Organization and Basis of Presentation

12 Months Ended

Dec. 31, 2021

Preferred Apartment Communities, Inc., or the Company, (NYSE: APTS) is a real estate investment trust ("REIT") engaged primarily in the ownership and operation of Class A multifamily properties, with select investments in grocery anchored shopping centers and Class A office buildings. Preferred Apartment Communities’ investment objective is to generate attractive, stable returns for stockholders by investing in income-producing properties and acquiring or originating real estate loans. As of December 31, 2021, the Company owned or was invested in 109 properties in 13 states, predominantly in the Southeast region of the United States. Preferred Apartment Communities, Inc. has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with its tax year ended December 31, 2011. The Company was externally managed and advised by Preferred Apartment Advisors, LLC, or its Former Manager, a Delaware limited liability company and related party until January 31, 2020 (see Note 6).

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

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

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

Basis of Presentation

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

Reclassification Adjustments

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


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

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

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


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

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

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