UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20202021
OR
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission File No. 001-34995 
Preferred Apartment Communities, Inc.
(Exact name of registrant as specified in its charter)
Maryland27-1712193
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
3284 Northside Parkway NW, Suite 150, Atlanta, GA 30327
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (770) 818-4100
apts-20210930_g1.jpg 

Securities registered pursuant to Section 12(b) of the Act:  
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $.01 per shareAPTSNYSE


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  ☒    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  ☒    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 ☒   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  ☒
The number of shares outstanding of the registrant’s Common Stock, as of November 4, 20202, 2021 was 49,900,555.52,946,153.


PART I - FINANCIAL INFORMATION
INDEX
Item 1.Financial Statements
Page No.
 
Condensed Consolidated Balance Sheets (unaudited) – as of September 30, 20202021 and December 31, 201920202 
Condensed Consolidated Statements of Operations (unaudited) – Three Months and Nine Months Ended September 30, 20202021 and 201920203 
Condensed Consolidated Statements of Stockholders' Equity (unaudited) – Three Months and Nine Months Ended September 30, 20202021 and 201920204 
Condensed Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended September 30, 20202021 and 201920208 
Notes to Condensed Consolidated Financial Statements (unaudited)10 
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations5043 
Item 3.Quantitative and Qualitative Disclosures About Market Risk7874 
Item 4.Controls and Procedures7975 
PART II - OTHER INFORMATION
Item 1.Legal Proceedings7975 
Item 1A.Risk Factors7975 
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds8175 
Item 3.Defaults Upon Senior Securities8175 
Item 4.Mine Safety Disclosures8175 
Item 5.Other Information8175 
Item 6.Exhibits8176 











Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.
Condensed Consolidated Balance SheetsCondensed Consolidated Balance SheetsCondensed Consolidated Balance Sheets
(Unaudited)(Unaudited)(Unaudited)
(In thousands, except per-share par values)(In thousands, except per-share par values)September 30, 2020December 31, 2019(In thousands, except per-share par values)September 30, 2021December 31, 2020
AssetsAssetsAssets
Real estateReal estateReal estate
LandLand$657,286 $635,757 Land$553,123 $605,282 
Building and improvementsBuilding and improvements3,361,174 3,256,223 Building and improvements2,705,489 3,034,727 
Tenant improvementsTenant improvements175,400 167,275 Tenant improvements122,341 184,288 
Furniture, fixtures, and equipmentFurniture, fixtures, and equipment357,010 323,381 Furniture, fixtures, and equipment358,002 306,725 
Construction in progressConstruction in progress23,677 11,893 Construction in progress5,595 12,269 
Gross real estateGross real estate4,574,547 4,394,529 Gross real estate3,744,550 4,143,291 
Less: accumulated depreciationLess: accumulated depreciation(542,161)(421,551)Less: accumulated depreciation(553,697)(509,547)
Net real estateNet real estate4,032,386 3,972,978 Net real estate3,190,853 3,633,744 
Real estate loan investments, net of deferred fee income and allowance for expectedReal estate loan investments, net of deferred fee income and allowance for expectedReal estate loan investments, net of deferred fee income and allowance for expected
loan loss of $10,480 and $1,460307,033 325,790 
Real estate loan investments to related parties, net of deferred fee income and allowances for expected
loan losses and doubtful accounts of $3,548 and $1,4162,568 23,692 
credit loss of $9,350 and $10,261credit loss of $9,350 and $10,261181,623 279,895 
Total real estate and real estate loan investments, netTotal real estate and real estate loan investments, net4,341,987 4,322,460 Total real estate and real estate loan investments, net3,372,476 3,913,639 
Cash and cash equivalentsCash and cash equivalents30,337 94,381 Cash and cash equivalents54,568 28,657 
Restricted cashRestricted cash65,690 42,872 Restricted cash54,010 47,059 
Notes receivable2,894 17,079 
Note receivable and revolving lines of credit due from related parties9,011 24,838 
Promissory notes receivable (including 9,011 and 9,011 from related parties)Promissory notes receivable (including 9,011 and 9,011 from related parties)9,011 10,874 
Accrued interest receivable on real estate loansAccrued interest receivable on real estate loans24,784 25,755 Accrued interest receivable on real estate loans15,754 22,528 
Acquired intangible assets, net of amortization of $177,348 and $149,896133,297 154,803 
Deferred loan costs on Revolving Line of Credit, net of amortization of $1,362 and $849879 1,286 
Deferred offering costs4,721 2,147 
Tenant lease inducements, net of amortization of $4,902 and $3,56718,655 19,607 
Acquired intangible assets, net of amortization of $164,216 and $169,718Acquired intangible assets, net of amortization of $164,216 and $169,71867,897 127,138 
Tenant lease inducements, net of amortization of $6,666 and $5,350Tenant lease inducements, net of amortization of $6,666 and $5,35016,863 18,206 
Investment in unconsolidated joint ventureInvestment in unconsolidated joint venture6,851 0 Investment in unconsolidated joint venture6,101 6,657 
Tenant receivables and other assetsTenant receivables and other assets91,956 65,332 Tenant receivables and other assets62,355 106,321 
Total assetsTotal assets$4,731,062 $4,770,560 Total assets$3,659,035 $4,281,079 
Liabilities and equityLiabilities and equityLiabilities and equity
LiabilitiesLiabilitiesLiabilities
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $48,376 and $42,807$2,765,793 $2,567,022 
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $40,638 and $46,241Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $40,638 and $46,241$2,384,583 $2,594,464 
Revolving line of creditRevolving line of credit33,000 0 Revolving line of credit— 22,000 
Term note payable, net of deferred loan costs of $0 and $5110 69,489 
Unearned purchase option termination fees1,164 2,859 
Deferred revenueDeferred revenue36,909 39,722 Deferred revenue33,139 36,733 
Accounts payable and accrued expensesAccounts payable and accrued expenses66,283 42,191 Accounts payable and accrued expenses51,380 41,912 
Deferred liability to Former ManagerDeferred liability to Former Manager23,373 0 Deferred liability to Former Manager23,856 23,335 
Contingent liability due to Former ManagerContingent liability due to Former Manager14,867 0 Contingent liability due to Former Manager14,682 14,814 
Accrued interest payableAccrued interest payable8,538 8,152 Accrued interest payable6,638 7,877 
Dividends and partnership distributions payableDividends and partnership distributions payable20,971 23,519 Dividends and partnership distributions payable19,797 20,137 
Acquired below market lease intangibles, net of amortization of $31,511 and $23,65554,483 62,611 
Acquired below market lease intangibles, net of amortization of $35,540 and $34,006Acquired below market lease intangibles, net of amortization of $35,540 and $34,00637,097 51,934 
Prepaid rent, security deposits, and other liabilitiesPrepaid rent, security deposits, and other liabilities34,823 20,879 Prepaid rent, security deposits, and other liabilities27,769 29,425 
Total liabilitiesTotal liabilities3,060,204 2,836,444 Total liabilities2,598,941 2,842,631 
Commitments and contingencies (Note 11)Commitments and contingencies (Note 11)Commitments and contingencies (Note 11)
EquityEquityEquity
Stockholders' equityStockholders' equityStockholders' equity
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 and 2,161 shares
issued; 1,991 and 2,028 shares outstanding at September 30, 2020 and December 31, 2019, respectively20 20 
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 103 and 5 shares
issued and outstanding at September 30, 2020 and December 31, 2019, respectively0 0 
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 sharesSeries A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 shares
issued; 1,344 and 1,735 shares outstanding at September 30, 2021 and December 31, 2020, respectively issued; 1,344 and 1,735 shares outstanding at September 30, 2021 and December 31, 2020, respectively13 17 
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 247 and 149 sharesSeries A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 247 and 149 shares
issued; 246 and 149 shares outstanding at September 30, 2021 and December 31, 2020, respectively issued; 246 and 149 shares outstanding at September 30, 2021 and December 31, 2020, respectively2 1 
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued;Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued;Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued;
91 and 103 shares outstanding at September 30, 2020 and December 31, 2019, respectively1 1 
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 13 and zero shares
issued and outstanding at September 30, 2020 and December 31, 2019, respectively0 0 
Common Stock, $0.01 par value per share; 400,067 shares authorized; 49,901 and 46,443 shares issued and
outstanding at September 30, 2020 and December 31, 2019, respectively499 464 
84 and 89 shares outstanding at September 30, 2021 and December 31, 2020, respectively 84 and 89 shares outstanding at September 30, 2021 and December 31, 2020, respectively1 1 
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 34 and 19Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 34 and 19
shares issued; 32 and 19 shares outstanding at September 30, 2021 and December 31, 2020, respectively shares issued; 32 and 19 shares outstanding at September 30, 2021 and December 31, 2020, respectively— — 
Common Stock, $0.01 par value per share; 400,067 shares authorized; 52,897 and 49,994 shares issued andCommon Stock, $0.01 par value per share; 400,067 shares authorized; 52,897 and 49,994 shares issued and
outstanding at September 30, 2021 and December 31, 2020, respectivelyoutstanding at September 30, 2021 and December 31, 2020, respectively529 500 
Additional paid-in capitalAdditional paid-in capital1,882,149 1,938,057 Additional paid-in capital1,245,640 1,631,646 
Accumulated (deficit) earningsAccumulated (deficit) earnings(210,218)(7,244)Accumulated (deficit) earnings(183,562)(192,446)
Total stockholders' equityTotal stockholders' equity1,672,451 1,931,298 Total stockholders' equity1,062,623 1,439,719 
Non-controlling interestNon-controlling interest(1,593)2,818 Non-controlling interest(2,529)(1,271)
Total equityTotal equity1,670,858 1,934,116 Total equity1,060,094 1,438,448 
Total liabilities and equityTotal liabilities and equity$4,731,062 $4,770,560 Total liabilities and equity$3,659,035 $4,281,079 

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

Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of OperationsCondensed Consolidated Statements of OperationsCondensed Consolidated Statements of Operations
(Unaudited)(Unaudited)(Unaudited)
(In thousands, except per-share figures)(In thousands, except per-share figures)Three months ended September 30,Nine months ended September 30,(In thousands, except per-share figures)Three months ended September 30,Nine months ended September 30,
20202019202020192021202020212020
Revenues:Revenues:Revenues:
Rental and other property revenuesRental and other property revenues$114,831 $105,049 $338,271 $298,569 Rental and other property revenues$99,050 $114,831 $308,670 $338,271 
Interest income on loans and notes receivableInterest income on loans and notes receivable10,649 12,608 34,495 35,989 Interest income on loans and notes receivable11,241 10,649 34,567 34,495 
Interest income from related partiesInterest income from related parties609 2,546 3,750 9,980 Interest income from related parties415 609 1,230 3,750 
Miscellaneous revenuesMiscellaneous revenues608 0 4,560 1,023 Miscellaneous revenues306 363 951 3,798 
Total revenuesTotal revenues126,697 120,203 381,076 345,561 Total revenues111,012 126,452 345,418 380,314 
Operating expenses:Operating expenses:Operating expenses:
Property operating and maintenanceProperty operating and maintenance19,278 16,493 52,919 43,236 Property operating and maintenance14,956 19,437 45,785 53,566 
Property salary and benefits (including reimbursements of $0, $4,681, $1,430
and $12,973 to related party)6,054 5,360 16,965 14,845 
Property management costs (including $0, $2,565, $894 and $7,534 to related parties)983 3,534 4,028 10,174 
Property salary and benefits (including reimbursements ofProperty salary and benefits (including reimbursements of
$0, $0, $0 and $1,430 to related party)$0, $0, $0 and $1,430 to related party)4,929 6,054 14,664 16,965 
Property management costs (including $0, $0, $0 and $894 to related parties)Property management costs (including $0, $0, $0 and $894 to related parties)757 983 2,789 4,028 
Real estate taxes and insuranceReal estate taxes and insurance16,078 14,474 48,109 42,646 Real estate taxes and insurance14,506 16,369 46,155 48,831 
General and administrativeGeneral and administrative7,898 1,364 23,109 4,171 General and administrative7,772 7,203 23,007 20,978 
Equity compensation to directors and executivesEquity compensation to directors and executives582 305 1,058 922 Equity compensation to directors and executives817 582 2,316 1,058 
Depreciation and amortizationDepreciation and amortization51,794 46,239 153,096 137,191 Depreciation and amortization39,639 51,794 130,198 153,096 
Asset management and general and administrative expense fees to related partyAsset management and general and administrative expense fees to related party0 8,611 3,099 24,649 Asset management and general and administrative expense fees to related party— — — 3,099 
Provision for expected credit losses(152)0 5,463 0 
Management internalization expense577 818 179,828 1,143 
Allowance for expected credit lossesAllowance for expected credit losses265 (152)(58)5,463 
Management Internalization expenseManagement Internalization expense242 577 727 179,828 
Total operating expensesTotal operating expenses103,092 97,198 487,674 278,977 Total operating expenses83,883 102,847 265,583 486,912 
Waived asset management and general and administrative expense feesWaived asset management and general and administrative expense fees0 (3,081)(1,136)(8,505)Waived asset management and general and administrative expense fees— — — (1,136)
Net operating expensesNet operating expenses103,092 94,117 486,538 270,472 Net operating expenses83,883 102,847 265,583 485,776 
Operating (loss) income before gain on sale of real estate and loss from
unconsolidated joint venture23,605 26,086 (105,462)75,089 
Operating income (loss) before gains on sales of real estate and loss from unconsolidated joint ventureOperating income (loss) before gains on sales of real estate and loss from unconsolidated joint venture27,129 23,605 79,835 (105,462)
Loss from unconsolidated joint ventureLoss from unconsolidated joint venture(120)0 (120)0 Loss from unconsolidated joint venture(187)(120)(556)(120)
Gain on sale of real estate, netGain on sale of real estate, net3,261 0 3,261 4 Gain on sale of real estate, net7,942 3,261 8,740 3,261 
Operating (loss) income26,746 26,086 (102,321)75,093 
Operating income (loss)Operating income (loss)34,884 26,746 88,019 (102,321)
Interest expenseInterest expense29,879 28,799 90,608 83,166 Interest expense24,847 29,879 79,134 90,608 
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools0 591 0 1,316 
Loss on extinguishment of debtLoss on extinguishment of debt(518)(15)(6,674)(84)Loss on extinguishment of debt— (518)— (6,674)
Gain on land condemnationGain on land condemnation49 0 528 747 Gain on land condemnation— 49 — 528 
Loss on sale of real estate loan investmentLoss on sale of real estate loan investment(12)— (12)— 
Net loss(3,602)(2,137)(199,075)(6,094)
Consolidated net loss (income) attributable to non-controlling interests108 59 3,515 138 
Net income (loss)Net income (loss)10,025 (3,602)8,873 (199,075)
Net (income) loss attributable to non-controlling interestsNet (income) loss attributable to non-controlling interests(48)108 11 3,515 
Net loss attributable to the Company(3,494)(2,078)(195,560)(5,956)
Net income (loss) attributable to the CompanyNet income (loss) attributable to the Company9,977 (3,494)8,884 (195,560)
Dividends declared to preferred stockholders(35,909)(29,446)(104,601)(82,527)
Dividends to preferred stockholdersDividends to preferred stockholders(57,859)(35,909)(125,662)(104,601)
Earnings attributable to unvested restricted stockEarnings attributable to unvested restricted stock(96)(5)(109)(14)Earnings attributable to unvested restricted stock(117)(96)(397)(109)
Net loss attributable to common stockholdersNet loss attributable to common stockholders$(39,499)$(31,529)$(300,270)$(88,497)Net loss attributable to common stockholders$(47,999)$(39,499)$(117,175)$(300,270)
Net loss per share of Common Stock available
to common stockholders, basic and diluted$(0.79)$(0.71)$(6.21)$(2.02)
Weighted average number of shares of Common Stock outstanding,
basic and diluted49,689 44,703 48,351 43,703 
Net loss per share of Common Stock available to common stockholders, basic and dilutedNet loss per share of Common Stock available to common stockholders, basic and diluted$(0.92)$(0.79)$(2.30)$(6.21)
Weighted average number of shares of Common Stock outstanding, basic and dilutedWeighted average number of shares of Common Stock outstanding, basic and diluted52,455 49,689 51,011 48,351 

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

Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the three-month period ended September 30, 2020
(Unaudited)
(In thousands, except dividend per-share figures)Redeemable Preferred StockCommon StockAdditional Paid in CapitalAccumulated EarningsTotal Stockholders' EquityNon-Controlling InterestTotal Equity
Balance at July 1, 2020$21 $493 $1,917,212 $(206,724)$1,711,002 $(1,006)$1,709,996 
Issuance of Series A1/M1 preferred shares0 0 42,352 — 42,352 — 42,352 
At-the-market issuance of common stock0 6 4,608 — 4,614 — 4,614 
Redemptions of preferred stock— 0 (33,823)0 (33,823)0 (33,823)
Syndication and offering costs— — (4,127)— (4,127)— (4,127)
Equity compensation to executives and directors0 0 512 0 512 0 512 
Conversion of Class A Units to common stock0 0 (2)0 (2)2 0 
Current period amortization of Class B Units0 0 0 0 0 70 70 
Net loss0 0 0 (3,494)(3,494)(108)(3,602)
 Contributions from non-controlling interests0 0 — — 0 (98)(98)
Reallocation of non-controlling interest to Class A Unitholders0 0 202 0 202 (202)0 
Distributions to non-controlling interests0 0 0 0 0 (119)(119)
Distributions to Class A Unitholders0 0 0 0 0 (132)(132)
Dividends to Series A preferred stockholders
($5.00 per share per month)0 0 (32,964)0 (32,964)0 (32,964)
Dividends to mShares preferred stockholders
($4.79 - $6.25 per share per month)0 — (1,547)0 (1,547)0 (1,547)
Dividends to Series A1/M1 preferred stockholders
($5.00 and $5.08 - $5.92 per share per month, respectively)0 0 (1,398)0 (1,398)0 (1,398)
Dividends to common stockholders ($0.175 per share)0 0 (8,876)0 (8,876)0 (8,876)
Balance at September 30, 2020$21 $499 $1,882,149 $(210,218)$1,672,451 $(1,593)$1,670,858 
Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the three-month period ended September 30, 2021
(Unaudited)
(In thousands, except dividend per-share figures)Redeemable Preferred StockCommon StockAdditional-Paid in CapitalAccumulated EarningsTotal Stockholders' EquityNon-Controlling InterestTotal Equity
Balance at July 1, 2021$19$517$1,543,665$(193,539)$1,350,662$(282)$1,350,380
Issuance of Preferred Stock——36,882—36,882—36,882
 At-the-market issuance of common stock—1212,858—12,870—12,870
Redemptions of Preferred Stock(3)—(275,381)—(275,384)—(275,384)
Syndication and offering costs——(6,003)—(6,003)—(6,003)
Equity compensation to executives and directors——778—778—778
 Vesting of restricted stock———0—0—
Conversion of Class A Units to common stock——14—14(14)—
Current period amortization of Class B Units—————3939
Net income———9,9779,9774810,025
Reallocation of non-controlling interest to Class A Unitholders——118—118(118)—
Distributions to non-controlling interests—————(2,115)(2,115)
Distributions to Class A Unitholders—————(87)(87)
Dividends to preferred stockholders (see note 7)——(57,859)—(57,859)—(57,859)
Dividends to common stockholders (see note 7)——(9,432)—(9,432)—(9,432)
Balance at September 30, 2021$16 $529 $1,245,640 $(183,562)$1,062,623 $(2,529)$1,060,094 

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




4

Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity, continuedCondensed Consolidated Statements of Stockholders' Equity, continuedCondensed Consolidated Statements of Stockholders' Equity, continued
For the three-month period ended September 30, 2019
For the three-month period ended September 30, 2020For the three-month period ended September 30, 2020
(Unaudited)(Unaudited)(Unaudited)
(In thousands, except dividend per-share figures)(In thousands, except dividend per-share figures)Redeemable Preferred StockCommon StockAdditional Paid in CapitalAccumulated EarningsTotal Stockholders' EquityNon-Controlling InterestTotal Equity(In thousands, except dividend per-share figures)
Redeemable
Preferred
Stock		Common StockAdditional-Paid in CapitalAccumulated EarningsTotal Stockholders' EquityNon-Controlling InterestTotal Equity
Balance at July 1, 2019$19 $442 $1,784,197 $0 $1,784,658 $(488)$1,784,170 
Issuance of Series A preferred shares1 0 116,827 0 116,828 — 116,828 
Issuance of mShares0 0 17,156 0 17,156 — 17,156 
Redemptions of preferred stock0 9 (2,886)0 (2,877)0 (2,877)
Exercises of warrants0 2 2,480 0 2,482 0 2,482 
Balance at July 1, 2020Balance at July 1, 2020$21 $493 $1,917,212 $(206,724)$1,711,002 $(1,006)$1,709,996 
Issuance of Preferred StockIssuance of Preferred Stock— — 42,352 — 42,352 — 42,352 
At-the-market issuance of common stockAt-the-market issuance of common stock— 6 4,608 — 4,614 — 4,614 
Redemptions of Preferred StockRedemptions of Preferred Stock— — (33,823)— (33,823)— (33,823)
Syndication and offering costsSyndication and offering costs0 0 (13,553)0 (13,553)0 (13,553)Syndication and offering costs— — (4,127)— (4,127)— (4,127)
Equity compensation to executives and directorsEquity compensation to executives and directors0 0 155 0 155 0 155 Equity compensation to executives and directors— — 512 — 512 — 512 
Conversion of Class A Units to common stockConversion of Class A Units to common stock0 0 112 0 112 (112)0 Conversion of Class A Units to common stock— — (2)— (2)2 — 
Current period amortization of Class B UnitsCurrent period amortization of Class B Units0 0 0 0 0 150 150 Current period amortization of Class B Units— — — — — 70 70 
Net lossNet loss0 0 0 (2,078)(2,078)(59)(2,137)Net loss— — — (3,494)(3,494)(108)(3,602)
Contributions from non-controlling interestsContributions from non-controlling interests0 0 — — 0 2,050 2,050 Contributions from non-controlling interests— — — — — (98)(98)
Reallocation of non-controlling interest to Class A UnitholdersReallocation of non-controlling interest to Class A Unitholders0 0 305 0 305 (305)0 Reallocation of non-controlling interest to Class A Unitholders— — 202 — 202 (202)— 
Distributions to non-controlling interestsDistributions to non-controlling interests0 0 0 0 0 (225)(225)Distributions to non-controlling interests— — — — — (119)(119)
Dividends to Series A preferred stockholders
($5.00 per share per month)0 0 (30,094)1,983 (28,111)0 (28,111)
Dividends to mShares preferred stockholders
($4.79 - $6.25 per share per month)0 — (1,430)95 (1,335)0 (1,335)
Dividends to common stockholders ($0.2625 per share)0 0 (11,823)0 (11,823)0 (11,823)
Balance at September 30, 2019$20 $453 $1,861,446 $0 $1,861,919 $1,011 $1,862,930 
Distributions to Class A UnitholdersDistributions to Class A Unitholders— — — — — (132)(132)
Dividends to preferred stockholders (see note 7)Dividends to preferred stockholders (see note 7)— — (35,909)— (35,909)— (35,909)
Dividends to common stockholders (see note 7)Dividends to common stockholders (see note 7)— — (8,876)— (8,876)— (8,876)
Balance at September 30, 2020Balance at September 30, 2020$21 $499 $1,882,149 $(210,218)$1,672,451 $(1,593)$1,670,858 

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


5

Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the nine-month period ended September 30, 2021
(Unaudited)
(In thousands, except dividend per-share figures)Redeemable Preferred StockCommon StockAdditional-Paid in CapitalAccumulated EarningsTotal Stockholders' EquityNon-Controlling InterestTotal Equity
Balance at January 1, 2021$19 $500 $1,631,646 $(192,446)$1,439,719 $(1,271)$1,438,448 
Issuance of Preferred Stock1 — 112,589 — 112,590 — 112,590 
 At-the-market issuance of common stock— 26 27,949 — 27,975 — 27,975 
Redemptions of Preferred Stock(4)— (358,691)— (358,695)— (358,695)
Syndication and offering costs— — (15,462)— (15,462)— (15,462)
Equity compensation to executives and directors— — 2,194 — 2,194 — 2,194 
 Vesting of restricted stock— 1 (1)— — — — 
Conversion of Class A Units to common stock— 2 1,353 — 1,355 (1,355)— 
Current period amortization of Class B Units— — — — — — — 
Net income (loss)— — — 8,884 8,884 (11)8,873 
Reallocation of non-controlling interest to Class A Unitholders— — (2,593)— (2,593)2,593 — 
Distributions to non-controlling interests— — — — — (2,215)(2,215)
Distributions to Class A Unitholders— — — — — (270)(270)
Dividends to preferred stockholders (see note 7)— — (125,662)— (125,662)— (125,662)
Dividends to common stockholders (see note 7)— — (27,682)— (27,682)— (27,682)
Balance at September 30, 2021$16 $529 $1,245,640 $1245640000$(183,562)$1,062,623 $(2,529)$1,060,094 

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












56



Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity, continuedCondensed Consolidated Statements of Stockholders' Equity, continuedCondensed Consolidated Statements of Stockholders' Equity, continued
For the nine-month period ended September 30, 2020For the nine-month period ended September 30, 2020For the nine-month period ended September 30, 2020
(Unaudited)(Unaudited)(Unaudited)
(In thousands, except dividend per-share figures)(In thousands, except dividend per-share figures)Redeemable Preferred StockCommon StockAdditional Paid in CapitalAccumulated EarningsTotal Stockholders' EquityNon-Controlling InterestTotal Equity(In thousands, except dividend per-share figures)
Redeemable
Preferred
Stock		Common StockAdditional-Paid in CapitalAccumulated EarningsTotal Stockholders' EquityNon-Controlling InterestTotal Equity
Balance at January 1, 2020Balance at January 1, 2020$21 $464 $1,938,057 $(7,244)$1,931,298 $2,818 $1,934,116 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		Cumulative adjustment to reflect the adoption
of ASU 2016-13		— — — (7,414)(7,414)— (7,414)Cumulative adjustment to reflect the adoption of ASU 2016-13— — — (7,414)(7,414)— (7,414)
Issuance of Series A preferred shares1 0 64,483 — 64,484 — 64,484 
Issuance of Series A1/M1 preferred shares1 0 110,946 — 110,947 — 110,947 
Issuance of Preferred StockIssuance of Preferred Stock2 — 175,429 — 175,431 — 175,431��
At-the-market issuance of common stockAt-the-market issuance of common stock— 6 4,608 — 4,614 — 4,614 At-the-market issuance of common stock— 6 4,608 — 4,614 — 4,614 
Exercise of warrants0 0 8 0 8 0 8 
Redemptions of preferred stock(2)28 (82,058)0 (82,032)0 (82,032)
Exercises of warrantsExercises of warrants— — 8 — 8 — 8 
Redemptions of Preferred StockRedemptions of Preferred Stock(2)28 (82,058)— (82,032)— (82,032)
Syndication and offering costsSyndication and offering costs0 0 (20,775)0 (20,775)0 (20,775)Syndication and offering costs— — (20,775)— (20,775)— (20,775)
Equity compensation to executives and directorsEquity compensation to executives and directors0 0 864 0 864 0 864 Equity compensation to executives and directors— — 864 — 864 — 864 
Conversion of Class A Units to common stockConversion of Class A Units to common stock0 1 1,381 0 1,382 (1,382)0 Conversion of Class A Units to common stock— 1 1,381 — 1,382 (1,382)— 
Current period amortization of Class B UnitsCurrent period amortization of Class B Units0 0 0 0 0 194 194 Current period amortization of Class B Units— — — — — 194 194 
Net lossNet loss0 0 0 (195,560)(195,560)(3,515)(199,075)Net loss— — — (195,560)(195,560)(3,515)(199,075)
Contributions from non-controlling interests Contributions from non-controlling interests0 0 — — 0 103 103 Contributions from non-controlling interests— — — — — 103 103 
Reallocation of non-controlling interest to Class A UnitholdersReallocation of non-controlling interest to Class A Unitholders0 0 (773)0 (773)773 0 Reallocation of non-controlling interest to Class A Unitholders— — (773)— (773)773 — 
Distributions to non-controlling interestsDistributions to non-controlling interests0 0 0 0 0 (119)(119)Distributions to non-controlling interests— — — — — (119)(119)
Distributions to Class A UnitholdersDistributions to Class A Unitholders0 0 0 0 0 (465)(465)Distributions to Class A Unitholders— — — — — (465)(465)
Dividends to Series A preferred stockholders
($5.00 per share per month)0 0 (97,272)0 (97,272)0 (97,272)
Dividends to mShares preferred stockholders
($4.79 - $6.25 per share per month)0 — (4,903)0 (4,903)0 (4,903)
Dividends to Series A1/M1 preferred stockholders
($5.00 and $5.08 - $5.92 per share per month, respectively)0 0 (2,426)0 (2,426)0 (2,426)
Dividends to common stockholders ($0.6125 per share)0 0 (29,991)0 (29,991)0 (29,991)
Dividends to preferred stockholders (see note 7)Dividends to preferred stockholders (see note 7)— — (104,601)— (104,601)— (104,601)
Dividends to common stockholders (see note 7)Dividends to common stockholders (see note 7)— — (29,991)— (29,991)— (29,991)
Balance at September 30, 2020Balance at September 30, 2020$21 $499 $1,882,149 $(210,218)$1,672,451 $(1,593)$1,670,858 Balance at September 30, 2020$21 21$499 $1,882,149 $(210,218)$1,672,451 $(1,593)$1,670,858 

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


6





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

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





7

Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)Nine-month periods ended September 30,
20202019
Operating activities:
Net loss$(199,075)$(6,094)
Reconciliation of net loss to net cash provided by operating activities:
Depreciation and amortization expense153,096 137,191 
Amortization of above and below market leases(6,145)(4,525)
Deferred revenues and other noncash revenues amortization(3,710)(4,720)
Purchase option termination fee amortization(4,896)(6,900)
Amortization of equity compensation, lease incentives and other non-cash expenses3,027 2,414 
Deferred loan cost amortization5,177 4,752 
Non-cash accrued interest income on real estate loan investments(9,208)(10,206)
Receipt of accrued interest income on real estate loans10,179 2,318 
Gains on sales of real estate loan investments, net0 (751)
Gain on sale of real estate and land condemnation(3,789)0 
Loss from unconsolidated joint venture120 0 
Cash received for purchase option terminations4,800 1,330 
Loss on extinguishment of debt6,674 84 
Non-cash payment of interest on related party line of credit0 (637)
Mortgage interest received from consolidated VIEs0 13,398 
Mortgage interest paid to other participants of consolidated VIEs0 (13,398)
Increase in provision for expected credit losses5,463 0 
Changes in operating assets and liabilities:
(Increase) in tenant receivables and other assets(15,769)(12,379)
(Increase) in tenant lease incentives(382)(570)
Increase in accounts payable and accrued expenses46,821 22,399 
Increase in deferred liability to Former Manager22,851 0 
Increase in contingent liability15,013 0 
Decrease in accrued interest, prepaid rents and other liabilities(249)730 
Net cash provided by operating activities29,998 124,436 
Investing activities:
Investments in real estate loans(42,193)(74,668)
Repayments of real estate loans71,146 0 
Notes receivable issued(793)(5,399)
Notes receivable repaid15,012 2,169 
Note receivable issued to and draws on line of credit by related parties(9,624)(30,434)
Repayments of notes receivable and lines of credit by related parties4,546 26,222 
Proceeds from sale of real estate loan investment, net0 747 
Origination fees received on real estate loan investments882 1,347 
Origination fees paid to Former Manager on real estate loan investments0 (674)
Purchases of mortgage backed securities (K program), net of acquisition costs0 (18,656)
Mortgage principal received from consolidated VIEs0 5,024 
Purchases of mortgage backed securities0 (12,278)
Proceeds from sales of mortgage-backed securities0 53,445 
Acquisition of properties(185,970)(442,415)
Proceeds from sale of interest in unconsolidated joint venture19,221 0 
Return of capital from investment in unconsolidated joint venture12,250 0 
Receipt of insurance proceeds for capital improvements0 746 
Proceeds from land condemnation787 0 
Capital improvements to real estate assets(39,158)(34,251)
Investment in property development(50)0 
Deposits paid on acquisitions(1,227)(952)
Net cash used in investing activities(155,171)(530,027)
The accompanying notes are an integral part of these consolidated financial statements.
Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)Nine-month periods ended September 30,
20212020
Operating activities:
Net income (loss)$8,873 $(199,075)
Reconciliation of net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense130,198 153,096 
Amortization of above and below market leases(4,374)(6,145)
Amortization of deferred revenues and other non-cash revenues(4,195)(3,710)
Amortization of purchase option termination fees(7,074)(4,896)
Amortization of equity compensation, lease incentives and other non-cash expenses4,284 3,027 
Deferred loan cost amortization4,903 5,177 
Non-cash accrued interest income on real estate loan investments(7,958)(9,208)
Receipt of accrued interest income on real estate loan investments14,732 10,179 
Gains on sale of real estate, real estate loan and land, net(8,728)(3,789)
Loss from unconsolidated joint ventures556 120 
Cash received for purchase option terminations9,851 4,800 
Loss on extinguishment of debt— 6,674 
(Decrease) increase in allowance for expected credit losses(260)5,463 
Changes in operating assets and liabilities:
Decrease (increase) in tenant receivables and other assets2,344 (16,151)
Increase in accounts payable and accrued expenses19,160 46,821 
Increase in deferred liability to Former Manager— 22,851 
Increase in contingent liability— 15,013 
Increase (decrease) in accrued interest, prepaid rents and other liabilities2,573 (249)
Net cash provided by (used in) operating activities164,885 29,998 
Investing activities:
Investments in real estate loans, net of origination fees(44,635)(41,311)
Repayments of real estate loans132,970 71,146 
Proceeds from sale of real estate loan investment12,706 — 
Notes receivable repaid (issued)1,863 14,219 
Related party notes and line of credit repaid (issued)— (5,078)
Acquisition of properties(335,206)(187,197)
Disposition of properties, net330,856 787 
Proceeds from sale of interest in a joint venture— 19,221 
Return of capital from investment in unconsolidated joint venture— 12,250 
Capital improvements to real estate assets(24,457)(38,784)
Investment in property development(546)(424)
Net cash provided by (used in) investing activities73,551 (155,171)
The accompanying notes are an integral part of these consolidated financial statements.
8

Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continuedConsolidated Statements of Cash Flows - continuedConsolidated Statements of Cash Flows - continued
(Unaudited)(Unaudited)(Unaudited)
(In thousands)(In thousands)Nine-month periods ended September 30,(In thousands)Nine-month periods ended September 30,
2020201920212020
Financing activities:Financing activities:Financing activities:
Proceeds from mortgage notes payableProceeds from mortgage notes payable377,749 329,905 Proceeds from mortgage notes payable286,495 377,749 
Repayments of mortgage notes payableRepayments of mortgage notes payable(173,409)(106,728)Repayments of mortgage notes payable(76,343)(173,409)
Payments for deposits and other mortgage loan costsPayments for deposits and other mortgage loan costs(10,911)(6,738)Payments for deposits and other mortgage loan costs(5,461)(10,911)
Debt prepayment and other debt extinguishment costs(5,733)0 
Payments to real estate loan participants0 (5,223)
Proceeds from lines of credit321,000 240,200 
Payments on lines of credit(288,000)(247,200)
Payments for debt prepayment and other debt extinguishment costsPayments for debt prepayment and other debt extinguishment costs— (5,733)
Proceeds from Revolving Line of CreditProceeds from Revolving Line of Credit283,000 321,000 
Payments on Revolving Line of CreditPayments on Revolving Line of Credit(305,000)(288,000)
Repayment of the Term LoanRepayment of the Term Loan(70,000)0 Repayment of the Term Loan— (70,000)
Mortgage principal paid to other participants of consolidated VIEs0 (5,024)
Proceeds from repurchase agreements0 4,857 
Repayments of repurchase agreements0 (4,857)
Proceeds from the sales of Preferred Stock and Units, net of offering costs and redemptions159,096 380,016 
Proceeds from exercises of Warrants24 9,875 
Proceeds from sales of Preferred Stock, net of offering costsProceeds from sales of Preferred Stock, net of offering costs101,960 159,096 
Payments for redemptions of preferred stockPayments for redemptions of preferred stock(82,003)(7,995)Payments for redemptions of preferred stock(358,620)(82,003)
Proceeds from sale of Common StockProceeds from sale of Common Stock4,522 0 Proceeds from sale of Common Stock27,553 4,546 
Common Stock dividends paidCommon Stock dividends paid(33,271)(33,617)Common Stock dividends paid(26,911)(33,271)
Preferred stock dividends and Class A Unit distributions paidPreferred stock dividends and Class A Unit distributions paid(104,428)(81,025)Preferred stock dividends and Class A Unit distributions paid(127,086)(104,428)
Payments for deferred offering costsPayments for deferred offering costs(10,669)(3,386)Payments for deferred offering costs(2,946)(10,669)
Contributions from non-controlling interests99 2,050 
Distributions to non-controlling interestsDistributions to non-controlling interests(119)0 Distributions to non-controlling interests(2,215)(20)
Net cash provided by financing activities83,947 465,110 
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(205,574)83,947 
Net increase (decrease) in cash, cash equivalents and restricted cashNet increase (decrease) in cash, cash equivalents and restricted cash(41,226)59,519 Net increase (decrease) in cash, cash equivalents and restricted cash32,862 (41,226)
Cash, cash equivalents and restricted cash, beginning of yearCash, cash equivalents and restricted cash, beginning of year137,253 87,690 Cash, cash equivalents and restricted cash, beginning of year75,716 137,253 
Cash, cash equivalents and restricted cash, end of periodCash, cash equivalents and restricted cash, end of period$96,027 $147,209 Cash, cash equivalents and restricted cash, end of period$108,578 $96,027 
Supplemental cash flow information:Supplemental cash flow information:Supplemental cash flow information:
Cash paid for interestCash paid for interest$84,172 $76,563 Cash paid for interest$74,874 $84,172 
Supplemental disclosure of non-cash investing and financing activities:Supplemental disclosure of non-cash investing and financing activities:Supplemental disclosure of non-cash investing and financing activities:
Accrued capital expendituresAccrued capital expenditures$6,067 $3,952 Accrued capital expenditures$1,302 $6,067 
Writeoff of fully depreciated or amortized assets and liabilities$2,473 $210 
Writeoff of fully amortized deferred loan costs$2,828 $1,850 
Consolidation of assets of VIEs$0 $270,669 
Consolidation of liabilities of VIEs$0 $270,669 
Noncash extinguishment of notes receivableNoncash extinguishment of notes receivable$20,865 $0 Noncash extinguishment of notes receivable$— $20,865 
Dividends payable - Common StockDividends payable - Common Stock$8,876 $11,823 Dividends payable - Common Stock$9,696 $8,876 
Dividends payable - Series A Preferred Stock$9,954 $9,534 
Dividends payable - mShares Preferred Stock$1,097 $714 
Dividends payable - A1/M1 Preferred Stock$545 $0 
Dividends declared but not yet due and payable$499 $358 
Partnership distributions payable to non-controlling interests$130 $225 
Accrued and payable deferred offering costs$38 $252 
Offering cost reimbursement to related party$40 $384 
Dividends payable - Preferred StockDividends payable - Preferred Stock$10,101 $12,095 
Reclass of offering costs from deferred asset to equityReclass of offering costs from deferred asset to equity$4,338 $7,508 Reclass of offering costs from deferred asset to equity$4,468 $4,338 
Loan receivables converted to equity for property acquisition$0 $47,797 
Noncash contribution of property into an unconsolidated joint venture$38,443 $0 
Noncash contribution of property into unconsolidated joint ventureNoncash contribution of property into unconsolidated joint venture$— $38,443 
Fair value issuances of equity compensationFair value issuances of equity compensation$6,461 $719 Fair value issuances of equity compensation$6,648 $6,461 
Mortgage loans assumed on acquisitions$0 $41,550 
Noncash repayment of mortgages through refinances$86,669 $65,607 
Noncash repayment of mortgages through refinanceNoncash repayment of mortgages through refinance$78,181 $86,669 
Operating lease liabilities assumed from Former ManagerOperating lease liabilities assumed from Former Manager$15,912 $0 Operating lease liabilities assumed from Former Manager$— $15,912 
Mortgages assumed by purchaser of propertyMortgages assumed by purchaser of property$425,636 $— 

    The accompanying notes are an integral part of these consolidated financial statements.
9
Preferred Apartment Communities, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 20202021


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 anchoredgrocery-anchored shopping centers, Class A office buildings, and student housing properties.centers. Preferred Apartment Communities’ investment objective is to generate attractive, stable returns for stockholders by investing in income-producing properties and acquiringacquiring or originating real estate loans. As of September 30, 2020,2021, the Company owned or was iinvnvestedested in 125107 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, or the Sub-Manager, or the Internalization, on January 31, 2020. Prior to the Internalization transaction, according to the Sixth Amended and Restated Management Agreement, effective as of June 3, 2016, among the Company, the Operating Partnership (as defined below), and the Former Manager, or the Former Management Agreement, the Company paid acquisition fees and other fees and expense reimbursements to the Former Manager. Following the Internalization transaction that closed on January 31, 2020 the Company no longer pays any fees or expense reimbursements to its Former Manager or Sub-Manager (see Note 6). We refer to this transaction as the Internalization.

As of September 30, 2020,2021, the Company had 49,900,55552,897,104 shares of common stock, par value $0.01 per share, or Common Stock, issued and outstanding and was the approximate 98.5%99.1% 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 742,413496,269 at September 30, 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 electhas 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, 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 ownsowned and conductsconducted 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 entitiesentities 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 withPartnership. 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’sCompany’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 and nine months ended September 30, 20202021 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 has had and will continue to have an adverse impact on economic and market conditions and trigger a period of economic slowdown in the United States and globally. The potential reach, severity and duration of impacts of the COVID-19 pandemic, and developments related to any variants, will cause our estimates and forecasts of future events to be inherently less certain. Actual results could differ from those estimates. Amounts are presented in thousands where indicated.






10
Preferred Apartment Communities, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 20202021



Reclassification Adjustments

The Company recorded certain reclassification adjustments on its Condensed Consolidated Statement of Operations for the three-month and nine-month periods ended September 30, 2019,2020 to conform the prior period presentation to the current presentation reflective of the internalized structure as shown in the table below. NoneThe adjustment is made to present sublease income received by the Company for a portion of theseits corporate office space as a net adjustment against rent expense, which is included in the general and administrative expense line on the consolidated statements of operations. Additionally, an adjustment has been made to present certain expenses such as franchise taxes and insurance claims within the real estate taxes and insurance line on the consolidated statements of operations. These reclassification adjustments were duehad no effect on previously-reported net loss attributable to error or misstatement.common stockholders.
For the three-month period ended September 30, 2019
(in thousands)As reported in Quarterly Report on Form 10-Q at September 30, 2019Reclassification adjustmentsAs reported in Quarterly Report on Form 10-Q at September 30, 2020
Rental revenues$101,817 $(101,817)$0 
Other property revenues$3,232 $(3,232)$0 
Rental and other property revenues$0 $105,049 $105,049 
Operating expenses:
Property operating and maintenance$14,928 $1,565 $16,493 
Real estate taxes$12,870 $(12,870)$0 
Real estate taxes and insurance$0 $14,474 $14,474 
General and administrative$1,898 $(534)$1,364 
Insurance, professional fees and other expenses$3,453 $(3,453)$0 
Management internalization expense$0 $818 $818 

For the three-month period ended September 30, 2020
(in thousands)As reported in Quarterly Report on Form 10-Q at September 30, 2020Reclassification adjustmentsAs reported in Quarterly Report on Form 10-Q at September 30, 2021
Revenues:
Miscellaneous revenues$608 $(245)$363 
Operating expenses:
Property operating and maintenance$19,278 $159 $19,437 
Real estate taxes and insurance$16,078 $291 $16,369 
General and administrative$7,898 $(695)$7,203 


For the nine-month period ended September 30, 2019
(in thousands)As reported in Quarterly Report on Form 10-Q at September 30, 2019Reclassification adjustmentsAs reported in Quarterly Report on Form 10-Q at September 30, 2020
Rental revenues$289,647 $(289,647)$0 
Other property revenues$8,922 $(8,922)$0 
Rental and other property revenues$0 $298,569 $298,569 
Operating expenses:
Property operating and maintenance$38,186 $5,050 $43,236 
Real estate taxes$37,914 $(37,914)$0 
Real estate taxes and insurance$0 $42,646 $42,646 
General and administrative$6,425 $(2,254)$4,171 
Insurance, professional fees and other expenses$8,671 $(8,671)$0 
Management internalization expense$0 $1,143 $1,143 
For the nine-month period ended September 30, 2020
(in thousands)As reported in Quarterly Report on Form 10-Q at September 30, 2020Reclassification adjustmentsAs reported in Quarterly Report on Form 10-Q at September 30, 2021
Revenues:
Miscellaneous revenues$4,560 $(762)$3,798 
Operating expenses:
Property operating and maintenance$52,919 $647 $53,566 
Real estate taxes and insurance$48,109 $722 $48,831 
General and administrative$23,109 $(2,131)$20,978 













11
Preferred Apartment Communities, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 20202021




2.Summary of Significant Accounting Policies

Impairment Assessment
The Company evaluatesCompany's significant accounting policies have not changed materially from those described in its tangible and identifiable intangible real estate assets for impairment when events suchAnnual Report on Form 10-K 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.December 31, 2020.

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 refined by the Company due to any subjective qualitative factors deemed pertinent and worthy 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.


12
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

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

Purchase Option Terminations

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

Revenue Recognition

Residential properties

Rental revenue is recognized when earned from residents of the Company's residential properties, 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 ASC 842, Leases, 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 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.

13
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

Revenue from reimbursements of the tenants' share of real estate taxes, insurance and common area maintenance, or CAM, costs represent non-lease component revenue. Having met the criteria that (i) the timing and pattern of transfer for the lease component and associated non-lease components are the same and (ii) that the lease component, if accounted for separately would be classified as an operating lease, the Company has elected the practical expedient under ASC 842, Leases, paragraph 10-15-42A, to elect reporting the lease component and non-lease components as one single component under rental and other property revenues 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 collection 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 elected to account for rent deferments provided to our residents and tenants, which were primarily related to a change of timing of rent payments with no significant changes to total payments or term, as a deferred payment in which we continue to recognize rental revenue on the existing straight-line basis over the remaining lease term and recognize any changes in payment through lease receivables, which is recorded in tenant receivables and other assets in our condensed consolidated balance sheet. Any deferment agreements which resulted in a significant change in lease term were accounted for as a modification under ASC 842.

The Company may provide grocery-anchored shopping center and office building tenants an allowance for the construction of leasehold improvements. These leasehold improvements are capitalized and depreciated over the shorter of the useful life of the improvements or the remaining lease term. If the allowance represents a payment for a purpose other than funding leasehold 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

14
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

improvement is deemed to be a “landlord asset,” and the tenant funded the tenant improvements, the cost is amortized over the term of the underlying lease with a corresponding recognition of rental revenues. In order to qualify as a landlord asset, the specifics of the tenant’s assets are reviewed, including the Company's approval of the tenant’s detailed expenditures, whether such assets may be usable by other future tenants, whether the Company has consent to alter or remove the assets from the premises and generally remain the Company's property at the end of the lease.

Gains on sales of real estate assets

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

Lessee accounting

The Company has evaluated its leases for which it is the lessee to determine the value of any right of use assets and related lease liabilities. All of these leases qualify as operating leases. The Company has 3 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 consolidated statements of operations within property operations and maintenance and expense for office rent and furniture and office equipment in the Company's corporate headquarters are included in general and administrative expense. See note 12 for more disclosures related to the Company's right of use assets and lease liabilities.

Investments in joint ventures

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

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

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

15
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

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

New Accounting Pronouncements
StandardDescriptionDate of AdoptionEffect on the Consolidated Financial Statements
Recently Adopted Accounting Guidance
ASU 2016-13, 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.

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


16
12
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

3. Real Estate Assets

The Company's real estate assets consisted of:
As of:As of:
September 30, 2020December 31, 2019September 30, 2021December 31, 2020
Residential properties:
Residential Properties:Residential Properties:
Properties (1,2)
Properties (1,2)
44 42 
Properties (1,2)
41 37 
UnitsUnits12,936 12,256 Units12,052 11,143 
Beds6,095 6,095 
New Market Properties:New Market Properties:New Market Properties:
Properties (2)
Properties (2)
54 52 
Properties (2)
54 54 
Gross leasable area (square feet) (3)
Gross leasable area (square feet) (3)
6,208,278 6,041,629 
Gross leasable area (square feet) (3)
6,208,278 6,208,278 
Preferred Office Properties:
Properties (2,4)
9 10 
Preferred Office Properties: (4)
Preferred Office Properties: (4)
Properties (2)
Properties (2)
3 9 
Rentable square feetRentable square feet1,241,000 3,169,000 
LandLand12
Rentable square feetRentable square feet3,169,000 3,204,000 Rentable square feet— 35,000 
(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.
(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.
(1) The acquired second phases of CityPark View and Crosstown Walk communities are managed in combination with the initial phases and so together are considered a single property, as is the Regent at Lenox Village within the Lenox Portfolio.
(2) One multifamily community, two student housing properties, two grocery-anchored shopping centers and two office buildings are owned through consolidated joint ventures. One grocery-anchored shopping center is an investment in an unconsolidated joint venture.
(2) One multifamily community and two grocery-anchored shopping centers are owned through consolidated joint ventures. One grocery-anchored shopping center is an investment in an unconsolidated joint venture.
(2) One multifamily community and two grocery-anchored shopping centers 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.
(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.
(3) The Company also owns approximately 47,600 square feet of gross leasable area of ground floor retail space which is embedded within the Lenox Portfolio and is not included in the totals above for New Market Properties.
(4) Excludes our 251 Armour property, comprising 35,000 rentable square feet that is under development and our 4th & Brevard land parcel, that is slated for future development.
(4) Seven of our office properties and the real estate loan investment supporting the 8West office building were sold during the third quarter 2021.
(4) Seven of our office properties and the real estate loan investment supporting the 8West office building were sold during the third quarter 2021.


Impacts of COVID-19 Pandemic

The COVID-19 pandemic emerged in December 2019 and has sincethat spread globally, including to every state inthroughout 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 is continuing to monitor the spread and impact of the variants of COVID-19 as well as vaccination rates in its markets. 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 causeor a triggering event, as evidenced by step one analyses performed on a sample of its properties from each segment. The Company found a significant amount of cushion between the asset’s book value and the undiscounted cash flows for the properties evaluated.event.




















1713
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021


The Company's monthly rent collections for the three-month period ended September 30, 2020 continue to improve across the Company's segments compared to the three-month period ended June 30, 2020, with a more pronounced improvement in collections for in-line retail tenants, whose businesses were closed during periods with state or local operating restrictions. Many tenants have reopened as restrictions were lifted and monthly rent collections are beginning to increase. Within our multifamily communities, the Company offered rent deferral plans for the months of April, May, June and July 2020. Any deferred rents would be due over the remaining lease term of the individual tenants. For retail and 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.Residential Properties Acquired

The Company's average recurring rental revenue collections before and after any effect of rent deferrals forDuring the third quarter 2020 were approximately 99.0% and 99.0% respectively for multifamily communities, 99.5% and 99.8% for office properties and 95.2% and 96.6% for grocery-anchored retail properties, respectively. Rent deferments provided to residents and tenants primarily related to a change of timing of rent payments with no significant changes to total payments or term. The Company has deferred approximately $0.8 million, or 0.7% of total rental and other revenues for the three-month periodnine-month periods ended September 30, 2020. In addition, the Company’s revenues were reduced by approximately $1.7 million, or 1.4% of rental2021 and other revenues for the three-month period ended September 30, 2020 due to additional bad debt reserves related to the COVID-19 pandemic.

Residential properties acquired

During the nine-month period ended September 30, 2020,, the Company completed the acquisition of the following multifamily communities:
Acquisition datePropertyLocationUnits
2021:
6/30/2021The EllisonAtlanta, Georgia250 
7/8/2021Alleia at PresidioFt. Worth, Texas231 
9/14/2021The AnsonNashville, Tennessee301 
9/16/2021The KingsonFredericksburg, Virginia240 
9/17/2021Chestnut FarmCharlotte, North Carolina256 
1,278 
2020:
3/31/2020Horizon at WiregrassTampa, Florida392 
4/30/2020Parkside at the BeachPanama City Beach, Florida288 
680 


The aggregate purchase pricesprice of the multifamily acquisitions forcommunities acquired during the nine-month period ended September 30, 2020 were approximately $141.22021 was approximately $336.1 million, exclusive of acquired escrows, security deposits, prepaids,prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities. The Company allocated the purchase price and capitalized acquisition costs of the properties acquired no multifamily communities during the nine-month period ended September 30, 2019.


18
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

The Company allocated the purchase prices and capitalized acquisition costs2021 to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocations wereallocation was based upon the Company's best estimates of the fair values of the acquired assets and liabilities.

Multifamily Community acquired during the nine-month period ended
(In thousands, except amortization period data)Multifamily communities acquired during the nine-month period ended September 30, 20202021
Land$12,94527,639 
Buildings and improvements100,113250,833 
Furniture, fixtures and equipment26,28451,628 
Lease intangibles5,9686,989 
Prepaids & other assets24372 
Accrued taxes(437)(1,464)
Security deposits, prepaid rents, and other liabilities(384)(831)
Net assets acquired$144,513335,166 
Cash paid$99,47689,335 
Mortgage debt, net45,037245,831 
Total consideration$144,513335,166 
Three-months ended September 30, 2020
Revenue$2,883 
Net income (loss)$(1,832)
Nine-months ended September 30, 2020
Revenue$5,258 
Net income (loss)$(4,018)
Capitalized acquisition costs incurred by the Company$4,085 
Acquisition costs paid to related party (included above)$01,018 
Remaining amortization period of intangible
 assets and liabilities (months)11.59.6


The Company had no acquisitionsaggregate purchase price of student housing property assetsthe multifamily communities acquired during the nine-month period ended September 30, 2020.
2020 was approximately $141.2 million, ex
During the nine-month period ended September 30, 2019, the Company completed theclusive of acquired escrows, security deposits, prepaid assets, capitalized 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.

costs and other miscellaneous assets and assumed liabilities.


Multifamily community sold








On July 19, 2021, the Company closed on the sale of its 369-unit multifamily community in Houston, Texas, or Vineyards, to an unrelated third party for a sales price of approximately $62.0 million, exclusive of closing costs and resulting in a gain of

1914
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

The Company allocatedapproximately $20.0 million, net of disposition costs and is included in the asset's fair valueline entitled Gain on sale of real estate, net on the Company's Consolidated Statements of Operations for the three-month and capitalized acquisition costsnine-month periods ended September 30, 2021. Vineyards was a component of the Company's Residential Properties segment and contributed approximately $0.3 million of net loss to the acquiredconsolidated operating results of the Company for the nine-month period ended September 30, 2021.

The carrying amounts of the significant 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 valuesdisposed property at the date of the acquired assets and liabilities.sale were:

Student housing property acquired during the nine-month
period ended
(In thousands, except amortization period data)thousands)September 30, 2019Vineyards
Real estate assets:
Land$7,2895,456 
BuildingsBuilding and improvements68,16343,437 
Furniture, fixtures and equipment16,9665,218 
Lease intangiblesAccumulated depreciation983 
Accrued taxes(158)
Security deposits, prepaid rents, and other liabilities(2,579)(12,879)
NetTotal assets, acquirednet$90,66441,232 
Satisfaction of loan receivables$46,397 
Cash paid2,717 Liabilities:
Mortgage debt, netnote payable41,550 
Total consideration$90,66432,291 
Three-months ended September 30, 2020
Revenue$2,042 
Net income (loss)$36 
Nine-months ended September 30, 2020
Revenue$5,980 
Net income (loss)$307 
Capitalized acquisition costs incurred by the Company$1,016 
Acquisition costs paid to related party$936 
Remaining amortization period of intangible
 assets and liabilities (months)0


On March 20, 2020, we delivered a written termination notice toThe Company had no sales of multifamily community assets during the prospective purchaser of 6 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.

















20
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
nine-month period ended September 30, 2020


2020.

New Market Properties assets acquiredAssets Acquired

The Company acquired no grocery-anchored shopping centers during the nine-month period ended September 30, 2021. During the nine-month periodsperiod ended September 30, 2020, and 2019, the Company completed the acquisition of the following grocery-anchored shopping centers:
Acquisition datePropertyLocationGross leasable area (square feet)
1/29/2020Wakefield CrossingRaleigh, North Carolina75,927 
3/19/2020Midway MarketDallas, Texas85,599 
161,526 
1/17/2019Gayton CrossingRichmond, Virginia158,316 
5/28/2019Free State Shopping CenterWashington, D.C.264,152 
6/12/2019Disston PlazaTampa - St. Petersburg, Florida129,150 
6/12/2019Polo Grounds MallWest Palm Beach, Florida130,285 
8/16/2019
Fairfield Shopping Center (1)
Virginia Beach, VA231,829 
913,732 
(1) Property is owned through a consolidated joint venture.

The aggregate purchase price of the New Market Properties acquisitions for the nine-month periodsperiod ended September 30, 2020 and 2019 was approximately $27.7 million, and $178.5 million respectively, exclusiveexclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

The Company recorded aggregate amortization and depreciation expense of:
(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,
2021202020212020
Depreciation:
Buildings and improvements$22,988 $29,050 $76,348 $85,811 
Furniture, fixtures, and equipment10,168 12,817 30,391 38,132 
33,156 41,867 106,739 123,943 
Amortization:
Acquired intangible assets6,073 9,510 22,023 27,873 
Deferred leasing costs368 368 1,310 1,132 
Website development costs42 49 126 148 
Total depreciation and amortization$39,639 $51,794 $130,198 $153,096 

2115
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

The Company allocated the purchase prices to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocation was based upon the Company's best estimates of the fair values of the acquired assets and liabilities.
New Market Properties' acquisitions during the nine-month periods ended September 30,
(In thousands, except amortization period data)20202019
Land$9,328 $57,916 
Buildings and improvements12,264 101,873 
Tenant improvements2,099 8,230 
In-place leases3,043 16,080 
Above market leases107 2,759 
Leasing costs1,237 5,768 
Below market leases(359)(10,537)
Prepaid taxes and other assets61 98 
Security deposits, prepaid rents, and other(249)(748)
Net assets acquired$27,531 $181,439 
Cash paid$19,640 $65,526 
Mortgage debt7,891 115,913 
Total consideration$27,531 $181,439 
Three-month period ended September 30, 2020
Revenue$678 $3,976 
Net income (loss)$5 $(997)
Nine-month period ended September 30, 2020
Revenue$1,723 $13,094 
Net income (loss)$59 $(2,126)
Capitalized acquisition costs incurred by the Company$470 $4,022 
Capitalized acquisition costs paid to related party (included above)$249 $1,799 
Remaining amortization period of intangible
 assets and liabilities (years)10.28.0


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

At September 30, 2020,2021, the Company had recorded acquired gross intangible assets of $310.6$232.1 million, accumulated amortization of $177.3$164.2 million, gross intangible liabilities of $86.0$72.6 million and accumulated amortization of $31.5$35.5 million. Net intangible assets and liabilities as of September 30, 20202021 will be amortized over the weighted average remaining amortization periods of approximately 7.26.3 and 8.78.3 years, respectively.

22
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020


At September 30, 2020, included in2021, the Company's totalCompany held restricted cash wasthat totaled approximately $18.8$54.0 million. Of this total, $12.2 million that was contractually restricted to fund capital expenditures and other property-level commitments such as tenant improvements and leasing commissions. Our lenders also require us to escrow balancesAnother $35.6 million was for future real estate tax and insurance payments. Through our property-level mortgage refinances executed in the second and third quarters of 2020, our lenders also required us to escrow funds for potential effects from the COVID-19 pandemic. At September 30, 2020, our restricted cashlender-required escrows for real estate taxes, insurance premiums and COVID-19 reserves was $33.6 million and $6.8 million, respectively.reserves. The remainder of the Company's restricted cash consisted primarily of resident and tenant security deposits.


Preferred Office Properties Sold

During the three-month period ended September 30, 2021, the Company closed on the sale of the following office buildings:

DatePropertyLocation
7/29/2021Galleria 75Atlanta, Georgia
7/29/2021150 FayettevilleRaleigh, North Carolina
7/29/2021Capitol TowersCharlotte, North Carolina
7/29/2021CAPTRUST TowerRaleigh, North Carolina
7/29/2021Morrocroft CentreCharlotte, North Carolina
9/8/2021Armour Yards PortfolioAtlanta, Georgia

The aggregate sales price of the disposed office properties was approximately $725.0 million and resulted in a loss on sale of approximately $12.0 million, net of disposition costs and is included in the line entitled Gain on sale of real estate, net on the Company's Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2021. The disposal group was a component of the Company's Preferred Office Properties segment and contributed approximately $1.6 million of net income to the consolidated operating results of the Company for the nine-month period ended September 30, 2021. The carrying amounts of the significant assets and liabilities of the disposed properties at the dates of sale were:

(In thousands)Preferred Office Properties' assets sold during the nine-month period ended September 30, 2021
Real estate assets:
Land$74,084 
Building and improvements622,163 
Furniture, fixtures and equipment83 
Intangible assets64,445 
Accumulated depreciation(72,764)
Total assets, net$688,011 
Liabilities:
Mortgage notes payable$436,714 

The Company had no sales of Preferred Office Properties' assets during the nine-month period ended September 30, 2020.



16
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 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 thethe property, in certain cases it has thethe right to sell its purchase option back to the borrower for a termination fee in the amount of the purchase option discount.
Effective May 7, 2018, the Company terminated its purchase options on the Bishop Street multifamily community and the Haven Charlotte student housing property, both of which were partially supported by real estate loan investments held by the Company, in exchange for termination fees aggregating approximately $5.6 million from the developers. Effective January 1, 2019, the Company terminated its purchase options on the Sanibel 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. Effective March 6, 2020, the Company terminated its purchase option on the Falls at Forsyth multifamily community for $2.5 million.
These fees are treated as additional interest revenue and are amortized over the period ending with the earlier of (i) the sale of the underlying property and (ii) the maturity of the real estate loans. The Company recorded approximately $4.9$2.6 million and $6.9$0.4 million of interest revenue related tofrom the amortization of these purchase option terminations for the three-month periods ended September 30, 2021 and 2020, respectively and $7.1 million and $4.9 million for the nine-month periods ended September 30, 20202021 and 2019,2020, respectively.

Joint Venture Investment

On July 15, 2020, wethe Company contributed ourits 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. WeIn doing so, the Company realized a gain on the transaction of approximately $3.3 million. Wemillion and now hold ourholds its remaining interest in the property via an unconsolidated joint venture and retainretains a 50% voting and financial interest. The following tables summarize the balance sheet and statements of income data for the Neapolitan Way shopping center subsequent to its contribution into the joint venture as of and for the periods presented:
(in thousands)September 30, 2020
Total assets$39,843 
Total liabilities$26,142 
(in thousands)September 30, 2021December 31, 2020
Total assets$37,362 $39,109 
Total liabilities$25,160 $25,795 
Three months endedNine months endedThree months ended September 30,Nine months ended September 30,
September 30,September 30,2021202020212020
20202020
Rental and other property revenuesRental and other property revenues$651 $651 Rental and other property revenues$820 $651 $2,456 $651 
Total operating expensesTotal operating expenses$797 $797 Total operating expenses$962 $797 $2,875 $797 
Interest expenseInterest expense$94 $94 Interest expense$232 $94 $693 $94 
Net income (loss)Net income (loss)$(240)$(240)Net income (loss)$(374)$(240)$(1,112)$(240)
Net income (loss) attributable to the CompanyNet income (loss) attributable to the Company$(120)$(120)Net income (loss) attributable to the Company$(187)$(120)$(556)$(120)


2317
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021


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

OurThe Company's portfolio of fixed rate, interest-only real estate loans consisted of:
September 30, 2020December 31, 2019
Number of loans25 27 
Number of underlying properties in development18 19 
(In thousands)
Drawn amount$323,629 $352,582 
Deferred loan origination fees(1,567)(1,476)
Allowance for loan losses(12,461)(1,400)
Carrying value$309,601 $349,706 
Unfunded loan commitments$62,964 $61,718 
Weighted average current interest, per annum (paid monthly)8.50 %8.48 %
Weighted average accrued interest, per annum3.84 %3.85 %
(In thousands)Principal balanceDeferred loan origination feesAllowances and CECL ReservesCarrying value
Balances as of December 31, 2019$352,582 $(1,476)$(1,400)$349,706 
Opening CECL reserve— — (7,414)(7,414)
Loan fundings42,193 — — 42,193 
Loan repayments(71,146)— — (71,146)
Loan origination fees collected— (882)— (882)
Amortization of loan origination fees— 791 — 791 
Reserve increases due to loan originations— — (767)(767)
Net increases in reserves on existing loans or loans repaid— — (2,880)(2,880)
Balances as of September 30, 2020$323,629 $(1,567)$(12,461)$309,601 
September 30, 2021December 31, 2020
Number of loans10 20 
Number of underlying properties in development8 14 
(In thousands)
Drawn amount$190,973 $290,156 
Deferred loan origination fees(1,773)(1,194)
Allowance for expected credit losses(7,577)(9,067)
Carrying value$181,623 $279,895 
Unfunded loan commitments$52,467 $44,403 
Weighted average current interest, per annum (paid monthly)8.50 %8.50 %
Weighted average accrued interest, per annum3.59 %3.91 %

Property typeNumber of loansCarrying valueCommitment amountPercentage of portfolio
(In thousands)
Residential properties24 $299,219 $367,400 97 %
New Market Properties0 0 0 0 %
Preferred Office Properties1 10,382 19,193 3 %
Balances as of September 30, 202025 $309,601 $386,593 
(In thousands)Principal balanceDeferred loan origination feesAllowances and CECL ReservesCarrying value
Balances as of December 31, 2020$290,156 $(1,194)$(9,067)$279,895 
Loan fundings46,522 — — 46,522 
Loan repayments(132,970)— — (132,970)
Loans and accrued interest settled through sale(12,735)— 202 $(12,533)
Loan origination fees collected— (1,887)— (1,887)
Amortization of loan origination fees— 1,308 — 1,308 
Reserve increases due to loan originations— — (954)(954)
Net decreases in reserves on existing or loans repaid— — 2,242 2,242 
Balances as of September 30, 2021$190,973 $(1,773)$(7,577)$181,623 


Property typeNumber of loansCarrying valueCommitment amount
(In thousands)
Residential properties10 $181,623 $243,439 
The tables above reflect the disposition on July 29, 2021 of the Company's 8West real estate loan investment supporting a class-A office building in Atlanta, Georgia.

On September 3, 2020,March 1, 2021, we closed on a real estate loan investment of up to approximately $20.7$16.8 million to partially finance the development and construction of a 320-unit multifamily community to be located in suburban Atlanta, Georgia.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 September 3,1, 2024.

On May 14, 2020,28, 2021, we closed on two real estate loan investments of up to approximately $17.1 million to partially finance the Companydevelopment and construction of a 316-unit multifamily community to be located near Savannah, Georgia. The loans pay a current monthly interest rate of 8.5% per annum and accrue additional deferred interest of 4.25% per annum and mature on May 27, 2025.

18
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2021


On August 11, 2021, we closed on a real estate loan investment of up to $10.0approximately $23.2 million in partial supportto partially finance the development and construction of a 277-unit352-unit multifamily community to be located in Raleigh, North Carolina.the Atlanta, Georgia MSA. 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 November 14, 2023.


24
Preferred Apartment Communities, Inc.
Notes(that will be reduced to Consolidated Financial Statements (Unaudited)
September 30, 2020

On February 28, 2020,2.5% upon the Company closed on a real estate loan investmentachievement of up to approximately $13.4 million in partial support of a 256-unit multifamily community to be located in Charlotte, North Carolina. The loan pays a current monthly interest rate of 8.5% per annum and accrues additional deferred interest of 5.5% per annumcertain project milestones) and matures on February 28,11, 2025.

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

As discussed in note 2, the Company established totalThe Company's allowance for expected credit losses against its existing portfolio of real estate loan investmentsincludes allowances on January 1, 2020. In doing so, it recorded a cumulative effect reduction adjustment to retained earnings of approximately $7.4 million. Forinterest receivable on certain instruments, as shown in the quarter ended September 30, 2020, thefollowing table:

Three months ended September 30,Nine months ended September 30,
(In thousands)2021202020212020
Allowance for expected credit losses:
Haven Campus Communities, LLC line of credit$414 $414 $1,230 $1,234 
Starkville real estate loan— 195 — 582 
Net (decreases) increases in current expected loss reserves on new and existing loans(149)(761)(1,288)3,647 
Total$265 $(152)$(58)$5,463 

The Company recordedincurred an aggregate net decreaseincrease in its provisionallowance for expected credit losses of approximately $0.8 $0.3 million primarily relatedand an aggregate net decrease of $0.2 million for the three-month periods ended September 30, 2021 and 2020, respectively. In the nine-month period ended September 30, 2020, $4.5 million of the $5.5 million aggregate increase in the Company’s allowance for expected credit losses was due to development projects achieving constructionthe onset of the COVID-19 pandemic and leasing milestones.the Company updating its estimates to the valuations of the underlying developments. The Company does not anticipate such a large increase in future periods.

As described in note 2, theThe 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 September 30, 2020:2021:
Final reserve ratioNumber of loansTotal receivables by project, net of reserves (in thousands)
— %3 $28,921 
0.50 %10 108,630 
1.00 %3 17,876 
1.50 %4 26,729 
3.00 %3 27,902 
4.00 %1 126,768 
5.00% +1 3,776 
25 $340,602 
Final reserve ratioNumber of loans
Total receivables by project, net of reserves
(in thousands)
< 1.00%3 $18,170 
1.00% - 1.99%6 38,930 
2.00% - 2.99%— — 
3.00% - 3.99%— — 
4.00% - 4.99%1 142,204 
5.00% +— — 
10 $199,304 

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

19
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2021

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.


25
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

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


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

Borrower
Date of loanMaturity dateTotal loan commitmentsOutstanding balance as of:Interest rate
September 30, 2021December 31, 2020
Haven Campus Communities, LLC (1)
6/11/201412/31/2018$11,660 $9,011 $9,011 8 %
Oxford Capital Partners, LLC (2,4)
10/5/20153/15/20221,250 — 1,256 10 %
Oxford Capital Partners II, LLC (2,4)
3/30/20213/15/20225,300 — — 10 %
Mulberry Development Group, LLC (3)
3/31/20166/30/2022500 — 607 12 %
Unamortized loan fees— — 
$18,710 $9,011 $10,874 
(1) 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. See related party disclosure in Note 6.
(2) 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.
(3) The amounts payable under the terms of these revolving credit lines are collateralized by a personal guaranty of repayment by the principal of the borrower.
(4) The commitment was reduced from $8 million to $1.25 million for the Oxford Capital Partners, LLC line of credit on March 30, 2021. A second Oxford line of credit was opened on March 30, 2021 with a commitment of $5.3 million.

On November 20, 2018, the borrower on the Haven Campus Communities, LLC line of credit defaulted on thethe loan, triggering the accrual of an additional 10% default interest rate, which is incremental to the original 8% currentcurrent interest rate. The amount of default interest recorded from the default date through September 30, 20202021 was approximately $1.8approximately $2.7 million. UnderUnder 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 real estate loan investment 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.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 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.

Additionally, in November 2020, the Company filed 2 lawsuits to collect past due rent owed to the Former Manager of the Company, as sub-landlord pursuant to (i) an office sublease agreement dated May 1, 2017 by and between the Former Manager and Elevation Development Group, LLC and (ii) an office sublease agreement dated October 1, 2014 by and among the Former Manager, as sub-landlord, and Haven Campus Communities, LLC and Madison Retail, LLC as sub-tenants. The Company retains partial personal guaranties of repayment from the principals of Haven Campus Communities, LLC and Madison Retail, LLC. In December 2020, the defendants answered the lawsuit and filed counterclaims against the Company and its affiliates. At this time, the case is in discovery, so the Company is unable to make any estimates on timing or amounts that may be collected by the Company on its subleases.


2620
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

The Company recorded interest income and other revenue from these instruments as follows:
Interest incomeThree month periods ended September 30,Nine-month periods ended September 30,
(In thousands)2020201920202019
(In thousands)

Interest income
(In thousands)

Interest income
Three-month periods ended September 30,Nine-month periods ended September 30,
2021202020212020
Real estate loans:Real estate loans:Real estate loans:
Current interestCurrent interest$6,921 $8,083 $21,070 $23,031 Current interest$5,516 $6,921 $18,055 $21,070 
Additional accrued interest3,052 3,471 9,208 10,040 
Accrued interestAccrued interest2,374 3,052 7,958 9,208 
Loan origination fee amortizationLoan origination fee amortization264 283 791 1,063 Loan origination fee amortization666 264 1,308 791 
Purchase option termination fee amortizationPurchase option termination fee amortization421 1,283 4,896 6,900 Purchase option termination fee amortization2,634 421 7,074 4,896 
Default interestDefault interest63 0 186 0 Default interest— 63 — 186 
Total real estate loan revenueTotal real estate loan revenue10,721 13,120 36,151 41,034 Total real estate loan revenue11,190 10,721 34,395 36,151 
Notes and lines of creditNotes and lines of credit536 1,865 2,056 4,278 Notes and lines of credit464 536 1,400 2,056 
Bank and money market accountsBank and money market accounts1 169 38 562 Bank and money market accounts2 1 2 38 
Agency mortgage-backed securities0 0 0 95 
Interest income on loans and notes receivableInterest income on loans and notes receivable$11,258 $15,154 $38,245 $45,969 Interest income on loans and notes receivable$11,656 $11,258 $35,797 $38,245 


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 normalstandard lender rights, which are subordinate to the rights of the senior lenders on the projects. The Company has concluded that it is not the primary beneficiary of the borrowing entities and therefore it has not consolidated these entities in its consolidated financial statements. The Company's maximum exposure to loss from these loans is their drawn amount as of September 30, 20202021 of approximately $323.6 $191.0 million. The maximum aggregate amount of loans to be funded as of September 30, 20202021 was approximately $386.6$243.4 million, which includes approximately $63.0$52.5 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 to 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, Solis Kennesaw II, 8West, Kennesaw Crossing and Solis Cumming Town Center, Populus at Pooler, Populus at Pooler Capital and Club Drive real estate loan investments, all of which are partially supporting various real estate projects in or near Atlanta, Georgia. The drawn amount, inaddition toplus outstanding accrued interest, for these loans as of September 30, 20202021 totaled approximately $56.5$23.2 million (with a total commitment amount of approximately $86.2$60.9 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 toplus outstanding accrued interest, for these loans as of September 30, 20202021 totaled approximately $56.4$26.0 million (with a total commitment amount of approximately $61.2 million).

2721
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

$34.9 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.

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 forfor discussion regarding a termination fee agreement with and payment to Preferred Capital Securities, LLC, or PCS, an affiliate of the Company until June 3, 2021, in conjunction with the Company's winding down of the $1.5 Billion Unit Offering.

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

During the three-month period ended September 30, 2021, the Company called or redeemed an aggregate of 35,802 shares of Redeemable Preferred Stock for a total redemption cost of $305.8 million.

At September 30, 2020,2021, the Company's active equity offerings consisted of:

•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"); and

•an offering of up to $100 under our $400 million of equity securities forshelf registration statement (the "2019 Shelf Registration Statement") on Form S-3 that was filed with the Preferred Office Growth Fund, a consolidated entity (theSEC on March 21, 2019.
“Preferred Office Growth Fund Offering”).
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 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 ourthe Company's active equity offerings consisted of:
(In thousands)(In thousands)Deferred Offering Costs(In thousands)Deferred Offering Costs
OfferingOfferingTotal offeringGross proceeds as of September 30, 2020Reclassified as reductions of stockholders' equityRecorded as deferred assetsTotal
Specifically identifiable offering costs (3)
Total offering costsOfferingTotal offeringGross proceeds as of September 30, 2021Reclassified as reductions of stockholders' equityRecorded as deferred assetsTotal
Specifically identifiable offering costs (1)
Total offering costs
$1.5 Billion Unit Offering (1)
1,500,000 $1,236,414 $15,874 $0 $15,874 $115,650 $131,524 
Series A1/M1 OfferingSeries A1/M1 Offering1,000,000 115,893 426 3,251 3,677 11,023 14,700 Series A1/M1 Offering$1,000,000 $281,005 $5,024 $2,127 $7,151 $26,507 $33,658 
2019 Shelf Offering (2)
400,000 4,614 22 975 997 92 1,089 
Preferred Office Growth Fund100,000 0 0 495 495 3 498 
2019 ATM Offering2019 ATM Offering125,000 32,589 227 1,074 1,301 512 1,813 
TotalTotal$3,000,000 $1,356,921 $16,322 $4,721 $21,043 $126,768 $147,811 Total$1,125,000 $313,594 $5,251 $3,201 $8,452 $27,019 $35,471 


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

(1) The Series A $1.5 billion unit offering expired in Q1 2020 and therefore all remaining deferred offering costs were reclassified as reductions of stockholder's equity in Q1 2020.

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

(3)(1) These offering costs specifically identifiable to Unitpreferred 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.



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

22
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2021

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.

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. Dealer manager fees and sales commissions for the Series A1/M1 Preferred Stock Offering are not reimbursable.

2019 ATM Offering

During the nine-month period ended September 30, 2021, the Company issued and sold 2,609,840 shares of Common Stock under the 2019 ATM Offering, generating gross proceeds of approximately $28.0 million and, after deducting commissions and other costs, net proceeds of approximately $27.6 million.


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

Daniel M. DuPree and Leonard A. 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 former President and Chief Operating Officer, were the owners of NELL. Trusts established, or entities owned, by Joel T. Murphy, the Company’s Chief Executive Officer and a membercurrent Chairman of the Board, the family of Mr. Williams, Mr. DuPree and the family of Mr. Silverstein were the owners of the Sub-Manager.

The Company's Haven 12 real estate loan investment and Haven Campus Communities LLC line of credit are bothis 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.


2923
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021


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:behalf, as shown in the following table. There were no such fees incurred during the nine-month period ended September 30, 2021.
(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,
Type of CompensationBasis of Compensation2020201920202019
Acquisition fees1.0% of the gross purchase price of real estate assets$0 $2,864 $235 $5,467 
Loan origination fees1.0% of the maximum commitment of any real estate loan, note or line of credit receivable0 148 0 674 
Loan coordination fees0.6% of any assumed, new or supplemental debt incurred in connection with an acquired property0 1,100 47 2,065 
Asset management feesMonthly fee equal to one-twelfth of 0.50% of the total book value of assets, as adjusted0 3,981 1,349 11,546 
Property management feesMonthly fee up to 4% of the monthly gross revenues of the properties managed0 2,557 890 7,509 
General and administrative expense feesMonthly fee equal to 2% of the monthly gross revenues of the Company0 1,557 616 4,624 
Construction management feesQuarterly fee for property renovation and takeover projects0 73 14 208 
Disposition fees1% of the sale price of a real estate asset0 0 0 16 
$0 $12,280 $3,151 $32,109 
Type of CompensationBasis of Compensation
Three-month period ended September 30, 2020 (in thousands)
Nine-month period ended September 30, 2020 (in thousands)
Acquisition fees1.0% of the gross purchase price of real estate assets$— $235 
Loan coordination fees0.6% of any assumed, new or supplemental debt incurred in connection with an acquired property— 47 
Asset management feesMonthly fee equal to one-twelfth of 0.50% of the total book value of assets, as adjusted— 1,349 
Property management feesMonthly fee up to 4% of the monthly gross revenues of the properties managed— 890 
General and administrative expense feesMonthly fee equal to 2% of the monthly gross revenues of the Company— 616 
Construction management feesQuarterly fee for property renovation and takeover projects— 14 
$— $3,151 

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 approximapproatelyximately $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 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 whichthat totaled $0 and $1.43 million for the three-month and nine-month periods ended September 30, 2020, respectively. These costs are listed on the Company's Consolidated Statements of Operations:
Three-month periods ended September 30,Nine-month periods ended September 30,
(In thousands)2020201920202019
$0 $4,681 $1,430 $12,973 
Operations.

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 $0 and $40,451 and $384,243 for the three-month and nine-month periods ended September 30, 2020 and 2019, respectively and Preferred Capital Securities, LLC, or PCS, was reimbursed $0 and $1,022,855 for the nine-month periods ended September 30, 2020 and 2019, respectively. These costs arewere 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

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

which time they are reclassified on a pro-rata basis as a reduction of offering proceeds within stockholders’ equity. In conjunction with the winding down of the $1.5 Billion Unit Offering, the Company has engaged PCS, an affiliate of the Company until June 3, 2021, to perform certain termination-related services. These services began in October 2019 and continued through April 2020. For the nine-month period ended September 30, 2020, theThe Company paid an additional $3.1 million for these services for the nine-month period ended September 30, 2020, 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 $24.8 million accrued interest receivableborrower on real estate loans balance on the Consolidated Balance Sheet, interest receivable of approximately $1.2 million relates to the Haven 12 real estate loan investment, which is to a related party. Interest receivable of approximately $2.0 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 inincremental to the tenant receivablesoriginal 8% current interest rate. The amount of default interest recorded from the default date through September 30, 2021 was approximately $2.7 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.


24
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2021

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

The Company declared aggregate quarterly cash dividends on its CommonStock of $0.175 and $0.2625$0.175 per share for the three-month periods ended September 30, 20202021 and 20192020, respectively and $0.6125$0.525 and $0.7850$0.6125 per share for the nine-month periods ended September 30, 20202021 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 September 30, 2020,2021, the Company had 742,413496,269 Class A OP Units outstanding, which are exchangeable on a one-for-one basis for shares of Common Stock or the equivalentequivalent amount of cash.

The Company's dividend and distribution activity consisted of:
Dividends and distributions declared
For the three-month periods ended September 30,For the nine-month periods ended September 30,
(In thousands)2021202020212020
Series A Preferred Stock$52,330 $32,964 $110,786 $97,272 
mShares1,425 1,547 4,362 4,903 
Series A1 Preferred Stock3,622 1,241 9,283 2,209 
Series M1 Preferred Stock478 157 1,221 217 
PAC Carveout REIT Preferred Stock4 — 10 — 
Common Stock and Restricted Stock9,432 8,876 27,682 29,991 
Class A OP Units87 130 270 463 
Total$67,378 $44,915 $153,614 $135,055 

Included in the table above are deemed dividends resulting from calls of the Company's Series A Preferred Stock that totaled approximately $28.8 million and $31.1 million for the three-month and nine-month periods ended September 30, 2021, respectively.


3125
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

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

8. Equity Compensation
    Stock Incentive Plan
On May 2, 2019, the Company’s board of directors adopted, and the holders of the Company’s Common stockholdersStock 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. On June 3, 2021, the holders of the Company's Common Stock approved an amendment to the 2019 Plan that increased the available shares of Common Stock available for issuance from 3,617,500 to 5,517,500. The 2019 Plan does not have a stated expiration date.

Equity compensation expense by award type for the Company was:
(In thousands)(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30, Unamortized expense as of September 30,(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30, Unamortized expense as of September 30, 2021
202020192020201920202021202020212020
Class B Unit awards to employees:Class B Unit awards to employees:Class B Unit awards to employees:
2016$0 $0 $0 $2 $0 
201720170 78 3 234 0 2017$— $— $— $3 $— 
2018201870 72 191 215 71 201839 70 — 191 — 
Restricted stock grants to Board members:Restricted stock grants to Board members:Restricted stock grants to Board members:
20192019— — — 140 — 
20202020— 133 177 222 — 
20212021120 — 160 — 320 
Restricted stock grants for employees:Restricted stock grants for employees:
20202020166 242 652 279 2,469 
20212021145 — 349 — 2,228 
Performance-based restricted stock units:Performance-based restricted stock units:
2020202094 92 370 92 1,120 
20212021214 — 499 — 2,463 
Restricted stock units to employees:Restricted stock units to employees:
201820180 0 0 120 0 2018— 14 (2)38 — 
201920190 106 140 176 0 201916 16 45 47 17 
20202020133 0 222 0 310 20207 15 30 46 62 
Restricted stock grants for employees:
2020242 0 279 0 3,601 
Performance-based restricted stock units:
202092 0 92 0 1,753 
Restricted stock units to employees:
20170 15 0 53 0 
201814 15 38 55 19 
201916 19 47 67 94 
202015 0 46 0 137 
2021202116 — 36 — 165 
TotalTotal$582 $305 $1,058 $922 $5,985 Total$817 $582 $2,316 $1,058 $8,844 



3226
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

Performance-based Restricted Stock Unit Grants

OnOn 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 APTS common stockCommon Stock upon satisfaction of both (i) the market condition, at which timetime 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 stockCommon Stock at the performance period commencement date (July 1, 2020)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)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:


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


The number of PSUs that become earned PSUs can range between 0% and 200% of the original (target) number of PSUs awarded 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 resultresults for the Performance RSU award was:PSUs were:

Stock price on grant date$7.23 
Dividend yield6.87 %
Expected volatility44.40 %
Risk-free interest rate0.11 %
Target number of PSUs granted:
First vesting tranche136,462 
Second vesting tranche136,467 
272,929 
Calculated fair value per PSU$6.76 
Total fair value of PSUs$1,845,000 
Grant date3/15/20217/31/2020
Stock price on grant date$10.86 $7.23 
Dividend yield7.19 %6.87 %
Expected volatility49.81 %44.40 %
Risk-free interest rate0.29 %0.11 %
Target number of PSUs granted:
First vesting tranche103,511 136,462 
Second vesting tranche103,517 136,467 
207,028 272,929 
Calculated fair value per PSU$15.24 $6.76 
Total fair value of PSUs$3,155,107 $1,845,000 

A total of 12,639 and 18,491 PSUs from the 2021 and 2020 grants, respectively, were forfeited during the third quarter 2021.

27
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 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 periodperiods trailing the grant datedates was utilized as the expected volatility assumption.

33
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30,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 2017-20192019-2021 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 grantgrants for service yearyears 2020 isand 2021 vested (or are scheduled to vestvest) on the earlier of the one-year anniversary of the date of grant.grant and the next annual meeting of stockholders..
Service yearService yearSharesFair value per shareTotal compensation cost (in thousands)Service yearSharesFair value per shareTotal compensation cost (in thousands)
201724,408 $14.75 $360 
201824,810 $14.51 $360 
2019201926,446 $15.88 $420 201926,446 $15.88 $420 
2020202066,114 $8.05 $532 202066,114 $8.05 $532 
2021202146,782 $10.26 $480 

On June 17, 2020, the Company granted Restricted Stockrestricted 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 willare scheduled to vest on a pro-rata basis on each of the four succeeding anniversaries of the grant date. A total of 22,210 shares of unvested restricted stock was forfeited from the 2020 grant during the third quarter of 2021.

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 are scheduled to vest on a pro-rata basis on each of the four succeeding anniversaries of the grant date. A total of 20,112 shares of unvested restricted stock was forfeited from the 2021 grant during the third quarter of 2021.


3428
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021


Class B OP Units

As of September 30, 2020,2021, cumulative activity of grants of Class B Units of the Operating Partnership, or Class B OP units,Units, was:
Grant date
1/2/20181/3/2017
Units granted256,087 286,392 
Units forfeited:
   John A. Williams (1)
(38,284)0 
  Voluntary forfeiture by senior executives (2)
(128,258)0 
   Other(24,237)(5,334)
Total forfeitures(190,779)(5,334)
Units earned and converted into Class A Units0 (281,058)
Class B Units outstanding at September 30, 202065,308 0 
Units unearned but vested48,678 0 
Units unearned and not yet vested16,630 0 
Class B Units outstanding at September 30, 202065,308 0 
(1) Pro rata modification of award on April 16, 2018, the date of Mr. Williams' passing.
(2) Additional Class B OP units granted to senior executives other than Mr. Williams were voluntarily forfeited at the end of 2018.
Grant date
1/2/2018
Units granted256,087 
Units forfeited:
   John A. Williams (1)
(38,284)
  Voluntary forfeiture by senior executives (2)
(128,258)
   Other(31,079)
Total forfeitures(197,621)
Units earned and converted into Class A Units— 
Class B Units outstanding at September 30, 202158,466 
Units unearned but vested58,466 
Units unearned and not yet vested— 
Class B Units outstanding at September 30, 202158,466 
(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 0no grants of Class B OP Units for 2019 or 2020.subsequent to January 2, 2018.

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

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.

3529
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021


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

Grant date3/15/20211/2/20201/2/20191/2/2018
Service period2021-20232020-20222019-20212018-2020
RSU activity:
Granted20,600 21,400 27,760 20,720 
Forfeited(1,800)(5,600)(8,661)(8,274)
RSUs outstanding at September 30, 202118,800 15,800 19,099 12,446 
RSUs unearned but vested— 5,288 12,817 12,446 
RSUs unearned and not yet vested18,800 10,512 6,282 — 
RSUs outstanding at September 30, 202118,800 15,800 19,099 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 

The RSUs vest in three equal consecutive one-year tranches from the date of grant. For eacheach 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 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.










3630
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

9. Indebtedness

    Mortgage Notes Payable

Mortgage financing of property acquisitions

During the nine-month periodperiods ended September 30, 2021 and 2020, the Company obtained original mortgage financing on the following properties as shown in the following table:
PropertyPropertyDateInitial principal amount
(in thousands)		Fixed/Variable rateInterest rateMaturity datePropertyDateInitial principal amount
(in thousands)		Fixed/Variable rateInterest rateMaturity date
2021:2021:
Midway Market (1)
Midway Market (1)
4/15/2021$10,150 Fixed3.06 %5/1/2031
The EllisonThe Ellison6/30/202148,000 VariableL + 1503/31/2022
Alleia at PresidioAlleia at Presidio7/8/202135,700 Fixed2.50 %8/1/2026
The AnsonThe Anson9/14/202156,440 Fixed2.69 %10/1/2031
The KingsonThe Kingson9/16/202153,900 Fixed2.35 %10/1/2026
Chestnut FarmChestnut Farm9/17/202151,800 VariableL + 1506/17/2022
Citi Lakes B-NoteCiti Lakes B-Note9/24/202110,420 Fixed3.85 %8/1/2029
$266,410 
2020:2020:
251 Armour Yards251 Armour Yards1/22/2020$3,522 Fixed4.50 %1/22/2025251 Armour Yards1/22/2020$3,522 Fixed4.50 %1/22/2025
Wakefield CrossingWakefield Crossing1/29/20207,891 Fixed3.66 %2/1/2032Wakefield Crossing1/29/20207,891 Fixed3.66 %2/1/2032
Morrocroft CentreMorrocroft Centre3/19/202070,000 Fixed3.40 %4/10/2033Morrocroft Centre3/19/202070,000 Fixed3.40 %4/10/2033
Horizon at Wiregrass RanchHorizon at Wiregrass Ranch4/23/202052,000 Fixed2.90 %5/1/2030Horizon at Wiregrass Ranch4/23/202052,000 Fixed2.90 %5/1/2030
Parkside at the BeachParkside at the Beach4/30/202045,037 Fixed2.95 %5/1/2030Parkside at the Beach4/30/202045,037 Fixed2.95 %5/1/2030
$178,450 $178,450 
(1) Midway Market Shopping Center was acquired on March 19, 2020 and the mortgage financing was obtained on the property on April 15, 2021.
(1) Midway Market Shopping Center was acquired on March 19, 2020 and the mortgage financing was obtained on the property on April 15, 2021.
















31
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2021

Repayments and refinancings

The following table summarizes our mortgage debt refinancing and repayment activity for the nine-month periods ended September 30, 20202021 and 2019:2020:
DatePropertyPrevious balance (millions)Previous interest rate / spread over 1 month LIBORLoan refinancing costs expensed (thousands)New balance (millions)New interest rateAdditional deferred loan costs from refinancing (thousands)
2021:
2/28/2021Village at Baldwin Park$69.4 3.59 %$6 $69.4 3.27 %$923 
7/19/2021Vineyards32.3 3.68 %1 — — — 
7/29/2021Galleria 755.0 4.25 %166 — — — 
7/29/2021150 Fayetteville112.6 4.27 %— — — — 
7/29/2021Capitol Towers121.5 4.60 %— — — — 
7/29/2021CAPTRUST Tower82.7 3.61 %— — — — 
7/29/2021Morrocroft Centre70.0 3.40 %— — — — 
8/18/2021The Ellison48.0 L + 15096 48.0 2.52 %400 
9/8/2021Armour Yards38.9 4.10 %424 — — — 
9/8/2021251 Armour Yards6.1 4.50 %— — — — 
8/30/2021Woodstock Crossing2.8 4.71 %— — — — 
9/24/2021Sorrel30.2 3.44 %232 47.7 2.54 %1,787 
$619.5 $925 $165.1 $3,110 
2020:
1/3/2020Ursa$31.4 L + 300$— $— — $— 
6/25/2020CityPark View19.8 3.27 %1,314 29.0 2.75%314 
6/29/2020Aster at Lely Resort30.7 3.84 %293 50.4 2.95%2,777 
6/29/2020Avenues at Northpointe26.0 3.16 %166 33.5 2.79%1,247 
6/30/2020Avenues at Cypress20.5 3.43 %1,607 28.4 2.96%336 
6/30/2020Venue at Lakewood Ranch27.8 3.55 %2,457 36.6 2.99%384 
6/30/2020Crosstown Walk29.9 3.90 %248 46.5 2.92%2,841 
6/30/2020Summit Crossing II13.1 4.49 %779 20.7 L + 278136 
7/10/2020Citrus Village28.5 3.65 %704 40.9 2.95%522 
7/31/2020Village at Baldwin Park70.14.16 %16 70.1 3.59%864 
$297.8 $7,584 $356.1 $9,421 



3732
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

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



38
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

The following table summarizes our mortgage notes payable at September 30, 2020:2021:
(In thousands)
Fixed rate mortgage debt:Principal balances dueWeighted-average interest rateWeighted average remaining life (years)
Residential Properties$1,442,905 3.68 %8.8
New Market Properties571,320 4.00 %7.6
Preferred Office Properties634,876 4.13 %12.7
Total fixed rate mortgage debt2,649,101 3.86 %9.5
Variable rate mortgage debt:
Residential Properties117,917 3.76 %3.3
New Market Properties47,150 2.81 %3.1
Preferred Office Properties0 0 %— 
Total variable rate mortgage debt165,067 3.49 %3.3
Total mortgage debt:
Residential Properties1,560,823 3.68 %8.4
New Market Properties618,470 3.91 %7.2
Preferred Office Properties634,876 4.13 %12.7
Total principal amount2,814,169 3.83 %9.1
Deferred loan costs(44,338)
Mark to market loan adjustment(4,038)
Mortgage notes payable, net$2,765,793 

The Company has placed interest rate caps on the variable rate mortgages on its Avenues at Creekside, Summit Crossing II, Tradition and Bloc residential 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.
(In thousands)
Fixed rate mortgage debt:Principal balances dueWeighted-average interest rateWeighted average remaining life (years)
Residential Properties$1,547,348 3.39 %8.4
New Market Properties564,040 3.98 %6.6
Preferred Office Properties194,183 4.23 %15.4
Total fixed rate mortgage debt$2,305,571 3.60 %8.6
Variable rate mortgage debt:
Residential Properties$72,500 1.95 %3.0
New Market Properties47,150 2.79 %2.1
Preferred Office Properties— — %0.0
Total variable rate mortgage debt$119,650 2.28 %2.7
Total mortgage debt:
Residential Properties$1,619,848 3.32 %8.2
New Market Properties611,190 3.89 %6.3
Preferred Office Properties194,183 4.23 %15.4
Total principal amount2,425,221 3.54 %8.3
Deferred loan costs(36,720)
Mark to market loan adjustment(3,918)
Mortgage notes payable, net$2,384,583 

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

As of September 30, 2020,2021, the weighted-average remaining life of deferred loan costs related to the Company's mortgage indebtedness was approximately 9.38.8 years. Our mortgage notes have maturity dates between June 6, 202117, 2022 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, theThe maximum borrowing capacity on the Revolving Line of Credit was increased tois $200 million with an option to increase to $300 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

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

date to December 12, 2022,May 4, 2025, subject to certain conditions described therein. The RevolvingRevolving Line of Credit accrues interest at a variable rate of one month LIBOR plus an applicable margin of 2.75%2.50% to 3.50% per annum, depending upon the Company’s leverage ratio. The weighted average interest rate for the Revolving Line of Credit was 3.91% for3.62% for the nine-month period ended September 30, 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’sCompany's outstanding Credit Facility balance.


33
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2021

On December 20, 2019, the CompanyCompany 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 accruesaccrued interest at a rate of LIBOR plus 1.7% per annum. The 2019 Term Loan 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 September 30, 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)
Covenant (1)
RequirementResult
Covenant (1)
RequirementResult
Net worthNet worthMinimum $1.7 billion$1.9 billion(3)Net worthMinimum $1.3 billion(2)$1.7 billion
Debt yieldDebt yieldMinimum 8.25%9.89%Debt yieldMinimum 8.75%(3)9.68%
Payout ratioPayout ratioMaximum 95%(2)88.1%Payout ratioMaximum 100%(4)85.3%
Total leverage ratioTotal leverage ratioMaximum 65%63.7%Total leverage ratioMaximum 65%58.4%
Debt service coverage ratioDebt service coverage ratioMinimum 1.50x1.74xDebt service coverage ratioMinimum 1.50x(5)2.08x

(1) All covenantscovenants are as defined in the credit agreement for the Revolving Line of Credit.
(2) The minimum net worth covenant decreased to a minimum of $1.3 billion on July 29, 2021 with the office properties closing.
(3) The minimum debt yield covenant increases to a minimum of 9.0% on May 5, 2023.
(4) Calculated on a trailing four-quarter basis, except for Common Stock dividends, which are annualized off of the trailing two quarters' dividend.basis. For the yearperiod ended September 30, 2020,2021, the maximum dividends and distributions allowed under this covenant was approximately $179.8$183.7 million.
(3)(5) AdjustedMinimum of 1.50x if AFFO payout ratio is less than or equal to exclude the effect of costs incurred with internalization.95% and 1.70x if greater than 95%.

Loan fees and closing costs for the establishment and subsequent amendments of the Credit Facility are amortized utilizing the straight line method overover the life of the Credit Facility. At September 30, 2020,2021, unamortized loan fees and closing costs for the Credit Facility were approximately $0.8$2.0 million, which will be amortized over a remaining loan life of approximately 1.32.7 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.TheKeyBank. 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 2 one-year extension options, subject to certain conditions described therein. At September 30, 2020, unamortized loan fees and closing costs for the establishment of the Acquisition Facility were approximately $0.1 million, which will be amortized over a remaining loan life of approximately 1.4 years. 


4034
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021


    Interest Expense

Interest expense, including amortization of deferred loan costs was:
(In thousands)(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,
20202019202020192021202020212020
Residential PropertiesResidential Properties$15,739 $16,108 $46,537 $46,729 Residential Properties$14,130 $15,739 $40,614 $46,537 
New Market PropertiesNew Market Properties6,539 6,422 19,876 18,123 New Market Properties6,463 6,539 19,397 19,876 
Preferred Office PropertiesPreferred Office Properties6,699 5,909 20,256 16,617 Preferred Office Properties3,710 6,699 17,031 20,256 
Interest paid to real estate loan participants0 0 0 110 
TotalTotal28,977 28,439 86,669 81,579 Total24,303 28,977 77,042 86,669 
Credit Facility and Acquisition FacilityCredit Facility and Acquisition Facility902 360 3,939 1,587 Credit Facility and Acquisition Facility544 902 2,092 3,939 
Interest ExpenseInterest Expense$29,879 $28,799 $90,608 $83,166 Interest Expense$24,847 $29,879 $79,134 $90,608 
    Future Principal Payments
The Company’s estimated future principal payments due on its debt instruments as of September 30, 20202021 were:
PeriodPeriodFuture principal payments
(in thousands)		PeriodFuture principal payments
(in thousands)
2020 (1)
$44,152 
20212021166,730 2021$36,855 
20222022105,432 2022117,045 
20232023117,605 202382,205 
20242024367,421 2024290,414 
2025202557,492 
20262026335,024 
20272027317,639 
20282028245,105 
20292029245,056 
20302030356,042 
ThereafterThereafter2,045,829 Thereafter342,344 
TotalTotal$2,847,169 Total$2,425,221 
(1) Includes the principal amount due on our revolving line of credit of $33.0 million as of September 30, 2020.

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 equal net income as calculated in accordance with GAAP and determined without regard for the deduction for dividends paid and excluding net capital gains) to its stockholders. For the Company's tax years prior to its REIT election year, its operations resulted in a tax loss. As of December 31, 2010, the Company had deferred federal and state tax assets totaling approximately $298,100, none of which were based upon tax positions deemed to be uncertain. These deferred tax assets will most likely not be used since the Company elected REIT status; therefore, management has determined that a 100% valuation allowance is appropriate as of September 30, 20202021 and December 31, 2019.2020.


35
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2021

11. Commitments and Contingencies

On January 31, 2020, the Company assumed its Former Manager's eleven-year office lease as amended, which began on October 9, 2014. As of September 30, 2020,2021, the amount of rent due from the CompanyCompany was $15.3$12.4 million over the remaining term of the lease.

41
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

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

At September 30, 2020,2021, the Company had unfunded commitments on its real estate loan portfolio of approximately $63.0$52.5 million.

At September 30, 2020,2021, the Company had unfunded contractual commitments for tenant, leasing, and capital improvements of approximately $6.2$4.1 million.

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

12. Operating Leases

Company as Lessor

For the nine monthsthree-month periods ended September 30, 20202021 and 2019,2020, the Company recognized rental property revenues of $330.4of $96.3 million and $290.0$111.9 million, respectively, of which $31.2$10.3 million and $29.2$10.7 million, respectively, represented variable rental revenue. For the nine-month periods ended September 30, 2021 and 2020, the Company recognized rental property revenues of $300.5 million and $330.4 million, respectively, of which $32.1 million and $31.2 million, respectively, represented variable rental revenue.

Company as Lessee

The Company has 3one 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. Thelease for which the Company has evaluated its renewal option periods in quantifying its related lessee asset and liability related to these ground leases.liability. 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 $707,000 and $763,0000 for the nine-month periods ended September 30, 2021 and 2020, respectively.

The Company recorded lease expense as follows:
(dollars in thousands)
For the nine-month periods ended September 30, 2020		Weighted average remaining lease term (years)Weighted average discount rate
Nine-month periods ended September 30,As of September 30, 2021
(In thousands)(In thousands)20212020Weighted average remaining lease term (years)Weighted average discount rate
Lease expenseCash paidWeighted average remaining lease term (years)Weighted average discount rateLease expenseCash paidLease expenseCash paid
Office spaceOffice space$1,942 $1,903 5.23.0 %Office space$2,185 $2,190 $1,942 $1,903 4.33.0 %
Ground leasesGround leases44 38 35.74.4 %Ground leases17 11 44 38 43.34.5 %
Office equipmentOffice equipment282 282 2.33.0 %Office equipment100 100 282 282 2.73.0 %
TotalTotal$2,268 $2,223 Total$2,302 $2,301 $2,268 $2,223 


4236
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

Future minimum rent expense for office space, ground leases and office equipment were:
For the year ending December 31:For the year ending December 31:Future Minimum Rents as of September 30, 2020For the year ending December 31:Future Minimum Rents as of September 30, 2021
(in thousands)(in thousands)Office spaceGround leasesOffice equipmentTotal(in thousands)Office spaceGround leasesOffice equipmentTotal
2020 (1)
$723 $13 $91 $827 
202120212,930 51 321 3,302 2021(1)$740 $4 $25 $769 
202220222,855 51 149 3,055 20222,855 15 59 2,929 
202320232,497 51 58 2,606 20232,497 15 39 2,551 
202420243,139 51 39 3,229 20243,139 15 19 3,173 
202520252,808 17 12 2,837 
ThereafterThereafter3,163 1,136 0 4,299 Thereafter355 938 — 1,293 
TotalTotal$15,307 $1,353 $658 $17,318 Total$12,394 $1,004 $154 $13,552 
(1) Remaining three months
(1) Remaining three months
(1) Remaining three months



43
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

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 4 distinct segments: residential properties,Residential Properties, real estate related financing, New Market Properties and Preferred Office Properties.

Residential Properties - consists of the Company's portfolio of residential multifamily communities andas well as the Company's portfolio of owned student housing properties. MultifamilyPreferred Campus Communities, LLC owned and Student Housing Properties were previously presented as separate reporting segments. The Company has combined these two segments intoconducted the business of our portfolio of off-campus student housing communities until the sale of all our student housing communities on November 3, 2020. As of and for the three-month and nine-month periods ended September 30, 2021, the Residential Properties reportable segment.segment only consists of the Company's multifamily 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.buildings.

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 right of use assets, deferred offering costs recorded but not yet reclassified as reductions of stockholders' equity and cash balances at the Company and Operating Partnership levels.
(In thousands)September 30, 2020December 31, 2019
Assets:
Residential properties$2,146,061 $2,047,905 
Financing354,130 409,226 
New Market Properties1,074,584 1,125,230 
Preferred Office Properties1,130,962 1,123,212 
Other25,325 64,987 
Consolidated assets$4,731,062 $4,770,560 










4437
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

(In thousands)September 30, 2021December 31, 2020
Assets:
Residential properties$1,988,651 $1,745,020 
Financing210,324 321,026 
New Market Properties1,040,921 1,072,090 
Preferred Office Properties373,105 1,121,992 
Other46,034 20,951 
Consolidated assets$3,659,035 $4,281,079 
Total capitalized expenditures (inclusive of additions to construction in progress, but exclusive of the purchase price of acquisitions) for the three-month and nine-month periods ended September 30, 2020 and 2019 were as follows:
(In thousands)(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,
20202019202020192021202020212020
Capitalized expenditures:Capitalized expenditures:Capitalized expenditures:
Residential propertiesResidential properties$4,348 $4,709 $10,938 $11,377 Residential properties$3,988 $4,348 $10,400 $10,938 
New Market PropertiesNew Market Properties2,017 2,699 4,557 5,703 New Market Properties1,126 2,017 4,706 4,557 
Preferred Office PropertiesPreferred Office Properties5,779 3,265 22,458 12,040 Preferred Office Properties1,191 5,779 5,060 22,458 
TotalTotal$12,144 $10,673 $37,953 $29,120 Total$6,305 $12,144 $20,166 $37,953 

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

Total revenues by reportable segment of the Company were:
(In thousands)(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,(In thousands)Three-month periods ended September 30,Nine-month periods ended September 30,
20202019202020192021202020212020
RevenuesRevenuesRevenues
Rental and other property revenues:Rental and other property revenues:Rental and other property revenues:
Residential propertiesResidential properties$60,643 $56,008 $180,325 $162,669 Residential properties$55,425 $60,643 $157,709 $180,325 
New Market PropertiesNew Market Properties26,707 25,270 80,815 70,211 New Market Properties27,078 26,707 80,921 80,815 
Preferred Office Properties (1)
Preferred Office Properties (1)
27,810 24,215 81,009 68,006 
Preferred Office Properties (1)
16,799 27,810 70,896 81,009 
Total rental and other property revenuesTotal rental and other property revenues115,160 105,493 342,149 300,886 Total rental and other property revenues99,302 115,160 309,526 342,149 
Financing revenuesFinancing revenues11,271 14,710 38,115 44,675 Financing revenues11,688 11,271 35,830 38,115 
Miscellaneous revenuesMiscellaneous revenues266 0 812 0 Miscellaneous revenues22 21 62 50 
Consolidated revenuesConsolidated revenues$126,697 $120,203 $381,076 $345,561 Consolidated revenues$111,012 $126,452 $345,418 $380,314 
(1) Included in rental revenues for our Preferred Office Properties segment is the amortization of deferred revenue for tenant-funded leasehold improvements from a major tenant in our Three Ravinia and Westridge office buildings. As of September 30, 2020, the Company has recorded deferred revenue in an aggregate amount of $47.0 million in connection with such improvements. The remaining balance to be recognized is approximately $36.9 million which is included in the deferred revenues line on the consolidated balance sheets at September 30, 2020. These total costs will be amortized over the lesser of the useful lives of the improvements or the individual lease terms. The Company recorded non-cash revenue of approximately $2.8 million and $2.8 million for the nine-month periods ended September 30, 2020 and 2019, respectively.
(1) Included in rental revenues for our Preferred Office Properties segment is the amortization of deferred revenue for tenant-funded leasehold improvements from a major tenant in our Three Ravinia and Westridge office buildings. As of September 30, 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 $33.1 million which is included in the deferred revenues line on the consolidated balance sheets at September 30, 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 $2.8 million for both the nine-month periods ended September 30, 2021 and 2020, respectively.
(1) Included in rental revenues for our Preferred Office Properties segment is the amortization of deferred revenue for tenant-funded leasehold improvements from a major tenant in our Three Ravinia and Westridge office buildings. As of September 30, 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 $33.1 million which is included in the deferred revenues line on the consolidated balance sheets at September 30, 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 $2.8 million for both the nine-month periods ended September 30, 2021 and 2020, respectively.

38
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 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. Of our over 900 retail tenants, the Company has 11 leases with 6 companies that have entered bankruptcy proceedings and in the aggregate this constitutes approximately 1% of the total recurring rental revenue for the New Market Properties segment.

The chief operating decision makerCODM 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.


45
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020

Segment NOI for each reportable segment for the three-month and nine-month periods ended September 30, 2020 and 2019 werewas as follows:
Three-month periods ended September 30,Nine-month periods ended September 30,Three-month periods ended September 30,Nine-month periods ended September 30,
(In thousands)(In thousands)2020201920202019(In thousands)2021202020212020
Segment net operating income (Segment NOI)Segment net operating income (Segment NOI)Segment net operating income (Segment NOI)
Residential PropertiesResidential Properties$33,267 $30,191 $103,414 $90,825 Residential Properties$32,482 $32,742 $91,734 $102,195 
Financing11,245 14,710 38,089 44,675 
New Market PropertiesNew Market Properties19,235 18,211 57,381 50,441 New Market Properties19,601 19,386 57,361 57,360 
Preferred Office PropertiesPreferred Office Properties20,291 17,236 59,363 48,745 Preferred Office Properties12,076 20,215 51,054 59,230 
FinancingFinancing11,683 11,245 35,814 38,089 
Miscellaneous revenuesMiscellaneous revenues266 0 812 0 Miscellaneous revenues22 21 62 50 
Consolidated segment net operating incomeConsolidated segment net operating income84,304 80,348 259,059 234,686 Consolidated segment net operating income75,864 83,609 236,025 256,924 
Interest expense:Interest expense:Interest expense:
Residential PropertiesResidential Properties15,739 16,108 46,537 46,729 Residential Properties14,130 15,739 40,614 46,537 
New Market PropertiesNew Market Properties6,539 6,422 19,876 18,123 New Market Properties6,463 6,539 19,397 19,876 
Preferred Office PropertiesPreferred Office Properties6,699 5,909 20,256 16,617 Preferred Office Properties3,710 6,699 17,031 20,256 
Financing902 360 3,939 1,697 
CorporateCorporate544 902 2,092 3,939 
Depreciation and amortization:Depreciation and amortization:Depreciation and amortization:
Residential PropertiesResidential Properties26,516 23,869 77,745 74,304 Residential Properties22,345 26,462 65,818 77,602 
New Market PropertiesNew Market Properties12,688 11,677 39,410 32,644 New Market Properties11,363 12,688 34,749 39,410 
Preferred Office PropertiesPreferred Office Properties12,590 10,693 35,941 30,243 Preferred Office Properties5,877 12,590 29,464 35,941 
CorporateCorporate54 54 167 143 
Equity compensation to directors and executivesEquity compensation to directors and executives582 305 1,058 922 Equity compensation to directors and executives817 582 2,316 1,058 
Management fees, net of waived feesManagement fees, net of waived fees0 5,530 1,963 16,144 Management fees, net of waived fees— — — 1,963 
Management InternalizationManagement Internalization577 818 179,828 1,143 Management Internalization242 577 727 179,828 
Provision for expected credit losses(152)0 5,463 0 
Change in net assets of consolidated VIE0 (591)0 (1,316)
Allowance for expected credit lossesAllowance for expected credit losses265 (152)(58)5,463 
(Gain) / loss on sale of real estate(Gain) / loss on sale of real estate(3,261)0 (3,261)0 (Gain) / loss on sale of real estate(7,942)(3,261)(8,740)(3,261)
(Gain) / loss on trading investment, net0 0 0 (4)
(Gain) / loss on sale of real estate loan investment(Gain) / loss on sale of real estate loan investment0 0 0 (747)(Gain) / loss on sale of real estate loan investment12 — 12 — 
(Gain) / loss from land condemnation, net(49)0 (528)0 
(Gain) / loss on sale of land(Gain) / loss on sale of land— (49)— (528)
(Gain) / loss on extinguishment of debt(Gain) / loss on extinguishment of debt518 15 6,674 84 (Gain) / loss on extinguishment of debt— 518 — 6,674 
Loss from unconsolidated joint ventureLoss from unconsolidated joint venture120 0 120 0 Loss from unconsolidated joint venture187 120 556 120 
Corporate G&A and Other7,898 1,370 23,113 4,197 
General and AdministrativeGeneral and Administrative7,772 7,203 23,007 20,978 
Net income (loss)Net income (loss)$(3,602)$(2,137)$(199,075)$(6,094)Net income (loss)$10,025 $(3,602)$8,873 $(199,075)

4639
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

14. Income (Loss) Per Share

The following is a reconciliation of weighted average basic and diluted shares outstanding used in the calculation of income (loss) per share of Common Stock:
(In thousands, except per-share figures)Three-month periods ended September 30,Nine-month periods ended September 30,(In thousands, except per-share figures)Three-month periods ended September 30,Nine-month periods ended September 30,
20202019202020192021202020212020
Numerator:Numerator:Numerator:
Operating (loss) income before gain on sale of real estate and loss from unconsolidated joint venture$23,605 $26,086 $(105,462)$75,089 Operating income (loss) before gains on sales of real estate and loss from unconsolidated joint venture$27,129 $23,605 $79,835 $(105,462)
Loss from unconsolidated joint venture(120)0 (120)0 Loss from unconsolidated joint venture(187)(120)(556)(120)
Gain on sale of real estate, net3,261 0 3,261 4 Gain on sale of real estate7,942 3,261 8,740 3,261 
Operating (loss) income26,746 26,086 (102,321)75,093 Operating income (loss)34,884 26,746 88,019 (102,321)
Interest expense29,879 28,799 90,608 83,166 Interest expense24,847 29,879 79,134 90,608 
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools0 591 0 1,316 Loss on extinguishment of debt— (518)— (6,674)
Less: loss on extinguishment of debt(518)(15)(6,674)(84)Gain on sale of land— 49 — 528 
Gains on land condemnation49 0 528 747 Loss on sale of real estate loan investment(12)— (12)— 
Net loss(3,602)(2,137)(199,075)(6,094)Net income (loss)10,025 (3,602)8,873 (199,075)
Consolidated net loss attributable to non-controlling interests108 59 3,515 138 
Net (income) loss attributable to non-controlling interests (A)
(48)108 11 3,515 
Net loss attributable to the Company(3,494)(2,078)(195,560)(5,956)Net income (loss) attributable to the Company9,977 (3,494)8,884 (195,560)
Dividends declared to preferred stockholders(35,909)(29,446)(104,601)(82,527)
Dividends declared to preferred stockholders (B)
(57,859)(35,909)(125,662)(104,601)
Net loss attributable to unvested restricted stock(96)(5)(109)(14)
Net loss attributable to unvested restricted stock (C)
(117)(96)(397)(109)
Net loss attributable to common stockholders$(39,499)$(31,529)$(300,270)$(88,497)Net loss attributable to common stockholders$(47,999)$(39,499)$(117,175)$(300,270)
Denominator:Denominator:Denominator:
Weighted average number of shares of Common Stock - basic49,689 44,703 48,351 43,703 Weighted average number of shares of Common Stock - basic52,455 49,689 51,011 48,351 
Effect of dilutive securities: (D)
0 0 0 0 
Effect of dilutive securities: (D)
— — — — 
Weighted average number of shares of Common Stock - basic and diluted49,689 44,703 48,351 43,703 Weighted average number of shares of Common Stock - basic and diluted52,455 49,689 51,011 48,351 
Net loss per share of Common Stock attributable toNet loss per share of Common Stock attributable to
common stockholders, basic and diluted$(0.79)$(0.71)$(6.21)$(2.02)common stockholders, basic and diluted$(0.92)$(0.79)$(2.30)$(6.21)

(A) The Company's outstanding Class A Units of the Operating Partnership (742Partnership (496 and 856742 Units at September 30, 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 1,9911,344 and 1,9321,991 outstanding shares of Series A Preferred Stock at September 30, 20202021 and 2019,2020, respectively and 246 and 103 outstanding shares of Series A1 Preferred Stock at September 30, 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 9184 and 9091 mShares outstanding at September 30, 20202021 and 2019,2020, respectively. The Company's shares of Series M1 preferred stockPreferred Stock accrue dividends at an escalating rate of 6.1% in year one to 7.1% in year ten and thereafter. The Company had 32 and13 shares of Series M1 preferred stockPreferred Stock outstanding at September 30, 2020.2021 and 2020, respectively.

(C) The Company's outstanding unvested restricted share awards (548 and 20 shares of Common Stock at September 30, 2020 and 2019, respectively) contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted

4740
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021

(C) The Company's outstanding unvested restricted share awards (662 and 548 shares of Common Stock at September 30, 2021 and 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. 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 27,76721,689 shares of Common Stock; (ii) 6558 Class B Units; (iii) 548662 shares of unvested restricted common stock; (iv) 5466 outstanding Restricted Stock Units; and (v) 273 Performance-based Restricted Stock Units449 PSUs are excluded from the diluted shares calculations because the effect was antidilutive. Class A Units were excluded from the denominatordenominator because earningsearnings 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 provisionsallowances and are presented net of deferred loan fee revenue and credit losses reserves, where applicable.
As of September 30, 2020As of September 30, 2021
(In thousands)(In thousands)Carrying valueFair value measurements
using fair value hierarchy		(In thousands)Carrying valueFair value measurements
using fair value hierarchy
Fair ValueLevel 1Level 2Level 3Fair ValueLevel 1Level 2Level 3
Financial Assets:Financial Assets:Financial Assets:
Real estate loansReal estate loans$334,385 $348,608 $0 $0 $348,608 Real estate loans$197,377 $203,168 $— $— $203,168 
Notes receivable and line of credit receivableNotes receivable and line of credit receivable11,905 11,905 0 0 11,905 Notes receivable and line of credit receivable9,011 9,011 — — 9,011 
$346,290 $360,513 $0 $0 $360,513 $206,388 $212,179 $— $— $212,179 
Financial Liabilities:Financial Liabilities:Financial Liabilities:
Mortgage notes payableMortgage notes payable$2,814,169 $2,866,502 $0 $0 $2,866,502 Mortgage notes payable$2,425,221 $2,467,857 $— $— $2,467,857 
Revolving credit facility33,000 33,000 0 0 33,000 
Revolving line of creditRevolving line of credit— — — — — 
$2,847,169 $2,899,502 $0 $0 $2,899,502 $2,425,221 $2,467,857 $— $— $2,467,857 

As of December 31, 2019As of December 31, 2020
(In thousands)(In thousands)Carrying valueFair value measurements
using fair value hierarchy		(In thousands)Carrying valueFair value measurements
using fair value hierarchy
Fair ValueLevel 1Level 2Level 3Fair ValueLevel 1Level 2Level 3
Financial Assets:Financial Assets:Financial Assets:
Real estate loansReal estate loans$375,460 $382,373 $0 $0 $382,373 Real estate loans$302,423 $315,074 $— $— $315,074 
Notes receivable and line of credit receivableNotes receivable and line of credit receivable41,917 41,917 0 0 41,917 Notes receivable and line of credit receivable10,874 10,874 — — 10,874 
$417,377 $424,290 $0 $0 $424,290 $313,297 $325,948 $— $— $325,948 
Financial Liabilities:Financial Liabilities:Financial Liabilities:
Mortgage notes payableMortgage notes payable$2,609,829 $2,659,242 $0 $0 $2,659,242 Mortgage notes payable$2,640,705 $2,666,471 $— $— $2,666,471 
Revolving line of creditRevolving line of credit0 0 0 0 0 Revolving line of credit22,000 22,000 — — 22,000 
Term note payable70,000 70,000 0 0 70,000 
$2,679,829 $2,729,242 $0 $0 $2,729,242 $2,662,705 $2,688,471 $— $— $2,688,471 



4841
Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 20202021


The fair value of the real estate loans within the level 3 hierarchy are comprised of estimates of the fair value of the notes, which were developed utilizing a discounted cash flow model over the remaining terms of the notes until their maturity dates and utilizing discount rates believed to approximate the market risk factor for notes of similar type and duration. The fair values also contain a separately-calculated estimate of any applicable additional interest payment due the Company at the maturity date of the loan, based on the outstanding loan balances at September 30, 2021 and December 31, 2020, discounted to the reporting date utilizing a discount rate believed to be appropriate for multifamily development projects.

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


16. Subsequent Events

On October 14, 2021, the Company closed on a real estate loan investment of up to $16.6 million supporting a 337-unit second phase of The Menlo multifamily community in Jacksonville, Florida.

On October 21, 2021, the Company closed on supplemental notes payable (i) with a principal amount of approximately $7.3 million supporting the Retreat at Greystone multifamily community that bears a fixed interest rate of 3.47% per annum and matures on December 1, 2024 and (ii) with a principal amount of approximately $3.7 million supporting the Aldridge at Town Village multifamily community that bears a fixed interest rate of 3.46% per annum and matures on November 1, 2024.

On October 28, 2021, the Company's board of directors declared a quarterly dividend on its Common Stock of $0.175 per share, payable on January 14, 2022 to stockholders of record on December 15, 2021.

Between October 1, 20202021 and October 31, 2020,2021, the Company issued 13,98649,049 shares of Series A1 Redeemable PreferredCommon Stock under the 2019 ATM Offering at an average price of $12.43 per share, for aggregate gross proceeds of approximately $610,000and, collectedafter deducting commissions and other costs, net proceeds of approximately $12.6 million after commissions$600,000.

Between October 1, 2021 and fees andOctober 31, 2021, the Company issued 2,9142,882 shares of Series M1 Redeemable Preferred Stock and collected net proceeds of approximately $2.8 million after commissions and fees. During the same period, the Company redeemed 23,4682,001 shares of Series A Preferred Stock, 267 mShares, 8 shares of Series A1 Preferred Stock, and 862193 shares of Series M1 Preferred Stock, or mShares.Stock.

On November 1, 2021, we repaid the mortgage debt in the amount of $27.4 million supporting our Champions Village grocery-anchored shopping center, and on November 2, 2020, the Company closed2021, we financed our Woodstock Crossing grocery-anchored shopping center with a $5.3 million mortgage bearing interest at a fixed rate of 2.89% per annum that matures on the acquisition of The Blake, a 281-unit multifamily community located in Orlando, Florida.December 1, 2026.

On November 3, 2020,2021, the Company announced viaclosed on a press release the closing on that dayreal estate loan investment of the saleup to $9.1 million, in support of student housing assets to an unrelated third party for a sales price of approximately $478.7 million.246-unit multifamily community located in Atlanta, Georgia.

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





4942


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.

    On January 31, 2020, we internalized the functions performed by Preferred Apartment Advisors, LLC (the "Former Manager") and NMP Advisors, LLC (the "Sub-Manager") by acquiring the entities that own the Manager and the Sub-Manager (such transactions, collectively, the "Internalization") for an aggregate purchase price of $154.0 million, plus up to $25.0 million of additional consideration to be paid within 36 months. Additionally, up to $15.0 million of the $154.0 million purchase price was to be held back and is payable to the sellers less certain losses following final resolution of certain specified matters. Pursuant to the Stock Purchase Agreement entered into on January 31, 2020 the sellers sold all of the outstanding shares of NELL Partners, Inc. (“NELL”) and NMA Holdings, Inc., parent companies of the Manager and Sub-Manager, respectively, to us, in exchange for an aggregate of approximately $111.1 million in cash paid at the closing which reflects the satisfaction of certain indebtedness of NELL, the estimated net working capital adjustment, and a hold back of $15.0 million for certain specified matters. Trusts established, or entities owned, by the family of John A. Williams, the Company’s former Chairman of the Board and Chief Executive Officer, Daniel M. DuPree, the Company’s Executive Chairman of the Board and former Chief Executive Officer of the Company, and the family of Leonard A. Silverstein, the Company’s former Vice Chairman of the Board, and former President and Chief Operating Officer, were the owners of NELL. Trusts established, or entities owned, by Joel T. Murphy, the Company’s Chief Executive Officer and a member of the Board, the family of Mr. Williams, Mr. DuPree and the family of Mr. Silverstein were the owners of NMA.

During the nine-monththree-month period ended September 30, 2020,2021, we acquired twofour multifamily communities comprising an aggregate of 1,028 units and two grocery-anchored shopping centers. We alsowe closed on threeone real estate loan investmentsinvestment of up to $44.1approximately $23.2 million, in partial support of the development of a 352-unit multifamily communitiescommunity in Charlotte, North Carolina, Raleigh, North Carolina andsuburban Atlanta, Georgia.

    During the nine-monththree-month period ended September 30, 2020,2021, we issued 98,07637,009 shares of Series A1 Preferred Stock and collectedredeemed or called 305,802 shares of Preferred Stock, for a net proceedsreduction of 268,793 shares of Preferred Stock, and a net cash outflow of approximately $88.3$272.0 million. During the same period, we issued 13,081and sold an aggregate of 1,167,626 shares of Series M1 PreferredCommon Stock under our ATM Offering, generating gross proceeds of approximately $12.9 million and, collectedafter deducting commissions and other costs, net proceeds of approximately $12.7 million. During the nine-month period ended September 30, 2020, we issued 65,298 Units (one share of Series A Preferred Stock and one warrant to purchase 20 shares of our Common Stock) and collected net proceeds of approximately $58.8 million from our $1.5 Billion Unit Offering, which terminated in February 2020. Our Preferred Stock offerings and our other equity offerings are discussed in detail in the Liquidity and Capital Resources section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

    Our average recurring rental revenue collections before and after any effect of rent deferrals forDuring the third quarter 2020 were approximately 99.0% and 99.0% for multifamily communities, 99.5% and 99.8% forthree-month period ended September 30, 2021, we sold seven office properties (Galleria 75, 150 Fayetteville, Capitol Towers, CAPTRUST Tower, Morrocroft Centre, Armour Yards, and 95.2%251 Armour Yards) and 96.6%our 8West real estate loan investment for grocery-anchored retail properties, respectively. Rent deferments provided to our residents/tenants primarily related to a changean aggregate gross sales price of timingapproximately $725.0 million. We recognized an aggregate loss on sale of rent payments with no significant changes to total payments or term. As of September 30, 2020, we have deferred $1.5$12.0 million of retail recurring rental revenue, or approximately 3.1% cumulatively over the last two quarters. Including this deferred rent, we have accounted for 96.6% and 95.9% of third quarter and second quarter retail recurring rental revenue, respectively. In addition to the deferrals, we granted approximately $324,000 of COVID-19 related rental abatements, or approximately 0.7% of retail recurring rental revenues cumulatively over the last two quarters. These rental abatements were generally accompanied by an increase in the tenant’s lease term or the lease terms were amended to be more favorable to us. We have also reserved $928,000 or 3.4% of total retail revenues (inclusive of straight line rent) in the third quarter, increasingquarter. We expect the disposition of these assets may result in a potentially material decrease in our total reservesrevenues and results of operations. We used part of the proceeds from the sales to $2.5call approximately $288.3 million or 3.0% of total retail revenues year to date. Total reserves forour Series A Preferred Stock during the consolidated Company was $6.0 million or 1.7% of rental and other property revenues year to date.third quarter.

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    Forward-lookingForward-Looking Statements

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

•     our business and investment strategy;
•     our projected operating results;
•     actions and initiatives of the U.S. Government, and changes to U.S. Government policies and the execution and
    the state of the U.S.
    economy generally or in specific geographic areas;
•     economic trends and economic recoveries;
•     our ability to obtain and maintain financing arrangements, including through Fannie Mae and Freddie Mac;
•     financing and advance rates for our target assets;
•     our expected leverage;
•     changes in the values of our assets;
•     our expected portfolio of assets;
•     our expected investments;
•     interest rate mismatches between our target assets and our borrowings used to fund such investments;
•     changes in interest rates and the market value of our target assets;
•     changes in prepayment rates on our target assets;
•     effects of hedging instruments on our target assets;
•     rates of default or decreased recovery rates on our target assets;
•     changes in our operating costs, including real estate taxes, utilities and insurance costs;
•     the degree to which our hedging strategies may or may not protect us from interest rate volatility;
•     impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;
•     our ability to maintain our qualification as a real estate investment trust, or REIT, for U.S. federal income tax
    purposes;
•     the possibility that the anticipated benefits from the Internalization may not be realized or may take longer to
realize than expected, or that unexpected costs or unexpected liabilities may arise from the Internalization;
43

•    the impact of the coronavirus (COVID-19) pandemic, including any variants, on PAC’sour business operations and the
economic conditions
in the markets in which PAC operates;we operate;
•     PAC’sour ability to mitigate the impacts arising from COVID-19;COVID-19 or any variants thereof;
•     our ability to maintain our exemption from registration under the Investment Company Act of 1940, as
amended;
•     the availability of investment opportunities in mortgage-related and real estate-related investments and
securities;
•     the availability of qualified personnel;
•     estimates relating to our ability to make distributions to our stockholders in the future;
•     our understanding of our competition;
•     market trends in our industry, interest rates, real estate values, the debt securities markets or the general
economy;
•     weakness in the national, regional and local economies, which could adversely impact consumer spending and
retail sales and in turn tenant demand for space and could lead to increased store closings;
•     changes in market rental rates;rates, including the potential for the slowing of recent multifamily rent growth;
•     changes in demographics (including the number of households and average household income) surrounding our
shopping centers;
•     adverse financial conditions for grocery anchors and other retail, service, medical or restaurant tenants;
•     continued consolidation in the grocery-anchored shopping center sector;our property types;
•     excess amount of retail space in our markets;
•     reduction in the demand by tenants to occupy our shopping centers as a result of reduced consumer demand for
certain retail formats;
•     the growth of super-centers and warehouse club retailers, such as those operated by Wal-Mart and Costco, and
their adverse effect on traditional grocery chains;
51

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

Forward-looking statements are found throughout this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, or SEC, we do not have any intention or obligation to publicly release any revisions to forward-looking statements to reflect unforeseen or other events after the date of this report. The forward-looking statements should be read in light of the risk factors indicated in the section entitled "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20192020 and as may be supplemented by any amendments to our risk factors in our subsequent quarterly reports on Form 10-Q and other reports filed with the SEC, which are accessible on the SEC’s website at www.sec.gov.
General
    The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial position. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.


Industry Outlook

Residential Properties    In spite of the COVID-19 pandemic, we believe continued, albeit sporadic, improvement in the United States' economy will take hold for the remainder of 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.
44


MultifamilyCommunities
 
Multifamily ownersWe continue to believe in the health of the multifamily industry, which is driven by both favorable demographic tailwinds and operators, like every otherstrong economic fundamentals.

Two of the nation’s largest generational cohorts - an estimated 72 million Millennials and 72 million Baby Boomers – continue to create demand for multifamily housing. Lifestyle trends within these groups support the multifamily thesis, with Millennials seeking flexibility and Baby Boomers looking to downsize and reduce ongoing maintenance required with home ownership. These trends are further amplified within our footprint and strategy: operating newly-constructed Class A communities in growing suburban Sunbelt markets. The Sunbelt continues to benefit from in-migration trends as weather, affordability and friendly business have been impacted by COVID-19, butenvironments attract households and corporations alike. Millennials, who on average are forming households and starting families later than prior generations, are now searching for additional square footage, relative affordability and good schools; attributes that are generally more prevalent in the suburbs.

Fundamentally, the multifamily industry is benefiting from the current housing shortage in the United States, which Freddie Mac estimates at 3.8 million housing units as of the fourth quarter of 2020, an increase in the housing stock deficit of 52% from the 2.5 million housing units Freddie Mac estimated in 2018. Furthermore, we believe the long term healthU.S. is in the early stages of the industry is intact. Demand foran economic expansion, which we believe will drive job growth and lead to increased multifamily rental housing will continue duedemand. The sector continues to the ongoing entry of the “millennial” generation into the workforce,show resiliency and the desire of the Baby Boom generation to “downsize”positive momentum as they focus on their retirement years. 

    Entering this pandemic-induced recession, most economists agreed there was a housing shortfall, not an oversupply. Regarding multifamily specifically, in 2019, the industry was reachingforecasts generally support stable occupancy, levels not seen since 2000rent growth and net absorption of units was also at peak levels during this last economic cycle. While this pandemicunits.

Investors, both domestic and resulting recession will create significant job losses in the near term, economic models forecast a quick recoveryabroad, continue to seek quality multifamily housing given strong secular demand and the multifamily industry is in a prime position to recover relatively quickly given the aforementioned baseline pre-COVID-19. Until such recovery, the Company’s multifamily assets are well positioned to sustain through a recession with a majorityfinancial stability of the industry. Commercial real estate investment volume remains high with multifamily realizing more volume than any other property type; a trend that has been ongoing and is expected to continue. Moreover, mortgage production remains very healthy and efficient as Freddie Mac, Fannie Mae, life insurance companies and collateralized mortgage-backed securities lenders compete for borrowers as they see increased demand for multifamily debt, whether for their own account or securitized.

Strategically, the Company is focused on the goal of outperforming the multifamily market on a risk adjusted basis, as it looks for investments that offer an attractive location, superior product or provide a value proposition. Moreover, the Company is purposeful in its management of assets, being newly constructed, suburbanaiming to provide a relatively stable and located in dynamic sunbelt growth markets. The Company also hassteady rental stream from its portfolio by employing principally fixed-rate long-term project-level debt financing and adhering to strict leasing guidelines regarding the credit worthiness of its tenants, providing for a relatively resilient rental stream. Additionally, the Company focused on financing the assets with project level, long-term, fixed rate debt, which provides surety and continuity in times of uncertainty.tenants.

Student housing owners and operators, like their multifamily counterparts, have been impacted by the COVID-19 pandemic. Traffic and leasing velocity immediately decreased by the decision of many universities across the country to discontinue on-campus classes and move to an on-line learning program. With these immediate closures, including the mandates to vacate on-campus housing dorms and students being advised by university personnel to return to their permanent homes to resume their classes on-line, the student’s college experience changed overnight. In addition, without a commitment from the universities as to when the Fall 2020 classes would begin, the student-renter base took a “wait and see” approach toward signing leases for the 2020-2021 school year.

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

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

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

New Market Properties

We specialize in owning and managing a portfolio of 54 neighborhoodoperating shopping centers anchored by market-leading grocers incomplemented by convenience-based retailers across high-growth suburban Sunbelt and Mid-Atlantic suburban markets with strong demographic fundamentals.markets. These centers are primarily anchored by Publix, Kroger, Harris Teeter and other market share leading grocers that havewith high sales per square foot. The importanceWe believe that our focus on an e-commerce resilient, daily needs-centric merchandising mix has our portfolio positioned well to flourish amidst the accelerated migration to the Sunbelt. Convenience-driven retail within our retail portfolio continues to thrive amidst the resurgence of our market share leading grocers has become eventhe sector. Customers continue to rely on the brick-and-mortar footprints of retailers, with 11% more evident during the pandemic, as shoppers have flockedconsumers planning to theseshop in store this holiday season than in 2019 according to Jones Lang LaSalle. Grocery stores also continue to purchase their essential items. Publix and Kroger reported same store sales increases in excess of 15% for their most recent 9 months, evidencing their leveling off at these increasedflourish, with Publix's third quarter 2021 foot traffic 13.3% higher than 2019 levels.

DespiteThe accelerated migration trends occurring in affluent and growing suburbs across the continued impactsSunbelt have tremendously benefited our retail portfolio. The states that our retail portfolio is located in have outpaced US population growth, increasing population by 12% over the last 10 years compared to the 7% national average. Suburban retail continues to benefit from increased workplace flexibility, allowing shoppers to work from home at their convenience, yielding more time spent closer to our assets. Retailers are recognizing each of COVID-19, our outlook on grocery-anchored shopping centers remains positive. Wethese tailwinds and are confident in our portfolio’s tenant make up, focused on strongly performing grocers complemented by necessity and convenience-based tenants. 34% of our base rent is attributed to grocery and pharmacy tenants and 53% comes from tenants deemed essential by their respective governments. We have collected over 95% of recurring base rent and reimbursement revenue due in the third quarter 2020 duringsuburban Sunbelt expansion as a time that many tenants have been forced to greatly modify their normal businesses. The recovery has been gradual with local governments and municipalities allowing businesses to reopen in phases.result.

As of September 30, 2020, we have deferred $1.5 million of retail recurring rental revenue, or approximately 3.1% cumulatively over the last two quarters. Including this deferred rent, we have accounted for 96.5% and 95.8% of third quarter and second quarter retail recurring rental revenue, respectively. We are diligently workingencouraged by the strong retailer demand in our shopping centers and are strategically focusing on improving our overall merchandising mix to get payment plansbetter our positioning in place with the remaining tenantsever-changing retail landscape. Our grocery partners are all engaged in further developing their curbside pickup and Buy Online Pickup in Store ("BOPIS") offerings as they establish themselves as the optimal last mile touchpoint for shoppers. Our tenant base has proven its resiliency during the pandemic. Our grocery partners continue to recover unpaid balances. Rent deferrals have included lease amendmentsthrive, and our e-commerce and convenience focused tenancy is positioned well to benefit from the strong tailwinds that add additional term and/or eliminate cumbersome restrictions on the greater center, ultimately unlocking additional long-term value acrosssuburbs throughout the portfolio.Sunbelt are experiencing today.

45


Preferred Office Properties
 
We continue to hold a positive outlook for the               Preferred Office Properties operates three Class A office industry in our markets, notwithstanding COVID-19, while acknowledging thatassets comprising 1.2 million square feet in the immediate near term this positive performance may be more relative than absolute. Multi-year contractual leasesAtlanta, San Antonio and rent schedules paired with corporate balance sheets offer protection against adverse impacts of the pandemic, and office-using employment has fared better thus far than have hourly wage earners. In addition, certain industries have been more affected - namely travel and leisure, and the energy sector. Markets with concentrations to these industries are likely to be more strained than others. We also believeBirmingham markets. New York City will be slower to recover due to the severity of its encounter with the virus. Fortunately, the Company’s office investments are not located in New York City or any markets where tourism or energy is the primary economic driver. While leasing activity has been impacted byslowed and sublease availability has increased in most markets due to uncertainty from COVID-19, and we are likelyCOVID-19. We expect to see some level of continued softness on that frontsoft demand in the near-term, fortunatelynear-term. Despite these challenges, the Company’s office investments are 96%87% leased with only approximately 12%1.2% of the portfolio leases expiring through the end of 2022. Beyond that we believe the more lasting consequenceFurthermore, multi-year contractual leases and rent schedules paired with high quality tenant balance sheets have offered protection against adverse impacts of this event will be an acceleration of migration trends to the SunBelt that were already underway.COVID-19.

53The pandemic has highlighted the trend of relocations out of larger gateway cities to the suburban, Sunbelt target markets. As the pandemic eases this trend could continue or abate as the market settles from the disruption of COVID-19. We continue to see interest in our assets from companies of varying sizes and from varying industries, which is a positive trend for our investment thesis and the markets in which we have invested.

The company sold a substantial majority of its office assets during the third quarter 2021. The sale of these assets marks a continuation of our stated strategy to simplify our investment focus, realign our balance sheet and to ultimately exit the office business entirely over time.

Critical Accounting Policies
    There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-
K for the year ended December 31, 2019, besides the following.2020.

Expected Credit Loss Reserves

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

Off-Balance Sheet Arrangements

    As of September 30, 2020,2021, we had 1,388,3621,084,471 outstanding Warrants from our sales of Units. The Warrants are exercisable by the holder at an exercise price of 120% of the current market price per share of the Common Stock on the date of issuance of such Warrant, with a minimum exercise price of $19.50 per share for Warrants issued after February 15, 2017. The current market price per share is determined using the closing market price of the Common Stock immediately preceding the issuance of the Warrant. The Warrants are not exercisable until one year following the date of issuance and expire four years following the date of issuance. As of September 30, 2020,2021, a total of 531,522 Warrants had been exercised into 10,630,440 shares of Common stock. The 1,388,3621,084,471 Warrants outstanding at September 30, 20202021 have exercise prices that range between $15.31$19.50 and $26.34 per share. If all the Warrants outstanding at September 30, 20202021 became exercisable and were exercised, gross proceeds to us would be approximately $136.3$438.9 million and we would as a result issue an additional 27,767,24021,689,420 shares of Common Stock.


New Accounting Pronouncements

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

54

Results of Operations

    Certain financial highlights of our results of operations for the three-month and nine-month periodperiods ended September 30, 2021 and 2020 were:

Financial

•Our total revenues for the quarter ended September 30, 2021 decreased approximately $15.4 million, or 12.2%, to $111.0 million from the quarter ended September 30, 2020, due to the absence of revenues from the eight student housing properties that we sold on November 3, 2020 and the seven office properties and one real estate loan investment that we sold during the third quarter 2021. The student housing properties contributed approximately $12.5 million, or 9.9% of our total revenues and the disposed office properties and real estate loan investment contributed approximately $17.3 million, or 13.7% of our total
46

revenues for the quarter ended September 30, 2020. Excluding the contributions of these disposed assets, our year-over-year total revenues would have increased $7.7 million, or 8%.

•Our net loss per share was $(0.79)$(0.92) and $(0.71)$(0.79) for the three-month periods ended September 30, 20202021 and 2019,2020, respectively. Funds From Operations, or FFO, for the three months ended September 30, 2020 was $(0.31) and $0.17 per weighted average share of Common Stock and Class A Unit outstanding and reflects lower purchase option termination revenues, lower interest income, higher preferred dividends and a higher share count. Core FFO was $0.26 for the three months ended September 30, 2021 and 2020, as comparedrespectively. The decrease in FFO per share was driven by:

*deemed dividends due to $0.35 forcalls and cash redemptions of our preferred stock of $(0.51) per share;
*lower FFO resulting from the three months ended September 30, 2019sale of our student housing properties in the fourth quarter 2020 and was similarly impactedseven office properties and one real estate loan investment in the third quarter of 2021 of $(0.14) per share;
*partially offset by the items listed above.lower cash dividend requirements on our preferred stock of $0.13 per share; and
*improved multifamily same-store results of $0.04 per share.

•Our Core FFO per share result increased to $0.17$0.28 for the third quarter 20202021 from $(0.01) for the second quarter 2020; our Core FFO per share result increased to $0.26 for the third quarter 2020, due to:

*lower cash dividend requirements on our preferred stock of $0.13 per share;
*improved multifamily same-store results of $0.04 per share; and
*lower FFO resulting from $0.22 for the secondsale of our student housing properties in the fourth quarter 2020 and ourseven office properties and one real estate loan investment in the third quarter of 2021 of $(0.14) per share.

•Our AFFO per share result increased to $0.40 for the third quarter 2021 from $0.07 for the third quarter 2020 due to:

*accrued interest income received of $0.16 per share;
*lower cash dividend requirements on our preferred stock of $0.13 per share;
*cash received from $0.05 forpurchase option termination agreements of $0.06 per share;
*smaller adjustments to remove non-cash revenues from amortization of deferred revenues, straight-line rent adjustments, above and below market leases and lease inducements of $0.05;
*improved multifamily same-store results of $0.04 per share; and
*lower FFO resulting from the secondsale of our student housing properties in the fourth quarter 2020. Core FFO increased 22.1% for2020 and seven office properties and one real estate loan investment in the third quarter 2020 from the second quarter 2020.of 2021 of $(0.14) per share.

•Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately 67.8%63.7% and our Core FFO payout ratio (before the deduction of preferred dividends) to our preferred stockholders was approximately 73.0%.79.5% for the third quarter 2021. (A)

•Our AFFO payout ratio to Common Stockholders and Unitholders was approximately 95.1% for the trailing twelve months ended September 30, 2020. Our44.6% and our AFFO payout ratio (before the deduction of preferred dividends) to our preferred stockholders was approximately 90.9%73.1% for the third quarter 2020, 78.5% for the nine months ended September 30, 2020 and 75.1% for the trailing twelve months ended September 30, 2020.(A) Our AFFO payout ratios were negatively impacted by the reduced level of accrued interest received on our real estate loan investment portfolio and increased property insurance rates. We have approximately $24.8 million of accrued interest revenue on our real estate loan investment portfolio, which will positively impact AFFO when collected.2021.

•As of September 30, 2020,2021, our total assets were approximatelyapproximately $3.7 billion, a net decrease from our total assets of approximately $4.7 billion. Our total assetsbillion at September 30, 20192020, that primarily resulted from the sale of approximately $5.3 billion included approximately $585.8 millionseven office properties during the third quarter 2021 and of VIE mortgage pool assets attributable to other mortgage pool participants that were consolidated due to our investments in the Freddie Mac K Program. Duringstudent housing portfolio during the fourth quarter 2019 we sold our K Program investments, realizing an internal rate2020, offset by the acquisition of returnfive multifamily communities (net of approximately 18%dispositions). Excluding the consolidated VIE mortgage pool assets from the September 30, 2019 total, our total assets grew approximately $49.3 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 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.


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

55

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


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

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


Operational

•Our average recurring rental revenue collections beforerates for our multifamily same-store properties for new and after any effect of rent deferralsrenewal leases increased 24.1% and 8.8% respectively and 15.6% blended for the third quarter 2020 were approximately 99.0% and 99.0% for multifamily communities, 99.5% and 99.8% for office properties and 95.2% and 96.6% for grocery-anchored retail properties, respectively. Rent deferments provided2021 as compared to our residents/tenants primarily related to a changethe expiring leases, excluding shorter-term leases of timing of rent payments with no significant changes to total paymentssix months or term.less.

•Our rental rates for our multifamily same-store properties for new and renewal leases increased 25.6% and 13.3% respectively and 18.6% blended for October 2021 as compared to the expiring leases, excluding shorter-term leases of six months or less.

47

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

•On July 31, 2020, we received approximately $18.7 million in full satisfaction of the principal and all interest due on our Palisades real estate loan investment. Included in this total was the receipt of approximately $375,000 of deferred interest revenue on the loan, which was additive to AFFO for the quarter.
•As of September 30, 2020,2021, the average age of our multifamily communitiescommunities was approximately 6.36.1 years, which we believe is the youngest in the public multifamily REIT industry.

•As of September 30, 2020,2021, all of our owned multifamily communities had achieved stabilization except for The Ellison (that was acquired on June 30, 2021), and Alleia at Presidio, The Anson, The Kingson, and Chestnut Farm, which wewere all acquired during the third quarter 2021. We define stabilization as reaching 93% occupancy for all three consecutive months within a single quarter.

•The average physical occupancy of our same-store multifamily communities increased to 97.1% for three full months in a quarter.the three-month period ended September 30, 2021 from 95.6% for the three-month period ended September 30, 2020 and 96.8% for the three-month period ended June 30, 2021.

•Our average recurring rental revenue collections were approximately 99.2% for multifamily communities and 99.2% for grocery-anchored retail properties for the third quarter 2021.


Financing and Capital Markets

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

•As of September 30, 2020,2021, approximately 94.1%95.1% of our permanent property-level mortgage debt has fixed interest rates and approximately 4.2%0.9% has variable interest rates which are capped. We believe we are well protected against potential increases in market interest rates. Our overall weighted average interest rate for our mortgage debt portfolio was 3.68%3.3% for residential properties, 4.13%multifamily communities, 4.2% for office properties, and 3.91%3.9% for grocery-anchored retail properties.properties and 3.5% in the aggregate.

•During the third quarter 2021, we issued and sold an aggregate of 37,009 shares of preferred stock and redeemed or called an aggregate of 305,802 shares of preferred stock, resulting in a net reduction of 268,793 outstanding shares of preferred stock, for a net redemption of approximately $272.0 million.

•At September 30, 2020,2021, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 54.0%57.6%.

•At September 30, 2021, we had $200.0 million available to be drawn on our revolving line of credit.

•During the third quarter 2021, we issued and sold an aggregate of 1,167,626 shares of Common Stock under our 2019 ATM Offering, generating gross proceeds of approximately $12.9 million and, after deducting commissions and other costs, net proceeds of approximately $12.7 million.


Significant Transactions
•During the third quarter 2021, we closed on the acquisition of four multifamily communities and the disposition of one multifamily community:

Multifamily CommunityLocationUnits
Acquisitions:
Alleia at PresidioFort Worth, Texas231 
The AnsonNashville, Tennessee301 
The KingsonFredericksburg, Virginia240 
Chestnut FarmCharlotte, North Carolina256 
Total1,028 
Disposition:
VineyardsHouston, Texas369 

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•During the third quarter 2020,2021, we issued and sold an aggregateclosed on the disposition of 34,603 shares of Series A1 Redeemable Preferred Stock, resulting in net proceeds of approximately $31.1 million after commissions and other fees. During the third quarter 2020, we issued and sold an aggregate of 7,862 shares of Series M1 Redeemable Preferred Stock, resulting in net proceeds of approximately $7.6 million after dealer manager fees. During the third quarter 2020, we issued approximately 617,000 shares of Common Stock through our ATM program, and collected net proceeds of approximately $4.5 million.following office buildings:

PropertyLocationGross Leasable Area ("GLA"), SF
Galleria 75Atlanta, Georgia111,000 
150 FayettevilleRaleigh, North Carolina560,000 
Capitol TowersCharlotte, North Carolina479,000 
CAPTRUST TowerRaleigh, North Carolina300,000 
Morrocroft CentreCharlotte, North Carolina291,000 
Armour Yards Portfolio (1)
Atlanta, Georgia222,000 
Total1,963,000 
(1) Includes the Armour Yards and the 251 Armour Yards assets.

•During the third quarter 2020,2021, we issued a totalreceived the full principal and interest amounts due from the repayment of 42,465 shareseleven real estate loan investments associated with six properties that totaled approximately $114.1 million, plus purchase option termination fee proceeds of approximately $5.4 million. These transactions collectively returned approximately $119.5 million of capital to us during the third quarter for investment, preferred stock and redeemed 37,391 sharesredemptions, or other corporate purposes. Of the six properties represented by these loan payoffs, we acquired three of preferred stock for a net total of 5,074 shares issued.

Significant Transactions

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

•On September 3, 2020,August 11, 2021, we closed onoriginated a real estate loan investment of up to approximately $20.7$23.2 million, to partially financein support of the development and construction of a 320-unit352-unit multifamily community to be located in suburban Atlanta, Georgia. The aggregate carrying amount of our real estate loan investment portfolio was approximately $309.6 million at September 30, 2020.


Real Estate Loan Investments

    Certain real estate loan investments include limited purchase options and additional amounts of accrued interest, which becomes due in cash to us on the earliest to occur of: (i) the maturity of the loan, (ii) any uncured event of default as defined in the associated loan agreement, (iii) the sale of the project or the refinancing of the loan (other than a refinancing loan by us or one of our affiliates) and (iv) any other repayment of the loan. There are no contingent events that are necessary to occur for us to realize the additional interest amounts. We hold options and rights of first offer, but not obligations, to purchase certain of the properties which are partially financed by our real estate loans, as shown in the table below. 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.























As the market has become more competitive, our ability to negotiate purchase option discounts has become more difficult and we expect that to continue for the foreseeable future. Our purchase options are unlikely to include any discounts going forward unless the market has a significant change or reversal.

5749

As of September 30, 2020,2021, potential property acquisitions and units from projects in our real estate loan investment portfolio for which we hold a purchase option or right of first offer consisted of:
Total units uponPurchase option window
Project/PropertyLocation
completion (1)
BeginEnd
Residential properties:
V & ThreeCharlotte, NC338 
S + 90 days (2)
S + 150 days (2)
The AnsonNashville, TN301 
S + 90 days (2)
S + 150 days (2)
SouthpointFredericksburg, VA240 
S + 90 days (2)
S + 150 days (2)
E-TownJacksonville, FL332 
S + 90 days (3)
S + 150 days (3)
VintageDestin, FL282 (4)(4)
Hidden River IITampa, FL204 
S + 90 days (2)
S + 150 days (2)
Kennesaw CrossingAtlanta, GA250 (5)(5)
Vintage Horizon WestOrlando, FL340 (4)(4)
Solis Chestnut FarmCharlotte, NC256 (5)(5)
Vintage Jones FranklinRaleigh, NC277 (4)(4)
Solis Kennesaw IIAtlanta, GA175 (6)(6)
Solis CummingAtlanta, GA320 (5)(5)
Office property:
8WestAtlanta, GA(7)(7)(7)
3,315 
(1) We evaluate each project individually and we make no assurance that we will acquire any of the underlying properties from our real estate loan investment portfolio. The purchase options held by us on the 464 Bishop, Haven Charlotte, Sanibel Straights, Wiregrass, Newbergh, Cameron Square, Solis Kennesaw and Falls at Forsyth projects were terminated, in exchange for an aggregate $17.2 million in termination fees from the developers.
(2) The option period window begins and ends at the number of days indicated beyond the achievement of a 93% physical occupancy rate by the underlying property.
(3) The option period window begins on the earlier of June 21, 2024 and the number of days indicated beyond the achievement of a 93% physical occupancy rate by the underlying property.
(4) The option period window begins on the later of one year following receipt of final certificate of occupancy or 90 days beyond the achievement of a 93% physical occupancy rate by the underlying property and ends 60 days beyond the option period beginning date.
(5) We hold a right of first offer on the property.
(6) The option period begins on October 1 of the second academic year following project completion and ends on the following December 31. The developer may elect to expedite the option period to begin December 1, 2020 and end on December 31, 2020.
(7) The project plans are for the construction of a class A office building consisting of approximately 195,000 rentable square feet; our purchase option window opens 90 days following the achievement of 90% lease commencement and ends on November 30, 2024 (subject to adjustment). Our purchase option is at the to-be-agreed-upon market value. In the event the property is sold to a third party, we would be due a fee based on a minimum multiple of 1.15 times the total commitment amount of the real estate loan investment, less the amounts actually paid by the borrower, up to and including payment of accrued interest and repayment of principal at the time of the sale.


Total units uponPurchase option window
Project/PropertyLocation
completion (1)
BeginEnd
Multifamily communities
Purchase options at discount to market:
Hidden River IITampa, FL204 
S + 90 days (2)
S + 150 days (2)
Purchase options at market or with rights of first offer:
Hudson at Metro WestOrlando, FL320 
S + 90 days (2)
S + 150 days (2)
Vintage Horizon WestOrlando, FL340 (3)(3)
Vintage Jones FranklinRaleigh, NC277 (3)(3)
Club DriveAtlanta, GA352 (5)(5)
Populus at PoolerSavannah, GA316 (6)(6)
Solis Cumming Town CenterAtlanta, GA320 (4)(4)
2,129 
(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% occupancy threshold 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% occupancy threshold 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 option period begins upon the property's achievement of an 85% occupancy threshold. If we are unable to reach an agreement on the property's market value, we have a right of first offer.
(6) The option period begins upon the property's achievement of an 80% occupancy threshold. If we are unable to reach an agreement on the property's market value, we have a right of first offer.



5850

Three-month and nine-month periods ended September 30, 20202021 compared to 20192020

    The following discussion and tabular presentations highlight the major drivers behind the line item changes in our results of operations for the three-month and nine-month periods ended September 30, 20202021 versus 2019:2020:
Preferred Apartment Communities, Inc.Three-month periods ended September 30,Change inc (dec)
20202019AmountPercentage
Revenues:
Rental and other property revenues$114,831 $105,049 $9,782 9.3 %
Interest income on loans and notes receivable10,649 12,608 (1,959)(15.5)%
Interest income from related parties609 2,546 (1,937)(76.1)%
Miscellaneous revenues608 — 608 — 
Total revenues126,697 120,203 6,494 5.4 %
Operating expenses:
Property operating and maintenance19,278 16,493 2,785 16.9 %
Property salary and benefits6,054 5,360 694 12.9 %
Property management fees983 3,534 (2,551)(72.2)%
Real estate taxes and insurance16,078 14,474 1,604 11.1 %
General and administrative7,898 1,364 6,534 479.0 %
Equity compensation to directors and executives582 305 277 90.8 %
Depreciation and amortization51,794 46,239 5,555 12.0 %
Asset management and general and administrative expense fees to related party— 8,611 (8,611)(100.0)%
Provision for expected credit losses(152)— (152)— 
Management internalization expense577 818 (241)— 
Total operating expenses103,092 97,198 5,894 6.1 %
Waived asset management and general and administrative expense fees— (3,081)3,081 (100.0)%
Net operating expenses103,092 94,117 8,975 9.5 %
Operating (loss) income before gain on sale of real estate and loss from unconsolidated joint venture23,605 26,086 (2,481)(9.5)%
Loss from unconsolidated joint venture(120)— (120)— %
Gain on sale of real estate, net3,261 — 3,261 — 
Operating income26,746 26,086 660 2.5 %
Interest expense29,879 28,799 1,080 3.8 %
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools— 591 (591)— 
Loss on extinguishment of debt(518)(15)(503)— 
Gain on land condemnation49 — 49 — 
Net loss(3,602)(2,137)(1,465)— 
Consolidated net loss (income) attributable to non-controlling interests108 59 49 83.1 %
Net loss attributable to the Company$(3,494)$(2,078)$(1,416)— 

Preferred Apartment Communities, Inc.Three-month periods ended September 30,Change inc (dec)
(in thousands)20212020AmountPercentage
Revenues:
Rental and other property revenues$99,050 $114,831 $(15,781)(13.7)%
Interest income on loans and notes receivable11,241 10,649 592 5.6 %
Interest income from related parties415 609 (194)(31.9)%
Miscellaneous revenues306 363 (57)(15.7)%
Total revenues111,012 126,452 (15,440)(12.2)%
Operating expenses:
Property operating and maintenance14,956 19,437 (4,481)(23.1)%
Property salary and benefits4,929 6,054 (1,125)(18.6)%
Property management costs757 983 (226)(23.0)%
Real estate taxes and insurance14,506 16,369 (1,863)(11.4)%
General and administrative7,772 7,203 569 7.9 %
Equity compensation to directors and executives817 582 235 40.4 %
Depreciation and amortization39,639 51,794 (12,155)(23.5)%
Allowance for expected credit losses265 (152)417 — 
Management internalization expense242 577 (335)(58.1)%
Total operating expenses83,883 102,847 (18,964)(18.4)%
Operating income before gains on sales of real estate and loss from unconsolidated joint venture27,129 23,605 3,524 14.9 %
Loss from unconsolidated joint venture(187)(120)(67)— 
Gains from sales of real estate7,942 3,261 4,681 143.5 %
Operating income34,884 26,746 8,138 30.4 %
Interest expense24,847 29,879 (5,032)(16.8)%
Loss on extinguishment of debt— (518)518 — 
Loss on sale of real estate loan(12)— (12)— 
Gain on sale of land— 49 (49)— 
Net income (loss)10,025 (3,602)13,627 — 
Consolidated net (income) loss attributable to non-controlling interests(48)108 (156)— 
Net income (loss) attributable to the Company$9,977 $(3,494)$13,471 — 




5951

Preferred Apartment Communities, Inc.Nine-month periods ended September 30,Change inc (dec)
20202019AmountPercentage
Revenues:
Rental and other property revenues$338,271 $298,569 $39,702 13.3 %
Interest income on loans and notes receivable34,495 35,989 (1,494)(4.2)%
Interest income from related parties3,750 9,980 (6,230)(62.4)%
Miscellaneous revenues4,560 1,023 3,537 345.7 %
Total revenues381,076 345,561 35,515 10.3 %
Operating expenses:
Property operating and maintenance52,919 43,236 9,683 22.4 %
Property salary and benefits16,965 14,845 2,120 14.3 %
Property management fees4,028 10,174 (6,146)(60.4)%
Real estate taxes and insurance48,109 42,646 5,463 12.8 %
General and administrative23,109 4,171 18,938 454.0 %
Equity compensation to directors and executives1,058 922 136 14.8 %
Depreciation and amortization153,096 137,191 15,905 11.6 %
Asset management and general and administrative expense fees to related party3,099 24,649 (21,550)(87.4)%
Provision for expected credit losses5,463 — 5,463 — 
Management internalization expense179,828 1,143 178,685 — %
Total operating expenses487,674 278,977 208,697 74.8 %
Waived asset management and general and administrative expense fees(1,136)(8,505)7,369 (86.6)%
Net operating expenses486,538 270,472 216,066 79.9 %
Operating (loss) income before gain on sale of real estate and loss from unconsolidated joint venture(105,462)75,089 (180,551)(240.4)%
Loss from unconsolidated joint venture(120)— (120)— %
Gain on sale of real estate, net3,261 4 3,257 81,425.0 %
Operating (loss) income(102,321)75,093 (177,414)(236.3)%
Interest expense90,608 83,166 7,442 8.9 %
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools— 1,316 (1,316)— 
Loss on extinguishment of debt(6,674)(84)(6,590)— 
Gain on land condemnation528 747 (219)(29.3)%
Net loss(199,075)(6,094)(192,981)— 
Consolidated net loss (income) attributable to non-controlling interests3,515 138 3,377 2,447.1 %
Net loss attributable to the Company$(195,560)$(5,956)$(189,604)— 

Preferred Apartment Communities, Inc.Nine-month periods ended September 30,Change inc (dec)
(in thousands)20212020AmountPercentage
Revenues:
Rental and other property revenues$308,670 $338,271 $(29,601)(8.8)%
Interest income on loans and notes receivable34,567 34,495 72 0.2 %
Interest income from related parties1,230 3,750 (2,520)(67.2)%
Miscellaneous revenues951 3,798 (2,847)(75.0)%
Total revenues345,418 380,314 (34,896)(9.2)%
Operating expenses:
Property operating and maintenance45,785 53,566 (7,781)(14.5)%
Property salary and benefits14,664 16,965 (2,301)(13.6)%
Property management costs2,789 4,028 (1,239)(30.8)%
Real estate taxes and insurance46,155 48,831 (2,676)(5.5)%
General and administrative23,007 20,978 2,029 9.7 %
Equity compensation to directors and executives2,316 1,058 1,258 118.9 %
Depreciation and amortization130,198 153,096 (22,898)(15.0)%
Asset management and general and administrative expense fees to related party— 3,099 (3,099)— 
Allowance for expected credit losses(58)5,463 (5,521)— 
Management internalization expense727 179,828 (179,101)(99.6)%
Total operating expenses265,583 486,912 (221,329)(45.5)%
Waived asset management and general and administrative expense fees— (1,136)1,136 — 
Net operating expenses265,583 485,776 (220,193)(45.3)%
Operating income (loss) before loss from unconsolidated joint venture and gain on sale of real estate79,835 (105,462)185,297 (175.7)%
Loss from unconsolidated joint venture(556)(120)(436)— 
Gain on sale of real estate, net8,740 3,261 5,479 168.0 %
Operating income (loss)88,019 (102,321)190,340 — 
Interest expense79,134 90,608 (11,474)(12.7)%
Loss on extinguishment of debt— (6,674)6,674 — 
Loss on sale of real estate loan(12)— (12)— 
Gain on sale of land— 528 (528)— 
Net income (loss)8,873 (199,075)207,948 — 
Consolidated net loss attributable to non-controlling interests11 3,515 (3,504)(99.7)%
Net income (loss) attributable to the Company$8,884 $(195,560)$204,444 — 








6052



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.centers. Comparative statements of operations of New Market Properties, LLC for the three-month and nine-month periods ended September 30, 20202021 versus 20192020 are presented below. These statements of operations include noexclude certain allocations of corporate overhead or other expenses.
New Market Properties, LLCNew Market Properties, LLCThree-month periods ended September 30,Change inc (dec)New Market Properties, LLCThree-month periods ended September 30,Change inc (dec)
20202019AmountPercentage
(in thousands)(in thousands)20212020AmountPercentage
Revenues:Revenues:Revenues:
Rental revenues & other property revenuesRental revenues & other property revenues$26,707 $24,826 $1,881 7.6 %Rental revenues & other property revenues$27,078 $26,707 $371 1.4 %
Interest income on notes receivable— 444 (444)(100.0)%
Total revenues26,707 25,270 1,437 5.7 %
Operating expenses:Operating expenses:Operating expenses:
Property operating and maintenanceProperty operating and maintenance3,291 $2,730 561 20.5 %Property operating and maintenance3,351 3,291 60 1.8 %
Property management feesProperty management fees528 824 (296)(35.9)%Property management fees534 528 6 1.1 %
Real estate taxes and insuranceReal estate taxes and insurance3,653 3,511 142 4.0 %Real estate taxes and insurance3,591 3,502 89 2.5 %
General and administrativeGeneral and administrative794 261 533 204.2 %General and administrative952 945 7 0.7 %
Equity compensation to directors and executivesEquity compensation to directors and executives19 17 2 11.8 %Equity compensation to directors and executives61 19 42 221.1 %
Depreciation and amortizationDepreciation and amortization12,688 11,677 1,011 8.7 %Depreciation and amortization11,363 12,688 (1,325)(10.4)%
Asset management and general and administrative
expense fees to related parties— 1,892 (1,892)(100.0)%
Total operating expensesTotal operating expenses20,973 20,912 61 0.3 %Total operating expenses19,852 20,973 (1,121)(5.3)%
Waived asset management and general and administrative
expense fees— (94)94 (100.0)%
Net operating expenses20,973 20,818 155 0.7 %
Operating income before gain on sale of real estate and loss from unconsolidated joint ventureOperating income before gain on sale of real estate and loss from unconsolidated joint venture5,734 4,452 1,282 28.8 %Operating income before gain on sale of real estate and loss from unconsolidated joint venture7,226 5,734 1,492 26.0 %
Loss from unconsolidated joint ventureLoss from unconsolidated joint venture(120)— (120)— %Loss from unconsolidated joint venture(187)(120)(67)— 
Gain on sale of real estate, netGain on sale of real estate, net3,261 — 3,261 — %Gain on sale of real estate, net— 3,261 (3,261)— 
Operating incomeOperating income8,875 4,452 4,423 99.3 %Operating income7,039 8,875 (1,836)(20.7)%
Interest expenseInterest expense6,539 6,422 117 1.8 %Interest expense6,463 6,539 (76)(1.2)%
Loss on extinguishment of debt— (16)16 (100.0)%
Gain on land condemnation49 — 49 100.0 %
Net income (loss)$2,385 $(1,986)$4,371 (220.1)%
Gain on sale of landGain on sale of land— 49 (49)— 
Net incomeNet income576 2,385 (1,809)(75.8)%
Consolidated net loss (income) attributable to non-controlling interests$(43)$(12)(31)258.3 %
Consolidated net (income) attributable to non-controlling interestsConsolidated net (income) attributable to non-controlling interests(3)(43)40 — 
Net income (loss) attributable to the Company$2,428 $(1,974)4,402 (223.0)%
Net income attributable to the CompanyNet income attributable to the Company$579 $2,428 $(1,849)— 


53

New Market Properties, LLCNine-month periods ended September 30,Change inc (dec)
(in thousands)20212020AmountPercentage
Revenues:
Rental revenues & other property revenues$80,921 $80,651 $270 0.3 %
Interest income on notes receivable— 164 (164)— 
Total revenues80,921 80,815 106 0.1 %
Operating expenses:
Property operating and maintenance10,144 9,831 313 3.2 %
Property management fees1,733 1,921 (188)(9.8)%
Real estate taxes and insurance11,683 11,703 (20)(0.2)%
General and administrative2,758 2,662 96 3.6 %
Equity compensation to directors and executives155 47 108 229.8 %
Depreciation and amortization34,749 39,410 (4,661)(11.8)%
Asset management and general and administrative expense fees to related parties— 720 (720)— 
Total operating expenses61,222 66,294 (5,072)(7.7)%
Waived asset management and general and administrative expense fees— (17)17 — 
Net operating expenses61,222 66,277 (5,055)(7.6)%
Operating income before gain on sale of real estate and loss from unconsolidated joint venture19,699 14,538 5,161 35.5 %
Loss from unconsolidated joint venture(556)(120)(436)363.3 %
Gain on sale of real estate, net— 3,261 (3,261)— 
Operating income19,143 17,679 1,464 8.3 %
Interest expense19,397 19,876 (479)(2.4)%
Gain on sale of land15 528 (513)(97.2)%
Net loss(239)(1,669)1,430 (85.7)%
Consolidated net loss attributable to non-controlling interests(38)(82)44 — 
Net loss attributable to the Company$(201)$(1,587)$1,386 — 




61



New Market Properties, LLCNine-month periods ended September 30,Change inc (dec)
20202019AmountPercentage
Revenues:
Rental revenues & other property revenues$80,651 $68,894 $11,757 17.1 %
Interest income on notes receivable164 1,317 (1,153)(87.5)%
Total revenues80,815 70,211 10,604 15.1 %
Operating expenses:
Property operating and maintenance9,831 7,409 2,422 32.7 %
Property management fees1,921 2,345 (424)(18.1)%
Real estate taxes and insurance11,685 10,041 1,644 16.4 %
General and administrative2,680 577 2,103 364.5 %
Equity compensation to directors and executives47 53 (6)(11.3)%
Depreciation and amortization39,410 32,644 6,766 20.7 %
Asset management and general and administrative
expense fees to related parties720 5,274 (4,554)(86.3)%
Total operating expenses66,294 58,343 7,951 13.6 %
Waived asset management and general and administrative
expense fees(17)(296)279 (94.3)%
Net operating expenses66,277 58,047 8,230 14.2 %
Operating income before gain on sale of real estate and loss from unconsolidated joint venture14,538 12,164 2,374 19.5 %
Loss from unconsolidated joint venture(120)— (120)— %
Gain on sale of real estate, net3,261 — 3,261 — %
Operating income17,679 12,164 5,515 45.3 %
Interest expense19,876 18,123 1,753 9.7 %
Loss on extinguishment of debt— (68)68 (100.0)%
Gain on land condemnation528 — 528 100.0 %
Net income (loss)$(1,669)$(6,027)$4,358 (72.3)%
Consolidated net loss (income) attributable to non-controlling interests$(82)$(12)(70)583.3 %
Net income (loss) attributable to the Company$(1,587)$(6,015)4,428 (73.6)%
6254

Recent acquisitions

Our acquisitions (net of dispositions)dispositions (partially offset by acquisitions) of real estate assets since January 1, 20192020 were generally the primary drivers behind our increasesdecreases in rental and property revenues and property operating expenses for the yearthree-month and nine-month periods ended September 30, 2021 versus 2020, versus 2019.as listed in the tables below:
    Real estate assets acquired
Acquisition datePropertyLocationUnitsBedsLeasable square feet
Residential Properties:
3/27/2019Haven49Charlotte, NC322887-
8/8/2019Artisan at VieraMelbourne, FL259--
9/18/2019Five Oaks at WestchaseTampa, FL218--
3/31/2020Horizon at WiregrassTampa, FL392--
4/30/2020Parkside at the BeachPanama City Beach, FL288--
New Market Properties:
1/17/2019Gayton CrossingRichmond, VA--158,316 
5/28/2019Free State Shopping CenterWashington, D.C.--264,152 
6/12/2019Disston PlazaTampa - St. Petersburg, FL--129,150 
6/12/2019Polo Grounds MallWest Palm Beach, FL--130,285 
8/16/2019
Fairfield Shopping Center (1)
Virginia Beach, VA--231,829 
11/14/2019Berry Town CenterOrlando, FL--99,441 
12/19/2019
Hanover Shopping Center (1)
Wilmington, NC--305,346 
1/29/2020Wakefield CrossingRaleigh, NC--75,927 
3/19/2020Midway MarketDallas, TX--85,599 
Preferred Office Properties:
7/25/2019
CAPTRUST Tower (1)
Raleigh, NC--300,000 
7/31/2019251 ArmourAtlanta, GA--35,000 
12/20/2019
Morrocroft Centre (1)
Charlotte, NC--291,000 
1,479 887 2,106,045 
Acquisition datePropertyLocationUnitsLeasable square feet
Residential Properties:
3/31/2020Horizon at WiregrassTampa, FL392— 
4/30/2020Parkside at the BeachPanama City Beach, FL288— 
11/2/2020The BlakeOrlando, FL281— 
12/15/2020The MenloJacksonville, FL332— 
6/30/2021The EllisonAtlanta, GA250— 
7/8/2021Alleia at PresidioFt. Worth, TX231 — 
9/14/2021The AnsonNashville, TN301 — 
9/16/2021The KingsonFredericksburg, VA
240 — 
9/17/2021Chestnut FarmCharlotte, NC256 — 
New Market Properties:
1/29/2020Wakefield CrossingRaleigh, NC— 75,927 
3/19/2020Midway MarketDallas, TX— 85,599 
2,571 161,526 
    
(1)
Real estate assets sold

Disposition datePropertyLocationUnitsBeds
Student housing properties:
11/3/2020North by NorthwestTallahassee, FL219 679 
11/3/2020
SoL
Tempe, AZ224 639 
11/3/2020Stadium VillageAtlanta, GA198792
11/3/2020UrsaWaco, TX250840
11/3/2020The TraditionCollege Station, TX427808 
11/3/2020KnightshadeOrlando, FL221894 
11/3/2020The BlocLubbock, TX140556
11/3/2020RushCharlotte, NC332887
Multifamily communities:
11/12/2020Avenues at CreeksideSan Antonio, TX395— 
7/19/2021VineyardsHouston, TX369— 
Office properties:Gross leasable area (SF)
7/29/2021Galleria 75Atlanta, GA111,000 
7/29/2021150 FayettevilleRaleigh, NC560,000 
7/29/2021Capitol TowersCharlotte, NC479,000 
7/29/2021CAPTRUST TowerRaleigh, NC300,000 
7/29/2021Morrocroft CentreCharlotte, NC291,000 
9/8/2021Armour Yards PortfolioAtlanta, GA222,000 
1,963,000 
Property is owned through a consolidated joint venture.



55


Rental and other property revenues

    Rental and other property revenues increased 9.3%decreased 13.7% and 13.3%8.8% for the three-month and nine-month periods ended September 30, 20202021, respectively, versus 2019 respectively, primarily due to properties acquired since January 1, 2019. These increases occurred in multifamily communities, grocery-anchored shopping centers and office buildings, which accounted for mostthe corresponding periods of our acquisition activity since January 1, 2019. Similar increases in property operations and maintenance and property salary and benefits expense were also driven by these acquisitions.

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

    We recorded property salary and benefits expense for individuals who handle the on-site management, operations and maintenance of our properties. These costs increased2020, primarily due to the incremental costs brought on by additional personnel necessary to managesale of our student housing properties in the fourth quarter 2020 and operate the sale of seven office properties acquired.

during the third quarter of 2021. Changes in occupancy rates and in percentages of leased space and rent growth are the primary drivers of changes in rental revenue from our owned properties. Factors which we believe affect market rents include vacant unit inventory in local markets, local and national economic growth and resultant employment stability, income levels and growth, the ease of obtaining credit for home purchases, and changes in demand due to consumer confidence in the above factors.


63

Interest income
    
    Interest income from our real estate loanand note investments, decreased including interest income from related party investments, decreased 67% for the three-month and nine-month periodsperiod ended September 30, 2021 versus the corresponding period of 2020, versus 2019.primarily due to an overall decrease in current and deferred interest revenue from our smaller portfolio of real estate loan investments and notes receivable. The principal amount outstanding on our portfolio of real estate loan investments decreased to approximately $191.0 million at September 30, 2021 from $323.6 million at September 30, 2020 from $383.2 million at September 30, 2019. Revenues from the amortization of terminated purchase options decreased from approximately $1.3 million for2020. During the third quarter 2019 to2021, we recorded purchase option termination fee income of approximately $2.6 million on real estate loan investments that supported the Cameron Square and V & Three multifamily communities. Comparatively, we only recorded purchase option termination fee income of approximately $0.4 million foron real estate loan investments during the third quarter 2020 and decreasedof 2020. These increased revenues from approximately $6.9 million for the nine months ended September 30, 2019 to approximately $4.9 million for the nine months ended September 30, 2020. At September 30, 2020, we had unrecognized purchase option termination fees offset the smaller revenue stream of approximately $1.2 million that willcurrent and deferred interest described above. As of September 30, 2021, we have no further purchase option termination fees remaining to be recognized by December 31, 2021. amortized into interest income from real estate loan investments.

We recorded interest income and other revenue from these instruments as presented in Note 4 to our Consolidated Financial Statements.

Miscellaneous revenues

Miscellaneous revenues includeddecreased 75% for the nine-month period ended September 30, 2021 versus the corresponding period of 2020, primarily due to the recognition of a forfeited earnest money deposits fromdeposit of $2.75 million from a prospective purchaserspurchaser of certainsix of our student housing properties of $2.75 million and $1.0 million forduring the nine months ended September 30, 2020 and 2019, respectively.first quarter 2020.

Property management feesProperty-level expenses

    We paid fees forProperty operating and maintenance, property salary and benefits, property management services to our Former Manager in an amount of 4% of gross property revenues as compensation for services such as rental, leasing, operationcosts and management of our multifamily communitiesreal estate taxes and the supervision of any subcontractors; for grocery-anchored shopping center assets, property management fees were generally 4% of gross property revenues, of which generally 2.0% to 2.5% were paid to a third party management company. Property management fees for office building assets are 1.25% to 2.00% and are paid to a third party property management company. All property management fees paid to our Former Manager ceased effective with our Internalization on January 31, 2020, which resulted in a decrease of approximately $2.6 million and $6.6 million in these property management feesinsurance decreased uniformly for the three monthsthree-month and nine monthsnine-month periods ended September 30, 2020 as compared to2021, respectively, versus the comparativecorresponding periods in 2019.


Real estate taxes and insurance

of 202We are liable for property taxes due to the various counties and municipalities that levy such taxes on real property for each of our properties. Real estate taxes rose0, primarily due to the incremental costs brought on by properties acquired since January 1, 2019. We generally expect the assessed valuessale of our student housing properties in the fourth quarter 2020 and the sale of seven office properties during the third quarter 2021. The primary components of operating and maintenance expense are utilities, property repairs, and landscaping costs. The expenses incurred for property repairs and, to risea lesser extent, utilities could generally be expected to increase gradually over time owingas 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 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 assetsresidents and for liability claims. 

tenants.

General and Administrativeadministrative

    The increases in generalGeneral and administrative expenses wereincreased 7.9% and 9.7% for the three-month and nine-month periods ended September 30, 2021, respectively, versus the corresponding periods of 2020, primarily due to charges for corporate salaries and administrative expenses that are borne by us following the Internalization.

increased compensation costs.

Equity compensation to directors and executives

Equity compensation expenses increased 40.4% and 118.9% for the three-month and nine-month periods ended September 30, 2020 as compared to2021, respectively, versus the corresponding 2019 periods of 2020, primarily due to the recognitionissuances of expense related to two new equity compensation grants. First, on June 17, 2020, a restricted stock grant was issued to employees and directors and second, on July 31, 2020, a grant of performance-based restricted stock units was issued to certain named executive officers. This increase in equity compensation expense was partially offset bysince March 31, 2020. These instruments have a decrease in recognitioncollective fair value of expense relating to Class B Unit grants. The last Class B Unit grant to be issued was in 2018, and the final one-third of the expense related to this grantapproximately $12.9 million, that will be recordedamortized as described in 2020.

Depreciation and amortization

    The increases in depreciation and amortization for the three-month and nine-month periods ended September 30, 2020 versus 2019 increased dueNote 8 to the addition of properties acquired since January 1, 2019.our Consolidated Financial Statements.

6456


Asset management fees and general and administrative fees to related party

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


ProvisionAllowance for expected credit losseslosses

    Effective January 1, 2020, we adopted ASU 2016-03, which requires us to estimate the amount of futureOur allowance for expected credit losses we expect to incur over the lives ofon our real estate loan investments atinvestments increased for the inception of each loan, rather than perform assessments for impairment as circumstances dictate. The Company’s opening reserve of approximately $7.4 million was recorded as a cumulative adjustment to accumulated earnings on January 1, 2020. During the first quarter of 2020, the Company recorded an aggregate net increase in its provisions for expected credit losses of approximately $4.5 million, primarily related to the onset of the coronavirus pandemic. For the three months and nine monthsthree-month period ended September 30, 2021 versus the corresponding period of 2020 as we recorded reserves on interest revenue from our Haven line of credit outweighed the Company recorded an aggregate netdecreases in reserves from the sale or repayment of eleven real estate loans during the third quarter 2021. The primary driver of the decrease for the nine-month period 2021 versus the 2020 period was due to the repayment of $0.8 millioneleven real estate loan investments and increasethe sale of $3.6 million in its provision for expected credit losses, respectively, primarily related to development projects achieving construction and leasing milestones.

the 8West loan.

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 ofOur interest expense on mortgages that increased from $28.4 milliondecreased 16.8% and 12.7% for the three-month and nine-month periods ended September 30, 2021, respectively, versus the corresponding periods of 2020, primarily due to the sale of our student housing properties in the fourth quarter 2020 and the sale of seven office properties during the third quarter 2019 to $29.0 million for the third quarter 2020, due to the additional acquired properties in 2019 and 2020. Additionally, our Revolving Line of Credit carried a higher balance for the third quarter 2020 over the third quarter 2019, resulting in an additional $0.5 million in interest expense.2021.

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 AFFO,NOI, 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. The non-GAAP measures of FFO, Core FFO, AFFO and NOI 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 AFFONOI should be compared with our reported net income or net loss and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements. FFO, Core FFO and AFFO are not considered measures of liquidity and are not alternatives to measures calculated under GAAP.

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

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

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

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

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

57

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

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

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

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

Less:
• earnest money forfeitures by prospective asset purchasers.


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

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

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

Core FFO, plus:
• non-cash equity compensation to directors and executives;
• amortization of loan closing costs;
• weather-related property operatingnon-cash (income) expense for current expected credit losses;
• amortization of loan coordination fees paid to the Manager;closing costs;
• depreciation and amortization of non-real estate assets;
• non-cash (income) expense for current expected credit losses;
• net loan origination fees received;
• accrueddeferred interest income received;
• cash received for purchase option terminations;
• non-operating miscellaneous revenues;
• non-cash dividends on Series M Preferred Stock and mShares; and
• amortization of lease inducements;
• cash received in excess of (exceeded by) amortization of purchase option termination revenues;
• non-cash dividends on Series M1 Preferred Stock and mShares; and
• earnest money forfeiture from prospective asset purchaser;

Less:
• non-cash loan interest income;
• cash paid for loan closing costs;
• amortization of straight-line rent adjustments and acquired real estate intangible assets and/or liabilities;
66

• amortization of straight line rent adjustments and deferred revenues; and
• normally-recurring capital expenditures and capitalized second generation leasing costs.

58

    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.



67
59

Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFOReconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFOReconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO
to Net (Loss) Income Attributable to Common Stockholders (A)
Three months ended September 30,Three months ended September 30,
(In thousands, except per-share figures)(In thousands, except per-share figures)20202019(In thousands, except per-share figures)20212020
Net loss attributable to common stockholders (See note 1)Net loss attributable to common stockholders (See note 1)$(39,499)$(31,529)Net loss attributable to common stockholders (See note 1)$(47,999)$(39,499)
Add:Add:Depreciation of real estate assets41,282 37,381 Add:Depreciation of real estate assets32,807 41,282 
Amortization of acquired intangible assets and deferred leasing costs9,978 8,386 Amortization of acquired intangible assets and deferred leasing costs6,613 9,978 
Net loss attributable to Class A Unitholders (See note 2)(50)(59)Net loss attributable to Class A Unitholders (See note 2)94 (50)
Gain on sale of real estate(3,261)— Gain on sale of real estate(7,942)(3,261)
FFO attributable to common stockholders and unitholdersFFO attributable to common stockholders and unitholders8,450 14,179 FFO attributable to common stockholders and unitholders(16,427)8,450 
Aquisition and pursuit costs3 — Acquisition and pursuit costs— 3 
Loan cost amortization on acquisition term notes and loan coordination fees (See note 3)505 511 Loan cost amortization on acquisition line of credit and loan coordination fees (See note 3)380 505 
Payment of costs related to property refinancing509 170 Payment of costs related to property refinancing388 509 
Internalization costs (See note 4)577 818 Internalization costs (See note 4)242 577 
Deemed dividends for redemptions of and non-cash dividends on preferred stock3,061 152 Deemed dividends for redemptions of and non-cash dividends on preferred stock, plus
Expenses incurred on the potential call of preferred stock (See note 5)46 — expenses incurred on calls of preferred stock (See note 5)30,332 3,107 
Expenses related to the COVID-19 global pandemic (See note 6)138 — Expenses related to the COVID-19 global pandemic (See note 6)34 138 
Core FFO attributable to common stockholders and unitholdersCore FFO attributable to common stockholders and unitholders13,289 15,830 Core FFO attributable to common stockholders and unitholders14,949 13,289 
Add:Add:Non-cash equity compensation to directors and executives582 305 Add:Non-cash equity compensation to directors and executives817 582 
Noncash (income) expense for current expected credit losses (See note 7)(761)— Amortization of loan closing costs (See note 7)1,244 1,288 
Amortization of loan closing costs (See note 8)1,288 1,168 Depreciation/amortization of non-real estate assets445 621 
Depreciation/amortization of non-real estate assets621 472 Net loan origination fees received (See note 8)684 415 
Net loan origination fees received (See note 9)415 148 Deferred interest income received (See note 9)9,094 375 
Deferred interest income received (See note 10)375 — Amortization of lease inducements (See note 10)449 448 
Amortization of lease inducements (See note 11)448 435 Cash received in excess of (exceeded by) amortization of purchase option termination revenues (See note 11)2,754 (421)
Less:Less:Amortization of purchase option termination revenues in excess of cash received (See note 12)(421)(1,283)Less:Non-cash loan interest income (See note 12)(2,330)(3,317)
Non-cash loan interest income (See note 10)(3,317)(3,763)Non-cash income for current expected credit losses (See note 13)(149)(761)
Cash received for sale of K Program securities in excess of noncash revenues— (281)Cash paid for loan closing costs(150)(106)
Cash paid for loan closing costs(106)(29)Amortization of acquired real estate intangible liabilities and straight-line rent adjustments (See note 14)(2,401)(4,887)
Amortization of acquired real estate intangible liabilities and SLR (See note 13)(4,887)(4,293)Amortization of deferred revenues (See note 15)(940)(940)
Amortization of deferred revenues (See note 14)(940)(940)Normally recurring capital expenditures (See note 16)(3,145)(2,983)
Normally recurring capital expenditures (See note 15)(2,983)(2,379)
AFFO attributable to common stockholders and UnitholdersAFFO attributable to common stockholders and Unitholders$3,603 $5,390 AFFO attributable to common stockholders and Unitholders$21,321 $3,603 
Common Stock dividends and distributions to Unitholders declared:Common Stock dividends and distributions to Unitholders declared:Common Stock dividends and distributions to Unitholders declared:
Common Stock dividends$8,780 $11,823 Common Stock dividends$9,432 $8,876 
Distributions to Unitholders (See note 2)226 225 Distributions to Unitholders (See note 2)87 130 
Total$9,006 $12,048 Total$9,519 $9,006 
Common Stock dividends and Unitholder distributions per shareCommon Stock dividends and Unitholder distributions per share$0.1750 $0.2625 Common Stock dividends and Unitholder distributions per share$0.1750 $0.1750 
FFO per weighted average basic share of Common Stock and Unit outstandingFFO per weighted average basic share of Common Stock and Unit outstanding$0.17 $0.31 FFO per weighted average basic share of Common Stock and Unit outstanding$(0.31)$0.17 
Core FFO per weighted average basic share of Common Stock and Unit outstandingCore FFO per weighted average basic share of Common Stock and Unit outstanding$0.26 $0.35 Core FFO per weighted average basic share of Common Stock and Unit outstanding$0.28 $0.26 
AFFO per weighted average basic share of Common Stock and Unit outstandingAFFO per weighted average basic share of Common Stock and Unit outstanding$0.07 $0.12 AFFO per weighted average basic share of Common Stock and Unit outstanding$0.40 $0.07 
Weighted average shares of Common Stock and Units outstanding: (A)
Weighted average shares of Common Stock and Units outstanding:Weighted average shares of Common Stock and Units outstanding:
Basic:Basic:
Common Stock49,689 44,703 Common Stock52,455 49,689 
Class A Units742 868 Class A Units497 742 
Common Stock and Class A Units50,431 45,571 Common Stock and Class A Units52,952 50,431 
Diluted Common Stock and Class A Units (B)
50,433 45,768 Diluted Common Stock and Class A Units (See note 17)53,472 50,433 
Actual shares of Common Stock outstanding, including 548 and 20 unvested shares
of restricted Common Stock at September 30, 2020 and 2019, respectively.50,449 45,355 
Actual Class A Units outstanding at September 30, 2020 and 2019, respectively.742 856 
Actual shares of Common Stock outstanding, including 662 and 548 unvested sharesActual shares of Common Stock outstanding, including 662 and 548 unvested shares
of restricted Common Stock at September 30, 2021 and 2020, respectively. of restricted Common Stock at September 30, 2021 and 2020, respectively.53,559 50,449 
Actual Class A Units outstanding at September 30, 2021 and 2020, respectively.Actual Class A Units outstanding at September 30, 2021 and 2020, respectively.496 742 
Total51,191 46,211 Total54,055 51,191 
(A) Units and Unitholders refer to Class A Units in our Operating Partnership (as defined in note 2), or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 1.47% weighted average non-controlling interest in the Operating Partnership for the three-month period ended September 30, 2020.
(B) Since our AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock and restricted stock units. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.

See Notes to Reconciliation of FFO, Core FFO and AFFO to Net Income (Loss) Attributable to Common Stockholders.
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Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFOReconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFOReconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO
to Net (Loss) Income Attributable to Common Stockholders (A)
Nine months ended September 30,Nine months ended September 30,
(In thousands, except per-share figures)(In thousands, except per-share figures)20202019(In thousands, except per-share figures)20212020
Net loss attributable to common stockholders (See note 1)Net loss attributable to common stockholders (See note 1)$(300,270)$(88,497)Net loss attributable to common stockholders (See note 1)$(117,175)$(300,270)
Add:Add:Depreciation of real estate assets122,053 109,408 Add:Depreciation of real estate assets105,616 122,053 
Amortization of acquired intangible assets and deferred leasing costs28,933 26,402 Amortization of acquired intangible assets and deferred leasing costs23,809 28,933 
Net loss attributable to Class A Unitholders (See note 2)(3,393)(138)Net loss attributable to Class A Unitholders (See note 2)77 (3,393)
Gain on sale of real estate(3,261)— Gain on sale of real estate(8,740)(3,261)
FFO attributable to common stockholders and unitholdersFFO attributable to common stockholders and unitholders(155,938)47,175 FFO attributable to common stockholders and unitholders3,587 (155,938)
Acquisition and pursuit costs381 — Acquisition and pursuit costs5 381 
Loan cost amortization on acquisition term notes and loan coordination fees (See note 3)1,711 1,491 Loan cost amortization on acquisition line of credit and loan coordination fees (See note 3)1,286 1,711 
Payment of costs related to property refinancing7,372 594 Payment of costs related to property refinancing506 7,372 
Internalization costs (See note 4)179,828 1,143 Internalization costs (See note 4)727 179,828 
Deemed dividends for redemptions of and non-cash dividends on preferred stock6,377 371 Deemed dividends for redemptions of and non-cash dividends on preferred stock, plus
Expenses incurred on the potential call of preferred stock (See note 5)46 — expenses incurred on calls of preferred stock (See note 5)38,269 6,423 
Expenses related to the COVID-19 global pandemic (See note 6)586 — Expenses related to the COVID-19 global pandemic (See note 6)115 586 
Earnest money forfeited by prospective asset purchaser(2,750)— Earnest money forfeited by prospective asset purchaser— (2,750)
Core FFO attributable to common stockholders and unitholdersCore FFO attributable to common stockholders and unitholders37,613 50,774 Core FFO attributable to common stockholders and unitholders44,495 37,613 
Add:Add:Non-cash equity compensation to directors and executives1,058 922 Add:Non-cash equity compensation to directors and executives2,316 1,058 
Noncash (income) expense for current expected credit losses (See note 7)3,647 — Non-cash (income) expense for current expected credit losses (See note 13)(1,288)3,647 
Amortization of loan closing costs (See note 8)3,631 3,458 Amortization of loan closing costs (See note 7)3,701 3,631 
Depreciation/amortization of non-real estate assets1,793 1,381 Depreciation/amortization of non-real estate assets1,336 1,793 
Net loan origination fees received (See note 9)882 674 Net loan origination fees received (See note 8)1,887 882 
Deferred interest income received (See note 10)8,652 5,078 Deferred interest income received (See note 9)13,580 8,652 
Amortization of lease inducements (See note 11)1,334 1,295 Amortization of lease inducements (See note 10)1,349 1,334 
Amortization of purchase option termination revenues in excess of cash received (See note 12)(96)(2,370)Earnest money forfeited by prospective asset purchaser— 2,750 
Non-operating miscellaneous revenues2,750 — Cash received in excess of (exceeded by) amortization of purchase option termination revenues (See note 11)2,777 (96)
Less:Less:Non-cash loan interest income (See note 10)(9,445)(10,745)Less:Non-cash loan interest income (See note 12)(8,113)(9,445)
Non-cash revenues from mortgage-backed securities— (696)Cash paid for loan closing costs(2,041)(106)
Cash paid for loan closing costs(106)(37)Amortization of acquired real estate intangible liabilities and straight-line rent adjustments (See note 14)(8,964)(13,684)
Amortization of acquired real estate intangible liabilities and SLR (See note 13)(13,684)(12,375)Amortization of deferred revenues (See note 15)(2,821)(2,821)
Amortization of deferred revenues (See note 14)(2,821)(2,821)Normally recurring capital expenditures (See note 16)(9,475)(6,525)
Normally recurring capital expenditures (See note 15)(6,525)(5,122)
AFFO attributable to common stockholders and UnitholdersAFFO attributable to common stockholders and Unitholders$28,683 $29,416 AFFO attributable to common stockholders and Unitholders$38,739 $28,683 
Common Stock dividends and distributions to Unitholders declared:Common Stock dividends and distributions to Unitholders declared:Common Stock dividends and distributions to Unitholders declared:
Common Stock dividends29,895 34,599 Common Stock dividends27,682 29,991 
Distributions to Unitholders (See note 2)559 683 Distributions to Unitholders (See note 2)270 463 
Total30,454 35,282 Total27,952 30,454 
Common Stock dividends and Unitholder distributions per shareCommon Stock dividends and Unitholder distributions per share$0.6125 $0.785 Common Stock dividends and Unitholder distributions per share$0.5250 $0.6125 
FFO per weighted average basic share of Common Stock and Unit outstandingFFO per weighted average basic share of Common Stock and Unit outstanding$(3.17)$1.06 FFO per weighted average basic share of Common Stock and Unit outstanding$0.07 $(3.17)
Core FFO per weighted average basic share of Common Stock and Unit outstandingCore FFO per weighted average basic share of Common Stock and Unit outstanding$0.77 $1.14 Core FFO per weighted average basic share of Common Stock and Unit outstanding$0.86 $0.77 
AFFO per weighted average basic share of Common Stock and Unit outstandingAFFO per weighted average basic share of Common Stock and Unit outstanding$0.58 $0.66 AFFO per weighted average basic share of Common Stock and Unit outstanding$0.75 $0.58 
Weighted average shares of Common Stock and Units outstanding: (A)
Weighted average shares of Common Stock and Units outstanding:Weighted average shares of Common Stock and Units outstanding:
Basic:Basic:
Common Stock48,351 43,703 Common Stock51,011 48,351 
Class A Units776 875 Class A Units547 776 
Common Stock and Class A Units49,127 44,578 Common Stock and Class A Units51,558 49,127 
Diluted Common Stock and Class A Units (B)49,144 45,235 Diluted Common Stock and Class A Units (See note 17)51,945 49,144 
Actual shares of Common Stock outstanding, including 662 and 548 unvested sharesActual shares of Common Stock outstanding, including 662 and 548 unvested shares
of restricted Common Stock at September 30, 2021 and 2020, respectively. of restricted Common Stock at September 30, 2021 and 2020, respectively.53,559 50,449 
Actual Class A Units outstanding at September 30, 2021 and 2020, respectively.Actual Class A Units outstanding at September 30, 2021 and 2020, respectively.496 742 
Total54,055 51,191 
Actual shares of Common Stock outstanding, including 548 and 20 unvested shares
of restricted Common Stock at September 30, 2020 and 2019, respectively.50,449 45,355 
Actual Class A Units outstanding at September 30, 2020 and 2019, respectively.742 856 
Total51,191 46,211 
(A) Units and Unitholders refer to Class A Units in our Operating Partnership (as defined in note 2), or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 1.58% weighted average non-controlling interest in the Operating Partnership for the nine-month period ended September 30, 2020.
(B) Since our AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock and restricted stock units. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.

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

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

1)Rental and other property revenues and property operating expenses for the three-month and nine-month periodsthree months ended September 30, 2020 include activity for the properties acquired during the period only from their respective dates of acquisition. In addition, these periods2021 include activity for the properties acquired since September 30, 2019.2020. Rental and other property revenues and expenses for the three-month and nine-month periods ended September 30, 20192020 include activity for the acquisitions made during that period only from their respective dates of acquisition.

2)Non-controlling interests in Preferred Apartment Communities Operating Partnership, L.P., or our Operating Partnership, consisted of a total of 742,413496,269 Class A Units as of September 30, 2020.2021. Included in this total are 419,228 Class A Units which were granted as partial consideration to the seller in conjunction with the seller's contribution to us on February 29, 2016 of the Wade Green grocery-anchored shopping center. The remaining Class A units were awarded primarily to our key executive officers. The Class A Units are apportioned a percentage of our financial results as non-controlling interests. The weighted average ownership percentage of these holders of Class A Units was calculated to be 1.47%0.94% and 1.90%1.47% for the three-month periods ended September 30, 20202021 and 2019,2020, respectively.

3)     We paid loan coordination fees to Preferred Apartment Advisors, LLC, or our Former Manager,(our "Former Manager") to reflect the administrative effort involved in arranging debt financing for acquired properties prior to the Internalization.Internalization Transaction (defined in note 4 below). The fees were calculated as 0.6% of the amount of any mortgage indebtedness on newly-acquired properties or refinancing and are amortized over the lives of the respective mortgage loans. This non-cash amortization expense is an addition to FFO in the calculation of Core FFO and AFFO. At September 30, 2020,2021, aggregate unamortized loan coordination fees were approximately $12.8$8.3 million, which will be amortized over a weighted average remaining loan life of approximately 10.2 years.

4)    This adjustment reflects the add-back of (i) consideration paid to the owners of the Former Manager and Former Sub-Manager,NMP Advisors, LLC (our "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.Manager and Former Sub-Manager (the "Internalization Transaction").

5)    This additive adjustment addsremoves the effect of deemed dividends that arise from cash calls and redemptions of preferred stock. For preferred stock shares that are called by the Company or redeemed by the holder, the Company records a deemed dividend for the difference between the redemption of the share at its face value, net of any redemption discount, as compared to the carrying value of the share on the Company’s consolidated balance sheets. Also included in this adjustment is the adding back of expenses incurred by usrelated to effect an amendmenteffecting calls of the Company's charter necessary to allow us to redeem outstanding shares of our Series A Preferred Stock beginning on the fifth anniversary of the date of issuance of the shares of Series A Preferred Stock, rather than the tenth anniversary.preferred stock.

6)    This additive adjustment to FFO consists of one-timenon-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 do not expect to incur similar costs once the COVID-19 pandemic has subsided, we add these costs back to FFO in our calculation of Core FFO.

7)    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 September 30, 2021, unamortized loan costs on all the Company's indebtedness were approximately $30.4 million, which will be amortized over a weighted average remaining loan life of approximately 8.0 years.

8) We receive loan origination fees in conjunction with the origination of certain real estate loan investments. The total fees received are additive adjustments to Core FFO in our calculation of AFFO.

9) 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. Once received from the borrower, the amount of additional accrued interest becomes an additive adjustment to Core FFO 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 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, an additive adjustment is shown to Core FFO in our calculation of AFFO.
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12) Loan origination fees (described in note 8 above) are recognized as revenue over the lives of the applicable loans as adjustments of yield using the effective interest method. Similarly, the accrual of additional interest amounts (described in note 9 above) are recognized beginning from loan inception through the repayment of the loan or the refinancing or sale of the underlying property. This adjustment removes the effect of both these types of non-cash loan interest income from Core FFO in our calculation of AFFO.

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

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

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

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

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

13)14)    This adjustment reflects straight-line rent adjustments and the reversal of the non-cash amortization of below-market and above-market lease intangibles, which were recognized in conjunction with our acquisitions and which are amortized over the estimated average remaining lease terms from the acquisition date for multifamily communities and over the remaining lease terms for grocery-anchored shopping center assets and office buildings. At September 30, 2020,2021, the balance of unamortized below-market lease intangiblesintangibles was approximately $54.5$37.1 million, which will be recognized over a weighted average remaining lease period of approximately 8.78.3 years.

14)15)    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.
    
15)16)    We deduct from Core FFO normally recurring capital expenditures that are necessary to maintain our assets’ revenue streams in the calculation of AFFO. This adjustment also deducts from Core FFO capitalized amounts for third party costs during the period to originate or renew leases in our grocery-anchored shopping centers and office buildings. This adjustment includes approximately $28,000$21,000 and $100,000$59,000 of recurring capitalized expenditures incurred at our corporate offices during the three-month and nine-month periods ended September 30, 2020,2021, respectively. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures. See Capital Expenditures, Grocery-Anchored Shopping Center Portfolio, and Office BuildingsBuilding Portfolio sections for definitions of these terms.

17)    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.





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63

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 expenseand principal payments 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.basis. On March 23, 2018,May 4, 2021, Carveout and PAC-OP, (collectively, the maximum borrowing capacity on“Borrowers”) and the Revolving Line of Credit was increasedCompany entered into Amendment No. 3 to $200 million pursuant to an accordion feature. The accordion feature permits the maximum borrowing capacity to be expanded or contracted without amending any further terms of the instrument. On December 12, 2018, the Fourth Amended and Restated Credit Agreement,Agreement, or theour Amended and Restated Credit Agreement, was amended to extendwhich (i) extended the maturity date for the Revolving Facility to December 12, 2021,May 4, 2024, with an option to extend the maturity date to December 12, 2022, subject toMay 4, 2025, (ii) added Carveout as a borrower and (iii) modified certain conditions described therein.of the financial covenants. As of September 30, 2021, the outstanding balance on the Revolving Facility was $0. The Revolving Line of Credit accrues interest at a variable rate of one monthKeyBank's prime rate plus 0.5%, the Adjusted Eurodollar Rate for a one-month interest period plus 1.00%, or the one- or three-month per annum LIBOR, as selected by the Borrowers, plus an applicable marginmargin of 2.75%1.50% to 3.50% per annum, depending upon our leverage ratio. The weighted average interest rate for the Revolving Line of Credit was 3.91%3.62% for the nine months ended September 30, 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 September 30, 2020,2021, we had $167.0$200 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, 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 September 30, 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'scompany'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 Freddie Mac through 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,
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depending on the type of assets acquired and the resulting property debt service coverage ratio. The Acquisition Facility has a
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maturity date of March 1, 2022 and has two one-year extension options, subject to certain conditions described therein. At September 30, 2020,2021, we had $90.0$90.0 million available to be drawn by us on the Acquisition Facility.

    Our net cash provided by operating activities for the nine-month period ended September 30, 2021 was approximately $164.9 million and net cash provided by operating activities for the nine-month period ended September 30, 2020 was approximately $30.0 million and net cash provided by operating activities for the nine-month period ended September 30, 2019 was approximately $124.4$30.0 million. The Internalization transaction reducedthat closed in the Company’s operatingfirst quarter 2020 reflected one-time cash flows bypayments to the entities that owned the Former Manager and Former Sub-Manager that totaled approximately $111.1 million, plus approximately $114.0$3.8 million for the nine-month period ended September 30, 2020.in related professional fees.

The majority of our revenue is derived from residents and tenants under existing leases at our residential properties, grocery-anchored shopping centers and office properties. Therefore, our operating cash flow is principally dependent on: (1) the number of 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 loansOur net cash provided by investing activities for the nine-month period ended September 30, 2021 was approximately $73.6 million and notes receivable decreased primarily due to the repayment of various loans and notes receivable. On March 27, 2019, the Haven Campus Communities Charlotte Member, LLC line of credit, and the Haven Campus Communities Charlotte real estate loans were settled when we received the membership interests of the Haven49 student housing project from the developer. In the first quarter of 2020, the Falls at Forsyth and Dawsonville real estate loans were repaid in full, and the Wiregrass real estate loans were repaid in full when the Company purchased the property from the developer. Lastly, the Former Manager’s line of credit was repaid in full in conjunction with the Internalization transaction which closed on January 31, 2020.

    Our net cash used in investing activities for the nine-month periodsperiod ended September 30, 2020 and 2019 was approximately $155.2 million. Cash collected from the disposition of the seven office assets and one multifamily community during the third quarter 2021 totaled approximately $330.6 million and $530.0we collected approximately $133.0 million respectively. Cash disbursed for property acquisitions decreased from approximately $442.4 million in the 2019 period to $186.0 million in the 2020 period.repayments of real estate loan investments.

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




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For the nine-month period ended September 30, 2020,2021, our capital expenditures for our multifamily communities, not including changes in related payables, were as follows:
(In thousands, except per-unit amounts)Capital Expenditures
RecurringNon-recurringTotal
AmountPer UnitAmountPer UnitAmountPer Unit
Appliances
$552 $51.77 $— $— $552 $51.77 
Carpets1,246 116.78 — — 1,246 116.78 
Wood flooring / vinyl89 8.36 368 34.56 457 42.92 
Blinds and ceiling fans158 14.79 — — 158 14.79 
Fire safety— — 411 38.57 411 38.57 
Furnace, air (HVAC)482 45.16 — — 482 45.16 
Computers, equipment, misc.94 8.78 181 16.93 275 25.71 
Elevators— — 75 7.00 75 7.00 
Exterior painting— — 681 63.80 681 63.80 
Leasing office / common amenities78 7.36 670 62.80 748 70.16 
Major structural— — 1,753 164.31 1,753 164.31 
Cabinets & countertops and unit upgrades— — 770 72.21 770 72.21 
Landscaping & fencing— — 310 29.07 310 29.07 
Parking lot— — 84 7.90 84 7.90 
Signage and sanitation— — 100 9.35 100 9.35 
$2,699 $253.00 $5,403 $506.50 $8,102 $759.50 

For the nine-month period ended September 30, 2020, our capital expenditures for our student housing properties, not including changes in related payables, were as follows:
(In thousands, except per-unit amounts)(In thousands, except per-unit amounts)Capital Expenditures(In thousands, except per-unit amounts)Capital Expenditures
RecurringNon-recurringTotalRecurringNon-recurringTotal
AmountPer BedAmountPer BedAmountPer BedAmountPer UnitAmountPer UnitAmountPer Unit
Appliances
Appliances
$93 $15.31 $— $— $93 $15.31 
Appliances
$533 $47.43 $— $— $533 $47.43 
CarpetsCarpets207 34.00 — — 207 34.00 Carpets1,530 136.03 — — 1,530 136.03 
Wood flooring / vinylWood flooring / vinyl9 1.50 — — 9 1.50 Wood flooring / vinyl224 19.96 397 35.26 621 55.22 
Blinds and ceiling fansBlinds and ceiling fans20 3.25 — — 20 3.25 Blinds and ceiling fans147 13.04 — — 147 13.04 
Fire safetyFire safety— — 68 11.13 68 11.13 Fire safety— — 497 44.23 497 44.23 
Furnace, air (HVAC)Furnace, air (HVAC)148 24.29 — — 148 24.29 Furnace, air (HVAC)645 57.34 — — 645 57.34 
Computers, equipment, misc.Computers, equipment, misc.46 7.59 79 12.94 125 20.53 Computers, equipment, misc.25 2.21 156 13.84 181 16.05 
ElevatorsElevators— — 15 2.51 15 2.51 Elevators2 0.21 52 4.60 54 4.81 
Exterior painting— — — — — — 
Exterior painting and lightingExterior painting and lighting— — 2,023 179.84 2,023 179.84 
Leasing office / common amenitiesLeasing office / common amenities77 12.56 118 19.41 195 31.97 Leasing office / common amenities39 3.47 692 61.49 731 64.96 
Major structuralMajor structural— — 760 124.64 760 124.64 Major structural— — 1,281 113.97 1,281 113.97 
Cabinets & countertops and unit upgrades— — 11 1.78 11 1.78 
Cabinets, countertops and unit upgradesCabinets, countertops and unit upgrades— — 1,436 127.69 1,436 127.69 
Landscaping & fencingLandscaping & fencing— — 53 8.77 53 8.77 Landscaping & fencing— — 561 49.90 561 49.90 
Parking lot— — 5 0.88 5 0.88 
Parking lots and sidewalksParking lots and sidewalks163 14.45 150 13.35 313 27.80 
Signage and sanitationSignage and sanitation— — 59 9.62 59 9.62 Signage and sanitation— — 91 8.06 91 8.06 
Unit furniture394 64.63 — — 394 64.63 
$994 $163.13 $1,168 $191.68 $2,162 $354.81 $3,308 $294.14 $7,336 $652.23 $10,644 $946.37 
    
    In addition, second-generation capital expenditures within ourour grocery-anchored shopping center portfolio for the nine-month periods ended September 30, 20202021 and 2019 total2020ed $2.0 totaled $4.0 million and $1.3$2.0 million, respectively, and within our office properties portfolio for the nine-month periods ended September 30, 2021 and 2020 and 2019 totaled $0.7$2.2 million and $0.5$0.7 million, respectively. We define second-generation capital expenditures as those that exclude expenditures made in our grocery-anchoredgrocery-anchored shopping center and office properties portfolios (i) to lease space to "first generation" tenants (i.e. leasing capital for
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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.

    At September 30, 2020,2021, we had restricted cash of approximately $65.7$54.0 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 September 30, 2020,2021, our restricted cash for future real estate tax and insurance payments was $33.6 million, an increase of approximately $8.1 million as compared to June 30, 2020.$32.3 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 in the second and third quarters ofsince March 31, 2020, our lenders required us to put an additional $6.8$3.3 million into escrows related to the COVID-19 pandemic. These escrows will be released back to us upon the cessation of all governmental emergencyemergency declarations and certain other performance conditions.

Net cash used in financing activities for the nine-month period ended September 30, 2021 was approximately $205.6 million and net cash provided by financing activitiesactivities for the nine-month periodsperiod ended September 30, 2020 and 2019 was approximately $83.9$84.0 million. For the nine-month period ended September 30, 2021, payments for redemptions and calls of preferred stock totaled approximately $358.6 million, and $465.1as compared to approximately $82.0 million respectively. Our significant financing cash sources were approximately $159.1 million and $380.0 million of net proceeds from the issuance of Preferred Stock for the 2020 and 2019 periods respectively, and approximately $204.3nine-month period ended September 30, 2020. Repayments of mortgage debt totaled $76.3 million and $223.2 million of net proceeds from the mortgage financing transactions, net of repayments for the 2020 and 2019 periods respectively. The decrease in proceeds fromnine-month period ended September 30, 2021, versus $173.4 million for the issuance of Preferred Stock in the 2020nine-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 September 30, 2020.

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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 third quarter 20202021 Common Stock dividend declaration ofwas $0.175 per share represented a decrease of $0.0875, or 33.3% from our first quarter 2020 dividend of $0.2625 per share, but an increase over our initial Common Stock dividend per share of $0.125 following our IPO, or an average annual dividend growth rate of approximately 4.3% 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 areare and will continue to be adequately funded.

For the nine months ended September 30, 2020,2021, our aggregate dividends and distributions totaled approximately $135.1$153.6 million and our net cash provided by operating activities were approximately $30.0approximately $164.9 million. We expect our cash flow from operations over time to be sufficient to fund our quarterly Common Stock dividends, Class A Unit distributionsdistributions and our monthly Preferred Stock dividends.

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Long-Term Liquidity Needs

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

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

We intend to finance our future investments with the net proceeds from additional issuances of our securities, including our Series A1/M1 Offering (as defined and described in noteNote 5 to ourour 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 and grocery-anchored shopping centers, office buildings,and making real estate loans and mortgages, other real estate-related investments and general working capital purposes.
        
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    At September 30, 2020,2021, the Company's active equity offerings consisted of:

•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"); and 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.

•an offering of up to $100 million of equity securities forDuring the Preferred Office Growth Fund, a consolidated entity (the “Preferred Office Growth Fund Offering”).

For the three-month and nine-month periods ended September 30, 2020,third quarter 2021, we issued 617,306and sold an aggregate of 37,009 shares of our common stockPreferred Stock and redeemed an aggregate of 305,802 shares of Preferred Stock, resulting in a net reduction of 268,793 shares of Preferred Stock, for a net redemption cost of $272.0 million. Also during the third quarter 2021, we issued and sold an aggregate of 1,167,626 shares of Common Stock under our 2019 ATM Offering; theOffering, generating gross proceeds of $4.5approximately $12.9 million were used primarily to fund redemptionsand, after deducting commissions and other costs, net proceeds of our preferred stock. Our $1.5 Billion Unit Offering expired on February 14, 2020.approximately $12.7 million.

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

The sources to fulfill our long-term liquidity in the future may include borrowings from a number of sources, including repurchase agreements, securitizations, resecuritizations, warehouse facilities and credit facilities (including term loans and revolving facilities), in addition to our Revolving Line of Credit. We have utilized, and we intend to continue to utilize, leverage in making our investments in multifamily communities and retail shopping centers. The number of different multifamily communities, retail shopping centers and other investments we will acquire will be affected by numerous factors, including the amount of funds available to us. By operating on a leveraged basis, we will have more funds available for our
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investments. This will allow us to make more investments than would otherwise be possible, resulting in a larger and more diversified portfolio.

    We intend to target leverage levels (secured and unsecured) between 50% and 65% of the fair market value of our tangible assets (including our real estate assets, real estate loans, notes receivable, accounts receivable and cash and cash equivalents) on a portfolio basis. As of September 30, 2020, our outstanding debt (both secured and unsecured) was approximately 53.5% of the value of our tangible assets on a portfolio basis based on our estimates of fair market value at September 30, 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 particularindividual investments will depend on our assessment of a variety of factors which may include theinclude:

•The anticipated liquidity and price volatility of the assets in our investment portfolio, theportfolio;
•The potential for losses and loan extension risk in the portfolio, theportfolio;
•The availability and cost of financing the asset, ouran asset;
•Our opinion of the creditworthiness of our financing counterparties, thecounterparties; 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 collateralvalue 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 eachan 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
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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 ourto 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 September 30, 2020,2021, we had long term mortgage indebtedness oapproxif approximately $2.8 billion, all of which was incurred by us in connection with the acquisition or refinancing of our real estate properties.

As of September 30, 2020, we had approximately $30.3mately $54.6 million in unrestricted cash and cash equivalents available to meet our short-term and long-term liquidity needs. We believe that our long-termlong-term liquidity needs are and will continue to be adequately funded through the sources discussed above.
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As of September 30, 2021, we had long term mortgage indebtedness of approximately $2.4 billion, all of which was incurred by us in connection with the acquisition or refinancing of our real estate properties, as presented in the following table:
Principal balance as of
Interest only through date (1)
(in thousands)Acquisition/
refinancing date		September 30, 2021December 31, 2020Maturity dateInterest rateBasis point spread over 1 Month LIBOR
Multifamily communities:
Summit Crossing10/31/2017$36,368 $36,929 11/1/20243.99 %Fixed rate— 
Summit Crossing II6/30/202020,700 20,700 7/1/20302.86 %2787/31/2022
Vineyards9/26/2014— 32,703 — — — — 
Avenues at Cypress6/30/202028,366 28,366 7/1/20272.96 %Fixed rate7/31/2022
Avenues at Northpointe6/29/202033,546 33,546 7/1/20272.79 %Fixed rate7/31/2022
Venue at Lakewood Ranch6/30/202036,555 36,555 7/1/20302.99 %Fixed rate7/31/2022
Aster at Lely Resort6/29/202050,400 50,400 7/1/20302.95 %Fixed rate7/31/2022
CityPark View6/25/202029,000 29,000 7/1/20302.75 %Fixed rate7/31/2023
Citi Lakes7/29/201939,736 40,324 8/1/20293.66 %Fixed rate— 
Citi Lakes B-Note9/24/202110,420 — 8/1/20293.85 %Fixed rate— 
Stone Creek6/22/201719,181 19,451 7/1/20523.22 %Fixed rate— 
Lenox Village Town Center2/28/201937,665 38,169 3/1/20294.34 %Fixed rate— 
Retreat at Lenox12/21/201516,467 16,751 1/1/20234.04 %Fixed rate— 
Overton Rise2/1/201636,968 37,607 8/1/20263.98 %Fixed rate— 
Village at Baldwin Park2/28/202168,836 69,608 1/1/20543.27 %Fixed rate— 
Crosstown Walk6/30/202046,500 46,500 7/1/20272.92 %Fixed rate7/31/2022
525 Avalon Park6/15/201762,270 63,256 7/1/20243.98 %Fixed rate— 
City Vista7/1/201632,366 32,938 7/1/20263.68 %Fixed rate— 
Sorrel9/24/202147,725 30,740 10/1/20282.54 %Fixed rate— 
Citrus Village7/10/202040,900 40,900 8/1/20272.95 %Fixed rate8/31/2022
Retreat at Greystone11/21/201732,959 33,439 12/1/20244.31 %Fixed rate— 
Founders Village3/31/201729,191 29,635 4/1/20274.31 %Fixed rate— 
Claiborne Crossing4/26/201725,160 25,503 6/1/20542.89 %Fixed rate— 
Luxe at Lakewood Ranch7/26/201736,345 36,922 8/1/20273.93 %Fixed rate— 
Adara at Overland Park9/27/201729,557 30,024 4/1/20283.90 %Fixed rate— 
Aldridge at Town Village10/31/201735,363 35,892 11/1/20244.19 %Fixed rate— 
Reserve at Summit Crossing9/29/201718,590 18,893 10/1/20243.87 %Fixed rate— 
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On November 5, 2020, the Company adjourned its Special Meeting of Stockholders to November 19, 2020 to provide stockholders with additional time to vote on Proposal 1 (Approval of the Articles of Amendment to the Company’s charter to give bylaw access to stockholders) and Proposal 2 (Approval of the Articles of Amendment to the Company’s charter to reduce the Company’s call period on its Series A Redeemable Preferred Stock from 10 years to 5 years). The required vote to approve each Proposal is two-thirds of the Company's outstanding shares entitled to vote. As of November 9, 2020, approximately 65.4% of the Company’s outstanding shares had been voted on Proposal 1 and Proposal 2 and, of these shares, approximately 97.9% and 95.7% had been voted in favor of Proposal 1 and Proposal 2, respectively.
Table continued from previous pagePrincipal balance as of
Interest only through date (1)
Acquisition/
refinancing date		September 30, 2021December 31, 2020Maturity dateInterest rateBasis point spread over 1 Month LIBOR
(in thousands)
Overlook at Crosstown Walk11/21/201720,717 21,038 12/1/20243.95 %Fixed rate— 
Colony at Centerpointe12/20/201730,922 31,445 10/1/20263.68 %Fixed rate— 
Lux at Sorrel1/9/201829,398 29,868 2/1/20303.91 %Fixed rate— 
Green Park2/28/201837,210 37,785 3/10/20284.09 %Fixed rate— 
The Lodge at Hidden River9/27/201839,657 40,204 10/1/20284.32 %Fixed rate— 
Vestavia Reserve11/9/201836,026 36,511 12/1/20304.40 %Fixed rate— 
CityPark View South11/15/201823,074 23,379 6/1/20294.51 %Fixed rate— 
Artisan at Viera8/8/201938,545 39,104 9/1/20293.93 %Fixed rate— 
Five Oaks at Westchase10/17/201930,332 30,818 11/1/20313.27 %Fixed rate— 
Horizon at Wiregrass Ranch4/23/202050,521 51,360 5/1/20302.90 %Fixed rate— 
Parkside at the Beach4/30/202045,037 45,037 5/1/20302.95 %Fixed rate— 
The Blake11/2/202044,435 44,435 5/1/20302.82 %Fixed rate12/31/2025
The Menlo12/15/202047,000 47,000 1/1/20312.68 %Fixed rate1/31/2024
The Ellison8/18/202148,000 — 9/1/20272.52 %Fixed rate9/30/2022
Alleia at Presidio7/8/202135,700 — 8/1/20262.50 %Fixed rate8/31/2022
The Anson9/14/202156,440 — 10/1/20312.69 %Fixed rate— 
The Kingson9/16/202153,900 — 10/1/20262.35 %Fixed rate— 
Chestnut Farm9/17/202151,800 — 6/17/20221.58 %1506/17/2022
Total multifamily communities1,619,848 1,392,735 
Grocery-anchored shopping centers:
Spring Hill Plaza9/17/20197,803 7,962 10/1/20313.72 %Fixed rate— 
Parkway Town Centre9/17/20197,710 7,866 10/1/20313.72 %Fixed rate— 
Woodstock Crossing8/8/2014— 2,818 — — — — 
Deltona Landings8/16/20196,026 6,141 9/1/20294.18 %Fixed rate— 
Powder Springs8/13/20197,593 7,749 9/1/20293.65 %Fixed rate(2)
Barclay Crossing8/16/20195,972 6,086 9/1/20294.18 %Fixed rate— 
Parkway Centre8/16/20194,340 4,423 9/1/20294.18 %Fixed rate— 
The Market at Salem Cove10/6/20148,745 8,889 11/1/20244.21 %Fixed rate— 
Independence Square8/27/201510,973 11,184 9/1/20223.93 %Fixed rate— 
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Table continued from previous pagePrincipal balance as of
Interest only through date (1)
Acquisition/
refinancing date		September 30, 2021December 31, 2020Maturity dateInterest rateBasis point spread over 1 Month LIBOR
(in thousands)
Royal Lakes Marketplace4/12/20199,168 9,345 5/1/20294.29 %Fixed rate— 
The Overlook at Hamilton Place12/22/201518,760 19,088 1/1/20264.19 %Fixed rate— 
Summit Point10/30/201510,826 11,118 11/1/20223.57 %Fixed rate— 
East Gate Shopping Center4/29/20164,994 5,118 5/1/20263.97 %Fixed rate— 
Fury's Ferry4/29/20165,769 5,912 5/1/20263.97 %Fixed rate— 
Rosewood Shopping Center4/29/20163,875 3,971 5/1/20263.97 %Fixed rate— 
Southgate Village4/29/20166,888 7,059 5/1/20263.97 %Fixed rate— 
The Market at Victory Village5/16/20168,625 8,751 9/11/20244.40 %Fixed rate— 
Wade Green Village4/7/20167,359 7,488 5/1/20264.00 %Fixed rate— 
Lakeland Plaza7/15/201625,990 26,632 8/1/20263.85 %Fixed rate— 
University Palms8/8/201611,729 12,030 9/1/20263.45 %Fixed rate— 
Cherokee Plaza4/12/201923,817 24,277 5/1/20274.28 %Fixed rate— 
Sandy Plains Exchange8/8/20168,193 8,404 9/1/20263.45 %Fixed rate— 
Thompson Bridge Commons8/8/201610,953 11,234 9/1/20263.45 %Fixed rate— 
Heritage Station8/8/20168,107 8,315 9/1/20263.45 %Fixed rate— 
Oak Park Village8/8/20168,365 8,580 9/1/20263.45 %Fixed rate— 
Shoppes of Parkland8/8/201615,189 15,414 9/1/20234.67 %Fixed rate— 
Champions Village10/18/201627,400 27,400 11/1/20213.25 %300(3)11/1/2021
Castleberry-Southard4/21/201710,559 10,734 5/1/20273.99 %Fixed rate— 
Rockbridge Village6/6/201713,087 13,310 7/5/20273.73 %Fixed rate— 
Irmo Station7/26/20179,541 9,758 8/1/20303.94 %Fixed rate— 
Maynard Crossing8/25/201716,569 16,953 9/1/20323.74 %Fixed rate— 
Woodmont Village9/8/20177,922 8,096 10/1/20274.13 %Fixed rate— 
West Town Market9/22/20178,071 8,260 10/1/20253.65 %Fixed rate— 
Crossroads Market12/5/201717,241 17,622 1/1/20303.95 %Fixed rate— 
Anderson Central3/16/201811,018 11,246 4/1/20284.32 %Fixed rate— 
Greensboro Village5/22/20187,876 8,040 6/1/20284.20 %Fixed rate— 
Governors Towne Square5/22/201810,479 10,696 6/1/20284.20 %Fixed rate— 
Conway Plaza6/29/20189,239 9,375 7/5/20284.29 %Fixed rate— 
Brawley Commons7/6/201817,173 17,519 8/1/20284.36 %Fixed rate— 
Hollymead Town Center12/21/201825,656 26,139 1/1/20294.64 %Fixed rate— 
Gayton Crossing1/17/201916,962 17,276 2/1/20294.71 %Fixed rate— 
Free State Shopping Center5/28/201944,895 45,549 6/1/20293.99 %Fixed rate— 
Polo Grounds Mall6/12/201912,798 12,986 7/1/20343.93 %Fixed rate— 
Disston Plaza6/12/201917,325 17,578 7/1/20343.93 %Fixed rate— 
Fairfield Shopping Center8/16/201919,750 19,750 8/16/20262.14 %2058/16/2022
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Table continued from previous pagePrincipal balance as of
Acquisition/
refinancing date		September 30, 2021December 31, 2020Maturity dateInterest rateBasis point spread over 1 Month LIBOR
Interest only through date (1)
(in thousands)(in thousands)
Berry Town Center11/14/201911,615 11,794 12/1/20343.49 %Fixed rate— 
Hanover Shopping Center12/19/201930,610 31,217 12/19/20263.62 %Fixed rate— 
Wakefield Crossing1/29/20207,576 7,728 2/1/20323.66 %Fixed rate— 
Midway Market4/15/202110,059 — 5/1/20313.06 %Fixed rate— 
Total grocery-anchored shopping centers (4)
611,190 614,880 
Office buildings:
Brookwood Center8/29/201629,310 29,925 9/10/20313.52 %Fixed rate— 
Galleria 7511/4/2016— 5,131 — — — — 
Three Ravinia12/30/2016115,500 115,500 1/1/20424.46 %Fixed rate1/31/2022
Westridge at La Cantera11/13/201749,373 50,449 12/10/20284.10 %Fixed rate— 
Armour Yards1/29/2018— 39,425 — — — — 
150 Fayetteville7/31/2018— 113,768 — — — — 
Capitol Towers12/20/2018— 122,720 — — — — 
CAPTRUST Tower7/25/2019— 82,650 — — — 7/31/2029
Morrocroft Centre3/19/2020— 70,000 — — — 4/10/2025
251 Armour Yards1/22/2020— 3,522 — — — 1/21/2023
Total office buildings194,183 633,090 
Grand total2,425,221 2,640,705 
Less: deferred loan costs(36,720)(42,233)
Less: below market debt adjustment(3,918)(4,008)
Mortgage notes, net$2,384,583 $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.


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Contractual Obligations

    As of September 30, 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 0.15%0.08% at September 30, 2020,2021, our estimated future required payments on these instruments were:
(In thousands)(In thousands)TotalLess than one year1-3 years3-5 yearsMore than five years(In thousands)TotalLess than one year1-3 years3-5 yearsMore than five years
Principal payments:Principal payments:Principal payments:
Mortgage debtMortgage debt$2,814,169 $106,922 $280,773 $531,271 $1,895,203 Mortgage debt$2,425,221 $130,931 $211,901 $590,749 $1,491,640 
Line of creditLine of credit33,000 33,000 — — — Line of credit— — — — — 
Total principalTotal principal$2,847,169 $139,922 $280,773 $531,271 $1,895,203 Total principal$2,425,221 $130,931 $211,901 $590,749 $1,491,640 
Interest payments:Interest payments:Interest payments:
Mortgage debtMortgage debt837,570 107,107 196,677 182,397 351,389 Mortgage debt$614,244 $84,368 $159,002 $138,053 $232,821 
Line of creditLine of credit32 32 — — — Line of credit— — — — — 
Total interestTotal interest$837,602 $107,139 $196,677 $182,397 $351,389 Total interest$614,244 $84,368 $159,002 $138,053 $232,821 

    In addition, we had unfunded real estate loan balances totaling approximately $63.0approximately $52.5 million at September 30, 2020.2021.


Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is interest rate risk. All our floating-rate debt is tied to the 30-day LIBOR. As of September 30, 2020,2021, we have variable rate mortgages on the properties listed in following table.
Balance
(in thousands)
Percentage of total mortgage indebtednessLIBOR CapAll-in Cap
Balance
(in thousands)
Percentage of total mortgage indebtednessLIBOR CapAll-in Cap
Avenues at Creekside$38,251 5.00 %6.6 %
The Tradition30,000 3.25 %7.0 %
The Bloc28,966 3.25 %6.8 %
Summit Crossing IISummit Crossing II20,700 2.47 %5.3 %Summit Crossing II$20,700 2.5 %5.3 %
Total capped floating-rate debtTotal capped floating-rate debt117,917 4.2 %Total capped floating-rate debt20,700 0.85 %
Champions VillageChampions Village27,400 Champions Village27,400 — — 
Fairfield Shopping CenterFairfield Shopping Center19,750 Fairfield Shopping Center19,750 — — 
Chestnut FarmChestnut Farm51,800 — — 
Total uncapped floating-rate debtTotal uncapped floating-rate debt47,150 1.7 %Total uncapped floating-rate debt98,950 4.08 %
Total floating-rate debtTotal floating-rate debt$165,067 5.9 %Total floating-rate debt$119,650 4.93 %

    Our Revolving Line of Credit accrued interest at a spread of 3.0%3.5% over LIBOR as of September 30, 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
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•take advantage of favorable market conditions for long-term debt and/or equity financings.
We use various financial models and advisors to achieve our objectives.

    If interest rates under our floating-rate LIBOR-basedLIBOR-based indebtedness fluctuated by 100 basis points, our interest costs, based on outstanding borrowings at September 30, 2020,2021, would increase by approximately $1.04 million$821,000 or decrease by approximately $0.1 million$63,000 on an annualized basis.

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Item 4.    Controls and Procedures

Evaluation of disclosure controls and procedures.

    Management of the Company evaluated, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15(e)) as of September 30, 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 September 30, 20202021 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

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

Item 1A.Risk Factors

The Company is supplementing the    A description of certain factors that may affect our future results and risk factors is set forth under Item 1A. Risk Factors inits our Annual Report on Form 10-K for the year ended December 31, 2019 ("2019 Annual Report") with the additional2020. As of September 30, 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.

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 inyear ended 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 or otherwise limit businesses and issue quarantine orders, and it remains unclear how long such measures will remain in place. As a result, the COVID-19 pandemic has negatively affected almost every industry directly or indirectly and the duration and severity of these affects is unknown at this time. The risk of diminished revenues and future closures at our properties exists as the virus remains active and continues to spread which could result in a resurgence in COVID-19 cases and reinstituted government mandated closures of non-essential businesses.
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Impact of COVID-19 on Our Operations

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

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

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

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

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

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

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

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

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

Impact of COVID-19 on Liquidity and Financing

As a result of the current economic downturn, the real estate market may be unable to attract the same level of capital investment that it attracted before the COVID-19 pandemic, and there may be a reduction in the number of companies seeking to acquire properties, which may result in the value of our properties not appreciating, or decreasing significantly below the amount for which we acquired or developed them. This may also limit our ability to sell our properties, realize a cash return on
80

our investment and reinvest the sales proceeds in new properties.  In light of the severe economic, market and other disruptions worldwide being caused by the COVID-19 pandemic, there can be no assurance that conditions in the bank lending, capital and other financial markets will not continue to deteriorate as a result of the pandemic, or that our access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings.

Additional financial impacts include the following:

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

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

•The financial impact of COVID-19 could negatively affect the Company’s future compliance with financial and other covenants of the Company’s credit facility and other debt instruments, and the failure to comply with such covenants could result in a default that accelerates the payment of such indebtedness31, 2020.

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

    None.

Item 3.    Defaults Upon Senior Securities

    None.

Item 4.    Mine Safety Disclosures

    Not applicable.

Item 5.    Other Information

    Information Security

Board and Committee Oversight

The Company takes risks related to information security seriously. The Company’s Board of Directors has designated its Nominating and Corporate Governance Committee responsible for information security and this committee is made up entirely of independent directors. While no member of this committee has information security experience, the Company is bringing educational opportunities to the committee members to give them information and training related to their oversight role. Management has formed an internal Security Committee that reports at least semi-annually to the Nominating and Corporate Governance Committee and/or the full Board on the Company’s cybersecurity risks and mitigation efforts. The role
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of the Security Committee is to oversee cyber risk assessments, monitor applicable key risk indicators, review cybersecurity training procedures, created oversee our cybersecurity incident response plans and engage third parties to conduct periodic audits and penetration testing. The most recent presentation from the Security Committee occurred at the Company’s quarterly Board meeting on August 5, 2021.

Insurance

The Company has in place an industry standard cyber security insurance policy with Brit Insurance. This policy provides for some coverage for cyber risks arising out of data and network breaches, third party related breaches, and phishing attacks, data manipulation and potential business interruptions, subject to policy limits and per occurrence deductibles.

None.Incidents and Responses

During the past three years the Company has no material information security breaches. The Company has not had any expenses related to security breaches, security breach penalties or settlements in the past three years.

Training and Audits

In 2021 the Company completed a full third-party audit of its cyber security readiness using the National Institute of Technology (NIST) Cyber Security Framework. The Company is reviewing the results of this audit and is in the process of preparing responses to the recommendations. As part of the response to these recommendations, the Company has assembled a nine-course training program with Brit. This training program will be rolled out in the near future to all employees as the part of a planned cyber security awareness month at the Company. This training program is required for all current employees and will be required for all new hires.

Third Party Reporting

The Company received a score of 748 in its first ISS Cyber Risk Score Report dated October 13, 2021. The range of ISS Cyber Risk Scores is similar to an individual’s credit score with a range of 300 to 850. In addition to its initial score, the Company ranked first in its peer group in four of the five categories rated in the Score Report.

According to Institutional Shareholder Services, or ISS, the ISS Cyber Risk Score of an organization represents the probabilistic likelihood of a significant cyber incident at the organization in the following twelve months. ISS relies on a supervised machine learning model to develop this score. The model is trained to recognize the historical cyber security symptoms at organizations that did not have similar negative cyber security incidents. This report focuses on presenting the ISS Cyber Risk Score for an organization, as well as a concise presentation of key data measurements and trends. Taken together, these can help organizations to understand the cyber security context at an organization which is being captured by the score. This report also includes comparison metrics that allow the data to be compared to a benchmark peer group. This helps to provide a better understanding of similar measurements and data metrics for a group of peers and their resulting Cyber Risk Scores.

Item 6.    Exhibits

    See Exhibit Index.

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EXHIBIT INDEX
Exhibit Number

Description
3.1
3.2
10.1+
10.2+
10.3+
10.4+
10.5*
10.6*
10.7*
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.INS*Inline XBRL Instance Document - the instance document does not appear in the 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

8277

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: November 9, 20208, 2021By:  /s/ Joel T. Murphy
Joel T. Murphy
Chief Executive Officer 
(Principal Executive Officer)
Date: November 9, 20208, 2021By:  /s/ John A. Isakson
John A. Isakson
Chief Financial Officer
(Principal Financial Officer)


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