PREFERRED APARTMENT COMMUNITIES INC [APTS] Filings

10-Q 1 apts-20220331.htm 10-Q apts-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

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

For the transition period from to

Commission File No. 001-34995

Preferred Apartment Communities, Inc.

(Exact name of registrant as specified in its charter)


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

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

(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $.01 per share	APTS	NYSE

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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

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

The number of shares outstanding of the registrant’s Common Stock, as of May 2, 2022 was 64,442,963.


PART I - FINANCIAL INFORMATION

INDEX


Item 1.	Financial Statements	Page No.

	Condensed Consolidated Balance Sheets (unaudited) – as of March 31, 2022 and December 31, 2021	2

	Condensed Consolidated Statements of Operations (unaudited) – Three Months Ended March 31, 2022 and 2021	3

	Condensed Consolidated Statements of Stockholders' Equity (unaudited) – Three Months Ended March 31, 2022 and 2021	4

	Condensed Consolidated Statements of Cash Flows (unaudited) – Three Months Ended March 31, 2022 and 2021	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

Item 4.	Controls and Procedures	61

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	62

Item 1A.	Risk Factors	63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.	Defaults Upon Senior Securities	64

Item 4.	Mine Safety Disclosures	64

Item 5.	Other Information	64

Item 6.	Exhibits	65


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

(In thousands, except per-share par values)	March 31, 2022		December 31, 2021
Assets
Real estate
Land	$	553,900	$	551,378
Building and improvements	2,745,749		2,671,535
Tenant improvements	119,989		119,331
Furniture, fixtures, and equipment	372,288		359,743
Construction in progress	11,723		5,151
Gross real estate	3,803,649		3,707,138
Less: accumulated depreciation	(611,111)		(578,496)
Net real estate	3,192,538		3,128,642
Real estate loan investments, net of deferred fee income and allowance for expected
credit loss of $10,277 and $9,850	210,280		196,420
Total real estate and real estate loan investments, net	3,402,818		3,325,062

Cash and cash equivalents	117,221		30,205
Restricted cash	33,474		32,675
Note receivable from related party	8,875		9,011
Accrued interest receivable on real estate loans	18,569		17,038
Acquired intangible assets, net of amortization of $171,608 and $166,214	55,432		59,622
Tenant lease inducements, net of amortization of $7,560 and $7,113	15,976		16,420
Investment in unconsolidated joint venture	5,884		5,992
Tenant receivables and other assets	82,023		67,343
Total assets	$	3,740,272	$	3,563,368
Liabilities and equity
Liabilities
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $38,445 and $39,288	$	2,388,772	$	2,343,364
Deferred revenue	34,612		35,523
Accounts payable and accrued expenses	35,046		36,517
Deferred liability to Former Manager	24,219		24,037
Contingent liability due to Former Manager	14,564		14,631
Accrued interest payable	6,990		7,086
Dividends and partnership distributions payable	21,509		19,912
Acquired below market lease intangibles, net of amortization of $37,963 and $36,314	32,936		34,585
Prepaid rent, security deposits, and other liabilities	27,004		25,679
Total liabilities	2,585,652		2,541,334
Commitments and contingencies (Note 11)
Equity
Stockholders' equity
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 shares
issued; 1,302 and 1,321 shares outstanding at March 31, 2022 and December 31, 2021, respectively	13		13
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 247 shares
issued; 246 shares outstanding at March 31, 2022 and December 31, 2021, respectively	2		2
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued;
83 and 84 shares outstanding at March 31, 2022 and December 31, 2021, respectively	1		1
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 47 and 43
shares issued; 44 and 41 shares outstanding at March 31, 2022 and December 31, 2021, respectively	—		—
Common Stock, $0.01 par value per share; 400,067 shares authorized; 62,929 and 52,975 shares issued and
outstanding at March 31, 2022 and December 31, 2021, respectively	629		530
Additional paid-in capital	1,333,284		1,195,775
Accumulated (deficit) earnings	(179,814)		(172,000)
Total stockholders' equity	1,154,115		1,024,321
Non-controlling interest	505		(2,287)
Total equity	1,154,620		1,022,034
Total liabilities and equity	$	3,740,272	$	3,563,368

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


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

(In thousands, except per-share figures)	Three months ended March 31,
	2022		2021
Revenues:
Rental and other property revenues	$	97,902	$	104,459
Interest income and preferred equity returns	6,583		10,512
Interest income from related parties	197		405
Miscellaneous revenues	198		324
Total revenues	104,880		115,700
Operating expenses:
Property operating and maintenance	14,863		15,249
Property salary and benefits	4,655		4,821
Property management costs	792		1,105
Real estate taxes and insurance	15,806		16,140
General and administrative	7,842		7,539
Merger-related costs	4,913		—
Equity compensation to directors and executives	1,223		574
Depreciation and amortization	38,161		45,827
Allowance for expected credit losses	572		522
Management Internalization expense	244		245
Total operating expenses	89,071		92,022
Operating income before gains on sales of real estate and loss from unconsolidated joint venture	15,809		23,678
Loss from unconsolidated joint venture	(108)		(194)
Gain on sale of real estate, net	—		798
Operating income	15,701		24,282
Interest expense	23,160		26,991
Loss on extinguishment of debt	(363)		—
Loss on sale of land	(22)		—
Net loss	(7,844)		(2,709)
Net loss attributable to non-controlling interests	30		62
Net loss attributable to the Company	(7,814)		(2,647)
Dividends declared to preferred stockholders	(27,033)		(33,820)
Dividends to holders of unvested restricted stock	(137)		(142)
Net loss attributable to common stockholders	$	(34,984)	$	(36,609)

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

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

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


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

(In thousands, except dividend per-share figures)	Redeemable Preferred Stock		Common Stock		Additional Paid-in Capital		Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total Equity
Balance at January 1, 2022	$	16	$	530	$	1,195,775	$	(172,000)	$	1,024,321	$	(2,287)	$	1,022,034
Issuance of Preferred Stock	—		—		3,167		—		3,167		—		3,167
Redemptions of Preferred Stock	—		—		(19,180)		—		(19,180)		—		(19,180)
Exercises of warrants	—		98		193,935		—		194,033		—		194,033
Syndication and offering costs	—		—		(2,795)		—		(2,795)		—		(2,795)
Equity compensation to executives and directors	—		—		971		—		971		—		971
Vesting of restricted stock	—		1		(1)		—		—		—		—
Net loss	—		—		—		(7,814)		(7,814)		(30)		(7,844)
Contributions from non-controlling interests	—		—		—		—		—		2,625		2,625
Reallocation of non-controlling interest to Class A Unitholders	—		—		(579)		—		(579)		579		—
Distributions to non-controlling interests	—		—		—		—		—		(300)		(300)
Distributions to Class A Unitholders	—		—		—		—		—		(82)		(82)
Dividends to preferred stockholders (see note 7)	—		—		(27,033)		—		(27,033)		—		(27,033)
Dividends to common stockholders (see note 7)	—		—		(10,976)		—		(10,976)		—		(10,976)
Balance at March 31, 2022	$	16	$	629	$	1,333,284	$	(179,814)	$	1,154,115	$	505	$	1,154,620

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


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

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

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


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

(In thousands)	Three-month periods ended March 31,
	2022		2021
Operating activities:
Net loss	$	(7,844)	$	(2,709)
Reconciliation of net loss to net cash provided by operating activities:
Depreciation and amortization expense	38,161		45,827
Amortization of above and below market leases	(1,369)		(1,399)
Amortization of deferred revenues and other non-cash revenues	(1,449)		(1,195)
Amortization of purchase option termination fees	—		(1,229)
Amortization of equity compensation, lease incentives and other non-cash expenses	1,628		1,229
Deferred loan cost amortization	1,566		1,609
Non-cash accrued interest income on real estate loan investments	(1,531)		(2,822)
Receipt of accrued interest income on real estate loan investments	—		3,109
Gains on the sales of real estate, net	—		(798)
Loss on sale of land	22		—
Loss from unconsolidated joint ventures	108		194
Cash received for purchase option terminations	—		1,479
Loss on extinguishment of debt	363		—
Increase in allowance for expected credit losses	572		522
Changes in operating assets and liabilities:
Decrease (increase) in tenant receivables and other assets	(3,445)		4,766
Decrease in accounts payable and accrued expenses	(429)		(2,787)
Increase in accrued interest, prepaid rents and other liabilities	1,874		2,589
Net cash provided by operating activities	28,227		48,385

Investing activities:
Investments in real estate loans, net of origination fees received	(13,605)		(18,840)
Repayments of real estate loans	—		17,925
Notes receivable repaid	—		79
Acquisition of properties	(90,203)		(289)
Disposition of properties and proceeds from land sales, net	(260)		4,798
Investment into property development	(2,718)		—
Capital improvements to real estate assets	(4,875)		(10,263)
Net cash (used in) investing activities	(111,661)		(6,590)


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


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows - continued
(Unaudited)
(In thousands)	Three-month periods ended March 31,
	2022		2021
Financing activities:
Proceeds from mortgage notes	106,310		2,152
Repayment of mortgage notes	(61,745)		(10,340)
Payments for deposits and other mortgage loan costs	(589)		(285)
Payments for debt prepayment and other debt extinguishment costs	(324)		—
Proceeds from Revolving Line of Credit	185,000		105,000
Payments on Revolving Line of Credit	(185,000)		(87,000)
Proceeds from sales of Preferred Stock, net of offering costs	2,800		34,109
Payments for redemptions and calls of Preferred Stock	(19,162)		(40,018)
Proceeds from warrant exercises	179,213		—
Common Stock dividends paid	(9,382)		(8,829)
Preferred Stock dividends and Class A Unit distributions paid	(27,118)		(33,840)
Payments for deferred offering costs	(1,143)		(1,030)
Contributions from non-controlling interests	2,625		—
Distributions to non-controlling interests	(236)		(56)
Net cash provided by (used in) financing activities	171,249		(40,137)

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

Supplemental cash flow information:
Cash paid for interest	$	21,660	$	25,231
Supplemental disclosure of non-cash investing and financing activities:
Accrued capital expenditures	$	4,349	$	3,756
Dividends payable - Common Stock	$	11,379	$	9,087
Dividends payable - Preferred Stock	$	10,130	$	11,323
Reclass of offering costs from deferred asset to equity	$	2,506	$	647
Fair value issuances of equity compensation	$	5,052	$	6,168

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

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

1. Organization and Basis of Presentation

Preferred Apartment Communities, Inc. (NYSE: APTS), or the Company, is a real estate investment trust engaged primarily in the ownership and operation of Class A multifamily properties, with select investments in grocery-anchored shopping centers. Preferred Apartment Communities’ investment objective is to generate attractive, stable returns for stockholders by investing in income-producing properties and acquiring or originating real estate loans. As of March 31, 2022, the Company owned or was invested in 113 properties in 13 states, predominantly in the Southeast region of the United States. Preferred Apartment Communities, Inc. has elected to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended, commencing with its tax year ended December 31, 2011. The Company was externally managed and advised by Preferred Apartment Advisors, LLC, or its Former Manager, a Delaware limited liability company and related party until January 31, 2020 (see Note 6). We refer to this transaction as the Internalization.

Pending Acquisition by Affiliates of BREIT

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

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

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

As of March 31, 2022, the Company had 62,929,382 shares of Common Stock issued and outstanding and was the approximate 99.2% owner of Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership, at that date. The number of partnership units not owned by the Company totaled 526,128 at March 31, 2022 and represented Class A OP Units of the Operating Partnership, or Class A OP Units. The Class A OP Units are convertible at any time at the option of the holder into the Operating Partnership's choice of either cash or Common Stock. In the case of cash, the value is determined based upon the trailing 20-day volume weighted average price of the Company's Common Stock.

The Company controlled the Operating Partnership through its sole general partner interest and conducted substantially all of its business through the Operating Partnership until January 31, 2020. Beginning February 1, 2020, the Company conducts substantially all of its business through PAC Operations, LLC, or Operations (formerly known as PAC Carveout, LLC), a subsidiary of the Operating Partnership. Operations has elected to be taxed as a real estate investment trust under the Internal

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

Revenue Code of 1986, as amended, commencing with its tax year ended December 31, 2020. The Company has determined the Operating Partnership is a variable interest entity, or VIE, of which the Company is the primary beneficiary. The Company is involved with other VIEs as discussed in Note 4. New Market Properties, LLC owns and conducts the business of our portfolio of grocery-anchored shopping centers. Preferred Office Properties, LLC owns and conducts the business of our portfolio of office buildings. Preferred Campus Communities, LLC owned and conducted the business of our portfolio of off-campus student housing communities until the sale of all our student housing communities on November 3, 2020. Each of these entities are or were indirect subsidiaries of the Operating Partnership.

Basis of Presentation

These consolidated financial statements include all of the accounts of the Company and the Operating Partnership. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not contain all disclosures required by accounting principles generally accepted in the United States of America, or GAAP. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. All significant intercompany transactions have been eliminated in consolidation. Certain adjustments have been made consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of the Company's financial condition and results of operations. The results of operations for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the results that may be expected for the full year. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

The potential reach, severity and duration of impacts of the COVID-19 pandemic, and developments related to any variants, will cause our estimates and forecasts of future events to be inherently less certain. Actual results could differ from those estimates. Amounts are presented in thousands where indicated.

2.Summary of Significant Accounting Policies

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

Preferred Equity Investments

The Company invests in certain real estate development projects utilizing preferred equity investment instruments. Preferred equity investments pay the Company a fixed return on these investments, that consist of a current monthly return and a deferred return that is paid upon the maturity of the preferred equity investment or the sale of the underlying project and are in all material respects economically equivalent to the Company's real estate loan investments. The Company carries its investments in real estate loans at amortized cost with assessments made for expected loan loss allowances in the event recoverability of the principal amount becomes doubtful. The balances of real estate loans presented on the consolidated balance sheets consist of drawn amounts on the loans and preferred equity investments, net of unamortized deferred loan origination fees and current expected credit losses. Returns on the Company's preferred equity investments are included within the interest income and preferred equity returns line in its consolidated statements of operations.

Capitalization and Depreciation

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

• Buildings: 30 - 50 years;

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

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

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

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

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

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

3. Real Estate Assets

The Company's real estate assets consisted of:


	As of:
	March 31, 2022	December 31, 2021
Residential Properties:
Properties (1,2)	42	41
Units	12,332	12,052
Development Properties (4)	1	—
New Market Properties:
Properties (2)	54	54
Gross leasable area (square feet) (3)	6,210,778	6,210,778
Preferred Office Properties:
Properties	2	2
Rentable square feet	1,072,000	1,072,000
Land	1	1
Rentable square feet	—	—
(1) The acquired second phases of certain communities are managed in combination with the initial phases, and so together are considered a single property.
(2) One multifamily community and two grocery-anchored shopping centers are owned through consolidated joint ventures. One grocery-anchored shopping center is an investment in an unconsolidated joint venture.
(3) The Company also owns approximately 47,600 square feet of gross leasable area of ground floor retail space which is embedded within the Lenox Portfolio and is not included in the totals above for New Market Properties.
(4) The Helmsman, a 262-unit multifamily development, will consist of approximately 2,600 square feet of gross leasable area of ground floor retail space which is not included in the totals above for New Market Properties.

Residential Properties Acquired

On February 25, 2022, the Company completed the acquisition of Lirio at Rafina, a 280-unit multifamily community located in Orlando, Florida. The aggregate purchase price was approximately $90.0 million, exclusive of acquired escrows, security deposits, prepaids, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

The Company allocated the purchase price and capitalized acquisition costs of Lirio at Rafina to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocation was based upon the Company's best estimates of the fair values of the acquired assets and liabilities.


(In thousands, except amortization period data)	Lirio at Rafina
Land	$	6,088
Buildings and improvements	71,961
Furniture, fixtures and equipment	10,933
Lease intangibles	1,205
Prepaids & other assets	165
Accrued taxes	(165)
Security deposits, prepaid rents, and other liabilities	(117)
Net assets acquired	$	90,070

Cash paid	$	90,070
Mortgage debt, net	—
Total consideration	$	90,070

Capitalized acquisition costs incurred by the Company	$	187
Remaining amortization period of intangible
assets and liabilities (months)	7.5

Multifamily Community Assets Sold

The Company had no sales of multifamily community assets during both three-month periods ended March 31, 2022 or 2021.

New Market Properties

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

Preferred Office Properties

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

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

The Company recorded aggregate amortization and depreciation expense of:


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

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

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

Purchase Options

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

These fees are treated as additional interest revenue and are amortized over the period ending with the earlier of (i) the sale of the underlying property and (ii) the maturity of the real estate loans. The Company recorded $0 and approximately $1.2 million of interest revenue from the amortization of these purchase option terminations for both three-month periods ended March 31, 2022 and 2021, respectively.

Joint Venture Investment

On July 15, 2020, the Company contributed its Neapolitan Way grocery-anchored shopping center that was previously wholly-owned and consolidated into a joint venture in exchange for approximately $19.2 million and 50% interest in the joint venture. In doing so, the Company realized a gain on the transaction of approximately $3.3 million and now holds its remaining interest in the property via an unconsolidated joint venture and retains a 50% voting and financial interest. The following tables summarize the balance sheet and statements of income data for the Neapolitan Way shopping center subsequent to its contribution into the joint venture as of and for the periods presented:


(In thousands)	March 31, 2022		December 31, 2021
Total assets	$	36,443	$	36,687
Total liabilities	$	24,676	$	24,703

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022


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

Investment in Multifamily Development Project

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

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

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


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

(In thousands)
Drawn amount	$	220,557		$	206,270
Deferred loan origination fees	(1,942)			(1,755)
Allowance for expected credit losses	(8,335)			(8,095)
Carrying value	$	210,280		$	196,420

Unfunded commitments	$	95,750		$	61,952
Weighted average current interest, per annum (paid monthly)	8.57		%	8.58		%
Weighted average accrued interest, per annum	3.56		%	3.53		%


(In thousands)	Principal balance		Deferred loan origination fees		Allowances and CECL Reserves		Carrying value
Balances as of December 31, 2021	$	206,270	$	(1,755)	$	(8,095)	$	196,420
Loan fundings	14,287		—		—		14,287
Loan repayments	—		—		—		—
Loans and accrued interest settled through sale	—		—		—		$	—
Loan origination fees collected	—		(682)		—		(682)
Amortization of loan origination fees	—		495		—		495
Reserve increases due to loan originations	—		—