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EXCEL - IDEA: XBRL DOCUMENT - PREFERRED APARTMENT COMMUNITIES INCFinancial_Report.xls
EX-31.1 - EXHIBIT 31.1 - PREFERRED APARTMENT COMMUNITIES INCexhibit3111q2015.htm
EX-31.2 - EXHIBIT 31.2 - PREFERRED APARTMENT COMMUNITIES INCexhibit3121q2015.htm
EX-32.2 - EXHIBIT 32.2 - PREFERRED APARTMENT COMMUNITIES INCexhibit3221q2015.htm
EX-32.1 - EXHIBIT 32.1 - PREFERRED APARTMENT COMMUNITIES INCexhibit3211q2015.htm
EX-10.1 - THIRD AMENDMENT TO 2011 STOCK INCENTIVE PLAN - PREFERRED APARTMENT COMMUNITIES INCexhibit-10x1_amendmentxnox.htm




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM 10-Q
 

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File No. 001-34995
 

Preferred Apartment Communities, Inc.
(Exact name of registrant as specified in its charter)
 

Maryland
27-1712193
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3284 Northside Parkway NW, Suite 150, Atlanta, GA 30327
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (770) 818-4100
 

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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer  ¨            Accelerated filer  x            Non-accelerated filer  ¨            Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No  x
The number of shares outstanding of the registrant’s Common Stock, as of May 8, 2015 was 22,225,924.




 
 
 
INDEX
 
 
 
 
 
 
Page No. 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
1

 
 
 
 
2

 
 
 
 
3

 
 
 
 
4

 
 
 
 
6

 
 
 
Item 2.
34

 
 
 
Item 3.
57

 
 
 
Item 4.
58

 
 
 
 
 
 
Item 1.
Legal Proceedings
59

 
 
 
Item 1A
Risk Factors
59

 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
59

 
 
 
Item 3.
Defaults Upon Senior Securities
59

 
 
 
Item 4.
Mine Safety Disclosures
59

 
 
 
Item 5.
Other Information
59

 
 
 
Item 6.
Exhibits
59

 
 
SIGNATURES
60

 
 
 
 
EXHIBIT INDEX
61








Preferred Apartment Communities, Inc.
Consolidated Balance Sheets
(Unaudited)
 
 
 
 
 
 
 
March 31, 2015
 
December 31, 2014
Assets
 
 
 
 
 
 
 
 
 
Real estate
 
 
 
 
Land
 
$
86,434,683

 
$
79,272,457

Building and improvements
 
431,348,175

 
377,030,987

Tenant improvements
 
3,232,506

 
3,240,784

Furniture, fixtures, and equipment
 
50,155,356

 
36,864,668

Construction in progress
 
268,613

 
66,647

Gross real estate
 
571,439,333

 
496,475,543

Less: accumulated depreciation
 
(31,720,212
)
 
(26,388,066
)
Net real estate
 
539,719,121

 
470,087,477

Real estate loans, net of deferred fee income ($21,536,641 and $20,313,722 carried at fair value)
 
141,986,808

 
128,306,697

Real estate loans to related parties, net
 
30,273,403

 
24,924,976

Total real estate and real estate loans, net
 
711,979,332

 
623,319,150

 
 
 
 
 
Cash and cash equivalents
 
7,614,793

 
3,113,270

Restricted cash
 
4,682,937

 
4,707,865

Notes receivable
 
9,908,893

 
14,543,638

Note receivable and revolving line of credit from related party
 
15,807,114

 
14,153,922

Accrued interest receivable on real estate loans
 
8,855,896

 
8,038,447

Acquired intangible assets, net of amortization of $19,470,022 and $17,030,176
 
11,629,424

 
12,702,980

Deferred loan costs, net of amortization of $1,966,396 and $1,618,858
 
5,500,930

 
5,107,068

Deferred offering costs
 
5,981,954

 
6,333,763

Tenant receivables (net of allowance of $187,621 and $103,452) and other assets
 
6,904,984

 
4,390,309

 
 
 
 
 
Total assets
 
$
788,866,257

 
$
696,410,412

 
 
 
 
 
Liabilities and equity
 

 
 
 
 
 
 
 
Liabilities
 
 
 
 
Mortgage notes payable
 
$
404,525,906

 
$
354,418,668

Revolving line of credit
 

 
24,500,000

Term loan
 
19,000,000

 

Real estate loan participation obligation
 
11,314,528

 
7,990,798

Accounts payable and accrued expenses
 
5,423,293

 
4,941,703

Accrued interest payable
 
1,154,157

 
1,116,750

Dividends and partnership distributions payable
 
5,041,220

 
4,623,246

Acquired below market lease intangibles, net of amortization of $842,212 and $660,259
 
5,710,683

 
5,935,931

Security deposits and other liabilities
 
1,604,063

 
1,301,442

Total liabilities
 
453,773,850

 
404,828,538

 
 
 
 
 
Commitments and contingencies (Note 12)
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
Stockholders' equity
 
 
 
 
Series A Redeemable Preferred Stock, $0.01 par value per share; 989,408 shares authorized;
 
 
 
 
244,812 and 193,334 shares issued; 243,887 and 192,846 shares
 
 
 
 
 outstanding at March 31, 2015 and December 31, 2014, respectively
 
2,439

 
1,928

Common Stock, $0.01 par value per share; 400,066,666 shares authorized;
 
 
 
 
22,131,190 and 21,403,987 shares issued and outstanding
 
 
 
 
at March 31, 2015 and December 31, 2014, respectively
 
221,312

 
214,039

Additional paid in capital
 
345,307,073

 
300,576,349

Accumulated deficit
 
(12,053,082
)
 
(11,297,852
)
Total stockholders' equity
 
333,477,742

 
289,494,464

Non-controlling interest
 
1,614,665

 
2,087,410

Total equity
 
335,092,407

 
291,581,874

 
 
 
 
 
Total liabilities and equity
 
$
788,866,257

 
$
696,410,412


The accompanying notes are an integral part of these consolidated financial statements.
1




Preferred Apartment Communities, Inc.
Consolidated Statements of Operations
(Unaudited)
 
 
 
 
 
 
 
Three months ended March 31,
 
 
2015
 
2014
Revenues:
 
 
 
 
Rental revenues
 
$
13,141,120

 
$
5,869,291

Other property revenues
 
1,969,767

 
645,042

Interest income on loans and notes receivable
 
4,875,086

 
4,293,442

Interest income from related party
 
1,358,542

 
432,307

Total revenues
 
21,344,515

 
11,240,082

 
 
 
 
 
Operating expenses:
 
 
 
 
Property operating and maintenance
 
2,079,359

 
912,549

Property salary and benefits reimbursement to related party
 
1,117,573

 
625,261

Property management fees (including $480,051 and $258,121 to related parties)
 
570,406

 
262,121

Real estate taxes
 
2,076,677

 
659,049

General and administrative
 
458,204

 
188,839

Equity compensation to directors and executives
 
590,308

 
444,222

Depreciation and amortization
 
7,945,428

 
2,308,526

Acquisition and pursuit costs (including $47,005 and $0 to related party)
 
423,592

 
188,031

Acquisition fees to related parties
 
760,300

 
57,268

Asset management fees to related party
 
1,350,890

 
688,749

Insurance, professional fees and other expenses
 
705,552

 
393,971

Total operating expenses
 
18,078,289

 
6,728,586

 
 
 
 
 
Asset management and general and administrative expense fees deferred
 
(345,960
)
 

 
 
 
 
 
Net operating expenses
 
17,732,329

 
6,728,586

 
 
 
 
 
Operating income
 
3,612,186

 
4,511,496

Interest expense
 
4,377,115

 
1,715,651

 
 
 
 
 
Net (loss) income
 
(764,929
)
 
2,795,845

 
 
 
 
 
Consolidated net loss (income) attributable to non-controlling interests
 
9,699

 
(38,862
)
 
 
 
 
 
Net (loss) income attributable to the Company
 
(755,230
)
 
2,756,983

 
 
 
 
 
Dividends declared to Series A preferred stockholders
 
(3,172,897
)
 
(1,420,536
)
Earnings attributable to unvested restricted stock
 
(6,863
)
 
(4,678
)
 
 
 
 
 
Net (loss) income attributable to common stockholders
 
$
(3,934,990
)
 
$
1,331,769

 
 
 
 
 
Net (loss) income per share of Common Stock available to common stockholders:
 
 
 
 
Basic
 
$
(0.18
)
 
$
0.09

Diluted
 
$
(0.18
)
 
$
0.09

 
 
 
 
 
Dividends per share declared on Common Stock
 
$
0.175

 
$
0.16

 
 
 
 
 
Weighted average number of shares of Common Stock outstanding:
 
 
 
 
Basic
 
21,813,974

 
15,316,816

Diluted
 
21,813,974

 
15,562,608


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





Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity
For the three months ended March 31, 2015 and 2014
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A Redeemable Preferred Stock
 
Common Stock
 
Additional Paid in Capital
 
Accumulated (Deficit)
 
Total Stockholders' Equity
 
Non-Controlling Interest
 
Total Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
 
$
893

 
$
152,945

 
$
177,824,720

 
$
(13,391,341
)
 
$
164,587,217

 
$
1,465,502

 
$
166,052,719

Issuance of Units
 
122

 

 
12,157,658

 

 
12,157,780

 

 
12,157,780

Syndication and offering costs
 

 

 
(1,394,971
)
 

 
(1,394,971
)
 

 
(1,394,971
)
Equity compensation to executives and directors
 

 
22

 
82,265

 

 
82,287

 

 
82,287

Conversion of Class A Units to Common Stock
 

 
941

 
504,540

 

 
505,481

 
(505,481
)
 

Current period amortization of Class B Units
 

 

 

 

 

 
361,936

 
361,936

Net income
 

 

 

 
2,756,983

 
2,756,983

 
38,862

 
2,795,845

Reallocation adjustment to non-controlling interests
 

 

 
211,720

 

 
211,720

 
(211,720
)
 

Distributions to non-controlling interests
 

 

 

 

 

 
(36,552
)
 
(36,552
)
Dividends to series A preferred stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($5.00 per share per month)
 

 

 
(1,420,536
)
 

 
(1,420,536
)
 

 
(1,420,536
)
Dividends to common stockholders ($0.16 per share)
 

 

 
(2,453,769
)
 

 
(2,453,769
)
 

 
(2,453,769
)
Balance at March 31, 2014
 
$
1,015

 
$
153,908

 
$
185,511,627

 
$
(10,634,358
)
 
$
175,032,192

 
$
1,112,547

 
$
176,144,739

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
 
$
1,928

 
$
214,039

 
$
300,576,349

 
$
(11,297,852
)
 
$
289,494,464

 
$
2,087,410

 
$
291,581,874

Issuance of Units
 
515

 

 
51,468,556

 

 
51,469,071

 

 
51,469,071

Redemptions of Units
 
(4
)
 
342

 
(51,279
)
 

 
(50,941
)
 

 
(50,941
)
Issuance of Common Stock
 

 
5,479

 
5,487,828

 

 
5,493,307

 

 
5,493,307

Exercises of warrants
 

 
392

 
115,964

 

 
116,356

 

 
116,356

Syndication and offering costs
 

 

 
(6,269,925
)
 

 
(6,269,925
)
 

 
(6,269,925
)
Equity compensation to executives and directors
 

 
18

 
98,382

 

 
98,400

 

 
98,400

Conversion of Class A Units to Common Stock
 

 
1,042

 
695,050

 

 
696,092

 
(696,092
)
 

Current period amortization of Class B Units
 

 

 

 

 

 
491,908

 
491,908

Net loss
 

 

 

 
(755,230
)
 
(755,230
)
 
(9,699
)
 
(764,929
)
Reallocation adjustment to non-controlling interests
 

 

 
209,799

 

 
209,799

 
(209,799
)
 

Distributions to non-controlling interests
 

 

 

 

 

 
(49,063
)
 
(49,063
)
Dividends to series A preferred stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($5.00 per share per month)
 

 

 
(3,172,897
)
 

 
(3,172,897
)
 

 
(3,172,897
)
Dividends to common stockholders ($0.175 per share)
 

 

 
(3,850,754
)
 

 
(3,850,754
)
 

 
(3,850,754
)
Balance at March 31, 2015
 
$
2,439

 
$
221,312

 
$
345,307,073

 
$
(12,053,082
)
 
$
333,477,742

 
$
1,614,665

 
$
335,092,407



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



Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
Three months ended March 31,
 
 
2015
 
2014
Operating activities:
 
 
 
 
Net (loss) income
 
$
(764,929
)
 
$
2,795,845

Reconciliation of net (loss) income to net cash provided by operating activities:
 
 
 
 
Depreciation expense
 
5,340,425

 
1,894,411

Amortization expense
 
2,605,003

 
414,115

Amortization of above and below market leases
 
(183,431
)
 
(5,723
)
Deferred fee income amortization
 
(158,817
)
 
(308,608
)
Deferred loan cost amortization
 
347,538

 
140,658

(Increase) in accrued interest income on real estate loans
 
(817,449
)
 
(972,181
)
Equity compensation to executives and directors
 
590,308

 
444,222

Deferred cable income amortization
 
(4,936
)
 
(2,734
)
Changes in operating assets and liabilities:
 
 
 
 
Decrease in tenant receivables and other assets
 
279,136

 
307,425

Increase in accounts payable and accrued expenses
 
257,372

 
356,039

Increase (decrease) in accrued interest payable
 
37,407

 
(95,083
)
Increase (decrease) in prepaid rents
 
193,338

 
(44,790
)
Increase in security deposits and other liabilities
 
15,038

 
185,170

Net cash provided by operating activities
 
7,736,003

 
5,108,766

 
 
 
 
 
Investing activities:
 
 
 
 
Investments in real estate loans
 
(24,279,317
)
 
(4,880,179
)
Repayments of real estate loans
 
5,206,045

 
520,009

Notes receivable issued
 
(2,554,590
)
 
(1,175,905
)
Notes receivable repaid
 
7,195,294

 
164,743

Note receivable issued to and draws on line of credit by related party
 
(3,880,139
)
 
(3,311,611
)
Repayments of line of credit by related party
 
2,097,135

 
771,449

Acquisition fees received on real estate loans
 
439,428

 
21,576

Acquisition fees paid on real estate loans
 
(219,714
)
 
(10,788
)
Acquisition fees paid to real estate loan participants
 
(24,665
)
 

Acquisition of properties
 
(76,230,876
)
 
(5,701,393
)
Additions to real estate assets - improvements
 
(466,840
)
 
(299,765
)
Payment of deposits for property acquisitions
 
(541,475
)
 

Decrease (increase) in restricted cash
 
387,260

 
(150,961
)
Net cash used in investing activities
 
(92,872,454
)
 
(14,052,825
)
 
 
 
 
 
Financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
50,778,000

 
13,357,000

Payments for mortgage debt
 
(670,762
)
 
(13,000,000
)
Payments for deposits and other mortgage loan costs
 
(830,311
)
 
(415,241
)
Proceeds from real estate loan participants
 
3,215,801

 

Proceeds from lines of credit
 
14,400,000

 
3,700,001

Payments on lines of credit
 
(38,900,000
)
 
(1,082,220
)
Proceeds from Term Loan
 
32,000,000

 

Repayment of the Term Loan
 
(13,000,000
)
 

Proceeds from sales of Units, net of offering costs and redemptions
 
44,370,963

 
10,954,492

Proceeds from sales of Common Stock
 
5,381,848

 

Common Stock dividends paid
 
(3,697,436
)
 
(2,451,697
)
Series A Preferred Stock dividends paid
 
(2,931,927
)
 
(1,354,344
)
Distributions to non-controlling interests
 
(25,377
)
 
(17,118
)
Payments for deferred offering costs
 
(452,825
)
 
(817,832
)
Net cash provided by financing activities
 
89,637,974

 
8,873,041

 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
4,501,523

 
(71,018
)
Cash and cash equivalents, beginning of period
 
3,113,270

 
9,180,431

Cash and cash equivalents, end of period
 
$
7,614,793

 
$
9,109,413

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.
4



 
 
 
 
 
Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continued
(Unaudited)
 
 
 
 
 
Three months ended March 31,
 
 
2015
 
2014
Supplemental cash flow information:
 
 
 
 
Cash paid for interest
 
$
3,992,132

 
$
1,670,075

 
 
 
 
 
Supplemental disclosure of non-cash activities:
 
 
 
 
Accrued capital expenditures
 
$
109,603

 
$
113,377

Writeoff of fully depreciated or amortized assets and liabilities
 
$
170,332

 
$

Dividends payable - Common Stock
 
$
3,850,754

 
$
2,453,769

Dividends payable - Series A Preferred Stock
 
$
1,141,403

 
$
497,855

Partnership distributions payable to non-controlling interests
 
$
49,063

 
$
36,552

Accrued and payable deferred offering costs
 
$
518,162

 
$
478,671

Reclass of offering costs from deferred asset to equity
 
$
985,679

 
$
154,211

Fair value issuances of equity compensation
 
$
1,965,549

 
$
1,458,402

Offering cost reimbursement to related party
 
$
132,354

 
$
103,670



The accompanying notes are an integral part of these consolidated financial statements.
5


Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements
March 31, 2015



1.
Organization and Basis of Presentation

Preferred Apartment Communities, Inc. was formed as a Maryland corporation on September 18, 2009, and elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, effective with its tax year ended December 31, 2011. Unless the context otherwise requires, references to the "Company", "we", "us", or "our" refer to Preferred Apartment Communities, Inc., together with its consolidated subsidiaries, including Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership. The Company was formed primarily to acquire and operate multifamily properties in select targeted markets throughout the United States. As part of its business strategy, the Company may enter into forward purchase contracts or purchase options for to-be-built multifamily communities and may make mezzanine loans, provide deposit arrangements, or provide performance assurances, as may be necessary or appropriate, in connection with the development of multifamily communities and other properties. As a secondary strategy, the Company also may acquire or originate senior mortgage loans, subordinate loans or mezzanine debt secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest not more than 20% of its assets in other real estate related investments such as owned grocery-anchored necessity retail properties, senior mortgage loans, subordinate loans or mezzanine debt secured by interests in grocery-anchored necessity retail properties, membership or partnership interests in grocery-anchored necessity retail properties and other grocery-anchored necessity retail related assets as determined by its Manager (as defined below) as appropriate for the Company. The Company is externally managed and advised by Preferred Apartment Advisors, LLC, or its Manager, a Delaware limited liability company and related party (see Note 7).

As of December 31, 2013, pursuant to the approval of the investment committee of the Manager, the Company entered into an exclusive marketing agreement with an outside firm to market for sale the combined phases of its Trail Creek multifamily community (Trail I and Trail II). The operating results of the community were classified as held for sale at December 31, 2013 and March 31, 2014. On June 20, 2014, again pursuant to approval of the investment committee of the Manager, the Company removed the Trail Creek community from held for sale classification. The Company's results of operations for the three month period ended March 31, 2014 have been restated to reflect the removal of Trail Creek from held for sale classification.

As of March 31, 2015, the Company had 22,131,190 shares of common stock, par value $0.01 per share, or Common Stock, issued and outstanding and owned units in the Operating Partnership which represented a weighted-average ownership percentage of 98.7% for the three-month period ended March 31, 2015. The number of partnership units not owned by the Company totaled 280,360 at March 31, 2015 and represented Class A Units of the Operating Partnership, or Class A Units. The Class A Units are convertible at any time at the option of the holder into the Company'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 conducts substantially all of its business through the Operating Partnership. New Market Properties, LLC, a wholly-owned subsidiary of the Operating Partnership, owns and conducts the business of the Company's grocery-anchored necessity retail properties.

Basis of Presentation

These unaudited 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. The year end condensed balance sheet data was derived from audited financial statements, but does not include all the disclosures required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 16, 2015.
    

6

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
March 31, 2015


2.
Summary of Significant Accounting Policies

Acquisitions and Impairments of Real Estate Assets

The Company generally records its initial investments in income-producing real estate at fair value at the acquisition date in accordance with ASC 805-10, Business Combinations. The aggregate purchase price of acquired properties is apportioned to the tangible and identifiable intangible assets and liabilities acquired at their estimated fair values. The value of acquired land, buildings and improvements is estimated by formal appraisals, observed comparable sales transactions, and information gathered during pre-acquisition due diligence activities and the valuation approach considers the value of the property as if it were vacant. 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. Intangible assets and liabilities for multifamily communities include the values of in-place leases, customer relationships, and above-market or below-market leases. Additional intangible assets for retail properties also include costs to initiate leases such as commissions and legal costs.

In-place lease values for multifamily communities are estimated by calculating the estimated time to fill a hypothetically empty apartment complex to its stabilization level (estimated to be 92% 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 to operating expense over the average remaining non-cancelable term of the respective in-place leases. The amounts of above-market or below-market lease values are developed by comparing the Company's estimate of the average market rent to the average contract rent of the leases in place at the property acquisition date. This ratio is applied on a lease by lease basis to derive a total asset or liability amount for the property. The above-market or below-market lease values are recorded as a reduction or increase, respectively, to rental revenue over the remaining average non-cancelable term of the respective leases, plus any below market probable renewal options.

The fair values of in-place leases for retail shopping centers 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 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. 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, plus any below market probable renewal options.
Intangible assets also include the value of customer relationships, which represent the value inherent in the relationships with existing lessees, quantified by management's estimate of the average likelihood of lease renewal. Customer relationships are amortized on a straight-line basis over the average remaining non-cancelable term of in place leases, plus an estimated renewal period.
Estimating the fair values of the tangible and intangible assets requires us to estimate market lease rates, property operating expenses, carrying costs during lease-up periods, discount and capitalization rates, market absorption periods, and the number of years the property is held for investment. The use of unreasonable estimates would result in an incorrect assessment of our purchase price allocations, which would impact the amount of our reported net income. Acquired intangible assets and liabilities have no residual value.

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. The total undiscounted cash flows of the asset group, including proceeds

7

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
March 31, 2015


from disposition, are compared to the net book value of the asset group. If this test indicates that impairment exists, an impairment loss is recorded in earnings equal to the shortage of the book value to the discounted net cash flows of the asset group.

Loans and Notes Held for Investment

The Company carries its investments in real estate loans at amortized cost with assessments made for impairment in the event recoverability of the principal amount becomes doubtful. If, upon testing for impairment, the fair value result is lower than the carrying amount of the loan, a valuation allowance is recorded to lower the carrying amount to fair value, with a loss recorded in earnings. Recoveries of valuation allowances are only recognized in the event of maturity or a sale or disposition in an amount above carrying value. The balances of real estate loans presented on the consolidated balance sheets consist of drawn amounts on the loans, net of deferred loan fee revenue. See the "Revenue Recognition" section of this Note for other loan-related policy disclosures required by ASC 310-10-50-6. Certain loans contain contingent exit fees, which are deemed to be embedded derivatives. The Company elects the fair value option for these loans and recognizes in earnings any material changes in fair value.

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. Our ongoing offering of up to a maximum of 900,000 units, consisting of one share of Series A Redeemable Preferred Stock, or Series A Preferred Stock, and one warrant, or Warrant, to purchase 20 shares of Common Stock, or Units, generally closes on a bimonthly basis in variable amounts. Such offering is referred to herein as the Follow-on Offering, pursuant to our registration statement on Form S-3 (registration number 333-183355), as may be amended from time to time. Deferred offering costs related to the Follow-on Offering and Shelf Offering (as defined in Note 6) 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 Units or value of shares issued to the maximum number of Units, or the value of shares, as applicable, that are expected to be issued.

Revenue Recognition

Rental revenue is recognized when earned from residents of the Company's multifamily communities, which is over the terms of rental agreements, typically of 13 months’ duration. Differences from the straight-line method, which recognize the effect of any up-front concessions and other adjustments ratably over the lease term, are not material. The Company evaluates the collectability of amounts due from residents and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of residents to make required payments then due under lease agreements. The balance of amounts due from residents are generally deemed uncollectible 30 days beyond the due date, at which point they are fully reserved.

Rental revenue from tenants' operating leases in the Company's retail shopping centers is recognized on a straight-line basis over the term of the lease regardless of when payments are due. 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 are recognized in the period in which the related expenses are incurred. 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 estimates 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 may provide retail tenants an allowance for the construction of leasehold improvements. These leasehold improvements are capitalized and depreciated over the shorter of the useful life of the improvements or the remaining lease term. If the allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of minimum rent. 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

8

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
March 31, 2015


of the leasehold improvements, recognition of lease 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.

Interest income on real estate loans and notes receivable is recognized on an accrual basis over the lives of the loans or notes using the effective interest rate method. 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 over the term of the new loan. Direct loan origination fees and origination or acquisition costs applicable to real estate loans are amortized over the lives of the loans as adjustments to interest income. The accrual of interest on all these instruments ceases when there is concern as to the ultimate collection of principal or interest, 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 when the payments are received. Real estate loan assets are reclassified as accrual-basis once interest and principal payments become current. Certain real estate loan assets include limited purchase options and either exit fees or additional amounts of accrued interest. Exit fees will be treated as additional consideration for the acquired project if the Company purchases the subject property. Additional accrued interest becomes due in cash to the Company on the earliest to occur of: (i) the maturity of the loan, (ii) any uncured event of default as defined in the associated loan agreement, (iii) the sale of the project or the refinancing of the loan (other than a refinancing loan by the Company or one of its affiliates) and (iv) any other repayment of the loan.

Promotional fees received from service providers at the Company’s properties are deferred and recognized on a straight-line basis over the term of the agreement.

The PAC Rewards program allows residents in the Company's multifamily communities to accumulate reward points on a monthly basis for actions such as resident referrals and making rent payments online. Once a property has been enrolled on the program, a resident must rent an apartment from the Company for at least 14 months before reward points may be redeemed for services or upgrades to a resident’s unit. The Company accrues a liability for the estimated cost of these future point redemptions, net of a 35% breakage fee, which is the Company’s current estimate of rewards points that will not be redeemed. In accordance with Staff Accounting Bulletin 13.A.3c, the Company deems its obligations under PAC Rewards as inconsequential to the delivery of services according to the lease terms. Therefore, the expense related to the PAC Rewards Program is included in property operating and maintenance expense on the consolidated statements of operations.
    
Discontinued Operations

The Company evaluates all disposal groups for held-for-sale classification for which such disposal represents (or will represent) a strategic shift which will have a significant effect on the Company's results or operations and financial results. See discussion of the Company's adoption of ASU 2014-8 below.

New Accounting Pronouncements    
In April 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2014-08 (“ASU 2014-08”), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Under this new guidance, a disposal of a component of an entity or a group of components of an entity shall only be reported in discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. ASU 2014-08 is to be applied prospectively for annual and interim periods beginning on or after December 31, 2014, with early adoption permitted. The Company adopted ASU 2014-8 on January 1, 2015. Early adoption was not permitted for assets that had previously been reported as held for sale in the consolidated financial statements. Therefore, application of this new guidance was not permitted for the Company’s Trail Creek multifamily community, which was reported as held for sale in the Company’s Annual Report on Form 10-K for the twelve-month period ended December 31, 2013 and in the Company's Quarterly Report on Form 10-Q for the three-month period ended March 31, 2014. The Company does not expect the adoption of this guidance to materially impact its financial position or results of operations.

In May 2014, the FASB issued Accounting Standards Update 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a single comprehensive revenue recognition model for contracts with customers (excluding certain contracts, such as lease contracts) to improve comparability within industries. ASU 2014-09 requires an entity to recognize revenue to reflect the transfer of goods or services to customers at an amount the entity expects to be paid in exchange for those goods and services and provide enhanced disclosures, all to provide more comprehensive guidance for transactions such as service revenue and contract modifications. ASU 2014-09 is currently effective for interim and annual periods beginning after December

9

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
March 31, 2015


15, 2016, but the FASB is currently deliberating a delay in the effective date until annual periods beginning after December 15, 2017. ASU 2014-09 may be applied using either a full retrospective or a modified approach upon adoption. The Company is currently evaluating the impact this standard may have on its financial statements.

In August 2014, the FASB issued Accounting Standards Update 2014-15 (“ASU 2014-15”), Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This new guidance requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures.  ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter, early adoption is permitted.  The Company is currently in the process of evaluating the impact the adoption of ASU 2014-15 will have on its financial statements.

In February 2015, the FASB issued Accounting Standards Update 2015-02 ("ASU 2015-02"), Consolidation (Topic 810): Amendments to the Consolidation Analysis. This new guidance specifically eliminates the presumption in the current voting model that a general partner controls a limited partnership or similar entity unless that presumption can be overcome. Generally, only a single limited partner that is able to exercise substantive kick-out rights will be required to consolidate the limited partnership. ASU 2015-02 is effective on January 1, 2016 and early adoption is permitted, including adoption in an interim period. The new standard must be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity/capital as of the beginning of the period of adoption or retrospectively to each period presented. The Company has not yet selected a transition method and is currently in the process of evaluating the impact the adoption of ASU 2014-15 will have on its financial statements.

In April 2015, the FASB issued Accounting Standards Update 2015-03 ("ASU 2015-03"), Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This new guidance requires the presentation of unamortized debt issuance costs to be shown in the liabilities section of the consolidated balance sheets as a reduction of the principal amount of the associated debt, rather than as an asset. ASU 2015-03 is effective on January 1, 2016 and early adoption is permitted, including adoption in an interim period. The new standard must be applied using a retrospective approach by restating prior period comparative consolidated balance sheets. The Company does not expect the adoption of ASU 2015-03 to materially impact its financial position or results of operations.

3. Real Estate Assets
The Company's real estate assets consisted of twelve multifamily communities with 3,846 total units and ten grocery-anchored necessity retail shopping centers with approximately 694,000 square feet of gross leasable area at March 31, 2015; at March 31, 2014, the Company owned six multifamily communities with 1,929 total units and one grocery-anchored necessity retail shopping center with approximately 66,000 square feet of gross leasable area.

On February 13, 2015, the Company completed the acquisition of the following multifamily communities, referred to collectively as the Houston Portfolio, for approximately $76.0 million, an amount which approximated the fair value of the acquired assets and assumed liabilities:
Seller
 
Property
 
Location
 
Units
Villas Fairfield Partners, LLC
 
Avenues at Cypress
 
Houston, Texas
 
240

Northpointe Investors, LLC
 
Avenues at Northpointe
 
Houston, Texas
 
280

 
 
 
 
 
 
 
 
 
 
 
 
 
520




10

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
March 31, 2015


The Company allocated the purchase price 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, but is preliminary and is subject to refinement for a period of up to one year from the closing of the acquisition.
 
 
 
Total Houston Portfolio
Land
 
$
7,162,226

Buildings and improvements
 
54,217,075

Furniture, fixtures and equipment
 
13,078,872

Lease intangibles
 
1,571,827

Prepaids & other assets
 
150,326

Escrows
 
362,332

Accrued taxes
 
(212,601
)
Security deposits, prepaid rents, and other liabilities
 
(99,181
)
 
 
 
Net assets acquired
 
$
76,230,876

 
 
 
Cash paid
 
$
25,452,876

Mortgage debt
 
50,778,000

 
 
 
Total consideration
 
$
76,230,876


Since the acquisition date of February 13, 2015, the Houston Portfolio contributed approximately $932,000 of revenue and $609,000 of net loss (primarily due to the incurrence of amortization expense related to intangible assets) to the Company's consolidated results for the three-month period ended March 31, 2015. The Company expensed acquisition costs of approximately $1,100,000 in conjunction with the Houston Portfolio acquisition. As of March 31, 2015, the weighted average remaining amortization period for the Houston Portfolio's intangible assets and liabilities is less than one year.

On February 12, 2014, the Company completed the acquisition of a grocery-anchored necessity retail shopping center in Atlanta, Georgia, with 66,122 square feet of gross leasable area, or Woodstock Crossing, for approximately $5.7 million, which approximated the fair value of the acquired assets and assumed liabilities. The Company allocated the purchase price to the acquired assets and liabilities based upon their fair values, as shown in the following table.
 
 
Woodstock Crossing
Land
 
$
1,750,576

Buildings and improvements
 
3,760,654

Escrow fund for improvements
 
226,830

Tenant improvements
 
39,447

In-place leases
 
245,850

Above market leases
 
30,051

Leasing costs
 
123,731

Below market leases
 
(450,310
)
Other liabilities
 
(25,436
)
 
 
 
Net assets acquired
 
$
5,701,393

 
 
 
Cash paid
 
$
5,701,393


Woodstock Crossing contributed approximately $89,000 of revenue and approximately $37,000 of net income to the Company's consolidated results from the acquisition date of February 12, 2014 through March 31, 2014. The Company expensed acquisition costs of $228,046 in conjunction with the Woodstock Crossing acquisition.

11

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
March 31, 2015



Amortization and depreciation expense consisted of:
 
 
Three months ended March 31,
 
 
2015
 
2014
Depreciation:
 
 
 
 
Buildings and improvements
 
$
3,225,298

 
$
942,746

Furniture, fixtures, and equipment
 
2,115,127

 
951,665

 
 
5,340,425

 
1,894,411

Amortization:
 
 
 
 
Acquired intangible assets
 
2,603,813

 
412,924

Website development costs
 
1,190

 
1,191

Total depreciation and amortization
 
$
7,945,428

 
$
2,308,526



4. Acquired Intangible Assets and Liabilities

The Company recorded the following acquired lease intangible assets and liabilities and related accumulated amortization, as of
March 31, 2015 and December 31, 2014:
 
March 31, 2015
 
December 31, 2014
 
Multifamily
 
Retail
 
Total
 
Multifamily
 
Retail
 
Total
In-place leases
$
17,408,851

 
$
9,023,120

 
$
26,431,971

 
$
15,837,024

 
$
9,221,651

 
$
25,058,675

Above-market leases

 
479,298

 
479,298

 

 
479,883

 
479,883

Customer relationships
1,588,277

 

 
1,588,277

 
1,588,277

 

 
1,588,277

Lease origination costs

 
2,599,900

 
2,599,900

 

 
2,606,321

 
2,606,321

  Acquired intangible assets
$
18,997,128

 
$
12,102,318

 
$
31,099,446

 
$
17,425,301

 
$
12,307,855

 
$
29,733,156

 
 
 
 
 
 
 
 
 
 
 
 
Less accumulated amortization of:
 
 
 
 
 
 
 
 
 
 
 
In-place leases
$
(16,229,981
)
 
$
(1,300,475
)
 
$
(17,530,456
)
 
$
(14,351,922
)
 
$
(892,714
)
 
$
(15,244,636
)
Above market leases

 
(91,028
)
 
(91,028
)
 

 
(49,795
)
 
(49,795
)
Customer relationships
(1,588,277
)
 

 
(1,588,277
)
 
(1,588,277
)
 

 
(1,588,277
)
Lease origination costs

 
(260,261
)
 
(260,261
)
 

 
(147,468
)
 
(147,468
)
Acquired intangible assets, net
$
1,178,870

 
$
10,450,554

 
$
11,629,424

 
$
1,485,102

 
$
11,217,878

 
$
12,702,980

 
 
 
 
 
 
 
 
 
 
 
 
Below market lease liability
$
383,593

 
$
6,169,302

 
$
6,552,895

 
$
383,593

 
$
6,212,597

 
$
6,596,190

Less: accumulated amortization
(383,593
)
 
(458,619
)
 
(842,212
)
 
(383,593
)
 
(276,666
)
 
(660,259
)
Below market lease liability, net
$

 
$
5,710,683

 
$
5,710,683

 
$

 
$
5,935,931

 
$
5,935,931




12

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
March 31, 2015



The net below market lease intangible liability balances are included in the acquired below market lease intangibles line and the acquired intangible assets line of the consolidated balance sheets as of March 31, 2015 and December 31, 2014, respectively. The Company recognized amortization of acquired intangible assets and liabilities for the three-month periods ended March 31, 2015 and 2014 as follows:
 
Three months ended March 31,
 
2015
 
2014
Amortization expense
Multifamily
 
Retail
 
Total
 
Multifamily
 
Retail
 
Total
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Leases in place
$
1,878,059

 
$
606,292

 
$
2,484,351

 
$
361,231

 
$
9,520

 
$
370,751

Above-market leases (1)

 
41,817

 
41,817

 

 
577

 
577

Customer relationships

 

 

 
39,270

 
2,903

 
$
42,173

Lease origination costs

 
119,214

 
119,214

 

 

 

 
$
1,878,059

 
$
767,323

 
$
2,645,382

 
$
400,501

 
$
13,000

 
$
413,501

Intangible liabilities:
 
 
 
 
 
 
 
 
 
 
 
Below-market leases (1)
$

 
$
225,248

 
$
225,248

 
$

 
$
6,300

 
$
6,300

 
 
 
 
 
 
 
 
 
 
 
 
(1) Amortization of above and below market lease intangibles are recorded as a decrease and an increase to rental revenue, respectively.


13

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
March 31, 2015


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

At March 31, 2015, our portfolio of real estate loans consisted of:
 
Project/Property
 
Location
 
Date of loan
 
Maturity date
 
Optional extension date
 
Total loan commitments
 
Senior loans held by unrelated third parties
 
Current / deferred interest % per annum
 
 
(1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crosstown Walk
 
Tampa, FL
 
4/30/2013
 
11/1/2016
 
5/1/2018
 
$
10,962,000

 
$
25,900,000

 
8 / 6
(2) 
 
CityPark View
 
Charlotte, NC
 
9/6/2012
 
9/5/2017
 
N/A
 
10,000,000

 
$
18,600,000

 
8 / 6
(2) 
 
City Vista
 
Pittsburgh, PA
 
8/31/2012
 
6/1/2016
 
7/1/2017
 
14,147,515

 
$
28,400,000

 
8 / 6
(2) 
 
Aster at Lely
 
Naples, FL
 
3/28/2013
 
2/28/2016
 
2/28/2018
 
12,713,242

 
$
25,000,000

 
8 / 6
(2) 
 
Overton Rise
 
Atlanta, GA
 
5/8/2013
 
11/1/2016
 
5/1/2018
 
16,600,000

 
$
31,700,000

 
8 / 6
(2) 
 
Haven West
 
Atlanta, GA (3, 4)
 
7/15/2013
 
6/2/2016
 
6/2/2018
 
6,940,795

 
$
16,195,189

 
8 / 6
(2) 
 
Haven 12
 
Starkville, MS (4, 5)
 
6/16/2014
 
11/30/2015
 
6/16/2017
 
6,116,384

 
$
18,615,081

 
8.5 / 5.5
(6) 
 
Founders' Village
 
Williamsburg, VA
 
8/29/2013
 
8/29/2018
 
N/A
 
10,346,000

 
$
26,936,000

 
8 / 6
(6) 
 
Encore
 
Atlanta, GA (7)
 
11/18/2013
 
5/15/2015
 
N/A
 
16,026,525

 
N/A

 
8.5
 
 
Palisades
 
Northern VA
 
8/18/2014
 
2/18/2018
 
8/18/2019
 
17,270,000

 
$
38,000,000

 
8 / 5
(6) 
 
Fusion
 
Irvine, CA (7)
 
12/18/2013
 
5/31/2015
 
N/A
 
23,000,000

 
N/A

 
8.5 / 4.3
(6) 
 
Green Park
 
Atlanta, GA
 
12/1/2014
 
12/1/2017
 
12/1/2019
 
13,464,372

 
$
27,775,000

 
8.5 / 4.33
(6) 
 
Stadium Village
 
Atlanta, GA (4, 8) 
 
6/27/2014
 
6/27/2017
 
N/A
 
13,424,995

 
$
34,825,000

 
8.5 / 4.33
(6) 
 
Summit Crossing III
Atlanta, GA
 
2/27/2015
 
2/26/2018
 
2/26/2020
 
7,246,400

 
$
16,822,000

 
8.5 / 5
(6) 
 
Crosstown Walk II
Tampa, FL (9)
 
11/4/2014
 
6/30/2015
 
N/A
 
2,240,000

 
N/A

 
8.5 / 4.33
(6) 
 
Aldridge at Town Village
Atlanta, GA
 
1/27/2015
 
12/27/2017
 
12/27/2019
 
10,975,000

 
$
28,338,937

 
8.5 / 5
(6) 
 
Haven Lubbock
 
Lubbock, TX (4, 10)
 
1/15/2015
 
4/14/2015
 
N/A
 
4,950,000

 
 N/A

 
8.5 / 4.33
(6) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
196,423,228

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) 
All loans are mezzanine loans pertaining to developments of multifamily communities, except as otherwise indicated. The borrowers for each of these projects are as follows: "Crosstown Walk" - Iris Crosstown Partners LLC; "CityPark View" - Oxford City Park Development LLC; "City Vista" - Oxford City Vista Development LLC; "Aster at Lely" - Lely Apartments LLC; "Overton Rise" - Newport Overton Holdings, LLC; "Haven West" - Haven Campus Communities Member, LLC; "Haven 12" - Haven Campus Communities - Starkville, LLC; "Founders' Village" - Oxford NTW Apartments LLC; "Encore" - GP - RV Land I, LLC; "Palisades" - Oxford Palisades Apartments LLC; "Fusion" - 360 - Irvine, LLC; "Green Park" - Weems Road Property Owner, LLC; "Stadium Village" - Haven Campus Communities - Kennesaw, LLC; "Summit Crossing III" - Oxford Forsyth Development, LLC; "Crosstown Walk II" - Iris Crosstown Apartments II, LLC; "Aldridge at Town Village" - Newport Town Village Holdings, LLC and "Haven Lubbock" - Haven Campus Communities Lubbock, LLC.
(2) 
In the event the Company exercises the associated purchase option and acquires the property, any additional accrued interest, if not paid, will be treated as additional consideration for the acquired project.
(3) 
Completed 160-unit 568-bed student housing community adjacent to the campus of the University of West Georgia.
 
(4) 
See note 7 - Related Party Transactions.
 
 
 
(5) 
A planned 152-unit, 536-bed student housing community adjacent to the Mississippi State University campus.
(6) 
Deferred interest becomes due to the Company on the earliest to occur of (i) the maturity date, (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 of the loan by the Company or one of its affiliates) and (iv) any other repayment of the loan.
(7) 
Bridge loan to partially finance the acquisition of land and predevelopment costs for a multifamily community. Upon a sale of the property or refinancing with a third party, the Company would be due a payoff fee of $2.0 million on this loan.
(8) 
Mezzanine loan in support of a planned 198-unit,792-bed student housing community adjacent to the campus of Kennesaw State University.
(9) 
Bridge loan to partially finance the acquisition of land and predevelopment costs for a second phase adjacent to the Crosstown Walk multifamily community development in Tampa, Florida.
(10) 
A planned 217-unit, 732-bed student housing community adjacent to the campus of Texas Tech University. See note 17.

The Palisades, Green Park, Stadium Village and Founders' Village loans are subject to a loan participation agreement with a syndicate of unaffiliated third parties, under which the syndicate is to fund 25% of the loan commitment amount and collectively receive 25% of interest payments and returns of principal.

14

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
March 31, 2015



The Company's real estate loans are 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 borrower. 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. The Encore, Fusion, Crosstown Walk II and Haven Lubbock loans are also collateralized by the acquired land. The Haven West and Stadium Village loans are additionally collateralized by an assignment by the developer of security interests in unrelated projects. Prepayment of the mezzanine loans are permitted in whole, but not in part, without the Company's consent.

Management monitors the credit quality of the obligors under each of the Company's real estate loans by tracking the timeliness of scheduled interest and principal payments relative to the due dates as specified in the loan documents, as well as draw requests on the loans relative to the project budgets. In addition, management monitors the actual progress of development and construction relative to the construction plan, as well as local, regional and national economic conditions that may bear on our current and target markets. The credit quality of the Company’s borrowers is primarily based on their payment history on an individual loan basis, and as such, the Company does not assign quantitative credit value measures or categories to its real estate loans and notes receivable in credit quality categories.
 
 
As of March 31, 2015
 
Carrying amount as of
 
 
Amount drawn
 
Loan Fee received from borrower - 2%
 
Acquisition fee paid to Manager - 1%
 
Unamortized deferred loan fee revenue
 
March 31, 2015
 
December 31, 2014
Project/Property
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crosstown Walk
 
$
10,962,000

 
$
219,240

 
$
109,620

 
$
(24,111
)
 
$
10,937,889

 
$
10,862,615

CityPark View
 
10,000,000

 
200,000

 
100,000

 
(43,015
)
 
9,956,985

 
9,951,728

City Vista
 
14,051,272

 
282,930

 
141,465

 
(53,113
)
 
13,998,159

 
13,708,474

Aster at Lely
 
12,033,668

 
254,265

 
127,133

 
(33,151
)
 
12,000,517

 
12,330,262

Overton Rise
 
16,167,585

 
332,079

 
166,040

 
(62,476
)
 
16,105,109

 
15,773,937

Haven West
 
6,784,167

 
138,816

 
69,408

 
(24,546
)
 
6,759,621

 
6,753,917

Haven 12
 
5,650,904

 
122,328

 
61,164

 
(18,366
)
 
5,632,538

 
5,506,157

Founders' Village (1)
 
9,866,000

 
197,320

 
98,660

 
(32,902
)
 
9,833,098

 
9,804,058

Encore
 
14,115,725

 
320,531

 
160,265

 

 
14,115,725

 
11,966,456

Palisades (1)
 
15,552,413

 
321,400

 
160,700

 
(8,820
)
 
15,543,593

 
14,374,036

Fusion
 
21,536,641

 
460,000

 
230,000

 

 
21,536,641

 
20,313,722

Green Park (1)
 
6,203,700

 
269,287

 
134,644

 
(38,108
)
 
6,165,592

 
4,602,691

Stadium Village (1)
 
12,952,385

 
268,500

 
134,250

 
(13,596
)
 
12,938,789

 
12,664,902

Summit Crossing III
 
4,159,561

 
144,928

 
72,464

 
(58,265
)
 
4,101,296

 
2,393,639

Crosstown Walk II
 
2,240,000

 
44,800

 
22,400

 
(3,661
)
 
2,236,339

 
2,225,079

Aldridge at Town Village
5,557,501

 
219,500

 
109,750

 
(101,636
)
 
5,455,865

 

Haven Lubbock
 
4,950,000

 
99,000

 
49,500

 
(7,545
)
 
4,942,455

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
172,783,522

 
$
3,894,924

 
$
1,947,463

 
$
(523,311
)
 
$
172,260,211

 
$
153,231,673

 
 
 
 
 
 
 
 
 
 
 
 
 
(1) 25% of the net amount collected by the Company as an Acquisition fee was paid to the associated loan participant.

15

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
March 31, 2015


The Company holds options, but not obligations, to purchase certain of the properties which are partially financed by its mezzanine loans, as shown in the table below. The option purchase prices are negotiated at the time of the loan closing.
 
 
Purchase option window
 
Purchase option price
 
Total units upon completion
Project/Property
 
Begin
 
End
 
 
 
 
 
 
 
 
 
 
 
Crosstown Walk
 
7/1/2016
 
12/31/2016
 
$
39,654,273

 
342

CityPark View
 
11/1/2015
 
3/31/2016
 
$
30,945,845

 
284

City Vista
 
2/1/2016
 
5/31/2016
 
$
43,560,271

 
272

Aster at Lely (1)
 
4/1/2016
 
8/30/2016
 
$
43,500,000

 
308

Overton Rise
 
7/8/2016
 
12/8/2016
 
$
51,500,000

 
294

Haven West
 
8/1/2016
 
1/31/2017
 
$
26,138,466

 
160

Haven 12
 
9/1/2016
 
11/30/2016
 
(2) 

 
152

Founders' Village
 
2/1/2016
 
9/15/2016
 
$
44,266,000

 
247

Encore
 
N/A
 
N/A
 
N/A

 
340

Palisades
 
3/1/2017
 
7/31/2017
 
(2) 

 
304

Fusion
 
N/A
 
N/A
 
N/A

 
280

Green Park
 
11/1/2017
 
2/28/2018
 
(2) 

 
310

Stadium Village
 
9/1/2016
 
11/30/2016
 
(2) 

 
198

Summit Crossing III
 
8/1/2017
 
11/30/2017
 
(2) 

 
172

Crosstown Walk II
 
N/A
 
N/A
 
N/A

 
180

Aldridge at Town Village
 
11/1/2017
 
2/28/2018
 
(2) 

 
300

Haven Lubbock (3)
 
N/A
 
N/A
 
N/A

 
217

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4,360

 
 
 
 
 
 
 
 
 
(1) Williams Opportunity Fund, LLC is an equity investor in this project. See note 7.
(2) The purchase price is to be calculated based upon market cap rates at the time of exercise of the purchase
option, with discounts ranging from between 30 and 60 basis points, depending on the loan.
(3) See note 17.

16

Preferred Apartment Communities, Inc.