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 March 31, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-34995

Preferred Apartment Communities, Inc.

(Exact name of registrant as specified in its charter)


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

3284 Northside Parkway NW, Suite 150, Atlanta, GA 30327

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (770) 818-4100

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 share	APTS	NYSE

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 May ~~4, 2021~~2, 2022 was ~~50,094,599.~~64,442,963.

PART I - FINANCIAL INFORMATION

INDEX

Item 1.

Financial Statements

Page No.

Condensed Consolidated Balance Sheets (unaudited) – as of March 31, ~~2021~~2022 and December 31, ~~2020~~2021

Condensed Consolidated Statements of Operations (unaudited) – Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021

Condensed Consolidated Statements of Stockholders' Equity (unaudited) – Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021

Condensed Consolidated Statements of Cash Flows (unaudited) – Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021

Notes to Condensed Consolidated Financial Statements (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37 34

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

65 61

Item 4.

Controls and Procedures

66 61

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

66 62

Item 1A.

Risk Factors

66 63

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66 64

Item 3.

Defaults Upon Senior Securities

66 64

Item 4.

Mine Safety Disclosures

66 64

Item 5.

Other Information

66 64

Item 6.

Exhibits

67 65


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

(In thousands, except per-share par values)	(In thousands, except per-share par values)	March 31, 2021		December 31, 2020		(In thousands, except per-share par values)	March 31, 2022		December 31, 2021
Assets	Assets					Assets
Real estate	Real estate					Real estate
Land	Land	$	605,282	$	605,282	Land	$	553,900	$	551,378
Building and improvements	Building and improvements	3,039,783		3,034,727		Building and improvements	2,745,749		2,671,535
Tenant improvements	Tenant improvements	186,843		184,288		Tenant improvements	119,989		119,331
Furniture, fixtures, and equipment	Furniture, fixtures, and equipment	308,222		306,725		Furniture, fixtures, and equipment	372,288		359,743
Construction in progress	Construction in progress	11,649		12,269		Construction in progress	11,723		5,151
Gross real estate	Gross real estate	4,151,779		4,143,291		Gross real estate	3,803,649		3,707,138
Less: accumulated depreciation	Less: accumulated depreciation	(546,634)		(509,547)		Less: accumulated depreciation	(611,111)		(578,496)
Net real estate	Net real estate	3,605,145		3,633,744		Net real estate	3,192,538		3,128,642
Real estate loan investments, net of deferred fee income and allowance for expected	Real estate loan investments, net of deferred fee income and allowance for expected					Real estate loan investments, net of deferred fee income and allowance for expected
credit loss of $10,950 and $10,261		280,938		279,895
credit loss of $10,277 and $9,850						credit loss of $10,277 and $9,850	210,280		196,420
Total real estate and real estate loan investments, net	Total real estate and real estate loan investments, net	3,886,083		3,913,639		Total real estate and real estate loan investments, net	3,402,818		3,325,062

Cash and cash equivalents	Cash and cash equivalents	32,322		28,657		Cash and cash equivalents	117,221		30,205
Restricted cash	Restricted cash	45,052		47,059		Restricted cash	33,474		32,675
Notes receivable		1,784		1,863
Note receivable and revolving lines of credit due from related parties		9,011		9,011
Note receivable from related party						Note receivable from related party	8,875		9,011
Accrued interest receivable on real estate loans	Accrued interest receivable on real estate loans	22,241		22,528		Accrued interest receivable on real estate loans	18,569		17,038
Acquired intangible assets, net of amortization of $178,468 and $169,718		118,388		127,138
Tenant lease inducements, net of amortization of $5,799 and $5,350		17,803		18,206
Acquired intangible assets, net of amortization of $171,608 and $166,214						Acquired intangible assets, net of amortization of $171,608 and $166,214	55,432		59,622
Tenant lease inducements, net of amortization of $7,560 and $7,113						Tenant lease inducements, net of amortization of $7,560 and $7,113	15,976		16,420
Investment in unconsolidated joint venture	Investment in unconsolidated joint venture	6,463		6,657		Investment in unconsolidated joint venture	5,884		5,992
Tenant receivables and other assets	Tenant receivables and other assets	95,821		106,321		Tenant receivables and other assets	82,023		67,343

Total assets	Total assets	$	4,234,968	$	4,281,079	Total assets	$	3,740,272	$	3,563,368

Liabilities and equity	Liabilities and equity					Liabilities and equity
Liabilities	Liabilities					Liabilities
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $44,856 and $46,241		$	2,587,660	$	2,594,464
Revolving line of credit		40,000		22,000
Unearned purchase option termination fees		473		723
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $38,445 and $39,288						Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $38,445 and $39,288	$	2,388,772	$	2,343,364
Deferred revenue	Deferred revenue	35,070		36,010		Deferred revenue	34,612		35,523
Accounts payable and accrued expenses	Accounts payable and accrued expenses	37,237		41,912		Accounts payable and accrued expenses	35,046		36,517
Deferred liability to Former Manager	Deferred liability to Former Manager	23,512		23,335		Deferred liability to Former Manager	24,219		24,037
Contingent liability due to Former Manager	Contingent liability due to Former Manager	14,755		14,814		Contingent liability due to Former Manager	14,564		14,631
Accrued interest payable	Accrued interest payable	7,997		7,877		Accrued interest payable	6,990		7,086
Dividends and partnership distributions payable	Dividends and partnership distributions payable	20,410		20,137		Dividends and partnership distributions payable	21,509		19,912
Acquired below market lease intangibles, net of amortization of $36,062 and $34,006		49,879		51,934
Acquired below market lease intangibles, net of amortization of $37,963 and $36,314						Acquired below market lease intangibles, net of amortization of $37,963 and $36,314	32,936		34,585
Prepaid rent, security deposits, and other liabilities	Prepaid rent, security deposits, and other liabilities	31,122		29,425		Prepaid rent, security deposits, and other liabilities	27,004		25,679
Total liabilities	Total liabilities	2,848,115		2,842,631		Total liabilities	2,585,652		2,541,334

Commitments and contingencies (Note 11)	Commitments and contingencies (Note 11)					Commitments and contingencies (Note 11)

Equity	Equity					Equity
Stockholders' equity	Stockholders' equity					Stockholders' equity
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 shares	Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 shares					Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 shares
issued; 1,694 and 1,735 shares outstanding at March 31, 2021 and December 31, 2020, respectively		17		17
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 184 and 149 shares
issued and outstanding at March 31, 2021 and December 31, 2020, respectively		1		1
issued; 1,302 and 1,321 shares outstanding at March 31, 2022 and December 31, 2021, respectively						issued; 1,302 and 1,321 shares outstanding at March 31, 2022 and December 31, 2021, respectively	13		13
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 247 shares						Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 247 shares
issued; 246 shares outstanding at March 31, 2022 and December 31, 2021, respectively						issued; 246 shares outstanding at March 31, 2022 and December 31, 2021, respectively	2		2
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;
87 and 89 shares outstanding at March 31, 2021 and December 31, 2020, respectively		1		1
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 22 and 19
shares issued; 21 and 19 shares outstanding at March 31, 2021 and December 31, 2020, respectively		0		0
Common Stock, $0.01 par value per share; 400,067 shares authorized; 50,095 and 49,994 shares issued and
outstanding at March 31, 2021 and December 31, 2020, respectively		501		500
83 and 84 shares outstanding at March 31, 2022 and December 31, 2021, respectively						83 and 84 shares outstanding at March 31, 2022 and December 31, 2021, respectively	1		1
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 47 and 43						Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 47 and 43
shares issued; 44 and 41 shares outstanding at March 31, 2022 and December 31, 2021, respectively						shares issued; 44 and 41 shares outstanding at March 31, 2022 and December 31, 2021, respectively	—		—
Common Stock, $0.01 par value per share; 400,067 shares authorized; 62,929 and 52,975 shares issued and						Common Stock, $0.01 par value per share; 400,067 shares authorized; 62,929 and 52,975 shares issued and
outstanding at March 31, 2022 and December 31, 2021, respectively						outstanding at March 31, 2022 and December 31, 2021, respectively	629		530
Additional paid-in capital	Additional paid-in capital	1,582,193		1,631,646		Additional paid-in capital	1,333,284		1,195,775
Accumulated (deficit) earnings	Accumulated (deficit) earnings	(195,093)		(192,446)		Accumulated (deficit) earnings	(179,814)		(172,000)
Total stockholders' equity	Total stockholders' equity	1,387,620		1,439,719		Total stockholders' equity	1,154,115		1,024,321
Non-controlling interest	Non-controlling interest	(767)		(1,271)		Non-controlling interest	505		(2,287)
Total equity	Total equity	1,386,853		1,438,448		Total equity	1,154,620		1,022,034

Total liabilities and equity	Total liabilities and equity	$	4,234,968	$	4,281,079	Total liabilities and equity	$	3,740,272	$	3,563,368

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


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

(In thousands, except per-share figures)	(In thousands, except per-share figures)	Three months ended March 31,					(In thousands, except per-share figures)	Three months ended March 31,
		2021		2020						2022		2021
Revenues:	Revenues:								Revenues:
Rental and other property revenues	Rental and other property revenues	$	104,459	$	111,866				Rental and other property revenues	$	97,902	$	104,459
Interest income on loans and notes receivable		10,512		13,439
Interest income and preferred equity returns									Interest income and preferred equity returns	6,583		10,512
Interest income from related parties	Interest income from related parties	405		2,537					Interest income from related parties	197		405
Miscellaneous revenues	Miscellaneous revenues	324		3,040					Miscellaneous revenues	198		324
Total revenues	Total revenues	115,700		130,882					Total revenues	104,880		115,700

Operating expenses:	Operating expenses:								Operating expenses:
Property operating and maintenance	Property operating and maintenance	15,249		16,846					Property operating and maintenance	14,863		15,249
Property salary and benefits (including reimbursements of $0 and $1,430 to related party)		4,821		5,191
Property management costs (including $0 and $894 to related parties)		1,105		2,003
Property salary and benefits									Property salary and benefits	4,655		4,821
Property management costs									Property management costs	792		1,105
Real estate taxes and insurance	Real estate taxes and insurance	16,140		15,675					Real estate taxes and insurance	15,806		16,140
General and administrative	General and administrative	7,539		5,948					General and administrative	7,842		7,539
Merger-related costs									Merger-related costs	4,913		—
Equity compensation to directors and executives	Equity compensation to directors and executives	574		230					Equity compensation to directors and executives	1,223		574
Depreciation and amortization	Depreciation and amortization	45,827		49,509					Depreciation and amortization	38,161		45,827
Asset management and general and administrative expense fees to related party		0		3,099
Allowance for expected credit losses	Allowance for expected credit losses	522		5,133					Allowance for expected credit losses	572		522
Management Internalization expense	Management Internalization expense	245		178,793					Management Internalization expense	244		245
Total operating expenses	Total operating expenses	92,022		282,427					Total operating expenses	89,071		92,022

Waived asset management and general and administrative expense fees		0		(1,136)

Net operating expenses		92,022		281,291

Operating income (loss) before gains on sales of real estate and loss from unconsolidated joint venture		23,678		(150,409)
Operating income before gains on sales of real estate and loss from unconsolidated joint venture									Operating income before gains on sales of real estate and loss from unconsolidated joint venture	15,809		23,678
Loss from unconsolidated joint venture	Loss from unconsolidated joint venture	(194)		0					Loss from unconsolidated joint venture	(108)		(194)
Gain on sale of real estate		798		0
Operating income (loss)		24,282		(150,409)
Gain on sale of real estate, net									Gain on sale of real estate, net	—		798
Operating income									Operating income	15,701		24,282
Interest expense	Interest expense	26,991		29,593					Interest expense	23,160		26,991
Gain on land condemnation		0		479

Loss on extinguishment of debt									Loss on extinguishment of debt	(363)		—
Loss on sale of land									Loss on sale of land	(22)		—
Net loss	Net loss	(2,709)		(179,523)					Net loss	(7,844)		(2,709)
Net loss attributable to non-controlling interests	Net loss attributable to non-controlling interests	62		3,141					Net loss attributable to non-controlling interests	30		62

Net loss attributable to the Company	Net loss attributable to the Company	(2,647)		(176,382)					Net loss attributable to the Company	(7,814)		(2,647)

Dividends declared to preferred stockholders	Dividends declared to preferred stockholders	(33,820)		(33,068)					Dividends declared to preferred stockholders	(27,033)		(33,820)
Net loss attributable to unvested restricted stock		(142)		(2)

Dividends to holders of unvested restricted stock									Dividends to holders of unvested restricted stock	(137)		(142)
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(36,609)	$	(209,452)				Net loss attributable to common stockholders	$	(34,984)	$	(36,609)

Net loss per share of Common Stock available to common stockholders, basic and diluted	Net loss per share of Common Stock available to common stockholders, basic and diluted	$	(0.73)	$	(4.44)				Net loss per share of Common Stock available to common stockholders, basic and diluted	$	(0.62)	$	(0.73)

Weighted average number of shares of Common Stock outstanding, basic and diluted	Weighted average number of shares of Common Stock outstanding, basic and diluted	50,033		47,129					Weighted average number of shares of Common Stock outstanding, basic and diluted	56,255		50,033

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


Preferred Apartment Communities, Inc.	Preferred Apartment Communities, Inc.															Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity	Condensed Consolidated Statements of Stockholders' Equity															Condensed Consolidated Statements of Stockholders' Equity
For the three-month period ended March 31, 2021
For the three-month period ended March 31, 2022																For the three-month period ended March 31, 2022
(Unaudited)	(Unaudited)															(Unaudited)

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

Balance at January 1, 2021		$	19	$	500	$	1,631,646	$	(192,446)	$	1,439,719	$	(1,271)	$	1,438,448
Balance at January 1, 2022																Balance at January 1, 2022	$	16	$	530	$	1,195,775	$	(172,000)	$	1,024,321	$	(2,287)	$	1,022,034
Issuance of Preferred Stock	Issuance of Preferred Stock	0		0		37,929		—		37,929		—		37,929		Issuance of Preferred Stock	—		—		3,167		—		3,167		—		3,167
Redemptions of preferred stock		—		0		(40,038)		0		(40,038)		0		(40,038)
Redemptions of Preferred Stock																Redemptions of Preferred Stock	—		—		(19,180)		—		(19,180)		—		(19,180)
Exercises of warrants																Exercises of warrants	—		98		193,935		—		194,033		—		194,033
Syndication and offering costs	Syndication and offering costs	—		0		(4,388)		0		(4,388)		0		(4,388)		Syndication and offering costs	—		—		(2,795)		—		(2,795)		—		(2,795)
Equity compensation to executives and directors	Equity compensation to executives and directors	0		0		613		0		613		0		613		Equity compensation to executives and directors	—		—		971		—		971		—		971
Conversion of Class A Units to common stock		0		1		733		0		734		(734)		0
Current period amortization of Class B Units		0		0		0		0		0		(39)		(39)
Vesting of restricted stock																Vesting of restricted stock	—		1		(1)		—		—		—		—
Net loss	Net loss	0		0		0		(2,647)		(2,647)		(62)		(2,709)		Net loss	—		—		—		(7,814)		(7,814)		(30)		(7,844)
Contributions from non-controlling interests																Contributions from non-controlling interests	—		—		—		—		—		2,625		2,625
Reallocation of non-controlling interest to Class A Unitholders	Reallocation of non-controlling interest to Class A Unitholders	0		0		(1,491)		0		(1,491)		1,491		0		Reallocation of non-controlling interest to Class A Unitholders	—		—		(579)		—		(579)		579		—
Distributions to non-controlling interests	Distributions to non-controlling interests	0		0		0		0		0		(56)		(56)		Distributions to non-controlling interests	—		—		—		—		—		(300)		(300)
Distributions to Class A Unitholders	Distributions to Class A Unitholders	0		0		0		0		0		(96)		(96)		Distributions to Class A Unitholders	—		—		—		—		—		(82)		(82)
Dividends to Series A preferred stockholders ($5.00 per share per month)		0		0		(29,431)		0		(29,431)		0		(29,431)
Dividends to mShares preferred stockholders ($4.79 - $6.25 per share per month)		0		—		(1,493)		0		(1,493)		0		(1,493)
Dividends to Series A1/M1 preferred stockholders ($5.00 and $5.08 - $5.92 per share per month, respectively)		0		0		(2,893)		0		(2,893)		0		(2,893)
Dividends to PAC Carveout REIT preferred stockholders ($60 per share semi-annually)		0		0		(3)		0		(3)		0		(3)
Dividends to common stockholders ($0.175 per share)		0		0		(8,991)		0		(8,991)		0		(8,991)
Balance at March 31, 2021		$	19	$	501	$	1,582,193	$	(195,093)	$	1,387,620	$	(767)	$	1,386,853
Dividends to preferred stockholders (see note 7)																Dividends to preferred stockholders (see note 7)	—		—		(27,033)		—		(27,033)		—		(27,033)
Dividends to common stockholders (see note 7)																Dividends to common stockholders (see note 7)	—		—		(10,976)		—		(10,976)		—		(10,976)
Balance at March 31, 2022																Balance at March 31, 2022	$	16	$	629	$	1,333,284	$	(179,814)	$	1,154,115	$	505	$	1,154,620

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

Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity, continued
For the three-month period ended March 31, 2020
(Unaudited)
(In thousands, except dividend per-share figures) Series A,
Series A1,
Series M and
Series M1
Redeemable
Preferred
Stock Common Stock Additional Paid in Capital Accumulated Earnings Total Stockholders' Equity Non-Controlling Interest Total Equity
Balance at January 1, 2020 $ 21 $ 464 $ 1,938,057 $ (7,244) $ 1,931,298 $ 2,818 $ 1,934,116
Cumulative adjustment to reflect the adoption of ASU 2016-13 0 0 0 (7,414) (7,414) — (7,414)
Issuance of Preferred Stock 1 0 98,552 0 98,553 — 98,553
Exercises of warrants 0 0 8 0 8 0 8
Redemptions of preferred stock 0 11 (9,911) 0 (9,900) 0 (9,900)
Syndication and offering costs 0 0 (12,360) 0 (12,360) 0 (12,360)
Equity compensation to executives and directors 0 0 156 0 156 0 156
Conversion of Class A Units to common stock 0 1 1,104 0 1,105 (1,105) 0
Current period amortization of Class B Units 0 0 0 0 0 74 74
Net loss 0 0 0 (176,382) (176,382) (3,141) (179,523)
Contributions from non-controlling interests 0 0 — — 0 201 201
Reallocation of minority interest in PAC OP 0 0 (513) 0 (513) 513 0
Distributions to non-controlling interests 0 0 0 0 0 (203) (203)
Dividends to Series A preferred stockholders ($5.00 per share per month) 0 0 (31,100) 0 (31,100) 0 (31,100)
Dividends to mShares preferred stockholders ($4.79 - $6.25 per share per month) 0 — (1,746) 0 (1,746) 0 (1,746)
Dividends to Series A1/M1 preferred stockholders ($5.00 and $5.08 - $5.92 per share per month, respectively) 0 0 (222) 0 (222) 0 (222)
Dividends to common stockholders ($0.2625 per share) 0 0 (12,491) 0 (12,491) 0 (12,491)
Balance at March 31, 2020 $ 22 $ 476 $ 1,969,534 $ (191,040) $ 1,778,992 $ (843) $ 1,778,149


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

(In thousands, except dividend per-share figures)	Redeemable Preferred Stock		Common Stock		Additional Paid-in Capital		Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total Equity
Balance at January 1, 2021	$	19	$	500	$	1,631,646	$	(192,446)	$	1,439,719	$	(1,271)	$	1,438,448
Issuance of Preferred Stock	—		—		37,929		—		37,929		—		37,929
Redemptions of Preferred Stock	—		—		(40,038)		—		(40,038)		—		(40,038)
Syndication and offering costs	—		—		(4,388)		—		(4,388)		—		(4,388)
Equity compensation to executives and directors	—		—		613		—		613		—		613
Conversion of Class A Units to Common Stock	—		1		733		—		734		(734)		—
Current period amortization of Class B Units	—		—		—		—		—		(39)		(39)
Net loss	—		—		—		(2,647)		(2,647)		(62)		(2,709)
Reallocation of non-controlling interest to Class A Unitholders	—		—		(1,491)		—		(1,491)		1,491		—
Distributions to non-controlling interests	—		—		—		—		—		(56)		(56)
Distributions to Class A Unitholders	—		—		—		—		—		(96)		(96)
Dividends to preferred stockholders (see note 7)	—		—		(33,820)		—		(33,820)		—		(33,820)
Dividends to common stockholders (see note 7)	—		—		(8,991)		—		(8,991)		—		(8,991)
Balance at March 31, 2021	$	19	$	501	$	1,582,193	$	(195,093)	$	1,387,620	$	(767)	$	1,386,853

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


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

(In thousands)	(In thousands)	Three-month periods ended March 31,				(In thousands)	Three-month periods ended March 31,
		2021		2020			2022		2021
Operating activities:	Operating activities:					Operating activities:
Net loss	Net loss	$	(2,709)	$	(179,523)	Net loss	$	(7,844)	$	(2,709)
Reconciliation of net loss to net cash provided by (used in) operating activities:
Reconciliation of net loss to net cash provided by operating activities:						Reconciliation of net loss to net cash provided by operating activities:
Depreciation and amortization expense	Depreciation and amortization expense	45,827		49,509		Depreciation and amortization expense	38,161		45,827
Amortization of above and below market leases	Amortization of above and below market leases	(1,399)		(1,705)		Amortization of above and below market leases	(1,369)		(1,399)
Amortization of deferred revenues and other non-cash revenues	Amortization of deferred revenues and other non-cash revenues	(1,195)		(1,269)		Amortization of deferred revenues and other non-cash revenues	(1,449)		(1,195)
Amortization of purchase option termination fees	Amortization of purchase option termination fees	(1,229)		(4,040)		Amortization of purchase option termination fees	—		(1,229)
Amortization of equity compensation, lease incentives and other non-cash expenses	Amortization of equity compensation, lease incentives and other non-cash expenses	1,229		849		Amortization of equity compensation, lease incentives and other non-cash expenses	1,628		1,229
Deferred loan cost amortization	Deferred loan cost amortization	1,609		1,781		Deferred loan cost amortization	1,566		1,609
Non-cash accrued interest income on real estate loan investments	Non-cash accrued interest income on real estate loan investments	(2,822)		(3,296)		Non-cash accrued interest income on real estate loan investments	(1,531)		(2,822)
Receipt of accrued interest income on real estate loan investments	Receipt of accrued interest income on real estate loan investments	3,109		8,865		Receipt of accrued interest income on real estate loan investments	—		3,109
Gains on sale of real estate and land condemnation, net		(798)		(479)
Loss from unconsolidated joint venture		194		0
Gains on the sales of real estate, net						Gains on the sales of real estate, net	—		(798)
Loss on sale of land						Loss on sale of land	22		—
Loss from unconsolidated joint ventures						Loss from unconsolidated joint ventures	108		194
Cash received for purchase option terminations	Cash received for purchase option terminations	1,479		4,800		Cash received for purchase option terminations	—		1,479
Loss on extinguishment of debt						Loss on extinguishment of debt	363		—
Increase in allowance for expected credit losses	Increase in allowance for expected credit losses	522		5,133		Increase in allowance for expected credit losses	572		522
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Decrease (increase) in tenant receivables and other assets	Decrease (increase) in tenant receivables and other assets	4,788		(10,775)		Decrease (increase) in tenant receivables and other assets	(3,445)		4,766
(Increase) in tenant lease incentives		(22)		0
(Decrease) increase in accounts payable and accrued expenses		(2,787)		24,190
Increase in deferred liability to Former Manager		0		22,851
Increase in contingent liability		0		15,000
Increase (decrease) in accrued interest, prepaid rents and other liabilities		2,589		(1,282)
Net cash provided by (used in) operating activities		48,385		(69,391)
Decrease in accounts payable and accrued expenses						Decrease in accounts payable and accrued expenses	(429)		(2,787)
Increase in accrued interest, prepaid rents and other liabilities						Increase in accrued interest, prepaid rents and other liabilities	1,874		2,589
Net cash provided by operating activities						Net cash provided by operating activities	28,227		48,385

Investing activities:	Investing activities:					Investing activities:
Investments in real estate loans		(19,657)		(11,631)
Investments in real estate loans, net of origination fees received						Investments in real estate loans, net of origination fees received	(13,605)		(18,840)
Repayments of real estate loans	Repayments of real estate loans	17,925		53,896		Repayments of real estate loans	—		17,925
Notes receivable issued		(64)		(249)
Notes receivable repaid	Notes receivable repaid	143		10,041		Notes receivable repaid	—		79
Notes receivable issued to and draws on line of credit by related parties		0		(9,624)
Repayments of notes receivable and lines of credit by related parties		0		4,546
Origination fees received on real estate loan investments		817		267
Acquisition of properties	Acquisition of properties	0		(125,107)		Acquisition of properties	(90,203)		(289)
Disposition of properties, net		4,798		0
Proceeds from land condemnation		0		738
Disposition of properties and proceeds from land sales, net						Disposition of properties and proceeds from land sales, net	(260)		4,798
Investment into property development						Investment into property development	(2,718)		—
Capital improvements to real estate assets	Capital improvements to real estate assets	(10,263)		(12,817)		Capital improvements to real estate assets	(4,875)		(10,263)
Deposits paid on acquisitions		(289)		(915)
Net cash used in investing activities		(6,590)		(90,855)
Net cash (used in) investing activities						Net cash (used in) investing activities	(111,661)		(6,590)

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


Preferred Apartment Communities, Inc.	Preferred Apartment Communities, Inc.					Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continued
Condensed Consolidated Statements of Cash Flows - continued						Condensed Consolidated Statements of Cash Flows - continued
(Unaudited)	(Unaudited)					(Unaudited)
(In thousands)	(In thousands)	Three-month periods ended March 31,				(In thousands)	Three-month periods ended March 31,
		2021		2020			2022		2021

Financing activities:	Financing activities:					Financing activities:
Proceeds from mortgage notes payable		2,152		81,413
Repayments of mortgage notes payable		(10,340)		(42,252)
Proceeds from mortgage notes						Proceeds from mortgage notes	106,310		2,152
Repayment of mortgage notes						Repayment of mortgage notes	(61,745)		(10,340)
Payments for deposits and other mortgage loan costs	Payments for deposits and other mortgage loan costs	(285)		(1,694)		Payments for deposits and other mortgage loan costs	(589)		(285)
Proceeds from lines of credit		105,000		284,000
Payments on lines of credit		(87,000)		(92,500)
Repayment of the Term Loan		0		(70,000)
Proceeds from the sales of Preferred Stock and Units, net of offering costs		34,109		89,398
Proceeds from exercises of Warrants		0		44
Payments for redemptions of preferred stock		(40,018)		(9,890)
Payments for debt prepayment and other debt extinguishment costs						Payments for debt prepayment and other debt extinguishment costs	(324)		—
Proceeds from Revolving Line of Credit						Proceeds from Revolving Line of Credit	185,000		105,000
Payments on Revolving Line of Credit						Payments on Revolving Line of Credit	(185,000)		(87,000)
Proceeds from sales of Preferred Stock, net of offering costs						Proceeds from sales of Preferred Stock, net of offering costs	2,800		34,109
Payments for redemptions and calls of Preferred Stock						Payments for redemptions and calls of Preferred Stock	(19,162)		(40,018)
Proceeds from warrant exercises						Proceeds from warrant exercises	179,213		—
Common Stock dividends paid	Common Stock dividends paid	(8,829)		(12,156)		Common Stock dividends paid	(9,382)		(8,829)
Preferred stock dividends and Class A Unit distributions paid		(33,840)		(32,732)
Preferred Stock dividends and Class A Unit distributions paid						Preferred Stock dividends and Class A Unit distributions paid	(27,118)		(33,840)
Payments for deferred offering costs	Payments for deferred offering costs	(1,030)		(7,042)		Payments for deferred offering costs	(1,143)		(1,030)
Distributions from non-controlling interests		(56)		0
Contributions from non-controlling interests	Contributions from non-controlling interests	0		197		Contributions from non-controlling interests	2,625		—
Net cash (used in) provided by financing activities		(40,137)		186,786
Distributions to non-controlling interests						Distributions to non-controlling interests	(236)		(56)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	171,249		(40,137)

Net increase in cash, cash equivalents and restricted cash	Net increase in cash, cash equivalents and restricted cash	1,658		26,540		Net increase in cash, cash equivalents and restricted cash	87,815		1,658
Cash, cash equivalents and restricted cash, beginning of year	Cash, cash equivalents and restricted cash, beginning of year	75,716		137,253		Cash, cash equivalents and restricted cash, beginning of year	62,880		75,716
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	77,374	$	163,793	Cash, cash equivalents and restricted cash, end of period	$	150,695	$	77,374

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid for interest	Cash paid for interest	$	25,231	$	27,190	Cash paid for interest	$	21,660	$	25,231

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 expenditures	Accrued capital expenditures	$	3,756	$	5,552	Accrued capital expenditures	$	4,349	$	3,756
Noncash extinguishment of notes receivable		$	0	$	20,865
Dividends payable - Common Stock	Dividends payable - Common Stock	$	9,087	$	12,491	Dividends payable - Common Stock	$	11,379	$	9,087
Dividends payable - Preferred Stock	Dividends payable - Preferred Stock	$	11,323	$	11,924	Dividends payable - Preferred Stock	$	10,130	$	11,323
Accrued and payable deferred offering costs		$	59	$	880

Reclass of offering costs from deferred asset to equity	Reclass of offering costs from deferred asset to equity	$	647	$	3,189	Reclass of offering costs from deferred asset to equity	$	2,506	$	647

Fair value issuances of equity compensation	Fair value issuances of equity compensation	$	6,168	$	226	Fair value issuances of equity compensation	$	5,052	$	6,168

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

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

1. Organization and Basis of Presentation

Preferred Apartment Communities, Inc. (NYSE: APTS), or the Company, is a real estate investment trust engaged primarily in the ownership and operation of Class A multifamily properties, with select investments in ~~grocery anchored~~grocery-anchored shopping ~~centers and Class A office buildings.~~centers. Preferred Apartment Communities’ investment objective is to generate attractive, stable returns for stockholders by investing in income-producing properties and ~~acquirin~~acquirging or originating real estate loans. As of March 31, ~~2021,~~2022, the Company owned or was ~~invested~~invested in ~~117~~113 properties in 13 states, ~~predominantly~~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 January 31, 2020 (see Note 6). We refer to this transaction as the Internalization.

Pending Acquisition by Affiliates of BREIT

As previously announced, on February 16, 2022, we entered into an agreement and plan of merger (the “Merger Agreement”) with Pike Parent LLC (“Parent”), Pike Merger Sub I LLC (“Merger Sub I”), Pike Merger Sub II LLC (“Merger Sub II”), Pike Merger Sub III LLC (“Merger Sub III” and, together with Parent, Merger Sub I and Merger Sub II, the “Parent Parties”), the Operating Partnership and PAC Operations, LLC (“Operations”). The Parent Parties are affiliates of Blackstone Real Estate Income Trust, Inc. (“BREIT”), which is an affiliate of Blackstone Inc. Pursuant to the Merger Agreement, (i) Merger Sub II will merge with and into the Operating Partnership (the “Partnership Merger”) with the Operating Partnership being the surviving entity and immediately following the consummation of the Partnership Merger, (ii) Operations will merge with and into Merger Sub III (the “Operations Merger”) with Merger Sub III being the surviving entity and immediately following the Operations Merger, (iii) the Company will merge with and into Merger Sub I (the “Company Merger” and, together with the Partnership Merger and the Operations Merger, the “Mergers”) with Merger Sub I being the surviving entity. Pursuant to the Merger Agreement, (i) each share of Common Stock that is issued and outstanding immediately prior to the Mergers will be automatically cancelled and converted into the right to receive $25.00 in cash and (ii) each share of Preferred Stock that is issued and outstanding immediately prior to the Mergers will be automatically cancelled and converted into the right to receive $1,000 in cash, plus any accrued but unpaid dividends, if any, to and including the closing date of the Mergers. Notwithstanding the forgoing, any shares of Common Stock or Preferred Stock held by the Company or any subsidiary of the Company or by the Parent Parties or any of their respective subsidiaries, if any, will no longer be outstanding and will automatically be retired and will cease to exist, and no consideration will be paid in connection with the Mergers.

The Mergers are subject to customary closing conditions, including approval by the Company’s common stockholders at a special meeting to be held on June 7, 2022. The Mergers are expected to close on the third business day after the conditions to closing are satisfied or waived, including approval of the Company’s common stockholders of the Mergers. The Company can provide no assurances regarding whether the Mergers will close as expected during the second quarter of 2022, or at all. The board of directors of the Company has unanimously approved the Merger Agreement and has recommended approval of the Mergers by the Company’s common stockholders.

Any unexercised warrants to purchase Common Stock of the Company (“Warrants”) will remain outstanding following the completion of the Mergers in accordance with their terms and will be entitled to receive $25.00 in cash less the exercise price for each Warrant for each underlying share of Common Stock.

As of March 31, ~~2021,~~2022, the Company had ~~50,094,599~~62,929,382 shares of ~~common stock, par value $0.01 per share, or~~ Common Stock issued and outstanding and was the approximate ~~98.9%~~99.2% owner of Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership, at that date. The number of partnership units not owned by the Company totaled ~~548,369~~526,128 at March 31, ~~2021~~2022 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,~~Operations, LLC, or Operations (formerly known as PAC Carveout, LLC), a ~~wholly-owned~~ subsidiary of the Operating Partnership. ~~Carveout~~Operations ~~intends to elect~~has elected to be taxed as a real estate investment trust under the Internal

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

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 owned and conducted the business of our portfolio of off-campus student housing communities until the sale of all our student housing communities on November 3, 2020. Each of these entities are or were indirect ~~wholly-owned~~ subsidiaries of the Operating Partnership.

Basis of Presentation

These consolidated financial statements include all of the accounts of the Company and the Operating Partnership. 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 consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. All significant intercompany transactions have been eliminated in consolidation. Certain adjustments have been made consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of the Company's financial condition and results of operations. The results of operations for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 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.

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~~Actual results could differ from those estimates. Amounts are presented in thousands where indicated.

~~Preferred Apartment Communities, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~

~~Reclassification Adjustments~~

The Company recorded certain reclassification adjustments on its Condensed Consolidated Statement of Operations for the three-month period ended March 31, 2021 to conform prior period presentation to the current presentation as shown in the table below. The adjustment is made to present sublease income received by the Company for a portion of its 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 had no effect on previously-reported net loss attributable to common stockholders.

For the three-month period ended March 31, 2020
(in thousands) As reported in Quarterly Report on Form 10-Q at March 31, 2020 Reclassification adjustments As reported in Quarterly Report on Form 10-Q at March 31, 2021
Revenues:
Miscellaneous revenues $ 3,260 $ (220) $ 3,040
Operating expenses:
Property operating and maintenance $ 16,800 $ 46 $ 16,846
Real estate taxes and insurance $ 15,525 $ 150 $ 15,675
General and administrative $ 6,364 $ (416) $ 5,948

2.Summary of Significant Accounting Policies

~~The~~Other than the following, the Company's significant accounting policies have not changed materially from those described in its Annual Report on Form 10-K as of December 31, ~~2020.~~2021.


~~Standard~~	~~Description~~	~~Date of Adoption~~	~~Effect on the Consolidated Financial Statements~~
~~Recently Issued Accounting Guidance Not Yet Adopted~~
~~ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~	The new standard enables affected entities to elect from a series of practical expedients designed to ease the transition from referenced base rates within contracts designated to be replaced by Reference Rate Reform.	~~The amendments are effective March 12, 2020 through December 31, 2022.~~	ASU 2020-04 will 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 resultsPreferred Equity Investments The Company invests in certain real estate development projects utilizing preferred equity investment instruments. Preferred equity investments pay the Company a fixed return on these investments, that consist of a current monthly return and a deferred return that is paid upon the maturity of the preferred equity investment or the sale of the underlying project and are in all material respects economically equivalent to the Company's real estate loan investments. The Company carries its investments in real estate loans at amortized cost with assessments made for expected loan loss allowances in the event recoverability of the principal amount becomes doubtful. The balances of real estate loans presented on the consolidated balance sheets consist of drawn amounts on the loans and preferred equity investments, net of unamortized deferred loan origination fees and current expected credit losses. Returns on the Company's preferred equity investments are included within the interest income and preferred equity returns line in its consolidated statements of operations.

Capitalization and Depreciation

The Company capitalizes tenant improvements, replacements of furniture, fixtures and equipment, as well as carpet, appliances, air conditioning units, certain common area items and other assets. Significant repair and renovation costs that improve the usefulness or extend the useful life of the properties are also capitalized. These assets are then depreciated on a straight-line basis over their estimated useful lives, as follows:

• Buildings: 30 - 50 years;

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

• Furniture, fixtures & equipment: 3 - 10 years;

• Improvements to buildings and land: 5 - 20 years; or

• Tenant improvements: shorter of economic life or lease term.

Operating expenses related to unit turnover costs, such as carpet cleaning and minor repairs are expensed as incurred.

Development projects owned by the Company and the related carrying costs, including interest, property taxes, insurance and allocated direct development salary costs during the construction period, are capitalized and reported in the accompanying Consolidated Balance Sheets as “Construction in progress” during the construction period. Upon completion and certification for occupancy of individual buildings within a development, amounts representing the completed portion of total estimated development costs for the project are transferred to “buildings and improvements”, "tenant improvements" and "furniture, fixtures and equipment" lines as real estate held for investment. Capitalization of interest, property taxes, insurance and allocated direct development salary costs cease upon the transfer and the assets are depreciated over their estimated useful lives.

3. Real Estate Assets

The Company's real estate assets consisted of:

As of:

March 31, 2021

December 31, 2020

March 31, 2022

December 31, 2021

Residential Properties:

Properties (1,2)

Units

11,143

Units

12,332

12,052

Development Properties (4)

—

New Market Properties:

Properties (2)

Gross leasable area (square feet) (3)

6,208,278

Gross leasable area (square feet) (3)

6,210,778

Preferred Office Properties: (4)

Properties (2)

Preferred Office Properties:

Properties

Rentable square feet

3,169,000

Rentable square feet

1,072,000

Development properties

Land

Rentable square feet

35,000

Rentable square feet

—

(1) The acquired second phases of CityPark View and Crosstown Walk communities are managed in combination with the initial phases and so together are considered a single property, as is the Regent at Lenox Village within the Lenox Portfolio.

(2) One multifamily community, two grocery-anchored shopping centers and two office buildings are owned through consolidated joint ventures. One grocery-anchored shopping center is an investment in an unconsolidated joint venture.

(1) The acquired second phases of certain communities are managed in combination with the initial phases, and so together are considered a single property.

(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.

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

(4) The Helmsman, a 262-unit multifamily development, will consist of approximately 2,600 square feet of gross leasable area of ground floor retail space which is not included in the totals above for New Market Properties.

~~Impacts of COVID-19 Pandemic~~Residential Properties Acquired

The COVID-19 pandemic that spread throughout the country during 2020 impacted earnings for commercial real estate to some degree but has not had a profound widespread negative effect on the valuations of real estate assets. The Company does not consider this event to be a triggering event for purposes of impairment, since overall occupancy rates for the Company’s real estate assets have not materially declined and the Company has continued to collect substantially all rent due. Thus, there is no evidence of declining valuations or a triggering event.

~~Residential properties acquired~~

~~The Company acquired no multifamily communities during the three-month period ended March 31, 2021.~~ On ~~March 31, 2020,~~February 25, 2022, the Company completed the acquisition of ~~Horizon~~Lirio at ~~Wiregrass,~~Rafina, a ~~392-unit~~280-unit multifamily community located in ~~Tampa,~~Orlando, Florida. The aggregate purchase price was approximately ~~$84.0~~$90.0 million, ~~exclusive~~exclusive of acquired escrows, security deposits, prepaids, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

The Company allocated the purchase price and capitalized acquisition costs of Lirio at Rafina 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 assets acquired~~

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

~~Acquisition date~~(In thousands, except amortization period data)

~~Property~~Lirio at Rafina

Land

~~Location~~$

~~Gross leasable area (square feet)~~

~~1/29/2020~~

~~Wakefield Crossing~~

~~Raleigh, North Carolina~~

~~75,927~~6,088

~~3/19/2020~~Buildings and improvements

~~Midway Market~~71,961

Furniture, fixtures and equipment

~~Dallas, Texas~~10,933

Lease intangibles

~~85,599~~1,205

Prepaids & other assets

165

Accrued taxes

(165)

Security deposits, prepaid rents, and other liabilities

(117)

Net assets acquired

90,070

Cash paid

90,070

Mortgage debt, net

~~161,526~~—

Total consideration

90,070

Capitalized acquisition costs incurred by the Company

187

Remaining amortization period of intangible

assets and liabilities (months)

7.5

Multifamily Community Assets Sold

The ~~aggregate purchase price~~Company had no sales of t~~he New Market Properties acquisitions for the~~multifamily community assets during both three-month ~~period~~periods ended March 31, ~~2020 was approximately $27.7 million, exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.~~2022 or 2021.

New Market Properties

The Company had no purchases or sales of grocery-anchored shopping centers during both three-month periods ended March 31, 2022 or 2021.

Preferred Office Properties

The Company had no purchases or sales of Preferred Office Properties' assets during both three-month periods ended March 31, 2022 or 2021.

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

The Company recorded aggregate amortization and depreciation expense of:


							Three-month periods ended March 31,
(In thousands)	(In thousands)	Three-month periods ended March 31,				(In thousands)	2022		2021
		2021		2020
Depreciation:	Depreciation:					Depreciation:
Buildings and improvements	Buildings and improvements	$	26,695	$	28,007	Buildings and improvements	$	22,935	$	26,695
Furniture, fixtures, and equipment	Furniture, fixtures, and equipment	10,528		12,388		Furniture, fixtures, and equipment	9,691		10,528
		37,223		40,395			32,626		37,223
Amortization:	Amortization:					Amortization:
Acquired intangible assets	Acquired intangible assets	8,092		8,650		Acquired intangible assets	5,114		8,092
Deferred leasing costs	Deferred leasing costs	469		415		Deferred leasing costs	380		469
Website development costs	Website development costs	43		49		Website development costs	41		43
Total depreciation and amortization	Total depreciation and amortization	$	45,827	$	49,509	Total depreciation and amortization	$	38,161	$	45,827

At March 31, ~~2021,~~2022, the Company had recorded acquired gross intangible assets of ~~$296.9~~$227.0 million, accumulated amortization of ~~$178.5~~$171.6 million, gross intangible liabilities of ~~$85.9~~$70.9 million and accumulated amortization of ~~$36.1~~$38.0 million. Net intangible assets and liabilities as of March 31, ~~2021~~2022 will be amortized over the weighted average remaining amortization periods of approximately ~~7.0~~6.4 and ~~8.6~~8.2 years, respectively.

At March 31, ~~2021,~~2022, the Company held restricted cash that totaled approximately ~~$45.1~~$33.5 million. Of this total, ~~$14.3~~$10.6 million was contractually restricted to fund capital expenditures and other property-level commitments such as tenant improvements and leasing commissions. Another ~~$25.4~~$15.8 million was for lender-required escrows for real estate taxes and insurance ~~premiums and COVID-19 reserves.~~premiums. The remainder of the Company's restricted cash consisted primarily of resident and tenant security deposits.

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

Purchase Options

In the course of extending real estate loan investments for property development, the Company will often receive an exclusive option to purchase the property once development and stabilization are complete. If the Company determines that it does not wish to acquire ~~the~~the property, in certain cases it has ~~the~~the right to sell its purchase option back to the borrower for a termination fee in the amount of the purchase option discount.

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 $0 and approximately $1.2 ~~million and $4.0~~ million of interest revenue from the amortization of these purchase option terminations for ~~the~~both three-month periods ended March 31, 2022 and 2021, ~~and 2020,~~ respectively. ~~Remaining unamortized termination fee revenue of approximately $473,000 at March 31, 2021 will be recognized by December 31, 2021.~~

Joint Venture Investment

On July 15, 2020, the Company contributed its Neapolitan Way grocery-anchored shopping center that was previously wholly-owned and consolidated into a joint venture in exchange for approximately $19.2 million and 50% interest in the joint venture. In doing so, the Company realized a gain on the transaction of approximately $3.3 million and now holds its remaining interest in the property via an unconsolidated joint venture and ~~retain~~retains 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)		March 31, 2021		December 31, 2020
(In thousands)						(In thousands)	March 31, 2022		December 31, 2021
Total assets	Total assets	$	38,457	$	39,109	Total assets	$	36,443	$	36,687
Total liabilities	Total liabilities	$	25,530	$	25,795	Total liabilities	$	24,676	$	24,703


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

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022


	Three months ended March 31,
(In thousands)	2022		2021
Rental and other property revenues	$	880	$	815
Total operating expenses	$	871	$	973
Interest expense	$	225	$	230
Net income (loss)	$	(216)	$	(388)
Net income (loss) attributable to the Company	$	(108)	$	(194)

Investment in Multifamily Development Project

On March 2, 2022, we contributed land valued at $3.7 million, plus a cash commitment of approximately $11.1 million in exchange for a 65% interest in an estimated $65.0 million development project through which the Company will develop The Helmsman, a 262-unit multifamily community located in Wilmington, North Carolina. The entity was deemed a variable interest entity and the Company was considered the primary beneficiary and had control as the general partner. As such, the entity is consolidated on the consolidated financial statements. At March 31, 2022, the Company consolidated project assets of approximately $8.4 million and liabilities of approximately $1.0 million.

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

~~Our~~The Company's portfolio of fixed rate, interest-only real estate loans, including its preferred equity investment, consisted of:


		March 31, 2021			December 31, 2020				March 31, 2022			December 31, 2021
Number of loans	Number of loans	20			20			Number of loans	14			11
Number of underlying properties in development	Number of underlying properties in development	15			14			Number of underlying properties in development	13			10

(In thousands)	(In thousands)							(In thousands)
Drawn amount	Drawn amount	$	291,888		$	290,156		Drawn amount	$	220,557		$	206,270
Deferred loan origination fees	Deferred loan origination fees	(1,766)			(1,194)			Deferred loan origination fees	(1,942)			(1,755)
Allowance for expected credit losses	Allowance for expected credit losses	(9,184)			(9,067)			Allowance for expected credit losses	(8,335)			(8,095)
Carrying value	Carrying value	$	280,938		$	279,895		Carrying value	$	210,280		$	196,420

Unfunded loan commitments		$	49,281		$	44,403
Unfunded commitments								Unfunded commitments	$	95,750		$	61,952
Weighted average current interest, per annum (paid monthly)	Weighted average current interest, per annum (paid monthly)	8.62		%	8.50		%	Weighted average current interest, per annum (paid monthly)	8.57		%	8.58		%
Weighted average accrued interest, per annum	Weighted average accrued interest, per annum	3.73		%	3.91		%	Weighted average accrued interest, per annum	3.56		%	3.53		%


(In thousands)	Principal balance		Deferred loan origination fees		Allowances and CECL Reserves		Carrying value
Balances as of December 31, 2021	$	206,270	$	(1,755)	$	(8,095)	$	196,420
Loan fundings	14,287		—		—		14,287
Loan repayments	—		—		—		—
Loans and accrued interest settled through sale	—		—		—		$	—
Loan origination fees collected	—		(682)		—		(682)
Amortization of loan origination fees	—		495		—		495
Reserve increases due to loan originations	—		—		(510)		(510)
Net decreases in reserves on existing or loans repaid	—		—		270		270
Balances as of March 31, 2022	$	220,557	$	(1,942)	$	(8,335)	$	210,280

1213

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

(In thousands) Principal balance Deferred loan origination fees Allowances and CECL Reserves Carrying value
Balances as of December 31, 2020 $ 290,156 $ (1,194) $ (9,067) $ 279,895
Loan fundings 19,657 — — 19,657
Loan repayments (17,925) 0 — (17,925)
Loan origination fees collected — (817) — (817)
Amortization of loan origination fees — 245 — 245
Reserve increases due to loan originations — — (283) (283)
Net decreases in reserves on existing or loans repaid — — 166 166
Balances as of March 31, 2021 $ 291,888 $ (1,766) $ (9,184) $ 280,938

Property type Number of loans Carrying value Commitment amount Percentage of portfolio
(In thousands)
Residential properties 19 $ 269,049 $ 321,975 96 %
Preferred Office Properties 1 11,889 19,193 4 %
Balances as of March 31, 2021 20 $ 280,938 $ 341,168

On ~~March 1, 2021,~~February 11, 2022, we closed on a real estate loan investment of up to approximately ~~$16.8~~$16.7 million to partially finance the development and construction of a ~~320-unit~~286-unit multifamily community to be located in the Orlando, Florida MSA. The loan pays a current monthly interest rate of 8.5% per annum and accrues additional deferred interest of 3.5% per annum and matures on August 11, 2025, and may be extended to August 11, 2027.

On February 28, 2022, we closed on a real estate loan investment of up to approximately $17.2 million to partially finance the development and construction of a 242-unit multifamily community to be located in Naples, Florida. The loan pays a current monthly interest rate of 8.5% per annum and accrues additional deferred interest of ~~4.5%~~4.25% per annum and matures on ~~September 1, 2024.~~February 27, 2026, and may be extended to February 27, 2028.

On March 31, 2022, we closed on a preferred equity investment of up to approximately $14.3 million to partially finance the development and construction of a 252-unit multifamily community to be located in Greenville, South Carolina. The investment pays a current monthly return of 8.5% per annum, accrues additional deferred return of 3.5% per annum and matures on March 31, 2026.

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

For the three-month periods ended March 31,
(In thousands) 2021 2020
Allowances recorded for interest receivable:
Haven Campus Communities, LLC line of credit $ 405 $ 410
Starkville real estate loan 0 193
Net increases in current expected loss reserves on existing loans 117 4,530
Total allowance for expected credit losses $ 522 $ 5,133

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

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~


	Three months ended March 31,
(In thousands)	2022		2021
Allowance for expected credit losses:
Haven Campus Communities, LLC line of credit	$	332	$	405
Net increases in current expected loss reserves on new and existing loans	240		117
Total	$	572	$	522

The Company assesses the credit quality of its real estate loan and preferred equity investments by a calculated loss reserve ratio, which is an internally-developed credit quality indicator. Loss reserve ratios reflect the amount of protection afforded by the amount of equity and debt financing subordinate to the Company's position in the project; higher reserve ratios reflect a lower amount of invested dollars junior to the Company's position. The following table presents the Company's aggregation of loan amounts (including unpaid interest) by final reserve ratio as of March 31, ~~2021:~~

Final reserve ratio Number of loans Total receivables by project, net of reserves (in thousands)
— % 4 $ 31,402
0.50 % 4 19,474
1.00 % 4 61,929
1.50 % 4 32,085
3.00 % 1 9,594
4.00 % 3 154,521
5.00% + 0 0
20 $ 309,005
2022:


Final reserve ratio	Number of loans and equity investments	Total by project, net of reserves (in thousands)
< 1.00%	3	$	30,688
1.00% - 1.99%	10	53,794
2.00% - 2.99%	—	—
3.00% - 3.99%	1	146,480
4.00% - 4.99%	—	—
5.00% +	—	—
	14	$	230,962

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

The Company continues to monitor the extent of any impact the COVID-19 pandemic has on development activity underlying our real estate loan investments, including the availability of labor, the supply and availability of construction materials and the ability to achieve leased stabilization. The Company assesses its real estate loan investment portfolio for impacts from COVID-19 at the outset of the project, as well as both quantitatively and qualitatively at the achievement of construction and leasing milestones during the projects' lives.

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

Management monitors the credit quality of the obligors under each of the Company's real estate loans by tracking the timeliness of scheduled interest and principal payments relative to the due dates as specified in the loan documents, as well as draw requests on the loans relative to the project budgets. In addition, management monitors the actual progress of development and construction relative to the construction plan, as well as local, regional and national economic conditions that may bear on our current and target markets.

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

The Company's portfolio of notes and lines of credit receivable consisted of:

Borrower Date of loan Maturity date Total loan commitments Outstanding balance as of: Interest rate
March 31, 2021 December 31, 2020
(In thousands)
Haven Campus Communities, LLC (1,2)
6/11/2014 12/31/2018 $ 11,660 $ 9,011 $ 9,011 8 %
Newport Development Partners, LLC 6/17/2014 6/30/2021 1,000 0 0 12 %
Oxford Capital Partners, LLC (3,5)
10/5/2015 3/15/2022 1,250 1,134 1,256 10 %
Oxford Capital Partners II, LLC (3,5)
3/30/2021 3/15/2022 5,300 0 0 10 %
Mulberry Development Group, LLC (4)
3/31/2016 6/30/2021 750 650 607 12 %
Unamortized loan fees 0 0
$ 19,960 $ 10,795 $ 10,874
(1) See related party disclosure in Note 6.
(2) The amount payable under the note is collateralized by one of the principals of the borrower's 49.49% interest in an unrelated shopping center located in Atlanta, Georgia and a personal guaranty of repayment by the principals of the borrower.
(3) The amounts payable under the terms of this revolving credit line, up to the lesser of 25% of the loan balance or $2.0 million, are collateralized by a personal guaranty of repayment by the principals of the borrower.
(4) The amounts payable under the terms of these revolving credit lines are collateralized by a personal guaranty of repayment by the principals of the borrower.
(5) The commitment was reduced from $8 million to $1.25 million for the Oxford Capital Partners LOC I on March 30, 2021. A second Oxford line of credit was opened on March 30, 2021 with a commitment of $5.3 million.


(In thousands) Borrower	Date of loan	Maturity date	Total loan commitments		Outstanding balance as of:				Interest rate
					March 31, 2022		December 31, 2021
Haven Campus Communities, LLC (1,2)	6/11/2014	12/31/2018	$	11,660	$	8,875	$	9,011	8	%
Oxford Capital Partners II, LLC (3)	10/5/2015	3/15/2023	3,500		—		—		10	%
Mulberry Development Group, LLC (4)	3/31/2016	6/30/2022	500		—		—		12	%
			$	15,660	$	8,875	$	9,011
(1) See related party disclosure in Note 6.
(2) The amount payable under the note is collateralized by one of the principals of the borrower's 49.49% interest in an unrelated shopping center located in Atlanta, Georgia and a personal guaranty of repayment by the principals of the borrower.
(3) The amounts payable under the terms of this revolving credit line, up to the lesser of 25% of the loan balance or $2.0 million, are collateralized by a personal guaranty of repayment by the principals of the borrower.
(4) The amounts payable under the terms of these revolving credit lines are collateralized by a personal guaranty of repayment by the principals of the borrower.

On No~~vember 20, 2018,~~ January 1, 2019, the borrower on the Haven Campus Communities, LLC line of credit defaulted on the loan, triggering the accrual of an additional 10% default interest rate, which is incremental to the original 8% current interest rate. The amount of default interest recorded from the default date through March 31, ~~2021~~2022 was ~~approximately $2.3~~approximately $3.0 million. ~~Under~~Under the terms of the loan, amounts collected are applied first to any legal costs incurred by the Company to collect amounts due on the loan; second, to pay any accrued default and current interest on the loan; and third, to repay the principal amount owed.The Company retains a pledge of a 49.49% interest in an unrelated shopping center located in Atlanta, Georgia as collateral on the Haven Campus Communities, LLC line of credit, as well as personal guaranties of repayment from the principals of the borrower.

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

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

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


Interest income		Three month periods ended March 31,
(In thousands)		2021		2020
Interest income (in thousands)						Interest income (in thousands)	Three-month periods ended March 31,
							2022		2021
Real estate loans:	Real estate loans:					Real estate loans:
Current interest	Current interest	$	6,167	$	7,357	Current interest	$	4,556	$	6,167
Additional accrued interest	Additional accrued interest	2,822		3,295		Additional accrued interest	1,531		2,822
Loan origination fee amortization	Loan origination fee amortization	244		277		Loan origination fee amortization	496		244
Purchase option termination fee amortization	Purchase option termination fee amortization	1,229		4,040		Purchase option termination fee amortization	—		1,229
Default interest		0		62

Total real estate loan revenue	Total real estate loan revenue	10,462		15,031		Total real estate loan revenue	6,583		10,462
Notes and lines of credit	Notes and lines of credit	455		912		Notes and lines of credit	197		455
Bank and money market accounts	Bank and money market accounts	0		33		Bank and money market accounts	—		—

Interest income on loans and notes receivable	Interest income on loans and notes receivable	$	10,917	$	15,976	Interest income on loans and notes receivable	$	6,780	$	10,917

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

The Company extends loans for purposes such as to partially finance the development of multifamily residential communities, to acquire land in anticipation of developing and constructing multifamily residential communities, and for other real estate or real estate related projects. Certain of these loans include characteristics such as exclusive options to purchase the project within a specific time window following project completion and stabilization, the sufficiency of the borrowers' investment at risk and the existence of payment and performance guaranties provided by the borrowers, any of which can cause the loans to create variable interests to the Company and require further evaluation as to whether the variable interest creates a VIE, which would necessitate consolidation of the project.

The Company considers the facts and circumstances pertinent to each entity borrowing under the loan, including the relative amount of financing the Company is contributing to the overall project cost, decision making rights or control held by the Company, guarantees provided by third parties, and rights to expected residual gains or obligations to absorb expected residual losses that could be significant from the project. If the Company is deemed to be the primary beneficiary of a VIE, consolidation treatment would be required.

The Company has no decision making authority or power to direct activity, except ~~normal~~standard 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~~from these loans is their drawn amount as of March 31, ~~2021~~2022 of approximately ~~$291.9~~$220.6 million. The maximum aggregate amount of loans to be funded as of March 31, ~~2021~~2022 was approximately ~~$341.2~~$316.3 million, which includes approximately ~~$49.3~~$95.7 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 8West, Kennesaw Crossing and Solis Cumming Town Center real estate loan investments, as well as the Club Drive land loan investment, all of which are partially supporting various real estate projects in or near Atlanta, Georgia. The drawn amount, in~~addition to outstanding accrued interest, for these loans as of March 31, 2021 totaled approximately $43.4 million (with a total commitment amount of approximately $62.4 million).~~ The Company is also subject to a geographic concentration of risk that could be considered significant with regard to the ~~Vintage Destin, Hidden River II, Hidden River II Capital,~~Beaver Ruin, Solis Cumming Town Center, and Oxford Club Drive real estate loan investments, all of which are partially supporting various real estate projects in or near Atlanta, Georgia. The drawn amount, plus outstanding accrued interest, for these loans as of March 31, 2022 totaled approximately $28.3 million (with a total commitment amount of approximately $53.0 million).

The Company is also subject to a geographic concentration of risk that could be considered significant with regard to the Prado, Altis Santa Barbara, Vintage Horizon West, Hudson at Metro West, and ~~The Hudson~~Menlo II real estate loan investments, all of which are partially supporting various real estate projects in Florida. The drawn amount, in~~addition to~~plus outstanding accrued interest, for these loans as of March 31, ~~2021~~2022 totaled approximately ~~$31.3~~$34.0 million (with a total commitment amount of approximately ~~$45.7~~$78.1 million).

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

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.

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~~(the "Series A Preferred Stock"), and one Warrant to purchase up to 20 shares of Common Stock (the "$1.5 Billion Unit Offering") expired. See note 6 for discussion regarding a termination fee agreement with and payment to Preferred Capital Securities, LLC, or PCS, an affiliate of the Company, in conjunction with the Company's winding down of the $1.5 Billion Unit Offering.

The Series A ~~Redeemable~~ Preferred Stock, Series A1 Redeemable Preferred Stock ~~mShares,~~(the “Series A1 Preferred Stock”), Series M Preferred Stock, par value $0.01 per share (“mShares”), and Series M1 Redeemable Preferred Stock, par value $0.01 per share (the “Series M1 Preferred Stock”), are collectively defined as ~~(“Preferred~~“Preferred Stock”).

AtDuring the three-month period ended March 31, ~~2021,~~2022, the Company called or redeemed an aggregate of 21,189 shares of Preferred Stock for a total redemption cost of $20.8 million.

From January 1, 2022 to February 16, 2022, the Company's active equity offerings consisted of:

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

•an offering of up to 1,000,000 Shares of Series A1 ~~Redeemable~~ Preferred Stock, ~~("Series A1 Preferred Stock"), Series M1 Redeemable Preferred Stock ("~~Series M1 Preferred ~~Stock"),~~Stock, or a combination of both (collectively the "Series A1/M1 Offering"); and

•an offering of up to $125 million of Common Stock from time to time in an "at the market" offering (the "2019 ATM Offering") ~~under our $400 million shelf registration statement (the "2019 Shelf Registration Statement") on Form S-3 that was filed with the SEC on March 21, 2019.~~.

The Company ceased the issuance and sale of Preferred Stock under the Series A1/M1 Offering on February 10, 2022. Pursuant to the Merger Agreement, the Company is restricted from issuing shares of Preferred Stock under the Series A1/M1 Offering and shares of Common Stock under the 2019 ATM 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~~offering costs not yet reclassified as reductions of stockholders' equity are reflected in the asset section of the consolidated balance sheets as deferred offering costs.

Cumulative gross proceeds and offering costs for ~~our~~the Company's active equity offerings consisted of:


(In thousands)						Deferred Offering Costs
Offering		Total offering		Gross proceeds as of March 31, 2021		Reclassified as reductions of stockholders' equity		Recorded as deferred assets		Total		Specifically identifiable offering costs (1)		Total offering costs
																					Deferred Offering Costs
(in thousands) Offering																(in thousands) Offering	Total offering		Gross proceeds as of March 31, 2022		Reclassified as reductions of stockholders' equity		Recorded as deferred assets		Total		Specifically identifiable offering costs (1)		Total offering costs

Series A1/M1 Offering	Series A1/M1 Offering	$	1,000,000	$	206,124	$	1,403	$	4,042	$	5,445	$	19,627	$	25,072	Series A1/M1 Offering	$	1,000,000	$	293,690	$	8,856	$	—	$	8,856	$	27,295	$	36,151
2019 ATM Offering	2019 ATM Offering	125,000		4,614		27		1,088		1,115		92		1,207		2019 ATM Offering	125,000		33,199		540		787		1,327		521		1,848

Total	Total	$	1,125,000	$	210,738	$	1,430	$	5,130	$	6,560	$	19,719	$	26,279	Total	$	1,125,000	$	326,889	$	9,396	$	787	$	10,183	$	27,816	$	37,999

(1) These offering costs specifically identifiable to ~~preferred stock~~the Series A1/M1 Offering or the 2019 ATM ~~offering~~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 Stock issued under the Series A1/M1 Registration Statement ~~are~~were each offered at a price of $1,000 per share, subject to adjustment under certain conditions.

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

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~~were 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 three-month period ended March 31, 2022, the Company did not issue or sell any shares of Common Stock under the 2019 ATM Offering.

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~~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.~~Internalization or (iii) upon a change in control of the Company. 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 ~~Carveout~~Operations in exchange for an aggregate of approximately $111.1 million in cash paid at the closing which reflects the satisfaction of certain indebtedness of NELL, the estimated net working capital adjustment, and a hold back of $15 million for certain specified matters (the "Specified Matters Holdback

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

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

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 member~~current 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 Campus Communities LLC line of credit is supported in part by a guaranty of repayment and performance by John A. Williams, Jr., the son of the late John A. Williams, the Company's former Chief Executive Officer and Chairman of the Board. Because the terms of these loans were negotiated and agreed upon while John A. Williams was the Chief Executive Officer of the Company, these instruments will continue to be reported as related party transactions until the loans are repaid.

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

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

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

(In thousands) Three-month periods ended March 31,
Type of Compensation Basis of Compensation 2021 2020
Acquisition fees 1.0% of the gross purchase price of real estate assets $ 0 $ 235
Loan origination fees 1.0% of the maximum commitment of any real estate loan, note or line of credit receivable 0 0
Loan coordination fees 0.6% of any assumed, new or supplemental debt incurred in connection with an acquired property 0 47
Asset management fees Monthly fee equal to one-twelfth of 0.50% of the total book value of assets, as adjusted 0 1,349
Property management fees Monthly fee up to 4% of the monthly gross revenues of the properties managed 0 890
General and administrative expense fees Monthly fee equal to 2% of the monthly gross revenues of the Company 0 616
Construction management fees Quarterly fee for property renovation and takeover projects 0 14
Disposition fees 1% of the sale price of a real estate asset 0 0
$ 0 $ 3,151

~~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 appro~~ximately $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 conju~~nction with the Company's Internalization transaction.~~

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

Three-month periods ended March 31,
(In thousands) 2021 2020
$ 0 $ 1,430

The Former Manager utilized its own and its affiliates' personnel to accomplish certain tasks related to raising capital that would typically be performed by third parties, including, but not limited to, legal and marketing functions. As permitted under the Management Agreement, the Former Manager was reimbursed $40,451 for the three-month period ended March 31, 2020. These costs were recorded as deferred offering costs until such time as additional closings occur on the Series A1/M1 Preferred Stock Offering or the 2019 Shelf Offering, ~~at which time they are reclassified on~~ a pro-rata basis as a reduction of offering proceeds within stockholders’ equity. In conjunction with the winding down of the $1.5 Billion Unit Offering, the Company engaged PCS to perform certain termination-related services. These services began in October 2019 and continued through

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

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

Prior to the Internalization, the Company held a promissory note in the amount of approximately $650,000 due from Preferred Capital Marketing Services, LLC, or PCMS, which was 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.

On November 20, 2018, the borrower on the Haven Campus Communities, LLC line of credit defaulted on the loan, triggering the accrual of an additional 10% default interest rate, which is incremental to the original 8% current interest rate. The amount of default interest recorded from the default date through March 31, 2021 was approximately $2.3 million. Under the terms of the loan, amounts collected are applied first to any legal costs incurred by the Company to collect amounts due on the loan; second, to pay any accrued default and current interest on the loan; and third, to repay the principal amount owed.

7. Dividends and Distributions

The Company declares and pays monthly cash dividend distributions in the amount of $5.00 per share per month on its Series A Preferred Stock and its Series A1 Preferred Stock. For the Company's 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 ~~Operations~~Operations. than dividends required to be paid for the first four years after issuance with respect to the mShares and the first five years after issuance with respect to the Series M1 Preferred Stock. Similarly, this will result in the Company recording smaller dividends declared to preferred stockholders in the Company’s Consolidated Statements of Operations than dividends required to be paid for the fifth

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

through the eighth year after issuance with respect to the mShares and the sixth through the tenth year after issuance with respect to the Series M1 Preferred Stock. Following the escalation period (year eight for the mShares and year ten for the Series M1 Preferred Stock), the dividends declared to preferred stockholders in the Company’s Consolidated Statements of Operations will equal the dividend paid.

The Company declared aggregate quarterly cash dividends on its Common Stock of $0.175 ~~and $0.2625~~ per share for ~~the~~both three-month periods ended March 31, ~~2021~~2022 and ~~2020, respectively.~~2021. The holders of Class A OP Units of the Operating Partnership are entitled to equivalent distributions as the dividends declared on the Common Stock. At March 31, ~~2021,~~2022, the Company had ~~548,369~~526,128 Class A OP Units outstanding, which are exchangeable on a one-for-one basis for shares of Common Stock or the ~~equivalent~~equivalent amount of cash.

The Company's dividend and distribution activity consisted of:

Dividends and distributions declared
For the three-month periods ended March 31,
(In thousands) 2021 2020
Series A Preferred Stock $ 29,431 $ 31,100
mShares 1,493 1,746
Series A1 Preferred Stock 2,550 212
Series M1 Preferred Stock 343 10
PAC Carveout REIT Preferred Stock 3 0
Common Stock 8,991 12,491
Restricted Stock and Class A OP Units 96 203
Total $ 42,907 $ 45,762

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~


	Dividends and distributions declared
	For the three-month periods ended March 31,
(In thousands)	2022		2021
Series A Preferred Stock	$	21,221	$	29,431
mShares	1,393		1,493
Series A1 Preferred Stock	3,692		2,550
Series M1 Preferred Stock	723		343
PAC Operations REIT Preferred Stock	4		3
Common Stock and Restricted Stock	10,976		8,991
Class A OP Units	82		96
Total	$	38,091	$	42,907

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 Stock approved, the Preferred Apartment Communities, Inc. 2019 Stock Incentive Plan, or the 2019 Plan, to incentivize, compensate and retain eligible officers, consultants, and non-employee directors. The 2019 Plan increased the aggregate number of shares of Common Stock authorized for issuance under the 2011 Plan from 2,617,500 to 3,617,500. 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.

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

Equity compensation expense by award type for the Company was:


												Three-month periods ended March 31,				Unamortized expense as of March 31, 2022
(In thousands)	(In thousands)	Three-month periods ended March 31,				Unamortized expense as of March 31, 2021	(In thousands)				2022	2021		Unamortized expense as of March 31, 2022
		2021		2020

Class B Unit awards to employees:	Class B Unit awards to employees:									Class B Unit awards to employees:
2017		$	0	$	3			$	0
2018	2018	(39)		71				0		2018		$	—	$	(39)	$	—
Restricted stock grants to Board members:	Restricted stock grants to Board members:									Restricted stock grants to Board members:
2019		0		105				0
2020	2020	133		0				44		2020		—		133		—
2021										2021		139		—		95
Restricted stock grants for employees:	Restricted stock grants for employees:									Restricted stock grants for employees:
2020	2020	243		0				3,115		2020		228		243		2,013
2021	2021	29		0				2,763		2021		161		29		1,906
2022										2022		168		—		2,922
Performance-based restricted stock units:	Performance-based restricted stock units:									Performance-based restricted stock units:
2020	2020	138		0				1,477		2020		129		138		863
2021	2021	39		0				3,116		2021		230		39		2,003
2022										2022		126		—		1,603
Restricted stock units to employees:	Restricted stock units to employees:									Restricted stock units to employees:
2018		0		14				0
2019	2019	16		19				52		2019		—		16		—
2020	2020	12		18				98		2020		12		12		36
2021	2021	3		0				217		2021		14		3		122

2022										2022		16		—		205
Total	Total	$	574	$	230			$	10,882	Total		$	1,223	$	574	$	11,768

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

Performance-based Restricted Stock Unit Grants

OOn January 25, 2022, n March 15, 2021 and July 31, 2020, the Company awarded performance-based restricted stock units (“PSUs”) to certain of its senior executives. Each PSU represents the right to receive one share of Common Stock upon satisfaction of both (i) the market condition, at which 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 St~~ock~~Stock at the ~~performance~~performance period commencement date (July 1, 2020 for the 2020 awards, ~~and~~ January 1, 2021 for the 2021 awards and January 1, 2022 for the 2022 awards), where the determining values are derived by calculating the 20-day volume weighted average stock price preceding both the performance period commencement date and the performance period end date (June 30, 2023 for the 2020 awards, ~~and~~ December 31, 2023 for tthe 2021 awards and December 31, 2025~~he 2021~~ for the 2022 awards). PSUs will become earned PSUs according to the percentile rank of the TSR of Company's Common Stock versus the peer group’s average TSR, as shown in the following table:


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

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

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 and 2022 awards, and actual percentile ranking results between the 35th and 75th percentile are to be interpolated between the percentage earned values shown.

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

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


Grant date	Grant date	3/15/2021			7/31/2020			Grant date	1/25/2022			3/15/2021			7/31/2020

Stock price on grant date	Stock price on grant date	$	10.86		$	7.23		Stock price on grant date	$	16.91		$	10.86		$	7.23
Dividend yield	Dividend yield	7.19		%	6.87		%	Dividend yield	7.16		%	7.19		%	6.87		%
Expected volatility	Expected volatility	49.81		%	44.40		%	Expected volatility	49.45		%	49.81		%	44.40		%
Risk-free interest rate	Risk-free interest rate	0.29		%	0.11		%	Risk-free interest rate	1.26		%	0.29		%	0.11		%

Target number of PSUs granted:	Target number of PSUs granted:							Target number of PSUs granted:
First vesting tranche	First vesting tranche	103,511			136,462			First vesting tranche	39,904			103,511			136,462
Second vesting tranche	Second vesting tranche	103,517			136,467			Second vesting tranche	39,904			103,517			136,467
		207,028			272,929				79,808			207,028			272,929

Calculated fair value per PSU	Calculated fair value per PSU	$	15.24		$	6.76		Calculated fair value per PSU	$	21.66		$	15.24		$	6.76

Total fair value of PSUs	Total fair value of PSUs	$	3,155,107		$	1,845,000		Total fair value of PSUs	$	1,728,641		$	3,155,107		$	1,845,000

~~Preferred Apartment Communities, Inc.~~

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

~~March 31,~~A total of 12,639 and 18,491 PSUs from the 2021 and 2020 grants, respectively, were forfeited during the third quarter 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 2.93 year, 2.80 year and 2.91 year periods trailing the grant dates was utilized as the expected volatility assumptions for the 2022, 2021 and 2020 awards, respectively.

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

Restricted Stock Grants

The following annual grants of restricted stock were made to ~~members of~~ the Company's independent directors as payment of the annual retainer fees. The restricted stock grants for service years ~~2017-2019~~2020 and 2021 vested (or are scheduled to vest) on ~~a pro-rata basis over~~ the ~~four consecutive 90-day periods following the date~~earlier of ~~grant. The restricted stock grant for service year 2020 is scheduled to vest on~~ the one-year anniversary of the date of ~~grant.~~grant and the next annual meeting of stockholders.

Service year Shares Fair value per share Total compensation cost (in thousands)
2017 24,408 $ 14.75 $ 360
2018 24,810 $ 14.51 $ 360
2019 26,446 $ 15.88 $ 420
2020 66,114 $ 8.05 $ 532


Service year	Shares	Fair value per share		Total compensation cost (in thousands)
2020	66,114	$	8.05	$	532
2021	49,552	$	10.45	$	518

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

On June 17, 2020, the Company granted restricted stock to certain of its executives and employees. The fair value per share of $8.05 was based upon the closing price of the Company's Common Stock on the business day preceding the grant date. A total of 137,741 shares representing a fair value of approximately $1.1 million will vest on the four year anniversary of the grant date and 344,356 shares representing a fair value of approximately $2.8 million ~~will~~are 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 through March 31, 2022.

On March 15, 2021, the Company granted restricted stock to certain of its executives and employees. The fair value per share of $10.69 was based upon the closing price of the Company's Common Stock on the grant date. A total of 261,226 shares representing a fair value of approximately $2.8 million ~~will~~ 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 through March 31, 2022.

~~Preferred Apartment Communities, Inc.~~

~~Notes~~ January 12, 2022, the Company granted restricted stock to ~~Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~certain of its executives and employees. The fair value per share of $17.35 was based upon the closing price of the Company's Common Stock on the business day preceding the grant date. A total of 178,097 shares representing a fair value of approximately $3.1 million are scheduled to vest on a pro-rata basis on each of the four succeeding anniversaries of the grant date.

Class B OP Units

As of March 31, ~~2021, cumulative activity of grants of~~2022, all outstanding 58,466 Class B Units of the Operating Partnership, or Class B OP ~~units, was:~~


						~~Grant date~~
						~~1/2/2018~~

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

~~Total forfeitures~~						~~(194,200)~~

Units, became earned and converted into Class A ~~Units~~						0

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

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

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

~~(1)~~ ~~Pro rata modification of award on April 16, 2018, the date of Mr. Williams' passing.~~
~~(2)~~ ~~Additional Class B OP units granted to senior executives other than Mr. Williams were voluntarily forfeited at the end of 2018.~~

~~There were 0 grants of Class B~~ OP Units, ~~subsequent to January 2, 2018.~~

~~The underlying valuation assumptions and results for~~which are convertible into shares of Common Stock one a one-for-one basis at the ~~2018 Class B OP Unit awards were:~~


~~Grant date~~	~~1/2/2018~~
~~Stock price~~	$	~~20.19~~
~~Dividend yield~~	~~4.95~~		%
~~Expected volatility~~	~~25.70~~		%
~~Risk-free interest rate~~	~~2.71~~		%

~~Number of Units granted:~~
~~One year vesting period~~	~~171,988~~
~~Three year vesting period~~	~~84,099~~
	~~256,087~~

~~Calculated fair value per Unit~~	$	~~16.66~~

~~Total fair value of Units~~	$	~~4,266,409~~

~~Target market threshold increase~~	$	~~5,660,580~~

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

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

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

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

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

Restricted Stock Units

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

Grant date 3/15/2021 1/2/2020 1/2/2019 1/2/2018
Service period 2021-2023 2020-2022 2019-2021 2018-2020
RSU activity:
Granted 20,600 21,400 27,760 20,720
Forfeited 0 (3,700) (8,101) (8,274)
RSUs outstanding at March 31, 2021 20,600 17,700 19,659 12,446
RSUs unearned but vested 0 5,928 13,191 12,446
RSUs unearned and not yet vested 20,600 11,772 6,468 0
RSUs outstanding at March 31, 2021 20,600 17,700 19,659 12,446
Fair value per RSU $ 10.69 $ 9.47 $ 10.77 $ 16.66
Total fair value of RSU grant $ 220,214 $ 202,658 $ 298,975 $ 345,195


Grant date	1/12/2022		3/15/2021		1/2/2020		1/2/2019		1/2/2018

RSU activity:
Granted	13,432		20,600		21,400		27,760		20,720
Forfeited	(665)		(2,997)		(5,999)		(8,861)		(8,274)
Units earned, converted into Common Stock	—		(5,912)		(10,385)		(18,899)		(12,446)

RSUs outstanding at March 31, 2022	12,767		11,691		5,016		—		—

RSUs unearned and not yet vested	12,767		11,691		5,016		—		—

RSUs outstanding at March 31, 2022	12,767		11,691		5,016		—		—

Fair value per RSU	$	17.35	$	10.69	$	9.47	$	10.77	$	16.66
Total fair value of RSU grant	$	233,045	$	220,214	$	202,658	$	298,975	$	345,195

The RSUs vest in three equal consecutive one-year tranches from the date of grant. For each grant prior to March 15, 2021, on the Initial Valuation Date, the market capitalization of the number of shares of Common Stock at the date of grant is compared to the market capitalization 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

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

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 and January 12, 2022 may become vested subject only to satisfaction of the service requirement.

Because RSUs ~~are~~granted prior to March 15, 2021 were valued using the identical market condition vesting requirement that determines the transition of the Vested Class B Units to Earned Class B Units, the same valuation assumptions per RSU were utilized to calculate the total fair values of the RSUs. The total fair value amounts pertaining to grants of RSUs, net of forfeitures, are amortized as compensation expense over the three one-year periods ending on the three successive anniversaries of the grant dates.

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

9. Indebtedness

Mortgage Notes Payable

~~Mortgage financing~~Financing of ~~property acquisitions~~real estate assets

On March 2, 2022, we originated a construction loan supporting our Helmsman development with a maximum borrowing capacity of $42.3 million, that accrues interest utilizing the Standard Overnight Financing Rate (SOFR) plus 235 basis points. The loan has interest only payments until it matures on September 2, 2025.

On March 30, 2022, we financed our Lirio at Rafina multifamily community with a mortgage in the amount of $54.0 million, that bears interest at a fixed rate of 3.27% and matures on April 1, 2032. During the three-month period ended March 31, ~~2020, the Company obtained original mortgage~~2021, we did not originate any financing ~~on the following properties as shown in the following table:~~of our real estate assets.

Property Date Initial principal amount
(in thousands) Fixed/Variable rate Interest rate Maturity date
251 Armour Yards 1/22/2020 $ 3,522 Fixed 4.50 % 1/22/2025
Wakefield Crossing 1/29/2020 7,891 Fixed 3.66 % 2/1/2032
Morrocroft Centre 3/19/2020 70,000 Fixed 3.40 % 4/10/2033
$ 81,413

Repayments and refinancings

The following table summarizes our mortgage debt refinancing and repayment activity for ~~the~~both three-month periods ended March 31, ~~2021~~2022 and ~~2020:~~2021:


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

2/15/2022															2/15/2022	Chestnut Farm	$	51.8	L + 150		$	363	$	52.3	3.25	%	$	108
2/28/2021	2/28/2021	Village at Baldwin Park	$	69.4	3.59	%	$	6	$	69.4	3.27	%	$	923	2/28/2021	Village at Baldwin Park	$	69.4	3.59	%	$	6	$	69.4	3.27	%	$	923

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

2623

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

The following table summarizes our mortgage notes payable at March 31, ~~2021:~~2022:


(In thousands)

Fixed rate mortgage debt:	Fixed rate mortgage debt:	Principal balances due		Weighted-average interest rate		Weighted average remaining life (years)	Fixed rate mortgage debt:	Principal balances due (in thousands)		Weighted-average interest rate		Weighted average remaining life (years)
Residential Properties		$	1,367,132	3.55	%	8.9
Multifamily Properties							Multifamily Properties	$	1,654,145	3.38	%	8.0
New Market Properties	New Market Properties	564,098		4.00	%	7.1	New Market Properties	568,793		3.96	%	6.1
Preferred Office Properties	Preferred Office Properties	633,436		4.13	%	12.1	Preferred Office Properties	163,829		4.35	%	15.9

Total fixed rate mortgage debt	Total fixed rate mortgage debt	$	2,564,666	3.79	%	9.3	Total fixed rate mortgage debt	$	2,386,767	3.58	%	8.1

Variable rate mortgage debt:	Variable rate mortgage debt:						Variable rate mortgage debt:
Residential Properties		$	20,700	2.90	%	9.3
Multifamily Properties							Multifamily Properties	$	20,700	3.02	%	8.3
New Market Properties	New Market Properties	47,150		2.79	%	2.6	New Market Properties	19,750		2.49	%	4.4
Preferred Office Properties		0		0	%	—

Total variable rate mortgage debt	Total variable rate mortgage debt	$	67,850	2.83	%	4.6	Total variable rate mortgage debt	$	40,450	2.76	%	6.4

Total mortgage debt:	Total mortgage debt:						Total mortgage debt:
Residential Properties		$	1,387,832	3.54	%	8.9
Multifamily Properties							Multifamily Properties	$	1,674,845	3.37	%	8.0
New Market Properties	New Market Properties	611,248		3.91	%	6.7	New Market Properties	588,543		3.91	%	6.1
Preferred Office Properties	Preferred Office Properties	633,436		4.13	%	12.1	Preferred Office Properties	163,829		4.35	%	15.9

Total principal amount	Total principal amount	2,632,516		3.77	%	9.2	Total principal amount	2,427,217		3.57	%	8.1
Deferred loan costs	Deferred loan costs	(40,878)					Deferred loan costs	(34,587)
Mark to market loan adjustment	Mark to market loan adjustment	(3,978)					Mark to market loan adjustment	(3,858)
Mortgage notes payable, net	Mortgage notes payable, net	$	2,587,660				Mortgage notes payable, net	$	2,388,772

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

As of March 31, ~~2021,~~2022, the weighted-average remaining life of deferred loan costs related to the Company's mortgage indebtedness was approximately ~~9.3~~8.6 years. Our mortgage notes have maturity dates between September 1, ~~2021~~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. The maximum borrowing capacity on the Revolving Line of Credit is $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 May 4, 2021, the Fourth Amended and Restated Credit Agreement, or the Amended and Restated Credit Agreement, was amended to extend the maturity to May 4, 2024, with an option to extend the maturity date to May 4, 2025, subject to certain conditions described therein. The Revolving Line of Credit accrues interest at a variable rate of one month LIBOR plus an applicable margin of 2.50% to 3.50% per annum, depending upon the Company’s leverage ratio. The weighted average interest rate for the Revolving Line of Credit was ~~3.63%~~3.15% for the three-month period ended March 31, ~~2021.~~2022. The commitment fee on the average daily unused portion of the Revolving Line of Credit is 0.20% or 0.25% per annum, depending upon the Company's outstanding

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

Credit Facility balance.

~~On December 20, 2019, the Compa~~ny entered into a $70.0 million interim term loan with KeyBank, or the 2019 Term Loan, to partially finance the acquisition of Morrocroft Centre, an office building located in Charlotte, North Carolina. The 2019 Term Loan accrues interest at a rate of LIBOR plus 1.7% per annum.~~The 2019 Term Loan 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 100% of AFFO for the trailing four quarters without the lender's consent;

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

solely for purposes of this covenant, AFFO is calculated as earnings before interest, taxes, depreciation and amortization expense, plus reserves for capital expenditures, less normally recurring capital expenditures, less consolidated interest expense.

As of March 31, ~~2021,~~2022, the Company was in compliance with all covenants related to the Revolving Line of Credit, as amended, as shown in the following table:

Covenant (1)

Requirement

Result

Covenant (1)

Requirement

Result

Net worth

Minimum $1.6 billion

$2.1 billion

Net worth

Minimum $1.3 billion

(2)

$1.9 billion

Debt yield

Minimum 8.75%

(2)

9.83%

Debt yield

Minimum 8.75%

(3)

9.88%

Payout ratio

Maximum 100%

(3)

96.2%

Payout ratio

Maximum 100%

(4)

87.6%

Total leverage ratio

Maximum 65%

62.2%

Total leverage ratio

Maximum 65%

55.6%

Debt service coverage ratio

Minimum 1.70x

(4)

1.92x

Debt service coverage ratio

Minimum 1.50x

(5)

1.85x

(1) All c~~ovenants~~covenants 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 closing of the sale of five office properties and one real estate loan investment.

(3) The minimum debt yield covenant increases to a minimum of 9.0% ~~after 24 months.~~on May 5, 2023.

~~(3)~~(4) Calculated on a trailing four-quarter basis. For the ~~three months~~period ended March 31, ~~2021,~~2022, the maximum dividends and distributions allowed under this covenant was approximately ~~$170.2~~$169.5 million.

~~(4)~~(5) Minimum of 1.50x if AFFO payout ratio is less than or equal to 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 ~~ove~~rover the life of the Credit Facility. At March 31, ~~2021,~~2022, unamortized loan fees and closing costs for the Credit Facility were approximately ~~$0.4~~$1.6 million, which will be amortized over a remaining loan life of approximately ~~0.8~~2.2 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 iswas to finance acquisitions. ~~The maximum borrowing capacity on the Acquisition Facility may be increased at the Company's request up to $300 million at any time prior to March 1, 2021.~~ On March 25, 2019, the maximum borrowing capacity was decreased to $90 million by agreement between the Company and ~~KeyBank.The~~KeyBank. The Acquisition Facility ~~accrues~~accrued 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~~matured on March 1, ~~2022 and has 2~~ ~~one~~-year extension options, subject to certain conditions described therein. At March 31, 2021, unamortized loan fees and closing costs for the establishment of the Acquisition Facility were approximately $71,000, which will be amortized over a remaining loan life of approximately 0.9 years. 2022.

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

Interest Expense

Interest expense, including amortization of deferred loan costs was:


									Three-month periods ended March 31,
(In thousands)	(In thousands)	Three-month periods ended March 31,				(In thousands)	2022		2021
		2021		2020

Residential Properties		$	13,224	$	14,866
Multifamily Communities								Multifamily Communities	$	14,608	$	13,224
New Market Properties	New Market Properties	6,444		6,750				New Market Properties	6,165		6,444
Preferred Office Properties	Preferred Office Properties	6,668		6,858				Preferred Office Properties	1,828		6,668

Total	Total	26,336		28,474				Total	22,601		26,336

Credit Facility and Acquisition Facility	Credit Facility and Acquisition Facility	655		1,119				Credit Facility and Acquisition Facility	559		655
Interest Expense	Interest Expense	$	26,991	$	29,593			Interest Expense	$	23,160	$	26,991

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

Future Principal Payments

The Company’s estimated future principal payments due on its debt instruments as of March 31, ~~2021~~2022 were:


Period	Period	Future principal payments (in thousands)		Period	Future principal payments (in thousands)
2021 (1)		$	133,360
2022		72,728
2022 (1)				2022 (1)	$	54,993
2023	2023	116,473		2023	81,841
2024	2024	289,868		2024	300,318
2025	2025	57,922		2025	57,692
2026	2026	255,389		2026	339,105
2027		280,200
2028		338,848
2029		321,689
2030		359,141
Thereafter	Thereafter	446,898		Thereafter	1,593,268

Total	Total	$	2,672,516	Total	$	2,427,217

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

(1) Remaining nine months

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)~~paid) to its stockholders. For the Company's tax years prior to its REIT election year, its operations resulted in a tax loss. As of December 31, 2010, the Company had deferred federal and state tax assets totaling approximately $298,100, none of which were based upon tax positions deemed to be uncertain. These deferred tax assets will most likely not be used since the Company elected REIT status; therefore, management has determined that a 100% valuation allowance is appropriate as of March 31, ~~2021~~2022 and December 31, ~~2020.~~2021.

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

11. Commitments and Contingencies

In November 2020, the Company filed a lawsuit to collect past due rent owed to the Former Manager of the Company, as sub-landlord pursuant to 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.

Also In November 2020, the Company filed a lawsuit to collect past due rent owed to the Former Manager of the Company, as sub-landlord pursuant to an office sublease agreement dated May 1, 2017 by and between the Former Manager and Elevation Development Group, LLC as sub-tenants. On May 4, 2022, the Company settled this suit for a cash payment of $112,500.

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 March 31, ~~2021,~~2022, the amount of rent due from the Company was ~~$13.9~~$10.9 million over the remaining term of the lease.

Following the filing of the preliminary proxy statement in connection with the Merger, plaintiffs filed eight separate lawsuits related to the Company's proxy statement. The results of these legal proceedings are difficult to predict, and could delay or prevent the Merger from becoming effective in a timely manner. Although the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that these lawsuits are without merit, and as such the Company is unable to make an estimate on timing or amounts related to these cases.

At March 31, ~~2021,~~2022, the Company had unfunded commitments on its real estate loan and preferred equity portfolio of approximately ~~$49.3 million.~~$95.7 million, and on its development joint venture for The Helmsman, $6.2 million of equity to be contributed.

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

At March 31, ~~2021,~~2022, the Company had unfunded contractual commitments for tenant, leasing, and capital improvements of approximately ~~$3.6~~$18.5 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 three months~~both three-month periods ended March 31, ~~2021~~2022 and ~~2020,~~2021, the Company ~~recognized~~recognized rental property revenues of ~~$101.6~~$95.2 million and ~~$109.1~~$101.6 million, respectively, of which ~~$11.3~~$10.5 million and ~~$10.4~~$11.3 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 ~~$235,000~~$243,000 and ~~$219,000~~$235,0000 for ~~the~~both three-month periods ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

The Company recorded lease expense as follows:


																Three-month periods ended March 31,								As of March 31, 2022
		For the three-month periods ended March 31,								As of March 31, 2021						2022				2021				Weighted average remaining lease term (years)		Weighted average discount rate
(In thousands)	(In thousands)	2021				2020				Weighted average remaining lease term (years)		Weighted average discount rate		(In thousands)		Lease expense		Cash paid		Lease expense		Cash paid
		Lease expense		Cash paid		Lease expense		Cash paid

Office space	Office space	$	728	$	730	$	475	$	475		4.8				3.0	%	Office space	$	728	$	747	$	728	$	730	3.8	3.0%
Ground leases	Ground leases	15		13		13		4		35.4		4.4	%	Ground leases		6		4		15		13		42.8		4.5%
Office equipment	Office equipment	36		36		101		101		2.5		3.0	%	Office equipment		16		16		36		36		2.2		3.0%

Total	Total	$	779	$	779	$	589	$	580					Total		$	750	$	767	$	779	$	779

3027

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

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 March 31, 2021								For the year ending December 31:	Future Minimum Rents as of March 31, 2022
(in thousands)	(in thousands)		Office space		Ground leases		Office equipment		Total		(in thousands)	Office space		Ground leases		Office equipment		Total

2021		(1)	$	2,200	$	38	$	95	$	2,333
2022			2,855		51		53		2,959
2022 (1)											2022 (1)	$	2,109	$	11	$	44	$	2,164
2023	2023		2,497		51		26		2,574		2023	2,497		15		41		2,553
2024	2024		3,139		51		13		3,203		2024	3,139		15		20		3,174
2025	2025		2,808		52		11		2,871		2025	2,808		17		12		2,837
2026											2026	355		17		—		372
Thereafter	Thereafter		355		1,084		0		1,439		Thereafter	—		922		—		922

Total	Total		$	13,854	$	1,327	$	198	$	15,379	Total	$	10,908	$	997	$	117	$	12,022

(1) Remaining nine months

(1) Remaining nine months

13. Segment Information

The Company's Chief Operating Decision Maker, or CODM, evaluates the performance of the Company's business operations and allocates financial and other resources by assessing the financial results and outlook for future performance across 4 distinct segments: ~~multifamily communities,~~Residential Properties, real estate related financing, New Market Properties and Preferred Office Properties.

Multifamily Communities - consists of the Company's portfolio of residential 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.

New Market Properties - consists of the Company's portfolio of grocery-anchored shopping 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)	March 31, 2022		December 31, 2021
Assets:
Multifamily Communities	$	2,038,140	$	1,958,592
Financing	242,297		226,734
New Market Properties	1,018,834		1,032,658
Preferred Office Properties	325,079		327,548
Other	115,922		17,836
Consolidated assets	$	3,740,272	$	3,563,368

3128

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

(In thousands) March 31, 2021 December 31, 2020
Assets:
Residential properties $ 1,720,238 $ 1,745,020
Financing 320,991 321,026
New Market Properties 1,055,188 1,072,090
Preferred Office Properties 1,117,632 1,121,992
Other 20,919 20,951
Consolidated assets $ 4,234,968 $ 4,281,079

Total capitalized expenditures (inclusive of additions to construction in progress, but exclusive of the purchase price of acquisitions) were as follows:


									Three-month periods ended March 31,
(In thousands)	(In thousands)	Three-month periods ended March 31,				(In thousands)	2022		2021
		2021		2020

Capitalized expenditures:	Capitalized expenditures:							Capitalized expenditures:
Residential properties		$	2,506	$	3,759
Multifamily Communities								Multifamily Communities	$	2,414	$	2,506
New Market Properties	New Market Properties	1,623		1,276				New Market Properties	1,653		1,623
Preferred Office Properties	Preferred Office Properties	3,007		6,822				Preferred Office Properties	322		3,007
Total	Total	$	7,136	$	11,857			Total	$	4,389	$	7,136

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

Total revenues by reportable segment of the Company were:

(In thousands) Three-month periods ended March 31,
2021 2020
Revenues
Rental and other property revenues:
Residential properties $ 50,521 $ 60,583
New Market Properties 26,967 28,002
Preferred Office Properties (1)
27,275 26,462
Total rental and other property revenues 104,763 115,047
Financing revenues 10,917 15,825
Miscellaneous revenues 20 10
Consolidated revenues $ 115,700 $ 130,882
(1) Included in rental revenues for our Preferred Office Properties segment is the amortization of deferred revenue for tenant-funded leasehold improvements from a major tenant in our Three Ravinia and Westridge office buildings. As of March 31, 2021, the Company has recorded deferred revenue in an aggregate amount of $47.0 million in connection with such improvements. The remaining balance to be recognized is approximately $35.0 million which is included in the deferred revenues line on the consolidated balance sheets at March 31, 2021. These total costs will be amortized over the lesser of the useful lives of the improvements or the individual lease terms. The Company recorded non-cash revenue of approximately $0.9 million and $0.9 million for the three-month periods ended March 31, 2021 and 2020, respectively.

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~


	Three-month periods ended March 31,
(In thousands)	2022		2021
Revenues
Rental and other property revenues:
Multifamily Communities	$	61,781	$	50,521
New Market Properties	27,559		26,967
Preferred Office Properties (1)	8,743		27,275
Total rental and other property revenues	98,083		104,763

Financing revenues	6,780		10,917
Miscellaneous revenues	17		20
Consolidated revenues	$	104,880	$	115,700
(1) Included in rental revenues for our Preferred Office Properties segment is the amortization of deferred revenue for tenant-funded leasehold improvements from a major tenant in our Three Ravinia and Westridge office buildings. As of March 31, 2022, 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 $31.3 million which is included in the deferred revenues line on the consolidated balance sheets at March 31, 2022. These total costs will be amortized over the lesser of the useful lives of the improvements or the individual lease terms. The Company recorded non-cash revenue of approximately $0.9 million for both three-month periods ended March 31, 2022 and 2021.

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

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

Segment NOI for each reportable segment was as follows:


		Three-month periods ended March 31,				Three-month periods ended March 31,
(In thousands)	(In thousands)	2021		2020			(In thousands)	2022		2021
Segment net operating income (Segment NOI)	Segment net operating income (Segment NOI)						Segment net operating income (Segment NOI)

Residential Properties		$	29,223	$	35,845
Multifamily Communities							Multifamily Communities	$	36,894	$	29,223
New Market Properties	New Market Properties	18,596		19,819			New Market Properties	18,939		18,596
Preferred Office Properties	Preferred Office Properties	19,635		19,668			Preferred Office Properties	6,134		19,635
Financing	Financing	10,911		15,825			Financing	6,780		10,911
Miscellaneous revenues	Miscellaneous revenues	20		10			Miscellaneous revenues	17		20

Consolidated segment net operating income	Consolidated segment net operating income	78,385		91,167			Consolidated segment net operating income	68,764		78,385

Interest expense:	Interest expense:						Interest expense:
Residential Properties		13,224		14,866
Multifamily Communities							Multifamily Communities	14,608		13,224
New Market Properties	New Market Properties	6,444		6,750			New Market Properties	6,165		6,444
Preferred Office Properties	Preferred Office Properties	6,668		6,858			Preferred Office Properties	1,828		6,668
Corporate	Corporate	655		1,119			Corporate	559		655
Depreciation and amortization:	Depreciation and amortization:						Depreciation and amortization:
Residential Properties		22,094		24,385
Multifamily Communities							Multifamily Communities	22,960		22,094
New Market Properties	New Market Properties	11,761		13,414			New Market Properties	10,769		11,761
Preferred Office Properties	Preferred Office Properties	11,915		11,681			Preferred Office Properties	4,377		11,915
Corporate	Corporate	57		29			Corporate	55		57
Equity compensation to directors and executives	Equity compensation to directors and executives	574		230			Equity compensation to directors and executives	1,223		574
Management fees, net of waived fees		0		1,963
Management Internalization		245		178,793
Management Internalization expense							Management Internalization expense	244		245
Allowance for expected credit losses	Allowance for expected credit losses	522		5,133			Allowance for expected credit losses	572		522
(Gain) / loss on sale of real estate		(798)		0
(Gain) / loss from land condemnation, net		0		(479)
Gain on sale of real estate							Gain on sale of real estate	—		(798)
Loss on sale of land							Loss on sale of land	22		—
Loss on extinguishment of debt							Loss on extinguishment of debt	363		—
Loss from unconsolidated joint venture	Loss from unconsolidated joint venture	194		0			Loss from unconsolidated joint venture	108		194
Corporate G&A		7,539		5,948

Net income (loss)		$	(2,709)	$	(179,523)
General and Administrative							General and Administrative	7,842		7,539
Merger-related costs							Merger-related costs	4,913		—
Net loss							Net loss	$	(7,844)	$	(2,709)

3330

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

14. Income (Loss) Per Share

The following is a reconciliation of weighted average basic and diluted shares outstanding used in the calculation of income (loss) per share of Common Stock:


	(In thousands, except per-share figures)	Three-month periods ended March 31,				Three-month periods ended March 31,
(In thousands, except per-share figures)							(In thousands, except per-share figures)	2022		2021
Numerator:							Numerator:
Operating income before gains on sales of real estate and loss from unconsolidated joint venture							Operating income before gains on sales of real estate and loss from unconsolidated joint venture	$	15,809	$	23,678
Loss from unconsolidated joint venture							Loss from unconsolidated joint venture	(108)		(194)
Gain on sale of real estate							Gain on sale of real estate	—		798
Operating income							Operating income	15,701		24,282
Interest expense							Interest expense	23,160		26,991
Loss on extinguishment of debt							Loss on extinguishment of debt	(363)		—
Loss on sale of land							Loss on sale of land	(22)		—
Net loss							Net loss	(7,844)		(2,709)
Net loss attributable to non-controlling interests (A)							Net loss attributable to non-controlling interests (A)	30		62
Net loss attributable to the Company							Net loss attributable to the Company	(7,814)		(2,647)
Dividends declared to preferred stockholders (B)							Dividends declared to preferred stockholders (B)	(27,033)		(33,820)
Net loss attributable to unvested restricted stock (C)							Net loss attributable to unvested restricted stock (C)	(137)		(142)
Net loss attributable to common stockholders							Net loss attributable to common stockholders	$	(34,984)	$	(36,609)
		2021		2020
Numerator:
	Operating income (loss) before gain on sale of real estate and loss from unconsolidated joint venture	$	23,678	$	(150,409)
	Loss from unconsolidated joint venture	(194)		0
	Gain on sale of real estate, net	798		0

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

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

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

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

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

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

	Effect of dilutive securities: (D)	0		0

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

	Net loss per share of Common Stock attributable to
	common stockholders, basic and diluted	$	(0.73)	$	(4.44)
Weighted average number of shares of Common Stock - basic							Weighted average number of shares of Common Stock - basic	56,255		50,033
Effect of dilutive securities: (D)							Effect of dilutive securities: (D)	—		—
Weighted average number of shares of Common Stock - basic and diluted							Weighted average number of shares of Common Stock - basic and diluted	56,255		50,033
Net loss per share of Common Stock attributable to							Net loss per share of Common Stock attributable to
common stockholders, basic and diluted							common stockholders, basic and diluted	$	(0.62)	$	(0.73)

(A) The Company's outstanding Class A Units of the Operating P~~artnership (548~~Partnership (526 and ~~775~~548 Units at March 31, ~~2021,~~2022, and ~~2020,~~2021, 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 ~~1,694~~1,302 and ~~2,075~~1,694 outstanding shares of Series A Preferred Stock at March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and 246~~184~~ and 37184 outstanding shares of Series A1 Preferred Stock at March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company's mShares accrue dividends at an escalating rate of 5.75% in year one to 7.50% in year eight and thereafter. The Company had 8783 and 9887 mShares outstanding at March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company's shares of Series M1 Preferred Stock accrue dividends at an escalating rate of 6.1% in year one to 7.1% in year ten and thereafter. The Company had 4421 and 221 shares of Series M1 Preferred Stock outstanding at March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

(C) The Company's outstanding unvested restricted share awards ~~(809~~(782 and 7809 shares of Common Stock at March 31, ~~2021~~2022 and ~~2020,~~2021, respectively) contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares' participation rights in undistributed earnings.

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

Given the Company's unvested restricted share awards are defined as participating securities, the dividends declared for that period are adjusted in determining the calculation of loss per share of Common Stock.

(D) Potential dilution from (i) warrants outstanding from issuances of Units from our Series A Preferred Stock offerings that are potentially exercisable into ~~24,484~~8,239 shares of Common Stock; (ii) ~~62 Class B Units; (iii) 809 shares~~733 shares of unvested ~~restricted~~restricted common stock; ~~(iv) 71~~(iii) 29 outstanding Restricted Stock Units; and ~~(v) 480~~(iv) 529 PSUs are excluded from the diluted shares calculations because the effect was antidilutive. Class A Units were excluded from the denominator because earnings were ~~allocated~~allocated to non-controlling interests in the calculation of the numerator.

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

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


																	As of March 31, 2022
		As of March 31, 2021															Carrying value				Fair value measurements using fair value hierarchy
(In thousands)	(In thousands)	Carrying value						Fair value measurements using fair value hierarchy								(In thousands)			Fair Value		Level 1		Level 2		Level 3
				Fair Value			Level 1			Level 2			Level 3
Financial Assets:	Financial Assets:																	Financial Assets:
Real estate loans	Real estate loans	$	303,179		$	315,864		$	0		$	0		$	315,864	Real estate loans	$	228,850	$	236,159	$	—	$	—	$	236,159
Notes receivable and line of credit receivable	Notes receivable and line of credit receivable	10,795			10,795			0			0			10,795		Notes receivable and line of credit receivable	8,875		8,875		—		—		8,875
		$	313,974		$	326,659		$	0		$	0		$	326,659		$	237,725	$	245,034	$	—	$	—	$	245,034
Financial Liabilities:	Financial Liabilities:															Financial Liabilities:
Mortgage notes payable	Mortgage notes payable	$	2,632,516		$	2,605,981		$	0		$	0		$	2,605,981	Mortgage notes payable	$	2,427,217	$	2,355,741	$	—	$	—	$	2,355,741
Revolving line of credit	Revolving line of credit	40,000			40,000			0			0			40,000		Revolving line of credit	—		—		—		—		—
		$	2,672,516		$	2,645,981		$	0		$	0		$	2,645,981		$	2,427,217	$	2,355,741	$	—	$	—	$	2,355,741


																	As of December 31, 2021
		As of December 31, 2020															Carrying value				Fair value measurements using fair value hierarchy
(In thousands)	(In thousands)	Carrying value						Fair value measurements using fair value hierarchy								(In thousands)			Fair Value		Level 1		Level 2		Level 3
				Fair Value			Level 1			Level 2			Level 3
Financial Assets:	Financial Assets:																	Financial Assets:
Real estate loans	Real estate loans	$	302,423		$	315,074		$	0		$	0		$	315,074	Real estate loans	$	213,458	$	219,923	$	—	$	—	$	219,923
Notes receivable and line of credit receivable	Notes receivable and line of credit receivable	10,874			10,874			0			0			10,874		Notes receivable and line of credit receivable	9,011		9,011		—		—		9,011
		$	313,297		$	325,948		$	0		$	0		$	325,948		$	222,469	$	228,934	$	—	$	—	$	228,934
Financial Liabilities:	Financial Liabilities:															Financial Liabilities:
Mortgage notes payable	Mortgage notes payable	$	2,640,705		$	2,666,471		$	0		$	0		$	2,666,471	Mortgage notes payable	$	2,382,652	$	2,414,774	$	—	$	—	$	2,414,774
Revolving line of credit	Revolving line of credit	22,000			22,000			0			0			22,000		Revolving line of credit	—		—		—		—		—
		$	2,662,705		$	2,688,471		$	0		$	0		$	2,688,471		$	2,382,652	$	2,414,774	$	—	$	—	$	2,414,774

The fair value of the real estate loans within the level 3 hierarchy are comprised of estimates of the fair value of the notes, which were developed utilizing a discounted cash flow model over the remaining terms of the notes until their maturity dates and utilizing discount rates believed to approximate the market risk factor for notes of similar type and duration. The fair values

~~Preferred Apartment Communities, Inc.~~

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

~~March 31, 2021~~

also contain a separately-calculated estimate of any applicable additional interest payment due to the Company at the maturity date of the loan, based on the outstanding loan balances at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, 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.

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

16. Subsequent Events

~~Between~~On April ~~1, 2021 and April 30, 2021,~~5, 2022, the Company ~~issued 24,096 shares of Series A1 Redeemable Preferred Stock~~sold its Champions Village grocery-anchored shopping center in Houston, Texas for $45.0 million and ~~collected net proceeds~~recorded a gain on the sale of approximately $21.7 million after commissions and fees and issued 3,968 shares of Series M1 Redeemable Preferred Stock and collected net proceeds of approximately $3.8 million after commissions and fees. During the same period, the Company redeemed 11,680 shares of Series A Preferred Stock and 93 mShares. We expect redemptions to generally meet or exceed Preferred Stock issuances in the quarter.$1.9 million.

On April ~~16, 2021,~~12, 2022, the ~~Company entered into a series of transactions with Highwoods Properties in order to dispose of 7 office properties and 1 office~~Company's Vintage Horizon West real estate loan investment for an aggregate purchase price of $717.5 million. The earnest money deposit of $50 million is nonrefundable, provided the purchaser is able to successfully qualify for the assumption of existing debt on the office properties and also subject to other customary closing conditions.was repaid in full.

On ~~May 4, 2021,~~April 20, 2022, the Company ~~amended~~sold its ~~revolving line~~Sweetgrass Corner grocery-anchored shopping center in Charleston, South Carolina for $17.0 million and recorded a gain on the sale of ~~credit agreement to extend the maturity date to May 4, 2024 and, among other things, modified certain covenants, reduced certain rates and fees and prepared for LIBOR transitioning.~~approximately $4.3 million.

~~On May 6, 2021,~~Between April 1, 2022 and April 30, 2022, the ~~Company's board~~Company issued 1,451,700 shares of ~~directors declared a quarterly dividend on our Common Stock~~common stock at an average price of ~~$0.175~~$19.70 per share ~~payable on July 15, 2021 to stockholders~~from exercises of ~~record on June 15, 2021.~~Warrants and collected approximately $28.6 million.

3633

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

Significant Developments

During the three-month period ended March 31, ~~2021,~~2022, we acquired one multifamily community, consisting of 280 units in the Orlando, Florida MSA. We also closed on ~~one~~two real estate loan investments and one preferred equity investment with an aggregate commitment amount of up$48.1 million, adding 780 multifamily units to ~~approximately $16.8 million, in partial support of the development of a multifamily community in Orlando, Florida and a land~~our acquisition ~~bridge loan of approximately $7.7 million in support of a proposed multifamily community in suburban Atlanta, Georgia.~~pipeline.

During the ~~three-month period ended March 31, 2021,~~first quarter 2022, we issued ~~35,040~~an aggregate of 9,858,480 shares of ~~Series A1 Preferred Stock and collected net proceeds~~our common stock, par value $0.01 per share ("Common Stock"), at a weighted average price of ~~approximately $31.5 million. During the same period, we issued 2,858 shares~~$19.68 per share from exercises of ~~Series M1 Preferred Stock and collected net proceeds of approximately $2.8 million.~~Warrants. 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.

~~On April~~As previously announced, on February 16, ~~2021,~~2022, we entered into ~~a series~~an agreement and plan of ~~transactions~~merger (the “Merger Agreement”) with ~~Highwoods Properties~~Pike Parent LLC (“Parent”), Pike Merger Sub I LLC (“Merger Sub I”), Pike Merger Sub II LLC (“Merger Sub II”), Pike Merger Sub III LLC (“Merger Sub III” and, together with Parent, Merger Sub I and Merger Sub II, the “Parent Parties”), the Operating Partnership and PAC Operations, LLC (“Operations”). The Parent Parties are affiliates of BREIT, which is an affiliate of Blackstone Inc. Pursuant to the Merger Agreement, (i) Merger Sub II will merge with and into the Operating Partnership (the “Partnership Merger”) with the Operating Partnership being the surviving entity and immediately following the consummation of the Partnership Merger, (ii) Operations will merge with and into Merger Sub III (the “Operations Merger”) with Merger Sub III being the surviving entity and immediately following the Operations Merger, (iii) the Company will merge with and into Merger Sub I (the “Company Merger” and, together with the Partnership Merger and the Operations Merger, the “Mergers”) with Merger Sub I being the surviving entity. Pursuant to the Merger Agreement, (i) each share of common stock that is issued and outstanding immediately prior to the Mergers will be automatically cancelled and converted into the right to receive $25.00 in ~~order~~cash and (ii) each share of preferred stock that is issued and outstanding immediately prior to ~~dispose of seven of our office properties~~the Mergers will be automatically cancelled and ~~one office real estate loan investment for an aggregate purchase price of $717.5 million,~~converted into the right to receive $1,000 in cash, plus any accrued but unpaid dividends, if any, to and including the ~~assumption~~closing date of ~~debt. Upon~~ the ~~closing~~Mergers. Notwithstanding the forgoing, any shares of ~~this transaction, we expect~~common stock or preferred stock held by the ~~disposition~~Company or any subsidiary of ~~these assets~~the Company or by the Parent Parties or any of their respective subsidiaries, if any, will no longer be outstanding and will automatically be retired and will cease to ~~result~~exist, and no consideration will be paid in ~~a potentially material decrease in our revenues and results of operations.~~connection with the Mergers.

The Mergers are subject to customary closing conditions, including approval by the Company’s common stockholders at a special meeting to be held on June 7, 2022. The Mergers are expected to close on the third business day after the conditions to closing are satisfied or waived, including approval of the Company’s stockholders of the Mergers. The Company can provide no assurances regarding whether the Mergers will close as expected during the second quarter of 2022, or at all. The board of directors of the Company has unanimously approved the Merger Agreement and has recommended approval of the Mergers by the Company’s common stockholders.

~~Forward-looking~~Forward-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:

• risks associated with our ability to obtain the stockholder approval required to consummate the Mergers

and the risk that the closing of the Mergers will not occur within the expected timeframe or at all;

• unanticipated difficulties or expenditures relating to the Mergers;

• the occurrence of any event, change or other circumstances that could give rise to the termination of the

Merger Agreement;

• the outcome of any legal proceedings that may be instituted against the parties and others related to the

Merger Agreement;

• disruptions to our current plans and operations or diverted attention from our ongoing business operations

by management or our employees as a result of the proposed Mergers;

• unanticipated difficulties or expenditures relating to the Mergers, the response of business partners and

competitors to the announcement of the transaction and/or potential difficulties in employee retention as a

result of the announcement and pendency of the transaction;

• our exclusive remedy against the counterparties to the Merger Agreement with respect to any breach of the

Merger Agreement being to seek payment by Parent of the parent termination payment in the amount of

$300 million (which amount is guaranteed by the operating partnership of BREIT), which may not be

adequate to cover our damages;

• our restricted ability to pay dividends to the holders of our Common Stock pursuant to the Merger

Agreement;

• our business and investment strategy;

• our projected operating results;

• actions and initiatives of the U.S. Government, changes to U.S. Government policies and the execution and

impact of these actions, initiatives and policies;

• the state of the U.S.

economy generally or in specific geographic areas;

• economic trends and economic recoveries;

• our ability to obtain and maintain financing arrangements, including through Fannie Mae and Freddie Mac;

• financing and advance rates for our target assets;

• our expected leverage;

• changes in the values of our assets;

• our expected portfolio of assets;

• our expected investments;

• interest rate mismatches between our target assets and our borrowings used to fund such investments;

• changes in interest rates and the market value of our target assets;

• changes in prepayment rates on our target assets;

• effects of hedging instruments on our target assets;

• rates of default or decreased recovery rates on our target assets;

• changes in our operating costs, including real estate taxes, utilities and insurance costs;

• the degree to which our hedging strategies may or may not protect us from interest rate volatility;

• impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;

• our ability to maintain our qualification as a real estate investment trust, or REIT, for U.S. federal income tax

~~purposes;~~purposes through the effective time of the Company Merger and Operations’ ability to maintain its

qualification as a REIT for U.S. federal income tax purposes through the effective time of the Operations

Merger;

• the possibility that the anticipated benefits from the Internalization may not be realized or may take longer to

realize than expected, or that unexpected costs or unexpected liabilities may arise from the Internalization;

• the impact of the coronavirus (COVID-19) pandemic, including any variants, on ~~PAC’s~~our business operations and the

economic conditions

in the markets in which ~~PAC operates;~~we operate;

• ~~PAC’s~~our 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 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;

• 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~~

• 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, ~~2020~~2021 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

~~In spite~~Despite the continued, but lesser, impact from COVID-19 and the first contraction in the US economy since the start of the ~~COVID-19~~ pandemic during the first quarter of 2022, we believe ~~continued, albeit sporadic, improvement in~~ the ~~United States'~~US economy will ~~take hold~~generally remain favorable for ~~2021,~~the remainder of 2022, with continued improvement in the job market from pandemic lows, strong consumer spending and ~~growth and~~modest improvements in the overall economy. As the country ~~combats~~continues to combat 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~~continues to lessen, although the US economy is currently experiencing high inflation, rising interest rates and ~~the economy can begin~~volatility as a ~~path to normalcy.~~result of geopolitical instability. We believe a recovering economy, improving job market ~~and increased consumer confidence~~ should help create favorable conditions for continued growth in the ~~recovery for the~~ multifamily, ~~sector,~~ grocery-anchored shopping centers and Class A office ~~demand.~~

sectors for the remainder of the year. While inflation and rising interest rates can have mixed effects on the economy, they could have equally mixed effects on our operations and markets.

Multifamily Communities

~~The Company continues~~We continue to believe in the health of the multifamily industry, which is driven by both favorable demographic tailwinds and strong 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 ~~the Company's~~our footprint and strategy: operating newly-constructed Class A communities in growing ~~sunbelt~~ suburban Sunbelt markets. The ~~sunbelt~~Sunbelt region continues to benefit from in-migration trends as weather, affordability and friendly business environments 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.~~units Freddie Mac estimated in 2018. Furthermore, we believe the U.S. is in the early stages of an economic expansion, which we believe ~~would~~will drive job growth and lead to increased multifamily demand. The sector

continues to show resiliency and positive momentum as forecasts generally support stable occupancy, rent growth and net absorption of units.

Investors, both domestic and abroad, continue to seek quality multifamily housing given strong secular demand and the financial 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, aiming to provide a relatively stable and steady 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.

New Market Properties

We specialize in owning and operating shopping centers anchored by market-leading grocers complemented by convenience-based retailers across ~~high growth~~high-growth suburban Sunbelt markets. These centers are primarily anchored by Publix, Kroger, Harris Teeter, and other market share leading grocers with high sales volume per square foot. ~~The roll out of the COVID-19 vaccine and additional stimulus payments being distributed accelerated consumers' regaining confidence and returning~~We believe that our focus on an e-commerce resilient, daily needs-centric merchandising mix has our portfolio positioned well to pre-pandemic shopping habits evidenced by the 14% increase in retail sales in March 2021 versus March 2020 according to Mastercard. An increasing level of optimism felt throughout the retail industry with the country’s reopening has propelled the recovery from the pandemic.

Our grocery partners’ performance during 2020 exceeded expectations, with sales increasing by 17% year over year, outpacing their respective chain increases. Beyond the obvious spike in foot traffic tied to the pandemic, we believe grocers benefited fromflourish amidst the accelerated migration to ~~our~~the Sunbelt ~~markets~~ and resurgence of the ~~work from home trend that kept shoppers at their homes~~sector.

Given the strong fundamentals and resiliency of grocery-anchored retail, investment volume in the sector significantly increased during 2021. Across the ~~weekdays. Further, our grocery portfolio’s outperformance~~Southeast market, investment volume in grocery-anchored assets increased 74% in 2021 compared to ~~chain averages is reflective~~pre-pandemic volumes while at all-time low cap rates. Investor interest in the sector remains strong in 2022, however the transactional market has begun to shift due to rising interest rates. While the grocery-anchored market saw a cap rate compression of ~~our assets’ strong positioning~~50 basis points in ~~high growth suburban markets~~2021, we believe that ~~enjoyed accelerated migration during~~interest rates should put a strain on further compression and could lead to cap rate expansion in the last twelve months. Our grocers continue to be the centerpieces of their respective communities and are positioned for sustained growth during 2021. Beyond the overwhelming success of our grocer partners, wenear term.

We are encouraged by the ~~leasing momentum being seen throughout the retail industry~~strong retailer demand in our shopping centers. According to Placer.ai, our portfolio’s foot traffic in 2021 was 3% higher than 2019 levels, generating 66 million trips to our assets, with ~~many different tenant types actively expanding again.~~our grocery partners responsible for 37 million of those trips. Amidst increased customer visits, our portfolio of suburban Sunbelt grocers continued its strong performance in 2021, increasing sales 5% from 2020 levels and 17% from 2019 levels. We believe that our grocer partners will continue to benefit from rising inflation and its effect on sales volume through 2022. However, further sales growth likely will remain hindered by ongoing supply chain issues.

~~The~~On a macro level, grocery sales have experienced a 16% increase since 2019, exceeding $800 billion in 2021. Grocers’ ability to adapt and position for success in the ever-changing retail ~~vertical’s collection percentages during~~landscape is evident in the ~~first quarter 2021 returned to~~growth of grocery e-commerce sales. Online grocer sales surged from pre-pandemic levels, ~~collecting over 98% of recurring rent charges, unadjusted~~increasing to $122.4 billion in 2021 compared to $66.5 billion in 2019. Our grocery partners are all engaged in this trend by further developing their curbside pickup and Buy Online Pickup in Store ("BOPIS") offerings as they establish themselves as the optimal last mile touchpoint for deferrals. This result reflects a continued recovery from the 91.9%, 96.1% and 97.6% collections in second, third and fourth quarters 2020, respectively. The continued increases are reflective of the country’s reopening progressing and consumers regaining confidenceshoppers. As our grocery partners continue to get out and support bricks and mortar retailers. The pace of new deferrals and rent workouts has slowed drastically. We granted an additional $28,000 of deferred rent during the first quarter 2021, raising the total deferred rent granted to approximately $1.9 million, or approximately 2.0% cumulatively

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

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

Our retail investment strategy of owning and operating shopping centers anchored by strongly performing grocers complemented by convenience-based retailers across high growth suburban Sunbelt markets has proven its strength throughout the last year. We are confident inthrive, our e-commerce resilient ~~merchandising mix as we emerge~~and convenience-focused tenancy is positioned well to benefit from the ~~COVID-19 pandemic and continue to improve our portfolio.~~strong tailwinds that the suburbs throughout the Sunbelt are experiencing today.

Preferred Office Properties

~~Preferred~~ Preferred Office Properties operates ~~a 3.2 million square foot portfolio of~~two Class A office assets comprising 1.1 million square feet in ~~markets across~~ the ~~Sunbelt. New~~Atlanta and San Antonio markets. Our assets have maintained high occupancy, with the Atlanta asset (3 Ravinia) currently 93% leased, and the San Antonio buildings 100% leased. Nonetheless, from a broader market perspective we have observed that new leasing activity ~~has slowed~~remains subdued and available sublease ~~availability has increased in most markets~~space is plentiful due to continued uncertainty ~~from COVID-19.~~in the demand for space, as related to the COVID-19 pandemic. We expect to see some level of continued soft demand in the near-term. ~~Despite these challenges, the Company’s~~Our office ~~investments~~assets are ~~91% leased~~well positioned with ~~only approximately 6.8% of the portfolio leases expiring through the end of 2022. Furthermore,~~large, multi-year contractual leases and rent schedules paired with high quality tenant balance sheets that have offered protection against adverse impacts of COVID-19.

The 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~~Estimates

There have been no material changes to our ~~critical~~critical accounting ~~policies~~estimates as disclosed in our Annual Report on Form ~~10-~~

K10-K for the year ended December 31, ~~2020.~~2021.

Off-Balance Sheet Arrangements

As of March 31, ~~2021,~~2022, we had ~~1,224,195~~411,966 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 March 31, ~~2021,~~2022, a total of ~~531,522~~1,024,499 Warrants had been exercised into ~~10,630,440~~20,489,980 shares of Common ~~stock.~~Stock. The ~~1,224,195~~411,966 Warrants outstanding at March 31, ~~2021~~2022 have exercise prices that range between $19.50 and ~~$26.34~~$21.70 per share. If all the Warrants outstanding at March 31, ~~2021 became exercisable and~~2022 were exercised, gross proceeds to us would be approximately ~~$496.3~~$162.3 million and we would as a result issue an additional ~~24,483,900~~8,239,320 shares of Common Stock. Any unexercised Warrants to purchase Common Stock of the Company (“Warrants”) will remain outstanding following the completion of the Mergers in accordance with their terms and will be entitled to receive $25.00 in cash less the exercise price for each Warrant for each underlying share 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.

Results of Operations

Certain financial highlights of our results of operations for ~~the~~ both three-month periods ended March 31, ~~2021~~2022 and ~~2020~~2021 were:

Three months ended March 31,
2021 2020 % change
Revenues (in thousands)
$ 115,700 $ 130,882 (11.6) %
Per share data:
Net income (loss) (1)
$ (0.73) $ (4.44) —
FFO (2)
$ 0.16 $ (3.42) —
Core FFO (2)
$ 0.25 $ 0.29 (13.8) %
AFFO (2)
$ 0.18 $ 0.47 (61.7) %
Dividends (3)
$ 0.175 $ 0.2625 (33.3) %



	Three months ended March 31,				% change
	2022		2021
Revenues (in thousands)	$	104,880	$	115,700	(9.4)	%
Per share data:
Net income (loss) (1)	$	(0.62)	$	(0.73)	—
FFO (2)	$	0.05	$	0.16	(68.8)	%
Core FFO (2)	$	0.19	$	0.25	(24.0)	%
AFFO (2)	$	0.15	$	0.18	(16.7)	%
Dividends (3)	$	0.175	$	0.175	—

(1) Per weighted average share of Common Stock outstanding for the periods indicated.

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

(3)Per share of Common Stock and Class A Unit outstanding.

Financial

•Our total revenues for the quarter ended March 31, ~~2021~~2022 decreased ~~11.6%~~approximately $10.8 million, or 9.4%, to ~~approximately $115.7~~$104.9 million from the quarter ended March 31, ~~2020,~~2021, due primarily ~~due~~ to the ~~sale on November 3, 2020~~absence of ~~our~~revenues from the eight ~~student housing~~office properties ~~as well as from lower interest revenue from our portfolio of~~and one real estate loan ~~investments.~~investment that we sold during the third and fourth quarters of 2021. The ~~student housing~~disposed office properties contributed approximately ~~$12.4~~$18.7 million, or ~~9.5% of our total revenues and interest revenue from our real estate loan investments contributed approximately $15.0 million, or 11.5%~~16.1% of our total revenues for the quarter ended March 31, ~~2020.~~2021.

•Our net loss per share was ~~$(0.73)~~$(0.62) and ~~$(4.44)~~$(0.73) for the three-month periods ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. Funds From Operations, or FFO, was ~~$0.16~~$0.05 and ~~$(3.42)~~$0.16 per weighted average share of Common Stock and Class A Unit outstanding for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~increase~~decline in FFO per share was driven by:

*•~~a reduction in charges related to~~Lower operating results following the ~~closing~~sale of ~~the Internalization Transaction in the first quarter 2020~~our office properties of

~~$3.79 per share;~~

*~~cost savings from Internalization of $0.02~~ $(0.17) per share;

*•~~a lower allowance for current expected credit losses~~Lower cash dividend requirements on our preferred stock of ~~$0.10~~$0.14 per share;

*•~~lower preferred stock dividends of $0.06 per share;~~

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

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

*~~lower interest revenue~~Lower revenues from our ~~smaller~~ real estate loan portfolio of ~~($0.06)~~$(0.10) per share;

*•Merger-related costs incurred of $(0.09) per share;

•Improved property operating performance, lower ~~revenues from earnest money forfeitures~~interest expense and other items of ~~($0.06)~~$0.06 per share; and

*•~~deemed~~Deemed dividends ~~from the call~~due to calls and cash redemptions of our preferred stock of ~~($0.03)~~$0.05 per share.

•Our Core FFO per share ~~(B)~~decreased to $0.19 for the first quarter 2022 from $0.25 for the first quarter 2021, ~~from $0.29 for the first quarter 2020, primarily~~ due to:

•~~a lower allowance for current expected credit losses~~Lower operating results following the sale of ~~$0.10~~our office properties of $(0.17) per share;

•~~lower~~Lower cash dividend requirements on our preferred stock ~~dividends~~ of ~~$0.06~~$0.14 per share;

•~~cost savings~~Lower revenues from ~~Internalization of $0.02 per share;~~

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

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

•~~lower amortization of purchase option termination fees of ($0.06)~~$(0.10) per share; and

•~~higher equity compensation~~Improved property operating performance, lower interest expense and ~~absence~~other items of ~~gain on land condemnation of ($0.02)~~$0.06 per share.

•Our AFFO per share decreased to $0.15 for the first quarter 2022, from $0.18 for the first quarter 2021, ~~from $0.47 for the first quarter 2020, primarily~~ due to the aforementioned decline in FFO from the sale of our student housing properties in the fourth quarter 2020, net of savings from preferred dividends and expenses related to the call of the preferred, as well as the following:to:

•~~a decrease in accrued interest collected~~Lower operating results following the sale of ~~($0.12)~~our office properties of $(0.17) per share;

•~~lower revenues from earnest money forfeitures~~Lower cash dividend requirements on our preferred stock of ~~($0.06)~~$0.14 per share;

•~~lower interest revenue~~Lower revenues from our ~~smaller~~ real estate loan portfolio of ~~($0.04)~~$(0.10) per share;

•Improved property operating performance, lower interest expense and other items of $0.06 per share; and

•~~higher~~Lower recurring capital expenditures of ~~($0.04)~~$0.03 per share.

•Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately ~~71.8%~~102.1% and our Core FFO payout ratio to our preferred stockholders was approximately ~~72.8%~~71.4% for the first quarter ~~2021.~~2022. (A)

•Our AFFO payout ratio to Common Stockholders and Unitholders was approximately ~~101.6%~~126.9% and our AFFO payout ratio to our preferred stockholders was approximately ~~79.1%~~75.6% for the first quarter ~~2021.~~

•As of March 31, 2021, our total assets were approximately $4.2 billion, a decrease from our total assets of approximately $4.8 billion at March 31, 2020, that primarily resulted from the sale of our student housing portfolio during the fourth quarter 2020 for approximately $478.7 million.

2022.

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

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

Operational

•Our rental rates for our multifamily same-store properties for new and renewal leases increased 16.6% and 11.9%, respectively, and 14.1% blended for first quarter 2022 as compared to the expiring leases, excluding shorter-term leases of two months or less.

•Our rental rates for our multifamily same-store properties for new and renewal leases increased 15.7% and 11.9%, respectively, and 13.7% blended for April 2022 as compared to the expiring leases, excluding shorter-term leases of two months or less.

•As of March 31, ~~2021,~~2022, the average age of our multifamily communities was ~~approximately 6.5~~approximately 6.6 years, ~~which~~which we believe is the youngest in the public multifamily REIT industry.

•As of March 31, ~~2021,~~2022, all of our owned multifamily communities had achieved stabilization except for ~~one fourth~~Lirio at Rafina, which was acquired during the first quarter ~~2020 acquisition.~~2022. 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 96.3% for the three-month period ended March 31, 2022 from 95.8% for the three-month period ended March 31, 2021 ~~increased to 95.8%~~but was unchanged from ~~95.6% and 95.7% for~~ the three-month ~~periods~~period ended ~~March 31, 2020 and~~ December 31, ~~2020, respectively.~~2021.

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

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

Financing and Capital Markets

•As of March 31, ~~2021,~~2022, approximately ~~97.4%~~98.3% of our permanent property-level mortgage debt ~~has~~had fixed interest rates and approximately ~~0.8% has~~0.9% had 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 ~~3.5%~~3.37% for

multifamily communities, ~~4.1%~~4.35% for our remaining office properties, ~~3.9%~~3.91% for grocery-anchored retail properties and ~~3.8%~~3.57% in the aggregate.

•During the first quarter 2022, we issued and sold an aggregate of 3,167 shares of Preferred Stock prior to February 10, 2022, when we ceased issuing new shares of preferred stock. We redeemed or called an aggregate of 21,189 shares of Preferred Stock, resulting in a net reduction of 18,022 outstanding shares of preferred stock, for a net cash outflow of approximately $17.7 million.

•During the first quarter 2022, warrants were exercised by the holders at a weighted average price of $19.68 per share and, as a result, we collected approximately $194.0 million from the issuance of an aggregate of 9,858,480 shares of Common Stock. We issued no shares of Common Stock under the 2019 ATM Offering during the first quarter 2022.

•At March 31, ~~2021,~~2022, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately ~~55.9%~~55.8%.

•At March 31, ~~2021,~~2022, we had ~~$160.0~~no outstanding balance and $200.0 million ~~available~~available to be drawn on our revolving line of ~~credit and approximately $32.3 million of cash.~~credit.

•~~During the first quarter 2021, we issued and sold an aggregate of 37,898~~Our outstanding shares of ~~Preferred Stock and redeemed an aggregate of 44,220 shares of Preferred Stock, resulting~~preferred stock have decreased since January 1, 2019, as summarized in ~~a net redemption of 6,322 shares of Preferred Stock, for a net redemption cost of $9.5 million.~~the following chart:


Shares of Preferred Stock
	2019	2020	2021	First Quarter 2022
Issued	552,938	228,788	122,297	3,167
Redeemed by holders	(68,512)	(164,286)	(100,946)	(21,189)
Called by PAC	—	(208,786)	(320,746)	—
Net increase (decrease)	484,426	(144,284)	(299,395)	(18,022)

Total outstanding at year end	2,136,257	1,991,973	1,692,578	1,674,556

Significant Transactions

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

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

~~Subsequent to Quarter End~~

•On ~~April 16, 2021,~~February 10, 2022, we ~~entered into a series of transactions with Highwoods Properties in order to dispose of seven of~~amended our ~~office properties and one office~~ real estate loan investment ~~for an aggregate purchase price~~supporting The Platform, a 551-unit multifamily community located in San Jose, California. The maturity date of ~~$717.5 million, including~~ the ~~assumption~~instrument was extended to August 13, 2022 and a second extension option of ~~debt.~~ December 31, 2022 was added. The all-in interest rate was reduced to 9.5% per annum beginning on the original maturity date of February 13, 2022 and increases in steps each three-month period up to 11.0% per annum on November 14, 2022. As of April 30, 2022, the property's physical occupancy was 92.6%.

•On ~~May 4, 2021,~~February 11, 2022, we ~~amended our revolving line~~closed on a real estate loan investment of ~~credit agreement~~up to ~~extend the maturity date to May 4, 2024 and, among other things, modified certain covenants, reduced certain rates and fees and prepared for LIBOR transitioning.~~approximately $16.7 million supporting a 286-unit multifamily community in Orlando, Florida.

•On ~~May 6, 2021,~~February 15, 2022, we refinanced our Chestnut Farm multifamily community with permanent mortgage financing in the amount of approximately $52.3 million, which bears interest at a rate of 3.25% and matures on March 1, 2032.

•As previously announced, on February 16, 2022, we entered into the Merger Agreement pursuant to which affiliates of BREIT will acquire all of our outstanding shares of Common Stock for $25.00 in cash. Upon consummation of the transactions contemplated by the Merger Agreement, the Company will cease to be a publicly-traded company on the New York Stock Exchange. The holders of each series of our shares of Preferred Stock will receive the $1,000 per share liquidation preference for each share plus accrued but unpaid dividends, if any, to and including the closing date of the Mergers. The Mergers are subject to customary closing conditions, including approval by the Company’s common stockholders at a special meeting to be held on June7, 2022. The Company can provide no assurances regarding whether the Mergers will close as expected during the second quarter of 2022, or at all. The board of directors ~~declared a quarterly dividend on our Common Stock~~ of ~~$0.175 per share, payable on July 15, 2021 to stockholders~~the Company has unanimously approved the Merger Agreement and has recommended approval of ~~record on June 15, 2021.~~the Mergers by the Company’s common stockholders.

•On February 25, 2022, we closed on the acquisition of Lirio at Rafina, a 280-unit multifamily community located in the Orlando, Florida MSA.

•On February 28, 2022, we closed on a real estate loan investment of up to approximately $17.2 million supporting a 242-unit multifamily community in Naples, Florida.

•On March 2, 2022, we closed on a 65% interest in a $65.0 million joint venture project to develop The Helmsman, a 262-unit multifamily community to be located in Wilmington, North Carolina. This transaction represents our entry into the multifamily development space.

•On March 31, 2022, we closed on a preferred equity investment of up to approximately $14.3 million supporting The Shoals, a 252-unit multifamily community in Greenville, South Carolina. The investment will pay a fixed return of 12.0% per annum and has a term of 42 months, with a one-year extension option.

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.

As of March 31, 2022, 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 upon

Purchase option window

Project/Property

Location

completion (1)

Begin

End

Multifamily communities:

Hudson at Metro West

Orlando, FL

320

S + 90 days (2)

S + 150 days (2)

Vintage Horizon West

Orlando, FL

340

(10)

(3)

Vintage Jones Franklin

Raleigh, NC

277

(3)

Solis Cumming Town Center

Atlanta, GA

320

(4)

Club Drive

Atlanta, GA

352

(5)

Populus at Pooler

Savannah, GA

316

(6)

Menlo II

Jacksonville, FL

337

(7)

Beaver Ruin

Atlanta, GA

246

S + 90 days (8)

S + 150 days (8)

One Nexton

Charleston, SC

351

(9)

Prado

Orlando, FL

286

S + 90 days

S + 180 days

Altis

Naples, FL

242

S + 90 days (2)

S + 150 days (2)

The Shoals

Greenville, SC

252

(4)

3,639

(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 window 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 window 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.

(7) The option period window begins either by notice from the seller upon the property's achievement of a 70% occupancy threshold or by notice from the purchaser upon the property's achievement of a 93% occupancy threshold and expires 90 days beyond the option period beginning date. If we are unable to reach an agreement on the property's market value, we have a right of first offer.

(8) The option period window begins and ends at the number of days indicated beyond the achievement of an 85% occupancy threshold by the underlying property. If we are unable to reach an agreement on the property's market value, we have a right of first offer.

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

(10) The purchase option was voided in conjunction with the repayment of the loan on April 12, 2022.

Three-month periods ended March 31, 2022 compared to 2021

The following discussion and tabular presentations highlight the major drivers behind the line item changes in our results of operations for both three-month periods ended March 31, 2022 versus 2021:


Preferred Apartment Communities, Inc.	Three-month periods ended March 31,				Change inc (dec)
(in thousands)	2022		2021		Amount		Percentage
Revenues:
Rental and other property revenues	$	97,902	$	104,459	$	(6,557)	(6.3)	%
Interest income on loans and notes receivable	6,583		10,512		(3,929)		(37.4)	%
Interest income from related parties	197		405		(208)		(51.4)	%
Miscellaneous revenues	198		324		(126)		(38.9)	%
Total revenues	104,880		115,700		(10,820)		(9.4)	%
Operating expenses:
Property operating and maintenance	14,863		15,249		(386)		(2.5)	%
Property salary and benefits	4,655		4,821		(166)		(3.4)	%
Property management costs	792		1,105		(313)		(28.3)	%
Real estate taxes and insurance	15,806		16,140		(334)		(2.1)	%
General and administrative	7,842		7,539		303		4.0	%
Merger-related costs	4,913		—		4,913		—
Equity compensation to directors and executives	1,223		574		649		113.1	%
Depreciation and amortization	38,161		45,827		(7,666)		(16.7)	%
Allowance for expected credit losses	572		522		50		9.6	%
Management internalization expense	244		245		(1)		(0.4)	%
Total operating expenses	89,071		92,022		(2,951)		(3.2)	%

Operating income before gains on sales of real estate and loss from unconsolidated joint venture	15,809		23,678		(7,869)		(33.2)	%
Loss from unconsolidated joint venture	(108)		(194)		86		—
Gains from sales of real estate	—		798		(798)		—
Operating income	15,701		24,282		(8,581)		(35.3)	%
Interest expense	23,160		26,991		(3,831)		(14.2)	%
Loss on extinguishment of debt	(363)		—		(363)		—
Loss on sale of land	(22)		—		(22)		—
Net loss	(7,844)		(2,709)		(5,135)		—
Consolidated net loss attributable to non-controlling interests	30		62		(32)		(51.6)	%
Net loss attributable to the Company	$	(7,814)	$	(2,647)	$	(5,167)	—

New Market Properties, LLC

Our New Market Properties, LLC business consists of our portfolio of grocery-anchored shopping centers. Comparative statements of operations of New Market Properties, LLC for both three-month periods ended March, ~~31,~~2022 versus 2021 ~~potential property acquisitions and units from projects in our real estate loan investment portfolio consisted of:~~are presented below. These statements of operations exclude certain allocations of corporate overhead or other expenses.

Total units upon Purchase option window
Project/Property Location
completion (1)
Begin End
Multifamily communities:
V & Three Charlotte, NC 338
S + 90 days (2)
S + 150 days (2)
The Anson Nashville, TN 301
S + 90 days (2)
S + 150 days (2)
Southpoint Fredericksburg, VA 240
S + 90 days (2)
S + 150 days (2)
Vintage Destin Destin, FL 282 (3) (3)
Hidden River II Tampa, FL 204
S + 90 days (2)
S + 150 days (2)
Cameron Square Alexandria, VA 302 (4) (4)
Kennesaw Crossing Atlanta, GA 250 (4) (4)
Vintage Horizon West Orlando, FL 340 (3) (3)
Solis Chestnut Farm Charlotte, NC 256 (4) (4)
Vintage Jones Franklin Raleigh, NC 277 (3) (3)
Solis Cumming Town Center Atlanta, GA 320 (4) (4)
Hudson at Metro West Orlando, FL 320
S + 90 days (2)
S + 150 days (2)
Club Drive Atlanta, GA 352 (5) (5)
Office property:
8West Atlanta, GA — (6) (6)
3,782
(1) We evaluate each project individually and we make no assurance that we will acquire any of the underlying properties from our real estate loan investment portfolio.
(2) The option period window begins and ends at the number of days indicated beyond the achievement of a 93% physical occupancy rate by the underlying property.
(3) The option period window begins on the later of one year following receipt of final certificate of occupancy or 90 days beyond the achievement of a 93% physical occupancy rate by the underlying property and ends 60 days beyond the option period beginning date.
(4) We hold a right of first offer on the property.
(5) The underlying loan is a land acquisition bridge loan that is anticipated to be converted to a real estate loan investment in the future with a purchase option or right of first offer.
(6) The real estate loan investment supporting the 8West office building and seven of our office properties are under contract to be sold pursuant to a purchase and sale agreement to Highwoods Properties, an unrelated party, as of April 16, 2021.


New Market Properties, LLC	Three-month periods ended March 31,				Change inc (dec)
(in thousands)	2022		2021		Amount		Percentage
Revenues:
Rental revenues & other property revenues	$	27,559	$	26,967	$	592	2.2	%
Operating expenses:
Property operating and maintenance	3,910		3,468		442		12.7	%
Property management fees	644		659		(15)		(2.3)	%
Real estate taxes and insurance	4,066		4,244		(178)		(4.2)	%
General and administrative	1,076		905		171		18.9	%
Equity compensation to directors and executives	87		30		57		190.0	%
Depreciation and amortization	10,769		11,761		(992)		(8.4)	%
Total operating expenses	20,552		21,067		(515)		(2.4)	%

Operating income before gain on sale of real estate and loss from unconsolidated joint venture	7,007		5,900		1,107		18.8	%
Loss from unconsolidated joint venture	(108)		(194)		86		—
Operating income	6,899		5,706		1,193		20.9	%

Interest expense	6,165		6,444		(279)		(4.3)	%
Loss on sale of land	(22)		—		(22)		—
Net income (loss)	712		(738)		1,450		(196.5)	%

Consolidated net income (loss) attributable to non-controlling interests	58		(23)		81		—
Net income (loss) attributable to New Market Properties, LLC	$	654	$	(715)	$	1,369	—

Three-month periods ended March 31, ~~2021~~2022 compared to ~~2020~~2021

The following discussion and tabular presentations highlight the major drivers behind the line item changes in our results of operations for ~~the~~both three-month periods ended March 31, ~~2021~~2022 versus ~~2020:~~

Preferred Apartment Communities, Inc. Three-month periods ended March 31, Change inc (dec)
(in thousands) 2021 2020 Amount Percentage
Revenues:
Rental and other property revenues $ 104,459 $ 111,866 $ (7,407) (6.6) %
Interest income on loans and notes receivable 10,512 13,439 (2,927) (21.8) %
Interest income from related parties 405 2,537 (2,132) (84.0) %
Miscellaneous revenues 324 3,040 (2,716) (89.3) %
Total revenues 115,700 130,882 (15,182) (11.6) %
Operating expenses:
Property operating and maintenance 15,249 16,846 (1,597) (9.5) %
Property salary and benefits 4,821 5,191 (370) (7.1) %
Property management costs 1,105 2,003 (898) (44.8) %
Real estate taxes and insurance 16,140 15,675 465 3.0 %
General and administrative 7,539 5,948 1,591 26.7 %
Equity compensation to directors and executives 574 230 344 149.6 %
Depreciation and amortization 45,827 49,509 (3,682) (7.4) %
Asset management and general and administrative expense fees to related party — 3,099 (3,099) —
Allowance for expected credit losses 522 5,133 (4,611) (89.8) %
Management internalization expense 245 178,793 (178,548) (99.9) %
Total operating expenses 92,022 282,427 (190,405) (67.4) %
Waived asset management and general and administrative expense fees — (1,136) 1,136 —
Net operating expenses 92,022 281,291 (189,269) (67.3) %
Operating income (loss) before loss from unconsolidated joint venture and gain on sale of real estate 23,678 (150,409) 174,087 (115.7) %
Loss from unconsolidated joint venture (194) — (194) —
Gain on sale of real estate, net 798 — 798 —
Operating income (loss) 24,282 (150,409) 174,691 —
Interest expense 26,991 29,593 (2,602) (8.8) %
Gain on land condemnation — 479 (479) —
Net loss (2,709) (179,523) 176,814 —
Consolidated net loss attributable to non-controlling interests 62 3,141 (3,079) (98.0) %
Net loss attributable to the Company $ (2,647) $ (176,382) $ 173,735 —

2021.

Recent real estate transactions

Our dispositions (net of acquisitions) of real estate assets since June 30, 2021 were generally the primary drivers behind our changes in rental and property revenues, property operating and maintenance, property salary and benefits, property management costs, and real estate tax expenses for both three-month periodsended March 31, 2022 and 2021, as listed below. Depreciation and amortization expense likewise tracks along with our rate of property acquisitions, particularly due to shorter-term intangible assets that arise with acquisitions of multifamily communities.

Real estate assets acquired

Acquisition date

Property

Location

Units

Multifamily Communities:

6/30/2021

The Ellison

Atlanta, GA

250

7/8/2021

Alleia at Presidio

Ft. Worth, TX

231

9/14/2021

The Anson

Nashville, TN

301

9/16/2021

The Kingson

Fredericksburg, VA

240

9/17/2021

Chestnut Farm

Charlotte, NC

256

2/25/2022

Lirio at Rafina

Orlando, FL

280

1,558

Real estate assets sold

Disposition date

Property

Location

Units

Multifamily communities:

7/19/2021

Vineyards

Houston, TX

369

Office properties:

Leasable square feet

7/29/2021

Galleria 75

Atlanta, GA

111,000

7/29/2021

150 Fayetteville

Raleigh, NC

560,000

7/29/2021

Capitol Towers

Charlotte, NC

479,000

7/29/2021

CAPTRUST Tower

Raleigh, NC

300,000

7/29/2021

Morrocroft Centre

Charlotte, NC

291,000

9/8/2021

Armour Yards Portfolio

Atlanta, GA

222,000

11/12/2021

Brookwood Center

Birmingham, AL

169,000

2,132,000

The sale of eight of our office buildings during the third and fourth quarters of 2021 represented the commencement of our strategic decision to exit the office property segment of our business.

~~New Market Properties, LLC~~The amounts of real estate assets acquired and disposed of by our operating segment since June 30, 2021 and through March 31, 2022 were:

~~Our New Market Properties, LLC business consists of our portfolio of grocery-anchored shopping centers~~


Real estate assets (in thousands)

Purchased:
	Multifamily communities	$	427,276
Sold:
	Multifamily communities	$	(41,233)
	Office buildings	(465,886)
	Retail (1)	(432)
	Total	$	(507,551)
(1) On March 17, 2022, our Royal Lakes property sold an outparcel to a third party.

We also collect revenue from residents and ~~our Dawson Marketplace real estate loan supporting a shopping center~~tenants for items such as utilities, application fees, lease termination fees, common area maintenance reimbursements and late charges. The changes in ~~the Atlanta, Georgia market. Comparative statements of operations of New Market Properties, LLC~~these other property revenues for ~~the~~both three-month periods ended March 31, 2022 versus 2021 ~~versus 2020 are presented below. These statements of operations include no allocations of corporate overhead or other expenses.~~

New Market Properties, LLC Three-month periods ended March 31, Change inc (dec)
(in thousands) 2021 2020 Amount Percentage
Revenues:
Rental revenues & other property revenues $ 26,967 $ 27,838 $ (871) (3.1) %
Interest income on notes receivable — 164 (164) —
Total revenues 26,967 28,002 (1,035) (3.7) %
Operating expenses:
Property operating and maintenance 3,468 3,324 144 4.3 %
Property management fees 659 787 (128) (16.3) %
Real estate taxes and insurance 4,244 4,071 173 4.2 %
General and administrative 905 742 163 22.0 %
Equity compensation to directors and executives 30 13 17 130.8 %
Depreciation and amortization 11,761 13,414 (1,653) (12.3) %
Asset management and general and administrative expense fees to related parties — 720 (720) —
Total operating expenses 21,067 23,071 (2,004) (8.7) %
Waived asset management and general and administrative expense fees — (17) 17 —
Net operating expenses 21,067 23,054 (1,987) (8.6) %
Operating income before gain on sale of real estate and loss from unconsolidated joint venture 5,900 4,948 952 19.2 %
Loss from unconsolidated joint venture (194) — (194) —
Operating income 5,706 4,948 758 15.3 %
Interest expense 6,444 6,750 (306) (4.5) %
Gain on land condemnation — 479 (479) —
Net income (loss) (738) (1,323) 585 (44.2) %
Consolidated net loss (income) attributable to non-controlling interests (23) (31) 8 —
Net income (loss) attributable to the Company $ (715) $ (1,292) $ 577 —

~~Recent acquisitions~~

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

~~Real estate assets acquired~~

Acquisition date Property Location Units Leasable square feet
Residential Properties:
3/31/2020 Horizon at Wiregrass Tampa, FL 392 —
4/30/2020 Parkside at the Beach Panama City Beach, FL 288 —
11/2/2020 The Blake Orlando, FL 281 —
12/15/2020 The Menlo Jacksonville, FL 332 —
New Market Properties:
1/29/2020 Wakefield Crossing Raleigh, NC — 75,927
3/19/2020 Midway Market Dallas, TX — 85,599
1,293 161,526

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

~~Real estate assets sold~~

Disposition date Property Location Units Beds
Student housing properties:
11/3/2020 North by Northwest Tallahassee, FL 219 679
11/3/2020
SoL
Tempe, AZ 224 639
11/3/2020 Stadium Village Atlanta, GA 198 792
11/3/2020 Ursa Waco, TX 250 840
11/3/2020 The Tradition College Station, TX 427 808
11/3/2020 Knightshade Orlando, FL 221 894
11/3/2020 The Bloc Lubbock, TX 140 556
11/3/2020 Rush Charlotte, NC 332 887
Multifamily community:
11/12/2020 Avenues at Creekside San Antonio, TX 395 —

~~Rental and other property revenues~~

~~Rental and other property revenues decreased 6.6% for the three-month period ended March 31, 2021 versus 2020,~~ primarily due to the ~~sale of our student housing properties in the fourth quarter 2020.~~ net dispositions listed above.

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.

Real estate loan investments

~~Interest income~~

Interest income from our real estate loan investments decreased ~~31.7%~~for the three-month period ended March 31, 2022 versus 2021 largely due to the decreases in the principal amounts outstanding as shown below:


	Drawn amount of real estate loan and preferred equity investments

	Three-month periods ended March 31,
(in thousands)	2022		2021
Beginning balance	$	206,270	$	290,156
Fundings	14,287		19,657
Repayments and loan sales	—		(17,925)
Ending balance	$	220,557	$	291,888

Revenues from the amortization of terminated purchase options were $1.2 million for the three-month period ended March 31, 2021 ~~versus 2020. The principal amount outstanding~~and are included in the line entitled interest income on loans and notes receivable on our ~~portfolio~~consolidated statements of real estate loan investments decreased to approximately $291.9 million at March 31, 2021 from $310.3 million at March 31, 2020. Revenues from the amortization of terminated purchase options decreased from $4.0 millionoperations. There was no such revenue for the three-month period ended March 31, ~~2020 to $1.2 million for the three-~~2022 and as of March 31, 2022, we had no unrecognized purchase option termination revenue.

~~month period ended March 31, 2021.~~ We recorded interest income and other revenue from these instruments as presented in Note 4 to ~~our~~the Company's Consolidated Financial Statements.

~~Miscellaneous revenues~~

We recognized a forfeited earnest money deposit of $2.75 million from a prospective purchaser of six of our student housing properties during the first quarter 2020. The absence of this transaction in the first quarter 2021 reflected the decrease.

~~Property operating and maintenance~~

~~Property operating and maintenance costs~~ decreased 9.5% for the three-month period ended March 31, 2021 versus 2020, primarily due to the sale of our student housing properties in the fourth quarter 2020. The primary components of operating and maintenance expense are utilities, property repairs, and landscaping costs. The expenses incurred for property repairs and, to a lesser extent, utilities could generally be expected to increase gradually over time as the buildings and properties age. Utility costs may generally be expected to increase in future periods as rate increases from providing carriers are passed on to our residents and tenants.

~~Property salary and benefits~~

~~Property salary and benefits decreased 7.1% for the three-month period ended March 31, 2021 versus 2020, primarily due to the sale of our student housing properties in the fourth quarter 2020.~~ We recorded property salary and benefits expense for individuals who handle the on-site management, operations and maintenance of our properties. These costs increased primarily due to the incremental costs brought on by additional personnel necessary to manage and operate properties acquired.

~~Property management costs~~

We paid fees for property management services to our Former Manager in an amount of 4% of gross property revenues as compensation for services such as rental, leasing, operation and management of our multifamily communities and the supervision of any subcontractors; for grocery-anchored shopping center assets, property management costs 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 costs for office building assets are 1.25% to 2.00% and are paid to a third party property management company. All property management costs paid to our Former Manager ceased effective with our Internalization on January 31, 2020.

~~Real estate taxes and insurance~~

~~We are liable for property taxes due to the various counties and municipalities that levy such taxes on real property for each of our prope~~rties. Real estate taxes rose primarily due to increased exposure from property tax judgements that are currently in litigation or under appeal and from increased insurance costs related to adjustments for replacement cost underwriting results. We generally expect the assessed values of our properties to rise over time, owing to our expectation of improving market conditions, as well as pressure on municipalities to raise revenues. Insurance premiums are paid to insure against damages to our real estate assets and for liability claims.

4846

~~General and Administrative~~

The 26.7% increase in general and administrative expenses for the three-month period ended March 31, 2021 versus 2020 was primarily due to charges for corporate salaries and administrative expenses that are borne by us following the Internalization.

~~Equity compensation to directors and executives~~

Equity compensation expenses increased 149.6% for the three-month period ended March 31, 2021 versus 2020, primarily due to issuances of restricted stock and restricted stock units since March 31, 2020. These instruments have a collective fair value of approximately $11.7 million, that will be amortized as described in note 8 to our Consolidated Financial Statements.

~~Asset management fees and general and administrative fees to related party~~

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

~~Allowance for expected credit losses~~

The 89.8% decrease in our allowance for expected credit losses for the three-month period ended March 31, 2021 versus 2020 was primarily due to loss reserve increases during the first quarter 2020 that totaled approximately $4.5 million in response to the initial outbreak and spread of the COVID-19 pandemic. Reserve adjustments for the first quarter 2021 were not affected by any similar event and totaled approximately $0.5 million.

~~Management Internalization expense~~

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

~~Interest expense~~

~~The 8.8% decrease in interest expense for the three-month period ended March 31, 2021 versus 2020 was primarily due to the sale in the fourth quarter 2020 of our student housing properties.~~

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

Pending Acquisition by BREIT, Inc.

As previously announced, on February 16, 2022, we entered into the Merger Agreement pursuant to which affiliates of BREIT will acquire all of our outstanding shares of Common Stock for $25.00 per share in cash. Following the announcement of this event, the market price of our Common Stock on the New York Stock Exchange rose to an amount that exceeded the exercise prices of all of our outstanding Warrants, and as a result, we issued 9,858,480 shares of Common Stock during the first quarter 2022 from exercises of Warrants. At March 31, 2022, we had 411,966 remaining Warrants outstanding, representing the potential issuance of an additional 8,239,320 shares of Common Stock.

In connection with the anticipated closing of the transactions contemplated by the Merger Agreement, we have incurred approximately $5.3 million of corporate governance and Merger-related costs in the first quarter 2022, which consists primarily of advisory and other professional fees.

Definitions of Non-GAAP Measures

We disclose FFO, Core FFO and AFFO, each of which ~~meet~~meets 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 and AFFO should be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, and we believe that to understand our performance further FFO, Core FFO and AFFO should be compared with our reported net income or net loss and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements. FFO, Core FFO and AFFO are not considered measures of liquidity and are not alternatives to measures calculated under GAAP.

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

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

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

Net income/loss, excluding:

•depreciation and amortization related to real estate;

•gains and losses from the sale of certain real estate assets;

•gains and losses from change in ~~control,~~control; and

•impairment writedowns of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

Not all companies necessarily utilize the standardized NAREIT definition of FFO, so caution should be taken in comparing ~~the Company’s~~our reported FFO results to those of other companies. ~~The Company’s~~Our 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~~We make adjustments to FFO to remove costs incurred and revenues recorded that are singular in nature and outside ~~the~~our normal operations ~~of the Company~~ and portray ~~its~~our primary operational results. ~~The Company calculates~~We calculate Core FFO as:

FFO, plus:

• acquisition and pursuit (dead deal) costs;

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

• losses on debt extinguishments or refinancing costs;

• ~~internalization~~Internalization costs;

• Corporate governance and Merger-related costs;

• expenses incurred on calls of preferred stock;

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

• 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~~our 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~~We calculate AFFO as:

Core FFO, plus:

• non-cash equity compensation to directors and executives;

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

• amortization of loan closing costs;

~~• weather-related property operating losses;~~

• depreciation and amortization of non-real estate assets;

• net loan origination fees received;

• deferred interest income received;

• amortization of lease inducements;

• cash received in excess of (exceeded by) amortization of purchase option termination revenues;

• non-cash dividends on ~~Series M~~Series M1 Preferred Stock ~~and~~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;

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

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

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


Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO	Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO						Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO
to Net (Loss) Income Attributable to Common Stockholders ~~(A)~~
			Three months ended March 31,						Three months ended March 31,
(In thousands, except per-share figures)	(In thousands, except per-share figures)		2021		2020		(In thousands, except per-share figures)		2022		2021

Net loss attributable to common stockholders (See note 1)	Net loss attributable to common stockholders (See note 1)		$	(36,609)	$	(209,452)	Net loss attributable to common stockholders (See note 1)		$	(34,984)	$	(36,609)

Add:	Add:	Depreciation of real estate assets	36,832		39,775		Add:	Depreciation of real estate assets	32,274		36,832
		Amortization of acquired intangible assets and deferred leasing costs	8,710		8,982			Amortization of acquired intangible assets and deferred leasing costs	5,620		8,710
		Gain on sale of real estate	(798)		—			Net loss attributable to Class A Unitholders (See note 2)	(64)		(33)
		Net loss attributable to Class A Unitholders (See note 2)	(33)		(3,094)			Gain on sale of real estate	—		(798)
FFO attributable to common stockholders and unitholders			8,102		(163,789)
FFO attributable to common stockholders and Unitholders							FFO attributable to common stockholders and Unitholders		2,846		8,102

		Acquisition and pursuit costs	4		246			Acquisition and pursuit costs	100		4
		Loan cost amortization on acquisition term notes and loan coordination fees (See note 3)	424		678			Loan cost amortization on acquisition line of credit and loan coordination fees (See note 3)	301		424
		Internalization costs (See note 4)	245		178,793			Payment of costs related to property refinancing	363		—
		Deemed dividends for redemptions of and non-cash dividends on preferred stock	3,827		544			Internalization costs (See note 4)	244		245
		Expenses related to the COVID-19 global pandemic (See note 5)	54		29			Corporate governance and merger-related costs	5,291		—
		Earnest money forfeited by prospective asset purchaser	—		(2,750)			Deemed dividends for redemptions of and non-cash dividends on preferred stock, plus
Core FFO attributable to common stockholders and unitholders (A)			12,656		13,751
								expenses incurred on calls of preferred stock (See note 5)	1,682		3,827
								Expenses related to the COVID-19 global pandemic	—		54
Core FFO attributable to common stockholders and Unitholders							Core FFO attributable to common stockholders and Unitholders		10,827		12,656

Add:	Add:	Non-cash equity compensation to directors and executives	574		230		Add:	Non-cash equity compensation to directors and executives	1,223		574
		Noncash (income) expense for current expected credit losses (See note 6)	117		4,530			Non-cash income for current expected credit losses (See note 12)	240		117
		Amortization of loan closing costs (See note 7)	1,212		1,166			Amortization of loan closing costs (See note 6)	1,294		1,212
		Depreciation/amortization of non-real estate assets	444		556			Depreciation/amortization of non-real estate assets	451		444
		Net loan origination fees received (See note 8)	817		267			Net loan origination fees received (See note 7)	683		817
		Deferred interest income received (See note 9)	2,917		8,277			Deferred interest income received (See note 8)	—		2,917
		Amortization of lease inducements (See note 10)	448		439			Amortization of lease inducements (See note 9)	447		448
		Earnest money forfeited by prospective asset purchaser	—		2,750			Cash received in excess of (exceeded by) amortization of purchase option termination revenues (See note 10)	—		250
Less:	Less:	Cash received in excess of amortization of purchase option termination revenues (See note 11)	250		760		Less:	Non-cash loan interest income (See note 11)	(2,027)		(2,874)
		Non-cash loan interest income (See note 9)	(2,874)		(3,019)			Cash paid for loan closing costs	—		(10)
		Cash paid for loan closing costs	(10)		—			Amortization of acquired real estate intangible liabilities and straight-line rent adjustments (See note 13)	(1,604)		(3,315)
		Amortization of acquired real estate intangible liabilities and SLR (See note 12)	(3,315)		(4,653)			Amortization of deferred revenues (See note 14)	(940)		(940)
		Amortization of deferred revenues (See note 13)	(940)		(940)			Normally recurring capital expenditures (See note 15)	(1,883)		(3,353)
		Normally recurring capital expenditures (See note 14)	(3,353)		(1,418)

AFFO attributable to common stockholders and Unitholders	AFFO attributable to common stockholders and Unitholders		$	8,943	$	22,696	AFFO attributable to common stockholders and Unitholders		$	8,711	$	8,943

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	$	8,991	$	12,491		Common Stock dividends	$	10,976	$	8,991
		Distributions to Unitholders (See note 2)	96		203			Distributions to Unitholders (See note 2)	82		96
		Total	$	9,087	$	12,694		Total	$	11,058	$	9,087

Common Stock dividends and Unitholder distributions per share	Common Stock dividends and Unitholder distributions per share		$	0.1750	$	0.2625	Common Stock dividends and Unitholder distributions per share		$	0.175	$	0.175

FFO per weighted average basic share of Common Stock and Unit outstanding	FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.16	$	(3.42)	FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.05	$	0.16
Core FFO per weighted average basic share of Common Stock and Unit outstanding	Core FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.25	$	0.29	Core FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.19	$	0.25
AFFO per weighted average basic share of Common Stock and Unit outstanding	AFFO per weighted average basic share of Common Stock and Unit outstanding		$	0.18	$	0.47	AFFO per weighted average basic share of Common Stock and Unit outstanding		$	0.15	$	0.18

Weighted average shares of Common Stock and Units outstanding:	Weighted average shares of Common Stock and Units outstanding:						Weighted average shares of Common Stock and Units outstanding:
		Basic:						Basic:
		Common Stock	50,033		47,129			Common Stock	56,255		50,033
		Class A Units	610		827			Class A Units	468		610
		Common Stock and Class A Units	50,643		47,956			Common Stock and Class A Units	56,723		50,643

		Diluted Common Stock and Class A Units (See note 15)	50,971		47,957			Diluted Common Stock and Class A Units (See note 16)	62,457		50,971
Actual shares of Common Stock outstanding, including 782 and 809 unvested shares							Actual shares of Common Stock outstanding, including 782 and 809 unvested shares
of restricted Common Stock at March 31, 2022 and 2021, respectively.							of restricted Common Stock at March 31, 2022 and 2021, respectively.		63,711		50,904
Actual Class A Units outstanding at March 31, 2022 and 2021, respectively.							Actual Class A Units outstanding at March 31, 2022 and 2021, respectively.		526		548
								Total	64,237		51,452
Actual shares of Common Stock outstanding, including 809 and 7 unvested shares
of restricted Common Stock at March 31, 2021 and 2020, respectively.			50,904		47,585
Actual Class A Units outstanding at March 31, 2021 and 2020, respectively.			548		775
		Total	51,452		48,360

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

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

5249

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

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

1)Rental and other property revenues and property operating expenses for the ~~three-months~~three months ended March 31, ~~2021~~2022 include activity for the properties acquired since March 31, 2020. Rental and other property revenues and expenses for the three-months ended March 31, 2020 include activity for the acquisitions made during that period only from their respective dates of acquisition.2021.

2)Non-controlling interests in our Operating Partnership consisted of a total ~~of 548,369~~of 526,128 Class A Units as of March 31, ~~2021.~~2022. 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~~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 0.83% and 1.20% ~~and 1.72%~~ for ~~the~~both three-month periods ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

3) We paid loan coordination fees to ~~our Former Manager~~Preferred Apartment Advisors, LLC (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 March 31, ~~2021,~~2022, aggregate unamortized loan coordination fees were approximately ~~$11.3~~$7.4 million, which will be amortized over a weighted average remaining loan life of approximately ~~10.3~~10.1 years.

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

5) This additive adjustment removes the effect of deemed dividends that arise from cash calls and redemptions of preferred stock. For shares of preferred stock 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 ~~FFO consists~~the carrying value of ~~non-recurring costs for signage, cleaning and supplies necessary~~the share on the Company’s consolidated balance sheets. Also included in this adjustment is the adding back of expenses incurred related 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 calculationeffecting calls of ~~Core FFO.~~preferred stock.

6) Effective January 1, 2020, we adopted ASU 2016-03, which requires us to estimate the amount of future credit losses we expect to incur over the lives of our real estate loan investments at the inception of each loan. This loss reserve may be adjusted upward or downward over the lives of our loans and therefore the aggregate net adjustment for each period could be positive (removing the non-cash effect of a net increase in aggregate loss reserves) or negative (removing the non-cash effect of a net decrease in aggregate loss reserves) in these adjustments to FFO in calculating Core FFO~~. More information on our expected credit loss reserves may be found in note 4 of our consolidated financial statements.~~

7) We incur loan closing costs on our existing mortgage loans, which are secured on a property-by-property basis by each of our acquired real estate assets, and also for occasional amendments to our syndicated revolving line of credit with Key Bank National Association, or our Revolving Line of Credit. These loan closing costs are also amortized over the lives of the respective loans and the Revolving Line of Credit, and this non-cash amortization expense is an addition to FFO in the calculation of AFFO. Neither we nor the Operating Partnership ~~have~~has any recourse liability in connection with any of the mortgage loans, nor do we have any ~~cross-collateralization~~cross-collateralization arrangements with respect to the assets securing the mortgage loans, other than security interests in 49% of the equity interests of the subsidiaries owning such assets, granted in connection with our Revolving Line of Credit, which provides for full recourse liability. At March 31, ~~2021,~~2022, unamortized loan costs on all the Company's indebtedness were approximately ~~$30.0~~$28.8 million, which will be amortized over a weighted average remaining loan life of approximately ~~8.9~~7.8 years.

8)7) 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 to Core FFO in ~~the~~our calculation of AFFO. ~~Correspondingly, the amortized non-cash income is a deduction in the calculation of AFFO.~~

8) 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~~Once received from ~~Core FFO in our calculation of AFFO. The~~the borrower, the amount of additional accrued interest becomes an additive adjustment to Core FFO ~~once received from the borrower (see note 10).~~

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

~~10)~~9) This adjustment removes the non-cash amortization of costs incurred to induce tenants to lease space in our office buildings and grocery-anchored shopping centers.

~~11)~~10) 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.

11) Loan origination fees (described in note 7 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 8 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.

12) 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 Core FFO in calculating AFFO.

13) This adjustment reflects straight-line rent adjustments and the reversal of the non-cash amortization of below-market and above-market lease intangibles, which were recognized in conjunction with our acquisitions and which are amortized over the estimated average remaining lease terms from thethe acquisition date for multifamily communities and over the remaining lease terms for grocery-anchored shopping center assets and office buildings. At March 31, ~~2021,~~2022, the balance of unamortized below-market lease intangibles was approximately ~~$49.9~~$32.9 million, which will be recognized over a weighted average remaining lease period of approximately ~~8.6~~8.2 years.

~~13)~~14) This adjustment removes the non-cash amortization of deferred revenue recorded by us in conjunction with Company-owned lessee-funded tenant improvements in our office buildings.

~~14)~~15) We deduct from Core FFO normally recurring capital expenditures that are necessary to maintain our assets’ revenue streams in the calculation of AFFO. This adjustment also deducts from Core FFO capitalized amounts for third party costs during the period to originate or renew leases in our grocery-anchored shopping centers and office buildings. This adjustment includes approximately ~~$18,000~~ $41,000 of recurring capitalized expenditures incurred at our corporate offices during the ~~three-months~~three-month period ended March 31, ~~2021.~~2022. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures. See Capital Expenditures, Grocery-Anchored Shopping Center Portfolio, and Office Building Portfolio sections for definitions of these terms.

~~15)~~16) Since our AFFO results are positive for the periods reflected, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock and restricted stock units. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.

Liquidity and Capital Resources

Short-Term Liquidity

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

•operating expenses directly related to our portfolio of multifamily communities, 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);~~expenses;

•capital expenditures incurred to lease our multifamily communities, grocery-anchored shopping centers and office properties;

•interest ~~expense~~and 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; and

•committed investments.

We have a credit facility, or Credit Facility, with KeyBank National Association, or KeyBank, which defines a revolving line of credit, or Revolving Line of Credit, which is used to fund investments, capital expenditures, dividends (with consent of KeyBank), working capital and other general corporate purposes on an as needed basis. On March 23, 2018, the maximum borrowing capacity on the Revolving Line of Credit was increased to $200 million pursuant to an accordion feature. The accordion feature permits the maximum borrowing capacity tobasi ~~be expanded or contracted without amending any further terms of the instrument.~~s. On May 4, 2021, Operations and PAC-OP, (collectively, the “Borrowers”) and the Company entered into Amendment No. 3 to the Fourth Amended and Restated Credit ~~Agreement,~~Agreement, or ~~the~~our Amended and Restated Credit Agreement, ~~was amended to extend~~which (i) extended the maturity date for the Revolving Facility to May 4, 2024, with an option to extend the maturity date to May 4, 2025, ~~subject to~~(ii) added Operations as a borrower and (iii) modified certain ~~conditions described therein.~~of the financial covenants. As of March 31, 2022, there was no outstanding balance on the Revolving Facility. The Revolving Line of Credit accrues interest at a variable rate of ~~one month~~KeyBank'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 ~~margin~~margin of ~~2.50%~~1.50% to 3.50% per annum, depending upon our leverage ratio. The weighted average interest rate for the Revolving Line of Credit was ~~3.63%~~3.15% for the three months ended March 31, ~~2021.~~2022. The Amended and Restated Credit Agreement also reduced the commitment fee on the average daily unused portion of the Revolving Line of Credit to 0.20% or 0.25% per annum, depending upon our outstanding Credit Facility balance. At March 31, ~~2021,~~2022, we had ~~$160.0~~$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 March 31, ~~2021,~~2022, we were in compliance with all covenants related to the Fourth Amended and Restated Credit Agreement, as amended. Our results with respect to such compliance are presented in Note 9 to ~~the Company's~~our 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 iswas to finance our acquisitions of multifamily communities prior to obtaining permanent conventional mortgage financing on the acquired assets. The maximum borrowing capacity on the Acquisition Facility was

reduced by agreement with KeyBank to $90 million on March 25, 2019. ~~The Acquisition Facility accrues interest at a variable rate of one month LIBOR plus a margin of between 1.75% per annum and 2.20% per annum, depending~~It matured on ~~the type of assets acquired and the resulting property debt service coverage ratio. The Acquisition~~ ~~Facility has a maturity date of~~ March 1, 2022 and ~~has two one-year extension options, subject to certain conditions described therein. At March 31, 2021, we had $90.0 million available to be drawn by us on the Acquisition Facility.~~was not renewed.

Our net cash provided by operating activities was approximately $28.2 million and $48.4 million for ~~the~~both three-month ~~period~~periods ended March 31, 2022 and 2021, ~~was approximately $48.4 million~~respectively. The decrease reflects the absence of the operating results of our office properties that were sold in 2021, as well as the absence of the receipt of accrued interest and ~~net cash used in operating activities for the three-month period ended March 31, 2020 was approximately $69.4 million. The Internalization transaction that closed in~~purchase option termination fees during the first quarter 2020 reflected one-time cash payments to the entities that owned the Former Manager and Former Sub-Manager that totaled approximately $111.1 million, plus approximately $3.8 million in related professional fees.2022.

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 loans and notes receivable decreased primarily due to the repayment of various loans and notes receivable. Additionally, 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 was approximately $111.7 million and $6.6 million for ~~the~~both three-month periods ended March 31, 2022 and 2021, respectively and ~~2020 was approximately $6.6 million and $90.9 million, respectively. Cash~~reflect the cash disbursed ~~for property acquisitions totaled approximately $125.1 million in the 2020 period. We had no asset~~ ~~acquisitions~~ during the ~~2021 period.~~2022 period for our Lirio at Rafina multifamily community of approximately $90.2 million.

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

For the three-month period ended March 31, ~~2021,~~2022, our capital expenditures for our multifamily communities, 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
		Recurring				Non-recurring				Total					Recurring				Non-recurring				Total
		Amount		Per Unit		Amount		Per Unit		Amount		Per Unit			Amount		Per Unit		Amount		Per Unit		Amount		Per Unit
Appliances	Appliances	$	173	$	15.55	$	—	$	—	$	173	$	15.55	Appliances	$	227	$	18.53	$	—	$	—	$	227	$	18.53
Carpets	Carpets	471		42.26		—		—		471		42.26		Carpets	501		40.85		—		—		501		40.85
Wood flooring / vinyl		84		7.49		96		8.63		180		16.12
Wood / vinyl flooring														Wood / vinyl flooring	30		2.47		121		9.83		151		12.30
Blinds and ceiling fans	Blinds and ceiling fans	44		3.92		—		—		44		3.92		Blinds and ceiling fans	36		2.95		—		—		36		2.95
Fire safety	Fire safety	—		—		142		12.72		142		12.72		Fire safety	—		—		79		6.44		79		6.44
Furnace, air (HVAC)		111		10.00		—		—		111		10.00
HVAC														HVAC	128		10.44		—		—		128		10.44
Computers, equipment, misc.	Computers, equipment, misc.	10		0.89		78		6.97		88		7.86		Computers, equipment, misc.	56		4.55		59		4.82		115		9.37
Elevators	Elevators	—		—		10		0.90		10		0.90		Elevators	—		—		20		1.60		20		1.60
Exterior painting and lighting	Exterior painting and lighting	—		—		1,247		111.94		1,247		111.94		Exterior painting and lighting	—		—		1,101		89.83		1,101		89.83
Leasing office / common amenities		19		1.70		270		24.18		289		25.88
Leasing office and other common amenities														Leasing office and other common amenities	—		—		257		20.97		257		20.97
Major structural	Major structural	—		—		626		56.17		626		56.17		Major structural	—		—		551		44.97		551		44.97
Cabinets, countertops and unit upgrades	Cabinets, countertops and unit upgrades	—		—		103		9.27		103		9.27		Cabinets, countertops and unit upgrades	—		—		487		39.73		487		39.73
Landscaping & fencing	Landscaping & fencing	—		—		119		10.68		119		10.68		Landscaping & fencing	—		—		89		7.28		89		7.28
Parking lots and sidewalks	Parking lots and sidewalks	—		—		131		11.80		131		11.80		Parking lots and sidewalks	—		—		56		4.58		56		4.58
Signage and sanitation	Signage and sanitation	—		—		25		2.20		25		2.20		Signage and sanitation	—		—		11		0.87		11		0.87
															$	978	$	79.79	$	2,831	$	230.92	$	3,809	$	310.71
		$	912	$	81.81	$	2,847	$	255.46	$	3,759	$	337.27

In addition, second-generation capital expenditures within ourour grocery-anchored shopping center portfolio for ~~the~~both three-month periods ended March 31, 2022 and 2021 ~~and 2020~~ totaled ~~$2.1~~$0.7 million and ~~$0.4~~$2.1 million, respectively, and within our office properties portfolio for ~~the~~both three-month periods ended March 31, 2022 and 2021 ~~and 2020~~ totaled ~~$0.4~~$0.2 million and ~~$0.1~~$0.4 million, respectively. We define second-generation capital expenditures as those that exclude expenditures made in our ~~grocery-anchored~~grocery-anchored shopping center and office properties portfolios (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 ownership standards, and (iii) for property re-developments and repositioning.

At March 31, ~~2021,~~2022, we had restricted cash of approximately ~~$45.1~~$33.5 million. These funds are restricted for a variety of purposes, such as commitments to fund capital expenditures and lender required escrows for future real estate tax and insurance payments. At March 31, ~~2021,~~2022, our restricted cash for future real estate tax and insurance payments was approximately $15.8 million. Typically these escrows increase in the second and third quarters of each calendar year as the Company pays monthly mortgage installments, of which a portion goes to these escrows, until payments are made to the taxing authorities (generally in the first and fourth quarters of each calendar year). Additionally, through the mortgage refinances that the Company executed since March 31, 2020, our lenders required us to put an additional $9.6 million into escrows related to the COVID-19 pandemic. These escrows will be released back to us upon the cessation of all governmental emergency declarations and certain other performance conditions.

Net ~~cash used in financing activities for the three-month period ended March 31, 2021 was approximately $40.1 million and net~~ cash provided by financing activities for the three-month period ended March 31, ~~2020~~2022 was approximately ~~$186.8~~$171.2 million and net cash used in financing activities for the three-month period ended March 31, 2021 was approximately $40.1 million. For the three-month period ended March 31, ~~2021, payments for redemptions~~2022, cash received from exercises of ~~preferred stock~~Warrants totaled approximately $40.0 million, as compared to approximately $9.9 million for the three-month period ended March 31, 2020. Net proceeds from draws on our revolving line of credit were $18.0 million for the three-month period ended March 31, 2021, versus $191.5 million for the three-month period ended March 31, 2020.$179.2 million.

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)~~paid) to our stockholders. As a REIT, we generally will not be subject to federal income taxes on the taxable income we distribute to our stockholders. Generally, our objective is to meet our short-term liquidity requirement of funding the payment of our quarterly Common Stock dividends, as well as monthly dividends to holders of our Series A ~~Redeemable~~ Preferred Stock, mShares, Series A1 Redeemable Preferred Stock and Series M1 Redeemable Preferred Stock (collectively, our Preferred Stock), through net cash generated from operating results.

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

Our first quarter ~~2021~~2022 Common Stock dividend declaration was ~~$0.175~~$0.175 per share. ~~Our board of directors reviews the proposed~~The Merger Agreement prohibits us from declaring additional dividends on our Common Stock ~~dividend declarations quarterly, and there can be no assurance that~~prior to the ~~current dividend level will be maintained.~~closing of the Mergers.

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

For the ~~three months~~three-month period ended March 31, ~~2021,~~2022, our aggregate dividends and distributions totaled approximately ~~$42.9~~$38.1 million and our net cash provided by operating activities ~~were~~was approximately ~~$48.4 million. We expect our cash flow from operations over time to be sufficient to fund our quarterly Common Stock dividends, Class A Unit distr~~$28.2 million~~ibutions and our monthly Preferred Stock dividends.~~.

Long-Term Liquidity Needs

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

•the principal amount of our long-term debt as it becomes due or matures;

•capital expenditures needed for our multifamily communities, grocery-anchored shopping centers and office properties;

•costs associated with current and future capital raising ~~activities;~~activities, including any potential redemptions or calls of our Preferred Stock;

•costs to acquire additional multifamily communities, grocery-anchored shopping centers or other real estate and enter into new and fund existing lending and preferred equity opportunities; and

•our minimum distributions necessary to maintain our REIT status.

We intend to finance our future investments with the net proceeds from additional issuances of our securities, including our Series A1/M1 Offering (as defined and described in ~~note~~Note 5 to ~~our~~our Consolidated Financial Statements), Common Stock, and units of limited partnership interest in our Operating Partnership, and/or borrowings. The success of our acquisition strategy may depend, in part, on our ability to access further capital through issuances of additional securities. If we are unsuccessful in raising additional funds, we may not be able to obtain any assets in addition to those we have acquired.

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

~~At March 31, 2021,~~ From January 1, 2022 to February 16, 2022, 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

~~During~~The Company ceased the issuance and sale of Preferred Stock under the Series A1/M1 Offering on February 10, 2022. Pursuant to the Merger Agreement, the Company is restricted from issuing shares of Preferred Stock under the Series A1/M1 Offering and shares of Common Stock under the 2019 ATM Offering. Prior to February 10, 2022, during the first quarter ~~2021,~~2022, we issued and sold an ag~~gregate~~aggregate of ~~37,898~~3,167 shares of Preferred ~~Stock and~~Stock. During the first quarter 2022, we redeemed an aggregate of ~~44,220~~21,189 shares of Preferred Stock, resulting in a net ~~redemption~~reduction of ~~6,322~~18,022 shares of Preferred Stock, for a net ~~redemption cost~~cash outflow of ~~$9.5~~$17.7 million.

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

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

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

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

•The availability and cost of financing an asset;

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

•The health of the U.S. economy and the health of the commercial real estate market in general.

In addition, factors such as our outlook on interest rates, changes to the yield curve, the level and volatility of interest rates and their associated credit spreads, the underlying value of our assets and our outlook on credit spreads relative to our outlook on interest rate and economic performance could all impact our decision and strategy for financing the target assets. At the date of acquisition of an asset, we anticipate that the investment cost for such asset will be substantially similar to its fair market value. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits. Finally, we intend to acquire all our real estate assets through separate single purpose entities and we intend to finance each of these assets using debt financing techniques for that asset alone without any cross-collateralization to our other real estate assets or any guarantees by us or our Operating Partnership. We intend to have no long-term unsecured debt at the Company or Operating Partnership levels, except for our Revolving Line of Credit. Our secured and unsecured aggregate borrowings are intended by us to be reasonable in relation to our tangible assets and will be reviewed by our board of directors at least quarterly. In determining whether our borrowings are reasonable in relation to our tangible assets, we expect that our board of directors will consider many factors, including without limitation the lending standards of government-sponsored enterprises, such as Fannie Mae and Freddie Mac, for loans in connection with the financing of multifamily

properties, the leverage ratios of publicly traded and non-traded REITs with similar investment strategies, and general market conditions. There is no limitation on the amount that we may borrow for any single investment.

Our ability to incur additional debt is dependent on a number of factors, including our credit ratings (if any), the value of our assets, our degree of leverage and borrowing restrictions imposed by lenders. We will continue to monitor the debt markets, including Fannie Mae and/or Freddie Mac (who have been a significant and consistent source of financing to the Company and the multifamily market generally), and as market conditions permit, access borrowings that are advantageous to us. It is important to note that Freddie Mac and Fannie Mae are both GSEs (Government Sponsored Entities). GSE reform has been a topic of debate in Congress for several years now, and it is possible that Congress or the FHFA (Federal Housing Finance Agency) could materially change the terms and/or availability of mortgage debt to the multifamily industry. These or other changes to the multifamily lending programs of Freddie Mac and Fannie Mae could materially affect our ability to acquire or refinance assets.

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

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

As of March 31, ~~2021,~~2022, we had ~~approximately $32.3~~approximately $117.2 million in unrestricted cash and cash equivalents available to meet our short-term and long-term liquidity needs. We believe that our long-term liquidity needs are and will c~~ontinue~~continue to be adequately funded through the sources discussed above.

As of March 31, ~~2021,~~2022, we had long term mortgage indebtedness ofof approximately ~~$2.6~~$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)
Acquisition/
refinancing date March 31, 2021 December 31, 2020 Maturity date Interest rate Basis point spread over 1 Month LIBOR
Multifamily communities: (in thousands)
Summit Crossing 10/31/2017 $ 36,736 $ 36,929 11/1/2024 3.99 % Fixed rate N/A
Summit Crossing II 6/30/2020 20,700 20,700 7/1/2030 2.90 % 278 7/31/2022
Vineyards 9/26/2014 32,525 32,703 10/1/2021 3.68 % Fixed rate N/A
Avenues at Cypress 6/30/2020 28,366 28,366 7/1/2027 2.96 % Fixed rate 7/31/2022
Avenues at Northpointe 6/29/2020 33,546 33,546 7/1/2027 2.79 % Fixed rate 7/31/2022
Venue at Lakewood Ranch 6/30/2020 36,555 36,555 7/1/2030 2.99 % Fixed rate 7/31/2022
Aster at Lely Resort 6/29/2020 50,400 50,400 7/1/2030 2.95 % Fixed rate 7/31/2022
CityPark View 6/25/2020 29,000 29,000 7/1/2030 2.75 % Fixed rate 7/31/2023
Citi Lakes 7/29/2019 40,124 40,324 8/1/2029 3.66 % Fixed rate N/A
Stone Creek 6/22/2017 19,362 19,451 7/1/2052 3.22 % Fixed rate N/A
Lenox Village Town Center 2/28/2019 37,997 38,169 3/1/2029 4.34 % Fixed rate N/A
Retreat at Lenox 12/21/2015 16,655 16,751 1/1/2023 4.04 % Fixed rate N/A
Overton Rise 2/1/2016 37,391 37,607 8/1/2026 3.98 % Fixed rate N/A
Village at Baldwin Park 2/28/2021 69,332 69,608 1/1/2054 3.27 % Fixed rate N/A
Crosstown Walk 6/30/2020 46,500 46,500 7/1/2027 2.92 % Fixed rate 7/31/2022
525 Avalon Park 6/15/2017 62,921 63,256 7/1/2024 3.98 % Fixed rate N/A
City Vista 7/1/2016 32,745 32,938 7/1/2026 3.68 % Fixed rate N/A
Sorrel 8/24/2016 30,555 30,740 9/1/2023 3.44 % Fixed rate N/A
Citrus Village 7/10/2020 40,900 40,900 8/1/2027 2.95 % Fixed rate 8/31/2022
Retreat at Greystone 11/21/2017 33,276 33,439 12/1/2024 4.31 % Fixed rate N/A
Founders Village 3/31/2017 29,484 29,635 4/1/2027 4.31 % Fixed rate N/A
Claiborne Crossing 4/26/2017 25,390 25,503 6/1/2054 2.89 % Fixed rate N/A
Luxe at Lakewood Ranch 7/26/2017 36,726 36,922 8/1/2027 3.93 % Fixed rate N/A
Adara at Overland Park 9/27/2017 29,866 30,024 4/1/2028 3.90 % Fixed rate N/A
Aldridge at Town Village 10/31/2017 35,712 35,892 11/1/2024 4.19 % Fixed rate N/A
Reserve at Summit Crossing 9/29/2017 18,790 18,893 10/1/2024 3.87 % Fixed rate N/A
We have commitments to disburse a total of $2.9 billion for principal and interest payments on and maturities of property-level debt beyond the year ended December 31, 2022, based on mortgage debt instruments in place as of March 31, 2022.

6156


		Principal balance as of							Interest only through date (1)
(in thousands)	Acquisition/ refinancing date	March 31, 2022		December 31, 2021		Maturity date	Interest rate
Multifamily communities:
Retreat at Lenox Village	12/21/2015	$	16,270	$	16,370	1/1/2023	4.04	%	—
Overton Rise	2/1/2016	36,524		36,749		8/1/2026	3.98	%	—
City Vista	7/1/2016	31,970		32,170		7/1/2026	3.68	%	—
Founders' Village	3/31/2017	28,882		29,039		4/1/2027	4.31	%	—
Claiborne Crossing	4/26/2017	24,928		25,045		6/1/2054	2.89	%	—
525 Avalon Park	6/15/2017	61,585		61,933		7/1/2024	3.98	%	—
Stone Creek	6/22/2017	18,998		19,090		7/1/2052	3.22	%	—
Luxe at Lakewood Ranch	7/26/2017	35,944		36,147		8/1/2027	3.93	%	—
Adara at Overland Park	9/27/2017	29,233		29,397		4/1/2028	3.90	%	—
Reserve at Summit Crossing	9/29/2017	18,381		18,487		10/1/2024	3.87	%	—
Summit Crossing	10/31/2017	35,975		36,175		11/1/2024	3.99	%	—
Aldridge at Town Village	10/31/2017	34,994		35,182		11/1/2024	4.19	%	—
Retreat at Greystone	11/21/2017	32,624		32,794		12/1/2024	4.31	%	—
Overlook at Crosstown Walk	11/21/2017	20,494		20,607		12/1/2024	3.95	%	—
Colony at Centerpointe	12/20/2017	30,565		30,744		10/1/2026	3.68	%	—
Lux at Sorrel	1/9/2018	29,077		29,239		2/1/2030	3.91	%	—
Green Park	2/28/2018	36,816		37,014		3/10/2028	4.09	%	—
The Lodge at Hidden River	9/27/2018	39,274		39,469		10/1/2028	4.32	%	—
Vestavia Reserve	11/9/2018	35,687		35,860		12/1/2030	4.40	%	—
CityPark View South	11/15/2018	22,861		22,970		6/1/2029	4.51	%	—
Lenox Village Town Center	2/28/2019	37,312		37,492		3/1/2029	4.34	%	—
Citi Lakes	7/29/2019	39,329		39,535		8/1/2029	3.66	%	—
Artisan at Viera	8/8/2019	38,164		38,355		9/1/2029	3.93	%	—
Five Oaks at Westchase	10/17/2019	30,001		30,167		11/1/2031	3.27	%	—
Horizon at Wiregrass Ranch	4/23/2020	49,951		50,237		5/1/2030	2.90	%	—
Parkside at the Beach	4/30/2020	45,037		45,037		5/1/2030	2.95	%	5/31/2022
CityPark View	6/25/2020	29,000		29,000		7/1/2030	2.75	%	7/31/2023
Avenues at Northpointe	6/29/2020	33,546		33,546		7/1/2027	2.79	%	7/31/2022
Aster at Lely Resort	6/29/2020	50,400		50,400		7/1/2030	2.95	%	7/31/2022
Avenues at Cypress	6/30/2020	28,366		28,366		7/1/2027	2.96	%	7/31/2022
Venue at Lakewood Ranch	6/30/2020	36,555		36,555		7/1/2030	2.99	%	7/31/2022
Crosstown Walk	6/30/2020	46,500		46,500		7/1/2027	2.92	%	7/31/2022

Table continued from previous page Principal balance as of
Interest only through date (1)
Acquisition/
refinancing date March 31, 2021 December 31, 2020 Maturity date Interest rate Basis point spread over 1 Month LIBOR
(in thousands)
Overlook at Crosstown Walk 11/21/2017 20,929 21,038 12/1/2024 3.95 % Fixed rate N/A
Colony at Centerpointe 12/20/2017 31,272 31,445 10/1/2026 3.68 % Fixed rate N/A
Lux at Sorrel 1/9/2018 29,713 29,868 2/1/2030 3.91 % Fixed rate N/A
Green Park 2/28/2018 37,595 37,785 3/10/2028 4.09 % Fixed rate N/A
The Lodge at Hidden River 9/27/2018 40,017 40,204 10/1/2028 4.32 % Fixed rate N/A
Vestavia Reserve 11/9/2018 36,346 36,511 12/1/2030 4.40 % Fixed rate N/A
CityPark View South 11/15/2018 23,275 23,379 6/1/2029 4.51 % Fixed rate N/A
Artisan at Viera 8/8/2019 38,920 39,104 9/1/2029 3.93 % Fixed rate N/A
Five Oaks at Westchase 10/17/2019 30,657 30,818 11/1/2031 3.27 % Fixed rate N/A
Horizon at Wiregrass Ranch 4/23/2020 51,082 51,360 5/1/2030 2.90 % Fixed rate N/A
Parkside at the Beach 4/30/2020 45,037 45,037 5/1/2030 2.95 % Fixed rate N/A
The Blake 11/2/2020 44,435 44,435 5/1/2030 2.82 % Fixed rate 12/31/2025
The Menlo 12/15/2020 47,000 47,000 1/1/2031 2.68 % Fixed rate 1/31/2024
Total multifamily communities 1,387,832 1,392,735
Grocery-anchored shopping centers:
Spring Hill Plaza 9/17/2019 7,908 7,962 10/1/2031 3.72 % Fixed rate N/A
Parkway Town Centre 9/17/2019 7,814 7,866 10/1/2031 3.72 % Fixed rate N/A
Woodstock Crossing 8/8/2014 2,802 2,818 9/1/2021 4.71 % Fixed rate N/A
Deltona Landings 8/16/2019 6,103 6,141 9/1/2029 4.18 % Fixed rate N/A
Powder Springs 8/13/2019 7,698 7,749 9/1/2029 3.65 % Fixed rate (2)
Barclay Crossing 8/16/2019 6,049 6,086 9/1/2029 4.18 % Fixed rate N/A
Parkway Centre 8/16/2019 4,396 4,423 9/1/2029 4.18 % Fixed rate N/A
The Market at Salem Cove 10/6/2014 8,842 8,889 11/1/2024 4.21 % Fixed rate N/A
Independence Square 8/27/2015 11,114 11,184 9/1/2022 3.93 % Fixed rate N/A
Royal Lakes Marketplace 4/12/2019 9,287 9,345 5/1/2029 4.29 % Fixed rate N/A
The Overlook at Hamilton Place 12/22/2015 18,979 19,088 1/1/2026 4.19 % Fixed rate N/A
Summit Point 10/30/2015 11,022 11,118 11/1/2022 3.57 % Fixed rate N/A
East Gate Shopping Center 4/29/2016 5,077 5,118 5/1/2026 3.97 % Fixed rate N/A
Fury's Ferry 4/29/2016 5,865 5,912 5/1/2026 3.97 % Fixed rate N/A
Rosewood Shopping Center 4/29/2016 3,939 3,971 5/1/2026 3.97 % Fixed rate N/A
Southgate Village 4/29/2016 7,003 7,059 5/1/2026 3.97 % Fixed rate N/A


Table continued from previous page		Principal balance as of					Interest only through date (1)
(in thousands)	Acquisition/ refinancing date	March 31, 2022	December 31, 2021	Maturity date	Interest rate
Citrus Village	7/10/2020	40,900	40,900	8/1/2027	2.95	%	8/31/2022
The Blake	11/2/2020	44,435	44,435	5/1/2030	2.82	%	12/31/2025
The Menlo	12/15/2020	47,000	47,000	1/1/2031	2.68	%	1/31/2024
Village at Baldwin Park	2/28/2021	68,231	68,535	1/1/2054	3.27	%	—
Alleia at Presidio	7/8/2021	35,700	35,700	8/1/2026	2.50	%	8/31/2022
The Ellison	8/18/2021	48,000	48,000	9/1/2027	2.52	%	9/30/2022
The Anson	9/14/2021	56,440	56,440	10/1/2031	2.69	%	10/31/2022
The Kingson	9/16/2021	53,385	53,697	10/1/2026	2.35	%	—
Citi Lakes B-Note	9/24/2021	10,344	10,390	8/1/2029	3.85	%	—
Sorrel	9/24/2021	47,282	47,551	10/1/2028	2.54	%	—
Retreat at Greystone B-note	10/21/2021	7,228	7,262	12/1/2024	3.47	%	—
Aldridge at Town Village B-note	10/21/2021	3,647	3,664	11/1/2024	3.46	%	—
Chestnut Farm	2/15/2022	52,310	51,800	3/1/2032	3.25	%	4/1/2027
Lirio at Rafina	3/30/2022	54,000	—	4/1/2032	3.27	%	5/1/2025
Summit Crossing II	6/30/2020	20,700	20,700	7/1/2030	L + 278		7/31/2022
Total multifamily communities		1,674,845	1,625,745

Grocery-anchored shopping centers:
The Market at Salem Cove	10/6/2014	8,646	8,696	11/1/2024	4.21	%	—
Independence Square	8/27/2015	10,829	10,902	9/1/2022	3.93	%	—
Summit Point	10/30/2015	10,628	10,728	11/1/2022	3.57	%	—
The Overlook at Hamilton Place	12/22/2015	18,535	18,648	1/1/2026	4.19	%	—
Wade Green Village	4/7/2016	7,270	7,315	5/1/2026	4.00	%	—
East Gate Shopping Center	4/29/2016	4,909	4,952	5/1/2026	3.97	%	—
Fury's Ferry	4/29/2016	5,671	5,720	5/1/2026	3.97	%	—
Rosewood Shopping Center	4/29/2016	3,809	3,842	5/1/2026	3.97	%	—
Southgate Village	4/29/2016	6,771	6,830	5/1/2026	3.97	%	—
The Market at Victory Village	5/16/2016	8,537	8,582	9/11/2024	4.40	%	—
Lakeland Plaza	7/15/2016	25,551	25,771	8/1/2026	3.85	%	—
University Palms	8/8/2016	11,523	11,626	9/1/2026	3.45	%	—
Sandy Plains Exchange	8/8/2016	8,049	8,121	9/1/2026	3.45	%	—
Thompson Bridge Commons	8/8/2016	10,761	10,857	9/1/2026	3.45	%	—
Heritage Station	8/8/2016	7,965	8,036	9/1/2026	3.45	%	—
Oak Park Village	8/8/2016	8,219	8,292	9/1/2026	3.45	%	—
Shoppes of Parkland	8/8/2016	15,030	15,111	9/1/2023	4.67	%	—
Castleberry-Southard	4/21/2017	10,440	10,500	5/1/2027	3.99	%	—
Rockbridge Village	6/6/2017	12,935	13,011	7/5/2027	3.73	%	—

6258


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

The Market at Victory Village		5/16/2016	8,708	8,751	9/11/2024	4.40	%	Fixed rate		N/A
Wade Green Village		4/7/2016	7,445	7,488	5/1/2026	4.00	%	Fixed rate		N/A
Lakeland Plaza		7/15/2016	26,420	26,632	8/1/2026	3.85	%	Fixed rate		N/A
University Palms		8/8/2016	11,931	12,030	9/1/2026	3.45	%	Fixed rate		N/A
Cherokee Plaza		4/12/2019	24,125	24,277	5/1/2027	4.28	%	Fixed rate		N/A
Sandy Plains Exchange		8/8/2016	8,334	8,404	9/1/2026	3.45	%	Fixed rate		N/A
Thompson Bridge Commons		8/8/2016	11,141	11,234	9/1/2026	3.45	%	Fixed rate		N/A
Heritage Station		8/8/2016	8,246	8,315	9/1/2026	3.45	%	Fixed rate		N/A
Oak Park Village		8/8/2016	8,509	8,580	9/1/2026	3.45	%	Fixed rate		N/A
Shoppes of Parkland		8/8/2016	15,337	15,414	9/1/2023	4.67	%	Fixed rate		N/A
Champions Village		10/18/2016	27,400	27,400	11/1/2021	3.25	%	300	(3)	11/1/2021
Castleberry-Southard		4/21/2017	10,676	10,734	5/1/2027	3.99	%	Fixed rate		N/A
Rockbridge Village		6/6/2017	13,236	13,310	7/5/2027	3.73	%	Fixed rate		N/A
(in thousands)											(in thousands)	Acquisition/ refinancing date	March 31, 2022	December 31, 2021	Maturity date	Interest rate		Interest only through date (1)
Irmo Station	Irmo Station	7/26/2017	9,687	9,758	8/1/2030	3.94	%	Fixed rate		N/A	Irmo Station	7/26/2017	9,393	9,467	8/1/2030	3.94	%
Maynard Crossing	Maynard Crossing	8/25/2017	16,827	16,953	9/1/2032	3.74	%	Fixed rate		N/A	Maynard Crossing	8/25/2017	16,307	16,439	9/1/2032	3.74	%	—
Woodmont Village	Woodmont Village	9/8/2017	8,038	8,096	10/1/2027	4.13	%	Fixed rate		N/A	Woodmont Village	9/8/2017	7,802	7,862	10/1/2027	4.13	%	—
West Town Market	West Town Market	9/22/2017	8,197	8,260	10/1/2025	3.65	%	Fixed rate		N/A	West Town Market	9/22/2017	7,943	8,008	10/1/2025	3.65	%	—
Crossroads Market	Crossroads Market	12/5/2017	17,496	17,622	1/1/2030	3.95	%	Fixed rate		N/A	Crossroads Market	12/5/2017	16,981	17,111	1/1/2030	3.95	%	—
Anderson Central	Anderson Central	3/16/2018	11,171	11,246	4/1/2028	4.32	%	Fixed rate		N/A	Anderson Central	3/16/2018	10,861	10,940	4/1/2028	4.32	%	—
Greensboro Village	Greensboro Village	5/22/2018	7,986	8,040	6/1/2028	4.20	%	Fixed rate		N/A	Greensboro Village	5/22/2018	7,764	7,820	6/1/2028	4.20	%	—
Governors Towne Square	Governors Towne Square	5/22/2018	10,625	10,696	6/1/2028	4.20	%	Fixed rate		N/A	Governors Towne Square	5/22/2018	10,330	10,404	6/1/2028	4.20	%	—
Conway Plaza	Conway Plaza	6/29/2018	9,330	9,375	7/5/2028	4.29	%	Fixed rate		N/A	Conway Plaza	6/29/2018	9,147	9,193	7/5/2028	4.29	%	—
Brawley Commons	Brawley Commons	7/6/2018	17,405	17,519	8/1/2028	4.36	%	Fixed rate		N/A	Brawley Commons	7/6/2018	16,937	17,056	8/1/2028	4.36	%	—
Hollymead Town Center	Hollymead Town Center	12/21/2018	25,980	26,139	1/1/2029	4.64	%	Fixed rate		N/A	Hollymead Town Center	12/21/2018	25,325	25,491	1/1/2029	4.64	%	—
Gayton Crossing	Gayton Crossing	1/17/2019	17,173	17,276	2/1/2029	4.71	%	Fixed rate		N/A	Gayton Crossing	1/17/2019	16,746	16,855	2/1/2029	4.71	%	—
Royal Lakes Marketplace											Royal Lakes Marketplace	4/12/2019	9,047	9,108	5/1/2029	4.29	%	—
Cherokee Plaza											Cherokee Plaza	4/12/2019	23,502	23,660	5/1/2027	4.28	%	—
Free State Shopping Center	Free State Shopping Center	5/28/2019	45,333	45,549	6/1/2029	3.99	%	Fixed rate		N/A	Free State Shopping Center	5/28/2019	44,448	44,673	6/1/2029	3.99	%	—
Polo Grounds Mall	Polo Grounds Mall	6/12/2019	12,924	12,986	7/1/2034	3.93	%	Fixed rate		N/A	Polo Grounds Mall	6/12/2019	12,670	12,735	7/1/2034	3.93	%	—
Disston Plaza	Disston Plaza	6/12/2019	17,494	17,578	7/1/2034	3.93	%	Fixed rate		N/A	Disston Plaza	6/12/2019	17,151	17,238	7/1/2034	3.93	%	—
Powder Springs											Powder Springs	8/13/2019	7,487	7,540	9/1/2029	3.65	%	(2)
Deltona Landings											Deltona Landings	8/16/2019	5,947	5,986	9/1/2029	4.18	%	—
Barclay Crossing											Barclay Crossing	8/16/2019	5,894	5,933	9/1/2029	4.18	%	—
Parkway Centre											Parkway Centre	8/16/2019	4,283	4,312	9/1/2029	4.18	%	—
Spring Hill Plaza											Spring Hill Plaza	9/17/2019	7,697	7,751	10/1/2031	3.72	%	—
Parkway Town Centre											Parkway Town Centre	9/17/2019	7,603	7,657	10/1/2031	3.72	%	—
Berry Town Center											Berry Town Center	11/14/2019	11,493	11,554	12/1/2034	3.49	%	—
Hanover Center											Hanover Center	12/19/2019	30,190	30,402	12/19/2026	3.62	%	—
Wakefield Crossing											Wakefield Crossing	1/29/2020	7,473	7,525	2/1/2032	3.66	%	—
Midway Market											Midway Market	4/15/2021	9,922	9,991	5/1/2031	3.06	%	—
Woodstock Crossing											Woodstock Crossing	11/2/2021	5,272	5,300	12/1/2026	2.89	%	—
Fairview Market											Fairview Market	12/8/2021	7,100	7,100	12/15/2028	2.87	%	12/15/2022
Fairfield Shopping Center	Fairfield Shopping Center	8/16/2019	19,750	19,750	8/16/2026	2.16	%	205		8/16/2022	Fairfield Shopping Center	8/16/2019	19,750	19,750	8/16/2026	L + 205		8/16/2022
Berry Town Center		11/14/2019	11,735	11,794	12/1/2034	3.49	%	Fixed rate		N/A
Hanover Shopping Center		12/19/2019	31,013	31,217	12/19/2026	3.62	%	Fixed rate		N/A
Wakefield Crossing		1/29/2020	7,678	7,728	2/1/2032	3.66	%	Fixed rate		N/A
Total grocery-anchored shopping centers (3)											Total grocery-anchored shopping centers (3)		588,543	592,401

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

6359


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

(in thousands)												(in thousands)	Origination/ refinancing date	March 31, 2022		December 31, 2021		Maturity date	Interest rate		Interest only through date (1)
Office buildings:	Office buildings:											Office buildings:
Brookwood Center		8/29/2016	29,722		29,925		9/10/2031	3.52	%	Fixed rate	N/A
Galleria 75		11/4/2016	5,077		5,131		7/1/2022	4.25	%	Fixed rate	N/A
Three Ravinia	Three Ravinia	12/30/2016	115,500		115,500		1/1/2042	4.46	%	Fixed rate	1/31/2022	Three Ravinia	12/30/2016	115,193		115,500		1/1/2042	4.46	%	—
Westridge at La Cantera	Westridge at La Cantera	11/13/2017	50,094		50,449		12/10/2028	4.10	%	Fixed rate	N/A	Westridge at La Cantera	11/13/2017	48,636		49,006		12/10/2028	4.10	%	—
Armour Yards		1/29/2018	39,249		39,425		2/1/2028	4.10	%	Fixed rate	N/A
150 Fayetteville		7/31/2018	113,289		113,768		8/10/2028	4.27	%	Fixed rate	N/A
Capitol Towers		12/20/2018	122,181		122,720		1/10/2037	4.60	%	Fixed rate	N/A
CAPTRUST Tower		7/25/2019	82,650		82,650		8/1/2029	3.61	%	Fixed rate	7/31/2029
Morrocroft Centre		3/19/2020	70,000		70,000		4/10/2033	3.40	%	Fixed rate	4/10/2025
251 Armour Yards (5)		1/22/2020	5,674		3,522		1/22/2025	4.50	%	Fixed rate	1/21/2023
Total office buildings												Total office buildings		163,829		164,506

Total office buildings			633,436		633,090
Properties under development:												Properties under development:
The Helmsman (4)												The Helmsman (4)	3/2/2022	—		—		9/2/2025	S + 235		9/2/2025

Grand total	Grand total		2,632,516		2,640,705							Grand total		2,427,217		2,382,652
Less: deferred loan costs	Less: deferred loan costs		(40,878)		(42,233)							Less: deferred loan costs		(34,587)		(35,400)
Less: below market debt adjustment	Less: below market debt adjustment		(3,978)		(4,008)							Less: below market debt adjustment		(3,858)		(3,888)
Mortgage notes, net	Mortgage notes, net		$	2,587,660	$	2,594,464						Mortgage notes, net		$	2,388,772	$	2,343,364

Footnotes to Mortgage Notes Table

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

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

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

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

~~(5)~~(4) A construction loan ~~financing redevelopment~~with a maximum borrowing capacity of ~~the property.~~$42.3 million that accrues interest utilizing SOFR

6460

Contractual Obligations

~~As of March 31, 2021,~~ Please see Notes 9 and 11 to our Consolidated Financial Statements for details regarding our contractual ~~obligations~~ consisted of the mortgage notes secured by our acquired properties and the Revolving Credit Facility. Based on a LIBOR rate of 0.11% at March 31, 2021, our estimated future required payments on these instruments were:

(In thousands) Total Less than one year 1-3 years 3-5 years More than five years
Principal payments:
Mortgage debt $ 2,632,516 $ 104,249 $ 191,589 $ 364,489 $ 1,972,189
Line of credit 40,000 40,000 — — —
Total principal $ 2,672,516 $ 144,249 $ 191,589 $ 364,489 $ 1,972,189
Interest payments:
Mortgage debt $ 774,813 $ 98,104 $ 184,689 $ 159,012 $ 333,008
Line of credit 88 88 — — —
Total interest $ 774,901 $ 98,192 $ 184,689 $ 159,012 $ 333,008

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is interest rate risk. All our floating-rate debt is tied to the 30-day LIBOR. As of March 31, ~~2021,~~2022, we have variable rate mortgages on the properties listed in following table.


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

Capped floating-rate debt										Capped floating-rate debt
Summit Crossing II	Summit Crossing II	$	20,700			2.5	%	5.3	%	Summit Crossing II	$	20,700	0.85	%	2.5	%	5.3	%
Total capped floating-rate debt		20,700		0.8	%

Champions Village		27,400				—		—
Uncapped floating-rate debt										Uncapped floating-rate debt
Fairfield Shopping Center	Fairfield Shopping Center	19,750				—		—		Fairfield Shopping Center	19,750		0.81	%	—		—
Total uncapped floating-rate debt		47,150		1.8	%

Total floating-rate debt	Total floating-rate debt	$	67,850	2.6	%					Total floating-rate debt	$	40,450	1.67	%

Our Revolving Line of Credit accrued interest at a spread of 3.0% over LIBOR as of March 31, ~~2021;~~2022; this combined rate is uncapped. Because of the short term nature of the Revolving Line of Credit and Acquisition Credit Facility instruments, we believe our interest rate risk is minimal.

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

•maintain a reasonable ratio of fixed-rate, long-term debt to total debt so that floating-rate exposure is kept at an acceptable level;

•place interest rate caps on floating-rate debt where appropriate; and

•take advantage of favorable market conditions for long-term debt and/or equity financings.

We use various financial models and advisors to achieve our objectives.

If interest rates under our floating-rate ~~LIBOR-based~~LIBOR-based indebtedness fluctuated by 100 basis points, our interest costs, based on outstanding borrowings at March 31, ~~2021,~~2022, would increase by approximately ~~$569,000~~$408,000 or decrease by approximately ~~$47,000~~$140,000 on an annualized basis.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures.

Management of the Company evaluated, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15(e)) as of March 31, ~~2021,~~2022, the end of the period covered by this report. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in internal control over financial reporting.

As required by the Exchange Act Rule 13a-15(d), the Company's Chief Executive Officer and Chief Financial Officer evaluated the Company's internal control over financial reporting to determine whether any change occurred during the quarter ended March 31, ~~2021~~2022 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~~Following the filing of the preliminary proxy statement in connection with the proposed merger with affiliates of BREIT, plaintiffs filed eight separate lawsuits related to the proxy statement. The first suit, styled as Stein v. Preferred Apartment Communities, Inc., et al., No. 1:22-cv-02589-LAK, which we ~~nor our subsidiaries is currently subject~~refer to ~~any legal proceedings that~~as the “Stein Lawsuit,” was filed by plaintiff Shiva Stein in the United States District Court for the Southern District of New York on March 30, 2022. The second suit, styled as Wang v. Preferred Apartment Communities, Inc., et al., 1:22-cv-02641-LAK, which we ~~consider~~refer to ~~be material. To our knowledge, none~~as the “Wang Lawsuit,” was filed by plaintiff Elaine Wang in the United States District Court for the Southern District of ~~our properties are currently subject~~New York on March 31, 2022. The third suit, styled as Anderson v. Preferred Apartment Communities, Inc., et al., No. 1:22-cv-01979-LDH-RML, which we refer to ~~any legal proceeding that~~as the “Anderson Lawsuit,” was filed by plaintiff Miranda Anderson in the United States District Court for the Eastern District of New York on April 6, 2022. The fourth suit, styled as Hopkins v. Murphy, et al., No. 24-C-22-001775, which we ~~consider material.~~refer to as the “Hopkins Lawsuit,” was filed by plaintiff Matthew Hopkins in the Maryland Circuit Court for Baltimore City on April 8, 2022. The fifth suit, styled as Ferguson v. Preferred Apartment Communities, Inc., et al., No. 1:22-cv-03033, which we refer to as the “Ferguson Lawsuit,” was filed by plaintiff Robert Ferguson in the United States District Court for the Southern District of New York on April 12, 2022. The sixth suit, styled as Whitfield v. Preferred Apartment Communities, Inc., et al., No. 2:22-cv-01542-RBS, which we refer to as the “Whitfield Lawsuit,” was filed by plaintiff Matthew Whitfield in the Eastern District of Pennsylvania on April 20, 2022. The seventh suit, styled as Weinrib v. Bartkowski, et al., No. 24-C-22-002041, which we refer to as the “Weinrib Lawsuit,” was filed by plaintiff Lori Weinrib, in the Maryland Circuit Court for Baltimore City on April 25, 2022. The eighth suit, styled as Milbourne v. Bartkowski, et al., No. 24-C-22-002038, which we refer to as the “Milbourne Lawsuit,” was filed by plaintiff Rebecca Milbourne in the Maryland Circuit Court for Baltimore City on April 25, 2022.

The Stein Lawsuit names as defendants the Company and the Company’s directors. The Stein Lawsuit asserts, on behalf of the individual plaintiff, (1) a cause of action under Section 14(a) of the Exchange Act and its implementing regulations, alleging that purported omissions render the proxy statement false and misleading; and (2) a “control person” claim under Section 20(a) of the Exchange Act based on the alleged Section 14(a) violation. The Stein Lawsuit alleges that the proxy statement omits material information on certain topics, including line items used to calculate non-GAAP financial metrics, a reconciliation of non-GAAP financial metrics to GAAP metrics, levered free cash flow information, and input data and assumptions used in Goldman Sachs’ analysis. Relying on those allegations, the Stein Lawsuit asserts a claim under Section 14(a) of the Exchange Act against all defendants and a claim under Section 20(a) of the Exchange Act against the members of our board of directors. The Stein Lawsuit seeks to enjoin defendants from proceeding with the proposed merger, rescission of the merger and an award of damages if the merger is consummated, and an award of plaintiff’s costs and attorney’s fees.

The Wang Lawsuit also names as defendants the Company and the Company’s directors. Like the Stein Lawsuit, the Wang Lawsuit asserts a claim under Section 14(a) of the Exchange Act against all defendants and a claim under Section 20(a) of the Exchange Act against the members of our board of directors. The Wang Lawsuit contains substantially the same allegations as the Stein Lawsuit and seeks substantially the same relief as the Stein Lawsuit.

The Anderson Lawsuit, like the Stein Lawsuit and Wang Lawsuit, names as defendants the Company and the Company’s directors. The Anderson Lawsuit also asserts a claim under Section 14(a) of the Exchange Act against all defendants and a claim under Section 20(a) of the Exchange Act against the members of our board of directors. The Anderson Lawsuit alleges that the proxy statement omits material information on certain topics, including certain financial projections, line items used to calculate financial projections, a reconciliation of non-GAAP financial metrics to GAAP metrics, input data and assumptions used in Goldman Sachs’ analysis, the Company’s nondisclosure agreements with potential counterparties, and details regarding any discussions about the future employment of the Company’s officers and directors. The Anderson Lawsuit seeks to enjoin defendants from proceeding with the proposed merger, a declaration that defendants violated Sections 14(a) and 20(a) of the Exchange Act, rescission of the merger and an award of damages if the merger is consummated, and an award of plaintiff’s costs and attorney’s fees.

The Hopkins Lawsuit also names as defendants the Company and its directors. The Hopkins Lawsuit alleges that the proxy statement omits material information on certain topics, including certain financial projections, line items used to calculate financial projections, a reconciliation of non-GAAP financial metrics to GAAP metrics, input data and assumptions used in Goldman Sachs’ analysis, the Company’s nondisclosure agreements with potential counterparties, information relating to the Company’s engagement of KeyBanc Capital Markets Inc., and details regarding any discussions about the future employment

of the Company’s officers and directors. The Hopkins Lawsuit also alleges that the Company’s officers stand to benefit from the merger and that the price of the merger is unfair. Relying on those allegations, the Hopkins Lawsuit asserts a claim for breach of fiduciary duties against the directors and a claim for declaratory and equitable relief against all defendants.

The Ferguson Lawsuit names as defendants the Company and its directors. The Ferguson Lawsuit, like the Stein, Wang, and Anderson Lawsuits, asserts a claim under Section 14(a) of the Exchange Act against all defendants and a claim under Section 20(a) of the Exchange Act against the members of our board of directors. The Ferguson Lawsuit alleges that the proxy statement omits material information on certain topics, including the powers and composition of the Transaction Committee (as defined below), certain financial projections and metrics, line items used to calculate financial projections, a reconciliation of non-GAAP financial metrics to GAAP metrics, input data and assumptions used in Goldman Sachs’ analysis, information relating to the Company’s engagement of KeyBanc Capital Markets Inc., the Company’s nondisclosure agreements with potential counterparties, and details regarding any discussions about the future employment of the Company’s officers and directors. The Ferguson Lawsuit also alleges that the proxy statement fails to disclose the value of company options, restricted stock units, and other equity awards that Company directors, officers, and employees will receive in the proposed merger. The Ferguson Lawsuit seeks to enjoin defendants from proceeding with the proposed merger, rescission of the merger and an award of damages if the merger is consummated, and an award of plaintiff’s costs and attorney’s fees.

The Whitfield Lawsuit asserts a claim under Section 14(a) of the Exchange Act against the Company and the members of our board of directors and a claim under Section 20(a) of the Exchange Act against the directors. The Whitfield Lawsuit alleges that the proxy statement omits material information on certain topics, including input data and assumptions used in Goldman Sachs’ analysis and the Company’s nondisclosure agreements with potential counterparties. The Whitfield Lawsuit seeks to enjoin defendants from proceeding with the proposed merger, rescission of the merger and an award of damages if the merger is consummated, and an award of plaintiff’s costs and attorney’s fees.

The Weinrib Lawsuit and the Milbourne Lawsuits are nearly identical to each other in all respects. The Weinrib and Milbourne Lawsuits each allege that the proxy statement omits material information on certain topics, including certain financial projections, line items used to calculate financial projections, a reconciliation of non-GAAP financial metrics to GAAP metrics, input data and assumptions used in Goldman Sachs’ analysis, information relating to the work performed by KeyBanc Capital Markets Inc., details regarding any discussions about the future employment of the Company’s officers and directors, discussions the Company may have had with Arkhouse Securities LLC after Arkhouse sent the Company a nomination notice for five board seats, and information regarding whether the board considered the possibility that Arkhouse was working in concert with Blackstone. The Weinrib and Milbourne Lawsuits also allege that the Company’s officers stand to benefit from the proposed merger, that the directors failed to evaluate appropriately the Company’s worth, that the directors failed to enhance the Company’s value and protect shareholder interests, and that the Company did not engage in a meaningful auction. Relying on those allegations, the Weinrib and Milbourne Lawsuits each assert a claim for breach of fiduciary duties against the directors in their role as directors, a claim for declaratory and equitable relief against all the Company and the directors, and a claim against Mr. Murphy for allegedly breaching his fiduciary duties as an officer of the Company. The Weinrib and Milbourne Lawsuits seek declaratory relief, an injunction barring the shareholder vote and the consummation of the proposed merger, rescission of the merger if it is consummated, and an award of damages and attorney’s fees.

The results of complex legal proceedings are difficult to predict, and could delay or prevent the Mergers from becoming effective in a timely manner. Although the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that these lawsuits are without merit and intends to defend against these actions vigorously.

Additionally, in the ordinary course of our business, we are subject to claims and administrative proceedings, none of which we believe are material or would be expected to have, individually or in the aggregate, a material adverse effect on us.

Item 1A. Risk Factors

A description of certain factors that may affect our future results and risk factors is set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. As of March 31, ~~2021,~~2022, there have been no material changes in our risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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

~~None.~~Restrictions on Dividends

The Merger Agreement restricts our ability to pay dividends on our capital stock, however, we are permitted to pay (i) a quarterly dividend for the fiscal quarter ended March 31, 2022 on our Common Stock of $0.175 per share with a record date consistent with the historical record date from fiscal year 2021 and (ii) monthly dividends, in accordance with the applicable governing documents and past practice, on our Preferred Stock with record dates consistent with historical record dates from fiscal year 2021. On February 24, 2022, our board of directors declared a quarterly dividend for the fiscal quarter ended March 31, 2022 on our Common Stock of $0.175 per share which was paid on April 14, 2022 to stockholders of record on March 15, 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Information Security

~~On May 4, 2021 (the “Closing Date”), Preferred Apartment Communities Operating Partnership, L.P. (“PAC-OP”), PAC Carveout, LLC (“Carveout”;~~

Board and ~~together with PAC-OP, collectively,~~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 ~~“Borrowers”)~~Company is bringing educational opportunities to the committee members to give them information and ~~Preferred Apartment Communities, Inc. (the “Company”) entered into~~training related to their oversight role. Management has formed an internal Security Committee that ~~certain Amendment No. 3~~reports at least semi-annually to ~~Fourth Amended~~the Nominating and ~~Restated Credit Agreement (the “Amendment”) with~~Corporate Governance Committee and/or the ~~lenders from time to time party thereto (each a “Lender”~~full Board on the Company’s cybersecurity risks and ~~collectively, the “Lenders”), and KeyBank National Association, as administrative agent (“KeyBank”), to amend the terms~~mitigation efforts. The role of the ~~Fourth Amended~~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 ~~Restated Credit Agreement dated as of~~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, ~~2016 that governs PAC-OP’s existing $200 million senior secured revolving~~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.

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 ~~facility (the “Revolving Facility”). The Amendment, among other things, extended~~score with a range of 300 to 850. In addition to its initial score, the ~~maturity date~~Company ranked first in its peer group in four of the five categories rated in the Score Report.

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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 ~~the Revolving Facility, added Carveout~~an organization, as well as a ~~borrower~~concise presentation of key data measurements and ~~modified certain~~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 ~~the financial covenants. As~~similar measurements and data metrics for a group of ~~March 31, 2021, the outstanding balance on the Revolving Facility was approximately $40.0 million.~~peers and their resulting Cyber Risk Scores.

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

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

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

~~Leverage Ratio~~

~~Applicable Revolving Loan Margin for Base Rate Loans~~

~~Applicable Revolving Loan Margin for Eurodollar Loans~~

~~Greater than or equal to 60.0%~~

~~250 bps~~

~~350 bps~~

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

~~200 bps~~

~~300 bps~~

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

~~175 bps~~

~~275 bps~~

~~Less than 45.0%~~

~~150 bps~~

~~250 bps~~

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

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

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

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

Item 6. Exhibits

See Exhibit Index.

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EXHIBIT INDEX
Exhibit Number		Description
2.1		Agreement and Plan of Merger, dated as of February 16, 2022, by and among Pike Parent LLC, Pike Merger Sub I LLC, Pike Merger Sub II LLC, Pike Merger Sub III LLC, Preferred Apartment Communities, Inc., Preferred Apartment Communities Operating Partnership, L.P., and PAC Operations, LLC (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16,2022).
3.1		Articles of Amendment and Restatement of Preferred Apartment Communities, Inc. (Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2021).
3.2		Fifth Amended and Restated By-laws of Preferred Apartment Communities, Inc. (Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2020).
~~10.1~~3.3	*	First Amendment ~~No. 3~~ to ~~that certain Fourth~~Fifth Amended and Restated ~~Credit Agreement dated as~~Bylaws of ~~August 5, 2016 among~~ Preferred Apartment Communities, Inc.~~, Preferred Apartment Communities Operating Partnership, L.P.,~~ (Incorporated by reference to Exhibit 3.1 to the ~~lenders party thereto~~Company's Current Report on Form 8-K filed with the Securities and ~~KeyBank National Association~~
~~10.2~~	*+	~~Form of 2021 Performance Restricted Stock Unit Agreement (Officer)~~Exchange Commission on February 16, 2022).
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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PREFERRED APARTMENT COMMUNITIES, INC.

Date: May ~~10, 2021~~9, 2022

By:

/s/ Joel T. Murphy

Joel T. Murphy

Chief Executive Officer

(Principal Executive Officer)

Date: May ~~10, 2021~~9, 2022

By:

/s/ John A. Isakson

John A. Isakson

Chief Financial Officer

(Principal Financial Officer)

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

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

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


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

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

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


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

		20	$	309,005


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

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

(1) See related party disclosure in Note 6.
(2) The amount payable under the note is collateralized by one of the principals of the borrower's 49.49% interest in an unrelated shopping center located in Atlanta, Georgia and a personal guaranty of repayment by the principals of the borrower.
(3) The amounts payable under the terms of this revolving credit line, up to the lesser of 25% of the loan balance or $2.0 million, are collateralized by a personal guaranty of repayment by the principals of the borrower.
(4) The amounts payable under the terms of these revolving credit lines are collateralized by a personal guaranty of repayment by the principals of the borrower.
(5) The commitment was reduced from $8 million to $1.25 million for the Oxford Capital Partners LOC I on March 30, 2021. A second Oxford line of credit was opened on March 30, 2021 with a commitment of $5.3 million.


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

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

		$	0	$	3,151


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

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

		$	81,413


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

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