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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
Commission File No. 001-34995
Preferred Apartment Communities, Inc.
(Exact name of registrant as specified in its charter)
 
Maryland27-1712193
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3284 Northside Parkway NW, Suite 150, Atlanta, GA 30327
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 818-4100
apts-20201231_g1.jpg
Securities registered pursuant to Section 12(b) of the Act:  
Title of each class
 
Trading symbol
Name of each exchange on which registered
 
Common Stock, par value $.01 per shareAPTSNYSE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Series A Redeemable Preferred Stock, par value $0.01 per share
Warrant to Purchase Common Stock, par value $0.01 per share
Series M Redeemable Preferred Stock, par value $0.01 per share
Series A1 Redeemable Preferred Stock, par value $0.01 per share
Series M1 Redeemable Preferred Stock, par value $0.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company (as defined in Exchange Act Rule 12b-2).
Large accelerated filer  ¨    Accelerated filer   x    Non-accelerated filer  ¨  Smaller reporting company  ¨ Emerging growth company   ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨ 

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes ¨ No x

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2020, the last business day of the registrant's most recently completed second fiscal quarter, was $369,006,699 based on the closing price of the common stock on the NYSE on such date. The number of shares outstanding of the registrant’s common stock, as of February 22, 2021 was 49,994,032.




DOCUMENTS INCORPORATED BY REFERENCE
Certain information to be included in the registrant's definitive Proxy Statement, to be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, for the registrant's 2021 Annual Meeting of Stockholders is incorporated by reference into PART III of this Annual Report on Form 10-K.



TABLE OF CONTENTS
FINANCIAL INFORMATION
Page No.
 
PART I
1.  Business1
1A.
  Risk Factors9
1B.
  Unresolved Staff Comments28
2.  Properties29
3.  Legal Proceedings34
4.  Mine Safety Disclosures34
PART II
5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities34
6.  Selected Financial Data36
7.  Management's Discussion and Analysis of Financial Condition and Results of Operations36
7A.  Quantitative and Qualitative Disclosures about Market Risk67
8.  Financial Statements and Supplementary Data67
9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure67
9A.  Controls and Procedures68
9B.  Other Information68
PART III
10.  Directors, Executive Officers and Corporate Governance69
11.  Executive Compensation69
12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters69
13.Certain Relationships and Related Transactions, and Director Independence69
14.Principal Accountant Fees and Services69
PART IV
15.Exhibits and Financial Statement Schedules70
16.Form 10-K Summary126






PART I

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our actual results could differ materially from those set forth in each forward-looking statement. Certain factors that might cause such a difference are discussed in this report, including in the section entitled “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K. You should also review the section entitled "Risk Factors" in Item 1A of this Annual Report on Form 10-K for a discussion of various risks that could adversely affect us. Unless the context otherwise requires or indicates, references to the "Company", "we", "our" or "us" refers to Preferred Apartment Communities, Inc., a Maryland corporation, together with its consolidated subsidiaries, including Preferred Apartment Communities Operating Partnership, L.P., or our Operating Partnership, and PAC Carveout, LLC.

Item  1.    Business

Development of the Company

    Preferred Apartment Communities, Inc. (NYSE: APTS) is a real estate investment trust engaged primarily in the ownership and operation of Class A multifamily properties, with select investments in grocery anchored shopping centers and Class A office buildings. Preferred Apartment Communities’ investment objective is to generate attractive, stable returns for stockholders by investing in income-producing properties and acquiring or originating real estate loans. As of December 31, 2020, we owned or were invested in 116 properties in 13 states, predominantly in the Southeast region of the United States.

    On January 31, 2020, we internalized the functions performed by Preferred Apartment Advisors, LLC, or our Former Manager and NMP Advisors, LLC, or our Former Sub-Manager, by acquiring NELL Partners, Inc. ("NELL") and NMA Holdings, Inc. ("NMA"), the entities that owned the Former Manager and the Former Sub-Manager (such transactions, collectively, the "Internalization"). The Internalization resulted in the elimination of the previous fee structure between us and the Former Manager, including acquisition and other fees. All managerial and administrative personnel our Former Manager and Former Sub-Manager provided to us pursuant to the Sixth Amended and Restated Management Agreement, effective as of June 3, 2016, or Management Agreement, became employees of the Company effective with the closing of the Internalization. Trusts established, or entities owned, by the family of John A. Williams, the Company’s former Chairman of the Board and Chief Executive Officer, Daniel M. DuPree, the Company’s Executive Chairman of the Board and former Chief Executive Officer of the Company, and Leonard A. Silverstein, the Company’s former Vice Chairman of the Board, and Former President and Chief Operating Officer, were the owners of NELL. Trusts established, or entities owned, by Joel T. Murphy, the Company’s Chief Executive Officer and a member of the Board, the family of Mr. Williams, Mr. DuPree and Mr. Silverstein were the owners of the Former Sub-Manager.

On November 3, 2020, we sold all eight of our student housing communities and one real estate loan investment to an unrelated third party. This achievement of our strategic objective to exit the student housing space provided capital to focus on acquisitions or real estate loans in support of suburban multifamily communities in the Sunbelt region, realign our capital stack, and other corporate purposes.

    Our consolidated financial statements include the accounts of the Company and Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership. The Company controls the Operating Partnership through its sole general partnership interest and prior to Internalization conducted substantially all its business through the Operating Partnership. Following Internalization, the Company conducts substantially all of its business through PAC Carveout, LLC, or Carveout, a subsidiary of the Operating Partnership. For the year ended December 31, 2020, the Company held an approximate 98.5% weighted average ownership percentage in the Operating Partnership.

Our Operating Partnership and Carveout are related parties to us.








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    At December 31, 2020, our portfolio of owned real estate assets and potential additions from purchase options, or rights of first offer, we held from our real estate loan investments consisted of:
Owned as of December 31, 2020 (1)
Potential additions from real estate loan investment portfolio (2) (3)
Potential total
Residential properties:
Properties37 10 47 
Units11,143 2,808 13,951 
Grocery-anchored shopping centers:
Properties54 — 54 
Gross leasable area (square feet)6,208,278 — 6,208,278 
Office buildings:
Properties10 
Rentable square feet3,169,000 195,000 3,364,000 
Development properties2— 
Rentable square feet35,000 — 35,000 
(1) 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.
(2) 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.
(3) The Company has terminated various purchase option agreements in exchange for termination fees. These properties are excluded from the potential additions from our real estate loan investment portfolio.

We completed our initial public offering, or the IPO, on April 5, 2011. Our common stock, par value $.01 per share, or our Common Stock, is traded on the NYSE exchange under the symbol "APTS."

We operate within the following four operating segments:

Multifamily Communities - consists of our portfolio of residential multifamily communities. Prior to the sale of our student housing communities on November 3, 2020, this reportable segment's results also included those assets and was referred to as Residential Properties.

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

New Market Properties - consists of our portfolio of grocery-anchored shopping centers, which are owned by New Market Properties, LLC, a wholly-owned subsidiary of the Company, as well as the financial results from the Company's grocery-anchored shopping center real estate loan.

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.







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Investment Strategy
    We seek to maximize returns for our stockholders by investing in assets that we believe will allow us to grow income and asset value.

Our investment strategies may include, without limitation, the following:

Acquiring Class “A” multifamily assets in performing and stable markets throughout the United States; these properties, we believe, should generate sustainable and growing cash flow from operations. We believe they will also have the potential for capital appreciation. These multifamily assets will generally be located in metropolitan statistical areas, or MSAs, which we expect will generate job growth from a diverse group of business sectors and where we believe new multifamily development of comparable properties is able to be absorbed at attractive rental rates.

Acquiring Class “A” multifamily assets that are intended to be, or currently are, financed with longer-term, assumable, fixed-rate debt typically provided by the Federal Housing Administration ("FHA"), a unit of the Department of Housing and Urban Development ("HUD") programs.

Acquiring Class “A” multifamily assets that present an opportunity to implement a value-add program whereby the properties can be upgraded or improved physically to better take advantage of the market.

Acquiring grocery-anchored shopping centers, typically anchored by one of the market-dominant grocers in that particular market.

Acquiring leading Class “A” office properties in high-growth markets across the southern U.S.

Originating real estate loan investments secured by interests in multifamily communities, membership or partnership interests in multifamily communities, other multifamily related assets, grocery-anchored shopping centers and office properties.

It is our policy to acquire any of our target assets primarily for income, and only secondarily for possible capital gain. As part of our business strategy, we may enter into forward purchase contracts or purchase options for to-be-built multifamily communities, office buildings and retail centers and we may make real estate related loans, provide deposit arrangements, or provide performance assurances, as may be necessary or appropriate, in connection with the construction of multifamily communities and other properties.

We also may invest in real estate related debt, including, but not limited to, newly or previously originated first mortgage loans on multifamily properties, office buildings and retail centers that meet our investment criteria, which are performing or non-performing, newly or previously originated real estate related loans on multifamily properties that meet our investment criteria (second or subsequent mortgages), which are performing or non-performing, and tranches of securitized loans (pools of collateralized mortgaged-backed securities) on multifamily properties that meet our investment criteria, which are performing or non-performing. In connection with our investments in real estate related debt, we may negotiate the inclusion of exclusive purchase options on the to-be-developed properties. These purchase options may include a fixed purchase price set at the time we enter into the loan, or a purchase price which is calculated as a certain discount from market capitalization rates at the date of exercise of such purchase option. Certain of the purchase options we hold may be settled by cash payments to us in the event we elect not to acquire the underlying property.

Financing Strategy

    We intend to finance the acquisition of investments using various sources of capital, as described in the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” included in this Annual Report on Form 10-K. Included in this discussion are details regarding (i) our offering of up to a maximum of 1,000,000 shares of Series A1 Redeemable Preferred Stock, Series M1 Redeemable Preferred Stock or a combination of both (the "Series A1/M1 Offering") and (ii) our ability to offer up to $400 million of equity or debt securities (the "2019 Shelf Offering"), including an offering of up to $125 million of Common Stock from time to time in an "at the market" offering (the "2019 ATM Offering"). The Series A Preferred Stock, par value $0.01 per share, or Series A Preferred Stock; Series M Preferred Stock, par value $0.01 per share, or mShares, Series A1 Preferred Stock, par value $0.01 per share, or Series A1 Preferred Stock, and Series M1 Preferred Stock, par value $0.01 per share, or Series M1 Preferred Stock are collectively referred to as our Preferred Stock.
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    We intend to utilize leverage in making our investments. The number of different 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. See the section entitled "Risk Factors" in Item 1A of this Annual Report on Form 10-K for more information about the risks related to operating on a leveraged basis.
    We generally intend to target leverage levels (secured and unsecured) between 50% and 65% of the fair market value of our tangible assets (including our real estate assets, real estate loans, notes receivable, accounts receivable and cash and cash equivalents) on a portfolio basis. As of December 31, 2020, our outstanding debt (both secured and unsecured) was approximately 49.4% of the value of our tangible assets on a portfolio basis based on our estimates of fair market value at December 31, 2020. Neither our charter nor our by-laws contain any limitation on the amount of leverage we may use. These targets, however, will not apply to individual real estate assets or investments. The amount of leverage we will place on particular 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 extension risk in the portfolio, the availability and cost of financing the asset, our opinion of the creditworthiness of our financing counterparties, the health of the U.S. economy and the health of the commercial real estate market in general. In addition, factors such as our outlook on interest rates, changes in the yield curve slope, the level and volatility of interest rates and their associated credit spreads, the underlying collateral of our assets and our outlook on credit spreads relative to our outlook on interest rate and economic performance could all impact our decision and strategy for financing the target assets. At the date of acquisition of each asset, we anticipate that the investment cost for such asset will be substantially similar to its fair market value. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits. Finally, we intend to acquire all our properties through separate single purpose entities and intend to finance each of these properties using debt financing techniques for that property alone, without any cross-collateralization to our other properties or any guarantees by us or our Operating Partnership. We have an Amended and Restated Credit Agreement, or Credit Facility, with Key Bank, N.A., or Key Bank. The Credit Facility provides for our $200.0 million revolving credit facility, or the Revolving Line of Credit. The Credit Facility requires that we adhere to certain covenants regarding our revolving line of credit, as described in note 9 to our consolidated financial statements. Other than with regard to our Credit Facility, as of December 31, 2020, we held no debt at the Company or operating partnership levels, had no cross-collateralization of our real estate mortgages, and had no contingent liabilities at the Company or operating partnership levels with regard to our secured mortgage debt on our properties.
    Leverage may be obtained from a variety of sources, including the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Federal National Mortgage Association ("Fannie Mae"), commercial banks, credit companies, the FHA, HUD, insurance companies, pension funds, endowments, financial services companies and other institutions who wish to provide debt financing for our assets.
    Our secured and unsecured aggregate borrowings are intended by us to be reasonable in relation to our net assets and will be reviewed by our board of directors at least quarterly. In determining whether our borrowings are reasonable in relation to our net assets, we expect that our board of directors will consider many factors, including the lending standards of government-sponsored enterprises, such as Fannie Mae, Freddie Mac and other companies for loans in connection with the financing of multifamily properties, the leverage ratios of publicly traded and non-traded REITs with similar investment strategies, whether we have positive leverage (in that, the board of directors will compare the capitalization rates of our properties to the interest rates on the indebtedness of such properties) and general market and economic conditions. There is no limitation on the amount that we may borrow for any single investment or the number of mortgages that may be placed on any one property.
Branding Strategy

We brand, and intend to brand, all multifamily communities owned by us as “A Preferred Apartment Community” which we believe signifies outstanding brand and management standards, and have obtained all rights to the trademarks, including federal registration of the trademarks with the United States Patent and Trademark Office, to secure such brand in connection with such branding. We believe these campaigns will enhance each individual property's presence in relation to other properties within that marketplace.

We acquired all the trademarks owned by our Former Manager in connection with the closing of the Internalization transaction on January 31, 2020.




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Human Capital Resources

As of December 31, 2020, we employed 402 people through Preferred Apartment Advisors, LLC, an indirect subsidiary. The success of our company is largely due to the character and quality of our employees, their dedication, experience and work ethic. The success of the following initiatives is reflected in PAC’s recognition as one of the Top Places to Work in Atlanta by the Atlanta Journal-Constitution for the past four years.

Diversity. We believe that diversity of backgrounds, experiences and perspectives makes us stronger and healthier as a company and a community. PAC is an equal opportunity employer and considers qualified applicants regardless of race, color, religion, sexual orientation, gender, gender identity or expression, national origin, age, disability, military or veteran status, genetic information, or other statuses protected by applicable federal, state, and local law. In 2020, we launched our Diversity, Equity & Inclusion initiative, which is designed to facilitate conversations around race, sexual orientation and gender identity, national origin, creeds, and other important topics. These conversations, led by our Diversity, Equity & Inclusion Committee comprised of employees, senior management and a member of our Board of Directors, provide a forum for us to translate our positions as a company into action in both our internal and external communities. As of December 31, 2020, our employees were:

•46% female; 54% male
•40% ethnically diverse (i.e., Asian, African American, Hispanic or Latino and other (Native Hawaiian/Pacific Islander and
two or more))

Training and Education. We have educational training programs known as our Soaring Series that trains our employees to help strengthen their management skills and build camaraderie, and to assist them in understanding and implementing management-level responsibilities.

Recognition. We emphasize recognizing our employees for their achievements and rewarding them for their successes. Each year, we identify a select group of employees who demonstrate outstanding achievements during the year with our Eagle Club and Commitment to Excellence awards. Additionally, we have a spotlight employee of the month award initiative that recognizes a particular employee for her or his achievements.

Employee Health. We have focused on the health and well-being of our employees by organizing a PAC Gets Fit program to encourage a healthy lifestyle. Activities have included fitness challenges and organized 5Ks and 10Ks to promote physical and mental health and wellness. We evaluate our group health and ancillary benefits annually to ensure our benefits package is robust. We also created our Eagle’s Perch, a café-style environment, to promote increased social interactions among our property support center employees.

Compensation and Benefits. In 2020, we revamped our compensation program to provide a a mix of base salary, short-term cash incentive compensation, and long-term equity incentive compensation that includes objective benchmarking, time-based and performance-based vesting, and peer comparisons where appropriate. We believe this new design will retain and motivate key contributors to the company’s profitability and growth; align employee and investor interests; provide incentive compensation that places a strong emphasis on financial performance with the flexibility to assess operational and individual performance; provide a means to reward for strong performance; and to foster an ownership mentality among program participants. We also provide a competitive benefits package, including a 401(k) plan with a company match, flexible spending and health saving accounts, medical, dental and vision insurance plans, a paid parental leave policy, and company-paid short-term disability and long-term disability programs.

PAC Gives Back. We value and continue to emphasize culture and giving back to the community. We started a PAC Gives Back community philanthropic initiative and as a part of this initiative, our employees have volunteered hours and have participated in fund raising efforts for a number of charities, including the Atlanta Community Food Bank. We are proud to make these communities better places to live and work through our volunteerism and philanthropy initiatives.

Fostering Company Culture and Providing Support to Employees During COVID-19 Pandemic. At PAC, we are focused on the continued health and safety of our employees, residents and tenants. We effectively implemented our business continuity plans, including full “work-from-home” policies in March 2020. To protect and foster the Company’s culture during the COVID-19 pandemic, we formed a COVID-19 taskforce that organized surveys, virtual hangout events and other remote programming to keep our employees connected while working from home. Following the installation of hand sanitizer stations as well as supplying our employees with personal protective equipment, or PPE, we have now reopened our corporate headquarters and most of our multifamily leasing offices while promoting social distancing practices in accordance with state and local mandates and restrictions. We have also halted all non-essential business travel, introduced video call technology and self-guided tour options to provide uninterrupted customer service for our residents and visitors. The health and safety of our
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employees and tenants remains a top priority so we continue to maintain a flexible approach as we navigate the COVID-19 pandemic.

Environmental Matters

As a part of our standard property acquisition processes, we generally obtain environmental studies of the sites from outside environmental engineering firms. The purpose of these studies is to identify potential sources of contamination at the site and to assess the status of environmental regulatory compliance. These studies generally include historical reviews of the site, reviews of certain public records, preliminary investigations of the site and surrounding properties, inspection for the presence of asbestos, poly-chlorinated biphenyls and underground storage tanks and the preparation and issuance of written reports. Depending on the results of these studies, more invasive procedures, such as soil sampling or ground water analysis, may be performed to investigate potential sources of contamination. These studies must be satisfactorily completed before we take ownership of a property; however, no assurance can be given that the studies or additional documents reviewed identify all significant environmental risks. See “Risk Factors – Risks Relating to Investments In Real Estate - The costs of compliance with environmental laws and regulations and other governmental laws and regulations may adversely affect our income and the cash available for any distributions” and “Risk Factors – Risks Relating to Investments In Real Estate - Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results” in this Annual Report on Form 10-K.

The environmental studies we received on properties that we have acquired have not revealed any material environmental liabilities. Should any potential environmental risks or conditions be discovered during our due diligence process, the potential costs of remediation will be assessed carefully and factored into the cost of acquisition, assuming the identified risks and factors are deemed to be manageable and within reason. We are not aware of any existing conditions that we believe would be considered a material environmental liability. Nevertheless, it is possible that the studies do not reveal all environmental risks or that there are material environmental liabilities of which we are not aware. Moreover, no assurance can be given concerning future laws, ordinances or regulations, or the potential introduction of hazardous or toxic substances by neighboring properties or residents.

Government Regulations

We must own, operate, manage, acquire and redevelop our properties in compliance with the laws and regulations of the United States, as well as state and local laws and regulations in the markets where our properties are located, which may differ among jurisdictions. In response to the COVID-19 pandemic, federal governmental authorities, as well as state and local governmental authorities in jurisdictions where our properties are located, have implemented laws and regulations which impact our ability to operate our business in the ordinary course, including our ability to charge certain fees, increase rents and evict residents who violate their lease. We are complying with these governmental requirements, but they, along with the COVID-19 pandemic, had a material impact on our business in 2020 and ongoing compliance may materially affect our results of operations for the year ending December 31, 2021. Otherwise, we do not expect that compliance with the various laws and regulations we are subject to will have a material effect on our capital expenditures, results of operations and competitive position for the year ending December 31, 2021, as compared to prior periods.

For additional information, see “Risk Factors – Risks Related to the COVID-19 Pandemic - The ongoing COVID-19 pandemic and restrictions intended to prevent its spread could adversely impact our business, results from operations, cash flows, liquidity and capital resources and the market value of our assets,” “Risk Factors – Risk Factors – Risks Relating to Investments In Real Estate - Compliance with the governmental laws, regulations and covenants that are applicable to our properties, including permit, license and zoning requirements, may adversely affect our ability to make future acquisitions or renovations, result in significant costs or delays and adversely affect our growth strategy”, “Risk Factors – Risks Relating to Investments In Real Estate - The costs of compliance with environmental laws and regulations and other governmental laws and regulations may adversely affect our income and the cash available for any distributions” and “Risk Factors – Risks Relating to Investments In Real Estate - Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results” in this Annual Report on Form 10-K.

Competition

The multifamily housing industry is highly fragmented and we compete for residents with a large number of other quality multifamily communities in our target markets which are owned by public and private companies, pension funds, high net worth individuals and family offices, including other REITs, many of which are larger and have more resources than our Company. The number of competitive multifamily properties in a particular market could adversely affect our ability to lease
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our multifamily communities, as well as the rents we are able to charge. In addition, other forms of residential properties, including single family housing and town homes, provide housing alternatives to potential residents of quality apartment communities. The factors on which we focus to compete for residents in our multifamily communities include our high level of resident service, the quality of our apartment communities (including our landscaping and amenity offerings), and the desirability of our locations. Resident leases at our apartment communities are priced competitively based on levels of supply and demand within our target markets and we believe our communities offer a compelling value to prospective residents.

    Similarly, competition for tenants and acquisition of existing centers in the grocery-anchored shopping center sector in our target markets is considerable, consisting of public and private companies, pension funds, high net worth individuals and family offices, including other REITs, many of which are larger and have more resources than our Company. In addition, a significant competitor in this sector are some of the grocery anchors themselves as they acquire land and build their own stores or acquire the entire center where they are the anchor. We are faced with the challenge of maintaining high occupancy rates with a financially stable tenant base. In order to attract quality prospective tenants and retain current tenants upon expiration of their leases, we focus on improving the design and visibility of our centers, building strong relationships with our tenants, and reducing excess operating costs and increasing tenant satisfaction through proactive asset and property management. We target acquisitions in markets with solid surrounding demographics, quality underlying real estate locations, and centers where our asset management approach can provide an environment conducive to creating sales productivity for our tenants.

    We also compete with other primarily institutional-quality owners and investors in the business of acquiring, investing to develop, leasing and operating office properties. We leverage relationships, track record, and the high quality of our physical assets and locations to compete successfully. Additional principal factors of competition are the leasing terms (including rental rates and concessions or allowances offered) and the terms of any other investment activity such as real estate loan investments in new development. Additionally, our ability to compete depends upon, among other factors, trends of the national and local economies, investment alternatives, financial condition and operating results of current and prospective tenants, availability and cost of capital, construction and renovation costs, taxes, utilities, governmental regulations, legislation and population trends. 

Available Information

The Company makes available all reports which are filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material has been filed with, or furnished to, the SEC for viewing or download free of charge at the Company's website: www.pacapts.com. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

Risk Factor Summary

The following section sets forth a summary of material factors that may adversely affect our business and operations. For a more extensive discussion of these factors, see “1A. Risk Factors” contained in this Annual Report on Form 10-K.

The ongoing COVID-19 pandemic and restrictions intended to prevent its spread could adversely impact our business, results from operations, cash flows, liquidity and capital resources and the market value of our assets.
General real estate investment risks may adversely affect property income and values.
Compliance with the governmental laws, regulations and covenants that are applicable to our properties, including permit, license and zoning requirements and the American with Disabilities Act, may adversely affect our ability to make future acquisitions or renovations, result in significant costs or delays and adversely affect our growth strategy.
Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs.
Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to our stockholders.
There are significant risks with respect to property acquisition, disposition and capital improvement.
We face potential adverse effects from major tenants’ bankruptcies or insolvencies.
Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers' financial condition, and disputes between us and our co-venturers and could expose us to potential liabilities and losses.
We are subject to geographic concentrations that make us more susceptible to adverse events with respect to certain geographic areas.
Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.
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We must comply with the government regulations and rules and failure to comply may affect cash available for distributions.
Short-term apartment leases expose us to the effects of declining market rents, which could adversely impact our ability to make distributions to our stockholders.
Competition in the apartment community market and other housing alternatives may adversely affect operations and the rental demand for our multifamily communities.
Downturns in the retail industry likely will have an adverse impact on our grocery-anchored revenues and cash flow.
Loss of revenues from significant tenants and our in-line tenants could reduce distributions to our stockholders.
Our Common Area Maintenance (“CAM”) contributions may not allow us to recover the majority of our operating expenses from retail tenants.
Increased competition to traditional grocery chains from new market participants, Amazon, online supermarket retailers and food delivery services could adversely affect our grocery-anchored revenues and cash flow.
We face considerable competition in the office leasing market and may be unable to renew existing office leases or re-let office space on terms similar to the existing leases, or we may expend significant capital in our efforts to re-let office space, which may adversely affect our operating results.
Office space demand for office tenants could be reduced following the COVID-19 pandemic due to increased work from home capabilities adopted by businesses during the COVID-19 pandemic which may affect rental demand and rental rates for office buildings that could have an adverse affect on our operating results.
Our investments in, or originations of, senior debt or subordinate debt and our investments in membership or partnership interests in entities that own real estate assets will be subject to the specific risks relating to the particular company and to the general risks of investing in real estate-related loans and securities, which may result in significant losses.
Our real estate loan assets will involve greater risks of loss than senior loans secured by income-producing properties.
We may rely significantly on repayment guarantors of our real estate loan investments and, therefore, could be subject to credit concentration that makes us more susceptible to adverse events with respect to such guarantors.
We have significant debt, which could have important adverse consequences.
We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our ability to pay dividends.
If mortgage debt is unavailable at reasonable rates or reasonable amounts, it may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flows from operations and the amount of cash distributions we can make.
Volatility in and regulation of the commercial mortgage-backed securities market has limited and may continue to impact the pricing of secured debt.
We depend on our key personnel, whose continued service is not guaranteed.
Our ability to grow the Company and execute our business strategy may be impaired if we are unable to secure adequate financing.
Distributions paid from sources other than our net cash provided by operating activities, particularly from proceeds of any offerings of our securities, will result in us having fewer funds available for the acquisition of properties and other real estate-related investments, which may adversely affect our ability to fund future distributions with net cash provided by operating activities and may adversely affect our stockholders' overall return.
The cash distributions our stockholders receive may be less frequent or lower in amount than our stockholders expect.
Stockholders have limited control over changes in our policies and operations.
Our authorized but unissued shares of Common Stock and Preferred Stock may prevent a change in our control.
Because of our holding company structure, we depend on our Operating Partnership subsidiary and its subsidiaries for cash flow and we will be structurally subordinated in right of payment to the obligations of such Operating Partnership subsidiary and its subsidiaries.
Our rights and the rights of our stockholders to recover on claims against our directors and officers are limited, which could reduce our stockholders, and our recovery against them if they negligently cause us to incur losses.
We may change our operational policies (including our investment guidelines, strategies and policies and the targeted assets in which we invest) with the approval of our board of directors but without stockholder consent or notice at any time, which may adversely affect the market value of our Common Stock, our results of operations and cash flows and our ability to pay dividends to our stockholders.
Upon the sale of any individual property or a portfolio of properties, holders of our Preferred Stock do not have a priority over holders of our Common Stock regarding return of capital.
Breaches of our data security could materially harm our business and reputation.
There is no public market for our Preferred Stock or warrants to purchase up to 20 shares of Common Stock, or Warrants, and we do not expect one to develop.
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We will be required to terminate the Series A1/M1 Offering if our Common Stock is no longer listed on the NYSE or another national securities exchange.
Our ability to redeem shares of Preferred Stock for cash may be limited by Maryland law.
The Preferred Stock are senior securities, and rank senior to our Common Stock with respect to dividends and payments upon liquidation.
The Preferred Stock will be subordinate in right of payment to any corporate level debt that we incur in the future, therefore our stockholders' interests could be diluted by the issuance of additional preferred stock, and by other transactions.
We will be able to call our shares of Preferred Stock for redemption under certain circumstances without our stockholders' consent.
Loss of our REIT status would have significant adverse consequences to us, the value of Common Stock and our ability to make distributions to our Stockholders.

Item 1A.    Risk Factors

In addition to the other information contained in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating us and our business. Our business, operating results, prospects and financial condition could be materially adversely affected by any of these risks. The risks and uncertainties described below are not the only ones we face, but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that, as of the date of this Annual Report on Form 10-K, we deem immaterial also may harm our business. This “Risk Factors” section contains references to our “capital stock” and to our “stockholders.”  Unless expressly stated otherwise, the references to our “capital stock” represent our common stock and any class or series of our preferred stock, while the references to our “stockholders” represent holders of our common stock and any class or series of our preferred stock. Unless expressly stated otherwise, the references to our Preferred Stock refer to our Series A Preferred Stock, mShares, Series A1 Preferred Stock and Series M1 Preferred Stock.

Risks Related to the COVID-19 Pandemic

The ongoing COVID-19 pandemic and restrictions intended to prevent its spread could adversely impact our business, results from operations, cash flows, liquidity and capital resources and the market value of our assets. Our operating results depend, in large part, on revenues derived from leasing apartment homes in our communities to residential tenants, the ability of our residents to earn sufficient income to pay their rents in a timely manner, the extent to which we waive late and other customary fees associated with the apartment rental process, and our ability to limit bad debt and maintain operating results by evicting and re-leasing apartment homes when residents remain delinquent in their payment of rent. Additionally, a prolonged imposition of mandated closures or other social-distancing guidelines may adversely impact our retail and office tenants’ ability to generate sufficient revenues, and could force tenants to default on their leases, or result in a tenant’s bankruptcy or insolvency, which would diminish the Company’s ability to receive rental revenue it is owed under their leases. 

Across our property types, our average recurring rental revenue collections before and after any effect of rent deferrals for the fourth quarter 2020 were approximately 99.1% and 99.1% for multifamily communities, 97.4% and 98.1% for grocery-anchored retail properties and 99.7% and 99.7% 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. While we are and will continue to be actively engaged in rent collection efforts, as well as working with certain tenants who have requested rent deferrals, we can provide no assurance that our efforts in future periods will be successful in collecting rent.

The ongoing COVID-19 pandemic continues to evolve, and the restrictions intended to prevent its spread have impacted the markets where our properties operate. COVID-19 (or a future pandemic) could have a material and adverse effect on or cause disruption to our business or financial condition, results from operations, cash flows, liquidity and capital resources and the market value or our assets, all of which can impact the trading price of our common stock due to, among other factors:

A complete or partial closure of, or other operational issues at the Company’s properties as a result of government or tenant action;
In the event of resident nonpayment, default or bankruptcy, the uncollectibility of rent could increase and we may not be able to re-lease apartment homes at current or projected rents. Our occupancy levels and pricing across our portfolio may decline due to changes in demand or logistical challenges in showing or leasing apartment homes to prospective residents, including restrictions inhibiting our employees’ ability to meet with existing or potential residents;
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Our properties may incur significant costs or losses related to shelter-in-place orders, quarantines, infection, clean-up costs or other related factors;
Federal, state, local and industry-initiated efforts that may adversely affect the ability of landlords, including us, to collect rent and customary fees, adjust rental rates and enforce remedies for the failure to pay rent, such as the order issued by the U.S. Centers for Disease Control and Prevention, or CDC, to temporarily halt residential evictions to prevent further spread of COVID-19;
The declines in or instability of the economy or financial markets may result in a recession or negatively impact consumer discretionary spending, which could adversely affect retailers and consumers;
The reduction of economic activity has impacted our office and retail tenants' business operations, financial condition, liquidity and access to capital resources that resulted in us agreeing to rent deferrals and/or lease modifications and caused tenant bankruptcies and may cause these and others tenants to be unable to meet their obligations to us in full, or at all, to default on their lease, or to otherwise seek modifications of such obligations;
Severe and prolonged disruption and instability in the financial markets, including the debt and equity capital markets, which have already experienced and may continue to experience significant volatility, or deterioration in credit and financing conditions (or a refusal or failure of one or more lenders under our unsecured revolving credit facility to fund their respective financing commitment to us), which may affect our ability to access capital necessary to fund our business operations or refinance maturing debt on a timely basis, on attractive terms or at all, which would adversely affect our ability to meet liquidity and capital expenditure requirements;
A general decline in business activity and demand for real estate transactions would adversely affect the Company’s ability to successfully execute investment strategies or expand its portfolio; and
The potential negative impact on the health of the Company’s associates or Board of Directors, particularly if a significant number are impacted, or the impact of government actions or restrictions, including stay-at-home orders, restricting access to our headquarters located in Atlanta, Georgia, could result in a deterioration in our ability to ensure business continuity during a disruption.

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

The impact of COVID-19 may also heighten other risks discussed herein, which could adversely affect our business, financial condition, results of operations, cash flows and estimated share value.

Risks Related to Investments in Real Estate

General real estate investment risks may adversely affect property income and values. Real estate investments are subject to a variety of risks. If the communities and other real estate investments do not generate sufficient income to meet operating expenses, including debt service and capital expenditures, cash flow and the ability to make distributions to our stockholders will be adversely affected. Income from the properties may be further adversely affected by, among other things, the following factors:

changes in the general or local economic climate, including layoffs, plant closings, industry slowdowns, relocations of significant local employers and other events negatively impacting local employment rates and wages and the local economy and occupancy rates in retail shopping centers and office buildings;
inflationary environments in which the costs to operate and maintain communities increase at a rate greater than our ability to increase rents, or deflationary environments where we may be exposed to declining rents more quickly under our short-term leases;
local real estate market conditions, such as oversupply or reduction in demand for our properties;
competition from other available alternatives properties in our markets for our tenants;
changes in space utilization by our tenants due to technology, economic conditions and business culture;
the Company’s ability to provide for adequate maintenance and insurance;
a pandemic or other health crisis, such as the outbreak and global spread of COVID-19;
tenants' perceptions of the safety, convenience and attractiveness of our properties and the neighborhoods where they are located;
declines in the financial condition of our tenants and residents, which may make it more difficult for us to collect rent;
increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened
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security costs; and
changes in interest rates and availability of financing.

As leases at the communities expire, tenants may enter into new leases on terms that are less favorable to us. Income and real estate values also may be adversely affected by such factors as applicable laws, including, without limitation, the Americans with Disabilities Act of 1990 (the "Disabilities Act"), Fair Housing Amendment Act of 1988 (the "FHAA"), laws and regulations regarding evictions, other laws regulating housing that may prevent the Company from raising rents to offset increased operating expenses, and tax laws.

Natural disasters could significantly reduce the value of our properties and our stockholders' investment. Natural disasters, including hurricanes, tornadoes, earthquakes, wildfires and floods could significantly reduce the value of our properties. While we will attempt to obtain adequate insurance coverage for natural disasters, insurance may be too expensive, may have significant deductibles, or may not properly compensate us for the long-term loss in value or rent loss that a property may suffer if the area around it suffers a significant natural disaster. As a result, we may not be compensated for the loss in value. Any diminution in the value of our properties or properties underlying an investment that is not fully reimbursed will reduce our profitability and adversely affect the value of our stockholders' investment.

We face possible risks associated with the physical effects of climate change. The physical effects of climate change could have a material adverse effect on our properties, operations and business, particularly our properties along the East Coast and in Texas. To the extent climate change causes changes in weather patterns, our markets could experience increases in storm intensity and rising sea-levels. Over time, these conditions could result in declining demand for apartments or our inability to operate the affected properties at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable. There can be no assurance that climate change will not have a material adverse effect on our properties, operations or business.

We may suffer losses that are not covered by insurance. If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits. We intend to obtain comprehensive insurance for our properties, including casualty, liability, fire, extended coverage and rental loss customarily, that is of the type obtained for similar properties and in amounts which we determine are sufficient to cover reasonably foreseeable losses, and with policy specifications and insured limits that we believe are adequate and appropriate under the circumstances. Material losses may occur in excess of insurance proceeds with respect to any property as insurance proceeds may not provide sufficient resources to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to acts of war, earthquakes, floods, wind, pollution, environmental matters or terrorism which are either uninsurable, not economically insurable, or may be insured subject to material limitations, such as large deductibles or co-payments. If an uninsured loss or a loss in excess of insured limits occurs on a property, we could lose our capital invested in the property, as well as the anticipated future revenues from the property and, in the case of debt that is recourse to us, would remain obligated for any mortgage debt or other financial obligations related to the property. Any loss of this nature would adversely affect us. Although we intend to adequately insure our properties, we can offer no assurance that we will successfully do so.

Compliance with the governmental laws, regulations and covenants that are applicable to our properties, including permit, license and zoning requirements, may adversely affect our ability to make future acquisitions or renovations, result in significant costs or delays and adversely affect our growth strategy. Our properties are subject to various covenants and local laws and regulatory requirements, including permitting and licensing requirements. Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants (some of which may be imposed by community developers), may restrict the use of our properties and may require us to obtain approval from local officials or community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. Among other things, these restrictions may relate to fire and safety, seismic, asbestos-containing materials abatement or management or hazardous material abatement requirements. We cannot assure our stockholders that existing regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that would increase such delays or result in additional costs. Our growth strategy may be materially and adversely affected by our ability to obtain permits, licenses and zoning approvals. Our failure to obtain such permits, licenses and zoning approvals could have a material adverse effect on our business, financial condition and results of operations.

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Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs. The Disabilities Act generally requires that public buildings, including “public accommodations," be made accessible to disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If, under the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties or in properties we acquire, including the removal of access barriers, it could adversely affect our financial condition and results of operations, as well as the amount of cash available for distribution to our stockholders. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations.

If we purchase assets at a time when the real estate market is experiencing substantial influxes of capital investment and competition for properties, the real estate we purchase may not appreciate or may decrease in value. The real estate market may experience substantial influxes of capital from investors. This substantial flow of capital, combined with significant competition for the acquisition of real estate, may result in inflated purchase prices for such assets and compression of capitalization rates. To the extent we purchase real estate in such an environment, we are subject to the risk that, if the real estate market subsequently ceases to attract the same level of capital investment, or if the number of companies seeking to acquire such assets decreases, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets.

We may be unable to sell a property if or when we decide to do so, or we may not make a profit if we sell a property, which could adversely impact our ability to make distributions to our stockholders. In connection with the acquisition of a property, we may agree on restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property or agreeing to significant debt prepayment costs if a property is sold and the debt is repaid before maturity. Even absent such restrictions, the real estate market is affected by many factors that are beyond our control, including general economic conditions, availability of financing, interest rates and supply and demand. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or real estate-related asset. If we are unable to sell a property or real estate-related asset when we determine to do so or we sell and fail to recover all or a portion of our investment, it could have a significant adverse effect on our cash flow and results of operations. As a result, we may not have funds to make distributions to our stockholders.

Our ability to sell our properties also may be limited by our need to avoid a 100% penalty tax that is imposed on gain recognized by a REIT from the sale of property characterized as dealer property. In order to ensure that we avoid such characterization we may be required to hold our properties for a minimum period of time and comply with certain other requirements in the Code, or possibly hold some properties through taxable REIT subsidiaries, or TRSs, that must pay full corporate-level income taxes.

We may have difficulty selling real estate investments, and our ability to distribute all or a portion of the net proceeds from such sale to our stockholders may be limited. Real estate investments are relatively illiquid, and as a result, we will have a limited ability to vary our portfolio in response to changes in economic or other conditions. We also will have a limited ability to sell assets in order to fund working capital and similar capital needs. When we sell any of our properties, we may not realize a gain on such sale. We may elect not to distribute any proceeds from the sale of properties to our stockholders and we may use such proceeds to:

purchase additional properties;
repay debt, if any;
redeem shares of Preferred Stock or repurchase our Common Stock;
buy out the interests of any co-venturers or other partners in any joint venture in which we are a party;
create working capital reserves; or
make repairs, maintenance, tenant improvements or other capital improvements or expenditures to our remaining properties.

We face potential adverse effects from major tenants’ bankruptcies or insolvencies. The bankruptcy or insolvency of a major tenant may adversely affect the income produced by our retail and/or office properties. Our tenants could file for bankruptcy protection or become insolvent in the future. We cannot evict a tenant solely because of its bankruptcy. On the other hand, a
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bankrupt tenant may reject and terminate its lease with us. In such case, our claim against the bankrupt tenant for unpaid and future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease, and, even so, our claim for unpaid rent would likely not be paid in full. This shortfall could adversely affect our cash flow and results of operations.

We may incur foreseen or unforeseen liabilities in connection with properties we acquire. Our anticipated acquisition activities are subject to many risks. We may acquire properties that are subject to liabilities or that have problems relating to their environmental condition, state of title, physical condition or compliance with zoning laws, building codes or other legal requirements. In each case, our acquisition may be without any, or with only limited, recourse with respect to unknown liabilities or conditions. As a result, if any liability were asserted against us relating to those properties or entities, or if any adverse condition existed with respect to the properties or entities, we might have to pay substantial sums to settle or cure it, which could adversely affect our cash flow and operating results.

The costs of compliance with environmental laws and regulations and other governmental laws and regulations may adversely affect our income and the cash available for any distributions. All real property and the operations conducted on real property are subject to certain federal, state and local laws and regulations relating to environmental protection and human health and safety. Such federal laws might include: the National Environmental Policy Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Solid Waste Disposal Act as amended by the Resource Conservation and Recovery Act; the Federal Water Pollution Control Act; the Federal Clean Air Act; the Toxic Substances Control Act, the Emergency Planning and Community Right to Know Act; and the Hazard Communication Act. These laws and regulations generally govern wastewater discharges, air emissions, the regulation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination, including of off-site third party owned disposal sites. As is the case with community and neighborhood shopping centers, some of our centers had on-site dry cleaning and/or on-site gasoline retail facilities and these prior uses could potentially increase our environmental liability exposure. Some of these laws and regulations may impose joint and several liability on residents, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. In addition, the presence of certain regulated substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent the property or to use the property as collateral for future borrowing.

We could incur losses from claims relating to the presence of, or exposure of tenants to, indoor air quality issues, including the presence of mold in warmer climates or other microbial organisms, particularly if we are unable to maintain adequate insurance to cover such losses. We also may incur unexpected expenses relating to the abatement of mold on properties that we acquire.

Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. We cannot assure our stockholders that future laws, ordinances or regulations will not impose any material environmental liability, or that the current environmental condition of our properties will not be affected by the activities of residents, existing conditions of the land, operations in the vicinity of the properties, or the activities of unrelated third parties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply. Failure to comply with applicable laws and regulations could result in fines and/or damages, suspension of personnel of our Manager and/or other sanctions.

Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or regulated substances on, under, in or about such property. The costs of investigation, removal or remediation of such substances could be substantial. Those laws may impose liability whether or not the owner or operator knew of, or was responsible for, the presence of the substances.

Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and compliance with those restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles govern the presence, maintenance, removal and disposal of certain building materials, including mold, asbestos and lead-based paint.

The cost of defending against such claims of liability, of compliance with environmental requirements, of remediating any contaminated property, or of paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently, the amounts available for distribution to our stockholders.
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We cannot assure our stockholders that properties which we acquire will not have any material environmental conditions, liabilities or compliance concerns. Accordingly, we have no way of determining at this time the magnitude of any potential liability to which we may be subject arising out of environmental conditions or violations with respect to the properties we may purchase.

The profitability of our acquisitions is uncertain. We intend to acquire properties selectively. Acquisition of properties entails risks that investments will fail to perform in accordance with expectations. In undertaking these acquisitions, we will incur certain risks, including the expenditure of funds on, and the devotion of management's time to, transactions that may not come to fruition. Additional risks inherent in acquisitions include risks that the properties will not achieve anticipated occupancy levels and that estimates of the costs of improvements to bring an acquired property up to our standards may prove inaccurate.

Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers' financial condition, and disputes between us and our co-venturers and could expose us to potential liabilities and losses. In addition to our existing joint ventures, we may make investments in other joint ventures or other partnership arrangements between us, our affiliates or with unaffiliated third parties. We also may purchase properties in partnerships, co-tenancies or other co-ownership arrangements. Such investments may involve risks not otherwise present when acquiring real estate directly, including, for example:
joint venturers may share certain approval rights over major decisions, including sale and refinancing;
a co-venturer, co-owner or partner may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint venture or the timing of termination or liquidation of the joint venture;
a co-venturer, co-owner or partner in an investment might become insolvent or bankrupt;
we may incur liabilities as a result of an action taken by our co-venturer, co-owner or partner;
a co-venturer, co-owner or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT;
disputes between us and our joint venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable joint venture to additional risk; or
under certain joint venture arrangements, neither venture partner may have the power to control the venture, and an impasse could be reached which might have a negative influence on the joint venture.

We are subject to geographic concentrations that make us more susceptible to adverse events with respect to certain geographic areas. We are subject to geographic concentrations, the carrying values of which are as follows as of December 31, 2020:
 Carrying value of real estate assets and real estate-related loans, in millions:Percentage
Florida$1,149.3 29.4 %
Georgia790.6 20.2 %
North Carolina806.2 20.6 %
Texas293.7 7.5 %
Virginia209.9 5.4 %
Tennessee157.2 4.0 %
Alabama142.4 3.6 %
California120.1 3.1 %
South Carolina76.4 2.0 %
Maryland63.1 1.6 %
Pennsylvania37.1 0.9 %
Kansas35.6 0.9 %
Kentucky32.0 0.8 %
Total$3,913.6 100.0 %

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Any economic downturn or other adverse condition in one or more of these states, or in any other state in which we may have a significant concentration in the future, could result in a material reduction of our cash flows or material losses to us.

Failure to succeed in new markets or sectors may have adverse consequences on our performance. We may make acquisitions outside of our existing market areas if appropriate opportunities arise. We may be exposed to a variety of risks if we choose to enter new markets, including an inability to accurately evaluate local market conditions, to identify appropriate acquisition opportunities, to hire and retain key personnel, and a lack of familiarity with local governmental and permitting procedures. In addition, we may abandon opportunities to enter new markets that we have begun to explore for any reason and may, as a result, fail to recover expenses already incurred.

Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations. We are likely to acquire multiple properties in a single transaction. Such portfolio acquisitions are more complex and expensive than single-property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions also may result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate, or attempt to dispose of, these properties. We may be required to accumulate a large amount of cash in order to acquire multiple properties in a single transaction. We would expect that the returns that we can earn on such cash will be less than the ultimate returns on real property, and therefore, accumulating such cash could reduce our funds available for distributions. Any of the foregoing events may have an adverse effect on our operations.

Risks Related to our Investments in Multifamily Communities

We must comply with the FHAA and failure to comply may affect cash available for distributions. We must comply with the FHAA, which requires that apartment communities first occupied after March 13, 1991 be accessible to handicapped residents and visitors. Compliance with the FHAA could require removal of structural barriers to handicapped access in a community, including the interiors of apartment units covered under the FHAA. Recently there has been heightened scrutiny of multifamily housing communities for compliance with the requirements of the FHAA and the ADA and an increasing number of substantial enforcement actions and private lawsuits have been brought against apartment communities to ensure compliance with these requirements. Noncompliance with the FHAA could result in the imposition of fines, awards of damages to private litigants, payment of attorneys' fees and other costs to plaintiffs, substantial litigation costs and substantial costs of remediation that may affect cash available for distributions.

Short-term apartment leases expose us to the effects of declining market rents, which could adversely impact our ability to make distributions to our stockholders. We expect that most of our apartment leases will be for terms of thirteen months or less. Because these leases generally permit the residents to leave at the end of the lease term without any penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.

Competition in the apartment community market and other housing alternatives may adversely affect operations and the rental demand for our multifamily communities. There are numerous housing alternatives that compete with our communities in attracting tenants. These include other apartment communities, condominiums and single-family homes that are available for rent or for sale in the markets in which our communities are located. Competitive housing in a particular area and fluctuations in cost of owner-occupied single- and multifamily homes caused by a decrease in housing prices, mortgage interest rates and/or government programs to promote home ownership or create additional rental and/or other types of housing, could adversely affect our ability to retain tenants, lease apartment homes and increase or maintain rents. If the demand for our communities is reduced or if competitors develop and/or acquire competing apartment communities, rental rates may drop, which may have a material adverse effect on the Company’s financial condition and results of operations. We also faces competition from other companies, REITs, businesses and other entities in the acquisition and operation of apartment communities. This competition may result in an increase in prices and costs of apartment communities that we intend to acquire.

Risks Related to our Grocery-Anchored Shopping Center Investments

Downturns in the retail industry likely will have a direct adverse impact on our grocery-anchored revenues and cash flow. Our retail properties currently owned and planned for acquisition consist primarily of grocery-anchored shopping centers. Our retail performance therefore is generally linked to economic conditions in the market for retail space. The market for retail space could be adversely affected by any of the following:
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weakness in the national, regional and local economies, and declines in consumer confidence which could adversely impact consumer spending and retail sales and in turn tenant demand for space and could lead to increased store closings;
changes in market rental rates;
changes in demographics (including the number of households and average household income) surrounding our shopping centers;
adverse financial conditions for grocery anchors and other retail, service, medical or restaurant tenants;
continued consolidation in the retail and grocery sector;
excess amount of retail space in our markets;
reduction in the demand by tenants to occupy our shopping centers as a result of reduced consumer demand for certain retail formats;
increased diversification of product offerings by grocery anchors can lead to increased competition, declining same store sales and store closings;
increases in e-commerce and alternative distribution channels may negatively affect out tenant sales or decrease the square footage our tenants require and could lead to margin pressure on our grocery anchors, which could lead to store closures;
the impact of an increase in energy costs on consumers and its consequential effect on the number of shopping visits to our centers;
a pandemic or other health crisis, such as the recent outbreak of novel coronavirus (COVID-19); and
consequences of any armed conflict involving, or terrorist attack against, the United States.
 
To the extent that any of these conditions occur, they are likely to impact market rents for retail space, occupancy in our retail properties, our ability to sell, acquire or develop retail properties, and our cash available for distributions to stockholders.
Loss of revenues from significant tenants and our in-line tenants could reduce distributions to our stockholders. For our currently owned and planned acquisitions of grocery-anchored shopping centers, we derive or will derive significant revenues from anchor tenants such as Publix, Kroger, Harris Teeter, Wal-Mart, Food Lion, Giant, Randall's, Sprouts, BJ's Wholesale Club and The Fresh Market, in addition to our in-line tenants.

Distributions to our stockholders could be adversely affected by the loss of revenues in the event our tenants:

become bankrupt or insolvent;
experience a downturn in their business;
materially default on their leases;
do not renew their leases as they expire; or
renew at lower rental rates.

Vacated anchor space, including space owned by the anchor, can also reduce rental revenues generated by the shopping center because of the loss of the departed anchor tenant's customer drawing power. The closing of one or more anchor stores at a center or occupancy falling below a certain percentage could adversely affect the financial performance of the center, adversely affect the operations of other tenants and result in lease terminations by, or reductions in rent from, other tenants whose leases may permit such actions.

Our Common Area Maintenance (“CAM”) contributions may not allow us to recover the majority of our operating expenses from retail tenants. CAM costs typically include allocable energy costs, repairs, maintenance and capital improvements to common areas, janitorial services, administrative, property and liability insurance costs and security costs. The amount of CAM charges we bill to our retail tenants may not allow us to recover or pass on all these operating expenses to tenants, which may reduce operating cash flow from our retail properties.

Increased competition to traditional grocery chains from new market participants, Amazon, online supermarket retailers and food delivery services could adversely affect our grocery-anchored revenues and cash flow.    As a result of consumers' growing desire to shop online, traditional grocery chains are subject to increasing competition from new market participants and food retailers who have incorporated the Internet as a direct-to-consumer channel and Internet-only retailers that sell grocery products. Additionally, online food delivery services are increasingly competing with traditional grocery chains in the food sales market. Competition from these new market participants and selling channels could negatively impact traditional grocery
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chains, which could adversely affect our grocery-anchored revenues and cash flow. In addition, changing dynamics in the food sales space could result in increased competition, declining same-store sales and store closings in the retail and grocery sector.

Risks Related to our Office Building Investments

We face considerable competition in the office leasing market and may be unable to renew existing office leases or re-let office space on terms similar to the existing leases, or we may expend significant capital in our efforts to re-let office space, which may adversely affect our operating results. Every year, we compete with a number of other developers, owners, and operators of office and office-oriented properties to renew office leases with our existing tenants and to attract new office tenants. To the extent that we are able to renew office leases that are scheduled to expire in the short-term or re-let such office space to new tenants, heightened competition resulting from adverse market conditions may require us to utilize rent concessions and tenant improvements to a greater extent than we historically have. In addition, competition for credit worthy office tenants is intense and we may have difficulty competing with competitors, especially those who have purchased office properties at discounted prices allowing them to offer office space at reduced rental rates.

If our competitors offer office accommodations at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants upon expiration of their existing office leases. These competitors could include our own tenants who may be offering to sublease at lower rates some or all of the space we have leased to them. Even if our tenants renew their leases or we are able to re-let the office space, the terms and other costs of renewal or re-letting, including the cost of required renovations, increased tenant improvement allowances, leasing commissions, declining rental rates, and other potential concessions, may be less favorable than the terms of our current leases and could require significant capital expenditures. If we are unable to renew office leases or re-let office space in a reasonable time, or if rental rates decline or tenant improvement, leasing commissions, or other costs increase, our financial condition, cash flows, ability to pay distributions to our stockholders, and ability to satisfy our debt service obligations could be adversely affected.

Demand for office space could be reduced following the COVID-19 pandemic due to increased work from home capabilities adopted by businesses during the COVID-19 pandemic which may affect rental demand and rental rates for office buildings that could have an adverse affect on our operating results. During the COVID-19 pandemic, many businesses have adapted by implementing extensive work from home technologies and capabilities for their workforce. Many of these solutions will be available following the end of the COVID-19 pandemic and could reduce the need for office space for many businesses. A reduction in demand for office space could reduce the rental rates and/or increase vacancies at our office properties. If we have a reduction in rental rates at renewal or when we re-let the space or longer vacancies at our office properties, our financial condition, cash flows, ability to pay distributions to our stockholders, and ability to satisfy our debt service obligations could be adversely affected.

Risks Related to Our Real Estate Loan Investments

Our investments in, or originations of, senior debt or subordinate debt and our investments in membership or partnership interests in entities that own real estate assets will be subject to the specific risks relating to the particular company and to the general risks of investing in real estate-related loans and securities, which may result in significant losses. We may invest in, or originate, senior debt or subordinate debt and invest in membership or partnership interests in entities that own real estate assets. These investments will involve special risks relating to the particular company, including its financial condition, liquidity, results of operations, business and prospects. In particular, the debt securities may not be collateralized and also may be subordinated to the entity's other obligations. We are likely to invest in debt securities of companies that are not rated or are rated non-investment grade by one or more rating agencies. Investments that are not rated or are rated non-investment grade have a higher risk of default than investment grade rated assets and therefore may result in losses to us. We have not adopted any limit on such investments.

These investments also will subject us to the risks inherent with real estate investments referred to previously, including the risks described with respect to multifamily, retail and office properties and other real estate-related investments and similar risks, including:

risks of delinquency and foreclosure, and risks of loss in the event thereof;
the dependence upon the successful operation of, and net income from, real property;
risks generally incident to interests in real property; and
risks specific to the type and use of a particular property
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These risks may adversely affect the value of our investments in entities that own real estate assets and the ability of our borrowers thereof to make principal and interest payments in a timely manner, or at all, and could result in significant losses.

Our real estate loan assets will involve greater risks of loss than senior loans secured by income-producing properties. We may originate (in connection with a forward purchase or option to purchase contract or otherwise) or acquire real estate loans in entities that own or are developing multifamily properties or other real estate-related investments which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. These types of assets involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property because the loan may become unsecured as a result of foreclosure by the senior lender and because it is in second position and there may not be adequate equity in the property. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our real estate loan. If a borrower defaults on our real estate loan or debt senior to our loan, or in the event of a borrower bankruptcy, our real estate loan will be satisfied only after the senior debt. We may be unable to enforce guaranties of payment and/or performance given as security for some real estate loans. As a result, we may not recover some or all of our initial expenditure. Our real estate loans partially finance the construction of real estate projects and so involve additional risks inherent in the construction process, such as adherence to budgets and construction schedules. In addition, subordinate loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Significant losses related to our real estate loans would result in operating losses for us and may limit our ability to make distributions to our stockholders.

We may rely significantly on repayment guarantors of our real estate loan investments and, therefore, could be subject to credit concentration that makes us more susceptible to adverse events with respect to such guarantors. The repayment of amounts owed to us under certain of our real estate loan investments may be partially guaranteed by the principals of the borrowers. If it were necessary to enforce a guaranty of completion or a guaranty of repayment, our rights under such enforcement are limited by rights held by the senior lender pursuant to intercreditor agreements we have in place. Therefore, the failure to perform by the borrowers and such guarantors is likely to have a material adverse effect on our results of operations and financial condition.

Risks Associated with Debt Financing

We have significant debt, which could have important adverse consequences. As of December 31, 2020, we had outstanding debt of approximately $2.7 billion. This indebtedness could have important consequences, including:

if a property is mortgaged to secure payment of indebtedness, and if we are unable to meet our mortgage obligations, we could sustain a loss as a result of foreclosure on the mortgaged property;
our vulnerability to general adverse economic and industry conditions is increased; and
our flexibility in planning for, or reacting to, changes in business and industry conditions is limited.

The mortgages on our properties subject to secured debt and our Credit Facility contain customary restrictions, requirements and other limitations, as well as certain financial and operating covenants, including maintenance of certain financial ratios. Maintaining compliance with these provisions could limit our financial flexibility. A default in these provisions, if uncured, could require us to repay the indebtedness before the scheduled maturity date, which could adversely affect our liquidity and increase our financing costs. Any such restriction or limitation may have an adverse effect on our operations and our ability to make distributions to our stockholders. Further, such restrictions could make it difficult for us to satisfy the requirements necessary to maintain our qualification as a REIT.

We may not be able to renew, repay or refinance our indebtedness when due or may be required to refinance our indebtedness at higher interest rates or on terms that may not be as favorable as the terms of existing indebtedness. If we are unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of its properties on disadvantageous terms, which might result in losses. Such losses could have an adverse effect on us and our ability to make distributions to our stockholders and pay amounts due on our debt. Furthermore, if a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the lender could foreclose on the property, appoint a receiver and exercise rights under an assignment of rents and leases, or pursue other remedies, all with a consequential loss of revenues and asset value. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet REIT distribution requirements.

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We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our ability to pay dividends on the Preferred Stock and our Common Stock. Our governing documents do not have limitations on the amount of leverage we may use. We may incur additional indebtedness and become more highly leveraged, which could harm our financial position and potentially limit our cash available to pay dividends due to debt covenant restrictions and/or resulting lower amounts of cash from operating activities because of higher interest and/or principle payments. As a result, we may not have sufficient funds remaining to fund our dividend distributions relating to our Preferred Stock and our Common Stock.

Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distributions to our stockholders. We also may finance our property acquisitions using interest-only mortgage indebtedness for all or a portion of the term. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments or prepayment penalties will reduce the funds available for distribution to our stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans. While our intention and practice has been to place interest rate caps on our floating rate mortgages, these caps will be at rates above current rates.

If mortgage debt is unavailable at reasonable rates or reasonable amounts, it may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flows from operations and the amount of cash distributions we can make. If we are unable to borrow monies on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase, and the return on the properties we do purchase may be lower. If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the debt becomes due or of being unable to refinance on favorable terms. If interest rates are higher when we refinance the properties, our income could be reduced. As such, we may find it difficult, costly or impossible to refinance indebtedness which is maturing. If any of these events occur, our interest cost would increase as a result, which would reduce our cash flow. This, in turn, could reduce cash available for distribution to our stockholders and may hinder our ability to raise capital by issuing more stock or borrowing more money. If we are unable to refinance maturing indebtedness with respect to a particular property and are unable to pay the same, then the lender may foreclose on such property.

Financial and real estate market disruptions could adversely affect the multifamily property sector's ability to obtain financing from Freddie Mac and Fannie Mae, which could adversely impact us. Fannie Mae, Freddie Mac and HUD/FHA are major sources of financing for the multifamily sector and both have historically experienced losses due to credit-related expenses, securities impairments and fair value losses. If new U.S. government regulations (i) heighten these agencies' underwriting standards, (ii) adversely affect interest rates, or (iii) reduce the amount of capital they can make available to the multifamily sector, it could reduce or remove entirely a vital resource for multifamily financing. Any potential reduction in loans, guarantees and credit-enhancement arrangements from these agencies could jeopardize the effectiveness of the multifamily sector's available financing and decrease the amount of available liquidity and credit that could be used to acquire and diversify our portfolio of multifamily assets.
Volatility in and regulation of the commercial mortgage-backed securities market has limited and may continue to impact the pricing of secured debt. A lack of volume in the commercial mortgage-backed securities market could result in the following adverse effects on our incurrence of secured debt, which could have a materially negative impact on our financial condition, results of operations, cash flow and cash available for distribution, including: 
the general availability of loan proceeds/originators:
higher loan spreads;
tighter loan covenants;
reduced loan to value ratios and resulting borrower proceeds; and
higher amortization and reserve requirements.

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Risks Related to Our Organization, Structure and Management

We depend on our key personnel, whose continued service is not guaranteed. Our success depends on our ability to attract and retain executive officers, senior officers and company managers. There is substantial competition for qualified personnel in the real estate industry and the departure of any of our key personnel could have an adverse effect on the Company.

The Maryland Business Combination Act may delay, defer or prevent a transaction or change in control of the Company that might involve a premium price for the Company's stock or otherwise be in the best interest of our stockholders. Under the Maryland General Corporation Law, certain "business combinations" between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as any person (and certain affiliates of such person) who beneficially owns ten percent or more of the voting power of the then-outstanding voting stock of the corporation. The law also requires two supermajority stockholder votes for such transactions. This means that the transaction must be approved by at least:

80% of the votes entitled to be cast by holders of outstanding voting shares; and
two-thirds of the votes entitled to be cast by holders of outstanding voting shares other than shares held by the interested stockholder with whom the business combination is to be effected.

Stockholders have limited control over changes in our policies and operations. Our board of directors determines our major policies, including with regard to financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Holders of our Preferred Stock have no voting rights. Under our charter and the Maryland General Corporation Law, holders of our Common Stock generally have a right to vote only on the following matters:

the election or removal of directors;
the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to:
change our name;
change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock;
increase or decrease the aggregate number of shares of stock that we have the authority to issue;
increase or decrease the number of shares of any class or series of stock that we have the authority to issue; and
effect certain reverse stock splits;
our liquidation and dissolution; and
our being a party to a merger, consolidation, sale or other disposition of all or substantially all our assets or statutory share exchange.

All other matters are subject to the discretion of our board of directors.

Our authorized but unissued shares of Common Stock and Preferred Stock may prevent a change in our control. Our charter authorizes us to issue additional authorized but unissued shares of Common Stock or preferred stock, without stockholder approval, up to 415,066,666 shares. In addition, our board of directors may, without stockholder approval, amend our charter from time to time to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of Common Stock or Preferred Stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors may establish a class or series of common stock or preferred stock that could delay or prevent a merger, third party tender offer or similar transaction or a change in incumbent management that might involve a premium price for our securities or otherwise be in the best interest of our stockholders.

Because of our holding company structure, we depend on our Operating Partnership subsidiary and its subsidiaries for cash flow and we will be structurally subordinated in right of payment to the obligations of such Operating Partnership subsidiary and its subsidiaries. We are a holding company with no business operations of our own. Our only significant asset is and will be the general and limited partnership interests in our Operating Partnership. We conduct, and intend to conduct, all our business operations through our Operating Partnership. Accordingly, our only source of cash to pay our obligations is
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distributions from our Operating Partnership and its subsidiaries of their net earnings and cash flows. We cannot assure our stockholders that our Operating Partnership or its subsidiaries will be able to, or be permitted to, make distributions to us that will enable us to make distributions to our stockholders from cash flows from operations. Each of our Operating Partnership's subsidiaries is or will be a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from such entities. In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations of our Operating Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our Operating Partnership and its subsidiaries will be able to satisfy your claims as stockholders only after all our and our Operating Partnership's and its subsidiaries' liabilities and obligations have been paid in full.

Our rights and the rights of our stockholders to recover on claims against our directors and officers are limited, which could reduce our stockholders, and our recovery against them if they negligently cause us to incur losses. The Maryland General Corporation Law provides that a director has no liability in such capacity if he or she performs his or her duties in good faith, in a manner she or he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. A director who performs his or her duties in accordance with the foregoing standards should not be liable to us or any other person for failure to discharge his or her obligations as a director.

In addition, our charter provides that our directors and officers will not be liable to us or our stockholders for monetary damages unless the director or officer actually received an improper benefit or profit in money, property or services, or is adjudged to be liable to us or our stockholders based on a finding that his or her action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Our charter also requires us, to the maximum extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to any individual who is a present or former director or officer and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or any individual who, while a director or officer and at our request, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity. With the approval of our board of directors, we may provide such indemnification and advance for expenses to any individual who served a predecessor of the Company in any of the capacities described above and any employee or agent of the Company or a predecessor of the Company.

We also are permitted to purchase and we currently maintain insurance or provide similar protection on behalf of any directors, officers, employees and agents against any liability asserted which was incurred in any such capacity with us or arising out of such status. This may result in us having to expend significant funds, which will reduce the available cash for distribution to our stockholders.

We may change our operational policies (including our investment guidelines, strategies and policies and the targeted assets in which we invest) with the approval of our board of directors but without stockholder consent or notice at any time, which may adversely affect the market value of our Common Stock, our results of operations and cash flows and our ability to pay dividends to our stockholders. Our board of directors and/or management determines our operational policies and may amend or revise our policies (including our policies with respect to the targeted assets in which we invest, dispositions, growth, operations, indebtedness, capitalization and dividends) or approve transactions that deviate from these policies at any time, without a vote of, or notice to, our stockholders. We may change our investment guidelines and our strategy at any time, including investing in or divesting from an asset class different from our current targeted assets, with the approval of our board of directors, but without the consent of, or notice to, our stockholders, which could result in us making investments that are different in type from, and possibly riskier than, the investments we currently invest in or could result in a loss when divesting from an existing asset class.

Risks Related to an Investment in Our Company

Our ability to grow the Company and execute our business strategy may be impaired if we are unable to secure adequate financing. Our ability to grow the Company and execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity. Potential volatility and uncertainty in financial markets could result in debt or equity financing to not be available in sufficient amounts, on favorable terms or at all. Returns on our assets and our ability to make
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acquisitions could be adversely affected by our inability to secure financing on reasonable terms, if at all. Additionally, if we issue additional equity securities to finance our investments instead of incurring debt (through our Series A1/M1 Offering or our ATM Offering or other offerings), the interests of our existing stockholders could be diluted.

Distributions paid from sources other than our net cash provided by operating activities, particularly from proceeds of any offerings of our securities, will result in us having fewer funds available for the acquisition of properties and other real estate-related investments, which may adversely affect our ability to fund future distributions with net cash provided by operating activities and may adversely affect our stockholders' overall return.    We have paid distributions from sources other than from net cash provided by operating activities. If we do not generate sufficient net cash provided by operating activities to fund distributions, we may use the proceeds from debt or any offering of our securities. Moreover, our board of directors may change our distribution policy, in its sole discretion, at any time, except for distributions on our Preferred Stock, which would require approval by a supermajority vote of our Common stockholders. Distributions made from offering proceeds may be a return of capital to stockholders, from which we will have already paid offering expenses in connection with the related offering. We have not established any limit on the amount of proceeds from our securities offerings that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (1) cause us to be unable to pay our debts as they become due in the usual course of business; (2) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences, if any; or (3) jeopardize our ability to qualify as a REIT.

If we fund distributions from the proceeds of an offering of our securities, we will have less funds available for acquiring properties or real estate-related investments. As a result, the return our stockholders realize on their investment may be reduced. Funding distributions from borrowings could restrict the amount we can borrow for investments, which may affect our profitability by increasing our expenses for interest owed on borrowing and the obligation to repay borrowings in the future. Funding distributions with the sale of assets or the proceeds of an offering of our securities may affect our ability to generate net cash provided by operating activities. Funding distributions from the sale of our securities could dilute the interest of our common stockholders if we sell shares of our Common Stock or securities convertible or exercisable into shares of our Common Stock to third party investors. Payment of distributions from the mentioned sources could restrict our ability to generate sufficient net cash provided by operating activities, affect our profitability and/or affect the distributions payable to our stockholders upon a liquidity event, any or all of which may have an adverse effect on our stockholders.
The cash distributions our stockholders receive may be less frequent or lower in amount than our stockholders expect. Our board of directors will determine the amount and timing of distributions. In making this determination, our directors will consider all relevant factors, including the amount of cash available for distribution, capital expenditure and reserve requirements and general operational requirements. We cannot assure our stockholders that we will continue to generate sufficient available cash flow to fund distributions nor can we assure our stockholders that sufficient cash will be available to make distributions to our stockholders. It is difficult for us to predict the amount of distributions our stockholders may receive and we may be unable to pay, maintain or increase distributions over time. Our inability to acquire properties or real estate-related investments may have a negative effect on our ability to generate sufficient cash flow from operations to pay distributions.
Further, if the aggregate amount of our distributions in any given year exceeds our earnings and profits (as determined for U.S. federal income tax purposes), the U.S. federal income tax treatment of the excess amount will be either (i) a return of capital or (ii) a gain from the sale or exchange of property to the extent that a stockholder's tax basis in our Common Stock equals or is reduced to zero as the result of our current or prior year distributions.

Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to our stockholders. A decrease in rental revenue, or liquidity needs such as the repayment of indebtedness or funding of our acquisition and development activities, could have an adverse effect on our ability to pay distributions to our stockholders. Significant expenditures associated with each property such as debt service payments, if any, real estate taxes, insurance and maintenance costs are generally not reduced when circumstances cause a reduction in income from a property.

We may be unable to secure funds for future capital improvements, which could adversely impact our ability to make distributions to our stockholders. When residents or tenants do not renew their leases or otherwise vacate their space, in order to attract replacement residents or tenants, we may be required to expend significant funds for capital improvements to the vacated apartment units or leased spaces and common areas. In addition, we may require substantial funds to renovate a property in order to sell it, upgrade it or reposition it in the market. If we have insufficient capital reserves, we will have to obtain financing from other sources. We typically establish capital reserves in an amount we, in our discretion, believe is necessary. A lender also may require escrow of capital reserves separately maintained from any reserves we establish. If these
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reserves or any reserves otherwise established are designated for other uses or are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements. We cannot assure our stockholders that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us. Moreover, certain reserves required by lenders may be designated for specific uses and may not be available for capital purposes such as future capital improvements. Additional borrowing will increase our interest expense; therefore, our financial condition and our ability to make distributions to our stockholders may be adversely affected.

Upon the sale of any property or portfolio of properties, holders of our Preferred Stock do not have a priority over holders of our Common Stock regarding return of capital. Holders of our Preferred Stock do not have a right to receive a return of capital prior to holders of our Common Stock upon the sale of a property or a portfolio of properties that is less than substantially all of our assets. Depending on the price at which any property or portfolio of properties is sold, it is possible that holders of our Common Stock will receive a return of capital prior to the holders of our Preferred Stock, provided that any accrued but unpaid dividends have been paid in full to holders of Preferred Stock. It is also possible that holders of our Common Stock will receive additional distributions from the sale of a property or a portfolio of properties (in excess of their capital attributable to the asset sold) before the holders of Preferred Stock receive a return of their capital.

Our stockholders' percentage of ownership may become diluted if we issue new shares of stock or other securities, and issuances of additional preferred stock or other securities by us may further subordinate the rights of the holders of our Common Stock. We may make redemptions of Preferred Stock in shares of our Common Stock. Although the number of redemptions are unknown, the number of shares to be issued in connection with such redemptions will fluctuate based on the price of our Common Stock. Any sales or perceived sales in the public market of shares of our Common Stock issued upon such redemptions could adversely affect the prevailing market prices of shares of our Common Stock. The issuance of Common Stock upon such redemptions or from the exercise of outstanding Warrants also would have the effect of reducing our net income per share. In addition, the existence of Preferred Stock may encourage short selling by market participants because redemptions could depress the market price of our Common Stock.

Our board of directors is authorized, without stockholder approval, to cause us to issue additional shares of our Preferred Stock or to raise capital through the issuance of additional preferred stock (including equity or debt securities convertible into preferred stock or our Common Stock), options, warrants and other rights, on such terms and for such consideration as our board of directors in its sole discretion may determine subject to the rules of NYSE. Any such issuance could result in dilution of the equity of our stockholders. Our board of directors may, in its sole discretion, authorize us to issue Common Stock or other equity or debt securities to persons from whom we purchase real estate assets as part or all of the purchase price. Our board of directors, in its sole discretion, may determine the value of any Common Stock or other equity or debt securities issued in consideration of multifamily communities, retail centers, or office buildings acquired or services provided, or to be provided, to us.

Our charter also authorizes our board of directors, without stockholder approval, to designate and issue one or more classes or series of preferred stock in addition to the Preferred Stock (including equity or debt securities convertible into preferred stock) and to set or change the voting, conversion or other rights, preferences, restrictions, limitations as to dividends or other distributions and qualifications or terms or conditions of redemption of each class or series of shares so issued. If any additional preferred stock is publicly offered, the terms and conditions of such preferred stock (including any equity or debt securities convertible into preferred stock) will be set forth in a registration statement registering the issuance of such preferred stock or equity or debt securities convertible into preferred stock. Because our board of directors has the power to establish the preferences and rights of each class or series of preferred stock, it may afford the holders of any series or class of preferred stock preferences, powers and rights senior to the rights of holders of our Common Stock or the Preferred Stock. If we ever create and issue additional preferred stock or equity or debt securities convertible into Preferred Stock with a distribution preference over our Common Stock or the Preferred Stock, payment of any distribution preferences of such new outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our Common Stock and our Preferred Stock. Further, holders of preferred stock are normally entitled to receive a preference payment if we liquidate, dissolve, or wind up before any payment is made to our common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of additional preferred stock may delay, prevent, render more difficult or tend to discourage a merger, tender offer, or proxy contest, the assumption of control by a holder of a large block of our securities, or the removal of incumbent management.

Stockholders have no rights to buy additional shares of stock or other securities if we issue new shares of stock or other securities. We may issue common stock, convertible debt, preferred stock or warrants pursuant to a subsequent public offering or a private placement, or to sellers of properties we directly or indirectly acquire instead of, or in addition to, cash
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consideration. Stockholders who do not participate in any future stock issuances will experience dilution in the percentage of the issued and outstanding stock they own. In addition, depending on the terms and pricing of any additional offerings and the value of our investments, our stockholders also may experience dilution in the book value and fair market value of, and the amount of distributions paid on, their shares of our Common Stock or Preferred Stock.

Our internal control over financial reporting is effective only at the reasonable assurance level, and undetected errors could adversely affect our reputation, results of operations and stock price.     The accuracy of our financial reporting depends on the effectiveness of our internal control over financial reporting. Internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements and may not prevent or detect misstatements because of its inherent limitations. These limitations include the possibility of human error, inadequacy or circumvention of internal controls and fraud. If we do not attain and maintain effective internal control over financial reporting or implement controls sufficient to provide reasonable assurance with respect to the preparation and fair presentation of our financial statements, we could be unable to file accurate financial reports on a timely basis, and our reputation, results of operations and stock price could be materially adversely affected.

Breaches of our data security could materially harm our business and reputation. Information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyber attacks around the world. We collect and retain certain personal information provided by our residents and tenants and store our financial information on computer systems and access the data over the Internet. In addition, we engage third party service providers that may have access to, and store on their systems, such personally identifiable information and financial data in connection with providing necessary information technology and security and other business services to us. While we have implemented a variety of security measures to protect the confidentiality and security of this information and periodically review and improve our security measures, there can be no assurance that we will be able to prevent unauthorized access to this information. Any breach of our data security measures may result in, among other things:

unauthorized access to, destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, including personally identifiable and account information that could be used to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
result in unauthorized access to or changes to our financial accounting and reporting systems and related data;
legal liability and costs (including damages and penalties);
damage to our reputation;
theft of funds;
our inability to maintain building systems relied on by our tenants; and
significant management attention and resources to remedy the damages and penalties that result.

These events could have an adverse impact on our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.
To maintain our status as a REIT, we may be forced to forego otherwise attractive opportunities, which may delay or hinder our ability to meet our investment objectives and may reduce our stockholders' overall return. To maintain our qualification as a REIT, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, the nature of our assets and the amounts we distribute to our stockholders. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of our stockholders' investment.

There is no public market for our Preferred Stock or warrants to purchase up to 20 shares of Common Stock, or Warrants, and we do not expect one to develop. There is no public market for our Preferred Stock or Warrants, and we currently have no plan to list these securities on a securities exchange or to include these shares for quotation on any national securities market. We cannot assure our stockholders as to the liquidity of any trading market that may develop for our Preferred Stock or Warrants. Additionally, our charter contains restrictions on the ownership and transfer of our securities, and these restrictions may inhibit the ability to sell the Preferred Stock or Warrants promptly or at all. Furthermore, the Warrants will expire four years from the date of issuance. If a holder is able to sell the Preferred Stock or Warrants, they may only be able to sell them at a substantial discount from the price paid. Accordingly, our stockholders may be required to bear the financial risk of their investment in the shares of Preferred Stock indefinitely.
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We will be required to terminate the Series A1/M1 Offering if our Common Stock is no longer listed on the NYSE or another national securities exchange. The classes of Preferred Stock are a "covered security" under the Securities Act and therefore are not subject to registration in the various states in which they may be sold due to their seniority to our Common Stock, which is listed on the NYSE. If our Common Stock is no longer listed on the NYSE or another appropriate exchange, we will be required to register our Preferred Stock Offerings in any state in which we subsequently offer the Preferred Stock. This would require the termination of the Series A1/M1 Offering and could result in our raising an amount of gross proceeds that is substantially less than the amount of the gross proceeds we expect to raise if the maximum offering is sold. This would reduce our ability to purchase additional properties and limit the diversification of our portfolio.

Our ability to redeem shares of Preferred Stock may be limited by Maryland law and our charter. Under Maryland law, a corporation may redeem stock as long as, after giving effect to the redemption, the corporation is able to pay its debts as they become due in the usual course (the equity solvency test) and its total assets exceed its total liabilities (the balance sheet solvency test). The Company may redeem its shares of Preferred Stock in its choice of either cash or Common Stock, at its sole discretion. If the Company is insolvent at any time when a redemption of shares of Preferred Stock is required to be made, the Company may not be able to effect such redemption for cash. In addition, our charter provides that we are limited in our ability to redeem Preferred Stock to the extent we have "sufficient funds."

The Preferred Stock are senior securities, and rank senior to our Common Stock with respect to dividends and payments upon liquidation. The rights of the holders of shares of our Preferred Stock rank senior to the rights of the holders of shares of our Common Stock as to dividends and payments upon liquidation. Unless full cumulative dividends on our shares of Preferred Stock for all past dividend periods have been declared and paid (or set apart for payment), we will not declare or pay dividends with respect to any shares of our Common Stock for any period. Upon liquidation, dissolution or winding up of our Company, the holders of shares of our Preferred Stock are entitled to receive a liquidation preference of $1,000 per share, or the Stated Value, plus all accrued but unpaid dividends, prior and in preference to any distribution to the holders of shares of our Common Stock or any other class of our equity securities.

The Preferred Stock will be subordinate in right of payment to any corporate level debt that we incur in the future, therefore our stockholders' interests could be diluted by the issuance of additional preferred stock, and by other transactions. The Preferred Stock will be subordinate in right of payment to any corporate level debt that we incur in the future. Future debt we incur may include restrictions on our ability to pay dividends on our Preferred Stock. The issuance of additional preferred stock on a parity with or senior to the Preferred Stock would dilute the interests of the holders of the Preferred Stock, and any issuance of preferred stock senior to the Preferred Stock or of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on the Preferred Stock. While the terms of the Preferred Stock limit our ability to issue shares of a class or series of preferred stock senior in ranking to the Preferred Stock, such terms do not restrict our ability to authorize or issue shares of a class or series of preferred stock with rights to distributions or upon liquidation that are on parity with the Preferred Stock or to incur additional indebtedness. The articles supplementary of the Preferred Stock do not contain any provision affording the holders of the Preferred Stock protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all of our assets or business, that might adversely affect the holders of the Preferred Stock.

We will be able to call our shares of Preferred Stock for redemption under certain circumstances without our stockholders' consent. We will have the ability to call the outstanding shares of Series A Preferred Stock five years following the date of original issuance, mShares after ten years following the date of original issuance and Series A1 Preferred Stock and Series M1 Preferred Stock after two years following the date of original issuance. At that time, we will have the right to redeem, at our option, the outstanding shares of Preferred Stock, in whole or in part, at 100% of the Stated Value, plus any accrued and unpaid dividends. We have the right, in our sole discretion, to pay the redemption price in cash or in equal value of our Common Stock, based upon (i) for our Series A Preferred Stock and mShares, the volume weighted average price of our Common Stock for the 20 trading days prior to the redemption date or (ii) for our Series A1 Preferred Stock and Series M1 Preferred Stock, the closing price of our Common Stock for the trading day immediately preceding the date fixed for the call as specified by the Company.

25


Material U.S. Federal Income Tax Considerations

If we fail to maintain our qualification as a REIT, we will be subjected to tax on our income and the amount of distributions we make to our stockholders will be less. We elected to be taxed as a REIT, commencing with our tax year ended December 31, 2011. A REIT generally is not taxed at the corporate level on income and gains it distributes to its stockholders on a timely basis.

    If we were to fail to qualify as a REIT in any taxable year:

we would not be allowed to deduct our distributions to our stockholders when computing our taxable income;
we would be subject to U.S. federal income tax on our taxable income at the corporate rate and possibly increased state and local taxes;
we could be disqualified from being taxed as a REIT for the four taxable years following the year during which qualification was lost, unless entitled to relief under certain statutory provisions;
we would have less cash to make distributions to our stockholders; and
we might be required to borrow additional funds or sell some of our assets in order to pay corporate tax obligations we may incur as a result of our disqualification.

Although we intend to operate in a manner intended to qualify as a REIT, it is possible that we may inadvertently terminate our REIT election or that future economic, market, legal, tax or other considerations may cause our board of directors to determine to revoke our REIT election. Even if we qualify as a REIT, we expect to incur some taxes, such as state and local taxes, taxes imposed on certain subsidiaries and potential U.S. federal excise taxes.

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating
flexibility and reduce the market price of our Common Stock. In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to REITs. Additional changes to the tax laws are likely to continue to occur. Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a regular corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate the REIT election we have made and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only effect such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

The tax imposed on REITs engaging in "prohibited transactions" may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes. From time to time, we may transfer or otherwise dispose of some of our properties. Under the Code, unless certain exceptions apply, any gain resulting from transfers of properties that we hold as inventory or primarily for sale to customers in the ordinary course of business could be treated as income from a prohibited transaction subject to a 100% penalty tax. Since we acquire properties for investment purposes, we do not believe that our occasional transfers or disposals of property should be treated as prohibited transactions. However, whether property is held for investment purposes depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by us are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then the we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction, and our ability to retain proceeds from real property sales may be jeopardized.
26



If the Operating Partnership fails to maintain its status as a partnership for U.S. federal income tax purposes, its income may be subject to taxation and we would cease to qualify as a REIT. We intend to maintain the status of the Operating Partnership as a partnership for U.S. federal income tax purposes. However, if the IRS were to successfully challenge the status of the Operating Partnership as a partnership for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the Operating Partnership could make to us. This also would result in our losing REIT status, and becoming subject to a corporate level tax on our own income, and would substantially reduce our cash available to pay distributions and the yield to our stockholders. In addition, if any of the partnerships or limited liability companies through which the Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership and is not otherwise disregarded for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the Operating Partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our REIT qualification.

The failure of a subordinate loan to qualify as a real estate asset could adversely affect our ability to maintain our qualification as a REIT. In general, in order for a loan to be treated as a qualifying real estate asset producing qualifying income for purposes of the REIT asset and income tests, the loan must be secured by real property. We may originate (in connection with a forward purchase or option to purchase contract) or acquire subordinate loans that are not directly secured by real property but instead secured by equity interests in a partnership or limited liability company that directly or indirectly owns real property. In Revenue Procedure 2003-65, the IRS provided a safe harbor pursuant to which a subordinate loan that is not secured by real estate would, if it meets each of the requirements contained in the Revenue Procedure, be treated by the IRS as a qualifying real estate asset. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law and in many cases it may not be possible for us to meet all the requirements of the safe harbor. We cannot provide assurance that any subordinate loan in which we invest would be treated as a qualifying asset producing qualifying income for REIT qualification purposes. If any such loan fails either the REIT income or asset tests, we may be disqualified as a REIT.

Furthermore, if we participate in any appreciation in value of real property securing a mortgage loan and the IRS characterizes such “shared appreciation mortgage” as equity rather than debt, for example, because of a large interest in cash flow of the borrower, we may be required to recognize income, gains and other items with respect to the real property for U.S. federal income tax purposes. This could affect our ability to maintain our qualification as a REIT.

The share ownership restrictions of the Code for REITs and the 9.8% share ownership limit in our charter may inhibit market activity in our shares of stock and restrict our business combination opportunities. In order to maintain our qualification as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns our shares of stock under this requirement. Additionally, at least 100 persons must beneficially own our shares of stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT election is made. To help insure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of our shares of stock.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT while we so qualify. Unless exempted by our board of directors, for so long as we qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 9.8% in value of the aggregate of our outstanding shares of stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of any class or series of our shares of stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of 9.8% of the value of our outstanding shares would result in the termination of our qualification as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interest to continue to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to continue to so qualify as a REIT.

These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our stock or otherwise be in the best interest of our stockholders.

27


Certain Employee Benefit Plan Risks
If you fail to meet the fiduciary and other standards under ERISA or the Code as a result of an investment in our stock, you could be subject to liability and penalties. Special considerations apply to the purchase or holding of securities by employee benefit plans subject to the fiduciary rules of Title I of ERISA (“ERISA Plans”), including pension or profit sharing plans and entities that hold assets of such ERISA Plans, and plans and accounts that are not subject to ERISA, but are subject to the prohibited transaction rules of Section 4975 of the Code, including IRAs, Keogh Plans, and medical savings accounts (collectively, we refer to ERISA Plans and plans subject to Section 4975 of the Code as “Benefit Plans”). If you are investing the assets of any Benefit Plan, you should satisfy yourself that:
 
your investment is consistent with your fiduciary obligations under ERISA and the Code;
your investment is made in accordance with the documents and instruments governing the Benefit Plan, including the Benefit Plan’s investment policy;
your investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA, if applicable, and other applicable provisions of ERISA and the Code;
in making such investment decision, you have considered the effect the investment will have on the liquidity of the Benefit Plan and whether or not the investment will produce UBTI for the Benefit Plan;
you will be able to value the assets of the Benefit Plan annually in accordance with any applicable ERISA or Code requirements and applicable provisions of the Benefit Plan; and
your investment will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.
 
Fiduciaries may be held personally liable under ERISA for losses as a result of failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA. In addition, if an investment in, or holding of, our securities constitutes a non-exempt prohibited transaction under ERISA or the Code, the fiduciary of the plan who authorized or directed the investment may be subject to imposition of excise taxes with respect to the amount invested and an IRA investing in the stock may lose its tax exempt status.

Plans that are not subject to ERISA or the prohibited transactions of the Code, such as government plans or church plans, may be subject to similar requirements under state law. Such plans should satisfy themselves that the investment satisfies applicable law. We have not, and will not, evaluate whether an investment in, or holding of, our securities is suitable for any particular plan.



Item  1B.    Unresolved Staff Comments

None.

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Item  2.    Properties

Multifamily Communities

At December 31, 2020, we owned the following 37 properties within our multifamily communities segment:
PropertyLocationYear constructedNumber of Units Average Unit Size (sq. ft.)
Average Rent per Unit (1)
Summit CrossingAtlanta, GA2007345 1,034 $1,253 
Summit Crossing IIAtlanta, GA2013140 1,100 $1,366 
The Reserve at Summit CrossingAtlanta, GA2017172 1,002 $1,344 
VineyardsHouston, TX2003369 1,122 $1,202 
Aster at Lely ResortNaples, FL2015308 1,071 $1,439 
CityPark View Property:
CityPark View Charlotte, NC2014284 948 $1,166 
CityPark View SouthCharlotte, NC2017200 1,005 $1,274 
Avenues at CypressHouston, TX2014240 1,170 $1,455 
Venue at Lakewood RanchSarasota, FL2015237 1,001 $1,515 
Citi Lakes Orlando, FL2014346 984 $1,468 
Avenues at NorthpointeHouston, TX2013280 1,167 $1,395 
Lenox Village Property:
Lenox VillageNashville, TN2009273 906 $1,309 
Regent at Lenox VillageNashville, TN200918 1,072 $1,399 
Retreat at Lenox VillageNashville, TN2015183 773 $1,254 
Stone CreekHouston, TX2009246 852 $1,201 
Overton RiseAtlanta, GA2015294 1,018 $1,595 
Village at Baldwin ParkOrlando, FL2008528 1,069 $1,661 
Crosstown Walk Property:
Crosstown WalkTampa, FL2014342 1,070 $1,341 
Overlook at Crosstown WalkTampa, FL2016180 986 $1,413 
525 Avalon ParkOrlando, FL2008487 1,394 $1,512 
SorrelJacksonville, FL2015290 1,048 $1,342 
Retreat at GreystoneBirmingham, AL2015312 1,100 $1,376 
Citrus VillageTampa, FL2011296 980 $1,353 
Founders VillageWilliamsburg, VA2014247 1,070 $1,399 
Claiborne CrossingLouisville, KY2014242 1,204 $1,345 
Luxe at Lakewood RanchSarasota, FL2016280 1,105 $1,490 
Adara Overland ParkKansas City, KS2016260 1,116 $1,374 
Aldridge at Town VillageAtlanta, GA2016300 969 $1,419 
Colony at CenterpointeRichmond, VA2016255 1,149 $1,397 
City Vista (2)
Pittsburgh, PA2014272 1,023 $1,457 
Lux at SorrelJacksonville, FL2017265 1,025 $1,383 
Green ParkAtlanta, GA2017310 985 $1,489 
Lodge at Hidden RiverTampa, FL2017300 980 $1,397 
Vestavia ReserveBirmingham, AL2016272 1,113 $1,554 
Artisan at VieraMelbourne, FL2018259 1,070 $1,682 
Five Oaks at WestchaseTampa, FL2019218 983 $1,504 
Horizon at WiregrassTampa, FL2018392 973 $1,505 
Parkside at the BeachPanama City Beach, FL2019288 1,041 $1,390 
The BlakeOrlando, FL2019281 908 $— 
The MenloJacksonville, FL2020332 966 $— 
11,143 
(1) Data is only presented for stabilized properties owned by us for at least three months. Values are based on leasing activity from the quarter-ended December 31, 2020.
(2) We own approximately 96% of the joint venture that controls the City Vista multifamily community.

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    Our communities are equipped with an array of amenities believed to be sufficient to position Preferred Apartment Communities as attractive residential rental options within each local market. Such amenities can include, but are not limited to, one or more swimming pools, a clubhouse with a business center, tennis courts and laundry facilities. Unit-specific amenities can include high-end appliances, tile kitchen backsplashes, washer and dryers or washer and dryer hookups and ceiling fans. Resident lease terms are generally thirteen months or less in duration.
    






























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New Market Properties
    At December 31, 2020, we owned the following 54 grocery-anchored shopping centers, which comprise our New Market Properties segment:
Property nameLocationYear built
GLA (1)
Percent leasedGrocery anchor tenant
Castleberry-Southard Atlanta, GA200680,018 98.3 % Publix
Cherokee Plaza Atlanta, GA1958102,864 100.0 %Kroger
Governors Towne Square Atlanta, GA200468,658 95.9 % Publix
Lakeland Plaza Atlanta, GA 1990301,711 95.3 %Sprouts
Powder Springs Atlanta, GA 199977,853 92.5 % Publix
Rockbridge Village Atlanta, GA 2005102,432 84.4 % Kroger
Roswell Wieuca Shopping Center Atlanta, GA 200774,370 97.8 % The Fresh Market
Royal Lakes Marketplace Atlanta, GA 2008119,493 91.4 % Kroger
Sandy Plains Exchange Atlanta, GA 199772,784 98.8 %Publix
Summit Point Atlanta, GA 2004111,970 83.9 % Publix
Thompson Bridge Commons Atlanta, GA 200192,587 97.5 %Kroger
Wade Green Village Atlanta, GA 199374,978 95.9 % Publix
Woodmont Village Atlanta, GA 200285,639 98.6 %Kroger
Woodstock Crossing Atlanta, GA 199466,122 100.0 % Kroger
East Gate Shopping Center Augusta, GA 199575,716 90.4 % Publix
Fury's Ferry Augusta, GA 199670,458 93.2 % Publix
Parkway Centre Columbus, GA 199953,088 97.7 % Publix
Greensboro Village Nashville, TN 200570,203 98.3 % Publix
Spring Hill Plaza Nashville, TN 200566,693 100.0 % Publix
Parkway Town Centre Nashville, TN 200565,587 100.0 % Publix
The Market at Salem Cove Nashville, TN 201062,356 100.0 % Publix
The Market at Victory Village Nashville, TN 200771,300 100.0 % Publix
The Overlook at Hamilton Place Chattanooga, TN 1992213,095 99.3 % The Fresh Market
Shoppes of Parkland Miami-Ft. Lauderdale, FL2000145,720 100.0 %BJ's Wholesale Club
Crossroads Market Naples, FL1993126,895 98.6 %Publix
Neapolitan Way (2)
 Naples, FL1985137,580 91.5 %Publix
Berry Town Center Orlando, FL 200399,441 83.0 %Publix
Deltona Landings Orlando, FL 199959,966 98.4 % Publix
University Palms Orlando, FL 199399,172 98.9 %Publix
Disston Plaza Tampa-St. Petersburg, FL 1954129,150 97.5 %Publix
Barclay Crossing Tampa, FL 199854,958 100.0 % Publix
Polo Grounds Mall West Palm Beach, FL1966130,285 100.0 %Publix
Kingwood Glen Houston, TX 1998103,397 97.1 % Kroger
Independence Square Dallas, TX 1977140,218 86.6 % Tom Thumb
Midway Market Dallas, TX 200285,599 90.3 %Kroger
Oak Park Village San Antonio, TX197064,855 100.0 %H.E.B.
Irmo Station Columbia, SC 198099,384 90.8 %Kroger
Rosewood Shopping Center Columbia, SC 200236,887 93.5 % Publix
Anderson Central Greenville Spartanburg, SC 1999223,211 94.2 % Walmart
Fairview Market Greenville Spartanburg, SC 199846,303 97.0 %Aldi
Brawley Commons Charlotte, NC 1997122,028 99.2 % Publix
West Town Market Charlotte, NC 200467,883 100.0 %Harris Teeter
Heritage Station Raleigh, NC200472,946 100.0 %Harris Teeter
Maynard Crossing Raleigh, NC 1996122,781 92.7 %Harris Teeter
Wakefield Crossing Raleigh, NC 200175,927 98.2 %Food Lion
Southgate Village Birmingham, AL 198875,092 96.8 % Publix
Hollymead Town Center Charlottesville, VA2005158,807 92.8 %Harris Teeter
Free State Shopping Center Washington, DC1970264,152 97.3 %Giant
4,922,612 95.6 %
Redevelopment properties:
Champions Village Houston, TX 1973383,346 68.8 %Randalls
Sweetgrass Corner Charleston, SC 199989,124 29.1 %
(3)
Conway Plaza Orlando, FL 1966117,705 76.3 %Publix
Hanover Center (4)
 Wilmington, NC1954305,346 81.1 %Harris Teeter
Gayton Crossing Richmond, VA1983158,316 
 (5)
76.1 %Kroger
Fairfield Shopping Center (4)
Virginia Beach, VA1985231,829 86.2 %Food Lion
1,285,666 73.7 %
Grand total/weighted average6,208,278 91.0 %

(1) Gross leasable area, or GLA, represents the total amount of property square footage that can be leased to tenants.
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(2) Investment in an unconsolidated joint venture that is not prorated for our ownership percentage.
(3) Bi-Lo (the former anchor tenant) had extended their term through April 30, 2019 and had no further right or option to extend their lease.
(4) Property is owned through a consolidated joint venture.
(5) The GLA figure shown excludes the GLA of the Kroger store, which is owned by others.

    Our retail leases have original lease terms which generally range from three to seven years for spaces under 10,000 square feet and from ten to twenty years for spaces over 10,000 square feet. Anchor leases generally contain renewal options for one or more additional periods whereas in-line tenant leases may or may not have renewal options. With the exception of anchor leases, the leases generally contain contractual increases in base rent rates over the lease term and the base rent rates for renewal periods are generally based upon the rental rate for the primary term, which may be adjusted for inflation or market conditions. Anchor leases generally do not contain contractual increases in base rent rates over the lease term and the renewal periods. Our leases generally provide for the payment of fixed monthly rentals and may also provide for the payment of additional rent based upon a percentage of the tenant’s gross sales above a certain threshold level (“percentage rent”). Our leases also generally include tenant reimbursements for common area expenses, insurance, and real estate taxes. Utilities are generally paid by tenants either directly through separate meters or through payment of tenant reimbursements. The foregoing general description of the characteristics of the leases in our centers is not intended to describe all leases and material variations in lease terms may exist.
    Our grocery anchor tenants comprised 44.1% of our portfolio GLA at December 31, 2020. Our small in-line tenants generally consist of retail, consumer services, healthcare providers, and restaurants. The following table summarizes our grocery anchor tenants by GLA as of December 31, 2020:
Grocery Anchor TenantGLA% of total GLA
Publix 1,179,030 19.0 %
Kroger581,593 9.4 %
Harris Teeter273,273 4.4 %
Wal-Mart183,211 3.0 %
BJ's Wholesale Club108,532 1.7 %
Food Lion76,523 1.2 %
Giant73,149 1.2 %
Randall's61,604 1.0 %
H.E.B54,844 0.9 %
Tom Thumb43,600 0.7 %
The Fresh Market43,321 0.7 %
Sprouts29,855 0.5 %
Aldi23,622 0.4 %
Total2,732,157 44.1 %

    







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The following table summarizes New Market Properties' contractual lease expirations for the next ten years and thereafter, assuming no tenants exercise their renewal options:
Totals
Number of leasesLeased GLA Percent of leased GLA
Month to month14 26,085 0.5 %
2021150 430,821 7.6 %
2022183 634,522 11.3 %
2023149 650,023 11.5 %
2024129 1,184,959 21.0 %
2025122 981,750 17.4 %
202648 368,268 6.5 %
202729 193,733 3.4 %
202828 357,227 6.3 %
202925 151,566 2.7 %
203016 114,687 2.0 %
2031 +20 547,821 9.8 %
Total913 5,641,462 100.0 %



    Preferred Office Properties

    At December 31, 2020, we owned the following nine office properties, which comprise our Preferred Office Properties segment:
Property NameLocationGLAPercent leased
Three RaviniaAtlanta, GA814,000 92 %
150 FayettevilleRaleigh, NC560,000 91 %
Capitol TowersCharlotte, NC479,000 98 %
CAPTRUST TowerRaleigh, NC300,000 98 %
Westridge at La CanteraSan Antonio, TX258,000 100 %
Morrocroft CentreCharlotte, NC291,000 95 %
Armour YardsAtlanta, GA187,000 93 %
Brookwood CenterBirmingham, AL169,000 100 %
Galleria 75Atlanta, GA111,000 90 %
Total/Average3,169,000 95 %

    Our office building leases have original lease terms which generally range from five to fifteen years and generally contain contractual, annual base rental rate escalations ranging from 2% to 3%. These leases may be structured as “gross” where the tenant’s base rental rate is all inclusive and there is no additional obligation to reimburse building operating expenses, “net” or “NNN” where in addition to base rent the tenant is also responsible for its pro rata share of reimbursable building operating expenses, or “modified gross” where in addition to base rent the tenant is also responsible for its pro rata share of reimbursable building operating expense increases over a base year amount (typically calculated as the actual reimbursable operating expenses in year one of the original lease term). The foregoing general description of the characteristics of the leases in our centers is not intended to describe all leases and material variations in lease terms may exist.



33


    As of December 31, 2020, our significant tenants within our Preferred Office Properties segment consisted of:
Rentable square footagePercent of Annual Base RentAnnual Base Rent (in thousands)
InterContinental Hotels Group495,000 13.8 %$11,876 
Albemarle162,000 6.6 %5,727 
CapFinancial105,000 4.3 %3,738 
United Services Automobile Association129,000 3.7 %3,196 
Vericast129,000 3.4 %2,953 
1,020,000 31.8 %27,490 

The following table summarizes contractual lease expirations within our Preferred Office Properties segment for the next ten years and thereafter, assuming no tenants exercise their renewal options:
Office building portfolio
Percent of
Year of lease expirationRented squarerented
feetsquare feet
2021215,000 7.3 %
2022128,000 4.3 %
2023124,000 4.2 %
2024279,000 9.4 %
2025255,000 8.6 %
2026265,000 8.9 %
2027328,000 11.1 %
2028246,000 8.3 %
202957,000 1.9 %
2030177,000 6.0 %
2031 +888,000 30.0 %
Total2,962,000 100.0 %

    Details regarding the mortgage debt on our properties may be found in the consolidated financial statements within this Annual Report on Form 10-K.

    Our corporate headquarters is located at 3284 Northside Parkway NW, Suite 150, Atlanta, Georgia 30327.

Item 3.    Legal Proceedings

    Neither we nor our subsidiaries are currently subject to any legal proceedings that we consider to be material. To our knowledge, none of our properties are currently subject to any legal proceeding that we consider material.

Item 4.     Mine Safety Disclosures

    Not applicable.

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

    Our Common Stock (symbol "APTS") has been listed on the New York Stock Exchange since July 17, 2015.

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    As of December 31, 2020, there were approximately 29,400 holders of record of our Common Stock. This total excludes an unknown number of holders of 8.9 million shares of Common Stock in street name at non-responding brokerage firms.

Dividends

    We have declared and subsequently paid cash dividends on shares of our Common Stock for each quarter since our IPO in 2011. Since we have elected to be taxed as a REIT effective with our tax year ended December 31, 2011, we are required to, and intend to, distribute at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP and determined without regard for the deduction for dividends paid and excluding net capital gains) to maintain such status. Dividends are declared with the action and approval of our board of directors and any future distributions are made at our board of director's discretion. Our dividend paying capacity is primarily dependent upon cash generated from our multifamily communities, grocery-anchored shopping centers and office properties, interest income on our real estate loans and cash needs for capital expenditures, both foreseen and unforeseen, among other factors. Risks inherent in our ability to pay dividends are further described in the section entitled “Risk Factors” in Item 1A of this Annual Report on Form 10-K.

Stockholder Return Performance Graph

The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.


apts-20201231_g2.jpg

The chart above presents comparative investment results through December 31, 2020 of a hypothetical initial investment of $1,000 on January 1, 2016 in: (i) our Common Stock, ticker symbol "APTS;" (ii) the MSCI U. S. REIT Index, an index of equity REIT constituent companies that derive the majority of their revenue from real estate rental activities; and (iii) the S&P 500 Index. The total return results assume automatic reinvestment of dividends and no transaction costs.
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Value of initial investment on:
1/1/201612/31/201612/31/201712/31/201812/31/201912/31/2020
APTS Common Stock$1,000 $1,210 $1,721 $1,257 $1,275 $795 
MSCI U. S. REIT Index$1,000 $1,086 $1,141 $1,089 $1,370 $648 
S&P 500$1,000 $1,095 $1,308 $1,226 $1,581 $1,838 

Sales of Unregistered Securities

There were no previously unreported sales of unregistered securities by the Company during the fiscal year ended 2020.

Preferred Stock Redemptions

For the year ended December 31, 2020, we redeemed 358,724 shares of Series A Preferred Stock, 26 shares of Series A1 Preferred Stock, 14,287 mShares and 35 shares of Series M1 Preferred Stock. The redemption price was $1,000 per share, less any applicable declining redemption fee.

Item  6.    Selected Financial Data

None.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Significant Developments

    On January 1, 2020, Joel T. Murphy became Chief Executive Officer of the Company. Mr. Murphy will continue as a member of the board, where he has served since May 2019. Mr. Murphy was the CEO of our New Market Properties subsidiary for the last five years until his appointment as our CEO. Mr. Murphy succeeded our previous CEO and Chairman of the Board, Daniel M. DuPree, who has remained with us as Executive Chairman of the Board.

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

At our 2020 annual meeting of stockholders, William J. Gresham, Jr., Leonard A. Silverstein, and John M. Wiens did not stand for re-election as members of our Board of Directors and John M. Cannon was elected as a member of our Board of Directors until our annual meeting of stockholders in 2021, if and when a successor is elected and qualified.

On November 3, 2020 we sold all eight of our student housing communities and one real estate loan investment to an unrelated third party. This transaction represented our exit from the student housing sector.

During the year ended December 31, 2020, we acquired four multifamily communities and two grocery-anchored shopping centers. We also sold one multifamily community and contributed one grocery-anchored shopping center to a joint venture in exchange for cash and a 50% interest in the joint venture.
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On November 19, 2020, we announced an approval by our common stockholders of a reduction of our call option on our Series A Redeemable Preferred Stock from 10 years to 5 years.

On November 24, 2020, we called and redeemed 208,786 shares of Series A Preferred Stock, which was approximately 80% of the outstanding shares of Series A Preferred Stock that was available to be redeemed at our option. Holders of another approximate 149,938 million shares of Series A Preferred Stock were redeemed by the holders during the year ended December 31, 2020.

    During the year ended December 31, 2020, we issued 144,645 shares of Series A1 Preferred Stock and collected net proceeds of approximately $130.2 million and we issued 18,845 shares of Series M1 Preferred Stock and collected net proceeds of approximately $18.3 million. During the year ended December 31, 2020, we issued 65,298 Units (one share of Series A Preferred Stock and one warrant to purchase 20 shares of our Common Stock) and collected net proceeds of approximately $58.8 million from our $1.5 Billion Unit Offering. We issued no mShares during 2020. Our Preferred Stock offerings and our other equity offerings are discussed in detail in the Liquidity and Capital Resources section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

    In addition, during the year ended December 31, 2020, we issued approximately 617,000 shares of Common Stock under our ATM Program.
    
Forward-looking Statements

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

our business and investment strategy;
our projected operating results;
actions and initiatives of the U.S. Government and changes to U.S. Government policies and the execution and impact of these actions, initiatives and policies;
the state of the U.S. economy generally or in specific geographic areas;
economic trends and economic recoveries;
our ability to obtain and maintain financing arrangements, including through Fannie Mae and Freddie Mac;
financing and advance rates for our target assets;
our expected leverage;
changes in the values of our assets;
our expected portfolio of assets;
our expected investments;
interest rate mismatches between our target assets and our borrowings used to fund such investments;
changes in interest rates and the market value of our target assets;
changes in prepayment rates on our target assets;
effects of hedging instruments on our target assets;
rates of default or decreased recovery rates on our target assets;
changes in our operating costs, including real estate taxes, utilities and insurance costs;
the degree to which our hedging strategies may or may not protect us from interest rate volatility;
impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;
our ability to maintain our qualification as a real estate investment trust, or REIT, for U.S. federal income tax purposes;
the possibility that the anticipated benefits from the internalization of our Former Manager and Former Sub-Manager, or the Internalization, may not be realized or may take longer to realize than expected, or that unexpected costs or unexpected liabilities may arise from the Internalization;
• the impact of the coronavirus (COVID-19) pandemic on PAC’s business operations and the economic conditions
in the markets in which PAC operates;
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• PAC’s ability to mitigate the impacts arising from COVID-19;
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;
changes in demographics (including the number of households and average household income) surrounding our shopping centers;
adverse financial conditions for grocery anchors and other retail, service, medical or restaurant tenants;
continued consolidation in the grocery-anchored shopping center sector;
excess amount of retail space in our markets;
reduction in the demand by tenants to occupy our shopping centers as a result of reduced consumer demand for certain retail formats;
the growth of super-centers and warehouse club retailers, such as those operated by Wal-Mart and Costco, and their adverse effect on traditional grocery chains;
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
consequences of any armed conflict involving, or terrorist attack against, the United States.

Forward-looking statements are found throughout this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report on Form 10-K. 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 this Annual Report on Form 10-K for the year ended December 31, 2020 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 Annual Report on Form 10-K.

Industry Outlook

    In spite of the COVID-19 pandemic, we believe continued, albeit sporadic, improvement in the United States' economy will take hold for 2021, with continued improvement in the job market from pandemic lows and growth and improvements in the overall economy. As the country combats the effects of the COVID-19 pandemic with vaccine rollouts and other measures, it should be the case that the impact from the pandemic lessens and the economy can begin a path to normalcy. The new presidential administration reduces some uncertainty in the direction and trajectory of economic growth and increases the probability of a larger stimulus package being enacted, which should also energize the economy and speed economic recovery. We believe a recovering economy, improving job market and increased consumer confidence should help create favorable conditions in the recovery for the multifamily sector, grocery-anchored shopping centers and class A office demand.



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Multifamily Communities
 
The Company continues 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 footprint and strategy: operating newly-constructed Class A communities in growing sunbelt suburban markets. The sunbelt 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 2.5 million housing units. Furthermore, we believe the U.S. is in the early stages of an economic expansion, which we believe would 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 suburban Sunbelt markets. These centers are primarily anchored by Publix, Kroger, Harris Teeter and other market share leading grocers with high sales per square foot. The merchandising mix of our portfolio is focused on e-commerce resiliency and has proven its stability and strength during the COVID-19 pandemic. The retailers who have been successful have embraced the coexistence of their bricks and mortars with a parallel and complimentary e-commerce business. Retailers are focused on optimizing in store pickup programs, while also using their existing bricks and mortar locations as fulfillment centers for these e-commerce businesses.

Our neighborhood driven and convenience focused shopping centers proved to be more important to their communities than ever during 2020. Kroger reported sales increases of 10.9% for the period ending November 7, 2020. Ahold Delhaize (Giant/Food Lion) reported fourth quarter 2020 same store sales increases of 11.2% and a 15.6% year-over-year increase on annual 2020 sales and we anticipate Publix increases to be comparable when they report. Retailers have recognized the benefits of being located in shopping centers anchored by heavily trafficked grocers which is evidenced in our pace of leasing towards the end of 2020 and into 2021. The company continued its solid performance in the 4th quarter, collecting approximately 97% of recurring rent charges, unadjusted for deferrals, up from collections of 92% and 96% in second and third quarters, respectively. Approximately 54% of our annual base rent comes from essential tenants who remained open throughout the pandemic and approximately 34% of our annual base rent comes from our grocery and pharmacy partners, who are closing out a very strong year of sales in 2020.

Indicative of the continuing recovery from the pandemic, the pace of deferral requests has slowed significantly. As of December 31, 2020, we have deferred $1.9 million of retail recurring rental revenue, or approximately 2.7% cumulatively during the pandemic’s three quarters. Rent deferrals have included lease amendments that add additional term and/or eliminate cumbersome operational restrictions on the center. We believe these amendments will ultimately result in unlocking additional long-term value across the portfolio. We attribute our strong operational performance throughout the pandemic to our essential and convenience-based tenant mix collaborating creatively and efficiently with our asset management, leasing and property
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management teams to find optimal solutions for all parties involved. We are confident in our portfolio’s tenant make up, focused on market leading grocers complemented by necessity and convenience-based tenants.

COVID-19 accelerated the migration out of the Northeast and California and into the high growth Sunbelt markets that the company has invested in. According to a report by Clarion, population growth in the Sunbelt is expected to accelerate by another 19 million (13%), while non-Sunbelt states are forecasted to rise by only 3 million, or 2%, over the next decade. The amount of job growth and population growth taking place in the Sunbelt is encouraging and is tied to companies and employees seeking better climate and lower cost of living. Further, employers are helping facilitate the growth as they flock to the Sunbelt for the more business friendly environments and lower costs of doing business. Many retailers are taking note of the increasing migration of their consumers to the Sunbelt and are focused on increasing their bricks and mortar presence throughout the region.

The retail bankruptcies that have taken place over the last 12-24 months were primarily centered in business concepts predicted by many to be on the verge of failing prior to the pandemic. On a forward-looking basis, the company is monitoring the market and anticipates that there could be additional bankruptcies that occur. We actively track our “Watch List” tenants based on market knowledge and tenant conversations. This list is used to help proactively evaluate strategic alternatives for tenants at risk. The company currently has minimal exposure to our Watch List, with under 3% of our New Market Properties segment's annual base rent attributed to such tenants.

Preferred Office Properties
 
               Preferred Office Properties operates a 3.2 million square foot portfolio of Class A office assets in markets across the Sunbelt. While new leasing activity has slowed and sublease availability has increased in most markets due to uncertainty from COVID-19, and we expect to see some level of continued soft demand in the near-term; the Company’s office investments are 95% leased with only approximately 12% of the portfolio leases expiring through the end of 2022. Furthermore, multi-year contractual leases and rent schedules paired with high quality tenant balance sheets have offered protection against adverse impacts of COVID-19, and office-using employment has fared better to date in the pandemic than have hourly wage earners.

Despite the ongoing adverse effect of the pandemic, we continue to hold a positive long-term outlook for the office industry in our targeted markets. We are optimistic that the distribution of vaccines creates the opportunity for business to begin to return to more normal activity over the course of 2021. While we think the prevalence of work from home will continue in some capacity, we expect the physical office to remain the center of the business workplace. According to a recent survey conducted by PwC, 87% of executives believe the office is critical for collaborating with team members and building relationships.

In addition, the pandemic has accelerated a number of trends that were already serving as tailwinds for our target markets, especially the demographic shifts from larger, more expensive gateway cities like New York and San Francisco to the suburban, Sunbelt markets. According to a 2018 report by Moody’s Analytics, for 2008 – 2018 the Sunbelt population grew 3 times faster than non-Sunbelt states. Moody’s projects that for 2019 – 2030 that outpacing will accelerate to nearly 7 times non-Sunbelt states. And the latest U.S. Census estimates show that Texas, Florida, North Carolina and Georgia were among the top five states in the nation in terms of nominal population gains in 2020. As a result, we are seeing significant interest from small and large companies looking to relocate and/or expand their office footprint in our Sunbelt markets because of the deep talent pool, low cost of living and doing business, and comparatively low density. As we believe these trends will continue, we remain optimistic about the Sunbelt office markets that are in the path of long-term growth.

Critical Accounting Policies
Below is a discussion of the accounting policies that management believes are critical. We consider these policies critical because they involve the application of significant management judgments, assumptions and estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.
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Real Estate
Cost Capitalization. Investments in real estate properties are carried at cost and depreciated using the straight-line method over the estimated useful lives of 30 to 50 years for buildings, 5 to 20 years for building and land improvements and 5 to 10 years for computers, furniture, fixtures and equipment. Acquisition costs are generally expensed as incurred for transactions that are deemed to be business combinations. Accounting Standards Update 2017-01 ("ASU 2017-01"), which was released in January 2017, clarifies the definition of a business and provides further guidance for evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. We adopted ASU 2017-01 as of January 1, 2017 and believe our future acquisitions of multifamily communities, office buildings, grocery-anchored shopping centers, and student housing communities will generally qualify as asset acquisitions. Pursuant to ASU 2017-01, certain qualifying acquisition costs will be capitalized and amortized rather than expensed as incurred.
Repairs, maintenance and resident turnover costs are charged to expense as incurred and significant replacements and betterments are capitalized and depreciated over the items' estimated useful lives. Repairs, maintenance and resident turnover costs include all costs that do not extend the useful life of the real estate property. We consider the period of future benefit of an asset to determine its appropriate useful life.
Real Estate Acquisition Valuation. Following our adoption of ASU 2017-01, we generally record the acquisitions of income-producing real estate as asset acquisitions.
All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values.
We assess the acquisition-date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant.
We record above-market and below-market in-place lease values for acquired properties based on the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining average non-cancelable term of the leases. We amortize any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining average non-cancelable term of the respective leases. The capitalized above-market leases and in place leases are included in the acquired intangible assets line of the consolidated balance sheets. Both above-market and below-market lease values are amortized as adjustments to rental revenue over the remaining term of the respective leases for office properties. The amortization period for retail shopping center leases is the remaining lease term plus any below market probable renewal options.
Intangible assets include the value of in-place leases, which represents the estimated value of the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. These estimates include estimated carrying costs, such as real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the hypothetical expected lease-up periods.
    The fair values of in-place leases for retail shopping centers and office properties represent the value of direct costs associated with leasing, including opportunity costs associated with lost rentals that are avoided by acquiring in-place leases. Direct costs associated with obtaining a new tenant include commissions, legal and marketing costs, incentives such as tenant improvement allowances and other direct costs. Such direct costs are estimated based on our consideration of current market costs to execute a similar lease. The value of opportunity costs is estimated using the estimated market lease rates and the estimated absorption period of the space. These direct costs and opportunity costs are included in the accompanying consolidated balance sheets as acquired intangible assets and are amortized to expense over the remaining term of the respective leases. The fair values of above-market and below-market in-place leases for retail shopping centers and office properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) our estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the leases, taking into consideration the probability of renewals for any below-market leases. Acquired in-place lease values for multifamily communities and student housing communities are amortized to operating expense over the average remaining non-cancelable term of the respective in-place leases.
Estimating the fair values of the tangible assets, identifiable intangibles and assumed liabilities requires us to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, the number of years the property will be held for investment and market interest
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rates. The use of different assumptions would result in variations of the values of our acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact their subsequent amortization and ultimately our net income.
Impairment of Real Estate and Related Intangible Assets. We monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets may not be recoverable or realized. When conditions suggest that an asset group may be impaired, we compare its carrying value to its estimated undiscounted future cash flows, including proceeds from its eventual disposition. If, based on this analysis, we do not believe that we will be able to recover the carrying value of an asset group, we record an impairment to the extent that the carrying value exceeds the estimated fair value of the asset group. Fair market value is determined based on a discounted cash flow analysis. This analysis requires us to use future estimates of net operating income, expected hold period, capitalization rates and discount rates. The use of different assumptions would result in variations of the values of the assets which could impact the amount of our net income and our assets on our balance sheet.

Real Estate Loans

We extend loans for purposes such as to to acquire land and to provide partial financing for the development of multifamily residential communities, student housing communities, grocery-anchored shopping centers and office properties and for other real estate or real estate related projects. Certain of these loans we extend include characteristics such as exclusive options to purchase the project within a specific time window following expected project completion and stabilization. These characteristics can cause the loans to contain variable interests and the potential of consolidation of the underlying project as a variable interest entity, or VIE. We consider the facts and circumstances pertinent to each loan, including the relative amount of financing we are contributing to the overall project cost, decision making rights or control we hold and our rights to expected residual gains or our obligations to absorb expected residual losses from the project. If we are deemed to be the primary beneficiary of a VIE due to holding a controlling financial interest, the majority of decision making control, or by other means, consolidation of the VIE would be required. Arriving at these conclusions requires us to make significant assumptions and judgments concerning each project, especially with regard to our estimates of future market capitalization rates and property net operating income projections. Additionally, we analyze each loan arrangement and utilize these same assumptions and judgments for consideration of whether the loan qualifies for accounting as a loan or as an investment in a real estate development project.

Expected Credit Losses

The Company carries its investments in real estate loans at amortized cost that consists of drawn amounts on the loans, net of unamortized deferred loan origination fees and current expected credit losses.

On January 1, 2020, the Company adopted ASU 2016-13, that replaced the incurred loss model with an expected loss model for instruments measured at amortized cost, and requires entities to record credit allowances for total expected future losses on financial assets at the outset of each loan. For each loan in which the Company is the lender, the amount of protection afforded to the Company is estimated to be the excess of the future estimated fair market value of the developed property over the developer’s related obligations (including the Company’s mezzanine or member loan(s)), other loans senior to the Company's, the expected future balance of accrued interest and any other obligations related to the project’s funding. Arriving at the future estimated fair market value of the developed property requires us to make significant assumptions and judgments concerning each project, especially regarding our estimates of future market capitalization rates and property net operating income projections. The excess represents the amount of equity dollars in each real estate project plus profit expected to be realized by the developer on the project, both of which are in a subordinate position to the Company's real estate loan investments. This numeric result is expressed as a percentage of the developed property's future estimated fair market value (a "percentage of protection"), which is then pooled into ranges of loss percentages that was derived from company-specific loss experience to determine the expected credit loss for the loan (“the indicated loss reserve ratio”). The product of this indicated loss reserve ratio and the expected fully-funded balance (inclusive of an expected future balance of accrued interest) is the initial total expected credit loss reserve. Over the life of the loan, the initial reserve is reevaluated for potential reduction at the achievement of certain milestones in construction and lease-up progress as the project approaches completion and the loan approaches maturity, given no unforeseen degradation in project performance or failure to adhere to the terms of the loan by the borrower/developer. Finally, the loss reserve may be further refined by the Company due to any subjective qualitative factors deemed pertinent and worthy of reflection.

The Company implemented this new guidance by applying this model to its existing portfolio of real estate loan investments using the modified retrospective method and in doing so, recorded a cumulative effect adjustment to retained earnings on January 1, 2020. See note 4.

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The Company's notes and lines of credit receivable are unsecured and so are assessed for expected future credit loss by individually assessing the expected profit from current development projects in progress, as well as the viability of the personal guarantees of the borrowers.

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

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

Revenue Recognition

We generally lease apartment units under leases with terms of thirteen months or less. We generally lease retail properties and office building suites for rental terms of several years. Rental revenue, net of concessions, is recognized on a straight-line basis over the term of the lease. Differences from the straight-line method, which recognize the effect of any up-front concessions and other adjustments ratably over the lease term, are recorded in the appropriate period, to the extent that adjustments to the straight-line method are material.

Revenue from reimbursements of retail and office building tenants' share of real estate taxes, insurance and common area maintenance, or CAM, costs are recognized as the respective costs are incurred in accordance with the lease agreements. We estimate the collectability of the receivable related to rental and reimbursement billings due from tenants and straight-line rent receivables, which represent the cumulative amount of future adjustments necessary to present rental income on a straight-line basis, by taking into consideration our historical write-off experience, tenant credit-worthiness, current economic trends, and remaining lease terms.

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

Other income, including interest earned on our cash, is recognized as it is earned. We recognize interest income on real estate loans on an accrual basis over the life of the loan. Loan origination fees received from borrowers as an incentive to extend the real estate loans (excluding the amounts paid to the Former Manager), are amortized over the life of the loan as an additive adjustment to interest income using the effective interest method. We stop accruing interest on loans when circumstances indicate that it is probable that the ultimate collection of all principal and interest due according to the loan agreement will not be realized, which is generally a delinquency of 30 days in required payments of interest or principal. Any payments received on such non-accrual loans are recorded as interest income or as a reduction of principal, depending upon the circumstances, when the payments are received. Interest accrual on real estate loan investments is resumed once interest and principal payments become current.

New Accounting Pronouncements

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

43


Results of Operations

Certain financial highlights of our results of operations for the three months and years ended December 31, 2020 and 2019 were:
    
Three months ended December 31,Year ended December 31,
20202019% change20202019% change
Revenues (in thousands)
$121,121 $124,866 (3.0)%$502,197 $470,427 6.8 %
Per share data:
Net income (loss) (1)
$(0.77)$(0.71)(8.5)%$(6.95)$(2.73)— 
FFO (2)
$(0.20)$0.31 — $(3.36)$1.37 — 
Core FFO (2)
$0.31 $0.35 (11.4)%$1.07 $1.49 (28.2)%
AFFO (2)
$0.25 $0.35 (28.6)%$0.83 $1.02 (18.6)%
Dividends (3)
$0.175 $0.2625 (33.3)%$0.7875 $1.0475 (24.8)%
(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 Reconciliations of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO to Net Income (Loss) Attributable to Common Stockholders beginning on page S-3 and Definitions of Non-GAAP Measures beginning on page S-22.
(3) Per share of Common Stock and Class A Unit outstanding.


Financial

Our total revenues for the year ended December 31, 2020 increased 6.8% to approximately $502.2 million from the year ended December 31, 2019, largely due to incremental revenues from newly acquired real estate assets. Our total revenues declined for the quarter ended December 31, 2020 versus the 2019 period due to the sale on November 3, 2020 of our eight student housing properties.

Our net loss per share was $(0.77) and $(0.71) for the three-month periods ended December 31, 2020 and 2019, respectively. Funds From Operations, or FFO, was $(0.20) and $0.31 per weighted average share of Common Stock and Class A Unit outstanding for the three months ended December 31, 2020 and 2019, respectively. The decline in FFO per share was driven by:

deemed dividends resulting from our call of preferred stock and other cash redemptions of preferred stock in the fourth quarter 2020 that totaled approximately $0.49 per share;
decreased interest revenue from our smaller portfolio of real estate loan investments and lines of credit of     approximately $0.06 per share; and
a gain from the sale of mortgage-backed securities in 2019 which did not recur in 2020 of approximately $0.03 per share;
partially offset by an increase of approximately $0.06 per share from improved property operational results and acquisitions.

Our Core FFO per share result increased to $0.31, up 19.2% from $0.26 for the third quarter 2020, primarily due to:

higher purchase option termination revenue of approximately $0.02 per share;
land easement proceeds received in the fourth quarter 2020 of approximately $0.01 per share; and
reduced monthly preferred stock dividends following the call of 208,786 shares of preferred stock of approximately $0.01 per share.

Our AFFO per share increased to $0.25 for the fourth quarter 2020 from $0.07 for the third quarter 2020, primarily due to:

an increase of accrued interest received of approximately $0.07 per share;
higher purchase option termination revenue of approximately $0.02 per share;
land easement proceeds received in the fourth quarter 2020 of approximately $0.01 per share;
reduced monthly preferred stock dividends following the call of 208,786 shares of preferred stock of approximately $0.01 per share; and
lower recurring capital expenditures on our real estate properties of approximately $0.02 per share.

44


Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately 57.9% and our Core FFO payout ratio to our preferred stockholders was approximately 78.4% for the fourth quarter 2020. (A)

Our AFFO payout ratio to our preferred stockholders improved to approximately 81.7% for the fourth quarter 2020 from 90.9% for the third quarter 2020.(A) Our fourth quarter 2020 AFFO payout ratio reflects an increase of accrued interest received on our real estate loan investment portfolio of approximately $3.5 million versus the third quarter 2020. We have approximately $22.5 million of accrued interest revenue on our real estate loan investment portfolio, that will positively impact AFFO when collected.

As of December 31, 2020, our total assets were approximately $4.3 billion, a decrease from our total assets of approximately $4.8 billion at December 31, 2019 that mainly resulted from the sale of our student housing portfolio during the fourth quarter 2020 and the utilization of proceeds to fund a call of 208,786 shares of our preferred stock.

(A) We calculate the Core FFO and AFFO payout ratios to Common Stockholders as the ratio of Common Stock dividends and distributions to Core FFO and AFFO. We calculate the Core FFO and AFFO payout ratios to preferred stockholders as the ratio of Preferred Stock dividends to the sum of Preferred Stock dividends and Core FFO and AFFO. Since our operations resulted in a net loss from continuing operations for the periods presented, a payout ratio based on net loss is not calculable. See Definitions of Non-GAAP Measures on page S-22.


The following chart details monthly cash collections of rental revenues before and after the effect of rent deferrals across all our operating business lines as of February 25, 2021:
Cash Collections of 2020 Recurring Rental Revenues (1)
Unadjusted for rent deferrals:First quarterSecond quarterThird quarterOctoberNovemberDecember
Multifamily99.9 %98.8 %99.0 %99.0 %99.1 %99.1 %
Office99.9 %98.1 %99.7 %99.9 %100.0 %99.4 %
Grocery-anchored retail (2)
99.5 %91.7 %95.9 %97.3 %97.2 %97.8 %
Cash Collections of 2020 Recurring Rental Revenues (1)
Adjusted for rent deferrals:First quarterSecond quarterThird quarterOctoberNovemberDecember
Multifamily99.9 %99.4 %99.0 %99.0 %99.1 %99.1 %
Office99.9 %99.9 %100.0 %99.9 %100.0 %99.4 %
Grocery-anchored retail (2)
99.6 %96.8 %97.6 %98.2 %98.0 %97.9 %

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

The following chart details monthly occupancy and percent leased rates across all our operating business lines:
2020 Monthly Occupancy and Percentages Leased
First quarterSecond quarterThird quarterOctoberNovemberDecember
Occupancy:
Multifamily (stabilized) (1)
95.5 %94.7 %95.6 %95.4 %95.8 %95.6 %
Percent leased: (2)
Office96.7 %96.2 %95.5 %95.4 %95.4 %94.7 %
Grocery-anchored retail (3)
92.6 %92.7 %92.5 %92.4 %91.1 %91.0 %

(1) For quarterly periods, calculated as the average of the number of occupied units on the 20th day of each of the trailing three months from the period end date.
(2) Percent of total area leased as of the period end date.
(3) Includes an investment in an unconsolidated joint venture that is not prorated for our ownership percentage.


Operational

Our multifamily communities' same store rental and other property revenues increased 0.6% and our same store net operating income increased 0.7% for the year ended December 31, 2020 versus 2019. For the fourth quarter, same store revenues increased 0.1% and same store net operating income decreased 1.9%. Real estate taxes and insurance costs increased 22% and 24%,
45


respectively for the quarter and 6% and 26% respectively for the year to date periods in 2020 due to our 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. Decreases in property operating and maintenance expense resulted from cost savings realized from the absence of property management fees to our Former Manager following Internalization and reduced advertising and marketing expenditures.

We collected 99% of rental revenues from residents in our multifamily communities for each month in 2020.

Our average recurring rental revenue collections before and after any effect of rent deferrals for the fourth quarter 2020 were approximately 99.1% and 99.1% for multifamily communities, 97.4% and 98.1% for grocery-anchored retail properties and 99.7% and 99.7% 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.

As of December 31, 2020, we have deferred $1.9 million of retail recurring rental revenue, or approximately 2.7% cumulatively over the last three quarters. Including this deferred rent, we have accounted for 98.1%, 97.6% and 96.8% of fourth quarter, third quarter and second quarter retail recurring rental revenue, respectively. In addition to the deferrals, we granted approximately $542,000 of Covid-related rental abatements, or approximately 0.8% of retail recurring rental revenues cumulatively over the last three 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. Our total retail reserves held steady at $2.5 million, or 2.3% of total retail revenues year to date, which is 0.6% of total company rental and other property revenues.

During the fourth quarter 2020, we received the full principal amounts totaling $44.6 million from the repayment of the Sanibel Straights, E-Town and Solis Kennesaw II real estate loan investments, plus approximately $4.2 million of deferred interest revenue from these loans. These transactions collectively returned $48.8 million of capital to us for investment during the fourth quarter.

For the full year 2020, we originated three real estate investment loans with a total commitment of $44.1 million.
As of December 31, 2020, the average age of our multifamily communities was approximately 6.3 years, which is the youngest in the public multifamily REIT industry.

As of December 31, 2020, all of our owned multifamily communities had achieved stabilization except for our two fourth quarter acquisitions, which we define as reaching 93% physical occupancy for three full months in a quarter. One fourth quarter multifamily acquisition will achieve stabilization on March 31, 2021, at which time we will have owned it for a full fiscal quarter.

The physical occupancy of our same-store multifamily communities increased to 95.4% at December 31, 2020 from 95.3% at December 31, 2019.


Financing and Capital Markets

As of December 31, 2020, approximately 97.4% of our permanent property-level mortgage debt has fixed interest rates and approximately 0.8% has variable interest rates which are capped. We believe we are well protected against potential increases in market interest rates. Our overall weighted average interest rate for our mortgage debt portfolio was 3.55% for multifamily communities, 4.13% for office properties, 3.91% for grocery-anchored retail properties and 3.77% in the aggregate.

At December 31, 2020, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 55.6%.

At December 31, 2020, we had $178.0 million available to be drawn on our revolving line of credit and approximately $75.7 million of cash and restricted cash.

During the fourth quarter 2020, we issued and sold an aggregate of 52,333 shares of Preferred Stock and redeemed an aggregate of 49,105 shares of Preferred Stock, resulting in a net issuance of 3,228 shares of Preferred Stock. Also during the fourth quarter 2020, we called 208,786 shares of Preferred Stock for a net decrease of 205,558 shares of Preferred Stock outstanding and a net cash disbursement of approximately $209.3 million from these transactions.

46


Significant Transactions

On November 3, 2020, we announced via a press release the closing on that day of the sale of all of our student housing properties and one student housing related real estate loan investment to an unrelated third party for a sales price of $478.7 million.

During the fourth quarter 2020, we acquired The Blake, a 281-unit multifamily community located in Orlando, Florida and The Menlo, a 332-unit multifamily community located in Jacksonville, Florida.

On November 12, 2020, we closed on the sale of the Avenues at Creekside, a 395-unit multifamily community located in San Antonio, Texas that resulted in a gain of approximately $17.3 million.

On November 19, 2020, we announced an approval by our common stockholders of a reduction of our call option on our Series A Redeemable Preferred Stock from 10 years to 5 years.

On November 19, 2020, we announced a call of approximately $208.8 million of our Series A Redeemable Preferred Stock.

During the fourth quarter 2020, we received approximately $48.8 million in full satisfaction of the principal and all interest due on four previously issued real estate loan investments.

Years ended December 31, 2020 compared to 2019

    The following discussion and tabular presentations highlight the major drivers behind the line item changes in our results of operations for the years ended December 31, 2020 versus 2019:
47


Preferred Apartment Communities, Inc.Years ended December 31,Change inc (dec)
20202019AmountPercentage
Revenues:
Rental and other property revenues$445,815 $406,916 $38,899 9.6 %
Interest income on loans and notes receivable46,610 49,542 (2,932)(5.9)%
Interest income from related parties4,235 11,946 (7,711)(64.5)%
Miscellaneous revenues5,537 2,023 3,514 173.7 %
Total revenues502,197 470,427 31,770 6.8 %
Operating expenses:
Property operating and maintenance69,255 59,845 9,410 15.7 %
Property salary and benefits 22,377 20,693 1,684 8.1 %
Property management fees 4,989 13,981 (8,992)(64.3)%
Real estate taxes and insurance63,294 56,832 6,462 11.4 %
General and administrative30,809 5,773 25,036 433.7 %
Equity compensation to directors and executives1,644 1,223 421 34.4 %
Depreciation and amortization201,677 185,065 16,612 9.0 %
Asset management and general and administrative expense fees to related parties3,099 33,516 (30,417)(90.8)%
Provision for expected credit losses6,103 2,038 4,065 199.5 %
Management Internalization expense180,116 2,987 177,129 5,930.0 %
Total operating expenses583,363 381,953 201,410 52.7 %
Waived asset management and general and administrative expense fees (1,136)(11,764)10,628 (90.3)%
Net operating expenses582,227 370,189 212,038 57.3 %
Operating income (loss) before gains on sales of real estate and loss from unconsolidated joint venture(80,030)100,238 (180,268)— 
Loss from unconsolidated joint venture(314)— (314)— 
Gain on sale of real estate and mortgage-backed securities, net23,456 1,567 21,889 1,396.9 %
Operating income (loss)(56,888)101,805 (158,693)— 
Interest expense118,558 111,964 6,594 5.9 %
Change in fair value of net assets of consolidated VIE from mortgage-backed pool— 1,831 (1,831)— 
(Loss) on extinguishment of debt(6,674)(84)(6,590)7,845.2 %
Gain (loss) on sale of real estate loan investment and land condemnation517 954 (437)(45.8)%
Net loss(181,603)(7,458)(174,145)— 
Consolidated net loss attributable to non-controlling interests3,815 214 3,601 1,682.7 %
Net income (loss) attributable to the Company$(177,788)$(7,244)$(170,544)— 











48


New Market Properties, LLC

    Our New Market Properties, LLC business consists of our portfolio of grocery-anchored shopping centers and our Dawson Marketplace real estate loan supporting a shopping center in the Atlanta, Georgia market. Comparative statements of operations of New Market Properties, LLC for the year ended December 31, 2020 versus 2019 are presented below. These statements of operations include no allocations of corporate overhead or other expenses.
New Market Properties, LLCYears ended December 31,Change inc (dec)
20202019AmountPercentage
Revenues:
Rental and other property revenues$107,361 $94,628 $12,733 13.5 %
Interest income on notes receivable164 1,761 (1,597)(90.7)%
Total revenues107,525 96,389 11,136 11.6 %
Operating expenses:
Property operating and maintenance13,359 10,746 2,613 24.3 %
Property management fees 2,480 3,318 (838)(25.3)%
Real estate taxes and insurance15,154 13,087 2,067 15.8 %
General and administrative2,886 735 2,151 292.7 %
Equity compensation to directors and executives104 70 34 48.6 %
Depreciation and amortization51,813 44,786 7,027 15.7 %
Asset management and general and administrative expense fees to related parties720 7,242 (6,522)(90.1)%
Total operating expenses86,516 79,984 6,532 8.2 %
Waived asset management and general and administrative expense fees (17)(382)365 — 
Net operating expenses86,499 79,602 6,897 8.7 %
Operating income before gain on sale of real estate and loss from unconsolidated joint venture21,026 16,787 4,239 25.3 %
Loss from unconsolidated joint venture(314)— (314)— 
Gain on sale of real estate, net3,261 — 3,261 — 
Operating income23,973 16,787 7,186 42.8 %
Interest expense26,379 24,566 1,813 7.4 %
Loss on extinguishment of debt— (68)68 (100.0)%
Gain on land condemnation528 — 528 — 
Net loss$(1,878)$(7,847)$5,969 — 
Consolidated net (income) loss attributable to non-controlling interests(100)(55)(45)— 
Net loss attributable to the Company$(1,778)$(7,792)$6,014 — 


49


Recent acquisitions

Our acquisitions (net of dispositions) of real estate assets since January 1, 2019 were generally the primary drivers behind our increases in rental and property revenues and property operating expenses for the year ended December 31, 2020 versus 2019.
    Real estate assets acquired
Acquisition datePropertyLocationUnitsBeds Leasable square feet
Multifamily communities:
8/8/2019Artisan at VieraMelbourne, FL259--
9/18/2019Five Oaks at WestchaseTampa, FL218--
3/31/2020Horizon at WiregrassTampa, FL392--
4/30/2020Parkside at the BeachPanama City Beach, FL288--
11/2/2020The BlakeOrlando, FL281--
12/15/2020The MenloJacksonville, FL332--
New Market Properties:
1/17/2019Gayton CrossingRichmond, VA--158,316 
5/28/2019Free State Shopping CenterWashington, D.C.--264,152 
6/12/2019Disston PlazaTampa - St. Petersburg, FL--129,150 
6/12/2019Polo Grounds MallWest Palm Beach, FL--130,285 
8/16/2019
Fairfield Shopping Center (1)
Virginia Beach, VA--231,829 
11/14/2019Berry Town CenterOrlando, FL--99,441 
12/19/2019
Hanover Shopping Center (1)
Wilmington, NC--305,346 
1/29/2020Wakefield CrossingRaleigh, NC--75,927 
3/19/2020Midway MarketDallas, TX--85,599 
Student housing property:
3/27/2019RushCharlotte, NC322887-
Preferred Office Properties:
7/25/2019
CAPTRUST Tower (1)
Raleigh, NC --300,000 
7/31/2019251 ArmourAtlanta, GA--35,000 
12/20/2019
Morrocroft Centre (1)
Charlotte, NC--291,000 
2,092 887 2,106,045 
    
(1) Property is owned through a consolidated joint venture.



    Real estate assets sold
Disposition datePropertyLocationUnitsBeds
Student housing properties:
11/3/2020North by NorthwestTallahassee, FL219 679 
11/3/2020
SoL
Tempe, AZ224 639 
11/3/2020Stadium VillageAtlanta, GA198792
11/3/2020UrsaWaco, TX250840
11/3/2020The TraditionCollege Station, TX427808 
11/3/2020KnightshadeOrlando, FL221894 
11/3/2020The BlocLubbock, TX140556
11/3/2020RushCharlotte, NC332887
Multifamily community:
11/12/2020Avenues at CreeksideSan Antonio, TX395— 




50


Rental and other property revenues

    Rental and other property revenues increased 9.6% for the year ended December 31, 2020 versus 2019, primarily due to properties acquired since January 1, 2019. These increases occurred in multifamily communities, grocery-anchored shopping centers and office buildings, which accounted for most of our acquisition activity since January 1, 2019.

Our average recurring rental revenue collections before and after any effect of rent deferrals for the year ended December 31, 2020 were approximately 99.2% and 99.3% respectively for multifamily communities, 99.4% and 99.9% for office properties and 96.1% and 98.0% for grocery-anchored retail properties, respectively. Rent deferments provided to residents and tenants primarily related to a change of timing of rent payments with no significant changes to total payments or term. The Company has deferred approximately $2.7 million, or 0.6% of total rental and other revenues for the year ended December 31, 2020. In addition, the Company’s revenues were reduced by approximately $3.9 million, or 0.9% of rental and other revenues for the year ended December 31, 2020 due to additional bad debt reserves related to the COVID-19 pandemic.

We also collect revenue from residents and tenants for items such as utilities, application fees, lease termination fees, common area maintenance reimbursements and late charges. The increases in these other property revenues for the year ended December 31, 2020 versus 2019 were primarily due to the acquisitions 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.

Interest income

Interest income from our real estate loan investments decreased for the year ended December 31, 2020 versus 2019, largely due to the decrease in principal amount outstanding to $290.2 million at December 31, 2020 from $352.6 million at December 31, 2019.

Revenues from the amortization of terminated purchase options decreased from $9.1 million for the year ended December 31, 2019 to $6.5 million for the year ended December 31, 2020.

    At December 31, 2020, we had unrecognized purchase option termination revenue of approximately $0.7 million that will be recognized by December 31, 2021.

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

    Miscellaneous revenues for the year ended December 31, 2020 consisted of forfeited earnest money deposits from prospective purchasers of six of our student housing properties and the addition of new revenue streams from Internalization, including third party property management fee revenues and revenues from subleasing space in the corporate office. Miscellaneous revenues for the year ended December 31, 2020 also included proceeds from a land easement at one of our multifamily properties.

Property operating and maintenance

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

    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.

51


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 fees were generally 4% of gross property revenues, of which generally 2.0% to 2.5% were paid to a third party management company. Property management fees for office building assets are 1.25% to 2.00% and are paid to a third party property management company. All property management fees paid to our Former Manager ceased effective with our Internalization on January 31, 2020, which resulted in a decrease of approximately $9.0 million in these property management fees for the year ended December 31, 2020 as compared to 2019.

Real estate taxes and insurance

    We are liable for property taxes due to the various counties and municipalities that levy such taxes on real property for each of our properties. Real estate taxes rose primarily due to the incremental costs brought on by properties acquired since January 1, 2019 and secondarily due to reassessments for existing properties. 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. 

General and Administrative

    The increases in general and administrative expenses were 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 for the year ended December 31, 2020 as compared to 2019, primarily due to the recognition of expense related to a grant of 482,097 shares of restricted stock that were issued to employees on June 17, 2020 and a grant of 272,929 performance-based restricted stock units that were issued to certain named executive officers on July 31, 2020. This increase in equity compensation expense was partially offset by a decrease in recognition of expense relating to Class B Unit grants. The last Class B Unit grant to be issued was in 2018, and the final one-third of the expense related to this grant was recorded in 2020.

Depreciation and amortization

    The increases in depreciation and amortization for the year ended December 31, 2020 as compared to 2019 was due to the addition of properties acquired since January 1, 2019.

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.

Provision for expected credit losses

    Effective January 1, 2020, we adopted ASU 2016-03, which requires us to estimate the amount of future credit losses we expect to incur over the lives of our real estate loan investments at the inception of each loan, rather than perform assessments for impairment as circumstances dictate. The Company’s opening reserve of approximately $7.4 million was recorded as a cumulative adjustment to accumulated earnings on January 1, 2020. During the first quarter of 2020, the Company recorded an aggregate net increase in its provisions for expected credit losses of approximately $4.5 million, primarily related to the onset of the COVID-19 pandemic. For the remainder of the year ended December 31, 2020, the Company recorded an aggregate net decrease in its provision for expected credit losses of approximately $2.9 million, primarily related to updates to our estimates to the valuations of the underlying development projects (reversal of some previous adjustments due to the COVID-19 pandemic), as well as projects achieving construction and leasing milestones.





52


Management Internalization expense

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

Interest expense

The increase consisted of interest expense on mortgage indebtedness that increased from $109.0 million for the year ended December 31, 2019 to $114.0 million for the year ended December 31, 2020, due to the additional acquired properties in 2020. Additionally, our Revolving Line of Credit carried a higher balance for 2020 over 2019, resulting in an additional $2.6 million in interest expense.

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

Losses on extinguishment of debt

The increase consisted of losses incurred on the refinancing of mortgage debt on nine of our multifamily communities during 2020.


Years ended December 31, 2019 compared to 2018

    Please refer to Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019, that was filed on March 3, 2020 for a discussion and tabular presentations highlighting the major drivers behind the line item changes in our results of operations for the years ended December 31, 2019 versus 2018.


Definitions of Non-GAAP Measures

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

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

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

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

Net income/loss, excluding:
depreciation and amortization related to real estate;
gains and losses from the sale of certain real estate assets;
gains and losses from change in control and
impairment writedowns of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

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

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

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

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

Less:
• earnest money forfeitures by prospective asset purchasers.

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

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

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

Core FFO, plus:
• non-cash equity compensation to directors and executives;
• non-cash (income) expense for current expected credit losses;
• amortization of loan closing costs;
• depreciation and amortization of non-real estate assets;
• net loan origination fees received;
• accrued interest income received;
• amortization of lease inducements;
• cash received for purchase option terminations;
• non-operating miscellaneous revenues;

Less:
• non-cash loan interest income;
• cash paid for loan closing costs;
• amortization of acquired real estate intangible 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
54


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.


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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 December 31,
(In thousands, except per-share figures)20202019
Net loss attributable to common stockholders (See note 1)$(38,631)$(32,536)
Add:Depreciation of real estate assets39,447 38,626 
Amortization of acquired intangible assets and deferred leasing costs8,742 8,588 
Net gain (loss) attributable to Class A Unitholders (See note 2)260 (6)
Gain on sale of real estate(20,195)— 
FFO attributable to common stockholders and unitholders(10,377)14,672 
Aquisition and pursuit costs— 
Loan cost amortization on acquisition term notes and loan coordination fees (See note 3)451 604 
Contingent management fees recognized upon property sales— 11 
Internalization costs (See note 4)288 1,844 
Deemed dividends for redemptions of and non-cash dividends on preferred stock24,593 206 
Expenses incurred on the call of preferred stock (See note 5)520 — 
Expenses related to the COVID-19 global pandemic (See note 6)77 — 
Non-operational miscellaneous revenues— (1,000)
Core FFO attributable to common stockholders and unitholders15,554 16,337 
Add:Non-cash equity compensation to directors and executives586 301 
Non-cash (income) expense for current expected credit losses (See note 7)155 1,400 
Amortization of loan closing costs (See note 8)1,255 1,160 
Depreciation/amortization of non-real estate assets541 488 
Net loan origination fees received (See note 9)16 109 
Deferred interest income received (See note 10)3,852 5,436 
Cash received for sale of K Program securities in excess of noncash revenues— 1,474 
Amortization of lease inducements (See note 11)448 439 
Cash received in excess of amortization of purchase option
termination revenues (See note 12)560 49 
Non-operational miscellaneous revenues— 1,000 
Less:Non-cash loan interest income (See note 10)(3,193)(3,686)
Cash paid for loan closing costs(16)— 
Amortization of acquired real estate intangibles and SLR (See note 13)(4,333)(4,268)
Amortization of deferred revenues (See note 14)(941)(941)
Normally recurring capital expenditures (See note 15)(1,903)(2,765)
AFFO attributable to common stockholders and Unitholders$12,581 $16,533 
Common Stock dividends and distributions to Unitholders declared:
Common Stock dividends $8,877 $12,156 
Distributions to Unitholders (See note 2)130 225 
Total$9,007 $12,381 
Common Stock dividends and Unitholder distributions per share$0.1750 $0.2625 
FFO per weighted average basic share of Common Stock and Unit outstanding$(0.20)$0.31 
Core FFO per weighted average basic share of Common Stock and Unit outstanding$0.31 $0.35 
AFFO per weighted average basic share of Common Stock and Unit outstanding$0.25 $0.35 
Weighted average shares of Common Stock and Units outstanding: (See note 16)
Basic:
Common Stock49,912 45,934 
Class A Units731 856 
Common Stock and Class A Units50,643 46,790 
Diluted Common Stock and Class A Units (See note 17)50,708 46,894 
Actual shares of Common Stock outstanding, including 548 and 13 unvested shares
 of restricted Common Stock at December 31, 2020 and 2019, respectively.50,542 46,457 
Actual Class A Units outstanding at December 31, 2020 and 2019, respectively. 649 856 
Total51,191 47,313 
    See Notes to Reconciliation of FFO, Core FFO and AFFO to Net Income (Loss) Attributable to Common stockholders.

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Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO
to Net (Loss) Income Attributable to Common Stockholders (A)
Years ended December 31,
(In thousands, except per-share figures)20202019
Net loss attributable to common stockholders (See note 1)$(338,901)$(121,033)
Add:Depreciation of real estate assets161,500 148,034 
Amortization of acquired intangible assets and deferred leasing costs37,675 34,990 
Net loss attributable to Class A Unitholders (See note 2)(3,133)(144)
Gain on sale of real estate(23,456)— 
FFO attributable to common stockholders and unitholders(166,315)61,847 
Acquisition and pursuit costs383 — 
Loan cost amortization on acquisition term notes and loan coordination fees (See note 3)2,162 2,095 
Contingent management fees recognized upon property sales— 11 
Payment of costs related to property refinancing7,372 594 
Internalization costs (See note 4)180,116 2,987 
Deemed dividends for redemptions of and non-cash dividends on preferred stock30,970 577 
Expenses incurred on the call of preferred stock (See note 5)566 — 
Expenses related to the COVID-19 global pandemic (See note 6)663 — 
Non-operational miscellaneous revenues(2,750)(1,000)
Core FFO attributable to common stockholders and unitholders53,167 67,111 
Add:Non-cash equity compensation to directors and executives1,644 1,223 
Non-cash (income) expense for current expected credit losses (See note 7)3,802 1,400 
Amortization of loan closing costs (See note 8)4,886 4,618 
Depreciation/amortization of non-real estate assets2,334 1,869 
Net loan origination fees received (See note 9)898 783 
Deferred interest income received (See note 10)12,504 10,514 
Amortization of lease inducements (See note 11)1,782 1,734 
Cash received in excess of (exceeded by) amortization of purchase option
 termination revenues (See note 12)464 (2,321)
Non-cash revenues from mortgage-backed securities— 778 
Non-operational miscellaneous revenues2,750 1,000 
Less:Non-cash loan interest income (See note 10)(12,638)(14,431)
Cash paid for loan closing costs(122)(37)
Amortization of acquired real estate intangibles and SLR (See note 13)(18,017)(16,643)
Amortization of deferred revenues (See note 14)(3,762)(3,762)
Normally recurring capital expenditures (See note 15)(8,428)(7,887)
AFFO attributable to common stockholders and Unitholders$41,264 $45,949 
Common Stock dividends and distributions to Unitholders declared:
Common Stock dividends $38,868 $46,755 
Distributions to Unitholders (See note 2)593 908 
Total$39,461 $47,663 
Common Stock dividends and Unitholder distributions per share$0.7875 $1.0475 
FFO per weighted average basic share of Common Stock and Unit outstanding$(3.36)$1.37 
Core FFO per weighted average basic share of Common Stock and Unit outstanding$1.07 $1.49 
AFFO per weighted average basic share of Common Stock and Unit outstanding$0.83 $1.02 
Weighted average shares of Common Stock and Units outstanding: (See note 16)
Basic:
Common Stock48,743 44,265 
Class A Units765 870 
Common Stock and Class A Units49,508 45,135 
Diluted Common Stock and Class A Units (See note 17)49,549 45,772 
Actual shares of Common Stock outstanding, including 548 and 13 unvested shares
 of restricted Common Stock at December 31, 2020 and 2019, respectively.50,542 46,457 
Actual Class A Units outstanding at December 31, 2020 and 2019, respectively. 649 856 
Total51,191 47,313 
    See Notes to Reconciliation of FFO, Core FFO and AFFO to Net Income (Loss) Attributable to Common stockholders.

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

1)Rental and other property revenues and property operating expenses for the three-months and year ended December 31, 2020 include activity for the properties acquired during the period only from their respective dates of acquisition. In addition, these periods include activity for the properties acquired since December 31, 2019. Rental and other property revenues and expenses for the three-months and year ended December 31, 2019 include activity for the acquisitions made during that period only from their respective dates of acquisition.

2)Non-controlling interests in Preferred Apartment Communities Operating Partnership, L.P., or our Operating Partnership, consisted of a total of 648,936 Class A Units as of December 31, 2020. Included in this total are 419,228 Class A Units which were granted as partial consideration to the seller in conjunction with the seller's contribution to us on February 29, 2016 of the Wade Green grocery-anchored shopping center. The remaining Class A units were awarded primarily to our key executive officers. The Class A Units are apportioned a percentage of our financial results as non-controlling interests. The weighted average ownership percentage of these holders of Class A Units was calculated to be 1.44% and 1.54% for the three-month periods ended December 31, 2020 and 2019, respectively.

3)     We paid loan coordination fees to Preferred Apartment Advisors, LLC, or our Former Manager, to reflect the administrative effort involved in arranging debt financing for acquired properties prior to the Internalization. The fees were calculated as 0.6% of the amount of any mortgage indebtedness on newly-acquired properties or refinancing and are amortized over the lives of the respective mortgage loans. This non-cash amortization expense is an addition to FFO in the calculation of Core FFO and AFFO. At December 31, 2020, aggregate unamortized loan coordination fees were approximately $11.7 million, which will be amortized over a weighted average remaining loan life of approximately 10.5 years.

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

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

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

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

8)    We incur loan closing costs on our existing mortgage loans, which are secured on a property-by-property basis by each of our acquired real estate assets, and also for occasional amendments to our syndicated revolving line of credit with Key Bank National Association, or our Revolving Line of Credit. These loan closing costs are also amortized over the lives of the respective loans and the Revolving Line of Credit, and this non-cash amortization expense is an addition to FFO in the calculation of AFFO. Neither we nor the Operating Partnership have any recourse liability in connection with any of the mortgage loans, nor do we have any cross-collateralization arrangements with respect to the assets securing the mortgage loans, other than security interests in 49% of the equity interests of the subsidiaries owning such assets, granted in connection with our Revolving Line of Credit, which provides for full recourse liability. At December 31, 2020, unamortized loan costs on all the Company's indebtedness were approximately $31.1 million, which will be amortized over a weighted average remaining loan life of approximately 9.0 years.

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

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

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

12)    Occasionally we receive fees in exchange for the termination of our purchase options related to certain multifamily and student housing properties. 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.

13)    This adjustment reflects straight-line rent adjustments and the reversal of the non-cash amortization of below-market and above-market lease intangibles, which were recognized in conjunction with our acquisitions and which are amortized over the estimated average remaining lease terms from the acquisition date for multifamily communities and over the remaining lease terms for grocery-anchored shopping center assets and office buildings. At December 31, 2020, the balance of unamortized below-market lease intangibles was approximately $51.9 million, which will be recognized over a weighted average remaining lease period of approximately 8.7 years.

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.
    
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 $31,000 and $131,000 of recurring capitalized expenditures incurred at our corporate offices during the three-months and year ended December 31, 2020, respectively. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures. See Capital Expenditures, Grocery-Anchored Shopping Center Portfolio, and Office Buildings Portfolio sections for definitions of these terms.

16)    Units and Unitholders refer to Class A Units in our Operating Partnership (as defined in note 2), or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center.

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

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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 formerly funded by payment of fees to our Former Manager prior to Internalization on January 31, 2020);
capital expenditures incurred to lease our multifamily communities, grocery-anchored shopping centers and office properties;
interest expense on our outstanding property level debt;
amounts due on our Credit Facility;
distributions that we pay to our preferred stockholders, common stockholders, and unitholders;
cash redemptions that we may pay to our preferred stockholders, and
committed investments.

    We have a credit facility, or Credit Facility, with KeyBank National Association, or KeyBank, which defines a revolving line of credit, or Revolving Line of Credit, which is used to fund investments, capital expenditures, dividends (with consent of KeyBank), working capital and other general corporate purposes on an as-needed basis. The maximum borrowing capacity on the Revolving Line of Credit is $200 million subset to an accordion feature that permits the maximum borrowing capacity to be expanded or contracted without amending any further terms of the instrument. The maturity date is December 12, 2021, with an option to extend the maturity date to December 12, 2022, pursuant to the Fourth Amended and Restated Credit Agreement, or the Amended and Restated Credit Agreement, subject to certain conditions described therein. The Revolving Line of Credit accrues interest at a variable rate of one month LIBOR plus an applicable margin of 2.75% to 3.50% per annum, depending upon our leverage ratio. The weighted average interest rate for the Revolving Line of Credit was 3.85% for the year ended December 31, 2020. The Amended and Restated Credit Agreement also reduced the commitment fee on the average daily unused portion of the Revolving Line of Credit to 0.25% or 0.30% per annum, depending upon our outstanding Credit Facility balance.

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 December 31, 2020, we were in compliance with all covenants related to the Fourth Amended and Restated Credit Agreement. Our results with respect to such compliance are presented in Note 9 to the Company's Consolidated Financial Statements.

    On December 20, 2019, the Company entered into a $70.0 million interim term loan with KeyBank, or the 2019 Term Loan, to partially finance the acquisition of Morrocroft Centre, an office building located in Charlotte, North Carolina. The 2019 Term Loan accrued interest at an average variable rate of 3.2% per annum until it was repaid in conjunction with the closing of permanent mortgage financing for Morrocroft Centre on March 19, 2020.

    On February 28, 2017, we entered into a revolving acquisition credit agreement, or Acquisition Credit Agreement, with KeyBank to obtain the Acquisition Facility, with a maximum borrowing capacity of $200 million. The sole purpose of the Acquisition Credit Agreement is to finance our acquisitions of multifamily communities and student housing communities prior to obtaining permanent conventional mortgage financing on the acquired assets. The maximum borrowing capacity on the Acquisition Facility was reduced by agreement with KeyBank to $90 million on March 25, 2019. The Acquisition Facility accrues interest at a variable rate of one month LIBOR plus a margin of between 1.75% per annum and 2.20% per annum, depending on the type of assets acquired and the resulting property debt service coverage ratio. The Acquisition Facility has a maturity date of March 1, 2022 and has two one-year extension options, subject to certain conditions described therein. At September 30, 2020, we had $90.0 million available to be drawn by us on the Acquisition Facility.

    Our net cash provided by operating activities for the years ended December 31, 2020, 2019 and 2018 was approximately $47.9 million, $145.6 million and $145.4 million, respectively. Our operating cash flows for the year ended December 31, 2020 reflect the $111.1 million one-time cash payments to the entities that owned the Former Manager and
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Former Sub-Manager for the closing of the Internalization transaction, as well as approximately $3.8 million in professional fees related to the transaction.

The majority of our revenue is derived from residents and tenants under existing leases at our multifamily communities, grocery-anchored shopping centers and office properties. Therefore, our operating cash flow is principally dependent on: (1) the number of multifamily communities, 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 was $50.8 million, $61.5 million and $65.8 million for the years ended December 31, 2020, 2019 and 2018, reflecting a decrease in the principal amounts outstanding on our portfolio of real estate loan investments.

    Our net cash provided by investing activities for the year ended December 31, 2020 was approximately $244.1 million and net cash disbursed was $661.1 million and $881.8 million for the years ended December 31, 2019 and 2018, respectively. Net cash proceeds of $515.5 million in 2020 reflected the sales of our Student Housing assets and our Avenues at Creekside multifamily community.

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














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For the year ended December 31, 2020, our capital expenditures for our multifamily communities, not including changes in related payables were as follows:
Capital Expenditures
RecurringNon-recurringTotal
(In thousands, except per-unit amounts)AmountPer UnitAmountPer UnitAmountPer Unit
Appliances
$683 $63.64 $— $— $683 $63.64 
Carpets1,736 161.63 — — 1,736 161.63 
Wood flooring / vinyl125 11.70 440 41.00 565 52.70 
Blinds and ceiling fans187 17.39 — — 187 17.39 
Fire safety— — 528 49.20 528 49.20 
Furnace, air (HVAC)610 56.79 — — 610 56.79 
Computers, equipment, misc.134 12.48 210 19.55 344 32.03 
Elevators— — 104 9.68 104 9.68 
Exterior painting— — 782 72.83 782 72.83 
Leasing office / common amenities114 10.60 771 71.78 885 82.38 
Major structural— — 2,457 228.82 2,457 228.82 
Cabinets & countertops and unit upgrades— — 1,146 106.63 1,146 106.63 
Landscaping & fencing— — 513 47.72 513 47.72 
Parking lot— — 308 28.69 308 28.69 
Signage and sanitation— — 145 13.50 145 13.50 
$3,589 $334.23 $7,404 $689.40 $10,993 $1,023.63 


For the year ended December 31, 2020, our capital expenditures for our student housing properties, not including changes in related payables were as follows:
Capital Expenditures
RecurringNon-recurringTotal
(In thousands, except per-unit amounts)AmountPer BedAmountPer BedAmountPer Bed
Appliances
$108 $21.01 $— $— $108 $21.01 
Carpets209 40.70 — — 209 40.70 
Wood flooring / vinyl10 1.78 0.28 11 2.06 
Blinds and ceiling fans22 4.23 — — 22 4.23 
Fire safety— — 97 18.98 97 18.98 
Furnace, air (HVAC)190 37.07 — — 190 37.07 
Computers, equipment, misc.48 9.50 81 15.77 129 25.27 
Elevators— — 22 4.35 22 4.35 
Exterior painting— — — — — — 
Leasing office / common amenities77 14.92 119 23.20 196 38.12 
Major structural— — 766 149.42 766 149.42 
Cabinets & countertops and unit upgrades— — 11 2.12 11 2.12 
Landscaping & fencing— — 54 10.42 54 10.42 
Parking lot— — 1.05 1.05 
Signage and sanitation— — 59 11.43 59 11.43 
Unit furniture448 87.44 — — 448 87.44 
$1,112 $216.65 $1,215 $237.02 $2,327 $453.67 
    
    In addition, second-generation capital expenditures within our grocery-anchored shopping center portfolio for the years ended December 31, 2020, 2019 and 2018 totaled $2.5 million, $1.8 million and $1.6 million, respectively. We define second-generation capital expenditures as those that exclude expenditures made in our grocery-anchored shopping center 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 ownership standards, and (iii) for property re-developments and repositioning.
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    Second-generation capital expenditures within our office properties portfolio for the years ended December 31, 2020, 2019 and 2018 totaled $1.1 million, $1.7 million and $152,000, respectively. Second-generation capital expenditures exclude those expenditures made in our office properties portfolio (i) to lease space to "first generation" tenants (i.e. leasing capital for existing vacancies and known move-outs at the time of acquisition), (ii) to bring recently acquired properties up to our Class A ownership standards (and which amounts were underwritten into the total investment at the time of acquisition) and (iii) for property re-developments and repositionings.

    Included in our aggregate restricted cash of approximately $47.1 million at December 31, 2020 was approximately $14.4 million that was contractually restricted to fund capital expenditures and other property-level commitments such as tenant improvements and leasing commissions.

Net cash used in financing activities was approximately $353.5 million for the year ended December 31, 2020 and net cash provided by financing activities was approximately $565.0 million and $751.1 million for the years ended December 31, 2019 and 2018, respectively. Our significant financing cash uses during 2020 included cash redemptions of preferred stock of $314.2 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) 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 fourth quarter 2020 Common Stock dividend declaration was $0.175 per share. Our board of directors reviews the proposed Common Stock dividend declarations quarterly, and there can be no assurance that the current dividend level will be maintained.

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

For the year ended December 31, 2020, our aggregate dividends and distributions totaled approximately $200.4 million and our cash flows from operating activities were approximately $47.9 million. The full year 2020 numbers were negatively impacted by the cash outlays related to Internalization of approximately $115.0 million and deemed dividends totaling approximately $30.4 million. We expect our cash flow from operations over time to be sufficient to fund our quarterly Common Stock dividends, Class A Unit distributions 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, including any potential redemptions or calls of our preferred stock; and
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Costs to acquire additional multifamily communities, grocery-anchored shopping centers, office properties or other real estate, enter into new and fund existing lending opportunities; and
our minimum distributions necessary to maintain our REIT status.

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

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

Pursuant to FINRA Rule 2310(b)(5), which became effective April 11, 2016, and as described in Regulatory Notice 15-02, we have prepared for our stockholders an estimate of the per share value of our Preferred Stock as of December 31, 2020. This estimate is based on dividing (i) the value of our assets less contractual liabilities as of December 31, 2020, by (ii) the number of shares of Preferred Stock outstanding as of that date. We used a direct capitalization appraised value analysis for this purpose. This methodology was prepared with the material assistance and confirmation of a third party valuation expert pursuant to FINRA Rule 2310(b)(5) and NASD Rule 2340(c). We believe this methodology conforms to standard industry practices. Based on the foregoing, we have determined that the estimated value as of December 31, 2020 of our Preferred Stock is $1,000 per share (unaudited).

For any property owned for less than 12 months, we used the market value of that property as reflected in the third party appraisal we had received at the time of acquisition to value the property. For properties owned more than 12 months, the direct capitalization value method was used. Under the direct capitalization value analysis, we utilized the trailing 12-month net operating income from the property, adjusted for rare or catastrophic events, such as hurricane damages, as needed, to arrive at a normalized net operating income. The Company then determines the current market capitalization rate for each property. The property’s normalized net operating income is divided by the capitalization rate for that property to determine a fair market value for each property. The fair market value of all the properties was then added to the value of our other assets (i.e., the value of our cash on hand and other financial assets as reflected on our audited consolidated financial statements for the year ended December 31, 2020) to determine the aggregate market value of our assets. We then subtracted our contractual liabilities from the aggregate market value of our assets, and divided the difference by the number of shares of our Preferred Stock outstanding as of December 31, 2020 to determine our estimated per share value of our Preferred Stock as of that date.

At December 31, 2020, 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");

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

an offering of up to $100 million of equity securities for the Preferred Office Growth Fund, a consolidated entity (the "Preferred Office Growth Fund Offering").

For the year ended December 31, 2020, we issued 617,306 shares of our common stock under our 2019 ATM Offering and collected proceeds of approximately $4.5 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 point in time, but the equity and credit markets may not consistently be available on terms that are attractive to us or at all.
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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, office properties and retail shopping centers. The number of different multifamily communities, retail shopping centers, office properties 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 FHFA (Federal Housing Finance Agency) could materially change the terms and/or availability of mortgage debt to the multifamily industry. Changes 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
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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 December 31, 2020, we had long term mortgage indebtedness of approximately $2.6 billion, all of which was incurred by us in connection with the acquisition or refinancing of our real estate properties.

As of December 31, 2020, we had approximately $28.7 million in unrestricted cash and cash equivalents available to meet our short-term and long-term liquidity needs. We believe that our long-term liquidity needs are and will continue to be adequately funded through the sources discussed above.

Off-Balance Sheet Arrangements

    As of December 31, 2020, we had 1,300,314 outstanding Warrants from our sales of Series A Preferred Stock 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 December 31, 2020, a total of 531,522 Warrants had been exercised into 10,630,440 shares of Common stock. The 1,300,314 Warrants outstanding at December 31, 2020 have exercise prices that range between $16.64 and $26.34 per share. If all the Warrants outstanding at December 31, 2020 became exercisable and were exercised, gross proceeds to us would be approximately $522.8 million and we would as a result issue an additional 26,006,280 shares of Common Stock.

Contractual Obligations

    Please see note 11 to our Consolidated Financial Statements for details regarding our contractual obligations.

Based on a LIBOR rate of 0.14% at December 31, 2020, our estimated future required payments on these instruments were:

(In thousands)TotalLess than one year1-3 years3-5 yearsMore than five years
Principal payments:
Mortgage debt$2,640,705 $103,759 $186,902 $347,630 $2,002,414 
Line of credit22,000 22,000 — — — 
Total principal$2,662,705 $125,759 $186,902 $347,630 $2,002,414 
Interest payments:
Mortgage debt$804,510 $99,199 $186,789 $163,108 $355,413 
Line of credit20 20 — — — 
Total interest$804,530 $99,219 $186,789 $163,108 $355,413 

In addition, we had unfunded real estate loan balances totaling approximately $44.4 million at December 31, 2020.
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Item 7A.    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 December 31, 2020, we have variable rate mortgages on the properties listed in following table.
Balance
(in thousands)
Percentage of total mortgage indebtednessLIBOR CapAll-in Cap
Summit Crossing II$20,700 2.5 %5.3 %
Total capped floating-rate debt20,700 0.8 %
Champions Village27,400 — — 
Fairfield Shopping Center19,750 — — 
Total uncapped floating-rate debt47,150 1.8 %
Total floating-rate debt$67,850 2.6 %

    Our Revolving Line of Credit accrued interest at a spread of 3.0% over LIBOR as of December 31, 2020; this combined rate is uncapped. Because of the short term nature of the Revolving Line of Credit and Acquisition Credit Facility instruments, we believe our interest rate risk is minimal.

We have 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 indebtedness fluctuated by 100 basis points, our interest costs, based on outstanding borrowings at December 31, 2020, would increase by approximately $0.6 million or decrease by approximately $0.06 million on an annualized basis.

Item 8.    Financial Statements and Supplementary Data
The following documents are located in Part IV, Item 15 of this Annual Report on Form 10-K:
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Schedule III- Real Estate Investments and Accumulated Depreciation as of December 31, 2020 with reconciliations for the years ended December 31, 2020, 2019 and 2018
Schedule IV- Mortgage Loans on Real Estate as of December 31, 2020

Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

    None.

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Item  9A.    Controls and Procedures

Management's Report on Internal Control over Financial Reporting

    The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934 (Exchange Act) as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company's board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or the board of directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
    Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
    Management of the Company assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria described in Internal Control - Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded the Company’s internal control over financial reporting was effective as of December 31, 2020.
    The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report included in this Annual Report on Form 10-K.
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 December 31, 2020, the end of the period covered by this report. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in internal control over financial reporting.

    As required by the Exchange Act Rule 13a-15(d), the Company's Chief Executive Officer and Chief Financial Officer evaluated the Company's internal control over financial reporting to determine whether any change occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Based on that evaluation, there has been no such change during such period.
Item  9B.    Other Information

    None.

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PART III

Item  10.    Directors, Executive Officers and Corporate Governance

Information required by this item regarding our directors and officers is incorporated herein by reference to our proxy statement, or our 2021 Proxy Statement, to be filed with the SEC with regard to our 2021 Annual Meeting of Stockholders.

Item  11.    Executive Compensation

Information required by this item regarding our officers is incorporated herein by reference to our 2021 Proxy Statement to be filed with the SEC.

Item  12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by this item is incorporated herein by reference to our 2021 Proxy Statement to be filed with the SEC.

Item  13.    Certain Relationships and Related Transactions and Director Independence

Information required by this item regarding our officers and directors is incorporated herein by reference to our 2021 Proxy Statement to be filed with the SEC.

Item  14.    Principal Accounting Fees and Services

Information required by this item is incorporated herein by reference to our 2021 Proxy Statement to be filed with the SEC.





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PART IV

Item    15.    Exhibits and Financial Statement Schedules

The following documents are filed as part of this report:
(1) Financial Statements:        

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Equity for the Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019, and 2018
Notes to Consolidated Financial Statements
    
(2) Financial Statement Schedules:                

Schedule III – Real Estate and Accumulated Depreciation
Schedule IV – Mortgage Loans on Real Estate


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Preferred Apartment Communities, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Preferred Apartment Communities, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedules appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on certain financial instruments in 2020.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Expected Credit Loss on Real Estate Loan Investments

As described in Notes 2 and 4 to the consolidated financial statements, the Company’s allowance for expected credit loss is recognized based on total expected future credit losses for its real estate loan investments. The Company’s allowance for expected credit loss was $9.1 million on total real estate loan investments, net of $279.9 million as of December 31, 2020. The allowance for expected credit loss on real estate loan investments is established based on the protection afforded to the Company for each loan in which the Company is the lender, which is estimated by management to be the excess of the future estimated fair market value of the developed property over the total of (i) the developer’s related obligations, (ii) other loans senior to the Company's, (iii) the expected future balance of accrued interest and (iv) any other obligations related to the project’s funding. As disclosed by management, arriving at the future estimated fair market value of the developed property requires management to make significant assumptions and judgments concerning each project, especially regarding our estimates of future market capitalization rates and property net operating income projections. The excess is expressed as a percentage of the developed property’s future estimated fair market value, defined as a loss reserve ratio, which is then pooled into ranges of loss percentages derived from company-specific loss experience. The product of the loss reserve ratio and the expected fully funded balance is the initial total expected credit loss reserve, which is reevaluated over the life of the loan based on the achievement of certain construction and lease-up milestones as the project approaches completion and the loan approaches maturity. Loss reserves may also be further refined based on subjective qualitative factors.
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The principal considerations for our determination that performing procedures relating to the allowance for expected credit loss on real estate loan investments is a critical audit matter are (i) the significant judgment by management in determining the future estimated fair market value of the developed property, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence relating to these fair market value estimates, and (ii) the significant audit effort in evaluating the future market capitalization rates and property net operating income projections.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s process for estimating the allowance for expected credit loss on real estate loan investments, including controls over the development of future market capitalization rates and property net operating income projections. These procedures also included, among others, testing management’s process for estimating the allowance for expected credit loss on real estate loan investments by (i) evaluating the appropriateness of management’s methodology for estimating the allowance for expected credit loss and determining the future estimated fair market value of the developed property; (ii) testing the data used in the estimate; and (iii) for a sample of real estate loan investments, evaluating the reasonableness of the future market capitalization rates and property net operating income projections used in the estimate. Evaluating the future market capitalization rates and property net operating income projections involved evaluating whether they were reasonable considering real estate market forecasts and the performance of management’s existing comparable operating properties, as well as whether they were consistent with evidence obtained in other areas of the audit.


/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
March 1, 2021

We have served as the Company’s auditor since 2010.
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Preferred Apartment Communities, Inc.
Consolidated Balance Sheets
(In thousands, except per-share par values)December 31, 2020December 31, 2019
Assets
Real estate
Land$605,282 $635,757 
Building and improvements3,034,727 3,256,223 
Tenant improvements184,288 167,275 
Furniture, fixtures, and equipment306,725 323,381 
Construction in progress12,269 11,893 
Gross real estate4,143,291 4,394,529 
Less: accumulated depreciation(509,547)(421,551)
Net real estate3,633,744 3,972,978 
Real estate loan investments, net of deferred fee income and allowance for expected credit loss of $10,261 and $1,460279,895 325,790 
Real estate loan investments to related parties, net of deferred fee income and allowance of $0 and $1,640
 23,692 
Total real estate and real estate loan investments, net3,913,639 4,322,460 
Cash and cash equivalents28,657 94,381 
Restricted cash47,059 42,872 
Notes receivable1,863 17,079 
Note receivable and revolving line of credit due from related party9,011 24,838 
Accrued interest receivable on real estate loans22,528 25,755 
Acquired intangible assets, net of amortization of $169,718 and $149,896127,138 154,803 
Deferred loan costs on Revolving Line of Credit, net of amortization of $1,544 and $849714 1,286 
Deferred offering costs4,786 2,147 
Tenant lease inducements, net of amortization of $5,350 and $3,56718,206 19,607 
Investment in unconsolidated joint venture6,657  
Tenant receivables and other assets100,821 65,332 
Total assets$4,281,079 $4,770,560 
Liabilities and equity
Liabilities
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $46,241 and $42,807$2,594,464 $2,567,022 
Revolving line of credit 22,000  
Term note payable, net of deferred loan costs of $0 and $511 69,489 
Unearned purchase option termination fees723 2,859 
Deferred revenue36,010 39,722 
Accounts payable and accrued expenses41,912 42,191 
Deferred liability to Former Manager23,335  
Contingent liability due to Former Manager14,814  
Accrued interest payable7,877 8,152 
Dividends and partnership distributions payable20,137 23,519 
Acquired below market lease intangibles, net of amortization of $34,006 and $23,65551,934 62,611 
Prepaid rent, security deposits, and other liabilities29,425 20,879 
Total liabilities2,842,631 2,836,444 
Commitments and contingencies (Note 11)
Equity
Stockholders' equity
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 and 2,161 shares
   issued; 1,735 and 2,028 shares outstanding at December 31, 2020 and December 31, 2019, respectively
17 20 
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 149 and 5 shares
   issued and outstanding at December 31, 2020 and December 31, 2019, respectively
1  
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued;
 89 and 103 shares outstanding at December 31, 2020 and December 31, 2019, respectively
1 1 
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 19 and zero shares
   issued and outstanding at December 31, 2020 and December 31, 2019, respectively
  
Common Stock, $0.01 par value per share; 400,067 shares authorized; 49,994 and 46,443 shares issued and
outstanding at December 31, 2020 and December 31, 2019, respectively
500 464 
Additional paid-in capital1,631,646 1,938,057 
Accumulated (deficit) earnings (192,446)(7,244)
Total stockholders' equity1,439,719 1,931,298 
Non-controlling interest(1,271)2,818 
Total equity1,438,448 1,934,116 
Total liabilities and equity$4,281,079 $4,770,560 
The accompanying notes are an integral part of these consolidated financial statements.
73


Preferred Apartment Communities, Inc.
Consolidated Statements of Operations
(In thousands, except per-share figures)Year ended December 31,
202020192018
Revenues:
Rental and other property revenues$445,815 $406,916 $331,465 
Interest income on loans and notes receivable46,610 49,542 50,190 
Interest income from related parties4,235 11,946 15,616 
Miscellaneous revenues5,537 2,023  
Total revenues502,197 470,427 397,271 
Operating expenses:
Property operating and maintenance69,255 59,845 51,006 
Property salary and benefits (including reimbursements of $1,430, $18,054 and $16,276 to related party)22,377 20,693 17,766 
Property management costs (including $894, $10,307 and $8,976 to related party) 4,989 13,981 11,681 
Real estate taxes and insurance63,294 56,832 47,020 
General and administrative30,809 5,773 3,464 
Equity compensation to directors and executives1,644 1,223 1,703 
Depreciation and amortization201,677 185,065 171,136 
Asset management and general and administrative expense fees to related party3,099 33,516 27,541 
Allowance for expected credit losses6,103 2,038 2,533 
Management Internalization expense180,116 2,987  
Total operating expenses583,363 381,953 333,850 
Waived asset management and general and administrative expense fees(1,136)(11,764)(6,656)
Net operating expenses582,227 370,189 327,194 
Operating income (loss) before gains on sales of real estate and loss from unconsolidated joint venture(80,030)100,238 70,077 
Loss from unconsolidated joint ventures(314)  
Gains on sales of real estate and mortgage-backed securities, net23,456 1,567 69,705 
Operating income (loss)(56,888)101,805 139,782 
Interest expense118,558 111,964 95,564 
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools 1,831 320 
Loss on extinguishments of debt(6,674)(84) 
Gains on sale of real estate loan investment and land condemnation517 954  
Net (loss) income (181,603)(7,458)44,538 
Net loss (income) attributable to non-controlling interests3,815 214 (1,071)
Net (loss) income attributable to the Company(177,788)(7,244)43,467 
Dividends declared to preferred stockholders(160,908)(113,772)(86,741)
Earnings attributable to unvested restricted stock(205)(17)(16)
Net loss attributable to common stockholders$(338,901)$(121,033)$(43,290)
Net loss per share of Common Stock available to common stockholders, basic and diluted$(6.95)$(2.73)$(1.08)
Weighted average number of shares of Common Stock outstanding, basic and diluted48,743 44,265 40,032 

The accompanying notes are an integral part of these consolidated financial statements.
74


Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity, continued
For the years ended December 31, 2020, 2019 and 2018
(In thousands, except dividend per-share figures)Series A and
Series M Redeemable Preferred Stock
Common StockAdditional Paid in CapitalAccumulated EarningsTotal Stockholders' Equity Non-Controlling InterestTotal Equity
Balance at January 1, 2020$21 $464 $1,938,057 $(7,244)$1,931,298 $2,818 $1,934,116 
Cumulative adjustment to reflect the adoption of ASU 2016-13— — — (7,414)(7,414)— (7,414)
Issuance of Series A Units1  64,483  64,484 — 64,484 
Issuance of Series A1/M1 preferred shares 2  163,144  163,146  163,146 
At-the-market issuance of common stock 6 4,608  4,614  4,614 
Exercises of warrants  8  8  8 
Redemptions of preferred stock(5)28 (314,290) (314,267) (314,267)
Syndication and offering costs  (25,935) (25,935) (25,935)
Equity compensation to executives and directors  1,397  1,397  1,397 
Conversion of Class A Units to common stock 2 2,236  2,238 (2,238) 
Current period amortization of Class B Units     247 247 
Net loss   (177,788)(177,788)(3,815)(181,603)
Contributions from non-controlling interests     186 186 
Reallocation of non-controlling interest to Class A Unitholders  (2,286) (2,286)2,286  
Distributions to non-controlling interests     (161)(161)
Distributions to Class A Unitholders— — — — — (594)(594)
Dividends to Series A preferred stockholders ($5.00 per share per month)  (149,944) (149,944) (149,944)
Dividends to mShares preferred stockholders ($4.79 - $6.25 per share per month) — (6,408) (6,408) (6,408)
Dividends to Series A1/M1 preferred stockholders ($5.00 and $5.08 - $5.92 per share per month, respectively)  (4,556) (4,556) (4,556)
Dividends to common stockholders ($0.7875 per share)  (38,868) (38,868) (38,868)
Balance at December 31, 2020$19 $500 $1,631,646 $(192,446)$1,439,719 $(1,271)$1,438,448 

The accompanying notes are an integral part of these consolidated financial statements.
75


Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2020, 2019 and 2018
(In thousands, except dividend per-share figures)Series A and Series M Redeemable Preferred StockCommon StockAdditional Paid in CapitalAccumulated Earnings Total Stockholders' Equity Non-Controlling InterestTotal Equity
Balance at January 1, 2019$16 $418 $1,607,712 $ $1,608,146 $1,239 $1,609,385 
Issuance of Series A Units5  482,144 — 482,149 — 482,149 
Issuance of mShares preferred shares 1  61,757  61,758  61,758 
Issuance of Series A1/M1 preferred shares   4,731  4,731  4,731 
Exercise of warrants  9 11,486  11,495  11,495 
Redemptions of preferred stock (1)36 (12,140) (12,105) (12,105)
Syndication and offering costs   (60,165) (60,165) (60,165)
Equity compensation to executives and directors  632  632  632 
Conversion of Class A to common stock  1 676  677 (677) 
Current Period Amortization of Class B Units      591 591 
Net loss   (7,244)(7,244)(214)(7,458)
Contributions from non-controlling interests     4,538 4,538 
Reallocation of non-controlling interest to Class A Unitholders  1,751  1,751 (1,751) 
Distributions to non-controlling interests     (908)(908)
Dividends to Series A preferred stockholders ($5.00 per share per month)  (108,950) (108,950) (108,950)
Dividends to mShares preferred stockholders ($4.79 - $6.25 per share per month)  (4,807) (4,807) (4,807)
Dividends to Series A1/M1 preferred stockholders   (15) (15) (15)
Dividends to common stockholders ($1.0475 per share)  (46,755) (46,755) (46,755)
Balance at December 31, 2019$21 $464 $1,938,057 $(7,244)$1,931,298 $2,818 $1,934,116 

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




76


Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity, continued
For the years ended December 31, 2020, 2019 and 2018
(In thousands, except dividend per-share figures)Series A and
Series M Redeemable Preferred Stock
Common StockAdditional Paid in CapitalAccumulated EarningsTotal Stockholders' Equity Non-Controlling InterestTotal Equity
Balance at January 1, 2018$12 $386 $1,271,040 $4,449 $1,275,887 $4,879 $1,280,766 
Issuance of Series A Units4  420,389  420,393 — 420,393 
Issuance of mShares preferred shares  28,951  28,951 — 28,951 
Redemptions of preferred stock 17 (9,445) (9,428) (9,428)
Exercises of warrants 12 16,042  16,054  16,054 
Syndication and offering costs  (44,681) (44,681) (44,681)
Equity compensation to executives and directors  537  537  537 
Conversion of Class A Units to common stock 3 2,011  2,014 (2,014) 
Current period amortization of Class B Units     1,166 1,166 
Net income   43,467 43,467 1,071 44,538 
Reallocation of non-controlling interest to Class A Unitholders  2,822  2,822 (2,822) 
Distributions to non-controlling interests     (1,041)(1,041)
Dividends to Series A preferred stockholders ($5.00 per share per month)  (37,975)(46,867)(84,842) (84,842)
Dividends to mShares preferred stockholders ($4.79 - $6.25 per share per month) — (850)(1,049)(1,899) (1,899)
Dividends to common stockholders ($1.02 per share)  (41,129) (41,129) (41,129)
Balance at December 31, 2018$16 $418 $1,607,712 $ $1,608,146 $1,239 $1,609,385 

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











77


Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows
(In thousands)Years Ended December 31,
202020192018
Operating activities:
Net (loss) income $(181,603)$(7,458)44,538 
Reconciliation of net (loss) income to net cash provided by operating activities:
Depreciation and amortization expense201,677 185,065 171,136 
Amortization of above and below market leases(8,021)(5,765)(5,905)
Deferred revenues and other non-cash revenues amortization(5,059)(6,275)(4,643)
Purchase option termination fee amortization(6,536)(9,111)(8,660)
Amortization of equity compensation, lease incentives, and other non-cash expenses4,267 3,220 3,347 
Deferred loan cost amortization6,855 6,450 7,108 
Non-cash accrued interest income on real estate loan investments(12,372)(13,828)(17,774)
Receipt of accrued interest income on real estate loan investments14,391 8,063 21,298 
Gains on the sales of real estate and mortgage-backed securities (23,456)(1,567)(69,705)
Gains on the sales of real estate loan investments and land condemnation(517)(954) 
Loss from unconsolidated joint ventures314   
Cash received for purchase option terminations7,000 3,591 7,740 
Loss on extinguishment of debt6,674 84  
Non-cash settlement of related party line of credit from Internalization20,864   
Non-cash payment of interest on related party line of credit (637) 
Mortgage interest received from consolidated VIEs 18,750 6,049 
Mortgage interest paid to other participants of consolidated VIEs (18,750)(6,049)
Increase in allowance for expected credit losses6,103 2,038 2,533 
Changes in operating assets and liabilities:
(Increase) in tenant receivables and other assets(24,437)(20,565)(7,631)
(Increase) in tenant lease incentives(382)(644)(7,607)
Increase in accounts payable and accrued expenses7,084 1,518 2,876 
Increase in deferred liability to Former Manager22,851   
Increase in contingent liability15,000   
(Increase) decrease in accrued interest, prepaid rents and other liabilities(2,805)2,406 6,730 
Net cash provided by operating activities47,892 145,631 145,381 
Investing activities:
Investments in real estate loans(59,417)(98,418)(200,806)
Repayments of real estate loans115,726 54,384 250,448 
Notes receivable issued(1,044)(5,692)(9,946)
Notes receivable repaid16,293 3,089 12,759 
Note receivable issued to and draws on line of credit by related parties(9,624)(40,458)(51,789)
Repayments of notes receivable and lines of credit by related parties4,546 35,239 41,117 
Proceeds from sale of real estate loan investment, net3,898 747  
Origination fees received on real estate loan investments898 1,565 4,331 
Origination fees paid to Former Manager on real estate loan investments (783)(2,166)
Mortgage principal received from consolidated VIEs 6,570 1,255 
Purchases of mortgage-backed securities (30,841)(45,927)
Proceeds from sales of mortgage-backed securities  79,558  
Acquisition of properties(321,962)(619,089)(1,007,048)
Disposition of properties, net515,477  164,838 
Proceeds from sale of interest in unconsolidated joint venture19,221   
Return of capital from investment in unconsolidated joint venture12,250   
Receipt of insurance proceeds for capital improvements 746 978 
Proceeds from land condemnation787 643  
Equity investment in property development(50)(100) 
Capital improvements to real estate assets
(52,809)(48,071)(44,383)
Deposits (paid) refunded on acquisitions(65)(146)4,534 
Net cash provided by (used in) investing activities244,125 (661,057)(881,805)
Financing activities:
Proceeds from mortgage notes payable469,184 405,430 602,375 
Repayments of mortgage notes payable(438,308)(176,903)(121,797)
Payments for deposits and other mortgage loan costs(12,140)(8,705)(12,299)
Payments for mortgage prepayment costs(5,733)  
Payments to real estate loan participants (5,223)(10,420)
The accompanying notes are an integral part of these consolidated financial statements.
78


Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continued
(In thousands)Years Ended December 31,
202020192018
Proceeds from lines of credit442,000 265,200 550,300 
Payments on lines of credit(420,000)(322,200)(535,100)
Proceeds from (repayment of) the Term Loans(70,000)70,000 (11,000)
Mortgage principal paid to other participants of consolidated VIEs (6,570)(1,255)
Proceeds from repurchase agreements 4,857  
Repayments of repurchase agreements (4,857) 
Proceeds from the sales of preferred stock and Units, net of offering costs206,381 501,076 408,644 
Proceeds from sales of Common Stock4,522   
Proceeds from exercises of Warrants24 11,659 20,052 
Payments for redemptions of preferred stock(314,154)(12,124)(9,367)
Dividends paid to common stockholders(42,100)(45,439)(39,865)
Dividends paid to preferred stock and Class A Unitholders(161,746)(111,738)(85,461)
Distributions to non-controlling interests(161)  
Payments for deferred offering costs(11,509)(4,013)(3,705)
Contributions from non-controlling interests186 4,539  
Net cash (used) provided by financing activities(353,554)564,989 751,102 
Net (decrease) increase in cash, cash equivalents and restricted cash(61,537)49,563 14,678 
Cash, cash equivalents and restricted cash, beginning of year137,253 87,690 73,012 
Cash, cash equivalents and restricted cash, end of period$75,716 $137,253 $87,690 
Supplemental cash flow information:
Cash paid for interest$111,076 $103,298 $86,222 
Supplemental disclosure of non-cash investing and financing activities:
Accrued capital expenditures$5,189 $4,816 $2,317 
Writeoff of fully depreciated or amortized assets and liabilities$2,724 $261 $480 
Writeoff of fully amortized deferred loan costs$2,828 $1,919 $4,829 
Consolidation of assets of VIEs$ $270,669 $264,886 
Consolidation of liabilities of VIEs$ $270,670 $264,886 
Deconsolidation of assets of VIEs$ $578,707 $ 
Deconsolidation of liabilities of VIEs$ $578,707 $ 
Dividends payable - Common Stock$8,924 $12,156 $10,840 
Dividends payable - Series A Preferred Stock$8,680 $10,020 $7,920 
Dividends payable - mShares Preferred Stock$1,236 $560 $269 
Dividends payable - A1/M1 Preferred Stock$844 $15 $ 
Dividends declared but not yet due and payable$453 $768 $229 
Partnership distributions payable to non-controlling interests$130 $225 $228 
Accrued and payable deferred offering costs$98 $3,836 $461 
Offering cost reimbursement to related party$40 $512 $1,890 
Reclass of offering costs from deferred asset to equity$4,671 $12,551 $4,044 
Loan receivables converted to equity for property acquisition $ $47,797 $ 
Fair value issuances of equity compensation$6,461 $719 $4,972 
Mortgage loans assumed on acquisitions$ $41,550 $47,125 
Noncash repayment of mortgages through refinancings$86,669 $65,607 $152,770 
Operating lease liabilities assumed from Former Manager$15,912 $ $ 
Sales of Agency MBS investments, settled after year-end$ $ $41,181 
Noncash extinguishment of notes receivable $20,865 $ $ 
Noncash contribution of property into an unconsolidated joint venture $38,443 $ $ 
Lessee-funded tenant improvements, capitalized as landlord assets$ $ $18,202 

    The accompanying notes are an integral part of these consolidated financial statements.
79

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements
December 31, 2020



1. Organization and Basis of Presentation

Preferred Apartment Communities, Inc. (NYSE: APTS) is a real estate investment trust engaged primarily in the ownership and operation of Class A multifamily properties, with select investments in grocery anchored shopping centers and Class A office buildings. Preferred Apartment Communities’ investment objective is to generate attractive, stable returns for stockholders by investing in income-producing properties and acquiring or originating real estate loans. As of December 31, 2020, the Company owned or was invested in 116 properties in 13 states, predominantly in the Southeast region of the United States. Preferred Apartment Communities, Inc. has elected to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended, commencing with its tax year ended December 31, 2011. The Company was externally managed and advised by Preferred Apartment Advisors, LLC, or its Former Manager, a Delaware limited liability company and related party until January 31, 2020 (see Note 6).

As of December 31, 2020, the Company had 49,994,032 shares of common stock, par value $0.01 per share, or Common Stock, issued and outstanding and was the approximate 98.7% owner of the Preferred Apartment Communities Operating Partnership, L.P., the Company's operating partnership, at that date. The number of partnership units not owned by the Company totaled 648,936 at December 31, 2020 and represented Class A OP Units of the Operating Partnership, or Class A OP Units. The Class A OP Units are convertible at any time at the option of the holder into the Operating Partnership's choice of either cash or Common Stock. In the case of cash, the value is determined based upon the trailing 20-day volume weighted average price of the Company's Common Stock.

The Company controls 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 will conduct substantially all of its business through PAC Carveout, LLC, a wholly-owned subsidiary of the Operating Partnership. Carveout intends to elect to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended, commencing with its tax year ended December 31, 2020. The Company has determined the Operating Partnership is a variable interest entity, or VIE, of which the Company is the primary beneficiary. The Company is involved with other VIEs as discussed in Note 4. New Market Properties, LLC owns and conducts the business of our portfolio of grocery-anchored shopping centers. Preferred Office Properties, LLC owns and conducts the business of our portfolio of office buildings. Preferred Campus Communities, LLC 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 presented in accordance with accounting principles generally accepted in the United States of America, or GAAP. All significant intercompany transactions have been eliminated in consolidation. Certain adjustments have been made consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of the Company's financial condition and results of operations. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Amounts are presented in thousands where indicated.

    

80

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

2.Summary of Significant Accounting Policies

Acquisitions and Impairments of Real Estate Assets
When the Company acquires a property, it allocates the aggregate purchase price to tangible assets, consisting of land, building, site improvements and furniture, fixtures and equipment, and identifiable intangible assets, consisting of the value of in-place leases and above-market and below-market leases as described further below, using estimated fair values of each component at the time of purchase. The Company follows the guidance as outlined in ASC 805-10, Business Combinations, as amended by ASU 2017-01. As described below in the section entitled New Accounting Pronouncements, Accounting Standards Update 2017-01 was adopted by the Company effective January 1, 2017, which changed the definition of a business. Under this new guidance, most property acquisitions made by the Company will fall within the category of acquired assets rather than acquired businesses. This distinction will cause the Company to capitalize its costs for acquisitions (including, effective July 1, 2017, a 1% acquisition fee), allocate them to the fair value of acquired assets and liabilities and amortize these costs over the remaining useful lives of those assets and liabilities. Should the Company complete any acquisitions in the future which qualify as acquisitions of businesses, associated acquisition costs would be expensed as incurred.
Tangible assets
The fair values of land acquired is calculated under the highest and best use model, using formal appraisals and comparable land sales, among other inputs. Building value is determined by valuing the property on a “go-dark” basis as if it were vacant, and also using a replacement cost approach, which two results are then reconciled. Site improvements are valued using replacement cost. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. The values of furniture, fixtures, and equipment are estimated by calculating their replacement cost and reducing that value by factors based upon estimates of their remaining useful lives.
Identifiable intangible assets
In-place leases
    Multifamily communities and student housing properties
The fair value of in-place leases are estimated by calculating the estimated time to fill a hypothetically empty apartment complex to its stabilization level (estimated to be 93% occupancy) based on historical observed move-in rates for each property, and which approximate market rates. Carrying costs during these hypothetical expected lease-up periods are estimated, considering current market conditions and include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates. The intangible assets are calculated by estimating the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. The acquired in-place lease values are amortized over the average remaining non-cancelable term of the respective in-place leases in the depreciation and amortization line of the statements of operations.
Grocery-anchored shopping centers and office properties
The fair value of in-place leases represent the value of direct costs associated with leasing, including opportunity costs associated with lost rentals that are avoided by acquiring in-place leases. Direct costs associated with obtaining a new tenant include commissions, legal and marketing costs, incentives such as tenant improvement allowances and other direct costs. Such direct costs are estimated based on our consideration of current market costs to execute a similar lease. The value of opportunity costs is calculated using the estimated market lease rates and the estimated absorption period of the space. These direct costs and opportunity costs are included in the accompanying consolidated balance sheets as acquired intangible assets and are amortized over the remaining term of the respective leases in the depreciation and amortization line of the statements of operations.
Above-market and below-market lease values
Multifamily communities and student housing properties
These values are usually not significant or are not applicable for these properties.

81

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

Grocery-anchored shopping centers and office properties
The values of above-market and below-market leases are developed by comparing the Company's estimate of the average market rents and expense reimbursements to the average contract rent at the property acquisition date. The amount by which contract rent and expense reimbursements exceed estimated market rent are summed for each individual lease and discounted for a singular aggregate above-market lease intangible asset for the property. The amount by which estimated market rent exceeds contract rent and expense reimbursements are summed for each individual lease and discounted for a singular aggregate below-market lease intangible liability. The above-market or below-market lease values are recorded as a reduction or increase, respectively, to rental revenue over the remaining noncancelable term of the respective leases, plus any below-market probable renewal options.
Impairment Assessment
The Company evaluates its tangible and identifiable intangible real estate assets for impairment when events such as declines in a property’s operating performance, deteriorating market conditions, or environmental or legal concerns bring recoverability of the carrying value of one or more assets into question. When qualitative factors indicate the possibility of impairment, the total undiscounted cash flows of the property, including proceeds from disposition, are compared to the net book value of the property. If this test indicates that impairment exists, an impairment loss is recorded in earnings equal to the shortage of the book value to fair value, calculated as the discounted net cash flows of the property.
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, net of unamortized deferred loan origination fees and current expected credit losses.

Interest income on real estate loans and notes receivable is recognized on an accrual basis over the lives of the loans or notes. In the event that a loan or note is refinanced with the proceeds of another loan issued by the Company, any unamortized loan fee revenue from the first loan will be recognized as interest revenue at the date of refinancing. Loan origination fees applicable to real estate loans are amortized over the lives of the loans as adjustments to interest income using the effective interest rate method. When there is concern as to the ultimate collection of principal or interest, the Company either ceases the accrual of interest, or records allowances as necessary. Certain real estate loan assets include limited purchase options or additional amounts of accrued interest. Additional accrued interest becomes due in cash to the Company on the earliest to occur of: (i) the maturity of the loan, (ii) any uncured event of default as defined in the associated loan agreement, (iii) the sale of the project or the refinancing of the loan (other than a refinancing loan by the Company or one of its affiliates) and (iv) any other repayment of the loan.

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

The Company implemented this new guidance by applying this model to its existing portfolio of real estate loan investments using the modified retrospective method and in doing so, recorded a cumulative effect adjustment to retained earnings on January 1, 2020. See note 4.

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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020


The Company's real estate loan investments are collateralized by real estate development projects and secured further by guaranties of repayment from one or more of the borrowers. The Company's lines of credit receivable are typically only collateralized by personal guaranties, but occasionally may be cross-collateralized by interests in other real estate projects. As a result, the Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, as well as the financial and operating capability of the borrower. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan, and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the overall economic environment, real estate sector, and geographic submarket in which the borrower operates are considered. Such analyses are completed and reviewed by management, utilizing various data sources, including periodic financial data such as property operating statements, occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, capitalization and discount rates and site inspections, the results of which are included within the Company's expected loss model.
See the Revenue Recognition section of this Note for other loan-related policy disclosures required by ASC 310-10-50-6.
Deferred Leasing Costs
Costs incurred to obtain tenant leases are amortized using the straight-line method over the term of the related lease agreement. Such costs include lease incentives, leasing commissions and legal costs. If the lease is terminated early, the remaining unamortized deferred leasing cost is written off.

Variable Interest Entities

A variable interest entity, or “VIE” is an entity that lacks sufficient equity to finance its activities without additional subordinated financial support from other parties, or whose equity holders lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is defined as the party who has a controlling financial interest in the VIE through the (a) power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and (b) obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. The Company assesses whether it meets the power and benefits criteria and in performing this analysis, the Company considers both qualitative and quantitative factors, including the Company’s ability to control or significantly influence key decisions of the VIE and the obligation or likelihood for the Company to fund operating losses of the VIE. The determination of whether an entity is a VIE, and whether the Company is the primary beneficiary, may involve significant judgment, including the determination of which activities most significantly affect the entities’ performance, and estimates about the current and future fair values and performance of assets held by the VIE. If the Company determines that it meets both the power and benefits criteria of the VIE, the Company is deemed to be the primary beneficiary of the VIE and the Company consolidates the entire VIE entity in its consolidated financial statements.

Purchase Option Terminations

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

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Restricted cash includes cash restricted by state law or contractual requirement and relates primarily to real estate tax and insurance escrows, capital improvement reserves and resident security deposits.

Fair Value Measurements

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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020


Certain assets and liabilities are required to be carried at fair value, or if they are deemed impaired, to be adjusted to reflect this condition. The Company follows the guidance provided by ASC 820, Fair Value Measurements and Disclosures, in accounting and reporting for real estate assets where appropriate, as well as debt instruments both held for investment and as liabilities. The standard requires disclosure of fair values calculated utilizing each of the following input type within the following hierarchy:

• Level 1 – Quoted prices in active markets for identical assets or liabilities at the measurement date.
• Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
• Level 3 – Unobservable inputs for the asset or liability.

Deferred Loan Costs

Deferred loan costs are amortized using the effective interest rate method, over the terms of the related indebtedness.

Non-controlling Interest

Non-controlling interest represents the equity interest of the Operating Partnership that is not owned by the Company, as well as the equity interests held by our joint venture partners. Non-controlling interest is adjusted for contributions, distributions and earnings or loss attributable to the non-controlling interest in the consolidated entity in accordance with the Agreement of Limited Partnership of the Operating Partnership, as amended, or in accordance with the respective joint venture agreement.

Redeemable Preferred Stock

Shares of the Series A Redeemable Preferred Stock, stated value $1,000 per share, or Series A Preferred Stock, Series A1 Redeemable Preferred Stock, stated value $1,000 per share, or Series A1 Preferred Stock, Series M Redeemable Preferred Stock, stated value $1,000 per share, or mShares, and Series M1 Redeemable Preferred Stock, stated value $1,000 per share, or Series M1 Preferred Stock (collectively, Preferred Stock), are redeemable at the option of the holder, subject to a declining redemption fee schedule. Voluntary redemptions by the holder are outside the control of the Company. However, the Company retains the right to fund any redemptions of any of its shares of Preferred Stock in either Common Stock or cash at its option. Therefore, the Company records all its Preferred Stock as components of permanent stockholders’ equity.

In the event of a call by the Company of outstanding shares of its Preferred Stock, the Company records the difference between the consideration paid to the holder of the Preferred Stock and the carrying value of the shares on the Company's consolidated balance sheets as a deemed dividend that is subtracted from net income to arrive at income available to common stockholders in the calculation of earnings per share.

Deferred Offering Costs

Deferred offering costs represent direct costs incurred by the Company related to current equity offerings, excluding costs specifically identifiable to a closing, such as commissions, dealer-manager fees, and other registration fees. For issuances of equity that occur on one specific date, associated offering costs are reclassified as a reduction of proceeds raised on the date of issue. The Company's offerings of Preferred Stock generally close on a bimonthly basis in variable amounts. Deferred offering costs related to the Preferred Stock offerings are reclassified to the stockholders’ equity section of the consolidated balance sheet as a reduction of proceeds raised on a pro-rata basis equal to the ratio of total shares or value of shares issued to the maximum number of shares or the value of shares, as applicable, that are expected to be issued.

Revenue Recognition

Multifamily communities

Rental revenue is recognized when earned from residents of the Company's multifamily communities, which is over the terms of the rental agreements, typically a duration of thirteen months or less. The Company evaluates the collectability of amounts due from residents and recognizes revenue from residents when collectability is deemed probable, in accordance with ASC 842-30-25-12.


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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

The Company evaluated the various ancillary revenues within its multifamily leases, including resident utility reimbursements. Having met the criteria that (i) the timing and pattern of transfer for the lease component and associated non-lease components are the same and (ii) that the lease component, if accounted for separately would be classified as an operating lease, the Company has elected the practical expedient under ASC 842, Leases, paragraph 10-15-42A, to elect reporting the lease component and non-lease components as one single component within the rental and other property revenues line on the Consolidated Statements of Operations. Revenue from utility reimbursements are considered variable lease payments and are recognized in the period in which the related expenses are incurred.

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

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

Base rental revenue from tenants' operating leases is a lease component revenue in the Company's grocery-anchored shopping centers and office properties and is recognized on a straight-line basis over the term of the lease. Revenue based on "percentage rent" provisions that provide for additional rents that become due upon achievement of specified sales revenue targets (as specified in each lease agreement) is recognized only after the tenant exceeds its specified sales revenue target. Revenue from reimbursements of the tenants' share of real estate taxes, insurance and common area maintenance, or CAM, costs represent non-lease component revenue. Having met the criteria that (i) the timing and pattern of transfer for the lease component and associated non-lease components are the same and (ii) that the lease component, if accounted for separately would be classified as an operating lease, the Company has elected the practical expedient under ASC 842, Leases, paragraph 10-15-42A, to elect reporting the lease component and non-lease components as one single component under Rental and other property revenues recognized in accordance with ASC 842. Reimbursement revenue and percentage rent were previously presented in the Company’s Other Property Revenues line item. For presentation purposes, the Company has reclassified its revenue from reimbursements into Rental and other property revenues for all periods presented, for comparability. Revenue from reimbursements are considered variable lease payments and are recognized in the period in which the related expenses are incurred. The Company does not record income and offsetting expense for certain variable costs paid directly to third parties by lessees on behalf of lessors.

Non-lease components which do not qualify under the practical expedient primarily include lease termination income and other ancillary revenue (e.g. application fees, license fees, late fees and tenant billbacks). These items are recorded under Rental and other property revenues. Lease termination revenues are recognized ratably over the revised remaining lease term after giving effect to the termination notice or when tenant vacates and the Company has no further obligations under the lease. Rents and tenant reimbursements collected in advance are recorded as prepaid rent within other liabilities in the accompanying consolidated balance sheets. The Company evaluated the collectability of the tenant receivable related to rental and reimbursement billings due from tenants and straight-line rent receivables, which represent the cumulative amount of future adjustments necessary to present rental revenue on a straight-line basis, by taking into consideration the Company's historical write-off experience, tenant credit-worthiness, current economic trends, and remaining lease terms. The Company

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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

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

The Company may provide grocery-anchored shopping center and office building tenants an allowance for the construction of leasehold improvements. Leasehold improvements that are owned by the Company are capitalized and depreciated over the shorter of the useful life of the improvements or the remaining lease term. If the allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue. Determination of the appropriate accounting for the payment of a tenant allowance is made on a lease-by-lease basis, considering the facts and circumstances of the individual tenant lease. When the Company is the owner of the leasehold improvements, recognition of rental revenue commences when the lessee is given possession of the leased space upon completion of tenant improvements. However, when the leasehold improvements are owned by the tenant, the lease inception date is the date the tenant obtains possession of the leased space for purposes of constructing its leasehold improvements. For our office properties, if the improvement is deemed to be a “landlord asset,” and the tenant funded the tenant improvements, the cost is amortized over the term of the underlying lease with a corresponding recognition of rental revenues. In order to qualify as a landlord asset, the specifics of the tenant’s assets are reviewed, including the Company's approval of the tenant’s detailed expenditures, whether such assets may be usable by other future tenants, whether the Company has consent to alter or remove the assets from the premises and generally remain the Company's property at the end of the lease.

Gains on sales of real estate assets

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

Lessee accounting

The Company has evaluated its leases for which it is the lessee to determine the value of any right of use assets and related lease liabilities. The Company has three ground leases related to our office and grocery-anchored shopping center assets, one of which had been recorded at fair value on the Company's balance sheet at acquisition due to a purchase option the Company deemed probable of exercising. These ground leases generally have extended terms (e.g. over twenty years with multiple renewal options) and generally have base rent with CPI-based increases. The Company evaluated its renewal option periods in quantifying its asset and liability related to these ground leases. In determining the value of its right of use asset and lease liability, the Company used discount rates comparable to recent loan rates obtained on comparative properties within its portfolio. The Company’s right of use asset and related lease liability in accordance with ASC 842-20-30 related to these ground leases are recorded within the Tenant Receivables and Other assets and the Security deposits and other liabilities line items of the balance sheet, respectively. The Company is also the lessee of furniture and equipment leases such as office equipment, which generally are three to five years with minimal rent increases. The Company determined that the related right of use asset and lease liability for its furniture and equipment leases were immaterial.

Acquisition Costs

The Company accounts for acquisition costs in accordance with guidance provided in Accounting Standards Update 2017-01. Under this guidance, most property acquisitions made by the Company will fall within the category of acquired assets rather than acquired businesses. This distinction causes the Company to capitalize its costs for acquisitions, allocate them to the fair value of acquired assets and liabilities and amortize these costs over the remaining useful lives of those assets and liabilities. Should the Company complete any acquisitions in the future which qualify as acquisitions of businesses, associated acquisition costs would be expensed as incurred.


86

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

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
• Furniture, fixtures & equipment: 5 - 10 years
• Improvements to buildings and land: 5 - 20 years
• 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.

Income Taxes

The Company has elected to be taxed as a REIT under the Code. To continue to qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company's annual REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes 100% of the Company's annual REIT taxable income to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at the corporate income tax rate and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could have a material adverse affect on the Company's net income and net cash available for distribution to stockholders. The Company intends to operate in such a manner as to maintain its election for treatment as a REIT.

The Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position taken or expected to be taken in a tax return that is not based on clear and unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income or loss available to common stockholders by the weighted average number of shares of Common Stock outstanding for the period. Net income or loss attributable to common stockholders is calculated by deducting dividends due to preferred stockholders, including deemed non-cash dividends emanating from beneficial conversion features within convertible preferred stock, as well as nonforfeitable dividends due to holders of unvested restricted stock, which are participating securities under the two-class method of calculating earnings per share. Diluted earnings (loss) per share is computed by dividing net income or net loss available to common stockholders by the weighted average number of shares of Common Stock outstanding adjusted for the effect of dilutive securities such as share grants or warrants. No adjustment is made for potential common stock equivalents that are anti-dilutive during the period.


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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

New Accounting Pronouncements

StandardDescriptionDate of AdoptionEffect on the Consolidated Financial Statements
Recently Adopted Accounting Guidance
ASU 2016-13, Financial Instruments - Credit Losses (ASC 326)
ASU 2016-03 changes how entities will measure credit losses for most financial assets, including loans, which are not measured at fair value through net income. The guidance replaces the existing incurred loss model with an expected loss model for instruments measured at amortized cost, and requires entities to record credit allowances for financial assets rather than reduce the carrying amount, as they do today under the other-than temporary impairment model.January 1, 2020Implementation of the new guidance on accounting for financial assets will be limited to our real estate loans and notes and revolving lines of credit. We have developed a model that derives a reserve ratio based upon the amount of financial protection afforded each instrument. For each loan in which we are the lender, the amount of protection afforded to us is estimated to be the excess of the future estimated fair market value of the developed property over the commitment amount of each loan (including other loans senior to the Company’s), inclusive of accrued interest and other related receivables. The excess represents the amount of equity dollars in each real estate project, which are in a subordinate position to our real estate loan investments.  We implemented this new guidance using the modified retrospective basis by recording a cumulative effect adjustment of approximately $7.4 million to retained earnings on January 1, 2020.
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 ReportingThe 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 results of operations.


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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

3. Real Estate Assets

The Company's real estate assets consisted of:
As of:
(unaudited)December 31, 2020December 31, 2019
Residential properties:
Properties (1)
37 
(1, 2)
42 
Units11,143 12,256 
Beds 6,095 
New Market Properties:
Properties
54 
( 2, 3)
52 
Gross leasable area (square feet) (3)
6,208,278 6,041,629 
Preferred Office Properties:
Properties9 
( 2)
9 
Rentable square feet3,169,000 3,169,000 
Development properties2 1 
Rentable square feet35,000 35,000 
(1) The acquired second phases of CityPark View and Crosstown Walk communities are managed in combination with the initial phases and so together are considered a single property, as is the Regent at Lenox Village within the Lenox Portfolio.
(2) One multifamily community, two grocery-anchored shopping centers and two office buildings are owned through consolidated joint ventures. One grocery-anchored shopping center is an investment in an unconsolidated joint venture.
(3) The Company also owns approximately 47,600 square feet of gross leasable area of ground floor retail space which is embedded within the Lenox Portfolio and is not included in the totals above for New Market Properties.



Impacts of COVID-19 Pandemic

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.


89

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

Residential properties acquired

During the years ended December 31, 2020 and 2019, the Company completed the acquisition of the following multifamily communities:
Acquisition datePropertyLocationUnits
3/31/2020Horizon at WiregrassTampa, Florida392 
4/30/2020Parkside at the BeachPanama City Beach, Florida288 
11/2/2020The BlakeOrlando, Florida281 
12/15/2020The MenloJacksonville, Florida332 
1,293 
8/8/2019Artisan at VieraMelbourne, Florida259 
9/18/2019Five Oaks at WestchaseTampa, Florida218 
477 

The aggregate purchase prices of the multifamily acquisitions were approximately $276.9 million and $117.0 million for the acquisitions completed during the years ended December 31, 2020 and 2019 respectively, exclusive of acquired escrows, security deposits, prepaids, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.



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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

The Company allocated the purchase prices and capitalized acquisition costs to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocations were based upon the Company's best estimates of the fair values of the acquired assets and liabilities.
Multifamily Communities acquired during the years ended December 31,
(In thousands, except amortization period data)20202019
Land$28,074 $9,264 
Buildings and improvements194,434 87,098 
Furniture, fixtures and equipment50,170 19,806 
Lease intangibles8,635 2,647 
Prepaids & other assets354 75 
Accrued taxes(437)(477)
Security deposits, prepaid rents, and other liabilities(742)(118)
Net assets acquired$280,488 $118,295 
Cash paid$144,016 $78,295 
Mortgage debt, net136,472 40,000 
Total consideration$280,488 $118,295 
Year ended December 31, 2020:
Revenue$9,328 $9,206 
Net income (loss)$(6,244)$(3,779)
Year ended December 31, 2019:
Revenue$— $2,967 
Net income (loss)$— $(2,074)
Capitalized acquisition costs incurred by the Company$4,370 $1,771 
Acquisition costs paid to related party (included above)$ $1,216 
Remaining amortization period of intangible assets and liabilities (months)7.80

Multifamily communities sold

On November 12, 2020, the Company closed on the sale of its 395-unit multifamily community in San Antonio, Texas, or Avenues at Creekside, to an unrelated third party for a sales price of approximately $62.7 million, exclusive of closing costs and resulting in a gain of approximately $17.3 million, net of disposition costs. Avenues at Creekside contributed approximately $0.3 million of net income to the consolidated operating results of the Company for the year ended December 31, 2020.

The carrying amounts of the significant assets and liabilities of the disposed property at the date of sale were:
(In thousands)Avenues at Creekside
Real estate assets:
Land$5,984 
Building and improvements42,750 
Furniture, fixtures and equipment7,840 
Accumulated depreciation(12,186)
Total assets, net$44,388 
Liabilities:
Mortgage note payable$38,114 


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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

The Company had no sales of multifamily community assets during the year ended December 31, 2019.


Student housing property acquired

On March 27, 2019, the Company acquired Rush, a 332-unit, 887-bed student housing community located adjacent to the University of North Carolina at Charlotte. The Company effectuated the acquisition via a negotiated agreement whereby the Company accepted the membership interest in the Rush project entity in satisfaction of the project indebtedness owed to the Company. See Note 4.

The aggregate consideration for the acquisition was approximately $92.4 million, exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

The Company allocated the purchase prices and capitalized acquisition costs to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocations were based upon the Company's best estimates of the fair values of the acquired assets and liabilities.
(In thousands, except amortization period data)2019
Land$7,289 
Buildings and improvements68,163 
Furniture, fixtures and equipment16,966 
Lease intangibles983 
Below market leases 
Prepaids & other assets  
Accrued taxes(158)
Security deposits, prepaid rents, and other liabilities(2,579)
Net assets acquired$90,664 
Cash paid$2,717 
Satisfaction of loan receivables46,397 
Mortgage debt, net41,550 
Total consideration$90,664 
Year ended December 31, 2020:
Revenue$6,774 
Net income (loss)$319 
Year ended December 31, 2019:
Revenue$5,532 
Net income (loss)$(2,946)
Capitalized acquisition costs incurred by the Company$1,016 
Acquisition costs to related party (included above)$936 
Remaining amortization period of intangible
 assets and liabilities (months)0

The improvement in net income for the property for the year ended December 31, 2020 over 2019 was due to the payoff of the mortgage on the property in November 2019 and the resulting absence of interest expense.

The Company did not acquire any student housing properties during the year ended December 31, 2020.


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Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

Student housing properties sold

On November 3, 2020 the Company sold all eight of its student housing communities and one real estate loan investment to an unrelated third party for an aggregate purchase price of $478.7 million exclusive of closing costs and resulting in a gain of $2.9 million. The disposed assets collectively contributed approximately $5.3 million of net loss to the consolidated operating results of the Company for the year ended December 31, 2020. The communities disposed of were:

PropertyUniversityLocationNumber of unitsNumber of beds
Student housing properties sold:
North by Northwest Florida State UniversityTallahassee, FL219 679 
SoL
Arizona State UniversityTempe, AZ224 639 
Stadium Village (1)
Kennesaw State UniversityAtlanta, GA198792
Ursa (1)
Baylor UniversityWaco, TX250840
The TraditionTexas A&M UniversityCollege Station, TX427808 
Knightshade University of Central FloridaOrlando, FL221894 
The BlocTexas Tech UniversityLubbock, TX140556
Rush University of North Carolina - CharlotteCharlotte, NC332887
Total/Average2,011 6,095 

The carrying amounts of the significant assets and liabilities of the disposed properties at the dates of sale were:

(In thousands)Student Housing Portfolio
Real estate assets:
Land$61,149 
Building and improvements390,797 
Furniture, fixtures and equipment68,596 
Accumulated depreciation(60,113)
Total assets, net$460,429 
Liabilities:
Mortgage notes payable$216,219 




93

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

New Market Properties assets acquired

During the years ended December 31, 2020 and 2019, the Company completed the acquisition of the following grocery-anchored shopping centers:
Acquisition datePropertyLocationGross leasable area (square feet)
1/29/2020Wakefield CrossingRaleigh, North Carolina75,927 
3/19/2020Midway MarketDallas, Texas85,599 
161,526 
1/17/2019Gayton CrossingRichmond, Virginia158,316 
5/28/2019Free State Shopping CenterWashington, D.C. 264,152 
6/12/2019Disston PlazaTampa - St. Petersburg, Florida129,150 
6/12/2019Polo Grounds MallWest Palm Beach, Florida130,285 
8/16/2019
Fairfield Shopping Center (1)
Virginia Beach, Virginia231,829 
11/14/2019Berry Town CenterOrlando, Florida99,441 
12/19/2019
Hanover Shopping Center (1)
Wilmington, North Carolina305,346 
1,318,519 
(1) Property is owned through a consolidated joint venture.

The aggregate purchase price of the New Market Properties acquisitions for the years ended December 31, 2020 and 2019 was approximately $27.7 million and $248.4 million, respectively, exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.


94

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

The Company allocated the purchase prices to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocation was based upon the Company's best estimates of the fair values of the acquired assets and liabilities.
New Market Properties' acquisitions during the years ended December 31,
(In thousands, except amortization period data)20202019
Land$9,328 $77,612 
Buildings and improvements12,264 152,804 
Tenant improvements2,099 11,319 
In-place leases3,043 21,084 
Above market leases107 3,098 
Leasing costs1,237 7,216 
Below market leases(359)(21,028)
Prepaid taxes and other assets61 124 
Security deposits, prepaid rents, and other liabilities(249)(869)
Net assets acquired$27,531 $251,360 
Cash paid$19,640 $91,422 
Mortgage debt7,891 159,938 
Total consideration$27,531 $251,360 
Year ended December 31, 2020:
Revenue$2,250 $25,371 
Net income (loss)$121 $(3,722)
Year ended December 31, 2019:
Revenue$— $11,401 
Net income (loss)$— $(1,686)
Capitalized acquisition costs incurred by the Company$470 $5,266 
Capitalized acquisition costs paid to related party (included above)$249 $2,367 
Remaining amortization period of intangible assets and liabilities (in years, as of December 31, 2020)10.27.8


Preferred Office Properties assets acquired

The Company did not acquire any office buildings during 2020.

During the year ended December 31, 2019, the Company completed the acquisition of the following office buildings:
Acquisition datePropertyLocationGross leasable area (square feet)
7/25/2019CAPTRUST TowerRaleigh, North Carolina300,000 
7/31/2019251 Armour DriveAtlanta, Georgia35,000 
12/20/2019Morrocroft CenterCharlotte, North Carolina291,000 
626,000 

The aggregate purchase price of the Preferred Office Properties acquisitions for the year ended 2019 was approximately $250.6 million, exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.


95

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

The Company allocated the purchase prices and capitalized acquisition costs to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocations were based upon the Company's best estimates of the fair values of the acquired assets and liabilities.
(In thousands, except amortization period data)Preferred Office Properties' acquisitions during the year ended December 31, 2019
Land$22,654 
Buildings and improvements193,243 
Tenant improvements13,205 
In-place leases12,766 
Above-market leases1,760 
Leasing costs6,021 
Below-market leases(2,892)
Prepaid and other assets56 
Accrued taxes(98)
Security deposits, prepaid rents, and other liabilities(413)
Net assets acquired$246,302 
Cash paid$93,652 
Mortgage debt, net82,650 
Term Note70,000 
Total consideration$246,302 
Year ended December 31, 2020:
Revenue$21,648 
Net income (loss)$(1,655)
Year ended December 31, 2019:
Revenue$5,530 
Net income (loss)$(718)
Capitalized acquisition costs incurred by the Company$3,079 
Acquisition costs paid to related party (included above)$2,570 
Remaining amortization period of intangible
 assets and liabilities (in years, as of December 31, 2020)7.1


The Company recorded aggregate amortization and depreciation expense of:
(In thousands)Years ended December 31,
202020192018
Depreciation:
Buildings and improvements$113,402 $99,137 $78,691 
Furniture, fixtures, and equipment50,474 50,747 47,158 
163,876 149,884 125,849 
Amortization:
Acquired intangible assets36,030 34,057 44,617 
Deferred leasing costs1,576 933 519 
Website development costs195 191 151 
Total depreciation and amortization$201,677 $185,065 $171,136 

At December 31, 2020, the Company had recorded acquired gross intangible assets of $296.9 million, accumulated amortization of $169.7 million, gross intangible liabilities of $85.9 million and accumulated amortization of $34.1 million. Net intangible assets and liabilities as of December 31, 2020 will be amortized over the weighted average remaining amortization periods of approximately 7.0 and 8.7 years, respectively.

96

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020


Included in the Company's aggregate restricted cash of approximately $47.1 million at December 31, 2020 was approximately $14.4 million that was contractually restricted to fund capital expenditures and other property-level commitments such as tenant improvements and leasing commissions.

Purchase Options
In the course of extending real estate loan investments for property development, the Company will often receive an exclusive option to purchase the property once development and stabilization are complete. If the Company determines that it does not wish to acquire the property, it has the right to sell its purchase option back to the borrower for a termination fee in the amount of the purchase option discount.
Effective May 7, 2018, the Company terminated its purchase options on the Encore, Bishop Street and Hidden River multifamily communities and the Haven46 and Rush student housing properties, all of which were partially supported by real estate loan investments held by the Company, in exchange for termination fees aggregating approximately $12.3 million from the developers. Effective January 1, 2019, the Company terminated its purchase options on the Sanibel Straits, Newbergh, Wiregrass and Cameron Square multifamily communities and the Solis Kennesaw student housing property, all of which are partially supported by real estate loan investments held by the Company, in exchange for termination fees aggregating approximately $9.1 million from the developers. Effective March 6, 2020, the Company terminated its purchase option on the Falls at Forsyth multifamily community for $2.5 million. Effective December 10, 2020, the Company terminated its purchase option on the Solis Kennesaw II student housing property for $1.2 million. These fees are treated as additional interest revenue and are amortized over the period ending with the earlier of (i) the sale of the underlying property and (ii) the maturity of the real estate loans. The Company recorded approximately $6.5 million, $9.1 million and $8.7 million of interest revenue related to these purchase option terminations for the years ended December 31, 2020, 2019 and 2018, respectively.
Joint Venture Investment
On July 15, 2020, we contributed our 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. We realized a gain on the transaction of approximately $3.3 million. We now hold our remaining interest in the property via an unconsolidated joint venture and retain a 50% voting and financial interest. The following tables summarize the balance sheet and statements of operations data for Neapolitan Way shopping center subsequent to its contribution into the joint venture as of and for the periods presented:
(In thousands)December 31, 2020
Total assets$39,109 
Total liabilities$25,795 
Three months ended December 31, 2020Year ended December 31, 2020
Rental and other property revenues $772 $1,423 
Total operating expenses$924 $1,721 
Interest expense$236 $330 
Net income (loss)$(388)$(628)
Net income (loss) attributable to the Company$(194)$(314)

97

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

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

Our portfolio of fixed rate, interest-only real estate loans consisted of:
December 31, 2020December 31, 2019
Number of loans20 27 
Number of underlying properties in development14 19 
(In thousands)
Drawn amount$290,156 $352,582 
Deferred loan origination fees(1,194)(1,476)
Allowances for expected credit losses(9,067)(1,400)
Carrying value$279,895 $349,706 
Unfunded loan commitments$44,403 $61,718 
Weighted average current interest, per annum (paid monthly)8.50 %8.48 %
Weighted average accrued interest, per annum3.91 %3.85 %

(In thousands)Principal balanceDeferred loan origination feesAllowances and CECL ReservesCarrying value
Balances as of December 31, 2019$352,582 $(1,476)$(1,400)$349,706 
Opening CECL reserve— — (7,414)(7,414)
Loan fundings59,417 — — 59,417 
Loan repayments(119,627)— — (119,627)
Loans and accrued interest settled through sale(2,216)— 3,548 1,332 
Loan origination fees collected— (898)— (898)
Amortization of loan origination fees— 1,180 — 1,180 
Reserve increases due to loan originations— — (767)(767)
Net increases in reserves on existing loans or loans repaid— — (3,034)(3,034)
Balances as of December 31, 2020$290,156 $(1,194)$(9,067)$279,895 

(In thousands)Number of loansCarrying valueCommitment amountPercentage of portfolio
Residential Properties19 $268,308 $315,365 96 %
Preferred Office Properties1 11,587 19,193 4 %
Balances as of December 31, 202020 $279,895 $334,558 

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

The Company's Palisades real estate loan investment was subject to a loan participation agreement with an unaffiliated third party, under which the syndicate was to fund approximately 25% of the loan commitment amount and collectively receive approximately 25% of interest payments, returns of principal and purchase option discount (if applicable). On March 13, 2019, the Company repurchased the loan participant's 25% balance in the loan from the loan participant and at December 31, 2019, carried the entire loan balance on its consolidated balance sheet without reflection of any liability to any third party.


98

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

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

As discussed in note 2, the Company established total expected credit losses against its existing portfolio of real estate loan investments on January 1, 2020. In doing so, it recorded a cumulative effect reduction adjustment to retained earnings of approximately $7.4 million. For the year ended December 31, 2020, the Company recorded an aggregate net increase in its provision for expected credit losses of approximately $1.7 million, primarily related to changes in estimates to the valuations of the underlying development projects due to the COVID-19 pandemic, countered by other projects achieving construction and leasing milestones. The Company's total allowance for expected credit losses for the year ended December 31, 2020 was as follows:

(In thousands)For the year ended December 31, 2020
Allowances recorded for interest receivable:
Haven Campus Communities, LLC line of credit$1,649 
Starkville real estate loan652 
Net increases in current expected loss reserves on existing loans 3,802 
Total allowance for expected credit losses$6,103 


The COVID-19 pandemic has, and will continue to have, impacts upon the development activity underlying our real estate loan investments, including the availability of labor, the supply and availability of construction materials and the ability to achieve leased stabilization. The Company's Berryessa real estate loan investment carried a 4.0% final reserve ratio at December 31, 2020. The project experienced a temporary construction delay due to effects of the COVID-19 pandemic but has received its final certificates of occupancy and was over 50% leased at December 31, 2020. The Company assesses its real estate loan investment portfolio for impacts from COVID-19 at each quarter end.

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

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

The Company's Starkville loan had been in default since August 20, 2019 under the terms of the underlying mezzanine loan agreement. The Company recorded a loan loss reserve related to this loan totaling $1.4 million, reducing its net investment in the Starkville loan from $7.3 million, including accrued interest of $1.2 million, to a carrying amount of $5.9 million as of December 31, 2019 and an additional $2.1 million on January 1, 2020 with the Company's adoption of ASU 2016-13. This loan was included in the sale of the Company's eight student properties that closed on November 3, 2020.

As described in note 2, the Company assesses the credit quality of its real estate loan investments by a calculated loss reserve ratio, which is an internally-developed credit quality indicator. Loss reserve ratios reflect the amount of protection afforded by the amount of equity and debt financing subordinate to the Company's position in the project; higher reserve ratios reflect a lower amount of invested dollars junior to the Company's position. The following table presents the Company's aggregation of loan amounts (including unpaid interest) by final reserve ratio as of December 31, 2020:

99

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

Final reserve ratioNumber of loansTotal receivables by project, net of reserves (in thousands)
— %3 $23,127 
0.50 %4 33,189 
1.00 %5 53,690 
1.50 %4 38,443 
3.00 %1 9,276 
4.00 %3 149,541 
5.00% +  
20 $307,266 


At December 31, 2020, the Company's portfolio of notes and lines of credit receivable consisted of:
BorrowerDate of loanMaturity dateTotal loan commitmentsOutstanding balance as of:Interest rate
December 31, 2020December 31, 2019
(in thousands)
Preferred Capital Marketing Services, LLC (1)
N/AN/A$ $ $650 N/A
Preferred Apartment Advisors, LLC (1,2)
N/AN/A  15,178 N/A
Haven Campus Communities, LLC (1,3)
6/11/201412/31/201811,660 9,011 9,011 8 %
Newport Development Partners, LLC6/17/20146/30/20211,000   12 %
Oxford Capital Partners, LLC (4,6)
10/5/20156/30/20218,000 1,256 5,438 10 %
Mulberry Development Group, LLC (5)
3/31/20166/30/2021750 607 525 12 %
360 Capital Company, LLC (5)
N/AN/A  3,394 N/A
360 Capital Company, LLC (5,7)
N/AN/A  7,754 N/A
Unamortized loan fees (33)
$21,410 $10,874 $41,917 
(1) See related party disclosure in Note 6.
(2) The amounts payable under this revolving credit line were collateralized by an assignment of the Former Manager's rights to fees due under the Sixth Amended and Restated Management Agreement between the Company and the Former Manager, or the Management Agreement.
(3) The amount payable under the note is collateralized by one of the principals of the borrower's 49.49% interest in an unrelated shopping center located in Atlanta, Georgia and a personal guaranty of repayment by the principals of the borrower.
(4) The amounts payable under the terms of this revolving credit line, up to the lesser of 25% of the loan balance or $2.0 million, are collateralized by a personal guaranty of repayment by the principals of the borrower.
(5) The amounts payable under the terms of these revolving credit lines are collateralized by a personal guaranty of repayment by the principals of the borrower.
(6) The overall decrease in the Oxford line of credit balance is a function of an approximate $5.0 million paydown on July 31, 2020, that was required as part of the line of credit agreement whenever there is a defined Capital Transaction, generally triggered by the sale of a development property.
(7) The line of credit extended to 360 Residential was paid off in full on November 30, 2020.

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 December 31, 2020 was approximately $2.0 million. Under the terms of the loan, amounts collected are applied first to any legal costs incurred by the Company to collect amounts due on the loan; second, to pay any accrued default and current interest on the loan; and third, to repay the principal amount owed.

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

100

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

Georgia as collateral on the Haven Campus Communities, LLC line of credit, as well as personal guaranties of repayment from the principals of the borrower.

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

The Company recorded interest income and other revenue from these instruments as follows:
Interest income (In thousands)
Years ended December 31,
202020192018
Real estate loans:
Current interest$27,966 $30,985 $31,368 
Additional accrued interest12,372 13,663 19,003 
Loan origination fee amortization1,181 1,426 1,570 
Purchase option termination fee amortization6,536 9,111 9,820 
Default interest209 91 64
Total real estate loan revenue48,264 55,276 61,825 
Notes and lines of credit2,541 5,430 3,784 
Bank and money market accounts40 687 147 
Agency mortgage-backed securities 95 50 
Interest income on loans and notes receivable$50,845 $61,488 $65,806 

The Company extends loans for purposes such as to partially finance the development of multifamily residential communities, to acquire land in anticipation of developing and constructing multifamily residential communities, and for other real estate or real estate related projects. Certain of these loans include characteristics such as exclusive options to purchase the project within a specific time window following project completion and stabilization, the sufficiency of the borrowers' investment at risk and the existence of payment and performance guaranties provided by the borrowers, any of which can cause the loans to create variable interests to the Company and require further evaluation as to whether the variable interest creates a VIE, which would necessitate consolidation of the project.
The Company considers the facts and circumstances pertinent to each entity borrowing under the loan, including the relative amount of financing the Company is contributing to the overall project cost, decision making rights or control held by the Company, guarantees provided by third parties, and rights to expected residual gains or obligations to absorb expected residual losses that could be significant from the project. If the Company is deemed to be the primary beneficiary of a VIE, consolidation treatment would be required.
The Company has no decision making authority or power to direct activity, except normal lender rights, which are subordinate to the rights of the senior lenders on the projects. The Company has concluded that it is not the primary beneficiary of the borrowing entities and therefore it has not consolidated these entities in its consolidated financial statements. The Company's maximum exposure to loss from these loans is their drawn amount as of December 31, 2020 of approximately $290.2 million. The maximum aggregate amount of loans to be funded as of December 31, 2020 was approximately $334.6 million, which includes approximately $44.4 million of loan committed amounts not yet funded.
The Company has evaluated its real estate loans, where appropriate, for accounting treatment as loans versus real estate development projects, as required by ASC 310. The Company evaluates the expected residual profit it expects to collect under the terms of the loan versus the expected residual profit expected to be collected by the developer (in conjunction with any equity investors, if applicable), along with the "loan versus investment" characteristics as set forth by ASC 310-25. For each loan, the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate in cases where (i) the majority of the expected residual profit is expected to be due the developer and (ii) the majority of "loan versus investment" tests indicate that the instrument is a loan.

101

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

The Company is also subject to a geographic concentration of risk that could be considered significant with regard to the Newbergh, Newbergh Capital, 8West, Kennesaw Crossing and Solis Cumming Town Center real estate loan investments, all of which are partially supporting various real estate projects in or near Atlanta, Georgia. The drawn amount, in addition to outstanding accrued interest, for these loans as of December 31, 2020 totaled approximately $52.7 million (with a total commitment amount of approximately $72.6 million). The event of a total failure to perform by the borrowers and guarantors would subject the Company to a total possible loss of the drawn amount and all outstanding accrued interest.

Freddie Mac K Program investments

On May 23, 2018, the Company purchased a subordinate tranche of Series 2018-ML04, a pool of 20 multifamily mortgages with a total pool size of approximately $276.3 million, from Freddie Mac. The purchase price of the subordinate tranche was approximately $4.7 million. On December 10, 2019, the Company sold its investment in Series 2018-ML04 for $6.2 million.

On March 28, 2019, the Company purchased a subordinate tranche of Series 2019-ML05, a pool of 21 multifamily mortgages with a total pool size of approximately $295.7 million, from Freddie Mac. The Company's tranche of the 2019-ML05 pool paid monthly interest of approximately $103,000. The purchase price of the subordinate tranche was approximately $18.4 million. On December 17, 2019, the Company sold its investment in Series 2019-ML05 for $20.4 million.

Agency Mortgage-Backed Securities investments

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


102

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

5. Redeemable Preferred Stock and Equity Offerings
On February 14, 2020, the Company's offering of a maximum of 1,500,000 Units, with each Unit consisting of one share of Series A Redeemable Preferred Stock, par value $0.01 per share, and one Warrant to purchase up to 20 shares of Common Stock (the "$1.5 Billion Unit Offering") expired. See note 6 for discussion regarding a termination fee agreement with and payment to Preferred Capital Securities, LLC, or PCS, an affiliate of the Company, in conjunction with the Company's winding down of the $1.5 Billion Unit Offering.

At December 31, 2020, 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");

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

an offering of up to $100 million of equity securities for the Preferred Office Growth Fund, a consolidated entity (the
“Preferred Office Growth Fund Offering”).
Certain offering costs are not related to specific closing transactions and are recognized as a reduction of stockholders' equity in the proportion of the number of instruments issued to the maximum number of shares of Preferred Stock anticipated to be issued. Any offering costs not yet reclassified as reductions of stockholders' equity are are reflected in the asset section of the consolidated balance sheets as deferred offering costs.

Cumulative gross proceeds and offering costs for our equity offerings that were active during 2020 consisted of:
(In thousands)Deferred Offering Costs
OfferingTotal offeringGross proceeds as of December 31, 2020Reclassified as reductions of stockholders' equityRecorded as deferred assetsTotal
Specifically identifiable offering costs (3)
Total offering costs
$1.5 Billion Unit Offering (1)
$1,500,000 $1,236,414 $15,874 $ $15,874 $115,650 $131,524 
Series A1/M1 Offering1,000,000 168,226 758 3,747 4,505 15,935 20,440 
2019 Shelf Offering (2)
400,000 4,614 24 1,039 1,063 92 1,155 
Total$2,900,000 $1,409,254 $16,656 $4,786 $21,442 $131,677 $153,119 

(1) The Series A $1.5 billion unit offering expired in Q1 2020 and therefore all remaining deferred offering costs were reclassified as
reductions of stockholder's equity in Q1 2020.
(2) The $125 million ATM Offering is a subset of the $400 million Shelf Offering.
(3) These offering costs specifically identifiable to Unit offering closing transactions, such as commissions, dealer manager fees, and
other registration fees, are reflected as a reduction of stockholders' equity at the time of closing.


Aggregate offering expenses of the $1.5 Billion Unit Offering, including selling commissions and dealer manager fees, and of the mShares Offering, including dealer manager fees, are each individually capped at 11.5% of the aggregate gross proceeds of the two offerings. The Company reimbursed its Former Manager up to 1.5% of the gross proceeds of such offerings for all organization and offering expenses that were incurred by the Former Manager through the date of the Internalization. Dealer manager fees for both offerings and sales commissions for the $1.5 Billion Unit Offering are not reimbursable.

On November 24, 2020, the Company called 208,786 shares of its Series A Redeemable Preferred Stock and redeemed the shares for cash at the stated value of $1,000 per share. See note 7.




103

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

Series A1/M1 Preferred Stock Offering

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

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

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

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

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

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

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


104

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

Daniel M. DuPree and Leonard A. Silverstein were executive directors of NELL Partners, Inc., which controlled the Former Manager through the date of the Internalization. Daniel M. DuPree was the Chief Executive Officer and Leonard A. Silverstein was the President and Chief Operating Officer of the Former Manager. Trusts established, or entities owned, by the family of John A. Williams, Daniel M. DuPree, the family of Leonard A. Silverstein, the Company’s former Vice Chairman of the Board, and former President and Chief Operating Officer, were the owners of NELL. Trusts established, or entities owned, by Joel T. Murphy, the Company’s Chief Executive Officer and a member of the Board, the family of Mr. Williams, Mr. DuPree and the family of Mr. Silverstein were the owners of the Former 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 this loan was negotiated and agreed upon while John A. Williams was the Chief Executive Officer of the Company, this instrument will continue to be reported as a related party transaction until the loan is repaid, including interest receivable of approximately $2.4 million that is included in the tenant receivables and other assets line of the consolidated balance sheet.

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 were settled in full in conjunction with the Company's acquisition of the underlying property on March 31, 2020 as described in note 3, therefore qualify as related party transactions.



105

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

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)Years ended December 31,
Type of CompensationBasis of Compensation202020192018
Acquisition fees1.0% of the gross purchase price of real estate assets$235 $7,203 $10,699 
Loan origination fees1.0% of the maximum commitment of any real estate loan, note or line of credit receivable 783 2,166 
Loan coordination fees0.6% of any assumed, new or supplemental debt incurred in connection with an acquired property47 2,939 3,897 
Asset management feesMonthly fee equal to one-twelfth of 0.50% of the total book value of assets, as adjusted1,349 15,596 14,698 
Property management feesMonthly fee up to 4% of the monthly gross revenues of the properties managed890 10,274 8,934 
General and administrative expense feesMonthly fee equal to 2% of the monthly gross revenues of the Company616 6,177 6,022 
Construction management feesQuarterly fee for property renovation and takeover projects14 264 408 
Disposition fees1% of the sale price of a real estate asset 282 1,710 
Contingent asset management fees / general and administrative feesRecognized upon disposition of the property when exceeding the 7% IRR hurdle 11 671 
$3,151 $43,529 $49,205 

The Former Manager waived some of the asset management, property management, or general and administrative fees for properties owned by the Company. A cumulative total of approximately $25.6 million of combined asset management and general and administrative fees related to acquired properties had been waived by the Former Manager; at the date of Internalization, all of the remaining contingent fees of $24.1 million were eliminated in conjunction with the Company's Internalization transaction.

In addition to property management fees, the Company incurred the following reimbursable on-site personnel salary and related benefits expenses at the properties, which are listed on the Consolidated Statements of Operations:
(In thousands)
Years ended December 31,
202020192018
$1,430 $18,054 $16,276 

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, $512,324 and $477,076 for the years ended December 31, 2020, 2019 and 2018, respectively and Preferred Capital Securities, LLC, or PCS, was reimbursed $0, $1,367,798 and $1,412,522 for the years ended December 31, 2020, 2019 and 2018, respectively. These costs are recorded as deferred offering costs until such time as additional closings occur on the Series A1/M1 Preferred Stock Offering, $1.5 Billion

106

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

Unit Offering, mShares Offering or the 2019 Shelf Offering, at which time they are reclassified on a pro-rata basis as a reduction of offering proceeds within stockholders’ equity. In conjunction with the winding down of the $1.5 Billion Unit Offering, the Company has engaged PCS to perform certain termination-related services. These services began in October 2019 and continued through April 2020. The Company paid an additional $3.1 million and $3.6 million for the years ended December 31, 2020 and 2019, respectively 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 is 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.

107

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

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. Similarly, beginning in October 2019, the Company declares and pays monthly cash dividend distributions in the amount of $5.00 per share per month on its Series A1 Preferred Stock. For the Company's mShares Preferred Stock, 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, beginning in October 2019, for the Company's Series M1 Preferred Stock, dividends are paid on an escalating scale of $5.08 per month in the first year following share issuance, increasing each year to $5.92 per month in year ten and beyond. All preferred stock dividends are prorated for partial months at issuance as necessary.

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

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 December 31, 2020, the Company had 648,936 Class A OP Units outstanding, which are exchangeable on a one-for-one basis for shares of Common Stock or the equivalent amount of cash.

The Company's dividend and distribution activity consisted of:
Dividends and distributions declared
(In thousands)For the years ended December 31,
202020192018
Series A Preferred Stock$149,943 $108,950 $84,841 
mShares6,408 4,807 1,900 
Series A1 Preferred Stock4,069 15  
Series M1 Preferred Stock488   
Common Stock38,868 46,755 41,129 
Class A OP Units593 908 1,041 
Total$200,369 $161,435 $128,911 

In conjunction with the call of 208,786 shares of its Series A Redeemable Preferred Stock, the Company recorded a deemed dividend to these shareholders of approximately $20.9 million, that is included in the Dividends declared to preferred stockholders line on the Consolidated Statements of Operations for the year ended December 31, 2020.


108

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

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

Equity compensation expense by award type for the Company was:

109

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

Years ended December 31, Unamortized expense as of December 31, 2020
(In thousands)202020192018
Class B Unit awards to employees:
2016$ $2 $271 $ 
20173 312 344  
2018244 277 551 2 
Restricted stock grants to Board members:
2017  120  
2018 120 241  
2019140 281   
2020355   177 
Restricted stock grants for employees:
2020522   3,358 
Performance-based restricted stock units:
2020230   1,615 
Restricted stock units to employees:
2017 69 76  
201835 74 100  
201957 88  71 
202058   116 
Total$1,644 $1,223 $1,703 $5,339 


Performance-based Restricted Stock Unit Grants

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

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


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



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


110

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

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, performed by an independent third party advisor, that excludes the value of Common Stock dividends since dividend equivalents accrue separately to the award holders. The underlying valuation assumptions and result for the Performance RSU award was:

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

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

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

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.



111

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

Restricted Stock Grants

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

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


Class B OP Units

As of December 31, 2020, cumulative activity of grants of Class B Units of the Operating Partnership, or Class B OP units, was:
Grant date
1/2/20181/3/2017
Units granted256,087 286,392 
Units forfeited:
   John A. Williams (1)
(38,284) 
  Voluntary forfeiture by senior executives (2)
(128,258) 
   Other(25,215)(5,334)
Total forfeitures(191,757)(5,334)
Units earned and converted into Class A Units (281,058)
Class B Units outstanding at December 31, 2020
64,330  
(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 no grants of Class B OP Units for 2019 or 2020.


112

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

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

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

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

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 has granted restricted stock units, or RSUs, to certain employees of affiliates of the Company, as shown in the following table:
Grant date1/2/20201/2/20191/2/2018
Service period2020-20222019-20212018-2020
RSU activity:
Granted21,400 27,760 20,720 
Forfeited(3,000)(7,861)(8,154)
Units earned and converted into common stock   
RSUs outstanding at December 31, 2020
18,400 19,899 12,566 
Fair value per RSU$9.47 $10.77 $16.66 
Total fair value of RSU grant$202,658 $298,975 $345,195 

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

113

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

valuation date is required for the Vested RSUs to qualify to become fully Earned RSUs.

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

9. Indebtedness

    Mortgage Notes Payable

Mortgage financing of property acquisitions

The Company partially financed the real estate properties acquired during the year ended December 31, 2020 with mortgage debt as shown in the following table:
PropertyDateInitial principal amount
(in thousands)
Fixed/Variable rateRateMaturity date
251 Armour Yards1/22/2020$3,522 Fixed4.50 %1/22/2025
Wakefield Crossing1/29/20207,891 Fixed3.66 %2/1/2032
Morrocroft Centre3/19/202070,000 Fixed3.40 %4/10/2033
Horizon at Wiregrass4/23/202052,000 Fixed2.90 %5/1/2030
Parkside at the Beach4/30/202045,037 Fixed2.95 %5/1/2030
The Blake11/2/202044,435 Fixed2.82 %5/1/2030
The Menlo12/15/202047,000 Fixed2.68 %1/1/2031
$269,885 













    
    

114

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

Repayments and refinancings

The following table summarizes our mortgage debt refinancing and repayment activity for the years ended December 31, 2020 and 2019:
DatePropertyPrevious balance (millions)Previous interest rate / spread over 1 month LIBORLoan refinancing or prepayment costs expensed (thousands)New balance (millions)New interest rateTotal deferred loan costs subsequent to refinancing (thousands)
1/3/2020Ursa$31.4 L + 300$ $ N/A$ 
6/25/2020CityPark View$19.8 3.27 %1,314 $29.0 2.75 %314 
6/29/2020Aster at Lely Resort$30.7 3.84 %293 $50.4 2.95 %2,777 
6/29/2020Avenues at Northpointe$26.0 3.16 %166 $33.5 2.79 %1,247 
6/30/2020Avenues at Cypress$20.5 3.43 %1,607 $28.4 2.96 %336 
6/30/2020Venue at Lakewood Ranch$27.8 3.55 %2,457 $36.6 2.99 %384 
6/30/2020Crosstown Walk$29.9 3.90 %248 $46.5 2.92 %2,841 
6/30/2020Summit Crossing II$13.1 4.49 %779 $20.7 L + 278136 
7/10/2020Citrus Village$28.5 3.65 %704 $40.9 2.95 %522 
7/31/2020Village at Baldwin Park$70.1 4.16 %16 $70.1 3.59 %864 
11/3/2020SoL$35.2 4.71 % $ N/A 
11/3/2020Stadium Village$44.5 3.80 % $ N/A 
11/3/2020Knightshade$47.1 4.09 % $ N/A 
11/3/2020North by Northwest$30.5 4.02 %2,168 $ N/A 
11/3/2020The Tradition$30.0 L + 375300 $ N/A 
11/3/2020The Bloc$29.0 L + 35573 $ N/A 
11/12/2020Avenues at Creekside$38.1 L + 160381 $ N/A 
$552.2 $10,506 $356.1 $9,421 
11/8/2019Rush$41.6 L + 375$ $ N/A$ 
10/1/2019Kingwood Glen10.9 3.48 %  N/A 
10/1/2019Sweetgrass Corner7.4 3.58 %  N/A 
9/17/2019Spring Hill Plaza9.1 3.36 % 8.2 3.72 %195 
9/17/2019Parkway Town Centre6.6 3.36 % 8.1 3.72 %195 
8/16/2019Deltona Landings6.5 3.48 %5 6.3 4.18 %204 
8/16/2019Barclay Crossing6.1 3.48 %4 6.3 4.18 %209 
8/16/2019Parkway Center4.3 3.48 %3 4.6 4.18 %148 
8/13/2019Powder Springs6.9 3.48 %4 8.0 3.65 %236 
7/29/2019Citi Lakes41.1 L + 217155 41.3 3.66 %668 
4/12/2019Royal Lakes Marketplace9.5 L + 25052 9.7 4.29 %287 
4/12/2019Cherokee Plaza24.5 L + 225317 25.2 4.28 %723 
2/28/2019Lenox Village Town Center29.2 3.82 %17 39.3 4.34 %1,153 
$203.7 $557 $157.0 $4,018 



115

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

The following table summarizes our mortgage notes payable at December 31, 2020:
(In thousands)
Fixed rate mortgage debt:Principal balances dueWeighted-average interest rateWeighted average remaining life (years)
Residential properties$1,372,035 3.56 %9.1
New Market Properties 567,730 4.00 %7.3
Preferred Office Properties633,090 4.13 %12.4
Total fixed rate mortgage debt$2,572,855 3.80 %9.5
Variable rate mortgage debt:
Residential properties$20,700 2.93 %9.5
New Market Properties 47,150 2.81 %2.9
Preferred Office Properties  %— 
Total variable rate mortgage debt$67,850 2.85 %4.9
Total mortgage debt:
Residential properties$1,392,735 3.55 %9.1
New Market Properties 614,880 3.91 %7.0
Preferred Office Properties633,090 4.13 %12.4
Total principal amount2,640,705 3.77 %9.4
Deferred loan costs(42,233)
Mark to market loan adjustment(4,008)
Mortgage notes payable, net$2,594,464 

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 December 31, 2020, the weighted-average remaining life of deferred loan costs related to the Company's mortgage indebtedness was approximately 9.4 years. Our mortgage notes have maturity dates between June 6, 2021 and June 1, 2054.
    
    Credit Facility

The Company has a credit facility, or Credit Facility, with KeyBank National Association, or KeyBank, which defines a revolving line of credit, or Revolving Line of Credit, which is used to fund investments, capital expenditures, dividends (with consent of KeyBank), working capital and other general corporate purposes on an as-needed basis. On March 23, 2018, the maximum borrowing capacity on the Revolving Line of Credit was increased to $200 million pursuant to an accordion feature. The accordion feature permits the maximum borrowing capacity to be expanded or contracted without amending any further terms of the instrument. On December 12, 2018, the Fourth Amended and Restated Credit Agreement, or the Amended and Restated Credit Agreement, was amended to extend the maturity to December 12, 2021, with an option to extend the maturity date to December 12, 2022, subject to certain conditions described therein. The Revolving Line of Credit accrues interest at a variable rate of one month LIBOR plus an applicable margin of 2.75% to 3.50% per annum, depending upon the Company’s leverage ratio. The weighted average interest rate for the Revolving Line of Credit was 3.85% for the year ended December 31, 2020. The Amended and Restated Credit Agreement also reduced the commitment fee on the average daily unused portion of the Revolving Line of Credit to 0.25% or 0.30% per annum, depending upon the Company’s outstanding Credit Facility balance.

116

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020


On December 20, 2019, the Company entered into a $70.0 million interim term loan with KeyBank, or the 2019 Term Loan, to partially finance the acquisition of Morrocroft Centre, an office building located in Charlotte, North Carolina. The 2019 Term Loan accrued interest at an average variable rate of 3.2% per annum until it 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 contains certain affirmative and negative covenants, including negative covenants that limit or restrict secured and unsecured indebtedness, mergers and fundamental changes, investments and acquisitions, liens and encumbrances, dividends, transactions with affiliates, burdensome agreements, changes in fiscal year and other matters customarily restricted in such agreements. The amount of dividends that may be paid out by the Company is restricted to a maximum of 95% of AFFO for the trailing four quarters without the lender's consent; solely for purposes of this covenant, AFFO is calculated as earnings before interest, taxes, depreciation and amortization expense, plus reserves for capital expenditures, less normally recurring capital expenditures, less consolidated interest expense.
As of December 31, 2020, the Company was in compliance with all covenants related to the Revolving Line of Credit, as shown in the following table:
Covenant (1)
RequirementResult
Net worthMinimum $1.5 billion$1.6 billion
(2)
Debt yieldMinimum 8.5%10.0%
Payout ratioMaximum 95%
(3)
90.1%
Total leverage ratioMaximum 65%62.4%
Debt service coverage ratioMinimum 1.50x1.87x

(1) All covenants are as defined in the credit agreement for the Revolving Line of Credit.
(2) Adjusted to exclude the effect of costs incurred with Internalization.
(3) Calculated on a trailing four-quarter basis, except for common stock dividends and net preferred stock redemptions, that are annualized off of the trailing three quarters' dividends and redemptions. For the year ended December 31, 2020, the maximum dividends and distributions allowed under this covenant was approximately $174.3 million.

Loan fees and closing costs for the establishment and subsequent amendments of the Credit Facility are amortized utilizing the straight line method over the life of the Credit Facility. At December 31, 2020, unamortized loan fees and closing costs for the Credit Facility were approximately $0.6 million, which will be amortized over a remaining loan life of approximately 1.0 year. Loan fees and closing costs for the mortgage debt on the Company's properties are amortized utilizing the effective interest rate method over the lives of the loans.

    Acquisition Facility

On February 28, 2017, the Company entered into a credit agreement, or Acquisition Credit Agreement, with Freddie Mac through KeyBank to obtain an acquisition revolving credit facility, or Acquisition Facility, with a maximum borrowing capacity of $200 million. The purpose of the Acquisition Facility is to finance acquisitions. The maximum borrowing capacity on the Acquisition Facility may be increased at the Company's request up to $300 million at any time prior to March 1, 2021. On March 25, 2019, the maximum borrowing capacity was decreased to $90 million by agreement between the Company and KeyBank. The Acquisition Facility accrues interest at a variable rate of one month LIBOR plus a margin of between 1.75% per annum and 2.20% per annum, depending on the type of assets acquired and the resulting property debt service coverage ratio. The Acquisition Facility has a maturity date of March 1, 2022 and has two one-year extension options, subject to certain conditions described therein. At December 31, 2020, unamortized loan fees and closing costs for the establishment of the Acquisition Facility were approximately $91,000, which will be amortized over a remaining loan life of approximately 1.2 years. 


117

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

    Interest Expense

Interest expense, including amortization of deferred loan costs was:
Years ended December 31,
(In thousands)202020192018
Residential properties$60,676 $62,455 $56,879 
New Market Properties26,379 24,566 19,188 
Preferred Office Properties26,939 22,869 12,789 
Interest paid to real estate loan participants 110 2,430 
Total113,994 110,000 91,286 
Credit Facility and Acquisition Facility4,564 1,964 4,278 
Interest Expense$118,558 $111,964 $95,564 
    Future Principal Payments
The Company’s estimated future principal payments due on its debt instruments as of December 31, 2020 were:
PeriodFuture principal payments
(in thousands)
2021 (1)
$125,745 
202272,655 
2023114,246 
2024289,795 
202557,850 
Thereafter2,002,414 
Total$2,662,705 
(1) Includes principal amount of $22.0 million due on our Revolving Line of Credit.

10. Income Taxes

The Company elected to be taxed as a REIT effective with its tax year ended December 31, 2011, and therefore, the Company will not be subject to federal and state income taxes, so long as it distributes 100% of the Company's annual REIT taxable income (which does not equal net income as calculated in accordance with GAAP and determined without regard for the deduction for dividends paid and excluding net capital gains) to its stockholders. For the Company's tax years prior to its REIT election year, its operations resulted in a tax loss. As of December 31, 2010, the Company had deferred federal and state tax assets totaling approximately $298,100, none of which were based upon tax positions deemed to be uncertain. These deferred tax assets will most likely not be used since the Company elected REIT status; therefore, management has determined that a 100% valuation allowance is appropriate as of December 31, 2020 and December 31, 2019.


118

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

The income tax characterization of the Company's dividend distributions were as follows:
202020192018
Preferred Stock:
Ordinary income16.9 %44.7 %51.4 %
Return of capital78.8 %53.1 % %
Capital gains4.3 %2.2 %48.6 %
Common Stock:
Ordinary income % %27.0 %
Return of capital100.0 %100.0 %47.4 %
Capital gains % %25.6 %

11. Commitments and Contingencies

On January 31, 2020, the Company assumed its Former Manager's eleven-year office lease as amended, which began on October 9, 2014. As of December 31, 2020, the amount of rent due from the Company was $14.6 million over the remaining term of the lease.
At December 31, 2020 the Company had unfunded commitments on its real estate loan portfolio of approximately $44.4 million.

At December 31, 2020, the Company had unfunded contractual commitments for tenant, leasing, and capital improvements of approximately $5.0 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.

12. Operating Leases

Company as Lessor

For the years ended December 31, 2020, 2019 and 2018, the Company recognized rental property revenues of $435.4 million, $395.1 million and $322.2 million respectively, of which $42.0 million, $40.1 million and $35.3 million, respectively, represented variable rental revenue. The Company's future minimum rental revenues were:
For the year ending December 31:Future Minimum Rents as of December 31, 2020
(In thousands)New Market PropertiesPreferred Office PropertiesTotal
2021$74,150 $82,466 $156,616 
202265,292 82,578 147,870 
202355,570 81,952 137,522 
202444,579 78,225 122,804 
202532,490 69,734 102,224 
Thereafter93,146 292,415 385,561 
Total$365,227 $687,370 $1,052,597 

Company as Lessee

The Company has three ground leases related to our office and grocery-anchored shopping center assets that generally have extended terms (e.g. over twenty years with multiple renewal options) and generally have base rent with CPI-based increases. The Company evaluated its renewal option periods in quantifying its asset and liability related to these ground leases. In determining the value of its right of use asset and lease liability, the Company used discount rates comparable to recent loan

119

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

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 recorded lease expense as follows:
(Dollars in thousands)
For the year ended December 31, 2020
Weighted average remaining lease term (years)Weighted average discount rate
Lease expenseCash paid
Office space$2,670 $2,626 5.03.0 %
Ground leases58 51 35.54.4 %
Office equipment336 336 2.53.0 %
Total$3,064 $3,013 

Tenants often have the option to extend the lease within a specified amount of time, typically for an additional term of between five and ten years, at a specified rate increase. In addition, some leases have a termination right, under which the tenant will have a specified amount of time to notify the lessor of their intention to terminate a space. Terminations often include a specified dollar amount or a percentage of the rent remaining in the lease.

Future minimum rent expense for office space, ground leases and office equipment were:
For the year ending December 31:Future Minimum Rents as of December 31, 2020
(In thousands)Office spaceGround leasesOffice equipmentTotal
2021$2,930 $51 $134 $3,115 
20222,855 51 57 2,963 
20232,497 51 27 2,575 
20243,139 51 13 3,203 
20252,808 52 11 2,871 
Thereafter355 1,084  1,439 
Total$14,584 $1,340 $242 $16,166 
The Company’s grocery-anchored shopping centers are geographically concentrated within the Sunbelt and Mid-Atlantic region of the United States. The Company’s retail tenant base primarily consists of national and regional supermarkets, consumer services, healthcare providers, and restaurants. Our grocery anchor tenants comprise approximately 44.1% of our gross leasable area. Our credit risk, therefore, is concentrated in the retail/grocery real estate sector. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, with the exception of our grocer anchor tenants, who generally are not required to provide security deposits. Exposure to credit risk is limited to the extent that tenant receivables exceed security deposits. Security deposits related to tenant leases are included in security deposits and other liabilities in the accompanying consolidated balance sheets.
As of December 31, 2020, the Company’s approximately 3.2 million square foot office portfolio was 95% leased to a predominantly investment grade credit (or investment grade equivalent) tenant roster. For non-credit tenants, our leases typically require a security deposit or letter of credit, which limits worst case collection exposure to amounts in excess of those protections. Additionally, some credit tenant leases will include credit enhancement provisions that require a security deposit or letter of credit in the event of a rating downgrade. We conduct thorough credit analyses not only for leasing activities within our existing portfolio but also for major tenants in properties we are considering acquiring.


120

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

13. Segment Information

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

Multifamily Communities - consists of the Company's portfolio of residential multifamily communities. Prior to the sale of the Company's student housing communities on November 3, 2020, this reportable segment's results also included those assets and was referred to as Residential Properties.

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

New Market Properties - consists of the Company's portfolio of grocery-anchored shopping centers, which are owned by New Market Properties, LLC, a wholly-owned subsidiary of the Company, as well as the financial results from the Company's grocery-anchored shopping center real estate loans.

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

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

The following tables present the Company's assets, revenues, and NOI results by reportable segment, as well as a reconciliation from NOI to net income (loss). The assets attributable to 'Other' primarily consist of  deferred offering costs recorded but not yet reclassified as reductions of stockholders' equity and cash balances at the Company and Operating Partnership levels.
(In thousands)December 31, 2020December 31, 2019
Assets:
Multifamily Communities$1,745,020 $2,047,905 
Financing321,026 409,226 
New Market Properties1,072,090 1,125,230 
Preferred Office Properties1,121,992 1,123,212 
Other20,951 64,987 
Consolidated assets$4,281,079 $4,770,560 
Total capitalized expenditures (inclusive of additions to construction in progress, but exclusive of the purchase price of acquisitions) for the years ended December 31, 2020, 2019 and 2018 were as follows:
Years ended December 31,
(In thousands)202020192018
Capitalized expenditures:
Residential properties$14,311 $14,511 $19,879 
New Market Properties9,494 8,913 6,901 
Preferred Office Properties25,621 19,761 28,795 
Total$49,426 $43,185 $55,575 


121

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

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:
Years ended December 31,
(In thousands)202020192018
Revenues
Rental and other property revenues:
Residential properties$234,039 $220,872 $196,071 
New Market Properties107,525 96,389 77,243 
Preferred Office Properties (1)
108,826 93,416 60,162 
Total rental and other property revenues450,390 410,677 333,476 
Financing revenues50,723 59,750 63,795 
Miscellaneous revenues1,084   
Consolidated revenues$502,197 $470,427 397,271 
(1) Included in rental revenues for our Preferred Office Properties segment is the amortization of deferred revenue for tenant-funded leasehold improvements from tenants in our Three Ravinia and Westridge office buildings. The remaining unamortized balance of approximately $36.0 million is included in the deferred revenues line on the consolidated balance sheets at December 31, 2020. These total costs will be amortized over the lesser of the useful lives of the improvements or the individual lease terms. The Company recorded non-cash revenue of approximately $3.8 million, $3.8 million and $2.7 million for the years ended December 31, 2020, 2019 and 2018 respectively.

Of over 900 retail tenants, the Company has 11 leases with six companies that have entered bankruptcy proceedings, some of which are due wholly or in part to the COVID-19 pandemic and its effects on consumers. In the aggregate, this constitutes approximately 1% of the total recurring rental revenue for the New Market Properties segment.

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
















122

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020


Segment NOI for each reportable segment for the years ended December 31, 2020, 2019 and 2018 were as follows:
Years ended December 31,
(In thousands)202020192018
Segment net operating income (Segment NOI)
Residential properties$134,513 $123,576 $109,232 
Financing50,689 59,750 63,795 
New Market Properties76,536 69,271 55,013 
Preferred Office Properties79,463 66,510 41,800 
Miscellaneous revenues1,084   
Consolidated segment net operating income342,285 319,107 269,840 
Interest expense:
Residential properties60,676 62,455 56,878 
New Market Properties26,379 24,566 19,188 
Preferred Office Properties26,939 22,869 12,789 
Financing4,564 2,074 6,709 
Depreciation and amortization:
Residential properties102,035 99,391 106,106 
New Market Properties51,813 44,786 39,269 
Preferred Office Properties47,829 40,888 25,761 
Management fees, net of forfeitures1,963 21,752 20,885 
Management Internalization180,116 2,987  
Expected credit loss allowance6,103 2,038 2,533 
Equity compensation to directors and executives1,644 1,223 1,703 
Gains on sale of real estate loan investment and land condemnation(517)(954) 
Gains on sales of real estate and mortgage-backed securities, net(23,456)(1,567)(69,705)
Gain on non-cash net assets of consolidated VIEs (1,831)(320)
Loss from unconsolidated joint venture314   
Loss on extinguishment of debt6,674 84  
Other30,812 5,804 3,506 
Net income (loss)$(181,603)$(7,458)$44,538 


123

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

14. Income (Loss) Per Share

The following is a reconciliation of weighted average basic and diluted shares outstanding used in the calculation of income (loss) per share of Common Stock:
Years ended December 31,
(In thousands, except per-share figures)202020192018
Numerator:
Operating income before gains on sales of real estate and mortgage-backed securities$(80,030)$100,238 $70,077 
Loss from unconsolidated joint venture(314)  
Gains on sales of real estate and mortgage-backed securities23,456 1,567 69,705 
Operating (loss) income(56,888)101,805 139,782 
Interest expense118,558 111,964 95,564 
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools 1,831 320 
Less: loss on extinguishment of debt(6,674)(84) 
Gains on sale of real estate loan investment and land condemnation517 954  
Net (loss) income(181,603)(7,458)44,538 
Consolidated net loss (income) attributable to non-controlling interests3,815 214 (1,071)
Net (loss) income attributable to the Company(177,788)(7,244)43,467 
Dividends declared to preferred stockholders(160,908)(113,772)(86,741)
Earnings attributable to unvested restricted stock(205)(17)(16)
Net loss attributable to common stockholders$(338,901)$(121,033)$(43,290)
Denominator:
Weighted average number of shares of Common Stock - basic48,743 44,265 40,032 
Effect of dilutive securities: (D)
   
Weighted average number of shares of Common Stock - basic and diluted48,743 44,265 40,032 
Net loss per share of Common Stock attributable to
common stockholders, basic and diluted$(6.95)$(2.73)$(1.08)

(A) The Company's outstanding Class A Units of the Operating Partnership (649, 856 and 877 Units at December 31, 2020, 2019 and 2018, 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 1,735, 2,028 and 1,608 outstanding shares of Series A Preferred Stock at December 31, 2020, 2019 and 2018, respectively and 149 and 5 outstanding shares of Series A1 Preferred Stock at December 31, 2020 and 2019, respectively. The Company's shares of Series M preferred stock, or mShares, accrue dividends at an escalating rate of 5.75% in year one to 7.50% in year eight and thereafter. The Company had 89, 103 and 44 mShares outstanding at December 31, 2020, 2019 and 2018, 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 19 and 0 shares of Series M1 preferred stock outstanding at December 31, 2020 and 2019, respectively.

(C) The Company's outstanding unvested restricted share awards (548, 13 and 12 shares of Common Stock at December 31, 2020, 2019 and 2018, respectively) contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares' participation rights in undistributed earnings. Given the Company's unvested restricted share awards are defined as participating securities, the dividends declared for that period are adjusted in determining the calculation of loss per share of Common Stock.


124

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

(D) Potential dilution from (i) warrants outstanding from issuances of Units from our Series A Preferred Stock offerings that are potentially exercisable into 26,006 shares of Common Stock; (ii) 64 Class B Units; (iii) 548 shares of unvested restricted common stock; (iv) 51 outstanding Restricted Stock Units; and 273 performance-based restricted stock units are excluded from the diluted shares calculations because the effect was antidilutive. Class A Units were excluded from the denominator because earnings were allocated to non-controlling interests in the calculation of the numerator.

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 and are presented net of deferred loan fee revenue, where applicable.

As of December 31, 2020
Carrying valueFair value measurements
using fair value hierarchy
(In thousands)Fair ValueLevel 1Level 2Level 3
Financial Assets:
Real estate loans (1)
$302,423 $315,074 $ $ $315,074 
Notes receivable and line of credit receivable10,874 10,874   10,874 
$313,297 $325,948 $ $ $325,948 
Financial Liabilities:
Mortgage notes payable $2,640,705 2,666,471 $ $ $2,666,471 
Revolving credit facility22,000 22,000   22,000 
$2,662,705 $2,688,471 $ $ $2,688,471 


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

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

125

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements - (continued)
December 31, 2020

and utilizing discount rates believed to approximate the market risk factor for notes of similar type and duration. The fair values also contain a separately-calculated estimate of any applicable additional interest payment due the Company at the maturity date of the loan, based on the outstanding loan balances at December 31, 2020, discounted to the reporting date utilizing a discount rate believed to be appropriate for multifamily development projects.

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


16. Subsequent Events

Between January 1, 2021 and February 28, 2021, the Company issued 35,040 shares of Series A1 Preferred Stock and collected net proceeds of approximately $31.5 million after commissions and fees and issued 2,858 shares of Series M1 Preferred Stock and collected net proceeds of approximately $2.8 million after commissions and fees. During the same period, the Company redeemed 17,363 shares of Series A Preferred Stock, 750 shares of Series M1 Preferred Stock and 461 shares of Series M Preferred Stock, or mShares.

On February 24, 2021, the Company's board of directors declared a quarterly dividend on its Common Stock of $0.175 per share, payable on April 15, 2021 to stockholders of record on March 15, 2021.


Item 16.     Form 10-K Summary    

None.    


126


Schedule III
Preferred Apartment Communities, Inc.
Real Estate Investments and Accumulated Depreciation
December 31, 2020
(Dollars in thousands)Initial CostsGross Amount at Which Carried at Close of Period
Property nameLocation (MSA)Related Encum-brancesLandBuilding and ImprovementsCosts Capitalized
Subsequent to Acquisition
LandBuilding and ImprovementsConstruction in ProgressTotal (1)Accumulated DepreciationYear Constr-ucted/Renova-tedDate AcquiredDeprec-iable Lives - Years
Summit CrossingAtlanta, GA$36,929$3,450$27,705$2,604$3,450$30,309$$33,759$(10,895)20074/21/20115 - 40
Summit Crossing IIAtlanta, GA20,7003,22015,8525263,22016,377119,598(4,921)201312/31/20135 - 40
VineyardsHouston, TX32,7035,45646,2012,3305,45648,5141753,987(11,778)20039/26/20145 - 35
Avenues at CypressHouston, TX28,3663,24230,0939183,24230,9417034,253(8,559)20142/13/20155 - 40
Avenues at NorthpointeHouston, TX33,5463,92137,2031,0543,92138,25742,178(10,305)20132/13/20155 - 40
Venue at Lakewood RanchSarasota, FL36,5553,79142,9501,0443,79143,9049047,785(10,263)20155/21/20155 - 40
Aster at Lely ResortNaples, FL50,4007,67543,7941,3077,67545,093852,776(11,025)20156/24/20155 - 40
CityPark ViewCharlotte, NC29,0003,55928,3601,0033,55929,04731632,922(7,472)20146/30/20155 - 40
Citi LakesOrlando, FL40,3245,55856,8281,3895,55858,1259263,775(13,284)20149/3/20155 - 40
Stone CreekHouston, TX19,4512,21122,9163042,21123,22025,431(4,737)200911/12/20155 - 40
Regent at LenoxNashville, TN3013,493723013,5653,866(722)200912/21/20155 - 40
Retreat at LenoxNashville, TN16,7512,96524,2115012,86024,60021727,677(5,600)201512/21/20155 - 40
Lenox Village Town CenterNashville, TN38,1694,61239,9111,8194,35541,85313446,342(8,569)200912/21/20155 - 40
Village at Baldwin ParkOrlando, FL69,60817,40390,4648,62117,40397,3791,706116,488(17,575)20081/5/20165 - 37
Crosstown WalkTampa, FL46,5005,17839,3321,0165,17840,13421445,526(8,753)20141/15/20165 - 49
Overton RiseAtlanta, GA37,6078,51150,9969588,51151,947760,465(9,556)20152/1/20165 - 49
525 Avalon ParkOrlando, FL63,2567,41082,3493,9937,41086,3113193,752(16,208)20085/31/20165 - 45
City VistaPittsburgh, PA32,9384,08241,4863904,08241,87645,958(8,837)20147/1/20165 - 49
SorrelJacksonville, FL30,7404,41242,2171,2304,41243,3747347,859(8,963)20158/24/20165 - 48
Citrus VillageTampa, FL40,9004,80940,4811,8164,80942,10719047,106(8,133)201103/03/175 - 44
Retreat at GreystoneBirmingham, AL33,4394,07744,4621,0474,07745,50949,586(10,482)201503/24/175 - 49

127


(Dollars in thousands)Initial CostsGross Amount at Which Carried at Close of Period
Property nameLocation (MSA)Related Encum-brancesLandBuilding and ImprovementsCosts Capitalized
Subsequent to Acquisition
LandBuilding and ImprovementsConstruction in ProgressTotal (1)Accumulated DepreciationYear Constr-ucted/Renova-tedDate AcquiredDeprec-iable Lives - Years
Founder's VillageWilliamsburg, VA29,6355,31538,7611,0145,31539,77545,090(7,275)201403/31/175 - 47
Claiborne CrossingLouisville, KY25,5032,14737,5791,4942,14739,0482541,220(9,249)201404/26/175 - 47
Luxe at Lakewood RanchSarasota, FL36,9224,85251,0337614,85251,7563856,646(8,492)201607/26/175 - 48
Adara Overland ParkKansas City, KS30,0242,85442,0306702,85442,701(1)45,554(9,981)201609/27/175 - 49
Reserve at Summit CrossingAtlanta, GA18,8934,37525,9394074,37526,34630,721(4,931)201609/29/175 - 48
Aldridge at Town VillageAtlanta, GA35,8927,12245,4185477,12245,9214453,087(9,951)201609/29/175 - 49
Overlook at Crosstown WalkTampa, FL21,0383,30928,0142383,30928,25231,561(4,925)201611/21/175 - 48
Colony at CenterpointeRichmond, VA31,4457,25938,1991,2237,25939,42246,681(7,020)201612/20/175 - 48
Lux at SorrelJacksonville, FL29,8685,33242,5317975,33243,2963248,660(6,991)20171/9/20185 - 49
Green ParkAtlanta, GA37,7857,47849,2114827,47849,69357,171(10,278)20172/28/20185 - 48
Lodge at Hidden RiverTampa, FL40,2045,60052,9304835,60053,3724159,013(6,075)20179/27/20185 - 48
Vestavia ReserveBirmingham, AL36,5114,14054,2068154,14054,9408159,161(6,238)201611/9/20185 - 48
CityPark View SouthCharlotte, NC23,3795,81627,5284095,81627,9053233,753(3,586)201711/15/20185 - 49
Artisan at VieraMelbourne, FL39,1044,83958,7914504,83959,1984364,080(4,072)20188/8/20195 - 50
Five Oaks at WestchaseTampa, FL30,8184,42548,1133604,42548,483(10)52,898(2,925)20199/18/20195 - 50
Horizon at WiregrassTampa, FL51,3606,84272,708(42)6,84272,805(139)79,508(2,913)20183/31/20205 - 47
Parkside at the BeachPanama City Beach, FL45,0376,10353,6892676,10353,77618060,059(2,064)20194/30/20205 - 50
The BlakeOrlando, FL44,4357,45953,223157,45953,23860,697(348)201911/2/20205 - 50
The MenloJacksonville, FL47,0007,67064,9837,67064,98372,653(137)202012/15/20205 - 50
1,392,735208,7801,736,19044,332208,4181,777,3523,5321,989,302(304,088)

128


(Dollars in thousands)Initial CostsGross Amount at Which Carried at Close of Period
Property nameLocation (MSA)Related Encum-brancesLandBuilding and ImprovementsCosts Capitalized
Subsequent to Acquisition
LandBuilding and ImprovementsConstruction in ProgressTotal (1)Accumulated DepreciationYear Constr-ucted/Renova-tedDate AcquiredDeprec-iable Lives - Years
Woodstock Crossing Atlanta, GA $2,818$1,751$3,800$662$1,751$4,462$$6,213$(1,360)19942/12/20145 - 30
Spring Hill Plaza Nashville, TN 7,9624,3768,1041934,3768,29712,673(2,493)20059/5/20145 - 40
Parkway Town Centre Nashville, TN 7,8663,0546,6945843,0547,27810,332(1,750)20059/5/20145 - 40
Barclay Crossing Tampa, FL 6,0862,8567,5722482,8567,82010,676(1,875)19989/30/20145 - 30
Deltona Landings Orlando, FL 6,1412,2568,3444702,2568,81411,070(2,107)19999/30/20145 - 30
Kingwood Glen Houston, TX 5,02112,9301,1884,76214,3364119,139(3,308)19989/30/20145 - 30
Parkway Centre Columbus, GA 4,4232,0714,5164442,0714,9607,031(1,241)19999/30/20145 - 30
Powder Springs Atlanta, GA 7,7491,8328,2463711,8328,61710,449(2,193)19999/30/20145 - 30
Sweetgrass Corner Charleston, SC 3,07612,6702363,07612,90615,982(3,086)19999/30/20145 - 30
The Market at Salem Cove Nashville, TN 8,8892,42710,2721742,42710,445112,873(2,100)201010/6/20145 - 40
Independence Square Dallas, TX11,1844,11513,6902,0124,11515,697519,817(3,703)19777/1/20155 - 30
Royal Lakes Marketplace Atlanta, GA9,3454,87410,4394874,92410,87615,800(2,407)20089/4/20155 - 30
Summit Point Atlanta, GA11,1187,06411,4305157,06411,94519,009(2,694)200410/30/20155 - 30
The Overlook at Hamilton Place Chattanooga, TN19,0886,78725,2441,5716,78726,81533,602(5,293)199212/22/20155 - 30
Wade Green Village Atlanta, GA7,4881,8408,4105221,8408,93210,772(1,974)19932/29/20165 - 35
Anderson Central Greenville Spartanburg, SC11,2465,05913,2783495,05913,62718,686(3,403)19994/29/20165 - 30
East Gate Shopping CenterAugusta, GA5,1181,6537,391561,6537,4479,100(1,481)19954/29/20165 - 30
Fairview MarketGreenville Spartanburg, SC1,3535,1791,4691,3536,6488,001(1,194)19984/29/20165 - 30
Fury's FerryAugusta, GA5,9122,0848,1072652,0848,37210,456(1,527)19964/29/20165 - 35
Rosewood Shopping CenterColumbia, SC3,9711,6715,3471571,6715,5047,175(867)20024/29/20165 - 40
Southgate VillageBirmingham, AL7,0592,26210,2903172,26210,60712,869(1,867)19884/29/20165 - 35
The Market at Victory VillageNashville, TN8,7512,27112,2751382,27112,41314,684(2,118)20075/16/20165 - 40

129


(Dollars in thousands)Initial CostsGross Amount at Which Carried at Close of Period
Property nameLocation (MSA)Related Encum-brancesLandBuilding and ImprovementsCosts Capitalized
Subsequent to Acquisition
LandBuilding and ImprovementsConstruction in ProgressTotal (1)Accumulated DepreciationYear Constr-ucted/Renova-tedDate AcquiredDeprec-iable Lives - Years
Lakeland Plaza Atlanta, GA26,6327,07933,0877097,07933,790640,875(6,146)19907/15/20165 - 35
Cherokee Plaza Atlanta, GA24,2778,39232,2495638,39232,7535941,204(4,374)19588/8/20165 - 35
Heritage Station Raleigh, NC8,3151,6849,8831,6041,68411,4761113,171(1,999)20048/8/20165 - 40
Oak Park Village San Antonio, TX8,5805,74510,7791435,74510,92216,667(1,803)19708/8/20165 - 40
Sandy Plains Exchange Atlanta, GA8,4044,7889,3094204,7889,72914,517(1,799)19978/8/20165 - 32
Shoppes of Parkland Miami - Ft. Lauderdale, FL15,41410,77916,54343610,77916,97927,758(3,713)20008/8/20165 - 35
Thompson Bridge Commons Atlanta, GA11,2341,47816,047461,47816,09317,571(2,232)20018/8/20165 - 40
University Palms Orlando, FL12,0304,85416,7061,0164,85417,6269622,576(2,723)19938/8/20165 - 37
Champions Village Houston, TX27,40012,81333,3993,71612,81336,56355249,928(7,182)197310/18/20165 - 40
Castleberry - Southard Atlanta, GA10,7343,02414,1421653,02414,30717,331(1,939)20064/21/20175 - 39
Rockbridge Village Atlanta, GA13,3103,14115,9445753,14116,51919,660(1,805)20056/6/20175 - 40
Irmo StationColumbia, SC9,7583,60211,8591,0793,60212,93816,540(1,876)19807/26/20175 - 33
Maynard CrossingRaleigh, NC16,9536,30422,5668096,30423,374129,679(3,686)19968/25/20175 - 30
Woodmont VillageAtlanta, GA8,0962,71310,0303622,71310,39213,105(1,588)20029/8/20175 - 30
West Town MarketCharlotte, NC8,2601,93712,2981,93712,29814,235(1,459)20049/22/20175 - 37
Crossorads MarketNaples, FL17,6227,04422,6275437,04423,17030,214(2,189)199312/5/20175 - 40
Roswell Wieuca Shopping CenterAtlanta, GA12,00618,48523412,00618,71930,725(1,820)200711/30/20175 - 40
Greensboro VillageNashville, TN8,0403,13410,7713873,13411,15814,292(1,443)20054/27/20185 - 40
Governors Towne SquareAtlanta, GA10,6962,76613,027532,76613,08015,846(1,306)20044/27/20185 - 40
Conway PlazaOrlando, FL9,3754,2029,7821,5334,20211,31515,517(1,549)19666/29/20185 - 30
Brawley CommonsCharlotte, NC17,5198,78618,7163008,78619,01627,802(2,314)19977/6/20185 - 40
Hollymead Town CenterCharlottesville, VA26,1397,50333,009817,50333,085540,593(2,327)200512/21/20185 - 40

130


(Dollars in thousands)Initial CostsGross Amount at Which Carried at Close of Period
Property nameLocation (MSA)Related Encum-brancesLandBuilding and ImprovementsCosts Capitalized
Subsequent to Acquisition
LandBuilding and ImprovementsConstruction in ProgressTotal (1)Accumulated DepreciationYear Constr-ucted/Renova-tedDate AcquiredDeprec-iable Lives - Years
Gayton Crossing Richmond, VA17,2769,10917,7911,6359,10918,74867828,535(1,641)19831/17/20195 - 30
Free State Shopping Center Washington D.C.45,54921,44344,8311021,44344,833866,284(3,207)19705/28/20195 - 35
Polo Grounds Mall West Palm Beach, FL12,9869,05710,9072529,05711,1481120,216(1,009)19666/12/20195 - 30
Disston Plaza Tampa-St Petersburg, FL17,5785,57922,048665,57922,11427,693(1,403)19546/12/20195 - 35
Fairfield Shopping CenterVirginia Beach, VA19,75012,72814,52648812,72814,9506427,742(1,728)19858/16/20195 - 30
Berry Town CenterOrlando, FL11,7943,06213,628573,06213,6721316,747(767)200311/14/20195 - 30
Hanover CenterWilmington, NC31,21716,63440,39364416,63441,0162157,671(2,500)195412/19/20195 - 30
Wakefield Crossing Raleigh, NC 7,7281,9979,2521,9979,25211,249(446)195412/19/20195 - 30
Midway Market Dallas, TX 7,3315,1107,3315,11012,441(287)195412/19/20195 - 30
614,880280,467783,97230,354280,258812,9631,5721,094,793(120,301)
(Dollars in thousands)Initial CostsGross Amount at Which Carried at Close of Period
Property nameLocation (MSA)Related Encum-brancesLandBuilding and ImprovementsCosts Capitalized
Subsequent to Acquisition
LandBuilding and ImprovementsConstruction in ProgressTotal (1)Accumulated DepreciationYear Constr-ucted/Renova-tedDate AcquiredDeprec-iable Lives - Years
Brookwood Office Center Birmingham, AL $29,925$1,745$42,661$345$1,745$42,997$9$44,751$(5,365)20078/29/20165 - 50
Galleria 75 Atlanta, GA 5,13115,1561,51232415,1561,831516,992(811)198811/4/20165 - 25
Three Ravinia Atlanta, GA 115,5009,785154,02365,69911,083218,214210229,507(33,974)199112/30/20167 - 39
Westridge San Antonio, TX50,44915,77858,4965,63715,77864,1132079,911(8,372)201611/13/201713 - 50
Armour Yards Atlanta, GA 39,4256,75654,5342746,75654,7198961,564(5,429)20161/29/20189 - 50
150 Fayetteville Raleigh, NC 113,76816,072140,46720,55916,072158,9372,089177,098(12,352)19907/31/20188 - 50
Capitol Towers Charlotte, NC 122,72013,445174,0295,01913,445178,868180192,493(9,659)201512/20/20187 - 50

131


(Dollars in thousands)Initial CostsGross Amount at Which Carried at Close of Period
Property nameLocation (MSA)Related Encum-brancesLandBuilding and ImprovementsCosts Capitalized
Subsequent to Acquisition
LandBuilding and ImprovementsConstruction in ProgressTotal (1)Accumulated DepreciationYear Constr-ucted/Renova-tedDate AcquiredDeprec-iable Lives - Years
CAPTRUST Tower Raleigh, NC82,6509,629115,6294,5469,629119,0691,106129,804(5,338)20097/25/20195 - 50
251 Armour Drive Atlanta, GA3,5223,6581,6751,7503,6581,6751,7507,08319967/31/201912 - 45
Morrocroft Centre Charlotte, NC70,0009,36789,1455,5029,36792,9401,707104,014(3,427)2013 - 201712/20/20195 - 50
4th & Brevard Charlotte, NC 13,91710113,91710114,018(34)n/a3/16/20207
633,090115,308832,272109,655116,606933,4647,1651,057,235(84,761)
$2,640,705$604,555$3,352,434$184,341$605,282$3,523,779$12,269$4,141,330$(509,150)
(1) The aggregate cost for federal income tax purposes to the Company was approximately $4.0 billion at December 31, 2020.
(2) The costs capitalized subsequent to acquisition amount includes approximately $6.9 million of assets in 2017 which were written off due to damages from Hurricane Harvey.
(In thousands)For the years ended December 31,
Real estate investments202020192018
Balance at the beginning of the year$4,394,529 $3,672,715 $2,735,342 
Acquisitions310,329 679,423 1,003,791 
Improvements49,821 39,259 56,007 
Construction in progress795 3,628 (123)
Write-off of assets no longer in service(1,208)(261)(438)
Disposal of assets(612,622)(549)(121,864)
Gross Corporate Entity Assets1,647 314 — 
Balance at the end of the year$4,143,291 $4,394,529 $3,672,715 
Accumulated depreciation
Balance at the beginning of the year$(421,551)$(272,042)$(172,756)
Depreciation (a)(163,463)(149,884)(125,849)
Write-off of assets no longer in service1,208 261 438 
Disposal of assets74,656 114 26,125 
Accumulated Depreciation Corporate Entity Assets(397)— — 
Balance at the end of the year$(509,547)$(421,551)$(272,042)
(a) Represents depreciation expense of real estate assets. Amounts include corporate entity assets following the Internalization transaction and exclude amortization of lease intangible assets for all periods.


132


Schedule IV
Preferred Apartment Communities, Inc.
Mortgage Loans on Real Estate
December 31, 2020
DescriptionProperty NameLocation (MSA)Interest Rate Maturity DatePeriodic Payment TermsPrior LiensFace Amount of Mortgages (in thousands)Carrying Amount of Mortgages (in thousands)Principal Amount of Mortgages Subject to Delinquent Principal or Interest
Real Estate Construction Loan on Multifamily Community NewberghAtlanta, GA14.0 %3/31/2021(3)8.5 / 5.5$ $11,749 $11,749 $ 
Real Estate Construction Loan on Multifamily Community Newbergh
Capital
Atlanta, GA14.0 %3/31/2021(3)8.5 / 5.5 6,176 6,176  
Real Estate Construction Loan on Multifamily Community V & ThreeCharlotte, NC13.5 %8/15/2021(2)8.5 / 5.0 10,336 10,335  
Real Estate Construction Loan on Multifamily Community V & Three
Capital
Charlotte, NC13.5 %8/18/2021(2)8.5 / 5.0 7,338 7,162  
Real Estate Construction Loan on Multifamily Community Cameron ParkAlexandria, VA11.5 %10/11/2021(1)8.5 / 3.0 21,340 20,874  
Real Estate Construction Loan on Multifamily Community Cameron Park CapitalAlexandria, VA11.5 %10/11/2021(1)8.5 / 3.0 8,850 8,850  
Real Estate Construction Loan on Multifamily Community The AnsonNashville, TN13.0 %11/24/2021(6)8.5 / 4.5 6,240 6,240  
Real Estate Construction Loan on Multifamily Community The Anson
Capital
Nashville, TN13.0 %11/24/2021(6)8.5 / 4.5 5,659 4,839  
Real Estate Construction Loan on Multifamily CommunityBerryessaSan Jose, CA11.5 %2/13/2022(1)8.5 / 3.0 137,616 126,237  
Real Estate Construction Loan on Multifamily Community SouthpointFredericksburg, VA12.5 %2/28/2022(5)8.5 / 4.0 7,348 7,348  
Real Estate Construction Loan on Multifamily Community Southpoint
Capital
Fredericksburg, VA12.5 %2/28/2022(5)8.5 / 4.0 4,962 4,626  
Real Estate Construction Loan on Multifamily Community Vintage DestinDestin, FL12.5 %3/24/2022(5)8.5 / 4.0 10,763 9,736  
Real Estate Construction Loan on Multifamily Community Hidden River IITampa, FL12.0 %10/11/2022(4)8.5 / 3.5 4,462 4,462  
Real Estate Construction Loan on Multifamily Community Hidden River II
Capital
Tampa, FL12.0 %10/11/2022(4)8.5 / 3.5 2,763 2,461  
Real Estate Construction Loan on Multifamily Community Vintage Horizon WestOrlando, FL14.0 %10/11/2022(3)8.5 / 5.5 10,900 9,019  
Real Estate Construction Loan on Multifamily Community Kennesaw CrossingAtlanta, GA14.0 %9/1/2023(3)8.5 / 5.5 14,810 13,025  

133


DescriptionProperty NameLocation (MSA)Interest Rate Maturity DatePeriodic Payment TermsPrior LiensFace Amount of Mortgages (in thousands)Carrying Amount of Mortgages (in thousands)Principal Amount of Mortgages Subject to Delinquent Principal or Interest
Real Estate Construction Loan on Multifamily Community Vintage Jones FranklinRaleigh, NC14.0 %11/14/2023(3)8.5 / 5.5 10,000 7,904  
Real Estate Construction Loan on Multifamily Community Solis Cumming Town CenterAtlanta, GA14.0 %9/3/2024(3)8.5 / 5.5 20,681 5,584  
Real Estate Construction Loan on Multifamily Community Solis Chestnut FarmCharlotte, NC14.0 %2/28/2025(3)8.5 / 5.5 13,372 11,671  
Real Estate Construction Loan on Office Property 8 WestAtlanta, GA13.5 %11/29/2022(2)8.5 / 5.0 19,193 11,858  
Total 334,558 290,156  
Unamortized loan origination fees— — (1,194)— 
Allowances for expected credit losses— — (9,067)— 
Carrying amount$ $334,558 $279,895 $ 
(1) Fixed rate, interest only, 8.5% payable monthly and 3.0% accrued
(2) Fixed rate, interest only, 8.0% payable monthly and 5.0% accrued
(3) Fixed rate, interest only, 8.5% payable monthly and 5.5% accrued
(4) Fixed rate, interest only, 8.5% payable monthly and 3.5% accrued
(5) Fixed rate, interest only, 8.5% payable monthly and 4.0% accrued
(6) Fixed rate, interest only, 8.5% payable monthly and 4.5% accrued


134


Exhibit Index
The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K (and are numbered in accordance with Item 601 of Regulation S-K):
Exhibit No.ReferencesDescription
2.1



3.1(1)
3.2
Fifth Amended and Restated By-laws of Preferred Apartment Communities, Inc. Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on November 19, 2020
4.1
Sixth Amended and Restated Partnership Agreement, dated June 3, 2016, among Preferred Apartment Communities, Inc., Preferred Apartment Advisors, LLC and the other limited partners party thereto Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on June 6, 2016

4.2
Articles Supplementary for the Series A Redeemable Preferred Stock Previously filed with the Pre-effective Amendment No. 1 to Form S-11 Registration Statement (Registration No.: 333-176604) filed by the Registrant with the Securities and Exchange Commission on November 2, 2011
4.3
Articles Supplementary for the Series M Redeemable Preferred Stock Previously filed with the Form S-3 Registration Statement (Registration No.: 333-214531) filed by the Registrant with the Securities and Exchange Commission on November 9, 2016
4.4
Articles Supplementary classifying an additional 900,000 shares of the Series A Redeemable Preferred Stock Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 28, 2013
4.5
Articles Supplementary classifying an additional 2,000,000 shares of the Series A Redeemable Preferred Stock Previously filed with the Form S-3 Registration Statement (Registration No.: 333-211924) filed by the Registrant with the Securities and Exchange Commission on June 9, 2016
4.7
Form of Series A Subscription Agreement Previously filed with the Pre-effective Amendment No. 2 to Form S-3 Registration Statement (Registration No. 333-211924) filed by the Registrant with the Securities and Exchange Commission on November 8, 2016
4.8
First Amendment to the Sixth Amended and Restated Partnership Agreement, dated as of January 25, 2017, entered into by Preferred Apartment Communities, Inc. Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on January 26, 2017
4.9
Articles of Amendment Amending the Holder Redemption Options of the Company's Series A Redeemable Preferred Stock Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on June 26, 2014
4.10
Amended and Restated Warrant Agreement dated as of March 14, 2012 between Preferred Apartment Communities, Inc. and Computershare Trust Company, N.A., as Warrant Agent Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 15, 2012

135


4.11
Form of Global Warrant Certificate Previously filed with the Pre-effective Amendment No. 1 to Form S-11 Registration Statement (Registration No.: 333-176604) filed by the Registrant with the Securities and Exchange Commission on November 2, 2011
4.12
Second Amended and Restated Warrant Agreement between Preferred Apartment Communities, Inc. and Computershare Trust Company, N.A., as Warrant Agent dated as of October 11, 2013 Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on October 15, 2013


4.13
Warrant Agreement between Preferred Apartment Communities, Inc. and Computershare Trust Company, N.A., as Warrant Agent dated as of February 23, 2017 Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on February 24, 2017
4.14
Articles Supplementary for the Series A1 Redeemable Preferred Stock Previously filed with the Form S-3 Registration Statement (Registration No.: 333-233576) filed by the Registrant with the Securities and Exchange Commission on August 30, 2019

4.15
Articles Supplementary for the Series M1 Redeemable Preferred Stock Previously filed with the Form S-3 Registration Statement (Registration No.: 333-233576) filed by the Registrant with the Securities and Exchange Commission on August 30, 2019

4.16
Second Amendment to the Sixth Amended and Restated Partnership Agreement, dated as of November 7, 2019, entered into by Preferred Apartment Communities, Inc. Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on November 7, 2019
4.17
Form of Series A1 and M1 Subscription Agreement Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on October 2, 2019
4.18
Description of Common Stock Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
4.19(1)
4.20
Description of Warrant to Purchase Common Stock Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
4.21
Description of Series M Redeemable Preferred Stock Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
4.22
Description of Series A1 Redeemable Preferred Stock Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
4.23
Description of Series M1 Redeemable Preferred Stock Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
4.24
Amendment to Articles Supplementary for the Series A Redeemable Preferred Stock Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on November 19, 2020
10.1*
The Company’s 2019 Stock Incentive Plan Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on May 2, 2019
10.2*
Form of Director Restricted Stock Agreement pursuant to the Preferred Apartment Communities, Inc. 2019 Stock Incentive Plan Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on June 19, 2020
10.3*
Form of Restricted Stock Agreement (Officer) pursuant to the Preferred Apartment Communities, Inc. 2019 Stock Incentive Plan Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on June 19, 2020

136


10.4*
Form of Restricted Stock Unit Agreement (Officer) pursuant to the Preferred Apartment Communities, Inc. 2019 Stock Incentive Plan Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 6, 2020
10.5
Form of Indemnification Agreement Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on April 7, 2011
10.6*
Form of Preferred Apartment Communities, Inc. 2018 Class B Unit Award Agreement (3 year) Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on January 29, 2018
10.7


10.8
10.9


10.10
Fourth Amended and Restated Guaranty dated as of August 5, 2016 by and among Preferred Apartment Communities, Inc., each of the guarantors party thereto and KeyBank National Association Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 10, 2016
10.11
Form of Buy-Sell Agreement with KeyBank National Association Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on February 17, 2015
10.12
Form of Escrow Agreement for Series A1 and M1 Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on October 2, 2019
10.13
Consulting Agreement Between Leonard A. Silverstein and Preferred Apartment Communities, Inc. Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
10.14*
Preferred Apartment Communities, Inc. Executive Severance and Change in Control Plan Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 6, 2020
10.15*
Executive Severance and Change in Control Participation Agreement (Form) Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 6, 2020
10.16*
Executive Severance and Change in Control Participation Agreement - CEO/CFO (Form) Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 6, 2020
21(1)
23.1(1)
31.1(1)
31.2(1)
32.1(1)
32.2(1)

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101(1)XBRL (eXtensible Business Reporting Language). The following materials for the period ended December 31, 2020, formatted in XBRL: (i) Consolidated balance sheets at December 31, 2020 and December 31, 2019, (ii) consolidated statements of operations for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, (iii) consolidated statements of equity and accumulated deficit, (iv) consolidated statements of cash flows and (v) notes to consolidated financial statements.
*Management contract or compensatory plan, contract or arrangement.
(1)Filed herewith


138


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PREFERRED APARTMENT COMMUNITIES, INC.
Date: March 1, 2021By:  /s/ Joel T. Murphy
Joel T. Murphy
Chief Executive Officer 
(Principal Executive Officer)
Date: March 1, 2021By:  /s/ John A. Isakson
John A. Isakson
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SignatureTitleDate
 /s/ Joel T. MurphyChief Executive Officer, President and DirectorMarch 1, 2021
Joel T. Murphy(Principal Executive Officer)
/s/ John A. IsaksonChief Financial Officer (Principal Financial Officer)March 1, 2021
John A. Isakson
 /s/ Michael J. CroninExecutive Vice President, Chief Accounting Officer and TreasurerMarch 1, 2021
Michael J. Cronin(Principal Accounting Officer)
/s/ Steve BartkowskiDirectorMarch 1, 2021
Steve Bartkowski
/s/ Gary B. CourseyDirectorMarch 1, 2021
Gary B. Coursey
/s/ Daniel M. DuPreeDirectorMarch 1, 2021
Daniel M. DuPree
/s/ Howard A. McLureDirectorMarch 1, 2021
Howard A. McLure
/s/ Timothy A. PetersonDirectorMarch 1, 2021
 Timothy A. Peterson
/s/ John M. CannonDirectorMarch 1, 2021
John M. Cannon
/s/ Sara J. FinleyDirectorMarch 1, 2021
Sara J. Finley

139