PREFERRED APARTMENT COMMUNITIES INC - FORM 8-K - EX-99.2 - 2Q16 - SUPPLEMENTAL FINANCIAL DATA - August 1, 2016

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Table of Contents

Company Profile
 
 
 
2

Financial Summary of the Second Quarter 2016
3

2016 Guidance
 
 
 
3

Highlights of the Second Quarter 2016 and Subsequent Events
3

Consolidated Statements of Operations
6

Reconciliation of Funds From Operations Attributable to Common Stockholders and Unitholders, Normalized Funds From Operations Attributable to Common Stockholders and Unitholders, and Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders to Net Loss Attributable to Common Stockholders
7

Notes to Reconciliation of Funds From Operations Attributable to Common Stockholders and Unitholders, Normalized Funds From Operations Attributable to Common Stockholders and Unitholders, and Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders to Net Loss Attributable to Common Stockholders
8

Consolidated Balance Sheets
9

Consolidated Statements of Cash Flows
10

Real Estate Loan Portfolio
11

Multifamily Communities
12

Capital Expenditures
12

Retail Portfolio
14

Multifamily Same Store Financial Data
15

Definitions of Non-GAAP Measures
16




















Cover photo: Village at Baldwin Park, Orlando, Florida


SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 1

Preferred Apartment Communities, Inc.     

Preferred Apartment Communities, Inc. (NYSE: APTS), or the Company, is a Maryland corporation formed primarily to acquire and operate multifamily properties in select targeted markets throughout the United States. As part of our business strategy, we may enter into forward purchase contracts or purchase options for to-be-built multifamily communities and we may make real estate related loans, provide deposit arrangements, or provide performance assurances, as may be necessary or appropriate, in connection with the construction of multifamily communities and other properties. As a secondary strategy, we also may acquire or originate senior mortgage loans, subordinate loans or mezzanine debt secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest not more than 20% of our assets, subject to any temporary increase unanimously approved by our board of directors, in other real estate related investments, such as grocery-anchored shopping centers, senior mortgage loans, subordinate loans or mezzanine debt secured by interests in grocery-anchored shopping centers, membership or partnership interests in grocery-anchored shopping centers and other grocery-anchored shopping center related assets as determined by Preferred Apartment Advisors, LLC, or our Manager, as appropriate for us. At June 30, 2016, the Company was the approximate 96.4% owner of Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership. We elected to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended, commencing with our tax year ended December 31, 2011.
 


Forward-Looking Statements
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Estimates of future earnings, guidance, goals and performance are, by definition, and certain other statements in this 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. 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; 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; 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; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended; 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 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 twelve months ended December 31, 2015 that was filed with the Securities and Exchange Commission, or SEC, on March 14, 2016, which discusses various factors that could adversely affect our financial results. Such risk factors and information may have been updated or supplemented by our Form 10-Q and Form 8-K filings and other documents filed after March 14, 2016 and from time to time with the SEC.











SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 2


Financial Summary of the Second Quarter 2016

(See Definitions of Non-GAAP Measures on page 15)
 
Three months ended:
 
Change inc (dec):
 
6/30/2016
 
6/30/2015
 
Amount
 
Percentage
 
 
 
 
 
 
 
 
Revenues
$
45,853,944

 
$
24,088,827

 
$
21,765,117

 
90.4
 %
 
 
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(9,239,588
)
 
$
(3,679,421
)
 
$
(5,560,167
)
 
151.1
 %
 
 
 
 
 
 
 
 
Net loss per share of Common Stock
$
(0.40
)
 
$
(0.17
)
 
$
(0.23
)
 
135.3
 %
 
 
 
 
 
 
 
 
FFO
$
4,330,394

 
$
4,213,904

 
$
116,490

 
2.8
 %
 
 
 
 
 
 
 
 
FFO per share (1)
$
0.18

 
$
0.19

 
$
(0.01
)
 
(5.3
)%
 
 
 
 
 
 
 
 
Acquisition costs and other adjustments
3,263,173

 
1,813,994

 
$
1,449,179

 
79.9
 %
 
 
 
 
 
 
 
 
NFFO
$
7,593,567

 
$
6,027,898

 
$
1,565,669

 
26.0
 %
 
 
 
 
 
 
 
 
NFFO per share (1)
$
0.31

 
$
0.27

 
$
0.04

 
14.8
 %
 
 
 
 
 
 
 
 
AFFO (plus preferred dividends)
16,843,353

 
10,743,495

 
$
6,099,858

 
56.8
 %
Preferred dividends
(9,444,282
)
 
(4,090,557
)
 
 
 
 
AFFO
$
7,399,071

 
$
6,652,938

 
$
746,133

 
11.2
 %
 
 
 
 
 
 
 
 
AFFO per share (1)
$
0.31

 
$
0.30

 
$
0.01

 
3.3
 %
 
 
 
 
 
 
 
 
Dividends per share of Common Stock
$
0.2025

 
$
0.18

 
$
0.0225

 
12.5
 %
 
 
 
 
 
 
 
 
Cash flow from operations
$
19,469,645

 
$
10,562,240

 
$
8,907,405

 
84.3
 %
 
 
 
 
 
 
 
 
Total assets
$
1,757,008,533

 
$
909,057,804

 
$
847,950,729

 
93.3
 %
Weighted average shares of Common Stock
 
 
 
 
 
 
 
and Units outstanding
24,212,009

 
22,496,023

 
 
 
 

(1)“Per share” refers to per weighted average share of Common Stock and Class A Unit in our Operating Partnership outstanding for the periods indicated. See Reconciliation of Funds From Operations Attributable to Common Stockholders and Unitholders, Normalized Funds From Operations Attributable to Common Stockholders and Unitholders, and Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders to Net Loss Attributable to Common Stockholders and Definitions of Non-GAAP Measures on pages 6 and 15.

2016 Guidance:  
Net income (loss) per share - We are actively adding properties and real estate loans to our real estate portfolio and the specific timing of the closing of acquisitions is difficult to predict. Such activity by nature can cause material variation in our reported acquisition costs, depreciation and amortization expense, and interest revenue. Since net income (loss) per share is calculated net of acquisition costs and depreciation and amortization expense, our net income (loss) results can fluctuate widely. For this reason, we are unable to reasonably forecast this measure.
NFFO - We currently project NFFO to be in the range of $1.25 - $1.29 per share(1) for the full year 2016.
Revenue - We currently project total revenues to be in the range of $180 million - $205 million for the full year 2016.

Highlights of the Second Quarter 2016 and Subsequent Events

•
Normalized Funds From Operations Attributable to Common Stockholders and Unitholders, or NFFO, was $7,593,567, or $0.31 per share for the second quarter 2016, an increase of 14.8% on a per share basis from our NFFO result of $6,027,898, or $0.27 per share for the second quarter 2015. NFFO was $14,606,141, or $0.61 per share for the six months ended June 30, 2016, an increase of 22.0% on a per share basis from our NFFO result of $11,230,001, or $0.50 per share for the 2015 period.

SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 3


•
Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders, or AFFO, was $7,399,071, or $0.31 per share for the second quarter 2016, an increase of 3.3% on a per share basis from our AFFO result of $6,652,938, or $0.30 per share for the second quarter 2015. AFFO was $16,334,938 , or $0.68 per share for the six months ended June 30, 2016, an increase of 30.8% on a per share basis from our AFFO result of $11,593,284, or $0.52 per share for the 2015 period. AFFO is calculated after deductions for all preferred dividends.

•
Net loss attributable to common stockholders was $9,239,588, or $0.40 per share of Common Stock for the second quarter 2016, versus $3,679,421, or $0.17 per share of Common Stock for the second quarter 2015, and a net loss of $20,423,703, or $0.88 per share of Common Stock for the six months ended June 30, 2016, versus a net loss of $7,614,411, or $0.35 per share of Common Stock for the six months ended June 30, 2015. These results are reflective of non-cash depreciation and amortization expense of $17,969,975 and $7,927,849 for the respective second quarter periods and $33,316,701 and $15,873,277 for the respective six month periods.

•
As of June 30, 2016, our total assets were approximately $1.8 billion, an increase of approximately $0.85 billion, or 93.3% compared to our total assets of approximately $0.9 billion at June 30, 2015.

•
Total revenues for the second quarter 2016 were approximately $45.9 million, an increase of approximately $21.8 million, or 90.4%, compared to approximately $24.1 million for the second quarter 2015.

•
Cash flow from operations for the second quarter 2016 was approximately $19.5 million, an increase of approximately $8.9 million, or 84.3%, compared to approximately $10.6 million for the second quarter 2015.

•
Our Common Stock dividend of $0.2025 per share for the second quarter 2016 represents a growth rate of 12.5% from our second quarter 2015 dividend of $0.18 per share and a growth rate of approximately 10.9% on an annualized basis since June 30, 2011, the first quarter end following our initial public offering in April 2011.

•
At June 30, 2016, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 56.9%.

•
For the second quarter 2016, our average occupancy was 94.7%. As of June 30, 2016, our retail portfolio was 94.4% leased.

•
For the second quarter 2016, our NFFO payout ratio to our Common Stockholders and Unitholders was approximately 65.2% and our AFFO payout ratio to Common Stockholders and Unitholders was approximately 66.9%. (2) 

•
For the second quarter 2016, our NFFO payout ratio (before the deduction of preferred dividends) to our Series A Preferred Stockholders was approximately 55.4% and our AFFO payout ratio (before the deduction of preferred dividends) to our Series A Preferred Stockholders was approximately 56.1%. (2) 

•
On May 19, 2016, we sold Trail Creek Apartments, a 300-unit multifamily community in Hampton, Virginia, and collected net proceeds from the sale of approximately $10.5 million and realized a gain on the sale of approximately $4.3 million.

•
On April 19, 2016, we closed on a real estate investment loan of up to approximately $9.4 million in support of a proposed second phase of a 140-unit, 556-bed student housing project adjacent to the campus of Texas Tech University in Lubbock, Texas. The loan pays current monthly interest of 8.5% per annum and accrues deferred interest of 5.0% per annum. We also received a purchase option to acquire the property upon stabilization.

•
During the second quarter 2016, we acquired a 219-unit, 679-bed student housing community located in Tallahassee, Florida and a 487-unit multifamily community located in Orlando, Florida, We also acquired seven grocery-anchored shopping centers located in South Carolina, Georgia, Alabama and Tennessee, comprising approximately 607,000 aggregate square feet of gross leasable area.

•
With the closing of the acquisitions and sale referenced above, as of June 30, 2016 we owned 22 multifamily communities consisting of an aggregate of 7,487 units, one 219-unit student housing community and 22 grocery-anchored shopping centers comprising an aggregate of approximately 1,960,000 square feet of gross leasable area. Upon completion of all the projects partially financed by our real estate loan portfolio and if we were to acquire all the underlying properties, we would own 20

SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 4

additional multifamily communities, comprising an aggregate of 4,839 units, including eight student housing communities comprising an aggregate of 5,374 beds, and one retail shopping center comprising approximately 212,800 square feet of gross leasable area. We evaluate each project individually and we can make no assurance that we will acquire any of the underlying properties.

•
On July 1, 2016, we converted approximately $12.5 million of the principal amount due on our City Vista real estate loan investment into a 96% equity ownership interest in a joint venture that owns the underlying 272-unit apartment community in Pittsburgh, Pennsylvania.

•
On July 15, 2016, we acquired a grocery-anchored shopping center comprising 301,711 square feet of gross leasable area located in the Atlanta, Georgia market.

•
On July 14, 2016, our earnest money deposit of $20.0 million on the purchase of eight grocery-anchored shopping centers comprising an aggregate of approximately 1.1 million square feet of gross leasable area became nonrefundable. The aggregate purchase price of the centers is approximately $209.1 million. We expect to close seven of the eight shopping centers in August 2016. The remaining shopping center is expected to close in late third quarter or fourth quarter 2016, if the seller does not exercise its right to exclude this property from the transaction.



(1) “Per share” refers to per weighted average share of Common Stock and Class A Unit in our Operating Partnership outstanding for the periods indicated. See Reconciliation of Funds From Operations Attributable to Common Stockholders and Unitholders, Normalized Funds From Operations Attributable to Common Stockholders and Unitholders, and Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders to Net Loss Attributable to Common Stockholders and Definitions of Non-GAAP Measures on pages 6 and 15.

(2) We calculate the NFFO and AFFO payout ratios to Common Stockholders and Unitholders as the ratio of Common Stock dividends and distributions to Unitholders to NFFO or AFFO, respectively. We calculate the NFFO and AFFO payout ratios to Series A Preferred Stockholders as the ratio of Preferred Stock dividends to the sum of Preferred Stock dividends and NFFO or AFFO, respectively. See Definitions of Non-GAAP Measures on page 15.

SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 5

Preferred Apartment Communities, Inc.
Consolidated Statements of Operations
(Unaudited)
 
 
Three months ended June 30,
 
 
2016
 
2015
Revenues:
 
 
 
 
Rental revenues
 
$
30,966,738

 
$
14,720,482

Other property revenues
 
4,308,360

 
2,157,800

Interest income on loans and notes receivable
 
6,847,724

 
5,582,871

Interest income from related parties
 
3,731,122

 
1,627,674

Total revenues
 
45,853,944

 
24,088,827

 
 
 
 
 
Operating expenses:
 
 
 
 
Property operating and maintenance
 
4,356,923

 
2,545,578

Property salary and benefits reimbursement to related party
2,516,605

 
1,308,832

Property management fees
1,356,409

 
655,139

Real estate taxes
 
5,494,608

 
2,327,472

General and administrative
 
1,191,520

 
463,298

Equity compensation to directors and executives
618,867

 
577,543

Depreciation and amortization
 
17,969,975

 
7,927,849

Acquisition and pursuit costs
2,490,566

 
669,342

Acquisition fees to related parties
 
274,176

 
1,098,471

Asset management fees to related party
 
2,958,991

 
1,570,956

Insurance, professional fees, and other expenses
 
1,571,514

 
644,202

 
 
 
 
 
Total operating expenses
 
40,800,154

 
19,788,682

Contingent asset management and general and administrative expense fees
(451,684
)
 
(809,159
)
 
 
 
 
 
Net operating expenses
 
40,348,470

 
18,979,523

Operating income
 
5,505,474

 
5,109,304

Interest expense
 
9,559,501

 
4,688,468

 
 
 
 
 
(Loss) income before gain on sale of real estate
 
(4,054,027
)
 
420,836

Gain on sale of real estate, net of disposition expenses
 
4,271,506

 
—

Net income
 
217,479

 
420,836

Consolidated net income attributable to non-controlling interests
 
(7,961
)
 
(4,276
)
 
 
 
 
 
Net income attributable to the Company
 
209,518

 
416,560

 
 
 
 
 
Dividends declared to Series A preferred stockholders
 
(9,444,282
)
 
(4,090,557
)
Earnings attributable to unvested restricted stock
 
(4,824
)
 
(5,424
)
 
 
 
 
 
Net loss attributable to common stockholders
 
$
(9,239,588
)
 
$
(3,679,421
)
 
 
 
 
 
Net loss per share of Common Stock available to common stockholders,
 
 
 
basic and diluted
 
$
(0.40
)
 
$
(0.17
)
 
 
 
 
 
Dividends per share declared on Common Stock
 
$
0.2025

 
$
0.18

 
 
 
 
 
Weighted average number of shares of Common Stock outstanding,
 
 
 
basic and diluted
 
23,325,663

 
22,215,663


SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 6

Reconciliation of Funds From Operations Attributable to Common Stockholders and Unitholders,
Normalized Funds From Operations Attributable to Common Stockholders and Unitholders, and
Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders
to Net Loss Attributable to Common Stockholders (A)
 
 
 
 
 
 
Three months ended:
 
 
 
 
 
06/30/2016
 
06/30/2015
 
 
 
 
 
 
 
 
Net loss attributable to common stockholders (See note 1)
$
(9,239,588
)
 
$
(3,679,421
)
 
 
 
 
 
 
 
 
Add:
Loss attributable to non-controlling interests (See note 2)
7,961

 
4,276

 
Depreciation of real estate assets
 
12,639,224

 
6,132,444

 
Amortization of acquired real estate intangible assets and deferred leasing costs
5,194,303

 
1,756,605

Less:
Gain on sale of real estate
(4,271,506
)
 
—

 
 
 
 
 
 
 
 
Funds from operations attributable to common stockholders and Unitholders
4,330,394

 
4,213,904

 
 
 
 
 
 
 
 
Add:
Acquisition and pursuit costs
 
 
2,764,742

 
1,767,813

 
Loan cost amortization on acquisition term note (See note 3)
32,974

 
46,181

 
Amortization of loan coordination fees paid to the Manager (See note 4)
155,683

 
—

 
Costs incurred from extension of management agreement with the Manager (See note 5)
309,774

 
—

 
 
 
 
 
 
 
 
Normalized funds from operations attributable to common stockholders and Unitholders
$
7,593,567

 
$
6,027,898

 
 
 
 
 
 
 
 
 
Non-cash equity compensation to directors and executives
618,867

 
577,543

 
Amortization of loan closing costs (See note 6)
 
513,455

 
307,114

 
Depreciation/amortization of non-real estate assets
 
136,448

 
38,800

 
Net loan fees received (See note 7)
 
422,857

 
349,643

 
Deferred interest income received (See note 8)
 
2,667,051

 
1,926,880

Less:
Non-cash loan interest income (See note 7)
 
(3,268,168
)
 
(2,046,750
)
 
Cash paid for loan closing costs
(9,042
)
 
—

 
Amortization of acquired real estate intangible liabilities (See note 9)
(577,437
)
 
(184,541
)
 
Normally recurring capital expenditures and leasing costs (See note 10)
(698,527
)
 
(343,649
)
 
 
 
 
 
 
 
 
Adjusted funds from operations attributable to common stockholders and Unitholders
$
7,399,071

 
$
6,652,938

 
 
 
 
 
 
 
 
Common Stock dividends and distributions to Unitholders declared:
 
 
 
 
Common Stock dividends
 
 
$
4,772,587

 
$
4,012,322

 
Distributions to Unitholders (See note 2)
 
179,449

 
50,465

 
Total
 
 
 
$
4,952,036

 
$
4,062,787

 
 
 
 
 
 
 
 
Common Stock dividends and Unitholder distributions per share
 
$
0.2025

 
$
0.18

 
 
 
 
 
 
 
 
FFO per weighted average basic share of Common Stock and Unit outstanding
$
0.18

 
$
0.19

NFFO per weighted average basic share of Common Stock and Unit outstanding
$
0.31

 
$
0.27

AFFO per weighted average basic share of Common Stock and Unit outstanding
$
0.31

 
$
0.30

Weighted average shares of Common Stock and Units outstanding: (A)
 
 
 
 
Basic:
 
 
 
 
 
 
 
Common Stock
 
 
23,325,663

 
22,215,663

 
Class A Units
 
 
 
886,346

 
280,360

 
Common Stock and Class A Units
 
24,212,009

 
22,496,023

 
 
 
 
 
 
 
 
 
Diluted Common Stock and Class A Units (B)
 
25,461,338

 
22,961,379

 
 
 
 
 
 
 
 
Actual shares of Common Stock outstanding, including 30,990 and 30,133 unvested shares
 
 
 
 of restricted Common Stock at June 30, 2016 and 2015, respectively
23,723,168

 
22,307,057

Actual Class A Units outstanding
 
 
886,168

 
280,360

 
Total
 
 
 
24,609,336

 
22,587,417

 
 
 
 
 
 
 
 
(A) Units and Unitholders refer to Class A Units in our Operating Partnership, or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 3.66% weighted average non-controlling interest in the Operating Partnership for the three-month period ended June 30, 2016.
(B) Since our NFFO and AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.
See Notes to Reconciliation of Funds From Operations Attributable to Common Stockholders and Unitholders, Normalized Funds From Operations Attributable to Common Stockholders and Unitholders, and Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders to Net Loss Attributable to Common Stockholders on page 8.

SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 7

Notes to Reconciliation of Funds From Operations Attributable to Common Stockholders and Unitholders, Normalized Funds From Operations Attributable to Common Stockholders and Unitholders, and Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders to Net Loss Attributable to Common Stockholders

1)
Rental and other property revenues and expenses for the three-month period ended June 30, 2016 include activity for the multifamily community, student housing project, and seven grocery-anchored shopping centers acquired during the second quarter 2016 only from their respective dates of acquisition. In addition, the 2016 period includes a full quarter of activity for the seven multifamily communities and five grocery-anchored shopping centers acquired during the third and fourth quarters of 2015 and the first quarter 2016. Rental and other property revenues and expenses for the three-month period ended June 30, 2015 include activity for the Aster at Lely and Venue at Lakewood Ranch multifamily communities only from their respective dates of acquisition during the second quarter 2015.

2)
Non-controlling interests in our Operating Partnership consisted of a total of 886,168 Class A Units as of June 30, 2016. Included in this total are 419,228 Class A Units which were granted as partial consideration to the seller in conjunction with the seller's contribution to us on February 29, 2016 of the Wade Green grocery-anchored shopping center. The remaining Class A units were awarded primarily to our key executive officers. The Class A Units are apportioned a percentage of our financial results as non-controlling interests. The weighted average ownership percentage of these holders of Class A Units was calculated to be 3.66% and 1.25% for the three-month periods ended June 30, 2016 and 2015, respectively.

3)
We incurred loan closing costs for the acquisition of the Village at Baldwin Park multifamily community during the first quarter 2016 on our $35 million acquisition term loan facility with Key Bank National Association, or 2016 Term Loan. These costs were deferred and are being amortized over the life of the 2016 Term Loan. We also incurred loan closing costs for the acquisition of the Avenues at Northpointe and Avenues at Cypress multifamily communities in 2015 on our $32 million acquisition term loan facility with Key Bank National Association, or 2015 Term Loan. These costs were deferred and were amortized over the life of the 2015 Term Loan until it was repaid in full on May 12, 2015. Since the amortization expense of these deferred costs is similar in character to acquisition costs, they are therefore an additive adjustment in the calculation of NFFO.

4)
We pay loan coordination fees to Preferred Apartment Advisors, LLC, our Manager, related to obtaining mortgage financing for acquired properties. These loan coordination fees are amortized over the lives of the respective mortgage loans, and this non-cash amortization expense is an addition to FFO in the calculation of NFFO.

5)
We incurred legal costs pertaining to the extension of our management agreement with our Manager. The three-year extension was effective as of June 3, 2016. Such costs are an additive adjustment to FFO in our calculation of NFFO.

6)
We incur loan closing costs on our existing mortgage loans, which are secured on a property-by-property basis by each of our acquired multifamily communities and retail assets, and also for occasional amendments to our $70 million revolving line of credit with Key Bank National Association, or our Revolving Line of Credit. These loan closing costs are also amortized over the lives of the respective loans and the Revolving Line of Credit, and this non-cash amortization expense is an addition to NFFO in the calculation of AFFO. Neither we nor the Operating Partnership have any recourse liability in connection with any of the mortgage loans, nor do we have any cross-collateralization arrangements with respect to the assets securing the mortgage loans, other than security interests in 49% of the equity interests of the subsidiaries owning such assets, granted in connection with our Revolving Line of Credit, which provides for full recourse liability. At June 30, 2016, aggregate unamortized loan costs were approximately $14.1 million, which will be amortized over a weighted average remaining loan life of approximately 5.5 years.

7)
We receive loan fees in conjunction with the origination of certain real estate loans. These fees are then recognized as revenue over the lives of the applicable loans as adjustments of yield using the effective interest method. The total fees received in excess of amortization income, after the payment of acquisition fees to our Manager are additive adjustments in the calculation of AFFO. Correspondingly, the non-cash income recognized under the effective interest method is a deduction in the calculation of AFFO. We also accrue over the lives of certain loans additional interest amounts that become due to us at the time of repayment of the loan or refinancing of the property, or when the property is sold to a third party. This non-cash income is deducted from NFFO in the calculation of AFFO.

8)
The Company records deferred interest revenue on certain of its real estate loans. These adjustments reflect the receipt during the periods presented of interest income which was earned and accrued prior to those periods presented on various real estate loans.

9)
This adjustment reflects straight-line rent adjustments and the reversal of the non-cash amortization of below-market and above-market lease intangibles, which were recognized in conjunction with the Company’s acquisitions and which are amortized over the estimated average remaining lease terms from the acquisition date for multifamily communities and over the remaining lease terms for retail assets. At June 30, 2016, the balance of unamortized below-market lease intangibles was approximately $9.7 million, which will be recognized over a weighted average remaining lease period of approximately 8.1 years.
        
10)
We deduct from NFFO normally recurring capital expenditures that are necessary to maintain our assets’ revenue streams in the calculation of AFFO. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures, which totaled $1,525,336 and $549,489 for the three-month periods ended June 30, 2016 and 2015, respectively. This adjustment also deducts from NFFO capitalized amounts for third party costs during the period to originate or renew leases in our grocery-anchored shopping centers.




See Definitions of Non-GAAP Measures beginning on page 16.


SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 8

Preferred Apartment Communities, Inc.
Consolidated Balance Sheets
(Unaudited)
 
 
 
June 30, 2016
 
December 31, 2015
 
 
 
 
 
Assets
 
 
 
 
Real estate
 
 
 
Land
 
$
206,706,147

 
$
141,729,264

Building and improvements
1,079,949,148

 
733,417,442

Tenant improvements
7,443,986

 
5,781,199

Furniture, fixtures, and equipment
112,147,819

 
86,092,408

Construction in progress
1,696,177

 
609,400

Gross real estate
1,407,943,277

 
967,629,713

Less: accumulated depreciation
(71,760,464
)
 
(48,155,874
)
Net real estate
1,336,182,813

 
919,473,839

Property held for sale
—

 
33,817,081

Real estate loans, net of deferred fee income
181,287,965

 
180,688,293

Real estate loans to related party, net
97,769,345

 
57,313,465

Total real estate and real estate loans, net
1,615,240,123

 
1,191,292,678

 
 
 
 
 
Cash and cash equivalents
5,717,111

 
2,439,605

Restricted cash
23,146,020

 
12,539,440

Notes receivable
16,929,381

 
18,489,247

Note receivable and revolving line of credit due from related party
24,010,987

 
19,454,486

Accrued interest receivable on real estate loans
13,751,480

 
14,294,648

Acquired intangible assets, net of amortization
27,532,024

 
19,381,473

Deferred loan costs, net of amortization
419,668

 
488,770

Deferred offering costs
4,699,537

 
5,834,304

Tenant receivables and other assets
25,562,202

 
11,314,382

 
 
 
 
 
Total assets
$
1,757,008,533

 
$
1,295,529,033

 
 
 
 
 
Liabilities and equity
 
 
 
Liabilities
 
 
 
Mortgage notes payable, principal amount
$
957,087,042

 
$
668,836,291

Less: deferred loan costs, net of amortization
(13,588,680
)
 
(8,099,517
)
Mortgage notes payable, net of deferred loan costs
943,498,362

 
660,736,774

Mortgage note held for sale
 
—

 
28,109,000

Revolving line of credit
28,500,000

 
34,500,000

Term note payable
41,000,000

 
—

Less: deferred loan costs, net of amortization
(55,456
)
 
—

Term note payable, net of deferred loan costs
40,944,544

 
—

Real estate loan participation obligation
13,997,758

 
13,544,160

Accounts payable and accrued expenses
18,548,928

 
12,644,818

Accrued interest payable
2,633,222

 
1,803,389

Dividends and partnership distributions payable
8,272,974

 
6,647,507

Acquired below market lease intangibles, net of amortization
9,734,618

 
9,253,450

Security deposits and other liabilities
3,956,465

 
2,836,145

Total liabilities
1,070,086,871

 
770,075,243

 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
Equity
 
 
 
 
Stockholder's equity
 
 
 
Series A Redeemable Preferred Stock, $0.01 par value per share; 1,050,000
 
 
 
   shares authorized; 688,788 and 486,182 shares issued; 683,545 and 482,964
 
 
 
shares outstanding at June 30, 2016 and December 31, 2015, respectively
6,835

 
4,830

Common Stock, $0.01 par value per share; 400,066,666 shares authorized;
 
 
 
  23,692,178 and 22,761,551 shares issued and outstanding at
 
 
 
June 30, 2016 and December 31, 2015, respectively
236,922

 
227,616

Additional paid-in capital
702,363,652

 
536,450,877

Accumulated deficit
(16,789,931
)
 
(13,698,520
)
      Total stockholders' equity
685,817,478

 
522,984,803

Non-controlling interest
1,104,184

 
2,468,987

Total equity
686,921,662

 
525,453,790

 
 
 
 
 
Total liabilities and equity
$
1,757,008,533

 
$
1,295,529,033


SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 9

Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
Six months ended June 30,
 
 
2016
 
2015
Operating activities:
 
 
 
 
Net loss
 
$
(3,172,011
)
 
$
(344,093
)
Reconciliation of net (loss) income to net cash provided by operating activities:
 
 
 
Depreciation expense
 
23,973,536

 
11,507,799

Amortization expense
 
9,343,165

 
4,365,478

Amortization of above and below market leases
(593,455
)
 
(341,328
)
Deferred fee income amortization
(492,490
)
 
(367,406
)
Deferred loan cost amortization
1,393,318

 
700,833

Decrease (increase) in accrued interest income on real estate loans
543,167

 
(896,557
)
Equity compensation to executives, directors and consultants
1,256,296

 
1,167,851

Gain on sale of real estate
 
(4,271,506
)
 
—

Other
(1,067
)
 
(9,872
)
Changes in operating assets and liabilities:
 
 
 
(Increase) decrease in tenant receivables and other assets
433,419

 
9,405

(Decrease) increase in accounts payable and accrued expenses
3,374,618

 
2,136,764

Increase in accrued interest payable
883,490

 
50,145

Increase in prepaid rents
(44,077
)
 
275,169

Increase in security deposits and other liabilities
233,357

 
44,055

Net cash provided by operating activities
32,859,760

 
18,298,243

 
 
 
 
 
Investing activities:
 
 
 
 
Investment in real estate loans
 
(75,603,964
)
 
(46,515,765
)
Repayments of real estate loans
 
27,695,229

 
18,772,024

Notes receivable issued
 
(8,051,980
)
 
(3,044,871
)
Notes receivable repaid
 
9,615,213

 
9,897,319

Note receivable issued to and draws on line of credit by related party
(18,653,990
)
 
(8,413,133
)
Repayments of line of credit by related party
13,842,681

 
5,198,392

Acquisition fees received on real estate loans
2,249,137

 
1,138,713

Acquisition fees paid on real estate loans
(1,124,226
)
 
(569,356
)
Acquisition fees paid to real estate loan participants
—

 
(24,665
)
Acquisition of properties
 
(404,186,508
)
 
(199,211,216
)
Disposition of properties, net
 
10,606,386

 
—

Additions to real estate assets - improvements
(4,000,551
)
 
(1,656,383
)
Proceeds from sale of fixed assets
10,000

 
—

Deposits paid on acquisitions
 
(11,194,950
)
 
(1,288,375
)
Decrease in restricted cash
(4,291,485
)
 
(1,855,932
)
Net cash used in investing activities
(463,089,008
)
 
(227,573,248
)
 
 
 
 
 
 
 
 
 
 
Financing activities:
 
 
 
 
Proceeds from mortgage notes payable
249,840,000

 
137,688,000

Payment for mortgage debt
(4,692,524
)
 
(1,433,487
)
Payments for deposits and other mortgage loan costs
(9,616,676
)
 
(1,987,114
)
Proceeds from real estate loan participants
135,398

 
3,712,031

Proceeds from lines of credit
 
195,500,000

 
71,900,000

Payments on lines of credit
 
(201,500,000
)
 
(96,400,000
)
Proceeds from term loan
 
46,000,000

 
32,000,000

Repayment of the term loan
 
(5,000,000
)
 
(32,000,000
)
Proceeds from sales of Units, net of offering costs and redemptions
180,446,649

 
108,573,262

Proceeds from sales of Common Stock
—

 
5,381,848

Proceeds from exercises of warrants
9,380,346

 
796,751

Common stock dividends paid
 
(8,750,488
)
 
(7,548,190
)
Preferred stock dividends paid
 
(16,284,348
)
 
(6,684,424
)
Distributions to non-controlling interests
(170,630
)
 
(74,440
)
Payments for deferred offering costs
(1,780,973
)
 
(893,960
)
Net cash provided by financing activities
433,506,754

 
213,030,277

 
 
 
 
Net decrease in cash and cash equivalents
3,277,506

 
3,755,272

Cash and cash equivalents, beginning of period
2,439,605

 
3,113,270

Cash and cash equivalents, end of period
$
5,717,111

 
$
6,868,542



SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 10

Real Estate Loans
 
 
 
 
Total units upon
 
Loan balance at June 30,
 
Total loan
 
Purchase option window
 
Purchase option price
Project/Property
(1) 
Location
 
completion
 
2016 (2)
 
 commitments
 
Begin
 
End
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
City Vista
(1) 
Pittsburgh, PA
 
272

 
$
16,107,735

 
$
16,107,735

 
2/1/2017
 
5/31/2017
 
$
43,560,271

Haven West
(3) 
Atlanta, GA
 
160

 
6,784,167

 
6,940,795

 
8/1/2016
 
1/31/2017
 
$
26,138,466

Haven 12
(4) 
Starkville, MS
 
152

 
5,815,849

 
6,116,384

 
9/1/2016
 
11/30/2016
 
(5) 
Founders' Village
(6) 
Williamsburg, VA
 
247

 
9,866,000

 
10,346,000

 
2/1/2017
 
5/31/2017
 
$
44,266,000

Encore
 
Atlanta, GA
 
340

 
10,958,200

 
10,958,200

 
1/8/2018
 
5/8/2018
 
(5) 
Encore Capital
 
Atlanta, GA
 
—

 
6,383,817

 
9,758,200

 
N/A
 
N/A
 
N/A
Palisades
(6) 
Northern VA
 
304

 
16,070,000

 
17,270,000

 
3/1/2017
 
7/31/2017
 
(5) 
Fusion
 
Irvine, CA
 
280

 
47,360,071

 
59,052,583

 
1/1/2018
 
4/1/2018
 
(5) 
Green Park
(6) 
Atlanta, GA
 
310

 
12,897,784

 
13,464,372

 
11/1/2017
 
2/28/2018
 
(5) 
Stadium Village
 (6,7) 
Atlanta, GA
 
198

 
13,329,868

 
13,424,995

 
9/1/2016
 
11/30/2016
 
(5) 
Summit Crossing III
 
Atlanta, GA
 
172

 
7,246,400

 
7,246,400

 
8/1/2017
 
11/30/2017
 
(5) 
Overture
 
Tampa, FL
 
180

 
5,864,252

 
6,920,000

 
1/1/2018
 
5/1/2018
 
(5) 
Aldridge at Town Village
 
Atlanta, GA
 
300

 
10,204,627

 
10,975,000

 
11/1/2017
 
2/28/2018
 
(5) 
18 Nineteen
(8) 
Lubbock, TX
 
217

 
15,152,992

 
15,598,352

 
10/1/2017
 
12/31/2017
 
(5) 
Haven South
(9) 
Waco, TX
 
250

 
14,847,703

 
15,455,668

 
10/1/2017
 
12/31/2017
 
(5) 
Haven46
(10) 
Tampa, FL
 
158

 
4,496,251

 
9,819,662

 
11/1/2018
 
1/31/2019
 
(5) 
Bishop Street
(11) 
Atlanta, GA
 
232

 
10,062,472

 
12,693,457

 
10/1/2018
 
12/31/2018
 
(5) 
Dawson Marketplace
(12) 
Atlanta, GA
 
—

 
12,079,361

 
12,857,005

 
12/16/2017
 
12/15/2018
 
(13) 
Hidden River
 
Tampa, FL
 
300

 
2,156,448

 
4,734,960

 
9/1/2018
 
12/31/2018
 
(5) 
Hidden River Capital
 
Tampa, FL
 
—

 
4,430,206

 
5,380,000

 
N/A
 
N/A
 
N/A
CityPark II
 
Charlotte, NC
 
200

 
1,095,924

 
3,364,800

 
5/1/2018
 
8/31/2018
 
(5) 
CityPark II Capital
 
Charlotte, NC
 
—

 
3,184,746

 
3,916,000

 
N/A
 
N/A
 
N/A
Crescent Avenue
(14) 
Atlanta, GA
 
—

 
6,000,000

 
6,000,000

 
N/A
 
N/A
 
N/A
Haven Northgate
(15) 
College Station, TX
 
427

 
35,441,421

 
64,678,549

 
10/1/2018
 
12/31/2018
 
(5) 
Lubbock II
(16) 
Lubbock, TX
 
140

 
2,787,616

 
9,357,171

 
11/1/2018
 
1/31/2019
 
(5) 
 
 
 
 
4,839

 
280,623,910

 
$
352,436,288

 
 
 
 
 
 
Unamortized loan origination fees
 
 
 
(1,566,600
)
 
 
 
 
 
 
 
 
Carrying amount
 
 
 
 
 
$
279,057,310

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1 
) 
All loans pertain to developments of multifamily communities, except as otherwise indicated. On July 1, 2016, we converted approximately $12.5 million of the principal amount due on the City Vista loan into a 96% equity ownership interest in a joint venture that owns the underlying multifamily community
(2 
) 
Loan balances presented are principal amounts due.
 
(3 
) 
Real estate loan in support of a completed 160-unit, 568-bed student housing community adjacent to the campus of the University of West Georgia. On August 1, 2016, we terminated the purchase option on the community.
(4 
) 
Real estate loan in support of a completed 152-unit, 536-bed student housing community adjacent to the campus of Mississippi State University.
(5 
) 
The purchase price is to be calculated based upon market cap rates at the time of exercise of the purchase option, with discounts ranging from between 20 and 60 basis points, depending on the loan.
(6 
) 
Loan balance includes 25% loan participation by an unrelated third party syndicate of lenders.
 
(7 
) 
Real estate loan in support of a completed 198-unit, 792-bed student housing community adjacent to the campus of Kennesaw State University in Atlanta, Georgia.
(8 
) 
Real estate loan of up to approximately $15.6 million in support of a planned 217-unit, 732-bed student housing community adjacent to the campus of Texas Tech University.
(9 
) 
Real estate loan in support of a planned 250-unit, 840-bed student housing community adjacent to the campus of Baylor University.
(10 
) 
On March 29, 2016, our bridge loan was converted to a real estate loan in support of a planned 158-unit, 542-bed student housing community adjacent to the campus of the University of South Florida.
(11 
) 
On February 18, 2016, our bridge loan was converted to a real estate loan in support of a planned multifamily community in Atlanta, Georgia.
(12 
) 
Real estate loan in support of a planned approximate 200,000 square foot retail center in the Atlanta, Georgia market.
(13 
) 
Includes 10 purchase options to acquire a tract and 14 outlots with a purchase price at a 20 basis point discount to market.
(14 
) 
Bridge loan in support of a proposed multi-use property in Atlanta, Georgia.
 
(15 
) 
Senior loan in support of a planned 427-unit, 808-bed student housing community adjacent to the campus of Texas A&M University.
(16 
) 
Real estate loan of up to approximately $9.4 million in support of a planned 140-unit, 556-bed second phase student housing community adjacent to the campus of Texas Tech University.

SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 11

Multifamily Communities
 
 
 
 
 
 
 
 
Three months ended June 30, 2016
Property
 
Location
 
Number of units
 
Average unit size (sq. ft.)
 
Average occupancy
 
Average rent per unit
 
 
 
 
 
 
 
 
 
 
 
Ashford Park
 
Atlanta, GA
 
408

 
1,008

 
96.9
%
 
$
1,173

Lake Cameron
 
Raleigh, NC
 
328

 
940

 
96.8
%
 
$
908

McNeil Ranch
 
Austin, TX
 
192

 
1,071

 
95.1
%
 
$
1,234

Stone Rise
 
Philadelphia, PA
 
216

 
1,079

 
94.9
%
 
$
1,447

Enclave at Vista Ridge
 
Dallas, TX
 
300

 
1,079

 
95.9
%
 
$
1,137

Stoneridge Farms
 
Nashville, TN
 
364

 
1,153

 
95.7
%
 
$
1,011

Vineyards
 
Houston, TX
 
369

 
1,122

 
94.0
%
 
$
1,143

Avenues at Cypress
 
Houston, TX
 
240

 
1,166

 
92.3
%
 
$
1,374

Avenues at Northpointe
 
Houston, TX
 
280

 
1,154

 
92.5
%
 
$
1,378

 
 
 
 
 
 
 
 
 
 
 
Total/Avg PAC Same Store
 
 
 
2,697

 
 
 
94.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Summit Crossing
 
Atlanta, GA
 
485

 
1,053

 
—
%
 
$
1,188

Sandstone Creek
 
Kansas City, KS
 
364

 
1,135

 
—
%
 
$
1,004

Aster at Lely Resort
 
Naples, FL
 
308

 
979

 
94.5
%
 
$
1,336

CityPark View
 
Charlotte, NC
 
284

 
948

 
93.3
%
 
$
1,052

Venue at Lakewood Ranch
 
Sarasota, FL
 
237

 
1,001

 
94.7
%
 
$
1,581

Avenues at Creekside
 
San Antonio, TX
 
395

 
974

 
92.6
%
 
$
1,151

Citi Lakes
 
Orlando, FL
 
346

 
984

 
—
%
 
$
1,348

Lenox Portfolio
 
Nashville, TN
 
474

 
886

 
96.2
%
 
$
1,132

Stone Creek
 
Houston, TX
 
246

 
852

 
—
%
 
$
1,004

Overton Rise
 
Atlanta, GA
 
294

 
1,018

 
94.8
%
 
$
1,461

Baldwin Park
 
Orlando, FL
 
528

 
1,069

 
—
%
 
$
1,437

Crosstown Walk
 
Tampa, FL
 
342

 
980

 
94.1
%
 
$
1,213

Avalon Park
 
Orlando, FL
 
487

 
1,394

 
—
%
 
$
—

 
 
 
 
 
 
 
 
 
 
 
Total/Avg PAC Non-Same Store
 
 
 
4,790

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North by Northwest
 
Tallahassee, FL
 
219

 
1,137

 
N/A

 
$
—

 
 
 
 
 
 
 
 
 
 
 
Total All PAC units
 
 
 
7,706

 
 
 
94.7
%
 
 

For the three-month period ended June 30, 2016, our average occupancy was 94.7%. We define average occupancy as market rent reduced by vacancy losses, expressed as a percentage. All of our multifamily properties are included in this calculation except for properties which are not yet stabilized, which we define as properties having first achieved 93% physical occupancy (Citi Lakes was not yet stabilized at the beginning of the Second quarter), properties which are owned for less than the entire reporting period (Avalon Park), and properties which are undergoing significant capital projects or are adding additional phases (Summit Crossing, Stone Creek, Sandstone Creek and Baldwin Park).

Capital Expenditures

We regularly incur capital expenditures related to our owned properties. 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 or retail tenants in

SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 12

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 June 30, 2016, our capital expenditures were as follows:
 
 
Nonrecurring capital expenditures
 
Recurring capital expenditures
 
 
 
 
Budgeted at acquisition
 
Other
 
Total
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
Multifamily communities:
 
 
 
 
 
 
 
 
 
 
Summit Crossing
 
$
—

 
$
68,647

 
$
68,647

 
$
26,068

 
$
94,715

Trail Creek
 
—

 
13,798

 
13,798

 
20,799

 
34,597

Stone Rise
 
—

 
9,866

 
9,866

 
33,236

 
43,102

Ashford Park
 
—

 
150,857

 
150,857

 
61,022

 
211,879

McNeil Ranch
 
—

 
5,326

 
5,326

 
18,596

 
23,922

Lake Cameron
 
—

 
913

 
913

 
33,559

 
34,472

Stoneridge
 
—

 
27,720

 
27,720

 
46,459

 
74,179

Vineyards
 
—

 
44,383

 
44,383

 
40,452

 
84,835

Enclave
 
—

 
13,251

 
13,251

 
34,558

 
47,809

Sandstone
 
—

 
44,793

 
44,793

 
55,449

 
100,242

Cypress
 
—

 
7,500

 
7,500

 
9,518

 
17,018

Northpointe
 
—

 
37,666

 
37,666

 
15,794

 
53,460

Lakewood Ranch
 
—

 
2,101

 
2,101

 
4,093

 
6,194

Aster at Lely
 
—

 
11,642

 
11,642

 
12,079

 
23,721

CityPark View
 
—

 
—

 
—

 
2,020

 
2,020

Mansions at Creekside
 
77,916

 
7,373

 
85,289

 
37,188

 
122,477

Citilakes
 
82,117

 
14,922

 
97,039

 
5,155

 
102,194

Stone Creek
 
67,353

 
3,675

 
71,028

 
10,247

 
81,275

Lenox Portfolio
 
7,046

 
—

 
7,046

 
27,169

 
34,215

Village at Baldwin Park
 
422,296

 
3,649

 
425,945

 
72,745

 
498,690

Crosstown Walk
 
—

 
—

 
—

 
15,049

 
15,049

Overton Rise
 
45,540

 
—

 
45,540

 
10,479

 
56,019

Avalon Park
 
10,500

 
—

 
10,500

 
10,956

 
21,456

 
 
 
 
 
 
 
 
 
 
 
 
 
712,768

 
468,082

 
1,180,850

 
602,690

 
1,783,540

Retail:
 
 
 
 
 
 
 
 
 
 
Woodstock Crossing
 
—

 
200

 
200

 
—

 
200

Parkway Town Centre
 
—

 
—

 
—

 
9,781

 
9,781

Barclay Crossing
 
—

 
—

 
—

 
5,156

 
5,156

Deltona Landings
 
—

 
—

 
—

 
1,921

 
1,921

Kingwood Glen
 
—

 
36,288

 
36,288

 
8,820

 
45,108

Parkway Centre
 
—

 
—

 
—

 
513

 
513

Powder Springs
 
—

 
—

 
—

 
39,271

 
39,271

Sweetgrass Corner
 
—

 
—

 
—

 
1,256

 
1,256

Independence Square
 
302,365

 
—

 
302,365

 
120

 
302,485

Royal Lakes Marketplace
 
—

 
—

 
—

 
3,774

 
3,774

Summit Point
 
—

 
5,633

 
5,633

 
—

 
5,633

Wade Green Village
 
—

 
—

 
—

 
6,864

 
6,864

East Gate Shopping Center
 
—

 
—

 
—

 
2,336

 
2,336

Fairview Market
 
—

 
—

 
—

 
2,800

 
2,800

Fury's Ferry
 
—

 
—

 
—

 
13,225

 
13,225

 
 
 
 
 
 
 
 
 
 
 
 
 
302,365

 
42,121

 
344,486

 
95,837

 
440,323

 
 
 
 
 
 
 
 
 
 
 
Total
 
$
1,015,133

 
$
510,203

 
$
1,525,336

 
$
698,527

 
$
2,223,863









SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 13



Retail Portfolio

Our retail portfolio consists of the following properties:
Property name
Location
 
Year built
 
GLA (1)
 
Percent leased
 
Anchor tenant
 
 
 
 
 
 
 
 
 
 
Woodstock Crossing
 Atlanta, GA
 
1994
 
66,122

 
92.6
%
 
 Kroger
Powder Springs
 Atlanta, GA
 
1999
 
77,853

 
92.8
%
 
 Publix
Royal Lakes Marketplace
 Atlanta, GA
 
2008
 
119,493

 
84.4
%
 
 Kroger
Summit Point
 Atlanta, GA
 
2004
 
111,970

 
80.4
%
 
 Publix
Wade Green Village
 Atlanta, GA
 
1993
 
74,978

 
89.7
%
 
 Publix
East Gate Shopping Center
 Augusta, GA
 
1995
 
75,716

 
89.5
%
 
 Publix
Fury's Ferry
 Augusta, GA
 
1996
 
70,458

 
91.0
%
 
 Publix
Parkway Centre
 Columbus, GA
 
1999
 
53,088

 
97.4
%
 
 Publix
Spring Hill Plaza
 Nashville, TN
 
2005
 
61,570

 
100.0
%
 
 Publix
Parkway Town Centre
 Nashville, TN
 
2005
 
65,587

 
95.4
%
 
 Publix
Salem Cove
 Nashville, TN
 
2010
 
62,356

 
96.1
%
 
 Publix
The Market at Victory Village
 Nashville, TN
 
2007
 
71,300

 
98.5
%
 
 Publix
The Overlook at Hamilton Place
 Chattanooga, TN
 
1992
 
213,095

 
98.6
%
 
 The Fresh Market
Sweetgrass Corner
 Charleston, SC
 
1999
 
89,124

 
96.2
%
 
 Bi-Lo
Anderson Central
 Greenville Spartanburg, SC
 
1999
 
223,211

 
97.1
%
 
 Walmart
Fairview Market
 Greenville Spartanburg, SC
 
1998
 
53,888

 
100.0
%
 
 Publix
Rosewood Shopping Center
 Columbia, SC
 
2002
 
36,887

 
90.2
%
 
 Publix
Barclay Crossing
 Tampa, FL
 
1998
 
54,958

 
100.0
%
 
 Publix
Deltona Landings
 Orlando, FL
 
1999
 
59,966

 
95.5
%
 
 Publix
Kingwood Glen
 Houston, TX
 
1998
 
103,397

 
100.0
%
 
 Kroger
Independence Square
 Dallas, TX
 
1977
 
140,218

 
92.9
%
 
 Tom Thumb
Southgate Village
 Birmingham, AL
 
1988
 
75,092

 
100.0
%
 
 Publix
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,960,327

 
94.4
%
 
 

(1) Gross leasable area, or GLA, represents the total amount of property square footage that can be leased to tenants.

As of June 30, 2016, our retail portfolio was 94.4% leased. We define percent leased as the percentage of gross leasable area that is leased, including lease agreements that have been fully executed which have not yet commenced.

Details regarding lease expirations (assuming no exercise of tenant renewal options) within our retail assets as of June 30, 2016 were:
 
Total retail portfolio
 
Number of leases
 
Leased GLA
 
Percent of leased GLA
 
 
 
 
 
 
Month to month
5

 
7,269

 
0.4
%
2016
24

 
43,687

 
2.4
%
2017
62

 
119,833

 
6.5
%
2018
55

 
175,187

 
9.5
%
2019
41

 
464,943

 
25.1
%
2020
41

 
259,312

 
14.0
%
2021
35

 
123,169

 
6.7
%
2022
5

 
36,701

 
2.0
%
2023
4

 
13,300

 
0.7
%
2024
11

 
224,945

 
12.2
%
2025
6

 
139,141

 
7.5
%
2026+
7

 
242,801

 
13.0
%
 
 
 
 
 
 
 
296

 
1,850,288

 
100.0
%


SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 14

Multifamily Same Store Financial Data

The following chart presents same store operating results for the Company’s multifamily communities that have been owned for at least 15 full months, enabling comparisons of the current reporting period to the prior year comparative period. The Company excludes the same store operating results of properties for which construction of adjacent phases have commenced (the Company holds a real estate loan partially supporting a third phase of the Summit Crossing multifamily community, which is excluded as well). For the periods presented, same store operating results consist of the operating results of our Stone Rise, Lake Cameron, Ashford Park, McNeil Ranch, Enclave at Vista Ridge, Stoneridge Farms at Hunt Club, Vineyards, Avenues at Cypress, and Avenues at Northpointe multifamily communities. Same store net operating income is a non-GAAP measure that is most directly comparable to net income, with a reconciliation following below.

Same Store Net Operating Income
Stone Rise, Ashford Park, McNeil Ranch, Lake Cameron, Enclave at Vista Ridge, Stoneridge Farms at Hunt Club, Vineyards, Avenues at Cypress, and Avenues at Northpointe Multifamily Communities
 
 
 
 
 
 
 
 
 
 
 
Three months ended:
 
 
 
 
 
 
6/30/2016
 
6/30/15
 
$ inc / dec
 
% inc
Revenues:
 
 
 
 
 
 
 
 
Rental revenues
 
$
9,053,428

 
$
8,691,224

 
$
362,204

 
4.2
 %
Other property revenues
 
1,142,056

 
1,046,075

 
95,981

 
9.2
 %
Total revenues
 
10,195,484

 
9,737,299

 
458,185

 
4.7
 %
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Property operating and maintenance
 
1,565,458

 
1,566,861

 
(1,403
)
 
(0.1
)%
Payroll
 
895,391

 
916,968

 
(21,577
)
 
(2.4
)%
Property management fees
 
400,921

 
387,263

 
13,658

 
3.5
 %
Real estate taxes
 
1,782,032

 
1,530,017

 
252,015

 
16.5
 %
Other
 
390,932

 
359,156

 
31,776

 
8.8
 %
Total operating expenses
 
5,034,734

 
4,760,265

 
274,469

 
5.8
 %
 
 
 
 
 
 
 
 
 
Same store net operating income
 
$
5,160,750

 
$
4,977,034

 
$
183,716

 
3.7
 %

Reconciliation of Same Store Net Operating Income (NOI) to Net Income
 
 
 
 
 
 
 
Three months ended:
 
 
6/30/2016
 
6/30/2015
 
 
 
 
 
Same store net operating income
 
$
5,160,750

 
$
4,977,034

 
 
 
 
 
Add:
 
 
 
 
Non-same-store property revenues
 
25,079,615

 
7,140,983

Less:
 
 
 
 
Non-same-store property operating expenses
10,085,168

 
2,682,221

 
 
 
 
 
Property net operating income
 
20,155,197

 
9,435,796

Add:
 
 
 
 
Interest revenue on notes receivable
 
6,847,724

 
5,582,871

Interest revenue on related party notes receivable
 
3,731,122

 
1,627,674

Less:
 
 
 
 
Equity stock compensation
 
618,867

 
577,543

Depreciation and amortization
 
17,969,975

 
7,927,849

Interest expense
 
9,559,501

 
4,688,468

Acquisition costs
 
2,490,566

 
669,342

Acquisition costs to related party
 
274,176

 
1,098,471

Management fees
 
2,958,991

 
1,570,956

Other corporate expenses
 
1,367,678

 
502,035

Gain on sale of real estate
 
4,271,506

 
—

 
 
 
 
 
Contingent asset management and general and administrative expense fees
(451,684
)
 
(809,159
)
 
 
 
 
 
Net income
 
$
217,479

 
$
420,836


SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 15

Definitions of Non-GAAP Measures

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

Analysts, managers and investors have, since the first real estate investment trusts were created, made certain adjustments to reported net income amounts under U.S. GAAP in order to better assess these vehicles’ liquidity and cash flows. 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 most recently revised in 2012, 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. The NAREIT definition of FFO (and the one reported by the Company) is:

Net income/loss:
• excluding impairment charges on and gains/losses from sales of depreciable property;
• plus depreciation and amortization of real estate assets and deferred leasing costs; and
• after adjustments for the Company's proportionate share of unconsolidated partnerships and joint ventures.

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

Normalized Funds From Operations Attributable to Common Stockholders and Unitholders (NFFO)

Normalized FFO makes certain adjustments to FFO, which are either not likely to occur on a regular basis or are otherwise not representative of the Company’s ongoing operating performance. For example, since the Company is acquiring properties on a regular basis, it incurred substantial costs related to such acquisitions, which are required under GAAP to be recognized as expenses when they are incurred. The Company adds back any such acquisition and pursuit costs, including costs incurred in connection with obtaining short term debt financing for acquisitions and beginning January 1, 2016, amortization of loan coordination fees, to FFO in its calculation of NFFO since such costs are not representative of our fund generating results on an ongoing basis. The Company also adds back costs incurred related to the extension of our management agreement with our Manager, realized losses on debt extinguishment and any non-cash dividends in this calculation. NFFO figures reported by us may not be comparable to those NFFO figures reported by other companies.

We utilize NFFO as a measure of the operating performance of our portfolio of real estate assets. We believe NFFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other real estate companies that are not as involved in ongoing acquisition activities. NFFO 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 NFFO results in order to arrive at a more refined measure of operating and financial performance. There is no industry standard definition of AFFO and practice is divergent across the industry. The Company calculates AFFO as:
 
NFFO, plus:
• non-cash equity compensation to directors and executives;

SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 16

• amortization of loan closing costs, excluding costs incurred in connection with obtaining short term financing related to acquisitions;
• depreciation and amortization of non-real estate assets;
• net loan fees received; and
• deferred interest income received;

less:
• non-cash loan interest income;
• cash paid for pursuit costs on abandoned acquisitions;
• cash paid for loan closing costs;
• amortization of acquired real estate intangible liabilities; and
• normally-recurring capital expenditures and capitalized retail direct 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 is useful in comparing our operating performance with other real estate companies. AFFO is a non-GAAP measure that is reconciled to its most comparable GAAP measure, net income/loss available to common stockholders.

Same Store Net Operating Income (NOI)

The Company uses same store net operating income as an operational metric for properties the Company has owned for at least 15 full months, enabling comparisons of those properties’ operating results between the current reporting period and the prior year comparative period. The Company defines net operating income 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. The Company believes that net operating income is an important supplemental measure of operating performance for a REIT’s operating real estate because it provides a measure of the core operations, rather than factoring in depreciation and amortization, financing costs, acquisition costs, and other corporate expenses. Net operating income is a widely utilized measure of comparative operating performance in the REIT industry, but is not a substitute for its closest GAAP-compliant measure, net income/loss.

Additional Information

The SEC has declared effective the registration statement (including prospectus) filed by the Company for each of the offerings to which this communication may relate. Before you invest, you should read the final prospectus, and any prospectus supplements, forming a part of the registration statement and other documents the Company has filed with the SEC for more complete information about the Company and the offering to which this communication may relate. In particular, you should carefully read the risk factors described in the final prospectus and in any related prospectus supplement and in the documents incorporated by reference in the final prospectus and any related prospectus supplement to which this communication may relate. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively the Company or its dealer manager, International Assets Advisory, LLC (with respect to the offering of up to a maximum of 900,000 Units, with each Unit consisting of one share of Series A Redeemable Preferred Stock and one Warrant to purchase up to 20 shares of our Common Stock, or the Follow-On Offering), or its sales agents, JonesTrading Institutional Services LLC, FBR Capital Markets & Co., and Canaccord Genuity Inc. (with respect to the issuance and offering of up to $150 million of its Common Stock from time to time in an “at the market” offering, or the ATM Offering), will arrange to send you the prospectus if you request it by calling Leonard A. Silverstein at (770) 818-4100, or writing to 3284 Northside Parkway NW, Suite 150, Atlanta, Georgia 30327.


SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 17

The final prospectus for the Follow-On Offering, dated October 11, 2013, can be accessed through the following link: http://www.sec.gov/Archives/edgar/data/1481832/000148183213000128/a424b3prospectus900m.htm

The prospectus and base prospectus for the ATM Offering, dated July 18, 2016 and May 17, 2016, respectively, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183216000152/atmprospectus.htm
 

For further information:             
Leonard A. Silverstein, President and Chief Operating Officer
Preferred Apartment Communities, Inc.
lsilverstein@pacapts.com
+1-770-818-4147
 











SECOND QUARTER 2016 - SUPPLEMENTAL FINANCIAL DATA | 18

PREFERRED APARTMENT COMMUNITIES INC Reports