APTS - Preferred Apartment Communities Inc. Reports Results for Fourth Quarter 2021

Total Revenues

$105.7 million for Q4 2021; $451.1 million for the year ended December 31, 2021

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Net Loss Per Share

$(0.31) per share for Q4 2021; $(2.59) per share for the year ended December 31, 2021

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Core FFO per Share*

$0.24 per share for Q4 2021; $1.10 per share for the year ended December 31, 2021

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AFFO Per Share*

$0.18 per share for Q4 2021; $0.93 per share for the year ended December 31, 2021

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Multifamily Same Store Results*

Same-store rental and other property revenues increased 9.6% and same-store net operating income increased 14.8% for Q4 year over year;

Same-store rental and other property revenues increased 5.9% and same-store net operating income increased 7.2% for the full year 2021 over 2020

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PAC Enters Into a Definitive Agreement with Blackstone Real Estate Income Trust, Inc.

Cash transaction of $25 per share of Common Stock;

Closing expected during second quarter 2022

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Two Real Estate Loans and One Land Loan Closed During Fourth Quarter 2021

Aggregate commitment amount of $32.0 million

934 multifamily units added to PAC's acquisition pipeline

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Brookwood Center Office Sale Closed During Fourth Quarter 2021

Total consideration of $55.0 million, net proceeds of $25.1 million

Realized gain on sale of $12.4 million

*Core FFO and AFFO results are per weighted-average share and Class A OP Unit outstanding. Core FFO, AFFO and same-store net operating income are non-GAAP measures that are defined below.

Preferred Apartment Communities, Inc. (NYSE: APTS) ("we," "our," the "Company," "Preferred Apartment Communities" or "PAC") today reported results for the quarter and year ended December 31, 2021. Unless otherwise indicated, all per share results are reported based on the basic weighted average shares of Common Stock and Class A Units ("Class A Units") of the Preferred Apartment Communities Operating Partnership (our "Operating Partnership") outstanding. See Definitions of Non-GAAP Measures.

“The fourth quarter marked a continuation of our solid operating performance throughout the entirety of 2021 and capped off an exciting and transformational year. For 2021 as a whole, we continued to grow our high quality apartment portfolio and real estate investment loan book while population, job, and income growth across our Sunbelt markets provided an excellent fundamental backdrop for our business. These fundamentals and the quality and vintage of our multifamily portfolio produced strong fourth quarter results, with top line year over year same store revenue growth of 9.6% and year over year same store NOI growth of 14.8%.   Also for the fourth quarter, our same store properties had 22.0% rent growth for new leases and 12.5% for renewals for a blended 17.0% increase. These solid results caused us to end the year at 7.2% same store NOI growth for the full year, above the high end of our full year guidance. This rent growth has continued into January as our new leases are up 17.4% and renewals have increased 12.1% for a blended 14.3% increase,” stated Joel Murphy, Preferred Apartment Communities Chairman and Chief Executive Officer.

“Importantly, we achieved key milestones in our corporate simplification efforts that began two years ago, ending 2021 as a focused owner and operator of high quality multifamily and grocery anchored retail properties in suburban Sunbelt markets, operated by our best in class team. Additionally, I’m proud to say we furthered our commitment to the principles of ESG, ensuring that we are responsible partners for our community, the environment and all stakeholders.  Finally, I want to thank our entire team for their hard work and dedication this past year, their collective contributions produced our excellent results.”

Conference Call

As announced in a press release on February 22, 2022, as a result of our entering into a definitive agreement with Blackstone Real Estate Income Trust, Inc. ("BREIT"), we have canceled our conference call to discuss our fourth quarter and year ended 2021 earnings.

For Further Information

Paul Cullen
Executive Vice President-Investor Relations
Chief Marketing Officer
investorrelations@pacapts.com
770-818-4144

Operating Results

Our operating results are presented below.

Financial

• Our total revenues for the quarter ended December 31, 2021 decreased approximately $15.1 million, or 12.5%, to $105.7 million from the quarter ended December 31, 2020, due to the absence of revenues from the eight student housing properties that we sold on November 3, 2020 and the eight office properties and one real estate loan investment that we sold during the third and fourth quarters of 2021. The student housing properties contributed approximately $4.5 million, or 3.7% of our total revenues and the disposed office properties and real estate loan investment contributed approximately $18.8 million, or 15.6% of our total revenues for the quarter ended December 31, 2020.

• Our net loss per share was $(0.31) and $(0.77) for the three-month periods ended December 31, 2021 and 2020, respectively. Funds From Operations, or FFO, was $0.19 and $(0.20) per weighted average share of Common Stock and Class A Unit outstanding for the three months ended December 31, 2021 and 2020, respectively. The improvement in FFO per share was driven by:

* Lower deemed dividends due to a lower volume of calls and cash redemptions of our preferred stock during the fourth quarter 2021 versus the fourth quarter 2020 of $0.45 per share;

* Lower operating results as a result of the sale of our student housing and office properties of $(0.21) per share;

* Lower cash dividend requirements on our preferred stock of $0.15 per share;

* Lower revenues from the real estate loan portfolio of $(0.07) per share; and

* Improved multifamily same-store results of $0.04 per share.

• Our Core FFO per share decreased to $0.24 for the fourth quarter 2021 from $0.31 for the fourth quarter 2020, due to:

* Lower operating results as a result of the sale of our student housing and office properties of $(0.21) per share;

* Reduced cash dividend requirements on our preferred stock of $0.15 per share;

* Lower revenues from the real estate loan portfolio of $(0.07) per share; and

* Improved multifamily same-store results of $0.04 per share.

• Our AFFO per share decreased to $0.18 for the fourth quarter 2021 from $0.25 for the fourth quarter 2020 due to the four factors above driving the Core FFO decrease, and also:

* Lower accrued interest income received on real estate loans of $(0.07);

* Lower noncash loan interest income of $0.02; and

* Decreased noncash amortization of deferred revenues, straight-line rent adjustments, above and below market leases and tenant lease inducements of $0.05.

• Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately 65.3% and our Core FFO payout ratio to our preferred stockholders was approximately 72.8% for the full year 2021. Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately 74.0% and our Core FFO payout ratio to our preferred stockholders was approximately 68.3% for the fourth quarter 2021. ^(A)

• Our AFFO payout ratio to Common Stockholders and Unitholders was approximately 77.6% and our AFFO payout ratio to our preferred stockholders was approximately 76.0% for the full year 2021. Our AFFO payout ratio to Common Stockholders and Unitholders was approximately 99.6% and our AFFO payout ratio to our preferred stockholders was approximately 74.3% for the fourth quarter 2021.

• As of December 31, 2021, our total assets were approximately $3.6 billion, a decrease from our total assets of approximately $4.3 billion at December 31, 2020, that resulted primarily from the sale of eight office properties and one real estate loan investment that sold for approximately $780 million during the third and fourth quarter 2021.

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

Operational

• Our multifamily communities' same-store rental and other property revenues increased 9.6%, same-store property operating expenses increased 2.7% and same-store net operating income increased 14.8% for the quarter ended December 31, 2021 versus 2020. Our same-store multifamily communities include all our multifamily communities except Artisan at Viera, The Menlo, The Blake, Parkside at the Beach, Horizon at Wiregrass, The Ellison, Alleia at Presidio, The Anson, The Kingson, and Chestnut Farm, all of which were acquired in the last 29 months. For the year ended December 31, 2021, same-store rental and other property revenues increased 5.9%, same-store property operating expenses increased 4.2% and same-store net operating income increased 7.2% versus 2020.

• Our rental rates for our multifamily same-store properties for new and renewal leases increased 22.0% and 12.5% respectively and 17.0% blended for fourth quarter 2021 as compared to the expiring leases, excluding shorter-term leases of six months or less.

• Our rental rates for our multifamily same-store properties for new and renewal leases increased 17.4% and 12.1% respectively and 14.3% blended for January 2022 as compared to the expiring leases, excluding shorter-term leases of two months or less.

• As of December 31, 2021, the average age of our multifamily communities was approximately 6.3 years, which we believe is the youngest in the public multifamily REIT industry.

• As of December 31, 2021, all of our owned multifamily communities had achieved stabilization except for The Kingson and Chestnut Farm, which were acquired during the third quarter 2021. We define stabilization as reaching 93% occupancy for all three months within a single quarter.

• The average physical occupancy of our same-store multifamily communities increased to 96.2% for the three-month period ended December 31, 2021 from 95.7% for the three-month period ended December 31, 2020 but decreased from 97.1% for the three-month period ended September 30, 2021.

• Our average recurring rental revenue collections were approximately 99.0% for multifamily communities and 99.0% for grocery-anchored retail properties for the fourth quarter 2021.

• Effective December 10, 2021, we elected Daphne Bryson Jackson as an additional independent member of our board of directors.

Financing and Capital Markets

• As of December 31, 2021, approximately 96.1% of our permanent property-level mortgage debt has fixed interest rates and approximately 0.9% has variable interest rates which are capped. We believe we are well protected against potential increases in market interest rates. Our overall weighted average interest rate for our mortgage debt portfolio was 3.32% for multifamily communities, 4.35% for office properties, 3.90% for grocery-anchored retail properties and 3.54% in the aggregate.
  
• During the fourth quarter 2021, we issued and sold an aggregate of 9,518 shares of preferred stock and redeemed or called an aggregate of 23,684 shares of preferred stock, resulting in a net reduction of 14,166 outstanding shares of preferred stock, for a net redemption of approximately $14.2 million.
  
• During the fourth quarter 2021, we issued and sold an aggregate of 49,049 shares of common stock at an average price of $12.43 under the 2019 ATM Offering.
  
• At December 31, 2021, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 57.5%.
  
• At December 31, 2021, we had $200.0 million available to be drawn on our revolving line of credit.
  
• Our outstanding shares of Preferred Stock have decreased over the last three years, as summarized in the following chart:

Significant Transactions

• On October 14, 2021, we closed on a real estate loan investment of up to approximately $16.6 million supporting a 337-unit second phase of The Menlo multifamily community in Jacksonville, Florida.

• On October 21, 2021, we completed a supplemental financing on (i) our Retreat at Greystone multifamily community in the amount of approximately $7.3 million, that bears interest of 3.47% per annum and matures on December 1, 2024, and (ii) our Aldridge at Town Village multifamily community in the amount of approximately $3.7 million, that bears interest of 3.46% per annum and matures on November 1, 2024.

• On November 1, 2021, we repaid the mortgage debt in the amount of $27.4 million supporting our Champions Village grocery-anchored shopping center, and on November 2, 2021, we financed our Woodstock Crossing grocery-anchored shopping center with a $5.3 million mortgage bearing interest at a fixed rate of 2.89% per annum that matures on December 1, 2026.

• On November 3, 2021, we closed on a real estate loan investment of up to $9.1 million, in support of a 246-unit multifamily community located in the Atlanta, Georgia MSA.

• On November 12, 2021, we closed on the sale of our Brookwood Center office building located in Birmingham, Alabama and in doing so, recognized a gain of $12.4 million and collected net proceeds of approximately $25.1 million.

• On December 8, 2021, we financed our Fairview Market grocery-anchored shopping center with a $7.1 million mortgage bearing interest at a fixed rate of 2.87% per annum that matures on December 15, 2028.

• On December 17, 2021, we closed on a land acquisition bridge loan of up to $6.3 million, in support of a 351-unit multifamily community located in the Charleston, South Carolina MSA.

• Effective December 21, 2021, we entered into a $2.0 million equity commitment to partially finance the development and construction of a grocery-anchored shopping center to be located in the Charleston, South Carolina MSA. We will earn a fixed return of 12% per annum over an anticipated investment life of between 24 and 36 months from the development project and we will have a five year right of first offer to purchase the interests of the other investors in the project.

Subsequent to Quarter End

• On February 11, 2022, we closed on a real estate loan investment of up to $16.7 million, in support of a 286-unit multifamily community located in the Orlando, Florida MSA.
  
• On February 24, 2022, our board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, payable on April 14, 2022 to stockholders of record on March 15, 2022.
  
• Between January 1, 2022 and February 25, 2022, we issued no shares of Common Stock under the 2019 ATM Offering.
  
• Between January 1, 2022 and February 10, 2022, we issued 3,167 shares of Series M1 Preferred Stock and collected net proceeds of approximately $3.1 million after commissions and fees. During the same period, we redeemed 9,453 shares of Series A Preferred Stock, 204 mShares, 212 shares of Series A1 Preferred Stock, and 267 shares of Series M1 Preferred Stock.
  
• On February 10, 2022, we amended our real estate loan investment supporting The Platform, a 551-unit multifamily community located in San Jose, California. The maturity date of the instrument was extended to August 13, 2022 and a second extension option of December 31, 2022 was added. The all-in interest rate was reduced to 9.5% per annum beginning on the original maturity date of February 13, 2022 and it increases in steps each three-month period up to 11.0% per annum. As of January 31, 2022, the property's physical occupancy was 91.1%.
  
• On February 15, 2022, we refinanced our Chestnut Farm multifamily community with permanent mortgage financing in the amount of approximately $52.3 million, that bears interest at a rate of 3.25% and matures on March 1, 2032.
  
• On February 16, 2022, we entered into a definitive agreement by which Blackstone Real Estate Income Trust, Inc. ("BREIT") will acquire all our outstanding shares of our common stock for $25.00 in cash. Once and if the acquisition is completed, the Company will cease to be a publicly-traded company on the New York Stock Exchange. The holders of each series of our shares of preferred stock will receive the $1,000 per share liquidation preference for each share plus accrued but unpaid dividends. The transaction has been unanimously approved by our Board of Directors and is expected to close in the second quarter of 2022, although there is no guarantee that it will occur by that date, or at all, and the transaction is subject to approval by our stockholders and other customary closing conditions.
  
• On February 25, 2022, the Company closed on the acquisition of Lirio at Rafina, a 280-unit multifamily community located in the Orlando, Florida MSA.
  
• On February 28, 2022, we closed on a real estate loan investment of up to $17.2 million, in support of a 242-unit multifamily community located in the Naples, Florida MSA.
  
• Between January 1, 2022 and February 25, 2022, we issued 3,358,780 shares of Common Stock from exercises of our outstanding Warrants.

2022 Guidance

Due to the pending acquisition by BREIT, we are not issuing guidance at this time with respect to our 2022 financial outlook.

Real Estate Assets

At December 31, 2021, our portfolio of owned real estate assets and potential additions from purchase options we held from our real estate loan investments consisted of:

Same-Store Financial Data

The following charts present same-store operating results for the Company’s multifamily communities. We define our population of same-store multifamily communities as those that have achieved occupancy at or above 93% for all three months within a single quarter ("stabilized") before the beginning of the prior year and that have been owned for at least 15 full months as of the end of the first quarter of the current year, enabling comparisons of the current year quarterly and annual reporting periods to the prior year comparative periods. The Company excludes the operating results of properties for which construction of adjacent phases has commenced and properties which are undergoing significant capital projects, have sustained significant casualty losses, or are being held for sale as of the end of the reporting period.

For the periods presented, same-store operating results consist of the operating results of the multifamily communities listed below, comprising an aggregate 9,222 units, or 76.5% of our multifamily units.

Same-store net operating income is a non-GAAP measure that is most directly comparable to net income (loss), as shown in the reconciliation below. See Definitions of Non-GAAP Measures.

Dividends

Quarterly Dividends on Common Stock and Class A OP Units

On October 28, 2021, our board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, which was paid on January 14, 2022 to stockholders of record as of December 15, 2021. In conjunction with the Common Stock dividend, our operating partnership declared a distribution on its Class A Units of $0.175 per unit for the fourth quarter 2021, which was paid on January 14, 2022 to all Class A Unit holders of record as of December 15, 2021.

Monthly Dividends on Preferred Stock

We declared monthly dividends of $5.00 per share on our Series A Preferred Stock, which totaled approximately $22.1 million for the fourth quarter 2021 and represents a 6% annual yield. We declared monthly dividends of $5.00 per share on our Series A1 Preferred Stock, which totaled approximately $3.7 million for the fourth quarter 2021 and also represents a 6% annual yield. We declared dividends totaling approximately $1.4 million on our Series M Preferred Stock, or mShares, for the fourth quarter 2021. The mShares have a dividend rate that escalates from 5.75% in year one of issuance to 7.50% in year eight and thereafter. We declared dividends totaling approximately $605,000 on our Series M1 Preferred Stock for the fourth quarter 2021. The Series M1 Preferred Stock has a dividend rate that escalates from 6.1% in year one of issuance to 7.1% in year ten and thereafter.

Forward-Looking Statements

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: redemptions of Series A Preferred Stock, potential additions of properties from purchase options and rights of first offer from our real estate loan investments, goals and performance are, by definition, and certain other statements in this Earnings Release and Supplemental Financial Data Report may constitute, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or transactions to be materially different from the results, guidance, goals, performance, achievements or transactions expressed or implied by the forward-looking statements. These statements may be identified by the use of forward-looking terminology such as "may," "trend," "will," "expects," "plans," "estimates," "anticipates," "projects," "intends," "believes," "strategy," "goals," "objectives," "outlook" and similar expressions. These risks, uncertainties and contingencies include, but are not limited to, (a) the impact of the COVID-19 pandemic, including any variants, and related federal, state and local government actions on PAC’s business operations and the economic conditions in the markets in which PAC operates; (b) PAC’s ability to mitigate the impacts arising from COVID-19 or any variants thereof; (c) risks related to the proposed acquisition by BREIT, including the possibility that the consummation of the transaction could be delayed or not completed, and the effect of the announcement or pendency of the transaction on our business; (d) PAC's ability to make distributions to its stockholders in the future; and (e) those disclosed in PAC's filings with the SEC. Factors that impact such forward-looking statements include, among others, our business and investment strategy; legislative or regulatory actions; the state of the U.S. economy generally or in specific geographic areas; economic trends and economic recoveries; changes in operating costs, including real estate taxes, utilities and insurance costs; our ability to obtain and maintain debt or equity financing; financing and advance rates for our target assets; our leverage level; changes in the values of our assets; the occurrence of natural or man-made disasters; availability of attractive investment opportunities in our target markets; our ability to maintain our qualification as a real estate investment trust, or REIT, for U.S. federal income tax purposes; availability of quality personnel; our understanding of our competition and market trends in our industry; and interest rates, real estate values, the debt securities markets and the general economy.

Except as otherwise required by the federal securities laws, we assume no liability to update the information in this Earnings Release and Supplemental Financial Data Report.

We refer you to the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 that was filed with the SEC on February 28, 2022, which discuss various factors that could adversely affect our financial results. Such risk factors and information may be updated or supplemented by our Form 10-K, Form 10-Q and Form 8-K filings and other documents filed from time to time with the SEC.

COVID-19

Our percentages of rent collected remained stabilized at or near pre-pandemic levels during the fourth quarter 2021. While the impacts of COVID-19 and its variants are continuing, the effects on our operations have been manageable and we believe this condition will persist, barring a dramatic change in the trajectory of the pandemic. We are continuing to monitor the spread and impact of the variants of COVID-19 as well as vaccination rates in our markets.

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

Real Estate Loan Investments

The following tables present details pertaining to our portfolio of fixed rate, interest-only real estate loan investments.

We hold options or rights of first offer, but not obligations, to purchase some of the properties which are partially financed by our real estate loan investments. Option purchase prices are generally the market value of the property, as negotiated and agreed upon by the purchasing and selling parties and are derived utilizing market cap rates. As of December 31, 2021, potential property acquisitions and units from projects in our real estate loan investment portfolio consisted of:

Mortgage Indebtedness

As of December 31, 2021, our mortgage note principal repayment obligations were:

Multifamily Communities

As of December 31, 2021, our multifamily community portfolio consisted of the following properties:

For the three-month period ended December 31, 2021, our average same-store multifamily communities' physical occupancy was 96.2%. We calculate average same-store physical occupancy for quarterly periods as the average of the number of occupied units on the 20th day of each of the trailing three months from the reporting period end date and that have been owned for at least 15 full months as of the end of the first quarter of each year. We exclude the operating results of properties for which construction of adjacent phases has commenced, properties which are undergoing significant capital projects, have sustained significant casualty losses, or are being marketed for sale as of the end of the reporting period. We believe "Same Property" information is useful as it allows both management and investors to gauge our management effectiveness via comparisons of financial and operational results between interim and annual periods for those subsets of multifamily communities owned for current and prior comparative periods.

For the three-month period ended December 31, 2021, our average stabilized physical occupancy was 96.3%. We calculate average stabilized physical occupancy for quarterly periods as the average number of occupied units on the 20th day of each of the trailing three months from the reporting period end date. All of our multifamily communities were stabilized for the three-month period ended December 31, 2021 except The Kingson and Chestnut Farm.

For the three-month period ended December 31, 2021, our average stabilized economic occupancy was 95.9%. We define average economic occupancy as market rent reduced by vacancy losses, expressed as a percentage. All of our multifamily properties are included in these calculations except for properties which are not yet stabilized (which we define as properties having first achieved 93% physical occupancy for three full months in a quarter), properties which are owned for less than the entire reporting period and properties which are undergoing significant capital projects, have sustained significant casualty losses or are adding additional phases. We also exclude properties which are currently being held for sale, of which we had none at December 31, 2021. Average economic occupancy is useful both to management and investors as a gauge of our effectiveness in realizing the full revenue generating potential of our multifamily communities given market rents and occupancy rates.

Capital Expenditures

We regularly incur capital expenditures related to our owned multifamily communities. Capital expenditures may be nonrecurring and discretionary, as part of a strategic plan intended to increase a property’s value and corresponding revenue-generating ability, or may be normally recurring and necessary to maintain the income streams and present value of a property. Certain capital expenditures may be budgeted and reserved for upon acquiring a property as initial expenditures necessary to bring a property up to our standards or to add features or amenities that we believe make the property a compelling value to prospective residents in its individual market. These budgeted nonrecurring capital expenditures in connection with an acquisition are funded from the capital source(s) for the acquisition and are not dependent upon subsequent property operating cash flows for funding.

For the three-month period ended December 31, 2021, our capital expenditures for multifamily communities consisted of:

Grocery-Anchored Shopping Center Portfolio

As of December 31, 2021, our grocery-anchored shopping center portfolio consisted of the following properties:

As of December 31, 2021, our grocery-anchored shopping center portfolio was 91.1% leased (95.9% excluding redevelopment properties). We define percent leased as the percentage of gross leasable area that is leased as of the period end date, including non-cancelable lease agreements that have been signed which have not yet commenced. This metric is used by management to gauge the extent to which our grocery-anchored shopping centers are delivering their total potential rental and other revenues.

Details regarding lease expirations (assuming no exercises of tenant renewal options) within our grocery-anchored shopping center portfolio as of December 31, 2021 were:

Our grocery-anchored shopping center portfolio contained the following anchor tenants as of December 31, 2021:

Our Annual Report on Form 10-K for the period ended December 31, 2021 will present income statements of New Market Properties, LLC within the Results of Operations section of Management's Discussion and Analysis of Financial Condition and Results of Operations.

Second-generation capital expenditures within our grocery-anchored shopping center portfolio by property for the fourth quarter 2021 totaled approximately $1.4 million. Second-generation capital expenditures exclude those expenditures made in our grocery-anchored shopping center and office building portfolios (i) to lease space to "first generation" tenants (i.e. leasing capital for existing vacancies and known move-outs at the time of acquisition), (ii) to bring recently acquired properties up to our ownership standards, and (iii) for property redevelopments and repositioning.

Office Building Portfolio

As of December 31, 2021, our office building portfolio consisted of the following properties:

As of December 31, 2021, our office building portfolio includes the following significant tenants:

We define Annual Base Rent as the current monthly base rent annualized under the respective leases.

As of December 31, 2021, the leased square footage of our office building portfolio expires according to the following schedule:

The Company recognized second-generation capital expenditures within its office building portfolio of approximately $636,000 during the fourth quarter 2021.

Definitions of Non-GAAP Measures

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

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

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

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

Net income/loss, excluding:

• depreciation and amortization related to real estate;

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

• gains and losses from change in control; and

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

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

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

We make adjustments to FFO to remove costs incurred and revenues recorded that are singular in nature and outside our normal operations and portray our primary operational results. We calculate Core FFO as:

FFO, plus:

• acquisition and pursuit (dead deal) costs;

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

• losses on debt extinguishments or refinancing costs;

• Internalization costs;

• expenses incurred on calls of preferred stock;

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

• expenses related to the COVID-19 global pandemic;

Less:

• earnest money forfeitures by prospective asset purchasers.

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

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

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

Core FFO, plus:

• non-cash equity compensation to directors and executives;

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

• amortization of loan closing costs;

• depreciation and amortization of non-real estate assets;

• net loan origination fees received;

• deferred interest income received;

• amortization of lease inducements;

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

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

• earnest money forfeiture from prospective asset purchaser;

Less:

• non-cash loan interest income;

• cash paid for loan closing costs;

• amortization of straight-line rent adjustments and acquired real estate intangible assets and/or liabilities;

• amortization of deferred revenues; and

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

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

Same-Store Net Operating Income (“NOI”)

We use same-store NOI as an operational metric for our same-store multifamily communities, enabling comparisons of those properties’ operating results between the current reporting period and the prior year comparative period. We define our population of same-store multifamily communities as those that are stabilized and that have been owned for at least 15 full months as of the end of the first quarter of each year, and exclude the operating results of properties for which construction of adjacent phases has commenced, and properties which are undergoing significant capital projects, have sustained significant casualty losses, or are being marketed for sale as of the end of the reporting period. We define NOI as rental and other property revenues, less total property and maintenance expenses, property management fees, real estate taxes, general and administrative expenses, and property insurance. We believe that NOI is an important supplemental measure of operating performance for REITs because it provides measures of core operations, rather than factoring in depreciation and amortization, financing costs, acquisition costs, and other corporate expenses. NOI is a widely utilized measure of comparative operating performance in the REIT industry, but is not a substitute for the most comparable GAAP-compliant measure, net income/loss.

About Preferred Apartment Communities, Inc.

Preferred Apartment Communities, Inc. (NYSE: APTS) is a real estate investment trust engaged primarily in the ownership and operation of Class A multifamily properties, with select investments in grocery-anchored shopping centers. Preferred Apartment Communities’ investment objective is to generate attractive, stable returns for stockholders by investing in income-producing properties and acquiring or originating real estate loans. As of December 31, 2021, the Company owned or was invested in 109 properties in 13 states, predominantly in the Southeast region of the United States.

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Paul Cullen
Executive Vice President-Investor Relations
Chief Marketing Officer
investorrelations@pacapts.com
770-818-4144