	~~27-1712193~~
Maryland		27-1712193
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Name of each exchange on which registered

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 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 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 May ~~8, 2020~~4, 2021 was ~~47,585,239.~~

Preferred Apartment Communities, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

(In thousands, except per-share par values) March 31, 2020 December 31, 2019
Assets
Real estate
Land $ 665,585
$ 635,757
Building and improvements 3,329,579
3,256,223
Tenant improvements 172,136
167,275
Furniture, fixtures, and equipment 341,542
323,381
Construction in progress 16,131
11,893
Gross real estate 4,524,973
4,394,529
Less: accumulated depreciation (461,957 ) (421,551 )
Net real estate 4,063,016
3,972,978
Real estate loan investments, net of deferred fee income of $1,500 and $1,460 and allowance for expected
loan loss of $9,796 and $0 292,905
325,790
Real estate loan investments to related parties, net of deferred fee income of $0 and $16, allowance for expected
loan loss of $2,148 and $0 and allowance for doubtful accounts of $1,400 and $1,400 2,568
23,692
Total real estate and real estate loan investments, net 4,358,489
4,322,460

Cash and cash equivalents 120,128
94,381
Restricted cash 43,665
42,872
Notes receivable 7,321
17,079
Note receivable and revolving lines of credit due from related parties 9,011
24,838
Accrued interest receivable on real estate loans 20,186
25,755
Acquired intangible assets, net of amortization of $159,330 and $149,896 154,351
154,803
Deferred loan costs on Revolving Line of Credit, net of amortization of $1,017 and $849 1,118
1,286
Deferred offering costs 3,085
2,147
Tenant lease inducements, net of amortization of $4,007 and $3,567 19,168
19,607
Tenant receivables and other assets 90,877
65,332

Total assets $ 4,827,399
$ 4,770,560

Liabilities and equity
Liabilities
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $42,739 and $42,807 $ 2,606,251
$ 2,567,022
Revolving line of credit 191,500
—
Term note payable, net of deferred loan costs of $0 and $511 —
69,489
Unearned purchase option termination fees 2,019
2,859
Deferred revenue 38,782
39,722
Accounts payable and accrued expenses 43,797
42,191
Deferred liability to Former Manager 22,982
—
Contingent liability due to Former Manager 14,911
—
Accrued interest payable 8,707
8,152
Dividends and partnership distributions payable 24,415
23,519
Acquired below market lease intangibles, net of amortization of $26,144 and $23,655 60,481
62,611
Prepaid rent, security deposits, and other liabilities 35,405
20,879
Total liabilities 3,049,250
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; 2,075 and 2,028 shares outstanding at March 31, 2020 and December 31, 2019, respectively 21
20
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 37 and 5 shares
   issued and outstanding at March 31, 2020 and December 31, 2019, respectively —
—
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued;
  98 and 103 shares outstanding at March 31, 2020 and December 31, 2019, respectively 1
1
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 2 and zero shares
   issued and outstanding at March 31, 2020 and December 31, 2019, respectively —
—
Common Stock, $0.01 par value per share; 400,067 shares authorized; 47,129 and 46,443 shares issued and
outstanding at March 31, 2020 and December 31, 2019, respectively 476
464
Additional paid-in capital 1,969,534
1,938,057
Accumulated (deficit) earnings (191,040 ) (7,244 )
Total stockholders' equity 1,778,992
1,931,298
Non-controlling interest (843 ) 2,818
Total equity 1,778,149
1,934,116

Total liabilities and equity $ 4,827,399
$ 4,770,560

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

Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)

(In thousands, except per-share figures) Three months ended March 31,
2020 2019
Revenues:
Rental and other property revenues $ 111,866
$ 94,393
Interest income on loans and notes receivable 13,439
11,288
Interest income from related parties 2,537
5,802
Miscellaneous revenues 3,260
23
Total revenues 131,102
111,506

Operating expenses:
Property operating and maintenance 16,800
12,879
Property salary and benefits (including reimbursements of $1,430
and $4,079 to related party) 5,191
4,657
Property management fees (including $894 and $2,467 to related parties) 2,003
3,267
Real estate taxes and insurance 15,525
14,090
General and administrative 6,364
1,420
Equity compensation to directors and executives 230
311
Depreciation and amortization 49,509
45,289
Asset management and general and administrative expense fees to related party 3,099
7,829
Provision for expected credit losses 5,133
—
Management internalization expense 178,793
45
Total operating expenses 282,647
89,787

Waived asset management and general and administrative expense fees (1,136 ) (2,629 )

Net operating expenses 281,511
87,158

Operating (loss) income before gain on sale of trading investment (150,409 ) 24,348
Gain on sale of trading investment —
4
Operating (loss) income (150,409 ) 24,352
Interest expense 29,593
26,756
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools —
141
Loss on extinguishment of debt —
(17 )
Gain on land condemnation 479
—

Net loss (179,523 ) (2,280 )
Consolidated net loss (income) attributable to non-controlling interests 3,141
(492 )

Net loss attributable to the Company (176,382 ) (2,772 )

Dividends declared to preferred stockholders (33,068 ) (25,539 )
Earnings attributable to unvested restricted stock (2 ) (2 )

Net loss attributable to common stockholders $ (209,452 ) $ (28,313 )

Net loss per share of Common Stock available
to common stockholders, basic and diluted $ (4.44 ) $ (0.66 )

Weighted average number of shares of Common Stock outstanding,
basic and diluted 47,129
42,680

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

Cumulative adjustment to reflect the adoption

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

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

Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity, continued
For the three-month periods ended March 31, 2020 and 2019

(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, 2019 $ 16
$ 418
$ 1,607,712
$ —
$ 1,608,146
$ 1,239
$ 1,609,385
Issuance of Units 2
—
128,680
—
128,682
—
128,682
Issuance of mShares —
—
12,472
—
12,472
—
12,472
Redemptions of Series A Preferred Stock —
10
(2,015 ) —
(2,005 ) —
(2,005 )
Exercises of Warrants —
3
4,245
—
4,248
—
4,248
Syndication and offering costs —
—
(14,281 ) —
(14,281 ) —
(14,281 )
Equity compensation to executives and directors —
—
159
—
159
—
159
Conversion of Class A Units to Common Stock —
1
526
—
527
(527 ) —
Current period amortization of Class B Units —
—
—
—
—
152
152
Net income —
—
—
(2,772 ) (2,772 ) 492
(2,280 )
Reallocation adjustment to non-controlling interests —
—
818
—
818
(818 ) —
Distributions to non-controlling interests —
—
—
—
—
(229 ) (229 )
Dividends to Series A preferred stockholders
($5.00 per share per month) —
—
(27,418 ) 2,685
(24,733 ) —
(24,733 )
Dividends to mShares preferred stockholders
($4.79 - $6.25 per share per month) —
—
(893 ) 87
(806 ) —
(806 )
Dividends to common stockholders ($0.26 per share) —
—
(11,195 ) —
(11,195 ) —
(11,195 )
Balance at March 31, 2019 $ 18
$ 432
$ 1,698,810
$ —
$ 1,699,260
$ 309
$ 1,699,569

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

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2020~~2021

~~(unaudited)~~

~~Organization and Basis of Presentation~~

1.Organization and Basis of Presentation

Preferred Apartment Communities, Inc. (NYSE: APTS), or the Company, is a real estate investment trust engaged primarily in the ownership and operation of Class A multifamily properties, with select investments in grocery anchored shopping centers and Class A office ~~buildings, and student housing properties.~~buildings. Preferred Apartment Communities’ investment objective is to generate attractive, stable returns for stockholders by investing in income-producing properties and ~~acquiring~~acquiring or originating real estate ~~loans for multifamily properties.~~loans. As of March 31, ~~2020,~~2021, the Company owned or was invested in ~~123~~117 properties in 1513 states, predominantly in the Southeast region of the United States. 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 was 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 (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, 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~~ (see Note 6). We refer to this transaction as the Internalization.

As of March 31, ~~2020,~~2021, the Company had ~~47,578,631~~50,094,599 shares of common stock, par value $0.01 per share, or Common Stock, issued and outstanding and was the approximate ~~98.4%~~98.9% owner of ~~the~~ Preferred Apartment Communities Operating Partnership, L.P., or the ~~Company's operating partnership,~~Operating Partnership, at that date. The number of partnership units not owned by the Company totaled ~~774,687~~548,369 at March 31, ~~2020~~2021 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 controlled the Operating Partnership through its sole general partner interest and conducted 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 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~~owned and ~~conducts~~conducted the business of our portfolio of off-campus student housing ~~communities.~~communities until the sale of all our student housing communities on November 3, 2020. Each of these ~~entities~~entities are or were 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~~Partnership. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not contain all disclosures required by accounting principles generally accepted in the United States of America, or ~~GAAP. These condensed financial statements were derived from audited financial statements, but do 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~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. 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 months ended March 31, ~~2020~~2021 and ~~2019,~~2020 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 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~~Actual results could differ from those estimates. Amounts are presented in thousands where indicated.

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2020~~2021

~~(unaudited)~~

Reclassification Adjustments

The Company recorded certain reclassification adjustments on its Condensed Consolidated Statement of Operations for the three-month period ended March 31, ~~2019,~~2021 to conform prior period presentation to the current presentation ~~reflective of the internalized structure~~ as shown in the table below. ~~None of these reclassification adjustments were due~~The adjustment is made to ~~error or misstatement.~~

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

~~Impairment Assessment~~

The Company evaluates its tangible and identifiable intangible real estate assets for impairment when events such as declines in a property’s operating performance, deteriorating market conditions, or environmental or legal concerns bring recoverability of the carrying value of one or more assets into question. When qualitative factors indicate the possibility of impairment, the total 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 recorded in earnings equal to the shortage of the book value to fair value, calculated as the discounted net cash flows of the property.

~~Current expected credit losses on real estate loan investments~~

The Company carries its investments in real estate loans at amortized cost that 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 in 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 project 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 expressed as a percentage of the property'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 failure to adhere to the terms of the loan by the borrower/developer. Finally, the loss reserve may be further refinedpresent sublease income received by the Company ~~due to any subjective qualitative factors deemed pertinent and worthy~~for a portion of ~~reflection.~~

~~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 unsecured and so are assessed for expected future credit loss by individually assessing the expected profit from current development projects in progress, as well as the viability of the personal guarantees of the 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‑market in which the borrower operates are considered. Such 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.

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

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

~~Purchase Option Terminations~~

The Company will occasionally receive a purchase option on the underlying property in conjunction with extending a real estate loan investment to the developer of the property. The purchase option is often 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 housing properties~~

Rental revenue is recognized when earned from residents of the Company's multifamily communities, which is over the terms of the rental agreements, typically of nine to fifteen 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 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, paragraph 10-15-42A, to elect reporting the lease component and non-lease components as one single component within the rental and other property revenues line on the Consolidated Statements 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~~corporate 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 ten to twenty 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 five to fifteen 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. 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 and other property revenues~~

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

recognized in accordance with ASC 842. 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 lease termination income and other ancillary revenue (e.g. application fees, license fees, late fees and tenant billbacks). 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. Upon adoption of ASC 842, the Company began recording amounts not deemed probable of collectionspace as a ~~reduction of rental 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 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 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 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.~~

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

~~Lessee accounting~~

~~The Company has evaluated its leases for~~adjustment against rent expense, 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 three 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 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 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 leases are recorded within the Tenant Receivables and Other Assets and the Security Deposits and Other Liabilities line items of the balance sheet, respectively. Lease expense for ground leases and furniture and office equipment located at the Company's properties is included in the general and administrative expense line on the consolidated statements of ~~operations~~operations. Additionally, an adjustment has been made to present certain expenses such as franchise taxes and insurance claims within ~~property operations~~the real estate taxes and ~~maintenance and expense for office rent and furniture and office equipment~~insurance line on the consolidated statements of operations. These reclassification adjustments had no effect on previously-reported net loss attributable to common stockholders.


	For the three-month period ended March 31, 2020
(in thousands)	As reported in Quarterly Report on Form 10-Q at March 31, 2020		Reclassification adjustments		As reported in Quarterly Report on Form 10-Q at March 31, 2021

Revenues:
Miscellaneous revenues	$	3,260	$	(220)	$	3,040

Operating expenses:
Property operating and maintenance	$	16,800	$	46	$	16,846
Real estate taxes and insurance	$	15,525	$	150	$	15,675
General and administrative	$	6,364	$	(416)	$	5,948

2.Summary of Significant Accounting Policies

The Company's significant accounting policies have not changed materially from those described in ~~the Company's corporate headquarters are included in general and administrative expense. See note 12 for more disclosures related to the Company's right~~its Annual Report on Form 10-K as of ~~use assets and lease liabilities.~~December 31, 2020.

~~New Accounting Pronouncements~~

Implementation of the new guidance on accounting for financial assets was limited to our real estate loan 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 other related receivables. The excess represents the amount of equity dollars in each real estate project, which are in a subordinate position to our real estate loan investments. We implemented this new guidance using the modified retrospective basis by recording a cumulative effect adjustment to retained earnings on January 1, 2020 of approximately $7.4 million.

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting

~~3. Real Estate Assets~~

~~The Company's real estate assets consisted of:~~

As of:
March 31, 2020 December 31, 2019
Multifamily communities:
Properties⁽¹⁾
35
^{(1, 2)}
34
Units 10,637
10,245
New Market Properties:
Properties
54
⁽²⁾
52
Gross leasable area (square feet)⁽³⁾
6,208,278
6,041,629
Student housing properties:
Properties 8
⁽²⁾
8
Units 2,011
2,011
Beds 6,095
6,095
Preferred Office Properties:
Properties 9
^{(2, 4)}
10
Rentable square feet 3,169,000
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.
⁽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.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements ~~- (continued)~~(Unaudited)

March 31, ~~2020~~2021

3. Real Estate Assets

The Company's real estate assets consisted of:

Gross leasable area (square feet) (3)

Preferred Office Properties: (4)

(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 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) Seven of our office properties and the real estate loan investment supporting the 8West office building are under contract to be sold to Highwoods Properties, an unrelated party, pursuant to purchase and sale agreements as of April 16, 2021.

Impacts of COVID-19 Pandemic

The COVID-19 pandemic ~~emerged in December 2019 and has since~~that spread ~~globally, including to every state in~~throughout the ~~United States. On March 13,~~country during 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 toimpacted earnings for commercial real estate ~~which in turn is expected to affect asset valuations~~ to some ~~degree.~~degree but has not had a profound widespread negative effect on the valuations of real estate assets. The Company does not consider this event to be a triggering event for purposes of impairment, since overall occupancy rates for the Company’s real estate assets have not materially declined and the Company has continued to collect substantially all rent due. Thus, there is no evidence of declining valuations ~~of any consequence have emerged to cause~~or a triggering ~~event, as evidenced by step one analyses performed on a sample of its~~event.

Residential properties ~~from each segment.~~ acquired

The Company ~~found a significant amount of cushion between the asset’s book value and the undiscounted cash flows for the properties evaluated.~~

~~The Company's monthly rent collections for~~acquired no multifamily communities during the three-month period ended March 31, 2020 have been approximately level across the Company's segments, with a minor dip in collections in March for in-line retail tenants, as such tenants are generally smaller operations that are likely have less access to adequate sources of liquidity to weather economic downturns than grocery anchor tenants and many office tenants. The closure of several in-line tenant businesses and monthly rent collections are beginning to fall. Within our multifamily communities, despite the fact that collections of rents had not yet begun to decline as of March 2020, the Company offered rent deferral plans for the months of April and May 2020. Any deferred rents would be due over the remaining lease term of the individual tenants. Any uncollected deferred rent amounts will be deemed uncollectible. For office 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 tenant 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.

~~Multifamily communities acquired~~

~~During the three-month period ended~~2021. On March 31, 2020, the Company completed the acquisition of ~~Altis~~Horizon at Wiregrass, ~~Ranch,~~ a 392-unit multifamily community located in Tampa, Florida.

The aggregate purchase price ~~of the multifamily acquisition~~ was approximately $84.0 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 three-month period ended March 31, 2019.~~

1510

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

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 three-month period ended
(In thousands, except amortization period data) March 31, 2020

Land $ 6,842
Buildings and improvements 57,186
Furniture, fixtures and equipment 15,522
Lease intangibles 4,595
Prepaids & other assets 24
Accrued taxes (273 )
Security deposits, prepaid rents, and other liabilities (318 )

Net assets acquired $ 83,578

Cash paid $ 83,578
Mortgage debt, net —

Total consideration $ 83,578

Three-months ended March 31, 2020
Revenue $ —
Net income (loss) $ (240 )

Capitalized acquisition costs incurred by the Company $ 171
Acquisition costs paid to related party (included above) $ —
Remaining amortization period of intangible
assets and liabilities (months) 17.5

~~Student housing properties acquired~~

~~The Company had no acquisitions of student housing property assets during the three-month period ended March 31, 2020.~~

~~During the three-month period ended March 31, 2019, the Company completed the acquisition of Haven49, a 322-unit, 887-bed~~

~~student housing property adjacent to the University 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.~~

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements ~~- (continued)~~(Unaudited)

March 31, ~~2020~~2021

The Company allocated the asset'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 three-month period ended
(In thousands, except amortization period data) March 31, 2019

Land $ 7,289
Buildings and improvements 68,163
Furniture, fixtures and equipment 16,966
Lease intangibles 983
Accrued taxes (158 )
Security deposits, prepaid rents, and other liabilities (2,579 )

Net assets acquired $ 90,664

Satisfaction of loan receivables $ 46,397
Cash paid 2,717
Mortgage debt, net 41,550

Total consideration $ 90,664

Three-months ended March 31, 2019
Revenue $ 1,991
Net income (loss) $ 94

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) —

~~Student housing properties~~

On March 20, 2020, we delivered a written termination notice to the prospective purchaser of six of our student housing properties for their failure to consummate the purchase. Accordingly, we received an additional $2.75 million of forfeited earnest money as liquidated damages.

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

New Market Properties assets acquired

The Company acquired no grocery-anchored shopping centers during the three-month period ended March 31, 2021. During the three-month ~~periods~~period ended March 31, 2020, ~~and 2019,~~ the Company completed the acquisition of the following grocery-anchored shopping centers:

Acquisition date

Property

Location

Gross leasable area (square feet)

~~3/19/2020~~

~~Midway Market~~

~~Dallas, Texas~~

~~85,599~~

1/29/2020

Wakefield Crossing

Raleigh, North Carolina

75,927

3/19/2020

Midway Market

Dallas, Texas

85,599

~~161,526~~

161,526

~~1/17/2019~~

~~Gayton Crossing~~

~~Richmond, Virginia~~

~~158,316~~

The aggregate purchase price of ~~the~~the New Market Properties acquisitions for the three-month ~~periods~~period ended March 31, 2020 ~~and 2019~~ was approximately $27.7 million, ~~and $29.0 million respectively,~~ exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

The Company allocated the purchase prices to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocation was based upon the Company's best estimates of the fair values of the acquired assets and liabilities.

New Market Properties' acquisitions during the three-month periods ended March 31,
(In thousands, except amortization period data) 2020 2019

Land $ 9,328
$ 9,109
Buildings and improvements 12,264
17,093
Tenant improvements 2,099
698
In-place leases 3,043
2,609
Above market leases 107
754
Leasing costs 1,237
769
Below market leases (359 ) (1,515 )
Prepaid taxes and other assets 61
34
Security deposits, prepaid rents, and other (249 ) (146 )

Net assets acquired $ 27,531
$ 29,405

Cash paid $ 19,640
$ 11,405
Mortgage debt 7,891
18,000

Total consideration $ 27,531
$ 29,405

Three-month period ended March 31, 2020:
Revenue $ 408
$ 691
Net income (loss) $ 45
$ (90 )

Three-month period ended March 31, 2019:
Revenue $ —
$ 595
Net income (loss) $ —
$ (141 )

Capitalized acquisition costs incurred by the Company $ 470
$ 569
Capitalized acquisition costs paid to related party (included above) $ 249
$ 300
Remaining amortization period of intangible
assets and liabilities (years) 10.4
7.8

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

The Company recorded aggregate amortization and depreciation expense of:


(In thousands)	Three-month periods ended March 31,
	2021		2020
Depreciation:
Buildings and improvements	$	26,695	$	28,007
Furniture, fixtures, and equipment	10,528		12,388
	37,223		40,395
Amortization:
Acquired intangible assets	8,092		8,650
Deferred leasing costs	469		415
Website development costs	43		49
Total depreciation and amortization	$	45,827	$	49,509

Three-month periods ended March 31,
(In thousands) 2020 2019
Depreciation:
Buildings and improvements $ 28,007
$ 22,987
Furniture, fixtures, and equipment 12,388
13,133
40,395
36,120
Amortization:
Acquired intangible assets 8,650
8,945
Deferred leasing costs 415
178
Website development costs 49
46
Total depreciation and amortization $ 49,509
$ 45,289

At March 31, ~~2020,~~2021, the Company had recorded acquired gross intangible assets of ~~$313.7~~$296.9 million, accumulated amortization of ~~$159.3~~$178.5 million, gross intangible liabilities of ~~$86.6~~$85.9 million and accumulated amortization of ~~$26.1~~$36.1 million. Net intangible assets and liabilities as of March 31, ~~2020~~2021 will be amortized over the weighted average remaining amortization periods of approximately ~~7.2~~7.0 and ~~9.1~~8.6 years, respectively.

At March 31, ~~2020,~~2021, the Company ~~had~~held restricted cash ofthat totaled approximately ~~$20.7~~$45.1 million. Of this total, $14.3 million ~~that~~ was contractually restricted to fund capital expenditures and other property-level commitments such as tenant improvements and leasing commissions. Another $25.4 million was for lender-required escrows for real estate taxes, insurance premiums and COVID-19 reserves. The remainder of the Company's restricted cash consisted primarily of resident and tenant security deposits.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

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. For the three-month period ended March 31, 2019, the Company recorded approximately $3.1 million of interest revenue related to these purchase option terminations.

Effective January 1, 2019, the Company terminated its purchase options on the Sanibel 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, in exchange for termination fees aggregating approximately $9.1 million from the developers. 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. The Company recorded approximately ~~$1.5~~$1.2 million and ~~$1.2~~$4.0 million of interest revenue ~~related to~~from the amortization of these purchase option terminations for the three-month periods ended March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~Effective~~Remaining unamortized termination fee revenue of approximately $473,000 at March 6,31, 2021 will be recognized by December 31, 2021.

Joint Venture Investment

On July 15, 2020, the Company ~~terminated~~contributed its ~~purchase option~~Neapolitan Way grocery-anchored shopping center that was previously wholly-owned and consolidated into a joint venture in exchange for approximately $19.2 million and 50% interest in the joint venture. In doing so, the Company realized a gain on the ~~Falls at Forsyth multifamily community~~transaction of approximately $3.3 million and now holds its 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 ~~$2.5 million.~~the Neapolitan Way shopping center subsequent to its contribution into the joint venture as of and for the periods presented:


(in thousands)	March 31, 2021		December 31, 2020
Total assets	$	38,457	$	39,109
Total liabilities	$	25,530	$	25,795


	Three months ended March 31, 2021
Rental and other property revenues	$	815
Total operating expenses	$	973
Interest expense	$	230
Net income (loss)	$	(388)
Net income (loss) attributable to the Company	$	(194)

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

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

Our portfolio of fixed rate, interest-only real estate loans consisted of:


	March 31, 2021			December 31, 2020
Number of loans	20			20
Number of underlying properties in development	15			14
(In thousands)
Drawn amount	$	291,888		$	290,156
Deferred loan origination fees	(1,766)			(1,194)
Allowance for expected credit losses	(9,184)			(9,067)
Carrying value	$	280,938		$	279,895

Unfunded loan commitments	$	49,281		$	44,403
Weighted average current interest, per annum (paid monthly)	8.62		%	8.50		%
Weighted average accrued interest, per annum	3.73		%	3.91		%

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

March 31, 2020 December 31, 2019
Number of loans 24
27
Number of underlying properties in development 17
19
(In thousands)
Drawn amount $ 310,317
$ 352,582
Deferred loan origination fees (1,500 ) (1,476 )
Allowance for loan losses (13,344 ) (1,400 )
Carrying value $ 295,473
$ 349,706

Unfunded loan commitments $ 62,866
$ 61,718
Weighted average current interest, per annum (paid monthly) 8.47 % 8.48 %
Weighted average accrued interest, per annum 3.54 % 3.85 %


(In thousands)	Principal balance		Deferred loan origination fees		Allowances and CECL Reserves		Carrying value
Balances as of December 31, 2020	$	290,156	$	(1,194)	$	(9,067)	$	279,895
Loan fundings	19,657		—		—		19,657
Loan repayments	(17,925)		0		—		(17,925)
Loan origination fees collected	—		(817)		—		(817)
Amortization of loan origination fees	—		245		—		245
Reserve increases due to loan originations	—		—		(283)		(283)
Net decreases in reserves on existing or loans repaid	—		—		166		166

Balances as of March 31, 2021	$	291,888	$	(1,766)	$	(9,184)	$	280,938


Property type	Number of loans	Carrying value		Commitment amount		Percentage of portfolio
(In thousands)

Residential properties	19	$	269,049	$	321,975	96	%

Preferred Office Properties	1	11,889		19,193		4	%
Balances as of March 31, 2021	20	$	280,938	$	341,168

(In thousands) Principal balance Deferred loan origination fees Loan loss allowance Credit Losses Reserve (CECL) Carrying value
Balances as of December 31, 2019 $ 352,582
$ (1,476 ) $ (1,400 ) $ —
$ 349,706
Opening CECL reserve —
—
—
(7,414 ) (7,414 )
Loan fundings 11,631
—
—
—
11,631
Loan repayments (53,896 ) —
—
—
(53,896 )
Loan origination fees collected —
(267 ) —
—
(267 )
Amortization of loan origination fees —
243

—
243
Reductions in reserves due to loan repayments —
—
—
245
245
Provision for credit losses —
—
—
(4,775 ) (4,775 )
Balances as of March 31, 2020 $ 310,317
$ (1,500 ) $ (1,400 ) $ (11,944 ) $ 295,473

Property type Number of loans Carrying value Commitment amount Percentage of portfolio
(In thousands)
Residential properties 23
$ 289,616
$ 353,989
98 %
New Market Properties —
—
—
— %
Preferred Office Properties 1
5,857
19,193
2 %
Balances as of March 31, 2020 24
$ 295,473
$ 373,182

On ~~February 28, 2020, the Company~~March 1, 2021, we closed on a real estate loan investment of up to approximately ~~$13.4~~$16.8 million ~~in partial support~~to partially finance the development and construction of a ~~256-unit~~ 320-unit multifamily community to be located in ~~Charlotte, North Carolina.~~Orlando, Florida. The loan pays a current monthly interest rate of 8.5% per annum and accrues additional deferred interest of ~~5.5%~~4.5% per annum and matures on ~~February 28, 2025.~~September 1, 2024.

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.


	For the three-month periods ended March 31,
(In thousands)	2021		2020
Allowances recorded for interest receivable:
Haven Campus Communities, LLC line of credit	$	405	$	410
Starkville real estate loan	0		193
Net increases in current expected loss reserves on existing loans	117		4,530

Total allowance for expected credit losses	$	522	$	5,133

The Company incurred an aggregate net increase in its allowance for expected credit losses of approximately $0.5 million and $5.1 million for the three-month periods ended March 31, 2021 and 2020, respectively. In the three-month period ended March 31, 2020, $4.5 million of the aggregate increase in the Company’s allowance for expected credit losses was due to the onset of the COVID-19 pandemic and the Company updating its estimates to the valuations of the underlying developments. The Company does not anticipate such a large increase in future periods. In the three month period ended March 31, 2021, changes in estimates to the valuations of the underlying developments were countered by additional reserves for loan originations and other projects achieving construction and leasing milestones.

2013

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements ~~- (continued)~~(Unaudited)

March 31, ~~2020~~2021

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 March 31, 2020, the Company recorded an aggregate net increase in its provision for expected credit losses of approximately $4.5 million.

~~As described in note 2, the~~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 (including unpaid interest) by final reserve ratio as of March 31, ~~2020:~~2021:


Final reserve ratio		Number of loans	Total receivables by project, net of reserves (in thousands)
—	%	4	$	31,402
0.50	%	4	19,474
1.00	%	4	61,929
1.50	%	4	32,085
3.00	%	1	9,594
4.00	%	3	154,521
5.00% +		0	0

		20	$	309,005

Final reserve ratio Number of loans Total amount due (in thousands)
0.50 % 3
$ 56,904
1.00 % 1
6,370
1.50 % 9
109,735
3.00 % 2
28,992
4.00 % 1
125,778
36.26 % 1
5,924

17
$ 333,703

The Company continues to monitor the extent of any impact the COVID-19 pandemic has ~~and will continue to have, impacts upon the~~on 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 carries a 4% final reserve ratio at March 31, 2020. The project is experiencing a temporary construction delay due to effects of the COVID-19 pandemic but is expected to resume shortly. 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 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. Additionally, in the first quarter of 2020, the Company also recorded a total of $2.1 million in reserves pertaining to this loan under ASU 2016-03, reducing its carrying amount to $3.8 million as of March 31, 2020.

2114

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements ~~- (continued)~~(Unaudited)

March 31, ~~2020~~2021

~~At March 31, 2020, the~~The Company's portfolio of notes and lines of credit receivable consisted of:


Borrower	Date of loan	Maturity date	Total loan commitments		Outstanding balance as of:				Interest rate
					March 31, 2021		December 31, 2020
(In thousands)
Haven Campus Communities, LLC (1,2)	6/11/2014	12/31/2018	$	11,660	$	9,011	$	9,011	8	%
Newport Development Partners, LLC	6/17/2014	6/30/2021	1,000		0		0		12	%
Oxford Capital Partners, LLC (3,5)	10/5/2015	3/15/2022	1,250		1,134		1,256		10	%
Oxford Capital Partners II, LLC (3,5)	3/30/2021	3/15/2022	5,300		0		0		10	%
Mulberry Development Group, LLC (4)	3/31/2016	6/30/2021	750		650		607		12	%
Unamortized loan fees					0		0

			$	19,960	$	10,795	$	10,874

(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.
(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.
(5) The commitment was reduced from $8 million to $1.25 million for the Oxford Capital Partners LOC I on March 30, 2021. A second Oxford line of credit was opened on March 30, 2021 with a commitment of $5.3 million.

Borrower Date of loan Maturity date Total loan commitments Outstanding balance as of: Interest rate
March 31, 2020 December 31, 2019
(In thousands)
Preferred Capital Marketing Services, LLC ^(1,7)
N/A N/A $ —
$ —
$ 650
N/A

Preferred Apartment Advisors, LLC ^(1,2,8)
N/A N/A —
—
15,178
N/A

Haven Campus Communities, LLC ^(1,3)
6/11/2014 12/31/2018 11,660
9,011
9,011
8 %
Oxford Capital Partners, LLC ^(4,5)
10/5/2015 6/30/2020 8,000
5,577
5,438
10 %
Mulberry Development Group, LLC ⁽⁵⁾
3/31/2016 6/30/2020 750
525
525
12 %
360 Capital Company, LLC ^(5,6)
5/24/2016 12/31/2020 3,400
1,218
3,394
12 %
360 Capital Company, LLC ⁽⁹⁾
N/A N/A —
—
7,754
N/A

Unamortized loan fees —
(33 )

$ 23,810
$ 16,331
$ 41,917

⁽¹⁾See related party disclosure in Note 6.
⁽²⁾ The amounts payable under this revolving credit line were collateralized by an assignment of the Former Manager's rights to fees due under the Sixth Amended and Restated Management Agreement between the Company and the Former Manager, or the Management Agreement.
⁽³⁾ 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.
⁽⁴⁾ 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.
⁽⁵⁾ 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.
⁽⁶⁾ 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.
⁽⁷⁾ The line of credit extended to Preferred Capital Marketing Services, with a total commitment of $1.5 million, was eliminated as part of the Internalization transaction discussed in note 6.
⁽⁸⁾ The line of credit extended to PAA, with a total commitment of $24 million, was eliminated as part of the Internalization transaction discussed in note 6.
⁽⁹⁾ The line of credit extended to 360 Capital Company, with a total commitment of $8 million, was paid off during the first quarter.

On ~~November~~November 20, 2018, the borrower on the Haven Campus Communities, LLC line of credit defaulted on ~~the~~the loan, triggering the accrual of an additional 10% default interest rate, which is incremental to the original 8% current interest rate. The amount of default interest recorded from the default date through March 31, ~~2020~~2021 was approximately ~~$1.3~~$2.3 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 mezzanine loan and the Haven49 member loan. Additionally, under the same agreement, the Company received payouts and credits totaling approximately $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. 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.

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

The Company recorded interest income and other revenue from these instruments as follows:


Interest income	Three month periods ended March 31,
(In thousands)	2021		2020
Real estate loans:
Current interest	$	6,167	$	7,357
Additional accrued interest	2,822		3,295
Loan origination fee amortization	244		277
Purchase option termination fee amortization	1,229		4,040
Default interest	0		62

Total real estate loan revenue	10,462		15,031
Notes and lines of credit	455		912
Bank and money market accounts	0		33


Interest income on loans and notes receivable	$	10,917	$	15,976

Interest income Three month periods ended March 31,
(In thousands) 2020 2019
Real estate loans:
Current interest $ 7,357
$ 7,469
Additional accrued interest 3,295
3,385
Loan origination fee amortization 277
315
Purchase option termination fee amortization 4,040
4,233
Default interest 62
—

Total real estate loan revenue 15,031
15,402
Notes and lines of credit 912
1,490
Bank and money market accounts 33
—
Agency mortgage-backed securities —
198

Interest income on loans and notes receivable $ 15,976
$ 17,090

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

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 March 31, ~~2020~~2021 of approximately ~~$310.3~~$291.9 million. The maximum aggregate amount of loans to be funded as of March 31, ~~2020~~2021 was approximately ~~$373.2~~$341.2 million, which includes approximately ~~$62.9~~$49.3 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 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 subject to a geographic concentration of risk that could be considered significant with regard to the ~~Newbergh, Newbergh Capital,~~8West, Kennesaw Crossing and Solis ~~Kennesaw II, 8West and Kennesaw Crossing~~Cumming Town Center real estate loan investments, as well as the Club Drive land loan investment, all of which are partially supporting various real estate projects in or near Atlanta, Georgia. The drawn amount, inaddition to outstanding accrued interest, for these loans as of March 31, ~~2020~~2021 totaled approximately ~~$49.8~~$43.4 million (with a total commitment amount of approximately ~~$65.5~~$62.4 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 and The Hudson real estate loan investments, all of which are partially supporting various real estate projects in Florida. The drawn amount, inaddition to outstanding accrued interest, for these loans as of March 31, ~~2020~~2021 totaled approximately ~~$57.2~~$31.3 million (with a total commitment amount of approximately ~~$61.2~~$45.7 million). 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 and all outstanding accrued interest.

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

~~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. On December 10, 2019, the Company sold its investment in Series 2018-ML04 for $6.2 million.

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 paid monthly interest of approximately $103,000. The purchase price of the subordinate tranche was approximately $18.4 million. On December 17, 2019, the Company sold its investment in Series 2019-ML05 for $20.4 million.

5. Redeemable Preferred Stock and Equity Offerings

On February 14, 2020, the Company's 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.

The Series A Redeemable Preferred Stock, Series A1 Preferred Stock, mShares, and Series M1 Preferred Stock are collectively defined as (“Preferred Stock”).

At March 31, ~~2020,~~2021, the Company's active equity offerings consisted of:

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

•an offering of up to 1,000,000 Shares of Series A1 Redeemable Preferred Stock ("Series A1 Preferred Stock"), Series M1 Redeemable Preferred Stock ("Series M1 Preferred Stock"), or a combination of both (collectively the "Series A1/M1 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"). under our $400 million shelf registration statement (the "2019 Shelf Registration Statement") on Form S-3 that was filed with the SEC on March 21, 2019.

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 shares of Preferred Stock anticipated to be issued. Any ~~offering~~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.

Cumulative gross proceeds and offering costs for our active equity offerings consisted of:


(In thousands)					Deferred Offering Costs
Offering	Total offering		Gross proceeds as of March 31, 2021		Reclassified as reductions of stockholders' equity		Recorded as deferred assets		Total		Specifically identifiable offering costs (1)		Total offering costs

Series A1/M1 Offering	$	1,000,000	$	206,124	$	1,403	$	4,042	$	5,445	$	19,627	$	25,072
2019 ATM Offering	125,000		4,614		27		1,088		1,115		92		1,207


Total	$	1,125,000	$	210,738	$	1,430	$	5,130	$	6,560	$	19,719	$	26,279

(In thousands) Deferred Offering Costs
Offering Total offering Gross proceeds as of March 31, 2020 Reclassified as reductions of stockholders' equity Recorded as deferred assets Total
Specifically identifiable offering costs ⁽¹⁾
Total offering costs
$1.5 Billion Unit Offering ⁽²⁾
1,500,000
1,236,414
15,099
—
15,099
115,645
130,744
Series A1/M1 Offering 1,000,000
38,805
74
1,839
1,913
3,854
5,767
2019 Shelf Offering 400,000
—
—
858
858
—
858

Total $ 2,900,000
$ 1,275,219
$ 15,173
$ 2,697
$ 17,870
$ 119,499
$ 137,369

⁽¹⁾These offering costs specifically identifiable to preferred stock or ATM 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 $1.5 Billion Unit Offering expired on February 14, 2020.~~

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

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.

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 Series M1 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 capped at 12.0% of aggregate gross proceeds of the offering. The Company could have reimbursed its Former Manager up to 2.0% of the gross proceeds of such offerings for all organization and offering expenses that were incurred by the Former Manager through the date of the Internalization. However, upon approval by the conflicts committee of the board of directors, the Company could have reimbursed its Former 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 PCS 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 January 31, 2020, the Company internalized the functions performed by the Former Manager and ~~New Market Advisors, LLC ("Sub-Manager")~~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

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

Amount"). The Specified Matters Holdback Amount is payable to the NELL sellers less certain losses following final resolution of any such specified matters.

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

Daniel M. DuPree and Leonard A. Silverstein were executive directors of NELL Partners, Inc., which controlled the Former 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, 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 ~~NMA.~~the Sub-Manager.

The Company's ~~Haven 12 real estate loan investment and~~ Haven Campus Communities LLC line of credit ~~are both~~is supported in part by a guaranty of repayment and performance by John A. Williams, Jr., the son of the late John A. 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's Wiregrass and Wiregrass Capital real estate loan investments partially financed 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.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

The Management Agreement entitled the Former Manager to receive compensation for various services it performed related to acquiring assets and managing properties on the Company's behalf:


(In thousands)		Three-month periods ended March 31,
Type of Compensation	Basis of Compensation	2021		2020

Acquisition fees	1.0% of the gross purchase price of real estate assets	$	0	$	235
Loan origination fees	1.0% of the maximum commitment of any real estate loan, note or line of credit receivable	0		0
Loan coordination fees	0.6% of any assumed, new or supplemental debt incurred in connection with an acquired property	0		47
Asset management fees	Monthly fee equal to one-twelfth of 0.50% of the total book value of assets, as adjusted	0		1,349
Property management fees	Monthly fee up to 4% of the monthly gross revenues of the properties managed	0		890
General and administrative expense fees	Monthly fee equal to 2% of the monthly gross revenues of the Company	0		616
Construction management fees	Quarterly fee for property renovation and takeover projects	0		14
Disposition fees	1% of the sale price of a real estate asset	0		0

		$	0	$	3,151

(In thousands) Three-month periods ended March 31,
Type of Compensation Basis of Compensation 2020 2019

Acquisition fees 1.0% of the gross purchase price of real estate assets $ 235
$ 1,400
Loan origination fees 1.0% of the maximum commitment of any real estate loan, note or line of credit receivable —
401
Loan coordination fees 0.6% of any assumed, new or supplemental debt incurred in connection with an acquired property 47
344
Asset management fees Monthly fee equal to one-twelfth of 0.50% of the total book value of assets, as adjusted 1,349
3,725
Property management fees Monthly fee up to 4% of the monthly gross revenues of the properties managed 890
2,457
General and administrative expense fees Monthly fee equal to 2% of the monthly gross revenues of the Company 616
1,486
Construction management fees Quarterly fee for property renovation and takeover projects 14
57
Disposition fees 1% of the sale price of a real estate asset —
—
Contingent asset management fees / general and administrative fees Recognized upon disposition of the property when exceeding the 7% IRR hurdle —
—

$ 3,151
$ 9,870

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

The Former Manager waived some of the asset management, property management, or general and administrative fees for properties owned by the Company. A cumulative total of ~~approximately~~approximately $25.6 million of combined asset management and general and administrative fees related to acquired properties had been waived by the Former Manager; at the date of Internalization, all of the remaining contingent fees of $24.1 million were eliminated in ~~conjunction~~conjunction with the 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 March 31,
(In thousands)	2021		2020
	$	0	$	1,430

(In thousands)
Three-month periods ended March 31,
2020 2019
$ 1,430
$ 4,079

The Former Manager utilized 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 $128,801~~ for the three-month ~~periods~~period ended March 31, ~~2020 and 2019, respectively and Preferred Capital Securities, LLC, or PCS, was reimbursed $0 and $337,344 for the three-month periods ended March 31, 2020 and 2019, respectively.~~2020. These costs ~~are~~were recorded as deferred offering costs until such time as additional closings occur on the Series A1/M1 Preferred Stock Offering or the 2019 Shelf Offering, at 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 ~~will continue~~continued through

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

April 2020. For the three-month period ended March 31, 2020, the Company paid an additional $2.3 million for these services, which were recorded as deferred offering costs.

Prior to the Internalization, the Company held a promissory note in the amount of approximately $650,000 due from Preferred Capital Marketing Services, LLC, or PCMS, which iswas a wholly-owned subsidiary of NELL Partners, and a revolving line of credit with a maximum borrowing amount of $24.0 million to its Manager. Both of these instruments were extinguished in connection with the Internalization transaction.

OfOn November 20, 2018, the ~~Company’s $20.2 million accrued interest receivable on real estate loans balance~~borrower on the ~~Consolidated Balance Sheet, approximately$1.2 million relates to the Haven 12 real estate loan investment, which is to a related party. Interest receivable of approximately $1.2 million on its~~ Haven Campus Communities, LLC line of credit defaulted on the loan, triggering the accrual of an additional 10% default interest rate, which is ~~included in~~incremental to the ~~tenant receivables~~original 8% current interest rate. The amount of default interest recorded from the default date through March 31, 2021 was approximately $2.3 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 ~~other assets line.~~current interest on the loan; and third, to repay the principal amount owed.

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 and its Series A1 Preferred Stock. For the Company's ~~mShares~~Series M Preferred Stock, or mShares, dividends 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. Similarly, for the Company's Series M1 Preferred Stock, dividends are paid on an escalating scale of $5.08 per month in the first year 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 ~~Preferred Stock~~ 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 ~~Preferred Stock~~ 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.

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

The Company declared aggregate quarterly cash dividends on its Common Stock of ~~$0.2625~~$0.175 and ~~$0.26~~$0.2625 per share for the three-month periods ended March 31, ~~2020~~2021 and ~~2019,~~2020, 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 March 31, ~~2020,~~2021, the Company had ~~774,687~~548,369 Class A OP Units outstanding, which are exchangeable on a one-for-one basis for shares of Common Stock or the ~~equivalent~~equivalent amount of cash.

The Company's dividend and distribution activity consisted of:


	Dividends and distributions declared
	For the three-month periods ended March 31,
(In thousands)	2021		2020

Series A Preferred Stock	$	29,431	$	31,100
mShares	1,493		1,746
Series A1 Preferred Stock	2,550		212
Series M1 Preferred Stock	343		10
PAC Carveout REIT Preferred Stock	3		0
Common Stock	8,991		12,491
Restricted Stock and Class A OP Units	96		203

Total	$	42,907	$	45,762

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

Dividends and distributions declared

For the three-month periods ended March 31,
2020 2019
(In thousands)
Series A Preferred Stock $ 31,100
$ 24,733
mShares 1,746
806
Series A1 Preferred Stock 212
—
Series M1 Preferred Stock 10
—
Common Stock 12,491
11,195
Class A OP Units 203
229

Total $ 45,762
$ 36,963

8. Equity Compensation

Stock Incentive Plan

On May 2, 2019, the Company’s board of directors adopted, and the holders of the Company’s ~~stockholders~~Common Stock 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 March 31,				Unamortized expense as of March 31, 2021
	2021		2020

Class B Unit awards to employees:
2017	$	0	$	3		$	0
2018	(39)		71			0
Restricted stock grants to Board members:
2019	0		105			0
2020	133		0			44
Restricted stock grants for employees:
2020	243		0			3,115
2021	29		0			2,763
Performance-based restricted stock units:
2020	138		0			1,477
2021	39		0			3,116
Restricted stock units to employees:
2018	0		14			0
2019	16		19			52
2020	12		18			98
2021	3		0			217

Total	$	574	$	230		$	10,882

Three-month periods ended March 31, Unamortized expense as of March 31,
(In thousands) 2020 2019 2020

Class B Unit awards:
2016 $ —
$ 2
$ —
2017 3
78
—
2018 71
72
216
Restricted stock grants:
2017 —
—
—
2018 —
90
—
2019 105
—
35
Restricted stock units:
2017 —
18
—
2018 14
19
63
2019 19
32
145
2020 18
—
202

Total $ 230
$ 311
$ 661

2821

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements ~~- (continued)~~(Unaudited)

March 31, ~~2020~~2021

Performance-based Restricted Stock Unit Grants

On March 15, 2021 and 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 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 for the 2020 awards and January 1, 2021 for the 2021 awards), 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 for the 2020 awards and December 31, 2023 for the 2021 awards). 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:


Level	Relative 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 for the 2020 awards and between 0% and 250% of the original (target) number of PSUs for the 2021 awards, 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 and (ii) from the grant date through the first anniversary of the performance period end date for the remaining 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 results for the PSUs were:


Grant date	3/15/2021			7/31/2020

Stock price on grant date	$	10.86		$	7.23
Dividend yield	7.19		%	6.87		%
Expected volatility	49.81		%	44.40		%
Risk-free interest rate	0.29		%	0.11		%

Target number of PSUs granted:
First vesting tranche	103,511			136,462
Second vesting tranche	103,517			136,467
	207,028			272,929

Calculated fair value per PSU	$	15.24		$	6.76

Total fair value of PSUs	$	3,155,107		$	1,845,000

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

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 2.80 year and 2.91 year periods trailing the grant dates was utilized as the expected volatility assumptions for the 2021 and 2020 awards, respectively.

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 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
2020	66,114	$	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.

On March 15, 2021, the Company granted restricted stock to certain of its executives and employees. The fair value per share of $10.69 was based upon the closing price of the Company's Common Stock on the grant date. A total of 261,226 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.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

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

Class B OP Units

As of March 31, ~~2020,~~2021, cumulative activity of grants of Class B Units of the Operating Partnership, or Class B OP units, was:


						Grant date
						1/2/2018

Units granted						256,087
Units forfeited:
John A. Williams (1)						(38,284)
Voluntary forfeiture by senior executives (2)						(128,258)
Other						(27,658)

Total forfeitures						(194,200)

Units earned and converted into Class A Units						0

Class B Units outstanding at March 31, 2021						61,887

Units unearned but vested						61,887
Units unearned and not yet vested						0

Class B Units outstanding at March 31, 2021						61,887

(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 ⁽²⁾
(128,258 ) —
   Other (22,722 ) (5,334 )

Total forfeitures (189,264 ) (5,334 )

Units earned and converted into Class A Units —
(281,058 )

Class B Units outstanding at March 31, 2020 66,823
—

Units unearned but vested 49,688
—
Units unearned and not yet vested 17,135
—

Class B Units outstanding at March 31, 2020 66,823
—

⁽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.

There were no0 grants of Class B OP Units ~~for 2019 or 2020.~~subsequent to January 2, 2018.

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

The underlying valuation assumptions and results for the 2018 Class B OP Unit awards were:


Grant date	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

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.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

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.

Restricted Stock Units

The Company, made 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 date	3/15/2021		1/2/2020		1/2/2019		1/2/2018
Service period	2021-2023		2020-2022		2019-2021		2018-2020

RSU activity:
Granted	20,600		21,400		27,760		20,720
Forfeited	0		(3,700)		(8,101)		(8,274)

RSUs outstanding at March 31, 2021	20,600		17,700		19,659		12,446

RSUs unearned but vested	0		5,928		13,191		12,446
RSUs unearned and not yet vested	20,600		11,772		6,468		0

RSUs outstanding at March 31, 2021	20,600		17,700		19,659		12,446

Fair value per RSU	$	10.69	$	9.47	$	10.77	$	16.66
Total fair value of RSU grant	$	220,214	$	202,658	$	298,975	$	345,195

Grant date 1/2/2020
1/2/2019
1/2/2018
Service period 2020-2022
2019-2021
2018-2020

RSU activity:
Granted 21,400
27,760
20,720
Forfeited (600 ) (4,360 ) (5,720 )
Units earned and converted into common stock —
—
—

RSUs outstanding at March 31, 2020 20,800
23,400
15,000

RSUs unearned but vested —
7,823
10,028
RSUs unearned and not yet vested 20,800
15,577
4,972

RSUs outstanding at March 31, 2020 20,800
23,400
15,000

Fair value per RSU $ 10.58
$ 10.77
$ 16.66
Total fair value of RSU grant $ 226,412
$ 298,975
$ 345,195

The RSUs vest in three equal consecutive ~~one-year~~one-year tranches from the date of grant. For ~~each~~each grant prior to March 15, 2021, 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

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

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 are 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. RSUs issued on March 15, 2021 may become vested subject only to satisfaction of the service requirement.

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.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

9. Indebtedness

Mortgage Notes Payable

Mortgage financing of property acquisitions

During the three-month period ended March 31, 2020, the Company obtained original mortgage financing on the following properties as shown in the following table:


Property	Date	Initial principal amount (in thousands)		Fixed/Variable rate	Interest rate		Maturity date

251 Armour Yards	1/22/2020	$	3,522	Fixed	4.50	%	1/22/2025
Wakefield Crossing	1/29/2020	7,891		Fixed	3.66	%	2/1/2032
Morrocroft Centre	3/19/2020	70,000		Fixed	3.40	%	4/10/2033

		$	81,413

Repayments and refinancings

The following table summarizes our mortgage debt refinancing and repayment activity for the three-month periods ended March 31, ~~2020~~2021 and ~~2019:~~2020:


Date	Property	Previous balance (millions)		Previous interest rate / spread over 1 month LIBOR		Loan refinancing costs expensed (thousands)		New balance (millions)		New interest rate		Additional deferred loan costs from refinancing (thousands)

2/28/2021	Village at Baldwin Park	$	69.4	3.59	%	$	6	$	69.4	3.27	%	$	923

1/3/2020	Ursa	$	31.4	L + 300		$	0	$	0	—		$	0

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

1/3/2020 Ursa $ 31.4
L + 300
$ —
$ —
n/a
$ —
2/28/2019 Lenox Village Town Center $ 29.2
3.82 % $ 17,000
$ 39.3
4.34 % $ 1,153,000

26

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements ~~- (continued)~~(Unaudited)

March 31, ~~2020~~2021

The following table summarizes our mortgage notes payable at March 31, ~~2020:~~2021:


(In thousands)
Fixed rate mortgage debt:	Principal balances due		Weighted-average interest rate		Weighted average remaining life (years)
Residential Properties	$	1,367,132	3.55	%	8.9
New Market Properties	564,098		4.00	%	7.1
Preferred Office Properties	633,436		4.13	%	12.1

Total fixed rate mortgage debt	$	2,564,666	3.79	%	9.3

Variable rate mortgage debt:
Residential Properties	$	20,700	2.90	%	9.3
New Market Properties	47,150		2.79	%	2.6
Preferred Office Properties	0		0	%	—

Total variable rate mortgage debt	$	67,850	2.83	%	4.6

Total mortgage debt:
Residential Properties	$	1,387,832	3.54	%	8.9
New Market Properties	611,248		3.91	%	6.7
Preferred Office Properties	633,436		4.13	%	12.1

Total principal amount	2,632,516		3.77	%	9.2
Deferred loan costs	(40,878)
Mark to market loan adjustment	(3,978)
Mortgage notes payable, net	$	2,587,660

(In thousands)
Fixed rate mortgage debt: Principal balances due Weighted-average interest rate Weighted average remaining life (years)
Residential Properties $ 1,288,213
3.92 % 8.4
New Market Properties 578,380
4.00 % 8.1
Preferred Office Properties 637,617
4.13 % 13.2

Total fixed rate mortgage debt 2,504,210
3.99 % 9.5

Variable rate mortgage debt:
Residential Properties 97,630
4.47 % 2.5
New Market Properties 47,150
3.82 % 3.6
Preferred Office Properties —
— % —

Total variable rate mortgage debt 144,780
4.26 % 2.8

Total mortgage debt:
Residential Properties 1,385,843
3.96 % 8.0
New Market Properties 625,530
3.99 % 7.7
Preferred Office Properties 637,617
4.13 % 13.2

Total principal amount 2,648,990
4.01 % 9.2
Deferred loan costs (38,182 )
Mark to market loan adjustment (4,557 )
Mortgage notes payable, net $ 2,606,251

The Company has placed interest rate caps on the variable rate mortgages on its Avenues at Creekside multifamily community and its Tradition and Bloc student housing properties. Under guidance provided by ASC 815-10, these interest rate caps are derivatives that are embedded in the debt hosts. Because the interest rate caps are deemed to be clearly and closely related to the debt 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 March 31, ~~2020,~~2021, the weighted-average remaining life of deferred loan costs related to the Company's mortgage indebtedness was approximately ~~9.5~~9.3 years. Our mortgage notes have maturity dates between ~~April~~September 1, 2021 and June 1, 2054.

Credit Facility

The Company has a credit facility, or Credit Facility, with KeyBank National Association, or KeyBank, which includes 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~~The maximum borrowing capacity on the Revolving Line of Credit ~~was increased to~~is $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,~~May 4, 2021, the Fourth Amended and Restated Credit Agreement, or the Amended and Restated Credit Agreement, was amended to extend the maturity to ~~December 12, 2021,~~May 4, 2024, with an option to extend the maturity date to ~~December 12, 2022,~~May 4, 2025, 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%~~2.50% to 3.50% per annum, depending upon the Company’s leverage ratio. The weighted average

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

interest rate for the Revolving Line of Credit was ~~4.57%~~3.63% for the ~~year~~three-month period ended March 31, ~~2020.~~2021. The ~~Amended and Restated Credit Agreement also reduced the~~ commitment fee on the average daily unused portion of the Revolving Line of Credit tois 0.20% or 0.25% ~~or 0.30%~~ per annum, depending upon the ~~Company’s~~Company's outstanding

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

Credit Facility balance.

On December 20, 2019, the ~~Company~~Company entered into a $70.0 million interim term loan with KeyBank, or the 2019 Term Loan, to partially finance the acquisition of Morrocroft Centre, an office building located in Charlotte, North Carolina. The 2019 Term Loan accrues interest at a rate of LIBOR plus 1.7% per annum.The 2019 Term Loan ~~balance~~ was repaid in conjunction with the closing of permanent mortgage financing for Morrocroft Centre on March 19, 2020.

The Fourth Amended and Restated Credit Agreement, as amended on May 4, 2021, 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%~~100% 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 March 31, ~~2020,~~2021, the Company was in compliance with all covenants related to the Revolving Line of Credit, as amended, as shown in the following table:

Covenant (1)

Requirement

Result

Net worth

Minimum $1.6 billion

$2.1 billion

Debt yield

Minimum 8.75%

(2)

9.83%

Payout ratio

Maximum 100%

(3)

96.2%

Total leverage ratio

Maximum 65%

62.2%

Debt service coverage ratio

Minimum 1.70x

(4)

1.92x



~~Covenant~~ ⁽¹⁾	~~Requirement~~		~~Result~~
~~Net worth~~	~~Minimum $2.0 billion~~	₍₂₎	~~$2.0 billion~~	₍₄₎
~~Debt yield~~	~~Minimum 8.25%~~		~~10.1%~~
~~Payout ratio~~	~~Maximum 95%~~	₍₃₎	~~90.6%~~
~~Total leverage ratio~~	~~Maximum 65%~~		~~60.5%~~
~~Debt service coverage ratio~~	~~Minimum 1.50x~~		~~2.10x~~

⁽¹⁾All ~~covenants~~covenants are as defined in the credit agreement for the Revolving Line of Credit.

⁽²⁾~~Minimum~~The minimum debt yield covenant increases to a minimum of ~~$686.9 million plus 75% of the net proceeds of any equity offering, which totaled approximately $1.3 billion as of March 31, 2020.~~9.0% after 24 months.

⁽³⁾Calculated on a trailing four-quarter basis. For the ~~year~~three months ended March 31, ~~2020,~~2021, the maximum dividends and distributions allowed under this covenant was approximately ~~$173.7~~$170.2 million.

⁽⁴⁾~~Adjusted~~Minimum of 1.50x if AFFO payout ratio is less than or equal to ~~exclude the effect of costs incurred with internalization.~~95%.

Loan fees and closing costs for the establishment and subsequent amendments of the Credit Facility are amortized utilizing the straight line method ~~over~~over the life of the Credit Facility. At March 31, ~~2020,~~2021, unamortized loan fees and closing costs for the Credit Facility were approximately ~~$1.0~~$0.4 million, which will be amortized over a remaining loan life of approximately ~~1.8~~0.8 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. 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 ~~variable~~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 maturity date of March 1, 2022 and has ~~two one-year~~2 one-year extension options, subject to certain conditions described therein. At March 31, ~~2020,~~2021, unamortized loan fees and closing costs for the establishment of the Acquisition Facility were approximately ~~$0.2 million,~~$71,000, which will be amortized over a remaining loan life of approximately ~~1.9~~0.9 years.

3328

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements ~~- (continued)~~(Unaudited)

March 31, ~~2020~~2021

Interest Expense

Interest expense, including amortization of deferred loan costs was:


(In thousands)	Three-month periods ended March 31,
	2021		2020

Residential Properties	$	13,224	$	14,866
New Market Properties	6,444		6,750
Preferred Office Properties	6,668		6,858

Total	26,336		28,474

Credit Facility and Acquisition Facility	655		1,119
Interest Expense	$	26,991	$	29,593

Three-month periods ended March 31,
(In thousands) 2020 2019

Residential Properties $ 14,866
$ 14,800
New Market Properties 6,750
5,586
Preferred Office Properties 6,858
5,351
Interest paid to real estate loan participants —
110

Total 28,474
25,847

Credit Facility and Acquisition Facility 1,119
909
Interest Expense $ 29,593
$ 26,756

Future Principal Payments

The Company’s estimated future principal payments due on its debt instruments as of March 31, ~~2020~~2021 were:


Period	Future principal payments (in thousands)
2021 (1)	$	133,360
2022	72,728
2023	116,473
2024	289,868
2025	57,922
2026	255,389
2027	280,200
2028	338,848
2029	321,689
2030	359,141
Thereafter	446,898

Total	$	2,672,516

(1) Includes the principal amount due on our revolving line of credit of $40.0 million as of March 31, 2021.

Period
Future principal payments
(in thousands)
2020 $ 225,796
2021 182,951
2022 223,020
2023 164,716
2024 358,898
Thereafter 1,685,109

Total $ 2,840,490

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 ~~not~~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 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 March 31, ~~2020~~2021 and December 31, ~~2019.~~2020.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

11. Commitments and Contingencies

On January 31, 2020, the Company assumed its Former Manager's ~~eleven-year~~ eleven-year office lease as amended, which began on October 9, 2014. As of March 31, ~~2020,~~2021, the amount of rent due from the Company was ~~$16.7~~$13.9 million over the remaining term of the lease.

A total of approximately $24.1 million of asset management and general and administrative fees related to acquired properties as of March 31, 2020 that have been waived by the Former Manager were eliminated in conjunction with the Company's Internalization transaction.

At March 31, ~~2020,~~2021, the Company had unfunded commitments on its real estate loan portfolio of approximately ~~$62.9~~$49.3 million.

At March 31, ~~2020,~~2021, the Company had unfunded contractual commitments for tenant, leasing, and capital improvements of approximately ~~$14.1~~$3.6 million.

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

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.

12. Operating Leases

Company as Lessor

For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, the Company recognized rental property revenues of ~~$111.9~~$101.6 million and ~~$94.4~~$109.1 million, respectively, of which ~~$10.3~~$11.3 million and ~~$9.3~~$10.4 million, respectively, represented variable rental revenue.

Company as Lessee

The Company has ~~three~~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 subleases a portion of its leased office space to third parties; office rental expense is included net of the revenue from these subleases in the general and administrative expense line on the consolidated statements of operations. Revenue from subleased office space was approximately $235,000 and $219,000 for the three-month periods ended March 31, 2021 and 2020, respectively.

The Company recorded lease expense as follows:


	For the three-month periods ended March 31,								As of March 31, 2021
(In thousands)	2021				2020				Weighted average remaining lease term (years)	Weighted average discount rate
	Lease expense		Cash paid		Lease expense		Cash paid

Office space	$	728	$	730	$	475	$	475	4.8	3.0	%
Ground leases	15		13		13		4		35.4	4.4	%
Office equipment	36		36		101		101		2.5	3.0	%

Total	$	779	$	779	$	589	$	580

For the three-month periods ended March 31, 2020
Weighted average remaining lease term (years) Weighted average discount rate
Lease expense Cash paid
(dollars in thousands)
Office space $ 475
$ 475
5.7 3.0 %
Ground leases 13
4
29.6 4.4 %
Office equipment 101
101
2.3 3.0 %

Total $ 589
$ 580

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

Future minimum rent expense for office space, ground leases and office equipment were:


For the year ending December 31:		Future Minimum Rents as of March 31, 2021
(in thousands)		Office space		Ground leases		Office equipment		Total

2021	(1)	$	2,200	$	38	$	95	$	2,333
2022		2,855		51		53		2,959
2023		2,497		51		26		2,574
2024		3,139		51		13		3,203
2025		2,808		52		11		2,871
Thereafter		355		1,084		0		1,439

Total		$	13,854	$	1,327	$	198	$	15,379

(1) Remaining nine months

For the year ending December 31: Future Minimum Rents as of March 31, 2020
(in thousands) Office space Ground leases Office equipment Total

2020 ⁽¹⁾
$ 2,008
$ 38
$ 271
$ 2,317
2021 2,359
51
247
2,657
2022 2,998
51
136
3,185
2023 3,067
51
48
3,166
2024 3,139
51
38
3,228
Thereafter 3,163
1,136
10
4,309
Total $ 16,734
$ 1,378
$ 750
$ 18,862

⁽¹⁾Remaining nine months

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 ~~four~~4 distinct segments: ~~residential properties,~~multifamily communities, real estate related financing, New Market Properties and Preferred Office Properties.

~~Preferred Apartment~~Multifamily Communities ~~Inc.~~

~~Notes to Consolidated Financial Statements~~ - ~~(continued)~~

~~March 31, 2020~~

~~Residential Properties -~~ consists of the Company's portfolio of residential multifamily communities and student housing properties. Multifamily Communities and Student Housing Properties were previously presented as separate reporting segments. The Company has collapsed these two segments into one Residential Properties segment.communities.

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 the 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.~~VIEs.

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

Preferred Office Properties - consists of the Company's portfolio of office 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.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021


(In thousands)	March 31, 2020		December 31, 2019		(In thousands)	March 31, 2021		December 31, 2020

Assets:					Assets:
Residential properties	$	2,121,989	$	2,047,905	Residential properties	$	1,720,238	$	1,745,020
Financing	338,055		409,226		Financing	320,991		321,026
New Market Properties	1,124,091		1,125,230		New Market Properties	1,055,188		1,072,090
Preferred Office Properties	1,155,431		1,123,212		Preferred Office Properties	1,117,632		1,121,992
Other	87,833		64,987		Other	20,919		20,951
Consolidated assets	$	4,827,399	$	4,770,560	Consolidated assets	$	4,234,968	$	4,281,079

Total capitalized expenditures (inclusive of additions to construction in progress, but exclusive of the purchase price of acquisitions) ~~for the three months ended March 31, 2020 and 2019~~ were as follows:


(In thousands)	Three-month periods ended March 31,
	2021		2020

Capitalized expenditures:
Residential properties	$	2,506	$	3,759
New Market Properties	1,623		1,276
Preferred Office Properties	3,007		6,822
Total	$	7,136	$	11,857

Three-month periods ended March 31,
(In thousands) 2020 2019

Capitalized expenditures:
Residential properties $ 3,759
$ 2,125
New Market Properties 1,276
1,577
Total $ 5,035
$ 3,702

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

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

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 March 31,
	2021		2020
Revenues

Rental and other property revenues:
Residential properties	$	50,521	$	60,583
New Market Properties	26,967		28,002
Preferred Office Properties (1)	27,275		26,462
Total rental and other property revenues	104,763		115,047

Financing revenues	10,917		15,825
Miscellaneous revenues	20		10
Consolidated revenues	$	115,700	$	130,882

(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 March 31, 2021, 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 $35.0 million which is included in the deferred revenues line on the consolidated balance sheets at March 31, 2021. 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 $0.9 million and $0.9 million for the three-month periods ended March 31, 2021 and 2020, respectively.

Three-month periods ended March 31,
(In thousands) 2020 2019
Revenues

Rental and other property revenues:
Residential properties $ 57,565
$ 51,825
New Market Properties 28,002
22,059
Preferred Office Properties ⁽¹⁾
26,462
20,943
Total rental and other property revenues 112,029
94,827

Financing revenues 15,813
16,656
Miscellaneous revenues 3,260
23
Consolidated revenues $ 131,102
$ 111,506

(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 March 31, 2020, the Company has deferred revenue in an aggregate amount of $47.0 million in connection with such improvements. The remaining balance to be recognized is approximately $38.8 million which is included in the deferred revenues line on the consolidated balance sheets at March 31, 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 $0.9 million and $0.9 million for the three-month periods ended March 31, 2020 and 2019, respectively.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

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. Three tenants to date have ceased business operations and one has exercised an termination option.

~~The chief operating decision maker~~CODM 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.

Segment NOI for each reportable segment was as follows:


	Three-month periods ended March 31,
(In thousands)	2021		2020
Segment net operating income (Segment NOI)

Residential Properties	$	29,223	$	35,845
New Market Properties	18,596		19,819
Preferred Office Properties	19,635		19,668
Financing	10,911		15,825
Miscellaneous revenues	20		10

Consolidated segment net operating income	78,385		91,167

Interest expense:
Residential Properties	13,224		14,866
New Market Properties	6,444		6,750
Preferred Office Properties	6,668		6,858
Corporate	655		1,119
Depreciation and amortization:
Residential Properties	22,094		24,385
New Market Properties	11,761		13,414
Preferred Office Properties	11,915		11,681
Corporate	57		29
Equity compensation to directors and executives	574		230
Management fees, net of waived fees	0		1,963
Management Internalization	245		178,793
Allowance for expected credit losses	522		5,133
(Gain) / loss on sale of real estate	(798)		0
(Gain) / loss from land condemnation, net	0		(479)
Loss from unconsolidated joint venture	194		0
Corporate G&A	7,539		5,948

Net income (loss)	$	(2,709)	$	(179,523)

3733

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements ~~- (continued)~~(Unaudited)

March 31, ~~2020~~2021

~~Segment NOI for each reportable segment for the thee-month periods ended March 31, 2020 and 2019 were as follows:~~

Three-month periods ended March 31,
(In thousands) 2020 2019
Segment net operating income (Segment NOI)

Residential Properties $ 35,751
$ 29,333
Financing 15,813
16,679
New Market Properties 19,846
15,805
Preferred Office Properties 19,668
14,804
Miscellaneous revenues 509
—

Consolidated segment net operating income 91,587
76,621

Interest expense:
Residential Properties 14,866
14,800
New Market Properties 6,750
5,586
Preferred Office Properties 6,858
5,351
Financing 1,119
1,019
Depreciation and amortization:
Residential Properties 24,414
25,865
New Market Properties 13,414
10,335
Preferred Office Properties 11,681
9,089
Management Internalization 178,793
45
Management fees, net of forfeitures 1,963
5,200
Provision for expected credit losses 5,133
—
Equity compensation to directors and executives 230
311
Gain on land condemnation (479 ) —
Gain on non-cash net assets of consolidated VIEs —
(141 )
Loss on extinguishment of debt —
17
Gain on trading investment, net —
(4 )
Corporate G&A and Other 6,368
1,428

Net income (loss) $ (179,523 ) $ (2,280 )

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

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 March 31,
		2021		2020
Numerator:
	Operating income (loss) before gain on sale of real estate and loss from unconsolidated joint venture	$	23,678	$	(150,409)
	Loss from unconsolidated joint venture	(194)		0
	Gain on sale of real estate, net	798		0

	Operating income (loss)	24,282		(150,409)
	Interest expense	26,991		29,593
	Gain on land condemnation	0		479

	Net loss	(2,709)		(179,523)
	Consolidated net loss attributable to non-controlling interests	62		3,141

	Net loss attributable to the Company	(2,647)		(176,382)

	Dividends declared to preferred stockholders	(33,820)		(33,068)
	Net loss attributable to unvested restricted stock	(142)		(2)

	Net loss attributable to common stockholders	$	(36,609)	$	(209,452)

Denominator:
	Weighted average number of shares of Common Stock - basic	50,033		47,129

	Effect of dilutive securities: (D)	0		0

	Weighted average number of shares of Common Stock - basic and diluted	50,033		47,129

	Net loss per share of Common Stock attributable to
	common stockholders, basic and diluted	$	(0.73)	$	(4.44)

Three-month periods ended March 31,
(In thousands, except per-share figures) 2020 2019
Numerator:
Operating (loss) income before gain on sale of trading investment $ (150,409 ) $ 24,348
Gain on sale of trading investment —
4

Operating (loss) income (150,409 ) 24,352
Interest expense 29,593
26,756
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools —
141
Less: loss on extinguishment of debt —
(17 )
Gains on sale of real estate loan investment and land condemnation 479
—

Net (loss) income (179,523 ) (2,280 )
Consolidated net loss (income) attributable to non-controlling interests 3,141
(492 )

Net (loss) income attributable to the Company (176,382 ) (2,772 )

Dividends declared to preferred stockholders (33,068 ) (25,539 )
Earnings attributable to unvested restricted stock (2 ) (2 )

Net loss attributable to common stockholders $ (209,452 ) $ (28,313 )

Denominator:
Weighted average number of shares of Common Stock - basic 47,129
42,680

Effect of dilutive securities: ^(D)
—
—

Weighted average number of shares of Common Stock - basic and diluted 47,129
42,680

Net loss per share of Common Stock attributable to
common stockholders, basic and diluted $ (4.44 ) $ (0.66 )

^(A) The Company's outstanding Class A Units of the Operating ~~Partnership (775~~Partnership (548 and ~~879~~775 Units at March 31, ~~2020,~~2021, and ~~2019,~~2020, 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 ~~2,075~~1,694 and ~~1,720~~2,075 outstanding shares of Series A Preferred Stock at March 31, ~~2020~~2021 and ~~2019,~~2020, respectively and 184 and 37 outstanding shares of Series A1 Preferred Stock at March 31, ~~2020.~~2021 and 2020, respectively. 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 9887 and 5698 mShares outstanding at March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The Company's shares of Series M1 ~~preferred stock~~Preferred Stock accrue dividends at an escalating rate of 6.1% in year one to 7.1% in year ten and thereafter. The Company had 21 and2 shares of Series M1 ~~preferred stock~~Preferred Stock outstanding at March 31, ~~2020.~~2021 and 2020, respectively.

^(C) The Company's outstanding unvested restricted share awards (7(809 and 67 shares of Common Stock at March 31, ~~2020~~2021 and ~~2019,~~2020, respectively) contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted 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.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

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 ~~30,867~~24,484 shares of Common Stock; (ii) 6762 Class B Units; (iii) 7809 shares of unvested restricted common stock; ~~and~~ (iv) 5971 outstanding Restricted Stock ~~Units~~Units; and (v) 480 PSUs 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.

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~~allowances and are presented net of deferred loan fee revenue and credit losses reserves, where applicable.


	As of March 31, 2021
(In thousands)	Carrying value				Fair value measurements using fair value hierarchy
			Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Real estate loans	$	303,179	$	315,864	$	0	$	0	$	315,864
Notes receivable and line of credit receivable	10,795		10,795		0		0		10,795
	$	313,974	$	326,659	$	0	$	0	$	326,659
Financial Liabilities:
Mortgage notes payable	$	2,632,516	$	2,605,981	$	0	$	0	$	2,605,981
Revolving line of credit	40,000		40,000		0		0		40,000
	$	2,672,516	$	2,645,981	$	0	$	0	$	2,645,981


	As of March 31, 2020
	Carrying value				Fair value measurements using fair value hierarchy							As of December 31, 2020
(In thousands)			Fair Value		Level 1		Level 2		Level 3		(In thousands)	Carrying value						Fair value measurements using fair value hierarchy
														Fair Value			Level 1			Level 2			Level 3
Financial Assets:											Financial Assets:
Real estate loans	$	315,693	$	329,924	$	—	$	—	$	329,924	Real estate loans	$	302,423		$	315,074		$	0		$	0		$	315,074
Notes receivable and line of credit receivable	16,332		16,332		—		—		16,332		Notes receivable and line of credit receivable	10,874			10,874			0			0			10,874
	$	332,025	$	346,256	$	—	$	—	$	346,256		$	313,297		$	325,948		$	0		$	0		$	325,948
Financial Liabilities:											Financial Liabilities:
Mortgage notes payable	$	2,648,990	2,610,751		$	—	$	—	$	2,610,751	Mortgage notes payable	$	2,640,705		$	2,666,471		$	0		$	0		$	2,666,471
Revolving credit facility	191,500		191,500		—		—		191,500
Revolving line of credit											Revolving line of credit	22,000			22,000			0			0			22,000
	$	2,840,490	$	2,802,251	$	—	$	—	$	2,802,251		$	2,662,705		$	2,688,471		$	0		$	0		$	2,688,471

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

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

also contain a separately-calculated estimate of any applicable additional interest payment due the Company at the maturity date of the loan, based on the outstanding loan balances at March 31, 2021 and December 31, 2020, discounted to the reporting date utilizing a discount rate believed to be appropriate for multifamily development projects.

~~Preferred Apartment Communities, Inc.~~

~~Notes to Consolidated Financial Statements - (continued)~~

~~March 31, 2020~~

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.

Between April 1, ~~2020~~2021 and April 30, ~~2020,~~2021, the Company issued ~~11,461~~24,096 shares of Series A1 Redeemable Preferred Stock and collected net proceeds of ~~$10.3~~approximately $21.7 million after commissions and ~~fees;~~fees and issued ~~751~~3,968 shares of Series M1 Redeemable Preferred Stock and collected net proceeds of approximately ~~$0.7~~$3.8 million after commissions and fees. During the same period, the Company redeemed 11,680 shares of Series A Preferred Stock and 93 mShares. We expect redemptions to generally meet or exceed Preferred Stock issuances in the quarter.

On April ~~23, 2020,~~16, 2021, the Company ~~closed on~~entered into a ~~$52.0~~series of transactions with Highwoods Properties in order to dispose of 7 office properties and 1 office real estate loan investment for an aggregate purchase price of $717.5 million. The earnest money deposit of $50 million ~~first mortgage~~is nonrefundable, provided the purchaser is able to successfully qualify for the assumption of existing debt on the ~~Altis at Wiregrass multifamily community. The loan bears interest at a fixed rate of 2.90% per annum~~office properties and ~~matures on May 1, 2030.~~also subject to other customary closing conditions.

On May ~~11, 2020, our~~4, 2021, the Company amended its revolving line of credit agreement to extend the maturity date to May 4, 2024 and, among other things, modified certain covenants, reduced certain rates and fees and prepared for LIBOR transitioning.

On May 6, 2021, the Company's board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, payable

The Company has received numerous requests for rent relief including deferment of the payment of rent or rent reductions beginning with April 2020 rent. Discussions with individual tenants that failed to satisfy their April rent obligations are underway. Though the outcome of these discussions is expected to vary from tenant to tenant, the Company has and expects to continue to offer deferred rent arrangements with some tenants, including multifamily residents and in-line retail tenants whose operations have been significantly impacted by COVID-19.

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

Significant Developments

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

During the three-month period ended March 31, ~~2020,~~2021, 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 $1.5 Billion Unit 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"). During the three-month period ended March 31, 2020, we issued 32,13635,040 shares of Series A1 Preferred Stock and collected net proceeds of approximately ~~$28.9~~$31.5 million. During the same period, we issued ~~1,933~~2,858 shares of Series M1 Preferred Stock and collected net proceeds of approximately ~~$1.9 million.Our~~$2.8 million. 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.

~~During the first quarter 2020, the COVID-19 pandemic began~~On April 16, 2021, we entered into a series of transactions with Highwoods Properties in order to ~~cause widespread business closings and job losses amid stay-at-home orders from many states. We began to see some initial effects at the end~~dispose of ~~the first quarter and accelerating into April, as monthly rent collections from certain~~seven of our ~~in-line retail tenants fell~~office properties and ~~several small businesses closed their doors. The expected impact on our second quarter 2020 rental and other property revenues, as well as future leasing and renewals is unknown, due~~one office real estate loan investment for an aggregate purchase price of $717.5 million, including the assumption of debt. Upon the closing of this transaction, we expect the disposition of these assets to ~~uncertainty surrounding the duration and severity of the COVID-19 pandemic. We have begun offering rent deferrals for one to two months to tenants~~result in a potentially material decrease in our ~~multifamily communities, by which the deferred rent will be collected over the remainder~~revenues and results of ~~the leases for those electing to participate. Any deferred rent not collected will be written off.~~operations.

~~• the~~ state of the U.S.

In spite of the COVID-19 pandemic, we believe continued, albeit sporadic, improvement in the United States' economy will take hold for 2021, with continued improvement in the job market from pandemic lows and growth and improvements in the overall economy. As the country combats the effects of the COVID-19 pandemic with vaccine rollouts and other measures, it should be the case that the impact from the pandemic lessens and the economy can begin a path to normalcy. We believe a recovering economy, improving job market and increased consumer confidence should help create favorable conditions in the recovery for the multifamily sector, grocery-anchored shopping centers and Class A office demand.

MultifamilyCommunities

New Market Properties

~~Despite~~Our grocery partners’ performance during 2020 exceeded expectations, with sales increasing by 17% year over year, outpacing their respective chain increases. Beyond the ~~COVID-9~~obvious spike in foot traffic tied to the pandemic, we believe grocers benefited from the accelerated migration to our ~~outlook~~Sunbelt markets and the work from home trend that kept shoppers at their homes during the weekdays. Further, our grocery portfolio’s outperformance compared to chain averages is reflective of our assets’ strong positioning in high growth suburban markets that enjoyed accelerated migration during the last twelve months. Our grocers continue to be the centerpieces of their respective communities and are positioned for sustained growth during 2021. Beyond the overwhelming success of our grocer partners, we are encouraged by the leasing momentum being seen throughout the retail industry with many different tenant types actively expanding again.

The retail vertical’s collection percentages during the first quarter 2021 returned to pre-pandemic levels, collecting over 98% of recurring rent charges, unadjusted for deferrals. This result reflects a continued recovery from the 91.9%, 96.1% and 97.6% collections in second, third and fourth quarters 2020, respectively. The continued increases are reflective of the country’s reopening progressing and consumers regaining confidence to get out and support bricks and mortar retailers. The pace of new deferrals and rent workouts has slowed drastically. We granted an additional $28,000 of deferred rent during the first quarter 2021, raising the total deferred rent granted to approximately $1.9 million, or approximately 2.0% cumulatively

over the last four quarters. Of that amount, $789,000, or 41.2% of the aggregate amount deferred, are now due under revised lease agreements as of March 31, 2021, of which we have collected over 93%.

During the first quarter of 2021, there were less retailer bankruptcies than anticipated, with New Market being impacted minimally by the filings of Belk and Cici’s Pizza, each with one location in our portfolio. Both tenants have now emerged from bankruptcy and are current on ~~grocery-anchored~~their rent obligations, which represent under 1% of our annual base rent. We foresee less than 2% of our portfolio’s base rent being attributed to tenants deemed to be at risk and are actively working on alternative users for each of these spaces if they were to be given back.

Our retail investment strategy of owning and operating shopping centers ~~remains positive~~anchored by strongly performing grocers complemented by convenience-based retailers across high growth suburban Sunbelt markets has proven its strength throughout the last year. We are confident in our e-commerce resilient merchandising mix as we believe the primary characteristics of our centers are defensive in nature with daily-necessity and convenience-based tenants. We have collected 77% of April’s contractual rental obligations during a time in which federal, state and local authorities have mandated closures of nonessential businesses. Our grocery stores and pharmacies have been permitted to remain open as well as other essential services such as financial services, home improvement, auto, medical, pet stores and restaurants that were limited to take-out and delivery services only. Personal service providers including salons and fitness centers deemed nonessential have been closed, but are a smaller percentage of our tenant mix.

We will continue to invest in the grocers who invest in their brands, developing their e-commerce strategies, and that continue to optimize their in-store shopping experience for customers. Publix and Kroger anchor 41 of our 54 shopping centers and both have hit record sales levels during the pandemic. Both of these grocers are positioned to gain market share in the future as a result of their proactive approach to technology through proprietary services like Click List (Kroger), operational expertise, and strong financial positions.

Preferred Office Properties operates a 3.2 million square foot portfolio of Class A office assets in markets across the Sunbelt. New leasing activity has slowed and sublease availability has increased in most markets due to uncertainty from COVID-19. We ~~continue~~expect to ~~hold a positive outlook for the office industry in our markets, notwithstanding COVID-19, while acknowledging that~~see some level of continued soft demand in the ~~immediate near term this positive performance may be more relative than absolute. Multi-year~~near-term. Despite these challenges, the Company’s office investments are 91% leased with only approximately 6.8% of the portfolio leases expiring through the end of 2022. Furthermore, multi-year contractual leases and rent schedules paired with ~~corporate~~high quality tenant balance sheets ~~offer~~have offered protection against ~~the~~adverse impacts of COVID-19.

Off-Balance Sheet Arrangements

As of March 31, 2021, we had 1,224,195 outstanding Warrants from our sales of Units. The Warrants are exercisable by the ~~following.~~

New Accounting Pronouncements

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

Certain financial highlights of our results of operations for the three-month ~~period~~periods ended March 31, 2021 and 2020 were:

Revenues (in thousands)

Net income (loss) (1)

(2) FFO, Core FFO and AFFO results are presented per basic weighted average share of Common Stock and Class A Unit in our Operating Partnership outstanding for the periods indicated. See sections entitled Reconciliations of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO to Net Income (Loss) Attributable to Common Stockholders and Definitions of Non-GAAP Measures.

•Our total revenues for the quarter ended March 31, 2021 decreased 11.6% to approximately $115.7 million from the quarter ended March 31, 2020, ~~were:~~

2020 Cash Collections of Certain Rental Revenues ⁽¹⁾
January February March April

Multifamily 99.4 % 99.4 % 99.1 % 97.7 %
Student housing 99.8 % 99.9 % 99.5 % 97.3 %
Office 99.7 % 99.5 % 98.7 % 96.3 %
Grocery-anchored retail:
Grocery anchors 100.0 % 100.0 % 100.0 % 100.0 %
In-line tenants 98.7 % 98.9 % 95.8 % 66.7 %

Occupancy:
Multifamily 95.1 % 95.5 % 95.7 % 94.3 %
Student housing 96.1 % 96.3 % 96.2 % 96.2 %
Percent leased:
Office 96.3 % 96.3 % 96.7 % 95.9 %
Grocery-anchored retail 92.9 % 92.6 % 92.6 % 92.5 %

*a reduction in charges related to the ~~three months ended March 31, 2020. Core FFO was $0.38 for the three months ended March 31, 2020, as compared to $0.41 for the three months ended March 31, 2019.~~

For the first quarter 2020, our declared dividends to preferred and Common Stockholders and distributions to Unitholders exceeded our NAREIT-defined FFO result for the period, which was negative. Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately 69.4% and our Core FFO payout ratio (before the deduction of preferred dividends) to our preferred stockholders was approximately 64.4%^(B)

Our AFFO payout ratio to Common Stockholders and Unitholders was approximately 55.9% for the first quarter 2020. Our AFFO payout ratio (before the deduction of preferred dividends) to our preferred stockholders was approximately 59.3% for the first quarter 2020. ^(B)~~We have approximately $20.2 million of accrued but not yet received interest revenue on our real estate loan investment portfolio.~~

*cost savings from Internalization of ~~the Dawson Marketplace, Falls at Forsyth, and (in conjunction with our acquisition~~$0.02 per share;

*a lower allowance for current expected credit losses of ~~the underlying property) Altis Wiregrass real estate loans repaid all amounts due under the loans, including aggregate principal amounts~~$0.10 per share;

*lower preferred stock dividends of approximately $53.9 million and interest accrued in periods prior to the first quarter 2020 of approximately $8.9 million, the latter of which was additive to our first quarter 2020 AFFO result. The three mezzanine loan investments that matured this quarter yielded a weighted average 17% internal rate of return.$0.06 per share;

*lower amortization of purchase option termination fees of ($0.06) per share;

*lower interest revenue from our smaller real estate loan portfolio of ($0.06) per share;

*lower revenues from earnest money forfeitures of ($0.06) per share; and

*deemed dividends from the call of preferred stock of ($0.03) per share.

•a lower allowance for current expected credit losses of $0.10 per share;

•lower preferred stock dividends of $0.06 per share;

•cost savings from Internalization of $0.02 per share;

•lower FFO from the sale of our student housing properties in the fourth quarter 2020 of ($0.07) per share;

•lower interest revenue from our smaller real estate loan portfolio of ($0.06) per share;

•lower amortization of purchase option termination fees of ($0.06) per share; and

•higher equity compensation expense and absence of gain on land condemnation of ($0.02) per share.

•Our AFFO per share decreased to $0.18 for the first quarter 2021 from $0.47 for the first quarter 2020, primarily due to the aforementioned decline in FFO from the sale of our student housing properties in the fourth quarter 2020, net of savings from preferred dividends and expenses related to the call of the preferred, as ~~liquidated damages.~~well as the following:

•a decrease in accrued interest collected of ($0.12) per share;

•lower revenues from earnest money forfeitures of ($0.06) per share;

^(A)~~We calculate the~~•lower interest revenue from our smaller real estate loan portfolio of ($0.04) per share; and

•higher recurring capital expenditures of ($0.04) per share.

•Our Core FFO payout ratio to Common Stockholders asand Unitholders was approximately 71.8% and our Core FFO payout ratio to our preferred stockholders was approximately 72.8% for the first quarter 2021. (A)

•Our AFFO payout ratio ~~of Common Stock dividends and distributions to FFO Attributable~~ to Common Stockholders and ~~Unitholders. We calculate the FFO~~Unitholders was approximately 101.6% and our AFFO payout ratio to our preferred stockholders ~~as the ratio of Preferred Stock dividends to the sum of Preferred Stock dividends and FFO. Since our operations resulted in a net loss from continuing operations~~was approximately 79.1% for the ~~periods presented,~~first quarter 2021.

•As of March 31, 2021, our total assets were approximately $4.2 billion, a ~~payout ratio based on net loss is not calculable.~~decrease from our total assets of approximately $4.8 billion at March 31, 2020, that primarily resulted from the sale of our student housing portfolio during the fourth quarter 2020 for approximately $478.7 million.

(A) We calculate the Core FFO and AFFO payout ratios to Common Stockholders as the ratio of Common Stock dividends and distributions to Core FFO and AFFO. We calculate the Core FFO and AFFO payout ratios to preferred stockholders as the ratio of Preferred Stock dividends to the sum of ~~Preferred~~Preferred Stock dividends and Core FFO and AFFO. Since our operations resulted in 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) Our Core FFO result for the three-month period ended March 31, 2020 has been amended to reflect the movement of the adjustment for expense for current expected credit losses from an adjustment for Core FFO to an adjustment for AFFO.

•As of March 31, 2021, the average age of our multifamily communities was approximately 6.5 years, which is the youngest in the public multifamily REIT industry.

•As of March 31, 2021, all of our owned multifamily communities had achieved stabilization except for one fourth quarter 2020 acquisition. We define stabilization as reaching 93% for all three consecutive months within a single quarter.

•The average physical occupancy for the three-month period ended March 31, 2021 increased to 95.8% from 95.6% and 95.7% for the three-month periods ended March 31, 2020 and December 31, 2020, respectively.

•Our average recurring rental revenue collections before and after any effect of rent deferrals for the first quarter 2021 were approximately 99.1% and 99.2% for multifamily communities, 98.4% and 98.4% for grocery-anchored retail properties and 99.8% and 99.9% for office properties, respectively. Rent deferments provided to our residents and tenants are limited and are primarily related to a change of timing of rent payments with no significant changes to total payments or term.

•We granted an additional $28,000 of deferred rent during the first quarter 2021, raising the total deferred rent granted to approximately $1.9 million, or approximately 2.0% cumulatively over the last four quarters. Including this deferred rent, our average recurring rental revenue collections were 98.4%, 98.4%, 97.8% and 96.9% for first quarter 2021, fourth quarter 2020, third quarter 2020 and second quarter 2020, respectively. In addition to the deferrals, we granted approximately $676,000 of COVID-related rental abatements to retail tenants only, or approximately 0.7% of our retail portfolio's recurring rental revenues cumulatively over the last four 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 reserved $99,000, or 0.4% of total retail revenue (inclusive of straight-line rent adjustments) in the first quarter 2021, that is 0.1% of our consolidated rental and other property revenues. Our retail portfolio's total rent reserves over the last four quarters were approximately $2.3 million, or approximately 2.4% of our retail portfolio's recurring rental revenues cumulatively over the same period.

Financing and Capital Markets

•At March 31, 2021, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 55.9%.

•At March 31, 2021, we had $160.0 million available to be drawn on our revolving line of credit and approximately $32.3 million of cash.

•During the first quarter 2021, we issued and sold an aggregate of 37,898 shares of Preferred Stock and redeemed an aggregate of 44,220 shares of Preferred Stock, resulting in a net redemption of 6,322 shares of Preferred Stock, for a net redemption cost of $9.5 million.

•During the first quarter 2021, we received the full principal amounts totaling approximately $17.9 million from the repayment of two real estate loan investments, plus a purchase option termination fee of approximately $1.5 million and $4.3 million of accrued interest from these loan payoffs. These transactions collectively returned approximately $23.7 million of capital to us for investment, preferred redemptions, or other corporate purposes during the first quarter.

•During the first quarter 2021, we originated one real estate investment loan with a total commitment of $16.8 million, in support of a 320-unit multifamily community in Orlando, Florida. We also originated a land acquisition bridge loan of approximately $7.7 million in support of a proposed multifamily community to be located in suburban Atlanta, Georgia.

•On April 16, 2021, we entered into a series of transactions with Highwoods Properties in order to dispose of seven of our office properties and one office real estate loan investment for an aggregate purchase price of $717.5 million, including the assumption of debt.

•On May 4, 2021, we amended our revolving line of credit agreement to extend the maturity date to May 4, 2024 and, among other things, modified certain covenants, reduced certain rates and fees and prepared for LIBOR transitioning.

•On May 6, 2021, our board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, payable on July 15, 2021 to stockholders of record on June 15, 2021.

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 up to 15 basis points (if any), depending on the loan.

(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.

(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 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.

(4) We hold a right of first offer on the property.

(5) The underlying loan is a land acquisition bridge loan that is anticipated to be converted to a real estate loan investment in the future with a purchase option or right of first offer.

(6) The real estate loan investment supporting the 8West office building and seven of our office properties are under contract to be sold pursuant to a purchase and sale agreement to Highwoods Properties, an unrelated party, as of April 16, 2021.



		~~Total units upon~~	~~Purchase option window~~
~~Project/Property~~	~~Location~~	~~completion~~⁽¹⁾	~~Begin~~	~~End~~

~~Multifamily communities:~~
~~V & Three~~	~~Charlotte, NC~~	~~338~~	~~S + 90 days~~⁽²⁾	~~S + 150 days~~⁽²⁾
~~The Anson~~	~~Nashville, TN~~	~~301~~	~~S + 90 days~~⁽²⁾	~~S + 150 days~~⁽²⁾
~~Southpoint~~	~~Fredericksburg, VA~~	~~240~~	~~S + 90 days~~⁽²⁾	~~S + 150 days~~⁽²⁾
~~E-Town~~	~~Jacksonville, FL~~	~~332~~	~~S + 90 days~~⁽³⁾	~~S + 150 days~~⁽³⁾
~~Vintage~~	~~Destin, FL~~	~~282~~	⁽⁴⁾	⁽⁴⁾
~~Hidden River II~~	~~Tampa, FL~~	~~204~~	~~S + 90 days~~⁽²⁾	~~S + 150 days~~⁽²⁾
~~Kennesaw Crossing~~	~~Atlanta, GA~~	~~250~~	⁽⁵⁾	⁽⁵⁾
~~Vintage Horizon West~~	~~Orlando, FL~~	~~340~~	⁽⁴⁾	⁽⁴⁾
~~Solis Chestnut Farm~~	~~Charlotte, NC~~	~~256~~	⁽⁵⁾	⁽⁵⁾

~~Student housing property:~~
~~Solis Kennesaw II~~	~~Atlanta, GA~~	~~175~~	⁽⁶⁾	⁽⁵⁾

~~Office property:~~
~~8West~~	~~Atlanta, GA~~	⁽⁶⁾	⁽⁷⁾	⁽⁷⁾

		~~2,718~~

⁽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, at a to-be-agreed-upon market price.~~
⁽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.

~~Three months~~Three-month periods ended March 31, ~~2020~~2021 compared to ~~2019~~2020

The following discussion and tabular presentations highlight the major drivers behind the line item changes in our results of operations for the three-month periods ended March 31, ~~2020~~2021 versus ~~2019:~~2020:

Preferred Apartment Communities, Inc. Three-month periods ended March 31, Change inc (dec)
2020 2019 Amount Percentage
Revenues:
Rental and other property revenues $ 111,866
$ 94,393
$ 17,473
18.5 %
Interest income on loans and notes receivable 13,439
11,288
2,151
19.1 %
Interest income from related parties 2,537
5,802
(3,265 ) (56.3 )%
Miscellaneous revenues 3,260
23
3,237
—
Total revenues 131,102
111,506
19,596
17.6 %

Operating expenses:
Property operating and maintenance 16,800
12,879
3,921
30.4 %
Property salary and benefits 5,191
4,657
534
11.5 %
Property management fees 2,003
3,267
(1,264 ) (38.7 )%
Real estate taxes and insurance 15,525
14,090
1,435
10.2 %
General and administrative 6,364
1,420
4,944
348.2 %
Equity compensation to directors and executives 230
311
(81 ) (26.0 )%
Depreciation and amortization 49,509
45,289
4,220
9.3 %
Asset management and general and administrative expense fees to related party 3,099
7,829
(4,730 ) (60.4 )%
Provision for expected credit losses 5,133
—
5,133
—
Management internalization expense 178,793
45
178,748
—
Total operating expenses 282,647
89,787
192,860
214.8 %

Waived asset management and general and administrative expense fees (1,136 ) (2,629 ) 1,493
(56.8 )%

Net operating expenses 281,511
87,158
194,353
223.0 %

Operating (loss) income before gain on sale of trading investment (150,409 ) 24,348
(174,757 ) (717.7 )%
Gain on sale of trading investment —
4
(4 ) (100.0 )%
Operating (loss) income (150,409 ) 24,352
(174,761 ) (717.6 )%
Interest expense 29,593
26,756
2,837
10.6 %
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools —
141
(141 ) —
Loss on extinguishment of debt —
(17 ) 17
—
Gain on land condemnation 479
—
479
—

Net loss (179,523 ) (2,280 ) (177,243 ) —
Consolidated net loss (income) attributable to non-controlling interests 3,141
(492 ) 3,633
(738.4 )%

Net loss attributable to the Company $ (176,382 ) $ (2,772 ) $ (173,610 ) —

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 periods ended March 31, ~~2020~~2021 versus ~~2019~~2020 are presented below. These statements of operations include no allocations of corporate overhead or other expenses.


New Market Properties, LLC	Three-month periods ended March 31,				Change inc (dec)
(in thousands)	2021		2020		Amount		Percentage
Revenues:
Rental revenues & other property revenues	$	26,967	$	27,838	$	(871)	(3.1)	%
Interest income on notes receivable	—		164		(164)		—
Total revenues	26,967		28,002		(1,035)		(3.7)	%

Operating expenses:
Property operating and maintenance	3,468		3,324		144		4.3	%
Property management fees	659		787		(128)		(16.3)	%
Real estate taxes and insurance	4,244		4,071		173		4.2	%
General and administrative	905		742		163		22.0	%
Equity compensation to directors and executives	30		13		17		130.8	%
Depreciation and amortization	11,761		13,414		(1,653)		(12.3)	%
Asset management and general and administrative expense fees to related parties	—		720		(720)		—
Total operating expenses	21,067		23,071		(2,004)		(8.7)	%
Waived asset management and general and administrative expense fees	—		(17)		17		—
Net operating expenses	21,067		23,054		(1,987)		(8.6)	%

Operating income before gain on sale of real estate and loss from unconsolidated joint venture	5,900		4,948		952		19.2	%
Loss from unconsolidated joint venture	(194)		—		(194)		—
Operating income	5,706		4,948		758		15.3	%

Interest expense	6,444		6,750		(306)		(4.5)	%
Gain on land condemnation	—		479		(479)		—
Net income (loss)	(738)		(1,323)		585		(44.2)	%

Consolidated net loss (income) attributable to non-controlling interests	(23)		(31)		8		—

Net income (loss) attributable to the Company	$	(715)	$	(1,292)	$	577	—

New Market Properties, LLC Three-month periods ended March 31, Change inc (dec)
2020 2019 Amount Percentage
Revenues:
Rental revenues & other property revenues $ 27,838
$ 21,624
$ 6,214
28.7 %
Interest income on notes receivable 164
435
(271 ) (62.3 )%
Total revenues 28,002
22,059
5,943
26.9 %

Operating expenses:
Property operating and maintenance 3,324
2,309
1,015
44.0 %
Property management fees 787
767
20
2.6 %
Real estate taxes and insurance 4,048
3,188
860
27.0 %
General and administrative 765
99
666
672.7 %
Equity compensation to directors and executives 13
18
(5 ) (27.8 )%
Depreciation and amortization 13,414
10,335
3,079
29.8 %
Asset management and general and administrative
expense fees to related parties 720
1,657
(937 ) (56.5 )%
Total operating expenses 23,071
18,373
4,698
25.6 %
Waived asset management and general and administrative
expense fees (17 ) (99 ) 82
(82.8 )%
Net operating expenses 23,054
18,274
4,780
26.2 %

Operating income 4,948
3,785
1,163
30.7 %
Interest expense 6,750
5,586
1,164
20.8 %
Gain on land condemnation 479
—
479
100.0 %
Net income (loss) $ (1,323 ) $ (1,801 ) $ 478
(26.5 )%

Consolidated net loss (income) attributable to non-controlling interests $ 31
$ —
31
100.0 %

Net income (loss) attributable to the Company $ (1,292 ) $ (1,801 ) 509
(28.3 )%

Recent acquisitions

Our ~~acquisitions (net of dispositions)~~dispositions (partially offset by acquisitions) of real estate assets since January 1, ~~2019~~2020 were ~~generally~~ the primary drivers behind our ~~increases~~decreases in rental and property revenues and property operating expenses for the ~~year~~three-month periodsended March 31, 2021 versus 2020, ~~versus 2019.~~as listed in the tables below:

Real estate assets acquired

Acquisition date

Property

Location

Units

Leasable square feet

Residential Properties:

3/31/2020

Horizon at Wiregrass

Tampa, FL

392

—

4/30/2020

Parkside at the Beach

Panama City Beach, FL

288

—

11/2/2020

The Blake

Orlando, FL

281

—

12/15/2020

The Menlo

Jacksonville, FL

332

—

New Market Properties:

1/29/2020

Wakefield Crossing

Raleigh, NC

—

75,927

3/19/2020

Midway Market

Dallas, TX

—

85,599

1,293

161,526

Acquisition date Property Location Units Beds Leasable square feet

Multifamily communities:
8/8/2019 Artisan at Viera Melbourne, FL 259
-
-

9/18/2019 Five Oaks at Westchase Tampa, FL 218
-
-

3/31/2020 Altis Wiregrass Ranch Tampa, FL 392
-
-

New Market Properties:
1/17/2019 Gayton Crossing Richmond, VA -
-
158,316

5/28/2019 Free State Shopping Center Washington, D.C. -
-
264,152

6/12/2019 Disston Plaza Tampa - St. Petersburg, FL -
-
129,150

6/12/2019 Polo Grounds Mall West Palm Beach, FL -
-
130,285

8/16/2019
Fairfield Shopping Center ⁽¹⁾
Virginia Beach, VA -
-
231,829

11/14/2019 Berry Town Center Orlando, FL -
-
99,441

12/19/2019
Hanover Shopping Center ⁽¹⁾
Wilmington, NC -
-
305,346

1/29/2020 Wakefield Crossing Raleigh, NC -
-
75,927

3/19/2020 Midway Market Dallas, TX -
-
85,599

Student housing properties:
3/27/2019 Haven49 Charlotte, NC 322
887
-

Preferred Office Properties:
7/25/2019
CAPTRUST Tower ⁽¹⁾
Raleigh, NC -
-
300,000

7/31/2019 251 Armour Atlanta, GA -
-
35,000

12/20/2019
Morrocroft Centre ⁽¹⁾
Charlotte, NC -
-
291,000

1,191
887
2,106,045

⁽¹⁾Property is owned through a consolidated joint venture.

Real estate assets sold

Disposition date

Property

Location

Units

Beds

Student housing properties:

11/3/2020

North by Northwest

Tallahassee, FL

219

679

11/3/2020

SoL

Tempe, AZ

224

639

11/3/2020

Stadium Village

Atlanta, GA

198

792

11/3/2020

Ursa

Waco, TX

250

840

11/3/2020

The Tradition

College Station, TX

427

808

11/3/2020

Knightshade

Orlando, FL

221

894

11/3/2020

The Bloc

Lubbock, TX

140

556

11/3/2020

Rush

Charlotte, NC

332

887

Multifamily community:

11/12/2020

Avenues at Creekside

San Antonio, TX

395

—

Rental and other property revenues

Rental and other property revenues ~~increased~~decreased 6.6% for the three-month period ended March 31, 2021 versus 2020, primarily due to the sale of our student housing properties ~~acquired since January 1, 2019, with grocery-anchored shopping centers~~in the fourth quarter 2020. Changes in occupancy rates and ~~office buildings accounting~~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 ~~36.4%~~home purchases, and ~~30.1%, respectively,~~changes in demand due to consumer confidence in the above factors.

Interest income

Interest income from our real estate loan investments decreased 31.7% for the three-month period ended March 31, 2021 versus 2020. The principal amount outstanding on our portfolio of real estate loan investments decreased to approximately $291.9 million at March 31, 2021 from $310.3 million at March 31, 2020. Revenues from the amortization of terminated purchase options decreased from $4.0 million for the three-month period ended March 31, 2020 to $1.2 million for the three-

month period ended March 31, 2021. We recorded interest income and ~~newly-acquired multifamily and~~other revenue from these instruments as presented in Note 4 to our Consolidated Financial Statements.

Miscellaneous revenues

We recognized a forfeited earnest money deposit of $2.75 million from a prospective purchaser of six of our student ~~residential~~housing properties ~~accounting for an additional 13.0% and 10.9%, respectively. Similar increases~~during the first quarter 2020. The absence of this transaction in ~~property operations~~the first quarter 2021 reflected the decrease.

Property operating and maintenance

Property operating and ~~property salary and benefits expense were driven by these acquisitions.~~

maintenance costs decreased 9.5% for the three-month period ended March 31, 2021 versus 2020, primarily due to the sale of our student housing properties in the fourth quarter 2020. 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.

Property salary and benefits

Property salary and benefits decreased 7.1% for the three-month period ended March 31, 2021 versus 2020, primarily due to the sale of our student housing properties in the fourth quarter 2020. 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.

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.

~~Interest income~~

Interest income from our real estate loan investments decreased for the year ended March 31, 2020 versus 2019. The principal amount outstanding on our portfolio of real estate loan investments decreased to approximately $310.3 million at March 31, 2020 from $338.3 million at March 31, 2019. Interest revenue decreased due to the repayment or settlement of fully-drawn, larger balance loans prior to the first quarter 2020. Interest revenue from mortgage-backed securities and money market investments fell from approximately $198,000 for the first quarter 2019 to almost zero for the first quarter 2020. Revenues from the amortization of terminated purchase options decreased from approximately $4.2 million for the first quarter 2019 to approximately $4.0 million for the first quarter 2020. We recorded interest income and other revenue from these instruments as presented in Note 4 to our Consolidated Financial Statements.

~~Miscellaneous revenues for the year ended March 31, 2020 consisted primarily of a forfeited earnest money deposit from a prospective purchaser of six of our student housing properties.~~

Property management ~~fees~~costs

We paid 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 are~~costs were 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~~costs 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% is~~2.00% and are paid to a third party property management company. All property management ~~fees~~costs paid to our Former Manager ceased effective with our Internalization on January 31, ~~2020, which resulted in a decrease of approximately $1.6 million in these property management fees for the first quarter 2020 as compared to the first quarter 2019.~~2020.

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~~increased exposure from property tax judgements that are currently in litigation or under appeal and from increased insurance costs ~~brought on by properties acquired since January 1, 2019.~~related to adjustments for replacement cost underwriting results. We ~~generally~~generally 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 26.7% increase in general and administrative expenses ~~were~~for the three-month period ended March 31, 2021 versus 2020 was primarily due to charges for corporate salaries and administrative expenses that are borne by us following the ~~management internalization.~~Internalization.

Equity compensation to directors and executives

Equity compensation expenses incurred fell for the first quarter 2020 as compared to the corresponding 2019 period primarily due to the expense of the third and final vesting tranche of the 2017 Class B Unit grant having almost completely been realized prior to the first quarter 2020. We had no Class B Unit grants in 2019 or 2020.

~~Depreciation and amortization~~

~~The increases in depreciation and amortization~~increased 149.6% for the three-month period ended March 31, 2021 versus 2020, ~~versus 2019 increased~~primarily due to ~~the addition~~issuances of ~~properties acquired~~restricted stock and restricted stock units since ~~January 1, 2019.~~March 31, 2020. These instruments have a collective fair value of approximately $11.7 million, that will be amortized as described in note 8 to our Consolidated Financial Statements.

Asset management fees and general and administrative fees to related party

Monthly asset management fees ~~were equal to one-twelfth of 0.50% of the total book value of assets, as adjusted. General~~and general and administrative expense fees were equal to 2% of the monthly gross revenues of the Company. Both were calculated as prescribed by the Former Management Agreement and were paid monthly to our Former 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. Effectiveceased effective with the closing of our Internalization ~~transaction~~Transaction on January 31, ~~2020, fees to the Former Manager will no longer be incurred.~~2020.

~~Provision~~

Allowance for expected credit losses

~~Effective January 1, 2020, we adopted ASU 2016-03, which requires us to estimate the amount of future~~The 89.8% decrease in our allowance for expected credit losses ~~we expect~~for the three-month period ended March 31, 2021 versus 2020 was primarily due 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 Company’s opening~~loss reserve ~~of approximately $7.4 million was recorded as a cumulative adjustment to accumulated earnings on January 1, 2020. Additionally,~~increases during the first quarter 2020 ~~we recorded current estimated credit losses on our Berryessa, V & Three, and Kennesaw Crossing real estate loan investments~~ that totaled approximately $4.5 million in response to the initial outbreak and spread of the COVID-19 pandemic. Reserve adjustments for the first quarter 2021 were not affected by any similar event and totaled approximately $0.5 million.

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 ~~increase consisted of~~8.8% decrease in interest expense ~~on mortgages that increased from $24.2 million~~ for the ~~first quarter 2019 to $26.2 million for the first quarter~~three-month period ended March 31, 2021 versus 2020 was primarily due to the ~~additional acquired properties~~sale in ~~2019 and 2020. Interest expense on~~the fourth quarter 2020 of our ~~revolving line of credit increased from approximately $587,000 for the first quarter 2019 to approximately $859,000 for the first quarter 2020.~~student housing properties.

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

Definitions of Non-GAAP Measures

We disclose FFO, Core FFO, ~~AFFO~~ and ~~NOI,~~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. ~~None~~The non-GAAP measures of FFO, Core FFO ~~AFFO~~ and ~~NOI~~AFFO 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 ~~AFFO~~ and ~~NOI~~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;

•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~~loan cost amortization on acquisition term notes and loan coordination fees;

• losses on debt extinguishments or refinancing costs;

• internalization costs;

• expenses incurred on calls of preferred stock;

• deemed dividends for redemptions of and non-cash dividends on preferred stock;

• ~~non-cash (income) expense for current expected credit losses;~~

~~• Extraordinary Event -~~expenses related to the COVID-19 ~~Expense;~~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;

• non-cash (income) expense for current expected credit losses;

• amortization of loan closing costs;

• weather-related property operating losses;

• ~~amortization of loan coordination fees paid to the Manager;~~

• depreciation and amortization of non-real estate assets;

• net loan origination fees received;

• ~~accrued~~deferred interest income received;

• amortization of lease inducements;

• cash received ~~for~~in excess of (exceeded by) amortization of purchase option ~~terminations;~~

~~• deemed dividends on preferred stock redemptions;~~termination revenues;

• non-cash dividends on Series M Preferred ~~Stock;~~Stock and mShares; and

• ~~amortization of lease inducements;~~earnest money forfeiture from prospective asset purchaser;

Less:

• non-cash loan interest income;

• cash paid for loan closing costs;

• amortization of acquired real estate intangible liabilities;

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

• normally-recurring capital expenditures and capitalized ~~retail direct~~second 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 March 31,
(In thousands, except per-share figures) 2020 2019

Net (loss) income attributable to common stockholders (See note 1) $ (209,452 ) $ (28,313 )

Add: Depreciation of real estate assets 39,775
35,717
Depreciation of real estate assets attributable to joint ventures 8,982
9,123
Net (loss) income attributable to Class A Unitholders (See note 2) (3,094 ) 492
FFO attributable to common stockholders and unitholders (163,789 ) 17,019

Acquisition and pursuit costs 246
—
Loan cost amortization on acquisition term notes and loan coordination fees (See note 3) 678
487
Payment of costs related to property refinancing —
55
Internalization costs (See note 4) 178,793
45
Noncash dividends on preferred stock 544
96
Noncash (income) expense for current expected credit losses (See note 5) 4,530
—
Extraordinary Event - COVID-19 Expense 29
—
Earnest money forfeited by prospective asset purchaser (2,750 ) —
Core FFO attributable to common stockholders and unitholders 18,281
17,702

Add: Non-cash equity compensation to directors and executives 230
311
Amortization of loan closing costs (See note 6) 1,166
1,131
Depreciation/amortization of non-real estate assets 556
449
Net loan fees received (See note 7) 267
401
Deferred interest income received (See note 8) 8,277
2,760
Amortization of lease inducements (See note 9) 439
428
Non-operational miscellaneous revenues 2,750
—
Cash received in excess of amortization of purchase option termination revenues (See note 10) 760
296
Less: Non-cash loan interest income (See note 8) (3,019 ) (3,324 )
Cash received for sale of K Program securities in excess of noncash revenues —
(141 )
Cash paid for loan closing costs —
(3 )
Amortization of acquired real estate intangible liabilities and SLR (See note 11) (4,653 ) (3,758 )
Amortization of deferred revenues (See note 12) (940 ) (940 )
Normally recurring capital expenditures (See note 13) (1,418 ) (1,180 )

Adjusted funds from operations attributable to common stockholders and Unitholders $ 22,696
$ 14,132

Common Stock dividends and distributions to Unitholders declared:
Common Stock dividends $ 12,491
$ 11,195
Distributions to Unitholders (See note 2) 203
229
Total $ 12,694
$ 11,424

Common Stock dividends and Unitholder distributions per share $ 0.2625
$ 0.26

FFO per weighted average basic share of Common Stock and Unit outstanding $ (3.42 ) $ 0.39
Core FFO per weighted average basic share of Common Stock and Unit outstanding $ 0.38
$ 0.41
AFFO per weighted average basic share of Common Stock and Unit outstanding $ 0.47
$ 0.32

Weighted average shares of Common Stock and Units outstanding: ^(A)

Basic:
Common Stock 47,129
42,680
Class A Units 827
880
Common Stock and Class A Units 47,956
43,560

Diluted Common Stock and Class A Units ^(B)
47,957
44,199

Actual shares of Common Stock outstanding, including 7 and 6 unvested shares
of restricted Common Stock at March 31, 2020 and 2019, respectively. 47,585
43,244
Actual Class A Units outstanding at March 31, 2020 and 2019, respectively. 775
879
Total 48,360
44,123

(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 1.72% weighted average non-controlling interest in the Operating Partnership for the three-month period ended March 31, 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.


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 March 31,
(In thousands, except per-share figures)		2021		2020

Net loss attributable to common stockholders (See note 1)		$	(36,609)	$	(209,452)

Add:	Depreciation of real estate assets	36,832		39,775
	Amortization of acquired intangible assets and deferred leasing costs	8,710		8,982
	Gain on sale of real estate	(798)		—
	Net loss attributable to Class A Unitholders (See note 2)	(33)		(3,094)
FFO attributable to common stockholders and unitholders		8,102		(163,789)

	Acquisition and pursuit costs	4		246
	Loan cost amortization on acquisition term notes and loan coordination fees (See note 3)	424		678
	Internalization costs (See note 4)	245		178,793
	Deemed dividends for redemptions of and non-cash dividends on preferred stock	3,827		544
	Expenses related to the COVID-19 global pandemic (See note 5)	54		29
	Earnest money forfeited by prospective asset purchaser	—		(2,750)
Core FFO attributable to common stockholders and unitholders (A)		12,656		13,751

Add:	Non-cash equity compensation to directors and executives	574		230
	Noncash (income) expense for current expected credit losses (See note 6)	117		4,530
	Amortization of loan closing costs (See note 7)	1,212		1,166
	Depreciation/amortization of non-real estate assets	444		556
	Net loan origination fees received (See note 8)	817		267
	Deferred interest income received (See note 9)	2,917		8,277
	Amortization of lease inducements (See note 10)	448		439
	Earnest money forfeited by prospective asset purchaser	—		2,750
Less:	Cash received in excess of amortization of purchase option termination revenues (See note 11)	250		760
	Non-cash loan interest income (See note 9)	(2,874)		(3,019)
	Cash paid for loan closing costs	(10)		—
	Amortization of acquired real estate intangible liabilities and SLR (See note 12)	(3,315)		(4,653)
	Amortization of deferred revenues (See note 13)	(940)		(940)
	Normally recurring capital expenditures (See note 14)	(3,353)		(1,418)

AFFO attributable to common stockholders and Unitholders		$	8,943	$	22,696

Common Stock dividends and distributions to Unitholders declared:
	Common Stock dividends	$	8,991	$	12,491
	Distributions to Unitholders (See note 2)	96		203
	Total	$	9,087	$	12,694

Common Stock dividends and Unitholder distributions per share		$	0.1750	$	0.2625

FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.16	$	(3.42)
Core FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.25	$	0.29
AFFO per weighted average basic share of Common Stock and Unit outstanding		$	0.18	$	0.47

Weighted average shares of Common Stock and Units outstanding:
	Basic:
	Common Stock	50,033		47,129
	Class A Units	610		827
	Common Stock and Class A Units	50,643		47,956

	Diluted Common Stock and Class A Units (See note 15)	50,971		47,957

Actual shares of Common Stock outstanding, including 809 and 7 unvested shares
of restricted Common Stock at March 31, 2021 and 2020, respectively.		50,904		47,585
Actual Class A Units outstanding at March 31, 2021 and 2020, respectively.		548		775
	Total	51,452		48,360

(A) Our Core FFO result for the three-month period ended March 31, 2020 has been amended to reflect the movement of the adjustment for expense for current expected credit losses from an adjustment for Core FFO to an adjustment for AFFO.

See Notes to Reconciliation of FFO, Core FFO and AFFO to Net Income (Loss) Attributable to Common ~~Stockholders.~~Stockholders

Notes to Reconciliations of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO to

Net ~~Income (Loss)~~Loss Attributable to Common Stockholders

Rental and other property revenues and property operating expenses for the quarter ended March 31, 2020 include activity for the properties acquired during the period only from their respective dates of acquisition. In addition, the first quarter 2020 includes activity for the properties acquired since March 31, 2019. Rental and other property revenues and expenses for the first quarter 2019 include activity for the acquisitions made during that period only from their respective dates of acquisition.

Non-controlling interests in Preferred Apartment Communities Operating Partnership, L.P., or our Operating Partnership, consisted of a total of 774,687 Class A Units as of March 31, 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 1.72% and 2.02% for the three-month periods ended March 31, 2020 and 2019, respectively.

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 March 31, 2020, aggregate unamortized loan coordination fees were approximately $14.0 million, which will be amortized over a weighted average remaining loan life of approximately 10.3 years.


4)	This adjustment reflects the add-back of consideration paid to the owners of the Former Manager and due diligence and pursuit costs incurred by the Company related to the internalization of the functions performed by the Former Manager.

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.

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 March 31, 2020, aggregate unamortized loan costs were approximately $25.2 million, which will be amortized over a weighted average remaining loan life of approximately 9.1 years.

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 8).


8)	This adjustment reflects the receipt during the periods presented of additional interest income (described in note 7 above) which was earned and accrued prior to those periods presented on various real estate loans.


9)	~~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.~~

~~10)~~

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 the quarters

1)Rental and other property revenues and property operating expenses for the three-months ended March 31, 2021 include activity for the properties acquired since March 31, 2020. Rental and other property revenues and expenses for the three-months ended March 31, 2020 include activity for the acquisitions made during that period only from their respective dates of acquisition.

2)Non-controlling interests in our Operating Partnership consisted of a total of 548,369 Class A Units as of March 31, 2021. 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 1.20% and ~~2019,~~1.72% for the three-month periods ended March 31, 2021 and 2020, respectively.

3) We paid loan coordination fees to 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 March 31, 2021, aggregate unamortized loan coordination fees were approximately $11.3 million, which will be amortized over a weighted average remaining loan life of approximately 10.3 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 additive adjustment to FFO consists of non-recurring 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 ~~had~~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.

6) 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. More information on our expected credit loss reserves may be found in note 4 of our consolidated financial statements.

7) 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. 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 March 31, 2021, unamortized loan costs on all the Company's indebtedness were approximately $30.0 million, which will be amortized over a weighted average remaining loan life of approximately 8.9 years.

8) 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).

9) This adjustment reflects the receipt during the periods presented of additional interest income (described in note 8 above) which was earned and accrued on various real estate loans prior to those periods and previously deducted in our calculation of AFFO.

10) 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.

11) Occasionally we receive fees in exchange for the termination of our purchase options related to certain multifamily communities. These fees are recorded as revenue over the period beginning on the date of termination 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 ~~excess~~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 periods in which recognized termination fee revenues exceeded the amount of cash received, a negative adjustment is shown to Core FFO in our calculation of AFFO; for periods in which cash received exceeded the amount of recognized termination fee revenues, ~~resulting in the positive adjustments~~an additive adjustment is shown to Core FFO in our calculation of AFFO.

~~11)~~

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 March 31, 2020, the balance of unamortized below-market lease intangibles was approximately $60.5 million, which will be recognized over a weighted average remaining lease period of approximately 9.1 years.

12) 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 March 31, 2021, the balance of unamortized below-market lease intangibles was approximately $49.9 million, which will be recognized over a weighted average remaining lease period of approximately 8.6 years.


~~12)~~	~~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.~~

13) 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.

~~13)~~

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 $40,000 of recurring capitalized expenditures incurred at our corporate offices during the three months ended March 31, 2020.

14) 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 $18,000 of recurring capitalized expenditures incurred at our corporate offices during the three-months ended March 31, 2021. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures.

15) Since our AFFO results are positive for the periods reflected, 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.

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,~~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,~~May 4, 2021, the Fourth Amended and Restated Credit Agreement, or the Amended and Restated Credit Agreement, was amended to extend the maturity to ~~December 12, 2021,~~May 4, 2024, with an option to extend the maturity date to ~~December 12, 2022,~~May 4, 2025, 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%~~2.50% to 3.50% per annum, depending upon our leverage ratio. The weighted average interest rate for the Revolving Line of Credit was ~~4.57%~~3.63% for the three months ended March 31, ~~2020.~~2021. 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%~~0.20% or ~~0.30%~~0.25% per annum, depending upon our outstanding Credit Facility balance. At March 31, 2021, we had $160.0 million available to be drawn by us on the Revolving Line of Credit.

The COVID-19 pandemic has the potential to affect our short-term cash flows, if multifamily tenants lose their jobs due to business closings, ~~smaller~~ retailers fall behind on their rent obligations, and our office tenants' businesses begin to similarly 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 manner other than we previously intended.

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 March 31, ~~2020,~~2021, we were in compliance with all covenants related

to the Fourth Amended and Restated Credit ~~Agreement.~~Agreement, as amended. 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 the 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 maturity date of March 1, 2022 and has two one-year extension options, subject to certain conditions described therein. At March 31, 2021, we had $90.0 million available to be drawn by us on the Acquisition Facility.

Our net cash provided by operating activities for the three-month period ended March 31, 2021 was approximately $48.4 million and net cash used byin operating activities for the three-month period ended March 31, 2020 was approximately $69.4 ~~million and net cash provided by operating activities for the three-month period ended March 31, 2019 was approximately $26.4~~ million. The Internalization transaction ~~reduced~~that closed in the ~~Company’s operating~~first quarter 2020 reflected one-time cash ~~flows by~~payments to the entities that owned the Former Manager and Former Sub-Manager that totaled approximately ~~$114~~$111.1 million, ~~for the quarter ended March 31, 2020.~~plus approximately $3.8 million in related professional fees.

The majority of our revenue is derived from residents and tenants under existing leases at our ~~multifamily communities, student housing~~residential 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 housing~~residential 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 primarily due to ~~a decrease in~~ the ~~weighted average accrued interest rate for 2019 and full~~ repayment of various loans and notes receivable. Additionally, the ~~Haven Campus Communities Charlotte Member, LLC~~Former Manager’s line of credit was repaid in ~~early 2019.~~full in conjunction with the Internalization transaction which closed on January 31, 2020.

Our net cash used in investing activities for the ~~quarters~~three-month periods ended March 31, ~~2020~~2021 and ~~2019~~2020 was approximately ~~$90.9~~$6.6 million and ~~$53.9~~$90.9 million, respectively. Cash disbursed for property acquisitions ~~increased from~~totaled approximately ~~$32.5 million in the 2019 period to~~ $125.1 million in the 2020 period. We had no asset acquisitions during the 2021 period.

Cash used in investing activities is primarily driven by acquisitions and dispositions of ~~multifamily properties, student housing~~multifamily 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.

For the three-month period ended March 31, ~~2020,~~2021, our capital expenditures for our multifamily communities, not including changes in related payables, were as follows:

Capital Expenditures
Recurring Non-recurring Total
(In thousands, except per-unit amounts) Amount Per Unit Amount Per Unit Amount Per Unit
Appliances
$ 176
$ 16.87
$ —
$ —
$ 176
$ 16.87
Carpets 305
29.18
—
—
305
29.18
Wood flooring / vinyl 20
1.95
106
10.13
126
12.08
Blinds and ceiling fans 31
3.01
—
—
31
3.01
Fire safety —
—
44
4.22
44
4.22
Furnace, air (HVAC) 61
5.83
—
—
61
5.83
Computers, equipment, misc. 5
0.48
57
5.47
62
5.95
Elevators —
—
16
1.56
16
1.56
Exterior painting —
—
628
60.11
628
60.11
Leasing office / common amenities 30
2.86
263
25.16
293
28.02
Major structural —
—
407
38.94
407
38.94
Cabinets & countertops and unit upgrades —
—
39
3.76
39
3.76
Landscaping & fencing —
—
163
15.61
163
15.61
Parking lot —
—
21
1.98
21
1.98
Signage and sanitation —
—
19
1.84
19
1.84

$ 628
$ 60.18
$ 1,763
$ 168.78
$ 2,391
$ 228.96

~~For the three-month period ended March 31, 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)														Recurring				Non-recurring				Total
														Amount		Per Unit		Amount		Per Unit		Amount		Per Unit
Appliances	$	29	$	4.80	$	—	$	—	$	29	$	4.80	Appliances	$	173	$	15.55	$	—	$	—	$	173	$	15.55
Carpets	7		1.13		—		—		7		1.13		Carpets	471		42.26		—		—		471		42.26
Wood flooring / vinyl	—		—		—		—		—		—		Wood flooring / vinyl	84		7.49		96		8.63		180		16.12
Blinds and ceiling fans	2		0.27		—		—		2		0.27		Blinds and ceiling fans	44		3.92		—		—		44		3.92
Fire safety	—		—		—		—		—		—		Fire safety	—		—		142		12.72		142		12.72
Furnace, air (HVAC)	25		4.04		—		—		25		4.04		Furnace, air (HVAC)	111		10.00		—		—		111		10.00
Computers, equipment, misc.	—		—		2		0.35		2		0.35		Computers, equipment, misc.	10		0.89		78		6.97		88		7.86
Elevators	—		—		5		0.84		5		0.84		Elevators	—		—		10		0.90		10		0.90
Exterior painting	—		—		—		—		—		—
Exterior painting and lighting													Exterior painting and lighting	—		—		1,247		111.94		1,247		111.94
Leasing office / common amenities	2		0.33		13		2.10		15		2.43		Leasing office / common amenities	19		1.70		270		24.18		289		25.88
Major structural	—		—		541		88.71		541		88.71		Major structural	—		—		626		56.17		626		56.17
Cabinets & countertops and unit upgrades	—		—		2		0.31		2		0.31
Cabinets, countertops and unit upgrades													Cabinets, countertops and unit upgrades	—		—		103		9.27		103		9.27
Landscaping & fencing	—		—		54		8.78		54		8.78		Landscaping & fencing	—		—		119		10.68		119		10.68
Parking lot	—		—		—		—		—		—
Parking lots and sidewalks													Parking lots and sidewalks	—		—		131		11.80		131		11.80
Signage and sanitation	—		—		19		3.26		19		3.26		Signage and sanitation	—		—		25		2.20		25		2.20
Unit furniture	162		26.63						162		26.63

	$	227	$	37.20	$	636	$	104.35	$	863	$	141.55		$	912	$	81.81	$	2,847	$	255.46	$	3,759	$	337.27

In addition, second-generation capital expenditures within ~~our~~our grocery-anchored shopping center portfolio for the three-month periods ended March 31, 2021 and 2020 totaled $2.1 million and ~~2019~~$0.4 million, respectively, and within our office properties portfolio for the three-month periods ended March 31, 2021 and 2020 totaled ~~$432,000~~$0.4 million and ~~$264,000,~~$0.1 million, respectively. We define second-generation capital expenditures as those that exclude expenditures made in our ~~grocery-anchored~~grocery-anchored shopping center ~~portfolio~~and office properties portfolios (i) to lease space to

~~"first~~ "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 ownership standards, and (iii) for property re-developments and repositioning.

Second-generation capital expenditures within our office properties portfolio for the three-month periods ended March 31, 2020 and 2019 totaled $101,000 and $149,000, 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 March 31, ~~2020,~~2021, we had restricted cash of approximately ~~$20.7 million that was contractually~~$45.1 million. These funds are restricted for a variety of purposes, such as commitments to fund capital expenditures and lender required escrows for future real estate tax and insurance payments. At March 31, 2021, our restricted cash for future real estate tax and insurance payments was approximately $15.8 million. 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 since March 31, 2020, our lenders required us to put an additional $9.6 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 ~~property-level commitments such as tenant improvements~~performance conditions.

Net cash used in financing activities for the three-month period ended March 31, 2021 was approximately $40.1 million and ~~leasing commissions.~~

~~Net~~net cash provided by financing activities for the three-month ~~periods~~period ended March 31, 2020 ~~and 2019~~ was approximately $186.8 million. For the three-month period ended March 31, 2021, payments for redemptions of preferred stock totaled approximately $40.0 million, ~~and $65.8~~as compared to approximately $9.9 million ~~respectively. Our significant financing cash sources were approximately $89.4 million and $128.6 million of net~~for the three-month period ended March 31, 2020. Net proceeds from ~~the issuance~~draws on our revolving line of ~~Preferred Stock~~credit were $18.0 million for the ~~2020 and 2019 periods respectively, and approximately $81.4~~three-month period ended March 31, 2021, versus $191.5 million ~~and $57.3 million of net proceeds from the mortgage financing transactions~~ for the ~~2020 and 2019 periods respectively. The decrease in proceeds from the issuance of Preferred Stock in the 2020~~three-month period ~~was related to the closure of our $1.5 Billion Unit Offering during the quarter, as our Series A1/M1 offering was gaining traction as our primary equity raising vehicle.~~ended March 31, 2020.

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 Preferred Stock), through net cash generated from operating results.

Our board of directors reviews the Preferred Stock 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 Preferred Stock 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 Preferred Stock dividend payments to increase at a rate that approximates the rate at which we issue new shares of Preferred Stock, less those shares redeemed.

Our first quarter ~~2020~~2021 Common Stock dividend declaration ~~of $0.2625~~was $0.175 per share represented an overall increase of 110.0% from our initial Common Stock dividend per share of $0.125 following our IPO, or an average annual dividend growth rate of approximately 12.6% over the same period.share. 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 ~~are~~are and will continue to be adequately funded.

For the ~~quarter~~three months ended March 31, ~~2020,~~2021, our aggregate dividends and distributions totaled approximately ~~$45.8~~$42.9 million and our net cash ~~used~~provided by operating activities were approximately ~~$69.4~~$48.4 million. We expect our cash flow from operations over time to be sufficient to fund our quarterly Common Stock dividends, Class A Unit ~~distributions~~distributions and our monthly Preferred Stock dividends.

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 Series 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 September 27, 2019, our registration statement on Form S-3 (Registration No. 333-233576) (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 a maximum of 1,000,000 shares of Series A1 Redeemable Preferred Stock, Series M1 Redeemable Preferred Stock or a combination of both. The stated price per share is $1,000, subject to adjustment under certain conditions. The shares are being offered by our affiliate, Preferred Capital Securities, LLC (“PCS”), on a "reasonable best efforts" basis, and we intend to invest substantially all the net proceeds of the Series A1/M1 Offering in connection with the acquisition of multifamily communities, grocery-anchored shopping centers, office buildings, real estate loans and mortgages, other real estate-related investments and general working capital purposes.

At March 31, ~~2020,~~2021, the Company's active equity offerings consisted of:

~~For~~During the ~~three-month period ended March 31, 2020, no~~first quarter 2021, we issued and sold an aggregate of 37,898 shares of ~~our common stock were issued under our 2019 ATM Offering. Our $1.5 Billion Unit Offering expired on February 14, 2020.~~Preferred Stock and redeemed an aggregate of 44,220 shares of Preferred Stock, resulting in a net redemption of 6,322 shares of Preferred Stock, for a net redemption cost of $9.5 million.

Our ability to raise funds through the issuance of our ~~securities~~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 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 March 31, 2020, our outstanding debt (both secured and unsecured) was approximately 53% of the value of our tangible assets on a portfolio basis based on our estimates of fair market value at March 31, 2020. Neither our charter nor our by-laws contain any limitation on the amount of leverage we may use. These targets, however, will not apply to individual real estate assets or investments.

The amount of leverage we will place on ~~particular~~individual investments will depend on our assessment of a variety of factors which may ~~include the~~include:

•The anticipated liquidity and price volatility of the assets in our investment ~~portfolio, the~~portfolio;

•The potential for losses and loan extension risk in the ~~portfolio, the~~portfolio;

•The availability and cost of financing ~~the asset, our~~an asset;

•Our opinion of the creditworthiness of our financing ~~counterparties, the~~counterparties; and

•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 into the yield curve, ~~slope,~~ the level and volatility of

interest rates and their associated credit spreads, the underlying ~~collateral~~value 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~~an 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~~(who have been a significant and consistent source of ~~whom we have obtained single asset secured~~ financing ~~on all of our~~to the Company and the multifamily ~~communities)~~market generally), and as market conditions permit, access borrowings that are advantageous to us. It is important to note that Freddie Mac and Fannie Mae are both GSEs (Government Sponsored Entities). GSE reform has been a topic of debate in Congress for several years now, and it is possible that Congress or the FHFA (Federal Housing Finance Agency) could materially change the terms and/or availability of mortgage debt to the multifamily industry. These or other changes to the multifamily lending programs of Freddie Mac and Fannie Mae could materially affect our ability to acquire or refinance assets.

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 March 31, ~~2020, we had long term mortgage indebtedness of approximately $2.6 billion, all of which was incurred by us in connection with the acquisition or refinancing of our real estate properties.~~

~~As of March 31, 2020,~~2021, we had approximately ~~$120.1~~$32.3 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 ~~continue~~continue to be adequately funded through the sources discussed above.

~~Off-Balance Sheet Arrangements~~

As of March 31, ~~2020,~~2021, we had ~~1,543,260 outstanding Warrants from~~long term mortgage indebtedness of approximately $2.6 billion, all of which was incurred by us in connection with the acquisition or refinancing of our ~~sales of Units. The Warrants are exercisable by~~real estate properties, as presented in 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.~~ table:


		Principal balance as of								Interest only through date (1)
	Acquisition/ refinancing date	March 31, 2021		December 31, 2020		Maturity date	Interest rate		Basis point spread over 1 Month LIBOR

Multifamily communities:		(in thousands)
Summit Crossing	10/31/2017	$	36,736	$	36,929	11/1/2024	3.99	%	Fixed rate	N/A
Summit Crossing II	6/30/2020	20,700		20,700		7/1/2030	2.90	%	278	7/31/2022
Vineyards	9/26/2014	32,525		32,703		10/1/2021	3.68	%	Fixed rate	N/A
Avenues at Cypress	6/30/2020	28,366		28,366		7/1/2027	2.96	%	Fixed rate	7/31/2022
Avenues at Northpointe	6/29/2020	33,546		33,546		7/1/2027	2.79	%	Fixed rate	7/31/2022
Venue at Lakewood Ranch	6/30/2020	36,555		36,555		7/1/2030	2.99	%	Fixed rate	7/31/2022
Aster at Lely Resort	6/29/2020	50,400		50,400		7/1/2030	2.95	%	Fixed rate	7/31/2022
CityPark View	6/25/2020	29,000		29,000		7/1/2030	2.75	%	Fixed rate	7/31/2023
Citi Lakes	7/29/2019	40,124		40,324		8/1/2029	3.66	%	Fixed rate	N/A
Stone Creek	6/22/2017	19,362		19,451		7/1/2052	3.22	%	Fixed rate	N/A
Lenox Village Town Center	2/28/2019	37,997		38,169		3/1/2029	4.34	%	Fixed rate	N/A
Retreat at Lenox	12/21/2015	16,655		16,751		1/1/2023	4.04	%	Fixed rate	N/A
Overton Rise	2/1/2016	37,391		37,607		8/1/2026	3.98	%	Fixed rate	N/A
Village at Baldwin Park	2/28/2021	69,332		69,608		1/1/2054	3.27	%	Fixed rate	N/A
Crosstown Walk	6/30/2020	46,500		46,500		7/1/2027	2.92	%	Fixed rate	7/31/2022
525 Avalon Park	6/15/2017	62,921		63,256		7/1/2024	3.98	%	Fixed rate	N/A
City Vista	7/1/2016	32,745		32,938		7/1/2026	3.68	%	Fixed rate	N/A
Sorrel	8/24/2016	30,555		30,740		9/1/2023	3.44	%	Fixed rate	N/A
Citrus Village	7/10/2020	40,900		40,900		8/1/2027	2.95	%	Fixed rate	8/31/2022
Retreat at Greystone	11/21/2017	33,276		33,439		12/1/2024	4.31	%	Fixed rate	N/A
Founders Village	3/31/2017	29,484		29,635		4/1/2027	4.31	%	Fixed rate	N/A
Claiborne Crossing	4/26/2017	25,390		25,503		6/1/2054	2.89	%	Fixed rate	N/A
Luxe at Lakewood Ranch	7/26/2017	36,726		36,922		8/1/2027	3.93	%	Fixed rate	N/A
Adara at Overland Park	9/27/2017	29,866		30,024		4/1/2028	3.90	%	Fixed rate	N/A
Aldridge at Town Village	10/31/2017	35,712		35,892		11/1/2024	4.19	%	Fixed rate	N/A
Reserve at Summit Crossing	9/29/2017	18,790		18,893		10/1/2024	3.87	%	Fixed rate	N/A


Table continued from previous page		Principal balance as of						Interest only through date (1)
	Acquisition/ refinancing date	March 31, 2021	December 31, 2020	Maturity date	Interest rate		Basis point spread over 1 Month LIBOR
		(in thousands)
Overlook at Crosstown Walk	11/21/2017	20,929	21,038	12/1/2024	3.95	%	Fixed rate	N/A
Colony at Centerpointe	12/20/2017	31,272	31,445	10/1/2026	3.68	%	Fixed rate	N/A
Lux at Sorrel	1/9/2018	29,713	29,868	2/1/2030	3.91	%	Fixed rate	N/A
Green Park	2/28/2018	37,595	37,785	3/10/2028	4.09	%	Fixed rate	N/A
The Lodge at Hidden River	9/27/2018	40,017	40,204	10/1/2028	4.32	%	Fixed rate	N/A
Vestavia Reserve	11/9/2018	36,346	36,511	12/1/2030	4.40	%	Fixed rate	N/A
CityPark View South	11/15/2018	23,275	23,379	6/1/2029	4.51	%	Fixed rate	N/A
Artisan at Viera	8/8/2019	38,920	39,104	9/1/2029	3.93	%	Fixed rate	N/A
Five Oaks at Westchase	10/17/2019	30,657	30,818	11/1/2031	3.27	%	Fixed rate	N/A
Horizon at Wiregrass Ranch	4/23/2020	51,082	51,360	5/1/2030	2.90	%	Fixed rate	N/A
Parkside at the Beach	4/30/2020	45,037	45,037	5/1/2030	2.95	%	Fixed rate	N/A
The Blake	11/2/2020	44,435	44,435	5/1/2030	2.82	%	Fixed rate	12/31/2025
The Menlo	12/15/2020	47,000	47,000	1/1/2031	2.68	%	Fixed rate	1/31/2024

Total multifamily communities		1,387,832	1,392,735

Grocery-anchored shopping centers:
Spring Hill Plaza	9/17/2019	7,908	7,962	10/1/2031	3.72	%	Fixed rate	N/A
Parkway Town Centre	9/17/2019	7,814	7,866	10/1/2031	3.72	%	Fixed rate	N/A
Woodstock Crossing	8/8/2014	2,802	2,818	9/1/2021	4.71	%	Fixed rate	N/A
Deltona Landings	8/16/2019	6,103	6,141	9/1/2029	4.18	%	Fixed rate	N/A
Powder Springs	8/13/2019	7,698	7,749	9/1/2029	3.65	%	Fixed rate	(2)
Barclay Crossing	8/16/2019	6,049	6,086	9/1/2029	4.18	%	Fixed rate	N/A
Parkway Centre	8/16/2019	4,396	4,423	9/1/2029	4.18	%	Fixed rate	N/A
The Market at Salem Cove	10/6/2014	8,842	8,889	11/1/2024	4.21	%	Fixed rate	N/A
Independence Square	8/27/2015	11,114	11,184	9/1/2022	3.93	%	Fixed rate	N/A
Royal Lakes Marketplace	4/12/2019	9,287	9,345	5/1/2029	4.29	%	Fixed rate	N/A
The Overlook at Hamilton Place	12/22/2015	18,979	19,088	1/1/2026	4.19	%	Fixed rate	N/A
Summit Point	10/30/2015	11,022	11,118	11/1/2022	3.57	%	Fixed rate	N/A
East Gate Shopping Center	4/29/2016	5,077	5,118	5/1/2026	3.97	%	Fixed rate	N/A
Fury's Ferry	4/29/2016	5,865	5,912	5/1/2026	3.97	%	Fixed rate	N/A
Rosewood Shopping Center	4/29/2016	3,939	3,971	5/1/2026	3.97	%	Fixed rate	N/A
Southgate Village	4/29/2016	7,003	7,059	5/1/2026	3.97	%	Fixed rate	N/A


Table continued from previous page		Principal balance as of							Interest only through date (1)
	Acquisition/ refinancing date	March 31, 2021	December 31, 2020	Maturity date	Interest rate		Basis point spread over 1 Month LIBOR
		(in thousands)

The Market at Victory Village	5/16/2016	8,708	8,751	9/11/2024	4.40	%	Fixed rate		N/A
Wade Green Village	4/7/2016	7,445	7,488	5/1/2026	4.00	%	Fixed rate		N/A
Lakeland Plaza	7/15/2016	26,420	26,632	8/1/2026	3.85	%	Fixed rate		N/A
University Palms	8/8/2016	11,931	12,030	9/1/2026	3.45	%	Fixed rate		N/A
Cherokee Plaza	4/12/2019	24,125	24,277	5/1/2027	4.28	%	Fixed rate		N/A
Sandy Plains Exchange	8/8/2016	8,334	8,404	9/1/2026	3.45	%	Fixed rate		N/A
Thompson Bridge Commons	8/8/2016	11,141	11,234	9/1/2026	3.45	%	Fixed rate		N/A
Heritage Station	8/8/2016	8,246	8,315	9/1/2026	3.45	%	Fixed rate		N/A
Oak Park Village	8/8/2016	8,509	8,580	9/1/2026	3.45	%	Fixed rate		N/A
Shoppes of Parkland	8/8/2016	15,337	15,414	9/1/2023	4.67	%	Fixed rate		N/A
Champions Village	10/18/2016	27,400	27,400	11/1/2021	3.25	%	300	(3)	11/1/2021
Castleberry-Southard	4/21/2017	10,676	10,734	5/1/2027	3.99	%	Fixed rate		N/A
Rockbridge Village	6/6/2017	13,236	13,310	7/5/2027	3.73	%	Fixed rate		N/A
Irmo Station	7/26/2017	9,687	9,758	8/1/2030	3.94	%	Fixed rate		N/A
Maynard Crossing	8/25/2017	16,827	16,953	9/1/2032	3.74	%	Fixed rate		N/A
Woodmont Village	9/8/2017	8,038	8,096	10/1/2027	4.13	%	Fixed rate		N/A
West Town Market	9/22/2017	8,197	8,260	10/1/2025	3.65	%	Fixed rate		N/A
Crossroads Market	12/5/2017	17,496	17,622	1/1/2030	3.95	%	Fixed rate		N/A
Anderson Central	3/16/2018	11,171	11,246	4/1/2028	4.32	%	Fixed rate		N/A
Greensboro Village	5/22/2018	7,986	8,040	6/1/2028	4.20	%	Fixed rate		N/A
Governors Towne Square	5/22/2018	10,625	10,696	6/1/2028	4.20	%	Fixed rate		N/A
Conway Plaza	6/29/2018	9,330	9,375	7/5/2028	4.29	%	Fixed rate		N/A
Brawley Commons	7/6/2018	17,405	17,519	8/1/2028	4.36	%	Fixed rate		N/A
Hollymead Town Center	12/21/2018	25,980	26,139	1/1/2029	4.64	%	Fixed rate		N/A
Gayton Crossing	1/17/2019	17,173	17,276	2/1/2029	4.71	%	Fixed rate		N/A
Free State Shopping Center	5/28/2019	45,333	45,549	6/1/2029	3.99	%	Fixed rate		N/A
Polo Grounds Mall	6/12/2019	12,924	12,986	7/1/2034	3.93	%	Fixed rate		N/A
Disston Plaza	6/12/2019	17,494	17,578	7/1/2034	3.93	%	Fixed rate		N/A
Fairfield Shopping Center	8/16/2019	19,750	19,750	8/16/2026	2.16	%	205		8/16/2022
Berry Town Center	11/14/2019	11,735	11,794	12/1/2034	3.49	%	Fixed rate		N/A
Hanover Shopping Center	12/19/2019	31,013	31,217	12/19/2026	3.62	%	Fixed rate		N/A
Wakefield Crossing	1/29/2020	7,678	7,728	2/1/2032	3.66	%	Fixed rate		N/A

Total grocery-anchored shopping centers (4)		611,248	614,880


Table continued from previous page		Principal balance as of								Interest only through date (1)
	Acquisition/ refinancing date	March 31, 2021		December 31, 2020		Maturity date	Interest rate		Basis point spread over 1 Month LIBOR
		(in thousands)		(in thousands)

Office buildings:
Brookwood Center	8/29/2016	29,722		29,925		9/10/2031	3.52	%	Fixed rate	N/A
Galleria 75	11/4/2016	5,077		5,131		7/1/2022	4.25	%	Fixed rate	N/A
Three Ravinia	12/30/2016	115,500		115,500		1/1/2042	4.46	%	Fixed rate	1/31/2022
Westridge at La Cantera	11/13/2017	50,094		50,449		12/10/2028	4.10	%	Fixed rate	N/A
Armour Yards	1/29/2018	39,249		39,425		2/1/2028	4.10	%	Fixed rate	N/A
150 Fayetteville	7/31/2018	113,289		113,768		8/10/2028	4.27	%	Fixed rate	N/A
Capitol Towers	12/20/2018	122,181		122,720		1/10/2037	4.60	%	Fixed rate	N/A
CAPTRUST Tower	7/25/2019	82,650		82,650		8/1/2029	3.61	%	Fixed rate	7/31/2029
Morrocroft Centre	3/19/2020	70,000		70,000		4/10/2033	3.40	%	Fixed rate	4/10/2025
251 Armour Yards (5)	1/22/2020	5,674		3,522		1/22/2025	4.50	%	Fixed rate	1/21/2023

Total office buildings		633,436		633,090
Grand total		2,632,516		2,640,705
Less: deferred loan costs		(40,878)		(42,233)
Less: below market debt adjustment		(3,978)		(4,008)
Mortgage notes, net		$	2,587,660	$	2,594,464

Footnotes to Mortgage Notes Table

(1) Following the indicated interest only period (where applicable), monthly payments of accrued interest and principal are based on a 25 to 35-year amortization period through the maturity date.

(2) The mortgage has interest-only payment terms for the periods of June 1, 2023 through May 1, 2024 and from June 1, 2028 through May 1, 2029.

(3) The interest rate has a floor of 3.25%.

(4) Excludes mortgage debt on the Neapolitan Way grocery-anchored shopping center, which is held in an unconsolidated joint venture.

(5) A construction loan financing redevelopment of the property.

Contractual Obligations

As of March 31, 2020, a total of 531,522 Warrants had been exercised into 10,630,440 shares of Common stock. The 1,543,260 Warrants outstanding at March 31, 2020 have exercise prices that range between $14.80 and $26.34 per share. If all the Warrants outstanding at March 31, 2020 became exercisable and were exercised, gross proceeds to us would be approximately $602.8 million and we would as a result issue an additional 30,865,200 shares of Common Stock.

~~Contractual Obligations~~

~~As of March 31, 2020,~~2021, our contractual obligations consisted of the mortgage notes secured by our acquired properties and the Revolving Credit Facility. Based on a LIBOR rate of ~~1.0%~~0.11% at March 31, ~~2020,~~2021, our estimated future required payments on these instruments were:


(In thousands)	Total		Less than one year		1-3 years		3-5 years		More than five years
Principal payments:
Mortgage debt	$	2,632,516	$	104,249	$	191,589	$	364,489	$	1,972,189
Line of credit	40,000		40,000		—		—		—
Total principal	$	2,672,516	$	144,249	$	191,589	$	364,489	$	1,972,189
Interest payments:
Mortgage debt	$	774,813	$	98,104	$	184,689	$	159,012	$	333,008
Line of credit	88		88		—		—		—

Total interest	$	774,901	$	98,192	$	184,689	$	159,012	$	333,008

(In thousands) Total Less than one year 1-3 years 3-5 years More than five years
Mortgage debt obligations:
Interest $ 826,087
$ 105,608
$ 192,171
$ 172,795
$ 355,513
Principal 2,648,990
46,527
453,397
544,327
1,604,739
2019 Interim Term Loan:
Interest 413
413
—
—
—
Principal 191,500
191,500
—
—
—
Office space and equipment leases —
—
—
—
—
Total $ 3,666,990
$ 344,048
$ 645,568
$ 717,122
$ 1,960,252

In addition, we had unfunded real estate loan balances totaling approximately ~~$62.9~~$49.3 million at March 31, ~~2020.~~2021.


~~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 March 31, ~~2020,~~2021, we have variable rate mortgages on the properties listed in following table.


	Balance (in thousands)		Percentage of total mortgage indebtedness		LIBOR Cap		All-in Cap

Summit Crossing II	$	20,700			2.5	%	5.3	%
Total capped floating-rate debt	20,700		0.8	%

Champions Village	27,400				—		—
Fairfield Shopping Center	19,750				—		—
Total uncapped floating-rate debt	47,150		1.8	%

Total floating-rate debt	$	67,850	2.6	%

Balance
(in thousands)
Percentage of total mortgage indebtedness LIBOR Cap All-in Cap
Avenues at Creekside $ 38,664

5.00 % 6.6 %
The Tradition 30,000

3.25 % 7.0 %
The Bloc 28,966

3.25 % 6.8 %
Total capped floating-rate debt 97,630
3.7 %

Champions Village 27,400

Fairfield Shopping Center 19,750

Total uncapped floating-rate debt 47,150
1.8 %

Total floating-rate debt $ 144,780
5.5 %

Our Revolving Line of Credit accrued interest at a spread of 3.0% over LIBOR as of March 31, ~~2020;~~2021; 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 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

•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-based~~LIBOR-based indebtedness fluctuated by 100 basis points, our interest costs, based on outstanding borrowings at March 31, ~~2020,~~2021, would increase by approximately ~~$0.9 million~~$569,000 or decrease by approximately ~~$1.0 million~~$47,000 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 March 31, ~~2020,~~2021, 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 March 31, ~~2020~~2021 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.

PART II


~~Item 1.~~	~~Legal Proceedings~~

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~~properties are currently subject to any legal proceeding that we consider material.

~~Item 1A.Risk Factors~~

~~The Company is supplementing the risk factors set forth under~~ Item 1A. Risk Factors

A description of certain factors that may affect our future results and risk factors is set forth in~~its~~ our Annual Report on Form 10-K for the year ended December 31, ~~2019 ("2019 Annual Report") with the additional~~2020. As of March 31, 2021, there have been no material changes in our risk ~~factor set forth below. This supplemental risk factor should be read in conjunction with the risk~~ factors from those set forth in our Annual Report on Form 10-K for the ~~2019 Annual Report.~~year ended December 31, 2020.

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 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, and it remains unclear how long such measures will remain in place. As a result, the COVID-19 pandemic is negatively affecting almost every industry directly or indirectly.

~~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. Experts predict that the COVID-19 pandemic will trigger a period of global economic slowdown or a global recession. 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 may severely impact our office and retail tenants' business operations, financial condition, liquidity and access to capital resources and may cause one or more of our 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-19~~presents 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 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 could impact our cash availability and liquidity strength and, to the extent we make redemptions of our Preferred Stock in shares of our Common Stock, further dilute stockholder’s ownership interests; 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.~~	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.


~~Item 3.~~	Item 3. Defaults Upon Senior Securities

None.


~~Item 4.~~	Item 4. Mine Safety Disclosures

Not applicable.

Item 5.Other Information

On May 4, 2021 (the “Closing Date”), Preferred Apartment Communities Operating Partnership, L.P. (“PAC-OP”), PAC Carveout, LLC (“Carveout”; and together with PAC-OP, collectively, the “Borrowers”) and Preferred Apartment Communities, Inc. (the “Company”) entered into that certain Amendment No. 3 to Fourth Amended and Restated Credit Agreement (the “Amendment”) with the lenders from time to time party thereto (each a “Lender” and collectively, the “Lenders”), and KeyBank National Association, as administrative agent (“KeyBank”), to amend the terms of the Fourth Amended and Restated Credit Agreement dated as of August 5, 2016 that governs PAC-OP’s existing $200 million senior secured revolving credit facility (the “Revolving Facility”). The Amendment, among other things, extended the maturity date

for the Revolving Facility, added Carveout as a borrower and modified certain of the financial covenants. As of March 31, 2021, the outstanding balance on the Revolving Facility was approximately $40.0 million.

The Borrowers may use the available proceeds under the Revolving Facility, on an as needed basis, to fund investments, capital expenditures, dividends and working capital and other general corporate purposes. The Company is the general partner of, and as of March 31, 2021, owner of an approximately 98.9% interest in, PAC-OP, and PAC-OP is the owner of a 100% interest in Carveout.

The Revolving Facility has a maturity date of May 4, 2024, with an option, subject to certain conditions described therein, to extend the maturity date to May 4, 2025 (the “Maturity Date”). At the Borrowers’ election, loans made under the Revolving Facility bear interest at a rate per annum equal to either: (x) the greater of: (1) to KeyBank’s “prime rate”; (2) the Federal Funds Effective Rate plus 0.5%; and (3) the Adjusted Eurodollar Rate for a one-month interest period plus 1.00%, (the “Base Rate”), or (y) the one- or three-month per annum LIBOR for deposits in the applicable currency (the “Eurodollar Rate”), as selected by the Borrowers, plus an applicable margin.

On the Closing Date, the applicable margin for Eurodollar Rate loans under the Revolving Facility is 3.50% and the applicable margin for Base Rate loans under the Revolving Facility is 2.50%. Commencing with the fiscal quarter ending June 30, 2021, and continuing with each fiscal quarter thereafter, KeyBank shall determine the applicable margin in accordance with the following matrix:

~~Item 5.~~Leverage Ratio

~~Other Information~~

Applicable Revolving Loan Margin for Base Rate Loans

Applicable Revolving Loan Margin for Eurodollar Loans

Greater than or equal to 60.0%

250 bps

350 bps

Greater than or equal to 55.0% but less than 60.0%

200 bps

300 bps

Greater than or equal to 45.0% but less than 55.0%

175 bps

275 bps

Less than 45.0%

150 bps

250 bps

~~None.~~

Commitment fees on the average daily unused portion of the Revolving Facility are payable at a rate per annum of (i) 0.20% if the unused portion of the Revolving Facility is greater than or equal to 50% of the total commitment amount or (ii) 0.25% if the unused portion of the Revolving Facility is less than 50% of the total commitment amount. All Principal under the Revolving Facility is payable in full on the Maturity Date.

The Borrowers have the right to prepay amounts owing under the Revolving Facility, in whole or in part, without premium or penalty, subject to any breakage costs and minimum repayment amounts of $1,000,000 on Eurodollar Rate loans and $1,000,000 on Base Rate loans.

Interest on Base Rate loans is payable monthly in arrears on the first business day of each month. Interest on Eurodollar Rate loans is payable at the end of each interest rate period applicable thereto.

Borrowings under the Credit Facility continue to be secured by, among other things, a pledge by PAC-OP of 100% of the ownership of each of its current and future real estate loan subsidiaries (the “Real Estate Loan Subsidiaries”), a pledge by PAC-OP of 49% of the ownership (the “49% Pledged Interests”) of each of its current and future real estate subsidiaries (the “Real Estate Subsidiaries”), a joint and several repayment guaranty from the Company and each of the Real Estate Loan Subsidiaries, and a collateral assignment of loan documents by each of the Real Estate Loan Subsidiaries and PAC-OP. In addition, PAC-OP and certain of its wholly-owned indirect subsidiaries have entered into buy-sell agreements with KeyBank for each of the Real Estate Subsidiaries so that, following a foreclosure by KeyBank on the 49% Pledged Interests, KeyBank can trigger a process where PAC-OP or one of its wholly-owned indirect subsidiaries, as applicable, can buy the 49% Pledged Interest from KeyBank or KeyBank can buy the non-pledged 51% ownership interest of PAC-OP or one of its wholly-owned indirect subsidiaries, as applicable, in each of such Real Estate Subsidiaries.

Item 6.Exhibits

See Exhibit Index.


~~Item 6.~~EXHIBIT INDEX
Exhibit Number			~~Exhibits~~

~~See Exhibit Index.~~

Description

~~EXHIBIT INDEX~~
~~Exhibit~~ ~~Number~~ 3.1		~~Description~~Articles of Amendment and Restatement of Preferred Apartment Communities, Inc. (Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2021).
3.2			Fifth Amended and Restated By-laws of Preferred Apartment Communities, Inc. (Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2020).
~~2.1~~10.1	*		~~Stock Purchase~~Amendment No. 3 to that certain Fourth Amended and Restated Credit Agreement dated as of ~~January 31, 2020, by and~~August 5, 2016 among Preferred Apartment Communities, Inc., Preferred Apartment Communities Operating Partnership, L.P., ~~PAC Carveout, LLC, NELL Partners, Inc., NMA Holdings, Inc., Mortwat, LLC, Northside Partners Trust, Nancy Ann Richardson Williams 2017 Children’s Trust, Caitboo Family Trust, Fairmont Green Trust,~~the lenders party thereto and ~~Murphy Capital and Advisory Group LLC (incorporated by reference to Exhibit 2.1 to Form 8-K filed by the Company with the Securities and Exchange Commission on February 3, 2020)~~KeyBank National Association
~~10.1~~10.2	*+		~~Consulting~~Form of 2021 Performance Restricted Stock Unit Agreement between Leonard A. Silverstein and Preferred Apartment Communities, Inc. (incorporated by reference to Exhibit 10.20 to Form 10-K filed by the Company with the Securities and Exchange Commission on March 3, 2020)(Officer)
31.1	*		Certification of 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
~~101~~101.INS	*		Inline XBRL ~~(eXtensible Business Reporting Language). The following materials from Preferred Apartment Communities, Inc.’s Quarterly Report on Form 10-Q for~~Instance Document - the ~~period ended March 31, 2020 formatted~~instance document does not appear in ~~XBRL: (i) Condensed consolidated balance sheets at March 31, 2020 and December 31, 2019, (ii) Condensed consolidated statements of operations for~~ the three months ended March 31, 2020 and 2019, (iii) Condensed consolidated statements of stockholders' equity, (iv) Condensed consolidated statement of cash flows and (v) Notes to condensed 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

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements 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: May ~~11, 2020~~10, 2021

By:

/s/ Joel T. Murphy

Joel T. Murphy

Chief Executive Officer

(Principal Executive Officer)

Date: May ~~11, 2020~~10, 2021

By:

/s/ John A. Isakson

John A. Isakson

Chief Financial Officer

(Principal Financial Officer)


Preferred Apartment Communities, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

(In thousands, except per-share par values)	March 31, 2021		December 31, 2020
Assets
Real estate
Land	$	605,282	$	605,282
Building and improvements	3,039,783		3,034,727
Tenant improvements	186,843		184,288
Furniture, fixtures, and equipment	308,222		306,725
Construction in progress	11,649		12,269
Gross real estate	4,151,779		4,143,291
Less: accumulated depreciation	(546,634)		(509,547)
Net real estate	3,605,145		3,633,744
Real estate loan investments, net of deferred fee income and allowance for expected
credit loss of $10,950 and $10,261	280,938		279,895
Total real estate and real estate loan investments, net	3,886,083		3,913,639

Cash and cash equivalents	32,322		28,657
Restricted cash	45,052		47,059
Notes receivable	1,784		1,863
Note receivable and revolving lines of credit due from related parties	9,011		9,011
Accrued interest receivable on real estate loans	22,241		22,528
Acquired intangible assets, net of amortization of $178,468 and $169,718	118,388		127,138
Tenant lease inducements, net of amortization of $5,799 and $5,350	17,803		18,206
Investment in unconsolidated joint venture	6,463		6,657
Tenant receivables and other assets	95,821		106,321

Total assets	$	4,234,968	$	4,281,079

Liabilities and equity
Liabilities
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $44,856 and $46,241	$	2,587,660	$	2,594,464
Revolving line of credit	40,000		22,000
Unearned purchase option termination fees	473		723
Deferred revenue	35,070		36,010
Accounts payable and accrued expenses	37,237		41,912
Deferred liability to Former Manager	23,512		23,335
Contingent liability due to Former Manager	14,755		14,814
Accrued interest payable	7,997		7,877
Dividends and partnership distributions payable	20,410		20,137
Acquired below market lease intangibles, net of amortization of $36,062 and $34,006	49,879		51,934
Prepaid rent, security deposits, and other liabilities	31,122		29,425
Total liabilities	2,848,115		2,842,631

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 shares
issued; 1,694 and 1,735 shares outstanding at March 31, 2021 and December 31, 2020, respectively	17		17
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 184 and 149 shares
issued and outstanding at March 31, 2021 and December 31, 2020, respectively	1		1
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued;
87 and 89 shares outstanding at March 31, 2021 and December 31, 2020, respectively	1		1
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 22 and 19
shares issued; 21 and 19 shares outstanding at March 31, 2021 and December 31, 2020, respectively	0		0
Common Stock, $0.01 par value per share; 400,067 shares authorized; 50,095 and 49,994 shares issued and
outstanding at March 31, 2021 and December 31, 2020, respectively	501		500
Additional paid-in capital	1,582,193		1,631,646
Accumulated (deficit) earnings	(195,093)		(192,446)
Total stockholders' equity	1,387,620		1,439,719
Non-controlling interest	(767)		(1,271)
Total equity	1,386,853		1,438,448

Total liabilities and equity	$	4,234,968	$	4,281,079


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the three-month period ended March 31, 2021
(Unaudited)

(In thousands, except dividend per-share figures)	Redeemable Preferred Stock		Common Stock		Additional Paid in Capital		Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total Equity

Balance at January 1, 2021	$	19	$	500	$	1,631,646	$	(192,446)	$	1,439,719	$	(1,271)	$	1,438,448
Issuance of Preferred Stock	0		0		37,929		—		37,929		—		37,929
Redemptions of preferred stock	—		0		(40,038)		0		(40,038)		0		(40,038)
Syndication and offering costs	—		0		(4,388)		0		(4,388)		0		(4,388)
Equity compensation to executives and directors	0		0		613		0		613		0		613
Conversion of Class A Units to common stock	0		1		733		0		734		(734)		0
Current period amortization of Class B Units	0		0		0		0		0		(39)		(39)
Net loss	0		0		0		(2,647)		(2,647)		(62)		(2,709)
Reallocation of non-controlling interest to Class A Unitholders	0		0		(1,491)		0		(1,491)		1,491		0
Distributions to non-controlling interests	0		0		0		0		0		(56)		(56)
Distributions to Class A Unitholders	0		0		0		0		0		(96)		(96)
Dividends to Series A preferred stockholders ($5.00 per share per month)	0		0		(29,431)		0		(29,431)		0		(29,431)
Dividends to mShares preferred stockholders ($4.79 - $6.25 per share per month)	0		—		(1,493)		0		(1,493)		0		(1,493)
Dividends to Series A1/M1 preferred stockholders ($5.00 and $5.08 - $5.92 per share per month, respectively)	0		0		(2,893)		0		(2,893)		0		(2,893)
Dividends to PAC Carveout REIT preferred stockholders ($60 per share semi-annually)	0		0		(3)		0		(3)		0		(3)
Dividends to common stockholders ($0.175 per share)	0		0		(8,991)		0		(8,991)		0		(8,991)
Balance at March 31, 2021	$	19	$	501	$	1,582,193	$	(195,093)	$	1,387,620	$	(767)	$	1,386,853


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity, continued
For the three-month period ended March 31, 2020
(Unaudited)

(In thousands, except dividend per-share figures)	Series A, Series A1, Series M and Series M1 Redeemable Preferred Stock		Common Stock		Additional Paid in Capital		Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total 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	0		0		0		(7,414)		(7,414)		—		(7,414)
Issuance of Preferred Stock	1		0		98,552		0		98,553		—		98,553
Exercises of warrants	0		0		8		0		8		0		8
Redemptions of preferred stock	0		11		(9,911)		0		(9,900)		0		(9,900)
Syndication and offering costs	0		0		(12,360)		0		(12,360)		0		(12,360)
Equity compensation to executives and directors	0		0		156		0		156		0		156
Conversion of Class A Units to common stock	0		1		1,104		0		1,105		(1,105)		0
Current period amortization of Class B Units	0		0		0		0		0		74		74
Net loss	0		0		0		(176,382)		(176,382)		(3,141)		(179,523)
Contributions from non-controlling interests	0		0		—		—		0		201		201
Reallocation of minority interest in PAC OP	0		0		(513)		0		(513)		513		0
Distributions to non-controlling interests	0		0		0		0		0		(203)		(203)
Dividends to Series A preferred stockholders ($5.00 per share per month)	0		0		(31,100)		0		(31,100)		0		(31,100)
Dividends to mShares preferred stockholders ($4.79 - $6.25 per share per month)	0		—		(1,746)		0		(1,746)		0		(1,746)
Dividends to Series A1/M1 preferred stockholders ($5.00 and $5.08 - $5.92 per share per month, respectively)	0		0		(222)		0		(222)		0		(222)
Dividends to common stockholders ($0.2625 per share)	0		0		(12,491)		0		(12,491)		0		(12,491)
Balance at March 31, 2020	$	22	$	476	$	1,969,534	$	(191,040)	$	1,778,992	$	(843)	$	1,778,149


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

(In thousands)	Three-month periods ended March 31,
	2021		2020
Operating activities:
Net loss	$	(2,709)	$	(179,523)
Reconciliation of net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense	45,827		49,509
Amortization of above and below market leases	(1,399)		(1,705)
Amortization of deferred revenues and other non-cash revenues	(1,195)		(1,269)
Amortization of purchase option termination fees	(1,229)		(4,040)
Amortization of equity compensation, lease incentives and other non-cash expenses	1,229		849
Deferred loan cost amortization	1,609		1,781
Non-cash accrued interest income on real estate loan investments	(2,822)		(3,296)
Receipt of accrued interest income on real estate loan investments	3,109		8,865
Gains on sale of real estate and land condemnation, net	(798)		(479)
Loss from unconsolidated joint venture	194		0
Cash received for purchase option terminations	1,479		4,800
Increase in allowance for expected credit losses	522		5,133
Changes in operating assets and liabilities:
Decrease (increase) in tenant receivables and other assets	4,788		(10,775)
(Increase) in tenant lease incentives	(22)		0
(Decrease) increase in accounts payable and accrued expenses	(2,787)		24,190
Increase in deferred liability to Former Manager	0		22,851
Increase in contingent liability	0		15,000
Increase (decrease) in accrued interest, prepaid rents and other liabilities	2,589		(1,282)
Net cash provided by (used in) operating activities	48,385		(69,391)

Investing activities:
Investments in real estate loans	(19,657)		(11,631)
Repayments of real estate loans	17,925		53,896
Notes receivable issued	(64)		(249)
Notes receivable repaid	143		10,041
Notes receivable issued to and draws on line of credit by related parties	0		(9,624)
Repayments of notes receivable and lines of credit by related parties	0		4,546
Origination fees received on real estate loan investments	817		267
Acquisition of properties	0		(125,107)
Disposition of properties, net	4,798		0
Proceeds from land condemnation	0		738
Capital improvements to real estate assets	(10,263)		(12,817)
Deposits paid on acquisitions	(289)		(915)
Net cash used in investing activities	(6,590)		(90,855)


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


Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continued
(Unaudited)
(In thousands)	Three-month periods ended March 31,
	2021		2020

Financing activities:
Proceeds from mortgage notes payable	2,152		81,413
Repayments of mortgage notes payable	(10,340)		(42,252)
Payments for deposits and other mortgage loan costs	(285)		(1,694)
Proceeds from lines of credit	105,000		284,000
Payments on lines of credit	(87,000)		(92,500)
Repayment of the Term Loan	0		(70,000)
Proceeds from the sales of Preferred Stock and Units, net of offering costs	34,109		89,398
Proceeds from exercises of Warrants	0		44
Payments for redemptions of preferred stock	(40,018)		(9,890)
Common Stock dividends paid	(8,829)		(12,156)
Preferred stock dividends and Class A Unit distributions paid	(33,840)		(32,732)
Payments for deferred offering costs	(1,030)		(7,042)
Distributions from non-controlling interests	(56)		0
Contributions from non-controlling interests	0		197
Net cash (used in) provided by financing activities	(40,137)		186,786

Net increase in cash, cash equivalents and restricted cash	1,658		26,540
Cash, cash equivalents and restricted cash, beginning of year	75,716		137,253
Cash, cash equivalents and restricted cash, end of period	$	77,374	$	163,793

Supplemental cash flow information:
Cash paid for interest	$	25,231	$	27,190

Supplemental disclosure of non-cash investing and financing activities:
Accrued capital expenditures	$	3,756	$	5,552
Noncash extinguishment of notes receivable	$	0	$	20,865
Dividends payable - Common Stock	$	9,087	$	12,491
Dividends payable - Preferred Stock	$	11,323	$	11,924
Accrued and payable deferred offering costs	$	59	$	880

Reclass of offering costs from deferred asset to equity	$	647	$	3,189

Fair value issuances of equity compensation	$	6,168	$	226


x			~~QUARTERLY 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~~



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $.01 per share	APTS	NYSE



PART I - FINANCIAL INFORMATION

INDEX


Item 1.	Financial Statements	Page No.

	Condensed Consolidated Balance Sheets (unaudited) – as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020	2

	Condensed Consolidated Statements of Operations (unaudited) – Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	3

	Condensed Consolidated Statements of Stockholders' Equity (unaudited) – Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	4

	Condensed Consolidated Statements of Cash Flows (unaudited) – Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41 37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64 65

Item 4.	Controls and Procedures	64 66

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	66

Item 1A.	Risk Factors	66

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6766

Item 3.	Defaults Upon Senior Securities	6766

Item 4.	Mine Safety Disclosures	6766

Item 5.	Other Information	6766

Item 6.	Exhibits	6867



Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity
For the three-month periods ended March 31, 2020 and 2019

(In thousands, except dividend per-share figures)	Series A, Series A1, Series M and Series M1 Redeemable Preferred Stock		Common Stock		Additional Paid in Capital			Accumulated Earnings			Total Stockholders' Equity			Non-Controlling Interest			Total 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 shares	1		—		64,483			—			64,484			—			64,484
Issuance of Series A1/M1 preferred shares	—		—		34,069			—			34,069			—			34,069
Exercise of warrants	—		—		8			—			8			—			8
Redemptions of Series A preferred stock	—		11		(9,911		)	—			(9,900		)	—			(9,900		)
Syndication and offering costs	—		—		(12,360		)	—			(12,360		)	—			(12,360		)
Equity compensation to executives and directors	—		—		156			—			156			—			156
Conversion of Class A to common stock	—		1		1,104			—			1,105			(1,105		)	—
Current period amortization of Class B Units	—		—		—			—			—			74			74
Net income (loss)	—		—		—			(176,382		)	(176,382		)	(3,141		)	(179,523		)
Contributions from minority holders	—		—		—			—			—			201			201
Reallocation of minority interest in PAC OP	—		—		(513		)	—			(513		)	513			—
Distributions to minority holders	—		—		—			—			—			(203		)	(203		)
Dividends to Series A preferred stockholders
($5.00 per share per month)	—		—		(31,100		)	—			(31,100		)	—			(31,100		)
Dividends to mShares preferred stockholders
($4.79 - $6.25 per share per month)	—		—		(1,746		)	—			(1,746		)	—			(1,746		)
Dividends to Series A1/M1 preferred stockholders
($5.00 and $5.08 - $5.92 per share per month, respectively)	—		—		(222		)	—			(222		)	—			(222		)
Dividends to common stockholders ($0.2625 per share)	—		—		(12,491		)	—			(12,491		)	—			(12,491		)
Balance at March 31, 2020	$	22	$	476	$	1,969,534		$	(191,040	)	$	1,778,992		$	(843	)	$	1,778,149



Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows

(In thousands)	Three-month periods ended March 31,
	2020			2019
Operating activities:
Net (loss) income	$	(179,523	)	$	(2,280	)
Reconciliation of net (loss) income to net cash provided by operating activities:
Depreciation and amortization expense	49,509			45,289
Amortization of above and below market leases	(1,705		)	(1,436		)
Deferred revenues and fee income amortization	(1,269		)	(1,498		)
Purchase option termination fee amortization	(4,040		)	(4,233		)
Amortization of equity compensation, lease incentives, and other noncash expenses	849			805
Deferred loan cost amortization	1,781			1,552
(Increase) in accrued interest income on real estate loan investments	(3,296		)	(3,551		)
Receipt of accrued interest income on real estate loans	8,865			—
Gain on sale of trading investment	—			(4		)
Gain on land condemnation, net of expenses	(479		)	—
Cash received for purchase option terminations	4,800			1,330
Loss on extinguishment of debt	—			17
Increase in provision for expected credit losses	5,133			—
Mortgage interest received from consolidated VIEs	—			2,598
Mortgage interest paid to other participants of consolidated VIEs	—			(2,598		)
Changes in operating assets and liabilities:
(Increase) in tenant receivables and other assets	(10,775		)	(8,376		)
(Increase) in tenant lease incentives	—			(102		)
Increase in accounts payable and accrued expenses	24,190			1,290
Increase in deferred liability to Former Manager	22,851			—
Increase in Contingent liability	15,000			—
Decrease in accrued interest, prepaid rents and other liabilities	(1,282		)	(2,441		)
Net cash provided by operating activities	(69,391		)	26,362

Investing activities:
Investments in real estate loans	(11,631		)	(29,795		)
Repayments of real estate loans	53,896			—
Notes receivable issued	(249		)	(1,890		)
Notes receivable repaid	10,041			—
Note receivable issued to and draws on line of credit by related parties	(9,624		)	(13,952		)
Repayments of notes receivable and lines of credit by related parties	4,546			8,330
Origination fees received on real estate loan investments	267			801
Origination fees paid to Former Manager on real estate loan investments	—			(401		)
Purchases of mortgage backed securities (K program), net of acquisition costs	—			(30,934		)
Mortgage principal received from consolidated VIEs	—			679
Proceeds from sales of mortgage-backed securities	—			53,445
Acquisition of properties	(125,107		)	(32,540		)
Receipt of insurance proceeds for capital improvements	—			746
Proceeds from land condemnation	738			—
Additions to real estate assets - improvements	(12,817		)	(7,917		)
Deposits (paid) on acquisitions	(915		)	(511		)
Net cash used in investing activities	(90,855		)	(53,939		)

Financing activities:
Proceeds from mortgage notes payable	81,413			57,275
Repayments of mortgage notes payable	(42,252		)	(38,324		)
Payments for deposits and other mortgage loan costs	(1,694		)	(996		)
Payments to real estate loan participants	—			(5,223		)
Proceeds from lines of credit	284,000			126,200
Payments on lines of credit	(92,500		)	(166,200		)
Repayment of the Term Loan	(70,000		)	—
Mortgage principal paid to other participants of consolidated VIEs	—			(679		)

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



Standard			Description	Date of Adoption	Effect on the Consolidated Financial Statements
~~Recently Adopted Accounting Guidance~~
~~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 requires 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, 2020~~	Implementation of the new guidance on accounting for financial assets was limited to our real estate loan 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 other related receivables. The excess represents the amount of equity dollars in each real estate project, which are in a subordinate position to our real estate loan investments. We implemented this new guidance using the modified retrospective basis by recording a cumulative effect adjustment to retained earnings on January 1, 2020 of approximately $7.4 million.



~~Standard~~	~~Description~~	~~Date of Adoption~~	~~Effect 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.



	As of:
	March 31, 2020		December 31, 2019
Multifamily communities:
Properties⁽¹⁾	35	^{(1, 2)}	34
Units	10,637		10,245
New Market Properties:
Properties	54	⁽²⁾	52
Gross leasable area (square feet)⁽³⁾	6,208,278		6,041,629
Student housing properties:
Properties	8	⁽²⁾	8
Units	2,011		2,011
Beds	6,095		6,095
Preferred Office Properties:
Properties	9	^{(2, 4)}	10
Rentable square feet	3,169,000		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.
⁽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.



	Multifamily Community acquired during the three-month period ended
(In thousands, except amortization period data)	March 31, 2020

Land	$	6,842
Buildings and improvements	57,186
Furniture, fixtures and equipment	15,522
Lease intangibles	4,595
Prepaids & other assets	24
Accrued taxes	(273		)
Security deposits, prepaid rents, and other liabilities	(318		)

Net assets acquired	$	83,578

Cash paid	$	83,578
Mortgage debt, net	—

Total consideration	$	83,578

Three-months ended March 31, 2020
Revenue	$	—
Net income (loss)	$	(240	)


Capitalized acquisition costs incurred by the Company	$	171
Acquisition costs paid to related party (included above)	$	—
Remaining amortization period of intangible
assets and liabilities (months)	17.5



~~Maryland~~


2.	~~Summary of Significant Accounting Policies~~



	Student housing property acquired during the three-month period ended
(In thousands, except amortization period data)	March 31, 2019

Land	$	7,289
Buildings and improvements	68,163
Furniture, fixtures and equipment	16,966
Lease intangibles	983
Accrued taxes	(158		)
Security deposits, prepaid rents, and other liabilities	(2,579		)

Net assets acquired	$	90,664

Satisfaction of loan receivables	$	46,397
Cash paid	2,717
Mortgage debt, net	41,550

Total consideration	$	90,664

Three-months ended March 31, 2019
Revenue	$	1,991
Net income (loss)	$	94


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)	—



Final reserve ratio		Number of loans	Total amount due (in thousands)
0.50	%	3	$	56,904
1.00	%	1	6,370
1.50	%	9	109,735
3.00	%	2	28,992
4.00	%	1	125,778
36.26	%	1	5,924

		17	$	333,703



	Three-month periods ended March 31,				Unamortized expense as of March 31,
(In thousands)	2020		2019		2020

Class B Unit awards:
2016	$	—	$	2	$	—
2017	3		78		—
2018	71		72		216
Restricted stock grants:
2017	—		—		—
2018	—		90		—
2019	105		—		35
Restricted stock units:
2017	—		18		—
2018	14		19		63
2019	19		32		145
2020	18		—		202

Total	$	230	$	311	$	661



	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 ⁽²⁾	(128,258	)	—
Other	(22,722	)	(5,334	)

Total forfeitures	(189,264	)	(5,334	)

Units earned and converted into Class A Units	—		(281,058	)

Class B Units outstanding at March 31, 2020	66,823		—

Units unearned but vested	49,688		—
Units unearned and not yet vested	17,135		—

Class B Units outstanding at March 31, 2020	66,823		—

⁽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 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



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



	2020 Cash Collections of Certain Rental Revenues ⁽¹⁾
	January		February		March		April

Multifamily	99.4	%	99.4	%	99.1	%	97.7	%
Student housing	99.8	%	99.9	%	99.5	%	97.3	%
Office	99.7	%	99.5	%	98.7	%	96.3	%
Grocery-anchored retail:
Grocery anchors	100.0	%	100.0	%	100.0	%	100.0	%
In-line tenants	98.7	%	98.9	%	95.8	%	66.7	%

Occupancy:
Multifamily	95.1	%	95.5	%	95.7	%	94.3	%
Student housing	96.1	%	96.3	%	96.2	%	96.2	%
Percent leased:
Office	96.3	%	96.3	%	96.7	%	95.9	%
Grocery-anchored retail	92.9	%	92.6	%	92.6	%	92.5	%