Preferred Apartment Communities, Inc. Reports Results for Third Quarter 2017

ATLANTA, Oct. 30, 2017 /PRNewswire/ -- Preferred Apartment Communities, Inc. APTS ("we", "our", the "Company" or "Preferred Apartment Communities") today reported results for the quarter ended September 30, 2017. Unless otherwise indicated, all per share results are reported based on the basic weighted average shares of Common Stock and Class A Units of the Company's operating partnership ("Class A Units") outstanding.

"The third quarter continued our strong results for the year. Our FFO is up 53% per share for the first nine months; our Core FFO is up 12.1% and our dividend increase is 15.5% per share.  These were extraordinary accomplishments.  During the nine months, we have issued 9.1 million shares of Common Stock," said John A. Williams, Preferred Apartment Communities' Chairman and Chief Executive Officer.

Financial Highlights

Our operating results are presented below.

 

Funds from operations ("FFO") for the three months ended September 30, 2016 reflect acquisition-related costs of approximately $1.4 million, or $0.05 per share. In 2017, the majority of these types of costs are deferred and amortized over the life of the acquired assets (see "2017 Guidance" section). Core Funds From Operations Attributable to Common Stockholders and Unitholders ("Core FFO") excludes acquisition costs and certain other costs not representative of our ongoing operations. Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders ("AFFO") removes significant non-cash revenues and expenses from our Core FFO results.

• For the third quarter 2017, our Core FFO payout ratio to our Common Stockholders and Unitholders was approximately 64.5% and our AFFO payout ratio to Common Stockholders and Unitholders was approximately 88.2%. ⁽¹⁾

• For the third quarter 2017, our Core FFO payout ratio (before the deduction of preferred dividends) to our Series A Preferred Stockholders was approximately 55.9% and our AFFO payout ratio (before the deduction of preferred dividends) to our Series A Preferred Stockholders was approximately 63.4%. ⁽¹⁾

• We issued approximately 3.2 million shares of Common Stock during the third quarter 2017 and approximately 9.1 million shares of Common Stock during the nine months ended September 30, 2017.

• At September 30, 2017, the market value of our common stock was $18.88. A hypothetical investment in our Common Stock in our initial public offering on April 5, 2011, assuming the reinvestment of all dividends and no transaction costs, would have resulted in an average annual return of approximately 28.7% through September 30, 2017.

• As of September 30, 2017, our total assets were approximately $2.9 billion compared to approximately $2.1 billion as of September 30, 2016, an increase of approximately $0.8 billion, or approximately 37.9%. This growth was driven primarily by the acquisition of 18 real estate properties (less the sale of three properties) and an increase of approximately $104.3 million of the funded amount of our real estate loan investment portfolio since September 30, 2016.

• As of September 30, 2017, the average age of our multifamily communities was approximately 5.9 years, which we believe is among the youngest in the multifamily REIT industry.

• At September 30, 2017, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 54.3%.

• Cash flow from operations for the quarter ended September 30, 2017 was approximately $28.1 million, an increase of approximately $7.0 million, or 33.8%, compared to approximately $21.0 million for the quarter ended September 30, 2016.

• For the three-month period ended September 30, 2017, our average physical occupancy was 94.9%.

• We sustained damages at our Stone Creek multifamily community from Hurricane Harvey in the third quarter. The resulting impact required us to write off approximately $6.9 million in depreciated real estate assets. We expect our property insurance to cover all losses. Our income for the three-month period ended September 30, 2017 was impacted by approximately $217,000 for our insurance deductible, lost rent, and other related costs. Hurricane Irma also impacted our portfolio of multifamily and grocery-anchored shopping center properties in Florida. We anticipate costs associated with this storm to total approximately $300,000 to $500,000, which will be recognized during the fourth quarter 2017 and beyond.

⁽¹⁾ We calculate the Core FFO and AFFO payout ratios to Common Stockholders and Unitholders as the ratio of Common Stock dividends and distributions to Unitholders to Core FFO or AFFO, respectively. We calculate the Core FFO and AFFO payout ratios to Series A Preferred Stockholders as the ratio of Preferred Stock dividends to the sum of Preferred Stock dividends and Core FFO or AFFO, respectively. 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.

Acquisitions of Properties

During the third quarter 2017, we acquired the following properties:

 

Real Estate Loan Investments

During the third quarter 2017, we closed on the following real estate loan investments in support of the development and construction of four multifamily communities and one student housing property. For each of these loans, we hold an option to purchase the property at a discount to market value, once stabilized.

 

Real Estate Assets

 

Subsequent to Quarter End

On October 27, 2017, we acquired a 98% interest in a joint venture which owns the Stadium Village student housing property in Atlanta, Georgia.

Multifamily Same Store Financial Data

The following chart presents same store operating results for the Company's multifamily communities. Effective with the third quarter 2017, we define our population of same store properties as those that are stabilized and that have been owned for at least 15 full months, as of the end of the first quarter of each year, enabling comparisons of the current year quarterly and annual reporting periods to the prior year comparative periods. The Company excludes the same store operating results of properties for which construction of adjacent phases has commenced (e.g., the Company holds real estate loans partially supporting an additional phase of the CityPark View multifamily community, which is excluded as well), properties which are undergoing significant capital projects, have sustained significant casualty losses, or are currently being marketed for sale. For the periods presented, same store operating results consist of the operating results of the following multifamily communities:

 

Same store net operating income is a non-GAAP measure that is most directly comparable to net income (loss), with a reconciliation following below.

 

 

 

 

 

Capital Markets Activities

During the third quarter 2017, we issued and sold an aggregate of 77,277 Units from our offering of up to 1,500,000 Units, with each Unit consisting of one share of Series A Redeemable Preferred Stock and one Warrant to purchase up to 20 shares of Common Stock (the "$1.5 Billion Series A Unit Offering"), resulting in proceeds of approximately $69.5 million after commissions and other fees. In addition, during the third quarter 2017, we issued approximately 1.9 million shares of Common Stock pursuant to the exercise of warrants issued under our Series A Preferred Stock offerings, resulting in aggregate gross proceeds of approximately $25.7 million. We also issued approximately 235,000 shares of Common Stock for redemptions of 4,545 shares of Series A Preferred Stock during the third quarter.

During the third quarter 2017, we issued and sold an aggregate of 4,546 shares of Series M Redeemable Preferred Stock ("mShares"), resulting in net proceeds after dealer manager fees of approximately $4.4 million.

During the third quarter 2017, we sold approximately 1.0 million shares of Common Stock pursuant to our "at the market" offering (the "Common Stock ATM Offering"), resulting in aggregate gross proceeds of approximately $18.4 million.

Collectively, these activities added approximately 3.2 million shares to our outstanding shares of Common Stock, which totaled approximately 35.6 million shares at September 30, 2017. The closing price of our Common Stock was $18.88 on September 29, 2017 versus $13.51 on September 30, 2016. Our total equity book value increased approximately 49% to $1.17 billion at September 30, 2017 from $785 million at September 30, 2016.

Dividends

Quarterly Dividends on Common Stock and Class A OP Units

On August 3, 2017, we declared a quarterly dividend on our Common Stock of $0.235 per share for the third quarter 2017. This represents a 16.0% increase in our common stock dividend from our third quarter 2016 common stock dividend of $0.2025 per share, and an annualized dividend growth rate of 14.2% since June 30, 2011, the first quarter end following our initial public offering in April 2011. The third quarter dividend was paid on October 16, 2017 to all stockholders of record on September 15, 2017. In conjunction with the Common Stock dividend, the Company's operating partnership declared a distribution on its Class A Units of $0.235 per unit for the third quarter 2017, which was paid on October 16, 2017 to all Class A Unit holders of record as of September 15, 2017.

Monthly Dividends on Preferred Stock

We declared and paid monthly dividends of $5.00 per share on our Series A Redeemable Preferred Stock, which totaled approximately $16.3 million for the quarter ended September 30, 2017 and represent a 6% annual yield. We declared and paid dividends totaling approximately $139,000 on our Series M Redeemable Preferred Stock, or mShares, for the quarter ended September 30, 2017. The mShares have an escalating dividend rate from 5.75% in year one to 7.50% in year eight and thereafter.

Conference Call and Supplemental Data

Preferred Apartment Communities will hold its quarterly conference call on Tuesday, October 31, 2017 at 11:00 a.m. Eastern Time to discuss its third quarter 2017 results. To participate in the conference call, please dial in to the following:

Live Conference Call Details
Domestic Dial-in Number: 1-(844) 890-1791
International Dial-in Number: 1-(412) 380-7408
Company: Preferred Apartment Communities, Inc.
Date: Tuesday, October 31, 2017
Time: 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time)

The live broadcast of Preferred Apartment Communities' third quarter conference call will be available online, on a listen-only basis, at the company's website, www.pacapts.com, under "Investors" and then click on the "Upcoming Events" link. A replay of the call will be archived on Preferred Apartment Communities' website under Investors/Audio Archive.

2017 Guidance:

Net income (loss) per share -  We are actively adding properties and real estate loan investments to our real estate portfolio and the specific timing of the closing of acquisitions is difficult to predict. Through December 31, 2016, the Company expensed property acquisition costs as incurred, which include costs such as due diligence, legal, certain accounting, environmental and consulting, when the acquisition constituted a business combination. Accounting Standards Update 2017-01, which was adopted by the Company effective January 1, 2017, will cause the Company to capitalize certain of these costs for transactions deemed to be asset acquisitions (which we believe our contemplated future acquisitions will be deemed to be) and amortize them over their estimated useful lives. Acquisition activity by its nature can cause material variation in our reported depreciation and amortization expense and interest income. Since net income (loss) per share is calculated net of depreciation and amortization expense, our net income (loss) results can fluctuate, possibly significantly, depending upon the timing of the closing of acquisitions. For this reason, we are unable to reasonably forecast this measure or provide a reconciliation of our projected Core FFO per share to this measure.

Core FFO per share  -   We currently project Core FFO to be in the range of $1.43 - $1.46 per share for the full year 2017.

Revenue - We currently project total revenues to be in the range of $285 million - $315 million for the full year 2017.

Core FFO, AFFO and FFO are all calculated after deductions for all preferred stock dividends. Reconciliations of net income (loss) attributable to common stockholders to Core FFO, AFFO and FFO for the three-month and nine-month periods ended September 30, 2017 and 2016 appear in the attached report, as well as on the Company's website and is available using the following link:

http://investors.pacapts.com/download/3Q17_Earnings_and_Supplemental_Data.pdf

Forward-Looking Statements

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:  Estimates of future earnings, guidance, goals and performance are, by definition, and certain other statements in this Supplemental Financial Data Report may constitute, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or transactions to be materially different from the results, guidance, goals, performance, achievements or transactions expressed or implied by the forward-looking statements.  Factors that impact such forward-looking statements include, among others, our business and investment strategy; legislative or regulatory actions; the state of the U.S. economy generally or in specific geographic areas; economic trends and economic recoveries; changes in operating costs, including real esate taxes, utilities and insurance costs; our ability to obtain and maintain debt or equity financing; financing and advance rates for our target assets; our leverage level; changes in the values of our assets; availability of attractive investment opportunities in our target markets; our ability to maintain our qualification as a real estate investment trust, or REIT, for U.S. federal income tax purposes; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended; availability of quality personnel; our understanding of our competition and market trends in our industry; and interest rates, real estate values, the debt securities markets and the general economy.

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

We refer you to the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2016 that was filed with the Securities and Exchange Commission, or SEC, on March 1, 2017, which discuss various factors that could adversely affect our financial results. Such risk factors and information may be updated or supplemented by our Form 10-Q and Form 8-K filings and other documents filed from time to time with the SEC.

Additional Information

The SEC has declared effective the registration statement filed by the Company for each of the offerings to which this communication may relate. Before you invest, you should read the final prospectus, and any prospectus supplements, forming a part of the registration statement and other documents the Company has filed with the SEC for more complete information about the Company and the offering to which this communication may relate. In particular, you should carefully read the risk factors described in the final prospectus and in any related prospectus supplement and in the documents incorporated by reference in the final prospectus and any related prospectus supplement to which this communication may relate. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, the Company or its dealer manager, Preferred Capital Securities, LLC, with respect to the mShares Offering and the $1.5 Billion Unit Offering, and JonesTrading Institutional Services LLC, with respect to the Common Stock ATM Offering, will arrange to send you a prospectus if you request it by calling Leonard A. Silverstein at (770) 818-4100, 3284 Northside Parkway NW, Suite 150, Atlanta, Georgia 30327.

The prospectus supplement for the Common Stock ATM Offering, dated July 10, 2017, including a base prospectus, dated May 17, 2016, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183217000110/atmprospectusspring2017.htm

The final prospectus for the mShares Offering, dated January 19, 2017, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183217000008/a424prospectus-mshares1.htm

The final prospectus for the $1.5 Billion Unit Offering, dated March 16, 2017, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183217000061/a424prospectus-15bseriesar.htm

  

THIRD QUARTER 2017 SUPPLEMENTAL FINANCIAL DATA                       

                                           

 

 

 

 

 

 

 

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

1. Rental and other property revenues and expenses for the three-month and nine-month periods ended September 30, 2017 include activity for the four multifamily communities and four grocery-anchored shopping centers acquired during the third quarter 2017 only from their respective dates of acquisition. In addition, the third quarter 2017 period includes a full quarter of activity for the four multifamily communities, three grocery-anchored shopping centers, one student housing property and two office buildings acquired during the fourth quarter of 2016 and first two quarters of 2017. Rental and other property revenues and expenses for the three-month period ended September 30, 2016 include activity for the two multifamily communities, one student housing property, one office building and eight grocery-anchored shopping centers only from their respective dates of acquisition during the third quarter 2016.
2. Non-controlling interests in our Operating Partnership consisted of a total of 901,195 Class A Units as of September 30, 2017. 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 2.62% and 3.51% for the three-month periods ended September 30, 2017 and 2016, respectively.
3. We incurred loan closing costs for the acquisition of the Village at Baldwin Park multifamily community during the first quarter 2016, which were funded by our $35 million acquisition term loan facility, or 2016 Term Loan, and on our $11 million term note, which we used to finance the acquisition of our Anderson Central grocery-anchored shopping center. These costs were deferred and are being amortized over the lives of the two instruments. The amortization expense of these deferred costs is an additive adjustment in the calculation of Core FFO.
4. As of January 1, 2016, we pay loan coordination fees to Preferred Apartment Advisors, LLC, our Manager, related to obtaining mortgage financing for acquired properties. Loan coordination fees were introduced to more accurately reflect the administrative effort involved in arranging debt financing for acquired properties. The portion of the loan coordination fees paid up until July 1, 2017 attributable to the financing were amortized over the lives of the respective mortgage loans, and this non-cash amortization expense is an addition to FFO in the calculation of Core FFO. Beginning effective July 1, 2017, the loan coordination fee was lowered from 1.6%  to 0.6% of the amount of any mortgage indebtedness on newly-acquired properties. All of the loan coordination fees paid to our Manager subsequent to July 1, 2017 are amortized over the life of the debt. At September 30, 2017, aggregate unamortized loan coordination fees were approximately $11.3 million, which will be amortized over a weighted average remaining loan life of approximately 10.8 years.
5. We sustained weather-related operating losses at certain of our properties during the third quarter 2017; these costs are added back to FFO in our calculation of Core FFO.
6. We incur loan closing costs on our existing mortgage loans, which are secured on a property-by-property basis by each of our acquired real estate assets, and also for occasional amendments to our $150 million 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 Core 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 September 30, 2017, aggregate unamortized loan costs were approximately $17.2 million, which will be amortized over a weighted average remaining loan life of approximately 7.9 years.
7. We receive loan origination fees in conjunction with the origination of certain real estate loan investments. These fees are then recognized as revenue over the lives of the applicable loans as adjustments of yield using the effective interest method.  The total fees received after the payment of loan origination fees to our Manager are additive adjustments in the calculation of AFFO. Correspondingly, the amortized non-cash income is a deduction in the calculation of AFFO. We also accrue over the lives of certain loans additional interest amounts that become due to us at the time of repayment of the loan or refinancing of the property, or when the property is sold to a third party.
8. The Company records deferred interest revenue over the lives of certain of its real estate loans. This adjustment reflects the receipt during the periods presented of interest income which was earned and accrued prior to those periods presented on various real estate loans.
9. This adjustment removes the non-cash amortization of costs incurred to induce tenants to lease space in our office buildings and grocery-anchored shopping centers.
10. This adjustment reflects straight-line rent adjustments and the reversal of the non-cash amortization of below-market and above-market lease intangibles, which were recognized in conjunction with the Company's acquisitions and which are amortized over the estimated average remaining lease terms from the acquisition date for multifamily communities and over the remaining lease terms for grocery-anchored shopping center assets and office buildings. At September 30, 2017, the balance of unamortized below-market lease intangibles was approximately $31.7 million, which will be recognized over a weighted average remaining lease period of approximately 8.9 years.
11. 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.
12. 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. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures.
13. The adjustment consists of a loan prepayment penalty and other charges related to the refinancing of our Stone Creek multifamily community which totaled $888,428 and for the refinancing of our 525 Avalon multifamily community of $169,627.
14. We incurred legal costs pertaining to the extension of our management agreement with our Manager. The three-year extension was effective as of June 3, 2016.
15. On May 25, 2017,we closed on the sale of our Enclave at Vista Ridge multifamily community to an unrelated third party.  At such date, our Manager collected a cumulative total of approximately $390,000 of contingent fees.  The sales transaction, and the fact that the Company's capital contributions for the Enclave at Vista Ridge property achieved an annual rate of return which exceeded 7%, which triggered the fees to become immediately due and payable to the Manager at the closing of the sale transaction. The recognition of these fees are added to FFO in the calculation of Core FFO as they are not likely to occur on a regular basis.

See Definitions of Non-GAAP Measures.

 

 

 

 

 

We hold options, but not obligations, to purchase certain of the properties which are partially financed by our real estate loan investments. The option purchase prices are negotiated at the time of the loan closing and are to be calculated based upon market cap rates at the time of exercise of the purchase option, less a discount ranging from between 15 and 60 basis points, depending on the loan. As of September 30, 2017, our actual and potential purchase option portfolio consisted of:

 

 

 

 

 

 

 

For the three-month period ended September 30, 2017, our average physical occupancy was 94.9%. We calculate average physical occupancy for quarterly periods as the average number of occupied units on the 20th day of each of the trailing three months from the reporting period end date. For the three-month period ended September 30, 2017, our average economic occupancy was 94.8%. We define average economic occupancy as market rent reduced by vacancy losses, expressed as a percentage. All of our multifamily properties are included in these calculations except for properties which are not yet stabilized (which we define as properties having first achieved 93% physical occupancy for three full months in a quarter), properties which are owned for less than the entire reporting period and properties which are undergoing significant capital projects, have sustained significant casualty losses or are adding additional phases (Stone Creek, Village at Baldwin Park, 525 Avalon Park and CityPark View). We also exclude properties which are currently being marketed for sale, of which there were none at September 30, 2017.

Capital Expenditures

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

For the three-month period ended September 30, 2017, our capital expenditures  for our multifamily communities and student housing properties were as follows:

 

 

 

 

 

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

As of September 30, 2017, our grocery-anchored shopping center portfolio was 94.2% leased. We define percent leased as the percentage of gross leasable area that is leased, including noncancelable lease agreements that have been signed which have not yet commenced.

Details regarding lease expirations (assuming no exercises of tenant renewal options) within our grocery-anchored shopping center portfolio as of September 30, 2017 were:

 

 

The Company's Quarterly Report on Form 10-Q for the third quarter 2017 will present income statements of New Market Properties, LLC within the Results of Operations section of Management's Discussion and Analysis of Financial Condition and Results of Operations.

Second-generation capital expenditures within our grocery-anchored shopping center portfolio by property for the third quarter 2017 totaled $466,598. Second-generation capital expenditures exclude those 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 (iii) for property re-developments and repositioning.

Office Building Portfolio

As of September 30, 2017, our office building portfolio consisted of the following properties:

 

The Company defines Annual Base Rent as the current annual cash base rent due under the respective leases, exclusive of expense reimbursement which may also be payable.

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

 

               

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

 

 

The Company recognized second-generation capital expenditures within its office building portfolio of $25,883 for Brookwood Center and $78,593 for Galleria 75 during  the third quarter 2017. 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 re-developments and repositionings and (iv) for building improvements that are recoverable from future operating cost savings.

Definitions of Non-GAAP Measures

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

Analysts, managers and investors make certain adjustments to reported net income amounts under U.S. GAAP in order to better assess these vehicles' operating results. FFO is one of the most commonly utilized Non-GAAP measures currently in practice. In its 2002 "White Paper on Funds From Operations," which was most recently revised in 2012, the National Association of Real Estate Investment Trusts, or NAREIT, standardized the definition of how Net income/loss should be adjusted to arrive at FFO, in the interests of uniformity and comparability.

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

Net income/loss:

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

Not all companies necessarily utilize the standardized NAREIT definition of FFO, so caution should be taken in comparing the Company's reported FFO results to those of other companies. The Company's FFO results are comparable to the FFO results of other companies that follow the NAREIT definition of FFO and report these figures on that basis. The Company believes FFO is useful to investors as a supplemental gauge of our operating results.  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")

Core FFO makes certain adjustments to FFO, which are either not likely to occur on a regular basis or are otherwise not representative of the Company's ongoing operating performance. For example, the Company incurs substantial costs related to property acquisitions, which, prior to 2017, were required to be recognized as expenses when they were incurred. The Company added back any such acquisition and pursuit costs, including costs incurred in connection with obtaining short term debt financing for acquisitions and beginning January 1, 2016, amortization of loan coordination fees to FFO in its calculation of Core FFO since such costs are not representative of our operating results. The Company also adds back any costs incurred related to the extension of our management agreement in June 2016 with our Manager, contingent fees paid to our Manager at the time of a property's sale, realized losses on debt extinguishment or refinancing, weather-related property operating losses and any non-cash dividends in this calculation. Core FFO figures reported by us may not be comparable to those Core FFO figures reported by other companies.

We utilize Core FFO as a 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 is useful in comparing our operating performance with other real estate companies that are not as involved in ongoing acquisition activities. Core FFO is a non-GAAP measure that is reconciled to its most comparable GAAP measure, net income/loss available to common stockholders.

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

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

Core FFO, plus:

• non-cash equity compensation to directors and executives;
• amortization of loan closing costs, excluding costs incurred in connection with obtaining short term financing related to acquisitions;
• depreciation and amortization of non-real estate assets;
• net loan fees received;
• accrued interest income received;
• non-cash dividends on Series M Preferred Stock; and
• amortization of lease inducements;

Less:

• non-cash loan interest income;
• cash paid for loan closing costs;
• amortization of acquired real estate intangible liabilities;
• amortization of straight line rent adjustments and deferred revenues; and
• normally-recurring capital expenditures and capitalized retail direct leasing costs.

AFFO figures reported by us may not be comparable to those AFFO figures reported by other companies. We utilize AFFO as another measure of the operating performance of our portfolio of real estate assets. We believe AFFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other real estate companies. AFFO is a non-GAAP measure that is reconciled to its most comparable GAAP measure, net income/loss available to common stockholders.  FFO, Core FFO, and AFFO are not considered measures of liquidity and are not alternatives to measures calculated under GAAP.

Same Store Net Operating Income (NOI)

We use same store net operating income as an operational metric for properties we have owned for at least 15 full months, enabling comparisons of those properties' operating results between the current reporting period and the prior year comparative period. We define net operating income as rental and other property revenues, less total property and maintenance expenses, property management fees, real estate taxes, general and administrative expenses, and property insurance. We believe that net operating income is an important supplemental measure of operating performance for REITs because it provides measures of core operations, rather than factoring in depreciation and amortization, financing costs, acquisition costs, and other corporate expenses. Net operating income is a widely utilized measure of comparative operating performance in the REIT industry, but is not a substitute for the most comparable GAAP-compliant measure, net income/loss.

About Preferred Apartment Communities, Inc.         

Preferred Apartment Communities, Inc. APTS, or the Company, is a Maryland corporation formed primarily to acquire and operate multifamily properties in select targeted markets throughout the United States. As part of our business strategy, we may enter into forward purchase contracts or purchase options for to-be-built multifamily communities and we may make real estate related loans, provide deposit arrangements or provide performance assurances, as may be necessary or appropriate, in connection with the development of multifamily communities and other properties.  As a secondary strategy, we may acquire or originate senior mortgage loans, subordinate loans or real estate loans secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest a lesser portion of our assets in other real estate related investments, including other income-producing property types, senior mortgage loans, subordinate loans or real estate loans secured by interests in other income-producing property types or membership or partnership interests in other income-producing property types as determined by Preferred Apartment Advisors, LLC, or our Manager, as appropriate for us. At September 30, 2017, the Company was the approximate 97.3% owner of Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership. We elected to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended, commencing with our tax year ended December 31, 2011.

 

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SOURCE Preferred Apartment Communities, Inc.