019CAPTRUST TowerRaleigh, North Carolina300,000
7/31/2019251 Armour DriveAtlanta, Georgia35,000
335,000
1/29/2018Armour YardsAtlanta, Georgia187,000
7/31/2018150 FayettevilleRaleigh, North Carolina560,000
747,000
22



21
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)




The aggregate purchase price of the Preferred Office Properties acquisitions for the nine-month period ended September 30, 2019 was approximately $143.0 million. The aggregate purchase price of the Preferred Office Properties acquisitions for the nine-month period ended September 30, 2018 was approximately $239.5 million. Purchase prices shown are exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

The Company allocated the purchase prices and 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.

  Preferred Office Properties' acquisitions during the nine-month periods ended September 30,
(In thousands, except amortization period data) 2019 2018
     
Land $13,287
 $22,829
Buildings and improvements 110,815
 176,869
Tenant improvements 6,489
 18,132
In-place leases 6,999
 14,650
Above-market leases 1,085
 3,114
Leasing costs 3,037
 8,501
Below-market leases (1,827) (5,194)
Prepaid and other assets —
 1,365
Accrued taxes (98) (17)
Security deposits, prepaid rents, and other liabilities (238) (9,650)
     
Net assets acquired $139,549
 $230,599
     
Cash paid $56,899
 $76,199
Mortgage debt, net 82,650
 154,400
     
Total consideration $139,549
 $230,599
     
Three-month period ended September 30, 2019:    
Revenue $2,257
 5,974
Net income (loss) $(342) (289)
     
Nine-month period ended September 30, 2019:    
Revenue $2,257
 17,446
Net income (loss) $(342) (1,563)
     
Capitalized acquisition costs incurred by the Company $1,734
 $3,405
Acquisition costs paid to related party (included above) $1,433
 $2,395
Remaining amortization period of intangible    
 assets and liabilities (years) 7.4
 6.2


The Company recorded aggregate amortization and depreciation expense of:
  Three-month periods ended September 30, Nine-month periods ended September 30,
(In thousands) 2019 2018 2019 2018
Depreciation:        
Buildings and improvements $25,509
 $21,084
 $72,686
 $56,918
Furniture, fixtures, and equipment 12,296
 12,314
 37,961
 34,224
  37,805
 33,398
 110,647
 91,142
Amortization:        
Acquired intangible assets 8,169
 10,874
 25,732
 35,583
Deferred leasing costs 217
 184
 670
 380
Website development costs 48
 43
 142
 105
Total depreciation and amortization $46,239
 $44,499
 $137,191
 $127,210


22
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)





At September 30, 2019,2020, included in the Company had recorded acquired gross intangible assets of $288.5 million, accumulated amortization of $140.9 million, gross intangible liabilities of $74.7 million and accumulated amortization of $21.7 million. Net intangible assets and liabilities as of September 30, 2019 will be amortized over the weighted average remaining amortization periods of approximately 7.6 and 9.4 years, respectively.

At September 30, 2019, the Company hadCompany's total restricted cash ofwas approximately $17.6$18.8 million that was contractually restricted to fund capital expenditures and other property-level commitments such as tenant improvements and leasing commissions. Our lenders also require us to escrow balances for future real estate tax and insurance payments. Through our property-level mortgage refinances executed in the second and third quarters of 2020, our lenders also required us to escrow funds for potential effects from the COVID-19 pandemic. At September 30, 2020, our restricted cash for real estate taxes, insurance premiums and COVID-19 reserves was $33.6 million and $6.8 million, respectively. The remainder of the Company's restricted cash consisted primarily of resident and tenant security deposits.


Purchase Options
In the course of extending real estate loan investments for property development, the Company will often receive an exclusive option to purchase the property once development and stabilization are complete. If the Company determines that it does not wish to acquire the property, it has the right to sell its purchase option back to the borrower for a termination fee in the amount of the purchase option discount.
Effective May 7, 2018, the Company terminated its purchase options on the Bishop Street multifamily community and the Haven Charlotte student housing property, both of which were partially supported by real estate loan investments held by the Company, in exchange for termination fees aggregating approximately $5.6 million from the developers. Effective January 1, 2019, the Company terminated its purchase options on the Sanibel Straights,Straits, Newbergh, Wiregrass and Cameron Square multifamily communities and the Solis Kennesaw student housing property, all of which are partially supported by real estate loan investments held by the Company. InCompany, in exchange the Company will receivefor termination fees aggregating approximately $8.3$9.1 million from the developers. Effective March 6, 2020, the Company terminated its purchase option on the Falls at Forsyth multifamily community for $2.5 million. These fees are treated as additional interest revenue and are amortized over the period ending with the earlier of (i) the sale of the underlying property and (ii) the maturity of the real estate loans. For the nine-month period ended September 30, 2019, theThe Company recorded approximately $3.4$4.9 million and $6.9 million of interest revenue related to these 2019 purchase option terminations in addition to approximately $3.5 million of interest revenue for the 464 Bishopnine-month periods ended September 30, 2020 and Haven49 purchase options2019, respectively.
Joint Venture Investment
On July 15, 2020, we contributed our Neapolitan Way grocery-anchored shopping center that terminatedwas previously wholly-owned and consolidated into a joint venture in exchange for approximately $19.2 million and 50% interest in the second quarter 2018.joint venture. We realized a gain on the transaction of approximately $3.3 million. We now hold our remaining interest in the property via an unconsolidated joint venture and retain a 50% voting and financial interest. The following tables summarize the balance sheet and statements of income data for Neapolitan Way shopping center subsequent to its contribution into the joint venture as of and for the periods presented:

(in thousands)September 30, 2020
Total assets$39,843 
Total liabilities$26,142 
Three months endedNine months ended
September 30,September 30,
20202020
Rental and other property revenues$651 $651 
Total operating expenses$797 $797 
Interest expense$94 $94 
Net income (loss)$(240)$(240)
Net income (loss) attributable to the Company$(120)$(120)


23
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

4. Real Estate Loans, Notes Receivable, and Line of Credit


Our portfolio of fixed rate, interest-only real estate loans consisted of:
September 30, 2020December 31, 2019
Number of loans25 27 
Number of underlying properties in development18 19 
(In thousands)
Drawn amount$323,629 $352,582 
Deferred loan origination fees(1,567)(1,476)
Allowance for loan losses(12,461)(1,400)
Carrying value$309,601 $349,706 
Unfunded loan commitments$62,964 $61,718 
Weighted average current interest, per annum (paid monthly)8.50 %8.48 %
Weighted average accrued interest, per annum3.84 %3.85 %
(In thousands) September 30, 2019 December 31, 2018
Number of loans 21
 19
     
Drawn amount $383,216
 $336,329
Deferred loan origination fees (1,730) (2,118)
Carrying value $381,486
 $334,211
     
Unfunded loan commitments $74,656
 $164,913
Weighted average current interest, per annum (paid monthly) 8.48% 8.47%
Weighted average accrued interest, per annum 3.66% 5.24%
(In thousands)Principal balanceDeferred loan origination feesAllowances and CECL ReservesCarrying value
Balances as of December 31, 2019$352,582 $(1,476)$(1,400)$349,706 
Opening CECL reserve— — (7,414)(7,414)
Loan fundings42,193 — — 42,193 
Loan repayments(71,146)— — (71,146)
Loan origination fees collected— (882)— (882)
Amortization of loan origination fees— 791 — 791 
Reserve increases due to loan originations— — (767)(767)
Net increases in reserves on existing loans or loans repaid— — (2,880)(2,880)
Balances as of September 30, 2020$323,629 $(1,567)$(12,461)$309,601 


Property typeNumber of loansCarrying valueCommitment amountPercentage of portfolio
(In thousands)
Residential properties24 $299,219 $367,400 97 %
New Market Properties0 0 0 0 %
Preferred Office Properties1 10,382 19,193 3 %
Balances as of September 30, 202025 $309,601 $386,593 

On September 3, 2020, we closed on a real estate loan investment of up to approximately $20.7 million to partially finance the development and construction of a 320-unit multifamily community to be located in suburban Atlanta, Georgia. The loan pays a current monthly interest rate of 8.5% per annum and accrues additional deferred interest of 5.5% per annum and matures on September 3, 2024.

On May 14, 2020, the Company closed on a real estate loan investment of up to $10.0 million in partial support of a 277-unit multifamily community to be located in Raleigh, North Carolina. The loan pays a current monthly interest rate of 8.5% per annum and accrues additional deferred interest of 5.5% per annum and matures on November 14, 2023.


(In thousands) Principal balance Deferred loan origination fees Loan loss allowance Carrying value
Balances as of December 31, 2018 $336,329
 $(2,118) $—
 $334,211
Loan fundings 74,668
 —
 —
 74,668
Loans settled with acquisitions (27,781) —
 —
 (27,781)
Loan origination fees collected —
 (674) —
 (674)
Amortization of loan origination fees —
 1,062
 —
 1,062
Balances as of September 30, 2019 $383,216
 $(1,730) $—
 $381,486
24



23
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)




Property type Number of loans Carrying value Commitment amount Percentage of portfolio
(In thousands)      
Multifamily communities 16
 $326,839
 $385,373
 86%
Student housing properties 3
 38,582
 40,448
 10%
New Market Properties 1
 12,857
 12,857
 3%
Preferred Office Properties 1
 3,208
 19,193
 1%
Balances as of September 30, 2019 21
 $381,486
 $457,871
  

Effective June 30, 2019,On February 28, 2020, the Company amended and sold its senior construction loanclosed on the 8West office development to a third party and collected a gross fee of $1.55 million from the buyer.

The Company's Palisades real estate loan investment was subjectof up to approximately $13.4 million in partial support of a 256-unit multifamily community to be located in Charlotte, North Carolina. The loan pays a loan participation agreement with an unaffiliated third party, under which the syndicate was to fund approximately 25%current monthly interest rate of the loan commitment amount8.5% per annum and collectively receive approximately 25%accrues additional deferred interest of interest payments, returns of principal5.5% per annum and purchase option discount (if applicable). On March 13, 2019, the Company repurchased the loan participant's 25% balance in the loan from the loan participant and at September 30, 2019, carried the entire loan balancematures on its consolidated balance sheet without reflection of any liability to any third party.February 28, 2025.


The Company's real estate loan investments are primarily collateralized by 100% of the membership interests of the underlying project entity, and, where considered necessary, by unconditional joint and several repayment guaranties and performance guaranties by the principal(s) of the borrowers. These guaranties generally remain in effect until the receipt of a final certificate of occupancy. All of the guaranties are subject to the rights held by the senior lender pursuant to a standard intercreditor agreement. Prepayment of the real estate loans are permitted in whole, but not in part, without the Company's consent.


As discussed in note 2, the Company established total expected credit losses against its existing portfolio of real estate loan investments on January 1, 2020. In doing so, it recorded a cumulative effect reduction adjustment to retained earnings of approximately $7.4 million. For the quarter ended September 30, 2020, the Company recorded an aggregate net decrease in its provision for expected credit losses of approximately $0.8 million, primarily related to development projects achieving construction and leasing milestones.

As described in note 2, the Company assesses the credit quality of its real estate loan investments by a calculated loss reserve ratio, which is an internally-developed credit quality indicator. Loss reserve ratios reflect the amount of protection afforded by the amount of equity and debt financing subordinate to the Company's position in the project; higher reserve ratios reflect a lower amount of invested dollars junior to the Company's position. The following table presents the Company's aggregation of loan amounts by final reserve ratio as of September 30, 2020:
Final reserve ratioNumber of loansTotal receivables by project, net of reserves (in thousands)
— %3 $28,921 
0.50 %10 108,630 
1.00 %3 17,876 
1.50 %4 26,729 
3.00 %3 27,902 
4.00 %1 126,768 
5.00% +1 3,776 
25 $340,602 

The COVID-19 pandemic has, and will continue to have, impacts upon the development activity underlying our real estate loan investments, including the availability of labor, the supply and availability of construction materials and the ability to achieve leased stabilization. The Company's Berryessa real estate loan investment carried a 4.0% final reserve ratio at September 30, 2020. The project experienced a temporary construction delay due to effects of the COVID-19 pandemic but resumed in the second quarter of 2020 when the force majeure order was lifted. The Company assesses its real estate loan investment portfolio for impacts from COVID-19 at the outset of the project, as well as both quantitatively and qualitatively at the achievement of construction and leasing milestones during the projects' lives.

The Company can make no assurances that economic or industry conditions or other circumstances will not lead to increases in allowances for credit losses.

Management monitors the credit quality of the obligors under each of the Company's real estate loans by tracking the timeliness of scheduled interest and principal payments relative to the due dates as specified in the loan documents, as well as draw requests on the loans relative to the project budgets. In addition, management monitors the actual progress of development and construction relative to the construction plan, as well as local, regional and national economic conditions that may bear on our current and target markets. The credit quality of the Company’s borrowers is primarily based on their payment history on an individual loan basis, and the Company assigns risk ratings to its real estate loans and notes receivable in credit quality categories as described in Note 2.

The Company continues to monitor each loan and note receivable for potential deterioration of risk ratings and can make no assurances that economic or industry conditions or other circumstances     will not lead to future loan loss allowances.

At September 30, 2019, the Company's portfolio of real estate loan investments by credit quality indicator was:



(In thousands)        
Rating indicator Principal balance Accrued interest Receivables for purchase option terminations Total
A $377,100
 $26,669
 $8,340
 $412,109
B —
 —
 —
 —
C 6,116
 1,208
 —
 7,324
D —
 —
 —
 —
         
  $383,216
 $27,877
 $8,340
 $419,433
25





24
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)




The Company's Starkville loan has been in default since August 20, 2019 under the terms of the underlying mezzanine loan agreement. During the fourth quarter of 2019, the Company recorded a specific loan loss reserve related to this loan totaling $1.4 million, reducing its net investment in the Starkville loan from $7.3 million, including accrued interest of $1.2 million, to a carrying amount of $5.9 million. In the first quarter of 2020, the Company recorded an additional $2.1 million in reserves pertaining to this loan under ASU 2016-03, reducing its carrying amount to $3.8 million as of September 30, 2020. NaN additional reserves were recorded in the second or third quarters of 2020. See note 16.


At September 30, 2019,2020, the Company's portfolio of notes and lines of credit receivable consisted of:

BorrowerDate of loanMaturity dateTotal loan commitmentsOutstanding balance as of:Interest rate
September 30, 2020December 31, 2019
(In thousands)
Preferred Capital Marketing Services, LLC (1)
N/AN/A$0 $0 $650 N/A
Preferred Apartment Advisors, LLC (1)
N/AN/A0 0 15,178 N/A
Haven Campus Communities, LLC (1,2)
6/11/201412/31/201811,660 9,011 9,011 8 %
Newport Development Partners, LLC6/17/20146/30/20211,000 0 0 12 %
Oxford Capital Partners, LLC (3)
10/5/20156/30/20218,000 1,006 5,438 10 %
Mulberry Development Group, LLC (4)
3/31/20166/30/2021750 670 525 12 %
360 Capital Company, LLC (4)
5/24/201612/31/20203,400 1,218 3,394 12 %
360 Capital Company, LLC (1)
7/24/2018N/A0 0 7,754 N/A
Unamortized loan fees— 0 (33)
$24,810 $11,905 $41,917 
(1) See related party disclosure in Note 6.
(2) The amount payable under the note is collateralized by one of the principals of the borrower's 49.49% interest in an unrelated shopping center located in Atlanta, Georgia and a personal guaranty of repayment by the principals of the borrower.
(3) The amounts payable under the terms of this revolving credit line, up to the lesser of 25% of the loan balance or $2.0 million, are collateralized by a personal guaranty of repayment by the principals of the borrower. The overall decrease in the Oxford LOC balance is a function of an approximate $5.0 million paydown on July 31, 2020, that was required as part of the LOC agreement whenever a Capital Transaction involving the Manassas Palisades property occurred. This property was sold on July 31, 2020 and the related mezz loan was repaid to PAC. Therefore, a corresponding paydown on the Oxford LOC was made to reduce the sum of the principal balance.
(4) The amounts payable under the terms of these revolving credit lines are collateralized by a personal guaranty of repayment by the principals of the borrower.

Borrower Date of loan Maturity date Total loan commitments Outstanding balance as of: Interest rate 
    September 30, 2019 December 31, 2018  
(In thousands)             
Preferred Capital Marketing Services, LLC (1)
1/24/2013 12/31/2019 $1,500
 $650
 $763
 10% 
Preferred Apartment Advisors, LLC (1,2)
 8/21/2012 12/31/2019 22,000
 14,299
 9,778
 7.5%
(3) 
Haven Campus Communities, LLC (1,4)
 6/11/2014 12/31/2018 11,660
 9,011
 11,620
 8% 
Oxford Capital Partners, LLC (5)
 10/5/2015 6/30/2020 8,000
 5,313
 4,022
 10% 
Newport Development Partners, LLC 
 6/17/2014 6/30/2020 2,000
 920
 —
 12% 
Mulberry Development Group, LLC (6)
 3/31/2016 6/30/2020 750
 525
 465
 12% 
360 Capital Company, LLC (6)
 5/24/2016 12/31/2019 3,400
 3,394
 3,100
 12% 
360 Capital Company, LLC (7)
 7/24/2018 12/31/2020 8,000
 7,588
 6,923
 8.5% 
Haven Campus Communities Charlotte Member, LLC (1)
 8/31/2018 N/A —
 —
 10,788
 15% 
Unamortized loan fees     

 (43) (152)   
              
      $57,310
 $41,657
 $47,307
   
              
(1) See related party disclosure in Note 6.
(2) The amounts payable under this revolving credit line were collateralized by an assignment of the Manager's rights to fees due under the Sixth Amended and Restated Management Agreement between the Company and the Manager, or the Management Agreement.
(3) Effective January 1, 2019, the interest rate was increased from 6.0% per annum to 7.5% per annum and the maturity date was extended to December 31, 2019.

(4) The amount payable under this note is collateralized by one of the principals of the borrower's 49.49% interest in an unrelated shopping center located in Atlanta, Georgia and a personal guaranty of repayment by the principals of the borrower.
(5) The amounts payable under the terms of this revolving credit line, up to the lesser of 25% of the loan balance or $2.0 million, are collateralized by a personal guaranty of repayment by the principals of the borrower.
(6) The amounts payable under the terms of these revolving credit lines are collateralized by a personal guaranty of repayment by the principals of the borrower.
(7) The amount payable under the note is collateralized by the developer's interest in the Fort Myers multifamily community project and a personal guaranty of repayment by the principals of the borrower.

On NovemberNovember 20, 2018, the borrower on the Haven Campus Communities, LLC line of credit defaulted on the loan, triggering the accrual of an additional 10% default interest rate, which is incremental to the original 8% currentcurrent interest rate. The amount of default interest recorded from the default date through September 30, 20192020 was approximately $880,000.$1.8 million. Under the terms of the loan, amounts collected are applied first to any legal costs incurred by the Company to collect amounts due on the loan; second, to pay any accrued default and current interest on the loan; and third, to repay the principal amount owed.


Based on the negotiated agreement between the Company and the borrowers, on March 27, 2019, the Company received the membership interests of the Haven49 student housing project in exchange for the complete settlement of the related Haven49 loans, which include the Haven Campus Communities Charlotte Member, LLC line of credit, the Haven49 mezzaninereal estate loan investment and the Haven49 member loan. Additionally, under the same agreement, the Company received payouts and credits totaling approximately $3.8$3.75 million towards the Haven Campus Communities, LLC line of credit. These amounts were applied in accordance with the terms of the line of credit. The Company retains a pledge of a 49.49% interest in an unrelated shopping center located in Atlanta, Georgia as collateral on the Haven Campus Communities, LLC line of credit, as well as personal guaranties of repayment from the principals of the borrower.


In January 2019 the Company filed a lawsuit to collect the amounts owed under the line of credit it provided to Haven Campus Communities, LLC.LLC. In September 2019, Haven Campus Communities, LLC answered the lawsuit and filed counterclaims against the Company and its affiliates. At this time, the case is in the early stages of discovery, so the Company is unable to make any estimates on timing or amounts that may be collected by the Company on its Haven Campus Communities, LLC line of credit.







2526
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)



The Company recorded interest income and other revenue from these instruments as follows:
Interest incomeThree month periods ended September 30,Nine-month periods ended September 30,
(In thousands)2020201920202019
Real estate loans:
Current interest$6,921 $8,083 $21,070 $23,031 
Additional accrued interest3,052 3,471 9,208 10,040 
Loan origination fee amortization264 283 791 1,063 
Purchase option termination fee amortization421 1,283 4,896 6,900 
Default interest63 0 186 0 
Total real estate loan revenue10,721 13,120 36,151 41,034 
Notes and lines of credit536 1,865 2,056 4,278 
Bank and money market accounts1 169 38 562 
Agency mortgage-backed securities0 0 0 95 
Interest income on loans and notes receivable$11,258 $15,154 $38,245 $45,969 
Interest income Three months ended September 30, Nine months ended September 30,
(In thousands) 2019 2018 2019 2018
Real estate loans:        
Current interest payments $8,083
 $6,974
 $23,031
 $24,164
Additional accrued interest 3,471
 4,391
 10,040
 14,587
Origination fee amortization 283
 250
 1,063
 1,288
Purchase option termination fee amortization 1,283
 4,791
 6,900
 7,261
         
Total real estate loan revenue 13,120
 16,406
 41,034
 47,300
Interest income on notes and lines of credit 1,865
 883
 4,278
 2,586
Interest income from bank and money market accounts 169
 —
 562
 —
Interest income from agency mortgage-backed securities —
 —
 95
 —
         
Interest income on loans and notes receivable $15,154
 $17,289
 $45,969
 $49,886


The Company extends loans for purposes such as to partially finance the development of multifamily residential communities, to acquire land in anticipation of developing and constructing multifamily residential communities, and for other real estate or real estate related projects. Certain of these loans include characteristics such as exclusive options to purchase the project within a specific time window following project completion and stabilization, the sufficiency of the borrowers' investment at risk and the existence of payment and performance guaranties provided by the borrowers, any of which can cause the loans to create variable interests to the Company and require further evaluation as to whether the variable interest creates a VIE, which would necessitate consolidation of the project.
The Company considers the facts and circumstances pertinent to each entity borrowing under the loan, including the relative amount of financing the Company is contributing to the overall project cost, decision making rights or control held by the Company, guarantees provided by third parties, and rights to expected residual gains or obligations to absorb expected residual losses that could be significant from the project. If the Company is deemed to be the primary beneficiary of a VIE, consolidation treatment would be required.
The Company has no decision making authority or power to direct activity, except normal lender rights, which are subordinate to the rights of the senior lenders on the projects. The Company has concluded that it is not the primary beneficiary of the borrowing entities and therefore it has not consolidated these entities in its consolidated financial statements. The Company's maximum exposure to loss from these loans is their drawn amount as of September 30, 20192020 of approximately $383.2$323.6 million. The maximum aggregate amount of loans to be funded as of September 30, 20192020 was approximately $457.9$386.6 million, which includes approximately $74.7$63.0 million of loan committed amounts not yet funded.
The Company has evaluated its real estate loans, where appropriate, for accounting treatment as loans versus real estate development projects, as required by ASC 310. The Company evaluates the expected residual profit it expects to collect under the terms of the loan versus the expected residual profit expected to be collected by the developer (in conjunction with any equity investors, if applicable), along with the "loan versus investment" characteristics as set forth by ASC 310-25. For each loan, the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate.appropriate in cases where (i) the majority of the expected residual profit is expected to be due the developer and (ii) the majority of "loan versus investment" tests indicate that the instrument is a loan.
The Company is also subject to a geographic concentration of risk that could be considered significant with regard to the 464 Bishop, Dawsonville Marketplace, Falls at Forsyth, Newbergh, Newbergh Capital, Solis Kennesaw Solis Kennesaw Capital, Solis Kennesaw II, 8West, and Kennesaw Crossing and Solis Cumming Town Center real estate loan investments, all of which are partially supporting various real estate projects in or near Atlanta, Georgia. The drawn amount, ofinaddition to outstanding accrued interest, for these loans as of September 30, 20192020 totaled approximately $104.7$56.5 million (with a total commitment amount of approximately $134.2$86.2 million). The Company is also subject to a geographic concentration of risk that could be considered significant with regard to the Sanibel Straits, Sanibel Straits Capital, E-Town, Vintage Destin, Hidden River II, Hidden River II Capital and Vintage Horizon West real estate loan investments, all of which are partially supporting various real estate projects in theFlorida. The drawn amount, inaddition to outstanding accrued interest, for these loans as of September 30, 2020 totaled approximately $56.4 million (with a total commitment amount of approximately $61.2 million).

27
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

The event of a total failure to perform by the borrowers and guarantors would subject the Company to a total possible loss of the drawn amount.amount and all outstanding accrued interest.


Freddie Mac K Program investments


On May 23, 2018, the Company purchased a subordinate tranche of Series 2018-ML04, a pool of 20 multifamily mortgages with a total pool size of approximately $276.3 million, from Freddie Mac. The purchase price of the subordinate tranche was approximately $4.7 million and has a weighted average maturity of approximately 16 years, at which timemillion. On December 10, 2019, the Company will collect the face value ofsold its tranche of $27.6investment in Series 2018-ML04 for $6.2 million. The yield to maturity of the subordinate tranche is expected to be approximately 11.5% per annum.



26
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)




On March 28, 2019, the Company purchased a subordinate tranche of Series 2019-ML05, a pool of 21 multifamily mortgages with a total pool size of approximately $295.7 million, from Freddie Mac. The Company's tranche of the 2019-ML05 pool payspaid monthly interest of approximately $103,000. The purchase price of the subordinate tranche was approximately $18.4 million and has a weighted average maturity of approximately 16.1 years, at which time the Company will collect the face value of its tranche of $29.6 million. The yield to maturity of the subordinate tranche is expected to be approximately 8.9% per annum.

The Company has evaluated the structure of the investments under the VIE rules and has determined that, due to the Company's position as directing certificate holder of the two mortgage pools, it is in the position most able to influence the financial performance of the trusts. As the subordinate tranche holder, the Company also holds the first loss position of the mortgage pools. As such, the Company is deemed to be the primary beneficiary of the VIEs and has consolidated the assets, liabilities, revenues, expenses and cash flows of both trusts in its consolidated financial statements as of and for the three-month and nine-month periods ended September 30, 2019. The Company's maximum exposure to loss from the combined mortgage pools from the Freddie Mac K program is approximately $24.4 million. The Company has no recourse liability to either the creditors or other beneficial interest holders of either investment.

Agency Mortgage-Backed Securities investments

In December 2018, the Company began investing in Agency Mortgage-Backed Securities representing undivided (or “pass-through”) beneficial interests in specified pools of fixed-rate mortgage loans. The investments are classified as trading securities. On December 20, 2018,17, 2019, the Company sold its entire position of a pool with associated premium amounts totaling $41.1investment in Series 2019-ML05 for $20.4 million. At December 31, 2018, the Company held a receivable related to this sale transaction of $41.2 million, which was collected upon the settlement of the transaction in January 2019.


5. Redeemable Preferred Stock and Equity Offerings
At September 30, 2019,On February 14, 2020, the Company's active equity offerings consisted of:

an offering of a maximum of 1,500,000 Units, with each Unit consisting of one share of Series A Redeemable Preferred Stock, par value $0.01 per share, and one Warrant to purchase up to 20 shares of Common Stock (the "$1.5 Billion Unit Offering"); expired. See note 6 for discussion regarding a termination fee agreement with and payment to Preferred Capital Securities, LLC, or PCS, an affiliate of the Company, in conjunction with the Company's winding down of the $1.5 Billion Unit Offering.


At September 30, 2020, the Company's active equity offerings consisted of:

•an offering of up to a maximum of 500,000 shares1,000,000 Shares of Series MA1 Redeemable Preferred Stock (“mShares”("Series A1 Preferred Stock"), par value $0.01 per share (the “mShares Offering”Series M1 Redeemable Preferred Stock ("Series M1 Preferred Stock"), or a combination of both (collectively the "Series A1/M1 Offering");


•an offering of up to $400 million of equity or debt securities (the "2019 Shelf Offering"), including an offering of up to $125 million of Common Stock from time to time in an "at the market" offering (the "2019 ATM Offering"); and


•an offering of up to 1,000,000 Shares$100 million of Series A1 Redeemableequity securities for the Preferred Stock ("Series A1 Office Growth Fund, a consolidated entity (the
“Preferred Stock"), Series M1 Redeemable Preferred Stock ("Series M1 Preferred Stock"), or a combination of both (collectively the "Series A1/M1 Offering"Office Growth Fund Offering”).






27
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



Certain offering costs are not related to specific closing transactions and are recognized as a reduction of stockholders' equity in the proportion of the number of instruments issued to the maximum number of Unitsshares of Preferred Stock anticipated to be issued. Any offering costs not yet reclassified as reductions of stockholders' equity are are reflected in the asset section of the consolidated balance sheets as deferred offering costs.


As of September 30, 2019, cumulativeCumulative gross proceeds and offering costs for our active equity offerings consisted of:

(In thousands)Deferred Offering Costs
OfferingTotal offeringGross proceeds as of September 30, 2020Reclassified as reductions of stockholders' equityRecorded as deferred assetsTotal
Specifically identifiable offering costs (3)
Total offering costs
$1.5 Billion Unit Offering (1)
1,500,000 $1,236,414 $15,874 $0 $15,874 $115,650 $131,524 
Series A1/M1 Offering1,000,000 115,893 426 3,251 3,677 11,023 14,700 
2019 Shelf Offering (2)
400,000 4,614 22 975 997 92 1,089 
Preferred Office Growth Fund100,000 0 0 495 495 3 498 
Total$3,000,000 $1,356,921 $16,322 $4,721 $21,043 $126,768 $147,811 


28
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

(In thousands)     Deferred Offering Costs    
Offering Total offering Gross proceeds as of September 30, 2019 Reclassified as reductions of stockholders' equity Recorded as deferred assets Total 
Specifically identifiable offering costs (1)
 Total offering costs
$1.5 Billion Unit Offering $1,500,000
 $1,057,127
 $7,327
 $1,336
 $8,663
 $99,510
 $108,173
mShares Offering 500,000
 90,991
 3,468
 344
 3,812
 3,451
 7,263
2016 Shelf Offering 300,000
(2 
) 
98,080
 2,062
 —
 2,062
 3,001
 5,063
2019 Shelf Offering 400,000
(3 
) 
—
 —
 819
 819
 —
 819
Series A1/M1 Offering 1,000,000
(4 
) 
—
 —
 305
 305
 —
 305
               
Total $3,700,000
 $1,246,198
 $12,857
 $2,804
 $15,661
 $105,962
 $121,623
(1) The Series A $1.5 billion unit offering expired in Q1 2020 and therefore all remaining deferred offering costs were reclassified as reductions of stockholder's equity in Q1 2020.


(1) (2) The $125 million ATM Offering is a part of the $400 million Shelf Offering and therefore it is not included in the total.

(3) These offering costs specifically identifiable to Unit offering closing transactions, such as commissions, dealer manager fees, and other registration fees, are reflected as a reduction of stockholders' equity at the time of closing.


(2) The $300 million 2016 Shelf Offering expired in second quarter 2019, and therefore all remaining deferred offering costs were reclassified as reductions of stockholder's equity.

(3) On April 25, 2019, the Company's 2019 Shelf Registration Statement was declared effective.

(4) On September 27, 2019, the Company's Series A1/M1 Registration Statement was declared effective.

Aggregate offering expenses of the $1.5 Billion Unit Offering, including selling commissions and dealer manager fees, and of the mShares Offering, including dealer manager fees, are each individually capped at 11.5% of the aggregate gross proceeds of the two offerings. The Company will reimburse its Manager up to 1.5% of the gross proceeds of such offerings for all organization and offering expenses that are incurred by the Manager. However, upon approval by the conflicts committee of the board of directors, the Company may reimburse its Manager for any such organization and offering expenses incurred above the 1.5% amount as permitted by the Financial Industry Regulatory Authority, or FINRA. Dealer manager fees for both offerings and sales commissions for the $1.5 Billion Unit Offering are not reimbursable.


Series A1/M1 Preferred Stock Offering


On September 27, 2019, the Company’s registration statement on Form S-3 (Registration No. 333-233576) (the “Series A1/M1 Registration Statement”)  was declared effective by the SEC. Shares of Series A1 Preferred Stock and Series M1 Preferred Stock issued under the Series A1/M1 Registration Statement are each offered at a price of $1,000 per share, subject to adjustment under certain conditions.

Each share of Series A1 Preferred Stock ranks senior to Common Stock with respect to dividend rights and carries a cumulative annual 6% dividend of the stated per share value of $1,000, payable monthly as declared by the Company’s board of directors. Dividends begin accruing on the date of issuance. The redemption schedule of the Series A1 Preferred Stock allows redemptions at the option of the holder from the date of issuance through the first year subject to a 13% redemption fee. After year one, the redemption fee decreases to 10%, after year two the redemption fee decreases to 5% and after year three there is no redemption fee. Any redeemed shares of Series A1 Preferred Stock are entitled to any accrued but unpaid dividends at the time of the redemption and any redemptions may be in cash or Common Stock, at the Company’s discretion.



28
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



Each share of Series M1 Preferred Stock ranks senior to Common Stock with respect to dividend rights and carries a cumulative annual dividend beginning at 6.1% of the stated per share value of $1,000, payable monthly as declared by the Company’s board of directors. The annual dividend rate increases by 0.1% on each anniversary of the issuance date up to a maximum annual dividend rate of 7.1%. Dividends begin accruing on the date of issuance. The redemption schedule of the Preferred Stock allows redemptions at the option of the holder from the date of issuance of the Series M1 Preferred Stock through the first year at the stated value per share minus dividends paid for the three most previous dividend declaration dates. After year one, the shares of Series M1 Preferred Stock may be redeemed at 100% of the stated value per share. Any redeemed shares of Series M1 Preferred Stock are entitled to any accrued but unpaid dividends at the time of redemption and any redemptions may be in cash or Common Stock, at the Company’s discretion.

Both the Series A1 Preferred Stock and the Series M1 Preferred Stock are callable by the Company after the second anniversary of the date of original issuance at 100% of the stated value per share.


Aggregate offering expenses of the Series A1/M1 Preferred Stock Offering, including selling commissions and dealer manager fees for the Series A1 Preferred Stock and only dealer manager fees for the Series M1 Preferred Stock, are each individually capped at 12.0% of aggregate gross proceeds of the offering. The Company will reimburse its Manager up to 2.0% of the gross proceeds of such offerings for all organization and offering expenses that are incurred by the Manager. However, upon approval by the conflicts committee of the board of directors, the Company may reimburse its Manager for any such organization and offering expenses incurred above the 2.0% amount as permitted by the Financial Industry Regulatory Authority, or FINRA. Dealer manager fees and sales commissions for the Series A1/M1 Preferred Stock Offering are not reimbursable.


The shares are being offered by Preferred Capital Securities, LLC, or PCS, an affiliate of the Company, on a "reasonable best efforts" basis. The Company intends to invest substantially all the net proceeds of the Series A1/M1 Registration Statement in connection with the acquisition of multifamily communities, other real estate-related investments and general working capital purposes.

6. Related Party Transactions
On April 16, 2018, JohnJanuary 31, 2020, the Company internalized the functions performed by the Former Manager and Sub-Manager by acquiring the entities that owned the Former Manager and the Sub-Manager for an aggregate purchase price of $154 million, plus up to $25 million of additional consideration to be paid within 36 months, due upon the earlier of (i) if, for the immediately preceding fiscal year beginning on January 1, funds from operations ("FFO") of the Company per weighted average basic share of the Company’s common stock and Class A Unit (as defined in the limited partnership agreement of PAC OP) outstanding for such fiscal year is determined to be greater than or equal to $1.55 or (ii) on the thirty-six (36) month anniversary of the closing of the Internalization. Pursuant to the Stock Purchase Agreement, the sellers sold all of the outstanding shares of capital stock of NELL Partners, Inc. ("NELL") and NMA Holdings, Inc. ("NMA") to PAC Carveout, LLC ("PAC Sub") in exchange for an aggregate of approximately $111.1 million in cash paid at the closing which reflects the satisfaction of certain indebtedness of NELL, the estimated net working capital adjustment, and a hold back of $15 million for certain specified matters (the "Specified Matters Holdback Amount"). The Specified Matters Holdback Amount is payable to the NELL sellers less certain losses following final resolution of any such specified matters.

Daniel M. DuPree and Leonard A. Williams,Silverstein were executive directors of NELL Partners, Inc., which controlled the Company'sFormer Manager through the date of the Internalization. Daniel M. DuPree was the Chief Executive Officer and Leonard A. Silverstein was the President and Chief Operating Officer of the Former Manager. Trusts established, or entities owned, by the family of John A. Williams, Daniel M. DuPree, the family of Leonard A. Silverstein, the Company’s former Vice Chairman of the Board, passed away. and formerPresident and Chief Operating Officer, were the owners of NELL. Trusts established, or entities owned, by Joel T. Murphy, the Company’s Chief Executive Officer and a member of the Board, the family of Mr. Williams, Mr. DuPree and the family of Mr. Silverstein were the owners of the Sub-Manager.

The Company's Haven 12 real estate loan investment and Haven Campus Communities LLC line of credit are both supported in part by a guaranty of repayment and performance by John A. Williams, Jr., the son of the late John A. Williams' son.Williams, the Company's former Chief Executive Officer and Chairman of the Board. Because the terms of these loans were negotiated and agreed upon while John A. Williams was the Chief Executive Officer of the Company, these instruments will continue to be reported as related party transactions until the loans are repaid. The Company named Daniel M. DuPree as Chairman of the Board of Directors and Chief Executive Officer of the Company. Leonard A. Silverstein was named Vice Chairman of the Board of Directors and continues as the Company's President and Chief Operating Officer.

On March 27, 2019, the Company's Haven49 and Haven49 Member real estate loan investments and the Haven Campus Communities Charlotte Member LLC line of credit were deemed satisfied in full in connection with the Company's acceptance of the borrowers' membership interests in the underlying Haven49 project.

Messrs. DuPree and Silverstein are executive directors of NELL Partners, Inc., which controls the Manager. Mr. DuPree is the Chief Executive Officer and Mr. Silverstein is the President and Chief Operating Officer of the Manager.


The Company's Wiregrass and Wiregrass Capital real estate loan investments are partially financingfinanced the development of a multifamily community in Tampa, Florida by the Altman Companies. Timothy A. Peterson is a member of management of the Altman Companies as well as Chairman of the Audit Committee of the Company's Board of Directors. The Wiregrass loans and the acquisition of the underlying property on March 31, 2020 as described in note 3, therefore qualify as related party transactions.




29
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)





The Management Agreement entitlesentitled the Former Manager to receive compensation for various services it performsperformed related to acquiring assets and managing properties on the Company's behalf:
(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,
Type of CompensationBasis of Compensation2020201920202019
Acquisition fees1.0% of the gross purchase price of real estate assets$0 $2,864 $235 $5,467 
Loan origination fees1.0% of the maximum commitment of any real estate loan, note or line of credit receivable0 148 0 674 
Loan coordination fees0.6% of any assumed, new or supplemental debt incurred in connection with an acquired property0 1,100 47 2,065 
Asset management feesMonthly fee equal to one-twelfth of 0.50% of the total book value of assets, as adjusted0 3,981 1,349 11,546 
Property management feesMonthly fee up to 4% of the monthly gross revenues of the properties managed0 2,557 890 7,509 
General and administrative expense feesMonthly fee equal to 2% of the monthly gross revenues of the Company0 1,557 616 4,624 
Construction management feesQuarterly fee for property renovation and takeover projects0 73 14 208 
Disposition fees1% of the sale price of a real estate asset0 0 0 16 
$0 $12,280 $3,151 $32,109 
(In thousands)   Three-month periods ended September 30, Nine-month periods ended September 30,
Type of Compensation Basis of Compensation 2019 2018 2019 2018
           
Acquisition fees 1.0% of the gross purchase price of real estate assets $2,864
 $2,606
 $5,467
 $7,226
Loan origination fees 1.0% of the maximum commitment of any real estate loan, note or line of credit receivable 148
 249
 674
 1,460
Loan coordination fees 0.6% of any assumed, new or supplemental debt incurred in connection with an acquired property 1,100
 1,048
 2,065
 2,602
Asset management fees Monthly fee equal to one-twelfth of 0.50% of the total book value of assets, as adjusted 3,981
 3,742
 11,546
 11,007
Property management fees Monthly fee up to 4% of the monthly gross revenues of the properties managed 2,557
 2,331
 7,509
 6,572
General and administrative expense fees Monthly fee equal to 2% of the monthly gross revenues of the Company 1,557
 1,560
 4,624
 4,528
Construction management fees Quarterly fee for property renovation and takeover projects 73
 93
 208
 366
Disposition fees 1% of the sale price of a real estate asset —
 425
 16
 860
           
    $12,280
 $12,054
 $32,109
 $34,621


The Former Manager may, in its discretion, waivewaived some or all of the asset management, property management, or general and administrative fees in the current period for properties owned by the Company. The waived fees may become earned by the Manager as an additional disposition fee only in the event of a sales transaction, and whereby the Company’s capital contributions for the property being sold exceed a 7% annual rate of return. The Company will recognize in future periods to the extent, if any, it determines that the sales transaction is probable, and that the estimated net sale proceeds would exceed the annual rate of return hurdle. A cumulative total of approximately $21.2approximately $25.6 million of combined asset management and general and administrative fees related to acquired properties as of September 30, 2019 havehad been waived by the Manager. A totalFormer Manager; at the date of $19.7Internalization, all of the remaining contingent fees of $24.1 million remaining waived fees could possibly be earned bywere eliminated in conjunction with the Manager in the future.Company's Internalization transaction.


In addition to property management fees, the Company incurred the following reimbursable on-site personnel salary and related benefits expenses at the properties, which are listed on the Consolidated Statements of Operations:

Three-month periods ended September 30,Nine-month periods ended September 30,
(In thousands)2020201920202019
$0 $4,681 $1,430 $12,973 

(In thousands)      
Three-month periods ended September 30, Nine-month periods ended September 30,
2019 2018 2019 2018
$4,681
 $4,501
 $12,973
 $12,040

The Former Manager utilizesutilized its own and its affiliates' personnel to accomplish certain tasks related to raising capital that would typically be performed by third parties, including, but not limited to, legal and marketing functions. As permitted under the Management Agreement, the Former Manager was reimbursed $40,451 and $384,243 and $357,807 for the nine-month periods ended September 30, 2020 and 2019, and 2018,


30
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



respectively and Preferred Capital Securities, LLC, or PCS, was reimbursed $1,022,855$0 and $1,080,660$1,022,855 for the nine-month periods ended September 30, 20192020 and 2018 ,2019, respectively. These costs are recorded as deferred offering costs until such time as additional closings occur on the 2019Series A1/M1 Preferred Stock Offering, $1.5 Billion Unit Offering, mShares Offering or the 2019 Shelf Offering, at

30
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

which time they are reclassified on a pro-rata basis as a reduction of offering proceeds within stockholders’ equity. In conjunction with the winding down of the $1.5 Billion Unit Offering, the Company has engaged PCS to perform certain termination-related services. These services began in October 2019 and continued through April 2020. For the nine-month period ended September 30, 2020, the Company paid an additional $3.1 million for these services, which were recorded as deferred offering costs.


ThePrior to the Internalization, the Company pays its Manager leasing commission fees for office and retail leases based on varying rates and conditions.

The Company holdsheld a promissory note in the amount of approximately $650,000 due from Preferred Capital Marketing Services, LLC, or PCMS, which is a wholly-owned subsidiary of NELL Partners.

The Company has extendedPartners and a revolving line of credit with a maximum borrowing amount of $22.0$24.0 million to its Manager. Both of these instruments were extinguished in connection with the Internalization transaction.


Of the Company’s $27.9$24.8 million accrued interest receivable on real estate loans balance on the Consolidated Balance Sheet, interest receivable of approximately $1.2 million relates to the Haven 12 real estate loan investment, which is to a related party. Interest receivable of approximately $375,000$2.0 million on its Haven Campus Communities, LLC line of credit is included in the tenant receivables and other assets line.


7. Dividends and Distributions


The Company declares and pays monthly cash dividend distributions in the amount of $5.00 per share per month on its Series A Preferred Stock; onStock and its Series A1 Preferred Stock. For the Company's Series M Preferred Stock, or mShares, dividends accrue and are paid on an escalating scale of $4.79 per month in the first year following share issuance, increasing each year to $6.25 per month in year eight and beyond. Beginning in October 2019,Similarly, for the Company declares and pays monthly cash dividend distributions in the amount of $5.00 per share per month on its Series A1 Preferred Stock and on itsCompany's Series M1 Preferred Stock, according todividends are paid on an escalating scale of $5.08 per month in the first year one,following share issuance, increasing each year to $5.92 per month in year ten and beyond. All preferred stock dividends are prorated for partial months at issuance as necessary.


Given the nature of the escalating dividends associated with the Company’s mShares and Series M1 Preferred Stock, the Company accrues dividends at the effective dividend rate in accordance with GAAP. This results in the Company recording larger dividends declared to preferred stockholders in the Company’s Consolidated Statements of Operations than dividends required to be paid for the first four years after issuance with respect to the mShares and the first five years after issuance with respect to the Series M1 Preferred Stock. Similarly, this will result in the Company recording smaller dividends declared to preferred stockholders in the Company’s Consolidated Statements of Operations than dividends required to be paid for the fifth through the eighth year after issuance with respect to the mShares and the sixth through the tenth year after issuance with respect to the Series M1 Preferred Stock. Following the escalation period (year eight for the mShares and year ten for the Series M1 Preferred Stock), the dividends declared to preferred stockholders in the Company’s Consolidated Statements of Operations will equal the dividend paid.  

The Company declared aggregate quarterly cash dividends on its Common Stock of $0.785$0.175 and $0.76$0.2625 per share for the three-month periods ended September 30, 2020 and 2019 respectively and $0.6125 and $0.7850 per share for the nine-month periods ended September 30, 20192020 and 2018,2019, respectively. The holders of Class A OP Units of the Operating Partnership are entitled to equivalent distributions as the dividends declared on the Common Stock. At September 30, 2019,2020, the Company had 856,409742,413 Class A OP Units outstanding, which are exchangeable on a one-for-one basis for shares of Common Stock or the equivalentequivalent amount of cash.



31
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

The Company's dividend and distribution activity consisted of:
Dividends and distributions declared
For the nine-month periods ended September 30,
(In thousands)20202019
Series A Preferred Stock$97,272 $79,351 
mShares4,903 3,176 
Series A1 Preferred Stock2,209 0 
Series M1 Preferred Stock217 0 
Common Stock29,895 34,599 
Restricted Stock and Class A OP Units559 683 
Total$135,055 $117,809 
  Dividends and distributions declared

 For the nine-month periods ended September 30,
  2019 2018
(In thousands)    
Series A Preferred Stock $79,351
 $61,558
mShares 3,176
 1,243
Common Stock 34,599
 30,283
Class A OP Units 683
 813
     
Total $117,809
 $93,897


8. Equity Compensation
Stock Incentive Plan
On May 2, 2019, the Company’s board of directors adopted, and the Company’s Common stockholders approved, the Preferred Apartment Communities, Inc. 2019 Stock Incentive Plan, or the 2019 Plan, to incentivize, compensate and retain eligible officers, consultants, and non-employee directors. The 2019 Plan increased the aggregate number of shares of Common Stock authorized for issuance under the 2011 Plan from 2,617,500 to 3,617,500. The 2019 Plan does not have a stated expiration date.



Equity compensation expense by award type for the Company was:
(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30, Unamortized expense as of September 30,
20202019202020192020
Class B Unit awards to employees:
2016$0 $0 $0 $2 $0 
20170 78 3 234 0 
201870 72 191 215 71 
Restricted stock grants to Board members:
20180 0 0 120 0 
20190 106 140 176 0 
2020133 0 222 0 310 
Restricted stock grants for employees:
2020242 0 279 0 3,601 
Performance-based restricted stock units:
202092 0 92 0 1,753 
Restricted stock units to employees:
20170 15 0 53 0 
201814 15 38 55 19 
201916 19 47 67 94 
202015 0 46 0 137 
Total$582 $305 $1,058 $922 $5,985 




3132
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)




Performance-based Restricted Stock Unit Grants
Equity compensation expense
On July 31, 2020, the Company awarded performance-based restricted stock units (“PSUs”) to certain of its senior executives. Each PSU represents the right to receive one share of APTS common stock upon satisfaction of both (i) the market condition, at which time the PSUs become earned PSUs, and (ii) the service requirement, beyond which point the PSUs become vested PSUs.

The market condition requirement of the PSUs consists of a relative measure of total shareholder return (“TSR”) of the Company's Common Stock versus the average TSR of a select group of publicly-traded peer companies. TSR is calculated by dividing the sum of price appreciation and cumulative dividends over the performance period divided by the beginning value of the common stock at the performance period commencement date (July 1, 2020), where the determining values are derived by calculating the 20-day volume weighted average stock price preceding both the performance period commencement date and the performance period end date (June 30, 2023). PSUs will become earned PSUs according to the percentile rank of the TSR of Company's Common Stock versus the peer group’s average TSR, as shown in the following table:


LevelRelative TSR performance (percentile rank versus peers)Earned PSUs (% of target)
< Threshold
<35th Percentile
0%
Threshold
35th Percentile
50%
Target
55th Percentile
100%
Maximum
>=75th Percentile
200%


The number of PSUs that become earned PSUs can range between 0% and 200% of the original (target) number of PSUs awarded and actual percentile ranking results between the 35th and 75th percentile are to be interpolated between the percentage earned values shown.

In order for earned PSUs to become vested PSUs, the participant must remain continuously employed by the Company or an affiliate company (i) from the grant date through the payout determination date (expected to be no more than 5 days following the performance period end date) for 50% of the PSU award typeand (ii) from the grant date through the first anniversary of the performance period end date for the Companyremaining 50% of the PSU award.

Since the PSUs vest in part based upon achievement of a market condition, they were valued utilizing a Monte-Carlo simulation, that excludes the value of Common Stock dividends since dividend equivalents accrue separately to the award holders. The underlying valuation assumptions and result for the Performance RSU award was:

Stock price on grant date$7.23 
Dividend yield6.87 %
Expected volatility44.40 %
Risk-free interest rate0.11 %
Target number of PSUs granted:
First vesting tranche136,462 
Second vesting tranche136,467 
272,929 
Calculated fair value per PSU$6.76 
Total fair value of PSUs$1,845,000 

The expected dividend yield assumptions were derived from the Company’s closing prices of the Common Stock and historical dividend amounts over the trailing five-year period from the grant date.

The Company's own stock price history over the 2.91 year period trailing the grant date was utilized as the expected volatility assumption.

33
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

   Three-month period ended September 30, Nine-month period ended September 30,  Unamortized expense as of September 30,
(In thousands) 2019 2018 2019 2018 2019
           
Class B Unit awards:          
2016 $—
 $55
 $2
 203
 $—
2017 78
 68
 234
 263
 81
2018 72
 538
 215
 2,002
 358
Restricted stock grants:          
2017  —
 —
 —
 120
 —
2018  —
 91
 120
 151
 —
2019  106
 —
 176
 —
 245
Restricted stock units:          
2017  15
 19
 53
 62
 17
2018  15
 25
 55
 80
 110
2019  19
 —
 67
 —
 200
            
Total  $305
 $796
 $922
 $2,881
 $1,011


The risk-free rate assumptions were obtained from the grant date yields on zero coupon U.S. Treasury STRIPS that have a term equal to the length of the remaining Performance Period and were calculated as the interpolated rate between the two-year and three-year yield percentages.

Restricted Stock Grants


The following annual grants of restricted stock were made to members of the Company's independent directors, as payment of the annual retainer fees. The restricted stock grants for service years 2017-2019 vested (or are scheduled to vest) on a pro-rata basis over the four consecutive 90-day periods following the date of grant. The restricted stock grant for service year 2020 is scheduled to vest on the one-year anniversary of the date of grant.
Service yearSharesFair value per shareTotal compensation cost (in thousands)
201724,408 $14.75 $360 
201824,810 $14.51 $360 
201926,446 $15.88 $420 
202066,114 $8.05 $532 

On June 17, 2020, the Company granted Restricted Stock to certain of its executives and employees. The fair value per share of $8.05 was based upon the closing price of the Company's Common Stock on the business day preceding the grant date. A total of 137,741 shares representing a fair value of approximately $1.1 million will vest on the four year anniversary of the grant date and 344,356 shares representing a fair value of approximately $2.8 million will vest on a pro-rata basis on each of the four succeeding anniversaries of the grant date.

Service year Shares Fair value per share Total compensation cost (in thousands)
2017 24,408
 $14.75
 $360
2018 24,810
 $14.51
 $360
2019 26,446
 $15.88
 $420
34



32
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)





Class B OP Units


As of September 30, 2019,2020, cumulative activity of grants of Class B Units of the Operating Partnership, or Class B OP units, was:
Grant date
1/2/20181/3/2017
Units granted256,087 286,392 
Units forfeited:
   John A. Williams (1)
(38,284)0 
  Voluntary forfeiture by senior executives (2)
(128,258)0 
   Other(24,237)(5,334)
Total forfeitures(190,779)(5,334)
Units earned and converted into Class A Units0 (281,058)
Class B Units outstanding at September 30, 202065,308 0 
Units unearned but vested48,678 0 
Units unearned and not yet vested16,630 0 
Class B Units outstanding at September 30, 202065,308 0 
(1) Pro rata modification of award on April 16, 2018, the date of Mr. Williams' passing.
(2) Additional Class B OP units granted to senior executives other than Mr. Williams were voluntarily forfeited at the end of 2018.
  Grant date
  1/2/2018 1/3/2017
     
Units granted 256,087
 286,392
Units forfeited:    
   John A. Williams (1)
 (38,284) —
  Voluntary forfeiture by senior executives (128,258) —
   Other (22,722) (5,334)
     
Total forfeitures (189,264) (5,334)
     
Units earned and converted into Class A Units —
 (254,730)
     
Class B Units outstanding at September 30, 2019 66,823
 26,328
     
Units unearned but vested 32,575
 —
Units unearned and not yet vested 34,248
 26,328
     
Class B Units outstanding at September 30, 2019 66,823
 26,328
     
(1) Pro rata modification of award on April 16, 2018, the date of Mr. Williams' passing.


There were no0 grants of Class B OP Units for 2019.2019 or 2020.


The underlying valuation assumptions and results for the 2018 Class B OP Unit awards were:
Grant date1/2/2018
Stock price$20.19 
Dividend yield4.95 %
Expected volatility25.70 %
Risk-free interest rate2.71 %
Number of Units granted:
One year vesting period171,988 
Three year vesting period84,099 
256,087 
Calculated fair value per Unit$16.66 
Total fair value of Units$4,266,409 
Target market threshold increase$5,660,580 
Grant dates 1/2/2018
Stock price $20.19
Dividend yield 4.95%
Expected volatility 25.70%
Risk-free interest rate 2.71%
   
Number of Units granted:  
One year vesting period 171,988
Three year vesting period 84,099
  256,087
   
Calculated fair value per Unit $16.66
   
Total fair value of Units $4,266,409
   
Target market threshold increase $5,660,580


The expected dividend yield assumptions were derived from the Company’s closing prices of the Common Stock on the grant dates and the projected future quarterly dividend payments per share of $0.25 for the 2018 awards.


For the 2018 awards, the Company's own stock price history was utilized as the basis for deriving the expected volatility assumption.


35
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020


The risk-free rate assumptions were obtained from the Federal Reserve yield table and were calculated as the interpolated rate between the 20 and 30 year yield percentages on U. S. Treasury securities on the grant date.


Since the Class B OP Units have no expiration date, a derived service period of one year was utilized, which equals the period of time from the grant date to the initial valuation date.



33
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)




Restricted Stock Units


The Company, through its Operating Partnership, has grantedmade grants of restricted stock units, or RSUs, to its employees under the 2019 Plan, and prior to Internalization, made grants of RSUs to certain employees of affiliates of the Company under the 2011 Plan, as shown in the following table:

Grant date1/2/20201/2/20191/2/2018
Service period2020-20222019-20212018-2020
RSU activity:
Granted21,400 27,760 20,720 
Forfeited(2,100)(6,581)(6,874)
RSUs outstanding at September 30, 202019,300 21,179 13,846 
RSUs unearned but vested0 7,141 9,306 
RSUs unearned and not yet vested19,300 14,038 4,540 
RSUs outstanding at September 30, 202019,300 21,179 13,846 
Fair value per RSU$9.47 $10.77 $16.66 
Total fair value of RSU grant$202,658 $298,975 $345,195 

Grant date1/2/2019
 1/2/2018
 1/3/2017
Service period2019-2021
 2018-2020
 2017-2019
      
RSU activity:     
Granted27,760
 20,720
 26,900
Forfeited(2,960) (4,760) (6,971)
Units earned and converted into common stock—
 —
 (14,154)
      
RSUs outstanding at September 30, 201924,800
 15,960
 5,775
      
RSUs unearned but vested—
 5,345
 —
RSUs unearned but not yet vested24,800
 10,615
 5,775
      
RSUs outstanding at September 30, 201924,800
 15,960
 5,775
      
Fair value per RSU$10.77
 $16.66
 $11.92
Total fair value of RSU grant$298,975
 $345,195
 $320,648

The RSUs vest in three equal consecutive one-yearone-year tranches from the date of grant. For each grant, on the Initial Valuation Date, the market capitalization of the number of shares of Common Stock at the date of grant is compared to the market capitalization of the same number of shares of Common Stock at the Initial Valuation Date. If the market capitalization measure results in an increase which exceeds the target market threshold, the Vested RSUs become earned RSUs and automatically convert intoare settled in shares of Common Stock on a one-to-one basis. Vested RSUs may become Earned RSUs on a pro-rata basis should the result of the market capitalization test be an increase of less than the target market threshold. Any Vested RSUs that do not become Earned RSUs on the Initial Valuation Date are subsequently remeasured on a quarterly basis until such time as all Vested RSUs become Earned RSUs or are forfeited due to termination of continuous service due to an event other than as a result of a qualified event, which is generally the death or disability of the holder. Continuous service through the final valuation date is required for the Vested RSUs to qualify to become fully Earned RSUs.


Because RSUs are valued using the identical market condition vesting requirement that determines the transition of the Vested Class B Units to Earned Class B Units, the same valuation assumptions per RSU were utilized to calculate the total fair values of the RSUs. The total fair value amounts pertaining to grants of RSUs, net of forfeitures, are amortized as compensation expense over the three one-year periods ending on the three successive anniversaries of the grant dates.












3436
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



9. Indebtedness

Mortgage Notes Payable

Mortgage financing of property acquisitions

The Company partially financed the real estate properties acquired during the nine-month period ended September 30, 2019 with mortgage debt as shown in the following table (see note 16):
Property Date 
Initial principal amount
(in thousands)
 Fixed/Variable rate Rate Maturity date
Fairfield Shopping Center 8/16/2019 $19,750
 Variable 1 month LIBOR + 205
 8/16/2026
Artisan at Viera 8/8/2019 40,000
 Fixed 3.93% 9/1/2029
CAPTRUST Tower 7/25/2019 82,650
 Fixed 3.61% 8/1/2029
Disston Plaza 6/12/2019 18,038
 Fixed 3.93% 7/1/2034
Polo Grounds Mall 6/12/2019 13,325
 Fixed 3.93% 7/1/2034
Free State Shopping Center 5/28/2019 46,800
 Fixed 3.99% 6/1/2029
Haven49 (1)
 3/27/2019 41,550
 Variable 1 month LIBOR + 375
 12/22/2019
Gayton Crossing 1/17/2019 18,000
 Fixed 4.71% 2/1/2029
           
    $280,113
      
(1) The Company assumed the existing construction loan on this property.





























35
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)




9. Indebtedness

    Mortgage Notes Payable

Mortgage financing of property acquisitions

During the nine-month period ended September 30, 2020, the Company obtained original mortgage financing on the following properties as shown in the following table:
PropertyDateInitial principal amount
(in thousands)		Fixed/Variable rateInterest rateMaturity date
251 Armour Yards1/22/2020$3,522 Fixed4.50 %1/22/2025
Wakefield Crossing1/29/20207,891 Fixed3.66 %2/1/2032
Morrocroft Centre3/19/202070,000 Fixed3.40 %4/10/2033
Horizon at Wiregrass Ranch4/23/202052,000 Fixed2.90 %5/1/2030
Parkside at the Beach4/30/202045,037 Fixed2.95 %5/1/2030
$178,450 

Repayments and refinancings


The following table summarizes our mortgage debt refinancing and repayment activity for the nine-month periods ended September 30, 2020 and 2019:


37
Date Property Previous balance (millions) Previous interest rate / spread over 1 month LIBOR Loan refinancing costs expensed New balance (millions) New interest rate Total deferred loan costs subsequent to refinancing
9/17/2019 Spring Hill Plaza $9.1
 3.36% $—
 $8.2
 3.72% $195,000
9/17/2019 Parkway Town Centre 6.6
 3.36% —
 8.1
 3.72% 195,000
8/16/2019 Deltona Landings 6.5
 3.48% 5,000
 6.3
 4.18% 204,000
8/16/2019 Barclay Crossing 6.1
 3.48% 4,000
 6.3
 4.18% 209,000
8/16/2019 Parkway Center 4.3
 3.48% 3,000
 4.6
 4.18% 148,000
8/13/2019 Powder Springs 6.9
 3.48% 4,000
 8.0
 3.65% 236,000
7/29/2019 Citi Lakes 41.1
 L + 217
 155,000
 41.3
 3.66% 668,000
4/12/2019 Royal Lakes Marketplace 9.5
 L + 250
 52,000
 9.7
 4.29% 287,000
4/12/2019 Cherokee Plaza 24.5
 L + 225
 317,000
 25.2
 4.28% 723,000
2/28/2019 Lenox Village Town Center 29.2
 3.82% 17,000
 39.3
 4.34% 1,153,000
               
    $143.8
   $557,000
 $157.0
   $4,018,000
               
9/28/2018 Stone Rise $23.5
 2.89% $119,000
 $—
 N/A
 $—
3/29/2018 Sol 37.5
 L + 200
 41,000
 37.5
 4.71% 649,000
3/20/2018 Lake Cameron 19.7
 3.13% 402,000
 —
 N/A
 —
               
    $80.7
   $562,000
 $37.5
   $649,000




36
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)




DatePropertyPrevious balance (millions)Previous interest rate / spread over 1 month LIBORLoan refinancing costs expensed (thousands)New balance (millions)New interest rateAdditional deferred loan costs from refinancing (thousands)
1/3/2020Ursa$31.4 L + 300$0 $0 n/a$0 
6/25/2020CityPark View19.8 3.27 %1,314 29.0 2.75 %314 
6/29/2020Aster at Lely Resort30.7 3.84 %293 50.4 2.95 %2,777 
6/29/2020Avenues at Northpointe26.0 3.16 %166 33.5 2.79 %1,247 
6/30/2020Avenues at Cypress20.5 3.43 %1,607 28.4 2.96 %336 
6/30/2020Venue at Lakewood Ranch27.8 3.55 %2,457 36.6 2.99 %384 
6/30/2020Crosstown Walk29.9 3.90 %248 46.5 2.92 %2,841 
6/30/2020Summit Crossing II13.1 4.49 %779 20.7 L + 278136 
7/10/2020Citrus Village28.5 3.65 %704 40.9 2.95 %522 
7/31/2020Village at Baldwin Park70.1 4.16 %16 70.1 3.59 %864 
$297.8 $7,584 $356.1 $9,421 
9/17/2019Spring Hill Plaza$9.1 3.36 %$0 $8.2 3.72 %$195 
9/17/2019Parkway Town Centre6.6 3.36 %0 8.1 3.72 %195 
8/16/2019Deltona Landings6.5 3.48 %5 6.3 4.18 %204 
8/16/2019Barclay Crossing6.1 3.48 %4 6.3 4.18 %209 
8/16/2019Parkway Center4.3 3.48 %3 4.6 4.18 %148 
8/13/2019Powder Springs6.9 3.48 %4 8.0 3.65 %236 
7/29/2019Citi Lakes41.1 L + 217155 41.3 3.66 %668 
4/12/2019Royal Lakes Marketplace9.5 L + 25052 9.7 4.29 %287 
4/12/2019Cherokee Plaza24.5 L + 225317 25.2 4.28 %723 
2/28/2019Lenox Village Town Center29.2 3.82 %17 39.3 4.34 %1,153 
$143.8 $557 $157.0 $4,018 



38
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

The following table summarizes our mortgage notes payable at September 30, 2019:2020:
(In thousands)
Fixed rate mortgage debt:Principal balances dueWeighted-average interest rateWeighted average remaining life (years)
Residential Properties$1,442,905 3.68 %8.8
New Market Properties571,320 4.00 %7.6
Preferred Office Properties634,876 4.13 %12.7
Total fixed rate mortgage debt2,649,101 3.86 %9.5
Variable rate mortgage debt:
Residential Properties117,917 3.76 %3.3
New Market Properties47,150 2.81 %3.1
Preferred Office Properties0 0 %— 
Total variable rate mortgage debt165,067 3.49 %3.3
Total mortgage debt:
Residential Properties1,560,823 3.68 %8.4
New Market Properties618,470 3.91 %7.2
Preferred Office Properties634,876 4.13 %12.7
Total principal amount2,814,169 3.83 %9.1
Deferred loan costs(44,338)
Mark to market loan adjustment(4,038)
Mortgage notes payable, net$2,765,793 
(In thousands)      
Fixed rate mortgage debt: Principal balances due Weighted-average interest rate Weighted average remaining life (years)
Multifamily communities $1,108,840
 3.91% 9.2
New Market Properties 551,371
 3.97% 8.0
Preferred Office Properties 566,344
 4.22% 13.7
Student housing properties 159,780
 4.13% 5.8
       
Total fixed rate mortgage debt 2,386,335
 4.01% 9.8
       
Variable rate mortgage debt:      
Multifamily communities 39,078
 3.62% 4.8
New Market Properties 47,150
 4.68% 4.1
Preferred Office Properties —
 —
 —
Student housing properties 131,916
 5.55% 1.0
       
Total variable rate mortgage debt 218,144
 5.01% 2.3
       
Total mortgage debt:      
Multifamily communities 1,147,918
 3.90% 9.1
New Market Properties 598,521
 4.02% 7.7
Preferred Office Properties 566,344
 4.22% 13.7
Student housing properties 291,696
 4.77% 3.6
       
Total principal amount 2,604,479
 4.09% 9.2
Deferred loan costs (37,954)    
Mark to market loan adjustment (4,688)    
Mortgage notes payable, net $2,561,837
    

The Company has placed an interest rate capcaps on the variable rate mortgagemortgages on its Avenues at Creekside, multifamily community.Summit Crossing II, Tradition and Bloc residential properties. Under guidance provided by ASC 815-10, thisthese interest rate cap is a derivative,caps are derivatives that isare embedded in itsthe debt host.hosts. Because the interest rate cap iscaps are deemed to be clearly and closely related to itsthe debt host,hosts, bifurcation and fair value accounting treatment is not required.


The mortgage note secured by our Independence Square property is a seven year term with an anticipated repayment date of September 1, 2022. If the Company elects not to pay its principal balance at the anticipated repayment date, the term will be extended for an additional five years, maturing on September 1, 2027. The interest rate from September 1, 2022 to September 1, 2027 will be the greater of (i) the Initial Interest Rate of 3.93% plus 200 basis points or (ii) the yield on the seven year U.S. treasury security rate plus approximately 400 basis points.


As of September 30, 2019,2020, the weighted-average remaining life of deferred loan costs related to the Company's mortgage indebtedness was approximately 9.69.3 years. Our mortgage notes have maturity dates between October 1, 2019June 6, 2021 and June 1, 2054.

Credit Facility


The Company has a credit facility, or Credit Facility, with KeyBank National Association, or KeyBank, which definesincludes a revolving line of credit, or Revolving Line of Credit, which is used to fund investments, capital expenditures, dividends (with consent of KeyBank), working capital and other general corporate purposes on an as needed basis. On March 23, 2018, the maximum borrowing capacity on the Revolving Line of Credit was increased to $200 million pursuant to an accordion feature. The accordion feature
permits the maximum borrowing capacity to be expanded or contracted without amending any further terms of the instrument. On December 12, 2018, the Fourth Amended and Restated Credit Agreement, or the Amended and Restated Credit Agreement,


37
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



was amended to extend the maturity to December 12, 2021, with an option to extend the maturity

39
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

date to December 12, 2022, subject to certain conditions described therein. The RevolvingRevolving Line of Credit accrues interest at a variable rate of one month LIBOR plus an applicable margin of 2.75% to 3.50% per annum, depending upon the Company’s leverage ratio. The weighted average interest rate for the Revolving Line of Credit was 5.53%3.91% for the nine-month period ended September 30, 2019.2020. The Amended and Restated Credit Agreement also reduced the commitment fee on the average daily unused portion of the Revolving Line of Credit to 0.25% or 0.30% per annum, depending upon the Company’s outstanding Credit Facility balance.


On May 26, 2016,December 20, 2019, the Company entered into a $11.0$70.0 million interim term loan with KeyBank, or the Interim2019 Term Loan, to partially finance the acquisition of Anderson Central, a grocery-anchored shopping centerMorrocroft Centre, an office building located in Anderson, SouthCharlotte, North Carolina. The Interim2019 Term Loan accruedaccrues interest at a rate of LIBOR plus 2.5%1.7% per annum until itannum.The 2019 Term Loan was repaid and extinguished duringin conjunction with the first quarterclosing of 2018.permanent mortgage financing for Morrocroft Centre on March 19, 2020.
The Fourth Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including negative covenants that limit or restrict secured and unsecured indebtedness, mergers and fundamental changes, investments and acquisitions, liens and encumbrances, dividends, transactions with affiliates, burdensome agreements, changes in fiscal year and other matters customarily restricted in such agreements. The amount of dividends that may be paid out by the Company is restricted to a maximum of 95% of AFFO for the trailing four quarters without the lender's consent; solely for purposes of this covenant, AFFO is calculated as earnings before interest, taxes, depreciation and amortization expense, plus reserves for capital expenditures, less normally recurring capital expenditures, less consolidated interest expense.
As of September 30, 2019,2020, the Company was in compliance with all covenants related to the Revolving Line of Credit, as shown in the following table:
Covenant (1)
RequirementResult
Net worthMinimum $1.7 billion$1.9 billion(3)
Debt yieldMinimum 8.25%9.89%
Payout ratioMaximum 95%(2)88.1%
Total leverage ratioMaximum 65%63.7%
Debt service coverage ratioMinimum 1.50x1.74x
Covenant (1)
RequirementResult
Net worthMinimum $1.8 billion
(2)
$1.9 billion
Debt yieldMinimum 8.25%9.99%
Payout ratioMaximum 95%
(3)
93.9%
Total leverage ratioMaximum 65%56.8%
Debt service coverage ratioMinimum 1.50x1.75x


(1) All covenantscovenants are as defined in the credit agreement for the Revolving Line of Credit.
(2) Minimum of $686.9 million plus 75% of the net proceeds of any equity offering, which totaled approximately $1.1 billion as of September 30, 2019.
(3) Calculated on a trailing four-quarter basis.basis, except for Common Stock dividends, which are annualized off of the trailing two quarters' dividend. For the twelve-month periodyear ended September 30, 2019,2020, the maximum dividends and distributions allowed under this covenant was approximately $154.7$179.8 million.

(3) Adjusted to exclude the effect of costs incurred with internalization.

Loan fees and closing costs for the establishment and subsequent amendments of the Credit Facility are amortized utilizing the straight line method overover the life of the Credit Facility. At September 30, 2019,2020, unamortized loan fees and closing costs for the Credit Facility were approximately $1.3$0.8 million, which will be amortized over a remaining loan life of approximately 2.31.3 years. Loan fees and closing costs for the mortgage debt on the Company's properties are amortized utilizing the effective interest rate method over the lives of the loans.


Acquisition Facility


On February 28, 2017, the Company entered into a credit agreement, or Acquisition Credit Agreement, with Freddie Mac through KeyBank to obtain an acquisition revolving credit facility, or Acquisition Facility, with a maximum borrowing capacity of $200 million. The purpose of the Acquisition Facility is to finance acquisitions of multifamily communities and student housing communities.acquisitions. The maximum borrowing capacity on the Acquisition Facility may be increased at the Company's request up to $300 million at any time prior to March 1, 2021. On March 25, 2019, the maximum borrowing capacity was decreased to $90 million by agreement between the Company and KeyBank.The Acquisition Facility accrues interest at a variablevariable rate of one month LIBOR plus a margin of between 1.75% per annum and 2.20% per annum, depending on the type of assets acquired and the resulting property debt service coverage ratio. The Acquisition Facility has a maturity date of March 1, 2022 and has two one-year2 one-year extension options, subject to certain conditions described therein. At September 30, 2019,2020, unamortized loan fees and closing costs for the establishment of the Acquisition Facility were approximately $0.2$0.1 million, which will be amortized over a remaining loan life of approximately 2.41.4 years. 




3840
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)





Interest Expense


Interest expense, including amortization of deferred loan costs was:
(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,
2020201920202019
Residential Properties$15,739 $16,108 $46,537 $46,729 
New Market Properties6,539 6,422 19,876 18,123 
Preferred Office Properties6,699 5,909 20,256 16,617 
Interest paid to real estate loan participants0 0 0 110 
Total28,977 28,439 86,669 81,579 
Credit Facility and Acquisition Facility902 360 3,939 1,587 
Interest Expense$29,879 $28,799 $90,608 $83,166 
  Three-month periods ended September 30, Nine-month periods ended September 30,
(In thousands) 2019 2018 2019 2018
         
Multifamily communities $12,162
 $11,409
 $35,434
 $33,597
New Market Properties 6,422
 5,071
 18,123
 14,056
Preferred Office Properties 5,909
 3,489
 16,617
 8,696
Student housing properties 3,946
 3,497
 11,295
 7,572
Interest paid to real estate loan participants —
 802
 110
 1,746
         
Total 28,439
 24,268
 81,579
 65,667
         
Credit Facility and Acquisition Facility 360
 1,389
 1,587
 3,305
Interest Expense $28,799
 $25,657
 $83,166
 $68,972
Future Principal Payments
The Company’s estimated future principal payments due on its debt instruments as of September 30, 20192020 were:
PeriodFuture principal payments
(in thousands)
2020 (1)
$44,152 
2021166,730 
2022105,432 
2023117,605 
2024367,421 
Thereafter2,045,829 
Total$2,847,169 
(1) Includes the principal amount due on our revolving line of credit of $33.0 million as of September 30, 2020.
Period 
Future principal payments
(in thousands)
 
2019 $120,117
(1) 
2020 74,674
 
2021 181,018
 
2022 220,992
 
2023 159,036
 
Thereafter 1,898,642
 
    
Total $2,654,479
 
    

(1) Includes the outstanding principal amount of $50.0 million on the Company's revolving line of credit.

10. Income Taxes


The Company elected to be taxed as a REIT effective with its tax year ended December 31, 2011, and therefore, the Company will not be subject to federal and state income taxes, so long as it distributes 100% of the Company's annual REIT taxable income (which does notnot equal net income as calculated in accordance with GAAP and determined without regard for the deduction for dividends paid and excluding net capital gains) to its stockholders. For the Company's tax years prior to its REIT election year, its operations resulted in a tax loss. As of December 31, 2010, the Company had deferred federal and state tax assets totaling approximately $298,100, none of which were based upon tax positions deemed to be uncertain. These deferred tax assets will most likely not be used since the Company elected REIT status; therefore, management has determined that a 100% valuation allowance is appropriate as of September 30, 20192020 and December 31, 2018.2019.


11. Commitments and Contingencies


On March 28, 2014,January 31, 2020, the Company entered into a payment guaranty in support ofassumed its Former Manager's eleven-yeareleven-year office lease as amended, which began on October 9, 2014. As of September 30, 2019,2020, the amount guarantied byof rent due from the CompanyCompany was $5.5$15.3 million and is reduced by $619,304 per lease year over the remaining term of the lease.



3941

Preferred Apartment Communities, Inc.
Certain officersNotes to Consolidated Financial Statements (Unaudited)
September 30, 2020

A total of approximately $24.1 million of asset management and employees of the Manager have been assigned company credit cards. Asgeneral and administrative fees related to acquired properties as of September 30, 2019,2020 that have been waived by the Former Manager were eliminated in conjunction with the Company's Internalization transaction.

At September 30, 2020, the Company guarantied up to $640,000had unfunded commitments on these credit cards.its real estate loan portfolio of approximately $63.0 million.

At September 30, 2020, the Company had unfunded contractual commitments for tenant, leasing, and capital improvements of approximately $6.2 million.

The Company is otherwise currently subject to neither any known material commitments or contingencies from its business operations, nor any material known or threatened litigation.


A total of approximately $21.2 million of asset management and general and administrative fees related to acquired properties as of September 30, 2019 have been waived by the Manager.  The waived fees are converted at the time of waiver into contingent fees, which are earned by the Manager as an additional disposition fee only in the event of a sales transaction, and whereby the Company’s capital contributions for the property being sold exceed a 7% annual rate of return.  The Company will recognize in future periods to the extent, if any, it determines that the sales transaction is probable, and that the estimated net sale proceeds would exceed the annual rate of return hurdle.  As of September 30, 2019, a total of $19.7 million remaining waived fees could possibly be earned by the Manager in the future.  

At September 30, 2019, the Company had unfunded balances on its real estate loan portfolio of approximately $74.7 million.

At September 30, 2019, the Company had unfunded contractual commitments for tenant, leasing, and capital improvements of approximately $15.1 million.

12. Operating Leases


Company as Lessor

For the nine months ended September 30, 2020 and 2019, the Company recognized rental property revenues of $330.4 million and $290.0 million, respectively, of which $31.2 million and $29.2 million, respectively, represented variable rental revenue.

Company as Lessee

The Company has 3 ground leases related to our office and grocery-anchored shopping center assets that generally have extended terms (e.g. over twenty years with multiple renewal options) and generally have base rent with CPI-based increases. The Company evaluated its renewal option periods in quantifying its asset and liability related to these ground leases. In determining the value of its right of use asset and lease liability, the Company used discount rates comparable to recent loan rates obtained on comparative properties within its portfolio. The Company is also, as of January 31, 2020 following the Internalization, the lessee of office space for its property support center which expires in May 2026, and of furniture and office equipment, which leases generally are three to five years in duration with minimal rent increases.

The Company’s grocery-anchored shopping centersCompany recorded lease expense as follows:
(dollars in thousands)
For the nine-month periods ended September 30, 2020		Weighted average remaining lease term (years)Weighted average discount rate
Lease expenseCash paid
Office space$1,942 $1,903 5.23.0 %
Ground leases44 38 35.74.4 %
Office equipment282 282 2.33.0 %
Total$2,268 $2,223 


42
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

Future minimum rent expense for office space, ground leases and office properties are leasedequipment were:
For the year ending December 31:Future Minimum Rents as of September 30, 2020
(in thousands)Office spaceGround leasesOffice equipmentTotal
2020 (1)
$723 $13 $91 $827 
20212,930 51 321 3,302 
20222,855 51 149 3,055 
20232,497 51 58 2,606 
20243,139 51 39 3,229 
Thereafter3,163 1,136 0 4,299 
Total$15,307 $1,353 $658 $17,318 
(1) Remaining three months



43
Preferred Apartment Communities, Inc.
Notes to tenants under operating leases for which the terms vary. The future minimum rental income due under the remaining terms of the Company's operating leases in place, excluding tenant reimbursements of operating expenses and real estate taxes and additional percentage rent based on tenants’ sales volumes, as of Consolidated Financial Statements (Unaudited)
September 30, 2019, is presented below, assuming that all leases which expire are not renewed and tenant renewal options are not exercised (excludes rental income due from tenants of multifamily communities, which are of lease terms of twelve months or less):2020

For the year ending December 31: Future Minimum Rents as of September 30, 2019
(In thousands) New Market Properties Preferred Office Properties Total
       
2019 (1)
 $18,295
 $16,728
 $35,023
2020 70,420
 71,934
 142,354
2021 62,035
 71,636
 133,671
2022 52,462
 70,030
 122,492
2023 44,366
 68,602
 112,968
Thereafter 134,191
 362,308
 496,499
Total $381,769
 $661,238
 $1,043,007
       
(1) Remaining three months
For the year ending December 31: Future Minimum Rents as of December 31, 2018
(In thousands) New Market Properties Preferred Office Properties Total
       
2019 $58,143
 $56,564
 $114,707
2020 51,949
 61,704
 113,653
2021 43,152
 58,805
 101,957
2022 35,218
 58,108
 93,326
2023 29,562
 57,343
 86,905
Thereafter 79,747
 298,469
 378,216
Total $297,771
 $590,993
 $888,764

The Company’s grocery-anchored shopping centers are geographically concentrated within the Sunbelt and Mid-Atlantic region of the United States. The Company’s retail tenant base primarily consists of national and regional supermarkets, consumer services, healthcare providers, and restaurants. Our grocery anchor tenants comprise approximately 44.9% of our gross leasable area. Our


40

credit risk, therefore, is concentrated in the retail/grocery real estate sector. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, with the exception of our grocer anchor tenants, who generally are not required to provide security deposits. Exposure to credit risk is limited to the extent that tenant receivables exceed security deposits. Security deposits related to tenant leases are included in security deposits and other liabilities in the accompanying consolidated balance sheets.
As of September 30, 2019, the Company’s approximately 2.9 million square foot office portfolio was 97% leased to a predominantly investment grade credit (or investment grade equivalent) tenant roster. For non-credit tenants, our leases typically require a security deposit or letter of credit, which limits worst case collection exposure to amounts in excess of those protections. Additionally, some credit tenant leases will include credit enhancement provisions that require a security deposit or letter of credit in the event of a rating downgrade. We conduct thorough credit analyses not only for leasing activities within our existing portfolio but also for major tenants in properties we are considering acquiring.
13. Segment Information


The Company's Chief Operating Decision Maker, or CODM, evaluates the performance of the Company's business operations and allocates financial and other resources by assessing the financial results and outlook for future performance across five4 distinct segments: multifamily communities, student housingresidential properties, real estate related financing, New Market Properties and Preferred Office Properties.


Multifamily CommunitiesResidential Properties - consists of the Company's portfolio of owned residential multifamily communities

and student housing properties. Multifamily Communities and Student Housing Properties - consists ofwere previously presented as separate reporting segments. The Company has combined these two segments into the Company's portfolio of owned student housing properties.Residential Properties reportable segment.


Financing - consists of the Company's portfolio of real estate loans, bridge loans, and other instruments deployed by the Company to partially finance the development, construction, and prestabilization carrying costs of new multifamily communities and other real estate and real estate related assets. Excluded from the financing segment are consolidated assets of VIEs and financial results of the Company's Dawson Marketplace grocery-anchored shopping center real estate loan, which are included in the New Market Properties segment.


New Market Properties - consists of the Company's portfolio of grocery-anchored shopping centers, which are owned by New Market Properties, LLC, a wholly-owned subsidiary of the Company, as well as the financial results from the Company's grocery-anchored shopping centerDawson Marketplace real estate loans.loan, that was repaid and extinguished on February 3, 2020.


Preferred Office Properties - consists of the Company's portfolio of office buildings.buildings, which are owned by Preferred Office Properties, LLC, a wholly-owned subsidiary of the Company.


The CODM monitors net operating income (“NOI”) on a segment and a consolidated basis as a key performance measure for its operating segments. NOI is a non-GAAP measure that is defined as rental and other property revenue from real estate assets plus interest income from its loan portfolio less total property operating and maintenance expenses, property management fees, real estate taxes, property insurance, and general and administrative expenses. The CODM uses NOI as a measure of operating performance because it provides a measure of the core operations, rather than factoring in depreciation and amortization, financing costs, acquisition expenses, and other expenses generally incurred at the corporate level.


The following tables present the Company's assets, revenues, and NOI results by reportable segment, as well as a reconciliation from NOI to net income (loss). The assets attributable to 'Other' primarily consist of  deferred offering costs recorded but not yet reclassified as reductions of stockholders' equity and cash balances at the Company and Operating Partnership levels.

(In thousands)September 30, 2020December 31, 2019
Assets:
Residential properties$2,146,061 $2,047,905 
Financing354,130 409,226 
New Market Properties1,074,584 1,125,230 
Preferred Office Properties1,130,962 1,123,212 
Other25,325 64,987 
Consolidated assets$4,731,062 $4,770,560 












4144
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)



(In thousands) September 30, 2019 December 31, 2018
     
Assets:    
Multifamily communities $1,586,795
 $1,503,648
Student housing properties 494,847
 411,102
Financing 518,947
 448,617
New Market Properties 1,053,920
 883,594
Preferred Office Properties 1,012,889
 884,648
Other (1)
 600,249
 279,349
Consolidated assets $5,267,647
 $4,410,958
     
(1) Other Assets includes $585,837 and $264,886 of assets owned by other pool participants within the Freddie Mac K Program that were consolidated by the Company. The Company's maximum exposure to loss from the combined mortgage pools from the Freddie Mac K Program is approximately $24.4 million.
Total capitalized expenditures (inclusive of additions to construction in progress, but exclusive of the purchase price of acquisitions) for the three-month and nine-month periods ended September 30, 20192020 and 20182019 were as follows:

(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,
2020201920202019
Capitalized expenditures:
Residential properties$4,348 $4,709 $10,938 $11,377 
New Market Properties2,017 2,699 4,557 5,703 
Preferred Office Properties5,779 3,265 22,458 12,040 
Total$12,144 $10,673 $37,953 $29,120 
  Three-month periods ended September 30, Nine-month periods ended September 30,
(In thousands) 2019 2018 2019 2018
         
Capitalized expenditures:        
Multifamily communities $3,412
 $3,452
 $8,257
 $14,150
Student housing properties 1,297
 1,061
 3,120
 2,269
New Market Properties 2,699
 3,163
 5,703
 4,950
Total $7,408
 $7,676
 $17,080
 $21,369


Second-generation capital expenditures exclude those expenditures made in our office building portfolio (i) to lease space to "first generation" tenants (i.e. leasing capital for existing vacancies and known move-outs at the time of acquisition), (ii) to bring recently acquired properties up to our Class A ownership standards (and which amounts were underwritten into the total investment at the time of acquisition), (iii) for property redevelopments and repositionings (iv) to newly leased space which had been vacant for more than one year and (v) for building improvements that are recoverable from future operating cost savings.



Total revenues by reportable segment of the Company were:
(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,
2020201920202019
Revenues
Rental and other property revenues:
Residential properties$60,643 $56,008 $180,325 $162,669 
New Market Properties26,707 25,270 80,815 70,211 
Preferred Office Properties (1)
27,810 24,215 81,009 68,006 
Total rental and other property revenues115,160 105,493 342,149 300,886 
Financing revenues11,271 14,710 38,115 44,675 
Miscellaneous revenues266 0 812 0 
Consolidated revenues$126,697 $120,203 $381,076 $345,561 
(1) Included in rental revenues for our Preferred Office Properties segment is the amortization of deferred revenue for tenant-funded leasehold improvements from a major tenant in our Three Ravinia and Westridge office buildings. As of September 30, 2020, the Company has recorded deferred revenue in an aggregate amount of $47.0 million in connection with such improvements. The remaining balance to be recognized is approximately $36.9 million which is included in the deferred revenues line on the consolidated balance sheets at September 30, 2020. These total costs will be amortized over the lesser of the useful lives of the improvements or the individual lease terms. The Company recorded non-cash revenue of approximately $2.8 million and $2.8 million for the nine-month periods ended September 30, 2020 and 2019, respectively.

The Company expects that negative impacts from the COVID-19 pandemic affecting its in-line retail tenants within its New Market Properties segment may continue throughout 2020. Of our over 900 retail tenants, the Company has 11 leases with 6 companies that have entered bankruptcy proceedings and in the aggregate this constitutes approximately 1% of the total recurring rental revenue for the New Market Properties segment.

The chief operating decision maker utilizes segment net operating income, or Segment NOI, in evaluating the performance of its operating segments. Segment NOI represents total property revenues less total property operating expenses, excluding depreciation and amortization, for all properties held during the period. Segment NOI for the Company's financing segment consists of interest revenues from the Company's real estate loan investments and notes and lines of credit receivable, as well as revenues from terminated property purchase options. Management believes that Segment NOI is a helpful tool in evaluating the operating performance of the segments because it measures the core operations of property performance by excluding corporate level expenses and other items not directly related to property operating performance.



4245
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)




Total revenues bySegment NOI for each reportable segment offor the Company were:three-month and nine-month periods ended September 30, 2020 and 2019 were as follows:
Three-month periods ended September 30,Nine-month periods ended September 30,
(In thousands)2020201920202019
Segment net operating income (Segment NOI)
Residential Properties$33,267 $30,191 $103,414 $90,825 
Financing11,245 14,710 38,089 44,675 
New Market Properties19,235 18,211 57,381 50,441 
Preferred Office Properties20,291 17,236 59,363 48,745 
Miscellaneous revenues266 0 812 0 
Consolidated segment net operating income84,304 80,348 259,059 234,686 
Interest expense:
Residential Properties15,739 16,108 46,537 46,729 
New Market Properties6,539 6,422 19,876 18,123 
Preferred Office Properties6,699 5,909 20,256 16,617 
Financing902 360 3,939 1,697 
Depreciation and amortization:
Residential Properties26,516 23,869 77,745 74,304 
New Market Properties12,688 11,677 39,410 32,644 
Preferred Office Properties12,590 10,693 35,941 30,243 
Equity compensation to directors and executives582 305 1,058 922 
Management fees, net of waived fees0 5,530 1,963 16,144 
Management Internalization577 818 179,828 1,143 
Provision for expected credit losses(152)0 5,463 0 
Change in net assets of consolidated VIE0 (591)0 (1,316)
(Gain) / loss on sale of real estate(3,261)0 (3,261)0 
(Gain) / loss on trading investment, net0 0 0 (4)
(Gain) / loss on sale of real estate loan investment0 0 0 (747)
(Gain) / loss from land condemnation, net(49)0 (528)0 
(Gain) / loss on extinguishment of debt518 15 6,674 84 
Loss from unconsolidated joint venture120 0 120 0 
Corporate G&A and Other7,898 1,370 23,113 4,197 
Net income (loss)$(3,602)$(2,137)$(199,075)$(6,094)

46
 Three-month periods ended September 30, Nine-month periods ended September 30,
(In thousands)2019 2018 2019 2018
Revenues       
        
Rental revenues:       
Multifamily communities$41,999
 $39,515
 $123,161
 $117,273
Student housing properties11,887
 9,719
 33,344
 22,485
New Market Properties24,654
 19,303
 68,529
 54,209
Preferred Office Properties (1)
23,277
 15,963
 64,613
 41,347
Total rental revenues101,817
 84,500
 289,647
 235,314
        
Other revenues:       
Multifamily communities1,565
 1,480
 4,205
 4,209
Student housing properties555
 366
 959
 556
New Market Properties616
 703
 1,682
 1,924
Preferred Office Properties939
 401
 3,393
 607
Total other revenues3,675
 2,950
 10,239
 7,296
        
Financing revenues14,711
 16,782
 44,652
 48,381
Miscellaneous revenues—
 —
 1,023
 —
Consolidated revenues$120,203
 $104,232
 $345,561
 $290,991
        
(1) Included in rental revenues for our Preferred Office Properties segment is the amortization of deferred revenue for tenant-funded leasehold improvements from a major tenant in our Three Ravinia and Westridge office buildings. As of September 30, 2019, the Company has deferred revenue in an aggregate amount of $47 million in connection with such improvements. The remaining balance to be recognized is approximately $40.7 million which is included in the deferred revenues line on the consolidated balance sheets at September 30, 2019. These total costs will be amortized over the lesser of the useful lives of the improvements or the individual lease terms. The Company recorded non-cash revenue of approximately $2.8 million and $1.8 million for the nine-month periods ended September 30, 2019 and 2018, respectively.






43
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)(Unaudited)
September 30, 20192020
(unaudited)



 Three-month periods ended September 30, Nine-month periods ended September 30,
(In thousands)2019 2018 2019 2018
Segment net operating income (Segment NOI)       
        
Multifamily communities$24,824
 $23,073
 $73,178
 $69,342
Student housing properties5,371
 3,985
 17,613
 10,927
Financing14,710
 16,782
 44,675
 48,381
New Market Properties18,070
 14,521
 50,299
 40,005
Preferred Office Properties17,138
 11,267
 48,458
 29,663
        
Consolidated segment net operating income80,113
 69,628
 234,223
 198,318
        
Interest expense:       
Multifamily communities12,162
 11,409
 35,434
 33,597
Student housing properties3,946
 3,497
 11,295
 7,572
New Market Properties6,422
 5,071
 18,123
 14,056
Preferred Office Properties5,909
 3,489
 16,617
 8,696
Financing360
 2,191
 1,697
 5,051
Depreciation and amortization:       
Multifamily communities18,647
 18,802
 57,449
 60,825
Student housing properties5,222
 7,135
 16,855
 19,736
New Market Properties11,677
 10,462
 32,644
 28,519
Preferred Office Properties10,693
 8,100
 30,243
 18,130
Professional fees1,575
 560
 3,349
 1,803
Management fees, net of forfeitures5,530
 5,300
 16,144
 15,513
Loan loss allowance—
 3,029
 —
 3,029
Equity compensation to directors and executives305
 796
 922
 2,881
Gain on sale of real estate—
 18,605
 —
 38,961
Gain on non-cash net assets of consolidated VIEs591
 131
 1,316
 185
Gain loss on sale of real estate loan investment—
 —
 747
 —
Loss on extinguishment of debt15
 —
 84
 —
Gain on trading investment, net—
 —
 4
 —
Other378
 169
 1,528
 717
        
Net income (loss)$(2,137) $8,354
 $(6,094) $17,339



44
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



14. Income (Loss) Per Share


The following is a reconciliation of weighted average basic and diluted shares outstanding used in the calculation of income (loss) per share of Common Stock:
(In thousands, except per-share figures)Three-month periods ended September 30,Nine-month periods ended September 30,
2020201920202019
Numerator:
Operating (loss) income before gain on sale of real estate and loss from unconsolidated joint venture$23,605 $26,086 $(105,462)$75,089 
Loss from unconsolidated joint venture(120)0 (120)0 
Gain on sale of real estate, net3,261 0 3,261 4 
Operating (loss) income26,746 26,086 (102,321)75,093 
Interest expense29,879 28,799 90,608 83,166 
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools0 591 0 1,316 
Less: loss on extinguishment of debt(518)(15)(6,674)(84)
Gains on land condemnation49 0 528 747 
Net loss(3,602)(2,137)(199,075)(6,094)
Consolidated net loss attributable to non-controlling interests108 59 3,515 138 
Net loss attributable to the Company(3,494)(2,078)(195,560)(5,956)
Dividends declared to preferred stockholders(35,909)(29,446)(104,601)(82,527)
Net loss attributable to unvested restricted stock(96)(5)(109)(14)
Net loss attributable to common stockholders$(39,499)$(31,529)$(300,270)$(88,497)
Denominator:
Weighted average number of shares of Common Stock - basic49,689 44,703 48,351 43,703 
Effect of dilutive securities: (D)
0 0 0 0 
Weighted average number of shares of Common Stock - basic and diluted49,689 44,703 48,351 43,703 
Net loss per share of Common Stock attributable to
common stockholders, basic and diluted$(0.79)$(0.71)$(6.21)$(2.02)
   Three-month periods ended September 30, Nine-month periods ended September 30,
 (In thousands, except per-share figures) 2019 2018 2019 2018
Numerator:        
 Operating income before gains on sales of real estate and trading investment $26,086
 $15,275
 $75,089
 $47,165
 Gains on sales of real estate and trading investment —
 18,605
 4
 38,961
          
 Operating income 26,086
 33,880
 75,093
 86,126
 Interest expense 28,799
 25,657
 83,166
 68,972
 Change in fair value of net assets of consolidated VIEs from mortgage-backed pools 591
 131
 1,316
 185
 Loss on extinguishment of debt (15) —
 (84) —
 Gain on sale of real estate loan investment —
 —
 747
 —
          
 Net (loss) income (2,137) 8,354
 (6,094) 17,339
 Consolidated net loss (income) attributable to non-controlling interests 59
 (216) 138
 (456)
          
 Net (loss) income attributable to the Company (2,078) 8,138
 (5,956) 16,883
          
 Dividends declared to preferred stockholders (29,446) (22,360) (82,527) (62,801)
 Earnings attributable to unvested restricted stock (5) (5) (14) (13)
          
 Net loss attributable to common stockholders $(31,529) $(14,227) $(88,497) $(45,931)
          
Denominator:        
 Weighted average number of shares of Common Stock - basic 44,703
 40,300
 43,703
 39,598
          
 
Effect of dilutive securities: (D)
 —
 —
 —
 —
          
 Weighted average number of shares of Common Stock - basic and diluted 44,703
 40,300
 43,703
 39,598
          
 Net loss per share of Common Stock attributable to        
 common stockholders, basic and diluted $(0.71) $(0.35) $(2.02) $(1.16)


(A) The Company's outstanding Class A Units of the Operating Partnership (856Partnership (742 and 1,068856 Units at September 30, 20192020, and 2018,2019, respectively) contain rights to distributions in the same amount per unit as for dividends declared on the Company's Common Stock. The impact of the Class A Unit distributions on earnings per share has been calculated using the two-class method whereby earnings are allocated to the Class A Units based on dividends declared and the Class A Units' participation rights in undistributed earnings.


(B) The Company’s shares of Series A Preferred Stock outstanding accrue dividends at an annual rate of 6% of the stated value of $1,000 per share, payable monthly. The Company had 1,9321,991 and 1,5081,932 outstanding shares of Series A Preferred Stock at September 30, 2020 and 2019, respectively and 2018, respectively.103 outstanding shares of Series A1 Preferred Stock at September 30, 2020. The Company's shares of Series M preferred stock, or mShares, accrue dividends at an escalating rate of 5.75% in year one to 7.50% in year eight and thereafter. The Company had 9091 and 3790 mShares outstanding at September 30, 2020 and 2019, respectively. The Company's shares of Series M1 preferred stock accrue dividends at an escalating rate of 6.1% in year one to 7.1% in year ten and 2018, respectively.thereafter. The Company had 13 shares of Series M1 preferred stock outstanding at September 30, 2020.


(C) The Company's outstanding unvested restricted share awards (20(548 and 1920 shares of Common Stock at September 30, 20192020 and 2018,2019, respectively) contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted

47
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares' participation rights in undistributed earnings. Given the Company's unvested restricted share awards are defined as participating securities, the dividends declared for that period are adjusted in determining the calculation of loss per share of Common Stock.


(D) Potential dilution from (i) warrants outstanding from issuances of Units from our Series A Preferred Stock offerings that are potentially exercisable into 29,09827,767 shares of Common Stock; (ii) 9365 Class B Units; (iii) 20548 shares of unvested restricted common stock; (iv) 54 outstanding Restricted Stock Units; and (iv) 46,535 outstanding(v) 273 Performance-based Restricted Stock Units are excluded from the diluted shares calculations because the effect was antidilutive. Class A Units were excluded from the denominator because earnings were allocated to non-controlling interests in the calculation of the numerator.



45
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)




15. Fair Values of Financial Instruments


Fair value is defined as the price at which an asset or liability is exchanged between market participants in an orderly transaction at the reporting date. The Company’s cash equivalents, notes receivable, accounts receivable and payables and accrued expenses all approximate fair value due to their short term nature.


The following tables provide estimated fair values of the Company’s financial instruments. The carrying values of the Company's real estate loans include accrued interest receivable from additional interest or exit fee provisions and are presented net of deferred loan fee revenue and credit losses reserves, where applicable.

As of September 30, 2020
(In thousands)Carrying valueFair value measurements
using fair value hierarchy
Fair ValueLevel 1Level 2Level 3
Financial Assets:
Real estate loans$334,385 $348,608 $0 $0 $348,608 
Notes receivable and line of credit receivable11,905 11,905 0 0 11,905 
$346,290 $360,513 $0 $0 $360,513 
Financial Liabilities:
Mortgage notes payable$2,814,169 $2,866,502 $0 $0 $2,866,502 
Revolving credit facility33,000 33,000 0 0 33,000 
$2,847,169 $2,899,502 $0 $0 $2,899,502 

As of December 31, 2019
(In thousands)Carrying valueFair value measurements
using fair value hierarchy
Fair ValueLevel 1Level 2Level 3
Financial Assets:
Real estate loans$375,460 $382,373 $0 $0 $382,373 
Notes receivable and line of credit receivable41,917 41,917 0 0 41,917 
$417,377 $424,290 $0 $0 $424,290 
Financial Liabilities:
Mortgage notes payable$2,609,829 $2,659,242 $0 $0 $2,659,242 
Revolving line of credit0 0 0 0 0 
Term note payable70,000 70,000 0 0 70,000 
$2,679,829 $2,729,242 $0 $0 $2,729,242 


48
 As of September 30, 2019
 Carrying value   
Fair value measurements
using fair value hierarchy
(In thousands) Fair Value Level 1 Level 2 Level 3
Financial Assets:         
Real estate loans$381,486
 $415,909
 $—
 $—
 $415,909
Notes receivable and line of credit receivable41,657
 41,657
 —
 —
 41,657
 $423,143
 $457,566
 $—
 $—
 $457,566
Financial Liabilities:         
Mortgage notes payable$2,604,479
 $2,656,937
 $—
 $—
 $2,656,937
Revolving line of credit50,000
 50,000
 —
 —
 50,000
 $2,654,479
 $2,706,937
 $—
 $—
 $2,706,937
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
 As of December 31, 2018
 Carrying value   
Fair value measurements
using fair value hierarchy
(In thousands) Fair Value Level 1 Level 2 Level 3
Financial Assets:         
Real estate loans (1)
$334,211
 $366,328
 $—
 $—
 $366,328
Notes receivable and line of credit receivable47,307
 47,307
 —
 —
 47,307
 $381,518
 $413,635
 $—
 $—
 $413,635
Financial Liabilities:         
Mortgage notes payable$2,339,752
 2,313,405
 $—
 $—
 $2,313,405
Revolving credit facility57,000
 57,000
 —
 —
 57,000
Loan participation obligations5,181
 5,181
 —
 —
 5,181
 $2,401,933
 $2,375,586
 $—
 $—
 $2,375,586

(1) The carrying value of real estate assets at December 31, 2018 included the Company's balance of the Palisades real estate loan investment, which included the amounts funded by an unrelated participant. On March 13, 2019, the Company repurchased the loan participant's 25% balance in the loan from the loan participant and at September 30, 2019, carried the entire loan balance on its consolidated balance sheet without reflection of any liability to any third party.2020



The fair value of the real estate loans within the level 3 hierarchy are comprised of estimates of the fair value of the notes, which were developed utilizing a discounted cash flow model over the remaining terms of the notes until their maturity dates and utilizing discount rates believed to approximate the market risk factor for notes of similar type and duration. The fair values also contain a separately-calculated estimate of any applicable additional interest payment due the Company at the maturity date of the loan,


46
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



based on the outstanding loan balances at September 30, 2019,2020, discounted to the reporting date utilizing a discount rate believed to be appropriate for multifamily development projects.


The fair values of the fixed rate mortgages on the Company’s properties were developed using market quotes of the fixed rate yield index and spread for 4, 5, 6, 7, 10, 15, 25 and 35 year notes as of the reporting date. The present values of the cash flows were calculated using the original interest rate in place on the fixed rate mortgages and again at the current market rate. The difference between the two results was applied as a fair market adjustment to the carrying value of the mortgages.


The following table presents activity of the two mortgage pools from the Freddie Mac K Programas of and for the nine-month period ended September 30, 2019:

 Assets Liabilities  
(In thousands)Multifamily mortgage loans held in VIEs at fair value VIE liabilities, at fair value Net
Balance as of December 31, 2018$269,946
 $264,886
 $5,060
Initial consolidation of ML-05 trust:289,325
 270,670
 18,655
Gains (losses) included in net income due to change in fair value of net assets of VIE:56,001
 55,305
 696
Repayments of underlying mortgage principal amounts and repayments to Class A holders:(5,024) (5,024) —
Balance as of September 30, 2019$610,248
 $585,837
 $24,411

The changes in the fair value of the net assets of consolidated VIEs from mortgage-backed pools were:
 Three months ended Nine months ended
 September 30, September 30,
(In thousands)2019 2018 2019 2018
        
Interest earned$310
 $—
 $620
 $—
Unrealized gain281
 131
 696
 185
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools$591
 $131
 $1,316
 $185

The following table presents the level 3 input used to calculate the fair value of the consolidated assets and liabilities of the two VIEs:
(In thousands)Fair value Valuation methodology Unobservable input
Assets:       
Multifamily mortgage loans held in VIEs at fair value$610,248
 Discounted cash flow Discount rate 3.6%
Liabilities:       
VIE liabilities, at fair value$585,837
 Discounted cash flow Discount rate 3.6%



47
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



The following tables present the estimated fair values of the consolidated assets and liabilities from the two VIEs for which the Company has elected the fair value option.
 As of September 30, 2019
 Carrying value   
Fair value measurements
using fair value hierarchy
(In thousands) Fair Value Level 1 Level 2 Level 3
Financial Assets:         
VIE assets from mortgage-backed pools$610,248
 $610,248
 $—
 $—
 $610,248
Financial Liabilities:         
VIE liabilities from mortgage-backed pools$585,837
 $585,837
 $—
 $—
 $585,837

 December 31, 2018
 Carrying value   
Fair value measurements
using fair value hierarchy
(In thousands) Fair Value Level 1 Level 2 Level 3
Financial Assets:         
VIE assets from mortgage-backed pools$269,946
 $269,946
 $—
 $—
 $269,946
Financial Liabilities:         
VIE liabilities from mortgage-backed pools$264,886
 $264,886
 $—
 $—
 $264,886

Disclosure guidance under GAAP requires the Company to determine whether the fair value of the financial assets or the fair value of the financial liabilities of the mortgage pools is more observable. The VIE assets within the two mortgage pools consist of mortgage loans which finance 40 and 20 multifamily communities at September 30, 2019 and December 31, 2018, respectively. The fair value of the VIE assets within the level 3 hierarchy are comprised of the fair value of the mortgages as estimated by the Company, which were developed utilizing a discounted cash flow model over the remaining terms of the mortgages until their maturity dates and utilizing discount rates believed to approximate the market risk factor for instruments of similar type and duration. The fair values of the notes are categorized within the level 3 hierarchy of fair value estimation as the discount rate primary input assumption is unobservable.

16. Subsequent Events


Between October 1, 20192020 and October 31, 2019,2020, the Company issued 42,025 Units under its $1.5 Billion Unit Offering13,986 shares of Series A1 Redeemable Preferred Stock and collected net proceeds of approximately $37.8$12.6 million after commissions and fees and issued 7,4632,914 shares of Series MM1 Redeemable Preferred Stock under the mShares Offering and collected net proceeds of approximately $7.2$2.8 million after commissions and fees. During the same period, the Company redeemed 23,468 shares of Series A Preferred Stock and 862 shares of Series M1 Preferred Stock, or mShares.


On October 11, 2019,November 2, 2020, the Company closed on the acquisition of The Blake, a real estate loan investment of up to approximately $10.9 million in connection with the development of a 340-unit281-unit multifamily community to be located in Orlando, Florida.


On October 14, 2019,November 3, 2020, the Company announced via a press release the closing on that its Boardday of Directors had unanimously electedthe sale of student housing assets to an unrelated third party for a sales price of approximately $478.7 million.

On November 5, 2020, the Company's board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, payable on January 15, 2021 to stockholders of record on December 15, 2020. Even though this dividend will be paid in 2021, if and to the extent this dividend is taxable, the Company intends for this dividend to be taxable in 2020.





49

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

Significant Developments

    On January 1, 2020, Joel T. Murphy asbecame Chief Executive Officer effective as of January 1, 2020.the Company. Mr. Murphy will continue as a member of the board, where he has served since May 2019. Mr. Murphy currently is, and haswas the CEO of our New Market Properties subsidiary for the last five years been, theuntil his appointment as our CEO, of the Company's New Market Properties subsidiary, and since June 2018 has been the chairman of the Company's investment committee. Mr. Murphy succeeds the Company's currentsucceeded our previous CEO and Chairman of the Board, Daniel M. DuPree, who will remain with us as Executive Chairman of the Board.


On October 16, 2019,January 31, 2020, we internalized the borrowers repaid all amounts due underfunctions performed by Preferred Apartment Advisors, LLC (the "Former Manager") and NMP Advisors, LLC (the "Sub-Manager") by acquiring the 464 Bishop real estate loan investmententities that own the Manager and the Newport DevelopmentSub-Manager (such transactions, collectively, the "Internalization") for an aggregate purchase price of $154.0 million, plus up to $25.0 million of additional consideration to be paid within 36 months. Additionally, up to $15.0 million of the $154.0 million purchase price was to be held back and is payable to the sellers less certain losses following final resolution of certain specified matters. Pursuant to the Stock Purchase Agreement entered into on January 31, 2020 the sellers sold all of the outstanding shares of NELL Partners, LLC revolving lineInc. (“NELL”) and NMA Holdings, Inc., parent companies of credit heldthe Manager and Sub-Manager, respectively, to us, in exchange for an aggregate of approximately $111.1 million in cash paid at the closing which reflects the satisfaction of certain indebtedness of NELL, the estimated net working capital adjustment, and a hold back of $15.0 million for certain specified matters. Trusts established, or entities owned, by the Company. On October 24, 2019,family of John A. Williams, the borrower repaid all amounts due underCompany’s former Chairman of the Park 35 on Clairmont real estate loan investment held byBoard and Chief Executive Officer, Daniel M. DuPree, the Company. Included inCompany’s Executive Chairman of the repayments were accrued interest amounts that totaled approximately $3.4 million.



48
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
September 30, 2019
(unaudited)



On October 17, 2019,Board and former Chief Executive Officer of the Company, closed on mortgage financing for its Five Oaks at Westchase multifamily community located in Tampa, Florida. The new mortgage hasand the family of Leonard A. Silverstein, the Company’s former Vice Chairman of the Board, and former President and Chief Operating Officer, were the owners of NELL. Trusts established, or entities owned, by Joel T. Murphy, the Company’s Chief Executive Officer and a principal amountmember of $31.5 million, bears interest at a fixed ratethe Board, the family of 3.27% per annumMr. Williams, Mr. DuPree and matures on November 1, 2031.the family of Mr. Silverstein were the owners of NMA.


On October 30, 2019, the Company amended the purchase and sale agreement for the sale of six of its student housing properties to include the sale of its Haven 12 real estate loan investment that has an outstanding principal and accrued interest amount of approximately $7.3 million.




49

Item  1B.Unresolved Staff Comments

None.


Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

Significant Developments

During the nine-month period ended September 30, 2019,2020, we acquired two office buildings, two multifamily communities fiveand two grocery-anchored shopping centerscenters. We also closed on three real estate loan investments of up to $44.1 million, in partial support of the development of multifamily communities in Charlotte, North Carolina, Raleigh, North Carolina and one student housing property.Atlanta, Georgia.


During the nine-month period ended September 30, 2019,2020, we issued 372,540 Units and collected net proceeds of approximately $335.2 million from our $1.5 Billion Unit Offering. We also issued 46,76598,076 shares of Series MA1 Preferred Stock and collected net proceeds of approximately $45.4$88.3 million. During the same period, we issued 13,081 shares of Series M1 Preferred Stock and collected net proceeds of approximately $12.7 million. During the nine-month period ended September 30, 2020, we issued 65,298 Units (one share of Series A Preferred Stock and one warrant to purchase 20 shares of our Common Stock) and collected net proceeds of approximately $58.8 million from our mShares Offering. On September 27, 2019, the SEC declared effective our offering of up to a maximum of 1,000,000 shares of Series A1 Redeemable Preferred Stock, Series M1 Redeemable Preferred Stock, or a combination of both (the "Series A1/M1 Registration Statement").$1.5 Billion Unit Offering, which terminated in February 2020. Our Preferred Stock offerings and our other equity offerings are discussed in detail in the Liquidity and Capital Resources section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.


In addition, during    Our average recurring rental revenue collections before and after any effect of rent deferrals for the nine-month period ended September 30, 2019, we issued 780,880 sharesthird quarter 2020 were approximately 99.0% and 99.0% for multifamily communities, 99.5% and 99.8% for office properties and 95.2% and 96.6% for grocery-anchored retail properties, respectively. Rent deferments provided to our residents/tenants primarily related to a change of Common Stock upon the exercisetiming of Warrants issued in our offerings of our Series A Redeemable Preferred Stock and collected net proceeds of approximately $10.1 million from those exercises.

rent payments with no significant changes to total payments or term. As of September 30, 2019,2020, we are continuinghave deferred $1.5 million of retail recurring rental revenue, or approximately 3.1% cumulatively over the last two quarters. Including this deferred rent, we have accounted for 96.6% and 95.9% of third quarter and second quarter retail recurring rental revenue, respectively. In addition to explore the processdeferrals, we granted approximately $324,000 of internalization, whereby we would assumeCOVID-19 related rental abatements, or approximately 0.7% of retail recurring rental revenues cumulatively over the functionslast two quarters. These rental abatements were generally accompanied by an increase in the tenant’s lease term or the lease terms were amended to be more favorable to us. We have also reserved $928,000 or 3.4% of total retail revenues (inclusive of straight line rent) in the third quarter, increasing our total reserves to $2.5 million or 3.0% of total retail revenues year to date. Total reserves for the consolidated Company was $6.0 million or 1.7% of rental and incur the costs of such functions that historically were performed by Preferred Apartment Advisors, LLC, or our Manager, and its affiliates. No signed agreement is currently in place and we do not currently have a definitive timelineother property revenues year to complete the internalization, if any were to occur.date.


50

Forward-looking Statements


Certain statements contained in this AnnualQuarterly Report on Form 10-K,10-Q, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects," "assumes," "goals," "guidance," "trends" and similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following:


•     our business and investment strategy;
•     our projected operating results;
•     actions and initiatives of the U.S. Government and changes to U.S. Government policies and the execution and impact of these actions, initiatives and policies;
•    the state of the U.S. economy generally or in specific geographic areas;
•     economic trends and economic recoveries;
•     our ability to obtain and maintain financing arrangements, including through Fannie Mae and Freddie Mac;
•     financing and advance rates for our target assets;
•     our expected leverage;
•     changes in the values of our assets;
•     our expected portfolio of assets;
•     our expected investments;
•     interest rate mismatches between our target assets and our borrowings used to fund such investments;
•     changes in interest rates and the market value of our target assets;
•     changes in prepayment rates on our target assets;
•     effects of hedging instruments on our target assets;
•     rates of default or decreased recovery rates on our target assets;
•changes in our operating costs, including real estate taxes, utilities and insurance costs;
•     the degree to which our hedging strategies may or may not protect us from interest rate volatility;
•     impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;
•     our ability to maintain our qualification as a real estate investment trust, or REIT, for U.S. federal income tax
    purposes;
•     the possibility that the anticipated benefits from the Internalization, may not be realized or may take longer to
realize than expected, or that unexpected costs or unexpected liabilities may arise from the Internalization;
•     the impact of the coronavirus (COVID-19) pandemic on PAC’s business operations and the economic conditions
in the markets in which PAC operates;
•     PAC’s ability to mitigate the impacts arising from COVID-19;
•     our ability to maintain our exemption from registration under the Investment Company Act of 1940, as
amended;
•     the availability of investment opportunities in mortgage-related and real estate-related investments and securities;

securities;
•     the availability of qualified personnel;
•     estimates relating to our ability to make distributions to our stockholders in the future;
•     our understanding of our competition;
•     market trends in our industry, interest rates, real estate values, the debt securities markets or the general
economy;
•     weakness in the national, regional and local economies, which could adversely impact consumer spending and
retail sales and in turn tenant demand for space and could lead to increased store closings;
•     changes in market rental rates;
•     changes in demographics (including the number of households and average household income) surrounding our
shopping centers;
•     adverse financial conditions for grocery anchors and other retail, service, medical or restaurant tenants;
•     continued consolidation in the grocery-anchored shopping center sector;
•     excess amount of retail space in our markets;
•     reduction in the demand by tenants to occupy our shopping centers as a result of reduced consumer demand for
certain retail formats;
•     the growth of super-centers and warehouse club retailers, such as those operated by Wal-Mart and Costco, and
their adverse effect on traditional grocery chains;
51

•     the entry of new market participants into the food sales business, such as Amazon's acquisition of Whole Foods,
the growth of online food delivery services and online supermarket retailers and their collective adverse effect
on traditional grocery chains;
•     our ability to aggregate a critical mass of grocery-anchored shopping centers;
•     the impact of an increase in energy costs on consumers and its consequential effect on the number of shopping
visits to our centers; and
•     our ability to aggregate a critical mass of grocery-anchored shopping centers;
•     the impact of an increase in energy costs on consumers and its consequential effect on the number of shopping
visits to our centers; and
•     the consequences of any armed conflict involving, or terrorist attack against, the United States.


Forward-looking statements are found throughout this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, or SEC, we do not have any intention or obligation to publicly release any revisions to forward-looking statements to reflect unforeseen or other events after the date of this report. The forward-looking statements should be read in light of the risk factors indicated in the section entitled "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20182019 and as may be supplemented by any amendments to our risk factors in our subsequent quarterly reports on Form 10-Q and other reports filed with the SEC, which are accessible on the SEC’s website at www.sec.gov.
General
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial position. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this AnnualQuarterly Report on Form 10-K.10-Q.


Industry Outlook

Residential Properties
 We believe continued, albeit potentially sporadic, improvement in the United States' economy will continue for 2019, given the continued job growth
Multifamily owners and improvements in consumer confidence. The presidential administration certainly creates more uncertainty in the direction and trajectory of economic growth. We believe a growing economy, improved job market and increased consumer confidence should help create favorable conditions for the multifamily sector. If the economy continues to improve, we expect current occupancy rates generally to remain stable on an annual basis asoperators, like every other business, have been impacted by COVID-19, but we believe the current level of occupancy nationwide will be difficult to measurably improve upon.
Multifamily Communities
                The pipeline of new multifamily construction, although increasing nationwide in recent years, may be showing signs of declining going forward, or at least plateauing. The new supply coming on line to date has been generally in line with demand in most of our markets although we have seen some areas where demand is falling short of new supply. Nationally, new multifamily construction is currently at or above average historical levels in most markets. Even with the increase in new supply of multifamily properties, recent job growth and demographic trends have led to reasonable levels of absorption in most of our markets. The absorption rate has led to generally stable occupancy rates with increases in rental rates in most of our markets. We believe the

supply of new multifamily construction will not increase dramatically as the constraints in the market (including availability of quality sites and the difficult permitting and entitlement process) will constrain further increases in multifamily supply. We expect that new supply is at or near a peak and these constraints may result in a leveling out or decline in new multifamily “starts” in 2019 and 2020. As an offset, the presidential administration may loosen banking regulation standards, which could cause an increase in available capital for new construction. Any relaxing of these regulations could lead to more capital for new multifamily development and an increase in supply. The cost of private capital, less debt capital available from traditional commercial banks for real estate loans and a softeninglong term health of the market in some “Gateway” cities have all put pressure on the pricing dynamic in multifamily transactions. This could lead to an increase in capitalization rates and a softening price environment, and if this were to occur, then our pipeline of candidate multifamily property acquisitions with returns meeting our investment objectives may expand. However, itindustry is important to note that, currently, equity capital for multifamily product remains available and has fueled the demand for the product which has led to the recent cap rate compression. Currently, that availability of capital remains strong and the investment market for multifamily remains popular.
               The recent declines in U.S. Treasury yields combined with competitive lender spreads have maintained a favorable borrowing environment for multifamily owners and developers. Given the uncertainty around the world's financial markets, fueled in part by the U.S. President and how his policies may affect domestic and international markets, investors have been wary in their approach to debt markets. Recent US bond market movements have seen rates decline and spreads from the government-sponsored entity, or GSE, lenders have been relatively stable with slightly more volatility than in the recent past. Other lenders in the market have had generally stable spreads as well and some lenders have actually dropped spreads in our markets. During the balance of 2019, we may well see spreads remaining at or near  current levels as the investment community becomes more comfortable with the direction of the market and the US economy. With the recent decrease in U.S. Treasury rates, we expect the market to continue to remain favorable for financing multifamily communities, as the equity and debt markets have generally continued to view the U.S. multifamily sector as a desirable investment. Lending by GSEs is limited by the recent caps on production or capital retention rates imposed by the Federal Housing and Finance Association.  The new caps set production levels generally in line with the agencies recent history.  It could be the case that the agencies new caps lead to higher lending rates in the short term as the agencies and the market digest the new caps.  Although we expect such higher costs to be offset by increased lending activity by other market participants; such other market participants may have increased costs and stricter underwriting criteria. Recently, there has been increased dialog from multiple sources discussing the future of the GSEs. Any change to the structure of the GSEs and their business model could have material impacts on the multifamily debt capital markets generally.
                We believe the combination of a difficult regulatory environment and high underwriting standards for commercial banks will continue to create a choppy market for new construction financing. In addition, we believe the continued hesitance among many prospective homebuyers to believe the net benefits of home ownership are greater than the benefit of the flexibility offered through renting will continue to work in the existing multifamily sector's favor. We also believe there will be a continued boost to demandintact. Demand for multifamily rental housing will continue due to the ongoing entry of the “millennial” generation into the sonsworkforce, and daughtersthe desire of the babyboomBaby Boom generation intoto “downsize” as they focus on their retirement years. 

    Entering this pandemic-induced recession, most economists agreed there was a housing shortfall, not an oversupply. Regarding multifamily specifically, in 2019, the workforce. This generationindustry was reaching occupancy levels not seen since 2000 and net absorption of units was also at peak levels during this last economic cycle. While this pandemic and resulting recession will create significant job losses in the near term, economic models forecast a quick recovery and the multifamily industry is in a prime position to recover relatively quickly given the aforementioned baseline pre-COVID-19. Until such recovery, the Company’s multifamily assets are well positioned to sustain through a recession with a majority of the assets being newly constructed, suburban and located in dynamic sunbelt growth markets. The Company also has strict leasing guidelines regarding the credit worthiness of its tenants, providing for a higher statistical propensity to rent their homerelatively resilient rental stream. Additionally, the Company focused on financing the assets with project level, long-term, fixed rate debt, which provides surety and stay a renter deeper into their life-cycle, resultingcontinuity in an increase in demand for rental housing. This combinationtimes of factors should generally result in gradual increases in market rents, lower concessions and opportunities for increases in ancillary fee income.uncertainty.

Student Housing Properties

Regardinghousing owners and operators, like their multifamily counterparts, have been impacted by the student housing industry,COVID-19 pandemic. Traffic and leasing velocity immediately decreased by the Fall 2019 preleasing numbers were very consistent with last year, which is encouraging considering the roughly 10% increase in anticipated supply this year. Industry reports suggest that nationally, effective rents were up 1.7% asdecision of June, slightly higher than 2018’s growth. The top 10many universities for rent growth are all experiencing growth over 5%, however, nearly all of them have seen little to no new supply as of late. Over the past four years, national occupancy levels have stayed fairly consistent at approximately 95%. There were roughly 48,000 student housing beds delivered across the country to discontinue on-campus classes and move to an on-line learning program. With these immediate closures, including the mandates to vacate on-campus housing dorms and students being advised by university personnel to return to their permanent homes to resume their classes on-line, the student’s college experience changed overnight. In addition, without a commitment from the universities as to when the Fall 2020 classes would begin, the student-renter base took a “wait and see” approach toward signing leases for the 2020-2021 school year.

Furthermore, the dynamics of enrollment growth information has also been impacted by the pandemic in that universities have pushed back their enrollment deadlines. PAC’s student housing portfolio was tracking 9% ahead of the
52

number of leases executed for Fall 2019 until the university closings occurred. At this point in the fallleasing schedule, the portfolio is currently within 1% of Fall 2019 leasing velocity.

All of the primary universities served by the Company’s student housing properties have returned to in-person classes or a hybrid in-person model for Fall 2020. Should a significant number of the colleges and universities that our properties serve revert to online classes for the remainder of the 2020/2021 academic year or decide to cancel classes due to a resurgence of COVID-19 cases or additional governmental actions restricting physical movement, we could experience further adverse effects. We believe the present level of near-normal leasing activity will continue for the foreseeable future.

New Market Properties

We specialize in owning and managing a portfolio of 54 neighborhood shopping centers anchored by market-leading grocers in Sunbelt and Mid-Atlantic suburban markets with a similar forecaststrong demographic fundamentals. These centers are primarily anchored by Publix, Kroger, Harris Teeter and other leading grocers that have high sales per square foot. The importance of our market share leading grocers has become even more evident during the pandemic, as shoppers have flocked to these stores to purchase their essential items. Publix and Kroger reported same store sales increases in excess of 15% for fall of 2020 delivery. This inventory growth, while greater than the two previous years, remains in line withtheir most recent 9 months, evidencing their leveling off at these increased levels.


Industry reports estimateDespite the continued impacts of COVID-19, our outlook on grocery-anchored shopping centers remains positive. We are confident in our portfolio’s tenant make up, focused on strongly performing grocers complemented by necessity and convenience-based tenants. 34% of our base rent is attributed to grocery and pharmacy tenants and 53% comes from tenants deemed essential by their respective governments. We have collected over 95% of recurring base rent and reimbursement revenue due in the third quarter 2020 during a time that there will bemany tenants have been forced to greatly modify their normal businesses. The recovery has been gradual with local governments and municipalities allowing businesses to reopen in phases.

As of September 30, 2020, we have deferred $1.5 million of retail recurring rental revenue, or approximately 22.6 million students enrolled at US colleges by 2026. Industry reports also forecast US enrollment to grow by 1.1% annually from 2018 to 2023, while they estimate that undergraduate college enrollment will grow by an annual average of 1.5%3.1% cumulatively over the next six years.last two quarters. Including this deferred rent, we have accounted for 96.5% and 95.8% of third quarter and second quarter retail recurring rental revenue, respectively. We believeare diligently working to get payment plans in place with the remaining tenants to recover unpaid balances. Rent deferrals have included lease amendments that add additional term and/or eliminate cumbersome restrictions on the primary drivers of expanding enrollment will be moderate job growth, positive 18 to 24 year old population growth, and historically high enrollment rates of 68% to 70% overgreater center, ultimately unlocking additional long-term value across the next four years among high school graduates.portfolio.






Preferred Office Properties
 
                TheWe continue to hold a positive outlook for the office investment market continuesindustry in our markets, notwithstanding COVID-19, while acknowledging that in the immediate near term this positive performance may be more relative than absolute. Multi-year contractual leases and rent schedules paired with corporate balance sheets offer protection against adverse impacts of the pandemic, and office-using employment has fared better thus far than have hourly wage earners. In addition, certain industries have been more affected - namely travel and leisure, and the energy sector. Markets with concentrations to post healthy fundamentals across our currentthese industries are likely to be more strained than others. We also believe New York City will be slower to recover due to the severity of its encounter with the virus. Fortunately, the Company’s office investments are not located in New York City or any markets where tourism or energy is the primary economic driver. While leasing activity has been impacted by uncertainty from COVID-19, and target footprint, where we are primarily focused on high growth, non-“Gateway” markets. Duelikely to banking reforms and conservative behavior among market participants, this cycle has been characterized by an historically lowsee some level of speculativecontinued softness on that front in the near-term, fortunately the Company’s office construction which is supporting continued good performance.investments are 96% leased with only approximately 12% of the portfolio expiring through 2022. Beyond that we believe the more lasting consequence of this event will be an acceleration of migration trends to the SunBelt that were already underway.


53

Critical Accounting Policies
There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K10-
K for the year ended December 31, 2018.2019, besides the following.

Expected Credit Loss Reserves

    On January 1, 2020, we adopted ASU 2016-13, that replaced the incurred loss model with an expected loss model for instruments measured at amortized cost, and requires entities to record credit allowances for total expected future losses on financial assets at the outset of each loan. For each loan for which we are the lender, the amount of protection afforded to us is estimated to be the excess of the future estimated fair market value of the developed property over the commitment amount of each loan (including other loans senior to ours), inclusive of accrued interest and other related receivables. The excess represents the amount of equity dollars in each real estate project plus profit expected to be realized on the project, which are in a subordinate position to our real estate loan investments. This numeric result is expressed as a percentage of the property's expected future fair value, which is then held up against a banded range of loss percentages that was derived from our company-specific loss experience. The product of this indicated loss reserve ratio and the total loan commitment amount is the initial total expected credit loss reserve. This loss reserve may be further refined by us due to any subjective factors deemed pertinent and worthy of reflection in the initial reserve. Over the life of the loan, the initial reserve is reevaluated for potential reduction at the achievement of certain milestones in construction and lease-up progress as the project approaches completion and the loan approaches maturity, given no unforeseen degradation in project performance or failure to adhere to the terms of the loan by the borrower/developer.

Off-Balance Sheet Arrangements

    As of September 30, 2020, we had 1,388,362 outstanding Warrants from our sales of Units. The Warrants are exercisable by the holder at an exercise price of 120% of the current market price per share of the Common Stock on the date of issuance of such Warrant, with a minimum exercise price of $19.50 per share for Warrants issued after February 15, 2017. The current market price per share is determined using the closing market price of the Common Stock immediately preceding the issuance of the Warrant. The Warrants are not exercisable until one year following the date of issuance and expire four years following the date of issuance. As of September 30, 2020, a total of 531,522 Warrants had been exercised into 10,630,440 shares of Common stock. The 1,388,362 Warrants outstanding at September 30, 2020 have exercise prices that range between $15.31 and $26.34 per share. If all the Warrants outstanding at September 30, 2020 became exercisable and were exercised, gross proceeds to us would be approximately $136.3 million and we would as a result issue an additional 27,767,240 shares of Common Stock.


New Accounting Pronouncements


For a discussion of our adoption of new accounting pronouncements, please see Note 2 of our Consolidated Financial Statements.


54

Results of Operations


Certain financial highlights of our results of operations for the three-monthnine-month period ended September 30, 2020 were:

Financial

•Our net loss per share was $(0.79) and nine-month$(0.71) for the three-month periods ended September 30, 2020 and 2019, were:
              
  Three months ended September 30,   Nine months ended September 30,   
  2019 2018 % change 2019 2018 % change 
              
 
Revenues (in thousands)
$120,203
 $104,232
 15.3 % $345,561
 $290,991
 18.8 % 
              
 Per share data:            
 
Net income (loss) (1)
$(0.71) $(0.35) —
 $(2.02) $(1.16) —
 
              
 
FFO (2)
$0.31
 $0.28
 10.7 % $1.06
 $1.03
 2.9 % 
              
 
AFFO (2)
$0.12
 $0.21
 (42.9)% $0.66
 $0.84
 (21.4)% 
              
 
Dividends (3)
$0.2625
 $0.255
 2.9 % $0.7850
 $0.76
 3.3 % 
              

(1)Per weighted average share of Common Stock outstandingrespectively. Funds From Operations, or FFO, for the periods indicated.
(2)FFO and AFFO results are presentedthree months ended September 30, 2020 was $0.17 per weighted average share of Common Stock and Class A Unit in our Operating Partnership outstanding and reflects lower purchase option termination revenues, lower interest income, higher preferred dividends and a higher share count. Core FFO was $0.26 for the periods indicated.
(3) Per share of Common Stock and Class A Unit outstanding.

•
For the third quarter 2019, our FFO payout ratio to Common Stockholders and Unitholders was approximately 85.0% and our FFO payout ratio (before the deduction of preferred dividends) to our preferred stockholders was approximately 67.5%. (A)

•
Our AFFO payout ratio to Common Stockholders and Unitholders was approximately 223.5% for the third quarter 2019 and 93.2% for the trailing twelve-month periodthree months ended September 30, 2020 as compared to $0.35 for the three months ended September 30, 2019. Our AFFO payout ratio (before the deduction of preferred dividends) to our preferred stockholders was approximately 84.5% for the third quarter 2019 and 68.2% for the trailing twelve-month period ended September 30, 2019. (B) We have $27.9 million of earned but not yet payable interest on our real estate loan investment portfolio.

At September 30, 2019 and was similarly impacted by the market valueitems listed above.

•Our FFO per share result increased to $0.17 for the third quarter 2020 from $(0.01) for the second quarter 2020; our Core FFO per share result increased to $0.26 for the third quarter 2020 from $0.22 for the second quarter 2020 and our AFFO per share result increased to $0.07 for the third quarter 2020 from $0.05 for the second quarter 2020. Core FFO increased 22.1% for the third quarter 2020 from the second quarter 2020.

•Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately 67.8% and our Core FFO payout ratio (before the deduction of preferred dividends) to our common stockpreferred stockholders was $14.45 per share. A hypothetical investment in ourapproximately 73.0%. (A)

•Our AFFO payout ratio to Common Stock in our initial public offering on April 5, 2011, assumingStockholders and Unitholders was approximately 95.1% for the reinvestment of all dividends and no transaction costs, would have resulted in an average annual return of approximately 17.4% throughtrailing twelve months ended September 30, 2019.2020. Our AFFO payout ratio (before the deduction of preferred dividends) to our preferred stockholders was approximately 90.9% for the third quarter 2020, 78.5% for the nine months ended September 30, 2020 and 75.1% for the trailing twelve months ended September 30, 2020.(A) Our AFFO payout ratios were negatively impacted by the reduced level of accrued interest received on our real estate loan investment portfolio and increased property insurance rates. We have approximately $24.8 million of accrued interest revenue on our real estate loan investment portfolio, which will positively impact AFFO when collected.


•As of September 30, 2019, the average age of our multifamily communities was approximately 5.4 years, which is the youngest in the public multifamily REIT industry.

As of September 30, 2019, approximately 91.6% of our permanent property-level mortgage debt has fixed interest rates and approximately 3.8% has variable interest rates which are capped. We believe we are well protected against potential increases in market interest rates.

During the third quarter 2019, we refinanced six retail assets with new fixed-rate mortgage debt and on October 1, we repaid two other maturing mortgages on retail properties which remain unencumbered.

At September 30, 2019, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 52.4%. Included in2020, our total assets were our investments in the Series 2018-ML04 and Series 2019-ML05 from the Freddie Mac K program.approximately $4.7 billion. Our leverage calculation excludes the grosstotal assets at September 30, 2019 of approximately $586$5.3 billion included approximately $585.8 million and liabilities of approximately $586 million that are owned byVIE mortgage pool assets attributable to other mortgage pool participants that were consolidated due to our investments in the Freddie Mac K program thatProgram. During the fourth quarter 2019 we consolidated under the VIE rules.

Assold our K Program investments, realizing an internal rate of September 30, 2019, our total assets were approximately $5.3 billion compared to approximately $4.1 billion as of September 30, 2018, an increasereturn of approximately $1.1 billion, or approximately 26.9%18%. This growth was driven by (i) the acquisition of 12 net real estate properties (the net additions partially offset by the sale of two properties) and (ii) the consolidation of the mortgage pools from the Freddie Mac K program. Excluding the consolidated VIE mortgage pool assets from other participants in the K Program,September 30, 2019 total, our total assets grew approximately $789.0 million, or 20.3% since September 30, 2018.$49.3 million.


On August 16, 2019, we closed on a real estate loan investment of up to approximately $14.8 million in connection with the development of Kennesaw Crossing, a 250-unit multifamily community to be located in Kennesaw, Georgia.

On October 30, 2019, we amended the purchase and sale agreement for the sale of six of our student housing properties to include the sale of our Haven 12 real estate loan investment that has an outstanding principal and accrued interest amount of approximately $7.3 million.


(A) We calculate the Core FFO and AFFO payout ratioratios to Common Stockholders as the ratio of Common Stock dividends and distributions to Core FFO Attributable to Common Stockholders and Unitholders.AFFO. We calculate the Core FFO and AFFO payout ratioratios to preferred stockholders as the ratio of Preferred Stock dividends to the sum of Preferred Stock dividends and FFO.Core FFO and AFFO. Since our operations resulted inin a net loss from continuing operations for the periods presented, a payout ratio based on net loss is not calculable. See Definitions of Non-GAAP Measures.


(B)
The following chart details monthly cash collections of rental revenues before and after the effect of rent deferrals across all our operating business lines as of November 6, 2020:
2020 Cash Collections of Recurring Rental Revenues (1)
Unadjusted for rent deferrals:First quarterAprilMayJuneJulyAugustSeptemberOctober
Multifamily99.9 %98.8 %98.8 %98.8 %98.8 %99.0 %99.0 %98.5 %
Student housing99.9 %97.9 %97.0 %97.4 %97.0 %98.6 %98.8 %98.9 %
Office99.8 %98.8 %97.3 %97.8 %98.9 %99.7 %99.9 %99.8 %
Grocery-anchored retail (2)
99.4 %91.5 %89.7 %91.5 %94.1 %95.0 %96.4 %95.6 %
2020 Cash Collections of Recurring Rental Revenues (1)
Adjusted for rent deferrals:First quarterAprilMayJuneJulyAugustSeptemberOctober
Multifamily99.9 %99.7 %99.5 %98.9 %98.9 %99.0 %99.0 %98.5 %
Student housing99.9 %98.4 %97.4 %97.4 %97.0 %98.6 %98.8 %98.9 %
Office99.8 %99.7 %99.8 %99.9 %99.8 %99.7 %99.9 %99.8 %
Grocery-anchored retail (2)
99.5 %96.8 %95.2 %95.7 %96.7 %96.0 %97.0 %96.5 %

55

(1) Percent of revenue billed includes recurring charges for base rent, operating expense escalations, pet, garage, parking and storage rent, as well as receivables from U.S. Government tenants, from which collection is reasonably assured.
(2) Includes an investment in an unconsolidated joint venture that is not prorated for our ownership percentage.


The following chart details monthly occupancy and percent leased rates across all our operating business lines:
2020 Monthly Occupancy and Percentages Leased
First quarterAprilMayJuneJulyAugustSeptemberOctober
Occupancy:
Multifamily (stabilized)95.5 %94.4 %94.4 %95.2 %95.1 %96.0 %95.6 %95.4 %
Student housing96.1 %96.0 %95.8 %95.8 %95.9 %95.1 %95.3 %95.5 %
Percent leased:
Office96.7 %95.9 %96.2 %96.2 %96.1 %95.9 %95.5 %95.4 %
Grocery-anchored retail (1)
92.6 %92.5 %92.5 %92.7 %92.8 %92.8 %92.5 %92.4 %

(1) Includes an investment in an unconsolidated joint venture that is not prorated for our ownership percentage.


Operational

•Our average recurring rental revenue collections before and after any effect of rent deferrals for the third quarter 2020 were approximately 99.0% and 99.0% for multifamily communities, 99.5% and 99.8% for office properties and 95.2% and 96.6% for grocery-anchored retail properties, respectively. Rent deferments provided to our residents/tenants primarily related to a change of timing of rent payments with no significant changes to total payments or term.

•As of September 30, 2020, we have deferred $1.5 million of retail recurring rental revenue, or approximately 3.1% cumulatively over the last two quarters. Including this deferred rent, we have accounted for 96.6% and 95.9% of third quarter and second quarter retail recurring rental revenue, respectively. In addition to the deferrals, we granted approximately $324,000 of COVID-19 related rental abatements, or approximately 0.7% of retail recurring rental revenues cumulatively over the last two quarters. These rental abatements were generally accompanied by an increase in the tenant’s lease term or the lease terms were amended to be more favorable to us. We calculatehave also reserved $928,000 or 3.4% of total retail revenues (inclusive of straight line rent) in the third quarter, increasing our total reserves to $2.5 million or 3.0% of total retail revenues year to date, which is 0.7% of total company rental and other property revenues.

•On July 31, 2020, we received approximately $18.7 million in full satisfaction of the principal and all interest due on our Palisades real estate loan investment. Included in this total was the receipt of approximately $375,000 of deferred interest revenue on the loan, which was additive to AFFO payout ratio to Common Stockholdersfor the quarter.
•As of September 30, 2020, the average age of our multifamily communities was approximately 6.3 years, which is the youngest in the public multifamily REIT industry.

•As of September 30, 2020, all of our owned multifamily communities had achieved stabilization, which we define as reaching 93% physical occupancy for three full months in a quarter.


Financing and Capital Markets

•On July 10, 2020, we closed on a refinancing of the mortgage on our Citrus Village multifamily community. The new instrument has a principal amount of $40.9 million, bears interest at a fixed rate of 2.95% per annum and matures on August 1, 2027. Monthly interest-only payments are due through August 31, 2022.

•As of September 30, 2020, approximately 94.1% of our permanent property-level mortgage debt has fixed interest rates and approximately 4.2% has variable interest rates which are capped. We believe we are well protected against potential increases in market interest rates. Our overall weighted average interest rate for our mortgage debt portfolio was 3.68% for residential properties, 4.13% for office properties and 3.91% for grocery-anchored retail properties.

•At September 30, 2020, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 54.0%.
56


•During the third quarter 2020, we issued and sold an aggregate of 34,603 shares of Series A1 Redeemable Preferred Stock, resulting in net proceeds of approximately $31.1 million after commissions and other fees. During the third quarter 2020, we issued and sold an aggregate of 7,862 shares of Series M1 Redeemable Preferred Stock, resulting in net proceeds of approximately $7.6 million after dealer manager fees. During the third quarter 2020, we issued approximately 617,000 shares of Common Stock dividendsthrough our ATM program, and distributionscollected net proceeds of approximately $4.5 million.

• During the third quarter 2020, we issued a total of 42,465 shares of preferred stock and redeemed 37,391 shares of preferred stock for a net total of 5,074 shares issued.

Significant Transactions

•On July 15, 2020, we contributed our Neapolitan Way grocery-anchored shopping center into an unconsolidated joint venture from which we collected approximately $19.2 million of proceeds and realized a gain on the transaction of approximately $3.3 million. Subsequently, the joint venture obtained a mortgage on the property, reducing our investment to AFFO.approximately $6.9 million. We calculateretain a 50% financial and voting interest in the AFFO payout ratioproperty.

•On September 3, 2020, we closed on a real estate loan investment of up to preferred stockholders asapproximately $20.7 million to partially finance the ratiodevelopment and construction of Preferred Stock dividendsa 320-unit multifamily community to the sumbe located in suburban Atlanta, Georgia. The aggregate carrying amount of Preferred Stock dividends and AFFO.our real estate loan investment portfolio was approximately $309.6 million at September 30, 2020.




Real Estate Loan Investments


Certain real estate loan investments include limited purchase options and additional amounts of accrued interest, which becomes due in cash to us on the earliest to occur of: (i) the maturity of the loan, (ii) any uncured event of default as defined in the associated loan agreement, (iii) the sale of the project or the refinancing of the loan (other than a refinancing loan by us or one of our affiliates) and (iv) any other repayment of the loan. There are no contingent events that are necessary to occur for us to realize the additional interest amounts. We hold options and rights of first offer, but not obligations, to purchase certain of the properties which are partially financed by our real estate loans, as shown in the table below.below. The option purchase prices are negotiated at the time of the loan closing and are to be calculated based upon market cap rates at the time of exercise of the purchase option, with discounts ranging from between 10 and 60up to 15 basis points (if any), depending on the loan.


























57

As of September 30, 2019,2020, potential property acquisitions and units from projects in our actual and potential purchase optionreal estate loan investment portfolio consisted of:

Total units uponPurchase option window
Project/PropertyLocation
completion (1)
BeginEnd
Residential properties:
V & ThreeCharlotte, NC338 
S + 90 days (2)
S + 150 days (2)
The AnsonNashville, TN301 
S + 90 days (2)
S + 150 days (2)
SouthpointFredericksburg, VA240 
S + 90 days (2)
S + 150 days (2)
E-TownJacksonville, FL332 
S + 90 days (3)
S + 150 days (3)
VintageDestin, FL282 (4)(4)
Hidden River IITampa, FL204 
S + 90 days (2)
S + 150 days (2)
Kennesaw CrossingAtlanta, GA250 (5)(5)
Vintage Horizon WestOrlando, FL340 (4)(4)
Solis Chestnut FarmCharlotte, NC256 (5)(5)
Vintage Jones FranklinRaleigh, NC277 (4)(4)
Solis Kennesaw IIAtlanta, GA175 (6)(6)
Solis CummingAtlanta, GA320 (5)(5)
Office property:
8WestAtlanta, GA(7)(7)(7)
3,315 
(1) We evaluate each project individually and we make no assurance that we will acquire any of the underlying properties from our real estate loan investment portfolio. The purchase options held by us on the 464 Bishop, Haven Charlotte, Sanibel Straights, Wiregrass, Newbergh, Cameron Square, Solis Kennesaw and Falls at Forsyth projects were terminated, in exchange for an aggregate $17.2 million in termination fees from the developers.
(2) The option period window begins and ends at the number of days indicated beyond the achievement of a 93% physical occupancy rate by the underlying property.
(3) The option period window begins on the earlier of June 21, 2024 and the number of days indicated beyond the achievement of a 93% physical occupancy rate by the underlying property.
(4) The option period window begins on the later of one year following receipt of final certificate of occupancy or 90 days beyond the achievement of a 93% physical occupancy rate by the underlying property and ends 60 days beyond the option period beginning date.
(5) We hold a right of first offer on the property.
(6) The option period begins on October 1 of the second academic year following project completion and ends on the following December 31. The developer may elect to expedite the option period to begin December 1, 2020 and end on December 31, 2020.
(7) The project plans are for the construction of a class A office building consisting of approximately 195,000 rentable square feet; our purchase option window opens 90 days following the achievement of 90% lease commencement and ends on November 30, 2024 (subject to adjustment). Our purchase option is at the to-be-agreed-upon market value. In the event the property is sold to a third party, we would be due a fee based on a minimum multiple of 1.15 times the total commitment amount of the real estate loan investment, less the amounts actually paid by the borrower, up to and including payment of accrued interest and repayment of principal at the time of the sale.





58
Total units uponPurchase option window
Project/PropertyLocation
completion (1)

BeginEnd
Multifamily communities:
Falls at ForsythAtlanta, GA356
S + 90 days (2)
S + 150 days (2)
V & ThreeCharlotte, NC338
S + 90 days (2)
S + 150 days (2)
The AnsonNashville, TN301
S + 90 days (2)
S + 150 days (2)
SouthpointFredericksburg, VA240
S + 90 days (2)
S + 150 days (2)
E-TownJacksonville, FL332
S + 90 days (3)
S + 150 days (3)
VintageDestin, FL282
(4)
(4)
Hidden River IITampa, FL204
S + 90 days (2)
S + 150 days (2)
Student housing properties:
Solis Kennesaw IIAtlanta, GA175
(5)
(5)
Office property:
8WestAtlanta, GA
(6)

(6)
(6)
2,228
(1) We evaluate each project individually and we make no assurance that we will acquire any of the underlying properties from our real estate loan investment portfolio. The purchase options held by us on the 464 Bishop, Hidden River I, Haven Charlotte, Sanibel Straights, Wiregrass, Newbergh, Cameron Square, Solis Kennesaw, Encore and Tampa projects were terminated, in exchange for an aggregate $20.2 million in termination fees from the developers, net of amounts due to third party loan participants.
(2) The option period window begins and ends at the number of days indicated beyond the achievement of a 93% physical occupancy rate by the underlying property.
(3) The option period window begins on the earlier of June 21, 2024 and the number of days indicated beyond the achievement of a 93% physical occupancy rate by the underlying property.
(4) The option period window begins on the later of one year following receipt of final certificate of occupancy or 90 days beyond the achievement of a 93% physical occupancy rate by the underlying property and ends 60 days beyond the option period beginning date.
(5) The option period begins on October 1 of the second academic year following project completion and ends on the following December 31. The developer may elect to expedite the option period to begin December 1, 2020 and end on December 31, 2020.
(6) The project plans are for the construction of a class A office building consisting of approximately 192,000 rentable square feet; our purchase option window opens 90 days following the achievement of 90% lease commencement and ends on November 30, 2024 (subject to adjustment). Our purchase option is at the to-be-agreed-upon market value. In the event the property is sold to a third party, we would be due a fee based on a minimum multiple of 1.15 times the total commitment amount of the real estate loan investment, less the amounts actually paid by the borrower, up to and including payment of accrued interest and repayment of principal at the time of the sale.




Three-month and nine-month periods ended September 30, 20192020 compared to 20182019


The following discussion and tabular presentations highlight the major drivers behind the line item changes in our results of operations for the three-month and nine-month periods ended September 30, 20192020 versus 2018:2019:
Preferred Apartment Communities, Inc.Three-month periods ended September 30,Change inc (dec)
20202019AmountPercentage
Revenues:
Rental and other property revenues$114,831 $105,049 $9,782 9.3 %
Interest income on loans and notes receivable10,649 12,608 (1,959)(15.5)%
Interest income from related parties609 2,546 (1,937)(76.1)%
Miscellaneous revenues608 — 608 — 
Total revenues126,697 120,203 6,494 5.4 %
Operating expenses:
Property operating and maintenance19,278 16,493 2,785 16.9 %
Property salary and benefits6,054 5,360 694 12.9 %
Property management fees983 3,534 (2,551)(72.2)%
Real estate taxes and insurance16,078 14,474 1,604 11.1 %
General and administrative7,898 1,364 6,534 479.0 %
Equity compensation to directors and executives582 305 277 90.8 %
Depreciation and amortization51,794 46,239 5,555 12.0 %
Asset management and general and administrative expense fees to related party— 8,611 (8,611)(100.0)%
Provision for expected credit losses(152)— (152)— 
Management internalization expense577 818 (241)— 
Total operating expenses103,092 97,198 5,894 6.1 %
Waived asset management and general and administrative expense fees— (3,081)3,081 (100.0)%
Net operating expenses103,092 94,117 8,975 9.5 %
Operating (loss) income before gain on sale of real estate and loss from unconsolidated joint venture23,605 26,086 (2,481)(9.5)%
Loss from unconsolidated joint venture(120)— (120)— %
Gain on sale of real estate, net3,261 — 3,261 — 
Operating income26,746 26,086 660 2.5 %
Interest expense29,879 28,799 1,080 3.8 %
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools— 591 (591)— 
Loss on extinguishment of debt(518)(15)(503)— 
Gain on land condemnation49 — 49 — 
Net loss(3,602)(2,137)(1,465)— 
Consolidated net loss (income) attributable to non-controlling interests108 59 49 83.1 %
Net loss attributable to the Company$(3,494)$(2,078)$(1,416)— 




59

Preferred Apartment Communities, Inc. Three months ended September 30, Change inc (dec)
  2019 2018 Amount Percentage
Revenues:        
Rental revenues $101,817
 $84,500
 $17,317
 20.5 %
Other property revenues 3,232
 2,443
 789
 32.3 %
Interest income on loans and notes receivable 12,608
 13,618
 (1,010) (7.4)%
Interest income from related parties 2,546
 3,671
 (1,125) (30.6)%
Total revenues 120,203
 104,232
 15,971
 15.3 %
         
Operating expenses:        
Property operating and maintenance 14,928
 12,893
 2,035
 15.8 %
Property salary and benefits 5,360
 4,911
 449
 9.1 %
Property management fees 3,534
 2,998
 536
 17.9 %
Real estate taxes 12,870
 10,597
 2,273
 21.4 %
General and administrative 1,898
 2,221
 (323) (14.5)%
Equity compensation to directors and executives 305
 796
 (491) (61.7)%
Depreciation and amortization 46,239
 44,499
 1,740
 3.9 %
Asset management and general and administrative        
 expense fees to related parties 8,611
 7,234
 1,377
 19.0 %
Loan loss allowance —
 3,029
 (3,029) (100.0)%
Insurance, professional fees and other expenses 3,453
 1,713
 1,740
 101.6 %
         
Total operating expenses 97,198
 90,891
 6,307
 6.9 %
Waived asset management and general and administrative        
expense fees (3,081) (1,934) (1,147) 59.3 %
         
Net operating expenses 94,117
 88,957
 5,160
 5.8 %
Operating income before gains on sales of        
   real estate 26,086
 15,275
 10,811
 70.8 %
Gain on sale of real estate —
 18,605
 (18,605) (100.0)%
Operating income 26,086
 33,880
 (7,794) (23.0)%
Interest expense 28,799
 25,657
 3,142
 12.2 %
Change in fair value of net assets of consolidated        
VIE from mortgage-backed pool 591
 131
 460
 351.1 %
Loss on debt extinguishment (15) —
 (15) — %
Net (loss) income (2,137) 8,354
 (10,491) (125.6)%
Consolidated net loss (income) attributable to non-controlling interests 59
 (216) 275
 (127.3)%
         
Net (loss) income attributable to the Company $(2,078) $8,138
 $(10,216) (125.5)%
         
Preferred Apartment Communities, Inc.Nine-month periods ended September 30,Change inc (dec)
20202019AmountPercentage
Revenues:
Rental and other property revenues$338,271 $298,569 $39,702 13.3 %
Interest income on loans and notes receivable34,495 35,989 (1,494)(4.2)%
Interest income from related parties3,750 9,980 (6,230)(62.4)%
Miscellaneous revenues4,560 1,023 3,537 345.7 %
Total revenues381,076 345,561 35,515 10.3 %
Operating expenses:
Property operating and maintenance52,919 43,236 9,683 22.4 %
Property salary and benefits16,965 14,845 2,120 14.3 %
Property management fees4,028 10,174 (6,146)(60.4)%
Real estate taxes and insurance48,109 42,646 5,463 12.8 %
General and administrative23,109 4,171 18,938 454.0 %
Equity compensation to directors and executives1,058 922 136 14.8 %
Depreciation and amortization153,096 137,191 15,905 11.6 %
Asset management and general and administrative expense fees to related party3,099 24,649 (21,550)(87.4)%
Provision for expected credit losses5,463 — 5,463 — 
Management internalization expense179,828 1,143 178,685 — %
Total operating expenses487,674 278,977 208,697 74.8 %
Waived asset management and general and administrative expense fees(1,136)(8,505)7,369 (86.6)%
Net operating expenses486,538 270,472 216,066 79.9 %
Operating (loss) income before gain on sale of real estate and loss from unconsolidated joint venture(105,462)75,089 (180,551)(240.4)%
Loss from unconsolidated joint venture(120)— (120)— %
Gain on sale of real estate, net3,261 4 3,257 81,425.0 %
Operating (loss) income(102,321)75,093 (177,414)(236.3)%
Interest expense90,608 83,166 7,442 8.9 %
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools— 1,316 (1,316)— 
Loss on extinguishment of debt(6,674)(84)(6,590)— 
Gain on land condemnation528 747 (219)(29.3)%
Net loss(199,075)(6,094)(192,981)— 
Consolidated net loss (income) attributable to non-controlling interests3,515 138 3,377 2,447.1 %
Net loss attributable to the Company$(195,560)$(5,956)$(189,604)— 









60

Preferred Apartment Communities, Inc. Nine months ended September 30, Change inc (dec)
  2019 2018 Amount Percentage
Revenues:        
Rental revenues $289,647
 $235,314
 $54,333
 23.1 %
Other property revenues 8,922
 5,791
 3,131
 54.1 %
Interest income on loans and notes receivable 35,989
 37,576
 (1,587) (4.2)%
Interest income from related parties 9,980
 12,310
 (2,330) (18.9)%
Miscellaneous revenues 1,023
 —
 1,023
 — %
Total revenues 345,561
 290,991
 54,570
 18.8 %
         
Operating expenses:        
Property operating and maintenance 38,186
 31,805
 6,381
 20.1 %
Property salary and benefits 14,845
 13,038
 1,807
 13.9 %
Property management fees 10,174
 8,530
 1,644
 19.3 %
Real estate taxes 37,914
 30,635
 7,279
 23.8 %
General and administrative 6,425
 6,019
 406
 6.7 %
Equity compensation to directors and executives 922
 2,881
 (1,959) (68.0)%
Depreciation and amortization 137,191
 127,210
 9,981
 7.8 %
Asset management and general and administrative        
 expense fees to related parties 24,649
 20,096
 4,553
 22.7 %
Loan loss allowance —
 3,029
 (3,029) (100.0)%
Insurance, professional fees and other expenses 8,671
 5,166
 3,505
 67.8 %
         
Total operating expenses 278,977
 248,409
 30,568
 12.3 %
Waived asset management and general and administrative        
expense fees (8,505) (4,583) (3,922) 85.6 %
         
Net operating expenses 270,472
 243,826
 26,646
 10.9 %
Operating income before gains on sales of        
   real estate and trading investments 75,089
 47,165
 27,924
 59.2 %
Gain on sale of real estate and trading investment 4
 38,961
 (38,957) —
Operating income 75,093
 86,126
 (11,033) (12.8)%
Interest expense 83,166
 68,972
 14,194
 20.6 %
Change in fair value of net assets of consolidated        
VIE from mortgage-backed pool 1,316
 185
 1,131
 611.4 %
Loss on debt extinguishment (84) —
 (84) — %
Gain on sale of real estate loan investment 747
 —
 747
 — %
Net (loss) income (6,094) 17,339
 (23,433) (135.1)%
Consolidated net loss (income) attributable to non-controlling interests 138
 (456) 594
 (130.3)%
         
Net (loss) income attributable to the Company $(5,956) $16,883
 $(22,839) (135.3)%














New Market Properties, LLC


Our New Market Properties, LLC business consists of our portfolio of grocery-anchored shopping centers and our Dawson Marketplace real estate loan supporting a shopping center in the Atlanta, Georgia market. Comparative statements of operations of New Market Properties, LLC for the three-month and nine-month periodsended September 30, 20192020 versus 20182019 are presented below. These statements of operations include no allocations of corporate overhead or other expenses.
New Market Properties, LLCThree-month periods ended September 30,Change inc (dec)
20202019AmountPercentage
Revenues:
Rental revenues & other property revenues$26,707 $24,826 $1,881 7.6 %
Interest income on notes receivable— 444 (444)(100.0)%
Total revenues26,707 25,270 1,437 5.7 %
Operating expenses:
Property operating and maintenance3,291 $2,730 561 20.5 %
Property management fees528 824 (296)(35.9)%
Real estate taxes and insurance3,653 3,511 142 4.0 %
General and administrative794 261 533 204.2 %
Equity compensation to directors and executives19 17 2 11.8 %
Depreciation and amortization12,688 11,677 1,011 8.7 %
Asset management and general and administrative
 expense fees to related parties— 1,892 (1,892)(100.0)%
Total operating expenses20,973 20,912 61 0.3 %
Waived asset management and general and administrative
expense fees— (94)94 (100.0)%
Net operating expenses20,973 20,818 155 0.7 %
Operating income before gain on sale of real estate and loss from unconsolidated joint venture5,734 4,452 1,282 28.8 %
Loss from unconsolidated joint venture(120)— (120)— %
Gain on sale of real estate, net3,261 — 3,261 — %
Operating income8,875 4,452 4,423 99.3 %
Interest expense6,539 6,422 117 1.8 %
Loss on extinguishment of debt— (16)16 (100.0)%
Gain on land condemnation49 — 49 100.0 %
Net income (loss)$2,385 $(1,986)$4,371 (220.1)%
Consolidated net loss (income) attributable to non-controlling interests$(43)$(12)(31)258.3 %
Net income (loss) attributable to the Company$2,428 $(1,974)4,402 (223.0)%







61

New Market Properties, LLC Three months ended September 30, Change inc (dec)
  2019 2018 Amount Percentage
Revenues:        
Rental revenues $24,654
 $19,303
 $5,351
 27.7 %
Other property revenues 172
 196
 (24) (12.2)%
Interest income on loans and notes receivable 444
 507
 (63) (12.4)%
Total revenues 25,270
 20,006
 5,264
 26.3 %
         
Operating expenses:        
Property operating and maintenance 2,619
 2,234
 385
 17.2 %
Property management fees 824
 653
 171
 26.2 %
Real estate taxes 3,158
 2,090
 1,068
 51.1 %
General and administrative 229
 379
 (150) (39.6)%
Equity compensation to directors and executives 17
 150
 (133) (88.7)%
Depreciation and amortization 11,677
 10,462
 1,215
 11.6 %
Asset management and general and administrative        
 expense fees to related parties 1,892
 1,522
 370
 24.3 %
Insurance, professional fees and other expenses 496
 298
 198
 66.4 %
Total operating expenses 20,912
 17,788
 3,124
 17.6 %
Waived asset management and general and administrative        
expense fees (94) (128) 34
 (26.6)%
Net operating expenses 20,818
 17,660
 3,158
 17.9 %
         
Operating income 4,452
 2,346
 2,106
 89.8 %
Interest expense 6,422
 5,071
 1,351
 26.6 %
Loss on extinguishment of debt 16
 —
 16
 — %
Net income (loss) (1,986) (2,725) 739
 (27.1)%
Consolidated net (income) loss attributable to non-controlling        
interests (12) —
 (12) — %
Net income (loss) attributable to the Company $(1,974) $(2,725) $751
 (27.6)%



New Market Properties, LLCNine-month periods ended September 30,Change inc (dec)
20202019AmountPercentage
Revenues:
Rental revenues & other property revenues$80,651 $68,894 $11,757 17.1 %
Interest income on notes receivable164 1,317 (1,153)(87.5)%
Total revenues80,815 70,211 10,604 15.1 %
Operating expenses:
Property operating and maintenance9,831 7,409 2,422 32.7 %
Property management fees1,921 2,345 (424)(18.1)%
Real estate taxes and insurance11,685 10,041 1,644 16.4 %
General and administrative2,680 577 2,103 364.5 %
Equity compensation to directors and executives47 53 (6)(11.3)%
Depreciation and amortization39,410 32,644 6,766 20.7 %
Asset management and general and administrative
expense fees to related parties720 5,274 (4,554)(86.3)%
Total operating expenses66,294 58,343 7,951 13.6 %
Waived asset management and general and administrative
expense fees(17)(296)279 (94.3)%
Net operating expenses66,277 58,047 8,230 14.2 %
Operating income before gain on sale of real estate and loss from unconsolidated joint venture14,538 12,164 2,374 19.5 %
Loss from unconsolidated joint venture(120)— (120)— %
Gain on sale of real estate, net3,261 — 3,261 — %
Operating income17,679 12,164 5,515 45.3 %
Interest expense19,876 18,123 1,753 9.7 %
Loss on extinguishment of debt— (68)68 (100.0)%
Gain on land condemnation528 — 528 100.0 %
Net income (loss)$(1,669)$(6,027)$4,358 (72.3)%
Consolidated net loss (income) attributable to non-controlling interests$(82)$(12)(70)583.3 %
Net income (loss) attributable to the Company$(1,587)$(6,015)4,428 (73.6)%
62
New Market Properties, LLC Nine months ended September 30, Change inc (dec)
  2019 2018 Amount Percentage
Revenues:        
Rental revenues $68,529
 $54,209
 $14,320
 26.4 %
Other property revenues 365
 420
 (55) (13.1)%
Interest income on loans and notes receivable 1,317
 1,504
 (187) (12.4)%
Total revenues 70,211
 56,133
 14,078
 25.1 %
         
Operating expenses:        
Property operating and maintenance 6,947
 6,065
 882
 14.5 %
Property management fees 2,345
 2,013
 332
 16.5 %
Real estate taxes 8,998
 6,831
 2,167
 31.7 %
General and administrative 893
 689
 204
 29.6 %
Equity compensation to directors and executives 53
 446
 (393) (88.1)%
Depreciation and amortization 32,644
 28,519
 4,125
 14.5 %
Asset management and general and administrative        
 expense fees to related parties 5,274
 4,201
 1,073
 25.5 %
Insurance, professional fees and other expenses 1,189
 814
 375
 46.1 %
Total operating expenses 58,343
 49,578
 8,765
 17.7 %
Waived asset management and general and administrative        
expense fees (296) (251) (45) 17.9 %
Net operating expenses 58,047
 49,327
 8,720
 17.7 %
         
Operating income 12,164
 6,806
 5,358
 78.7 %
Interest expense 18,123
 14,056
 4,067
 28.9 %
Loss on extinguishment of debt 68
 —
 68
 — %
Net income (loss) (6,027) (7,250) 1,223
 (16.9)%
Consolidated net (income) loss attributable to non-controlling        
interests (12) —
 (12) — %
Net income (loss) attributable to the Company $(6,015) $(7,250) $1,235
 (17.0)%



Recent acquisitions


Our acquisitions (net of dispositions) of real estate assets since January 1, 20182019 were generally the primary drivers behind our increases in rental and property revenues and property operating expenses for the three-month and nine-month periodsyearended September 30, 20192020 versus 2018.2019.
    
Real estate assets acquired
Acquisition datePropertyLocationUnitsBedsLeasable square feet
Residential Properties:
3/27/2019Haven49Charlotte, NC322887-
8/8/2019Artisan at VieraMelbourne, FL259--
9/18/2019Five Oaks at WestchaseTampa, FL218--
3/31/2020Horizon at WiregrassTampa, FL392--
4/30/2020Parkside at the BeachPanama City Beach, FL288--
New Market Properties:
1/17/2019Gayton CrossingRichmond, VA--158,316 
5/28/2019Free State Shopping CenterWashington, D.C.--264,152 
6/12/2019Disston PlazaTampa - St. Petersburg, FL--129,150 
6/12/2019Polo Grounds MallWest Palm Beach, FL--130,285 
8/16/2019
Fairfield Shopping Center (1)
Virginia Beach, VA--231,829 
11/14/2019Berry Town CenterOrlando, FL--99,441 
12/19/2019
Hanover Shopping Center (1)
Wilmington, NC--305,346 
1/29/2020Wakefield CrossingRaleigh, NC--75,927 
3/19/2020Midway MarketDallas, TX--85,599 
Preferred Office Properties:
7/25/2019
CAPTRUST Tower (1)
Raleigh, NC--300,000 
7/31/2019251 ArmourAtlanta, GA--35,000 
12/20/2019
Morrocroft Centre (1)
Charlotte, NC--291,000 
1,479 887 2,106,045 
             
 Acquisition date Property Location Units Beds Leasable square feet 
             
   Multifamily communities:         
 1/9/2018 The Lux at Sorrel Jacksonville, FL 265
 n/a
 n/a
 
 2/28/2018 Green Park Atlanta, GA 310
 n/a
 n/a
 
 9/27/2018 The Lodge at Hidden River Tampa, FL 300
 n/a
 n/a
 
 11/9/2018 Vestavia Reserve Birmingham, AL 272
 n/a
 n/a
 
 11/15/2018 
CityPark View South (1)
 Charlotte, NC 200
 n/a
 n/a
 
 8/8/2019 Artisan at Viera Melbourne, FL 259
 n/a
 n/a
 
 9/18/2019 Five Oaks at Westchase Tampa, FL 218
 n/a
 n/a
 
             
   New Market Properties:     
 4/27/2018 Greensboro Village Nashville, TN n/a
 n/a
 70,203
 
 4/27/2018 Governors Towne Square Atlanta, GA n/a
 n/a
 68,658
 
 6/26/2018 Neapolitan Way Naples, FL n/a
 n/a
 137,580
 
 6/29/2018 Conway Plaza Orlando, FL n/a
 n/a
 117,705
 
 7/6/2018 Brawley Commons Charlotte, NC n/a
 n/a
 122,028
 
 12/21/2018 Hollymead Town Center Charlottesville, VA n/a
 n/a
 158,807
 
 1/17/2019 Gayton Crossing Richmond, VA n/a
 n/a
 158,316
 
 5/28/2019 Free State Shopping Center Washington, D.C. n/a
 n/a
 264,152
 
 6/12/2019 Disston Plaza Tampa - St. Petersburg, FL n/a
 n/a
 129,150
 
 6/12/2019 Polo Grounds Mall West Palm Beach, FL n/a
 n/a
 130,285
 
 8/16/2019 Fairfield Shopping Center Virginia Beach, VA n/a
 n/a
 231,829
 
             
   Student housing properties:         
 5/10/2018 The Tradition College Station, TX 427
 808
 n/a
 
 5/31/2018 The Retreat at Orlando Orlando, FL 221
 894
 n/a
 
 6/27/2018 The Bloc Lubbock, TX 140
 556
 n/a
 
 3/27/2019 Haven49 Charlotte, NC 322
 887
 n/a
 
             
   Preferred Office Properties:         
 1/29/2018 Armour Yards Atlanta, GA n/a
 n/a
 187,000
 
 7/31/2018 150 Fayetteville Raleigh, NC n/a
 n/a
 560,000
 
 12/20/2018 Capitol Towers Charlotte, NC n/a
 n/a
 479,000
 
 7/25/2019 CAPTRUST Tower Raleigh, NC n/a
 n/a
 300,000
 
 7/31/2019 251 Armour Atlanta, GA n/a
 n/a
 35,000
 
             
       2,934
 3,145
 3,149,713
 
(1)Property is owned through a consolidated joint venture.
(1)CityPark View South is a second phase of an existing property, and shares a leasing office with the original phase. Therefore, it is not counted as a separate property.

Real estate assets sold

Disposition datePropertyLocationUnits
3/20/2018Lake CameronRaleigh, NC328
9/28/2018Stone RisePhiladelphia, PA216
10/23/2018Stoneridge Farms at the Hunt ClubNashville, TN364
12/11/2018McNeil RanchAustin, TX192





Rental Revenues

Rental revenue increased due primarily to properties acquired since January 1, 2018, as shown in the following table:
  Three-month period ended September 30, Nine-month period ended September 30,
  2019 versus 2018 2019 versus 2018
  Increase (decrease) Increase (decrease)
Rental revenues Amount (rounded to 000s): Percent of increase Amount (rounded to 000s): Percent of increase
Properties acquired since January 1, 2018 $20,132
 116.3 % $61,844
 113.8 %
Properties sold since January 1, 2018 (2,999) (17.3)% (9,838) (18.1)%
Properties acquired in 2011 - 2017 184
 1.0 % 2,327
 4.3 %
         
Total $17,317
 100.0 % $54,333
 100.0 %

Increases in occupancy rates and in percentages of leased space and rent growth are the primary drivers of increases in rental revenue from our owned properties. Factors which we believe affect market rents include vacant unit inventory in local markets, local and national economic growth and resultant employment stability, income levels and growth, the ease of obtaining credit for home purchases, and changes in demand due to consumer confidence in the above factors.

We also collect revenue from residents and tenants for items such as utilities, application fees, lease termination fees, common area maintenance reimbursements and late charges. The increases in these other property revenues

Rental and other property revenues increased 9.3% and 13.3% for the three-month and nine-month periods ended September 30, 2020 versus 2019 versus 2018 wererespectively, primarily due to the acquisitions listed above, and approximately $1.6 million in lease termination revenues recorded in the nine month period ended September 30, 2019.

Interest income from our real estate loan investments decreased for the three-month and nine-month periods ended September 30, 2019 versus 2018. The principal amount outstanding on our portfolio of real estate loan investments decreased to approximately $383.2 million at September 30, 2019 from $392.2 million at September 30, 2018. The total commitment amount of our real estate loan investment portfolio decreased from approximately $515.5 million at September 30, 2018 to $457.9 million at September 30, 2019. Real estate loan investments supporting four multifamily communities and two student housing properties were repaid or settled between September 30, 2018 and September 30, 2019.

We recorded interest income and other revenue from these instruments as presented in Note 4 to the Company's Consolidated Financial Statements.
Property operating and maintenance expense

Expenses to operate and maintain our properties increased due primarily to properties acquired since January 1, 2018, as shown2019. These increases occurred in the following table.multifamily communities, grocery-anchored shopping centers and office buildings, which accounted for most of our acquisition activity since January 1, 2019. Similar increases in property operations and maintenance and property salary and benefits expense were also driven by these acquisitions.

    The primary components of operating and maintenance expense are utilities, property repairs, and landscaping costs. The expenses incurred for property repairs and, to a lesser extent, utilities could generally be expected to increase gradually over time as the buildings and properties age. Utility costs may generally be expected to increase in future periods as rate increases from providing carriers are passed on to our residents and tenants.

  Three-month period ended September 30, Nine-month period ended September 30,
  2019 versus 2018 2019 versus 2018
  Increase (decrease) Increase (decrease)
Property operating and maintenance expense Amount (rounded to 000s): Percent of increase Amount (rounded to 000s): Percent of increase
Properties acquired since January 1, 2018 $2,704
 132.9 % $8,569
 134.3 %
Properties sold since January 1, 2018 (521) (25.6)% (1,741) (27.3)%
Properties acquired in 2011 - 2017 (148) (7.3)% (447) (7.0)%
         
Total $2,035
 100.0 % $6,381
 100.0 %




Property salary and benefits

We recorded property salary and benefits expense for individuals who handle the on-site management, operations and maintenance of our properties. These costs increased primarily due to the incremental costs brought on by additional personnel necessary to manage and operate properties acquired since January 1, 2018, as shownacquired.

Changes in occupancy rates and in percentages of leased space and rent growth are the primary drivers of changes in rental revenue from our owned properties. Factors which we believe affect market rents include vacant unit inventory in local markets, local and national economic growth and resultant employment stability, income levels and growth, the ease of obtaining credit for home purchases, and changes in demand due to consumer confidence in the following table:above factors.


63

  Three-month period ended September 30, Nine-month period ended September 30,
  2019 versus 2018 2019 versus 2018
  Increase (decrease) Increase (decrease)
Property salary and benefits Amount (rounded to 000s): Percent of increase Amount (rounded to 000s): Percent of increase
Properties acquired since January 1, 2018 $729
 162.4 % $2,596
 143.7 %
Properties sold since January 1, 2018 (275) (61.2)% (925) (51.2)%
Properties acquired in 2011 - 2017 (5) (1.2)% 136
 7.5 %
         
Total $449
 100.0 % $1,807
 100.0 %
Interest income


    Interest income from our real estate loan investments decreased for the three-month and nine-month periods ended September 30, 2020 versus 2019. The principal amount outstanding on our portfolio of real estate loan investments decreased to approximately $323.6 million at September 30, 2020 from $383.2 million at September 30, 2019. Revenues from the amortization of terminated purchase options decreased from approximately $1.3 million for the third quarter 2019 to approximately $0.4 million for the third quarter 2020 and decreased from approximately $6.9 million for the nine months ended September 30, 2019 to approximately $4.9 million for the nine months ended September 30, 2020. At September 30, 2020, we had unrecognized purchase option termination revenue of approximately $1.2 million that will be recognized by December 31, 2021. We recorded interest income and other revenue from these instruments as presented in Note 4 to our Consolidated Financial Statements.

Miscellaneous revenues included forfeited earnest money deposits from prospective purchasers of certain of our student housing properties of $2.75 million and $1.0 million for the nine months ended September 30, 2020 and 2019, respectively.

Property management fees


We pay a feepaid fees for property management services to our Former Manager in an amount of 4% of gross property revenues as compensation for services such as rental, leasing, operation and management of our multifamily communities and the supervision of any subcontractors; for grocery-anchored shopping center assets, property management fees arewere generally 4% of gross property revenues, of which generally 2.0% to 2.5% iswere paid to a third party management company. Property management fees for office building assets are within the range of 2.0%1.25% to 2.75% of gross property revenues, of which 1.5% to 2.25% is2.00% and are paid to a third party property management company. The increases were primarily dueAll property management fees paid to properties acquired sinceour Former Manager ceased effective with our Internalization on January 1, 2018,31, 2020, which resulted in a decrease of approximately $2.6 million and $6.6 million in these property management fees for the three months and nine months ended September 30, 2020 as showncompared to the comparative periods in the following table:2019.


  Three-month period ended September 30, Nine-month period ended September 30,
  2019 versus 2018 2019 versus 2018
  Increase (decrease) Increase (decrease)
Property management fees Amount (rounded to 000s): Percent of increase Amount (rounded to 000s): Percent of increase
Properties acquired since January 1, 2018 $584
 109.0 % $1,943
 118.2 %
Properties sold since January 1, 2018 (125) (23.4)% (412) (25.1)%
Properties acquired in 2011 - 2017 77
 14.4 % 113
 6.9 %
         
Total $536
 100.0 % $1,644
 100.0 %




Real estate taxes and insurance


We are liable for property taxes due to the various counties and municipalities that levy such taxes on real property for each of our properties.properties. Real estate taxes rose primarily due to the incremental costs brought on by properties acquired since January 1, 2018, as shown in the following table:

  Three-month period ended September 30, Nine-month period ended September 30,
  2019 versus 2018 2019 versus 2018
  Increase (decrease) Increase (decrease)
Real estate taxes Amount (rounded to 000s): Percent of increase Amount (rounded to 000s): Percent of increase
Properties acquired since January 1, 2018 $2,111
 92.9 % $7,038
 96.7 %
Properties sold since January 1, 2018 (415) (18.3)% (1,215) (16.7)%
Properties acquired in 2011 - 2017 577
 25.4 % 1,456
 20.0 %
         
Total $2,273
 100.0 % $7,279
 100.0 %

2019. We generallygenerally expect the assessed values of our properties to rise over time, owing to our expectation of improving market conditions, as well as pressure on municipalities to raise revenues. Insurance premiums are paid to insure against damages to our real estate assets and for liability claims. 



General and Administrative


The changes increases in general and administrative expenses occurred as shown inwere due to charges for corporate salaries and administrative expenses that are borne by us following the following table:Internalization.

  Three-month period ended September 30, Nine-month period ended September 30,
  2019 versus 2018 2019 versus 2018
  Increase (decrease) Increase (decrease)
General and administrative expense Amount (rounded to 000s): Percent of increase Amount (rounded to 000s): Percent of increase
Taxes, licenses and fees $(11) 3.3% $414
 102.0 %
Properties acquired since January 1, 2018 $(37) 11.5% $673
 165.8 %
Properties sold since January 1, 2018 (59) 18.3% (217) (53.5)%
Properties acquired in 2011 - 2017 (216) 66.9% (464) (114.3)%
         
Total $(323) 100.0% $406
 100.0 %


Equity compensation to directors and executives


Expenses recorded for equity    Equity compensation awards decreasedexpenses increased for the three-month and nine-month periods ended September 30, 2020 as compared to the corresponding 2019 versus 2018periods, primarily due to the lackrecognition of expense related to two new equity compensation grants. First, on June 17, 2020, a restricted stock grant was issued to employees and directors and second, on July 31, 2020, a grant of performance-based restricted stock units was issued to certain named executive officers. This increase in equity compensation expense was partially offset by a decrease in recognition of expense relating to Class B OP Unit grant for 2019.grants. The last Class B Unit grant made on January 2,to be issued was in 2018, was comprisedand the final one-third of an aggregate 256,087 Class B Units with a fair value of approximately $4.3 million.the expense related to this grant will be recorded in 2020.


Depreciation and amortization


The increases in depreciation and amortization for the three-month and nine-month periods ended September 30, 2020 versus 2019 versus 2018 are primarilyincreased due to acquisitions made duringthe addition of properties acquired since January 1, 2019.


64

Asset management fees and general and administrative fees to related party


Monthly asset management fees are equal to one-twelfth of 0.50% of the total book value of assets, as adjusted. General and administrative expense fees are equal to 2% of the monthly gross revenues of the Company. Both are calculated as prescribed by the Management Agreement and are paid monthly to our Manager. These fees rose primarily due to the incremental assets and revenues brought on by acquired office buildings, grocery-anchored shopping centers, student housing properties and multifamily communities listed previously.

Insurance, professional fees and other expenses

The increases consisted of:
  Three-month period ended September 30, Nine-month period ended September 30,
  2019 versus 2018 2019 versus 2018
  Increase (decrease) Increase (decrease)
Insurance, professional fees and other expenses Amount (rounded to 000s): Percent of increase Amount (rounded to 000s): Percent of increase
Audit and tax fees $143
 8.2% $147
 4.2%
Insurance premiums and claims 504
 29.0% 1,591
 45.4%
Legal fees 271
 15.6% 506
 14.4%
Internalization costs 818
 47.0% 1,143
 32.6%
Other professional fees 4
 0.2% 118
 3.4%
         
Total $1,740
 100.0% $3,505
 100.0%

Waived asset management and general and administrative expense fees ceased effective with the closing of our Internalization transaction on January 31, 2020.



Provision for expected credit losses

    Effective January 1, 2020, we adopted ASU 2016-03, which requires us to estimate the amount of future credit losses we expect to incur over the lives of our real estate loan investments at the inception of each loan, rather than perform assessments for impairment as circumstances dictate. The Manager may,Company’s opening reserve of approximately $7.4 million was recorded as a cumulative adjustment to accumulated earnings on January 1, 2020. During the first quarter of 2020, the Company recorded an aggregate net increase in its discretion, waive some or allprovisions for expected credit losses of approximately $4.5 million, primarily related to the onset of the asset management, property management, or generalcoronavirus pandemic. For the three months and administrative fees for properties owned by the Company. The waived fees are converted at the time of such election into contingent fees, which are earned by the Manager only in the event of a sales transaction, and whereby the Company’s capital contributions for the property being sold exceed a 7% annual rate of return. The Company will recognize in future periods to the extent, if any, it determines that the sales transaction is probable, and that the estimated net sale proceeds would exceed the annual rate of return hurdle.

There were no contingent fees realized due to property sales for the three-month or nine-month periodsnine months ended September 30, 2019 or 2018.2020, the Company recorded an aggregate net decrease of $0.8 million and increase of $3.6 million in its provision for expected credit losses, respectively, primarily related to development projects achieving construction and leasing milestones.


Management Internalization expense

    On January 31, 2020, we internalized the functions performed by the Former Manager and the Sub-Manager by acquiring the entities that own the Manager and the Sub-Manager for an aggregate purchase price of $154 million, plus up to $25 million of additional consideration to be paid within 36 months.


Interest expense


The increasesincrease consisted of:of interest expense on mortgages that increased from $28.4 million for the third quarter 2019 to $29.0 million for the third quarter 2020, due to the additional acquired properties in 2019 and 2020. Additionally, our Revolving Line of Credit carried a higher balance for the third quarter 2020 over the third quarter 2019, resulting in an additional $0.5 million in interest expense.
  Three-month period ended September 30, Nine-month period ended September 30,
  2019 versus 2018 2019 versus 2018
  Increase (decrease) Increase (decrease)
Interest expense Amount (rounded to 000s): Percent of increase Amount (rounded to 000s): Percent of increase
Properties acquired since January 1, 2018 $5,901
 187.8 % $19,734
 139.0 %
Properties sold since January 1, 2018 (539) (17.2)% (1,767) (12.4)%
Properties acquired in 2011 - 2017 (389) (12.4)% (419) (3.0)%
KeyBank operating LOC and Term Notes (1,029) (32.7)% (1,718) (12.1)%
Loan participants (802) (25.5)% (1,636) (11.5)%
         
Total $3,142
 100.0 % $14,194
 100.0 %

See the sections entitled Contractual Obligations and Quantitative and Qualitative Disclosures About Market Risk.









Definitions of Non-GAAP Measures


We disclose FFO, Core FFO, and AFFO, each of which meet the definition of a “non-GAAP financial measure”, as set forth in Item 10(e) of Regulation S-K promulgated by the SEC. As a result we are required to include in this filing a statement of why the Company believes that presentation of these measures provides useful information to investors. NoneThe non-GAAP measures of FFO, Core FFO, AFFO and AFFONOI should be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, and we believe that to understand our performance further FFO, Core FFO and AFFO should be compared with our reported net income or net loss and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements. FFO, Core FFO and AFFO are not considered measures of liquidity and are not alternatives to measures calculated under GAAP.


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


FFO is one of the most commonly utilized Non-GAAP measures currently in practice. In its 2002 “White Paper on Funds From Operations,” which was restated in 2018,the National Association of Real Estate Investment Trusts, or NAREIT, standardized the definition of how Net income/loss should be adjusted to arrive at FFO, in the interests of uniformity and comparability. We have adopted the NAREIT definition for computing FFO as a meaningful supplemental gauge of our operating results, and as is most often presented by other REIT industry participants.


The NAREIT definition of FFO (and the one reported by the Company) is:

Net income/loss, excluding:
◦depreciation and amortization related to real estate;
◦gains and losses from the sale of certain real estate assets;
65

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


Not all companies necessarily utilize the standardized NAREIT definition of FFO, so caution should be taken in comparing the Company’s reported FFO results to those of other companies. The Company’s FFO results are comparable to the FFO results of other companies that follow the NAREIT definition of FFO and report these figures on that basis. FFO is a non-GAAP measure that is reconciled to its most comparable GAAP measure, net income/loss available to common stockholders.


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

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

FFO, plus:
• acquisition and pursuit (dead deal) costs;
• loan cost amortization on acquisition term notes and loan coordination fees;
• losses on debt extinguishments or refinancing costs;
• internalization costs;
• expenses incurred on the potential call of preferred stock;
• deemed dividends for redemptions of and non-cash dividends on preferred stock;
• expenses related to the COVID-19 global pandemic; and

Less:
• earnest money forfeitures by prospective asset purchasers.


Core FFO figures reported by us may not be comparable to Core FFO figures reported by other companies. We utilize Core FFO as a supplemental measure of the operating performance of our portfolio of real estate assets. We believe Core FFO is useful to investors as a supplemental gauge of our operating performance and may be useful in comparing our operating performance with other real estate companies. Since our calculation of Core FFO removes costs incurred and revenues recorded that are often singular in nature and outside the normal operations of the Company, we believe it improves comparability to investors in assessing our core operating results across periods. Core FFO is a non-GAAP measure that is reconciled to its most comparable GAAP measure, net income/loss available to common stockholders.

Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders (“AFFO”)


AFFO makes further adjustments to Core FFO results in order to arrive at a more refined measure of operating and financial performance. There is no industry standard definition of AFFO and practice is divergent across the industry. The Company calculates AFFO as:


Core FFO, plus:
• non-cash equity compensation to directors and executives;
• amortization of loan closing costs;
• losses on debt extinguishments or refinancing costs;
• weather-related property operating losses;
• amortization of loan coordination fees paid to the Manager;
• depreciation and amortization of non-real estate assets;
• non-cash (income) expense for current expected credit losses;
• net loan origination fees received;
• accrued interest income received;
• internalization costs;
• allowances for loan loss reserves;
• cash received for purchase option terminations;
• deemed dividends on preferred stock redemptions;non-operating miscellaneous revenues;
• non-cash dividends on Series M Preferred Stock;Stock and mShares; and
• amortization of lease inducements;


Less:
• non-cash loan interest income;
• cash paid for loan closing costs;
• amortization of acquired real estate intangible liabilities;
66

• amortization of straight line rent adjustments and deferred revenues; and

• normally-recurring capital expenditures and capitalized retail directsecond generation leasing costs.


AFFO figures reported by us may not be comparable to those AFFO figures reported by other companies. We utilize AFFO as another measure of the operating performance of our portfolio of real estate assets. We believe AFFO is useful to investors as a supplemental gauge of our operating performance and may be useful in comparing our operating performance with other real estate companies. Since our calculation of AFFO removes other significant non-cash charges and revenues and other costs which are not representative of our ongoing business operations, we believe it improves comparability to investors in assessing our core operating results across periods. AFFO is a non-GAAP measure that is reconciled to its most comparable GAAP measure, net income/loss available to common stockholders. FFO, Core FFO and AFFO are not considered measures of liquidity and are not alternatives to measures calculated under GAAP.




Reconciliation of FFO Attributable to Common Stockholders and Unitholders and AFFO
to Net (Loss) Income Attributable to Common Stockholders (A)
     Three months ended September 30,
(In thousands, except per-share figures)  2019 2018
        
Net loss attributable to common stockholders (See note 1)$(31,529) $(14,227)
        
Add:Depreciation of real estate assets 37,381
 33,037
 Amortization of acquired real estate intangible assets and deferred leasing costs8,386
 11,058
 Net loss attributable to non-controlling interests (See note 2) (59) 216
Less:(Gain) loss on sale of real estate —
 (18,605)
FFO attributable to common stockholders and unitholders14,179
 11,479
        
Add:Loan cost amortization on acquisition term note19
 19
 Amortization of loan coordination fees paid to the Manager (See note 3)492
 673
 Payment of costs related to property refinancing170
 —
 Weather-related property operating losses—
 161
 Non-cash equity compensation to directors and executives305
 796
 Amortization of loan closing costs (See note 4) 1,168
 1,309
 Depreciation/amortization of non-real estate assets 472
 404
 Net loan fees received (See note 5) 148
 248
 Accrued interest income received (See note 6) —
 4,298
 Internalization costs (See note 7) 818
 —
 Loan loss allowance —
 3,029
 Deemed dividends from cash redemptions of preferred stock 5
 2
 Amortization of lease inducements (See note 8) 435
 387
 Non-cash dividends on Preferred Stock 147
 63
Less:Non-cash loan interest income (See note 6) (3,763) (4,104)
 Non-cash revenues from mortgage-backed securities (281) (131)
 Cash paid for loan closing costs(29) (25)
 Amortization of purchase option termination revenues (See note 9)(1,283) (4,478)
 
Amortization of acquired above and below market lease intangibles

   
 and straight-line rental revenues (See note 10) (4,293) (3,353)
 Amortization of deferred revenues (See note 11) (940) (680)
 Normally recurring capital expenditures and leasing costs (See note 12)(2,379) (1,528)
        
AFFO$5,390
 $8,569
      
Common Stock dividends and distributions to Unitholders declared:   
 Common Stock dividends  $11,823
 $10,377
 Distributions to Unitholders (See note 2) 225
 272
 Total   $12,048
 $10,649
        
Common Stock dividends and Unitholder distributions per share $0.2625
 $0.255
        
FFO per weighted average basic share of Common Stock and Unit outstanding$0.31
 $0.28
AFFO per weighted average basic share of Common Stock and Unit outstanding$0.12
 $0.21
    
Weighted average shares of Common Stock and Units outstanding: (A)
   
 Basic:   44,703
 40,300
 Common Stock  868
 1,069
 Class A Units   45,571
 41,369
 Common Stock and Class A Units    
        
 
Diluted Common Stock and Class A Units (B)
 45,768
 42,890
        
Actual shares of Common Stock outstanding, including 20 and 19 unvested shares   
 of restricted Common Stock at September 30, 2019 and 2018, respectively.45,355
 40,804
Actual Class A Units outstanding at September 30, 2019 and 2018, respectively.856
 1,068
 Total   46,211
 41,872
        
(A) Units and Unitholders refer to Class A Units in our Operating Partnership (as defined in note 2), or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 1.90% weighted average non-controlling interest in the Operating Partnership for the three-month period ended September 30, 2019.
(B) Since our FFO and AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.
67
See Notes to Reconciliation of FFO, Core FFO and AFFO to Net Income (Loss) Attributable to Common stockholders.


Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO
to Net (Loss) Income Attributable to Common Stockholders (A)
Three months ended September 30,
(In thousands, except per-share figures)20202019
Net loss attributable to common stockholders (See note 1)$(39,499)$(31,529)
Add:Depreciation of real estate assets41,282 37,381 
Amortization of acquired intangible assets and deferred leasing costs9,978 8,386 
Net loss attributable to Class A Unitholders (See note 2)(50)(59)
Gain on sale of real estate(3,261)— 
FFO attributable to common stockholders and unitholders8,450 14,179 
Aquisition and pursuit costs3 — 
Loan cost amortization on acquisition term notes and loan coordination fees (See note 3)505 511 
Payment of costs related to property refinancing509 170 
Internalization costs (See note 4)577 818 
Deemed dividends for redemptions of and non-cash dividends on preferred stock3,061 152 
Expenses incurred on the potential call of preferred stock (See note 5)46 — 
Expenses related to the COVID-19 global pandemic (See note 6)138 — 
Core FFO attributable to common stockholders and unitholders13,289 15,830 
Add:Non-cash equity compensation to directors and executives582 305 
Noncash (income) expense for current expected credit losses (See note 7)(761)— 
Amortization of loan closing costs (See note 8)1,288 1,168 
Depreciation/amortization of non-real estate assets621 472 
Net loan origination fees received (See note 9)415 148 
Deferred interest income received (See note 10)375 — 
Amortization of lease inducements (See note 11)448 435 
Less:Amortization of purchase option termination revenues in excess of cash received (See note 12)(421)(1,283)
Non-cash loan interest income (See note 10)(3,317)(3,763)
Cash received for sale of K Program securities in excess of noncash revenues— (281)
Cash paid for loan closing costs(106)(29)
Amortization of acquired real estate intangible liabilities and SLR (See note 13)(4,887)(4,293)
Amortization of deferred revenues (See note 14)(940)(940)
Normally recurring capital expenditures (See note 15)(2,983)(2,379)
AFFO attributable to common stockholders and Unitholders$3,603 $5,390 
Common Stock dividends and distributions to Unitholders declared:
Common Stock dividends$8,780 $11,823 
Distributions to Unitholders (See note 2)226 225 
Total$9,006 $12,048 
Common Stock dividends and Unitholder distributions per share$0.1750 $0.2625 
FFO per weighted average basic share of Common Stock and Unit outstanding$0.17 $0.31 
Core FFO per weighted average basic share of Common Stock and Unit outstanding$0.26 $0.35 
AFFO per weighted average basic share of Common Stock and Unit outstanding$0.07 $0.12 
Weighted average shares of Common Stock and Units outstanding: (A)
Basic:
Common Stock49,689 44,703 
Class A Units742 868 
Common Stock and Class A Units50,431 45,571 
Diluted Common Stock and Class A Units (B)
50,433 45,768 
Actual shares of Common Stock outstanding, including 548 and 20 unvested shares
 of restricted Common Stock at September 30, 2020 and 2019, respectively.50,449 45,355 
Actual Class A Units outstanding at September 30, 2020 and 2019, respectively.742 856 
Total51,191 46,211 
(A) Units and Unitholders refer to Class A Units in our Operating Partnership (as defined in note 2), or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 1.47% weighted average non-controlling interest in the Operating Partnership for the three-month period ended September 30, 2020.
(B) Since our AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock and restricted stock units. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.
68

Reconciliation of FFO Attributable to Common Stockholders and Unitholders and AFFO
Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFOReconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO
to Net (Loss) Income Attributable to Common Stockholders (A)
to Net (Loss) Income Attributable to Common Stockholders (A)
to Net (Loss) Income Attributable to Common Stockholders (A)
 Nine months ended September 30,Nine months ended September 30,
(In thousands, except per-share figures)(In thousands, except per-share figures) 2019 2018(In thousands, except per-share figures)20202019
    
Net loss attributable to common stockholders (See note 1)Net loss attributable to common stockholders (See note 1)$(88,497) $(45,931)Net loss attributable to common stockholders (See note 1)$(300,270)$(88,497)
    
Add:Depreciation of real estate assets 109,408
 90,190
Add:Depreciation of real estate assets122,053 109,408 
Amortization of acquired real estate intangible assets and deferred leasing costs26,402
 35,963
Amortization of acquired intangible assets and deferred leasing costs28,933 26,402 
Net loss attributable to non-controlling interests (See note 2) (138) 456
Net loss attributable to Class A Unitholders (See note 2)(3,393)(138)
Less:(Gain) loss on sale of real estate —
 (38,961)
Gain on sale of real estate(3,261)— 
FFO attributable to common stockholders and unitholdersFFO attributable to common stockholders and unitholders47,175
 41,717
FFO attributable to common stockholders and unitholders(155,938)47,175 
    
Add:Loan cost amortization on acquisition term note58
 63
Amortization of loan coordination fees paid to the Manager (See note 3)1,433
 1,780
Acquisition and pursuit costs381 — 
Payment of costs related to property refinancing594
 61
Loan cost amortization on acquisition term notes and loan coordination fees (See note 3)1,711 1,491 
Weather-related property operating losses—
 (33)Payment of costs related to property refinancing7,372 594 
Non-cash equity compensation to directors and executives922
 2,881
Internalization costs (See note 4)179,828 1,143 
Amortization of loan closing costs (See note 4) 3,458
 3,567
Deemed dividends for redemptions of and non-cash dividends on preferred stock6,377 371 
Expenses incurred on the potential call of preferred stock (See note 5)46 — 
Expenses related to the COVID-19 global pandemic (See note 6)586 — 
Earnest money forfeited by prospective asset purchaser(2,750)— 
Core FFO attributable to common stockholders and unitholdersCore FFO attributable to common stockholders and unitholders37,613 50,774 
Add:Add:Non-cash equity compensation to directors and executives1,058 922 
Depreciation/amortization of non-real estate assets 1,381
 1,057
Noncash (income) expense for current expected credit losses (See note 7)3,647 — 
Net loan fees received (See note 5) 674
 1,459
Amortization of loan closing costs (See note 8)3,631 3,458 
Accrued interest income received (See note 6) 5,078
 8,410
Depreciation/amortization of non-real estate assets1,793 1,381 
Internalization costs (See note 7) 1,143
 —
Net loan origination fees received (See note 9)882 674 
Loan loss allowance —
 3,029
Deferred interest income received (See note 10)8,652 5,078 
Deemed dividends from cash redemptions of preferred stock 12
 522
Amortization of lease inducements (See note 11)1,334 1,295 
Amortization of lease inducements (See note 8) 1,295
 955
Amortization of purchase option termination revenues in excess of cash received (See note 12)(96)(2,370)
Non-cash dividends on Preferred Stock 359
 216
Non-operating miscellaneous revenues2,750 — 
Less:Non-cash loan interest income (See note 6) (10,745) (14,726)Less:Non-cash loan interest income (See note 10)(9,445)(10,745)
Non-cash revenues from mortgage-backed securities (696) (185)Non-cash revenues from mortgage-backed securities— (696)
Cash paid for loan closing costs (37) (416)Cash paid for loan closing costs(106)(37)
Amortization of purchase option termination revenues (See note 9)(2,370) (1,964)Amortization of acquired real estate intangible liabilities and SLR (See note 13)(13,684)(12,375)
Amortization of acquired above and below market lease intangibles

   Amortization of deferred revenues (See note 14)(2,821)(2,821)
and straight-line rental revenues (See note 10) (12,375) (9,047)Normally recurring capital expenditures (See note 15)(6,525)(5,122)
Amortization of deferred revenues (See note 11) (2,821) (1,765)
Normally recurring capital expenditures and leasing costs (See note 12)(5,122) (3,482)
    
AFFO$29,416
 $34,099
AFFO attributable to common stockholders and UnitholdersAFFO attributable to common stockholders and Unitholders$28,683 $29,416 
     
Common Stock dividends and distributions to Unitholders declared:Common Stock dividends and distributions to Unitholders declared:   Common Stock dividends and distributions to Unitholders declared:
Common Stock dividends $34,599
 $30,283
Common Stock dividends29,895 34,599 
Distributions to Unitholders (See note 2) 683
 813
Distributions to Unitholders (See note 2)559 683 
Total $35,282
 $31,096
Total30,454 35,282 
    
Common Stock dividends and Unitholder distributions per shareCommon Stock dividends and Unitholder distributions per share $0.7850
 $0.76
Common Stock dividends and Unitholder distributions per share$0.6125 $0.785 
    
FFO per weighted average basic share of Common Stock and Unit outstandingFFO per weighted average basic share of Common Stock and Unit outstanding$1.06
 $1.03
FFO per weighted average basic share of Common Stock and Unit outstanding$(3.17)$1.06 
Core FFO per weighted average basic share of Common Stock and Unit outstandingCore FFO per weighted average basic share of Common Stock and Unit outstanding$0.77 $1.14 
AFFO per weighted average basic share of Common Stock and Unit outstandingAFFO per weighted average basic share of Common Stock and Unit outstanding$0.66
 $0.84
AFFO per weighted average basic share of Common Stock and Unit outstanding$0.58 $0.66 
   
Weighted average shares of Common Stock and Units outstanding: (A)
Weighted average shares of Common Stock and Units outstanding: (A)
   Weighted average shares of Common Stock and Units outstanding: (A)
Basic: 43,703
 39,598
Basic:
Common Stock 875
 1,070
Common Stock48,351 43,703 
Class A Units 44,578
 40,668
Class A Units776 875 
Common Stock and Class A Units    Common Stock and Class A Units49,127 44,578 
    
Diluted Common Stock and Class A Units (B)
 45,235
 41,936
Diluted Common Stock and Class A Units (B)49,144 45,235 
    
Actual shares of Common Stock outstanding, including 20 and 19 unvested shares   
of restricted Common Stock at September 30, 2019 and 2018, respectively.45,355
 40,804
Actual Class A Units outstanding at September 30, 2019 and 2018, respectively.856
 1,068
Actual shares of Common Stock outstanding, including 548 and 20 unvested sharesActual shares of Common Stock outstanding, including 548 and 20 unvested shares
of restricted Common Stock at September 30, 2020 and 2019, respectively. of restricted Common Stock at September 30, 2020 and 2019, respectively.50,449 45,355 
Actual Class A Units outstanding at September 30, 2020 and 2019, respectively.Actual Class A Units outstanding at September 30, 2020 and 2019, respectively.742 856 
Total 46,211
 41,872
Total51,191 46,211 
    
(A) Units and Unitholders refer to Class A Units in our Operating Partnership (as defined in note 2), or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 1.96% weighted average non-controlling interest in the Operating Partnership for the nine-month period ended September 30, 2019.
(B) Since our FFO and AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.
(A) Units and Unitholders refer to Class A Units in our Operating Partnership (as defined in note 2), or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 1.58% weighted average non-controlling interest in the Operating Partnership for the nine-month period ended September 30, 2020.(A) Units and Unitholders refer to Class A Units in our Operating Partnership (as defined in note 2), or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 1.58% weighted average non-controlling interest in the Operating Partnership for the nine-month period ended September 30, 2020.
(B) Since our AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock and restricted stock units. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.(B) Since our AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock and restricted stock units. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.
See Notes to Reconciliation of FFO, Core FFO and AFFO to Net Income (Loss) Attributable to Common stockholders.

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


1)Rental and other property revenues and property operating expenses for the quarter ended September 30, 2019 include activity for the properties acquired during the quarter only from their respective dates of acquisition. In addition, the third quarter 2019 period includes activity for the properties acquired since September 30, 2018. Rental and other property revenues and expenses for the third quarter 2018 include activity for the acquisitions made during that period only from their respective dates of acquisition.

1)Rental and other property revenues and property operating expenses for the three-month and nine-month periods ended September 30, 2020 include activity for the properties acquired during the period only from their respective dates of acquisition. In addition, these periods include activity for the properties acquired since September 30, 2019. Rental and other property revenues and expenses for the three-month and nine-month periods ended September 30, 2019 include activity for the acquisitions made during that period only from their respective dates of acquisition.
2)
Non-controlling interests in Preferred Apartment Communities Operating Partnership, L.P., or our Operating Partnership, consisted of a total of 856,409 Class A Units as of September 30, 2019. Included in this total are 419,228 Class A Units which were granted as partial consideration to the seller in conjunction with the

2)Non-controlling interests in Preferred Apartment Communities Operating Partnership, L.P., or our Operating Partnership, consisted of a total of 742,413 Class A Units as of September 30, 2020. Included in this total are 419,228 Class A Units which were granted as partial consideration to the seller in conjunction with theseller's contribution to us on February 29, 2016 of the Wade Green grocery-anchored shopping center. The remaining Class A units were awarded primarily to our key executive officers. The Class A Units are apportioned a percentage of our financial results as non-controlling interests. The weighted average ownership percentage of these holders of Class A Units was calculated to be 1.47% and 1.90% for the three-month periods ended September 30, 2020 and 2019, respectively.

3)     We paid loan coordination fees to Preferred Apartment Advisors, LLC, or our Former Manager, to reflect the administrative effort involved in arranging debt financing for acquired properties prior to the Internalization. The fees were calculated as 0.6% of the amount of any mortgage indebtedness on newly-acquired properties or refinancing and are amortized over the lives of the respective mortgage loans. This non-cash amortization expense is an addition to FFO in the calculation of Core FFO and AFFO. At September 30, 2020, aggregate unamortized loan coordination fees were approximately $12.8 million, which will be amortized over a weighted average remaining loan life of approximately 10.2 years.

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

5)    This adjustment adds back expenses incurred by us to effect an amendment of the Company's charter necessary to allow us to redeem outstanding shares of our Series A Preferred Stock beginning on the fifth anniversary of the date of issuance of the shares of Series A Preferred Stock, rather than the tenth anniversary.

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

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

8)    We incur loan closing costs on our existing mortgage loans, which are secured on a property-by-property basis by each of our acquired real estate assets, and also for occasional amendments to our syndicated revolving line of credit with Key Bank National Association, or our Revolving Line of Credit. Effective April 13, 2018, the maximum borrowing capacity on the Revolving Line of Credit was increased from $150 million to $200 million. These loan closing costs are also amortized over the lives of the respective loans and the Revolving Line of Credit, and this non-cash amortization expense is an addition to FFO in the calculation of AFFO. Neither we nor the Operating Partnership have any recourse liability in connection with any of the mortgage loans, nor do we have any cross-collateralization arrangements with respect to the assets securing the mortgage loans, other than security interests in 49% of the equity interests of the subsidiaries owning such assets, granted in connection with our Revolving Line of Credit, which provides for full recourse liability. At September 30, 2020, unamortized loan costs on all the Company's indebtedness were approximately $32.3 million, which will be amortized over a weighted average remaining loan life of approximately 8.9 years.

9)    We receive loan origination fees in conjunction with the origination of certain real estate loan investments. These fees are then recognized as revenue over the lives of the applicable loans as adjustments of yield using the effective interest method. The total fees received are additive adjustments in the calculation of AFFO. Correspondingly, the amortized non-cash income is a deduction in the calculation of AFFO. Over the lives of certain loans, we accrue additional interest amounts that become due to us at the time of repayment of the loan or refinancing of the property, or when the property is sold. This non-cash interest income is subtracted from Core FFO in our calculation of AFFO. The amount of additional accrued interest becomes an additive adjustment to FFO once received from the borrower (see note 10).

10)    This adjustment reflects the receipt during the periods presented of additional interest income (described in note 9 above) which was earned and accrued on various real estate loans prior to those periods and previously deducted in our calculation of AFFO.

11)    This adjustment removes the non-cash amortization of costs incurred to induce tenants to lease space in our office buildings and grocery-anchored shopping centers.
70


12)    Effective March 6, 2020, our purchase option on the Falls at Forsyth multifamily community was extinguished in conjunction with the loan repayment; effective January 1, 2019, we terminated our purchase options on the Sanibel Straits, Newbergh, Wiregrass and Cameron Square multifamily communities and the Solis Kennesaw student housing property; on May 7, 2018, we terminated our purchase options on the Bishop Street multifamily community and the Haven Charlotte student housing property, both of which are (or were) partially supported by real estate loan investments held by us. In exchange, we arranged to receive termination fees aggregating approximately $17.2 million from the developers, which are recorded as revenue over the period beginning on the date of election until the earlier of (i) the maturity of the real estate loan investment and (ii) the sale of the property. The receipt of the cash termination fees are an additive adjustment in our calculation of AFFO and the removal of non-cash revenue from the recognition of the termination fees are a reduction to Core FFO in our calculation of AFFO; both of these adjustments are presented in a single net number within this line. For all periods presented, we had recognized termination fee revenues in excess of cash received, resulting in the negative adjustments shown to Core FFO in our calculation of AFFO.

13)    This adjustment reflects straight-line rent adjustments and the reversal of the non-cash amortization of below-market and above-market lease intangibles, which were recognized in conjunction with our acquisitions and which are amortized over the estimated average remaining lease terms from the acquisition date for multifamily communities and over the remaining lease terms for grocery-anchored shopping center. The remaining Class A units were awarded primarily to our key executive officers. The Class A Units are apportioned a percentage of our financial results as non-controlling interests. The weighted average ownership percentage of these holders of Class A Units was calculated to be 1.90% and 2.59% for the three-month periods ended September 30, 2019 and 2018, respectively.

3)We pay loan coordination fees to Preferred Apartment Advisors, LLC, our Manager, to reflect the administrative effort involved in arranging debt financing for acquired properties. The fees are calculated as 0.6% of the amount of any mortgage indebtedness on newly-acquired properties or refinancing and are amortized over the lives of the respective mortgage loans. This non-cash amortization expense is an addition to FFO in the calculation of AFFO. At September 30, 2019, aggregate unamortized loan coordination fees were approximately $14.1 million, which will be amortized over a weighted average remaining loan life of approximately 10.4 years.

4)We incur loan closing costs on our existing mortgage loans, which are secured on a property-by-property basis by each of our acquired real estate assets, and also for occasional amendments to our syndicated revolving line of credit with Key Bank National Association, or our Revolving Line of Credit. Effective April 13, 2018, the maximum borrowing capacity on the Revolving Line of Credit was increased from $150 million to $200 million. These loan closing costs are also amortized over the lives of the respective loans and the Revolving Line of Credit, and this non-cash amortization expense is an addition to FFO in the calculation of AFFO. Neither we nor the Operating Partnership have any recourse liability in connection with any of the mortgage loans, nor do we have any cross-collateralization arrangements with respect to the assets securing the mortgage loans, other than security interests in 49% of the equity interests of the subsidiaries owning such assets, granted in connection with our Revolving Line of Credit, which provides for full recourse liability. At September 30, 2019, aggregate unamortized loan costs were approximately $25.1 million, which will be amortized over a weighted average remaining loan life of approximately 9.1 years.

5)We receive loan origination fees in conjunction with the origination of certain real estate loan investments. These fees are then recognized as revenue over the lives of the applicable loans as adjustments of yield using the effective interest method. The total fees received after the payment of loan origination fees to our Manager are additive adjustments in the calculation of AFFO. Correspondingly, the amortized non-cash income is a deduction in the calculation of AFFO. Over the lives of certain loans, we accrue additional interest amounts that become due to us at the time of repayment of the loan or refinancing of the property, or when the property is sold. This non-cash interest income is subtracted from FFO in our calculation of AFFO. The amount of additional accrued interest becomes an additive adjustment to FFO once received from the borrower (see note 6).

6)This adjustment reflects the receipt during the periods presented of additional interest income (described in note 5 above) which was earned and accrued prior to those periods presented on various real estate loans.

7)This adjustment reflects the add-back of exploratory expenses incurred by the Company related to the potential internalization of the functions performed by its Manager.

8)This adjustment removes the non-cash amortization of costs incurred to induce tenants to lease space in our office buildings and grocery-anchored shopping centers.

9)Effective January 1, 2019, we terminated our purchase options on the Sanibel Straits, Newbergh, Wiregrass and Cameron Square multifamily communities and the Solis Kennesaw student housing property; on May 7, 2018, we terminated our purchase options on the Encore, Bishop Street and Hidden River multifamily communities and the Haven46 and Haven Charlotte student housing properties, all of which are (or were) partially supported by real estate loan investments held by us. In exchange, we arranged to receive termination fees aggregating approximately $20.2 million from the developers, which are recorded as revenue over the period beginning on the date of election until the earlier of (i) the maturity of the real estate loan investment and (ii) the sale of the property. The receipt of the cash termination fees are an additive adjustment in our calculation of AFFO and the removal of non-cash revenue from the recognition of the termination fees are a reduction to FFO in our calculation of AFFO; both of these adjustments are presented in a single net number within this line. For the three-month and nine month periods ended September 30, 2019, we had recognized termination fee revenues in excess of cash received, resulting in the negative adjustments shown to FFO in our calculation of AFFO.

10)This adjustment reflects straight-line rent adjustments and the reversal of the non-cash amortization of below-market and above-market lease intangibles, which were recognized in conjunction with our acquisitions and which are amortized over the estimated average remaining lease terms from the acquisition date for multifamily communities and over the remaining lease terms for grocery-anchored

shopping center assets and office buildings. At September 30, 2019,2020, the balance of unamortized below-market lease intangiblesintangibles was approximately $53.0$54.5 million, which will be recognized over a weighted average remaining lease period of approximately 9.48.7 years.


11)This adjustment removes the non-cash amortization of deferred revenue recorded by us in conjunction with Company-owned lessee-funded tenant improvements in our office buildings.
14)    This adjustment removes the non-cash amortization of deferred revenue recorded by us in conjunction with Company-owned lessee-funded tenant improvements in our office buildings.
    
12)
15)    We deduct from Core FFO normally recurring capital expenditures that are necessary to maintain our assets’ revenue streams in the calculation of AFFO. This adjustment also deducts from Core FFO capitalized amounts for third party costs during the period to originate or renew leases in our grocery-anchored shopping centers and office buildings. This adjustment includes approximately $28,000 and $100,000 of recurring capitalized expenditures incurred at our corporate offices during the three-month and nine-month periods ended September 30, 2020, respectively. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures. See Capital Expenditures, Grocery-Anchored Shopping Center Portfolio, and Office Buildings Portfolio sections for definitions of these terms.



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Liquidity and Capital Resources


Short-Term Liquidity


We believe our principal short-term liquidity needs are to fund:


•operating expenses directly related to our portfolio of multifamily communities, student housing properties, grocery-anchored shopping centers and office properties (including regular maintenance items);
•operating expenses related to salaries, benefits, and general and administrative expenses (that were formally funded by payment of fees to our Former Manager prior to Internalization on January 31, 2020);
•capital expenditures incurred to lease our multifamily communities, student housing properties, grocery-anchored shopping centers and office properties;
•interest expense on our outstanding property level debt;
•amounts due on our Credit Facility;
•distributions that we pay to our preferred stockholders, common stockholders, and unitholders;
•cash redemptions that we may pay to our preferred stockholders, and
•committed investments.


We have a credit facility, or Credit Facility, with KeyBank National Association, or KeyBank, which defines a revolving line of credit, or Revolving Line of Credit, which is used to fund investments, capital expenditures, dividends (with consent of KeyBank), working capital and other general corporate purposes on an as needed basis. On March 23, 2018, the maximum borrowing capacity on the Revolving Line of Credit was increased to $200 million pursuant to an accordion feature. The accordion feature permits the maximum borrowing capacity to be expanded or contracted without amending any further terms of the instrument. On December 12, 2018, the Fourth Amended and Restated Credit Agreement, or the Amended and Restated Credit Agreement, was amended to extend the maturity to December 12, 2021, with an option to extend the maturity date to December 12, 2022, subject to certain conditions described therein. The Revolving Line of Credit accrues interest at a variable rate of one month LIBOR plus an applicable margin of 2.75% to 3.50% per annum, depending upon our leverage ratio. The weighted average interest rate for the Revolving Line of Credit was 5.53%3.91% for the nine-month periodnine months ended September 30, 2019.2020. The Amended and Restated Credit Agreement also reduced the commitment fee on the average daily unused portion of the Revolving Line of Credit to 0.25% or 0.30% per annum, depending upon our outstanding Credit Facility balance.
On March 29, 2018, At September 30, 2020, we refinanced the mortgage on our Sol student housing property. A short-term bridge loan was usedhad $167.0 million available to replace the mortgage being heldbe drawn by us on the Acquisition Facility.Revolving Line of Credit.

    The mortgage principal balance of approximately $37.5 million remainedCOVID-19 pandemic has the same under the new financing arrangement,potential to affect our short-term cash flows, if multifamily tenants lose their jobs due to business closings, retailers fall behind on their rent obligations, and the existing variable interest rate increased 10 basis points,our office tenants' businesses begin to 210 basis points over LIBOR. Assimilarly suffer. Should these events continue to accelerate and worsen, our operational cash flows could suffer and cause us to draw upon our Revolving Credit Line more extensively and in a result of the refinance,manner other than we incurred expenses of approximately $61,000, which are included within the Interest Expense line of the Consolidated Statements of Operations.previously intended.
On May 26, 2016, we utilized proceeds from the Interim Term Loan to partially finance the acquisition of Anderson Central, a grocery-anchored shopping center located in Anderson, South Carolina. The Interim Term Loan accrued interest at a rate of LIBOR plus 2.5% per annum and was repaid and extinguished during the first quarter 2018.


The Amended and Restated Credit Agreement contains certain affirmative and negative covenants including negative covenants that limit or restrict secured and unsecured indebtedness, mergers and fundamental changes, investments and acquisitions, liens and encumbrances, dividends, transactions with affiliates, burdensome agreements, changes in fiscal year and other matters customarily restricted in such agreements. The material financial covenants include minimum net worth and debt service coverage ratios and maximum leverage and dividend payout ratios. As of September 30, 2019,2020, we were in compliance with all covenants related to the Fourth Amended and Restated Credit Agreement. Our results with respect to such compliance are presented in Note 9 to the Company's Consolidated Financial Statements.



On December 20, 2019, we utilized proceeds from an interim term loan to partially finance the acquisition of Morrocroft Centre, an office building located in Charlotte, North Carolina, or the 2019 Interim Term Loan. The 2019 Interim Term Loan accrued interest at a rate of LIBOR plus 170 basis points per annum. We repaid the 2019 Interim Term Loan during the first quarter 2020 with permanent mortgage financing.

On February 28, 2017, we entered into a revolving acquisition credit agreement, or Acquisition Credit Agreement, with KeyBank to obtain an acquisition revolving credit facility, orthe Acquisition Facility, with a maximum borrowing capacity of $200 million. The sole purpose of the Acquisition Credit Agreement is to finance our acquisitions of multifamily communities and student housing communities prior to obtaining permanent conventional mortgage financing on the acquired assets. The maximum borrowing capacity on the Acquisition Facility was reduced by agreement with KeyBank to $90 million on March 25, 2019. The Acquisition Facility accrues interest at a variable rate of one month LIBOR plus a margin of between 1.75% per annum and 2.20% per annum, depending on the type of assets acquired and the resulting property debt service coverage ratio. The Acquisition Facility has a
72

maturity date of March 1, 2022 and has two one-year extension options, subject to certain conditions described therein. At September 30, 2020, we had $90.0 million available to be drawn by us on the Acquisition Facility.


Our net cash provided by operating activities for the nine-month periodsperiod ended September 30, 2019 and 20182020 was approximately $124.4$30.0 million and $112.0 million, respectively. The increase in net cash provided by operating activities was primarily due to incremental cash generated by property income provided by real estate assets acquired sincefor the nine-month period ended September 30, 2018.2019 was approximately $124.4 million. The Internalization transaction reduced the Company’s operating cash flows by approximately $114.0 million for the nine-month period ended September 30, 2020.


The majority of our revenue is derived from residents and tenants under existing leases at our multifamily communities, student housingresidential properties, grocery-anchored shopping centers and office properties.properties. Therefore, our operating cash flow is principally dependent on: (1) the number of multifamily communities, student housingresidential properties, grocery-anchored shopping centers and office properties in our portfolio; (2) rental rates; (3) occupancy rates; (4) operating expenses associated with these properties; and (5) the ability of our residents and tenants to make their rental payments.


We also earn interest revenue from the issuance of real estate-related loans and may receive fees at the inception of these loans for committing and originating them. Interest revenue we receive on these loans is influenced by (1) market interest rates on similar loans; (2) the availability of credit from alternative financing sources; (3) the desire of borrowers to finance new real estate projects; and (4) unique characteristics attached to these loans, such as exclusive purchase options. In the course of extending real estate loan investments for property development, we will often receive an exclusive option to purchase the property once development and stabilization are complete. If we do not wish to acquire the property, we have the right to sell the purchase option back to the borrower for a termination fee in the amount of the purchase option discount, which is recognized as interest income over the earlier of the maturity date of the loan or the sale of the property.


Interest income on our loans and notes receivable decreased from $49.9 million for the nine-month period ended September 30, 2018 to $46.0 million for the nine-month period ended September 30, 2019, primarily due to the repayment or settlement since September 30, 2018 of 9various loans and notes receivable. On March 27, 2019, the Haven Campus Communities Charlotte Member, LLC line of credit, and the Haven Campus Communities Charlotte real estate loan investments with an aggregate commitment amountloans were settled when we received the membership interests of $139.9 million which supported 6the Haven49 student housing project from the developer. In the first quarter of 2020, the Falls at Forsyth and Dawsonville real estate development projects.loans were repaid in full, and the Wiregrass real estate loans were repaid in full when the Company purchased the property from the developer. Lastly, the Former Manager’s line of credit was repaid in full in conjunction with the Internalization transaction which closed on January 31, 2020.


Our net cash used in investing activities for the nine-month periods ended September 30, 20192020 and 20182019 was approximately $530.0$155.2 million and $625.7$530.0 million, respectively. Cash disbursed for property acquisitions decreased from $662.9 million in the 2018 period toapproximately $442.4 million in the 2019 period partially offset byto $186.0 million in the investing cash inflow from the sale of mortgage-backed securities of approximately $53.4 million.2020 period.


Cash used in investing activities is primarily driven by acquisitions and dispositions of multifamilymultifamily properties, student housing properties, office properties and grocery-anchored shopping centers and acquisitions and maturities or other dispositions of real estate loans and other real estate and real estate-related assets, and secondarily by capital expenditures related to our owned properties. We will seek to acquire more multifamily communities, student housing properties, office properties and grocery-anchored shopping centers at costs that we expect will be accretive to our financial results. Capital expenditures may be nonrecurring and discretionary, as part of a strategic plan intended to increase a property’s value and corresponding revenue-generating power, or may be normally recurring and necessary to maintain the income streams and present value of a property. Certain capital expenditures may be budgeted and reserved for upon acquiring a property as initial expenditures necessary to bring a property up to our standards or to add features or amenities that we believe make the property a compelling value to prospective residents or tenants in its individual market. These budgeted nonrecurring capital expenditures in connection with an acquisition are funded from the capital source(s) for the acquisition and are not dependent upon subsequent property operational cash flows for funding.









73





For the nine-month period ended September 30, 2019,2020, our capital expenditures for our multifamily communities, not including changes in related payables, were as follows:
(In thousands, except per-unit amounts)Capital Expenditures
RecurringNon-recurringTotal
AmountPer UnitAmountPer UnitAmountPer Unit
Appliances
$552 $51.77 $— $— $552 $51.77 
Carpets1,246 116.78 — — 1,246 116.78 
Wood flooring / vinyl89 8.36 368 34.56 457 42.92 
Blinds and ceiling fans158 14.79 — — 158 14.79 
Fire safety— — 411 38.57 411 38.57 
Furnace, air (HVAC)482 45.16 — — 482 45.16 
Computers, equipment, misc.94 8.78 181 16.93 275 25.71 
Elevators— — 75 7.00 75 7.00 
Exterior painting— — 681 63.80 681 63.80 
Leasing office / common amenities78 7.36 670 62.80 748 70.16 
Major structural— — 1,753 164.31 1,753 164.31 
Cabinets & countertops and unit upgrades— — 770 72.21 770 72.21 
Landscaping & fencing— — 310 29.07 310 29.07 
Parking lot— — 84 7.90 84 7.90 
Signage and sanitation— — 100 9.35 100 9.35 
$2,699 $253.00 $5,403 $506.50 $8,102 $759.50 
 Capital Expenditures
 Recurring Non-recurring Total
(In thousands, except per-unit amounts)Amount Per Unit Amount Per Unit Amount Per Unit
Appliances 
$366
 $36.52
 $—
 $—
 $366
 $36.52
Carpets1,116
 111.40
 —
 —
 1,116
 111.40
Wood flooring / vinyl240
 24.00
 91
 9.09
 331
 33.09
Blinds and ceiling fans149
 14.79
 15
 1.48
 164
 16.27
Fire safety—
 —
 146
 14.54
 146
 14.54
Furnace, air (HVAC)419
 41.77
 13
 1.27
 432
 43.04
Computers, equipment, misc.10
 1.04
 201
 20.07
 211
 21.11
Elevators—
 —
 33
 3.33
 33
 3.33
Exterior painting—
 —
 833
 83.15
 833
 83.15
Leasing office / common amenities281
 28.02
 971
 96.93
 1,252
 124.95
Major structural—
 —
 1,886
 188.17
 1,886
 188.17
Cabinets & countertop upgrades—
 —
 548
 54.70
 548
 54.70
Landscaping & fencing—
 —
 897
 89.57
 897
 89.57
Parking lot—
 —
 370
 36.91
 370
 36.91
Signage and sanitation—
 —
 94
 9.39
 94
 9.39
            
 $2,581
 $257.54
 $6,098
 $608.60
 $8,679
 $866.14


For the nine-month period ended September 30, 2019,2020, our capital expenditures for our student housing properties, not including changes in related payables, were as follows:
Capital Expenditures
Recurring Non-recurring Total
(In thousands, except per-unit amounts)Amount Per Bed Amount Per Bed Amount Per Bed(In thousands, except per-unit amounts)Capital Expenditures
(In thousands, except per-unit amounts)RecurringNon-recurringTotal
AmountPer BedAmountPer BedAmountPer Bed
Appliances
$64
 $10.97
 $—
 $—
 $64
 $10.97
Appliances
$93 $15.31 $— $— $93 $15.31 
Carpets207
 35.58
 —
 —
 207
 35.58
Carpets207 34.00 — — 207 34.00 
Wood flooring / vinyl5
 0.81
 30
 5.14
 35
 5.95
Wood flooring / vinyl9 1.50 — — 9 1.50 
Blinds and ceiling fans26
 4.50
 —
 —
 26
 4.50
Blinds and ceiling fans20 3.25 — — 20 3.25 
Fire safety—
 —
 151
 26.04
 151
 26.04
Fire safety— — 68 11.13 68 11.13 
Furnace, air (HVAC)51
 8.83
 283
 48.66
 334
 57.49
Furnace, air (HVAC)148 24.29 — — 148 24.29 
Computers, equipment, misc.9
 1.61
 141
 24.23
 150
 25.84
Computers, equipment, misc.46 7.59 79 12.94 125 20.53 
Elevators—
 —
 —
 —
 —
 —
Elevators— — 15 2.51 15 2.51 
Exterior painting—
 —
 806
 138.61
 806
 138.61
Exterior painting— — — — — — 
Leasing office / common amenities26
 4.39
 314
 54.03
 340
 58.42
Leasing office / common amenities77 12.56 118 19.41 195 31.97 
Major structural—
 —
 1,888
 324.60
 1,888
 324.60
Major structural— — 760 124.64 760 124.64 
Cabinets & countertop upgrades93
 15.97
 34
 5.64
 127
 21.61
Cabinets & countertops and unit upgradesCabinets & countertops and unit upgrades— — 11 1.78 11 1.78 
Landscaping & fencing—
 —
 478
 82.22
 478
 82.22
Landscaping & fencing— — 53 8.77 53 8.77 
Parking lot—
 —
 79
 13.66
 79
 13.66
Parking lot— — 5 0.88 5 0.88 
Signage and sanitation—
 —
 139
 23.95
 139
 23.95
Signage and sanitation— — 59 9.62 59 9.62 
Unit furniture291
 50.06
 —
 —
 291
 50.06
Unit furniture394 64.63 — — 394 64.63 
           
$772
 $132.72
 $4,343
 $746.78
 $5,115
 $879.50
$994 $163.13 $1,168 $191.68 $2,162 $354.81 
    
In addition, second-generation capital expenditures within our grocery-anchored shopping center portfolio for the nine-month periods ended September 30, 2020 and 2019 totaled $2.0 million and 2018 totaled $1.3 million, respectively and $1.0within our office properties portfolio for the nine-month periods ended September 30, 2020 and 2019 totaled $0.7 million and $0.5 million, respectively. We define second-generation capital expenditures as those that exclude expenditures made in our grocery-anchoredgrocery-anchored shopping center portfolioand office properties portfolios (i) to lease space to "first generation" tenants (i.e. leasing capital for
74

existing vacancies and known move-outs at the time of acquisition), (ii) to bring recently acquired properties up to our ownership standards, and (iii) for property re-developments and repositioning.



Second-generationAt September 30, 2020, we had restricted cash of approximately $65.7 million. These funds are restricted for a variety of purposes, such as commitments to fund capital expenditures withinand lender required escrows for future real estate tax and insurance payments. At September 30, 2020, our office properties portfoliorestricted cash for future real estate tax and insurance payments was $33.6 million, an increase of approximately $8.1 million as compared to June 30, 2020. Typically these escrows increase in the second and third quarters of each calendar year as the Company pays monthly mortgage installments, of which a portion goes to these escrows, until payments are made to the taxing authorities (generally in the first and fourth quarters of each calendar year). Additionally, through the mortgage refinances that the Company executed in the second and third quarters of 2020, our lenders required us to put an additional $6.8 million into escrows related to the COVID-19 pandemic. These escrows will be released back to us upon the cessation of all governmental emergency declarations and certain other performance conditions.

Net cash provided by financing activities for the nine-month periods ended September 30, 20192020 and 2018 totaled $465,000 and $116,000, respectively. Second-generation capital expenditures exclude those expenditures made in our office properties portfolio (i) to lease space to "first generation" tenants (i.e. leasing capital for existing vacancies and known move-outs at the time of acquisition), (ii) to bring recently acquired properties up to our Class A ownership standards (and which amounts were underwritten into the total investment at the time of acquisition) and (iii) for property re-developments and repositionings.

At September 30, 2019 we had restricted cash of approximately $17.6 million that was contractually restricted to fund capital expenditures and other property-level commitments such as tenant improvements and leasing commissions.

Net cash provided by financing activities was approximately $465.1$83.9 million and $527.1$465.1 million, for the nine-month periods ended September 30, 2019 and 2018, respectively. Our significant financing cash sources were approximately $329.9$159.1 million and $386.6$380.0 million of net proceeds from the issuance of Preferred Stock for the 2020 and 2019 periods respectively, and approximately $204.3 million and $223.2 million of net proceeds from the mortgage financing transactions, net of repayments for the nine-month2020 and 2019 periods ended September 30, 2019 and 2018, respectively, and approximately $380.0 million and $303.4 million for the nine-month periods ended September 30, 2019 and 2018, respectively, of netrespectively. The decrease in proceeds from our offeringsthe issuance of Preferred Stock in the 2020 period was related to the closure of our Preferred Stock Units.$1.5 Billion Unit Offering during the quarter, as our Series A1/M1 offering was gaining traction as our primary equity raising vehicle.


Distributions


In order to maintain our status as a REIT for U.S. federal income tax purposes, we must comply with a number of organizational and operating requirements, including a requirement to distribute 90% of our annual REIT taxable income (which does not equal net income as calculated in accordance with GAAP and determined without regard for the deduction for dividends paid and excluding net capital gains) to our stockholders. As a REIT, we generally will not be subject to federal income taxes on the taxable income we distribute to our stockholders. Generally, our objective is to meet our short-term liquidity requirement of funding the payment of our quarterly Common Stock dividends, as well as monthly dividends to holders of our Series A Redeemable Preferred Stock, mShares, Series A1 Redeemable Preferred Stock and Series M1 Redeemable Preferred Stock (collectively, our mShares,Preferred Stock), through net cash generated from operating results.


Our board of directors reviews the Series A Redeemable Preferred Stock and our mShares dividends monthly to determine whether we have funds legally available for payment of such dividends in cash, and there can be no assurance that the Series A Redeemable Preferred Stock and our mShares dividends will consistently be paid in cash. Dividends may be paid as a combination of cash and stock in order to satisfy the annual distribution requirements applicable to REITs. We expect the aggregate dollar amount of monthly Series A Redeemable Preferred Stock and our mShares dividend payments to increase at a rate that approximates the rate at which we issue new Units from our $1.5 Billion Unit Offering and mShares from our mShares Offering,shares of Preferred Stock, less those shares redeemed.


Our third quarter 20192020 Common Stock dividend declaration of $0.175 per share represented a decrease of $0.0875, or 33.3% from our first quarter 2020 dividend of $0.2625 per share, representedbut an overall increase of 110% fromover our initial Common Stock dividend per share of $0.125 following our IPO, or an average annual dividend growth rate of approximately 13.4%4.3% over the same period. Our board of directors reviews the proposed Common Stock dividend declarations quarterly, and there can be no assurance that the current dividend level will be maintained.


We believe that our short-term liquidity needs areare and will continue to be adequately funded.


For the three-month periodnine months ended September 30, 2019,2020, our aggregate dividends and distributions totaled approximately $41.5$135.1 million and our net cash flows fromprovided by operating activities were approximately $49.8$30.0 million. We expect our cash flow from operations over time to be sufficient to fund our quarterly Common Stock dividends, Class A Unit distributionsdistributions and our monthly Series A Redeemable Preferred Stock and mShares dividends.


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Long-Term Liquidity Needs


We believe our principal long-term liquidity needs are to fund:


•the principal amount of our long-term debt as it becomes due or matures;
•capital expenditures needed for our multifamily communities, student housing properties, grocery-anchored shopping centers and office properties;
•costs associated with current and future capital raising activities;
•costs to acquire additional multifamily communities, student housing properties, grocery-anchored shopping centers, office properties or other real estate and enter into new and fund existing lending opportunities; and
•our minimum distributions necessary to maintain our REIT status.


We intend to finance our future investments with the net proceeds from additional issuances of our securities, including our $1.5 Billion Unit Offering, our mShares Offering (both as defined below), our 2019 Preferred StockSeries A1/M1 Offering (as defined and described in note 5 to our Consolidated Financial Statements), Common Stock, and units of limited partnership interest in our Operating Partnership, and/or borrowings. The success of our acquisition strategy may depend, in part, on our ability to access further capital through issuances of additional securities. If we are unsuccessful in raising additional funds, we may not be able to obtain any assets in addition to those we have acquired.
    
On February 14, 2017, the SEC declared effectiveSeptember 27, 2019, our registration statement on Form S-3 (Registration No. 333-211924) for our offering for333-233576) (the “Series A1/M1 Registration Statement”) was declared effective by the Securities and Exchange Commission (the “SEC”). The Series A1/M1 Registration Statement allows us to offer up to 1,500,000 Units, with each Unit consistinga maximum of one share1,000,000 shares of Series AA1 Redeemable Preferred Stock, and one Warrant to purchase up to 20 sharesSeries M1 Redeemable Preferred Stock or a combination of Common Stock, referred to as our $1.5 Billion Unit Offering.both. The stated price per Unitshare is $1,000, subject to adjustment ifunder certain conditions. The shares are being offered by our affiliate, Preferred Capital Securities, LLC (“PCS”), on a participating broker-dealer reduces its commission. We"reasonable best efforts" basis and we intend to invest substantially all the net proceeds of the $1.5 Billion UnitSeries A1/M1 Offering in connection with the acquisition of multifamily communities, student housing communities, grocery-anchored shopping centers, office buildings, real estate loans and mortgages, other real estate-related investments and general working capital purposes.

Aggregate offering expenses of the $1.5 Billion Unit Offering, including selling commissions and dealer manager fees, and of the mShares Offering, including dealer manager fees, are each individually capped at 11.5% of the aggregate gross proceeds of the two offerings. We will reimburse our Manager up to 1.5% of the gross proceeds of such offerings for all organization and offering expenses that are incurred by our Manager. However, upon approval by the conflicts committee of the board of directors, we may reimburse our Manager for any such organization and offering expenses incurred above the 1.5% amount as permitted by the Financial Industry Regulatory Authority, or FINRA. Dealer manager fees for both offerings and sales commissions for the $1.5 Billion Unit Offering are not reimbursable.

On December 2, 2016, the SEC declared effective our registration statement on Form S-3 (Registration No. 333-214531), for our offering of up to 500,000 shares of Series M Redeemable Preferred Stock, or mShares, par value $0.01 per share, or the mShares Offering. The price per mShare is $1,000. We intend to invest substantially all the net proceeds of the mShares Offering in connection with the acquisition of multifamily communities, student housing communities, grocery-anchored shopping centers, office buildings and other real estate-related investments and general working capital purposes.        
    
At September 30, 2019,2020, the Company's active equity offerings consisted of:


•an offering of a maximum ofup to 1,000,000 sharesShares of Series A1 Redeemable Preferred Stock ("Series A1 Preferred Stock"), Series M1 Redeemable Preferred Stock ("Series M1 Preferred Stock,Stock"), or a combination of both under(collectively the Series"Series A1/M1 Registration Statement;

an offering of a maximum of 1,500,000 Units, with each Unit consisting of one share of Series A Redeemable Preferred Stock and one Warrant to purchase up to 20 shares of Common Stock (the "$1.5 Billion Unit Offering");


an offering of up to a maximum of 500,000 shares of Series M Redeemable Preferred Stock (“mShares”), par value $0.01 per share (the “mShares Offering”); and

•an offering of up to $400 million of equity or debt securities (the "2019 Shelf Offering"), including an offering of up to $125 million of Common Stock from time to time in an "at the market" offering (the "2019 ATM Offering").; and


•an offering of up to 1,000,000 Shares$100 million of Series A1 Redeemableequity securities for the Preferred Stock ("Series A1 Preferred Stock"), Series M1 Redeemable Preferred Stock ("Series M1 Preferred Stock"), orOffice Growth Fund, a combination of both (collectively the "Series A1/M1 Offering"consolidated entity (the “Preferred Office Growth Fund Offering”).


For the three monthsthree-month and nine monthsnine-month periods ended September 30, 2019, no2020, we issued 617,306 shares of our common stock were issued under our previously expired at-the-market offering of up to $150 million of common stock or our 2019 ATM Offering.Offering; the proceeds of $4.5 million were used primarily to fund redemptions of our preferred stock. Our $1.5 Billion Unit Offering expired on February 14, 2020.


Our ability to raise funds through the issuance of our securities is dependent on, among other things, general market conditions for REITs, market perceptions about us, and the current trading price of our Common Stock. We will continue to analyze which source of capital is most advantageous to us at any particular point in time, but the equity and credit markets may not consistently be available on terms that are attractive to us or at all.In addition, the impacts of the COVID-19 pandemic on capital markets, including the availability and costs of debt and equity capital, remain uncertain and may have material adverse effects on our access to capital on attractive terms.


The sources to fulfill our long-term liquidity in the future may include borrowings from a number of sources, including repurchase agreements, securitizations, resecuritizations, warehouse facilities and credit facilities (including term loans and revolving facilities), in addition to our Revolving Line of Credit. We have utilized, and we intend to continue to utilize, leverage

in making our investments in multifamily communities and retail shopping centers. The number of different multifamily communities, retail shopping centers and other investments we will acquire will be affected by numerous factors, including the amount of funds available to us. By operating on a leveraged basis, we will have more funds available for our
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investments. This will allow us to make more investments than would otherwise be possible, resulting in a larger and more diversified portfolio.


We intend to target leverage levels (secured and unsecured) between 50% and 65% of the fair market value of our tangible assets (including our real estate assets, real estate loans, notes receivable, accounts receivable and cash and cash equivalents) on a portfolio basis. As of September 30, 2019,2020, our outstanding debt (both secured and unsecured) was approximately 51%53.5% of the value of our tangible assets on a portfolio basis based on our estimates of fair market value at September 30, 2019.2020. Neither our charter nor our by-laws contain any limitation on the amount of leverage we may use. Our investment guidelines, which can be amended by our board without stockholder approval, limit our borrowings (secured and unsecured) to 75% of the cost of our tangible assets at the time of any new borrowing. These targets, however, will not apply to individual real estate assets or investments. The amount of leverage we will place on particular investments will depend on our Manager's assessment of a variety of factors which may include the anticipated liquidity and price volatility of the assets in our investment portfolio, the potential for losses and extension risk in the portfolio, the availability and cost of financing the asset, our opinion of the creditworthiness of our financing counterparties, the health of the U.S. economy and the health of the commercial real estate market in general. In addition, factors such as our outlook on interest rates, changes in the yield curve slope, the level and volatility of interest rates and their associated credit spreads, the underlying collateral of our assets and our outlook on credit spreads relative to our outlook on interest rate and economic performance could all impact our decision and strategy for financing the target assets. At the date of acquisition of each asset, we anticipate that the investment cost for such asset will be substantially similar to its fair market value. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits. Finally, we intend to acquire all our real estate assets through separate single purpose entities and we intend to finance each of these assets using debt financing techniques for that asset alone without any cross-collateralization to our other real estate assets or any guarantees by us or our Operating Partnership. We intend to have no long-term unsecured debt at the Company or Operating Partnership levels, except for our Revolving Line of Credit.
Our secured and unsecured aggregate borrowings are intended by us to be reasonable in relation to our tangible assets and will be reviewed by our board of directors at least quarterly. In determining whether our borrowings are reasonable in relation to our tangible assets, we expect that our board of directors will consider many factors, including without limitation the lending standards of government-sponsored enterprises, such as Fannie Mae and Freddie Mac, for loans in connection with the financing of multifamily properties, the leverage ratios of publicly traded and non-traded REITs with similar investment strategies, and general market conditions. There is no limitation on the amount that we may borrow for any single investment.


Our ability to incur additional debt is dependent on a number of factors, including our credit ratings (if any), the value of our assets, our degree of leverage and borrowing restrictions imposed by lenders. We will continue to monitor the debt markets, including Fannie Mae and/or Freddie Mac (from both of whom we have obtained single asset secured financing on all of our multifamily communities), and as market conditions permit, access borrowings that are advantageous to us.


If we are unable to obtain financing on favorable terms or at all, we may have to curtail our investment activities, including acquisitions and improvements to real properties, which could limit our growth prospects. This, in turn, could reduce cash available for distribution to our stockholders and may hinder our ability to raise capital by issuing more securities or borrowing more money. We may be forced to dispose of assets at inopportune times in order to maintain our REIT qualification and Investment Company Act exemption. Our ability to generate cash from asset sales is limited by market conditions and certain rules applicable to REITs. We may not be able to sell a property or properties as quickly as we would like or on terms as favorable as we would like.


Furthermore, if interest rates or other factors at the time of financing result in higher costs of financing, then the interest expense relating to that financed indebtedness would be higher. Higher interest rates on newly incurred debt may negatively impact us as well. If interest rates increase, our interest costs and overall costs of capital will increase, which could adversely affect our transaction and development activity, financial condition, results of operations, cash flow, our ability to pay principal and interest on our debt and our ability to pay distributions to our stockholders. Finally, sellers may be less inclined to offer to sell to us if they believe we may be unable to obtain financing.


As of September 30, 2019,2020, we had long term mortgage indebtedness ofof approximately $2.6$2.8 billion, all of which was incurred by us in connection with the acquisition or refinancing of our real estate properties.



As of September 30, 2019,2020, we had approximately $86.2$30.3 million in unrestricted cash and cash equivalents available to meet our short-term and long-term liquidity needs. We believe that our long-term liquidity needs are and will continuecontinue to be adequately funded through the sources discussed above.


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Off-Balance Sheet Arrangements

On November 5, 2020, the Company adjourned its Special Meeting of Stockholders to November 19, 2020 to provide stockholders with additional time to vote on Proposal 1 (Approval of the Articles of Amendment to the Company’s charter to give bylaw access to stockholders) and Proposal 2 (Approval of the Articles of Amendment to the Company’s charter to reduce the Company’s call period on its Series A Redeemable Preferred Stock from 10 years to 5 years). The required vote to approve each Proposal is two-thirds of the Company's outstanding shares entitled to vote. As of September 30, 2019, we had 1,454,906 outstanding Warrants from our sales of Units. The Warrants are exercisable by the holder at an exercise price of 120%November 9, 2020, approximately 65.4% of the current market price per share of the Common Stock on the date of issuance of such Warrant, with a minimum exercise price of $19.50 per share for Warrants issued after February 15, 2017. The current market price per share is determined using the closing market price of the Common Stock immediately preceding the issuance of the Warrant. The Warrants are not exercisable until one year following the date of issuance and expire four years following the date of issuance. As of September 30, 2019, a total of 526,199 WarrantsCompany’s outstanding shares had been exercised into 10,523,980voted on Proposal 1 and Proposal 2 and, of these shares, approximately 97.9% and 95.7% had been voted in favor of Common stock. The 1,454,906 Warrants outstanding at September 30, 2019 have exercise prices that range between $13.10Proposal 1 and $26.34 per share. If all the Warrants outstanding at September 30, 2019 became exercisable and were exercised, gross proceeds to us would be approximately $558.6 million and we would as a result issue an additional 29,098,120 shares of Common Stock.Proposal 2, respectively.


Contractual Obligations


As of September 30, 2019,2020, our contractual obligations consisted of the mortgage notes secured by our acquired properties and the Revolving Credit Facility. Based on a LIBOR rate of 2.02%0.15% at September 30, 2019,2020, our estimated future required payments on these instruments were:
(In thousands)TotalLess than one year1-3 years3-5 yearsMore than five years
Principal payments:
Mortgage debt$2,814,169 $106,922 $280,773 $531,271 $1,895,203 
Line of credit33,000 33,000 — — — 
Total principal$2,847,169 $139,922 $280,773 $531,271 $1,895,203 
Interest payments:
Mortgage debt837,570 107,107 196,677 182,397 351,389 
Line of credit32 32 — — — 
Total interest$837,602 $107,139 $196,677 $182,397 $351,389 
(In thousands) Total Less than one year 1-3 years 3-5 years More than five years
Mortgage debt obligations:        
Interest 831,264
 103,654
 190,854
 159,485
 377,271
Principal 2,604,479
 133,288
 336,580
 371,061
 1,763,550
Line of Credit:          
Interest 8
 8
 —
 —
 —
Principal 50,000
 50,000
 —
 —
 —
Total $3,485,751
 $286,950
 $527,434
 $530,546
 $2,140,821


In addition, we had unfunded real estate loan balances totaling approximately $74.7$63.0 million at September 30, 2019.2020.



Item 3.Quantitative and Qualitative Disclosures About Market Risk

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is interest rate risk. All our floating-rate debt is tied to the 30-day LIBOR. As of September 30, 2019,2020, we have variable rate mortgages on the properties listed in following table.
Balance
(in thousands)
Percentage of total mortgage indebtednessLIBOR CapAll-in Cap
Avenues at Creekside$38,251 5.00 %6.6 %
The Tradition30,000 3.25 %7.0 %
The Bloc28,966 3.25 %6.8 %
Summit Crossing II20,700 2.47 %5.3 %
Total capped floating-rate debt117,917 4.2 %
Champions Village27,400 
Fairfield Shopping Center19,750 
Total uncapped floating-rate debt47,150 1.7 %
Total floating-rate debt$165,067 5.9 %
 
Balance
(in thousands)
 Percentage of total mortgage indebtedness LIBOR Cap All-in Cap
Avenues at Creekside$39,077
   5.0% 6.6%
The Tradition30,000
   3.3% 7.0%
The Bloc28,966
   3.3% 6.8%
Total capped floating-rate debt98,043
 3.8%    
        
Ursa31,400
   n/a
 n/a
Haven 4941,550
   n/a
 n/a
Champions Village27,400
   n/a
 n/a
Fairfield Shopping Center19,750
      
Total uncapped floating-rate debt120,100
 4.6%    
        
Total floating-rate debt$218,143
 8.4%    


Our Revolving Line of Credit accrued interest at a spread of 3.0% over LIBOR as of September 30, 2019;2020; this combined rate is uncapped. Because of the short term nature of the Revolving Line of Credit and Acquisition Credit Facility instruments, we believe our interest rate risk is minimal. We have no business operations which subject us to trading risk and no recourse liability or market or interest rate exposure to the consolidated VIE liabilities of the mortgage-backed pools from the Freddie Mac K Program.



We have and will continue to manage interest rate risk as follows:


•maintain a reasonable ratio of fixed-rate, long-term debt to total debt so that floating-rate exposure is kept at an acceptable level;
•place interest rate caps on floating-rate debt where appropriate; and
78

•take advantage of favorable market conditions for long-term debt and/or equity financings.
We use various financial models and advisors to achieve our objectives.


If interest rates under our floating-rate LIBOR-basedLIBOR-based indebtedness fluctuated by 100 basis points, our interest costs, based on outstanding borrowings at September 30, 2019,2020, would increase by approximately $1.6$1.04 million or decrease by approximately $1.3$0.1 million on an annualized basis.


Item  4.Controls and Procedures

Item  4.Controls and Procedures

Evaluation of disclosure controls and procedures.

Management of the Company evaluated, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15(e)) as of September 30, 2019,2020, the end of the period covered by this report. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in internal control over financial reporting.


As required by the Exchange Act Rule 13a-15(d), the Company's Chief Executive Officer and Chief Financial Officer evaluated the Company's internal control over financial reporting to determine whether any change occurred during the quarter ended September 30, 20192020 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Based on that evaluation, there has been no such change during such period.
Item 1.Legal Proceedings



PART II

Item 1.Legal Proceedings

Neither we nor our subsidiaries nor, to our knowledge, our Former Manager is currently subject to any legal proceedings that we or our Former Manager consider to be material. To our knowledge, none of our communities are currently subject to any legal proceeding that we consider material.


Item 1A.Risk Factors


There have been no material changes to our potential risks and uncertainties presentedThe Company is supplementing the risk factors set forth under Item 1A. Risk Factors in the section entitled "Risk Factors" in ourits Annual Report on Form 10-K for the twelve monthsyear ended December 31, 2018 that was filed2019 ("2019 Annual Report") with the SECadditional risk factor set forth below. This supplemental risk factor should be read in conjunction with the risk factors set forth in the 2019 Annual Report.

The current outbreak of the novel coronavirus, (“COVID-19”), or the future outbreak or pandemic of any other highly infectious or contagious diseases, could have a material and adverse effect on or cause disruption to the Company’s business or financial condition, results of operations, cash flows and the market value and trading price of the Company’ securities.

A novel strain of coronavirus was reported to have surfaced in Wuhan, China in December 2019, and has since spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 1, 2019.13, 2020, the United States declared a national emergency. Since that time, efforts to contain the spread of COVID-19 have intensified. Several countries, including the United States, have taken steps to restrict travel, temporarily close or otherwise limit businesses and issue quarantine orders, and it remains unclear how long such measures will remain in place. As a result, the COVID-19 pandemic has negatively affected almost every industry directly or indirectly and the duration and severity of these affects is unknown at this time. The risk of diminished revenues and future closures at our properties exists as the virus remains active and continues to spread which could result in a resurgence in COVID-19 cases and reinstituted government mandated closures of non-essential businesses.

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Impact of COVID-19 on Our Operations

Our operating results depend, in large part, on revenues derived from leasing apartment homes in our communities to residential tenants, the ability of our residents to earn sufficient income to pay their rents in a timely manner, the extent to which we waive late and other customary fees associated with the apartment rental process, and our ability to limit bad debt and maintain operating results by evicting and re-leasing apartment homes when residents remain delinquent in their payment of rent. Additionally, a prolonged imposition of mandated closures or other social-distancing guidelines may adversely impact our retail and office tenants’ ability to generate sufficient revenues, and could force tenants to default on their leases, or result in the tenant’s bankruptcy or insolvency, which would diminish the Company’s ability to receive rental revenue it is owed under their leases. The rapid development and fluidity of the pandemic precludes any prediction as to the ultimate adverse impact on the Company. A number of the our office and retail tenants have announced mandated or temporary closures of their operations and/or have requested adjustments to their lease terms during this pandemic. The COVID-19 pandemic has caused, and is likely to continue to cause, a global economic slowdown and we cannot assure you conditions will not continue to deteriorate despite some locations attempting to reopen and recover from the pandemic. COVID-19 (or a future pandemic) could have a material and adverse effect on or cause disruption to our business or financial condition, results from operations, cash flows and the market value and trading price of our common stock due to, among other factors:

•A complete or partial closure of, or other operational issues at the Company’s properties as a result of government or tenant action;

•In the event of resident nonpayment, default or bankruptcy, the uncollectibility of rent could increase and we may not be able to re-lease apartment homes at current or projected rents. Our occupancy levels and pricing across our portfolio may decline due to changes in demand or logistical challenges in showing or leasing apartment homes to prospective residents, including restrictions inhibiting our employees’ ability to meet with existing or potential residents;

•Our properties may also incur significant costs or losses related to shelter-in-place orders, quarantines, infection, clean-up costs or other related factors;

•The declines in or instability of the economy or financial markets may result in a recession or negatively impact consumer discretionary spending, which could adversely affect retailers and consumers;

•The reduction of economic activity has impacted our office and retail tenants' business operations, financial condition, liquidity and access to capital resources that resulted in us agreeing to rent deferrals and/or lease modifications and caused tenant bankruptcies and may cause these and others tenants to be unable to meet their obligations to us in full, or at all, to default on their lease, or to otherwise seek modifications of such obligations;

•A general decline in business activity and demand for real estate transactions would adversely affect the Company’s ability to successfully execute investment strategies or expand its portfolio; and

•The potential negative impact on the health of the Company’s associates or Board of Directors, particularly if a significant number are impacted, or the impact of government actions or restrictions, including stay-at-home orders, restricting access to our headquarters located in Atlanta, Georgia, could result in a deterioration in our ability to ensure business continuity during a disruption.

The extent to which COVID-19 impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the actions taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others. COVID-19presents material uncertainty and risk with respect to our performance, business or financial condition, results from operations and cash flows.

Impact of COVID-19 on Liquidity and Financing

As a result of the current economic downturn, the real estate market may be unable to attract the same level of capital investment that it attracted before the COVID-19 pandemic, and there may be a reduction in the number of companies seeking to acquire properties, which may result in the value of our properties not appreciating, or decreasing significantly below the amount for which we acquired or developed them. This may also limit our ability to sell our properties, realize a cash return on
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our investment and reinvest the sales proceeds in new properties.  In light of the severe economic, market and other disruptions worldwide being caused by the COVID-19 pandemic, there can be no assurance that conditions in the bank lending, capital and other financial markets will not continue to deteriorate as a result of the pandemic, or that our access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings.

Additional financial impacts include the following:

•A significant reduction in our cash flows could impact the Company’s ability to continue paying cash dividends to its common and preferred stockholders at expected levels or at all;

•Increased redemption activity by holders of our preferred stock has impacted our cash availability and liquidity strength and, to the extent we made redemptions of our Preferred Stock in shares of our Common Stock, further diluted stockholder’s ownership interests and there is no way to be sure if this redemption activity will increase, stabilize or decline as the pandemic continues; and

•The financial impact of COVID-19 could negatively affect the Company’s future compliance with financial and other covenants of the Company’s credit facility and other debt instruments, and the failure to comply with such covenants could result in a default that accelerates the payment of such indebtedness

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

    None.

Item 3.    Defaults Upon Senior Securities

    None.

Item 4.    Mine Safety Disclosures

    Not applicable.

Item 5.Other Information

None.

Item  6.Exhibits

    See Exhibit Index.

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

None.

EXHIBIT INDEX
Item 3.
Exhibit Number
Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.


Item 5.Other Information

None.

Item  6.Exhibits

See Exhibit Index.


Description
EXHIBIT INDEX
Exhibit Number
10.1		+

Description
4.1
Articles Supplementary for the Series A1 Redeemable PreferredForm of Restricted Stock Unit Agreement (Officer) (incorporated by reference to Exhibit 4.310.1 to Form S-3 filed by the Company with the Securities and Exchange Commission on August 30, 2019).

4.2
Articles Supplementary for the Series A1 Redeemable Preferred Stock (incorporated by reference to Exhibit 4.4 to Form S-3 filed by the Company with the Securities and Exchange Commission on August 30, 2019).

4.3
Form of Subscription Agreement (incorporated by reference to Exhibit 4.5 to Form 8-K filed by the Company with the Securities and Exchange Commission on October 2, 2019)August 6, 2020).

31.110.2*+
10.3+
10.4+
10.5*
10.6*
10.7*
31.1*
Certification of Daniel M. DuPree,Joel T. Murphy, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of John A. Isakson, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101101.INS*Inline XBRL (eXtensible Business Reporting Language). The following materials from Preferred Apartment Communities, Inc.’s Quarterly Report on Form 10-Q forInstance Document - the period ended September 30, 2019, formattedinstance document does not appear in XBRL: (i) Consolidated balance sheets at September 30, 2019 and December 31, 2018, (ii) consolidated statements of operations for the three months and nine months ended September 30, 2019 and 2018, (iii) consolidated statements of stockholders' equity, (iv) consolidated statement of cash flows and (v) notes to consolidated financial statements.Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.
*Filed or Furnished herewith
+Management contract or compensatory plan, contract or arrangement




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SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PREFERRED APARTMENT COMMUNITIES, INC.
Date: November 4, 20199, 2020By:  /s/ Daniel M. DuPreeJoel T. Murphy
Daniel M. DuPreeJoel T. Murphy
Chief Executive Officer 
(Principal Executive Officer)
Date: November 4, 20199, 2020By:  /s/ John A. Isakson
John A. Isakson
Chief Financial Officer
(Principal Financial Officer)







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