Preferred Apartment Communities, Inc. Reports Results for First Quarter 2021

ATLANTA, May 10, 2021 /PRNewswire/ -- Preferred Apartment Communities, Inc. (NYSE: APTS) ("we," "our," the "Company," "Preferred Apartment Communities" or "PAC") today reported results for the quarter ended March 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.

"We are very pleased to report another quarter of sound operational performance from our Sunbelt-focused portfolio of assets. We are seeing solid growth and positive trajectory in our top line revenues in our core multifamily business, which is supported by broad positive economic and migration trends. These operational successes have allowed us to continue to advance our strategic goals of simplifying our business platform to focus on our Class A suburban Sunbelt multifamily business, complimented by our 100% grocery anchored retail investments, and to continue realigning our balance sheet by reducing our preferred shares outstanding. Subsequent to quarter end, we signed an agreement for the sale of a substantial majority of our office portfolio, and upon closing, anticipated to be in the third quarter, we look forward to utilizing the net proceeds to redeem additional Series A preferred shares while also continuing to leverage our deep Sunbelt relationships to grow our investment in our core multifamily business. We expect these efforts to result in meaningful long-term stockholder value creation," stated Joel Murphy, Preferred Apartment Communities' President and Chief Executive Officer.

Our operating results are presented below.

Financial

• Our total revenues for the quarter ended March 31, 2021 decreased 11.6% to approximately $115.7 million from the quarter ended March 31, 2020, primarily due to the sale on November 3, 2020 of our eight student housing properties, as well as from lower interest revenue from our portfolio of real estate loan investments. The student housing properties contributed approximately $12.4 million, or 9.5% of our total revenues and interest revenue from our real estate loan investments contributed approximately $15.0 million, or 11.5% of our total revenues for the quarter ended March 31, 2020.
• Our net loss per share was $(0.73) and $(4.44) for the three-month periods ended March 31, 2021 and 2020, respectively. Funds From Operations, or FFO, was $0.16 and $(3.42) per weighted average share of Common Stock and Class A Unit outstanding for the three months ended March 31, 2021 and 2020, respectively. The increase in FFO per share was driven by:
• a reduction in charges related to the closing of the Internalization Transaction (as defined below) in the first quarter 2020 of $3.79 per share;
• cost savings from Internalization of $0.02 per share;
• a lower allowance for current expected credit losses of $0.10 per share;
• lower preferred stock dividends of $0.06 per share;
• lower FFO from the sale of our student housing properties in the fourth quarter 2020 of ($0.07) per share;
• lower amortization of purchase option termination fees of ($0.06) per share;
• lower interest revenue from our smaller real estate loan portfolio of ($0.06) per share;
• lower revenues from earnest money forfeitures of ($0.06) per share; and
• deemed dividends from the call of preferred stock of ($0.03) per share.
• Our Core FFO per share ^(B) decreased to $0.25 for the first quarter 2021 from $0.29 for the first quarter 2020, primarily due to:
• a lower allowance for current expected credit losses of $0.10 per share;
• lower preferred stock dividends of $0.06 per share;
• cost savings from Internalization of $0.02 per share;
• lower FFO from the sale of our student housing properties in the fourth quarter 2020 of ($0.07) per share;
• lower interest revenue from our smaller real estate loan portfolio of ($0.06) per share;
• lower amortization of purchase option termination fees of ($0.06) per share; and
• higher equity compensation expense and absence of gain on land condemnation of ($0.02) per share.
• Our AFFO per share decreased to $0.18 for the first quarter 2021 from $0.47 for the first quarter 2020, primarily due to the aforementioned decline in FFO from the sale of our student housing properties in the fourth quarter 2020, net of savings from preferred dividends and expenses related to the call of the preferred, as well as the following:
• a decrease in accrued interest collected of ($0.12) per share;
• lower revenues from earnest money forfeitures of ($0.06) per share;
• lower interest revenue from our smaller real estate loan portfolio of ($0.04) per share; and
• higher recurring capital expenditures of ($0.04) per share.
• Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately 71.8% and our Core FFO payout ratio to our preferred stockholders was approximately 72.8% for the first quarter 2021. ^(A)
• Our AFFO payout ratio to Common Stockholders and Unitholders was approximately 101.6% and our AFFO payout ratio to our preferred stockholders was approximately 79.1% for the first quarter 2021.
• As of March 31, 2021, our total assets were approximately $4.2 billion, a decrease from our total assets of approximately $4.8 billion at March 31, 2020, that primarily resulted from the sale of our student housing portfolio during the fourth quarter 2020 for approximately $478.7 million.

Operational

• Our multifamily communities' same-store rental and other property revenues increased 0.9% for the quarter ended March 31, 2021 versus 2020. Our multifamily communities' same-store net operating income decreased 1.1% for the quarter ended March 31, 2021 versus 2020, driven by a collective increase of 7% in real estate taxes and insurance costs. Our same-store multifamily communities include all our multifamily communities except Artisan at Viera, The Menlo, The Blake, Parkside at the Beach, and Horizon at Wiregrass, all of which were acquired in the last 20 months.
• As of March 31, 2021, the average age of our multifamily communities was approximately 6.5 years, which is the youngest in the public multifamily REIT industry.
• As of March 31, 2021, all of our owned multifamily communities had achieved stabilization except for one fourth quarter 2020 acquisition. We define stabilization as reaching 93% for all three consecutive months within a single quarter.
• The average physical occupancy for the three-month period ended March 31, 2021 increased to 95.8% from 95.6% and 95.7% for the three-month periods ended March 31, 2020 and December 31, 2020, respectively.
• Our average recurring rental revenue collections before and after any effect of rent deferrals for the first quarter 2021 were approximately 99.1% and 99.2% for multifamily communities, 98.4% and 98.4% for grocery-anchored retail properties and 99.8% and 99.9% for office properties, respectively. Rent deferments provided to our residents and tenants are limited and are primarily related to a change of timing of rent payments with no significant changes to total payments or term.
• We granted an additional $28,000 of deferred rent during the first quarter 2021, raising the total deferred rent granted to approximately $1.9 million, or approximately 2.0% cumulatively over the last four quarters. Including this deferred rent, our average recurring rental revenue collections were 98.4%, 98.4%, 97.8% and 96.9% for first quarter 2021, fourth quarter 2020, third quarter 2020 and second quarter 2020, respectively. In addition to the deferrals, we granted approximately $676,000 of Covid-related rental abatements to retail tenants only, or approximately 0.7% of our retail portfolio's recurring rental revenues cumulatively over the last four quarters. These rental abatements were generally accompanied by an increase in the tenant's lease term or the lease terms were amended to be more favorable to us. We reserved $99,000, or 0.4% of total retail revenue (inclusive of straight-line rent adjustments) in the first quarter 2021, that is 0.1% of our consolidated rental and other property revenues. Our retail portfolio's total rent reserves over the last four quarters were approximately $2.3 million, or approximately 2.4% of our retail portfolio's recurring rental revenues cumulatively over the same period.

Financing and Capital Markets

• As of March 31, 2021, approximately 97.4% of our permanent property-level mortgage debt has fixed interest rates and approximately 0.8% 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 3.5% for multifamily communities, 4.1% for office properties, 3.9% for grocery-anchored retail properties and 3.8% in the aggregate.
• At March 31, 2021, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 55.9%.
• At March 31, 2021, we had $160.0 million available to be drawn on our revolving line of credit and approximately $32.3 million of cash.
• During the first quarter 2021, we issued and sold an aggregate of 37,898 shares of Preferred Stock and redeemed an aggregate of 44,220 shares of Preferred Stock, resulting in a net redemption of 6,322 shares of Preferred Stock, for a net redemption cost of $9.5 million.

Significant Transactions

• During the first quarter 2021, we received the full principal amounts totaling approximately $17.9 million from the repayment of two real estate loan investments, plus a purchase option termination fee of approximately $1.5 million and $4.3 million of accrued interest from these loan payoffs. These transactions collectively returned approximately $23.7 million of capital to us for investment, preferred redemptions, or other corporate purposes during the first quarter.
• During the first quarter 2021, we originated one real estate investment loan with a total commitment of $16.8 million, in support of a 320-unit multifamily community in Orlando, Florida. We also originated a land acquisition bridge loan of approximately $7.7 million in support of a proposed multifamily community to be located in suburban Atlanta, Georgia.

Subsequent to Quarter End

• On April 16, 2021, we entered into a series of transactions with Highwoods Properties in order to dispose of seven of our office properties and one office real estate loan investment for an aggregate purchase price of $717.5 million, including the assumption of debt.
• On May 4, 2021, we amended our revolving line of credit agreement to extend the maturity date to May 4, 2024 and, among other things, modified certain covenants, reduced certain rates and fees and prepared for LIBOR transitioning.
• On May 6, 2021, our board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, payable on July 15, 2021 to stockholders of record on June 15, 2021.

2021 Guidance:  

Net income (loss) per share -  We are continuing to add properties and real estate loan investments to our real estate portfolio and the specific timing of the closing of acquisitions is difficult to predict. Acquisition activity by its nature can cause material variation in our reported depreciation and amortization expense and interest income. Since net income (loss) per share is calculated net of depreciation and amortization expense, our net income (loss) results can fluctuate, possibly significantly, depending upon the timing of the closing of acquisitions. For this reason, we are unable to reasonably forecast this measure or provide a reconciliation of our projected FFO per share to this measure.

Core FFO - Our initial guidance for 2021 did not contemplate a transaction like the office portfolio sale we have previously announced. A transaction of this magnitude will have a material effect on earnings and the impact will be felt throughout our financials. In an effort to clarify some of these impacts, we offer the following revised guidance. We expect Core FFO per weighted average share of Common Stock and Class A Unit to be in the range of $0.73 to $0.83 for the full year.

Underpinning this guidance are the following assumptions

• Multifamily Same-Store NOI growth of 2.0% to 3.0%, an increase in the lower end of the range from initial guidance
• New real estate loan investment originations of $50-$100 million
• Closing date of the office transaction of August 1, 2021
• Multifamily acquisition volume of between $300 million and $400 million

This guidance also includes the impact of purchase option terminations revenues and the reversal of expected credit loss reserves related to increased loan payoffs, which should materially offset the dilution of the office portfolio sale in the short term.  These one time items represent a declining number of purchase option termination revenue opportunities. We do not believe that the level of purchase option termination revenue will be replicable going forward. We believe the dilution from the office transaction will be more fully felt in 2022.

AFFO, Core FFO and FFO are calculated after deductions for all preferred stock dividends. Reconciliations of net income (loss) attributable to common stockholders to FFO, Core FFO and AFFO for the three-months ended March 31, 2021 and 2020 appear in the attached report, as well as on our website using the following link:

https://investors.pacapts.com/q1-2021-quarterly-supplemental-financial-data 

Real Estate Assets

At March 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:

The following chart details monthly cash collections of rental revenues before and after the effect of rent deferrals across all our operating business lines as of May 6, 2021:

The following chart details monthly occupancy and percent leased rates across all our operating business lines:

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 consecutive 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 marketed 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 9,591 units, or 86.1% 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 February 24, 2021, our board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, which was paid on April 15, 2021 to stockholders of record on March 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 first quarter 2021, which was paid on April 15, 2021 to all Class A Unit holders of record on March 15, 2021.

Monthly Dividends on Preferred Stock

We declared monthly dividends of $5.00 per share on our Series A Redeemable Preferred Stock, which totaled approximately $29.4 million for the first quarter 2021 and represents a 6% annual yield. We declared monthly dividends of $5.00 per share on our Series A1 Redeemable Preferred Stock, which totaled approximately $2.6 million for the first quarter 2021 and also represents a 6% annual yield. We declared dividends totaling approximately $1.5 million on our Series M Redeemable Preferred Stock, or mShares, for the first 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 $343,000 on our Series M1 Redeemable Preferred Stock for the first quarter 2021. The Series M1 Redeemable Preferred Stock has a dividend rate that escalates from 6.1% in year one of issuance to 7.1% in year ten and thereafter.

Conference Call and Supplemental Data

We will hold our quarterly conference call on Tuesday, May 11, 2021 at 11:00 a.m. Eastern Time to discuss our first quarter 2021 results. To participate in the conference call, please dial in to the following:

Live Conference Call Details
Dial-in Number: 1-877-883-0383
International Dial-in Number: 1-412-902-6506
Company: Preferred Apartment Communities, Inc.
Date: Tuesday, May 11, 2021
Time: 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time)
Passcode: 5239504

The live broadcast of PAC's first quarter 2021 conference call will be available online on a listen-only basis at the company's website, www.pacapts.com, under "Investors" and then click on the "News and Events" heading.

A replay of the call will be archived on PAC's' website under Investors/News and Events/Events.

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 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 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; (c) the closing of the sale of seven of our office properties and one real estate loan investment and (d) 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, 2020 that was filed with the SEC on March 1, 2021, 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 first quarter 2021. While the impacts of COVID-19 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.

Additional Information 

The SEC has declared effective the registration statement filed by the Company for each of our public offerings. 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. 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. 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, Preferred Capital Securities, LLC, will arrange to send you a prospectus with respect to the Series A1/M1 Offering upon request by contacting John A. Isakson at (770) 818-4109, 3284 Northside Parkway NW, Suite 150, Atlanta, Georgia 30327.

The final prospectus for the Series A1/M1 Offering, dated October 22, 2019, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183219000097/a424b5-2019seriesamshares.htm 

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. Certain option purchase prices may be negotiated at the time of the loan closing and are to be calculated based upon market cap rates at the time of exercise of the purchase option, with discounts up to 15 basis points (if any), depending on the loan. As of March 31, 2021, potential property acquisitions and units from projects in our real estate loan investment portfolio consisted of:

Mortgage Indebtedness

The following table and chart summarizes the future maturities of our mortgage notes payable:

Multifamily Communities

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

For the three-month period ended March 31, 2021, our average same-store multifamily communities' physical occupancy was 95.8%. 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 March 31, 2021, our average stabilized physical occupancy was 95.8%. 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 March 31, 2021 except The Menlo.

For the three-month period ended March 31, 2021, our average economic occupancy was 95.5%. 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 marketed for sale, of which we had none at March 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. Since the onset of the COVID-19 pandemic, all nonrecurring and discretionary capital expenditures have been reviewed individually and approved on an as-needed basis. Certain recurring safety-related operational capital expenditures have continued without interruption as they remain necessary for the continued normal operation of our properties.

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

Grocery-Anchored Shopping Center Portfolio                

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

As of March 31, 2021, our grocery-anchored shopping center portfolio was 90.8% leased (95.5% 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 March 31, 2021 were:

The Company's grocery-anchored shopping center portfolio contained the following anchor tenants as of March 31, 2021:

The Company's Quarterly Report on Form 10-Q for the period ended March 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 first quarter 2021 totaled approximately $2.1 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 March 31, 2021, our office building portfolio consisted of the following properties:

The Company's office building portfolio includes the following significant tenants:               

The Company defines Annual Base Rent as the current monthly base rent annualized under the respective leases.

The Company's leased square footage of its office building portfolio expires according to the following schedule:

The Company recognized second-generation capital expenditures within its office building portfolio of approximately $360,000 during the first 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 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. 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")

The Company makes adjustments to FFO to remove costs incurred and revenues recorded that are singular in nature and outside the normal operations of the Company and portray its primary operational results. The Company calculates Core FFO as: 

FFO, plus:

• acquisition and pursuit (dead deal) costs;
• loan cost amortization on acquisition term notes 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;
• expenses related to the COVID-19 global pandemic; and
• 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 the normal operations of the Company, 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. The Company calculates 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;
• weather-related property operating losses;
• 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 M 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 acquired real estate intangible liabilities;
• amortization of straight-line rent adjustments and 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 net operating income 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 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. We believe that net operating income 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. Net operating income 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 and  Class A office buildings. Preferred Apartment Communities' investment objective is to generate attractive, stable returns for stockholders by investing in income-producing properties and acquiring or originating real estate loans. As of March 31, 2021, the Company owned or was invested in 117 properties in 13 states, predominantly in the Southeast region of the United States.

SOURCE Preferred Apartment Communities, Inc.

Related Links

http://www.pacapts.com