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EX-32.2 - EXHIBIT 32.2 - PREFERRED APARTMENT COMMUNITIES INCexhibit322apts06302018.htm
EX-32.1 - EXHIBIT 32.1 - PREFERRED APARTMENT COMMUNITIES INCexhibit321apts06302018.htm
EX-31.2 - EXHIBIT 31.2 - PREFERRED APARTMENT COMMUNITIES INCexhibit312apts06302018.htm
EX-31.1 - EXHIBIT 31.1 - PREFERRED APARTMENT COMMUNITIES INCexhibit311apts06302018.htm
EX-12.1 - EXHIBIT 12.1 - PREFERRED APARTMENT COMMUNITIES INCexhibit1206302018.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 June 30, 2018
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
paca18.jpg 


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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨   Accelerated filer x   Non-accelerated filer ¨   Smaller reporting company ¨ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No  x
The number of shares outstanding of the registrant’s Common Stock, as of July 26, 2018 was 40,038,578.




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

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
Item 2.

 
 
 
Item 3.

 
 
 
Item 4.

 
 
 
 
 
 
Item 1.

 
 
 
Item 1A.

 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
69

 
 
 
Item 3.
Defaults Upon Senior Securities
70

 
 
 
Item 4.
Mine Safety Disclosures
70

 
 
 
Item 5.
Other Information
70

 
 
 
Item 6.
Exhibits
70

 
 







Preferred Apartment Communities, Inc.
Consolidated Balance Sheets
(Unaudited)
 
 
 
 
 
(In thousands, except per-share par values)
 
June 30, 2018
 
December 31, 2017
Assets
 
 
 
 
 
 
 
 
 
Real estate
 
 
 
 
Land
 
$
470,014

 
$
406,794

Building and improvements
 
2,345,033

 
2,043,853

Tenant improvements
 
84,988

 
63,425

Furniture, fixtures, and equipment
 
255,096

 
210,779

Construction in progress
 
18,546

 
10,491

Gross real estate
 
3,173,677

 
2,735,342

Less: accumulated depreciation
 
(222,785
)
 
(172,756
)
Net real estate
 
2,950,892

 
2,562,586

Real estate loans, net of deferred fee income
 
314,440

 
255,345

Real estate loans to related parties, net
 
59,768

 
131,451

Total real estate and real estate loan investments, net
 
3,325,100

 
2,949,382

 
 
 
 
 
Cash and cash equivalents
 
21,303

 
21,043

Restricted cash
 
53,982

 
51,969

Notes receivable
 
9,400

 
17,318

Note receivable and revolving line of credit due from related party
 
27,956

 
22,739

Accrued interest receivable on real estate loans
 
32,126

 
26,865

Acquired intangible assets, net of amortization of $96,660 and $73,521
 
99,878

 
102,743

Deferred loan costs on Revolving Line of Credit, net of amortization of $406 and $1,153
 
1,353

 
1,385

Deferred offering costs
 
7,876

 
6,544

Tenant lease inducements, net of amortization of $1,021 and $452
 
18,827

 
14,425

Tenant receivables (net of allowance of $742 and $715) and other assets
 
43,752

 
37,957

Variable Interest Entity ("VIE") assets from mortgage-backed pool, at fair value
 
266,673

 

 
 
 
 
 
Total assets
 
$
3,908,226

 
$
3,252,370

 
 
 
 
 
Liabilities and equity
 

 
 
 
 
 
 
 
Liabilities
 
 
 
 
Mortgage notes payable, net of deferred loan costs and
 
$
1,998,514

 
$
1,776,652

          mark-to-market adjustment of $37,378 and $35,397
 
 
 
 
Revolving line of credit
 
38,500

 
41,800

Term note payable, net of deferred loan costs of $0 and $6
 

 
10,994

Real estate loan participation obligation
 
10,920

 
13,986

Unearned purchase option termination fees
 
10,234

 

Deferred revenue
 
34,352

 
27,947

Accounts payable and accrued expenses
 
43,573

 
31,253

Accrued interest payable
 
5,998

 
5,028

Dividends and partnership distributions payable
 
17,338

 
15,680

Acquired below market lease intangibles, net of amortization of $11,014 and $8,095
 
40,350

 
38,857

Security deposits and other liabilities
 
13,091

 
9,407

VIE liabilities from mortgage-backed pool, at fair value
 
261,879

 

Total liabilities
 
2,474,749

 
1,971,604

 
 
 
 
 
Commitments and contingencies (Note 11)
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
Stockholders' equity
 
 
 
 
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050
 
 
 
   shares authorized; 1,463 and 1,250 shares issued; 1,418 and 1,222
 
 
 
shares outstanding at June 30, 2018 and December 31, 2017, respectively
14

 
12

Series M Redeemable Preferred Stock, $0.01 par value per share; 500
 
 
 
   shares authorized; 29 and 15 shares issued and outstanding
 
 
 
at June 30, 2018 and December 31, 2017, respectively

 

Common Stock, $0.01 par value per share; 400,067 shares authorized;
 
 
 
39,726 and 38,565 shares issued and outstanding at
 
 
 
June 30, 2018 and December 31, 2017, respectively
397

 
386

Additional paid-in capital
 
1,430,713

 
1,271,040

Accumulated earnings (deficit)
 

 
4,449

Total stockholders' equity
 
1,431,124

 
1,275,887

Non-controlling interest
 
2,353

 
4,879

Total equity
 
1,433,477

 
1,280,766

 
 
 
 
 
Total liabilities and equity
 
$
3,908,226

 
$
3,252,370


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 June 30,
 
Six months ended June 30,
(In thousands, except per-share figures)
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental revenues
$
66,199

 
$
48,241

 
$
130,276

 
$
93,605

Other property revenues
12,158

 
8,821

 
23,886

 
17,257

Interest income on loans and notes receivable
13,658

 
8,490

 
23,958

 
16,438

Interest income from related parties
4,374

 
5,338

 
8,639

 
10,152

Total revenues
96,389

 
70,890

 
186,759

 
137,452

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Property operating and maintenance
10,107

 
7,198

 
18,912

 
13,737

Property salary and benefits (including reimbursements of $3,930, $3,018,
 
 
 
 
 
 
 
$7,539 and $5,795 to related party)
4,228

 
3,219

 
8,127

 
6,247

Property management fees (including $2,156, $1,571
 
 
 
 
 
 
 
 $4,260 and $3,006 to related parties)
2,776

 
2,061

 
5,532

 
3,963

Real estate taxes
10,063

 
7,680

 
20,038

 
15,584

General and administrative
1,957

 
1,654

 
3,798

 
3,159

Equity compensation to directors and executives
950

 
871

 
2,085

 
1,744

Depreciation and amortization
42,095

 
28,457

 
82,711

 
53,283

Acquisition and pursuit costs

 
5

 

 
14

Asset management fees to related party
6,621

 
4,864

 
12,862

 
9,377

Insurance, professional fees and other expenses
2,008

 
1,377

 
3,453

 
2,669

Total operating expenses
80,805

 
57,386

 
157,518

 
109,777

 
 
 
 
 
 
 
 
Waived asset management and general and administrative expense fees
(1,429
)
 
(171
)
 
(2,649
)
 
(346
)
 
 
 
 
 
 
 
 
Net operating expenses
79,376

 
57,215

 
154,869

 
109,431

 
 
 
 
 
 
 
 
Operating income
17,013

 
13,675

 
31,890

 
28,021

Interest expense
22,347

 
16,398

 
43,315

 
31,406

Change in fair value of net assets of consolidated VIE
 
 
 
 
 
 
 
from mortgage-backed pool
54

 

 
54

 

Loss on extinguishment of debt

 
888

 

 
888

 
 
 
 
 
 
 
 
Net (loss) before gain on sale of real estate
(5,280
)
 
(3,611
)
 
(11,371
)
 
(4,273
)
Gain on sale of real estate, net of disposition expenses
2

 
6,915

 
20,356

 
37,639

Net (loss) income
(5,278
)
 
3,304

 
8,985

 
33,366

 
 
 
 
 
 
 
 
Consolidated net income (loss) attributable to non-controlling interests
140

 
(97
)
 
(240
)
 
(1,096
)
 
 
 
 
 
 
 
 
Net (loss) income attributable to the Company
(5,138
)
 
3,207

 
8,745

 
32,270

 
 
 
 
 
 
 
 
Dividends declared to preferred stockholders
(20,924
)
 
(15,235
)
 
(40,441
)
 
(29,621
)
Earnings attributable to unvested restricted stock
(6
)
 
(6
)
 
(8
)
 
(8
)
 
 
 
 
 
 
 
 
Net (loss) income attributable to common stockholders
$
(26,068
)
 
$
(12,034
)
 
$
(31,704
)
 
$
2,641

 
 
 
 
 
 
 
 
Net (loss) income per share of Common Stock available
 
 
 
 
 
 
 
to common stockholders, basic and diluted
$
(0.66
)
 
$
(0.40
)
 
$
(0.81
)
 
$
0.09

 
 
 
 
 
 
 
 
Dividends per share declared on Common Stock
$
0.255

 
$
0.235

 
$
0.505

 
$
0.455

 
 
 
 
 
 
 
 
Weighted average number of shares of Common Stock outstanding,
 
 
 
 
 
 
 
Basic and diluted
39,383

 
29,894

 
39,241

 
28,423


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




Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity
For the six-month periods ended June 30, 2018 and 2017
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except dividend per-share figures)
 
Series A and Series M Redeemable Preferred Stock
 
Common Stock
 
Additional Paid in Capital
 
Accumulated Earnings
 
Total Stockholders' Equity
 
Non-Controlling Interest
 
Total Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
 
$
12

 
$
386

 
$
1,271,040

 
$
4,449

 
$
1,275,887

 
$
4,879

 
$
1,280,766

Issuance of Units
 
2

 

 
210,842

 

 
210,844

 

 
210,844

Issuance of mShares
 

 

 
13,569

 

 
13,569

 

 
13,569

Redemptions of Series A Preferred Stock
 

 
4

 
(9,063
)
 

 
(9,059
)
 

 
(9,059
)
Exercises of warrants
 

 
6

 
8,371

 

 
8,377

 

 
8,377

Syndication and offering costs
 

 

 
(21,201
)
 

 
(21,201
)
 

 
(21,201
)
Equity compensation to executives and directors
 

 

 
278

 

 
278

 

 
278

Vesting of restricted stock
 

 

 

 

 

 

 

Conversion of Class A Units to Common Stock
 

 
1

 
850

 

 
851

 
(851
)
 

Current period amortization of Class B Units
 

 

 

 

 

 
1,807

 
1,807

Net income
 

 

 

 
8,745

 
8,745

 
240

 
8,985

Reallocation adjustment to non-controlling interests
 

 

 
3,180

 

 
3,180

 
(3,180
)
 

Distributions to non-controlling interests
 

 

 

 

 

 
(542
)
 
(542
)
Dividends to series A preferred stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($5.00 per share per month)
 

 

 
(26,772
)
 
(12,965
)
 
(39,737
)
 

 
(39,737
)
Dividends to mShares preferred stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($4.79 - $6.25 per share per month)
 

 

 
(475
)
 
(229
)
 
(704
)
 

 
(704
)
Dividends to common stockholders ($0.505 per share)
 

 

 
(19,906
)
 

 
(19,906
)
 

 
(19,906
)
Balance at June 30, 2018
 
$
14

 
$
397

 
$
1,430,713

 
$

 
$
1,431,124

 
$
2,353

 
$
1,433,477





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



Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity, continued
For the six-month periods ended June 30, 2018 and 2017
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except dividend per-share figures)
 
Series A and
Series M Redeemable Preferred Stock
 
Common Stock
 
Additional Paid in Capital
 
Accumulated Earnings
 
Total Stockholders' Equity
 
Non-Controlling Interest
 
Total Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
 
$
9

 
$
265

 
$
906,737

 
$
(23,232
)
 
$
883,779

 
$
1,481

 
$
885,260

Issuance of Units
 
2

 

 
146,846

 

 
146,848

 

 
146,848

Redemptions of Series A Preferred Stock
 

 
3

 
(3,913
)
 

 
(3,910
)
 

 
(3,910
)
Issuance of common stock
 

 
39

 
58,345

 

 
58,384

 

 
58,384

Exercises of Warrants
 

 
15

 
17,677

 

 
17,692

 

 
17,692

Syndication and offering costs
 

 

 
(18,299
)
 

 
(18,299
)
 

 
(18,299
)
Equity compensation to executives and directors
 

 

 
247

 

 
247

 

 
247

Vesting of restricted stock
 

 

 

 

 

 

 

Conversion of Class A Units to Common Stock
 

 
2

 
1,676

 

 
1,678

 
(1,678
)
 

Current period amortization of Class B Units
 

 

 

 

 

 
1,497

 
1,497

Net income
 

 

 

 
32,270

 
32,270

 
1,096

 
33,366

Reallocation adjustment to non-controlling interests
 

 

 
(661
)
 

 
(661
)
 
661

 

Distributions to non-controlling interests
 

 

 

 

 

 
(411
)
 
(411
)
Dividends to Series A preferred stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($5.00 per share per month)
 

 

 
(29,674
)
 

 
(29,674
)
 

 
(29,674
)
Dividends to mShares preferred stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($4.79 - $6.25 per share per month)
 

 

 
(89
)
 

 
(89
)
 

 
(89
)
Dividends to common stockholders ($0.455 per share)
 

 

 
(13,510
)
 

 
(13,510
)
 

 
(13,510
)
Balance at June 30, 2017
 
$
11

 
$
324

 
$
1,065,382

 
$
9,038

 
$
1,074,755

 
$
2,646

 
$
1,077,401
















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



Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
Six months ended June 30,
(In thousands)
 
2018
 
2017
Operating activities:
 
 
 
 
Net income
 
$
8,985

 
$
33,366

Reconciliation of net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization expense
 
82,711

 
53,283

Amortization of above and below market leases
 
(2,387
)
 
(1,562
)
Deferred revenues and fee income amortization
 
(2,154
)
 
(804
)
      Purchase option termination income amortization
 
(2,236
)
 

Amortization of market discount on assumed debt and lease incentives
699

 
92

Deferred loan cost amortization
 
3,279

 
2,650

(Increase) in accrued interest income on real estate loans
 
(5,261
)
 
(2,976
)
Change in fair value of net assets of consolidated VIE
 
(54
)
 

Equity compensation to executives and directors
 
2,085

 
1,744

Gain on sale of real estate
 
(20,356
)
 
(37,639
)
Cash received for purchase option terminations
 
5,100

 

Loss on extinguishment of debt
 

 
888

Mortgage interest received from consolidated VIE
 
861

 

Mortgage interest paid to other participants of consolidated VIE
 
(861
)
 

Other
 

 
189

Changes in operating assets and liabilities:
 
 
 
 
Increase in tenant receivables and other assets
 
(1,718
)
 
(3,619
)
Inrease in tenant lease incentives
(4,972
)
 
(7,239
)
Increase in accounts payable and accrued expenses
 
7,474

 
4,137

Increase (decrease) in accrued interest, prepaid rents and other liabilities
 
1,968

 
(160
)
Net cash provided by operating activities
 
73,163

 
42,350

 
 
 
 
 
Investing activities:
 
 
 
 
Investments in real estate loans
 
(117,771
)
 
(70,320
)
Repayments of real estate loans
 
130,185

 
9,866

Notes receivable issued
 
(716
)
 
(3,729
)
Notes receivable repaid
 
8,640

 
1,967

Note receivable issued to and draws on line of credit by related parties
 
(24,093
)
 
(14,979
)
Repayments of line of credit by related parties
 
18,652

 
14,254

Loan origination fees received
 
2,422

 
835

Loan origination fees paid to Manager
 
(1,211
)
 
(417
)
Investment in mortgage-backed securities
(4,739
)
 

Mortgage principal received from consolidated VIE from mortgage-backed pool
171

 

Mortgage principal paid to other participants of consolidated VIE from mortgage-backed pool
(171
)
 

Acquisition of properties
 
(405,870
)
 
(222,435
)
Disposition of properties, net
 
42,269

 
148,105

Receipt of insurance proceeds for capital improvements
412

 

Additions to real estate assets - improvements
 
(18,268
)
 
(7,563
)
(Deposits) on acquisitions
 
(1,538
)
 
(920
)
Net cash used in investing activities
 
(371,626
)
 
(145,336
)
 
 
 
 
 
Financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
211,949

 
156,280

Payments for mortgage notes payable
 
(35,231
)
 
(116,053
)
Payments for deposits and other mortgage loan costs
 
(4,359
)
 
(6,039
)
Payments for mortgage prepayment costs
 

 
(817
)
Proceeds from real estate loan participants
 
5

 
166

Payments to real estate loan participants
 
(3,664
)
 
(2,467
)
Proceeds from lines of credit
 
237,100

 
97,000

Payments on lines of credit
 
(240,400
)
 
(186,000
)
Repayment of the Term Loan
 
(11,000
)
 

Proceeds from sales of Units, net of offering costs and redemptions
 
204,201

 
132,620

Proceeds from sales of Common Stock
 

 
56,116

Proceeds from exercises of Warrants
 
12,374

 
14,901

Payments for redemptions of preferred stock
 
(8,994
)
 
(3,921
)
Common Stock dividends paid
 
(19,378
)
 
(11,711
)
Preferred stock dividends paid
 
(39,310
)
 
(28,990
)
 
 
 
 
 
(Continued on next page)
 
 
 
 

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



Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continued
(Unaudited)
 
 
 
 
 
 
 
Six months ended June 30,
(In thousands)
 
2018
 
2017
Distributions to non-controlling interests
 
(489
)
 
(394
)
Payments for deferred offering costs
 
(2,068
)
 
(4,459
)
Net cash provided by financing activities
 
300,736

 
96,232

 
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
2,273

 
(6,754
)
Cash, cash equivalents and restricted cash, beginning of period
73,012

 
67,715

Cash, cash equivalents and restricted cash, end of period
$
75,285

 
$
60,961

 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Cash paid for interest
 
$
38,875

 
$
28,812

 
 
 
 
 
Supplemental disclosure of non-cash activities:
 
 
 
 
Accrued capital expenditures
 
$
1,621

 
$
2,132

Writeoff of fully depreciated or amortized assets and liabilities
 
$
245

 
$
387

Writeoff of fully amortized deferred loan costs
 
$
1,331

 
$

Lessee-funded tenant improvements, capitalized as landlord assets
 
$
7,490

 
$
16,200

Dividends payable - Common Stock
 
$
10,104

 
$
7,539

Dividends payable - Series A Preferred Stock
 
$
6,952

 
$
5,145

Dividends payable - mShares Preferred Stock
 
$
129

 
$
47

Dividends declared but not yet due and payable
 
$
153

 
$
12

Partnership distributions payable to non-controlling interests
 
$
273

 
$
212

Accrued and payable deferred offering costs
 
$
415

 
$
431

Offering cost reimbursement to related party
 
$
966

 
$
220

Reclass of offering costs from deferred asset to equity
 
$
1,053

 
$
1,752

Proceeds of like-kind exchange funds for dispositions
 
$

 
$
31,288

Use of like-kind exchange funds for acquisitions
 
$

 
$
31,288

Fair value issuances of equity compensation
 
$
4,972

 
$
4,088

Mortgage loans assumed on acquisitions
 
$
47,125

 
$
57,324

Noncash repayment of mortgages through refinance
 
$
37,485

 
$
65,000

 
 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash:
 
 
 
 
Cash and cash equivalents
 
$
21,303

 
$
13,056

Restricted cash
 
53,982

 
47,905

Cash, cash equivalents and restricted cash, end of period
$
75,285

 
$
60,961

 
 
 
 
 


The accompanying notes are an integral part of these consolidated financial statements.
6


Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements
June 30, 2018
(unaudited)



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 real estate related 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 real estate loan investments secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest a lesser portion of its assets in other real estate related investments, including other income-producing property types, senior mortgage loans, subordinate loans or real estate loan investments secured by interests in other income-producing property types, or membership or partnership interests in other income-producing property types 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 6).

As of June 30, 2018, the Company had 39,725,664 shares of common stock, par value $0.01 per share, or Common Stock, issued and outstanding and was the approximate 97.4% owner of the Operating Partnership at that date. The number of partnership units not owned by the Company totaled 1,070,103 at June 30, 2018 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 conducts substantially all of its business through the Operating Partnership. 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, such as its investment in the Freddie Mac Series 2018-ML04 mortgage loan pool, as discussed in Note 4. New Market Properties, LLC owns and conducts the business of our portfolio of grocery-anchored shopping centers. Preferred Office Properties, LLC owns and conducts the business of our portfolio of office buildings. Preferred Campus Communities, LLC owns and conducts the business of our portfolio of off-campus student housing communities. Each of these entities are 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. 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 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 1, 2018. Amounts are presented in thousands where indicated.
    
2.
Summary of Significant Accounting Policies

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


7

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2018
(unaudited)


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. For those VIEs which arise from the Company's investment in mortgage-backed securities and which the Company consolidates, it elects the fair value option, under which the assets and liabilities of the consolidated VIE are carried at fair value. The periodic changes in fair value are included in the earnings of the Company and are reported on the line entitled Change in fair value of net assets of consolidated VIE from mortgage-backed pool on the Company's Consolidated Statements of Operations. See note 4 for discussion related to the Company’s investment in a subordinate tranche of a collateralized mortgage-backed pool during the second quarter 2018 and Note 14 for fair value disclosures related to a consolidated VIE related to this investment.

Purchase Option Terminations

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

New Accounting Pronouncements

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. The new standard may be applied retrospectively to each prior period presented or prospectively with the cumulative effect, if any, recognized as of the date of adoption. The Company adopted the new standard on January 1, 2018 utilizing the modified retrospective transition method with a cumulative effect recognized as of the date of adoption. In addition, the evaluation of non-lease components under ASU 2014-09 will not be effective until Accounting Standards Update No. 2016-02, Leases (Topic 842), ("ASU 2016-02") becomes effective (see further discussion below), which will be January 1, 2019 for the Company. The Company has determined that approximately 90% of its consolidated revenues are derived from either long-term leases with its tenants and reimbursement of related property tax and insurance expenses (considered executory costs of leases) or its mezzanine loan interest income, which are excluded from the scope of the ASU 2014-09. Of the remaining approximately 10% of the Company’s revenues, the majority is comprised of common area maintenance ("CAM") reimbursements and utility reimbursements, which are non-lease components. The Company has concluded that the adoption of ASU 2014-09 will have no material effect upon the timing of the recognition of reimbursement revenue and other miscellaneous income. The Company also evaluated its amenity and ancillary services to its multifamily and student housing residents and does not expect the timing and recognition of revenue to change as a result of implementing ASU 2014-09. Additional required disclosures regarding the nature and timing of the Company's revenue transactions will be provided upon adoption of ASU 2016-02. In July 2018, the FASB issued Accounting Standards Update 2018-11 (“ASU 2018-11”), which provides lessors with a practical expedient in combining lease and non-lease components, if certain criteria are met. The Company believes that adoption of the practical expedient will result in changes in presentation and disclosure of revenue being combined into one revenue component, but will have no material effect on the timing of revenue recognition.

In January 2016, the FASB issued Accounting Standards Update 2016-01 ("ASU 2016-01"), Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities. The new standard's applicable provisions to the Company include an elimination of the disclosure requirement of the significant inputs and assumptions underlying the fair


8

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2018
(unaudited)


value calculations of its financial instruments which are carried at amortized cost. The Company adopted ASU 2016-01 on January 1, 2018. The adoption of ASU 2016-01 did not impact the Company's results of operations or financial condition but did reduce the required disclosures concerning financial instruments.
 
In February 2016, the FASB issued Accounting Standards Update 2016-02 ("ASU 2016-02"), Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases and supersedes the previous standard, ASC 840 Leases. The standard is effective on January 1, 2019, with early adoption permitted. The new lease guidance requires an entity to separate lease components from non-lease components, such as maintenance services or other activities that transfer a good or service to our residents and tenants in a contract; it also considers the reimbursement of real estate taxes and insurance as executory costs of the lease and requires that such amounts be consolidated with the base rent revenue. For lessors, the consideration in the contract is allocated to the lease and non-lease components on a relative standalone price basis in accordance with the allocation guidance in the new revenue standard. The Company concluded that adoption of ASU 2016-02 does not change the timing of revenue recognition over the lease component, which remains over a straight line method, though the reimbursement of property tax and insurance, considered executory costs of leasing, will be combined with the base rent revenue and presented within rental income instead of other income within the Company’s income statement. Non-lease components are evaluated under ASU 2014-09, Revenue from Contracts with Customers (Topic 606), discussed above. In its March 2018 meeting, the FASB approved a practical expedient for lessors to elect, by class of underlying assets, to not separate lease and non-lease components if both (1) the timing and pattern of revenue recognition are the same for the non-lease component(s) and related lease component and (2) the combined single lease component would be classified as an operating lease. The Company anticipates adopting ASC 842 utilizing this practical expedient as it relates to its common area maintenance services.

In June 2016, the FASB issued Accounting Standards Update 2016-13 ("ASU 2016-13"), Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires financial instruments carried at amortized cost to be presented at the net amount expected to be collected, utilizing a valuation account which reflects the cumulative net adjustments from the gross amortized cost value. Under existing GAAP, entities would not record a valuation allowance until a loss was probable of occurring. The standard will become effective for the Company on January 1, 2020. The Company is currently evaluating methods of deriving initial valuation accounts to be applied to its real estate loan investment portfolio and is also revising its policies for credit losses on resident and tenant receivables to comply with the expected credit loss model under this guidance. The Company is continuing to evaluate the pending guidance to gauge the materiality of the impact, if any, on its results of operations or financial condition.

In August 2016, the FASB issued Accounting Standards Update 2016-15 ("ASU 2016-15"), Statement of Cash Flows—(Topic 326): Classification of Certain Cash Receipts and Cash Payments. The new standard clarifies or establishes guidance for the presentation of various cash transactions on the statement of cash flows. The portion of the guidance applicable to the Company's business activities include the requirement that cash payments for debt prepayment or debt extinguishment costs be presented as cash out flows for financing activities. The Company adopted ASU 2016-15 on January 1, 2018. The adoption of ASU 2016-15 did not impact the Company’s consolidated financial statements, since its current policy is to classify such costs as cash out flows for financing activities. 

In November 2016, the FASB issued Accounting Standards Update 2016-18 ("ASU 2016-18"), Statement of Cash Flows—(Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents when reconciling the beginning and ending amounts in the statements of cash flows. The Company adopted ASU 2016-18 on January 1, 2018 and its adoption of ASU 2016-18 did not impact its results of operations or financial condition, but did change the line upon which changes in restricted cash are presented.

In February 2017, the FASB issued Accounting Standards Update 2017-05 (“ASU 2017-05”), Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which provides guidance for recognizing gains and losses from the transfer of nonfinancial assets and for partial sales of nonfinancial assets, and is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2017. The Company adopted this guidance on January 1, 2018. The new standard clarifies that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. The amendments also clarify that an entity should allocate consideration to each distinct asset by applying the guidance in Topic 606 on allocating the transaction price to performance obligations for sales to customers. The Company’s sales of nonfinancial real estate assets are generally made to non-customers,


9

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2018
(unaudited)


which is a scope exception under Topic 606. The Company elected to adopt this practical expedient and the proceeds from real estate sales continue to be recognized as gain or loss on sale of real estate in the Consolidated Statement of Operations.

3. Real Estate Assets

The Company's real estate assets consisted of:

 
 
As of:
 
 
June 30, 2018
 
December 31, 2017
Multifamily communities:
 
 
 
 
Properties (1)
 
31

 
30

Units
 
9,768

 
9,521

New Market Properties: (2)
 
 
 
 
Properties
 
43

 
39

Gross leasable area (square feet) (3)
 
4,449,860

 
4,055,461

Student housing properties:
 
 
 
 
Properties
 
7

 
4

Units
 
1,679

 
891

Beds
 
5,208

 
2,950

Preferred Office Properties:
 
 
 
 
Properties
 
5

 
4

Rentable square feet
 
1,539,000

 
1,352,000

 
 
 
 
 
(1) The acquired second and third phase of the Summit Crossing community is managed in combination with the initial phase and so together are considered a single property, as are the three assets that comprise the Lenox Portfolio.
(2) See Note 12, Segment information.
(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 not included in the totals above for New Market Properties.


Multifamily communities sold

On March 20, 2018, the Company closed on the sale of its 328-unit multifamily community in Raleigh, North Carolina, or Lake Cameron, to an unrelated third party for a purchase price of approximately $43.5 million, exclusive of closing costs and resulting in a gain of $20.4 million. Lake Cameron contributed approximately $0.2 million and $0.2 million of net income to the consolidated operating results of the Company for the six-month periods ended June 30, 2018 and 2017, respectively.

On January 20, 2017, the Company closed on the sale of its 364-unit multifamily community in Kansas City, Kansas, or Sandstone Creek, to an unrelated third party for a purchase price of $48.1 million, exclusive of closing costs and resulting in a gain of $0.3 million. Sandstone Creek contributed approximately $0.1 million of net loss to the consolidated operating results of the Company for the six-month period ended June 30, 2017.

On March 7, 2017, the Company closed on the sale of its 408-unit multifamily community in Atlanta, Georgia, or Ashford Park, to an unrelated third party for a purchase price of $65.5 million, exclusive of closing costs and resulting in a gain of $30.4 million. Ashford Park contributed approximately $0.4 million of net income to the consolidated operating results of the Company for the six-month period ended June 30, 2017.

On May 25, 2017, the Company closed on the sale of its 300-unit multifamily community in Dallas, Texas, or Enclave at Vista Ridge, to an unrelated third party for a purchase price of $44.0 million, exclusive of closing costs and resulting in a gain of $6.9 million. Enclave at Vista Ridge contributed approximately $(0.1) million of net loss to the consolidated operating results of the Company for the six-month period ended June 30, 2017.


10

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2018
(unaudited)



Each of the gains recorded for these sales transactions were net of disposition expenses and debt defeasance-related costs and prepayment premiums, as described in Note 9.

The carrying amounts of the significant assets and liabilities of the disposed properties at the dates of sale were:
 
 
Lake Cameron
 
Sandstone Creek
 
Ashford Park
 
Enclave at Vista Ridge
(in thousands)
 
March 20, 2018
 
January 20, 2017
 
March 7, 2017
 
May 25, 2017
Real estate assets:
 
 
 
 
 
 
 
 
Land
 
$
4,000

 
$
2,846

 
$
10,600

 
$
4,705

Building and improvements
 
21,519

 
41,860

 
24,075

 
29,916

Furniture, fixtures and equipment
 
3,687

 
5,278

 
4,223

 
2,874

Accumulated depreciation
 
(7,220
)
 
(4,809
)
 
(6,816
)
 
(3,556
)
 
 
 
 
 
 
 
 
 
Total assets
 
$
21,986

 
$
45,175

 
$
32,082

 
$
33,939

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Mortgage note payable
 
$
19,736

 
$
30,840

 
$
25,626

 
$
24,862

Supplemental mortgage note
 

 

 
6,374

 

 
 
 
 
 
 
 
 
 
Total liabilities
 
$
19,736

 
$
30,840

 
$
32,000

 
$
24,862


Multifamily communities acquired

During the six-month periods ended June 30, 2018 and 2017, the Company completed the acquisition of the following multifamily communities:
Acquisition date
 
Property
 
Location
 
Units
 
 
 
 
 
 
 
1/9/2018
 
The Lux at Sorrel
 
Jacksonville, Florida
 
265

2/28/2018
 
Green Park
 
Atlanta, Georgia
 
310

 
 
 
 
 
 
 
 
 
 
 
 
 
575

 
 
 
 
 
 
 
3/3/2017
 
Broadstone at Citrus Village
 
Tampa, Florida
 
224

3/24/2017
 
Retreat at Greystone
 
Birmingham, Alabama
 
312

3/31/2017
 
Founders Village
 
Williamsburg, Virginia
 
247

4/26/2017
 
Claiborne Crossing
 
Louisville, Kentucky
 
242

 
 
 
 
 
 
 
 
 
 
 
 
 
1,025


The aggregate purchase price of the multifamily acquisitions for the six months ended June 30, 2018 was approximately $106.5 million. The aggregate purchase price of the multifamily acquisitions for the six months ended June 30, 2017 was approximately $187.0 million. Purchase prices shown are exclusive of acquired escrows, security deposits, prepaids, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.






11

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2018
(unaudited)




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 six months ended:
(in thousands, except amortization period data)
 
June 30, 2018
June 30, 2017
 
 
 
 
 
Land
 
$
12,810

 
$
16,348

Buildings and improvements
 
73,773

 
132,861

Furniture, fixtures and equipment
 
17,969

 
28,421

Lease intangibles
 
4,306

 
6,159

Prepaids & other assets
 
193

 
357

Accrued taxes
 
(166
)
 
(363
)
Security deposits, prepaid rents, and other liabilities
 
(183
)
 
(367
)
 
 
 
 
 
Net assets acquired
 
$
108,702

 
$
183,416

 
 
 
 
 
Cash paid
 
$
37,427

 
$
64,618

Mortgage debt, net
 
71,275

 
118,798

 
 
 
 
 
Total consideration
 
$
108,702

 
$
183,416

 
 
 
 
 
Three months ended June 30, 2018:
 
 
 
 
Revenue
 
$
2,514

 
$
4,563

Net income (loss)
 
$
(2,028
)
 
$
(1,223
)
 
 
 
 
 
Six months ended June 30, 2018:
 
 
 
 
Revenue
 
$
3,980

 
$
8,956

Net income (loss)
 
$
(3,543
)
 
$
(3,715
)
 
 
 
 
 
Capitalized acquisition costs incurred by the Company
 
$
2,347

 
$
2,237

Acquisition costs paid to related party (included above)
 
$
1,094

 
$
110

Remaining amortization period of intangible
 
 
 
 
 assets and liabilities (months)
 
9.9

 
0.0




Student housing properties

During the six-month periods ended June 30, 2018 and 2017, the Company completed the acquisition of the following student housing properties:
Acquisition date
 
Property
 
Location
 
Units
 
Beds
 
 
 
 
 
 
 
 
 
5/10/2018
 
The Tradition
 
College Station, Texas
 
427

 
808

5/31/2018
 
The Retreat at Orlando
 
Orlando, Florida
 
221

 
894

6/27/2018
 
The Bloc
 
Lubbock, Texas
 
140

 
556

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
788

 
2,258

 
 
 
 
 
 
 
 
 
2/28/2017
 
Sol
 
Tempe, Arizona
 
224

 
639


The aggregate purchase price of the student housing acquisitions for the six months ended June 30, 2018 was approximately $197.0 million. The aggregate purchase price of the student housing acquisitions for the six months ended June 30, 2017 was approximately $53.3 million. Purchase prices shown are exclusive of acquired escrows, security deposits, prepaids, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.



12

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2018
(unaudited)


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.
 
 
Student housing properties acquired during the six months ended:

(in thousands, except amortization period data)
 
June 30, 2018
 
June 30, 2017
 
 
 
 
 
Land
 
$
23,149

 
$
7,441

Buildings and improvements
 
146,856

 
40,059

Furniture, fixtures and equipment
 
27,211

 
3,771

Lease intangibles
 
2,493

 
2,344

Below market leases
 
(54
)
 

Prepaids & other assets
 
309

 
51

Accrued taxes
 
(942
)
 
(72
)
Security deposits, prepaid rents, and other liabilities
 
(719
)
 
(377
)
 
 
 
 
 
Net assets acquired
 
$
198,303

 
$
53,217

 
 
 
 
 
Cash paid
 
$
92,212

 
$
15,732

Mortgage debt, net
 
106,091

 
37,485

 
 
 
 
 
Total consideration
 
$
198,303

 
$
53,217

 
 
 
 
 
Three months ended June 30, 2018:
 
 
 
 
Revenue
 
$
1,486

 
$
1,363

Net income (loss)
 
$
(2,019
)
 
$
(398
)
 
 
 
 
 
Six months ended June 30, 2018:
 
 
 
 
Revenue
 
$
1,486

 
$
2,707

Net income (loss)
 
$
(2,019
)
 
$
(693
)
 
 
 
 
 
Capitalized acquisition costs incurred by the Company
 
$
2,555

 
$
290

Acquisition costs paid to related party (included above)
 
$
1,970

 
$
60

 
 
 
 
 
Remaining amortization period of intangible
 
 
 
 
 assets and liabilities (months)
 
5.2

 
0.0


























13

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2018
(unaudited)


New Market Properties

During the six month periods ended June 30, 2018 and 2017, the Company completed the acquisition of the following grocery-anchored shopping centers:
Acquisition date
 
Property
 
Location
 
Gross leasable area (square feet)
 
 
 
 
 
 
 
4/27/2018
 
Greensboro Village
 
Nashville, Tennessee
 
70,203

4/27/2018
 
Governors Towne Square
 
Atlanta, Georgia
 
68,658

6/26/2018
 
Neapolitan Way
 
Naples, Florida
 
137,580

6/29/2018
 
Conway Plaza
 
Orlando, Florida
 
117,705

 
 
 
 
 
 
 
 
 
 
 
 
 
394,146

 
 
 
 
 
 
 
4/21/2017
 
Castleberry-Southard
 
Atlanta, Georgia
 
80,018

6/6/2017
 
Rockbridge Village
 
Atlanta, Georgia
 
102,432

 
 
 
 
 
 
 
 
 
 
 
 
 
182,450

 
 
 
 
 
 
 

The aggregate purchase price of the New Market Properties acquisitions for the six months ended June 30, 2018 was approximately $84.6 million. The aggregate purchase price of the New Market Properties acquisitions for the six months ended June 30, 2017 was approximately $37.9 million. Purchase prices shown are exclusive of acquired escrows, security deposits, prepaids, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

































14

Preferred Apartment Communities, Inc.
Notes to Consolidated Financial Statements – (continued)
June 30, 2018
(unaudited)


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 acquired during the six months ended:

(in thousands, except amortization period data)
 
June 30, 2018
 
June 30, 2017
 
 
 
 
 
Land
 
$
24,504

 
$
6,165

Buildings and improvements
 
50,086

 
29,137

Tenant improvements
 
4,018

 
949

In-place leases
 
6,177

 
2,240

Above market leases
 
1,383

 
182

Leasing costs
 
2,011

 
767

Below market leases
 
(2,765
)
 
(1,414
)
Other assets
 

 
76

Other liabilities
 
(812
)
 
(252
)
 
 
 
 
 
Net assets acquired
 
$
84,622

 
$
37,850

 
 
 
 
 
Cash paid
 
$
54,914

 
$
8,339

Use of 1031 proceeds
 

 
3,761

Mortgage debt
 
29,708

 
25,750

 
 
 
 
 
Total consideration
 
$
84,622

 
$
37,850

 
 
 
 
 
Three months ended June 30, 2018:
 
 
 
 
Revenue
 
$
513

 
$
875

Net income (loss)
 
$
(248
)
 
$
(54
)
 
 
 
 
 
Six months ended June 30, 2018:
 
 
 
 
Revenue
 
$
513

 
$
1,763

Net income (loss)
 
$
(248
)
 
$