x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 27-1712193 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, par value $.01 per share | APTS | NYSE |
PART I - FINANCIAL INFORMATION | ||||
INDEX | ||||
Item 1. | Financial Statements | Page No. | ||
Condensed Consolidated Balance Sheets (unaudited) – as of March 31, 2020 and December 31, 2019 | 2 | |||
Condensed Consolidated Statements of Operations (unaudited) – Three Months Ended March 31, 2020 and 2019 | 3 | |||
Condensed Consolidated Statements of Stockholders' Equity (unaudited) – Three Months Ended March 31, 2020 and 2019 | ||||
Condensed Consolidated Statements of Cash Flows (unaudited) – Three Months Ended March 31, 2020 and 2019 | ||||
Notes to Condensed Consolidated Financial Statements (unaudited) | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||
Item 4. | Controls and Procedures | |||
PART II - OTHER INFORMATION | ||||
Item 1. | Legal Proceedings | 66 | ||
Item 1A. | Risk Factors | 66 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 67 | ||
Item 3. | Defaults Upon Senior Securities | 67 | ||
Item 4. | Mine Safety Disclosures | 67 | ||
Item 5. | Other Information | 67 | ||
Item 6. | Exhibits | 68 | ||
Preferred Apartment Communities, Inc. | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(Unaudited) | ||||||||
(In thousands, except per-share par values) | March 31, 2020 | December 31, 2019 | ||||||
Assets | ||||||||
Real estate | ||||||||
Land | $ | 665,585 | $ | 635,757 | ||||
Building and improvements | 3,329,579 | 3,256,223 | ||||||
Tenant improvements | 172,136 | 167,275 | ||||||
Furniture, fixtures, and equipment | 341,542 | 323,381 | ||||||
Construction in progress | 16,131 | 11,893 | ||||||
Gross real estate | 4,524,973 | 4,394,529 | ||||||
Less: accumulated depreciation | (461,957 | ) | (421,551 | ) | ||||
Net real estate | 4,063,016 | 3,972,978 | ||||||
Real estate loan investments, net of deferred fee income of $1,500 and $1,460 and allowance for expected | ||||||||
loan loss of $9,796 and $0 | 292,905 | 325,790 | ||||||
Real estate loan investments to related parties, net of deferred fee income of $0 and $16, allowance for expected | ||||||||
loan loss of $2,148 and $0 and allowance for doubtful accounts of $1,400 and $1,400 | 2,568 | 23,692 | ||||||
Total real estate and real estate loan investments, net | 4,358,489 | 4,322,460 | ||||||
Cash and cash equivalents | 120,128 | 94,381 | ||||||
Restricted cash | 43,665 | 42,872 | ||||||
Notes receivable | 7,321 | 17,079 | ||||||
Note receivable and revolving lines of credit due from related parties | 9,011 | 24,838 | ||||||
Accrued interest receivable on real estate loans | 20,186 | 25,755 | ||||||
Acquired intangible assets, net of amortization of $159,330 and $149,896 | 154,351 | 154,803 | ||||||
Deferred loan costs on Revolving Line of Credit, net of amortization of $1,017 and $849 | 1,118 | 1,286 | ||||||
Deferred offering costs | 3,085 | 2,147 | ||||||
Tenant lease inducements, net of amortization of $4,007 and $3,567 | 19,168 | 19,607 | ||||||
Tenant receivables and other assets | 90,877 | 65,332 | ||||||
Total assets | $ | 4,827,399 | $ | 4,770,560 | ||||
Liabilities and equity | ||||||||
Liabilities | ||||||||
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $42,739 and $42,807 | $ | 2,606,251 | $ | 2,567,022 | ||||
Revolving line of credit | 191,500 | — | ||||||
Term note payable, net of deferred loan costs of $0 and $511 | — | 69,489 | ||||||
Unearned purchase option termination fees | 2,019 | 2,859 | ||||||
Deferred revenue | 38,782 | 39,722 | ||||||
Accounts payable and accrued expenses | 43,797 | 42,191 | ||||||
Deferred liability to Former Manager | 22,982 | — | ||||||
Contingent liability due to Former Manager | 14,911 | — | ||||||
Accrued interest payable | 8,707 | 8,152 | ||||||
Dividends and partnership distributions payable | 24,415 | 23,519 | ||||||
Acquired below market lease intangibles, net of amortization of $26,144 and $23,655 | 60,481 | 62,611 | ||||||
Prepaid rent, security deposits, and other liabilities | 35,405 | 20,879 | ||||||
Total liabilities | 3,049,250 | 2,836,444 | ||||||
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 and 2,161 shares | ||||||||
issued; 2,075 and 2,028 shares outstanding at March 31, 2020 and December 31, 2019, respectively | 21 | 20 | ||||||
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 37 and 5 shares | ||||||||
issued and outstanding at March 31, 2020 and December 31, 2019, respectively | — | — | ||||||
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued; | ||||||||
98 and 103 shares outstanding at March 31, 2020 and December 31, 2019, respectively | 1 | 1 | ||||||
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 2 and zero shares | ||||||||
issued and outstanding at March 31, 2020 and December 31, 2019, respectively | — | — | ||||||
Common Stock, $0.01 par value per share; 400,067 shares authorized; 47,129 and 46,443 shares issued and | ||||||||
outstanding at March 31, 2020 and December 31, 2019, respectively | 476 | 464 | ||||||
Additional paid-in capital | 1,969,534 | 1,938,057 | ||||||
Accumulated (deficit) earnings | (191,040 | ) | (7,244 | ) | ||||
Total stockholders' equity | 1,778,992 | 1,931,298 | ||||||
Non-controlling interest | (843 | ) | 2,818 | |||||
Total equity | 1,778,149 | 1,934,116 | ||||||
Total liabilities and equity | $ | 4,827,399 | $ | 4,770,560 |
Preferred Apartment Communities, Inc. | |||||||
Condensed Consolidated Statements of Operations | |||||||
(Unaudited) | |||||||
(In thousands, except per-share figures) | Three months ended March 31, | ||||||
2020 | 2019 | ||||||
Revenues: | |||||||
Rental and other property revenues | $ | 111,866 | $ | 94,393 | |||
Interest income on loans and notes receivable | 13,439 | 11,288 | |||||
Interest income from related parties | 2,537 | 5,802 | |||||
Miscellaneous revenues | 3,260 | 23 | |||||
Total revenues | 131,102 | 111,506 | |||||
Operating expenses: | |||||||
Property operating and maintenance | 16,800 | 12,879 | |||||
Property salary and benefits (including reimbursements of $1,430 | |||||||
and $4,079 to related party) | 5,191 | 4,657 | |||||
Property management fees (including $894 and $2,467 to related parties) | 2,003 | 3,267 | |||||
Real estate taxes and insurance | 15,525 | 14,090 | |||||
General and administrative | 6,364 | 1,420 | |||||
Equity compensation to directors and executives | 230 | 311 | |||||
Depreciation and amortization | 49,509 | 45,289 | |||||
Asset management and general and administrative expense fees to related party | 3,099 | 7,829 | |||||
Provision for expected credit losses | 5,133 | — | |||||
Management internalization expense | 178,793 | 45 | |||||
Total operating expenses | 282,647 | 89,787 | |||||
Waived asset management and general and administrative expense fees | (1,136 | ) | (2,629 | ) | |||
Net operating expenses | 281,511 | 87,158 | |||||
Operating (loss) income before gain on sale of trading investment | (150,409 | ) | 24,348 | ||||
Gain on sale of trading investment | — | 4 | |||||
Operating (loss) income | (150,409 | ) | 24,352 | ||||
Interest expense | 29,593 | 26,756 | |||||
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools | — | 141 | |||||
Loss on extinguishment of debt | — | (17 | ) | ||||
Gain on land condemnation | 479 | — | |||||
Net loss | (179,523 | ) | (2,280 | ) | |||
Consolidated net loss (income) attributable to non-controlling interests | 3,141 | (492 | ) | ||||
Net loss attributable to the Company | (176,382 | ) | (2,772 | ) | |||
Dividends declared to preferred stockholders | (33,068 | ) | (25,539 | ) | |||
Earnings attributable to unvested restricted stock | (2 | ) | (2 | ) | |||
Net loss attributable to common stockholders | $ | (209,452 | ) | $ | (28,313 | ) | |
Net loss per share of Common Stock available | |||||||
to common stockholders, basic and diluted | $ | (4.44 | ) | $ | (0.66 | ) | |
Weighted average number of shares of Common Stock outstanding, | |||||||
basic and diluted | 47,129 | 42,680 |
Preferred Apartment Communities, Inc. | ||||||||||||||||||||||||||||
Consolidated Statements of Stockholders' Equity | ||||||||||||||||||||||||||||
For the three-month periods ended March 31, 2020 and 2019 | ||||||||||||||||||||||||||||
(In thousands, except dividend per-share figures) | Series A, Series A1, Series M and Series M1 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 Series A preferred shares | 1 | — | 64,483 | — | 64,484 | — | 64,484 | |||||||||||||||||||||
Issuance of Series A1/M1 preferred shares | — | — | 34,069 | — | 34,069 | — | 34,069 | |||||||||||||||||||||
Exercise of warrants | — | — | 8 | — | 8 | — | 8 | |||||||||||||||||||||
Redemptions of Series A preferred stock | — | 11 | (9,911 | ) | — | (9,900 | ) | — | (9,900 | ) | ||||||||||||||||||
Syndication and offering costs | — | — | (12,360 | ) | — | (12,360 | ) | — | (12,360 | ) | ||||||||||||||||||
Equity compensation to executives and directors | — | — | 156 | — | 156 | — | 156 | |||||||||||||||||||||
Conversion of Class A to common stock | — | 1 | 1,104 | — | 1,105 | (1,105 | ) | — | ||||||||||||||||||||
Current period amortization of Class B Units | — | — | — | — | — | 74 | 74 | |||||||||||||||||||||
Net income (loss) | — | — | — | (176,382 | ) | (176,382 | ) | (3,141 | ) | (179,523 | ) | |||||||||||||||||
Contributions from minority holders | — | — | — | — | — | 201 | 201 | |||||||||||||||||||||
Reallocation of minority interest in PAC OP | — | — | (513 | ) | — | (513 | ) | 513 | — | |||||||||||||||||||
Distributions to minority holders | — | — | — | — | — | (203 | ) | (203 | ) | |||||||||||||||||||
Dividends to Series A preferred stockholders | ||||||||||||||||||||||||||||
($5.00 per share per month) | — | — | (31,100 | ) | — | (31,100 | ) | — | (31,100 | ) | ||||||||||||||||||
Dividends to mShares preferred stockholders | ||||||||||||||||||||||||||||
($4.79 - $6.25 per share per month) | — | — | (1,746 | ) | — | (1,746 | ) | — | (1,746 | ) | ||||||||||||||||||
Dividends to Series A1/M1 preferred stockholders | ||||||||||||||||||||||||||||
($5.00 and $5.08 - $5.92 per share per month, respectively) | — | — | (222 | ) | — | (222 | ) | — | (222 | ) | ||||||||||||||||||
Dividends to common stockholders ($0.2625 per share) | — | — | (12,491 | ) | — | (12,491 | ) | — | (12,491 | ) | ||||||||||||||||||
Balance at March 31, 2020 | $ | 22 | $ | 476 | $ | 1,969,534 | $ | (191,040 | ) | $ | 1,778,992 | $ | (843 | ) | $ | 1,778,149 |
Preferred Apartment Communities, Inc. | ||||||||||||||||||||||||||||
Consolidated Statements of Stockholders' Equity, continued | ||||||||||||||||||||||||||||
For the three-month periods ended March 31, 2020 and 2019 | ||||||||||||||||||||||||||||
(In thousands, except dividend per-share figures) | Series A and Series M 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 Units | 2 | — | 128,680 | — | 128,682 | — | 128,682 | |||||||||||||||||||||
Issuance of mShares | — | — | 12,472 | — | 12,472 | — | 12,472 | |||||||||||||||||||||
Redemptions of Series A Preferred Stock | — | 10 | (2,015 | ) | — | (2,005 | ) | — | (2,005 | ) | ||||||||||||||||||
Exercises of Warrants | — | 3 | 4,245 | — | 4,248 | — | 4,248 | |||||||||||||||||||||
Syndication and offering costs | — | — | (14,281 | ) | — | (14,281 | ) | — | (14,281 | ) | ||||||||||||||||||
Equity compensation to executives and directors | — | — | 159 | — | 159 | — | 159 | |||||||||||||||||||||
Conversion of Class A Units to Common Stock | — | 1 | 526 | — | 527 | (527 | ) | — | ||||||||||||||||||||
Current period amortization of Class B Units | — | — | — | — | — | 152 | 152 | |||||||||||||||||||||
Net income | — | — | — | (2,772 | ) | (2,772 | ) | 492 | (2,280 | ) | ||||||||||||||||||
Reallocation adjustment to non-controlling interests | — | — | 818 | — | 818 | (818 | ) | — | ||||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | — | (229 | ) | (229 | ) | |||||||||||||||||||
Dividends to Series A preferred stockholders | ||||||||||||||||||||||||||||
($5.00 per share per month) | — | — | (27,418 | ) | 2,685 | (24,733 | ) | — | (24,733 | ) | ||||||||||||||||||
Dividends to mShares preferred stockholders | ||||||||||||||||||||||||||||
($4.79 - $6.25 per share per month) | — | — | (893 | ) | 87 | (806 | ) | — | (806 | ) | ||||||||||||||||||
Dividends to common stockholders ($0.26 per share) | — | — | (11,195 | ) | — | (11,195 | ) | — | (11,195 | ) | ||||||||||||||||||
Balance at March 31, 2019 | $ | 18 | $ | 432 | $ | 1,698,810 | $ | — | $ | 1,699,260 | $ | 309 | $ | 1,699,569 |
Preferred Apartment Communities, Inc. | |||||||
Consolidated Statements of Cash Flows | |||||||
(In thousands) | Three-month periods ended March 31, | ||||||
2020 | 2019 | ||||||
Operating activities: | |||||||
Net (loss) income | $ | (179,523 | ) | $ | (2,280 | ) | |
Reconciliation of net (loss) income to net cash provided by operating activities: | |||||||
Depreciation and amortization expense | 49,509 | 45,289 | |||||
Amortization of above and below market leases | (1,705 | ) | (1,436 | ) | |||
Deferred revenues and fee income amortization | (1,269 | ) | (1,498 | ) | |||
Purchase option termination fee amortization | (4,040 | ) | (4,233 | ) | |||
Amortization of equity compensation, lease incentives, and other noncash expenses | 849 | 805 | |||||
Deferred loan cost amortization | 1,781 | 1,552 | |||||
(Increase) in accrued interest income on real estate loan investments | (3,296 | ) | (3,551 | ) | |||
Receipt of accrued interest income on real estate loans | 8,865 | — | |||||
Gain on sale of trading investment | — | (4 | ) | ||||
Gain on land condemnation, net of expenses | (479 | ) | — | ||||
Cash received for purchase option terminations | 4,800 | 1,330 | |||||
Loss on extinguishment of debt | — | 17 | |||||
Increase in provision for expected credit losses | 5,133 | — | |||||
Mortgage interest received from consolidated VIEs | — | 2,598 | |||||
Mortgage interest paid to other participants of consolidated VIEs | — | (2,598 | ) | ||||
Changes in operating assets and liabilities: | |||||||
(Increase) in tenant receivables and other assets | (10,775 | ) | (8,376 | ) | |||
(Increase) in tenant lease incentives | — | (102 | ) | ||||
Increase in accounts payable and accrued expenses | 24,190 | 1,290 | |||||
Increase in deferred liability to Former Manager | 22,851 | — | |||||
Increase in Contingent liability | 15,000 | — | |||||
Decrease in accrued interest, prepaid rents and other liabilities | (1,282 | ) | (2,441 | ) | |||
Net cash provided by operating activities | (69,391 | ) | 26,362 | ||||
Investing activities: | |||||||
Investments in real estate loans | (11,631 | ) | (29,795 | ) | |||
Repayments of real estate loans | 53,896 | — | |||||
Notes receivable issued | (249 | ) | (1,890 | ) | |||
Notes receivable repaid | 10,041 | — | |||||
Note receivable issued to and draws on line of credit by related parties | (9,624 | ) | (13,952 | ) | |||
Repayments of notes receivable and lines of credit by related parties | 4,546 | 8,330 | |||||
Origination fees received on real estate loan investments | 267 | 801 | |||||
Origination fees paid to Former Manager on real estate loan investments | — | (401 | ) | ||||
Purchases of mortgage backed securities (K program), net of acquisition costs | — | (30,934 | ) | ||||
Mortgage principal received from consolidated VIEs | — | 679 | |||||
Proceeds from sales of mortgage-backed securities | — | 53,445 | |||||
Acquisition of properties | (125,107 | ) | (32,540 | ) | |||
Receipt of insurance proceeds for capital improvements | — | 746 | |||||
Proceeds from land condemnation | 738 | — | |||||
Additions to real estate assets - improvements | (12,817 | ) | (7,917 | ) | |||
Deposits (paid) on acquisitions | (915 | ) | (511 | ) | |||
Net cash used in investing activities | (90,855 | ) | (53,939 | ) | |||
Financing activities: | |||||||
Proceeds from mortgage notes payable | 81,413 | 57,275 | |||||
Repayments of mortgage notes payable | (42,252 | ) | (38,324 | ) | |||
Payments for deposits and other mortgage loan costs | (1,694 | ) | (996 | ) | |||
Payments to real estate loan participants | — | (5,223 | ) | ||||
Proceeds from lines of credit | 284,000 | 126,200 | |||||
Payments on lines of credit | (92,500 | ) | (166,200 | ) | |||
Repayment of the Term Loan | (70,000 | ) | — | ||||
Mortgage principal paid to other participants of consolidated VIEs | — | (679 | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements. |
Preferred Apartment Communities, Inc. | |||||||
Consolidated Statements of Cash Flows - continued | |||||||
(In thousands) | Three-month periods ended March 31, | ||||||
2020 | 2019 | ||||||
Proceeds from repurchase agreements | — | 4,857 | |||||
Repayments of repurchase agreements | — | (4,857 | ) | ||||
Proceeds from the sales of preferred stock and Units, net of offering costs | 89,398 | 128,573 | |||||
Proceeds from exercises of Warrants | 44 | 3,921 | |||||
Payments for redemptions of preferred stock | (9,890 | ) | (2,006 | ) | |||
Common Stock dividends paid | (12,156 | ) | (10,840 | ) | |||
Dividends paid to preferred stock and Class A Unitholders | (32,732 | ) | (25,097 | ) | |||
Payments for deferred offering costs | (7,042 | ) | (832 | ) | |||
Contributions from non-controlling interests | 197 | — | |||||
Net cash provided by financing activities | 186,786 | 65,772 | |||||
Net increase in cash, cash equivalents and restricted cash | 26,540 | 38,195 | |||||
Cash, cash equivalents and restricted cash, beginning of year | 137,253 | 87,690 | |||||
Cash, cash equivalents and restricted cash, end of period | $ | 163,793 | $ | 125,885 | |||
Supplemental cash flow information: | |||||||
Cash paid for interest | $ | 27,190 | $ | 24,318 | |||
Supplemental disclosure of non-cash investing and financing activities: | |||||||
Accrued capital expenditures | $ | 5,552 | $ | 7,308 | |||
Writeoff of fully depreciated or amortized assets and liabilities | $ | — | $ | 158 | |||
Writeoff of fully amortized deferred loan costs | $ | 718 | $ | 415 | |||
Consolidation of assets of VIEs | $ | — | $ | 544,869 | |||
Noncash extinguishment of notes receivable | $ | 20,865 | $ | — | |||
Dividends payable - Common Stock | $ | 12,491 | $ | 11,195 | |||
Dividends payable - Series A Preferred Stock | $ | 10,373 | $ | 8,447 | |||
Dividends payable - mShares Preferred Stock | $ | 1,229 | $ | 549 | |||
Dividends payable - A1/M1 Preferred Stock | $ | 138 | $ | — | |||
Dividends declared but not yet due and payable | $ | 184 | $ | 93 | |||
Partnership distributions payable to non-controlling interests | $ | 203 | $ | 229 | |||
Accrued and payable deferred offering costs | $ | 880 | $ | 740 | |||
Offering cost reimbursement to related party | $ | 40 | $ | 465 | |||
Reclass of offering costs from deferred asset to equity | $ | 3,189 | $ | 1,700 | |||
Loan receivables converted to equity for property acquisition | $ | — | $ | 47,797 | |||
Fair value issuances of equity compensation | $ | 226 | $ | 384 | |||
Mortgage loans assumed on acquisitions | $ | — | $ | 41,550 | |||
Operating lease liabilities assumed from the Former Manager | $ | 15,912 | $ | — |
1. | Organization and Basis of Presentation |
For the three-month period ended March 31, 2019 | |||||||||||
As reported in Quarterly Report on Form 10-Q at March 31, 2019 | Reclassification adjustments | As reported in Quarterly Report on Form 10-Q at March 31, 2020 | |||||||||
(in thousands) | |||||||||||
Rental revenues | $ | 92,238 | $ | (92,238 | ) | $ | — | ||||
Other property revenues | $ | 2,178 | $ | (2,178 | ) | $ | — | ||||
Miscellaneous revenues | $ | — | $ | 23 | $ | 23 | |||||
Rental and other property revenues | $ | — | $ | 94,393 | $ | 94,393 | |||||
Operating expenses: | |||||||||||
Property operating and maintenance | $ | 10,792 | $ | 2,087 | $ | 12,879 | |||||
Real estate taxes | $ | 12,500 | $ | (12,500 | ) | $ | — | ||||
Real estate taxes and insurance | $ | — | $ | 14,090 | $ | 14,090 | |||||
General and administrative | $ | 2,614 | $ | (1,194 | ) | $ | 1,420 | ||||
Insurance, professional fees and other expenses | $ | 2,528 | $ | (2,528 | ) | $ | — | ||||
Management internalization expense | $ | — | $ | 45 | $ | 45 | |||||
2. | Summary of Significant Accounting Policies |
Standard | Description | Date of Adoption | Effect on the Consolidated Financial Statements |
Recently Adopted Accounting Guidance | |||
ASU 2016-13, Financial Instruments - Credit Losses (ASC 326) | ASU 2016-03 ("CECL") changes how entities will measure credit losses for most financial assets, including loans, which are not measured at fair value through net income. The guidance replaces the existing incurred loss model with an expected loss model for instruments measured at amortized cost, and requires entities to record credit allowances for financial assets rather than reduce the carrying amount, as they do today under the other-than temporary impairment model. | January 1, 2020 | Implementation of the new guidance on accounting for financial assets was limited to our real estate loan investments. We have developed a model that derives a reserve ratio based upon the amount of financial protection afforded each instrument. For each loan in which we are the lender, the amount of protection afforded to us is estimated to be the excess of the future estimated fair market value of the developed property over the commitment amount of each loan (including other loans senior to the Company’s), inclusive of accrued interest and other related receivables. The excess represents the amount of equity dollars in each real estate project, which are in a subordinate position to our real estate loan investments. We implemented this new guidance using the modified retrospective basis by recording a cumulative effect adjustment to retained earnings on January 1, 2020 of approximately $7.4 million. |
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 potentially 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. |
As of: | ||||||
March 31, 2020 | December 31, 2019 | |||||
Multifamily communities: | ||||||
Properties (1) | 35 | (1, 2) | 34 | |||
Units | 10,637 | 10,245 | ||||
New Market Properties: | ||||||
Properties | 54 | (2) | 52 | |||
Gross leasable area (square feet) (3) | 6,208,278 | 6,041,629 | ||||
Student housing properties: | ||||||
Properties | 8 | (2) | 8 | |||
Units | 2,011 | 2,011 | ||||
Beds | 6,095 | 6,095 | ||||
Preferred Office Properties: | ||||||
Properties | 9 | (2, 4) | 10 | |||
Rentable square feet | 3,169,000 | 3,204,000 | ||||
(1) The acquired second phases of CityPark View and Crosstown Walk communities are managed in combination with the initial phases and so together are considered a single property, as is the Regent at Lenox Village within the Lenox Portfolio. | ||||||
(2) One multifamily community, two student housing properties, two grocery-anchored shopping centers and two office buildings are owned through consolidated joint ventures. | ||||||
(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) Excludes our 251 Armour property, comprising 35,000 rentable square feet that is under development. |
Multifamily Community acquired during the three-month period ended | ||||
(In thousands, except amortization period data) | March 31, 2020 | |||
Land | $ | 6,842 | ||
Buildings and improvements | 57,186 | |||
Furniture, fixtures and equipment | 15,522 | |||
Lease intangibles | 4,595 | |||
Prepaids & other assets | 24 | |||
Accrued taxes | (273 | ) | ||
Security deposits, prepaid rents, and other liabilities | (318 | ) | ||
Net assets acquired | $ | 83,578 | ||
Cash paid | $ | 83,578 | ||
Mortgage debt, net | — | |||
Total consideration | $ | 83,578 | ||
Three-months ended March 31, 2020 | ||||
Revenue | $ | — | ||
Net income (loss) | $ | (240 | ) | |
Capitalized acquisition costs incurred by the Company | $ | 171 | ||
Acquisition costs paid to related party (included above) | $ | — | ||
Remaining amortization period of intangible | ||||
assets and liabilities (months) | 17.5 | |||
Student housing property acquired during the three-month period ended | ||||
(In thousands, except amortization period data) | March 31, 2019 | |||
Land | $ | 7,289 | ||
Buildings and improvements | 68,163 | |||
Furniture, fixtures and equipment | 16,966 | |||
Lease intangibles | 983 | |||
Accrued taxes | (158 | ) | ||
Security deposits, prepaid rents, and other liabilities | (2,579 | ) | ||
Net assets acquired | $ | 90,664 | ||
Satisfaction of loan receivables | $ | 46,397 | ||
Cash paid | 2,717 | |||
Mortgage debt, net | 41,550 | |||
Total consideration | $ | 90,664 | ||
Three-months ended March 31, 2019 | ||||
Revenue | $ | 1,991 | ||
Net income (loss) | $ | 94 | ||
Capitalized acquisition costs incurred by the Company | $ | 1,016 | ||
Acquisition costs paid to related party | $ | 936 | ||
Remaining amortization period of intangible | ||||
assets and liabilities (months) | — |
Acquisition date | Property | Location | Gross leasable area (square feet) | ||||
3/19/2020 | Midway Market | Dallas, Texas | 85,599 | ||||
1/29/2020 | Wakefield Crossing | Raleigh, North Carolina | 75,927 | ||||
161,526 | |||||||
1/17/2019 | Gayton Crossing | Richmond, Virginia | 158,316 |
New Market Properties' acquisitions during the three-month periods ended March 31, | ||||||||
(In thousands, except amortization period data) | 2020 | 2019 | ||||||
Land | $ | 9,328 | $ | 9,109 | ||||
Buildings and improvements | 12,264 | 17,093 | ||||||
Tenant improvements | 2,099 | 698 | ||||||
In-place leases | 3,043 | 2,609 | ||||||
Above market leases | 107 | 754 | ||||||
Leasing costs | 1,237 | 769 | ||||||
Below market leases | (359 | ) | (1,515 | ) | ||||
Prepaid taxes and other assets | 61 | 34 | ||||||
Security deposits, prepaid rents, and other | (249 | ) | (146 | ) | ||||
Net assets acquired | $ | 27,531 | $ | 29,405 | ||||
Cash paid | $ | 19,640 | $ | 11,405 | ||||
Mortgage debt | 7,891 | 18,000 | ||||||
Total consideration | $ | 27,531 | $ | 29,405 | ||||
Three-month period ended March 31, 2020: | ||||||||
Revenue | $ | 408 | $ | 691 | ||||
Net income (loss) | $ | 45 | $ | (90 | ) | |||
Three-month period ended March 31, 2019: | ||||||||
Revenue | $ | — | $ | 595 | ||||
Net income (loss) | $ | — | $ | (141 | ) | |||
Capitalized acquisition costs incurred by the Company | $ | 470 | $ | 569 | ||||
Capitalized acquisition costs paid to related party (included above) | $ | 249 | $ | 300 | ||||
Remaining amortization period of intangible | ||||||||
assets and liabilities (years) | 10.4 | 7.8 |
Three-month periods ended March 31, | ||||||||
(In thousands) | 2020 | 2019 | ||||||
Depreciation: | ||||||||
Buildings and improvements | $ | 28,007 | $ | 22,987 | ||||
Furniture, fixtures, and equipment | 12,388 | 13,133 | ||||||
40,395 | 36,120 | |||||||
Amortization: | ||||||||
Acquired intangible assets | 8,650 | 8,945 | ||||||
Deferred leasing costs | 415 | 178 | ||||||
Website development costs | 49 | 46 | ||||||
Total depreciation and amortization | $ | 49,509 | $ | 45,289 |
March 31, 2020 | December 31, 2019 | |||||||
Number of loans | 24 | 27 | ||||||
Number of underlying properties in development | 17 | 19 | ||||||
(In thousands) | ||||||||
Drawn amount | $ | 310,317 | $ | 352,582 | ||||
Deferred loan origination fees | (1,500 | ) | (1,476 | ) | ||||
Allowance for loan losses | (13,344 | ) | (1,400 | ) | ||||
Carrying value | $ | 295,473 | $ | 349,706 | ||||
Unfunded loan commitments | $ | 62,866 | $ | 61,718 | ||||
Weighted average current interest, per annum (paid monthly) | 8.47 | % | 8.48 | % | ||||
Weighted average accrued interest, per annum | 3.54 | % | 3.85 | % |
(In thousands) | Principal balance | Deferred loan origination fees | Loan loss allowance | Credit Losses Reserve (CECL) | Carrying value | |||||||||||||||
Balances as of December 31, 2019 | $ | 352,582 | $ | (1,476 | ) | $ | (1,400 | ) | $ | — | $ | 349,706 | ||||||||
Opening CECL reserve | — | — | — | (7,414 | ) | (7,414 | ) | |||||||||||||
Loan fundings | 11,631 | — | — | — | 11,631 | |||||||||||||||
Loan repayments | (53,896 | ) | — | — | — | (53,896 | ) | |||||||||||||
Loan origination fees collected | — | (267 | ) | — | — | (267 | ) | |||||||||||||
Amortization of loan origination fees | — | 243 | — | 243 | ||||||||||||||||
Reductions in reserves due to loan repayments | — | — | — | 245 | 245 | |||||||||||||||
Provision for credit losses | — | — | — | (4,775 | ) | (4,775 | ) | |||||||||||||
Balances as of March 31, 2020 | $ | 310,317 | $ | (1,500 | ) | $ | (1,400 | ) | $ | (11,944 | ) | $ | 295,473 |
Property type | Number of loans | Carrying value | Commitment amount | Percentage of portfolio | ||||||||||
(In thousands) | ||||||||||||||
Residential properties | 23 | $ | 289,616 | $ | 353,989 | 98 | % | |||||||
New Market Properties | — | — | — | — | % | |||||||||
Preferred Office Properties | 1 | 5,857 | 19,193 | 2 | % | |||||||||
Balances as of March 31, 2020 | 24 | $ | 295,473 | $ | 373,182 |
Final reserve ratio | Number of loans | Total amount due (in thousands) | ||||||
0.50 | % | 3 | $ | 56,904 | ||||
1.00 | % | 1 | 6,370 | |||||
1.50 | % | 9 | 109,735 | |||||
3.00 | % | 2 | 28,992 | |||||
4.00 | % | 1 | 125,778 | |||||
36.26 | % | 1 | 5,924 | |||||
17 | $ | 333,703 |
Borrower | Date of loan | Maturity date | Total loan commitments | Outstanding balance as of: | Interest rate | |||||||||||||||
March 31, 2020 | December 31, 2019 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Preferred Capital Marketing Services, LLC (1,7) | N/A | N/A | $ | — | $ | — | $ | 650 | N/A | |||||||||||
Preferred Apartment Advisors, LLC (1,2,8) | N/A | N/A | — | — | 15,178 | N/A | ||||||||||||||
Haven Campus Communities, LLC (1,3) | 6/11/2014 | 12/31/2018 | 11,660 | 9,011 | 9,011 | 8 | % | |||||||||||||
Oxford Capital Partners, LLC (4,5) | 10/5/2015 | 6/30/2020 | 8,000 | 5,577 | 5,438 | 10 | % | |||||||||||||
Mulberry Development Group, LLC (5) | 3/31/2016 | 6/30/2020 | 750 | 525 | 525 | 12 | % | |||||||||||||
360 Capital Company, LLC (5,6) | 5/24/2016 | 12/31/2020 | 3,400 | 1,218 | 3,394 | 12 | % | |||||||||||||
360 Capital Company, LLC (9) | N/A | N/A | — | — | 7,754 | N/A | ||||||||||||||
Unamortized loan fees | — | (33 | ) | |||||||||||||||||
$ | 23,810 | $ | 16,331 | $ | 41,917 | |||||||||||||||
(1) See related party disclosure in Note 6. | ||||||||||||||||||||
(2) The amounts payable under this revolving credit line were collateralized by an assignment of the Former Manager's rights to fees due under the Sixth Amended and Restated Management Agreement between the Company and the Former Manager, or the Management Agreement. | ||||||||||||||||||||
(3) 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. | ||||||||||||||||||||
(4) 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. | ||||||||||||||||||||
(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. | ||||||||||||||||||||
(6) The amount payable under the note is collateralized by the developer's interest in the Fort Myers multifamily community project and a personal guaranty of repayment by the principals of the borrower. | ||||||||||||||||||||
(7) The line of credit extended to Preferred Capital Marketing Services, with a total commitment of $1.5 million, was eliminated as part of the Internalization transaction discussed in note 6. | ||||||||||||||||||||
(8) The line of credit extended to PAA, with a total commitment of $24 million, was eliminated as part of the Internalization transaction discussed in note 6. | ||||||||||||||||||||
(9) The line of credit extended to 360 Capital Company, with a total commitment of $8 million, was paid off during the first quarter. |
Interest income | Three month periods ended March 31, | |||||||
(In thousands) | 2020 | 2019 | ||||||
Real estate loans: | ||||||||
Current interest | $ | 7,357 | $ | 7,469 | ||||
Additional accrued interest | 3,295 | 3,385 | ||||||
Loan origination fee amortization | 277 | 315 | ||||||
Purchase option termination fee amortization | 4,040 | 4,233 | ||||||
Default interest | 62 | — | ||||||
Total real estate loan revenue | 15,031 | 15,402 | ||||||
Notes and lines of credit | 912 | 1,490 | ||||||
Bank and money market accounts | 33 | — | ||||||
Agency mortgage-backed securities | — | 198 | ||||||
Interest income on loans and notes receivable | $ | 15,976 | $ | 17,090 |
• | 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 $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"). |
(In thousands) | Deferred Offering Costs | |||||||||||||||||||||||||||
Offering | Total offering | Gross proceeds as of March 31, 2020 | Reclassified as reductions of stockholders' equity | Recorded as deferred assets | Total | Specifically identifiable offering costs (1) | Total offering costs | |||||||||||||||||||||
$1.5 Billion Unit Offering (2) | 1,500,000 | 1,236,414 | 15,099 | — | 15,099 | 115,645 | 130,744 | |||||||||||||||||||||
Series A1/M1 Offering | 1,000,000 | 38,805 | 74 | 1,839 | 1,913 | 3,854 | 5,767 | |||||||||||||||||||||
2019 Shelf Offering | 400,000 | — | — | 858 | 858 | — | 858 | |||||||||||||||||||||
Total | $ | 2,900,000 | $ | 1,275,219 | $ | 15,173 | $ | 2,697 | $ | 17,870 | $ | 119,499 | $ | 137,369 |
(In thousands) | Three-month periods ended March 31, | |||||||||
Type of Compensation | Basis of Compensation | 2020 | 2019 | |||||||
Acquisition fees | 1.0% of the gross purchase price of real estate assets | $ | 235 | $ | 1,400 | |||||
Loan origination fees | 1.0% of the maximum commitment of any real estate loan, note or line of credit receivable | — | 401 | |||||||
Loan coordination fees | 0.6% of any assumed, new or supplemental debt incurred in connection with an acquired property | 47 | 344 | |||||||
Asset management fees | Monthly fee equal to one-twelfth of 0.50% of the total book value of assets, as adjusted | 1,349 | 3,725 | |||||||
Property management fees | Monthly fee up to 4% of the monthly gross revenues of the properties managed | 890 | 2,457 | |||||||
General and administrative expense fees | Monthly fee equal to 2% of the monthly gross revenues of the Company | 616 | 1,486 | |||||||
Construction management fees | Quarterly fee for property renovation and takeover projects | 14 | 57 | |||||||
Disposition fees | 1% of the sale price of a real estate asset | — | — | |||||||
Contingent asset management fees / general and administrative fees | Recognized upon disposition of the property when exceeding the 7% IRR hurdle | — | — | |||||||
$ | 3,151 | $ | 9,870 |
(In thousands) | ||||||||
Three-month periods ended March 31, | ||||||||
2020 | 2019 | |||||||
$ | 1,430 | $ | 4,079 |
Dividends and distributions declared | ||||||||
For the three-month periods ended March 31, | ||||||||
2020 | 2019 | |||||||
(In thousands) | ||||||||
Series A Preferred Stock | $ | 31,100 | $ | 24,733 | ||||
mShares | 1,746 | 806 | ||||||
Series A1 Preferred Stock | 212 | — | ||||||
Series M1 Preferred Stock | 10 | — | ||||||
Common Stock | 12,491 | 11,195 | ||||||
Class A OP Units | 203 | 229 | ||||||
Total | $ | 45,762 | $ | 36,963 |
Three-month periods ended March 31, | Unamortized expense as of March 31, | ||||||||||||
(In thousands) | 2020 | 2019 | 2020 | ||||||||||
Class B Unit awards: | |||||||||||||
2016 | $ | — | $ | 2 | $ | — | |||||||
2017 | 3 | 78 | — | ||||||||||
2018 | 71 | 72 | 216 | ||||||||||
Restricted stock grants: | |||||||||||||
2017 | — | — | — | ||||||||||
2018 | — | 90 | — | ||||||||||
2019 | 105 | — | 35 | ||||||||||
Restricted stock units: | |||||||||||||
2017 | — | 18 | — | ||||||||||
2018 | 14 | 19 | 63 | ||||||||||
2019 | 19 | 32 | 145 | ||||||||||
2020 | 18 | — | 202 | ||||||||||
Total | $ | 230 | $ | 311 | $ | 661 |
Service year | Shares | Fair value per share | Total compensation cost (in thousands) | ||||||||
2017 | 24,408 | $ | 14.75 | $ | 360 | ||||||
2018 | 24,810 | $ | 14.51 | $ | 360 | ||||||
2019 | 26,446 | $ | 15.88 | $ | 420 |
Grant date | ||||||
1/2/2018 | 1/3/2017 | |||||
Units granted | 256,087 | 286,392 | ||||
Units forfeited: | ||||||
John A. Williams (1) | (38,284 | ) | — | |||
Voluntary forfeiture by senior executives (2) | (128,258 | ) | — | |||
Other | (22,722 | ) | (5,334 | ) | ||
Total forfeitures | (189,264 | ) | (5,334 | ) | ||
Units earned and converted into Class A Units | — | (281,058 | ) | |||
Class B Units outstanding at March 31, 2020 | 66,823 | — | ||||
Units unearned but vested | 49,688 | — | ||||
Units unearned and not yet vested | 17,135 | — | ||||
Class B Units outstanding at March 31, 2020 | 66,823 | — | ||||
(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. |
Grant dates | 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 |
Grant date | 1/2/2020 | 1/2/2019 | 1/2/2018 | ||||||||
Service period | 2020-2022 | 2019-2021 | 2018-2020 | ||||||||
RSU activity: | |||||||||||
Granted | 21,400 | 27,760 | 20,720 | ||||||||
Forfeited | (600 | ) | (4,360 | ) | (5,720 | ) | |||||
Units earned and converted into common stock | — | — | — | ||||||||
RSUs outstanding at March 31, 2020 | 20,800 | 23,400 | 15,000 | ||||||||
RSUs unearned but vested | — | 7,823 | 10,028 | ||||||||
RSUs unearned and not yet vested | 20,800 | 15,577 | 4,972 | ||||||||
RSUs outstanding at March 31, 2020 | 20,800 | 23,400 | 15,000 | ||||||||
Fair value per RSU | $ | 10.58 | $ | 10.77 | $ | 16.66 | |||||
Total fair value of RSU grant | $ | 226,412 | $ | 298,975 | $ | 345,195 |
Property | Date | Initial principal amount (in thousands) | Fixed/Variable rate | Interest rate | Maturity date | ||||||||
251 Armour Yards | 1/22/2020 | $ | 3,522 | Fixed | 4.50 | % | 1/22/2025 | ||||||
Wakefield Crossing | 1/29/2020 | 7,891 | Fixed | 3.66 | % | 2/1/2032 | |||||||
Morrocroft Centre | 3/19/2020 | 70,000 | Fixed | 3.40 | % | 4/10/2033 | |||||||
$ | 81,413 |
Date | Property | Previous balance (millions) | Previous interest rate / spread over 1 month LIBOR | Loan refinancing costs expensed | New balance (millions) | New interest rate | Total deferred loan costs subsequent to refinancing | |||||||||||||||||
1/3/2020 | Ursa | $ | 31.4 | L + 300 | $ | — | $ | — | n/a | $ | — | |||||||||||||
2/28/2019 | Lenox Village Town Center | $ | 29.2 | 3.82 | % | $ | 17,000 | $ | 39.3 | 4.34 | % | $ | 1,153,000 | |||||||||||
(In thousands) | ||||||||||
Fixed rate mortgage debt: | Principal balances due | Weighted-average interest rate | Weighted average remaining life (years) | |||||||
Residential Properties | $ | 1,288,213 | 3.92 | % | 8.4 | |||||
New Market Properties | 578,380 | 4.00 | % | 8.1 | ||||||
Preferred Office Properties | 637,617 | 4.13 | % | 13.2 | ||||||
Total fixed rate mortgage debt | 2,504,210 | 3.99 | % | 9.5 | ||||||
Variable rate mortgage debt: | ||||||||||
Residential Properties | 97,630 | 4.47 | % | 2.5 | ||||||
New Market Properties | 47,150 | 3.82 | % | 3.6 | ||||||
Preferred Office Properties | — | — | % | — | ||||||
Total variable rate mortgage debt | 144,780 | 4.26 | % | 2.8 | ||||||
Total mortgage debt: | ||||||||||
Residential Properties | 1,385,843 | 3.96 | % | 8.0 | ||||||
New Market Properties | 625,530 | 3.99 | % | 7.7 | ||||||
Preferred Office Properties | 637,617 | 4.13 | % | 13.2 | ||||||
Total principal amount | 2,648,990 | 4.01 | % | 9.2 | ||||||
Deferred loan costs | (38,182 | ) | ||||||||
Mark to market loan adjustment | (4,557 | ) | ||||||||
Mortgage notes payable, net | $ | 2,606,251 |
Covenant (1) | Requirement | Result | |||
Net worth | Minimum $2.0 billion | (2) | $2.0 billion | (4) | |
Debt yield | Minimum 8.25% | 10.1% | |||
Payout ratio | Maximum 95% | (3) | 90.6% | ||
Total leverage ratio | Maximum 65% | 60.5% | |||
Debt service coverage ratio | Minimum 1.50x | 2.10x |
Three-month periods ended March 31, | ||||||||
(In thousands) | 2020 | 2019 | ||||||
Residential Properties | $ | 14,866 | $ | 14,800 | ||||
New Market Properties | 6,750 | 5,586 | ||||||
Preferred Office Properties | 6,858 | 5,351 | ||||||
Interest paid to real estate loan participants | — | 110 | ||||||
Total | 28,474 | 25,847 | ||||||
Credit Facility and Acquisition Facility | 1,119 | 909 | ||||||
Interest Expense | $ | 29,593 | $ | 26,756 |
Period | Future principal payments (in thousands) | |||
2020 | $ | 225,796 | ||
2021 | 182,951 | |||
2022 | 223,020 | |||
2023 | 164,716 | |||
2024 | 358,898 | |||
Thereafter | 1,685,109 | |||
Total | $ | 2,840,490 |
For the three-month periods ended March 31, 2020 | Weighted average remaining lease term (years) | Weighted average discount rate | |||||||||||
Lease expense | Cash paid | ||||||||||||
(dollars in thousands) | |||||||||||||
Office space | $ | 475 | $ | 475 | 5.7 | 3.0 | % | ||||||
Ground leases | 13 | 4 | 29.6 | 4.4 | % | ||||||||
Office equipment | 101 | 101 | 2.3 | 3.0 | % | ||||||||
Total | $ | 589 | $ | 580 |
For the year ending December 31: | Future Minimum Rents as of March 31, 2020 | |||||||||||||||
(in thousands) | Office space | Ground leases | Office equipment | Total | ||||||||||||
2020 (1) | $ | 2,008 | $ | 38 | $ | 271 | $ | 2,317 | ||||||||
2021 | 2,359 | 51 | 247 | 2,657 | ||||||||||||
2022 | 2,998 | 51 | 136 | 3,185 | ||||||||||||
2023 | 3,067 | 51 | 48 | 3,166 | ||||||||||||
2024 | 3,139 | 51 | 38 | 3,228 | ||||||||||||
Thereafter | 3,163 | 1,136 | 10 | 4,309 | ||||||||||||
Total | $ | 16,734 | $ | 1,378 | $ | 750 | $ | 18,862 | ||||||||
(1) Remaining nine months |
(In thousands) | March 31, 2020 | December 31, 2019 | ||||||
Assets: | ||||||||
Residential properties | $ | 2,121,989 | $ | 2,047,905 | ||||
Financing | 338,055 | 409,226 | ||||||
New Market Properties | 1,124,091 | 1,125,230 | ||||||
Preferred Office Properties | 1,155,431 | 1,123,212 | ||||||
Other | 87,833 | 64,987 | ||||||
Consolidated assets | $ | 4,827,399 | $ | 4,770,560 | ||||
Three-month periods ended March 31, | ||||||||
(In thousands) | 2020 | 2019 | ||||||
Capitalized expenditures: | ||||||||
Residential properties | $ | 3,759 | $ | 2,125 | ||||
New Market Properties | 1,276 | 1,577 | ||||||
Total | $ | 5,035 | $ | 3,702 |
Three-month periods ended March 31, | ||||||||
(In thousands) | 2020 | 2019 | ||||||
Revenues | ||||||||
Rental and other property revenues: | ||||||||
Residential properties | $ | 57,565 | $ | 51,825 | ||||
New Market Properties | 28,002 | 22,059 | ||||||
Preferred Office Properties (1) | 26,462 | 20,943 | ||||||
Total rental and other property revenues | 112,029 | 94,827 | ||||||
Financing revenues | 15,813 | 16,656 | ||||||
Miscellaneous revenues | 3,260 | 23 | ||||||
Consolidated revenues | $ | 131,102 | $ | 111,506 | ||||
(1) Included in rental revenues for our Preferred Office Properties segment is the amortization of deferred revenue for tenant-funded leasehold improvements from a major tenant in our Three Ravinia and Westridge office buildings. As of March 31, 2020, the Company has deferred revenue in an aggregate amount of $47.0 million in connection with such improvements. The remaining balance to be recognized is approximately $38.8 million which is included in the deferred revenues line on the consolidated balance sheets at March 31, 2020. 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 $0.9 million and $0.9 million for the three-month periods ended March 31, 2020 and 2019, respectively. |
Three-month periods ended March 31, | ||||||||
(In thousands) | 2020 | 2019 | ||||||
Segment net operating income (Segment NOI) | ||||||||
Residential Properties | $ | 35,751 | $ | 29,333 | ||||
Financing | 15,813 | 16,679 | ||||||
New Market Properties | 19,846 | 15,805 | ||||||
Preferred Office Properties | 19,668 | 14,804 | ||||||
Miscellaneous revenues | 509 | — | ||||||
Consolidated segment net operating income | 91,587 | 76,621 | ||||||
Interest expense: | ||||||||
Residential Properties | 14,866 | 14,800 | ||||||
New Market Properties | 6,750 | 5,586 | ||||||
Preferred Office Properties | 6,858 | 5,351 | ||||||
Financing | 1,119 | 1,019 | ||||||
Depreciation and amortization: | ||||||||
Residential Properties | 24,414 | 25,865 | ||||||
New Market Properties | 13,414 | 10,335 | ||||||
Preferred Office Properties | 11,681 | 9,089 | ||||||
Management Internalization | 178,793 | 45 | ||||||
Management fees, net of forfeitures | 1,963 | 5,200 | ||||||
Provision for expected credit losses | 5,133 | — | ||||||
Equity compensation to directors and executives | 230 | 311 | ||||||
Gain on land condemnation | (479 | ) | — | |||||
Gain on non-cash net assets of consolidated VIEs | — | (141 | ) | |||||
Loss on extinguishment of debt | — | 17 | ||||||
Gain on trading investment, net | — | (4 | ) | |||||
Corporate G&A and Other | 6,368 | 1,428 | ||||||
Net income (loss) | $ | (179,523 | ) | $ | (2,280 | ) |
Three-month periods ended March 31, | |||||||||
(In thousands, except per-share figures) | 2020 | 2019 | |||||||
Numerator: | |||||||||
Operating (loss) income before gain on sale of trading investment | $ | (150,409 | ) | $ | 24,348 | ||||
Gain on sale of trading investment | — | 4 | |||||||
Operating (loss) income | (150,409 | ) | 24,352 | ||||||
Interest expense | 29,593 | 26,756 | |||||||
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools | — | 141 | |||||||
Less: loss on extinguishment of debt | — | (17 | ) | ||||||
Gains on sale of real estate loan investment and land condemnation | 479 | — | |||||||
Net (loss) income | (179,523 | ) | (2,280 | ) | |||||
Consolidated net loss (income) attributable to non-controlling interests | 3,141 | (492 | ) | ||||||
Net (loss) income attributable to the Company | (176,382 | ) | (2,772 | ) | |||||
Dividends declared to preferred stockholders | (33,068 | ) | (25,539 | ) | |||||
Earnings attributable to unvested restricted stock | (2 | ) | (2 | ) | |||||
Net loss attributable to common stockholders | $ | (209,452 | ) | $ | (28,313 | ) | |||
Denominator: | |||||||||
Weighted average number of shares of Common Stock - basic | 47,129 | 42,680 | |||||||
Effect of dilutive securities: (D) | — | — | |||||||
Weighted average number of shares of Common Stock - basic and diluted | 47,129 | 42,680 | |||||||
Net loss per share of Common Stock attributable to | |||||||||
common stockholders, basic and diluted | $ | (4.44 | ) | $ | (0.66 | ) |
As of March 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 | $ | 315,693 | $ | 329,924 | $ | — | $ | — | $ | 329,924 | |||||||||
Notes receivable and line of credit receivable | 16,332 | 16,332 | — | — | 16,332 | ||||||||||||||
$ | 332,025 | $ | 346,256 | $ | — | $ | — | $ | 346,256 | ||||||||||
Financial Liabilities: | |||||||||||||||||||
Mortgage notes payable | $ | 2,648,990 | 2,610,751 | $ | — | $ | — | $ | 2,610,751 | ||||||||||
Revolving credit facility | 191,500 | 191,500 | — | — | 191,500 | ||||||||||||||
$ | 2,840,490 | $ | 2,802,251 | $ | — | $ | — | $ | 2,802,251 |
As of December 31, 2019 | |||||||||||||||||||
Carrying value | Fair value measurements using fair value hierarchy | ||||||||||||||||||
(In thousands) | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial Assets: | |||||||||||||||||||
Real estate loans | $ | 375,460 | $ | 382,373 | $ | — | $ | — | $ | 382,373 | |||||||||
Notes receivable and line of credit receivable | 41,917 | 41,917 | — | — | 41,917 | ||||||||||||||
$ | 417,377 | $ | 424,290 | $ | — | $ | — | $ | 424,290 | ||||||||||
Financial Liabilities: | |||||||||||||||||||
Mortgage notes payable | $ | 2,609,829 | $ | 2,659,242 | $ | — | $ | — | $ | 2,659,242 | |||||||||
Revolving line of credit | — | — | — | — | — | ||||||||||||||
Term note payable | 70,000 | 70,000 | — | — | 70,000 | ||||||||||||||
$ | 2,679,829 | $ | 2,729,242 | $ | — | $ | — | $ | 2,729,242 |
• | 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; |
• | our ability to obtain and maintain financing arrangements, including through Fannie Mae and Freddie Mac; |
• | the impact of the coronavirus (COVID-19) pandemic on PAC’s business operations and the economic conditions in the markets in which PAC operates; |
• | 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. |
• | Amidst the COVID-19 pandemic, we collected 96.3% or better of rental revenues across all our verticals for the month of April 2020 except for our in-line retail tenants and we are tracking at generally the same pace for May. |
2020 Cash Collections of Certain Rental Revenues (1) | ||||||||||||
January | February | March | April | |||||||||
Multifamily | 99.4 | % | 99.4 | % | 99.1 | % | 97.7 | % | ||||
Student housing | 99.8 | % | 99.9 | % | 99.5 | % | 97.3 | % | ||||
Office | 99.7 | % | 99.5 | % | 98.7 | % | 96.3 | % | ||||
Grocery-anchored retail: | ||||||||||||
Grocery anchors | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
In-line tenants | 98.7 | % | 98.9 | % | 95.8 | % | 66.7 | % | ||||
Occupancy: | ||||||||||||
Multifamily | 95.1 | % | 95.5 | % | 95.7 | % | 94.3 | % | ||||
Student housing | 96.1 | % | 96.3 | % | 96.2 | % | 96.2 | % | ||||
Percent leased: | ||||||||||||
Office | 96.3 | % | 96.3 | % | 96.7 | % | 95.9 | % | ||||
Grocery-anchored retail | 92.9 | % | 92.6 | % | 92.6 | % | 92.5 | % |
• | Our net loss per share was $(4.44) and $(0.66) for the three-month periods ended March 31, 2020 and 2019, respectively. Funds From Operations, or FFO, for the three months ended March 31, 2020 was $(3.42) per weighted average share and unit outstanding and includes costs associated with the acquisition of Preferred Apartment Advisors, LLC (our "Former Manager") of approximately $178.8 million. Excluding these costs, our FFO per share was $0.31 for the three months ended March 31, 2020. Core FFO was $0.38 for the three months ended March 31, 2020, as compared to $0.41 for the three months ended March 31, 2019. |
• | For the first quarter 2020, our declared dividends to preferred and Common Stockholders and distributions to Unitholders exceeded our NAREIT-defined FFO result for the period, which was negative. Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately 69.4% and our Core FFO payout ratio (before the deduction of preferred dividends) to our preferred stockholders was approximately 64.4%(B) |
• | Our AFFO payout ratio to Common Stockholders and Unitholders was approximately 55.9% for the first quarter 2020. Our AFFO payout ratio (before the deduction of preferred dividends) to our preferred stockholders was approximately 59.3% for the first quarter 2020. (B) We have approximately $20.2 million of accrued but not yet received interest revenue on our real estate loan investment portfolio. |
• | On January 1, 2020, Joel T. Murphy became Chief Executive Officer of the Company. Mr. Murphy will continue as a member of the board, where he has served since May 2019 and as Chairman of the Company's Investment Committee, a role he has had since June 2018. Mr. Murphy was the CEO of our New Market Properties subsidiary for the last five years until his appointment as our CEO. Mr. Murphy succeeded Daniel M. DuPree as CEO. Mr. DuPree will remain with us as Executive Chairman of the Board. |
• | On January 31, 2020, we internalized the functions performed by Preferred Apartment Advisors, LLC (the "Former Manager") and NMP Advisors, LLC (the "Sub-Manager") by acquiring the entities that own the Manager and the Sub-Manager (such transactions, collectively, the "Internalization") for an aggregate purchase price of $154.0 million, plus up to $25.0 million of additional consideration to be paid within 36 months. Additionally, up to $15.0 million of the $154.0 million purchase price was to be held back and is payable to the sellers less certain losses following final resolution of certain specified matters. Pursuant to the Stock Purchase Agreement entered into on January 31, 2020 the sellers sold all of the outstanding shares of NELL Partners, Inc. (“NELL”) and NMA Holdings, Inc., parent companies of the Manager and Sub-Manager, respectively, to us, 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 $15.0 million for certain specified matters. |
• | During the first quarter 2020, the borrowers of the Dawson Marketplace, Falls at Forsyth, and (in conjunction with our acquisition of the underlying property) Altis Wiregrass real estate loans repaid all amounts due under the loans, including aggregate principal amounts of approximately $53.9 million and interest accrued in periods prior to the first quarter 2020 of approximately $8.9 million, the latter of which was additive to our first quarter 2020 AFFO result. The three mezzanine loan investments that matured this quarter yielded a weighted average 17% internal rate of return. |
• | As of March 31, 2020, the average age of our multifamily communities was approximately 5.8 years, which is the youngest in the public multifamily REIT industry. |
• | As of March 31, 2020, approximately 94.5% of our permanent property-level mortgage debt has fixed interest rates and approximately 3.7% has variable interest rates which are capped. We believe we are well protected against potential increases in market interest rates. |
• | As of March 31, 2020, our total assets were approximately $4.8 billion. Our total assets at March 31, 2019, also approximately $4.8 billion, included approximately $545 million of VIE mortgage pool assets attributable to other mortgage pool participants that were consolidated due to our investments in the Freddie Mac K Program. During the fourth quarter 2019, we sold our K Program investments, realizing an internal rate of return of approximately 18%. Excluding the consolidated VIE mortgage pool assets from the March 31, 2019 total, our total assets grew approximately $570.4 million, or 13.4%. |
• | At March 31, 2020, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 53.7%. |
• | On March 20, 2020, we delivered a written termination notice to the prospective purchaser of six of our student housing properties for their failure to consummate the purchase. Accordingly, we received an additional $2.75 million of forfeited earnest money as liquidated damages. |
Total units upon | Purchase option window | ||||||||
Project/Property | Location | completion (1) | Begin | End | |||||
Multifamily communities: | |||||||||
V & Three | Charlotte, NC | 338 | S + 90 days (2) | S + 150 days (2) | |||||
The Anson | Nashville, TN | 301 | S + 90 days (2) | S + 150 days (2) | |||||
Southpoint | Fredericksburg, VA | 240 | S + 90 days (2) | S + 150 days (2) | |||||
E-Town | Jacksonville, FL | 332 | S + 90 days (3) | S + 150 days (3) | |||||
Vintage | Destin, FL | 282 | (4) | (4) | |||||
Hidden River II | Tampa, FL | 204 | S + 90 days (2) | S + 150 days (2) | |||||
Kennesaw Crossing | Atlanta, GA | 250 | (5) | (5) | |||||
Vintage Horizon West | Orlando, FL | 340 | (4) | (4) | |||||
Solis Chestnut Farm | Charlotte, NC | 256 | (5) | (5) | |||||
Student housing property: | |||||||||
Solis Kennesaw II | Atlanta, GA | 175 | (6) | (5) | |||||
Office property: | |||||||||
8West | Atlanta, GA | (6) | (7) | (7) | |||||
2,718 | |||||||||
(1) 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. The purchase options held by us on the 464 Bishop, Haven Charlotte, Sanibel Straights, Wiregrass, Newbergh, Cameron Square, Solis Kennesaw and Falls at Forsyth projects were terminated, in exchange for an aggregate $17.2 million in termination fees from the developers. | |||||||||
(2) The option period window begins and ends at the number of days indicated beyond the achievement of a 93% physical occupancy rate by the underlying property. | |||||||||
(3) The option period window begins on the earlier of June 21, 2024 and the number of days indicated beyond the achievement of a 93% physical occupancy rate by the underlying property. | |||||||||
(4) The option period window begins on the later of one year following receipt of final certificate of occupancy or 90 days beyond the achievement of a 93% physical occupancy rate by the underlying property and ends 60 days beyond the option period beginning date. | |||||||||
(5) We hold a right of first offer on the property, at a to-be-agreed-upon market price. | |||||||||
(6) The option period begins on October 1 of the second academic year following project completion and ends on the following December 31. The developer may elect to expedite the option period to begin December 1, 2020 and end on December 31, 2020. | |||||||||
(7) The project plans are for the construction of a class A office building consisting of approximately 195,000 rentable square feet; our purchase option window opens 90 days following the achievement of 90% lease commencement and ends on November 30, 2024 (subject to adjustment). Our purchase option is at the to-be-agreed-upon market value. In the event the property is sold to a third party, we would be due a fee based on a minimum multiple of 1.15 times the total commitment amount of the real estate loan investment, less the amounts actually paid by the borrower, up to and including payment of accrued interest and repayment of principal at the time of the sale. |
Preferred Apartment Communities, Inc. | Three-month periods ended March 31, | Change inc (dec) | |||||||||||||
2020 | 2019 | Amount | Percentage | ||||||||||||
Revenues: | |||||||||||||||
Rental and other property revenues | $ | 111,866 | $ | 94,393 | $ | 17,473 | 18.5 | % | |||||||
Interest income on loans and notes receivable | 13,439 | 11,288 | 2,151 | 19.1 | % | ||||||||||
Interest income from related parties | 2,537 | 5,802 | (3,265 | ) | (56.3 | )% | |||||||||
Miscellaneous revenues | 3,260 | 23 | 3,237 | — | |||||||||||
Total revenues | 131,102 | 111,506 | 19,596 | 17.6 | % | ||||||||||
Operating expenses: | |||||||||||||||
Property operating and maintenance | 16,800 | 12,879 | 3,921 | 30.4 | % | ||||||||||
Property salary and benefits | 5,191 | 4,657 | 534 | 11.5 | % | ||||||||||
Property management fees | 2,003 | 3,267 | (1,264 | ) | (38.7 | )% | |||||||||
Real estate taxes and insurance | 15,525 | 14,090 | 1,435 | 10.2 | % | ||||||||||
General and administrative | 6,364 | 1,420 | 4,944 | 348.2 | % | ||||||||||
Equity compensation to directors and executives | 230 | 311 | (81 | ) | (26.0 | )% | |||||||||
Depreciation and amortization | 49,509 | 45,289 | 4,220 | 9.3 | % | ||||||||||
Asset management and general and administrative expense fees to related party | 3,099 | 7,829 | (4,730 | ) | (60.4 | )% | |||||||||
Provision for expected credit losses | 5,133 | — | 5,133 | — | |||||||||||
Management internalization expense | 178,793 | 45 | 178,748 | — | |||||||||||
Total operating expenses | 282,647 | 89,787 | 192,860 | 214.8 | % | ||||||||||
Waived asset management and general and administrative expense fees | (1,136 | ) | (2,629 | ) | 1,493 | (56.8 | )% | ||||||||
Net operating expenses | 281,511 | 87,158 | 194,353 | 223.0 | % | ||||||||||
Operating (loss) income before gain on sale of trading investment | (150,409 | ) | 24,348 | (174,757 | ) | (717.7 | )% | ||||||||
Gain on sale of trading investment | — | 4 | (4 | ) | (100.0 | )% | |||||||||
Operating (loss) income | (150,409 | ) | 24,352 | (174,761 | ) | (717.6 | )% | ||||||||
Interest expense | 29,593 | 26,756 | 2,837 | 10.6 | % | ||||||||||
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools | — | 141 | (141 | ) | — | ||||||||||
Loss on extinguishment of debt | — | (17 | ) | 17 | — | ||||||||||
Gain on land condemnation | 479 | — | 479 | — | |||||||||||
Net loss | (179,523 | ) | (2,280 | ) | (177,243 | ) | — | ||||||||
Consolidated net loss (income) attributable to non-controlling interests | 3,141 | (492 | ) | 3,633 | (738.4 | )% | |||||||||
Net loss attributable to the Company | $ | (176,382 | ) | $ | (2,772 | ) | $ | (173,610 | ) | — |
New Market Properties, LLC | Three-month periods ended March 31, | Change inc (dec) | |||||||||||||
2020 | 2019 | Amount | Percentage | ||||||||||||
Revenues: | |||||||||||||||
Rental revenues & other property revenues | $ | 27,838 | $ | 21,624 | $ | 6,214 | 28.7 | % | |||||||
Interest income on notes receivable | 164 | 435 | (271 | ) | (62.3 | )% | |||||||||
Total revenues | 28,002 | 22,059 | 5,943 | 26.9 | % | ||||||||||
Operating expenses: | |||||||||||||||
Property operating and maintenance | 3,324 | 2,309 | 1,015 | 44.0 | % | ||||||||||
Property management fees | 787 | 767 | 20 | 2.6 | % | ||||||||||
Real estate taxes and insurance | 4,048 | 3,188 | 860 | 27.0 | % | ||||||||||
General and administrative | 765 | 99 | 666 | 672.7 | % | ||||||||||
Equity compensation to directors and executives | 13 | 18 | (5 | ) | (27.8 | )% | |||||||||
Depreciation and amortization | 13,414 | 10,335 | 3,079 | 29.8 | % | ||||||||||
Asset management and general and administrative | |||||||||||||||
expense fees to related parties | 720 | 1,657 | (937 | ) | (56.5 | )% | |||||||||
Total operating expenses | 23,071 | 18,373 | 4,698 | 25.6 | % | ||||||||||
Waived asset management and general and administrative | |||||||||||||||
expense fees | (17 | ) | (99 | ) | 82 | (82.8 | )% | ||||||||
Net operating expenses | 23,054 | 18,274 | 4,780 | 26.2 | % | ||||||||||
Operating income | 4,948 | 3,785 | 1,163 | 30.7 | % | ||||||||||
Interest expense | 6,750 | 5,586 | 1,164 | 20.8 | % | ||||||||||
Gain on land condemnation | 479 | — | 479 | 100.0 | % | ||||||||||
Net income (loss) | $ | (1,323 | ) | $ | (1,801 | ) | $ | 478 | (26.5 | )% | |||||
Consolidated net loss (income) attributable to non-controlling interests | $ | 31 | $ | — | 31 | 100.0 | % | ||||||||
Net income (loss) attributable to the Company | $ | (1,292 | ) | $ | (1,801 | ) | 509 | (28.3 | )% |
Acquisition date | Property | Location | Units | Beds | Leasable square feet | ||||||||||
Multifamily communities: | |||||||||||||||
8/8/2019 | Artisan at Viera | Melbourne, FL | 259 | - | - | ||||||||||
9/18/2019 | Five Oaks at Westchase | Tampa, FL | 218 | - | - | ||||||||||
3/31/2020 | Altis Wiregrass Ranch | Tampa, FL | 392 | - | - | ||||||||||
New Market Properties: | |||||||||||||||
1/17/2019 | Gayton Crossing | Richmond, VA | - | - | 158,316 | ||||||||||
5/28/2019 | Free State Shopping Center | Washington, D.C. | - | - | 264,152 | ||||||||||
6/12/2019 | Disston Plaza | Tampa - St. Petersburg, FL | - | - | 129,150 | ||||||||||
6/12/2019 | Polo Grounds Mall | West Palm Beach, FL | - | - | 130,285 | ||||||||||
8/16/2019 | Fairfield Shopping Center (1) | Virginia Beach, VA | - | - | 231,829 | ||||||||||
11/14/2019 | Berry Town Center | Orlando, FL | - | - | 99,441 | ||||||||||
12/19/2019 | Hanover Shopping Center (1) | Wilmington, NC | - | - | 305,346 | ||||||||||
1/29/2020 | Wakefield Crossing | Raleigh, NC | - | - | 75,927 | ||||||||||
3/19/2020 | Midway Market | Dallas, TX | - | - | 85,599 | ||||||||||
Student housing properties: | |||||||||||||||
3/27/2019 | Haven49 | Charlotte, NC | 322 | 887 | - | ||||||||||
Preferred Office Properties: | |||||||||||||||
7/25/2019 | CAPTRUST Tower (1) | Raleigh, NC | - | - | 300,000 | ||||||||||
7/31/2019 | 251 Armour | Atlanta, GA | - | - | 35,000 | ||||||||||
12/20/2019 | Morrocroft Centre (1) | Charlotte, NC | - | - | 291,000 | ||||||||||
1,191 | 887 | 2,106,045 |
• | 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. |
Reconciliation of FFO Attributable to Common Stockholders and Unitholders and AFFO | |||||||||||
to Net (Loss) Income Attributable to Common Stockholders (A) | |||||||||||
Three months ended March 31, | |||||||||||
(In thousands, except per-share figures) | 2020 | 2019 | |||||||||
Net (loss) income attributable to common stockholders (See note 1) | $ | (209,452 | ) | $ | (28,313 | ) | |||||
Add: | Depreciation of real estate assets | 39,775 | 35,717 | ||||||||
Depreciation of real estate assets attributable to joint ventures | 8,982 | 9,123 | |||||||||
Net (loss) income attributable to Class A Unitholders (See note 2) | (3,094 | ) | 492 | ||||||||
FFO attributable to common stockholders and unitholders | (163,789 | ) | 17,019 | ||||||||
Acquisition and pursuit costs | 246 | — | |||||||||
Loan cost amortization on acquisition term notes and loan coordination fees (See note 3) | 678 | 487 | |||||||||
Payment of costs related to property refinancing | — | 55 | |||||||||
Internalization costs (See note 4) | 178,793 | 45 | |||||||||
Noncash dividends on preferred stock | 544 | 96 | |||||||||
Noncash (income) expense for current expected credit losses (See note 5) | 4,530 | — | |||||||||
Extraordinary Event - COVID-19 Expense | 29 | — | |||||||||
Earnest money forfeited by prospective asset purchaser | (2,750 | ) | — | ||||||||
Core FFO attributable to common stockholders and unitholders | 18,281 | 17,702 | |||||||||
Add: | Non-cash equity compensation to directors and executives | 230 | 311 | ||||||||
Amortization of loan closing costs (See note 6) | 1,166 | 1,131 | |||||||||
Depreciation/amortization of non-real estate assets | 556 | 449 | |||||||||
Net loan fees received (See note 7) | 267 | 401 | |||||||||
Deferred interest income received (See note 8) | 8,277 | 2,760 | |||||||||
Amortization of lease inducements (See note 9) | 439 | 428 | |||||||||
Non-operational miscellaneous revenues | 2,750 | — | |||||||||
Cash received in excess of amortization of purchase option termination revenues (See note 10) | 760 | 296 | |||||||||
Less: | Non-cash loan interest income (See note 8) | (3,019 | ) | (3,324 | ) | ||||||
Cash received for sale of K Program securities in excess of noncash revenues | — | (141 | ) | ||||||||
Cash paid for loan closing costs | — | (3 | ) | ||||||||
Amortization of acquired real estate intangible liabilities and SLR (See note 11) | (4,653 | ) | (3,758 | ) | |||||||
Amortization of deferred revenues (See note 12) | (940 | ) | (940 | ) | |||||||
Normally recurring capital expenditures (See note 13) | (1,418 | ) | (1,180 | ) | |||||||
Adjusted funds from operations attributable to common stockholders and Unitholders | $ | 22,696 | $ | 14,132 | |||||||
Common Stock dividends and distributions to Unitholders declared: | |||||||||||
Common Stock dividends | $ | 12,491 | $ | 11,195 | |||||||
Distributions to Unitholders (See note 2) | 203 | 229 | |||||||||
Total | $ | 12,694 | $ | 11,424 | |||||||
Common Stock dividends and Unitholder distributions per share | $ | 0.2625 | $ | 0.26 | |||||||
FFO per weighted average basic share of Common Stock and Unit outstanding | $ | (3.42 | ) | $ | 0.39 | ||||||
Core FFO per weighted average basic share of Common Stock and Unit outstanding | $ | 0.38 | $ | 0.41 | |||||||
AFFO per weighted average basic share of Common Stock and Unit outstanding | $ | 0.47 | $ | 0.32 | |||||||
Weighted average shares of Common Stock and Units outstanding: (A) | |||||||||||
Basic: | |||||||||||
Common Stock | 47,129 | 42,680 | |||||||||
Class A Units | 827 | 880 | |||||||||
Common Stock and Class A Units | 47,956 | 43,560 | |||||||||
Diluted Common Stock and Class A Units (B) | 47,957 | 44,199 | |||||||||
Actual shares of Common Stock outstanding, including 7 and 6 unvested shares | |||||||||||
of restricted Common Stock at March 31, 2020 and 2019, respectively. | 47,585 | 43,244 | |||||||||
Actual Class A Units outstanding at March 31, 2020 and 2019, respectively. | 775 | 879 | |||||||||
Total | 48,360 | 44,123 | |||||||||
(A) Units and Unitholders refer to Class A Units in our Operating Partnership (as defined in note 2), or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 1.72% weighted average non-controlling interest in the Operating Partnership for the three-month period ended March 31, 2020. | |||||||||||
(B) Since our AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock 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. |
1) | Rental and other property revenues and property operating expenses for the quarter ended March 31, 2020 include activity for the properties acquired during the period only from their respective dates of acquisition. In addition, the first quarter 2020 includes activity for the properties acquired since March 31, 2019. Rental and other property revenues and expenses for the first quarter 2019 include activity for the acquisitions made during that period only from their respective dates of acquisition. |
2) | Non-controlling interests in Preferred Apartment Communities Operating Partnership, L.P., or our Operating Partnership, consisted of a total of 774,687 Class A Units as of March 31, 2020. 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 1.72% and 2.02% for the three-month periods ended March 31, 2020 and 2019, respectively. |
3) | We paid loan coordination fees to Preferred Apartment Advisors, LLC, or our Former Manager, to reflect the administrative effort involved in arranging debt financing for acquired properties prior to the Internalization. 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 March 31, 2020, aggregate unamortized loan coordination fees were approximately $14.0 million, which will be amortized over a weighted average remaining loan life of approximately 10.3 years. |
4) | This adjustment reflects the add-back of consideration paid to the owners of the Former Manager and due diligence and pursuit costs incurred by the Company related to the internalization of the functions performed by the Former Manager. |
5) | 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 FFO in calculating 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 syndicated revolving line of credit with Key Bank National Association, or our Revolving Line of Credit. Effective April 13, 2018, the maximum borrowing capacity on the Revolving Line of Credit was increased from $150 million to $200 million. 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 March 31, 2020, aggregate unamortized loan costs were approximately $25.2 million, which will be amortized over a weighted average remaining loan life of approximately 9.1 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 are additive adjustments in the calculation of AFFO. Correspondingly, the amortized non-cash income is a deduction in the calculation of AFFO. 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. This non-cash interest income is subtracted from Core FFO in our calculation of AFFO. The amount of additional accrued interest becomes an additive adjustment to FFO once received from the borrower (see note 8). |
8) | This adjustment reflects the receipt during the periods presented of additional interest income (described in note 7 above) 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) | Effective March 6, 2020, our purchase option on the Falls at Forsyth multifamily community was extinguished in conjunction with the loan repayment; effective January 1, 2019, we terminated our purchase options on the Sanibel Straits, Newbergh, Wiregrass and Cameron Square multifamily communities and the Solis Kennesaw student housing property; on May 7, 2018, we terminated our purchase options on the Bishop Street multifamily community and the Haven Charlotte student housing property, both of which are (or were) partially supported by real estate loan investments held by us. In exchange, we arranged to receive termination fees aggregating approximately $17.2 million from the developers, which are recorded as revenue over the period beginning on the date of election 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 the quarters |
11) | 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 March 31, 2020, the balance of unamortized below-market lease intangibles was approximately $60.5 million, which will be recognized over a weighted average remaining lease period of approximately 9.1 years. |
12) | 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. |
13) | 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 $40,000 of recurring capitalized expenditures incurred at our corporate offices during the three months ended March 31, 2020. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures. |
• | operating expenses directly related to our portfolio of multifamily communities, student housing properties, grocery-anchored shopping centers and office properties (including regular maintenance items); |
• | operating expenses related to salaries, benefits, and general and administrative expenses (that were formally funded by payment of fees to our Former Manager prior to Internalization on January 31, 2020); |
• | capital expenditures incurred to lease our multifamily communities, student housing properties, grocery-anchored shopping centers and office properties; |
• | interest expense 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, and |
• | committed investments. |
Capital Expenditures | |||||||||||||||||||||||
Recurring | Non-recurring | Total | |||||||||||||||||||||
(In thousands, except per-unit amounts) | Amount | Per Unit | Amount | Per Unit | Amount | Per Unit | |||||||||||||||||
Appliances | $ | 176 | $ | 16.87 | $ | — | $ | — | $ | 176 | $ | 16.87 | |||||||||||
Carpets | 305 | 29.18 | — | — | 305 | 29.18 | |||||||||||||||||
Wood flooring / vinyl | 20 | 1.95 | 106 | 10.13 | 126 | 12.08 | |||||||||||||||||
Blinds and ceiling fans | 31 | 3.01 | — | — | 31 | 3.01 | |||||||||||||||||
Fire safety | — | — | 44 | 4.22 | 44 | 4.22 | |||||||||||||||||
Furnace, air (HVAC) | 61 | 5.83 | — | — | 61 | 5.83 | |||||||||||||||||
Computers, equipment, misc. | 5 | 0.48 | 57 | 5.47 | 62 | 5.95 | |||||||||||||||||
Elevators | — | — | 16 | 1.56 | 16 | 1.56 | |||||||||||||||||
Exterior painting | — | — | 628 | 60.11 | 628 | 60.11 | |||||||||||||||||
Leasing office / common amenities | 30 | 2.86 | 263 | 25.16 | 293 | 28.02 | |||||||||||||||||
Major structural | — | — | 407 | 38.94 | 407 | 38.94 | |||||||||||||||||
Cabinets & countertops and unit upgrades | — | — | 39 | 3.76 | 39 | 3.76 | |||||||||||||||||
Landscaping & fencing | — | — | 163 | 15.61 | 163 | 15.61 | |||||||||||||||||
Parking lot | — | — | 21 | 1.98 | 21 | 1.98 | |||||||||||||||||
Signage and sanitation | — | — | 19 | 1.84 | 19 | 1.84 | |||||||||||||||||
$ | 628 | $ | 60.18 | $ | 1,763 | $ | 168.78 | $ | 2,391 | $ | 228.96 |
Capital Expenditures | |||||||||||||||||||||||
Recurring | Non-recurring | Total | |||||||||||||||||||||
(In thousands, except per-unit amounts) | Amount | Per Bed | Amount | Per Bed | Amount | Per Bed | |||||||||||||||||
Appliances | $ | 29 | $ | 4.80 | $ | — | $ | — | $ | 29 | $ | 4.80 | |||||||||||
Carpets | 7 | 1.13 | — | — | 7 | 1.13 | |||||||||||||||||
Wood flooring / vinyl | — | — | — | — | — | — | |||||||||||||||||
Blinds and ceiling fans | 2 | 0.27 | — | — | 2 | 0.27 | |||||||||||||||||
Fire safety | — | — | — | — | — | — | |||||||||||||||||
Furnace, air (HVAC) | 25 | 4.04 | — | — | 25 | 4.04 | |||||||||||||||||
Computers, equipment, misc. | — | — | 2 | 0.35 | 2 | 0.35 | |||||||||||||||||
Elevators | — | — | 5 | 0.84 | 5 | 0.84 | |||||||||||||||||
Exterior painting | — | — | — | — | — | — | |||||||||||||||||
Leasing office / common amenities | 2 | 0.33 | 13 | 2.10 | 15 | 2.43 | |||||||||||||||||
Major structural | — | — | 541 | 88.71 | 541 | 88.71 | |||||||||||||||||
Cabinets & countertops and unit upgrades | — | — | 2 | 0.31 | 2 | 0.31 | |||||||||||||||||
Landscaping & fencing | — | — | 54 | 8.78 | 54 | 8.78 | |||||||||||||||||
Parking lot | — | — | — | — | — | — | |||||||||||||||||
Signage and sanitation | — | — | 19 | 3.26 | 19 | 3.26 | |||||||||||||||||
Unit furniture | 162 | 26.63 | 162 | 26.63 | |||||||||||||||||||
$ | 227 | $ | 37.20 | $ | 636 | $ | 104.35 | $ | 863 | $ | 141.55 |
• | the principal amount of our long-term debt as it becomes due or matures; |
• | capital expenditures needed for our multifamily communities, student housing properties, grocery-anchored shopping centers and office properties; |
• | costs associated with current and future capital raising activities; |
• | costs to acquire additional multifamily communities, student housing properties, grocery-anchored shopping centers, office properties or other real estate and enter into new and fund existing lending opportunities; and |
• | our minimum distributions necessary to maintain our REIT status. |
• | 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 $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"). |
(In thousands) | Total | Less than one year | 1-3 years | 3-5 years | More than five years | |||||||||||||||
Mortgage debt obligations: | ||||||||||||||||||||
Interest | $ | 826,087 | $ | 105,608 | $ | 192,171 | $ | 172,795 | $ | 355,513 | ||||||||||
Principal | 2,648,990 | 46,527 | 453,397 | 544,327 | 1,604,739 | |||||||||||||||
2019 Interim Term Loan: | ||||||||||||||||||||
Interest | 413 | 413 | — | — | — | |||||||||||||||
Principal | 191,500 | 191,500 | — | — | — | |||||||||||||||
Office space and equipment leases | — | — | — | — | — | |||||||||||||||
Total | $ | 3,666,990 | $ | 344,048 | $ | 645,568 | $ | 717,122 | $ | 1,960,252 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Balance (in thousands) | Percentage of total mortgage indebtedness | LIBOR Cap | All-in Cap | |||||||||
Avenues at Creekside | $ | 38,664 | 5.00 | % | 6.6 | % | ||||||
The Tradition | 30,000 | 3.25 | % | 7.0 | % | |||||||
The Bloc | 28,966 | 3.25 | % | 6.8 | % | |||||||
Total capped floating-rate debt | 97,630 | 3.7 | % | |||||||||
Champions Village | 27,400 | |||||||||||
Fairfield Shopping Center | 19,750 | |||||||||||
Total uncapped floating-rate debt | 47,150 | 1.8 | % | |||||||||
Total floating-rate debt | $ | 144,780 | 5.5 | % |
• | 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. |
Item 4. | Controls and Procedures |
Item 1. | Legal Proceedings |
• | 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 also incur significant costs or losses related to shelter-in-place orders, quarantines, infection, clean-up costs or other related factors; |
• | 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 may severely impact our office and retail tenants' business operations, financial condition, liquidity and access to capital resources and may cause one or more of our 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; |
• | 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. |
• | A significant reduction in our cash flows could impact the Company’s ability to continue paying cash dividends to its common and preferred stockholders at expected levels or at all; |
• | Increased redemption activity by holders of our preferred stock could impact our cash availability and liquidity strength and, to the extent we make redemptions of our Preferred Stock in shares of our Common Stock, further dilute stockholder’s ownership interests; and |
• | The financial impact of COVID-19 could negatively affect the Company’s future compliance with financial and other covenants of the Company’s credit facility and other debt instruments, and the failure to comply with such covenants could result in a default that accelerates the payment of such indebtedness |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 3. | Defaults Upon Senior Securities |
Item 4. | Mine Safety Disclosures |
Item 5. | Other Information |
Item 6. | Exhibits |
EXHIBIT INDEX | ||
Exhibit Number | Description | |
2.1 | ||
10.1 | + | |
31.1 | * | |
31.2 | * | |
32.1 | * | |
32.2 | * | |
101 | * | XBRL (eXtensible Business Reporting Language). The following materials from Preferred Apartment Communities, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2020 formatted in XBRL: (i) Condensed consolidated balance sheets at March 31, 2020 and December 31, 2019, (ii) Condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019, (iii) Condensed consolidated statements of stockholders' equity, (iv) Condensed consolidated statement of cash flows and (v) Notes to condensed consolidated financial statements. |
* | Filed or Furnished herewith | |
+ | Management contract or compensatory plan, contract or arrangement |
SIGNATURES | |||||||
Pursuant to the requirements 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: May 11, 2020 | By: | /s/ Joel T. Murphy | |||||
Joel T. Murphy | |||||||
Chief Executive Officer | |||||||
(Principal Executive Officer) | |||||||
Date: May 11, 2020 | By: | /s/ John A. Isakson | |||||
John A. Isakson | |||||||
Chief Financial Officer | |||||||
(Principal Financial Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Preferred Apartment Communities, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 11, 2020 | /s/ Joel T. Murphy |
Joel T. Murphy | |
Chief Executive Officer |
Date: May 11, 2020 | /s/ John A. Isakson |
John A. Isakson | |
Chief Financial Officer |
Date: May 11, 2020 | /s/ Joel T. Murphy | |
Joel T. Murphy | ||
Chief Executive Officer |
Date: May 11, 2020 | /s/ John A. Isakson | |
John A. Isakson | ||
Chief Financial Officer |
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Dividends Series A Preferred Dividends (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Dividends Payable [Line Items] | ||
Common Stock, Dividends, Per Share, Declared | $ 0.2625 | $ 0.26 |
Dividends, Preferred Stock, Cash | $ 45,762,000 | $ 36,963,000 |
Distribution Made to Limited Partner, Cash Distributions Declared | 203,000 | 229,000 |
dividends common stock declared | 12,491,000 | 11,195,000 |
Series A Preferred Stock [Member] | ||
Dividends Payable [Line Items] | ||
Dividends, Preferred Stock, Cash | 31,100,000 | 24,733,000 |
Series M Preferred Stock [Member] | ||
Dividends Payable [Line Items] | ||
Dividends, Preferred Stock, Cash | 1,746,000 | 806,000 |
Series A1 Preferred Stock [Domain] | ||
Dividends Payable [Line Items] | ||
Dividends, Preferred Stock, Cash | $ 212,000 | $ 0 |
Real Estate Loans, Notes Receivable, and Lines of Credit CMBS (Details) |
3 Months Ended | |||
---|---|---|---|---|
Mar. 28, 2019
USD ($)
|
Mar. 23, 2018
USD ($)
|
Mar. 31, 2020
USD ($)
|
Mar. 31, 2019
USD ($)
|
|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Proceeds from Sale of Mortgage-backed Securities (MBS), Available-for-sale | $ 20,400,000 | $ 6,200,000 | $ 0 | $ 53,445,000 |
Variable Interest Entity, Reporting Entity Involvement, Maximum Loss Exposure, Amount | $ 310,300,000 | |||
Mortgage Backed Securities, Other [Member] | ||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
number of loans in CMBS trust | 21 | 20 | ||
total maturity amount of CMBS pool | $ 295,700,000 | $ 276,300,000 | ||
Monthly Interest Expense | 103,000 | |||
Payments to Acquire Investments | $ 18,400,000 | $ 4,700,000 |
Commitments and Contingencies (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Commitments and Contingencies Disclosure [Abstract] | ||
manager's fees deferred | $ 1,136 | $ 2,629 |
cumulative manager's fees deferred | 25,600 | $ 24,100 |
real estate loan balances unfunded | 62,900 | |
Unfunded Tenant Leasing Commissions and Tenant Allowances | $ 14,000 |
Schedule IV (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
|
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items] | |||
current interest rate | 8.47% | 8.48% | |
Deferred interest rate | 3.54% | 3.85% | |
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate | $ 295,473,000 | ||
Unamortized Loan Commitment and Origination Fees and Unamortized Discounts or Premiums | (1,500,000) | $ (1,476,000) | |
Loans and Leases Receivable, Allowance | $ (13,344,000) | $ (1,400,000) |
Redeemable Preferred Stock |
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Preferred Stock [Text Block] | 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 one share of Series A Redeemable Preferred Stock, par value $0.01 per share, and one 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 March 31, 2020, the Company's active equity offerings consisted of:
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 active equity offerings consisted of:
(1) These offering costs specifically identifiable to 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. (2) The $1.5 Billion Unit Offering expired on February 14, 2020. 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. 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 have reimbursed 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. |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Text Block] | Indebtedness Mortgage Notes Payable Mortgage financing of property acquisitions During the three-month period ended March 31, 2020, the Company obtained mortgage financing on the following properties as shown in the following table:
Repayments and refinancings The following table summarizes our mortgage debt refinancing and repayment activity for the three-month periods ended March 31, 2020 and 2019:
The following table summarizes our mortgage notes payable at March 31, 2020:
The Company has placed interest rate caps on the variable rate mortgages on its Avenues at Creekside multifamily community and its Tradition and Bloc student housing properties. Under guidance provided by ASC 815-10, these interest rate caps are derivatives that are embedded in the debt hosts. Because the interest rate caps are deemed to be clearly and closely related to the debt hosts, bifurcation and fair value accounting treatment is not required. 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 March 31, 2020, the weighted-average remaining life of deferred loan costs related to the Company's mortgage indebtedness was approximately 9.5 years. Our mortgage notes have maturity dates between April 1, 2021 and June 1, 2054. Credit Facility The Company has a credit facility, or Credit Facility, with KeyBank National Association, or KeyBank, which includes 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 2.75% to 3.50% per annum, depending upon the Company’s leverage ratio. The weighted average interest rate for the Revolving Line of Credit was 4.57% for the year ended March 31, 2020. 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. 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 accrues interest at a rate of LIBOR plus 1.7% per annum. The Term Loan balance was repaid in conjunction with the closing of permanent mortgage financing for Morrocroft Centre on March 19, 2020. The Fourth 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 amount of dividends that may be paid out by the Company is restricted to a maximum of 95% 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 March 31, 2020, the Company was in compliance with all covenants related to the Revolving Line of Credit, as shown in the following table:
(1) All covenants are as defined in the credit agreement for the Revolving Line of Credit. (2) Minimum of $686.9 million plus 75% of the net proceeds of any equity offering, which totaled approximately $1.3 billion as of March 31, 2020. (3) Calculated on a trailing four-quarter basis. For the year ended March 31, 2020, the maximum dividends and distributions allowed under this covenant was approximately $173.7 million. (4) Adjusted to exclude the effect of costs incurred with internalization. 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 March 31, 2020, unamortized loan fees and closing costs for the Credit Facility were approximately $1.0 million, which will be amortized over a remaining loan life of approximately 1.8 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. The maximum borrowing capacity on the Acquisition Facility may be increased at the Company's request up to $300 million at any time prior to March 1, 2021. 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 two one-year extension options, subject to certain conditions described therein. At March 31, 2020, unamortized loan fees and closing costs for the establishment of the Acquisition Facility were approximately $0.2 million, which will be amortized over a remaining loan life of approximately 1.9 years. Interest Expense Interest expense, including amortization of deferred loan costs was:
Future Principal Payments The Company’s estimated future principal payments due on its debt instruments as of March 31, 2020 were:
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Common Stock, Dividends, Per Share, Declared | $ 0.2625 | $ 0.26 |
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Preferred Stock, Dividends Per Share, Declared | 5.00 | 5.00 |
Minimum [Member] | Series M Preferred Stock [Member] | ||
Preferred Stock, Dividends Per Share, Declared | 4.79 | 4.79 |
Maximum [Member] | Series M Preferred Stock [Member] | ||
Preferred Stock, Dividends Per Share, Declared | $ 6.25 | $ 6.25 |
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dividends and distributions [Text Block] | 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 and 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, 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 aggregate quarterly cash dividends on its Common Stock of $0.2625 and $0.26 per share for the three-month periods ended March 31, 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 March 31, 2020, the Company had 774,687 Class A OP Units outstanding, which are exchangeable on a one-for-one basis for shares of Common Stock or the equivalent amount of cash. The Company's dividend and distribution activity consisted of:
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Number of Real Estate Properties | 17 | 123 | 19 | |||
Number Of States With Real Estate Properties | state | 15 | |||||
Common Stock, Par or Stated Value Per Share | $ / shares | $ 0.01 | |||||
Common Stock, Shares, Outstanding | 47,578,631 | |||||
minority interest partnership units outstanding | 774,687 | |||||
daycountvolweightedavgcalcformarketvalue | 20 | |||||
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Common Stock, Par or Stated Value Per Share | $ / shares | $ 0.01 | $ 0.01 | ||||
Common Stock, Shares, Outstanding | 47,129,000 | 46,443,000 | ||||
Preferred Apartment Communities Operating Partnership, L.P [Member] | ||||||
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Noncontrolling Interest, Ownership Percentage by Parent | 98.40% |
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Schedule of Related Party Transactions [Table Text Block] | 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 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:
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Segment Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting Disclosure [Text Block] | 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 four distinct segments: residential properties, real estate related financing, New Market Properties and Preferred Office Properties. Residential Properties - consists of the Company's portfolio of residential multifamily communities and student housing properties. Multifamily Communities and Student Housing Properties were previously presented as separate reporting segments. The Company has collapsed these two segments into one Residential Properties segment. 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 subsidiary of the Company, as well as the financial results from the Company's Dawson Marketplace real estate loan, that was repaid and extinguished on February 3, 2020. 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.
Total capitalized expenditures (inclusive of additions to construction in progress, but exclusive of the purchase price of acquisitions) for the three months ended March 31, 2020 and 2019 were as follows:
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:
The Company expects that negative impacts from the COVID-19 pandemic affecting its in-line retail tenants within its New Market Properties segment may continue throughout 2020. Three tenants to date have ceased business operations and one has exercised an termination option. 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. Segment NOI for each reportable segment for the thee-month periods ended March 31, 2020 and 2019 were as follows:
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Summary of Significant Accounting Policies Basis of Presentation (Policies) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Revenue Recognition Leases, Operating [Policy Text Block] | Revenue Recognition Multifamily communities and student housing properties Rental revenue is recognized when earned from residents of the Company's multifamily communities, which is over the terms of the rental agreements, typically of nine to fifteen months’ duration. 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. 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 Lease Accounting, ASC 842, 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 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 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). 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. 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). 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. In performing a detailed review of each tenant, we determined if the balances were paid in the subsequent month, if if the tenant had requested rent relief in the subsequent month due to COVID-19 circumstances, if the tenant was a credit tenant that was not typically late, and if the tenant had a security deposit on hand. If collection of substantially all of the outstanding balance is not probable, the tenant's rental revenue is recognized on a cash basis and all accrued balances are written off to rental revenue. The Company 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. Upon adoption of ASC 842, the Company began recording amounts not deemed probable of collection as a reduction of rental and other property revenues, as applicable. In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of COVID-19. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated with the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 on lessees is a lease modification under Topic 842, Leases. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 is a modification can then elect whether to apply the modification guidance (i.e. assume the relief was always contemplated by the contract or assume the relief was not contemplated by the contract). Both lessees and lessors may make this election. The Company is evaluating its election on a disaggregated basis, with such election applied consistently to leases with similar characteristics and similar circumstances. The future impact of the Lease Modification Q&A is dependent upon the extent of lease concessions granted to tenants as a result of COVID-19 in future periods and the elections made by the Company at the time of entering into such concessions. The Company may provide grocery-anchored shopping center and office building tenants an allowance for the construction of leasehold improvements. These leasehold improvements 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 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. 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. All of these leases qualify as operating leases. The Company has three ground leases related to our office and grocery-anchored shopping center assets, one of which had been recorded at fair value on the Company's balance sheet at acquisition due to a purchase option the Company deemed probable of exercising. These 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 these ground leases. 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 is also the lessee of office space for its corporate headquarters and of furniture and office equipment, which generally are three to five years in duration with minimal rent increases. The Company’s right of use asset and related lease liability in accordance with ASC 842-20-30 related to these leases are recorded within the Tenant Receivables and Other Assets and the Security Deposits and Other Liabilities line items of the balance sheet, respectively. Lease expense for ground leases and furniture and office equipment located at the Company's properties is included in the consolidated statements of operations within property operations and maintenance and expense for office rent and furniture and office equipment in the Company's corporate headquarters are included in general and administrative expense. See note 12 for more disclosures related to the Company's right of use assets and lease liabilities |
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Assets or Liabilities that Relate to Transferor's Continuing Involvement in Securitized or Asset-backed Financing Assets, Policy [Policy Text Block] | |||||||||||||||||||||||||||||||||||||||||
New Accounting Pronouncements, Policy [Policy Text Block] | New Accounting Pronouncements
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Intangible Assets, Finite-Lived, Policy [Policy Text Block] | 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. |
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Consolidation, Variable Interest Entity, Policy [Policy Text Block] | |||||||||||||||||||||||||||||||||||||||||
Loans and Leases Receivable, Nonmortgage Loan, Valuation, Policy [Policy Text Block] | 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. 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 property's expected future fair 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. 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'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 of this Note for other loan-related policy disclosures required by ASC 310-10-50-6. Purchase Option Terminations The Company will occasionally receive a purchase option on the underlying property in conjunction with extending a real estate loan investment to the developer of the property. The purchase option is often 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. |
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Fair Value Measurement, Policy [Policy Text Block] |
Real Estate Assets Contributions to revenue and net income (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
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Contributions to revenue and net income [Abstract] | ||
Revenues | $ 131,102 | $ 111,506 |
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest | $ (179,523) | $ (2,280) |
Real Estate Assets purchase options (Details) - USD ($) |
3 Months Ended | |
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Mar. 31, 2020 |
Mar. 31, 2019 |
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Property, Plant and Equipment [Line Items] | ||
purchase option termination fees received | $ 9,100,000 | |
amortization of purchase option termination fee income | 4,040,000 | $ 4,233,000 |
Wiregrass [Domain] | ||
Property, Plant and Equipment [Line Items] | ||
amortization of purchase option termination fee income | $ 1,500,000 |
Equity Compensation Committee Fee Grants (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
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Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based Compensation | $ 230,000 | $ 311,000 |
ClassBUnits [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period | 256,087 | |
Share-based Compensation | $ 67,000 | |
Restricted Stock [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based Compensation | $ 7,000 |
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