Preferred Apartment Communities 10K 2021 Annual report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2021

Commission File No. 001-34995

Preferred Apartment Communities, Inc.

(Exact name of registrant as specified in its charter)


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

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

(Address of principal executive offices) (Zip Code)

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

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


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

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

Title of each class

Series A Redeemable Preferred Stock, par value $0.01 per share

Warrant to Purchase Common Stock, par value $0.01 per share

Series M Redeemable Preferred Stock, par value $0.01 per share

Series A1 Redeemable Preferred Stock, par value $0.01 per share

Series M1 Redeemable Preferred Stock, par value $0.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company (as defined in Exchange Act Rule 12b-2).

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

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

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2021, the last business day of the registrant's most recently completed second fiscal quarter, was $499,414,208 based on the closing price of the common stock on the NYSE on such date. The number of shares outstanding of the registrant’s common stock, as of February 22, 2022 was 55,734,724.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information to be included in the registrant's definitive Proxy Statement, for the registrant's 2022 Annual Meeting of Stockholders, or in an amendment to this Annual Report on Form 10-K, either of which will be filed not later than 120 days after our fiscal year ended December 31, 2021, is incorporated by reference into PART III of this Annual Report on Form 10-K.


	TABLE OF CONTENTS

		FINANCIAL INFORMATION	Page No.
PART I

1.		Business	1

1A.		Risk Factors	9

1B.		Unresolved Staff Comments	29

2.		Properties	30

3.		Legal Proceedings	36

4.		Mine Safety Disclosures	36

PART II

5.		Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	36

6.		Reserved	38

7.		Management's Discussion and Analysis of Financial Condition and Results of Operations	38

7A.		Quantitative and Qualitative Disclosures about Market Risk	72

8.		Financial Statements and Supplementary Data	72

9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	73

9A.		Controls and Procedures	73

9B.		Other Information	74

9C.		Disclosure Regarding Foreign Jurisdictions That Prevent Inspections	74

PART III

10.		Directors, Executive Officers and Corporate Governance	75

11.		Executive Compensation	75

12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	75

13.		Certain Relationships and Related Transactions, and Director Independence	75

14.		Principal Accountant Fees and Services	75

PART IV

15.		Exhibits and Financial Statement Schedules	76

16.		Form 10-K Summary	130

PART I

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our actual results could differ materially from those set forth in each forward-looking statement. Certain factors that might cause such a difference are discussed in this report, including in the section entitled “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K. You should also review the section entitled "Risk Factors" in Item 1A of this Annual Report on Form 10-K for a discussion of various risks that could adversely affect us. Unless the context otherwise requires or indicates, references to the "Company", "we", "our" or "us" refers to Preferred Apartment Communities, Inc., a Maryland corporation, together with its consolidated subsidiaries, including Preferred Apartment Communities Operating Partnership, L.P., or our Operating Partnership, and PAC Carveout, LLC.

Item 1. Business

Development of the Company

Preferred Apartment Communities, Inc. (NYSE: APTS), or the Company, is a real estate investment trust ("REIT") engaged primarily in the ownership and operation of Class A multifamily properties, with select investments in grocery-anchored shopping centers. Preferred Apartment Communities’ investment objective is to generate attractive, stable returns for stockholders by investing in income-producing properties and acquiring or originating real estate loans. As of December 31, 2021, we owned or were invested in 109 properties in 13 states, predominantly in the Southeast region of the United States. The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, (the "Code") commencing with its tax year ended December 31, 2011.

On January 31, 2020, we internalized the functions performed by Preferred Apartment Advisors, LLC, or our Former Manager, and NMP Advisors, LLC, or our Former Sub-Manager, by acquiring NELL Partners, Inc. ("NELL") and NMA Holdings, Inc. ("NMA"), the entities that owned the Former Manager and the Former Sub-Manager (such transactions, collectively, the "Internalization"). The Internalization resulted in the elimination of the previous fee structure between us and the Former Manager, including acquisition and other fees. All managerial and administrative personnel our Former Manager and Former Sub-Manager provided to us pursuant to the Sixth Amended and Restated Management Agreement, effective as of June 3, 2016, or Management Agreement, became employees of the Company effective with the closing of the Internalization. Trusts established, or entities owned, by the family of John A. Williams, the Company’s former Chairman of the Board and Chief Executive Officer, Daniel M. DuPree, the Company’s former Executive Chairman of the Board and former Chief Executive Officer of the Company, and Leonard A. Silverstein, the Company’s former Vice Chairman of the Board, and Former President and Chief Operating Officer, were the owners of NELL. Trusts established, or entities owned, by Joel T. Murphy, the Company’s Chairman of the Board and Chief Executive Officer, the family of Mr. Williams, Mr. DuPree and Mr. Silverstein were the owners of the Former Sub-Manager.

On November 3, 2020, we sold all eight of our student housing communities and one real estate loan investment to an unrelated third party. This achievement of our strategic objective to exit the student housing space provided capital to focus on acquisitions or real estate loans in support of suburban multifamily communities in the Sunbelt region, redeem shares of our Preferred Stock, and for other corporate purposes.

During the second half of 2021, we sold an aggregate of eight office properties and one office real estate loan investment to unrelated third parties.

On February 16, 2022, we entered into an Agreement and Plan of Merger, by and among Pike Parent LLC ("Parent"), Pike Merger Sub I LLC, Pike Merger Sub II LLC, Pike Merger Sub III LLC, Preferred Apartment Communities Operating Partnership, L.P. and PAC Operations, LLC (the "Merger Agreement"), pursuant to which, following a series of transactions (the "Mergers"), if closed, we will become a wholly-owned subsidiary of Parent, which is affiliated with Blackstone Real Estate Income Trust, Inc. ("BREIT"). If the Mergers are completed, each share of our common stock, par value $0.01 per share ("Common Stock"), issued and outstanding immediately prior to closing will be automatically canceled and converted into the right to receive $25.00 in cash, and the Company will cease to be a publicly traded company on the New York Stock Exchange. The holders of each series of our Preferred Stock (as defined in the section entitled "Financing Strategy", following) will receive the $1,000 per share liquidation preference for each share plus accrued but unpaid dividends. The transaction has been unanimously approved by our Board of Directors and is expected to close in the second quarter of 2022, although there is no

guarantee that it will occur by that date, or at all, and the transaction is subject to approval by our stockholders and other customary closing conditions.

Our consolidated financial statements include the accounts of the Company and Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership. The Company controls the Operating Partnership through its sole general partnership interest, and prior to the Internalization, conducted substantially all its business through the Operating Partnership. Following the Internalization, the Company conducts substantially all of its business through PAC Carveout, LLC, or Carveout, a subsidiary of the Operating Partnership. PAC Carveout elected to be taxed as a REIT under the Code commencing with its tax year ended December 31, 2020. On January 27, 2022 PAC Carveout, LLC was legally renamed PAC Operations, LLC. For the year ended December 31, 2021, the Company held an approximate 99.0% weighted average ownership percentage in the Operating Partnership.

Our Operating Partnership and Carveout are related parties to us.

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



	Owned as of December 31, 2021 (1)	Potential additions from real estate loan investment portfolio (2) (3)		Potential total
Residential properties:
Properties	41	9		50
Units	12,052	2,859		14,911
Grocery-anchored shopping centers:
Properties	54	1		55
Gross leasable area (square feet)	6,210,778	85,500	( 4)	6,296,278
Office buildings:
Properties	2	—		2
Rentable square feet	1,072,000	—		1,072,000
Land	1	—		1

(1) One multifamily community and two grocery-anchored shopping centers are owned through consolidated joint ventures. One grocery-anchored shopping center is an investment in an unconsolidated joint venture.
(2) We evaluate each project individually and we make no assurance that we will acquire any of the underlying properties from our real estate loan investment portfolio.
(3) Eight of our office properties and a real estate loan investment supporting the 8West office building were sold during 2021.
(4) Estimated square footage of Nexton Shopping Center development.

We completed our initial public offering, or the IPO, on April 5, 2011. Our common stock, par value $.01 per share, or our Common Stock, is traded on the NYSE exchange under the symbol "APTS."

We operate within the following four operating segments:

Residential Properties - consists of the Company's portfolio of residential multifamily communities and also included the Company's portfolio of owned student housing properties. Preferred Campus Communities, LLC owned and conducted the business of our portfolio of off-campus student housing communities until the sale of all our student housing communities on November 3, 2020. As of and for the year ended December 31, 2021, the Residential Properties segment only consists of the Company's multifamily communities.

New Market Properties - consists of our portfolio of grocery-anchored shopping centers, which are owned by New Market Properties, LLC, a wholly-owned subsidiary of the Company.

Preferred Office Properties - consists of the Company's portfolio of office buildings, which are owned by Preferred Office Properties, LLC, a wholly-owned subsidiary of the Company.

Investment Strategy

We seek to maximize returns for our stockholders by investing in assets that we believe will allow us to grow income and asset value.

Our investment strategies may include, without limitation, the following:

•Acquiring Class “A” multifamily assets in performing and stable markets throughout the United States. These properties, we believe, should generate sustainable and growing cash flow from operations. We believe they will also have the potential for capital appreciation. These multifamily assets will generally be located in metropolitan statistical areas, or MSAs, which we expect will generate job growth from a diverse group of business sectors and where we believe new multifamily development of comparable properties is able to be absorbed at attractive rental rates.

•Acquiring Class “A” multifamily assets that are intended to be, or currently are, financed with longer-term, assumable, fixed-rate debt typically provided by the Federal Housing Administration ("FHA"), a unit of the Department of Housing and Urban Development ("HUD") programs.

•Acquiring Class “A” multifamily assets that present an opportunity to implement a value-add program whereby the properties can be upgraded or improved physically to better take advantage of the market.

•Acquiring grocery-anchored shopping centers, typically anchored by one of the market-dominant grocers in that particular market.

•Originating real estate loan investments secured by interests in multifamily communities, membership or partnership interests in multifamily communities, other multifamily related assets and grocery-anchored shopping centers.

It is our policy to acquire any of our target assets primarily for income, and only secondarily for possible capital gain. As part of our business strategy, we may enter into forward purchase contracts or purchase options for to-be-built multifamily communities and retail centers, 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.

We also may invest in real estate related debt, including, but not limited to, newly or previously originated first mortgage loans on multifamily properties and retail centers that meet our investment criteria, which are performing or non-performing, newly or previously originated real estate related loans on multifamily properties that meet our investment criteria (second or subsequent mortgages), which are performing or non-performing. In connection with our investments in real estate related debt, we may negotiate the inclusion of exclusive purchase options on the to-be-developed properties. These purchase options may include a fixed purchase price set at the time we enter into the loan, or a purchase price which is calculated as a certain discount, or not discount, from market capitalization rates at the date of exercise of such purchase option. Certain of the purchase options we hold may be settled by cash payments to us in the event we elect not to acquire the underlying property.

Financing Strategy

We intend to finance the acquisition of investments using various sources of capital, as described in the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” included in this Annual Report on Form 10-K. Included in this discussion are details regarding (i) our offering of up to a maximum of 1,000,000 shares of Series A1 Redeemable Preferred Stock, Series M1 Redeemable Preferred Stock or a combination of both (the "Series A1/M1 Offering") and (ii) our ability to offer up to $400 million of equity or debt securities (the "2019 Shelf Offering"), including an offering of up to $125 million of Common Stock from time to time in an "at the market" offering (the "2019 ATM Offering"). The Series A Preferred Stock, par value $0.01 per share, or Series A Preferred Stock, Series M Preferred Stock, par value $0.01 per share, or mShares, Series A1 Preferred Stock, par value $0.01 per share, or Series A1 Preferred Stock, and Series M1 Preferred Stock, par value $0.01 per share, or Series M1 Preferred Stock are collectively referred to as our Preferred Stock.

We intend to utilize leverage in making our investments. The number of different investments we will acquire will be affected by numerous factors, including the amount of funds available to us. By operating on a leveraged basis, we will have more funds available for our investments. This will allow us to make more investments than would otherwise be possible, resulting in a larger and more diversified portfolio. See the section entitled "Risk Factors" in Item 1A of this Annual Report on Form 10-K for more information about the risks related to operating on a leveraged basis.

We generally intend to target leverage levels (secured and unsecured) between 50% and 65% of the fair market value of our tangible assets (including our real estate assets, real estate loans, notes receivable, accounts receivable and cash and cash equivalents) on a portfolio basis. Neither our charter nor our by-laws contain any limitation on the amount of leverage we may use. These targets, however, will not apply to individual real estate assets or investments. The amount of leverage we will place on particular investments will depend on our assessment of a variety of factors which may include:

•the anticipated liquidity and price volatility of the assets in our investment portfolio;

•the potential for losses and extension risk in the portfolio;

•the availability and cost of financing an asset;

•our opinion of the creditworthiness of our financing counterparties; and

•the health of the U.S. economy and the health of the commercial real estate market in general.

In addition, factors such as our outlook on interest rates, changes in the yield curve slope, the level and volatility of interest rates and their associated credit spreads, the underlying collateral of our assets and our outlook on credit spreads relative to our outlook on interest rate and economic performance could all impact our decision and strategy for financing the target assets. At the date of acquisition of each asset, we anticipate that the investment cost for such asset will be substantially similar to its fair market value. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits. Finally, we intend to acquire all our properties through separate single purpose entities and intend to finance each of these properties using debt financing techniques for that property alone, without any cross-collateralization to our other real estate assets or any guarantees by us or our Operating Partnership. We have an Amended and Restated Credit Agreement, or Credit Facility, with Key Bank, N.A., or Key Bank. The Credit Facility provides for our $200.0 million revolving credit facility, or the Revolving Line of Credit. The Credit Facility requires that we adhere to certain covenants regarding our revolving line of credit, as described in note 9 to our consolidated financial statements. Other than with regard to our Credit Facility, as of December 31, 2021, we held no debt at the Company or Operating Partnership levels, had no cross-collateralization of our real estate mortgages, and had no contingent liabilities at the Company or Operating Partnership levels with regard to our secured mortgage debt on our properties.

Leverage may be obtained from a variety of sources, including the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Federal National Mortgage Association ("Fannie Mae"), commercial banks, credit companies, the FHA, HUD, insurance companies, pension funds, endowments, financial services companies and other institutions who wish to provide debt financing for our assets.

Our secured and unsecured aggregate borrowings are intended by us to be reasonable in relation to our net assets and will be reviewed by our board of directors at least quarterly. In determining whether our borrowings are reasonable in relation to our net assets, we expect that our board of directors will consider many factors, including the lending standards of government-sponsored enterprises, such as Fannie Mae, Freddie Mac and other companies for loans in connection with the financing of multifamily properties, the leverage ratios of publicly traded and non-traded REITs with similar investment strategies, whether we have positive leverage (in that, the board of directors will compare the capitalization rates of our properties to the interest rates on the indebtedness of such properties) and general market and economic conditions. There is no

limitation on the amount that we may borrow for any single investment or the number of mortgages that may be placed on any one property.

Branding Strategy

We brand, and intend to brand, all multifamily communities owned by us as “A Preferred Apartment Community” which we believe signifies outstanding brand and management standards, and have obtained all rights to the trademarks, including federal registration of the trademarks with the United States Patent and Trademark Office, to secure such brand in connection with such branding. We believe these campaigns will enhance each individual property's presence in relation to other properties within that marketplace.

We acquired all the trademarks owned by our Former Manager in connection with the closing of the Internalization transaction on January 31, 2020.

Human Capital Resources

As of December 31, 2021, we employed 366 people through Preferred Apartment Advisors, LLC, an indirect subsidiary. The success of our company is largely due to the character and quality of our employees, their dedication, experience and work ethic. The success of the following initiatives is reflected in PAC’s recognition as one of the Top Places to Work in Atlanta by the Atlanta Journal-Constitution for the past three years.

Diversity. We believe that diversity of backgrounds, experiences and perspectives makes us stronger and healthier as a company and a community. PAC is an equal opportunity employer and considers qualified applicants regardless of race, color, religion, sexual orientation, gender, gender identity or expression, national origin, age, disability, military or veteran status, genetic information, or other statuses protected by applicable federal, state, and local law. In 2020, we launched our Diversity, Equity & Inclusion initiative, which is designed to facilitate conversations around race, sexual orientation and gender identity, national origin, creeds, and other important topics. These conversations, led by our Diversity, Equity & Inclusion Committee comprised of employees, senior management and a member of our Board of Directors, provide a forum for us to translate our positions as a company into action in both our internal and external communities. As of December 31, 2021, our employees were:

• 44% female; 56% male

• 39% ethnically diverse (i.e., Asian, African American, Hispanic or Latino and other (Native Hawaiian/Pacific Islander and two or more))

Training and Education. We have educational training programs known as our Soaring Series that trains our employees to help strengthen their management skills and build camaraderie, and to assist them in understanding and implementing management-level responsibilities.

Recognition. We emphasize recognizing our employees for their achievements and rewarding them for their successes. Each year, we identify a select group of employees who demonstrate outstanding achievements during the year with our Eagle Club and Commitment to Excellence awards. Additionally, we have a spotlight employee of the month award initiative that recognizes a particular employee for her or his achievements.

Employee Health. We have focused on the health and well-being of our employees by organizing a PAC Gets Fit program to encourage a healthy lifestyle. Activities have included fitness challenges and organized 5Ks and 10Ks to promote physical and mental health and wellness. We evaluate our group health and ancillary benefits annually to ensure our benefits package is robust. We also created our Eagle’s Perch, a café-style environment, to promote increased social interactions among our property support center employees.

Compensation and Benefits. In 2020, we revamped our compensation program to provide a mix of base salary, short-term cash incentive compensation, and long-term equity incentive compensation that includes objective benchmarking, time-based and performance-based vesting, and peer comparisons where appropriate. We believe this new design will retain and motivate key contributors to the Company’s profitability and growth; align employee and investor interests; provide incentive compensation that places a strong emphasis on financial performance with the flexibility to assess operational and individual performance; provide a means to reward for strong performance; and to foster an ownership mentality among program participants. We also provide a competitive benefits package, including a 401(k) plan with a company match, flexible spending

and health saving accounts, medical, dental and vision insurance plans, a paid parental leave policy, and company-paid short-term disability and long-term disability programs.

PAC Gives Back. We value and continue to emphasize culture and giving back to the community. We started a PAC Gives Back community philanthropic initiative. As a part of this initiative, our employees have volunteered hours and have participated in fund raising efforts for a number of charities, including the Atlanta Community Food Bank. We are proud to make these communities better places to live and work through our volunteerism and philanthropy initiatives.

Fostering Company Culture and Providing Support to Employees During COVID-19 Pandemic. At PAC, we are focused on the continued health and safety of our employees, residents and tenants. We effectively implemented our business continuity plans, including a temporary, mandatory remote work order from March 2020 to July 2020. Following our return to the office, we maintained compliance with local, state and federal mandates. To protect and foster the Company’s culture during the COVID-19 pandemic, we formed a COVID-19 taskforce that organized surveys, virtual hangout events and other remote programming to keep our employees connected while working from home. Following the installation of hand sanitizer stations as well as supplying our employees with personal protective equipment, or PPE, we have now reopened our corporate headquarters and all of our multifamily leasing offices while promoting social distancing practices in accordance with state and local mandates and restrictions. We also halted all non-essential business travel, introduced video call technology and self-guided tour options to provide uninterrupted customer service for our residents and visitors. The health and safety of our employees and tenants remains a top priority so we continue to maintain a flexible approach as we navigate the COVID-19 pandemic.

Environmental Matters

As a part of our standard property acquisition processes, we generally obtain environmental studies of the sites from outside environmental engineering firms. The purpose of these studies is to identify potential sources of contamination at the site and to assess the status of environmental regulatory compliance. These studies generally include historical reviews of the site, reviews of certain public records, preliminary investigations of the site and surrounding properties, inspection for the presence of asbestos, poly-chlorinated biphenyls and underground storage tanks and the preparation and issuance of written reports. Depending on the results of these studies, more invasive procedures, such as soil sampling or ground water analysis, may be performed to investigate potential sources of contamination. These studies must be satisfactorily completed before we take ownership of a property; however, no assurance can be given that the studies or additional documents reviewed identify all significant environmental risks. See “Risk Factors – Risks Relating to Investments In Real Estate - The costs of compliance with environmental laws and regulations and other governmental laws and regulations may adversely affect our income and the cash available for any distributions” and “Risk Factors – Risks Relating to Investments In Real Estate - Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results” in this Annual Report on Form 10-K.

The environmental studies we received on properties that we have acquired have not revealed any material environmental liabilities. Should any potential environmental risks or conditions be discovered during our due diligence process, the potential costs of remediation will be assessed carefully and factored into the cost of acquisition, assuming the identified risks and factors are deemed to be manageable and within reason. We are not aware of any existing conditions that we believe would be considered a material environmental liability. Nevertheless, it is possible that the studies do not reveal all environmental risks or that there are material environmental liabilities of which we are not aware. Moreover, no assurance can be given concerning future laws, ordinances or regulations, or the potential introduction of hazardous or toxic substances by neighboring properties or residents.

Government Regulations

We must own, operate, manage, acquire and redevelop our properties in compliance with the laws and regulations of the United States, as well as state and local laws and regulations in the markets where our properties are located, which may differ among jurisdictions. In response to the COVID-19 pandemic, federal governmental authorities, as well as state and local governmental authorities in jurisdictions where our properties are located, implemented laws and regulations which impact our ability to operate our business in the ordinary course, including our ability to charge certain fees, increase rents and evict residents who violate their lease. We are complying with these COVID-19 related governmental requirements, and they, along with the COVID-19 pandemic, had a material impact on our business in 2020 and 2021. Ongoing compliance with such COVID-19 related governmental requirements may materially affect our results of operations for the year ending December 31, 2022. Otherwise, we do not expect that compliance with the various non-COVID-19 laws and regulations we are subject to will have a material effect on our capital expenditures, results of operations and competitive position for the year ending December 31, 2022, as compared to prior periods.

For additional information, see “Risk Factors – Risks Related to the COVID-19 Pandemic - The ongoing COVID-19 pandemic and restrictions intended to prevent its spread could adversely impact our business, results from operations, cash flows, liquidity and capital resources and the market value of our assets,” “Risk Factors – Risk Factors – Risks Relating to Investments In Real Estate - Compliance with the governmental laws, regulations and covenants that are applicable to our properties, including permit, license and zoning requirements, may adversely affect our ability to make future acquisitions or renovations, result in significant costs or delays and adversely affect our growth strategy”, “Risk Factors – Risks Relating to Investments In Real Estate - The costs of compliance with environmental laws and regulations and other governmental laws and regulations may adversely affect our income and the cash available for any distributions” and “Risk Factors – Risks Relating to Investments In Real Estate - Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results” in this Annual Report on Form 10-K.

Competition

The multifamily housing industry is highly fragmented and we compete for residents with a large number of other quality multifamily communities in our target markets which are owned by public and private companies, pension funds, high net worth individuals and family offices, including other REITs, many of which are larger and have more resources than our Company. The number of competitive multifamily properties in a particular market could adversely affect our ability to lease our multifamily communities, as well as the rents we are able to charge. In addition, other forms of residential properties, including single family housing and town homes, provide housing alternatives to potential residents of quality apartment communities. The factors on which we focus to compete for residents in our multifamily communities include our high level of resident service, the quality of our apartment communities (including our landscaping and amenity offerings), and the desirability of our locations. Resident leases at our apartment communities are priced competitively based on levels of supply and demand within our target markets and we believe our communities offer a compelling value to prospective residents.

Similarly, competition for tenants and acquisition of existing centers in the grocery-anchored shopping center sector in our target markets is considerable, consisting of public and private companies, pension funds, high net worth individuals and family offices, including other REITs, many of which are larger and have more resources than our Company. In addition, a significant competitor in this sector are some of the grocery anchors themselves as they acquire land and build their own stores or acquire the entire center where they are the anchor. We are faced with the challenge of maintaining high occupancy rates with a financially stable tenant base. In order to attract quality prospective tenants and retain current tenants upon expiration of their leases, we focus on improving the design and visibility of our centers, building strong relationships with our tenants, and reducing excess operating costs and increasing tenant satisfaction through proactive asset and property management. We target acquisitions in markets with solid surrounding demographics, quality underlying real estate locations, and centers where our asset management approach can provide an environment conducive to creating sales productivity for our tenants.

We also compete with other primarily institutional-quality owners and investors in the business of leasing and operating our remaining office properties. We leverage relationships, track record, and the high quality of our physical assets and locations to compete successfully. Additional principal factors of competition are the leasing terms (including rental rates and concessions or allowances offered) and the terms of any other investment activity such as real estate loan investments in new developments. Our ability to compete depends upon, among other factors, trends of the national and local economies, investment alternatives, financial condition and operating results of current and prospective tenants, availability and cost of capital, construction and renovation costs, taxes, utilities, governmental regulations, legislation and population trends.

Available Information

The Company makes available all reports which are filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material has been filed with, or furnished to, the SEC for viewing or download free of charge at the Company's website: www.pacapts.com. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

Risk Factor Summary

The following section sets forth a summary of material factors that may adversely affect our business and operations. For a more extensive discussion of these factors, see “1A. Risk Factors” contained in this Annual Report on Form 10-K.

•The ongoing COVID-19 pandemic and restrictions intended to prevent its spread could adversely impact our business, results from operations, cash flows, liquidity and capital resources and the market value of our assets.

•General real estate investment risks may adversely affect property income and values.

•Compliance with governmental laws, regulations and covenants that are applicable to our properties, including permit, license and zoning requirements and the American with Disabilities Act, may adversely affect our ability to make future acquisitions or renovations, result in significant costs or delays and adversely affect our growth strategy.

•Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs.

•Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to our stockholders.

•There are significant risks with respect to property acquisition, disposition and capital improvement.

•We face potential adverse effects from major tenants’ bankruptcies or insolvencies.

•Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers' financial condition, and disputes between us and our co-venturers and could expose us to potential liabilities and losses.

•We are subject to geographic concentrations that make us more susceptible to adverse events with respect to certain geographic areas.

•Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.

•We must comply with government regulations and rules and failure to comply may affect cash available for distributions.

•Short-term apartment leases expose us to the effects of declining market rents, which could adversely impact our ability to make distributions to our stockholders.

•Competition in the apartment community market and other housing alternatives may adversely affect operations and the rental demand for our multifamily communities.

•Downturns in the retail industry likely will have an adverse impact on our grocery-anchored revenues and cash flow.

•Loss of revenues from significant tenants and our in-line tenants could reduce distributions to our stockholders.

•Our Common Area Maintenance (“CAM”) contributions may not allow us to recover the majority of our operating expenses from retail tenants.

•Increased competition to traditional grocery chains from new market participants, Amazon, online supermarket retailers and food delivery services could adversely affect our grocery-anchored revenues and cash flow.

•We face considerable competition in the office leasing market and may be unable to renew existing office leases or re-let office space on terms similar to the existing leases, or we may expend significant capital in our efforts to re-let office space, which may adversely affect our operating results.

•Office space demand for office tenants could be reduced following the COVID-19 pandemic due to increased work from home capabilities adopted by businesses during the COVID-19 pandemic which may affect rental demand and rental rates for office buildings that could have an adverse affect on our operating results.

•Our investments in, or originations of, senior debt or subordinate debt and our investments in membership or partnership interests in entities that own real estate assets will be subject to the specific risks relating to the particular company and to the general risks of investing in real estate-related loans and securities, which may result in significant losses.

•Our real estate loan assets will involve greater risks of loss than senior loans secured by income-producing properties.

•We may rely significantly on repayment guarantors of our real estate loan investments and, therefore, could be subject to credit concentration that makes us more susceptible to adverse events with respect to such guarantors.

•We have significant debt, which could have important adverse consequences.

•We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our ability to pay dividends.

•If mortgage debt is unavailable at reasonable rates or reasonable amounts, it may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flows from operations and the amount of cash distributions we can make.

•Volatility in and regulation of the commercial mortgage-backed securities market has limited and may continue to impact the pricing of secured debt.

•We depend on our key personnel, whose continued service is not guaranteed.

•Our ability to grow the Company and execute our business strategy may be impaired if we are unable to secure adequate financing.

•Distributions paid from sources other than our net cash provided by operating activities, particularly from proceeds of any offerings of our securities, will result in us having fewer funds available for the acquisition of properties and other real estate-related investments, which may adversely affect our ability to fund future distributions with net cash provided by operating activities and may adversely affect our stockholders' overall return.

•The cash distributions our stockholders receive may be less frequent or lower in amount than our stockholders expect.

•Stockholders have limited control over changes in our policies and operations.

•Our authorized but unissued shares of Common Stock and Preferred Stock may prevent a change in our control.

•Because of our holding company structure, we depend on our Operating Partnership subsidiary and its subsidiaries for cash flow and we will be structurally subordinated in right of payment to the obligations of such Operating Partnership subsidiary and its subsidiaries.

•Our rights and the rights of our stockholders to recover on claims against our directors and officers are limited, which could reduce our stockholders, and our recovery against them if they negligently cause us to incur losses.

•We may change our operational policies (including our investment guidelines, strategies and policies and the targeted assets in which we invest) with the approval of our board of directors but without stockholder consent or notice at any time, which may adversely affect the market value of our Common Stock, our results of operations and cash flows and our ability to pay dividends to our stockholders.

•Upon the sale of any individual property or a portfolio of properties, holders of our Preferred Stock do not have a priority over holders of our Common Stock regarding return of capital.

•Breaches of our data security could materially harm our business and reputation.

•There is no public market for our Preferred Stock or warrants to purchase up to 20 shares of Common Stock, or Warrants, and we do not expect one to develop.

•We will be required to terminate the Series A1/M1 Offering if our Common Stock is no longer listed on the NYSE or another national securities exchange.

•Our ability to redeem shares of Preferred Stock for cash may be limited by Maryland law.

•The Preferred Stock are senior securities, and rank senior to our Common Stock with respect to dividends and payments upon liquidation.

•The Preferred Stock will be subordinate in right of payment to any corporate level debt that we incur in the future, therefore our stockholders' interests could be diluted by the issuance of additional preferred stock, and by other transactions.

•We will be able to call our shares of Preferred Stock for redemption under certain circumstances without our stockholders' consent.

•The announcement and pendency of the Mergers could adversely affect our business, financial condition and results of operations.

•The proposed Mergers may not be completed within the timeframe we anticipate, or at all, and the failure to complete or delays in completing the Mergers could adversely affect our business, financial results and stock price.

•Loss of our REIT status would have significant adverse consequences to us, the value of Common Stock and our ability to make distributions to our Stockholders.

Item 1A. Risk Factors

In addition to the other information contained in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating us and our business. Our business, operating results, prospects and financial condition could be materially adversely affected by any of these risks. The risks and uncertainties described below are not the only ones we face, but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that, as of the date of this Annual Report on Form 10-K, we deem immaterial also may harm our business. This “Risk Factors” section contains references to our “capital stock” and to our “stockholders.” Unless expressly stated otherwise, the references to our “capital stock” represent our common stock and any class or series of our preferred stock, while the references to our “stockholders” represent holders of our common stock and any class or series of our preferred stock. Unless expressly stated otherwise, the references to our Preferred Stock refer to our Series A Preferred Stock, mShares, Series A1 Preferred Stock and Series M1 Preferred Stock.

Risks Related to the COVID-19 Pandemic

The ongoing COVID-19 pandemic and restrictions intended to prevent its spread could adversely impact our business, results from operations, cash flows, liquidity and capital resources and the market value of our assets. Our operating results depend, in large part, on revenues derived from leasing apartment homes in our communities to residential tenants, the ability of our residents to earn sufficient income to pay their rents in a timely manner, the extent to which we waive late and other customary fees associated with the apartment rental process, and our ability to limit bad debt and maintain operating results by evicting and re-leasing apartment homes when residents remain delinquent in their payment of rent. Additionally, a prolonged imposition of mandated closures or other social-distancing guidelines may adversely impact our retail and office tenants’ ability to generate sufficient revenues, and could force tenants to default on their leases, or result in a tenant’s bankruptcy or insolvency, which would diminish the Company’s ability to receive rental revenue it is owed under their leases.

Across our property types, our average recurring rental revenue collections before and after any effect of rent deferrals for the fourth quarter 2021 were approximately 99.0% and 99.0% for multifamily communities, 99.0% and 99.0% for grocery-anchored retail 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. While we are and will continue to be actively engaged in rent collection efforts, as well as working with certain tenants who have requested rent deferrals, we can provide no assurance that our efforts in future periods will be successful in collecting rent.

The ongoing COVID-19 pandemic continues to evolve, and the restrictions intended to prevent its spread have impacted the markets where our properties operate. COVID-19 (or a future pandemic) could have a material and adverse effect on or cause disruption to our business or financial condition, results from operations, cash flows, liquidity and capital resources and the market value or our assets, all of which can impact the trading price of our common stock due to, among other factors:

•A complete or partial closure of, or other operational issues at the Company’s properties as a result of government or tenant action;

•In the event of resident nonpayment, default or bankruptcy, the uncollectibility of rent could increase and we may not be able to re-lease apartment homes at current or projected rents. Our occupancy levels and pricing across our portfolio may decline due to changes in demand or logistical challenges in showing or leasing apartment homes to prospective residents, including restrictions inhibiting our employees’ ability to meet with existing or potential residents;

•Our properties may incur significant costs or losses related to shelter-in-place orders, quarantines, infection, clean-up costs or other related factors;

•Federal, state, local and industry-initiated efforts that may adversely affect the ability of landlords, including us, to collect rent and customary fees, adjust rental rates and enforce remedies for the failure to pay rent, such as the order issued by the U.S. Centers for Disease Control and Prevention, or CDC, to temporarily halt residential evictions to prevent further spread of COVID-19;

•The declines in or instability of the economy or financial markets may result in a recession or negatively impact consumer discretionary spending, which could adversely affect retailers and consumers;

•The reduction of economic activity has impacted our office and retail tenants' business operations, financial condition, liquidity and access to capital resources that resulted in us agreeing to rent deferrals and/or lease modifications and caused tenant bankruptcies and may cause these and others tenants to be unable to meet their obligations to us in full, or at all, to default on their lease, or to otherwise seek modifications of such obligations;

•Severe and prolonged disruption and instability in the financial markets, including the debt and equity capital markets, which have already experienced and may continue to experience significant volatility, or deterioration in credit and financing conditions (or a refusal or failure of one or more lenders under our unsecured revolving credit facility to fund their respective financing commitment to us), which may affect our ability to access capital necessary to fund our business operations or refinance maturing debt on a timely basis, on attractive terms or at all, which would adversely affect our ability to meet liquidity and capital expenditure requirements;

•A general decline in business activity and demand for real estate transactions would adversely affect the Company’s ability to successfully execute investment strategies or expand its portfolio; and

•The potential negative impact on the health of the Company’s associates or Board of Directors, particularly if a significant number are impacted, or the impact of government actions or restrictions, including stay-at-home orders, restricting access to our headquarters located in Atlanta, Georgia, could result in a deterioration in our ability to ensure business continuity during a disruption.

The extent to which COVID-19 impacts our operations and those of our residents and tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the actions taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others. COVID-19 presents material uncertainty and risk with respect to our performance, business or financial condition, results from operations and cash flows.

The impact of COVID-19 may also heighten other risks discussed herein, which could adversely affect our business, financial condition, results of operations, cash flows and estimated share value.

Risks Related to Investments in Real Estate

General real estate investment risks may adversely affect property income and values. Real estate investments are subject to a variety of risks. If the communities and other real estate investments do not generate sufficient income to meet operating

expenses, including debt service and capital expenditures, cash flow and the ability to make distributions to our stockholders will be adversely affected. Income from the properties may be further adversely affected by, among other things, the following factors:

•changes in the general or local economic climate, including layoffs, plant closings, industry slowdowns, relocations of significant local employers and other events negatively impacting local employment rates and wages and the local economy and occupancy rates in retail shopping centers and office buildings;

•inflationary environments in which the costs to operate and maintain communities increase at a rate greater than our ability to increase rents, or deflationary environments where we may be exposed to declining rents more quickly under our short-term leases;

•local real estate market conditions, such as oversupply or reduction in demand for our properties;

•competition from other available alternatives properties in our markets for our tenants;

•changes in space utilization by our tenants due to technology, economic conditions and business culture;

•the Company’s ability to provide for adequate maintenance and insurance;

•a pandemic or other health crisis, such as the outbreak and global spread of COVID-19;

•tenants' perceptions of the safety, convenience and attractiveness of our properties and the neighborhoods where they are located;

•declines in the financial condition of our tenants and residents, which may make it more difficult for us to collect rent;

•increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened

security costs; and

•changes in interest rates and availability of financing.

As leases at the communities expire, tenants may enter into new leases on terms that are less favorable to us. Income and real estate values also may be adversely affected by such factors as applicable laws, including, without limitation, the Americans with Disabilities Act of 1990 (the "Disabilities Act"), Fair Housing Amendment Act of 1988 (the "FHAA"), laws and regulations regarding evictions, other laws regulating housing that may prevent the Company from raising rents to offset increased operating expenses, and tax laws.

Natural disasters could significantly reduce the value of our properties and our stockholders' investment. Natural disasters, including hurricanes, tornadoes, earthquakes, wildfires and floods, could significantly reduce the value of our properties. While we will attempt to obtain adequate insurance coverage for natural disasters, insurance may be too expensive, may have significant deductibles, or may not properly compensate us for the long-term loss in value or rent loss that a property may suffer if the area around it suffers a significant natural disaster. As a result, we may not be compensated for the loss in value. Any diminution in the value of our properties or properties underlying an investment that is not fully reimbursed will reduce our profitability and adversely affect the value of our stockholders' investment.

We face possible risks associated with the physical effects of climate change. The physical effects of climate change could have a material adverse effect on our properties, operations and business, particularly our properties along the East Coast and in Texas. To the extent climate change causes changes in weather patterns, our markets could experience increases in storm intensity and rising sea-levels. Over time, these conditions could result in declining demand for apartments or our inability to operate the affected properties at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable. There can be no assurance that climate change will not have a material adverse effect on our properties, operations or business.

We may suffer losses that are not covered by insurance. If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits. We intend to obtain comprehensive insurance for our properties, including casualty, liability, fire, extended coverage and rental loss customarily, that is of the type obtained for similar properties and in amounts which we determine are sufficient to cover reasonably foreseeable losses, and with policy specifications and insured limits that we believe are adequate and appropriate under the circumstances. Material losses may occur in excess of insurance proceeds with respect to any property as insurance proceeds may not provide sufficient resources to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to acts of war, earthquakes, floods, wind, pollution, environmental matters or terrorism which are either uninsurable, not economically insurable, or may be insured subject to material limitations, such as large deductibles or co-payments. If an uninsured loss or a loss in excess of insured limits occurs on a property, we could lose our capital invested in the property, as well as the anticipated future revenues from the property and, in the case of debt that is recourse to us, would remain obligated for any mortgage debt or other financial obligations related to the property. Any loss of this nature would adversely affect us. Although we intend to adequately insure our properties, we can offer no assurance that we will successfully do so.

Compliance with the governmental laws, regulations and covenants that are applicable to our properties, including permit, license and zoning requirements, may adversely affect our ability to make future acquisitions or renovations, result in significant costs or delays and adversely affect our growth strategy. Our properties are subject to various covenants and local laws and regulatory requirements, including permitting and licensing requirements. Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants (some of which may be imposed by community developers), may restrict the use of our properties and may require us to obtain approval from local officials or community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. Among other things, these restrictions may relate to fire and safety, seismic, asbestos-containing materials abatement or management or hazardous material abatement requirements. We cannot assure our stockholders that existing regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that would increase such delays or result in additional costs. Our growth strategy may be materially and adversely affected by our ability to obtain permits, licenses and zoning approvals. Our failure to obtain such permits, licenses and zoning approvals could have a material adverse effect on our business, financial condition and results of operations.

Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs. The Disabilities Act generally requires that public buildings, including “public accommodations," be made accessible to disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If, under the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties or in properties we acquire, including the removal of access barriers, it could adversely affect our financial condition and results of operations, as well as the amount of cash available for distribution to our stockholders. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations.

If we purchase assets at a time when the real estate market is experiencing substantial influxes of capital investment and competition for properties, the real estate we purchase may not appreciate or may decrease in value. The real estate market may experience substantial influxes of capital from investors. This substantial flow of capital, combined with significant competition for the acquisition of real estate, may result in inflated purchase prices for such assets and compression of capitalization rates. To the extent we purchase real estate in such an environment, we are subject to the risk that, if the real estate market subsequently ceases to attract the same level of capital investment, or if the number of companies seeking to acquire such assets decreases, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets.

We may be unable to sell a property if or when we decide to do so, or we may not make a profit if we sell a property, which could adversely impact our ability to make distributions to our stockholders. In connection with the acquisition of a property, we may agree on restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property or agreeing to significant debt prepayment costs if a property is sold and the debt is repaid before maturity. Even absent such restrictions, the real estate market is affected by many factors that are beyond our control, including general economic conditions, availability of financing, interest rates and supply and demand. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or real estate-related asset. If we are unable to sell a property or real estate-related asset when we determine to do so or we sell and fail to recover all or a portion of our investment, it could have a significant adverse effect on our cash flow and results of operations. As a result, we may not have funds to make distributions to our stockholders.

Our ability to sell our properties also may be limited by our need to avoid a 100% penalty tax that is imposed on gain recognized by a REIT from the sale of property characterized as dealer property. In order to ensure that we avoid such characterization we may be required to hold our properties for a minimum period of time and comply with certain other requirements in the Code, or possibly hold some properties through taxable REIT subsidiaries, or TRSs, that must pay full corporate-level income taxes.

We may have difficulty selling real estate investments, and our ability to distribute all or a portion of the net proceeds from such sale to our stockholders may be limited. Real estate investments are relatively illiquid, and as a result, we will have a limited ability to vary our portfolio in response to changes in economic or other conditions. We also will have a limited ability to sell assets in order to fund working capital and similar capital needs. When we sell any of our properties, we may not realize a gain on such sale. We may elect not to distribute any proceeds from the sale of properties to our stockholders and we may use such proceeds to:

•purchase additional properties;

•repay debt, if any;

•redeem shares of Preferred Stock or repurchase our Common Stock;

•buy out the interests of any co-venturers or other partners in any joint venture in which we are a party;

•create working capital reserves; or

•make repairs, maintenance, tenant improvements or other capital improvements or expenditures to our remaining properties.

We face potential adverse effects from major tenants’ bankruptcies or insolvencies. The bankruptcy or insolvency of a major tenant may adversely affect the income produced by our retail and/or office properties. Our tenants could file for bankruptcy protection or become insolvent in the future. We cannot evict a tenant solely because of its bankruptcy. On the other hand, a bankrupt tenant may reject and terminate its lease with us. In such case, our claim against the bankrupt tenant for unpaid and future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease, and, even so, our claim for unpaid rent would likely not be paid in full. This shortfall could adversely affect our cash flow and results of operations.

We may incur foreseen or unforeseen liabilities in connection with properties we acquire. Our anticipated acquisition activities are subject to many risks. We may acquire properties that are subject to liabilities or that have problems relating to their environmental condition, state of title, physical condition or compliance with zoning laws, building codes or other legal requirements. In each case, our acquisition may be without any, or with only limited, recourse with respect to unknown liabilities or conditions. As a result, if any liability were asserted against us relating to those properties or entities, or if any adverse condition existed with respect to the properties or entities, we might have to pay substantial sums to settle or cure it, which could adversely affect our cash flow and operating results.

The costs of compliance with environmental laws and regulations and other governmental laws and regulations may adversely affect our income and the cash available for any distributions. All real property and the operations conducted on real property are subject to certain federal, state and local laws and regulations relating to environmental protection and human health and safety. Such federal laws might include: the National Environmental Policy Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Solid Waste Disposal Act as amended by the Resource Conservation and Recovery Act; the Federal Water Pollution Control Act; the Federal Clean Air Act; the Toxic Substances Control Act, the Emergency Planning and Community Right to Know Act; and the Hazard Communication Act. These laws and regulations generally govern wastewater discharges, air emissions, the regulation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination, including of off-site third party owned disposal sites. As is the case with community and neighborhood shopping centers, some of our centers had on-site dry cleaning and/or on-site gasoline retail facilities and these prior uses could potentially increase our environmental liability exposure. Some of these laws and regulations may impose joint and several liability on residents, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. In addition, the presence of certain regulated substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent the property or to use the property as collateral for future borrowing.

We could incur losses from claims relating to the presence of, or exposure of tenants to, indoor air quality issues, including the presence of mold in warmer climates or other microbial organisms, particularly if we are unable to maintain adequate insurance to cover such losses. We also may incur unexpected expenses relating to the abatement of mold on properties that we acquire.

Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. We cannot assure our stockholders that future laws, ordinances or regulations will not impose any material environmental liability, or that the current environmental condition of our properties will not be affected by the activities of residents, existing conditions of the land, operations in the vicinity of the properties, or the activities of unrelated third parties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be

required to comply. Failure to comply with applicable laws and regulations could result in fines and/or damages, suspension of personnel of our Manager and/or other sanctions.

Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or regulated substances on, under, in or about such property. The costs of investigation, removal or remediation of such substances could be substantial. Those laws may impose liability whether or not the owner or operator knew of, or was responsible for, the presence of the substances.

Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and compliance with those restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles govern the presence, maintenance, removal and disposal of certain building materials, including mold, asbestos and lead-based paint.

The cost of defending against such claims of liability, of compliance with environmental requirements, of remediating any contaminated property, or of paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently, the amounts available for distribution to our stockholders.

We cannot assure our stockholders that properties which we acquire will not have any material environmental conditions, liabilities or compliance concerns. Accordingly, we have no way of determining at this time the magnitude of any potential liability to which we may be subject arising out of environmental conditions or violations with respect to the properties we may purchase.

The profitability of our acquisitions is uncertain. We intend to acquire properties selectively. Acquisition of properties entails risks that investments will fail to perform in accordance with expectations. In undertaking these acquisitions, we will incur certain risks, including the expenditure of funds on, and the devotion of management's time to, transactions that may not come to fruition. Additional risks inherent in acquisitions include risks that the properties will not achieve anticipated occupancy levels and that estimates of the costs of improvements to bring an acquired property up to our standards may prove inaccurate.

Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers' financial condition, and disputes between us and our co-venturers and could expose us to potential liabilities and losses. In addition to our existing joint ventures, we may make investments in other joint ventures or other partnership arrangements between us, our affiliates or with unaffiliated third parties. We also may purchase properties in partnerships, co-tenancies or other co-ownership arrangements. Such investments may involve risks not otherwise present when acquiring real estate directly, including, for example:

•joint venturers may share certain approval rights over major decisions, including sale and refinancing;

•a co-venturer, co-owner or partner may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint venture or the timing of termination or liquidation of the joint venture;

•a co-venturer, co-owner or partner in an investment might become insolvent or bankrupt;

•we may incur liabilities as a result of an action taken by our co-venturer, co-owner or partner;

•a co-venturer, co-owner or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to maintaining our qualification as a REIT;

•disputes between us and our joint venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable joint venture to additional risk; or

•under certain joint venture arrangements, neither venture partner may have the power to control the venture, and an impasse could be reached which might have a negative influence on the joint venture.

We are subject to geographic concentrations that make us more susceptible to adverse events with respect to certain geographic areas. We are subject to geographic concentrations, the carrying values of which are as follows as of December 31, 2021:


(in millions)	Carrying value of real estate assets and real estate-related loans		Percentage

Florida	$	1,096.3	33.0	%
Georgia	745.8		22.4	%
Texas	291.5		8.8	%
North Carolina	271.8		8.2	%
Virginia	232.9		7.0	%
Tennessee	216.4		6.5	%
California	129.8		3.9	%
Alabama	99.0		3.0	%
South Carolina	80.3		2.4	%
Maryland	61.2		1.8	%
Pennsylvania	36.2		1.1	%
Kansas	33.1		1.0	%
Kentucky	30.8		0.9	%

Total	$	3,325.1	100.0	%

Any economic downturn or other adverse condition in one or more of these states, or in any other state in which we may have a significant concentration in the future, could result in a material reduction of our cash flows or material losses to us.

Failure to succeed in new markets or sectors may have adverse consequences on our performance. We may make acquisitions outside of our existing market areas if appropriate opportunities arise. We may be exposed to a variety of risks if we choose to enter new markets, including an inability to accurately evaluate local market conditions, to identify appropriate acquisition opportunities, to hire and retain key personnel, and a lack of familiarity with local governmental and permitting procedures. In addition, we may abandon opportunities to enter new markets that we have begun to explore for any reason and may, as a result, fail to recover expenses already incurred.

Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations. We are likely to acquire multiple properties in a single transaction. Such portfolio acquisitions are more complex and expensive than single-property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions also may result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate, or attempt to dispose of, these properties. We may be required to accumulate a large amount of cash in order to acquire multiple properties in a single transaction. We would expect that the returns that we can earn on such cash will be less than the ultimate returns on real property, and therefore, accumulating such cash could reduce our funds available for distributions. Any of the foregoing events may have an adverse effect on our operations.

Risks Related to our Investments in Multifamily Communities

We must comply with the FHAA and failure to comply may affect cash available for distributions. We must comply with the FHAA, which requires that apartment communities first occupied after March 13, 1991 be accessible to handicapped residents and visitors. Compliance with the FHAA could require removal of structural barriers to handicapped access in a community, including the interiors of apartment units covered under the FHAA. Recently there has been heightened scrutiny of multifamily housing communities for compliance with the requirements of the FHAA and the ADA and an increasing number of substantial enforcement actions and private lawsuits have been brought against apartment communities to ensure compliance with these requirements. Noncompliance with the FHAA could result in the imposition of fines, awards of damages to private litigants, payment of attorneys' fees and other costs to plaintiffs, substantial litigation costs and substantial costs of remediation that may affect cash available for distributions.

Short-term apartment leases expose us to the effects of declining market rents, which could adversely impact our ability to make distributions to our stockholders. We expect that most of our apartment leases will be for terms of thirteen months or less. Because these leases generally permit the residents to leave at the end of the lease term without any penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.

Competition in the apartment community market and other housing alternatives may adversely affect operations and the rental demand for our multifamily communities. There are numerous housing alternatives that compete with our communities in attracting tenants. These include other apartment communities, condominiums and single-family homes that are available for rent or for sale in the markets in which our communities are located. Competitive housing in a particular area and fluctuations in cost of owner-occupied single- and multifamily homes caused by a decrease in housing prices, mortgage interest rates and/or government programs to promote home ownership or create additional rental and/or other types of housing, could adversely affect our ability to retain tenants, lease apartment homes and increase or maintain rents. If the demand for our communities is reduced or if competitors develop and/or acquire competing apartment communities, rental rates may drop, which may have a material adverse effect on the Company’s financial condition and results of operations. We also face competition from other companies, REITs, businesses and other entities in the acquisition and operation of apartment communities. This competition may result in an increase in prices and costs of apartment communities that we intend to acquire.

Risks Related to our Grocery-Anchored Shopping Center Investments

Downturns in the retail industry likely will have a direct adverse impact on our grocery-anchored revenues and cash flow. Our retail properties currently owned and planned for acquisition consist primarily of grocery-anchored shopping centers. Our retail performance therefore is generally linked to economic conditions in the market for retail space. The market for retail space could be adversely affected by any of the following:

•weakness in the national, regional and local economies, and declines in consumer confidence which could adversely impact consumer spending and retail sales and in turn tenant demand for space and could lead to increased store closings;

•changes in market rental rates;

•changes in demographics (including the number of households and average household income) surrounding our shopping centers;

•adverse financial conditions for grocery anchors and other retail, service, medical or restaurant tenants;

•continued consolidation in the retail and grocery sector;

•excess amount of retail space in our markets;

•reduction in the demand by tenants to occupy our shopping centers as a result of reduced consumer demand for certain retail formats;

•increased diversification of product offerings by grocery anchors can lead to increased competition, declining same store sales and store closings;

•increases in e-commerce and alternative distribution channels may negatively affect our tenant sales or decrease the square footage our tenants require and could lead to margin pressure on our grocery anchors, which could lead to store closures;

•the impact of an increase in energy costs on consumers and its consequential effect on the number of shopping visits to our centers;

•a pandemic or other health crisis, such as the recent outbreak of novel coronavirus (COVID-19); and

•consequences of any armed conflict involving, or terrorist attack against, the United States.

To the extent that any of these conditions occur, they are likely to impact market rents for retail space, occupancy in our retail properties, our ability to sell, acquire or develop retail properties, and our cash available for distributions to stockholders.

Loss of revenues from significant tenants and our in-line tenants could reduce distributions to our stockholders. For our currently owned and planned acquisitions of grocery-anchored shopping centers, we derive or will derive significant revenues from anchor tenants such as Publix, Kroger, Harris Teeter, Wal-Mart, Food Lion, Giant, Randall's, Sprouts, BJ's Wholesale Club and The Fresh Market, in addition to our in-line tenants.

Distributions to our stockholders could be adversely affected by the loss of revenues in the event our tenants:

•become bankrupt or insolvent;

•experience a downturn in their business;

•materially default on their leases;

•do not renew their leases as they expire; or

•renew at lower rental rates.

Vacated anchor space, including space owned by the anchor, can also reduce rental revenues generated by the shopping center because of the loss of the departed anchor tenant's customer drawing power. The closing of one or more anchor stores at a center or occupancy falling below a certain percentage could adversely affect the financial performance of the center, adversely affect the operations of other tenants and result in lease terminations by, or reductions in rent from, other tenants whose leases may permit such actions.

Our Common Area Maintenance (“CAM”) contributions may not allow us to recover the majority of our operating expenses from retail tenants. CAM costs typically include allocable energy costs, repairs, maintenance and capital improvements to common areas, janitorial services, administrative, property and liability insurance costs and security costs. The amount of CAM charges we bill to our retail tenants may not allow us to recover or pass on all these operating expenses to tenants, which may reduce operating cash flow from our retail properties.

Increased competition to traditional grocery chains from new market participants, Amazon, online supermarket retailers and food delivery services could adversely affect our grocery-anchored revenues and cash flow. As a result of consumers' growing desire to shop online, traditional grocery chains are subject to increasing competition from new market participants and food retailers who have incorporated the Internet as a direct-to-consumer channel and Internet-only retailers that sell grocery products. Additionally, online food delivery services are increasingly competing with traditional grocery chains in the food sales market. Competition from these new market participants and selling channels could negatively impact traditional grocery chains, which could adversely affect our grocery-anchored revenues and cash flow. In addition, changing dynamics in the food sales space could result in increased competition, declining same-store sales and store closings in the retail and grocery sector.

Risks Related to our Office Building Investments

We face considerable competition in the office leasing market and may be unable to renew existing office leases or re-let office space on terms similar to the existing leases, or we may expend significant capital in our efforts to re-let office space, which may adversely affect our operating results. Every year, we compete with a number of other developers, owners, and operators of office and office-oriented properties to renew office leases with our existing tenants and to attract new office tenants. To the extent that we are able to renew office leases that are scheduled to expire in the short-term or re-let such office space to new tenants, heightened competition resulting from adverse market conditions may require us to utilize rent concessions and tenant improvements to a greater extent than we historically have. In addition, competition for credit worthy office tenants is intense and we may have difficulty competing with competitors, especially those who have purchased office properties at discounted prices allowing them to offer office space at reduced rental rates.

If our competitors offer office accommodations at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants upon expiration of their existing office leases. These competitors could include our own tenants who may be offering to sublease at lower rates some or all of the space we have leased to them. Even if our tenants renew their leases or we are able to re-let the office space, the terms and other costs of renewal or re-letting, including the cost of required renovations, increased tenant improvement allowances, leasing commissions, declining rental rates, and other potential concessions, may be less favorable than the terms of our current leases and could require significant capital expenditures. If we are unable to renew office leases or re-let office space in a reasonable time, or if rental rates decline or tenant improvement, leasing commissions, or other costs increase, our financial condition, cash flows, ability to pay distributions to our stockholders, and ability to satisfy our debt service obligations could be adversely affected.

Demand for office space could be reduced following the COVID-19 pandemic due to increased work from home capabilities adopted by businesses during the COVID-19 pandemic which may affect rental demand and rental rates for office buildings that could have an adverse affect on our operating results. During the COVID-19 pandemic, many businesses have adapted by implementing extensive work from home technologies and capabilities for their workforce. Many of these solutions will be available following the end of the COVID-19 pandemic and could reduce the need for office space for many businesses. A reduction in demand for office space could reduce the rental rates and/or increase vacancies at our office properties. If we have a reduction in rental rates at renewal or when we re-let the space or longer vacancies at our office properties, our financial

condition, cash flows, ability to pay distributions to our stockholders, and ability to satisfy our debt service obligations could be adversely affected.

Risks Related to Our Real Estate Loan Investments

Our investments in, or originations of, senior debt or subordinate debt and our investments in membership or partnership interests in entities that own real estate assets will be subject to the specific risks relating to the particular company and to the general risks of investing in real estate-related loans and securities, which may result in significant losses. We may invest in, or originate, senior debt or subordinate debt and invest in membership or partnership interests in entities that own real estate assets. These investments will involve special risks relating to the particular company, including its financial condition, liquidity, results of operations, business and prospects. In particular, the debt securities may not be collateralized and also may be subordinated to the entity's other obligations. We are likely to invest in debt securities of companies that are not rated or are rated non-investment grade by one or more rating agencies. Investments that are not rated or are rated non-investment grade have a higher risk of default than investment grade rated assets and therefore may result in losses to us. We have not adopted any limit on such investments.

These investments also will subject us to the risks inherent with real estate investments referred to previously, including the risks described with respect to multifamily, retail and office properties and other real estate-related investments and similar risks, including:

•risks of delinquency and foreclosure, and risks of loss in the event thereof;

•the dependence upon the successful operation of, and net income from, real property;

•risks generally incident to interests in real property;

•risks related to rising construction costs; and

•risks specific to the type and use of a particular property.

These risks may adversely affect the value of our investments in entities that own real estate assets and the ability of our borrowers thereof to make principal and interest payments in a timely manner, or at all, and could result in significant losses.

Our real estate loan assets will involve greater risks of loss than senior loans secured by income-producing properties. We may originate (in connection with a forward purchase or option to purchase contract or otherwise) or acquire real estate loans in entities that own or are developing multifamily properties or other real estate-related investments which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. These types of assets involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property because the loan may become unsecured as a result of foreclosure by the senior lender and because it is in second position and there may not be adequate equity in the property. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our real estate loan. If a borrower defaults on our real estate loan or debt senior to our loan, or in the event of a borrower bankruptcy, our real estate loan will be satisfied only after the senior debt. We may be unable to enforce guaranties of payment and/or performance given as security for some real estate loans. As a result, we may not recover some or all of our initial expenditure. Our real estate loans partially finance the construction of real estate projects and so involve additional risks inherent in the construction process, such as adherence to budgets and construction schedules. In addition, subordinate loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Significant losses related to our real estate loans would result in operating losses for us and may limit our ability to make distributions to our stockholders.

We may rely significantly on repayment guarantors of our real estate loan investments and, therefore, could be subject to credit concentration that makes us more susceptible to adverse events with respect to such guarantors. The repayment of amounts owed to us under certain of our real estate loan investments may be partially guaranteed by the principals of the borrowers. If it were necessary to enforce a guaranty of completion or a guaranty of repayment, our rights under such enforcement are limited by rights held by the senior lender pursuant to intercreditor agreements we have in place. Therefore, the failure to perform by the borrowers and such guarantors is likely to have a material adverse effect on our results of operations and financial condition.

Risks Associated with Debt Financing

We have significant debt, which could have important adverse consequences. As of December 31, 2021, we had outstanding debt of approximately $2.4 billion. This indebtedness could have important consequences, including:

•if a property is mortgaged to secure payment of indebtedness, and if we are unable to meet our mortgage obligations, we could sustain a loss as a result of foreclosure on the mortgaged property;

•our vulnerability to general adverse economic and industry conditions is increased; and

•our flexibility in planning for, or reacting to, changes in business and industry conditions is limited.

The mortgages on our properties subject to secured debt and our Credit Facility contain customary restrictions, requirements and other limitations, as well as certain financial and operating covenants, including maintenance of certain financial ratios. Maintaining compliance with these provisions could limit our financial flexibility. A default in these provisions, if uncured, could require us to repay the indebtedness before the scheduled maturity date, which could adversely affect our liquidity and increase our financing costs. Any such restriction or limitation may have an adverse effect on our operations and our ability to make distributions to our stockholders. Further, such restrictions could make it difficult for us to satisfy the requirements necessary to maintain our qualification as a REIT.

We may not be able to renew, repay or refinance our indebtedness when due or may be required to refinance our indebtedness at higher interest rates or on terms that may not be as favorable as the terms of existing indebtedness. If we are unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of its properties on disadvantageous terms, which might result in losses. Such losses could have an adverse effect on us and our ability to make distributions to our stockholders and pay amounts due on our debt. Furthermore, if a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the lender could foreclose on the property, appoint a receiver and exercise rights under an assignment of rents and leases, or pursue other remedies, all with a consequential loss of revenues and asset value. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet REIT distribution requirements.

We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our ability to pay dividends on the Preferred Stock and our Common Stock. Our governing documents do not have limitations on the amount of leverage we may use. We may incur additional indebtedness and become more highly leveraged, which could harm our financial position and potentially limit our cash available to pay dividends due to debt covenant restrictions and/or resulting lower amounts of cash from operating activities because of higher interest and/or principle payments. As a result, we may not have sufficient funds remaining to fund our dividend distributions relating to our Preferred Stock and our Common Stock.

Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distributions to our stockholders. We also may finance our property acquisitions using interest-only mortgage indebtedness for all or a portion of the term. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments or prepayment penalties will reduce the funds available for distribution to our stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans. While our intention and practice has been to place interest rate caps on our floating rate mortgages, these caps will be at rates above current rates.

If mortgage debt is unavailable at reasonable rates or reasonable amounts, it may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flows from operations and the amount of cash distributions we can make. If we are unable to borrow monies on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase, and the return on the properties we do purchase may be lower. If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the debt becomes due or of being unable to refinance on favorable terms. If interest rates are higher when we refinance the properties, our income could be reduced. As such, we may find it difficult, costly or impossible to refinance indebtedness

which is maturing. If any of these events occur, our interest cost would increase as a result, which would reduce our cash flow. This, in turn, could reduce cash available for distribution to our stockholders and may hinder our ability to raise capital by issuing more stock or borrowing more money. If we are unable to refinance maturing indebtedness with respect to a particular property and are unable to pay the same, then the lender may foreclose on such property.

Financial and real estate market disruptions could adversely affect the multifamily property sector's ability to obtain financing from Freddie Mac and Fannie Mae, which could adversely impact us. Fannie Mae, Freddie Mac and HUD/FHA are major sources of financing for the multifamily sector and both have historically experienced losses due to credit-related expenses, securities impairments and fair value losses. If new U.S. government regulations (i) heighten these agencies' underwriting standards, (ii) adversely affect interest rates, or (iii) reduce the amount of capital they can make available to the multifamily sector, it could reduce or remove entirely a vital resource for multifamily financing. Any potential reduction in loans, guarantees and credit-enhancement arrangements from these agencies could jeopardize the effectiveness of the multifamily sector's available financing and decrease the amount of available liquidity and credit that could be used to acquire and diversify our portfolio of multifamily assets.

Volatility in and regulation of the commercial mortgage-backed securities market has limited and may continue to impact the pricing of secured debt. A lack of volume in the commercial mortgage-backed securities market could result in the following adverse effects on our incurrence of secured debt, which could have a materially negative impact on our financial condition, results of operations, cash flow and cash available for distribution, including:

•the general availability of loan proceeds/originators:

•higher loan spreads;

•tighter loan covenants;

•reduced loan to value ratios and resulting borrower proceeds; and

•higher amortization and reserve requirements.

Risks Related to Our Organization, Structure and Management

We depend on our key personnel, whose continued service is not guaranteed. Our success depends on our ability to attract and retain executive officers, senior officers and company managers. There is substantial competition for qualified personnel in the real estate industry and the departure of any of our key personnel could have an adverse effect on the Company.

The Maryland Business Combination Act may delay, defer or prevent a transaction or change in control of the Company that might involve a premium price for the Company's stock or otherwise be in the best interest of our stockholders. Under the Maryland General Corporation Law, certain "business combinations" between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as any person (and certain affiliates of such person) who beneficially owns ten percent or more of the voting power of the then-outstanding voting stock of the corporation. The law also requires two supermajority stockholder votes for such transactions. This means that the transaction must be approved by at least:

•80% of the votes entitled to be cast by holders of outstanding voting shares; and

•two-thirds of the votes entitled to be cast by holders of outstanding voting shares other than shares held by the interested stockholder with whom the business combination is to be effected.

Stockholders have limited control over changes in our policies and operations. Our board of directors determines our major policies, including with regard to financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Holders of our Preferred Stock have no voting rights. Under our charter and the Maryland General Corporation Law, holders of our Common Stock generally have a right to vote only on the following matters:

•the election or removal of directors;

•the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to:

◦change our name;

◦change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock;

◦increase or decrease the aggregate number of shares of stock that we have the authority to issue;

◦increase or decrease the number of shares of any class or series of stock that we have the authority to issue; and

◦effect certain reverse stock splits;

•our liquidation and dissolution; and

•our being a party to a merger, consolidation, sale or other disposition of all or substantially all our assets or statutory share exchange.

All other matters are subject to the discretion of our board of directors.

Our authorized but unissued shares of Common Stock and Preferred Stock may prevent a change in our control. Our charter authorizes us to issue additional authorized but unissued shares of Common Stock or preferred stock, without stockholder approval, up to 415,066,666 shares. In addition, our board of directors may, without stockholder approval, amend our charter from time to time to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of Common Stock or Preferred Stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors may establish a class or series of common stock or preferred stock that could delay or prevent a merger, third party tender offer or similar transaction or a change in incumbent management that might involve a premium price for our securities or otherwise be in the best interest of our stockholders.

Because of our holding company structure, we depend on our Operating Partnership subsidiary and its subsidiaries for cash flow and we will be structurally subordinated in right of payment to the obligations of such Operating Partnership subsidiary and its subsidiaries. We are a holding company with no business operations of our own. Our only significant asset is and will be the general and limited partnership interests in our Operating Partnership. We conduct, and intend to conduct, all our business operations through our Operating Partnership. Accordingly, our only source of cash to pay our obligations is distributions from our Operating Partnership and its subsidiaries of their net earnings and cash flows. We cannot assure our stockholders that our Operating Partnership or its subsidiaries will be able to, or be permitted to, make distributions to us that will enable us to make distributions to our stockholders from cash flows from operations. Each of our Operating Partnership's subsidiaries is or will be a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from such entities. In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations of our Operating Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our Operating Partnership and its subsidiaries will be able to satisfy your claims as stockholders only after all our and our Operating Partnership's and its subsidiaries' liabilities and obligations have been paid in full.

Our rights and the rights of our stockholders to recover on claims against our directors and officers are limited, which could reduce our stockholders, and our recovery against them if they negligently cause us to incur losses. The Maryland General Corporation Law provides that a director has no liability in such capacity if he or she performs his or her duties in good faith, in a manner she or he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. A director who performs his or her duties in accordance with the foregoing standards should not be liable to us or any other person for failure to discharge his or her obligations as a director.

In addition, our charter provides that our directors and officers will not be liable to us or our stockholders for monetary damages unless the director or officer actually received an improper benefit or profit in money, property or services, or is adjudged to be liable to us or our stockholders based on a finding that his or her action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Our charter also requires us, to the maximum extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to any individual who is a present or former director or officer and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or any individual who, while a director or officer and at our request, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, REIT, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity. With the approval of our board of directors, we may provide such indemnification and advance for expenses to any individual who served a predecessor of the Company in any of the capacities described above and any employee or agent of the Company or a predecessor of the Company.

We also are permitted to purchase and we currently maintain insurance or provide similar protection on behalf of any directors, officers, employees and agents against any liability asserted which was incurred in any such capacity with us or arising out of such status. This may result in us having to expend significant funds, which will reduce the available cash for distribution to our stockholders.

We may change our operational policies (including our investment guidelines, strategies and policies and the targeted assets in which we invest) with the approval of our board of directors but without stockholder consent or notice at any time, which may adversely affect the market value of our Common Stock, our results of operations and cash flows and our ability to pay dividends to our stockholders. Our board of directors and/or management determines our operational policies and may amend or revise our policies (including our policies with respect to the targeted assets in which we invest, dispositions, growth, operations, indebtedness, capitalization and dividends) or approve transactions that deviate from these policies at any time, without a vote of, or notice to, our stockholders. We may change our investment guidelines and our strategy at any time, including investing in or divesting from an asset class different from our current targeted assets, with the approval of our board of directors, but without the consent of, or notice to, our stockholders, which could result in us making investments that are different in type from, and possibly riskier than, the investments we currently invest in or could result in a loss when divesting from an existing asset class.

Risks Related to an Investment in Our Company

Our ability to grow the Company and execute our business strategy may be impaired if we are unable to secure adequate financing. Our ability to grow the Company and execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity. Potential volatility and uncertainty in financial markets could result in debt or equity financing to not be available in sufficient amounts, on favorable terms or at all. Returns on our assets and our ability to make acquisitions could be adversely affected by our inability to secure financing on reasonable terms, if at all. Additionally, if we issue additional equity securities to finance our investments instead of incurring debt (through our Series A1/M1 Offering, our ATM Offering or other offerings), the interests of our existing stockholders could be diluted.

Distributions paid from sources other than our net cash provided by operating activities, particularly from proceeds of any offerings of our securities, will result in us having fewer funds available for the acquisition of properties and other real estate-related investments, which may adversely affect our ability to fund future distributions with net cash provided by operating activities and may adversely affect our stockholders' overall return. We have paid distributions from sources other than from net cash provided by operating activities. If we do not generate sufficient net cash provided by operating activities to fund distributions, we may use the proceeds from debt or any offering of our securities. Moreover, our board of directors may change our distribution policy, in its sole discretion, at any time, except for distributions on our Preferred Stock, which would require approval by a supermajority vote of our Common stockholders. Distributions made from offering proceeds may be a return of capital to stockholders, from which we will have already paid offering expenses in connection with the related offering. We have not established any limit on the amount of proceeds from our securities offerings that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (1) cause us to be unable to pay our debts as they become due in the usual course of business; (2) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences, if any; or (3) jeopardize our ability to qualify as a REIT.

If we fund distributions from the proceeds of an offering of our securities, we will have less funds available for acquiring properties or real estate-related investments. As a result, the return our stockholders realize on their investment may be reduced. Funding distributions from borrowings could restrict the amount we can borrow for investments, which may affect our profitability by increasing our expenses for interest owed on borrowing and the obligation to repay borrowings in the future. Funding distributions with the sale of assets or the proceeds of an offering of our securities may affect our ability to generate net cash provided by operating activities. Funding distributions from the sale of our securities could dilute the interest of our common stockholders if we sell shares of our Common Stock or securities convertible or exercisable into shares of our Common Stock to third party investors. Payment of distributions from the mentioned sources could restrict our ability to generate sufficient net cash provided by operating activities, affect our profitability and/or affect the distributions payable to our stockholders upon a liquidity event, any or all of which may have an adverse effect on our stockholders.

The cash distributions our stockholders receive may be less frequent or lower in amount than our stockholders expect. Our board of directors will determine the amount and timing of distributions. In making this determination, our directors will consider all relevant factors, including the amount of cash available for distribution, capital expenditure and reserve requirements and general operational requirements. We cannot assure our stockholders that we will continue to generate sufficient available cash flow to fund distributions nor can we assure our stockholders that sufficient cash will be available to make distributions to our stockholders. It is difficult for us to predict the amount of distributions our stockholders may receive and we may be unable to pay, maintain or increase distributions over time. Our inability to acquire properties or real estate-related investments may have a negative effect on our ability to generate sufficient cash flow from operations to pay distributions.

Further, if the aggregate amount of our distributions in any given year exceeds our earnings and profits (as determined for U.S. federal income tax purposes), the U.S. federal income tax treatment of the excess amount will be either (i) a return of capital or (ii) a gain from the sale or exchange of property to the extent that a stockholder's tax basis in our Common Stock equals or is reduced to zero as the result of our current or prior year distributions.

Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to our stockholders. A decrease in rental revenue, or liquidity needs such as the repayment of indebtedness or funding of our acquisition and development activities, could have an adverse effect on our ability to pay distributions to our stockholders. Significant expenditures associated with each property such as debt service payments, if any, real estate taxes, insurance and maintenance costs are generally not reduced when circumstances cause a reduction in income from a property.

We may be unable to secure funds for future capital improvements, which could adversely impact our ability to make distributions to our stockholders. When residents or tenants do not renew their leases or otherwise vacate their space, in order to attract replacement residents or tenants, we may be required to expend significant funds for capital improvements to the vacated apartment units or leased spaces and common areas. In addition, we may require substantial funds to renovate a property in order to sell it, upgrade it or reposition it in the market. If we have insufficient capital reserves, we will have to obtain financing from other sources. We typically establish capital reserves in an amount we, in our discretion, believe is necessary. A lender also may require escrow of capital reserves separately maintained from any reserves we establish. If these reserves or any reserves otherwise established are designated for other uses or are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements. We cannot assure our stockholders that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us. Moreover, certain reserves required by lenders may be designated for specific uses and may not be available for capital purposes such as future capital improvements. Additional borrowing will increase our interest expense; therefore, our financial condition and our ability to make distributions to our stockholders may be adversely affected.

Upon the sale of any property or portfolio of properties, holders of our Preferred Stock do not have a priority over holders of our Common Stock regarding return of capital. Holders of our Preferred Stock do not have a right to receive a return of capital prior to holders of our Common Stock upon the sale of a property or a portfolio of properties that is less than substantially all of our assets. Depending on the price at which any property or portfolio of properties is sold, it is possible that holders of our Common Stock will receive a return of capital prior to the holders of our Preferred Stock, provided that any accrued but unpaid dividends have been paid in full to holders of Preferred Stock. It is also possible that holders of our Common Stock will receive additional distributions from the sale of a property or a portfolio of properties (in excess of their capital attributable to the asset sold) before the holders of Preferred Stock receive a return of their capital.

Our stockholders' percentage of ownership may become diluted if we issue new shares of stock or other securities, and issuances of additional preferred stock or other securities by us may further subordinate the rights of the holders of our Common Stock. We may make redemptions of Preferred Stock in shares of our Common Stock. Although the number of redemptions are unknown, the number of shares to be issued in connection with such redemptions will fluctuate based on the price of our Common Stock. Any sales or perceived sales in the public market of shares of our Common Stock issued upon such redemptions could adversely affect the prevailing market prices of shares of our Common Stock. The issuance of Common Stock upon such redemptions or from the exercise of outstanding Warrants also would have the effect of reducing our net income per share. In addition, the existence of Preferred Stock may encourage short selling by market participants because redemptions could depress the market price of our Common Stock.

Our board of directors is authorized, without stockholder approval, to cause us to issue additional shares of our Preferred Stock or to raise capital through the issuance of additional preferred stock (including equity or debt securities convertible into preferred stock or our Common Stock), options, warrants and other rights, on such terms and for such consideration as our board of directors in its sole discretion may determine subject to the rules of NYSE. Any such issuance could result in dilution

of the equity of our stockholders. Our board of directors may, in its sole discretion, authorize us to issue Common Stock or other equity or debt securities to persons from whom we purchase real estate assets as part or all of the purchase price. Our board of directors, in its sole discretion, may determine the value of any Common Stock or other equity or debt securities issued in consideration of multifamily communities, retail centers, or office buildings acquired or services provided, or to be provided, to us.

Our charter also authorizes our board of directors, without stockholder approval, to designate and issue one or more classes or series of preferred stock in addition to the Preferred Stock (including equity or debt securities convertible into preferred stock) and to set or change the voting, conversion or other rights, preferences, restrictions, limitations as to dividends or other distributions and qualifications or terms or conditions of redemption of each class or series of shares so issued. If any additional preferred stock is publicly offered, the terms and conditions of such preferred stock (including any equity or debt securities convertible into preferred stock) will be set forth in a registration statement registering the issuance of such preferred stock or equity or debt securities convertible into preferred stock. Because our board of directors has the power to establish the preferences and rights of each class or series of preferred stock, it may afford the holders of any series or class of preferred stock preferences, powers and rights senior to the rights of holders of our Common Stock or the Preferred Stock. If we ever create and issue additional preferred stock or equity or debt securities convertible into Preferred Stock with a distribution preference over our Common Stock or the Preferred Stock, payment of any distribution preferences of such new outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our Common Stock and our Preferred Stock. Further, holders of preferred stock are normally entitled to receive a preference payment if we liquidate, dissolve, or wind up before any payment is made to our common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of additional preferred stock may delay, prevent, render more difficult or tend to discourage a merger, tender offer, or proxy contest, the assumption of control by a holder of a large block of our securities, or the removal of incumbent management.

Stockholders have no rights to buy additional shares of stock or other securities if we issue new shares of stock or other securities. We may issue common stock, convertible debt, preferred stock or warrants pursuant to a subsequent public offering or a private placement, or to sellers of properties we directly or indirectly acquire instead of, or in addition to, cash consideration. Stockholders who do not participate in any future stock issuances will experience dilution in the percentage of the issued and outstanding stock they own. In addition, depending on the terms and pricing of any additional offerings and the value of our investments, our stockholders also may experience dilution in the book value and fair market value of, and the amount of distributions paid on, their shares of our Common Stock or Preferred Stock.

Our internal control over financial reporting is effective only at the reasonable assurance level, and undetected errors could adversely affect our reputation, results of operations and stock price. The accuracy of our financial reporting depends on the effectiveness of our internal control over financial reporting. Internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements and may not prevent or detect misstatements because of its inherent limitations. These limitations include the possibility of human error, inadequacy or circumvention of internal controls and fraud. If we do not attain and maintain effective internal control over financial reporting or implement controls sufficient to provide reasonable assurance with respect to the preparation and fair presentation of our financial statements, we could be unable to file accurate financial reports on a timely basis, and our reputation, results of operations and stock price could be materially adversely affected.

Breaches of our data security could materially harm our business and reputation. Information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyber attacks around the world. We collect and retain certain personal information provided by our residents and tenants and store our financial information on computer systems and access the data over the Internet. In addition, we engage third party service providers that may have access to, and store on their systems, such personally identifiable information and financial data in connection with providing necessary information technology and security and other business services to us. While we have implemented a variety of security measures to protect the confidentiality and security of this information and periodically

review and improve our security measures, there can be no assurance that we will be able to prevent unauthorized access to this information. Any breach of our data security measures may result in, among other things:

•unauthorized access to, destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, including personally identifiable and account information that could be used to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;

•result in unauthorized access to or changes to our financial accounting and reporting systems and related data;

•legal liability and costs (including damages and penalties);

•damage to our reputation;

•theft of funds;

•our inability to maintain building systems relied on by our tenants; and

•significant management attention and resources to remedy the damages and penalties that result.

These events could have an adverse impact on our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

To maintain our qualification as a REIT, we may be forced to forego otherwise attractive opportunities, which may delay or hinder our ability to meet our investment objectives and may reduce our stockholders' overall return. To maintain our qualification as a REIT, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, the nature of our assets and the amounts we distribute to our stockholders. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of our stockholders' investment.

There is no public market for our Preferred Stock or warrants to purchase up to 20 shares of Common Stock, or Warrants, and we do not expect one to develop. There is no public market for our Preferred Stock or Warrants, and we currently have no plan to list these securities on a securities exchange or to include these shares for quotation on any national securities market. We cannot assure our stockholders as to the liquidity of any trading market that may develop for our Preferred Stock or Warrants. Additionally, our charter contains restrictions on the ownership and transfer of our securities, and these restrictions may inhibit the ability to sell the Preferred Stock or Warrants promptly or at all. Furthermore, the Warrants will expire four years from the date of issuance. If a holder is able to sell the Preferred Stock or Warrants, they may only be able to sell them at a substantial discount from the price paid. Accordingly, our stockholders may be required to bear the financial risk of their investment in the shares of Preferred Stock indefinitely.

We will be required to terminate the Series A1/M1 Offering if our Common Stock is no longer listed on the NYSE or another national securities exchange. The classes of Preferred Stock are a "covered security" under the Securities Act and therefore are not subject to registration in the various states in which they may be sold due to their seniority to our Common Stock, which is listed on the NYSE. If our Common Stock is no longer listed on the NYSE or another appropriate exchange, we will be required to register our Preferred Stock Offerings in any state in which we subsequently offer the Preferred Stock. This would require the termination of the Series A1/M1 Offering and could result in our raising an amount of gross proceeds that is substantially less than the amount of the gross proceeds we expect to raise if the maximum offering is sold. This would reduce our ability to purchase additional properties and limit the diversification of our portfolio.

Our ability to redeem shares of Preferred Stock may be limited by Maryland law and our charter. Under Maryland law, a corporation may redeem stock as long as, after giving effect to the redemption, the corporation is able to pay its debts as they become due in the usual course (the equity solvency test) and its total assets exceed its total liabilities (the balance sheet solvency test). The Company may redeem its shares of Preferred Stock in its choice of either cash or Common Stock, at its sole discretion. If the Company is insolvent at any time when a redemption of shares of Preferred Stock is required to be made, the Company may not be able to effect such redemption for cash. In addition, our charter provides that we are limited in our ability to redeem Preferred Stock to the extent we have "sufficient funds."

The Preferred Stock are senior securities, and rank senior to our Common Stock with respect to dividends and payments upon liquidation. The rights of the holders of shares of our Preferred Stock rank senior to the rights of the holders of shares of our Common Stock as to dividends and payments upon liquidation. Unless full cumulative dividends on our shares of Preferred Stock for all past dividend periods have been declared and paid (or set apart for payment), we will not declare or pay dividends with respect to any shares of our Common Stock for any period. Upon liquidation, dissolution or winding up of our Company, the holders of shares of our Preferred Stock are entitled to receive a liquidation preference of $1,000 per share, or the Stated Value, plus all accrued but unpaid dividends, prior and in preference to any distribution to the holders of shares of our Common Stock or any other class of our equity securities.

The Preferred Stock will be subordinate in right of payment to any corporate level debt that we incur in the future, therefore our stockholders' interests could be diluted by the issuance of additional preferred stock, and by other transactions. The Preferred Stock will be subordinate in right of payment to any corporate level debt that we incur in the future. Future debt we incur may include restrictions on our ability to pay dividends on our Preferred Stock. The issuance of additional preferred stock on a parity with or senior to the Preferred Stock would dilute the interests of the holders of the Preferred Stock, and any issuance of preferred stock senior to the Preferred Stock or of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on the Preferred Stock. While the terms of the Preferred Stock limit our ability to issue shares of a class or series of preferred stock senior in ranking to the Preferred Stock, such terms do not restrict our ability to authorize or issue shares of a class or series of preferred stock with rights to distributions or upon liquidation that are on parity with the Preferred Stock or to incur additional indebtedness. The articles supplementary of the Preferred Stock do not contain any provision affording the holders of the Preferred Stock protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all of our assets or business, that might adversely affect the holders of the Preferred Stock.

We will be able to call our shares of Preferred Stock for redemption under certain circumstances without our stockholders' consent. We will have the ability to call the outstanding shares of Series A Preferred Stock five years following the date of original issuance, mShares after ten years following the date of original issuance and Series A1 Preferred Stock and Series M1 Preferred Stock after two years following the date of original issuance. At that time, we will have the right to redeem, at our option, the outstanding shares of Preferred Stock, in whole or in part, at 100% of the Stated Value, plus any accrued and unpaid dividends. We have the right, in our sole discretion, to pay the redemption price in cash or in equal value of our Common Stock, based upon (i) for our Series A Preferred Stock and mShares, the volume weighted average price of our Common Stock for the 20 trading days prior to the redemption date or (ii) for our Series A1 Preferred Stock and Series M1 Preferred Stock, the closing price of our Common Stock for the trading day immediately preceding the date fixed for the call as specified by the Company.

Risks Related to the Mergers

The announcement and pendency of the Mergers could adversely affect our business, financial condition and results of operations. The announcement and pendency of the proposed Mergers could cause disruptions to our business or business relationships and create uncertainty surrounding our business, which could have an adverse impact on our financial condition and results of operations, regardless of whether the Mergers are completed, including as a result of the following (all of which could be exacerbated by a delay in completion of the Mergers):

•tenants, vendors, suppliers, agents or other parties with which we maintain business relationships may experience uncertainty prior to the closing of the Mergers and seek alternative relationships with third parties or seek to terminate or renegotiate their relationships with us;

•our employees may experience uncertainty about their future roles with us, which might adversely affect our ability to attract, retain and motivate key personnel and other employees;

•we may experience negative publicity, which could have an adverse effect on our ongoing operations including, but not limited to, retaining and attracting employees, business partners, providers, advertisers and others with whom we do business;

•the Merger Agreement restricts us from engaging in certain actions without the consent of Parent, including, among other things, subject to certain exceptions, acquiring other properties and originating mezzanine loans, selling our properties, making investments, making capital expenditures, repurchasing or issuing securities and incurring indebtedness—these restrictions could prevent or delay us from pursuing business opportunities that may arise prior to the consummation of the Mergers and result in our inability to respond effectively and timely to competitive pressures, industry developments, developments relating to our agents;

•the Merger Agreement contains provisions that could discourage a potential competing acquirer of the Company;

•the attention of our management may be directed to considerations related to the Mergers and may be diverted from the day-to-day operations of our business;

•delays or deferments of certain business decisions by our business partners; and

•litigation relating to the proposed Mergers and the costs related thereto.

The proposed Mergers may not be completed within the timeframe we anticipate or at all, and the failure to complete or delays in completing the Mergers could adversely affect our business, financial results and stock price. We can provide no assurance that the proposed Mergers will be consummated or consummated in the timeframe or manner currently anticipated. Completion of the Mergers is subject to a number of conditions, including the receipt of regulatory approvals and shareholder approval, which are not within our control. These conditions are described in more detail in the Merger Agreement, which is included as Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on February 16, 2022. There can be no assurance as to when, or if, the conditions to closing of the Mergers will be satisfied or waived. In addition, the Merger Agreement may be terminated under certain specified circumstances, including, but not limited to, a change in recommendation of our Board of Directors and a termination of the Merger Agreement by us to accept a “Superior Proposal” (as defined in the Merger Agreement). We can provide no assurance that all required consents and approvals will be obtained or that all closing conditions will otherwise be satisfied (or waived, if applicable), and, if all required consents and approvals are obtained and all closing conditions are satisfied (or waived, if applicable), we can provide no assurance as to the terms, conditions and timing of such consents and approvals or the timing of the completion of the Mergers.

If the transaction is not consummated within the expected time frame or at all, we may be subject to a number of material risks. The price of our common stock may decline to the extent that current market prices reflect a market assumption that the Mergers will be completed. If the Mergers are not completed for any reason, including as a result of our stockholders failing to adopt the Merger Agreement, our stockholders will not receive any payment for their shares in connection with the Mergers. Instead, the Company will remain an independent public company, and the shares will continue to be traded on the New York Stock Exchange.

In addition, some costs, expenses and fees related to the Mergers must be paid whether or not the Mergers are completed, and we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Mergers, as well as the direction of management resources towards the Mergers, for which we will have received little or no benefit if the closing of the Mergers does not occur. There can be no assurance that a remedy will be available to us in the event of a breach of the Merger Agreement by Parent or its affiliates or that we will wholly or partially recover for any damages incurred by us in connection with the proposed Mergers. We may also experience negative reactions from our stockholders and other investors, employees, agents and other parties with which we maintain business relationships. In addition, if the Merger Agreement is terminated, in specified circumstances, we may be required to pay, depending on the timing and reason for such termination, a termination fee of $25 million or $80 million. If the Mergers are not consummated, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects or results of operations will not be adversely affected.

Material U.S. Federal Income Tax Considerations

If we fail to maintain our qualification as a REIT, we will be subjected to tax on our income and the amount of distributions we make to our stockholders will be less. We elected to be taxed as a REIT commencing with our tax year ended December 31, 2011, and Carveout elected to be taxed as a REIT commencing with its tax year ended December 31, 2020. Unless otherwise noted, the discussion herein regarding REIT qualification applies to both us and Carveout. A REIT generally is not taxed at the corporate level on income and gains it distributes to its stockholders on a timely basis.

If we were to fail to qualify as a REIT in any taxable year:

•we would not be allowed to deduct our distributions to our stockholders when computing our taxable income;

•we would be subject to U.S. federal income tax on our taxable income at the corporate rate and possibly increased state and local taxes;

•we could be disqualified from being taxed as a REIT for the four taxable years following the year during which qualification was lost, unless entitled to relief under certain statutory provisions;

•we would have less cash to make distributions to our stockholders; and

•we might be required to borrow additional funds or sell some of our assets in order to pay corporate tax obligations we may incur as a result of our disqualification.

Although we intend to operate in a manner so as to maintain our qualification as a REIT, it is possible that we may inadvertently terminate our REIT election or that future economic, market, legal, tax or other considerations may cause our board of directors to determine to revoke our REIT election. Even if we qualify as a REIT, we expect to incur some taxes, such as state and local taxes, taxes imposed on certain subsidiaries and potential U.S. federal excise taxes.

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating

flexibility and reduce the market price of our Common Stock. In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to REITs. Additional changes to the tax laws are likely to continue to occur. Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a regular corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only effect such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

The tax imposed on REITs engaging in "prohibited transactions" may limit our ability to engage in transactions which would be treated as sales for U. S. federal income tax purposes. From time to time, we may transfer or otherwise dispose of some of our properties. Under the Code, unless certain exceptions apply, any gain resulting from transfers of properties that we hold as inventory or primarily for sale to customers in the ordinary course of business could be treated as income from a prohibited transaction subject to a 100% penalty tax. Since we acquire properties for investment purposes, we do not believe that our occasional transfers or disposals of property should be treated as prohibited transactions. However, whether property is held for investment purposes depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by us are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then the we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction, and our ability to retain proceeds from real property sales would be jeopardized.

If the Operating Partnership fails to maintain its status as a partnership for U.S. federal income tax purposes, its income may be subject to taxation and we would cease to qualify as a REIT. We intend to maintain the status of the Operating Partnership as a partnership for U.S. federal income tax purposes. However, if the IRS were to successfully challenge the status of the Operating Partnership as a partnership for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the Operating Partnership could make to us. This also would result in our losing REIT status, and becoming subject to a corporate level tax on our own income, and would substantially reduce our cash available to pay distributions and the yield to our stockholders. In addition, if any of the partnerships or limited liability companies through which the Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership and is not otherwise disregarded for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the Operating Partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our REIT qualification.

The failure of a subordinate loan to qualify as a real estate asset could adversely affect our ability to maintain our qualification as a REIT. In general, in order for a loan to be treated as a qualifying real estate asset producing qualifying income for purposes of the REIT asset and income tests, the loan must be secured by real property. We may originate (in connection with a forward purchase or option to purchase contract) or acquire subordinate loans that are not directly secured by real property but instead secured by equity interests in a partnership or limited liability company that directly or indirectly owns real property. In Revenue Procedure 2003-65, the IRS provided a safe harbor pursuant to which a subordinate loan that is not secured by real estate would, if it meets each of the requirements contained in the Revenue Procedure, be treated by the IRS as a qualifying real estate asset. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law and in many cases it may not be possible for us to meet all the requirements of the safe harbor. We cannot provide assurance that any subordinate loan in which we invest would be treated as a qualifying asset producing qualifying income for REIT qualification purposes. If any such loan fails either the REIT income or asset tests, we may be disqualified as a REIT.

Furthermore, if we participate in any appreciation in value of real property securing a mortgage loan and the IRS characterizes such “shared appreciation mortgage” as equity rather than debt, for example, because of a large interest in cash flow of the borrower, we may be required to recognize income, gains and other items with respect to the real property for U.S. federal income tax purposes. This could affect our ability to maintain our qualification as a REIT.

The share ownership restrictions of the Code for REITs and the 9.8% share ownership limit in our charter may inhibit market activity in our shares of stock and restrict our business combination opportunities. In order to maintain our qualification as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the

first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns our shares of stock under this requirement. Additionally, at least 100 persons must beneficially own our shares of stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT election is made. To help insure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of our shares of stock.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT while we so qualify. Unless exempted by our board of directors, for so long as we qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 9.8% in value of the aggregate of our outstanding shares of stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of any class or series of our shares of stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of 9.8% of the value of our outstanding shares would result in the termination of our qualification as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interest to continue to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to continue to so qualify as a REIT.

These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our stock or otherwise be in the best interest of our stockholders.

Certain Employee Benefit Plan Risks

If you fail to meet the fiduciary and other standards under ERISA or the Code as a result of an investment in our stock, you could be subject to liability and penalties. Special considerations apply to the purchase or holding of securities by employee benefit plans subject to the fiduciary rules of Title I of ERISA (“ERISA Plans”), including pension or profit sharing plans and entities that hold assets of such ERISA Plans, and plans and accounts that are not subject to ERISA, but are subject to the prohibited transaction rules of Section 4975 of the Code, including IRAs, Keogh Plans, and medical savings accounts (collectively, we refer to ERISA Plans and plans subject to Section 4975 of the Code as “Benefit Plans”). If you are investing the assets of any Benefit Plan, you should satisfy yourself that:

•your investment is consistent with your fiduciary obligations under ERISA and the Code;

•your investment is made in accordance with the documents and instruments governing the Benefit Plan, including the Benefit Plan’s investment policy;

•your investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA, if applicable, and other applicable provisions of ERISA and the Code;

•in making such investment decision, you have considered the effect the investment will have on the liquidity of the Benefit Plan and whether or not the investment will produce UBTI for the Benefit Plan;

•you will be able to value the assets of the Benefit Plan annually in accordance with any applicable ERISA or Code requirements and applicable provisions of the Benefit Plan; and

•your investment will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.

Fiduciaries may be held personally liable under ERISA for losses as a result of failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA. In addition, if an investment in, or holding of, our securities constitutes a non-exempt prohibited transaction under ERISA or the Code, the fiduciary of the plan who authorized or directed the investment may be subject to imposition of excise taxes with respect to the amount invested and an IRA investing in the stock may lose its tax exempt status.

Plans that are not subject to ERISA or the prohibited transactions of the Code, such as government plans or church plans, may be subject to similar requirements under state law. Such plans should satisfy themselves that the investment satisfies applicable law. We have not, and will not, evaluate whether an investment in, or holding of, our securities is suitable for any particular plan.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Multifamily Communities

At December 31, 2021, we owned the following 41 properties within our multifamily communities segment:


MSA / Property	Year constructed	Number of Units	Average Unit Size (sq. ft.)	Average Rent per Unit (1)

Atlanta, GA
Aldridge at Town Village	2016	300	969	$	1,582
Green Park	2017	310	985	$	1,621
Overton Rise	2015	294	1,018	$	1,681
Summit Crossing	2007	345	1,034	$	1,393
Summit Crossing II	2013	140	1,100	$	1,523
The Ellison	2021	250	1,064	$	1,637
The Reserve at Summit Crossing	2017	172	1,002	$	1,487
Birmingham, AL
Retreat at Greystone	2015	312	1,100	$	1,528
Vestavia Reserve	2016	272	1,113	$	1,665
Charlotte, NC
CityPark View (3)	2014	284	948	$	1,242
CityPark View South (3)	2017	200	1,005	$	1,364
Chestnut Farm	2021	256	995	$	1,628
Fort Worth, TX
Alleia at Presidio	2020	231	1,022	$	1,628
Fredericksburg, VA
The Kingson	2020	240	993	$	1,702
Houston, TX
Avenues at Cypress	2014	240	1,170	$	1,559
Avenues at Northpointe	2013	280	1,167	$	1,503
Stone Creek	2009	246	852	$	1,220
Jacksonville, FL
Lux at Sorrel	2017	265	1,025	$	1,496
Sorrel	2015	290	1,048	$	1,468
The Menlo	2020	332	966	$	1,633
Kansas City, KS
Adara Overland Park	2016	260	1,116	$	1,413
Louisville, KY
Claiborne Crossing	2014	242	1,204	$	1,416
Melbourne, FL
Artisan at Viera	2018	259	1,070	$	1,784
Naples, FL
Aster at Lely Resort	2015	308	1,071	$	1,626
Nashville, TN
Lenox Village (3)	2009	273	906	$	1,400
Regent at Lenox Village (3)	2009	18	1,072	$	1,452
Retreat at Lenox Village (3)	2015	183	773	$	1,333
The Anson	2020	301	989	$	1,577
Orlando, FL
525 Avalon Park	2008	487	1,394	$	1,636
Citi Lakes	2014	346	984	$	1,552
The Blake	2019	281	908	$	1,556
Village at Baldwin Park	2008	528	1,069	$	1,824
Panama City Beach, FL
Parkside at the Beach	2019	288	1,041	$	1,526
Pittsburgh, PA
City Vista (2)	2014	272	1,023	$	1,535


MSA / Property	Year constructed	Number of Units	Average Unit Size (sq. ft.)	Average Rent per Unit (1)

Richmond, VA
Colony at Centerpointe	2016	255	1,149	$	1,546
Sarasota, FL
Luxe at Lakewood Ranch	2016	280	1,105	$	1,706
Venue at Lakewood Ranch	2015	237	1,001	$	1,751
Tampa, FL
Citrus Village	2011	296	980	$	1,517
Crosstown Walk (3)	2014	342	1,070	$	1,525
Five Oaks at Westchase	2019	218	983	$	1,688
Horizon at Wiregrass	2018	392	973	$	1,685
Lodge at Hidden River	2017	300	980	$	1,575
Overlook at Crosstown Walk (3)	2016	180	986	$	1,600
Williamsburg, VA
Founders Village	2014	247	1,070	$	1,600

		12,052

(1) Data is only presented for stabilized properties owned by us for at least three months. Values are based on leasing activity from the quarter-ended December 31, 2021.
(2) Property is owned through a consolidated joint venture.
(3) The acquired second phases of certain communities are managed in combination with the initial phases, and so together are considered a single property.

Our communities are equipped with an array of amenities believed to be sufficient to position Preferred Apartment Communities as attractive residential rental options within each local market. Such amenities can include, but are not limited to, one or more swimming pools, a clubhouse with a business center, tennis courts and laundry facilities. Unit-specific amenities can include high-end appliances, tile kitchen backsplashes, granite or quartz countertops, washer and dryers or washer and dryer hookups and ceiling fans. Resident lease terms are generally thirteen months or less in duration.

New Market Properties

At December 31, 2021, we owned the following 54 grocery-anchored shopping centers, which comprise our New Market Properties segment:


MSA / Property	Year built	GLA (1)	Percent leased		Grocery anchor tenant

Atlanta, GA
Castleberry-Southard	2006	80,018	100.0	%	Publix
Cherokee Plaza	1958	102,864	100.0	%	Kroger
Governors Towne Square	2004	68,658	100.0	%	Publix
Lakeland Plaza	1990	301,711	95.9	%	Sprouts
Powder Springs	1999	77,853	98.2	%	Publix
Rockbridge Village	2005	102,432	91.4	%	Kroger
Roswell Wieuca Shopping Center	2007	74,370	97.8	%	The Fresh Market
Royal Lakes Marketplace	2008	119,493	97.7	%	Kroger
Sandy Plains Exchange	1997	72,784	100.0	%	Publix
Summit Point	2004	111,970	89.2	%	Publix
Thompson Bridge Commons	2001	92,587	96.2	%	Kroger
Wade Green Village	1993	74,978	94.5	%	Publix
Woodmont Village	2002	85,639	97.7	%	Kroger
Woodstock Crossing	1994	66,122	98.5	%	Kroger
Augusta, GA
East Gate Shopping Center	1995	75,716	93.7	%	Publix
Fury's Ferry	1996	70,458	100.0	%	Publix
Birmingham, AL
Southgate Village	1988	75,092	96.8	%	Publix
Charlotte, NC
Brawley Commons	1997	122,028	94.1	%	Publix
West Town Market	2004	67,883	100.0	%	Harris Teeter
Charlottesville, VA
Hollymead Town Center	2005	158,807	86.5	%	Harris Teeter
Chattanooga, TN
The Overlook at Hamilton Place	1992	213,095	99.5	%	The Fresh Market
Columbia, SC
Irmo Station	1980	99,384	90.8	%	Kroger
Rosewood Shopping Center	2002	36,887	93.5	%	Publix
Columbus, GA
Parkway Centre	1999	53,088	97.7	%	Publix
Dallas, TX
Independence Square	1977	140,218	93.6	%	Tom Thumb
Midway Market	2002	85,599	94.9	%	Kroger
Greenville-Spartanburg, SC
Anderson Central	1999	223,211	95.6	%	Walmart
Fairview Market	1998	46,303	100.0	%	Aldi
Houston, TX
Kingwood Glen	1998	103,397	97.1	%	Kroger
Miami-Ft. Lauderdale, FL
Shoppes of Parkland	2000	145,720	100.0	%	BJ's Wholesale Club
Naples, FL
Crossroads Market	1993	126,895	100.0	%	Publix
Neapolitan Way (2)	1985	137,580	95.7	%	Publix
Nashville, TN
Greensboro Village	2005	70,203	100.0	%	Publix
Spring Hill Plaza	2005	66,693	100.0	%	Publix
Parkway Town Centre	2005	65,587	100.0	%	Publix
The Market at Salem Cove	2010	62,356	97.8	%	Publix
The Market at Victory Village	2007	71,300	100.0	%	Publix
Orlando, FL
Berry Town Center	2003	99,441	86.8	%	Publix


MSA / Property	Year built	GLA (1)		Percent leased		Grocery anchor tenant

Deltona Landings	1999	59,966		98.4	%	Publix
University Palms	1993	99,172		100.0	%	Publix
Raleigh, NC
Heritage Station	2004	72,946		100.0	%	Harris Teeter
Maynard Crossing	1996	122,781		88.6	%	Harris Teeter
Wakefield Crossing	2001	75,927		98.2	%	Food Lion
San Antonio, TX
Oak Park Village	1970	64,855		100.0	%	H.E.B.
Tampa-St. Petersburg, FL
Barclay Crossing	1998	54,958		100.0	%	Publix
Disston Plaza	1954	129,150		96.6	%	Publix
Washington, DC
Free State Shopping Center	1970	264,152		87.2	%	Giant
West Palm Beach, FL
Polo Grounds Mall	1966	130,285		97.3	%	Publix

		4,922,612		95.9	%
Redevelopment properties:
Charleston, SC
Sweetgrass Corner	1999	89,124		32.9	%	n/a
Houston, TX
Champions Village	1973	383,346		66.3	%	Randalls
Orlando, FL
Conway Plaza	1966	117,705		80.6	%	Publix
Richmond, VA
Gayton Crossing	1983	160,816	(4)	74.2	%	Kroger
Virginia Beach, VA
Fairfield Shopping Center (3)	1985	231,829		82.2	%	Food Lion
Wilmington, NC
Hanover Center (3)	1954	305,346		81.7	%	Harris Teeter

		1,288,166		72.8	%
Grand total/weighted average		6,210,778		91.1	%

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

(2) Investment in an unconsolidated joint venture that is not prorated for our ownership percentage.

(3) Property is owned through a consolidated joint venture.

(4) The GLA figure shown excludes the GLA of the Kroger store, which is owned by others.

Our retail leases have original lease terms which generally range from three to seven years for spaces under 10,000 square feet and from ten to twenty years for spaces over 10,000 square feet. Anchor leases generally contain renewal options for one or more additional periods whereas in-line tenant leases may or may not have renewal options. With the exception of anchor leases, the leases generally contain contractual increases in base rent rates over the lease term and the base rent rates for renewal periods are generally based upon the rental rate for the primary term, which may be adjusted for inflation or market conditions. Anchor leases generally do not contain annual contractual increases in base rent rates over the lease term and the renewal periods. Our leases generally provide for the payment of fixed monthly rentals and may also provide for the payment of additional rent based upon a percentage of the tenant’s gross sales above a certain threshold level (“percentage rent”). Our leases also generally include tenant reimbursements for common area expenses, insurance, and real estate taxes. Utilities are generally paid by tenants either directly through separate meters or through payment of tenant reimbursements. The foregoing general description of the characteristics of the leases in our centers is not intended to describe all leases and material variations in lease terms may exist.

Our grocery anchor tenants comprised 44.0% of our portfolio GLA at December 31, 2021. Our small in-line tenants generally consist of retail, consumer services, healthcare providers, and restaurants. The following table summarizes our grocery anchor tenants by GLA as of December 31, 2021:


Grocery Anchor Tenant	GLA	Percent of total GLA
Publix	1,179,030	19.0	%
Kroger	581,593	9.4	%
Harris Teeter	273,273	4.4	%
Wal-Mart	183,211	2.9	%
BJ's Wholesale Club	108,532	1.7	%
Food Lion	76,523	1.2	%
Giant	73,149	1.2	%
Randall's	61,604	1.0	%
H.E.B	54,844	0.9	%
Tom Thumb	43,600	0.7	%
The Fresh Market	43,321	0.7	%
Sprouts	29,855	0.5	%
Aldi	23,622	0.4	%

Total	2,732,157	44.0	%

The following table summarizes New Market Properties' contractual lease expirations for the next ten years and thereafter, assuming no tenants exercise their renewal options:


	Totals
	Number of leases	Leased GLA	Percent of leased GLA

Month to month	15	33,592	0.6	%
2022	163	513,143	9.1	%
2023	146	618,886	11.0	%
2024	149	1,193,853	21.1	%
2025	125	926,384	16.4	%
2026	129	559,759	9.9	%
2027	65	344,905	6.1	%
2028	31	392,268	6.9	%
2029	28	183,253	3.2	%
2030	18	185,300	3.3	%
2031	25	261,785	4.6	%
2032 +	29	433,661	7.8	%

Total	923	5,646,789	100.0	%

Preferred Office Properties

At December 31, 2021, we owned the following office properties, which comprise our Preferred Office Properties segment:


Property Name	Location	GLA	Percent leased
Three Ravinia	Atlanta, GA	814,000	94	%
Westridge at La Cantera	San Antonio, TX	258,000	100	%

Total/Average		1,072,000	95	%

Our office building leases have original lease terms which generally range from five to fifteen years and generally contain contractual, annual base rental rate escalations ranging from 2% to 3%. These leases may be structured as “gross” where the tenant’s base rental rate is all inclusive and there is no additional obligation to reimburse building operating expenses, “net” or “NNN” where in addition to base rent the tenant is also responsible for its pro rata share of reimbursable building operating expenses, or “modified gross” where in addition to base rent the tenant is also responsible for its pro rata share of reimbursable building operating expense increases over a base year amount (typically calculated as the actual reimbursable operating expenses in year one of the original lease term). The foregoing general description of the characteristics of the leases in our centers is not intended to describe all leases and material variations in lease terms may exist.

As of December 31, 2021, our significant tenants within our Preferred Office Properties segment consisted of:


	Rentable square footage	Percent of Annual Base Rent		Annual Base Rent (in thousands)
InterContinental Hotels Group	467,000	44.6	%	$	11,429
United Services Automobile Association	129,000	12.8	%	3,276
Vericast	129,000	11.8	%	3,027
Hapag Lloyd	127,000	17.4	%	4,455
Lease Query	53,000	3.7	%	968

	905,000	90.3	%	23,155

The following table summarizes contractual lease expirations within our office building portfolio for the next ten years and thereafter, assuming no tenants exercise their renewal options:


Office building portfolio
Year of lease expiration	Rentable square footage	Percent of rented sq ft


2022	9,000	0.9	%
2023	8,000	0.8	%
2024	5,000	0.5	%
2025	53,000	5.3	%
2026	—	—	%
2027	329,000	32.7	%
2028	—	—	%
2029	—	—	%
2030	—	—	%
2031	467,000	46.4	%
2032 +	135,000	13.4	%

Total	1,006,000	100.0	%

Details regarding the mortgage debt on our properties may be found in the consolidated financial statements within this Annual Report on Form 10-K.

Our corporate headquarters is located at 3284 Northside Parkway NW, Suite 150, Atlanta, Georgia 30327.

Item 3. Legal Proceedings

Neither we nor our subsidiaries are currently subject to any legal proceedings that we consider to be material. To our knowledge, none of our properties are currently subject to any legal proceeding that we consider material.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our Common Stock (symbol "APTS") has been listed on the New York Stock Exchange since July 17, 2015.

As of December 31, 2021, there were approximately 35,721 holders of record of our Common Stock. This total excludes an unknown number of holders of approximately 2.0 million shares of Common Stock in street name at non-responding brokerage firms.

Dividends

We have declared and subsequently paid cash dividends on shares of our Common Stock for each quarter since our IPO in 2011. Since we have elected to be taxed as a REIT effective with our tax year ended December 31, 2011, we are required to, and intend to, distribute at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP and is determined without regard for the deduction for dividends paid and excluding net capital gains) to maintain such status. Dividends are declared with the action and approval of our board of directors and any future distributions are made at our board of director's discretion. Our dividend paying capacity is primarily dependent upon cash generated from our multifamily communities, grocery-anchored shopping centers and office properties, interest income on our real estate loans and cash needs for capital expenditures, both foreseen and unforeseen, among other factors. In accordance with the terms of the Merger Agreement, our ability to declare dividends is restricted. Risks inherent in our ability to pay dividends are further described in the section entitled “Risk Factors” in Item 1A of this Annual Report on Form 10-K.

We declared and paid quarterly cash dividends of $0.175 per share for each quarter of 2021 and we intend to continue paying comparable cash dividends in the future until the closing of the acquisition of the Company by BREIT, as discussed in Item 1 of this Annual Report on Form 10-K. The acquisition is expected to close in the second quarter of 2022, at which point our shares of Common Stock will be canceled and our dividend activity will cease.

Stockholder Return Performance Graph

The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.

The chart above presents comparative investment results through December 31, 2021 of a hypothetical initial investment of $1,000 on January 1, 2017 in: (i) our Common Stock, ticker symbol "APTS;" (ii) the MSCI U. S. REIT Index, an index of equity REIT constituent companies that derive the majority of their revenue from real estate rental activities; and (iii) the S&P 500 Index. The total return results assume automatic reinvestment of dividends and no transaction costs.


	Value of initial investment on:
	1/1/2017		12/31/2017		12/31/2018		12/31/2019		12/31/2020		12/31/2021
APTS Common Stock	$	1,000	$	1,415	$	1,047	$	1,062	$	661	$	1,723
MSCI U. S. REIT Index	$	1,000	$	1,051	$	1,003	$	1,262	$	597	$	828
S&P 500	$	1,000	$	1,194	$	1,120	$	1,443	$	1,678	$	2,098

Sales of Unregistered Securities

There were no previously unreported sales of unregistered securities by the Company during the fiscal year ended December 31, 2021.

Preferred Stock Redemptions

For the year ended December 31, 2021, we redeemed 413,445 shares of Series A Preferred Stock, 903 shares of Series A1 Preferred Stock, 5,342 mShares and 2,002 shares of Series M1 Preferred Stock. The redemption price was $1,000 per share, less any applicable declining redemption fee.

Item 6. Reserved

None.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Significant Developments

At our 2021 annual meeting of stockholders, Joel T. Murphy was elected Chairman of our Board of Directors and Howard A. McClure was re-elected as lead independent member of our Board of Directors. Effective December 10, 2021, Daphne Bryson Jackson was elected as an independent member of our Board of Directors.

During the year ended December 31, 2021, we sold eight of our office properties (Galleria 75, 150 Fayetteville, Capitol Towers, CAPTRUST Tower, Morrocroft Centre, the Armour Yards portfolio and Brookwood Center) and our 8West real estate loan investment for an aggregate gross sales price of approximately $780 million. We recognized an aggregate gain on these sales of $0.4 million and we expect the disposition of these assets may result in a potentially material decrease in our revenues and results of operations.

During the year ended December 31, 2021, we acquired five multifamily communities and sold one multifamily community.

During the year ended December 31, 2021, we originated six new real estate loan investments and one land loan, collectively supporting the development and construction of six new multifamily communities. The loans have an aggregate maximum commitment amount of approximately $89.0 million and we hold or expect to hold purchase options and/or rights of first offer on each property.

During the year ended December 31, 2021, we called and redeemed 320,746 shares of Series A Preferred Stock, which was approximately 79% of the outstanding shares of Series A Preferred Stock that was available to be redeemed at our option. Holders of another 92,699 shares of Series A Preferred Stock were redeemed by the holders during the year ended December 31, 2021.

During the year ended December 31, 2021, we issued 97,759 shares of Series A1 Preferred Stock and collected net proceeds of approximately $88.0 million and we issued 24,538 shares of Series M1 Preferred Stock and collected net proceeds of approximately $23.8 million. Our Preferred Stock offerings and our other equity offerings are discussed in detail in the Liquidity and Capital Resources section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

In addition, during the year ended December 31, 2021, we issued approximately 2,658,889 shares of Common Stock under our 2019 ATM Offering.

On February 16, 2022, we entered into the Merger Agreement, pursuant to which, following the Mergers, if closed, we will become a wholly owned subsidiary of Parent, which is affiliated with BREIT. If the Mergers are completed, each share of our Common Stock issued and outstanding immediately prior to closing will be automatically canceled and converted into the right to receive $25.00 in cash, and the Company will cease to be a publicly traded company on the New York Stock Exchange. The holders of each series of our Preferred Stock will receive the $1,000 per share liquidation preference for each share plus accrued but unpaid dividends. The transaction has been unanimously approved by our Board of Directors and is expected to close in the second quarter of 2022, although there is no guarantee that is will occur by that date, and the transaction is subject to approval by our stockholders and other customary closing conditions.

Forward-looking Statements

Certain statements contained in this Annual Report on Form 10-K, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects," "assumes," "goals," "guidance," "trends" and similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following:

•our business and investment strategy;

•our projected operating results;

•actions and initiatives of the U.S. Government and changes to U.S. Government policies and the execution and impact of these actions, initiatives and policies;

•the state of the U.S. economy generally or in specific geographic areas;

•economic trends and economic recoveries;

•our ability to obtain and maintain financing arrangements, including through Fannie Mae and Freddie Mac;

•financing and advance rates for our target assets;

•our expected leverage;

•changes in the values of our assets;

•our expected portfolio of assets;

•our expected investments;

•risks relating to the proposed Mergers, including the possibility that the consummation of the Mergers or our payment of dividends on our Preferred Stock could be delayed or not completed, and the effect of announcement or pendency of the Mergers on our business;

•interest rate mismatches between our target assets and our borrowings used to fund such investments;

•changes in interest rates and the market value of our target assets;

•changes in prepayment rates on our target assets;

•effects of hedging instruments on our target assets;

•rates of default or decreased recovery rates on our target assets;

•changes in our operating costs, including real estate taxes, utilities and insurance costs;

•the degree to which our hedging strategies may or may not protect us from interest rate volatility;

•impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;

•our ability to maintain our qualification as a real estate investment trust, or REIT, for U.S. federal income tax purposes;

•the possibility that the anticipated benefits from the internalization of our Former Manager and Former Sub-Manager, or the Internalization, may not be realized or may take longer to realize than expected, or that unexpected costs or unexpected liabilities may arise from the Internalization;

• the impact of the coronavirus (COVID-19) pandemic on PAC’s business operations and the economic conditions

in the markets in which PAC operates;

• PAC’s ability to mitigate the impacts arising from COVID-19;

•the availability of investment opportunities in mortgage-related and real estate-related investments and securities;

•the availability of qualified personnel;

•estimates relating to our ability to make distributions to our stockholders in the future;

•our understanding of our competition;

•market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy;

•weakness in the national, regional and local economies, which could adversely impact consumer spending and retail sales and in turn tenant demand for space and could lead to increased store closings;

•changes in market rental rates;

•changes in demographics (including the number of households and average household income) surrounding our shopping centers;

•adverse financial conditions for grocery anchors and other retail, service, medical or restaurant tenants;

•continued consolidation in the grocery-anchored shopping center sector;

•excess amount of retail space in our markets;

•reduction in the demand by tenants to occupy our shopping centers as a result of reduced consumer demand for certain retail formats;

•the growth of super-centers and warehouse club retailers, such as those operated by Wal-Mart and Costco, and their adverse effect on traditional grocery chains;

•the entry of new market participants into the food sales business, such as Amazon's acquisition of Whole Foods, the growth of online food delivery services and online supermarket retailers and their collective adverse effect on traditional grocery chains;

•our ability to aggregate a critical mass of grocery-anchored shopping centers;

•the impact of an increase in energy costs on consumers and its consequential effect on the number of shopping visits to our centers; and

•consequences of any armed conflict involving, or terrorist attack against, the United States.

Forward-looking statements are found throughout this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report on Form 10-K. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, or SEC, we do not have any intention or obligation to publicly release any revisions to forward-looking statements to reflect unforeseen or other events after the date of this report. The forward-looking statements should be read in light of the risk factors indicated in the section entitled "Risk Factors" in Item 1A of this Annual Report on Form 10-K for the year ended December 31, 2021 and as may be supplemented by any amendments to our risk factors in our subsequent quarterly reports on Form 10-Q and other reports filed with the SEC, which are accessible on the SEC’s website at www.sec.gov.

General

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial position. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Industry Outlook

Despite the continued, but lesser, impact from COVID-19, we believe the US economy will generally maintain a positive course in 2022; with continued improvement in the job market from pandemic lows and growth and improvements in the overall economy. As the country continues to combat the effects of the COVID-19 pandemic with vaccine rollouts and other measures, it should be the case that the impact from the pandemic continues to lessen and the economy can continue a path to normalcy. The presidential administration reduces some uncertainty in the direction and trajectory of economic growth and increases the probability of a larger stimulus package being enacted, which should also energize the economy and speed economic recovery. We believe a recovering economy, improving job market and increased consumer confidence should help create favorable conditions for continued growth in the multifamily, grocery-anchored shopping centers and class A office sectors. In addition to the positive trends, the spending packages enacted around the pandemic and the supply constraints created by the pandemic have increased inflation considerably and the probability of rising interest rates in 2022 is very high. While inflation and rising interest rates can have mixed effects on the economy, they could have equally mixed effects on our operations and markets.

Multifamily Communities

The Company continues to believe in the health of the multifamily industry, which is driven by both favorable demographic tailwinds and strong economic fundamentals.

Two of the nation’s largest generational cohorts - an estimated 72 million Millennials and 72 million Baby Boomers as of July 1, 2019, continue to create demand for multifamily housing. Lifestyle trends within these groups support the multifamily thesis, with Millennials seeking flexibility and Baby Boomers looking to downsize and reduce ongoing maintenance required with home ownership. These trends are further amplified within the Company's footprint and strategy: operating newly-constructed Class A communities in growing sunbelt suburban markets. The sunbelt continues to benefit from in-migration trends as weather, affordability and friendly business environments attract households and corporations alike. Millennials, who on average are forming households and starting families later than prior generations, are now searching for additional square footage, relative affordability and good schools; attributes that are generally more prevalent in the suburbs.

Fundamentally, the multifamily industry is benefiting from the current housing shortage in the United States, which Freddie Mac estimates at 3.8 million housing units as of the fourth quarter 2020. Furthermore, the U.S. is currently experiencing above average inflation, a rising interest rate environment and supply chain issues, all of which could continue to slow single family construction and hamper single family sales. Combined, we believe these circumstances lead to sustained

multifamily demand for the foreseeable future. The sector continues to show resiliency and positive momentum as forecasts generally support stable occupancy, rent growth and net absorption of units.

Investors, both domestic and abroad, continue to seek quality multifamily housing given strong secular demand and the financial stability of the industry. Commercial real estate investment volume remains high with multifamily realizing more volume than any other property type; a trend that has been ongoing and is expected to continue. Moreover, mortgage production remains very healthy and efficient as Freddie Mac, Fannie Mae, life insurance companies and collateralized mortgage-backed securities lenders compete for borrowers as they see increased demand for multifamily debt, whether for their own account or securitized.

Strategically, the Company is focused on the goal of outperforming the multifamily market on a risk adjusted basis, as it looks for investments that offer an attractive location, superior product or provide a value proposition. Moreover, the Company is purposeful in its management of assets, aiming to provide a relatively stable and steady rental stream from its portfolio by employing principally fixed-rate long-term project-level debt financing and adhering to strict leasing guidelines regarding the credit worthiness of its tenants.

New Market Properties

We specialize in owning and operating shopping centers anchored by market-leading grocers complemented by convenience-based retailers across high growth suburban Sunbelt markets. These centers are primarily anchored by Publix, Kroger, Harris Teeter and other market share leading grocers with high sales per square foot. The merchandising mix of our portfolio is focused on e-commerce resiliency and has proven its stability and strength during the COVID-19 pandemic.

Our portfolio’s continued success amidst the resurgence of Omicron cases has evidenced its pandemic resiliency further. According to Placer.ai, our portfolio’s foot traffic in 2021 was 3% higher than 2019 levels, generating 66 million trips to our assets, with our grocery partners responsible for 37 million of those trips. Many industry experts anticipated grocer sales regressing a bit after the spike in 2020 due to the pandemic. However, our portfolio of suburban Sunbelt grocers continued its strong performance in 2021, with 2021 grocery foot traffic increasing more than 5% over the supposed inflated total in 2020 and remaining 11% higher than 2019 levels.

On a macro level, the retail sector continues to excel, with 2021 retail sales in the United States growing 17% year over year and 50% of shoppers reportedly spending more than they did in 2020. We believe that rising macro sales combined with our grocery partners seeing sustained success and increasing sales has our portfolio of grocery-anchored assets positioned to benefit from these tailwinds. Our retail portfolio’s merchandising focused on convenience-based, daily needs tenants continues to seek to fulfill consumers’ omnichannel shopping needs as the last mile touchpoint between shoppers and their communities.

Preferred Office Properties

Preferred Office Properties operates a 1.1 million square foot portfolio of Class A office assets in Atlanta, GA and San Antonio, TX. While new leasing activity has slowed and sublease availability has increased in most markets due to uncertainty from COVID-19, and we expect to see some level of continued soft demand in the near-term; the Company’s office investments are 95% leased with no leases expiring through the end of 2022. Furthermore, multi-year contractual leases and rent schedules paired with high quality tenant balance sheets have offered protection against adverse impacts of COVID-19, and office-using employment has fared better to date in the pandemic than have hourly wage earners.

Despite the ongoing adverse effect of the pandemic, we continue to hold a positive long-term outlook for the office industry in our targeted markets. We are optimistic that the distribution of vaccines creates the opportunity for business to begin to return to more normal activity over the course of 2022. While we think the prevalence of work from home will continue in some capacity, we expect the physical office to remain the center of the business workplace. According to a recent survey conducted by PwC, 87% of executives believe the office is critical for collaborating with team members and building relationships.

In addition, the pandemic has accelerated a number of trends that were already serving as tailwinds for our target markets, especially the demographic shifts from larger, more expensive gateway cities like New York and San Francisco to the suburban, Sunbelt markets. According to a 2018 report by Moody’s Analytics, for 2008 – 2018 the Sunbelt population grew 3 times faster than non-Sunbelt states. Moody’s projects that for 2019 – 2030 that outpacing will accelerate to nearly 7 times non-

Sunbelt states. And the latest U.S. Census estimates show that Texas, Florida, North Carolina and Georgia were among the top five states in the nation in terms of nominal population gains in 2020. As a result, we are seeing significant interest from small and large companies looking to relocate and/or expand their office footprint in our markets because of the deep talent pool, low cost of living and doing business, and comparatively low density. As we believe these trends will continue, we remain optimistic about the Sunbelt office markets that are in the path of long-term growth.

Critical Accounting Estimates

Below is a discussion of the accounting policies that management believes are critical. We consider these policies critical because they involve the application of significant management judgments, assumptions and estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.

Real Estate

Cost Capitalization. Investments in real estate properties are carried at cost and depreciated using the straight-line method over the estimated useful lives of 30 to 50 years for buildings, 5 to 20 years for building and land improvements and 3 to 10 years for furniture, fixtures and equipment. Acquisition costs are generally expensed as incurred for transactions that are deemed to be business combinations. Our acquisitions of multifamily communities and grocery-anchored shopping centers generally qualify as asset acquisitions, as opposed to business combinations pursuant to ASU 2017-01 and certain qualifying acquisition costs will be capitalized and amortized rather than expensed as incurred.

Repairs, maintenance and resident turnover costs are charged to expense as incurred and significant replacements and betterments are capitalized and depreciated over the items' estimated useful lives. Repairs, maintenance and resident turnover costs include all costs that do not extend the useful life of the real estate property. We consider the period of future benefit of an asset to determine its appropriate useful life.

Real Estate Acquisition Valuation. Following our adoption of ASU 2017-01, we generally record the acquisitions of income-producing real estate as asset acquisitions.

All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values.

We assess the acquisition-date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant.

We record above-market and below-market in-place lease values for acquired properties based on the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining average non-cancelable term of the leases. We amortize any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining average non-cancelable term of the respective leases. The capitalized above-market leases and in place leases are included in the acquired intangible assets line of the consolidated balance sheets. Both above-market and below-market lease values are amortized as adjustments to rental revenue over the remaining term of the respective leases for office properties. The amortization period for retail shopping center leases is the remaining lease term plus any below market probable renewal options.

Intangible assets include the value of in-place leases, which represents the estimated value of the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. These estimates include estimated carrying costs, such as real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the hypothetical expected lease-up periods.

The fair values of in-place leases for retail shopping centers and office properties represent the value of direct costs associated with leasing, including opportunity costs associated with lost rentals that are avoided by acquiring in-place leases. Direct costs associated with obtaining a new tenant include commissions, legal and marketing costs, incentives such as tenant improvement allowances and other direct costs. Such direct costs are estimated based on our consideration of current market costs to execute a similar lease. The value of opportunity costs is estimated using the estimated market lease rates and the

estimated absorption period of the space. These direct costs and opportunity costs are included in the accompanying consolidated balance sheets as acquired intangible assets and are amortized to expense over the remaining term of the respective leases. The fair values of above-market and below-market in-place leases for retail shopping centers and office properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) our estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the leases, taking into consideration the probability of renewals for any below-market leases. Acquired in-place lease values for multifamily communities and student housing communities are amortized to operating expense over the average remaining non-cancelable term of the respective in-place leases.

Estimating the fair values of the tangible assets, identifiable intangibles and assumed liabilities requires us to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, the number of years the property will be held for investment and market interest rates. The use of different assumptions would result in variations of the values of our acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact their subsequent amortization and ultimately our net income.

Impairment of Real Estate and Related Intangible Assets. We monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets may not be recoverable or realized. When conditions suggest that an asset group may be impaired, we compare its carrying value to its estimated undiscounted future cash flows, including proceeds from its eventual disposition. If, based on this analysis, we do not believe that we will be able to recover the carrying value of an asset group, we record an impairment to the extent that the carrying value exceeds the estimated fair value of the asset group. Fair market value is determined based on a discounted cash flow analysis. This analysis requires us to use future estimates of net operating income, expected hold period, capitalization rates and discount rates. The use of different assumptions would result in variations of the values of the assets which could impact the amount of our net income and our assets on our balance sheet.

Real Estate Loans

We extend loans for purposes such as to to acquire land and to provide partial financing for the development of multifamily residential communities, grocery-anchored shopping centers and for other real estate or real estate related projects. Certain of these loans we extend include characteristics such as exclusive options to purchase the project within a specific time window following expected project completion and stabilization. These characteristics can cause the loans to contain variable interests and the potential of consolidation of the underlying project as a variable interest entity, or VIE. We consider the facts and circumstances pertinent to each loan, including the relative amount of financing we are contributing to the overall project cost, decision making rights or control we hold and our rights to expected residual gains or our obligations to absorb expected residual losses from the project. If we are deemed to be the primary beneficiary of a VIE due to holding a controlling financial interest, the majority of decision making control, or by other means, consolidation of the VIE would be required. Arriving at these conclusions requires us to make significant assumptions and judgments concerning each project, especially with regard to our estimates of future market capitalization rates and property net operating income projections. Additionally, we analyze each loan arrangement and utilize these same assumptions and judgments for consideration of whether the loan qualifies for accounting as a loan or as an investment in a real estate development project.

Expected Credit Losses

On January 1, 2020, the Company adopted ASU 2016-13, that replaced the incurred loss model with an expected loss model for instruments measured at amortized cost, and requires entities to record credit allowances for total expected future losses on financial assets at the outset of each loan. For each loan in which the Company is the lender, the amount of protection afforded to the Company is estimated to be the excess of the future estimated fair market value of the developed property over the developer’s related obligations (including the Company’s mezzanine or member loan(s)), other loans senior to the Company's, the expected future balance of accrued interest and any other obligations related to the project’s funding. Arriving at the future estimated fair market value of the developed property requires us to make significant assumptions and judgments concerning each project, especially regarding our estimates of future market capitalization rates and property net operating income projections. The excess represents the amount of equity dollars in each real estate project plus profit expected to be realized by the developer on the project, both of which are in a subordinate position to the Company's real estate loan investments. This numeric result is expressed as a percentage of the developed property's future estimated fair market value (a "percentage of protection"), which is then pooled into ranges of loss percentages that was derived from company-specific loss experience to determine the expected credit loss for the loan (“the indicated loss reserve ratio”). The product of this indicated loss reserve ratio and the expected fully-funded balance (inclusive of an expected future balance of accrued interest) is the initial total expected credit loss reserve. Over the life of the loan, the initial reserve is reevaluated for potential reduction at the

achievement of certain milestones in construction and lease-up progress as the project approaches completion and the loan approaches maturity, given no unforeseen degradation in project performance or failure to adhere to the terms of the loan by the borrower/developer. Finally, the loss reserve may be further refined by the Company due to any subjective qualitative factors deemed pertinent and worthy of reflection.

The Company implemented this new guidance by applying this model to its existing portfolio of real estate loan investments using the modified retrospective method and in doing so, recorded a cumulative effect adjustment to retained earnings on January 1, 2020. See note 4.

The Company carries its investments in real estate loans at amortized cost that consists of drawn amounts on the loans, net of unamortized deferred loan origination fees and current expected credit losses that we must estimate and record as a reserve at the outset of each loan and monitor over the life of the loan as the development project proceeds and circumstances evolve. Expected credit losses are derived and monitored on each loan individually. For each loan in which the Company is the lender, the amount of protection afforded to the Company against loss is estimated to be the excess of the future estimated fair market value of the developed property over the developer’s related obligations (including the Company’s real estate or member loan(s)), other loans senior to the Company's, and the expected future balance of accrued interest and any other obligations related to the project’s funding. Arriving at the future estimated fair market value of the developed property requires us to make significant assumptions and judgments concerning each project, especially regarding estimates of future market capitalization rates and property net operating income projections.

Future market capitalization rates are derived by us by beginning with current market capitalization rates and applying an upward or downward adjustment to that rate to incorporate our expectations of changes in market participant appetite for multifamily assets. Such expectations include job and wage growth within the subject property’s MSA, new housing starts and inventory levels, the potential for and rapidity of potential rent growth, interest rates, and other factors, all of which are difficult to predict with precision. If our capitalization rate assumptions used for the valuation of the real estate for which we held real estate loan investments as of December 31, 2021 were to differ from actual future capitalization rates by 25 basis points, our aggregate expected credit losses would have been $6.4 million higher or $2.0 million lower than those we actually recorded.

Net operating income assumptions, also used to calculate the future estimated fair market value of the developed property, involve judgement and projections regarding future market rents, speed in achieving occupancy goals, the potential for rent growth, the speed of potential rent growth, rent collection percentages, trends in salary and benefits costs for property personnel, property taxes, utilities, the effects of inflation levels with regards to paint and construction materials for planned CAPEX projects, and myriad other factors, all of which can vary significantly from initial assumptions made over the timespan from groundbreaking to offering a leased up project to market. Were our initial assumptions of future NOI to differ from actual future NOI by five percent higher or lower than our final underwriting assumption, our aggregate initial expected credit loss reserve would have been $6.4 million higher or $2.0 million lower than those we actually recorded for those loans.The Company's notes and lines of credit receivable are unsecured and so are assessed for expected future credit loss by individually assessing the expected profit from current development projects in progress, as well as the viability of the personal guarantees of the borrowers.

The Company's real estate loan investments are collateralized by real estate development projects and secured further by guaranties of repayment from one or more of the borrowers. The Company's lines of credit receivable are typically only collateralized by personal guaranties, but occasionally may be cross-collateralized by interests in other real estate projects. As a result, the Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, as well as the financial and operating capability of the borrower. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan, and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the overall economic environment, real estate sector, and geographic sub market in which the borrower operates are considered. Such analyses are completed and reviewed by management, utilizing various data sources, including periodic financial data such as property operating statements, occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, capitalization and discount rates and site inspections.

See the Revenue Recognition section below for other loan-related policy disclosures required by ASC 310-10-50-6.

Revenue Recognition

We generally lease apartment units under leases with terms of thirteen months or less. We generally lease retail properties and office building suites for rental terms of several years. Rental revenue, net of concessions, is recognized on a straight-line basis over the term of the lease. Differences from the straight-line method, which recognize the effect of any up-front concessions and other adjustments ratably over the lease term, are recorded in the appropriate period, to the extent that adjustments to the straight-line method are material.

Revenue from reimbursements of retail and office building tenants' share of real estate taxes, insurance and common area maintenance, or CAM, costs are recognized as the respective costs are incurred in accordance with the lease agreements. We estimate the collectability of the receivable related to rental and reimbursement billings due from tenants and straight-line rent receivables, which represent the cumulative amount of future adjustments necessary to present rental income on a straight-line basis, by taking into consideration our historical write-off experience, tenant credit-worthiness, current economic trends, and remaining lease terms.

The Company recognizes gains on sales of real estate based on the difference between the consideration received and the carrying amount of the distinct asset, including the carrying amount of any liabilities relieved or assumed by the purchasing counterparty and net of disposition expenses.

Other income, including interest earned on our cash, is recognized as it is earned. We recognize interest income on real estate loans on an accrual basis over the life of the loan. Loan origination fees (net of amounts paid to the Former Manager) received from borrowers as an incentive to extend the real estate loans, are amortized over the life of the loan as an additive adjustment to interest income using the effective interest method. We stop accruing interest on loans when circumstances indicate that it is probable that the ultimate collection of all principal and interest due according to the loan agreement will not be realized, which is generally a delinquency of 30 days in required payments of interest or principal. Any payments received on such non-accrual loans are recorded as interest income or as a reduction of principal, depending upon the circumstances, when the payments are received. Interest accrual on real estate loan investments is resumed once interest and principal payments become current. Expected Credit Losses on Real Estate Loans

New Accounting Pronouncements

For a discussion of our adoption of new accounting pronouncements, please see Note 2 of our Consolidated Financial Statements.

Results of Operations

Certain financial highlights of our results of operations for the three months and years ended December 31, 2021 and 2020 were:



	Three months ended December 31,				% change		Year ended December 31,				% change
	2021		2020				2021		2020

Revenues (in thousands)	$	105,724	$	120,871	(12.5)	%	$	451,142	$	501,185	(10.0)	%

Per share data:
Net income (loss) (1)	$	(0.31)	$	(0.77)	—		$	(2.59)	$	(6.95)	—
FFO (2)	$	0.19	$	(0.20)	—		$	0.27	$	(3.36)	—
Core FFO (2)	$	0.24	$	0.31	(22.6)	%	$	1.10	$	1.07	2.8	%
AFFO (2)	$	0.18	$	0.25	(28.0)	%	$	0.93	$	0.83	12.0	%
Dividends (3)	$	0.175	$	0.175	—	%	$	0.70	$	0.7875	(11.1)	%

(1) Per weighted average share of Common Stock outstanding for the periods indicated.

(2) FFO, Core FFO and AFFO results are presented per basic weighted average share of Common Stock and Class A Unit in our Operating Partnership outstanding for the periods indicated. See Reconciliations of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO to Net Income (Loss) Attributable to Common Stockholders and Definitions of Non-GAAP Measures.

(3) Per share of Common Stock and Class A Unit outstanding.

Financial

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

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

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

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

*Partially offset by lower cash dividend requirements on our preferred stock of $0.15 per share;

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

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

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

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

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

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

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

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

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

*Lower noncash loan interest income of $0.02; and

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

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

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

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

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

Operational

•Our rental rates for our multifamily same-store properties for new and renewal leases increased 17.4% and 12.1% respectively

and 14.3% blended for January 2022 as compared to the expiring leases, excluding shorter-term leases of two months or less.

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

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

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

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

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

Financing and Capital Markets

•As of December 31, 2021, approximately 96.1% of our permanent property-level mortgage debt has fixed interest rates and approximately 0.9% has variable interest rates which are capped. We believe we are well protected against potential increases in market interest rates. Our overall weighted average interest rate for our mortgage debt portfolio was 3.32% for multifamily communities, 4.35% for office properties, 3.90% for grocery-anchored retail properties and 3.54% in the aggregate.

•During the fourth quarter 2021, we issued and sold an aggregate of 9,518 shares of Preferred Stock and redeemed or called an aggregate of 23,684 shares of Preferred Stock, resulting in a net reduction of 14,166 outstanding shares of Preferred Stock, for a net redemption of approximately $14.2 million.

•During the fourth quarter 2021, we issued and sold an aggregate of 49,049 shares of common stock at an average price of $12.43 under the 2019 ATM Offering.

•At December 31, 2021, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 57.5%.

•At December 31, 2021, we had $200.0 million available to be drawn on our revolving line of credit.

•Our outstanding shares of Preferred Stock have decreased over the last three years, as summarized in the following chart:


Shares of Preferred Stock

	2019	2020	2021
Issued	552,938	228,788	122,297
Redeemed by holder	(68,512)	(164,286)	(100,946)
Called by PAC	—	(208,786)	(320,746)

Net increase (decrease)	484,426	(144,284)	(299,395)

Total outstanding at year end	2,136,257	1,991,973	1,692,578

Significant Transactions

•During the year ended December 31, 2021, we disposed of eight office building assets, one real estate loan investment and one multifamily community; we acquired five multifamily communities during the year.

•During the year ended December 31, 2021, we originated six real estate loan investments and one land acquisition bridge loan with a combined commitment amount of $89.0 million, in support of the development of six multifamily communities comprised of an aggregate 1,922 units.

•During the year ended December 31, 2021, we received the full principal amounts totaling approximately $152.8 million from the repayment of 17 real estate loan investments associated with ten properties, plus purchase option termination fees of approximately $12.5 million and $15.3 million of accrued interest from these loan payoffs. These transactions collectively returned approximately $180.6 million of capital to us for investment, preferred redemptions, or other corporate purposes during the first quarter. Of the ten properties represented by these loan payoffs, we acquired three of the assets.

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

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

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

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

New Market Properties, LLC

Our New Market Properties, LLC business consists of our portfolio of grocery-anchored shopping centers, as well as the financial results from the Company's grocery-anchored shopping center real estate loans. Comparative statements of operations of New Market Properties, LLC for the year ended December 31, 2021 versus 2020 are presented below. These statements of operations include no allocations of corporate overhead or other expenses.


New Market Properties, LLC	Years ended December 31,				Change inc (dec)
	2021		2020		Amount		Percentage
Revenues:
Rental and other property revenues	$	108,102	$	107,361	$	741	0.7	%
Interest income on notes receivable	—		164		(164)		—
Total revenues	108,102		107,525		577		0.5	%

Operating expenses:
Property operating and maintenance	14,750		13,359		1,391		10.4	%
Property management fees	2,310		2,480		(170)		(6.9)	%
Real estate taxes and insurance	15,716		14,595		1,121		7.7	%
General and administrative	3,761		3,445		316		9.2	%
Equity compensation to directors and executives	216		104		112		107.7	%
Depreciation and amortization	45,753		51,813		(6,060)		(11.7)	%
Asset management and general and administrative expense fees to related parties	—		720		(720)		—
Total operating expenses	82,506		86,516		(4,010)		(4.6)	%
Waived asset management and general and administrative expense fees	—		(17)		17		—
Net operating expenses	82,506		86,499		(3,993)		(4.6)	%

Operating income before gain on sale of real estate and loss from unconsolidated joint venture	25,596		21,026		4,570		21.7	%
Loss from unconsolidated joint venture	(665)		(314)		(351)		—
Gain on sale of real estate, net	—		3,261		(3,261)		—
Operating income	24,931		23,973		958		4.0	%

Interest expense	25,654		26,379		(725)		(2.7)	%
Gain on sale of land	15		528		(513)		(97.2)	%
Net loss	(708)		(1,878)		1,170		—

Consolidated net (income) loss attributable to non-controlling interests	(48)		(100)		52		—

Net loss attributable to the Company	$	(660)	$	(1,778)	$	1,118	—

Year ended December 31, 2021 compared to 2020

The following discussion and tabular presentations highlight the major drivers behind the line item changes in our results of operations for the years ended December 31, 2021 versus 2020:

Recent real estate transactions

Our dispositions (net of acquisitions) of real estate assets since January 1, 2020 were generally the primary drivers behind our changes in rental and property revenues, property operating and maintenance, property salary and benefits, property management costs, and real estate tax expenses for the years ended December 31, 2021, 2020 and 2019. Depreciation and amortization expense likewise tracks along with our rate of property acquisitions, particularly due to shorter-term intangible assets that arise with acquisitions of multifamily communities.

Real estate assets acquired

Acquisition date

Property

Location

Units

Leasable square feet

Multifamily communities:

3/31/2020

Horizon at Wiregrass

Tampa, FL

392

4/30/2020

Parkside at the Beach

Panama City Beach, FL

288

11/2/2020

The Blake

Orlando, FL

281

12/15/2020

The Menlo

Jacksonville, FL

332

6/30/2021

The Ellison

Atlanta, GA

250

7/8/2021

Alleia at Presidio

Ft. Worth, TX

231

9/14/2021

The Anson

Nashville, TN

301

9/16/2021

The Kingson

Fredericksburg, VA

240

9/17/2021

Chestnut Farm

Charlotte, NC

256

2,571

New Market Properties:

1/29/2020

Wakefield Crossing

Raleigh, NC

75,927

3/19/2020

Midway Market

Dallas, TX

85,599

161,526

Real estate assets sold

The sale of eight of our office buildings during the third and fourth quarters of 2021 represented the commencement of our strategic decision to exit the office property segment of our business. Our exit from the student housing segment was completed with the sale of all eight of our properties on November 3, 2020.

Disposition date

Property

Location

Units

Multifamily communities:

11/12/2020

Avenues at Creekside

San Antonio, TX

395

7/19/2021

Vineyards

Houston, TX

369

764

Office buildings:

Leasable square feet

7/29/2021

Galleria 75

Atlanta, GA

111,000

7/29/2021

150 Fayetteville

Raleigh, NC

560,000

7/29/2021

Capitol Towers

Charlotte, NC

479,000

7/29/2021

CAPTRUST Tower

Raleigh, NC

300,000

7/29/2021

Morrocroft Centre

Charlotte, NC

291,000

9/8/2021

Armour Yards Portfolio (1)

Atlanta, GA

222,000

11/12/2021

Brookwood Center

Birmingham, AL

169,000

2,132,000

Student housing properties:

Units

Beds

11/3/2020

North by Northwest

Tallahassee, FL

219

679

11/3/2020

SoL

Tempe, AZ

224

639

11/3/2020

Stadium Village

Atlanta, GA

198

792

11/3/2020

Ursa

Waco, TX

250

840

11/3/2020

The Tradition

College Station, TX

427

808

11/3/2020

Knightshade

Orlando, FL

221

894

11/3/2020

The Bloc

Lubbock, TX

140

556

11/3/2020

Rush

Charlotte, NC

332

887

2,011

6,095

(1) Includes the Armour Yards and 251 Armour Yards assets.

The amounts of property acquisitions and dispositions by operating segment for the years ended December 31, 2019, 2020 and 2021 were:


Real estate assets (in thousands)
			2019		2020		2021
	Purchased:
		Residential Properties
		Multifamily Communities	$	118,295	$	280,488	$	335,166
		Student Housing Properties	90,664		—		—
		Grocery-anchored shopping centers	251,360		27,531		—
		Office buildings	246,302		13,998		—
		Total	$	706,621	$	322,017	$	335,166

	Sold:
		Residential Properties
		Multifamily Communities	$	—	$	(44,388)	$	(41,232)
		Student Housing Properties	—		(460,429)		—
		Grocery-anchored shopping centers	—		—		—
		Office buildings	—		—		(728,059)
		Total	$	—	$	(504,817)	$	(769,291)

We also collect revenue from residents and tenants for items such as utilities, application fees, lease termination fees, common area maintenance reimbursements and late charges. The changes in these other property revenues for the year ended December 31, 2021 versus 2020 were primarily due to the net acquisitions/dispositions listed above.

Changes in occupancy rates and in percentages of leased space and rent growth are the primary drivers of changes in rental revenue from our owned properties. Factors which we believe affect market rents include vacant unit inventory in local markets, local and national economic growth and resultant employment stability, income levels and growth, the ease of obtaining credit for home purchases, and changes in demand due to consumer confidence in the above factors.

Real estate loan investments

Interest income from our real estate loan investments decreased for the year ended December 31, 2021 versus 2020 and 2019 largely due to the decreases in the principal amounts outstanding as shown below:


Drawn amount of real estate loan investments

	(in thousands)	2019		2020		2021
	Beginning balance	$	336,329	$	352,582	$	290,156
	Fundings	98,418		59,417		68,943
	Repayments and loan sales	(82,165)		(121,843)		(152,829)
	Ending balance	$	352,582	$	290,156	$	206,270

Revenues from the amortization of terminated purchase options were $9.1 million, $6.5 million and $9.7 million for the years ended December 31, 2019, 2020, and 2021, respectively, and are included in the line entitled interest income on loans and notes receivable on our consolidated statements of operations. At December 31, 2021, we had no unrecognized purchase option termination revenue.

We recorded interest income and other revenue from these instruments as presented in Note 4 to the Company's Consolidated Financial Statements.

Effective January 1, 2020, we adopted ASU 2016-03, which requires us to estimate the amount of future credit losses we expect to incur over the lives of our real estate loan investments at the inception of each loan, rather than perform assessments for impairment as circumstances dictate. The Company’s opening reserve of approximately $7.4 million was recorded as a cumulative adjustment to accumulated earnings on January 1, 2020. During the year ended December 31, 2021, our estimates for future credit losses related to real estate loan investments were reduced by approximately $2.2 million due to multiple real estate loan investments being repaid in full or achieving construction or leasing milestones. This was countered by the addition of approximately $3.1 million in new reserves related to new loan originations, as well as additional reserves related to the Haven line of credit. During the year ended December 31, 2020, the Company recorded an initial aggregate net increase in its provisions for expected credit losses of approximately $4.5 million, primarily related to the onset of the COVID-19 pandemic. For the remainder of the year ended December 31, 2020, the Company recorded an aggregate net increase in its provision for expected credit losses of approximately $1.6 million, primarily related to updates to our estimates to the valuations of the underlying development projects (reversal of some previous adjustments due to the COVID-19 pandemic), projects achieving construction and leasing milestones, the sale of the Starkville real estate loan investment, and additional reserves related to the Haven line of credit.

Miscellaneous revenues for the year ended December 31, 2020 included forfeited earnest money deposits from prospective purchasers of six of our student housing properties and the addition of new revenue streams from the Internalization, including third party property management. Miscellaneous revenues for the year ended December 31, 2020 also included proceeds from a land easement at one of our multifamily properties.

Management Internalization

On January 31, 2020, we internalized the functions performed by the Former Manager and the Former Sub-Manager by acquiring the entities that own the Former Manager and the Former Sub-Manager for an aggregate purchase price of $154 million, plus up to $25 million of additional consideration to be paid within 36 months.

We paid fees for property management services to our Former Manager in an amount of 4% of gross property revenues as compensation for services such as rental, leasing, operation and management of our multifamily communities and the supervision of any subcontractors; for grocery-anchored shopping center assets, property management fees were generally 4% of gross property revenues, of which generally 2.0% to 2.5% were paid to a third party management company. Property management fees for office building assets are 1.25% to 2.00% and are paid to a third party property management company. All property management fees, along with monthly asset management fees and general and administrative expense fees, paid to our Former Manager ceased effective with our Internalization on January 31, 2020. The Internalization resulted in an increase in general and administrative expenses due to charges for corporate salaries and administrative expenses that are borne by us following the Internalization, that partially offset the absence of the fees to the Former Manager.

Equity compensation to directors and executives

Equity compensation expenses increased for the year ended December 31, 2021 as compared to 2020, primarily due to (i) grants of restricted stock units to employees issued on June 17, 2020 and July 31, 2020 with an aggregate fair value of approximately $5.7 million and which will be expensed over the period ending June 30, 2024, and (ii) grants of restricted stock units to employees issued on March 15, 2021 with a fair value of approximately $5.9 million which will be expensed over the period ending March 15, 2025.

Interest expense

The decrease in interest expense on mortgage indebtedness from $114.0 million for the year ended December 31, 2020 to $100.0 million for the year ended December 31, 2021 was primarily due to the sale of our student housing portfolio in the fourth quarter 2020 and the sale of eight office properties during 2021.

See the sections entitled Contractual Obligations and Quantitative and Qualitative Disclosures About Market Risk.

Losses on extinguishment of debt

The losses incurred on the refinancing of mortgage debt for the year ended December 31, 2020 were the result of refinancing nine multifamily communities during 2020. Of the nine total refinances executed, five of them were considered loan extinguishments according to GAAP, resulting in the immediate recognition of some costs. These transactions dropped the weighted average interest rate on these loans from 3.77% to 3.04% per annum.

Year ended December 31, 2020 compared to 2019

Please refer to Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, that was filed on March 1, 2021 for a discussion and tabular presentations highlighting the major drivers behind the line item changes in our results of operations for the years ended December 31, 2020 versus 2019.

Definitions of Non-GAAP Measures

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

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

FFO is one of the most commonly utilized Non-GAAP measures currently in practice. In its 2002 “White Paper on Funds From Operations,” which was restated in 2018, the National Association of Real Estate Investment Trusts, or NAREIT,

standardized the definition of how net income/loss should be adjusted to arrive at FFO, in the interests of uniformity and comparability. We have adopted the NAREIT definition for computing FFO as a meaningful supplemental gauge of our operating results, and as is most often presented by other REIT industry participants.

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

Net income/loss, excluding:

•depreciation and amortization related to real estate;

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

•gains and losses from change in control; and

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

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

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

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

FFO, plus:

• acquisition and pursuit (dead deal) costs;

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

• losses on debt extinguishments or refinancing costs;

• Internalization costs;

• expenses incurred on calls of preferred stock;

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

• expenses related to the COVID-19 global pandemic;

Less:

• earnest money forfeitures by prospective asset purchasers.

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

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

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

Core FFO, plus:

• non-cash equity compensation to directors and executives;

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

• amortization of loan closing costs;

• depreciation and amortization of non-real estate assets;

• net loan origination fees received;

• deferred interest income received;

• amortization of lease inducements;

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

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

• earnest money forfeiture from prospective asset purchaser;

Less:

• non-cash loan interest income;

• cash paid for loan closing costs;

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

• amortization of deferred revenues; and

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

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


Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO
to Net (Loss) Income Attributable to Common Stockholders
		Three months ended December 31,
(In thousands, except per-share figures)		2021		2020

Net loss attributable to common stockholders (See note 1)		$	(16,311)	$	(38,631)

Add:	Depreciation of real estate assets	32,861		39,447
	Amortization of acquired intangible assets and deferred leasing costs	5,916		8,742
	Net (income) loss attributable to Class A Unitholders (See note 2)	107		260
	Gain on sale of real estate	(12,369)		(20,195)
FFO attributable to common stockholders and unitholders		10,204		(10,377)

	Acquisition and pursuit costs	16		2
	Loan cost amortization on acquisition line of credit and loan coordination fees (See note 3)	322		451
	Internalization costs (See note 4)	243		288
	Deemed dividends for redemptions of and non-cash dividends on preferred stock, plus
	expenses incurred on calls of preferred stock (See note 5)	2,106		25,113
	Expenses related to the COVID-19 global pandemic (See note 6)	6		77
Core FFO attributable to common stockholders and unitholders		12,897		15,554

Add:	Non-cash equity compensation to directors and executives	973		586
	Non-cash income for current expected credit losses (See note 13)	518		155
	Amortization of loan closing costs (See note 7)	1,264		1,255
	Depreciation/amortization of non-real estate assets	456		541
	Net loan origination fees received (See note 8)	494		16
	Deferred interest income received (See note 9)	479		3,852
	Amortization of lease inducements (See note 10)	447		448
	Cash received in excess of (exceeded by) amortization of purchase option termination revenues (See note 11)	—		560
Less:	Non-cash loan interest income (See note 12)	(2,276)		(3,193)
	Cash paid for loan closing costs	—		(16)
	Amortization of acquired real estate intangible liabilities and straight-line rent adjustments (See note 14)	(1,695)		(4,333)
	Amortization of deferred revenues (See note 15)	(941)		(941)
	Normally recurring capital expenditures (See note 16)	(3,026)		(1,903)

AFFO attributable to common stockholders and Unitholders		$	9,590	$	12,581

Common Stock dividends and distributions to Unitholders declared:
	Common Stock dividends	$	9,460	$	8,973
	Distributions to Unitholders (See note 2)	87		34
	Total	$	9,547	$	9,007

Common Stock dividends and Unitholder distributions per share		$	0.1750	$	0.175

FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.19	$	(0.20)
Core FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.24	$	0.31
AFFO per weighted average basic share of Common Stock and Unit outstanding		$	0.18	$	0.25

Weighted average shares of Common Stock and Units outstanding:
	Basic:
	Common Stock	52,948		49,912
	Class A Units	493		731
	Common Stock and Class A Units	53,441		50,643

	Diluted Common Stock and Class A Units (See note 17)	54,205		50,708

Actual shares of Common Stock outstanding, including 664 and 548 unvested shares
of restricted Common Stock at December 31, 2021 and 2020, respectively.		53,639		50,542
Actual Class A Units outstanding at December 31, 2021 and 2020, respectively.		468		649
	Total	54,107		51,191

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


Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO
to Net (Loss) Income Attributable to Common Stockholders
		Years ended December 31,
(In thousands, except per-share figures)		2021		2020

Net loss attributable to common stockholders (See note 1)		$	(133,486)	$	(338,901)

Add:	Depreciation of real estate assets	138,477		161,500
	Amortization of acquired intangible assets and deferred leasing costs	29,725		37,675
	Net (income) loss attributable to Class A Unitholders (See note 2)	184		(3,133)
	Gain on sale of real estate	(21,109)		(23,456)
FFO attributable to common stockholders and unitholders		13,791		(166,315)
	Acquisition and pursuit costs	21		383
	Loan cost amortization on acquisition line of credit and loan coordination fees (See note 3)	1,608		2,162
	Payment of costs related to property refinancing	506		7,372
	Internalization costs (See note 4)	970		180,116
	Deemed dividends for redemptions of and non-cash dividends on preferred stock, plus
	expenses incurred on calls of preferred stock (See note 5)	40,375		31,536
	Expenses related to the COVID-19 global pandemic (See note 6)	121		663
	Earnest money forfeited by prospective asset purchaser	—		(2,750)
Core FFO attributable to common stockholders and unitholders		57,392		53,167

Add:	Non-cash equity compensation to directors and executives	3,289		1,644
	Amortization of loan closing costs (See note 7)	4,965		4,886
	Depreciation/amortization of non-real estate assets	1,792		2,334
	Net loan origination fees received (See note 8)	2,381		898
	Deferred interest income received (See note 9)	14,059		12,504
	Amortization of lease inducements (See note 10)	1,796		1,782
	Earnest money forfeited by prospective asset purchaser	—		2,750
	Cash received in excess of (exceeded by) amortization of purchase option termination revenues (See note 11)	2,777		464
Less:	Non-cash loan interest income (See note 12)	(10,389)		(12,638)
	Non-cash (income) expense for current expected credit losses (See note 13)	(770)		3,802
	Cash paid for loan closing costs	(2,041)		(122)
	Amortization of acquired real estate intangible liabilities and straight-line rent adjustments (See note 14)	(10,659)		(18,017)
	Amortization of deferred revenues (See note 15)	(3,762)		(3,762)
	Normally recurring capital expenditures (See note 16)	(12,501)		(8,428)

AFFO attributable to common stockholders and Unitholders		$	48,329	$	41,264
Common Stock dividends and distributions to Unitholders declared:
	Common Stock dividends	37,143		38,868
	Distributions to Unitholders (See note 2)	357		593
	Total	37,500		39,461

Common Stock dividends and Unitholder distributions per share		$	0.70	$	0.7875

FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.27	$	(3.36)
Core FFO per weighted average basic share of Common Stock and Unit outstanding		$	1.10	$	1.07
AFFO per weighted average basic share of Common Stock and Unit outstanding		$	0.93	$	0.83
Weighted average shares of Common Stock and Units outstanding:
	Basic:
	Common Stock	51,499		48,743
	Class A Units	533		765
	Common Stock and Class A Units	52,032		49,508

	Diluted Common Stock and Class A Units (See note 17)	52,532		49,549

Actual shares of Common Stock outstanding, including 664 and 548 unvested shares
of restricted Common Stock at December 31, 2021 and 2020, respectively.		53,639		50,542
Actual Class A Units outstanding at December 31, 2021 and 2020, respectively.		468		649
	Total	54,107		51,191

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

Notes to Reconciliations of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO to

Net Loss Attributable to Common Stockholders

1)Rental and other property revenues and property operating expenses for the three months and year ended December 31, 2021 include activity for the properties acquired since December 31, 2020. Rental and other property revenues and expenses for the quarterly and annual periods ended December 31, 2020 include activity for the acquisitions made during those periods only from their respective dates of acquisition.

2)Non-controlling interests in our Operating Partnership, consisted of a total of 467,662 Class A Units as of December 31, 2021. 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 0.92% and 1.44% for the three-month periods ended December 31, 2021 and 2020, respectively.

3) We paid loan coordination fees to Preferred Apartment Advisors, LLC, (our "Former Manager") to reflect the administrative effort involved in arranging debt financing for acquired properties prior to the Internalization Transaction (defined in note 4 below). The fees were calculated as 0.6% of the amount of any mortgage indebtedness on newly-acquired properties or refinancing and are amortized over the lives of the respective mortgage loans. This non-cash amortization expense is an addition to FFO in the calculation of Core FFO and AFFO. At December 31, 2021, aggregate unamortized loan coordination fees were approximately $7.7 million, which will be amortized over a weighted average remaining loan life of approximately 10.2 years.

4) This adjustment reflects the add-back of (i) consideration paid to the owners of the Former Manager and NMP Advisors, LLC (our "Former Sub-Manager"), (ii) accretion of the discount on the deferred liability payable to the owners of the Former Manager and (iii) due diligence and pursuit costs incurred by the Company related to the internalization of the functions performed by the Former Manager and Former Sub-Manager (the "Internalization Transaction").

5) This additive adjustment removes the effect of deemed dividends that arise from cash calls and redemptions of preferred stock. For preferred stock shares that are called by the Company or redeemed by the holder, the Company records a deemed dividend for the difference between the redemption of the share at its face value, net of any redemption discount, as compared to the carrying value of the share on the Company’s consolidated balance sheets. Also included in this adjustment is the adding back of expenses incurred related to effecting calls of preferred stock.

6) This additive adjustment to FFO consists of non-recurring costs for signage, cleaning and supplies necessary to create and maintain work environments necessary to adhere to CDC guidelines during the current COVID-19 pandemic. Since we do not expect to incur similar costs once the COVID-19 pandemic has subsided, we add these costs back to FFO in our calculation of Core FFO.

7) We incur loan closing costs on our existing mortgage loans, which are secured on a property-by-property basis by each of our acquired real estate assets, and also for occasional amendments to our syndicated 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 FFO 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 December 31, 2021, unamortized loan costs on all the Company's indebtedness were approximately $29.5 million, which will be amortized over a weighted average remaining loan life of approximately 7.9 years.

8) We receive loan origination fees in conjunction with the origination of certain real estate loan investments. The total fees received are additive adjustments to Core FFO in our calculation of AFFO.

9) Over the lives of certain loans, we accrue 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. Once received from the borrower, the amount of additional accrued interest becomes an additive adjustment to Core FFO in our calculation of AFFO.

10) This adjustment removes the non-cash amortization of costs incurred to induce tenants to lease space in our office buildings and grocery-anchored shopping centers.

11) Occasionally we receive fees in exchange for the termination of our purchase options related to certain multifamily communities. These fees are recorded as revenue over the period beginning on the date of termination until the earlier of (i) the maturity of the real estate loan investment and (ii) the sale of the property. The receipt of the cash termination fees are an additive adjustment in our calculation of AFFO and the removal of non-cash revenue from the recognition of the termination fees are a reduction to Core FFO in our calculation of AFFO; both of these adjustments are presented in a single net number within this line. For periods in which recognized termination fee revenues exceeded the amount of cash received, a negative adjustment is shown to Core FFO in our calculation of AFFO; for periods in which cash received exceeded the amount of recognized termination fee revenues, an additive adjustment is shown to Core FFO in our calculation of AFFO.

12) Loan origination fees (described in note 8 above) are recognized as revenue over the lives of the applicable loans as adjustments of yield using the effective interest method. Similarly, the accrual of additional interest amounts (described in note 9 above) are recognized beginning from loan inception through the repayment of the loan or the refinancing or sale of the underlying property. This adjustment removes the effect of both these types of non-cash loan interest income from Core FFO in our calculation of AFFO.

13) Effective January 1, 2020, we adopted ASU 2016-03, which requires us to estimate the amount of future credit losses we expect to incur over the lives of our real estate loan investments at the inception of each loan. This loss reserve may be adjusted upward or downward over the lives of our loans and therefore the aggregate net adjustment for each period could be positive (removing the non-cash effect of a net increase in aggregate loss reserves) or negative (removing the non-cash effect of a net decrease in aggregate loss reserves) in these adjustments to Core FFO in calculating AFFO.

14) 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 our 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 grocery-anchored shopping center assets and office buildings. At December 31, 2021, the balance of unamortized below-market lease intangibles was approximately $34.6 million, which will be recognized over a weighted average remaining lease period of approximately 8.1 years.

15) This adjustment removes the non-cash amortization of deferred revenue recorded by us in conjunction with Company-owned lessee-funded tenant improvements in our office buildings.

16) We deduct from Core FFO normally recurring capital expenditures that are necessary to maintain our assets’ revenue streams in the calculation of AFFO. This adjustment also deducts from Core FFO capitalized amounts for third party costs during the period to originate or renew leases in our grocery-anchored shopping centers and office buildings. This adjustment includes approximately $58,000 and $117,000 of recurring capitalized expenditures incurred at our corporate offices during the quarterly and annual periods ended December 31, 2021 respectively. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures. See Capital Expenditures, Grocery-Anchored Shopping Center Portfolio, and Office Building Portfolio sections for definitions of these terms.

17) Since our AFFO results are positive for the periods reflected, 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 and restricted stock units. 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.

Liquidity and Capital Resources

The Merger Agreement contains provisions which restrict or prohibit certain capital expenditures without the consent of Parent as well as certain capital transactions typically used to fund our short and long-term liquidity requirements. Until the Mergers close, or the Merger Agreement is terminated, our liquidity requirements will primarily be funded by our cash flow from operations and certain other capital activities allowed under the Merger Agreement. In particular, we are subject to various restrictions under the Merger Agreement on assuming additional debt, issuing additional equity or debt, repurchasing equity, and entering into certain acquisition, disposition and leasing transactions, among other restrictions, subject to the restrictions under the Merger Agreement.

Short-Term Liquidity

We believe our principal short-term liquidity needs are to fund:

•operating expenses directly related to our portfolio of multifamily communities, grocery-anchored shopping centers and office properties (including regular maintenance items);

•operating expenses related to salaries, benefits, and general and administrative expenses (that were formerly funded by payment of fees to our Former Manager prior to the Internalization on January 31, 2020);

•capital expenditures incurred to lease our multifamily communities, grocery-anchored shopping centers and office properties;

•interest and principal payments on our outstanding property level debt;

•amounts due on our Credit Facility;

•distributions that we pay to our preferred stockholders, common stockholders, and unitholders;

•cash redemptions that we may pay to our preferred stockholders;

•committed investments, and

•payments of up to $40 million potentially due to the Former Manager related to Internalization.

We have a credit facility, or Credit Facility, with KeyBank National Association, or KeyBank, which defines a revolving line of credit, or Revolving Line of Credit, which is used to fund investments, capital expenditures, dividends (with consent of KeyBank), working capital and other general corporate purposes on an as-needed basis. On May 4, 2021, PAC Operations and PAC OP, (collectively, the “Borrowers”) and the Company entered into Amendment No. 3 to the Fourth Amended and Restated Credit Agreement, or our Amended and Restated Credit Agreement, which (i) extended the maturity date for the Revolving Facility to May 4, 2024, with an option to extend the maturity date to May 4, 2025, (ii) added PAC Operations as a borrower, (iii) modified certain of the financial covenants and (iv) created smooth transition from USD LIBOR to SOFR with predetermined spreads based on tenor without any amendment required. As of December 31, 2021, the outstanding balance on the Revolving Facility was $0. The Revolving Line of Credit accrues interest at a variable rate of KeyBank's prime rate plus 0.5%, the Adjusted Eurodollar Rate for a one-month interest period plus 1.00%, or the one- or three-month per annum LIBOR, as selected by the Borrowers, plus an applicable margin of 1.50% to 3.50% per annum, depending upon our leverage ratio. Also in Amendment No. 3 to the Fourth Amended and Restated Credit Agreement, we installed provisions in the documents relating to the transition away from LIBOR and expect the transition to be relatively smooth as it relates to the line of credit. The weighted average interest rate for the Revolving Line of Credit was 3.62% for the year ended December 31, 2021. The Amended and Restated Credit Agreement also reduced the commitment fee on the average daily unused portion of the Revolving Line of Credit to 0.20% or 0.25% per annum, depending upon our outstanding Credit Facility balance. At December 31, 2021, we had $200 million available to be drawn by us on the Revolving Line of Credit.

The COVID-19 pandemic has the potential to affect our short-term cash flows if multifamily tenants lose their jobs due to business closings, retailers fall behind on their rent obligations, and our office tenants' businesses begin to similarly suffer. Should these events continue to accelerate and worsen, our operational cash flows could suffer and cause us to draw upon our Revolving Credit Line more extensively and in a manner other than we previously intended.

The Amended and Restated Credit Agreement contains certain affirmative and negative covenants including negative covenants that limit or restrict secured and unsecured indebtedness, mergers and fundamental changes, investments and acquisitions, liens and encumbrances, dividends, transactions with affiliates, burdensome agreements, changes in fiscal year and other matters customarily restricted in such agreements. The material financial covenants include minimum net worth and debt service coverage ratios and maximum leverage and dividend payout ratios. As of December 31, 2021, we were in compliance with all covenants related to the Fourth Amended and Restated Credit Agreement. Our results with respect to such compliance are presented in Note 9 to the Company's Consolidated Financial Statements.

On December 20, 2019, the Company entered into a $70.0 million interim term loan with KeyBank, or the 2019 Term Loan, to partially finance the acquisition of Morrocroft Centre, an office building located in Charlotte, North Carolina. The 2019 Term Loan accrued interest at a rate of LIBOR plus 1.7% per annum. The 2019 Term Loan was repaid in conjunction with the closing of permanent mortgage financing for Morrocroft Centre on March 19, 2020.

On February 28, 2017, we entered into a revolving acquisition credit agreement, or Acquisition Credit Agreement, with Freddie Mac through KeyBank to obtain the Acquisition Facility, with a maximum borrowing capacity of $200 million. The sole purpose of the Acquisition Credit Agreement is to finance our acquisitions of multifamily communities prior to obtaining permanent conventional mortgage financing on the acquired assets. The maximum borrowing capacity on the Acquisition Facility was reduced by agreement with KeyBank to $90 million on March 25, 2019. The Acquisition Facility accrues interest at a variable rate of one month LIBOR plus a margin of between 1.75% per annum and 2.20% per annum, depending on the type of assets acquired and the resulting property debt service coverage ratio. The Acquisition Facility has a maturity date of March 1, 2022 and has two one-year extension options, subject to certain conditions described therein. At December 31, 2021, we had $90.0 million available to be drawn by us on the Acquisition Facility.

Our net cash provided by operating activities for the years ended December 31, 2021, 2020 and 2019 was approximately $182.0 million, $47.9 million and $145.6 million, respectively. Our operating cash flows for the year ended December 31, 2020 reflect the $111.1 million one-time cash payments to the entities that owned the Former Manager and Former Sub-Manager for the closing of the Internalization transaction, as well as approximately $3.8 million in professional fees related to the transaction.

The majority of our revenue is derived from residents and tenants under existing leases at our multifamily communities, grocery-anchored shopping centers and office properties. Therefore, our operating cash flow is principally dependent on: (1) the number of multifamily communities, grocery-anchored shopping centers and office properties in our portfolio; (2) rental rates; (3) occupancy rates; (4) operating expenses associated with these properties; and (5) the ability of our residents and tenants to make their rental payments.

We also earn interest revenue from the issuance of real estate-related loans and may receive fees at the inception of these loans for committing and originating them. Interest revenue we receive on these loans is influenced by (1) market interest rates on similar loans; (2) the availability of credit from alternative financing sources; (3) the desire of borrowers to finance new real estate projects; and (4) unique characteristics attached to these loans, such as exclusive purchase options. In the course of extending real estate loan investments for property development, we will often receive an exclusive option to purchase the property once development and stabilization are complete. If we do not wish to acquire the property, we have the right to sell the purchase option back to the borrower for a termination fee in the amount of the purchase option discount, which is recognized as interest income over the earlier of the maturity date of the loan or the sale of the property.

Interest income on our loans and notes receivable was $45.5 million, $50.8 million and $61.5 million for the years ended December 31, 2021, 2020 and 2019, respectively, reflecting a decrease in the principal amounts outstanding on our portfolio of real estate loan investments. We are scheduled to disburse approximately $43.2 million during the year ended December 31, 2022 for funding draws on real estate loan investments in place as of December 31, 2021.

Our net cash provided by investing activities for the year ended December 31, 2021 and 2020 was approximately $74.0 million and $244.1 million, respectively, and net cash disbursed was $661.1 million for the year ended December 31, 2019. Net cash proceeds of $366.9 million in 2021 reflected the sales of eight office buildings and the 8West real estate loan investment, as well as one multifamily community. Net cash proceeds of $516.3 million in 2020 reflected the sales of our Student Housing assets and our Avenues at Creekside multifamily community.

Cash used in, or provided by, investing activities is primarily driven by acquisitions and dispositions of multifamily properties, office properties and grocery-anchored shopping centers and acquisitions and maturities or other dispositions of real estate loans and other real estate and real estate-related assets, and secondarily by capital expenditures related to our owned properties. We will seek to acquire more multifamily communities and grocery-anchored shopping centers at costs that we expect will be accretive to our financial results. Capital expenditures may be nonrecurring and discretionary, as part of a strategic plan intended to increase a property’s value and corresponding revenue-generating power, 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 tenants 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 operational cash flows for funding. We plan to disburse a total of approximately $54.7 million for capital expenditures during the year ended December 31, 2022, based on our properties owned at December 31, 2021.

For the year ended December 31, 2021, our capital expenditures for our multifamily communities, not including changes in related payables were as follows:


	Capital Expenditures
	Recurring				Non-recurring				Total
(In thousands, except per-unit amounts)	Amount		Per Unit		Amount		Per Unit		Amount		Per Unit
Appliances	$	736	$	64.15	$	—	$	—	$	736	$	64.15
Carpets	2,028		176.75		—		—		2,028		176.75
Wood flooring / vinyl	266		23.14		545		47.53		811		70.67
Blinds and ceiling fans	182		15.83		—		—		182		15.83
Fire safety	—		—		577		50.25		577		50.25
Furnace, air (HVAC)	798		69.57		—		—		798		69.57
Computers, equipment, misc.	29		2.53		193		16.81		222		19.34
Elevators	2		0.21		56		4.87		58		5.08
Exterior painting	—		—		2,467		214.95		2,467		214.95
Leasing office / common amenities	79		6.88		995		86.72		1,074		93.60
Major structural	—		—		1,349		117.58		1,349		117.58
Cabinets & countertops and unit upgrades	—		—		1,756		152.99		1,756		152.99
Landscaping & fencing	—		—		828		72.16		828		72.16
Parking lot	165		14.36		167		14.57		332		28.93
Signage and sanitation	—		—		145		12.66		145		12.66

	$	4,285	$	373.42	$	9,078	$	791.09	$	13,363	$	1,164.51

In addition, second-generation capital expenditures within our grocery-anchored shopping center portfolio for the years ended December 31, 2021, 2020 and 2019 totaled $5.3 million, $2.5 million and $1.8 million, respectively. We define second-generation capital expenditures as those that exclude expenditures made in our grocery-anchored shopping center portfolio (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 which amounts were underwritten into the total investment at the time of acquisition), and (iii) for property re-developments and repositioning.

Second-generation capital expenditures within our office properties portfolio for the years ended December 31, 2021, 2020 and 2019 totaled $2.8 million, $1.1 million and $1.7 million, respectively.

Included in our aggregate restricted cash of approximately $32.7 million at December 31, 2021 was approximately $10.8 million that was contractually restricted to fund capital expenditures and other property-level commitments such as tenant improvements and leasing commissions.

Net cash used in financing activities was approximately $268.9 million and $353.6 million for the years ended December 31, 2021 and 2020, respectively, and net cash provided by financing activities was approximately $565.0 million for the year ended December 31, 2019. Our significant financing cash uses during 2021 and 2020 included cash redemptions and calls of Preferred Stock of $380.0 million and $314.2 million, respectively.

We have commitments to disburse a total of $200.4 million for principal and interest payments on, and maturities of, property-level debt during the year ended December 31, 2022, based on mortgage debt instruments in place as of December 31, 2021.

Distributions

In order to maintain our qualification as a REIT for U.S. federal income tax purposes, we must comply with a number of organizational and operating requirements, including a requirement to distribute 90% of our annual REIT taxable income (which does not equal net income as calculated in accordance with GAAP and is determined without regard for the deduction for dividends paid and excluding net capital gains) to our stockholders. As a REIT, we generally will not be subject to federal income taxes on the taxable income we distribute to our stockholders. Generally, our objective is to meet our short-term liquidity requirement of funding the payment of our quarterly Common Stock dividends, as well as monthly dividends to holders of our Preferred Stock, through net cash generated from operating results.

Our board of directors reviews the Preferred Stock dividends monthly to determine whether we have funds legally available for payment of such dividends in cash, and there can be no assurance that the Preferred Stock dividends will consistently be paid in cash. Dividends may be paid as a combination of cash and stock in order to satisfy the annual distribution requirements applicable to REITs. We expect the aggregate dollar amount of monthly Preferred Stock dividend payments to increase at a rate that approximates the rate at which we issue new shares of Preferred Stock, less those shares redeemed. Based on a total of 1,692,578 shares of Preferred Stock outstanding at December 31, 2021, our total cash requirement for Preferred Stock dividends, excluding any assumption for calls or redemptions, is approximately $102.6 million for the year ended December 31, 2022.

Our fourth quarter 2021 Common Stock dividend declaration was $0.175 per share. Our board of directors reviews the proposed Common Stock dividend declarations quarterly, and there can be no assurance that the current dividend level will be maintained.

We believe that our short-term liquidity needs are and will continue to be adequately funded.

For the year ended December 31, 2021, our aggregate dividends and distributions totaled approximately $190.9 million and our cash flows from operating activities were approximately $182.0 million. We expect our cash flow from operations over time to be sufficient to fund our quarterly Common Stock dividends, Class A Unit distributions and our monthly Preferred Stock dividends.

Long-Term Liquidity Needs

We believe our principal long-term liquidity needs are to fund:

•the principal amount of our long-term debt as it becomes due or matures;

•capital expenditures needed for our multifamily communities, grocery-anchored shopping centers and office properties;

•Costs associated with current and future capital raising activities, including any potential redemptions or calls of our preferred stock; and

•Costs to acquire additional multifamily communities, grocery-anchored shopping centers or other real estate, enter into new and fund existing lending opportunities; and

•our minimum distributions necessary to maintain our REIT status.

We plan to make disbursements for capital expenditures beyond December 31, 2022, the amount of which cannot be reliably estimated. We are also scheduled to disburse approximately $18.8 million beyond the year ended December 31, 2022 for draws on real estate loan investments in place as of December 31, 2021.

As of December 31, 2021, we had approximately $30.2 million in unrestricted cash and cash equivalents available to meet our short-term and long-term liquidity needs. We believe that our long-term liquidity needs are and will continue to be adequately funded through the sources discussed above. We intend to finance our future investments with the net proceeds from sales of currently owned real estate assets, additional issuances of our securities, including our Series A1/M1 Offering (as defined and described in note 5 to our Consolidated Financial Statements), Common Stock, and units of limited partnership interest in our Operating Partnership, and/or borrowings. The success of our acquisition strategy may depend, in part, on our ability to access further capital through issuances of additional securities. If we are unsuccessful in raising additional funds, we may not be able to obtain any assets in addition to those we have acquired.

The following chart illustrates the downward trend of our Preferred Stock outstanding over the last three years:


Shares of Preferred Stock

	2019	2020	2021
Issued	552,938	228,788	122,297
Redeemed by holder	(68,512)	(164,286)	(100,946)
Called by PAC	—	(208,786)	(320,746)

Net increase (decrease)	484,426	(144,284)	(299,395)

Total outstanding at year end	2,136,257	1,991,973	1,692,578

On September 27, 2019, our registration statement on Form S-3 (Registration No. 333-233576) (the “Series A1/M1 Registration Statement”) was declared effective by the Securities and Exchange Commission (the “SEC”). The Series A1/M1 Registration Statement allows us to offer up to a maximum of 1,000,000 shares of Series A1 Redeemable Preferred Stock, Series M1 Redeemable Preferred Stock or a combination of both. The stated price per share is $1,000, subject to adjustment under certain conditions. The shares are being offered by our affiliate, Preferred Capital Securities, LLC (“PCS”), on a "reasonable best efforts" basis and we intend to invest substantially all the net proceeds of the Series A1/M1 Offering in connection with the acquisition of multifamily communities, grocery-anchored shopping centers, office buildings, real estate loans and mortgages, other real estate-related investments and general working capital purposes.

Pursuant to FINRA Rule 2310(b)(5), which became effective April 11, 2016, and as described in Regulatory Notice 15-02, we have prepared for our stockholders an estimate of the per share value of our Preferred Stock as of December 31, 2021. This estimate is based on dividing (i) the value of our assets less contractual liabilities as of December 31, 2021, by (ii) the number of shares of Preferred Stock outstanding as of that date. We used a direct capitalization appraised value analysis for this purpose. This methodology was prepared with the material assistance and confirmation of a third party valuation expert pursuant to FINRA Rule 2310(b)(5) and NASD Rule 2340(c). We believe this methodology conforms to standard industry practices. Based on the foregoing, we have determined that the estimated value as of December 31, 2021 of our Preferred Stock is $1,000 per share (unaudited).

For any property owned for less than 12 months, we used the market value of that property as reflected in the third party appraisal we had received at the time of acquisition to value the property. For properties owned more than 12 months, the direct capitalization value method was used. Under the direct capitalization value analysis, we utilized the trailing 12-month net operating income from the property, adjusted for rare or catastrophic events, such as hurricane damages, as needed, to arrive at a normalized net operating income. The Company then determines the current market capitalization rate for each property. The property’s normalized net operating income is divided by the capitalization rate for that property to determine a fair market value for each property. The fair market value of all the properties was then added to the value of our other assets (i.e., the value of our cash on hand and other financial assets as reflected on our audited consolidated financial statements for the year ended December 31, 2021) to determine the aggregate market value of our assets. We then subtracted our contractual liabilities from the aggregate market value of our assets, and divided the difference by the number of shares of our Preferred Stock outstanding as of December 31, 2021 to determine our estimated per share value of our Preferred Stock as of that date.

At December 31, 2021, the Company's active equity offerings consisted of:

•an offering of up to 1,000,000 Shares of Series A1 Redeemable Preferred Stock ("Series A1 Preferred Stock"), Series M1 Redeemable Preferred Stock ("Series M1 Preferred Stock"), or a combination of both (collectively the "Series A1/M1 Offering"); and

•an offering of up to $125 million of Common Stock from time to time in an "at the market" offering (the "2019 ATM Offering"), of which $91.8 million could be issued at December 31, 2021.

For the year ended December 31, 2021, we issued 2,658,889 shares of our common stock under our 2019 ATM Offering and collected proceeds of approximately $28.2 million.

Our ability to raise funds through the issuance of our securities is dependent on, among other things, general market conditions for REITs, market perceptions about us, and the current trading price of our Common Stock. We will continue to analyze which source of capital is most advantageous to us at any point in time, but the equity and credit markets may not consistently be available on terms that are attractive to us or at all.

The sources to fulfill our long-term liquidity in the future may include borrowings from a number of sources, including repurchase agreements, securitizations, resecuritizations, warehouse facilities and credit facilities (including term loans and revolving facilities), in addition to our Revolving Line of Credit. We have utilized, and we intend to continue to utilize, leverage in making our investments in multifamily communities, office properties and retail shopping centers. The number of different multifamily communities, retail shopping centers, office properties and other investments we will acquire will be affected by numerous factors, including the amount of funds available to us. By operating on a leveraged basis, we will have more funds available for our investments. This will allow us to make more investments than would otherwise be possible, resulting in a larger and more diversified portfolio.

We intend to target leverage levels (secured and unsecured) between 50% and 65% of the fair market value of our tangible assets (including our real estate assets, real estate loans, notes receivable, accounts receivable and cash and cash equivalents) on a portfolio basis. Neither our charter nor our by-laws contain any limitation on the amount of leverage we may use. These targets, however, will not apply to individual real estate assets or investments.

The amount of leverage we will place on individual investments will depend on our assessment of a variety of factors which may include:

•The anticipated liquidity and price volatility of the assets in our investment portfolio;

•The potential for losses and loan extension risk in the portfolio;

•The availability and cost of financing an asset;

•Our opinion of the creditworthiness of our financing counterparties; and

•The health of the U.S. economy and the health of the commercial real estate market in general.

In addition, factors such as our outlook on interest rates, changes to the yield curve, the level and volatility of interest rates and their associated credit spreads, the underlying value of our assets and our outlook on credit spreads relative to our outlook on interest rate and economic performance could all impact our decision and strategy for financing the target assets. At the date of acquisition of an asset, we anticipate that the investment cost for such asset will be substantially similar to its fair market value. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits. Finally, we intend to acquire all our real estate assets through separate single purpose entities and we intend to finance each of these assets using debt financing techniques for that asset alone without any cross-collateralization to our other real estate assets or any guarantees by us or our Operating Partnership. We intend to have no long-term unsecured debt at the Company or Operating Partnership levels, except for our Revolving Line of Credit. Our secured and unsecured aggregate borrowings are intended by us to be reasonable in relation to our tangible assets and will be reviewed by our board of directors at least quarterly. In determining whether our borrowings are reasonable in relation to our tangible assets, we expect that our board of directors will consider many factors, including without limitation the lending standards of government-sponsored enterprises, such as Fannie Mae and Freddie Mac, for loans in connection with the financing of multifamily properties, the leverage ratios of publicly traded and non-traded REITs with similar investment strategies, and general market conditions. There is no limitation on the amount that we may borrow for any single investment.

Our ability to incur additional debt is dependent on a number of factors, including our credit ratings (if any), the value of our assets, our degree of leverage and borrowing restrictions imposed by lenders. We will continue to monitor the debt markets, including Fannie Mae and/or Freddie Mac (who have been a significant and consistent source of financing to the company and the multifamily market generally), and as market conditions permit, access borrowings that are advantageous to us. It is important to note that Freddie Mac and Fannie Mae are both GSEs (Government Sponsored Entities). GSE reform has been a topic of debate in Congress for several years now and it is possible that Congress or FHFA (Federal Housing Finance Agency) could materially change the terms and/or availability of mortgage debt to the multifamily industry. Changes could materially affect our ability to acquire or refinance assets.

If we are unable to obtain financing on favorable terms or at all, we may have to curtail our investment activities, including acquisitions and improvements to real properties, which could limit our growth prospects. This, in turn, could reduce cash available for distribution to our stockholders and may hinder our ability to raise capital by issuing more securities or borrowing more money. We may be forced to dispose of assets at inopportune times in order to maintain our REIT qualification and Investment Company Act exemption. Our ability to generate cash from asset sales is limited by market conditions and certain rules applicable to REITs. We may not be able to sell a property or properties as quickly as we would like or on terms as favorable as we would like.

Furthermore, if interest rates or other factors at the time of financing result in higher costs of financing, then the interest expense relating to that financed indebtedness would be higher. Higher interest rates on newly incurred debt may negatively impact us as well. If interest rates increase, our interest costs and overall costs of capital will increase, which could

adversely affect our transaction and development activity, financial condition, results of operations, cash flow, our ability to pay principal and interest on our debt and our ability to pay distributions to our stockholders. Finally, sellers may be less inclined to offer to sell to us if they believe we may be unable to obtain financing.

As of December 31, 2021, we had long term mortgage indebtedness of approximately $2.4 billion, all of which was incurred by us in connection with the acquisition or refinancing of our real estate properties. For our underlying property loans that feature floating interest rates, we have discussed the transition away from LIBOR with our lenders and do not expect the outcome of those discussions to have a material effect on those properties or our results of operations.

We have commitments to disburse a total of $2.8 billion for principal and interest payments on and maturities of property-level debt beyond the year ended December 31, 2022, based on mortgage debt instruments in place as of December 31, 2021.

Our mortgages in place as of December 31, 2021 were:


		Principal balance as of							Interest only through date (1)
	Origination/ refinancing date	December 31, 2021		December 31, 2020		Maturity date	Interest rate

Multifamily communities:		(in thousands)
Fixed Rate
Retreat at Lenox	12/21/2015	$	16,370	$	16,751	1/1/2023	4.04	%	—
Overton Rise	2/1/2016	36,749		37,607		8/1/2026	3.98	%	—
City Vista	7/1/2016	32,170		32,938		7/1/2026	3.68	%	—
Founders Village	3/31/2017	29,039		29,635		4/1/2027	4.31	%	—
Claiborne Crossing	4/26/2017	25,045		25,503		6/1/2054	2.89	%	—
525 Avalon Park	6/15/2017	61,933		63,256		7/1/2024	3.98	%	—
Stone Creek	6/22/2017	19,090		19,451		7/1/2052	3.22	%	—
Luxe at Lakewood Ranch	7/26/2017	36,147		36,922		8/1/2027	3.93	%	—
Adara at Overland Park	9/27/2017	29,397		30,024		4/1/2028	3.90	%	—
Reserve at Summit Crossing	9/29/2017	18,487		18,893		10/1/2024	3.87	%	—
Summit Crossing	10/31/2017	36,175		36,929		11/1/2024	3.99	%	—
Aldridge at Town Village	10/31/2017	35,182		35,892		11/1/2024	4.19	%	—
Retreat at Greystone	11/21/2017	32,794		33,439		12/1/2024	4.31	%	—
Overlook at Crosstown Walk	11/21/2017	20,607		21,038		12/1/2024	3.95	%	—
Colony at Centerpointe	12/20/2017	30,744		31,445		10/1/2026	3.68	%	—
Lux at Sorrel	1/9/2018	29,239		29,868		2/1/2030	3.91	%	—
Green Park	2/28/2018	37,014		37,785		3/10/2028	4.09	%	—
The Lodge at Hidden River	9/27/2018	39,469		40,204		10/1/2028	4.32	%	—
Vestavia Reserve	11/9/2018	35,860		36,511		12/1/2030	4.40	%	—
CityPark View South	11/15/2018	22,970		23,379		6/1/2029	4.51	%	—
Lenox Village Town Center	2/28/2019	37,492		38,169		3/1/2029	4.34	%	—
Citi Lakes	7/29/2019	39,535		40,324		8/1/2029	3.66	%	—
Artisan at Viera	8/8/2019	38,355		39,104		9/1/2029	3.93	%	—
Five Oaks at Westchase	10/17/2019	30,167		30,818		11/1/2031	3.27	%	—
Horizon at Wiregrass Ranch	4/23/2020	50,237		51,360		5/1/2030	2.90	%	—
Parkside at the Beach	4/30/2020	45,037		45,037		5/1/2030	2.95	%	5/31/2022
CityPark View	6/25/2020	29,000		29,000		7/1/2030	2.75	%	7/31/2023
Avenues at Northpointe	6/29/2020	33,546		33,546		7/1/2027	2.79	%	7/31/2022
Aster at Lely Resort	6/29/2020	50,400		50,400		7/1/2030	2.95	%	7/31/2022
Avenues at Cypress	6/30/2020	28,366		28,366		7/1/2027	2.96	%	7/31/2022
Venue at Lakewood Ranch	6/30/2020	36,555		36,555		7/1/2030	2.99	%	7/31/2022
Crosstown Walk	6/30/2020	46,500		46,500		7/1/2027	2.92	%	7/31/2022
Citrus Village	7/10/2020	40,900		40,900		8/1/2027	2.95	%	8/31/2022
The Blake	11/2/2020	44,435		44,435		5/1/2030	2.82	%	12/31/2025
The Menlo	12/15/2020	47,000		47,000		1/1/2031	2.68	%	1/31/2024


Table continued from previous page		Principal balance as of							Interest only through date (1)
	Acquisition/ refinancing date	December 31, 2021		December 31, 2020		Maturity date	Interest rate
		(in thousands)
Village at Baldwin Park	2/28/2021	68,535		69,608		1/1/2054	3.27	%	—
Alleia at Presidio	7/8/2021	35,700		—		8/1/2026	2.50	%	8/31/2022
The Ellison	8/18/2021	48,000		—		9/1/2027	2.52	%	9/30/2022
The Anson	9/14/2021	56,440		—		10/1/2031	2.69	%	10/31/2022
The Kingson	9/16/2021	53,697		—		10/1/2026	2.35	%	—
Citi Lakes B-Note	9/24/2021	10,390		—		8/1/2029	3.85	%	—
Sorrel	9/24/2021	47,551		30,740		10/1/2028	2.54	%	—
Retreat at Greystone B-Note	10/21/2021	7,262		—		12/1/2024	3.47	%
Aldridge at Town Village B-Note	10/21/2021	3,664		—		11/1/2024	3.46	%
Vineyards	9/26/2014	—		32,703		—	—		—
Variable Rate
Summit Crossing II	6/30/2020	20,700		20,700		7/1/2030	L + 278		7/31/2022
Chestnut Farm	9/17/2021	51,800		—		6/17/2022	L + 150		6/17/2022


Total multifamily communities		$	1,625,745	$	1,392,735

Grocery-anchored shopping centers:
Fixed Rate
The Market at Salem Cove	10/6/2014	$	8,696	$	8,889	11/1/2024	4.21	%	—
Independence Square	8/27/2015	10,902		11,184		9/1/2022	3.93	%	—
Summit Point	10/30/2015	10,728		11,118		11/1/2022	3.57	%	—
The Overlook at Hamilton Place	12/22/2015	18,648		19,088		1/1/2026	4.19	%	—
Wade Green Village	4/7/2016	7,315		7,488		5/1/2026	4.00	%	—
East Gate Shopping Center	4/29/2016	4,952		5,118		5/1/2026	3.97	%	—
Fury's Ferry	4/29/2016	5,720		5,912		5/1/2026	3.97	%	—
Rosewood Shopping Center	4/29/2016	3,842		3,971		5/1/2026	3.97	%	—
Southgate Village	4/29/2016	6,830		7,059		5/1/2026	3.97	%	—
The Market at Victory Village	5/16/2016	8,582		8,751		9/11/2024	4.40	%	—
Lakeland Plaza	7/15/2016	25,771		26,632		8/1/2026	3.85	%	—
University Palms	8/8/2016	11,626		12,030		9/1/2026	3.45	%	—
Sandy Plains Exchange	8/8/2016	8,121		8,404		9/1/2026	3.45	%	—
Thompson Bridge Commons	8/8/2016	10,857		11,234		9/1/2026	3.45	%	—
Heritage Station	8/8/2016	8,036		8,315		9/1/2026	3.45	%	—
Oak Park Village	8/8/2016	8,292		8,580		9/1/2026	3.45	%	—
Shoppes of Parkland	8/8/2016	15,111		15,414		9/1/2023	4.67	%	—
Castleberry-Southard	4/21/2017	10,500		10,734		5/1/2027	3.99	%	—
Rockbridge Village	6/6/2017	13,011		13,310		7/5/2027	3.73	%	—
Irmo Station	7/26/2017	9,467		9,758		8/1/2030	3.94	%	—


Table continued from previous page		Principal balance as of							Interest only through date (1)
	Acquisition/ refinancing date	December 31, 2021		December 31, 2020		Maturity date	Interest rate
		(in thousands)
Maynard Crossing	8/25/2017	16,439		16,953		9/1/2032	3.74	%	—
Woodmont Village	9/8/2017	7,862		8,096		10/1/2027	4.13	%	—
West Town Market	9/22/2017	8,008		8,260		10/1/2025	3.65	%	—
Crossroads Market	12/5/2017	17,111		17,622		1/1/2030	3.95	%	—
Anderson Central	3/16/2018	10,940		11,246		4/1/2028	4.32	%	—
Greensboro Village	5/22/2018	7,820		8,040		6/1/2028	4.20	%	—
Governors Towne Square	5/22/2018	10,404		10,696		6/1/2028	4.20	%	—
Conway Plaza	6/29/2018	9,193		9,375		7/5/2028	4.29	%	—
Brawley Commons	7/6/2018	17,056		17,519		8/1/2028	4.36	%	—
Hollymead Town Center	12/21/2018	25,491		26,139		1/1/2029	4.64	%	—
Gayton Crossing	1/17/2019	16,855		17,276		2/1/2029	4.71	%	—
Royal Lakes Marketplace	4/12/2019	9,108		9,345		5/1/2029	4.29	%	—
Cherokee Plaza	4/12/2019	23,660		24,277		5/1/2027	4.28	%	—
Free State Shopping Center	5/28/2019	44,673		45,549		6/1/2029	3.99	%	—
Polo Grounds Mall	6/12/2019	12,735		12,986		7/1/2034	3.93	%	—
Disston Plaza	6/12/2019	17,238		17,578		7/1/2034	3.93	%	—
Powder Springs	8/13/2019	7,540		7,749		9/1/2029	3.65	%	(2)
Deltona Landings	8/16/2019	5,986		6,141		9/1/2029	4.18	%	—
Barclay Crossing	8/16/2019	5,933		6,086		9/1/2029	4.18	%	—
Parkway Centre	8/16/2019	4,312		4,423		9/1/2029	4.18	%	—
Parkway Town Centre	9/17/2019	7,657		7,866		10/1/2031	3.72	%	—
Spring Hill Plaza	9/17/2019	7,751		7,962		10/1/2031	3.72	%	—
Berry Town Center	11/14/2019	11,554		11,794		12/1/2034	3.49	%	—
Hanover Shopping Center	12/19/2019	30,402		31,217		12/19/2026	3.62	%	—
Wakefield Crossing	1/29/2020	7,525		7,728		2/1/2032	3.66	%	—
Midway Market	4/15/2021	9,991		—		5/1/2031	3.06	%	—
Woodstock Crossing	11/2/2021	5,300		2,818		12/1/2026	2.89	%	—
Fairview Market	12/8/2021	7,100		—		12/15/2028	2.87	%	12/15/2022
Champions Village	10/18/2016	—		27,400		—	—		—
Variable Rate
Fairfield Shopping Center	8/16/2019	19,750		19,750		8/16/2026	L + 205		8/16/2022

Total grocery-anchored shopping centers (3)		$	592,401	$	614,880


Table continued from previous page		Principal balance as of							Interest only through date (1)
	Acquisition/ refinancing date	December 31, 2021		December 31, 2020		Maturity date	Interest rate
		(in thousands)
Office buildings:
Three Ravinia	12/30/2016	$	115,500	$	115,500	1/1/2042	4.46	%	1/31/2022
Westridge at La Cantera	11/13/2017	49,006		50,449		12/10/2028	4.10	%	—
Brookwood Center	8/29/2016	—		29,925		—	—		—
Galleria 75	11/4/2016	—		5,131		—	—		—
Armour Yards	1/29/2018	—		39,425		—	—		—
150 Fayetteville	7/31/2018	—		113,768		—	—		—
Capitol Towers	12/20/2018	—		122,720		—	—		—
CAPTRUST Tower	7/25/2019	—		82,650		—	—		—
Morrocroft Centre	3/19/2020	—		70,000		—	—		—
251 Armour Yards	1/22/2020	—		3,522		—	—		—

Total office buildings		$	164,506	$	633,090
Grand total		2,382,652		2,640,705
Less: deferred loan costs		(35,400)		(42,233)
Less: below market debt adjustment		(3,888)		(4,008)
Mortgage notes, net		$	2,343,364	$	2,594,464

Footnotes to Mortgage Notes Table

(1) Following the indicated interest only period (where applicable), monthly payments of accrued interest and principal are based on a 25 to 35-year amortization period through the maturity date.

(2) The mortgage has interest-only payment terms for the periods of June 1, 2023 through May 1, 2024 and from June 1, 2028 through May 1, 2029.

(3) Excludes mortgage debt on the Neapolitan Way grocery-anchored shopping center, which is held in an unconsolidated joint venture.

Off-Balance Sheet Arrangements

As of December 31, 2021, we had 975,523 outstanding Warrants from our sales of Series A Preferred Stock Units. The Warrants are exercisable by the holder at an exercise price of 120% of the current market price per share of the Common Stock on the date of issuance of such Warrant, with a minimum exercise price of $19.50 per share for Warrants issued after February 15, 2017. The current market price per share is determined using the closing market price of the Common Stock immediately preceding the issuance of the Warrant. The Warrants are not exercisable until one year following the date of issuance and expire four years following the date of issuance. As of December 31, 2021, a total of 531,522 Warrants had been exercised into 10,630,440 shares of Common stock. The 975,523 Warrants outstanding at December 31, 2021 have exercise prices that range between $19.50 and $21.70 per share. If all the Warrants outstanding at December 31, 2021 became exercisable and were exercised, gross proceeds to us would be approximately $384.4 million and we would as a result issue an additional 19,510,460 shares of Common Stock.

Contractual Obligations

Please see note 11 to our Consolidated Financial Statements for details regarding our contractual obligations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is interest rate risk. All our floating-rate debt is tied to the 30-day LIBOR. As of December 31, 2021, we had variable rate mortgages on the properties listed in following table.


	Balance (in thousands)		Percentage of total mortgage indebtedness		LIBOR Cap		All-in Cap

Summit Crossing II	$	20,700			2.47	%	5.25	%
Total capped floating-rate debt	20,700		0.87	%

Fairfield Shopping Center	19,750				—		—
Chestnut Farm (1)	51,800				—		—
Total uncapped floating-rate debt	71,550		3.00	%

Total floating-rate debt	$	92,250	3.87	%

(1) On February 15, 2022, we refinanced our Chestnut Farm multifamily community with permanent mortgage financing in the amount of approximately $52.3 million, that bears interest at a rate of 3.25% and matures on March 1, 2032.

Our Revolving Line of Credit accrued interest at a spread of 3.0% over LIBOR as of December 31, 2021; this combined rate is uncapped. Because of the short term nature of the Revolving Line of Credit and Acquisition Credit Facility instruments, we believe our interest rate risk is minimal.

We have and will continue to manage interest rate risk as follows:

•maintain a reasonable ratio of fixed-rate, long-term debt to total debt so that floating-rate exposure is kept at an acceptable level;

•place interest rate caps on floating-rate debt where appropriate; and

•take advantage of favorable market conditions for long-term debt and/or equity financings.

We use various financial models and advisors to achieve our objectives.

If interest rates under our floating-rate LIBOR-based indebtedness fluctuated by 100 basis points, our interest costs, based on outstanding borrowings at December 31, 2021, would increase by approximately $0.7 million or decrease by approximately $0.1 million on an annualized basis.

Item 8. Financial Statements and Supplementary Data


The following documents are located in Part IV, Item 15 of this Annual Report on Form 10-K:

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019

Notes to Consolidated Financial Statements

Schedule III- Real Estate Investments and Accumulated Depreciation as of December 31, 2021 with reconciliations for the years ended December 31, 2021, 2020 and 2019

Schedule IV- Mortgage Loans on Real Estate as of December 31, 2021

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Management's Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company's board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or the board of directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

Management of the Company assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria described in Internal Control - Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded the Company’s internal control over financial reporting was effective as of December 31, 2021.

The effectiveness of the Company��s internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report included in this Annual Report on Form 10-K.

Evaluation of disclosure controls and procedures.

Management of the Company evaluated, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15(e)) as of December 31, 2021, the end of the period covered by this report. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in internal control over financial reporting.

As required by the Exchange Act Rule 13a-15(d), the Company's Chief Executive Officer and Chief Financial Officer evaluated the Company's internal control over financial reporting to determine whether any change occurred during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Based on that evaluation, there has been no such change during such period.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information required by this item is incorporated into this Annual Report on Form 10-K by reference to our 2022 Proxy Statement, or to an amendment to this Annual Report on Form 10-K, either of which will be filed within 120 days after our fiscal year ended December 31, 2021.

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions and Director Independence

Item 14. Principal Accounting Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this report:

(1) Financial Statements:

Report of Independent Registered Public Accounting Firm (PCAOB number 238)

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Equity for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019

Notes to Consolidated Financial Statements

(2) Financial Statement Schedules:

Schedule III – Real Estate and Accumulated Depreciation

Schedule IV – Mortgage Loans on Real Estate

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Preferred Apartment Communities, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Preferred Apartment Communities, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on certain financial instruments in 2020.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Expected Credit Loss on Real Estate Loan Investments

As described in Notes 2 and 4 to the consolidated financial statements, the Company’s allowance for expected credit loss is recognized based on total expected future credit losses for its real estate loan investments. The Company’s allowance for expected credit loss was $8.1 million on total real estate loan investments, net of $196.4 million as of December 31, 2021. The allowance for expected credit loss on real estate loan investments is established based on the protection afforded to the Company for each loan in which the Company is the lender, which is estimated by management to be the excess of the future estimated fair market value of the developed property over the total of (i) the developer’s related obligations, (ii) other loans senior to the Company's, (iii) the expected future balance of accrued interest and (iv) any other obligations related to the project’s funding. As disclosed by management, arriving at the future estimated fair market value of the developed property requires management to make significant assumptions and judgments concerning each project, especially regarding estimates of future market capitalization rates and property net operating income projections. The excess is expressed as a percentage of the developed property’s future estimated fair market value, defined as a loss reserve ratio, which is then pooled into ranges of loss percentages derived from company-specific loss experience. The product of the loss reserve ratio and the expected fully funded balance is the initial total expected credit loss reserve, which is reevaluated over the life of the loan based on the achievement of certain construction and lease-up milestones as the project approaches completion and the loan approaches maturity. Loss reserves may also be further refined based on subjective qualitative factors.

The principal considerations for our determination that performing procedures relating to the allowance for expected credit loss on real estate loan investments is a critical audit matter are (i) the significant judgment by management in determining the future estimated fair market value of the developed property, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence relating to these fair market value estimates, and (ii) the significant audit effort in evaluating the future market capitalization rates and property net operating income projections.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s process for estimating the allowance for expected credit loss on real estate loan investments, including controls over the development of future market capitalization rates and property net operating income projections. These procedures also included, among others, testing management’s process for estimating the allowance for expected credit loss on real estate loan investments by (i) evaluating the appropriateness of management’s methodology for estimating the allowance for expected credit loss and determining the future estimated fair market value of the developed property; (ii) testing the data used in the estimate; and (iii) for a sample of real estate loan investments, evaluating the reasonableness of the future market capitalization rates and property net operating income projections used in the estimate. Evaluating the future market capitalization rates and property net operating income projections involved evaluating whether they were reasonable considering real estate market forecasts and the performance of management’s existing comparable operating properties, as well as whether they were consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

Atlanta, Georgia

February 28, 2022

We have served as the Company’s auditor since 2010.


Preferred Apartment Communities, Inc.
Consolidated Balance Sheets

(In thousands, except per-share par values)	December 31, 2021		December 31, 2020
Assets
Real estate
Land	$	551,378	$	605,282
Building and improvements	2,671,535		3,034,727
Tenant improvements	119,331		184,288
Furniture, fixtures, and equipment	359,743		306,725
Construction in progress	5,151		12,269
Gross real estate	3,707,138		4,143,291
Less: accumulated depreciation	(578,496)		(509,547)
Net real estate	3,128,642		3,633,744
Real estate loan investments, net of deferred fee income and allowance for expected credit loss of $9,850 and $10,261	196,420		279,895
Total real estate and real estate loan investments, net	3,325,062		3,913,639

Cash and cash equivalents	30,205		28,657
Restricted cash	32,675		47,059
Note receivable and revolving line of credit (including $9,011 and $9,011 from related party)	9,011		10,874
Accrued interest receivable on real estate loans	17,038		22,528
Acquired intangible assets, net of amortization of $166,214 and $169,718	59,622		127,138
Tenant lease inducements, net of amortization of $7,113 and $5,350	16,420		18,206
Investment in unconsolidated joint venture	5,992		6,657
Tenant receivables and other assets	67,343		106,321

Total assets	$	3,563,368	$	4,281,079

Liabilities and equity
Liabilities
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $39,288 and $46,241	$	2,343,364	$	2,594,464
Revolving line of credit	—		22,000
Deferred revenue	35,523		36,733
Accounts payable and accrued expenses	36,517		41,912
Deferred liability to Former Manager	24,037		23,335
Contingent liability due to Former Manager	14,631		14,814
Accrued interest payable	7,086		7,877
Dividends and partnership distributions payable	19,912		20,137
Acquired below market lease intangibles, net of amortization of $36,314 and $34,006	34,585		51,934
Prepaid rent, security deposits, and other liabilities	25,679		29,425
Total liabilities	2,541,334		2,842,631

Commitments and contingencies (Note 11)

Equity
Stockholders' equity
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 shares
issued; 1,321 and 1,735 shares outstanding at December 31, 2021 and December 31, 2020, respectively	13		17
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 247 and 149 shares
issued; 246 and 149 shares outstanding at December 31, 2021 and December 31, 2020, respectively	2		1
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued;
84 and 89 shares outstanding at December 31, 2021 and December 31, 2020, respectively	1		1
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 43 and 19 shares
issued; 41 and 19 shares outstanding at December 31, 2021 and December 31, 2020, respectively	—		—
Common Stock, $0.01 par value per share; 400,067 shares authorized; 52,975 and 49,994 shares issued and
outstanding at December 31, 2021 and December 31, 2020, respectively	530		500
Additional paid-in capital	1,195,775		1,631,646
Accumulated (deficit) earnings	(172,000)		(192,446)
Total stockholders' equity	1,024,321		1,439,719
Non-controlling interest	(2,287)		(1,271)
Total equity	1,022,034		1,438,448

Total liabilities and equity	$	3,563,368	$	4,281,079

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


Preferred Apartment Communities, Inc.
Consolidated Statements of Operations

(In thousands, except per-share figures)	Year ended December 31,
	2021		2020		2019
Revenues:
Rental and other property revenues	$	404,581	$	445,815	$	406,916
Interest income on loans and notes receivable	43,819		46,610		49,542
Interest income from related parties	1,644		4,235		11,946
Miscellaneous revenues	1,098		4,525		2,023
Total revenues	451,142		501,185		470,427

Operating expenses:
Property operating and maintenance	61,517		69,992		59,906
Property salary and benefits (including reimbursements of $0, $1,430 and $18,054 to related party)	19,451		22,377		20,693
Property management costs (including $0, $894 and $10,307 to related party)	3,463		4,989		13,981
Real estate taxes and insurance	60,727		63,820		58,018
General and administrative	29,144		28,534		4,525
Equity compensation to directors and executives	3,289		1,644		1,223
Depreciation and amortization	169,193		201,677		185,065
Asset management and general and administrative expense fees to related party	—		3,099		33,516
Allowance for expected credit losses	874		6,103		2,038
Management Internalization expense	970		180,116		2,988
Total operating expenses	348,628		582,351		381,953

Waived asset management and general and administrative expense fees	—		(1,136)		(11,764)

Net operating expenses	348,628		581,215		370,189

Operating income (loss) before gains on sales of real estate and loss from unconsolidated joint venture	102,514		(80,030)		100,238
Loss from unconsolidated joint ventures	(665)		(314)		—
Gains on sale of real estate, net	21,109		23,456		—
Gains on sales of mortgage-backed securities, net	—		—		1,567
Operating income (loss)	122,958		(56,888)		101,805
Interest expense	102,414		118,558		111,964
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools	—		—		1,831
Loss on extinguishments of debt	—		(6,674)		(84)
Gain (loss) on sale of real estate loan investment and land, net	(12)		517		954

Net (loss) income	20,532		(181,603)		(7,458)
Net loss (income) attributable to non-controlling interests	(86)		3,815		214

Net (loss) income attributable to the Company	20,446		(177,788)		(7,244)

Dividends declared to preferred stockholders	(153,418)		(160,908)		(113,772)
Dividends to holders of unvested restricted stock	(514)		(205)		(17)

Net loss attributable to common stockholders	$	(133,486)	$	(338,901)	$	(121,033)

Net loss per share of Common Stock available to common stockholders, basic and diluted	$	(2.59)	$	(6.95)	$	(2.73)

Weighted average number of shares of Common Stock outstanding, basic and diluted	51,499		48,743		44,265

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


Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity, continued
For the years ended December 31, 2021, 2020 and 2019

(In thousands)	Redeemable Preferred Stock		Common Stock		Additional-Paid in Capital		Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total Equity


Balance at January 1, 2021	$	19	$	500	$	1,631,646	$	(192,446)	$	1,439,719	$	(1,271)	$	1,438,448
Issuance of Preferred Stock	1		—		122,107		—		122,108		—		122,108
Redemptions of Preferred Stock	(4)		—		(380,067)		—		(380,071)		—		(380,071)
At-the-market issuance of Common Stock	—		27		28,558		—		28,585		—		28,585
Syndication and offering costs	—		—		(17,602)		—		(17,602)		—		(17,602)
Equity compensation to executives and directors	—		—		3,167		—		3,167		—		3,167
Vesting of restricted stock	—		1		(1)		—		—		—		—
Conversion of Class A Units to Common Stock	—		2		1,666		—		1,668		(1,668)		—
Net income	—		—		—		20,446		20,446		86		20,532
Reallocation of non-controlling interest to Class A Unitholders	—		—		(3,138)		—		(3,138)		3,138		—
Distributions to non-controlling interests	—		—		—		—		—		(2,215)		(2,215)
Distributions to Class A Unitholders	—		—		—		—		—		(357)		(357)
Dividends to preferred stockholders (see note 7)	—		—		(153,418)		—		(153,418)		—		(153,418)
Dividends to common stockholders (see note 7)	—		—		(37,143)		—		(37,143)		—		(37,143)
Balance at December 31, 2021	$	16	$	530	$	1,195,775	$	(172,000)	$	1,024,321	$	(2,287)	$	1,022,034

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


Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity, continued
For the years ended December 31, 2021, 2020 and 2019

(In thousands)	Redeemable Preferred Stock		Common Stock		Additional-Paid in Capital		Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total Equity


Balance at January 1, 2020	$	21	$	464	$	1,938,057	$	(7,244)	$	1,931,298	$	2,818	$	1,934,116
Cumulative adjustment to reflect the adoption of ASU 2016-13	—		—		—		(7,414)		(7,414)		—		(7,414)
Issuance of Preferred Stock	3		—		227,627		—		227,630		—		227,630
Redemptions of Preferred Stock	(5)		28		(314,290)		—		(314,267)		—		(314,267)
At-the-market issuance of Common Stock	—		6		4,608		—		4,614		—		4,614
Exercises of warrants	—		—		8		—		8		—		8
Syndication and offering costs	—		—		(25,935)		—		(25,935)		—		(25,935)
Equity compensation to executives and directors	—		—		1,397		—		1,397		—		1,397
Conversion of Class A Units to Common Stock	—		2		2,236		—		2,238		(2,238)		—
Current period amortization of Class B Units	—		—		—		—		—		247		247
Net loss	—		—		—		(177,788)		(177,788)		(3,815)		(181,603)
Contributions from non-controlling interests	—		—		—		—		—		186		186
Reallocation of non-controlling interest to Class A Unitholders	—		—		(2,286)		—		(2,286)		2,286		—
Distributions to non-controlling interests	—		—		—		—		—		(161)		(161)
Distributions to Class A Unitholders	—		—		—		—		—		(594)		(594)
Dividends to preferred stockholders (see note 7)	—		—		(160,908)		—		(160,908)		—		(160,908)
Dividends to common stockholders (see note 7)	—		—		(38,868)		—		(38,868)		—		(38,868)
Balance at December 31, 2020	$	19	$	500	$	1,631,646	$	(192,446)	$	1,439,719	$	(1,271)	$	1,438,448

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


Preferred Apartment Communities, Inc.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2021, 2020 and 2019

(In thousands)	Redeemable Preferred Stock		Common Stock		Additional-Paid in Capital		Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total Equity

Balance at January 1, 2019	$	16	$	418	$	1,607,712	$	—	$	1,608,146	$	1,239	$	1,609,385
Issuance of Preferred Stock	6		—		548,632		—		548,638		—		548,638
Redemptions of Preferred Stock	(1)		36		(12,140)		—		(12,105)		—		(12,105)
Exercise of warrants	—		9		11,486		—		11,495		—		11,495
Syndication and offering costs	—		—		(60,165)		—		(60,165)		—		(60,165)
Equity compensation to executives and directors	—		—		632		—		632		—		632
Conversion of Class A Units to Common Stock	—		1		676		—		677		(677)		—
Current period amortization of Class B Units	—		—		—		—		—		591		591
Net loss	—		—		—		(7,244)		(7,244)		(214)		(7,458)
Contributions from non-controlling interests	—		—		—		—		—		4,538		4,538
Reallocation of non-controlling interest to Class A Unitholders	—		—		1,751		—		1,751		(1,751)		—
Distributions to Class A Unitholders	—		—		—		—		—		(908)		(908)
Dividends to preferred stockholders (see note 7)	—		—		(113,772)		—		(113,772)		—		(113,772)
Dividends to common stockholders (see note 7)	—		—		(46,755)		—		(46,755)		—		(46,755)
Balance at December 31, 2019	$	21	$	464	$	1,938,057	$	(7,244)	$	1,931,298	$	2,818	$	1,934,116

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


Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows

(In thousands)	Years Ended December 31,
	2021		2020		2019
Operating activities:
Net income (loss)	$	20,532	$	(181,603)	$	(7,458)
Reconciliation of net (loss) income to net cash provided by operating activities:
Depreciation and amortization expense	169,193		201,677		185,065
Amortization of above and below market leases	(5,706)		(8,021)		(5,765)
Amortization of deferred revenues and other non-cash revenues	(5,660)		(5,059)		(6,274)
Amortization of purchase option termination fee	(9,712)		(6,536)		(9,111)
Amortization of equity compensation, lease incentives, and other non-cash expenses	5,914		4,267		3,220
Deferred loan cost amortization	6,461		6,855		6,450
Non-cash accrued interest income on real estate loan investments	(9,769)		(12,372)		(13,828)
Receipt of accrued interest income on real estate loan investments	15,258		14,391		8,063
Gains on the sales of real estate, net	(21,109)		(23,456)		—
Gains on the sales of land and other, net	12		(517)		(2,521)
Loss from unconsolidated joint ventures	665		314		—
Cash received for purchase option terminations	12,489		7,000		3,591
Loss on extinguishment of debt	—		6,674		84
Non-cash settlement of related party line of credit from Internalization	—		20,864		—
Non-cash payment of interest on related party line of credit	—		—		(637)
Mortgage interest received from consolidated VIEs	—		—		18,750
Mortgage interest paid to other participants of consolidated VIEs	—		—		(18,750)
Increase in allowance for expected credit losses	672		6,103		2,038
Changes in operating assets and liabilities:
(Increase) in tenant receivables and other assets	(5,432)		(24,819)		(21,209)
Increase in accounts payable and accrued expenses	3,208		7,084		1,518
Increase in deferred liability to Former Manager	—		22,851		—
Increase in contingent liability	—		15,000		—
(Increase) decrease in accrued interest, prepaid rents and other liabilities	5,026		(2,805)		2,405
Net cash provided by operating activities	182,042		47,892		145,631

Investing activities:
Investments in real estate loans, net of origination fees received	(66,562)		(58,519)		(97,636)
Repayments of real estate loans	140,094		115,726		54,384
Notes receivable repaid (issued)	1,863		15,249		(2,602)
Related party notes and line of credit repaid (issued)	—		(5,078)		(5,219)
Proceeds from sale of real estate loan investment, net of transaction costs	12,706		3,898		747
Mortgage principal received via consolidated VIE	—		—		6,570
Purchases of mortgage backed securities, net of acquisition costs	—		—		(30,841)
Sales of mortgage backed securities, net of transaction costs	—		—		79,558
Acquisition of properties	(335,252)		(322,027)		(619,236)
Disposition of properties and proceeds from land sales, net	354,241		516,264		643
Investment into property development	(2,742)		(50)		(100)
Capital improvements to real estate assets	(30,313)		(52,809)		(48,071)
Proceeds from sale of interest in a joint venture	—		19,221		—
Return of capital from investment in unconsolidated joint venture	—		12,250		—
Receipt of insurance proceeds for capital improvements	—		—		746
Net cash provided by (used in) investing activities	74,035		244,125		(661,057)

Financing activities:
Proceeds from mortgage notes	309,839		469,184		405,430
Repayment of mortgage notes	(113,083)		(438,308)		(176,903)
Payments for deposits and other mortgage loan costs	(5,859)		(12,140)		(8,705)
Payments for debt prepayment and other debt extinguishment costs	—		(5,733)		—
Payments to real estate loan participants	—		—		(5,223)






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


Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continued

(In thousands)	Years Ended December 31,
	2021		2020		2019
Proceeds from Revolving Line of Credit	293,000		442,000		265,200
Payments on Revolving Line of Credit	(315,000)		(420,000)		(322,200)
Proceeds from (repayment of) Term Notes	—		(70,000)		70,000
Mortgage principal paid to other participants of consolidated VIEs	—		—		(6,570)
Proceeds from repurchase agreements	—		—		4,857
Repayments of repurchase agreements	—		—		(4,857)
Proceeds from the sales of Preferred Stock, net of offering costs	110,991		206,381		501,076
Proceeds from sale of Common Stock and warrants	28,154		4,546		11,659
Payments for redemptions of Preferred Stock	(379,997)		(314,154)		(12,124)
Common Stock dividends paid	(36,282)		(42,100)		(45,439)
Preferred Stock dividends and Class A Unit distributions paid	(154,904)		(161,746)		(111,738)
Payments for deferred offering costs	(3,557)		(11,509)		(4,013)
Distributions to non-controlling interests	(2,215)		(161)		—
Contributions from non-controlling interests	—		186		4,539

Net cash (used) provided by financing activities	(268,913)		(353,554)		564,989

Net (decrease) increase in cash, cash equivalents and restricted cash	(12,836)		(61,537)		49,563
Cash, cash equivalents and restricted cash, beginning of year	75,716		137,253		87,690
Cash, cash equivalents and restricted cash, end of period	$	62,880	$	75,716	$	137,253


Supplemental cash flow information:
Cash paid for interest	$	96,118	$	111,076	$	103,298

Supplemental disclosure of non-cash investing and financing activities:
Accrued capital expenditures	$	4,766	$	5,189	$	4,816
Writeoff of fully depreciated or amortized assets and liabilities	3,643		2,724		261
Writeoff of fully amortized deferred loan costs	4,068		2,828		1,919
Consolidation of assets of VIEs	—		—		270,669
Consolidation of liabilities of VIEs	—		—		270,670
Deconsolidation of assets of VIEs	—		—		578,707
Deconsolidation of liabilities of VIEs	—		—		578,707
Dividends payable - Common Stock	9,785		8,924		12,156
Dividends payable - Preferred Stock	10,127		11,213		11,363
Accrued and payable deferred offering costs	—		98		3,836
Reclass of offering costs from deferred asset to equity	6,107		4,671		12,551
Loan receivables converted to equity for property acquisition	—		—		47,797
Fair value issuances of equity compensation	6,686		6,461		719
Mortgage loans assumed on acquisitions	—		—		41,550
Noncash repayment of mortgages through refinancings	78,181		86,669		65,607
Operating lease liabilities assumed from Former Manager	—		15,912		—
Noncash extinguishment of notes receivable	—		20,865		—
Noncash contribution of property into an unconsolidated joint venture	—		38,443		—
Mortgages assumed by purchaser of property	454,808		—		—

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

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements

December 31, 2021

1. Organization and Basis of Presentation

Preferred Apartment Communities, Inc., or the Company, (NYSE: APTS) is a real estate investment trust ("REIT") 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 December 31, 2021, the Company owned or was invested in 109 properties in 13 states, predominantly in the Southeast region of the United States. Preferred Apartment Communities, Inc. has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with its tax year ended December 31, 2011. The Company was externally managed and advised by Preferred Apartment Advisors, LLC, or its Former Manager, a Delaware limited liability company and related party until January 31, 2020 (see Note 6).

As of December 31, 2021, the Company had 52,974,760 shares of common stock, par value $0.01 per share, or Common Stock, issued and outstanding and was the approximate 99.1% owner of the Preferred Apartment Communities Operating Partnership, L.P., the Company's operating partnership, at that date. The number of partnership units not owned by the Company totaled 467,662 at December 31, 2021 and represented Class A OP Units of the Operating Partnership, or Class A OP Units. The Class A OP Units are convertible at any time at the option of the holder into the Operating Partnership's choice of either cash or Common Stock. In the case of cash, the value is determined based upon the trailing 20-day volume weighted average price of the Company's Common Stock.

The Company controls the Operating Partnership through its sole general partner interest and conducts substantially all of its business through the Operating Partnership until January 31, 2020. Beginning February 1, 2020, the Company conducts substantially all of its business through PAC Operations, LLC, or Carveout, a wholly-owned subsidiary of the Operating Partnership. Carveout has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with its tax year ended December 31, 2020. The Company has determined the Operating Partnership is a variable interest entity, or VIE, of which the Company is the primary beneficiary. The Company is involved with other VIEs as discussed in Note 4. New Market Properties, LLC owns and conducts the business of our portfolio of grocery-anchored shopping centers. Preferred Office Properties, LLC owns and conducts the business of our portfolio of office buildings. Preferred Campus Communities, LLC owned and conducted the business of our portfolio of off-campus student housing communities until the sale of all our student housing communities on November 3, 2020. Each of these entities are or were indirect wholly-owned subsidiaries of the Operating Partnership.

See Note 16 for details surrounding the pending acquisition of the Company by Blackstone Real Estate Income Trust, Inc.

Basis of Presentation

These consolidated financial statements include all of the accounts of the Company and the Operating Partnership presented in accordance with accounting principles generally accepted in the United States of America, or GAAP. All significant intercompany transactions have been eliminated in consolidation. Certain adjustments have been made consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of the Company's financial condition and results of operations. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Amounts are presented in thousands where indicated.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements

December 31, 2021

Reclassification Adjustments

The Company recorded certain reclassification adjustments on its Condensed Consolidated Statement of Operations for the years ended December 31, 2020 and 2019, to conform prior period presentation to the current presentation reflective of the internalized structure as shown in the table below. None of these reclassification adjustments were due to error or misstatement.


	For the twelve-month period ended December 31, 2019
(in thousands)	As reported in Annual Report on Form 10-K at December 31, 2019		Reclassification adjustments		As reported in Annual Report on Form 10-K at December 31, 2021

Rental revenues	$	395,121	$	11,795	$	406,916
Other property revenues	$	11,795	$	(11,795)	$	—

Operating expenses:
Property operating and maintenance	$	52,911	$	6,995	$	59,906
Real estate taxes	$	50,298	$	(50,298)	$	—
Real estate taxes and insurance	$	—	$	58,018	$	58,018
General and administrative	$	8,541	$	(4,016)	$	4,525
Insurance, professional fees and other expenses	$	13,687	$	(13,687)	$	—
Management internalization expense	$	—	$	2,988	$	2,988


	For the twelve-month period ended December 31, 2020
(in thousands)	As reported in Annual Report on Form 10-K at December 31, 2020		Reclassification adjustments		As reported in Annual Report on Form 10-K at December 31, 2021

Miscellaneous Revenues	$	5,537	$	(1,012)	$	4,525

Operating expenses:
Property operating and maintenance	$	69,255	$	737	$	69,992
Real estate taxes and insurance	$	63,294	$	526	$	63,820
General and administrative	$	30,809	$	(2,275)	$	28,534

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

2.Summary of Significant Accounting Policies

Acquisitions and Impairments of Real Estate Assets

When the Company acquires a property, it allocates the aggregate purchase price to tangible assets, consisting of land, building, site improvements and furniture, fixtures and equipment, and identifiable intangible assets, consisting of the value of in-place leases and above-market and below-market leases as described further below, using estimated fair values of each component at the time of purchase. The Company follows the guidance as outlined in ASC 805-10, Business Combinations, as amended by ASU 2017-01. As described below in the section entitled New Accounting Pronouncements, Accounting Standards Update 2017-01 was adopted by the Company effective January 1, 2017, which changed the definition of a business. Under this new guidance, most property acquisitions made by the Company will fall within the category of acquired assets rather than acquired businesses. This distinction will cause the Company to capitalize its costs for acquisitions (including, effective July 1, 2017, a 1% acquisition fee), allocate them to the fair value of acquired assets and liabilities and amortize these costs over the remaining useful lives of those assets and liabilities. Should the Company complete any acquisitions in the future which qualify as acquisitions of businesses, associated acquisition costs would be expensed as incurred.

Tangible assets

The fair values of land acquired is calculated under the highest and best use model, using formal appraisals and comparable land sales, among other inputs. Building value is determined by valuing the property on a “go-dark” basis as if it were vacant, and also using a replacement cost approach, which two results are then reconciled. Site improvements are valued using replacement cost. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. The values of furniture, fixtures, and equipment are estimated by calculating their replacement cost and reducing that value by factors based upon estimates of their remaining useful lives.

Identifiable intangible assets

In-place leases

Multifamily communities

The fair value of in-place leases are estimated by calculating the estimated time to fill a hypothetically empty apartment complex to its stabilization level (estimated to be 93% occupancy) based on historical observed move-in rates for each property, and which approximate market rates. Carrying costs during these hypothetical expected lease-up periods are estimated, considering current market conditions and include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates. The intangible assets are calculated by estimating the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. The acquired in-place lease values are amortized over the average remaining non-cancelable term of the respective in-place leases in the depreciation and amortization line of the statements of operations.

Grocery-anchored shopping centers and office properties

The fair value of in-place leases represent the value of direct costs associated with leasing, including opportunity costs associated with lost rentals that are avoided by acquiring in-place leases. Direct costs associated with obtaining a new tenant include commissions, legal and marketing costs, incentives such as tenant improvement allowances and other direct costs. Such direct costs are estimated based on our consideration of current market costs to execute a similar lease. The value of opportunity costs is calculated using the estimated market lease rates and the estimated absorption period of the space. These direct costs and opportunity costs are included in the accompanying consolidated balance sheets as acquired intangible assets and are amortized over the remaining term of the respective leases in the depreciation and amortization line of the statements of operations.

Above-market and below-market lease values

Multifamily communities

These values are usually not significant or are not applicable for these properties.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Grocery-anchored shopping centers and office properties

The values of above-market and below-market leases are developed by comparing the Company's estimate of the average market rents and expense reimbursements to the average contract rent at the property acquisition date. The amount by which contract rent and expense reimbursements exceed estimated market rent are summed for each individual lease and discounted for a singular aggregate above-market lease intangible asset for the property. The amount by which estimated market rent exceeds contract rent and expense reimbursements are summed for each individual lease and discounted for a singular aggregate below-market lease intangible liability. The above-market or below-market lease values are recorded as a reduction or increase, respectively, to rental revenue over the remaining noncancellable term of the respective leases, plus any below-market probable renewal options.

Impairment Assessment

The Company evaluates its tangible and identifiable intangible real estate assets for impairment when events such as declines in a property’s operating performance, deteriorating market conditions, or environmental or legal concerns bring recoverability of the carrying value of one or more assets into question. When qualitative factors indicate the possibility of impairment, the total undiscounted cash flows of the property, including proceeds from disposition, are compared to the net book value of the property. If this test indicates that impairment exists, an impairment loss is recorded in earnings equal to the shortage of the book value to fair value, calculated as the discounted net cash flows of the property.

Real Estate Loan Investments

The Company carries its investments in real estate loans at amortized cost with assessments made for expected loan loss allowances in the event recoverability of the principal amount becomes doubtful. The balances of real estate loans presented on the consolidated balance sheets consist of drawn amounts on the loans, net of unamortized deferred loan origination fees and current expected credit losses.

Interest income on real estate loans and notes receivable is recognized on an accrual basis over the lives of the loans or notes. In the event that a loan or note is refinanced with the proceeds of another loan issued by the Company, any unamortized loan fee revenue from the first loan will be recognized as interest revenue at the date of refinancing. Loan origination fees applicable to real estate loans are amortized over the lives of the loans as adjustments to interest income using the effective interest rate method. When there is concern as to the ultimate collection of principal or interest, the Company either ceases the accrual of interest, or records allowances as necessary. Certain real estate loan assets include limited purchase options or additional amounts of accrued interest. Additional accrued interest becomes due in cash to the Company on the earliest to occur of: (i) the maturity of the loan, (ii) any uncured event of default as defined in the associated loan agreement, (iii) the sale of the project or the refinancing of the loan (other than a refinancing loan by the Company or one of its affiliates) and (iv) any other repayment of the loan.

On January 1, 2020, the Company adopted ASU 2016-13, that replaced the incurred loss model with an expected loss model for instruments measured at amortized cost, and requires entities to record credit allowances for total expected future losses on financial assets at the outset of each loan. For each loan in which the Company is the lender, the amount of protection afforded to the Company is estimated to be the excess of the future estimated fair market value of the developed property over the developer’s related obligations (including the Company’s mezzanine or member loan(s)), other loans senior to the Company's, the expected future balance of accrued interest and any other obligations related to the project’s funding. The excess represents the amount of equity dollars in each real estate project plus profit expected to be realized by the developer on the project, both of which are in a subordinate position to the Company's real estate loan investments. This numeric result is expressed as a percentage of the developed property's future estimated fair market value (a "loss reserve ratio"), which is then pooled into ranges of loss percentages that was derived from company-specific loss experience. The product of this indicated loss reserve ratio and the expected fully-funded balance (inclusive of an expected future balance of accrued interest) is the initial total expected credit loss reserve. Over the life of the loan, the initial reserve is reevaluated for potential reduction at the achievement of certain milestones in construction and lease-up progress as the project approaches completion and the loan approaches maturity, given no unforeseen degradation in project performance or failure to adhere to the terms of the loan by the borrower/developer. Finally, the loss reserve may be further refined by the Company due to any subjective qualitative factors deemed pertinent and worthy of reflection. Reserves for current expected credit losses are written off when the instrument is deemed to be uncollectible.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The Company's real estate loan investments are collateralized by real estate development projects and secured further by guaranties of repayment from one or more of the borrowers. The Company's lines of credit receivable are typically only collateralized by personal guaranties, but occasionally may be cross-collateralized by interests in other real estate projects. As a result, the Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, as well as the financial and operating capability of the borrower. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan, and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the overall economic environment, real estate sector, and geographic submarket in which the borrower operates are considered. Such analyses are completed and reviewed by management, utilizing various data sources, including periodic financial data such as property operating statements, occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, capitalization and discount rates and site inspections, the results of which are included within the Company's expected loss model.

See the Revenue Recognition section of this Note for other loan-related policy disclosures.

Deferred Leasing Costs

Costs incurred to obtain tenant leases are amortized using the straight-line method over the term of the related lease agreement. Such costs include lease incentives, leasing commissions and legal costs. If the lease is terminated early, the remaining unamortized deferred leasing cost is written off.

Variable Interest Entities

A variable interest entity, or “VIE” is an entity that lacks sufficient equity to finance its activities without additional subordinated financial support from other parties, or whose equity holders lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is defined as the party who has a controlling financial interest in the VIE through the (a) power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and (b) obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. The Company assesses whether it meets the power and benefits criteria and in performing this analysis, the Company considers both qualitative and quantitative factors, including the Company’s ability to control or significantly influence key decisions of the VIE and the obligation or likelihood for the Company to fund operating losses of the VIE. The determination of whether an entity is a VIE, and whether the Company is the primary beneficiary, may involve significant judgment, including the determination of which activities most significantly affect the entities’ performance, and estimates about the current and future fair values and performance of assets held by the VIE. If the Company determines that it meets both the power and benefits criteria of the VIE, the Company is deemed to be the primary beneficiary of the VIE and the Company consolidates the entire VIE entity in its consolidated financial statements.

Purchase Option Terminations

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

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Restricted cash includes cash restricted by state law or contractual requirement and relates primarily to real estate tax and insurance escrows, capital improvement reserves and resident security deposits.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Fair Value Measurements

Certain assets and liabilities are required to be carried at fair value, or if they are deemed impaired, to be adjusted to reflect this condition. The Company follows the guidance provided by ASC 820, Fair Value Measurements and Disclosures, in accounting and reporting for real estate assets where appropriate, as well as debt instruments both held for investment and as liabilities. The standard requires disclosure of fair values calculated utilizing each of the following input type within the following hierarchy:

• Level 1 – Quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.

• Level 3 – Unobservable inputs for the asset or liability.

Deferred Loan Costs

Deferred loan costs are amortized using the effective interest rate method, over the terms of the related indebtedness.

Non-controlling Interest

Non-controlling interest represents the equity interest of the Operating Partnership that is not owned by the Company, as well as the equity interests held by our joint venture partners. Non-controlling interest is adjusted for contributions, distributions and earnings or loss attributable to the non-controlling interest in the consolidated entity in accordance with the Agreement of Limited Partnership of the Operating Partnership, as amended, or in accordance with the respective joint venture agreement.

Redeemable Preferred Stock

Shares of the Series A Redeemable Preferred Stock, stated value $1,000 per share, or Series A Preferred Stock, Series A1 Redeemable Preferred Stock, stated value $1,000 per share, or Series A1 Preferred Stock, Series M Redeemable Preferred Stock, stated value $1,000 per share, or mShares, and Series M1 Redeemable Preferred Stock, stated value $1,000 per share, or Series M1 Preferred Stock (collectively, Preferred Stock), are redeemable at the option of the holder, subject to a declining redemption fee schedule. Voluntary redemptions by the holder are outside the control of the Company. However, the Company retains the right to fund any redemptions of any of its shares of Preferred Stock in either Common Stock or cash at its option. Therefore, the Company records all its Preferred Stock as components of permanent stockholders’ equity.

In the event of a call by the Company of outstanding shares of its Preferred Stock, the Company records the difference between the consideration paid to the holder of the Preferred Stock and the carrying value of the shares on the Company's consolidated balance sheets as a deemed dividend that is subtracted from net income to arrive at income available to common stockholders in the calculation of earnings per share.

Deferred Offering Costs

Deferred offering costs represent direct costs incurred by the Company related to current equity offerings, excluding costs specifically identifiable to a closing, such as commissions, dealer-manager fees, and other registration fees. For issuances of equity that occur on one specific date, associated offering costs are reclassified as a reduction of proceeds raised on the date of issue. The Company's offerings of Preferred Stock generally close on a bimonthly basis in variable amounts. Deferred offering costs related to the Preferred Stock offerings are reclassified to the stockholders’ equity section of the consolidated balance sheet as a reduction of proceeds raised on a pro-rata basis equal to the ratio of total shares or value of shares issued to the maximum number of shares or the value of shares, as applicable, that are expected to be issued.

Revenue Recognition

Multifamily communities

Rental revenue is recognized when earned from residents of the Company's multifamily communities, which is over the terms of the rental agreements, typically a duration of thirteen months or less. The Company evaluates the collectability of amounts due from residents and recognizes revenue from residents when collectability is deemed probable, in accordance with ASC 842-30-25-12.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The Company evaluated the various ancillary revenues within its multifamily leases, including resident utility reimbursements. Having met the criteria that (i) the timing and pattern of transfer for the lease component and associated non-lease components are the same and (ii) that the lease component, if accounted for separately would be classified as an operating lease, the Company has elected the practical expedient under ASC 842, Leases, paragraph 10-15-42A, to elect reporting the lease component and non-lease components as one single component within the rental and other property revenues line on the Consolidated Statements of Operations. Revenue from utility reimbursements are considered variable lease payments and are recognized in the period in which the related expenses are incurred.

Grocery-anchored shopping centers and office properties

Our retail leases have original lease terms which generally range from three to seven years for spaces under 5,000 square feet and from ten to twenty years for spaces over 10,000 square feet. Anchor leases generally contain renewal options for one or more additional periods whereas in-line tenant leases may or may not have renewal options. With the exception of anchor leases, the leases generally contain contractual increases in base rent rates over the lease term and the base rent rates for renewal periods are generally based upon the rental rate for the primary term, which may be adjusted for inflation or market conditions. Anchor leases generally do not contain annual contractual increases in base rent rates over the lease term and the renewal periods. Our leases generally provide for the payment of fixed monthly rentals and may also provide for the payment of additional rent based upon a percentage of the tenant’s gross sales above a certain threshold level (“percentage rent”). Our leases also generally include tenant reimbursements for common area expenses, insurance, and real estate taxes. Utilities are generally paid by tenants either directly through separate meters or through payment of tenant reimbursements. The foregoing general description of the characteristics of the leases in our centers is not intended to describe all leases and material variations in lease terms may exist.

Our office building leases have original lease terms which generally range from five to fifteen years and generally contain contractual, annual base rental rate escalations ranging from 2% to 3%. These leases may be structured as gross where the tenant’s base rental rate is all inclusive and there is no additional obligation to reimburse building operating expenses, net or where in addition to base rent the tenant is also responsible for its pro rata share of reimbursable building operating expenses, or modified gross where in addition to base rent the tenant is also responsible for its pro rata share of reimbursable building operating expense increases over a base year amount (typically calculated as the actual reimbursable operating expenses in year one of the original lease term).

Base rental revenue from tenants' operating leases is a lease component revenue in the Company's grocery-anchored shopping centers and office properties and is recognized on a straight-line basis over the term of the lease. Revenue based on "percentage rent" provisions that provide for additional rents that become due upon achievement of specified sales revenue targets (as specified in each lease agreement) is recognized only after the tenant exceeds its specified sales revenue target. Revenue from reimbursements of the tenants' share of real estate taxes, insurance and common area maintenance, or CAM, costs represent non-lease component revenue. Having met the criteria that (i) the timing and pattern of transfer for the lease component and associated non-lease components are the same and (ii) that the lease component, if accounted for separately would be classified as an operating lease, the Company has elected the practical expedient under ASC 842, Leases, paragraph 10-15-42A, to elect reporting the lease component and non-lease components as one single component under Rental and other property revenues recognized in accordance with ASC 842. Reimbursement revenue and percentage rent were previously presented in the Company’s Other Property Revenues line item. For presentation purposes, the Company has reclassified its revenue from reimbursements into Rental and other property revenues for all periods presented, for comparability. Revenue from reimbursements are considered variable lease payments and are recognized in the period in which the related expenses are incurred. The Company does not record income and offsetting expense for certain variable costs paid directly to third parties by lessees on behalf of lessors.

Non-lease components which do not qualify under the practical expedient primarily include lease termination income and other ancillary revenue (e.g. application fees, license fees, late fees and tenant billbacks). These items are recorded under Rental and other property revenues. Lease termination revenues are recognized ratably over the revised remaining lease term after giving effect to the termination notice or when tenant vacates and the Company has no further obligations under the lease. Rents and tenant reimbursements collected in advance are recorded as prepaid rent within other liabilities in the accompanying consolidated balance sheets. The Company evaluated the collectability of the tenant receivable related to rental and reimbursement billings due from tenants and straight-line rent receivables, which represent the cumulative amount of future adjustments necessary to present rental revenue on a straight-line basis, by taking into consideration the Company's historical write-off experience, tenant credit-worthiness, current economic trends, and remaining lease terms. The Company

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

evaluates the collectability of these amounts and recognizes revenue related to tenants where collectability is deemed probable, in accordance with ASC 842-30-25-12. The Company previously recorded bad debt expense within the Property operating and maintenance expense line item, and upon adoption of ASC 842 on January 1, 2019, began recording amounts not deemed probable of collection as a reduction of rental revenues and other property revenues, as applicable.

The Company may provide grocery-anchored shopping center and office building tenants an allowance for the construction of leasehold improvements. Leasehold improvements that are owned by the Company are capitalized and depreciated over the shorter of the useful life of the improvements or the remaining lease term. If the allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue. Determination of the appropriate accounting for the payment of a tenant allowance is made on a lease-by-lease basis, considering the facts and circumstances of the individual tenant lease. When the Company is the owner of the leasehold improvements, recognition of rental revenue commences when the lessee is given possession of the leased space upon completion of tenant improvements. However, when the leasehold improvements are owned by the tenant, the lease inception date is the date the tenant obtains possession of the leased space for purposes of constructing its leasehold improvements. For our office properties, if the improvement is deemed to be a “landlord asset,” and the tenant funded the tenant improvements, the cost is amortized over the term of the underlying lease with a corresponding recognition of rental revenues. In order to qualify as a landlord asset, the specifics of the tenant’s assets are reviewed, including the Company's approval of the tenant’s detailed expenditures, whether such assets may be usable by other future tenants, whether the Company has consent to alter or remove the assets from the premises and generally remain the Company's property at the end of the lease.

Gains on sales of real estate assets

Lessee accounting

The Company has evaluated its leases for which it is the lessee to determine the value of any right of use assets and related lease liabilities. The Company has 1 ground lease related to our grocery-anchored shopping center assets. Ground leases generally have extended terms (e.g. over twenty years with multiple renewal options) and generally have base rent with CPI-based increases. The Company evaluated its renewal option periods in quantifying its asset and liability related to the ground lease. In determining the value of its right of use asset and lease liability, the Company used discount rates comparable to recent loan rates obtained on comparative properties within its portfolio. The Company’s right of use asset and related lease liability in accordance with ASC 842-20-30 related to this ground lease are recorded within the Tenant Receivables and Other assets and the Security deposits and other liabilities line items of the balance sheet, respectively. The Company is also the lessee of its coporate office space, which contains rent increases over the remaining weighted average life of approximately 4.0 years. The Company is also the lessee of furniture and equipment leases such as office equipment, which generally are three to five years with minimal rent increases.

Capitalization and Depreciation

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

• Buildings: 30 - 50 years

• Furniture, fixtures & equipment: 3 - 10 years

• Improvements to buildings and land: 5 - 20 years

• Tenant improvements: shorter of economic life or lease term

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

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Income Taxes

The Company has elected to be taxed as a REIT under the Code. To continue to qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company's annual REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction and excluding net capital gain, which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes 90% of the Company's annual REIT taxable income to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could have a material adverse affect on the Company's net income and net cash available for distribution to stockholders. The Company intends to operate in such a manner as to maintain its qualification as a REIT.

The Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position taken or expected to be taken in a tax return that is not based on clear and unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income or loss available to common stockholders by the weighted average number of shares of Common Stock outstanding for the period. Net income or loss attributable to common stockholders is calculated by deducting dividends due to preferred stockholders, including deemed non-cash dividends emanating from beneficial conversion features within convertible preferred stock, as well as nonforfeitable dividends due to holders of unvested restricted stock, which are participating securities under the two-class method of calculating earnings per share. Diluted earnings (loss) per share is computed by dividing net income or net loss available to common stockholders by the weighted average number of shares of Common Stock outstanding adjusted for the effect of dilutive securities such as share grants or warrants. No adjustment is made for potential common stock equivalents that are anti-dilutive during the period.

New Accounting Pronouncements


Standard	Description	Date of Adoption	Effect on the Consolidated Financial Statements
Recently Issued Accounting Guidance Not Yet Adopted
ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The new standard enables affected entities to elect from a series of practical expedients designed to ease the transition from referenced base rates within contracts designated to be replaced by Reference Rate Reform.	The amendments are effective March 12, 2020 through December 31, 2022.	ASU 2020-04 will be applicable to the Company's variable-rate debt instruments for which the Company is the borrower, which bear interest at a spread over the 1-month London Interbank Offer Rate (1-month LIBOR). Among the practical expedients are the option to elect prospective adjustment of the effective interest rate, foregoing reassessment of any instruments under loan modification rules. The Company is monitoring developments pertaining to Reference Rate Reform and does not currently anticipate ASU 2020-04 to have a material effect on its results of operations.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

3. Real Estate Assets

The Company's real estate assets consisted of:


	As of:
(unaudited)	December 31, 2021		December 31, 2020
Residential properties:
Properties (1)	41	(1, 2)	37
Units	12,052		11,143
New Market Properties:
Properties	54	( 2, 3)	54
Gross leasable area (square feet) (3)	6,210,778		6,208,278
Preferred Office Properties: (4)
Properties	2		9
Rentable square feet	1,072,000		3,169,000
Land	1		2
Rentable square feet	—		35,000

(1) The acquired second phases of certain communities are managed in combination with the initial phases, and so together are considered a single property.
(2) One multifamily community and two grocery-anchored shopping centers are owned through consolidated joint ventures. One grocery-anchored shopping center is an investment in an unconsolidated joint venture.
(3) The Company also owns approximately 47,600 square feet of gross leasable area of ground floor retail space which is embedded within the Lenox Portfolio and is not included in the totals above for New Market Properties.
(4) Eight of our office properties and the real estate loan investment supporting the 8West office building were sold during the third and fourth quarters 2021.

Impacts of COVID-19 Pandemic

The COVID-19 pandemic that spread throughout the country during 2020 and 2021 impacted earnings for commercial real estate to some degree but has not had a profound widespread negative effect on the valuations of real estate assets. The Company is continuing to monitor the spread and impact of the variants of COVID-19 as well as vaccination rates in its markets. The Company does not consider this event to be a triggering event for purposes of impairment, since overall occupancy rates for the Company’s real estate assets have not materially declined and the Company has continued to collect substantially all rent due. Thus, there is no evidence of declining valuations or a triggering event.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Residential properties acquired

During the years ended December 31, 2021 and 2020, the Company completed the acquisition of the following multifamily communities:

Acquisition date

Property

Location

Units

2021:

6/30/2021

The Ellison

Atlanta, Georgia

250

7/8/2021

Alleia at Presidio

Ft. Worth, Texas

231

9/14/2021

The Anson

Nashville, Tennessee

301

9/16/2021

The Kingson

Fredericksburg, Virginia

240

9/17/2021

Chestnut Farm

Charlotte, North Carolina

256

1,278

2020:

3/31/2020

Horizon at Wiregrass

Tampa, Florida

392

4/30/2020

Parkside at the Beach

Panama City Beach, Florida

288

11/2/2020

The Blake

Orlando, Florida

281

12/15/2020

The Menlo

Jacksonville, Florida

332

1,293

The aggregate purchase prices of the multifamily acquisitions were approximately $336.1 million and $276.9 million for the acquisitions completed during the years ended December 31, 2021 and 2020 respectively, exclusive of acquired escrows, security deposits, prepaids, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The Company allocated the purchase prices and capitalized acquisition costs to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocations were based upon the Company's best estimates of the fair values of the acquired assets and liabilities.


	Multifamily Communities acquired during the years ended December 31,
(In thousands, except amortization period data)	2021		2020

Land	$	27,639	$	28,074
Buildings and improvements	250,833		194,434
Furniture, fixtures and equipment	51,628		50,170
Lease intangibles	6,989		8,635
Prepaids & other assets	372		354
Accrued taxes	(1,464)		(437)
Security deposits, prepaid rents, and other liabilities	(831)		(742)

Net assets acquired	$	335,166	$	280,488

Cash paid	$	89,335	$	144,016
Mortgage debt, net	245,831		136,472

Total consideration	$	335,166	$	280,488

Year ended December 31, 2021:
Revenue	$	8,847	$	25,162
Net income (loss)	$	(5,387)	$	(7,656)

Year ended December 31, 2020:
Revenue	$	—	$	9,328
Net income (loss)	$	—	$	(6,244)

Capitalized acquisition costs incurred by The Company	$	1,018	$	4,370

Remaining amortization period of intangible assets and liabilities (months)	7.1		0

Multifamily communities sold

On July 19, 2021, the Company closed on the sale of its 369-unit multifamily community in Houston, Texas, or Vineyards, to an unrelated third party for a sales price of approximately $62.0 million, exclusive of closing costs and resulting in a gain of approximately $20.0 million, net of disposition costs that is included in the line entitled Gain on sale of real estate, net on the Company's Consolidated Statements of Operations for the year ended December 31, 2021. Vineyards contributed approximately $0.3 million of net loss to the consolidated operating results of the Company for the year ended December 31, 2021.

The carrying amounts of the significant assets and liabilities of the disposed property at the date of sale were:


(In thousands)	Vineyards
Real estate assets:
Land	$	5,456
Building and improvements	43,437
Furniture, fixtures and equipment	5,218
Accumulated depreciation	(12,879)

Total assets, net	$	41,232

Liabilities:
Mortgage note payable	$	32,291

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

On November 12, 2020, the Company closed on the sale of its 395-unit multifamily community in San Antonio, Texas, or Avenues at Creekside, to an unrelated third party for a sales price of approximately $62.7 million, exclusive of closing costs and resulting in a gain of approximately $17.3 million, net of disposition costs. Avenues at Creekside contributed approximately $0.3 million of net income to the consolidated operating results of the Company for the year ended December 31, 2020.

Student housing properties sold

On November 3, 2020 the Company sold all eight of its student housing communities and one real estate loan investment to an unrelated third party for an aggregate purchase price of $478.7 million exclusive of closing costs and resulting in a gain of $2.9 million. The disposed assets collectively contributed approximately $5.3 million of net loss to the consolidated operating results of the Company for the year ended December 31, 2020.

New Market Properties assets acquired

The Company acquired no grocery-anchored shopping centers during 2021. During the year ended December 31, 2020, the Company completed the acquisition of the following grocery-anchored shopping centers:

Acquisition date

Property

Location

Gross leasable area (square feet)

1/29/2020

Wakefield Crossing

Raleigh, North Carolina

75,927

3/19/2020

Midway Market

Dallas, Texas

85,599

161,526

The aggregate purchase price of the New Market Properties acquisitions for the year ended December 31, 2020 was approximately $27.7 million, exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities. The Company allocated the purchase prices to the acquired assets and liabilities based upon their fair values and was based upon the Company's best estimates of the fair values of the acquired assets and liabilities. The Company did not acquire any grocery-anchored shopping centers during 2021.

Preferred Office Properties assets sold

During the year ended December 31, 2021, the Company completed the disposition of the following office buildings:

Date

Property

Location

7/29/2021

Galleria 75

Atlanta, Georgia

7/29/2021

150 Fayetteville

Raleigh, North Carolina

7/29/2021

Capitol Towers

Charlotte, North Carolina

7/29/2021

CAPTRUST Tower

Raleigh, North Carolina

7/29/2021

Morrocroft Centre

Charlotte, North Carolina

9/8/2021

Armour Yards Portfolio

Atlanta, Georgia

11/12/2021

Brookwood Center

Birmingham, Alabama

The aggregate sales price of the disposed office properties was approximately $767.0 million and resulted in a gain on sale of approximately $0.4 million, net of disposition costs and is included in the line entitled Gain on sale of real estate, net on the

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Company's Consolidated Statements of Operations for the year ended December 31, 2021. The disposal group was a component of the Company's Preferred Office Properties segment and contributed approximately $3,000,000.0 million of net income to the consolidated operating results of the Company for the year ended December 31, 2021. The carrying amounts of the significant assets and liabilities of the disposed properties at the dates of sale were:


(In thousands)	Preferred Office Properties' assets sold during the year ended December 31, 2021
Real estate assets:
Land	$	75,829
Building and improvements	665,169
Furniture, fixtures and equipment	87
Lease intangibles	69,098
Accumulated depreciation	(82,124)

Total assets, net	$	728,059

Liabilities:
Mortgage notes payable	$	465,886

The Company had no sales of Preferred Office Properties' assets during the year ended December 31, 2020.

The Company recorded aggregate amortization and depreciation expense of:


	Years ended December 31,
(In thousands)	2021		2020		2019
Depreciation:
Buildings and improvements	$	99,115	$	113,402	$	99,137
Furniture, fixtures, and equipment	40,836		50,474		50,747
	$	139,951	$	163,876	$	149,884
Amortization:
Acquired intangible assets	$	27,439	36,030		$	34,057
Deferred leasing costs	1,635		1,576		933
Website development costs	168		195		191
Total depreciation and amortization	$	169,193	$	201,677	$	185,065

At December 31, 2021, the Company had recorded acquired gross intangible assets of $225.8 million, accumulated amortization of $166.2 million, gross intangible liabilities of $70.9 million and accumulated amortization of $36.3 million. Net intangible assets and liabilities as of December 31, 2021 will be amortized over the weighted average remaining amortization periods of approximately 6.4 and 8.1 years, respectively.

Included in the Company's aggregate restricted cash of approximately $32.7 million at December 31, 2021 was approximately $10.8 million that was contractually restricted to fund capital expenditures and other property-level commitments such as tenant improvements and leasing commissions.

Purchase Options

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

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Notes to Consolidated Financial Statements - (continued)

December 31, 2021

These fees are treated as additional interest revenue and are amortized over the period ending with the earlier of (i) the sale of the underlying property and (ii) the maturity of the real estate loans. The Company recorded approximately $9.7 million, $6.5 million and $9.1 million of interest revenue from the amortization of these purchase option terminations for the years ended December 31, 2021, 2020 and 2019, respectively.

Equity Method Investments

On December 8, 2021, the Company entered into an equity commitment of $2.0 million to partially finance the development and construction of a grocery-anchored shopping center to be located in the Charleston, South Carolina MSA. The Company will earn a fixed return of 12% per annum over an anticipated investment life of between 24 and 36 months from the development project and the Company will have a five year right of first offer to purchase the interests of the other investors in the project.

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


	December 31,
(In thousands)	2021		2020
Total assets	$	36,687	$	39,109
Total liabilities	$	24,703	$	25,795


	For the year ended December 31,
	2021		2020
Rental and other property revenues	$	3,370	$	1,423
Total operating expenses	$	3,776	$	1,721
Interest expense	$	924	$	330
Net income (loss)	$	(1,330)	$	(628)
Net income (loss) attributable to the Company	$	(665)	$	(314)

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Notes to Consolidated Financial Statements - (continued)

December 31, 2021

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

Our portfolio of fixed rate, interest-only real estate loans, all of which supported multifamily community developments consisted of:


	December 31, 2021			December 31, 2020
Number of loans	11			20
Number of underlying properties in development	10			14
(In thousands)
Drawn amount	$	206,270		$	290,156
Deferred loan origination fees	(1,755)			(1,194)
Allowances for expected credit losses	(8,095)			(9,067)
Carrying value	$	196,420		$	279,895

Unfunded loan commitments	$	61,952		$	44,403
Weighted average current interest, per annum (paid monthly)	8.58		%	8.50		%
Weighted average accrued interest, per annum	3.53		%	3.91		%


(In thousands)	Principal balance		Deferred loan origination fees		Allowances and CECL Reserves		Carrying value
Balances as of December 31, 2020	$	290,156	$	(1,194)	$	(9,067)	$	279,895
Loan fundings	68,943		—		—		68,943
Loan repayments	(140,094)		—		—		(140,094)
Loans and accrued interest settled through sale	(12,735)		—		202		(12,533)
Loan origination fees collected	—		(2,381)		—		(2,381)
Amortization of loan origination fees	—		1,820		—		1,820
Reserve increases due to loan originations	—		—		(1,471)		(1,471)
Net changes in reserves on existing loans or loans repaid	—		—		2,241		2,241
Balances as of December 31, 2021	$	206,270	$	(1,755)	$	(8,095)	$	196,420

Effective June 30, 2019, the Company amended and sold its senior construction loan on the 8West office development to a third party and collected a gross fee of $1.55 million from the buyer. On July 29, 2021, we sold our 8West real estate loan investment along with seven of our office properties for total consideration of $725 million.

The Company originated the following real estate loan investments during the year ended December 31, 2021, all of which are supporting multifamily community projects:

Project/Property

Location

Maturity date

Optional extension date

Total loan commitments (in thousands)

Current / deferred interest % per annum

Hudson at Metro West

Orlando, FL

9/1/2024

3/1/2026

16,791

8.5 / 4.5

Populus at Pooler

Savannah, GA

5/27/2025

5/27/2026

15,907

8.5 / 4.25

Populus at Pooler Capital

Savannah, GA

5/27/2025

5/27/2026

1,169

8.5 / 4.25

Oxford Club Drive

Atlanta, GA

2/11/2025

2/11/2027

23,150

8.5 / 4.5

Menlo II

Jacksonville, FL

4/14/2025

4/14/2027

16,610

8.5 / 3.5

Beaver Ruin

Atlanta, GA

5/3/2025

11/3/2026

9,133

8.5 / 4.5

One Nexton

Charleston, SC

12/16/2022

n/a

6,265

11.0 / -

89,025

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Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The Company's real estate loan investments are primarily collateralized by 100% of the membership interests of the underlying project entity, and, where considered necessary, by unconditional joint and several repayment guaranties and performance guaranties by the principal(s) of the borrowers. These guaranties generally remain in effect until the receipt of a final certificate of occupancy. All of the guaranties are subject to the rights held by the senior lender pursuant to a standard intercreditor agreement. Prepayment of the real estate loans are permitted in whole, but not in part, without the Company's consent.

The Company established total expected credit losses against its existing portfolio of real estate loan investments on January 1, 2020. In doing so, it recorded a cumulative effect reduction adjustment to retained earnings of approximately $7.4 million. For the year ended December 31, 2021, the Company recorded an aggregate net decrease in its provision for expected credit losses of approximately $1.0 million, primarily related to the repayment or sale of multiple loans, partially offset by the origination of seven new loans. The Company's total allowance for expected credit losses for the years ended December 31, 2021 and December 31, 2020 were as follows:


	For the year ended December 31,
(In thousands)	2021		2020
Allowances recorded for interest receivable:
Haven Campus Communities, LLC line of credit	$	1,644	$	1,649
Starkville real estate loan	—		652
Net increases (decreases) in current expected loss reserves on existing loans	(770)		3,802

Total allowance for expected credit losses	$	874	$	6,103

The COVID-19 pandemic has, and will continue to have, impacts upon the development activity underlying our real estate loan investments, including the availability of labor, the supply and availability of construction materials and the ability to achieve leased stabilization. The Company's Berryessa real estate loan investment carried a 4.0% final reserve ratio at December 31, 2021. The project experienced a temporary construction delay due to effects of the COVID-19 pandemic but has received its final certificates of occupancy in 2020 and was 93% leased at December 31, 2021. The Company assesses its real estate loan investment portfolio for impacts from COVID-19 at each quarter end.

The Company can make no assurances that economic or industry conditions or other circumstances will not lead to increases in allowances for credit losses.

Management monitors the credit quality of the obligors under each of the Company's real estate loans by tracking the timeliness of scheduled interest and principal payments relative to the due dates as specified in the loan documents, as well as draw requests on the loans relative to the project budgets. In addition, management monitors the actual progress of development and construction relative to the construction plan, as well as local, regional and national economic conditions that may bear on our current and target markets.

The Company's Starkville loan had been in default since August 20, 2019 under the terms of the underlying mezzanine loan agreement. The Company recorded a loan loss reserve related to this loan totaling $1.4 million, reducing its net investment in the Starkville loan from $7.3 million, including accrued interest of $1.2 million, to a carrying amount of $5.9 million as of December 31, 2019 and an additional $2.1 million on January 1, 2020 with the Company's adoption of ASU 2016-13. This loan was included in the sale of the Company's eight student properties that closed on November 3, 2020.

As described in note 2, the Company assesses the credit quality of its real estate loan investments by a calculated loss reserve ratio, which is an internally-developed credit quality indicator. Loss reserve ratios reflect the amount of protection afforded by the amount of equity and debt financing subordinate to the Company's position in the project; higher reserve ratios reflect a lower amount of invested dollars junior to the Company's position.

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Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The following table presents the Company's aggregation of loan amounts (including unpaid interest) by final reserve ratio as of December 31, 2021:


Final reserve ratio	Number of loans	Total receivables by project, net of reserves (in thousands)
< 1.00%	1	$	10,951
1.00% - 1.99%	9	60,209
2.00% - 2.99%	—	—
3.00% - 3.99%	1	144,248
4.00% - 4.99%	—	—
5.00% +	—	—

	11	$	215,408

At December 31, 2021, the Company's portfolio of notes and lines of credit receivable consisted of:


Borrower	Date of loan	Maturity date	Total loan commitments		Outstanding balance as of:				Interest rate
					December 31, 2021		December 31, 2020
			(in thousands)
Haven Campus Communities, LLC (1,2)	6/11/2014	12/31/2018	$	11,660	$	9,011	$	9,011	8	%
Oxford Capital Partners, LLC (3,4)	10/5/2015	3/15/2022	1,250		—		1,256		10	%
Oxford Capital Partners II, LLC (3,4)	3/30/2021	3/15/2022	5,300		—		—		10	%
Mulberry Development Group, LLC (5)	3/31/2016	6/30/2022	500		—		607		12	%
Unamortized loan fees					—		—

			$	18,710	$	9,011	$	10,874

(1) See related party disclosure in Note 6.
(2) The amount payable under the note is collateralized by one of the principals of the borrower's 49.49% interest in an unrelated shopping center located in Atlanta, Georgia and a personal guaranty of repayment by the principals of the borrower.
(3) The amounts payable under the terms of this revolving credit line, up to the lesser of 25% of the loan balance or $2.0 million, are collateralized by a personal guaranty of repayment by the principals of the borrower.
(4) The overall decrease in the Oxford line of credit balance is a function of an approximate $5.0 million paydown on July 31, 2020, that was required as part of the line of credit agreement whenever there is a defined Capital Transaction, generally triggered by the sale of a development property.
(5) The amounts payable under the terms of these revolving credit lines are collateralized by a personal guaranty of repayment by the principals of the borrower.

On November 20, 2018, the borrower on the Haven Campus Communities, LLC line of credit defaulted on the loan, triggering the accrual of an additional 10% default interest rate, which is incremental to the original 8% current interest rate. The amount of default interest recorded from the default date through December 31, 2021 was approximately $2.9 million. Under the terms of the loan, amounts collected are applied first to any legal costs incurred by the Company to collect amounts due on the loan; second, to pay any accrued default and current interest on the loan; and third, to repay the principal amount owed.

Based on the negotiated agreement between the Company and the borrowers, on March 27, 2019, the Company received the membership interests of the Rush student housing project in exchange for the complete settlement of the related Rush loans, which include the Haven Campus Communities Charlotte Member, LLC line of credit, the Rush mezzanine loan and the Rush member loan. Additionally, under the same agreement, the Company received payouts and credits totaling approximately $3.75 million towards the Haven Campus Communities, LLC line of credit. These amounts were applied in accordance with the terms of the line of credit. The Company retains a pledge of a 49.49% interest in an unrelated shopping center located in Atlanta, Georgia as collateral on the Haven Campus Communities, LLC line of credit, as well as personal guaranties of repayment from the principals of the borrower.

104

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

In January 2019, the Company filed a lawsuit to collect the amounts owed under the line of credit it provided to Haven Campus Communities, LLC. In September 2019, Haven Campus Communities, LLC answered the lawsuit and filed counterclaims against the Company and its affiliates. At this time, the case is in discovery, so the Company is unable to make any estimates on timing or amounts that may be collected by the Company on its Haven Campus Communities, LLC line of credit.

Additionally, in November 2020, the Company filed two lawsuits to collect past due rent owed to the Former Manager of the Company, as sub-landlord pursuant to (i) an office sublease agreement dated May 1, 2017 by and between the Former Manager and Elevation Development Group, LLC and (ii) an office sublease agreement dated October 1, 2014 by and among the Former Manager, as sub-landlord, and Haven Campus Communities, LLC and Madison Retail, LLC as sub-tenants. The Company retains partial personal guaranties of repayment from the principals of Haven Campus Communities, LLC and Madison Retail, LLC. In December 2020, the defendants answered the lawsuit and filed counterclaims against the Company and its affiliates. At this time, the case is in discovery, so the Company is unable to make any estimates on timing or amounts that may be collected by the Company on its subleases.

The Company recorded interest income and other revenue from these instruments as follows:


Interest income (in thousands)	Years ended December 31,
	2021		2020		2019
Real estate loans:
Current interest	$	23,248	$	29,557	$	34,906
Additional accrued interest	9,769		12,372		13,829
Loan origination fee amortization	1,819		1,214		1,545
Purchase option termination fee amortization	9,712		6,536		9,111
Default interest	913		1,126		1,315

Total real estate loan revenue	45,461		50,805		60,706
Bank and money market accounts	2		40		687
Agency mortgage-backed securities	—		—		95

Interest income on loans and notes receivable	$	45,463	$	50,845	$	61,488

The Company extends loans for purposes such as to partially finance the development of multifamily residential communities, to acquire land in anticipation of developing and constructing multifamily residential communities, and for other real estate or real estate related projects. Certain of these loans include characteristics such as exclusive options to purchase the project within a specific time window following project completion and stabilization, the sufficiency of the borrowers' investment at risk and the existence of payment and performance guaranties provided by the borrowers, any of which can cause the loans to create variable interests to the Company and require further evaluation as to whether the variable interest creates a VIE, which would necessitate consolidation of the project.

The Company considers the facts and circumstances pertinent to each entity borrowing under the loan, including the relative amount of financing the Company is contributing to the overall project cost, decision making rights or control held by the Company, guarantees provided by third parties, and rights to expected residual gains or obligations to absorb expected residual losses that could be significant from the project. If the Company is deemed to be the primary beneficiary of a VIE, consolidation treatment would be required.

The Company has no decision making authority or power to direct activity, except normal lender rights, which are subordinate to the rights of the senior lenders on the projects. The Company has concluded that it is not the primary beneficiary of the borrowing entities and therefore it has not consolidated these entities in its consolidated financial statements. The Company's maximum exposure to loss from these loans is their drawn amount as of December 31, 2021 of approximately $206.3 million. The maximum aggregate amount of loans to be funded as of December 31, 2021 was approximately $268.2 million, which includes approximately $62.0 million of loan committed amounts not yet funded.

The Company has evaluated its real estate loans, where appropriate, for accounting treatment as loans versus real estate development projects, as required by ASC 310. The Company evaluates the expected residual profit it expects to collect under the terms of the loan versus the expected residual profit expected to be collected by the developer (in conjunction with any equity investors, if applicable), along with the "loan versus investment" characteristics as set forth by ASC 310-25. For each loan, the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate in cases where (i) the

105

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Notes to Consolidated Financial Statements - (continued)

December 31, 2021

majority of the expected residual profit is expected to be due the developer and (ii) the majority of "loan versus investment" tests indicate that the instrument is a loan.

The Company is also subject to a geographic concentration of risk that could be considered significant with regard to the Beaver Ruin, Solis Cumming Town Center, and Oxford Club Drive real estate loan investments, all of which are partially supporting various real estate projects in or near Atlanta, Georgia. The drawn amount and outstanding accrued interest for these loans as of December 31, 2021 totaled approximately $24.6 million (with a total commitment amount of approximately $53.0 million). The event of a total failure to perform by the borrowers and guarantors would subject the Company to a total possible loss of the drawn amount and all outstanding accrued interest.

The Company is also subject to a geographic concentration of risk that could be considered significant with regard to the Vintage Horizon West, Hudson at Metro West, and Menlo II real estate loan investments, all of which are partially supporting various real estate projects in Florida. The drawn amount and outstanding accrued interest for these loans as of December 31, 2021 totaled approximately $29.5 million (with a total commitment amount of approximately $44.3 million). The event of a total failure to perform by the borrowers and guarantors would subject the Company to a total possible loss of the drawn amount and all outstanding accrued interest.

Freddie Mac K Program investments

On May 23, 2018, the Company purchased a subordinate tranche of Series 2018-ML04, a pool of 20 multifamily mortgages with a total pool size of approximately $276.3 million, from Freddie Mac. The purchase price of the subordinate tranche was approximately $4.7 million. On December 10, 2019, the Company sold its investment in Series 2018-ML04 for $6.2 million.

On March 28, 2019, the Company purchased a subordinate tranche of Series 2019-ML05, a pool of 21 multifamily mortgages with a total pool size of approximately $295.7 million, from Freddie Mac. The Company's tranche of the 2019-ML05 pool paid monthly interest of approximately $103,000. The purchase price of the subordinate tranche was approximately $18.4 million. On December 17, 2019, the Company sold its investment in Series 2019-ML05 for $20.4 million.

Agency Mortgage-Backed Securities investments

In December 2018, the Company began investing in Agency Mortgage-Backed Securities representing undivided (or “pass-through”) beneficial interests in specified pools of fixed-rate mortgage loans. The investments are classified as trading securities. On December 20, 2018, the Company sold its entire position of a pool with associated premium amounts totaling $41.1 million. At December 31, 2018, the Company held a receivable related to this sale transaction of $41.2 million, which was collected upon the settlement of the transaction in January 2019.

106

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

5. Redeemable Preferred Stock and Equity Offerings

On February 14, 2020, the Company's offering of a maximum of 1,500,000 Units, with each Unit consisting of 1 share of Series A Redeemable Preferred Stock, par value $0.01 per share, and 1 Warrant to purchase up to 20 shares of Common Stock (the "$1.5 Billion Unit Offering") expired. See note 6 for discussion regarding a termination fee agreement with and payment to Preferred Capital Securities, LLC, or PCS, an affiliate of the Company, in conjunction with the Company's winding down of the $1.5 Billion Unit Offering.

At December 31, 2021, the Company's active equity offerings consisted of:

•an offering of up to $125 million of Common Stock from time to time in an "at the market" offering (the "2019 ATM Offering").

Certain offering costs are not related to specific closing transactions and are recognized as a reduction of stockholders' equity in the proportion of the number of instruments issued to the maximum number of shares of Preferred Stock anticipated to be issued. Any offering costs not yet reclassified as reductions of stockholders' equity are are reflected in the asset section of the consolidated balance sheets as deferred offering costs.

Cumulative gross proceeds and offering costs for our equity offerings that were active during 2021 consisted of:


					Deferred Offering Costs
(in thousands) Offering	Total offering		Gross proceeds as of December 31, 2021		Reclassified as reductions of stockholders' equity		Recorded as deferred assets		Total		Specifically identifiable offering costs (1)		Total offering costs
Series A1/M1 Offering	$	1,000,000	$	290,523	$	6,358	$	1,631	$	7,989	$	26,997	$	34,986
2019 ATM Offering	125,000		33,199		531		777		1,308		521		1,829

Total	$	1,125,000	$	323,722	$	6,889	$	2,408	$	9,297	$	27,518	$	36,815

(1) These offering costs specifically identifiable to Unit offering closing transactions, such as commissions, dealer manager fees, and

other registration fees, are reflected as a reduction of stockholders' equity at the time of closing.

On November 24, 2020, the Company called 208,786 shares of its Series A Redeemable Preferred Stock and redeemed the shares for cash at the stated value of $1,000 per share. For the year ended December 31, 2021, the Company called a total of 320,746 shares of Series A Redeemable Preferred Stock for a total redemption cost of $320.7 million. See note 7.

Series A1/M1 Preferred Stock Offering

On September 27, 2019, the Company’s registration statement on Form S-3 (Registration No. 333-233576) (the “Series A1/M1 Registration Statement”) was declared effective by the SEC. Shares of Series A1 Preferred Stock and Series M1 Preferred Stock issued under the Series A1/M1 Registration Statement are each offered at a price of $1,000 per share, subject to adjustment under certain conditions.

Each share of Series A1 Preferred Stock ranks senior to Common Stock with respect to dividend rights and carries a cumulative annual 6% dividend of the stated per share value of $1,000, payable monthly as declared by the Company’s board of directors. Dividends begin accruing on the date of issuance. The redemption schedule of the Series A1 Preferred Stock allows redemptions at the option of the holder from the date of issuance through the first year subject to a 13% redemption fee. After year one, the redemption fee decreases to 10%, after year two the redemption fee decreases to 5% and after year three there is no redemption fee. Any redeemed shares of Series A1 Preferred Stock are entitled to any accrued but unpaid dividends at the time of the redemption and any redemptions may be in cash or Common Stock, at the Company’s discretion.

107

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Each share of Series M1 Preferred Stock ranks senior to Common Stock with respect to dividend rights and carries a cumulative annual dividend beginning at 6.1% of the stated per share value of $1,000, payable monthly as declared by the Company’s board of directors. The annual dividend rate increases by 0.1% on each anniversary of the issuance date up to a maximum annual dividend rate of 7.1%. Dividends begin accruing on the date of issuance. The redemption schedule of the Series M1 Preferred Stock allows redemptions at the option of the holder from the date of issuance of the Series M1 Preferred Stock through the first year at the stated value per share minus dividends paid for the three most previous dividend declaration dates. After year one, the shares of Series M1 Preferred Stock may be redeemed at 100% of the stated value per share. Any redeemed shares of Series M1 Preferred Stock are entitled to any accrued but unpaid dividends at the time of redemption and any redemptions may be in cash or Common Stock, at the Company’s discretion.

Both the Series A1 Preferred Stock and the Series M1 Preferred Stock are callable by the Company after the second anniversary of the date of original issuance at 100% of the stated value per share.

Aggregate offering expenses of the Series A1/M1 Preferred Stock Offering, including selling commissions and dealer manager fees for the Series A1 Preferred Stock and only dealer manager fees for the Series M1 Preferred Stock, are capped at 12.0% of aggregate gross proceeds of the offering. The Company could reimburse its Former Manager up to 2.0% of the gross proceeds of such offerings for all organization and offering expenses that were incurred by the Former Manager through the date of the Internalization. However, upon approval by the conflicts committee of the board of directors, the Company could have reimbursed its Former Manager for any such organization and offering expenses incurred above the 2.0% amount as permitted by the Financial Industry Regulatory Authority, or FINRA. Dealer manager fees and sales commissions for the Series A1/M1 Preferred Stock Offering are not reimbursable.

The shares are being offered by PCS on a "reasonable best efforts" basis. The Company intends to invest substantially all the net proceeds of the Series A1/M1 Registration Statement in connection with the acquisition of multifamily communities, other real estate-related investments and general working capital purposes.

2019 ATM Offering

During the year ended December 31, 2021, the Company issued and sold 2,658,889 shares of Common Stock under the 2019 ATM Offering, generating gross proceeds of approximately $28.6 million and, after deducting commissions and other costs, net proceeds of approximately $28.2 million.

6. Related Party Transactions

On January 31, 2020, the Company internalized the functions performed by the Former Manager and Former Sub-Manager by acquiring the entities that owned the Former Manager and the Former Sub-Manager for an aggregate purchase price of $154 million, plus up to $25 million of additional consideration to be paid within 36 months, due upon the earlier of (i) if, for the immediately preceding fiscal year beginning on January 1, funds from operations ("FFO") of the Company per weighted average basic share of the Company’s common stock and Class A Unit (as defined in the limited partnership agreement of PAC OP) outstanding for such fiscal year is determined to be greater than or equal to $1.55, (ii) on the thirty-six (36) month anniversary of the closing of the Internalization or (iii) a change of control of the Company. Pursuant to the Stock Purchase Agreement, the sellers sold all of the outstanding shares of capital stock of NELL Partners, Inc. ("NELL") and NMA Holdings, Inc. ("NMA") to PAC Operations, LLC ("PAC Sub") in exchange for an aggregate of approximately $111.1 million in cash paid at the closing which reflects the satisfaction of certain indebtedness of NELL, the estimated net working capital adjustment, and a hold back of $15 million for certain specified matters (the "Specified Matters Holdback Amount"). The Specified Matters Holdback Amount is payable to the NELL sellers less certain losses following final resolution of any such specified matters.

108

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Daniel M. DuPree and Leonard A. Silverstein were executive directors of NELL Partners, Inc., which controlled the Former Manager through the date of the Internalization. Daniel M. DuPree was the Chief Executive Officer and Leonard A. Silverstein was the President and Chief Operating Officer of the Former Manager. Trusts established, or entities owned, by the family of John A. Williams, Daniel M. DuPree, the family of Leonard A. Silverstein, the Company’s former Vice Chairman of the Board, and former President and Chief Operating Officer, were the owners of NELL. Trusts established, or entities owned, by Joel T. Murphy, the Company’s Chief Executive Officer and a member of the Board, the family of Mr. Williams, Mr. DuPree and the family of Mr. Silverstein were the owners of the Former Sub-Manager.

The Company's Haven Campus Communities LLC line of credit is supported in part by a guaranty of repayment and performance by John A. Williams, Jr., the son of the late John A. Williams, the Company's former Chief Executive Officer and Chairman of the Board. Because the terms of this loan was negotiated and agreed upon while John A. Williams was the Chief Executive Officer of the Company, this instrument will continue to be reported as a related party transaction until the loan is repaid, including interest receivable of approximately $4.1 million that is included in the tenant receivables and other assets line of the consolidated balance sheet.

The Company's Wiregrass and Wiregrass Capital real estate loan investments partially financed the development of a multifamily community in Tampa, Florida by the Altman Companies. Timothy A. Peterson is a member of management of the Altman Companies as well as Chairman of the Audit Committee of the Company's Board of Directors. The Wiregrass loans were settled in full in conjunction with the Company's acquisition of the underlying property on March 31, 2020 as described in note 3, therefore qualify as related party transactions.

109

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The Management Agreement entitled the Former Manager to receive compensation for various services it performed related to acquiring assets and managing properties on the Company's behalf:


(In thousands)		Years ended December 31,
Type of Compensation	Basis of Compensation	2021		2020		2019

Acquisition fees	1.0% of the gross purchase price of real estate assets	$	—	$	235	$	7,203
Loan origination fees	1.0% of the maximum commitment of any real estate loan, note or line of credit receivable	—		—		783
Loan coordination fees	0.6% of any assumed, new or supplemental debt incurred in connection with an acquired property	—		47		2,939
Asset management fees	Monthly fee equal to one-twelfth of 0.50% of the total book value of assets, as adjusted	—		1,349		15,596
Property management fees	Monthly fee up to 4% of the monthly gross revenues of the properties managed	—		890		10,274
General and administrative expense fees	Monthly fee equal to 2% of the monthly gross revenues of the Company	—		616		6,177
Construction management fees	Quarterly fee for property renovation and takeover projects	—		14		264
Disposition fees	1% of the sale price of a real estate asset	—		—		282
Contingent asset management fees / general and administrative fees	Recognized upon disposition of the property when exceeding the 7% IRR hurdle	—		—		11

		$	—	$	3,151	$	43,529

The Former Manager waived some of the asset management, property management, or general and administrative fees for properties owned by the Company. A cumulative total of approximately $25.6 million of combined asset management and general and administrative fees related to acquired properties had been waived by the Former Manager; at the date of the Internalization, all of the remaining contingent fees of $24.1 million were eliminated in conjunction with the Company's Internalization transaction.

In addition to property management fees, the Company incurred the following reimbursable on-site personnel salary and related benefits expenses at the properties, which are listed on the Consolidated Statements of Operations:



(In thousands)	Years ended December 31,
	2021		2020		2019
	$	—	$	1,430	$	18,054

The Former Manager utilized its own and its affiliates' personnel to accomplish certain tasks related to raising capital that would typically be performed by third parties, including, but not limited to, legal and marketing functions. As permitted under the Management Agreement, the Former Manager was reimbursed $0, $40,451 and $512,324 for the years ended December 31, 2021, 2020 and 2019, respectively and Preferred Capital Securities, LLC, or PCS, was reimbursed $0, $0 and $1,367,798 for the years ended December 31, 2021, 2020 and 2019, respectively. These costs are recorded as deferred offering costs until such time as additional closings occur on the Series A1/M1 Preferred Stock Offering, $1.5 Billion Unit Offering, mShares Offering or the 2019 Shelf Offering, at which time they are reclassified on a pro-rata basis as a reduction of offering proceeds within

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Notes to Consolidated Financial Statements - (continued)

December 31, 2021

stockholders’ equity. In conjunction with the winding down of the $1.5 Billion Unit Offering, the Company has engaged PCS to perform certain termination-related services. These services began in October 2019 and continued through April 2020. The Company paid an additional $3.1 million and $3.6 million for the years ended December 31, 2020 and 2019, respectively for these services, which were recorded as deferred offering costs.

Prior to the Internalization, the Company held a promissory note in the amount of approximately $650,000 due from Preferred Capital Marketing Services, LLC, or PCMS, which is a wholly-owned subsidiary of NELL Partners and a revolving line of credit with a maximum borrowing amount of $24.0 million to its Manager. Both of these instruments were extinguished in connection with the Internalization transaction.

7. Dividends and Distributions

The Company declares and pays monthly cash dividend distributions in the amount of $5.00 per share per month on its Series A Preferred Stock. Similarly, beginning in October 2019, the Company declares and pays monthly cash dividend distributions in the amount of $5.00 per share per month on its Series A1 Preferred Stock. For the Company's mShares Preferred Stock, dividends are paid on an escalating scale of $4.79 per month in the first year following share issuance, increasing each year to $6.25 per month in year eight and beyond. Similarly, beginning in October 2019, for the Company's Series M1 Preferred Stock, dividends are paid on an escalating scale of $5.08 per month in the first year following share issuance, increasing each year to $5.92 per month in year ten and beyond. All preferred stock dividends are prorated for partial months at issuance as necessary.

Given the nature of the escalating dividends associated with the Company’s mShares Preferred Stock and Series M1 Preferred Stock, the Company accrues dividends at the effective dividend rate in accordance with GAAP. This results in the Company recording larger dividends declared to preferred stockholders in the Company’s Consolidated Statements of Operations than dividends required to be paid for the first four years after issuance with respect to the mShares and the first five years after issuance with respect to the Series M1 Preferred Stock. Similarly, this will result in the Company recording smaller dividends declared to preferred stockholders in the Company’s Consolidated Statements of Operations than dividends required to be paid for the fifth through the eighth year after issuance with respect to the mShares and the sixth through the tenth year after issuance with respect to the Series M1 Preferred Stock. Following the escalation period (year eight for the mShares Preferred Stock and year ten for the Series M1 Preferred Stock), the dividends declared to preferred stockholders in the Company’s Consolidated Statements of Operations will equal the dividend paid.

The Company declared quarterly cash dividends on its Common Stock that totaled $0.7000, $0.7875 and $1.0475, per share for the years ended December 31, 2021, 2020, and 2019, respectively. The holders of Class A OP Units of the Operating Partnership are entitled to equivalent distributions as the dividends declared on the Common Stock. At December 31, 2021, the Company had 467,662 Class A OP Units outstanding, which are exchangeable on a 1-for-one basis for shares of Common Stock or the equivalent amount of cash.

111

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Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The Company's dividend and distribution activity consisted of:


	Dividends and distributions declared
(In thousands)	For the years ended December 31,
	2021		2020		2019

Series A Preferred Stock	$	132,843	$	149,943	$	108,950
mShares	5,757		6,408		4,807
Series A1 Preferred Stock	12,978		4,069		15
Series M1 Preferred Stock	1,826		488		—
PAC Operations REIT Preferred Stock	14		—		—
Common and Restricted Stock	37,143		38,868		46,755
Class A OP Units	357		593		908

Total	$	190,918	$	200,369	$	161,435

In conjunction with the call of 208,786 shares of its Series A Redeemable Preferred Stock during the year ended December 31, 2020 and 320,746 shares during the year ended December 31, 2021, the Company recorded deemed dividends to these shareholders of approximately $20.9 million and $32.1 million, respectively, that is included in the dividends declared to preferred stockholders line on the Consolidated Statements of Operations.

8. Equity Compensation

Stock Incentive Plan

On May 2, 2019, the Company’s board of directors adopted, and the Company’s stockholders approved, the Preferred Apartment Communities, Inc. 2019 Stock Incentive Plan, or the 2019 Plan, to incentivize, compensate and retain eligible officers, employees, consultants, and non-employee directors. The 2019 Plan increased the aggregate number of shares of Common Stock authorized for issuance under the 2011 Plan from 2,617,500 to 3,617,500. The 2019 Plan does not have a stated expiration date. In 2021, the Company's board of directors adopted, and the Company's stockholders approved, an amendment to the 2019 Plan to increase the number of shares that can be awarded by 1,900,000 shares.

112

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Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Equity compensation expense by award type for the Company was:


	Years ended December 31,						Unamortized expense as of December 31, 2021
(In thousands)	2021		2020		2019

Class B Unit awards to employees:
2016	$	—	$	—	$	2	$	—
2017	—		3		312		—
2018	—		244		277		—
Restricted stock grants to Board members:
2018	—		—		120		—
2019	—		140		281		—
2020	177		355		—		—
2021	284		—		—		234
Restricted stock grants for employees:
2020	939		522		—		2,241
2021	510		—		—		2,067
Performance-based restricted stock units:
2020	499		230		—		991
2021	729		—		—		2,233
Restricted stock units to employees:
2017	—		—		69		—
2018	(2)		35		74		—
2019	60		57		88		—
2020	41		58		—		48
2021	52		—		—		145

Total	$	3,289	$	1,644	$	1,223	$	7,959

Performance-based Restricted Stock Unit Grants

On March 15, 2021 and July 31, 2020, the Company awarded performance-based restricted stock units (“PSUs”) to certain of its senior executives. Each PSU represents the right to receive one share of Common Stock upon satisfaction of both (i) the market condition, at which time the PSUs become earned PSUs, and (ii) the service requirement, beyond which point the PSUs become vested PSUs.

The market condition requirement of the PSUs consists of a relative measure of total shareholder return (“TSR”) of the Company's Common Stock versus the average TSR of a select group of publicly-traded peer companies. TSR is calculated by dividing the sum of price appreciation and cumulative dividends over the performance period divided by the beginning value of the Common Stock at the performance period commencement date (July 1, 2020 for the 2020 awards and January 1, 2021 for the 2021 awards), where the determining values are derived by calculating the 20-day volume weighted average stock price preceding both the performance period commencement date and the performance period end date (June 30, 2023 for the 2020 awards and December 31, 2023 for the 2021 awards). PSUs will become earned PSUs according to the percentile rank of the TSR of Company's Common Stock versus the peer group’s average TSR, as shown in the following table:


Level	Relative TSR performance (percentile rank versus peers)	Earned PSUs (% of target)
< Threshold	<35th Percentile	0%
Threshold	35th Percentile	50%
Target	55th Percentile	100%
Maximum	>=75th Percentile	200%

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Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The number of PSUs that become earned PSUs can range between 0% and 200% of the original (target) number of PSUs awarded and actual percentile ranking results between the 35th and 75th percentile are to be interpolated between the percentage earned values shown.

In order for earned PSUs to become vested PSUs, the participant must remain continuously employed by the Company or an affiliate company (i) from the grant date through the payout determination date (expected to be no more than 5 days following the performance period end date) for 50% of the PSU award and (ii) from the grant date through the first anniversary of the performance period end date for the remaining 50% of the PSU award.

Since the PSUs vest in part based upon achievement of a market condition, they were valued utilizing a Monte-Carlo simulation, performed by an independent third party advisor, that excludes the value of Common Stock dividends since dividend equivalents accrue separately to the award holders. The underlying valuation assumptions and result for the Performance RSU award was:


Grant date	3/15/2021			7/31/2020

Stock price on grant date	$	10.86		$	7.23
Dividend yield	7.19		%	6.87		%
Expected volatility	49.81		%	44.40		%
Risk-free interest rate	0.29		%	0.11		%

Target number of PSUs granted:
First vesting tranche	103,511			136,462
Second vesting tranche	103,517			136,467
	207,028			272,929

Calculated fair value per PSU	$	15.24		$	6.76

Total fair value of PSUs	$	3,155,107		$	1,845,000

The expected dividend yield assumptions were derived from the Company’s closing prices of the Common Stock and historical dividend amounts over the trailing five-year period from the grant date.

The Company's own stock price history over the 2.80 year and 2.91 year periods trailing the grant dates was utilized as the expected volatility assumption for the 2021 and 2020 awards, respectively.

The risk-free rate assumptions were obtained from the grant date yields on zero coupon U.S. Treasury STRIPS that have a term equal to the length of the remaining Performance Period and were calculated as the interpolated rate between the two-year and three-year yield percentages.

A total of 12,639 and 18,491 PSUs from the 2021 and 2020 grants, respectively, were forfeited during the year ended December 31, 2021.

114

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Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Restricted Stock Grants

The following annual grants of restricted stock were made to members of the Company's independent directors, as payment of the annual retainer fees. The restricted stock grants for service years 2018 and 2019 vested on a pro-rata basis over the four consecutive 90-day periods following the date of grant. The restricted stock grants for service years 2020 and 2021 are scheduled to vest on the earlier of our next annual meeting of stockholders or the one-year anniversary of the date of grant.


Service year	Shares	Fair value per share	Total compensation cost (in thousands)
2018	24,810	$14.51	$360
2019	26,446	$15.88	$420
2020	66,114	$8.05	$532
2021	46,782	$10.26	$480

On June 17, 2020, the Company granted Restricted Stock to certain of its executives and employees. The fair value per share of $8.05 was based upon the closing price of the Company's Common Stock on the business day preceding the grant date. A total of 137,741 shares representing a fair value of approximately $1.1 million will vest on the four year anniversary of the grant date and 344,356 shares representing a fair value of approximately $2.8 million will vest on a pro-rata basis on each of the four succeeding anniversaries of the grant date. A total of 22,210 shares of unvested restricted stock have been forfeited from the 2020 grant.

On March 15, 2021, the Company granted restricted stock to certain of its executives and employees. The fair value per share of $10.69 was based upon the closing price of the Company's Common Stock on the grant date. A total of 261,226 shares representing a fair value of approximately $2.8 million are scheduled to vest on a pro-rata basis on each of the four succeeding anniversaries of the grant date. A total of 20,112 shares of unvested restricted stock have been forfeited from the 2021 grant.

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Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Class B OP Units

As of December 31, 2021, cumulative activity of grants of Class B Units of the Operating Partnership, or Class B OP units, was:


Grant date						1/2/2018

Units granted						256,087
Units forfeited:
John A. Williams (1)						(38,284)
Voluntary forfeiture by senior executives (2)						(128,258)
Other						(31,079)

Total forfeitures						(197,621)

Units earned and converted into Class A Units						—

Class B Units outstanding at December 31, 2021						58,466

(1) Pro rata modification of award on April 16, 2018, the date of Mr. Williams' passing.
(2) Additional Class B OP units granted to senior executives other than Mr. Williams were voluntarily forfeited at the end of 2018.

The underlying valuation assumptions and results for the 2018 Class B OP Unit awards were:


Grant date	1/2/2018
Stock price	$	20.19
Dividend yield	4.95		%
Expected volatility	25.70		%
Risk-free interest rate	2.71		%

Number of Units granted:
One year vesting period	171,988
Three year vesting period	84,099
	256,087

Calculated fair value per Unit	$	16.66

Total fair value of Units	$	4,266,409

Target market threshold increase	$	5,660,580

The expected dividend yield assumptions were derived from the Company’s closing prices of the Common Stock on the grant dates and the projected future quarterly dividend payments per share of $0.25 for the 2018 awards.

For the 2018 awards, the Company's own stock price history was utilized as the basis for deriving the expected volatility assumption.

The risk-free rate assumptions were obtained from the Federal Reserve yield table and were calculated as the interpolated rate between the 20 and 30 year yield percentages on U. S. Treasury securities on the grant date.

Since the Class B OP Units have no expiration date, a derived service period of one year was utilized, which equals the period of time from the grant date to the initial valuation date.

116

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Restricted Stock Units

The Company has granted restricted stock units, or RSUs, to certain employees of affiliates of the Company, as shown in the following table:


Grant date	3/15/2021		1/2/2020		1/2/2019		1/2/2018
Service period	2021-2024		2020-2022		2019-2021		2018-2020

RSU activity:
Granted	20,600		21,400		27,760		20,720
Forfeited	(2,200)		(5,900)		(8,861)		(8,274)

RSUs outstanding at December 31, 2021	18,400		15,500		18,899		12,446

RSUs unearned but vested	—		5,188		12,683		12,446
RSUs unearned and not yet vested	18,400		10,312		6,216		—

RSUs outstanding at December 31, 2021	18,400		15,500		18,899		12,446

Fair value per RSU	$	10.69	$	9.47	$	10.77	$	16.66
Total fair value of RSU grant	$	220,214	$	202,658	$	298,975	$	345,195

The RSUs vest in three equal consecutive one-year tranches from the date of grant. For each grant prior to March 15, 2021, on the Initial Valuation Date, the market capitalization of the number of shares of Common Stock at the date of grant is compared to the market capitalization of the same number of shares of Common Stock at the Initial Valuation Date. If the market capitalization measure results in an increase which exceeds the target market threshold, the Vested RSUs become earned RSUs and are settled in shares of Common Stock on a one-to-one basis. Vested RSUs may become Earned RSUs on a pro-rata basis should the result of the market capitalization test be an increase of less than the target market threshold. Any Vested RSUs that do not become Earned RSUs on the Initial Valuation Date are subsequently remeasured on a quarterly basis until such time as all Vested RSUs become Earned RSUs or are forfeited due to termination of continuous service due to an event other than as a result of a qualified event, which is generally the death or disability of the holder. Continuous service through the final valuation date is required for the Vested RSUs to qualify to become fully Earned RSUs. RSUs issued on March 15, 2021 may become vested subject only to satisfaction of the service requirement.

Because RSUs are valued using the identical market condition vesting requirement that determines the transition of the Vested Class B Units to Earned Class B Units, the same valuation assumptions per RSU were utilized to calculate the total fair values of the RSUs. The total fair value amounts pertaining to grants of RSUs, net of forfeitures, are amortized as compensation expense over the three one-year periods ending on the three successive anniversaries of the grant dates.

117

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

9. Indebtedness

Mortgage Notes Payable

Financing of real estate assets

During the years ended December 31, 2021 and 2020, the Company partially financed existing and newly acquired real estate assets with mortgage debt as shown in the following table:


Date	Property	Initial principal amount (in thousands)		Fixed/Variable rate	Rate		Maturity date
2021:
4/15/2021	Midway Market	$	10,150	Fixed	3.06	%	5/1/2031
6/30/2021	The Ellison	47,991		Variable	L + 150		3/31/2022
7/8/2021	Alleia at Presidio	35,700		Fixed	2.50	%	8/1/2026
9/14/2021	The Anson	56,440		Fixed	2.69	%	10/1/2031
9/16/2021	The Kingson	53,900		Fixed	2.35	%	10/1/2026
9/17/2021	Chestnut Farm	51,800		Variable	L + 150		6/17/2022
9/24/2021	Citi Lakes B-Note	10,420		Fixed	3.85	%	8/1/2029
10/21/2021	Aldridge at Town Village B-Note	3,670		Fixed	3.46	%	11/1/2024
10/21/2021	Retreat at Greystone B-Note	7,274		Fixed	3.47	%	12/1/2024
11/2/2021	Woodstock Crossing	5,300		Fixed	2.89	%	12/1/2026
12/8/2021	Fairview Market	7,100		Fixed	2.87	%	12/15/2028
		0
		$	289,745

2020:
1/22/2020	251 Armour Yards	$	3,522	Fixed	4.50	%	1/22/2025
1/29/2020	Wakefield Crossing	7,891		Fixed	3.66	%	2/1/2032
3/19/2020	Morrocroft Centre	70,000		Fixed	3.40	%	4/10/2033
4/23/2020	Horizon at Wiregrass	52,000		Fixed	2.90	%	5/1/2030
4/30/2020	Parkside at the Beach	45,037		Fixed	2.95	%	5/1/2030
11/2/2020	The Blake	44,435		Fixed	2.82	%	5/1/2030
12/15/2020	The Menlo	47,000		Fixed	2.68	%	1/1/2031

		$	269,885

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Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Repayments and refinancings

The following table summarizes our mortgage debt refinancing and repayment activity for the years ended December 31, 2021 and 2020:


Date	Property	Previous balance (in millions)		Previous interest rate / spread over 1 month LIBOR		Loan refinancing or prepayment costs expensed (in thousands)		New balance (in millions)		New interest rate		Total deferred loan costs subsequent to refinancing (in thousands)
2021:
2/28/2021	Village at Baldwin Park	$	69.4	3.59	%	$	6	$	69.4	3.27%		$	923
7/19/2021	Vineyards	32.3		3.68	%	1		—		—		—
7/29/2021	Galleria 75	5.0		4.25	%	166		—		—		—
7/29/2021	150 Fayetteville	112.6		4.27	%	—		—		—		—
7/29/2021	Capitol Towers	121.5		4.60	%	—		—		—		—
7/29/2021	CAPTRUST	82.7		3.61	%	—		—		—		—
7/29/2021	Morrocroft Centre	70.0		3.40	%	—		—		—		—
8/18/2021	The Ellison	48.0		L + 150		96		48.0		2.52	%	400
8/30/2021	Woodstock Crossing	2.8		4.71	%	—		—		—		—
9/8/2021	Armour Yards	38.9		4.10	%	424		—		—		—
9/8/2021	251 Armour Yards	6.1		4.50	%	—		—		—		—
9/24/2021	Sorrel	30.2		3.44	%	232		47.7		2.54	%	1,787
11/1/2021	Champions Village	27.4		L + 300		—		—		—		—
11/12/2021	Brookwood Center	29.2		4.71	%	—		—		—		—

		$	676.1			$	925	$	165.1			$	3,110

2020:
1/3/2020	Ursa	$	31.4	L + 300		$	—	$	—	—		$	—
6/25/2020	CityPark View	19.8		3.27	%	1,314		29.0		2.75	%	314
6/29/2020	Aster at Lely Resort	30.7		3.84	%	293		50.4		2.95	%	2,777
6/29/2020	Avenues at Northpointe	26.0		3.16	%	166		33.5		2.79	%	1,247
6/30/2020	Avenues at Cypress	20.5		3.43	%	1,607		28.4		2.96	%	336
6/30/2020	Venue at Lakewood Ranch	27.8		3.55	%	2,457		36.6		2.99	%	384
6/30/2020	Crosstown Walk	29.9		3.90	%	248		46.5		2.92	%	2,841
6/30/2020	Summit Crossing II	13.1		4.49	%	779		20.7		L + 278		136
7/10/2020	Citrus Village	28.5		3.65	%	704		40.9		2.95	%	522
7/31/2020	Village at Baldwin Park	70.1		4.16	%	16		70.1		3.59	%	864
11/3/2020	SoL	35.2		4.71	%	—		—		—		—
11/3/2020	Stadium Village	44.5		3.80	%	—		—		—		—
11/3/2020	Knightshade	47.1		4.09	%	—		—		—		—
11/3/2020	North by Northwest	30.5		4.02	%	2,168		—		—		—
11/3/2020	The Tradition	30.0		L + 375		300		—		—		—
11/3/2020	The Bloc	29.0		L + 355		73		—		—		—
11/12/2020	Avenues at Creekside	38.1		L + 160		381		—		—		—

		$	552.2			$	10,506	$	356.1			$	9,421

119

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Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The following table summarizes our mortgage notes payable at December 31, 2021:



Fixed rate mortgage debt:	Principal balances due (in thousands)		Weighted-average interest rate		Weighted average remaining life (years)
Residential properties	$	1,553,245	3.39	%	8.1
New Market Properties	572,651		3.96	%	6.4
Preferred Office Properties	164,506		4.35	%	16.1

Total fixed rate mortgage debt	$	2,290,402	3.60	%	8.3

Variable rate mortgage debt:
Residential properties	$	72,500	1.98	%	2.8
New Market Properties	19,750		2.16	%	4.6

Total variable rate mortgage debt	$	92,250	2.02	%	3.2

Total mortgage debt:
Residential properties	$	1,625,745	3.32	%	7.9
New Market Properties	592,401		3.90	%	6.3
Preferred Office Properties	164,506		4.35	%	16.1

Total principal amount	2,382,652		3.54	%	8.1
Deferred loan costs	(35,400)
Mark to market loan adjustment	(3,888)
Mortgage notes payable, net	$	2,343,364

The mortgage note secured by our Independence Square property is a seven year term with an anticipated repayment date of September 1, 2022. If the Company elects not to pay its principal balance at the anticipated repayment date, the term will be extended for an additional five years, maturing on September 1, 2027. The interest rate from September 1, 2022 to September 1, 2027 will be the greater of (i) the Initial Interest Rate of 3.93% plus 200 basis points or (ii) the yield on the seven year U.S. treasury security rate plus approximately 400 basis points.

As of December 31, 2021, the weighted-average remaining life of deferred loan costs related to the Company's mortgage indebtedness was approximately 8.7 years. Our mortgage notes have maturity dates between June 17, 2022 and June 1, 2054.

Credit Facility

The Company has a credit facility, or Credit Facility, with KeyBank National Association, or KeyBank, which defines a revolving line of credit, or Revolving Line of Credit, which is used to fund investments, capital expenditures, dividends (with consent of KeyBank), working capital and other general corporate purposes on an as-needed basis. On March 23, 2018, the maximum borrowing capacity on the Revolving Line of Credit was increased to $200 million pursuant to an accordion feature. The accordion feature permits the maximum borrowing capacity to be expanded or contracted without amending any further terms of the instrument. On December 12, 2018, the Fourth Amended and Restated Credit Agreement, or the Amended and Restated Credit Agreement, was amended to extend the maturity to December 12, 2021, with an option to extend the maturity date to December 12, 2022, subject to certain conditions described therein. The Revolving Line of Credit accrues interest at a variable rate of one month LIBOR plus an applicable margin of 2.50% to 3.50% per annum, depending upon the Company’s leverage ratio. The weighted average interest rate for the Revolving Line of Credit was 3.62% for the year ended December 31, 2021. The Amended and Restated Credit Agreement also reduced the commitment fee on the average daily unused portion of the Revolving Line of Credit to 0.25% or 0.30% per annum, depending upon the Company’s outstanding Credit Facility balance.

120

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The Fourth Amended and Restated Credit Agreement, as amended on May 4, 2021, contains certain affirmative and negative covenants, including negative covenants that limit or restrict secured and unsecured indebtedness, mergers and fundamental changes, investments and acquisitions, liens and encumbrances, dividends, transactions with affiliates, burdensome agreements, changes in fiscal year and other matters customarily restricted in such agreements. The amount of dividends that may be paid out by the Company is restricted to a maximum of 100% of AFFO for the trailing four quarters without the lender's consent; solely for purposes of this covenant, AFFO is calculated as earnings before interest, taxes, depreciation and amortization expense, plus reserves for capital expenditures, less normally recurring capital expenditures, less consolidated interest expense.

As of December 31, 2021, the Company was in compliance with all covenants related to the Revolving Line of Credit, as shown in the following table:

Covenant (1)

Requirement

Result

Net worth

Minimum $1.3 billion

(2)

$1.7 billion

(2)

Debt yield

Minimum 8.75%

(3)

9.8%

Payout ratio

Maximum 100%

(4)

90.6%

Total leverage ratio

Maximum 65%

58.0%

Debt service coverage ratio

Minimum 1.50x

(5)

2.10x

(1) All covenants are as defined in the credit agreement for the Revolving Line of Credit.

(2) The minimum net worth covenant decreased to a minimum of $1.3 billion on July 29, 2021 with the office properties closing.

(3) The minimum debt yield covenant increases to a minimum of 9.0% on May 5, 2023.

(4) Calculated on a trailing four-quarter basis. For the period ended December 31, 2021, the maximum dividends and distributions allowed under this covenant was approximately $175.9 million.

(5) Minimum of 1.50x if AFFO payout ratio is less than or equal to 95% and 1.70x if greater than 95%.

Loan fees and closing costs for the establishment and subsequent amendments of the Credit Facility are amortized utilizing the straight line method over the life of the Credit Facility. At December 31, 2021, unamortized loan fees and closing costs for the Credit Facility were approximately $1.8 million, which will be amortized over a remaining loan life of approximately 2.4 years. Loan fees and closing costs for the mortgage debt on the Company's properties are amortized utilizing the effective interest rate method over the lives of the loans.

Acquisition Facility

On February 28, 2017, the Company entered into a credit agreement, or Acquisition Credit Agreement, with Freddie Mac through KeyBank to obtain an acquisition revolving credit facility, or Acquisition Facility, with a maximum borrowing capacity of $200 million. The purpose of the Acquisition Facility is to finance acquisitions. On March 25, 2019, the maximum borrowing capacity was decreased to $90 million by agreement between the Company and KeyBank. The Acquisition Facility accrues interest at a variable rate of one month LIBOR plus a margin of between 1.75% per annum and 2.20% per annum, depending on the type of assets acquired and the resulting property debt service coverage ratio. The Acquisition Facility has a maturity date of March 1, 2022 and has 2 one-year extension options, subject to certain conditions described therein.

121

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Interest Expense

Interest expense, including amortization of deferred loan costs was:


	Years ended December 31,
(In thousands)	2021		2020		2019

Residential properties	$	55,346	$	60,676	$	62,455
New Market Properties	25,654		26,379		24,566
Preferred Office Properties	18,987		26,939		22,869
Interest paid to real estate loan participants	—		—		110

Total	99,987		113,994		110,000

Credit Facility and Acquisition Facility	2,427		4,564		1,964
Interest Expense	$	102,414	$	118,558	$	111,964

Future Principal Payments

The Company’s estimated future principal payments due on its debt instruments as of December 31, 2021 were:


Period	Future principal payments (in thousands)
2022	$	116,739
2023	81,850
2024	300,323
2025	56,875
2026	337,740
Thereafter	1,489,125

Total	$	2,382,652

10. Income Taxes

The Company elected to be taxed as a REIT effective with its tax year ended December 31, 2011, and therefore, the Company will not be subject to federal and state income taxes, so long as it distributes 90% of the Company's annual REIT taxable income (which does not equal net income as calculated in accordance with GAAP and is determined without regard for the deduction for dividends paid and excluding net capital gains) to its stockholders. For the Company's tax years prior to its REIT election year, its operations resulted in a tax loss. As of December 31, 2010, the Company had deferred federal and state tax assets totaling approximately $298,100, none of which were based upon tax positions deemed to be uncertain. These deferred tax assets will most likely not be used since the Company elected REIT status; therefore, management has determined that a 100% valuation allowance is appropriate as of December 31, 2021 and December 31, 2020.

122

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The income tax characterization of the Company's dividend distributions were as follows:


	2021		2020		2019
Preferred Stock:
Ordinary income	11.9	%	16.9	%	44.7	%
Return of capital	85.1	%	78.8	%	53.1	%
Capital gains	3.0	%	4.3	%	2.2	%

Common Stock:
Ordinary income	—	%	—	%	—	%
Return of capital	100.0	%	100.0	%	100.0	%
Capital gains	—	%	—	%	—	%

11. Commitments and Contingencies

On January 31, 2020, the Company assumed its Former Manager's eleven-year office lease as amended, which began on October 9, 2014. As of December 31, 2021, the amount of rent due from the Company was $11.7 million over the remaining term of the lease.

At December 31, 2021 the Company had unfunded commitments on its real estate loan portfolio of approximately $62.0 million.

At December 31, 2021, the Company had unfunded contractual commitments for tenant, leasing, and capital improvements of approximately $19.1 million.

The Company is otherwise currently subject to neither any known material commitments or contingencies from its business operations, nor any material known or threatened litigation.

12. Operating Leases

Company as Lessor

For the years ended December 31, 2021, 2020 and 2019, the Company recognized rental property revenues of $394.0 million, $435.4 million and $395.1 million respectively, of which $42.7 million, $42.0 million and $40.1 million, respectively, represented variable rental revenue. The Company's future minimum rental revenues were:


For the year ending December 31:	Future Minimum Rents as of December 31, 2021
(In thousands)	New Market Properties		Preferred Office Properties		Total

2022	$	74,105	$	21,273	$	95,378
2023	66,206		21,544		87,750
2024	55,384		25,931		81,315
2025	43,289		26,210		69,499
2026	31,593		26,190		57,783
Thereafter	91,229		120,499		211,728
Total	$	361,806	$	241,647	$	603,453

Company as Lessee

The Company has one ground lease for which the Company has evaluated its renewal option periods in quantifying its related

lessee asset and liability. In determining the value of its right of use asset and lease liability, the Company used discount rates

comparable to recent loan rates obtained on comparative properties within its portfolio.

123

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

The Company is also, as of January 31, 2020 following the Internalization, the lessee of office space for its property support center which expires in May 2026, and of furniture and office equipment, which leases generally are three to five years in duration with minimal rent increases. The Company subleases a portion of its leased office space to third parties; office rental expense is included net of the revenue from these subleases in the general and administrative expense line on the consolidated statements of operations. Revenue from subleased office space was approximately $0.9 million and $1.0 million for the twelve-month periods ended December 31, 2021 and 2020, respectively.

The Company recorded lease expense as follows:


(Dollars in thousands)	For the year ended December 31, 2021				Weighted average remaining lease term (years)	Weighted average discount rate
	Lease expense		Cash paid

Office space	$	2,913	$	2,930	4.0	3.0	%
Ground leases	23		15		43.0	4.5	%
Office equipment	125		125		2.7	3.0	%

Total	$	3,061	$	3,070

The Company's tenants often have the option to extend the lease within a specified amount of time, typically for an additional term of between five and ten years, at a specified rate increase. In addition, some leases have a termination right, under which the tenant will have a specified amount of time to notify the lessor of their intention to terminate a space. Terminations often include a specified dollar amount or a percentage of the rent remaining in the lease.

Future minimum rent expense for office space, ground lease and office equipment were:


For the year ending December 31:	Future Minimum Rents as of December 31, 2021
(In thousands)	Office space		Ground lease		Office equipment		Total

2022	$	2,855	$	15	$	58	$	2,928
2023	2,497		15		39		2,551
2024	3,139		15		19		3,173
2025	2,808		17		12		2,837
2026	355		17		—		372
Thereafter	—		921		—		921
Total	$	11,654	$	1,000	$	128	$	12,782

The Company’s grocery-anchored shopping centers are geographically concentrated within the Sunbelt and Mid-Atlantic region of the United States. The Company’s retail tenant base primarily consists of national and regional supermarkets, consumer services, healthcare providers, and restaurants. Our grocery anchor tenants comprise approximately 44.0% of our gross leasable area. Our credit risk, therefore, is concentrated in the retail/grocery real estate sector. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, with the exception of our grocer anchor tenants, who generally are not required to provide security deposits. Exposure to credit risk is limited to the extent that tenant receivables exceed security deposits. Security deposits related to tenant leases are included in security deposits and other liabilities in the accompanying consolidated balance sheets.

As of December 31, 2021, the Company’s approximately 1.1 million square foot office portfolio was 95% leased to a predominantly investment grade credit (or investment grade equivalent) tenant roster. For non-credit tenants, our leases typically require a security deposit or letter of credit, which limits worst case collection exposure to amounts in excess of those protections. Additionally, some credit tenant leases will include credit enhancement provisions that require a security deposit or letter of credit in the event of a rating downgrade. We conduct thorough credit analyses not only for leasing activities within our existing portfolio but also for major tenants in properties we are considering acquiring.

124

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

13. Segment Information

The Company's Chief Operating Decision Maker, or CODM, evaluates the performance of the Company's business operations and allocates financial and other resources by assessing the financial results and outlook for future performance across 4 distinct segments: multifamily communities, real estate related financing, New Market Properties and Preferred Office Properties.

Multifamily Communities - consists of the Company's portfolio of residential multifamily communities. Prior to the sale of the Company's student housing communities on November 3, 2020, this reportable segment's results also included those assets and was referred to as Residential Properties.

Financing - consists of the Company's portfolio of real estate loans, bridge loans, and other instruments deployed by the Company to partially finance the development, construction, and prestabilization carrying costs of new multifamily communities and other real estate and real estate related assets. Excluded from the financing segment are consolidated assets of VIEs and financial results of the Company's Dawson Marketplace grocery-anchored shopping center real estate loan, which are included in the New Market Properties segment.

New Market Properties - consists of the Company's portfolio of grocery-anchored shopping centers, which are owned by New Market Properties, LLC, a wholly-owned subsidiary of the Company, as well as the financial results from the Company's grocery-anchored shopping center real estate loans.

Preferred Office Properties - consists of the Company's portfolio of office buildings, which are owned by Preferred Office Properties, LLC, a wholly-owned subsidiary of the Company.

The CODM monitors net operating income (“NOI”) on a segment and a consolidated basis as a key performance measure for its operating segments. NOI is a non-GAAP measure that is defined as rental and other property revenue from real estate assets plus interest income from its loan portfolio less total property operating and maintenance expenses, property management fees, real estate taxes, property insurance, and general and administrative expenses. The CODM uses NOI as a measure of operating performance because it provides a measure of the core operations, rather than factoring in depreciation and amortization, financing costs, acquisition expenses, and other expenses generally incurred at the corporate level.

The following tables present the Company's assets, revenues, and NOI results by reportable segment, as well as a reconciliation from NOI to net income (loss). The assets attributable to 'Other' primarily consist of deferred offering costs recorded but not yet reclassified as reductions of stockholders' equity and cash balances at the Company and Operating Partnership levels.


(In thousands)	December 31, 2021		December 31, 2020

Assets:
Multifamily Communities	$	1,958,592	$	1,745,020
Financing	226,734		321,026
New Market Properties	1,032,658		1,072,090
Preferred Office Properties	327,548		1,121,992
Other	17,836		20,951
Consolidated assets	$	3,563,368	$	4,281,079

Total capitalized expenditures (inclusive of additions to construction in progress, but exclusive of the purchase price of acquisitions) for the years ended December 31, 2021, 2020 and 2019 were as follows:


	Years ended December 31,
(In thousands)	2021		2020		2019

Capitalized expenditures:
Residential properties	$	14,296	$	14,311	$	14,511
New Market Properties	8,286		9,494		8,913
Preferred Office Properties	5,072		25,621		19,761
Total	$	27,654	$	49,426	$	43,185

125

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Second-generation capital expenditures exclude those expenditures made in our office building portfolio (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 Class A ownership standards (and which amounts were underwritten into the total investment at the time of acquisition), (iii) for property redevelopments and repositionings (iv) to newly leased space which had been vacant for more than one year and (v) for building improvements that are recoverable from future operating cost savings.

Total revenues by reportable segment of the Company were:


	Years ended December 31,
(In thousands)	2021		2020		2019
Revenues

Rental and other property revenues:
Residential properties	$	217,013	$	234,038	$	220,872
New Market Properties	108,102		107,525		96,389
Preferred Office Properties (1)	80,447		108,826		93,416
Total rental and other property revenues	405,562		450,389		410,677

Financing revenues	45,496		50,723		59,750
Miscellaneous revenues	84		73		—
Consolidated revenues	$	451,142	$	501,185	470,427

(1) Included in rental revenues for our Preferred Office Properties segment is the amortization of deferred revenue for tenant-funded leasehold improvements from tenants in our Three Ravinia and Westridge office buildings. The remaining unamortized balance of approximately $32.2 million is included in the deferred revenues line on the consolidated balance sheets at December 31, 2021. These total costs will be amortized over the lesser of the useful lives of the improvements or the individual lease terms. The Company recorded non-cash revenue of approximately $3.8 million, $3.8 million and $3.8 million for the years ended December 31, 2021, 2020, and 2019 respectively.

The chief operating decision maker utilizes segment net operating income, or Segment NOI, in evaluating the performance of its operating segments. Segment NOI represents total property revenues less total property operating expenses, excluding depreciation and amortization, for all properties held during the period. Segment NOI for the Company's financing segment consists of interest revenues from the Company's real estate loan investments and notes and lines of credit receivable, as well as revenues from terminated property purchase options. Management believes that Segment NOI is a helpful tool in evaluating the operating performance of the segments because it measures the core operations of property performance by excluding corporate level expenses and other items not directly related to property operating performance.

126

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

Segment NOI for each reportable segment for the years ended December 31, 2021, 2020 and 2019 were as follows:


	Years ended December 31,
(In thousands)	2021		2020		2019
Segment net operating income (Segment NOI)

Residential Properties	$	127,273	$	132,858	$	122,753
New Market Properties	75,326		77,091		68,815
Preferred Office Properties	57,822		79,296		66,510
Financing	45,479		50,689		59,750
Miscellaneous revenues	84		73		—

Consolidated segment net operating income	305,984		340,007		317,828

Interest expense:
Residential Properties	55,346		60,676		62,455
New Market Properties	25,654		26,379		24,566
Preferred Office Properties	18,987		26,939		22,869
Financing	2,427		4,564		2,074
Depreciation and amortization:
Residential Properties	89,355		101,823		99,384
New Market Properties	45,753		51,813		44,786
Preferred Office Properties	33,864		47,829		40,888
Corporate entities	221		212		7
Management fees, net of forfeitures	—		1,963		21,752
Management Internalization	970		180,116		2,987
Allowance for expected credit losses	874		6,103		2,038
Equity compensation to directors and executives	3,289		1,644		1,223
Gain (loss) on sale of real estate loan investment and land	12		(517)		(954)
Gains on sales of real estate and mortgage-backed securities, net	(21,109)		(23,456)		(1,567)
Gain on non-cash net assets of consolidated VIEs	—		—		(1,831)
Loss from unconsolidated joint venture	665		314		—
Loss on extinguishment of debt	—		6,674		84
General and administrative	29,144		28,534		4,525

Net income (loss)	$	20,532	$	(181,603)	$	(7,458)

127

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

14. Income (Loss) Per Share

The following is a reconciliation of weighted average basic and diluted shares outstanding used in the calculation of income (loss) per share of Common Stock:


		Years ended December 31,
	(In thousands, except per-share figures)	2021		2020		2019
Numerator:
	Operating income (loss) before gains on sales of real estate and unconsolidated joint venture	$	102,514	$	(80,030)	$	100,238
	Loss from unconsolidated joint ventures	(665)		(314)		—
	Gains on sales of real estate and mortgage-backed securities, net	21,109		23,456		1,567

	Operating (loss) income	122,958		(56,888)		101,805
	Interest expense	102,414		118,558		111,964
	Change in fair value of net assets of consolidated VIEs from mortgage-backed pools	—		—		1,831
	Loss on extinguishments of debt	—		(6,674)		(84)
	Gain (loss) on sale of real estate loan investment and land, net	(12)		517		954

	Net (loss) income	20,532		(181,603)		(7,458)
	Net loss (income) attributable to non-controlling interests (A)	(86)		3,815		214

	Net (loss) income attributable to The Company	20,446		(177,788)		(7,244)

	Dividends declared to preferred stockholders (B)	(153,418)		(160,908)		(113,772)
	Dividends to holders of unvested restricted stock (C)	(514)		(205)		(17)

	Net loss attributable to common stockholders	$	(133,486)	$	(338,901)	$	(121,033)

Denominator:
	Weighted average number of shares of Common Stock - basic	51,499		48,743		44,265

	Effect of dilutive securities: (D)	—		—		—

	Weighted average number of shares of Common Stock - basic and diluted	51,499		48,743		44,265

	Net loss per share of Common Stock attributable to
	common stockholders, basic and diluted	$	(2.59)	$	(6.95)	$	(2.73)

(A) The Company's outstanding Class A Units of the Operating Partnership (468, 649 and 856 Units at December 31, 2021, 2020 and 2019, respectively) contain rights to distributions in the same amount per unit as for dividends declared on the Company's Common Stock. The impact of the Class A Unit distributions on earnings per share has been calculated using the two-class method whereby earnings are allocated to the Class A Units based on dividends declared and the Class A Units' participation rights in undistributed earnings.

(B) The Company’s shares of Series A Preferred Stock outstanding accrue dividends at an annual rate of 6% of the stated value of $1,000 per share, payable monthly. The Company had 1,321, 1,735 and 2,028 outstanding shares of Series A Preferred Stock at December 31, 2021, 2020 and 2019, respectively and 246, 149 and 5 outstanding shares of Series A1 Preferred Stock at December 31, 2021, 2020 and 2019, respectively. The Company's shares of Series M preferred stock, or mShares, accrue dividends at an escalating rate of 5.75% in year one to 7.50% in year eight and thereafter. The Company had 84, 89 and 103 mShares outstanding at December 31, 2021, 2020 and 2019, respectively. The Company's shares of Series M1 preferred stock accrue dividends at an escalating rate of 6.1% in year one to 7.1% in year ten and thereafter. The Company had 41, 19 and 0 shares of Series M1 preferred stock outstanding at December 31, 2021, 2020 and 2019, respectively.

(C) The Company's outstanding unvested restricted share awards (664, 548 and 13 shares of Common Stock at December 31, 2021, 2020 and 2019, respectively) contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares' participation rights in undistributed earnings. Given the Company's unvested restricted share awards are defined as participating securities, the dividends declared for that period are adjusted in determining the calculation of loss per share of Common Stock.

128

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

(D) Potential dilution from (i) warrants outstanding from issuances of Units from our Series A Preferred Stock offerings that are potentially exercisable into 19,510 shares of Common Stock; (ii) 58 Class B Units; (iii) 664 shares of unvested restricted common stock; (iv) 65 outstanding Restricted Stock Units; and 449 performance-based restricted stock units are excluded from the diluted shares calculations because the effect was antidilutive. Class A Units were excluded from the denominator because earnings were allocated to non-controlling interests in the calculation of the numerator.

15. Fair Values of Financial Instruments

Fair value is defined as the price at which an asset or liability is exchanged between market participants in an orderly transaction at the reporting date. The Company’s cash equivalents, notes receivable, accounts receivable and payables and accrued expenses all approximate fair value due to their short term nature.

The following tables provide estimated fair values of the Company’s financial instruments. The carrying values of the Company's real estate loans include accrued interest receivable from additional interest and are presented net of deferred loan fee revenue, where applicable.


	As of December 31, 2021
	Carrying value				Fair value measurements using fair value hierarchy
(In thousands)			Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Real estate loans	$	213,458	$	219,923	$	—	$	—	$	219,923
Notes receivable and line of credit receivable	9,011		9,011		—		—		9,011
	$	222,469	$	228,934	$	—	$	—	$	228,934
Financial Liabilities:
Mortgage notes payable	$	2,382,652	2,414,774		$	—	$	—	$	2,414,774
Revolving credit facility	—		—		—		—		—
	$	2,382,652	$	2,414,774	$	—	$	—	$	2,414,774


	As of December 31, 2020
	Carrying value				Fair value measurements using fair value hierarchy
(In thousands)			Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Real estate loans	$	302,423	$	315,074	$	—	$	—	$	315,074
Notes receivable and line of credit receivable	10,874		10,874		—		—		10,874
	$	313,297	$	325,948	$	—	$	—	$	325,948
Financial Liabilities:
Mortgage notes payable	$	2,640,705	$	2,666,471	$	—	$	—	$	2,666,471
Revolving line of credit	22,000		22,000		—		—		22,000
	$	2,662,705	$	2,688,471	$	—	$	—	$	2,688,471

The fair value of the real estate loans within the level 3 hierarchy are comprised of estimates of the fair value of the notes, which were developed utilizing a discounted cash flow model over the remaining terms of the notes until their maturity dates and utilizing discount rates believed to approximate the market risk factor for notes of similar type and duration. The fair values also contain a separately-calculated estimate of any applicable additional interest payment due the Company at the maturity date

129

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements - (continued)

December 31, 2021

of the loan, based on the outstanding loan balances at December 31, 2021, discounted to the reporting date utilizing a discount rate believed to be appropriate for multifamily development projects.

The fair values of the fixed rate mortgages on the Company’s properties were developed using market quotes of the fixed rate yield index and spread for 4, 5, 6, 7, 10, 15, 25 and 35 year notes as of the reporting date. The present values of the cash flows were calculated using the original interest rate in place on the fixed rate mortgages and again at the current market rate. The difference between the two results was applied as a fair market adjustment to the carrying value of the mortgages.

16. Subsequent Events

Between January 1, 2022 and February 10, 2022, the Company issued 3,167 shares of Series M1 Preferred Stock and collected net proceeds of approximately $3.1 million after commissions and fees. During the same period, the Company redeemed 9,453 shares of Series A Preferred Stock, 204 mShares, 212 shares of Series A1 Preferred Stock, and 267 shares of Series M1 Preferred Stock.

On February 10, 2022, we amended our real estate loan investment supporting The Platform, a 551-unit multifamily community located in San Jose, California. The maturity date of the instrument was extended to August 13, 2022 and a second extension option of December 31, 2022 was added. The all-in interest rate was reduced to 9.5% per annum beginning on the original maturity date of February 13, 2022 and it increases in steps each three-month period up to 11.0% per annum. As of January 31, 2022, the property's physical occupancy was 91.1%.

On February 11, 2022, the Company closed on a real estate loan investment of up to $16.7 million, in support of a 286-unit multifamily community located in the Orlando, Florida MSA.

On February 15, 2022, we refinanced our Chestnut Farm multifamily community with permanent mortgage financing in the amount of approximately $52.3 million, that bears interest at a rate of 3.25% and matures on March 1, 2032.

On February 16, 2022, the Company entered into the Merger Agreement, pursuant to which, following the Mergers, if closed, we will become a wholly owned subsidiary of Parent, which is affiliated with BREIT. If the Mergers are completed, each share of our Common Stock issued and outstanding immediately prior to closing will be automatically canceled and converted into the right to receive $25.00 in cash, and the Company will cease to be a publicly traded company on the New York Stock Exchange. The transaction has been unanimously approved by the Board of Directors and is expected to close in the second quarter of 2022, although there is no guarantee that it will occur by that date, or at all, and the transaction is subject to approval by stockholders and other customary closing conditions.

On February 24, 2022, the Company's board of directors declared a quarterly dividend on its Common Stock of $0.175 per share, payable on April 15, 2022 to stockholders of record on March 15, 2022.

On February 25, 2022, the Company closed on the acquisition of Lirio at Rafina, a 280-unit multifamily community located in the Orlando, Florida MSA.

On February 28, 2022, the Company closed on a real estate loan investment of up to $17.2 million, in support of a 242-unit multifamily community located in the Naples, Florida MSA.

Between January 1, 2022 and February 25, 2022, the Company issued no shares of Common Stock under the 2019 ATM Offering.

Between January 1, 2022 and February 22, 2022, we issued 3,358,780 shares of Common Stock from exercises of our outstanding Warrants.

Item 16. Form 10-K Summary

130

None.

131


Schedule III
Preferred Apartment Communities, Inc.
Real Estate Investments and Accumulated Depreciation
December 31, 2021

	(Dollars in thousands)		Initial Costs				Gross Amount Carried at Close of Period
	Properties	Related Encumbrances		Land	Building and Improvements	Costs Capitalized Subsequent to Acquisition		Land	Building and Improvements	Total (1)	Accumulated Depreciation	Year Constructed/Renovated	Date Acquired	Depreciable Lives (Years)
	Multifamily Communities
	Alabama
	Birmingham
	Retreat at Greystone	$40,057		$4,077	$44,462	$1,479		$4,077	$45,941	$50,018	$(12,179)	2015	3/24/2017	5 - 49
	Vestavia Reserve	35,860		4,140	54,206	1,294		4,140	55,500	59,640	(9,246)	2016	11/9/2018	5 - 48
	Florida
	Jacksonville
	Lux at Sorrel	29,239		5,332	42,531	1,082		5,332	43,613	48,945	(9,426)	2017	1/9/2018	5 - 49
	Sorrel	47,551		4,412	42,217	1,512		4,412	43,729	48,141	(10,450)	2015	8/24/2016	5 - 48
	The Menlo	47,000		7,670	64,983	220		7,670	65,203	72,873	(3,431)	2020	12/15/2020	5 - 50
	Melbourne
	Artisan at Viera	38,355		4,839	58,791	599		4,839	59,390	64,229	(7,074)	2018	8/8/2019	5 - 50
	Naples
	Aster at Lely Resort	50,400		7,675	43,794	1,904		7,675	45,698	53,373	(12,588)	2015	6/24/2015	5 - 40
	Orlando
	525 Avalon Park	61,933		7,410	82,349	4,543		7,410	86,892	94,302	(19,061)	2008	5/31/2016	5 - 45
	Citi Lakes	49,926		5,558	56,828	1,665		5,558	58,493	64,051	(15,257)	2014	9/3/2015	5 - 40
	The Blake	44,435		7,459	53,223	278		7,459	53,501	60,960	(3,149)	2019	11/2/2020	5 - 50
	Village at Baldwin Park	68,535		17,403	90,464	9,156		17,403	99,620	117,023	(21,501)	2008	1/5/2016	5 - 37
	Panama City
	Parkside at the Beach	45,037		6,103	53,689	627		6,103	54,316	60,419	(5,035)	2019	04/30/20	5 - 50
	Sarasota
	Luxe at Lakewood Ranch	36,147		4,852	51,033	1,037		4,852	52,070	56,922	(10,628)	2016	07/26/17	5 - 48
	Venue at Lakewood Ranch	36,555		3,791	42,950	1,344		3,791	44,294	48,085	(11,766)	2015	05/21/15	5 - 40
	Tampa
	Citrus Village	40,900		4,809	40,481	2,071		4,809	42,552	47,361	(8,968)	2011	03/03/17	5 - 44
	Crosstown Walk	46,500		5,178	39,332	1,838		5,178	41,170	46,348	(9,626)	2014	01/15/16	5 - 49
	Five Oaks at Westchase	30,167		4,425	48,113	463		4,425	48,576	53,001	(5,222)	2019	9/18/19	5 - 50
	Horizon Wiregrass Ranch	50,237		6,842	72,708	419		6,842	73,127	79,969	(6,620)	2018	3/31/20	5 - 47
	Lodge at Hidden River	39,469		5,600	52,930	641		5,600	53,571	59,171	(8,777)	2017	9/27/2018	5 - 48
	Overlook at Crosstown Walk	20,607		3,309	28,014	456		3,309	28,470	31,779	(6,445)	2016	11/21/2017	5 - 48

132


(Dollars in thousands)		Initial Costs				Gross Amount Carried at Close of Period
Properties	Related Encumbrances		Land	Building and Improvements	Costs Capitalized Subsequent to Acquisition		Land	Building and Improvements	Total (1)	Accumulated Depreciation	Year Constructed/Renovated	Date Acquired	Depreciable Lives (Years)
Georgia
Atlanta
Aldridge at Town Village	38,846		7,122	45,418	681		7,122	46,099	53,221	(12,510)	2016	9/29/2017	5 - 49
Green Park	37,014		7,478	49,211	614		7,478	49,825	57,303	(12,102)	2017	2/28/2018	5 - 48
Overton Rise	36,749		8,511	50,996	1,588		8,511	52,584	61,095	(11,092)	2015	2/1/2016	5 - 49
Reserve at Summit Crossing	18,487		4,375	25,939	504		4,375	26,443	30,818	(6,278)	2016	9/29/2017	5 - 48
Summit Crossing	36,174		3,450	27,705	3,194		3,450	30,899	34,349	(11,820)	2007	4/21/2011	5 - 40
Summit Crossing II	20,700		3,220	15,852	553		3,220	16,405	19,625	(4,996)	2013	12/31/2013	5 - 40
The Ellison	48,000		6,943	59,354	24		6,943	59,378	66,321	(1,373)	2021	6/30/2021	5 - 50
Kansas
Kansas City
Adara Overland Park	29,397		2,854	42,030	819		2,854	42,849	45,703	(12,566)	2016	9/27/2017	5 - 49
Kentucky
Lousiville
Claiborne Crossing	25,045		2,147	37,579	1,639		2,147	39,218	41,365	(10,538)	2014	4/26/2017	5 - 47
North Carolina
Charlotte
Chestnut Farm	51,800		4,335	67,504	219		4,335	67,723	72,058	(882)	2021	9/17/2021	5 - 50
CityPark View	29,000		3,559	28,360	1,394		3,559	29,754	33,313	(8,303)	2014	6/30/2015	5 - 40
CityPark View South	22,970		5,816	27,528	747		5,816	28,275	34,091	(5,322)	2017	11/15/2018	5 - 49
Pennsylvania
Pittsburgh
City Vista	32,170		4,082	41,486	827		4,082	42,313	46,395	(10,156)	2014	7/1/2016	5 - 49
Tennessee
Nashville
Lenox Village Town Center	37,492		4,612	39,911	2,133		4,355	42,301	46,656	(9,710)	2009	12/21/2015	5 - 40
Regent at Lenox	—		301	3,493	81		301	3,574	3,875	(817)	2009	12/21/2015	5 - 40
Retreat at Lenox	16,370		2,965	24,211	562		2,860	24,878	27,738	(6,396)	2015	12/21/2015	5 - 40
The Anson	56,440		4,521	69,580	265		4,521	69,845	74,366	(892)	2020	9/14/2021	5 - 50
Texas
Fort Worth
Alleia at Presidio	35,700		4,333	44,645	86		4,333	44,731	49,064	(1,099)	2020	7/8/2021	5 - 50
Houston
Avenues at Cypress	28,366		3,242	30,093	1,380		3,242	31,473	34,715	(9,740)	2014	2/13/2015	5 - 40
Avenues at Northpointe	33,546		3,921	37,203	1,370		3,921	38,573	42,494	(11,736)	2013	2/13/2015	5 - 40
Stone Creek	19,090		2,211	22,916	521		2,211	23,437	25,648	(5,733)	2009	11/12/2015	5 - 40

133


(Dollars in thousands)		Initial Costs				Gross Amount Carried at Close of Period
Properties	Related Encumbrances		Land	Building and Improvements	Costs Capitalized Subsequent to Acquisition		Land	Building and Improvements	Total (1)	Accumulated Depreciation	Year Constructed/Renovated	Date Acquired	Depreciable Lives (Years)
Virginia
Fredericksburg
The Kingson	53,697		7,507	61,381	57		7,507	61,438	68,945	(890)	2020	9/16/2021	5 - 50
Richmond
Colony at Centerpointe	30,744		7,259	38,199	1,388		7,259	39,587	46,846	(9,372)	2016	12/20/2017	5 - 48
Williamsburg
Founder's Village	29,038		5,315	38,761	1,281		5,315	40,042	45,357	(8,534)	2014	3/31/2017	5 - 47

Total Multifamily	$1,625,745		$230,963	$1,992,453	$54,555		$230,601	$2,047,370	$2,277,971	$(369,306)

Grocery-anchored retail
Alabama
Birmingham
Southgate Village	$6,830		$2,262	$10,290	$541		$2,262	$10,831	$13,093	$(2,279)	1988	4/29/2016	5 - 35
Florida
Miami
Shoppes of Parkland	15,111		10,779	16,543	631		10,779	17,174	27,953	(4,432)	2000	8/8/2016	5 - 35
Naples
Crossroads Market	17,111		7,044	22,627	540		7,044	23,167	30,211	(2,914)	1993	12/5/2017	5 - 40
Orlando
Berry Town Center	11,554		3,062	13,628	275		3,062	13,903	16,965	(1,452)	2003	11/14/2019	5 - 30
Conway Plaza	9,193		4,202	9,782	1,642		4,202	11,424	15,626	(2,124)	1966	6/29/2018	5 - 30
Deltona Landings	5,986		2,256	8,344	559		2,256	8,903	11,159	(2,474)	1999	9/30/2014	5 - 30
University Palms	11,626		4,854	16,706	920		4,854	17,626	22,480	(3,360)	1993	8/8/2016	5 - 37
Tampa-St Petersburg
Barclay Crossing	5,933		2,856	7,572	331		2,856	7,903	10,759	(2,170)	1998	9/30/2014	5 - 30
Disston Plaza	17,238		5,579	22,048	82		5,579	22,130	27,709	(2,322)	1954	6/12/2019	5 - 35
West Palm Beach
Polo Grounds Mall	12,735		9,057	10,907	393		9,057	11,300	20,357	(1,669)	1966	6/12/2019	5 - 30
Georgia
Atlanta
Castleberry Southard	10,500		3,024	14,142	232		3,024	14,374	17,398	(2,449)	2006	4/21/2017	5 - 39
Cherokee Plaza	23,660		8,392	32,249	570		8,392	32,819	41,211	(5,380)	1958	8/8/2016	5 - 35
Governors Towne Square	10,404		2,766	13,027	171		2,766	13,198	15,964	(1,778)	2004	4/27/2018	5 - 40
Lakeland Plaza	25,771		7,079	33,087	823		7,079	33,910	40,989	(7,534)	1990	7/15/2016	5 - 35
Powder Springs	7,540		1,832	8,246	678		1,832	8,924	10,756	(2,570)	1999	9/30/2014	5 - 30
Rockbridge Village	13,011		3,141	15,944	615		3,141	16,559	19,700	(2,306)	2005	6/6/2017	5 - 40
Roswell Wieuca	—		12,006	18,485	258		12,006	18,743	30,749	(2,375)	2007	11/30/2017	5 - 40

134


(Dollars in thousands)	Related Encumbrances		Initial Costs				Gross Amount Carried at Close of Period				Accumulated Depreciation		Year Constructed/Renovated		Date Acquired		Depreciable Lives (Years)
Properties				Land	Building and Improvements	Costs Capitalized Subsequent to Acquisition		Land	Building and Improvements	Total (1)
Royal Lakes Marketplace		9,108		4,874	10,439	289		4,665	10,937	15,602		(2,846)		2008		9/4/2015		5 - 30
Sandy Plains Exchange		8,121		4,788	9,309	500		4,788	9,809	14,597		(2,209)		1997		8/8/2016		5 - 32
Summit Point		10,728		7,064	11,430	538		7,064	11,968	19,032		(3,203)		2004		10/30/2015		5 - 30
Thompson Bridge Commons		10,857		1,478	16,047	48		1,478	16,095	17,573		(2,734)		2001		8/8/2016		5 - 40
Wade Green Village		7,315		1,840	8,410	745		1,840	9,155	10,995		(2,366)		1993		2/29/2016		5 - 35
Woodmont Village		7,862		2,713	10,030	375		2,713	10,405	13,118		(2,050)		2002		9/8/2017		5 - 30
Woodstock Crossing		5,300		1,751	3,800	659		1,751	4,459	6,210		(1,573)		1994		2/12/2014		5 - 30
Augusta
East Gate Shopping Center		4,952		1,653	7,391	132		1,653	7,523	9,176		(1,758)		1995		4/29/2016		5 - 30
Fury's Ferry		5,720		2,084	8,107	355		2,084	8,462	10,546		(1,825)		1996		4/29/2016		5 - 35
Columbus
Parkway Centre		4,312		2,071	4,516	568		2,071	5,084	7,155		(1,447)		1999		9/30/2014		5 - 30
Maryland
Washington, DC
Free State Shopping Center		44,673		21,443	44,831	186		21,443	45,017	66,460		(5,217)		1970		5/28/2019		5 - 35
North Carolina
Charlotte
Brawley Commons		17,056		8,786	18,716	338		8,786	19,054	27,840		(3,224)		1997		7/6/2018		5 - 40
West Town Market		8,008		1,937	12,298	48		1,937	12,346	14,283		(1,886)		2004		9/22/2017		5 - 37
Raleigh
Heritage Station		8,036		1,684	9,883	1,633		1,684	11,516	13,200		(2,531)		2004		8/8/2016		5 - 40
Maynard Crossing		16,439		6,304	22,566	906		6,304	23,472	29,776		(4,717)		1996		8/25/2017		5 - 30
Wakefield Crossing		7,525		1,997	9,252	10		1,997	9,262	11,259		(910)		2001		1/29/2020		5 - 30
Wilmington
Hanover Center		30,402		16,634	40,393	953		16,634	41,346	57,980		(4,403)		1954		12/19/2019		5 - 30
South Carolina
Charleston
Sweetgrass Corner		—		3,076	12,670	303		3,076	12,973	16,049		(3,571)		1999		9/30/2014		5 - 30
Columbia
Irmo Station		9,467		3,602	11,859	1,377		3,602	13,236	16,838		(2,401)		1980		7/26/2017		5 - 33
Rosewood Shopping Center		3,842		1,671	5,347	163		1,671	5,510	7,181		(1,058)		2002		4/29/2016		5 - 40
Greenville Spartanburg
Anderson Central		10,940		5,059	13,278	591		5,059	13,869	18,928		(4,066)		1999		4/29/2016		5 - 30
Fairview Market		7,100		1,353	5,179	1,553		1,353	6,732	8,085		(1,507)		1998		4/29/2016		5 - 30
Tennessee
Chattanooga
The Overlook at Hamilton Place		18,648		6,787	25,244	1,766		6,787	27,010	33,797		(6,322)		1992		12/22/2015		5 - 30

135


(Dollars in thousands)		Initial Costs				Gross Amount Carried at Close of Period
Properties	Related Encumbrances		Land	Building and Improvements	Costs Capitalized Subsequent to Acquisition		Land	Building and Improvements	Total (1)	Accumulated Depreciation	Year Constructed/Renovated	Date Acquired	Depreciable Lives (Years)
Nashville
Greensboro Village	7,820		3,134	10,771	426		3,134	11,197	14,331	(1,973)	2005	4/27/2018	5 - 40
Parkway Town Centre	7,657		3,054	6,694	620		3,054	7,314	10,368	(2,028)	2005	9/5/2014	5 - 40
Salem Cove	8,696		2,427	10,272	252		2,427	10,524	12,951	(2,439)	2010	10/6/2014	5 - 40
Spring Hill Plaza	7,751		4,376	8,104	745		4,376	8,849	13,225	(2,773)	2005	9/5/2014	5 - 40
The Market at Victory Village	8,582		2,271	12,275	236		2,271	12,511	14,782	(2,574)	2007	5/16/2016	5 - 40
Texas
Dallas
Independence Square	10,902		4,115	13,690	2,065		4,115	15,755	19,870	(4,383)	1977	7/1/2015	5 - 30
Midway Market	9,991		7,331	5,110	103		7,331	5,213	12,544	(650)	2002	3/19/2020	5 - 30
Houston
Champions Village	—		12,813	33,399	4,424		12,813	37,823	50,636	(8,763)	1973	10/18/2016	5 - 40
Kingwood Glen	—		5,021	12,930	1,379		4,762	14,568	19,330	(3,879)	1998	9/30/2014	5 - 30
San Antonio
Oak Park Village	8,292		5,745	10,779	143		5,745	10,922	16,667	(2,125)	1970	8/8/2016	5 - 40
Virginia
Charlottesville
Hollymead Town Center	25,491		7,503	33,009	517		7,503	33,526	41,029	(3,419)	2005	12/21/2018	5 - 40
Richmond
Gayton Crossing	16,855		9,109	17,791	2,888		9,109	20,679	29,788	(2,513)	1983	1/17/2019	5 - 30
Virginia Beach
Fairfield Shopping Center	19,750		12,728	14,526	1,288		12,728	15,814	28,542	(2,890)	1985	8/16/2019	5 - 30

Total Retail	$592,401		$280,467	$783,972	$38,383		$279,999	$822,823	$1,102,822	$(153,821)

Office buildings
Georgia
Atlanta
Three Ravinia	$115,500		$9,785	$154,023	$66,498		$11,083	$219,223	$230,306	$(43,225)	1991	12/30/2016	7 - 39
North Carolina
Charlotte
4th & Brevard	—		13,917	101	—		13,917	101	$14,018	(78)	n/a	3/16/2020	7
Texas
San Antonio
Westridge	49,006		15,778	58,496	5,637		15,778	64,133	$79,911	(11,261)	2016	11/13/2017	13 - 50

Total Office	$164,506		$39,480	$212,620	$72,135		$40,778	$283,457	$324,235	$(54,564)

136


	Corporate Entities	—	—		—		—		—	2,110	2,110	(805)

	Total	$2,382,652	$550,910		$2,989,045		$165,073		$551,378	$3,155,760	$3,707,138	$(578,496)

(1) The aggregate cost for federal income tax purposes to the Company was approximately $4.2 billion at December 31, 2021.
(2) The costs capitalized subsequent to acquisition amount includes approximately $6.9 million of assets in 2017 which were written off due to damages from Hurricane Harvey.

(In thousands)					For the years ended December 31,
Real estate investments					2021		2020		2019
Balance at the beginning of the year			$	4,143,291	$	4,394,529	$	3,672,715
Acquisitions			330,104		310,329		679,423
Improvements			29,742		50,616		42,887
Write-off of assets no longer in service			(3,491)		(1,208)		(261)
Disposal of assets			(792,658)		(612,622)		(549)
Gross corporate entity assets			150		1,647		314
Balance at the end of the year			$	3,707,138	$	4,143,291	$	4,394,529

Accumulated depreciation
Balance at the beginning of the year			$	(509,547)	$	(421,551)	$	(272,042)
Depreciation (a)			(139,546)		(163,463)		(149,884)
Write-off of assets no longer in service			3,491		1,208		261
Disposal of assets			67,524		74,656		114
Accumulated depreciation corporate entity assets			(418)		(397)		—
Balance at the end of the year			$	(578,496)	$	(509,547)	$	(421,551)

(a) Represents depreciation expense of real estate assets. Amounts include corporate entity assets following the Internalization transaction and exclude amortization of lease intangible assets for all periods.

137


Schedule IV
Preferred Apartment Communities, Inc.
Mortgage Loans on Real Estate
December 31, 2021

Description	Property Name	Location (MSA)	Interest Rate	Maturity Date	Periodic Payment Terms		Prior Liens		Face Amount of Mortgages (in thousands)		Carrying Amount of Mortgages (in thousands)		Principal Amount of Mortgages Subject to Delinquent Principal or Interest

Real Estate Construction Loan on Residential Properties:
	The Platform	San Jose, CA	11.5%	8/13/2022	(1)	8.5 / 3.0	—		$	137,616	$	136,061	$	—
	Vintage Horizon West	Orlando, FL	14.0%	10/11/2022	(2)	8.5 / 5.5	—		10,900		9,828		—
	One Nexton	Charleston, SC	11.0%	12/16/2022	(6)	11.00 / 0.00	—		6,265		6,265		—
	Vintage Jones Franklin	Raleigh, NC	14.0%	11/14/2023	(2)	8.5 / 5.5	—		10,000		8,989		—
	The Hudson	Orlando, FL	13.0%	9/1/2024	(4)	8.5 / 4.5	—		16,791		13,873		—
	Solis Cumming Town Center	Atlanta, GA	14.0%	9/3/2024	(2)	8.5 / 5.5	—		20,681		18,153		—
	Club Drive	Atlanta, GA	13.0%	2/11/2025	(4)	8.5 / 4.5	—		23,150		5,551		—
	The Menlo II	Jacksonville, FL	12.0%	4/14/2025	(3)	8.5 / 3.5	—		16,610		4,500		—
	Beaver Ruin	Atlanta, GA	13.0%	5/3/2025	(4)	8.5 / 4.5	—		9,133		—		—
	Populus at Pooler	Savannah, GA	12.75%	5/27/2025	(5)	8.5 / 4.25	—		15,907		2,104		—
	Populus at Pooler Capital	Savannah, GA	12.75%	5/27/2025	(5)	8.5 / 4.25	—		1,169		946		—

				Total			—		268,222		206,270		—

				Unamortized loan origination fees			—		—		(1,755)		—

				Allowances for expected credit losses			—		—		(8,095)		—

				Carrying amount			$	—	$	268,222	$	196,420	$	—

(1) Fixed rate, interest only, 8.5% payable monthly and 3.0% accrued
(2) Fixed rate, interest only, 8.5% payable monthly and 5.5% accrued
(3) Fixed rate, interest only, 8.5% payable monthly and 3.5% accrued
(4) Fixed rate, interest only, 8.5% payable monthly and 4.5% accrued
(5) Fixed rate, interest only, 8.5% payable monthly and 4.25% accrued
(6) Fixed rate, interest only, 11% payable monthly until June 16, 2022, and then 13% payable monthly until December 16, 2022

138

Exhibit Index


The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K (and are numbered in accordance with Item 601 of Regulation S-K):

Exhibit No.	References	Description
2.1		Stock Purchase Agreement, dated as of January 31, 2020, by and among Preferred Apartment Communities, Inc., Preferred Apartment Communities Operating Partnership, L.P., PAC Carveout, LLC, NELL Partners, Inc., NMA Holdings, Inc., Mortwat, LLC, Northside Partners Trust, Nancy Ann Richardson Williams 2017 Children’s Trust, Caitboo Family Trust, Fairmont Green Trust, and Murphy Capital and Advisory Group LLC. Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on February 3, 2020
2.2		Agreement and Plan of Merger, dated as of February 16, 2022, by and among Pike Parent LLC, Pike Merger Sub I LLC, Pike Merger Sub II LLC, Pike Merger Sub III LLC, Preferred Apartment Communities, Inc., Preferred Apartment Communities Operating Partnership, L.P., and PAC Operations, LLC Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on February 16, 2022
3.1		Articles of Amendment and Restatement of Preferred Apartment Communities, Inc. Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 1, 2021
3.2		Fifth Amended and Restated By-laws of Preferred Apartment Communities, Inc. Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on November 19, 2020
3.3		First Amendment to Fifth Amended and Restated Bylaws of Preferred Apartment Communities, Inc. Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange commission on February 16, 2022
3.4		Articles Supplementary for the Series A Redeemable Preferred Stock Previously filed with the Pre-effective Amendment No. 1 to Form S-11 Registration Statement (Registration No.: 333-176604) filed by the Registrant with the Securities and Exchange Commission on November 2, 2011
3.5		Articles Supplementary for the Series M Redeemable Preferred Stock Previously filed with the Form S-3 Registration Statement (Registration No.: 333-214531) filed by the Registrant with the Securities and Exchange Commission on November 9, 2016
3.6		Articles Supplementary classifying an additional 900,000 shares of the Series A Redeemable Preferred Stock Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 28, 2013
3.7		Articles Supplementary classifying an additional 2,000,000 shares of the Series A Redeemable Preferred Stock Previously filed with the Form S-3 Registration Statement (Registration No.: 333-211924) filed by the Registrant with the Securities and Exchange Commission on June 9, 2016
3.8		Articles Supplementary for the Series A1 Redeemable Preferred Stock Previously filed with the Form S-3 Registration Statement (Registration No.: 333-233576) filed by the Registrant with the Securities and Exchange Commission on August 30, 2019
3.9		Articles Supplementary for the Series M1 Redeemable Preferred Stock Previously filed with the Form S-3 Registration Statement (Registration No.: 333-233576) filed by the Registrant with the Securities and Exchange Commission on August 30, 2019
3.10		Amendment to Articles Supplementary for the Series A Redeemable Preferred Stock Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on November 19, 2020
4.1		Sixth Amended and Restated Partnership Agreement, dated June 3, 2016, among Preferred Apartment Communities, Inc., Preferred Apartment Advisors, LLC and the other limited partners party thereto Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on June 6, 2016
4.2		Form of Series A Subscription Agreement Previously filed with the Pre-effective Amendment No. 2 to Form S-3 Registration Statement (Registration No. 333-211924) filed by the Registrant with the Securities and Exchange Commission on November 8, 2016

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4.3		First Amendment to the Sixth Amended and Restated Partnership Agreement, dated as of January 25, 2017, entered into by Preferred Apartment Communities, Inc. Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on January 26, 2017
4.4		Articles of Amendment Amending the Holder Redemption Options of the Company's Series A Redeemable Preferred Stock Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on June 26, 2014
4.5		Amended and Restated Warrant Agreement dated as of March 14, 2012 between Preferred Apartment Communities, Inc. and Computershare Trust Company, N.A., as Warrant Agent Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 15, 2012
4.6		Form of Global Warrant Certificate Previously filed with the Pre-effective Amendment No. 1 to Form S-11 Registration Statement (Registration No.: 333-176604) filed by the Registrant with the Securities and Exchange Commission on November 2, 2011
4.7		Second Amended and Restated Warrant Agreement between Preferred Apartment Communities, Inc. and Computershare Trust Company, N.A., as Warrant Agent dated as of October 11, 2013 Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on October 15, 2013
4.8		Warrant Agreement between Preferred Apartment Communities, Inc. and Computershare Trust Company, N.A., as Warrant Agent dated as of February 23, 2017 Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on February 24, 2017
4.9		Second Amendment to the Sixth Amended and Restated Partnership Agreement, dated as of November 7, 2019, entered into by Preferred Apartment Communities, Inc. Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on November 7, 2019
4.10		Form of Series A1 and M1 Subscription Agreement Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on October 2, 2019
4.11		Description of Common Stock Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
4.12		Description of Series A Redeemable Preferred Stock Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
4.13		Description of Warrant to Purchase Common Stock Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
4.14		Description of Series M Redeemable Preferred Stock Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
4.15		Description of Series A1 Redeemable Preferred Stock Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
4.16		Description of Series M1 Redeemable Preferred Stock Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
10.1	*	The Company’s 2019 Stock Incentive Plan Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on May 2, 2019
10.2	*	First Amendment to the Company's 2019 Stock Incentive Plan Previously filed with the Registration Statement on Form S-8 filed by the Registrant with Securities and Exchange Commission on June 4, 2021
10.3	*	Form of Director Restricted Stock Agreement pursuant to the Preferred Apartment Communities, Inc. 2019 Stock Incentive Plan Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on June 19, 2020

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10.4	*	Form of Restricted Stock Agreement (Officer) pursuant to the Preferred Apartment Communities, Inc. 2019 Stock Incentive Plan Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on June 19, 2020
10.5	*	Form of Restricted Stock Unit Agreement (Officer) pursuant to the Preferred Apartment Communities, Inc. 2019 Stock Incentive Plan Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 6, 2020
10.6		Form of Indemnification Agreement Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on April 7, 2011
10.7	*	Form of Preferred Apartment Communities, Inc. 2018 Class B Unit Award Agreement (3 year) Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on January 29, 2018
10.8		Sales Agreement dated June 21, 2019 by and between Preferred Apartment Communities, Inc. and RBC Capital Markets, LLC, JonesTrading Institutional Services LLC, B. Riley FBR, Inc., Compass Point Research & Trading, LLC, D.A. Davidson & Co., JMP Securities LLC, and National Securities Corporation. Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on June 24, 2019
10.9		Fourth Amended and Restated Credit Agreement dated as of August 5, 2016 among Preferred Apartment Communities, Inc., Preferred Apartment Communities Operating Partnership, L.P., the lenders party thereto and KeyBank National Association Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 10, 2016
10.10		Amendment No. 3, dated as of May 4, 2021, to Fourth Amended and Restated Credit Agreement dated as of August 5, 2016 among Preferred Apartment Communities, Inc. Preferred Apartment Communities Operating Partnership, L.P., the lenders party thereto and KeyBank National Association Previously filed with the Quarterly Report on Form 10-Q filed by the Registrant with the Securities and Exchange Commission on May 10, 2021
10.11		Fourth Amended and Restated Pledge and Security Agreement dated as of August 5, 2016 among Preferred Apartment Communities Operating Partnership, L.P., (the "Borrower"), each of the subsidiaries of the Borrower party thereto and KeyBank National Association Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 10, 2016
10.12		Fourth Amended and Restated Guaranty dated as of August 5, 2016 by and among Preferred Apartment Communities, Inc., each of the guarantors party thereto and KeyBank National Association Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 10, 2016
10.13		Form of Buy-Sell Agreement with KeyBank National Association Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on February 17, 2015
10.14		Form of Escrow Agreement for Series A1 and M1 Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on October 2, 2019
10.15		Consulting Agreement Between Leonard A. Silverstein and Preferred Apartment Communities, Inc. Previously filed with the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 3, 2020
10.16	*	Preferred Apartment Communities, Inc. Executive Severance and Change in Control Plan Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 6, 2020
10.17	*	Executive Severance and Change in Control Participation Agreement (Form) Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 6, 2020
10.18	*	Executive Severance and Change in Control Participation Agreement - CEO/CFO (Form) Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 6, 2020

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10.19	*	Form of 2021 Performance Restricted Stock Unit Agreement (Officer) Previously filed with the Quarterly Report on 10-Q filed by the Registrant with the Securities and Exchange Commission on May 10, 2021
10.20	*	Separation Agreement dated July 15, 2021 by and between Preferred Apartment Advisors, LLC, a subsidiary of the Registrant, and Parker Boone DuPree Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on July 19, 2021
10.21		Purchase and Sale Agreement dated as of April 16, 2021 by and among POP 4208 Six Forks Road, L.P., POP Morrocroft, L.P., POP 150 Fayetteville, LP, POP Capitol Towers, LP, PAC Galleria 75, LLC, POP 8West Mezzanine Lending, LLC and Highwoods Realty Limited Partnership Previously filed with the Quarterly Report on 10-Q filed by the Registrant with the Securities and Exchange Commission on August 9, 2021
10.22		Purchase and Sale Agreement dated as of April 16, 2021 by and among POP Armour Yards, LLC, POP 251 Armour Yards, LLC and Highwoods Realty Limited Partnership (portions of the exhibit have been omitted) Previously filed with the Quarterly Report on 10-Q filed by the Registrant with the Securities and Exchange Commission on August 9, 2021
21	(1)	Subsidiaries of Preferred Apartment Communities, Inc.
23.1	(1)	Consent of PriceWaterhouseCoopers LLP
31.1	(1)	Certification of Joel T. Murphy, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	(1)	Certification of John A. Isakson, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	(1)	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	(1)	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	(1)	XBRL (eXtensible Business Reporting Language). The following materials for the period ended December 31, 2021, formatted Inline XBRL: (i) Consolidated balance sheets at December 31, 2021 and December 31, 2020, (ii) consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019, (iii) consolidated statements of equity and accumulated deficit, (iv) consolidated statements of cash flows and (v) notes to consolidated financial statements.
104		Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101).

	*	Management contract or compensatory plan, contract or arrangement.
	(1)	Filed herewith

142

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PREFERRED APARTMENT COMMUNITIES, INC.

Date: February 28, 2022

By:

/s/ Joel T. Murphy

Joel T. Murphy

Chief Executive Officer

(Principal Executive Officer)

Date: February 28, 2022

By:

/s/ John A. Isakson

John A. Isakson

Chief Financial Officer

(Principal Financial Officer)

Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ Joel T. Murphy

Chief Executive Officer, President and Director

February 28, 2022

Joel T. Murphy

(Principal Executive Officer)

/s/ John A. Isakson

Chief Financial Officer (Principal Financial Officer)

February 28, 2022

John A. Isakson

/s/ Michael J. Cronin

Executive Vice President, Chief Accounting Officer and Treasurer

February 28, 2022

Michael J. Cronin

(Principal Accounting Officer)

/s/ Steve Bartkowski

Director

February 28, 2022

Steve Bartkowski

/s/ Gary B. Coursey

Director

February 28, 2022

Gary B. Coursey

/s/ Daniel M. DuPree

Director

February 28, 2022

Daniel M. DuPree

/s/ Howard A. McLure

Director

February 28, 2022

Howard A. McLure

/s/ Timothy A. Peterson

Director

February 28, 2022

Timothy A. Peterson

/s/ John M. Cannon

Director

February 28, 2022

John M. Cannon

/s/ Sara J. Finley

Director

February 28, 2022

Sara J. Finley

/s/ Daphne B. Jackson

Director

February 28, 2022

Daphne B. Jackson

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Preferred Apartment Communities (APTS) 10-K2021 FY Annual report

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