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

Total Revenues

$111.0 million for Q3 2021; $345.4 million for the nine months ended September 30, 2021

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Net Loss Per Share

($0.92) per share for Q3 2021; ($2.30) per share for the nine months ended September 30, 2021

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Core FFO per Share*

$0.28 per share for Q3 2021; $0.86 per share for the nine months ended September 30, 2021

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AFFO Per Share*

$0.40 per share for Q3 2021; $0.75 per share for the nine months ended September 30, 2021

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Multifamily Same Store Results*

Same-store rental and other property revenues increased 7.5% and same-store net operating income increased 8.8% for Q3 year over year

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Four Multifamily Communities Acquired During Third Quarter 2021

12,052 multifamily units now owned by PAC

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Sale of Seven Office Assets Closed During Third Quarter 2021

Transaction also included one office real estate loan investment

Total consideration of $725 million

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Guidance Raised

Core FFO range raised to $1.00 - $1.07 for full year 2021

*Core FFO and AFFO results are per weighted-average share and Class A OP Unit outstanding. Core FFO, AFFO and same-store net operating income are non-GAAP measures that are defined below.

Preferred Apartment Communities, Inc. (NYSE:APTS) ("we," "our," the "Company," "Preferred Apartment Communities" or "PAC") today reported results for the quarter ended September 30, 2021. Unless otherwise indicated, all per share results are reported based on the basic weighted average shares of Common Stock and Class A Units ("Class A Units") of the Preferred Apartment Communities Operating Partnership (our "Operating Partnership") outstanding. See Definitions of Non-GAAP Measures.

"The third quarter was an extremely active one for PAC as we continue to execute on our strategic capital recycling initiatives. After completing the sale of the vast majority of our office properties, we immediately put into play our plan to recycle capital into high-quality Sunbelt multifamily assets and with calls and redemptions of Series A Preferred stock in excess of $300 million. As a result of our redeployment efforts, we now have a simplified portfolio with higher embedded organic growth opportunities and lower capital requirements, as well as improved balance sheet flexibility. Our Sunbelt market focus continues to provide an excellent fundamental backdrop in the form of long-term population and job growth, which contributes to sustained high occupancy and NOI growth in our assets. These fundamentals and the quality and vintage of our multifamily portfolio are continuing to produce strong results, with top line same store revenue growth of 7.5% and same-store NOI growth of 8.8%. For the third quarter, our same-store properties had 24.1% rent growth for new leases and 8.8% for renewals for a blended 15.6% increase. This rent growth we saw in the third quarter has continued into October as our new leases are up 25.6% and our renewals have increased 13.3% for a blended 18.6% increase. We look forward to building on these achievements for the balance of the year and into 2022 and beyond," stated Joel Murphy, Preferred Apartment Communities Chairman and Chief Executive Officer.

Conference Call and Supplemental Data

We will hold our quarterly conference call on Tuesday, November 9, 2021 at 11:00 a.m. Eastern Time to discuss our third quarter 2021 results. To participate in the conference call, please dial in to the following:

Live Conference Call Details

Dial-in Number: 1-877-883-0383

International Dial-in Number: 1-412-902-6506

Company: Preferred Apartment Communities, Inc.

Date: Tuesday, November 9, 2021

Time: 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time)

Passcode: 5239504

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

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

For Further Information

Paul Cullen

Executive Vice President-Investor Relations

Chief Marketing Officer

[email protected]

770-818-4144

Operating Results

Our operating results are presented below.

Financial

• Our total revenues for the quarter ended September 30, 2021 decreased approximately $15.4 million, or 12.2%, to $111.0 million from the quarter ended September 30, 2020, due to the absence of revenues from the eight student housing properties that we sold on November 3, 2020 and the seven office properties and one real estate loan investment that we sold during the third quarter 2021. The student housing properties contributed approximately $12.5 million, or 9.9% of our total revenues and the disposed office properties and real estate loan investment contributed approximately $17.3 million, or 13.7% of our total revenues for the quarter ended September 30, 2020. Excluding the contributions of these disposed assets, our year-over-year total revenues would have increased $7.7 million, or 8%.

• Our net loss per share was $(0.92) and $(0.79) for the three-month periods ended September 30, 2021 and 2020, respectively. Funds From Operations, or FFO, was $(0.31) and $0.17 per weighted average share of Common Stock and Class A Unit outstanding for the three months ended September 30, 2021 and 2020, respectively. The decrease in FFO per share was driven by:

^∗ deemed dividends due to calls and cash redemptions of our preferred stock of $(0.51) per share;

^∗ lower FFO resulting from the sale of our student housing properties in the fourth quarter 2020 and seven office properties and one real estate loan investment in the third quarter of 2021 of $(0.14) per share;

^∗ partially offset by lower cash dividend requirements on our preferred stock of $0.13 per share; and

^∗ improved multifamily same-store results of $0.04 per share.

• Our Core FFO per share increased to $0.28 for the third quarter 2021 from $0.26 for the third quarter 2020, due to:

^∗ lower cash dividend requirements on our preferred stock of $0.13 per share;

^∗ improved multifamily same-store results of $0.04 per share; and

^∗ lower FFO resulting from the sale of our student housing properties in the fourth quarter 2020 and seven office properties and one real estate loan investment in the third quarter of 2021 of $(0.14) per share.

• Our AFFO per share increased to $0.40 for the third quarter 2021 from $0.07 for the third quarter 2020 due to:

^∗ accrued interest income received of $0.16 per share;

^∗ lower cash dividend requirements on our preferred stock of $0.13 per share;

^∗ cash received from purchase option termination agreements of $0.06 per share;

^∗ smaller adjustments to remove non-cash revenues from amortization of deferred revenues, straight-line rent adjustments, above and below market leases and lease inducements of $0.05;

^∗ improved multifamily same-store results of $0.04 per share; and

^∗ lower FFO resulting from the sale of our student housing properties in the fourth quarter 2020 and seven office properties and one real estate loan investment in the third quarter of 2021 of $(0.14) per share.

• Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately 63.7% and our Core FFO payout ratio to our preferred stockholders was approximately 79.5% for the third quarter 2021. ^(A)

• Our AFFO payout ratio to Common Stockholders and Unitholders was approximately 44.6% and our AFFO payout ratio to our preferred stockholders was approximately 73.1% for the third quarter 2021.

• As of September 30, 2021, our total assets were approximately $3.7 billion, a net decrease from our total assets of approximately $4.7 billion at September 30, 2020, that primarily resulted from the sale of seven office properties during the third quarter 2021 and of our student housing portfolio during the fourth quarter 2020, offset by the acquisition of five multifamily communities (net of dispositions).

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

Operational

• Our multifamily communities' same-store rental and other property revenues increased 7.5%, same-store property operating expenses increased 5.7% and same-store net operating income increased 8.8% for the quarter ended September 30, 2021 versus 2020. Our same-store multifamily communities include all our multifamily communities except Artisan at Viera, The Menlo, The Blake, Parkside at the Beach, Horizon at Wiregrass, The Ellison, Alleia at Presidio, The Anson, The Kingson, and Chestnut Farm, all of which were acquired in the last 26 months.

• Our rental rates for our multifamily same-store properties for new and renewal leases increased 24.1% and 8.8% respectively and 15.6% blended for third quarter 2021 as compared to the expiring leases, excluding shorter-term leases of six months or less.

• Our rental rates for our multifamily same-store properties for new and renewal leases increased 25.6% and 13.3% respectively and 18.6% blended for October 2021 as compared to the expiring leases, excluding shorter-term leases of six months or less.

• As of September 30, 2021, the average age of our multifamily communities was approximately 6.1 years, which we believe is the youngest in the public multifamily REIT industry.

• As of September 30, 2021, all of our owned multifamily communities had achieved stabilization except for The Ellison (that was acquired on June 30, 2021), and Alleia at Presidio, The Anson, The Kingson, and Chestnut Farm, which were all acquired during the third quarter 2021. We define stabilization as reaching 93% occupancy for all three consecutive months within a single quarter.

• The average physical occupancy of our same-store multifamily communities increased to 97.1% for the three-month period ended September 30, 2021 from 95.6% for the three-month period ended September 30, 2020 and 96.8% for the three-month period ended June 30, 2021.

• Our average recurring rental revenue collections were approximately 99.2% for multifamily communities and 99.2% for grocery-anchored retail properties for the third quarter 2021.

Financing and Capital Markets

• As of September 30, 2021, approximately 95.1% of our permanent property-level mortgage debt has fixed interest rates and approximately 0.9% has variable interest rates which are capped. We believe we are well protected against potential increases in market interest rates. Our overall weighted average interest rate for our mortgage debt portfolio was 3.3% for multifamily communities, 4.2% for office properties, 3.9% for grocery-anchored retail properties and 3.5% in the aggregate.

• During the third quarter 2021, we issued and sold an aggregate of 37,009 shares of preferred stock and redeemed or called an aggregate of 305,802 shares of preferred stock, resulting in a net reduction of 268,793 outstanding shares of preferred stock, for a net redemption of approximately $272.0 million.

• At September 30, 2021, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 57.6%.

• At September 30, 2021, we had $200.0 million available to be drawn on our revolving line of credit.

• During the third quarter 2021, we issued and sold an aggregate of 1,167,626 shares of Common Stock under our 2019 ATM Offering, generating gross proceeds of approximately $12.9 million and, after deducting commissions and other costs, net proceeds of approximately $12.7 million.

Significant Transactions

• During the third quarter 2021, we closed on the acquisition of four multifamily communities and the disposition of one multifamily community:

• During the third quarter 2021, we closed on the disposition of the following office buildings:

• During the third quarter 2021, we received the full principal and interest amounts due from the repayment of eleven real estate loan investments associated with six properties that totaled approximately $114.1 million, plus purchase option termination fee proceeds of approximately $5.4 million. These transactions collectively returned approximately $119.5 million of capital to us during the third quarter for investment, preferred stock redemptions, or other corporate purposes. Of the six properties represented by these loan payoffs, we acquired three of the assets.

• On August 11, 2021, we originated a real estate loan investment of up to approximately $23.2 million, in support of the development of a 352-unit multifamily community in suburban Atlanta, Georgia.

Subsequent to Quarter End

• On October 14, 2021, we closed on a real estate loan investment of up to approximately $16.6 million supporting a 337-unit second phase of The Menlo multifamily community in Jacksonville, Florida.

• On October 21, 2021, we closed on supplemental notes payable (i) with a principal amount of approximately $7.3 million supporting our Retreat at Greystone multifamily community that bears a fixed interest rate of 3.47% per annum and matures on December 1, 2024 and (ii) with a principal amount of approximately $3.7 million supporting our Aldridge at Town Village multifamily community that bears a fixed interest rate of 3.46% per annum and matures on November 1, 2024.

• On October 28, 2021, our board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, payable on January 14, 2022 to stockholders of record on December 15, 2021.

• Between October 1, 2021 and October 31, 2021, we issued 49,049 shares of Common Stock under the 2019 ATM Offering at an average price of $12.43 per share, for aggregate gross proceeds of approximately $610,000 and, after deducting commissions and other costs, net proceeds of approximately $600,000.

• Between October 1, 2021 and October 31, 2021, we issued 2,882 shares of Series M1 Preferred Stock and collected net proceeds of approximately $2.8 million after commissions and fees. During the same period, we redeemed 2,001 shares of Series A Preferred Stock, 267 mShares, 8 shares of Series A1 Preferred Stock, and 193 shares of Series M1 Preferred Stock.

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

• On November 3, 2021, we closed on a real estate loan investment of up to $9.1 million, in support of a 246-unit multifamily community located in the Atlanta, Georgia MSA.

2021 Guidance

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

Core FFO - We are revising our guidance today to reflect the impact of the third quarter's performance and milestones. We now expect Core FFO per share in the range of $1.00 to $1.07 for the full year 2021, reflecting a general increase in our expectation and a tightening of the range as we close in on the end of the year.

Underpinning this guidance are the following updated assumptions:

• Same-Store Multifamily NOI Growth of 5.5 to 7% -- We are raising the low end of the range from our prior range of 5.0% to 7.0%;
• $300MM to $400MM of acquisitions of multifamily properties, unchanged from previous guidance and
• New real estate loan investment originations of $50-$100MM, which is also unchanged from previous guidance.

Our guidance continues to include the impact of purchase option terminations revenues and CECL reserve reversals as a result of real estate loan investments being repaid, which in combination with the accelerating growth in the multifamily portfolio, is helping to offset the dilution of the office portfolio sale in the short term. The increase in purchase option revenue represents a significant acceleration of payoffs and acquisitions of properties that were originally contemplated in 2022. This acceleration will have a material benefit to our results in 2021, to the detriment of the results in 2022. These one-time items will be very difficult to replace going forward, as we have fewer purchase option termination revenue opportunities in our loan investment portfolio today. In addition, as we discussed last quarter, our largest loan investment in San Jose, California is scheduled to mature in Q1 2022. There is a chance it will pay off in Q4 2021, which would have a dramatic impact on both 2021 results to the positive, and 2022 results to the negative.

AFFO, Core FFO and FFO are calculated after deductions for all preferred stock dividends. Reconciliations of net income (loss) attributable to common stockholders to FFO, Core FFO and AFFO for the three-month and nine-month periods ended September 30, 2021 and 2020 appear below, as well as on our website using the following link:

https://investors.pacapts.com/q3-2021-quarterly-supplemental-financial-data

Real Estate Assets

At September 30, 2021, our portfolio of owned real estate assets and potential additions from purchase options or rights of first offer we held from our real estate loan investments consisted of:

Same-Store Financial Data

The following charts present same-store operating results for the Company's multifamily communities. We define our population of same-store multifamily communities as those that have achieved occupancy at or above 93% for all three consecutive months within a single quarter ("stabilized") before the beginning of the prior year and that have been owned for at least 15 full months as of the end of the first quarter of the current year, enabling comparisons of the current year quarterly and annual reporting periods to the prior year comparative periods. The Company excludes the operating results of properties for which construction of adjacent phases has commenced and properties which are undergoing significant capital projects, have sustained significant casualty losses, or are being marketed for sale as of the end of the reporting period.

For the periods presented, same-store operating results consist of the operating results of the multifamily communities listed below, comprising an aggregate 9,222 units, or 76.5% of our multifamily units.

Same-store net operating income is a non-GAAP measure that is most directly comparable to net income (loss), as shown in the reconciliation below. See Definitions of Non-GAAP Measures below.

Dividends

Quarterly Dividends on Common Stock and Class A OP Units

On August 6, 2021, our board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, which was paid on October 15, 2021 to stockholders of record as of September 15, 2021. In conjunction with the Common Stock dividend, our operating partnership declared a distribution on its Class A Units of $0.175 per unit for the third quarter 2021, which was paid on October 15, 2021 to all Class A Unit holders of record as of September 15, 2021.

Monthly Dividends on Preferred Stock

We declared monthly dividends of $5.00 per share on our Series A Preferred Stock, which totaled approximately $52.3 million for the third quarter 2021 and represents a 6% annual yield. We declared monthly dividends of $5.00 per share on our Series A1 Preferred Stock, which totaled approximately $3.6 million for the third quarter 2021 and also represents a 6% annual yield. We declared dividends totaling approximately $1.4 million on our Series M Preferred Stock, or mShares, for the third quarter 2021. The mShares have a dividend rate that escalates from 5.75% in year one of issuance to 7.50% in year eight and thereafter. We declared dividends totaling approximately $0.5 million on our Series M1 Preferred Stock for the third quarter 2021. The Series M1 Preferred Stock has a dividend rate that escalates from 6.1% in year one of issuance to 7.1% in year ten and thereafter.

Forward-Looking Statements

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Estimates of future earnings, guidance, redemptions of Series A Preferred Stock, potential additions of properties from purchase options and rights of first offer from our real estate loan investments, goals and performance are, by definition, and certain other statements in this Earnings Release and Supplemental Financial Data Report may constitute, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or transactions to be materially different from the results, guidance, goals, performance, achievements or transactions expressed or implied by the forward-looking statements. These statements may be identified by the use of forward-looking terminology such as "may," "trend," "will," "expects," "plans," "estimates," "anticipates," "projects," "intends," "believes," "strategy," "goals," "objectives," "outlook" and similar expressions. These risks, uncertainties and contingencies include, but are not limited to, (a) the impact of the COVID-19 pandemic, including any variants, and related federal, state and local government actions on PAC's business operations and the economic conditions in the markets in which PAC operates; (b) PAC's ability to mitigate the impacts arising from COVID-19 or any variants thereof; and (c) those disclosed in PAC's filings with the SEC. Factors that impact such forward-looking statements include, among others, our business and investment strategy; legislative or regulatory actions; the state of the U.S. economy generally or in specific geographic areas; economic trends and economic recoveries; changes in operating costs, including real estate taxes, utilities and insurance costs; our ability to obtain and maintain debt or equity financing; financing and advance rates for our target assets; our leverage level; changes in the values of our assets; the occurrence of natural or man-made disasters; availability of attractive investment opportunities in our target markets; our ability to maintain our qualification as a real estate investment trust, or REIT, for U.S. federal income tax purposes; availability of quality personnel; our understanding of our competition and market trends in our industry; and interest rates, real estate values, the debt securities markets and the general economy.

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

We refer you to the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020 that was filed with the SEC on March 1, 2021, which discuss various factors that could adversely affect our financial results. Such risk factors and information may be updated or supplemented by our Form 10-K, Form 10-Q and Form 8-K filings and other documents filed from time to time with the SEC.

COVID-19

Our percentages of rent collected remained stabilized at or near pre-pandemic levels during the third quarter 2021. While the impacts of COVID-19 and its variants are continuing, the effects on our operations have been manageable and we believe this condition will persist, barring a dramatic change in the trajectory of the pandemic. The Company is continuing to monitor the spread and impact of the variants of COVID-19 as well as vaccination rates in its markets.

Additional Information

The SEC has declared effective the registration statement filed by the Company for each of our public offerings. Before you invest, you should read the final prospectus, and any prospectus supplements forming a part of the registration statement and other documents the Company has filed with the SEC for more complete information about the Company and the offering. In particular, you should carefully read the risk factors described in the final prospectus and in any related prospectus supplement and in the documents incorporated by reference in the final prospectus and any related prospectus supplement. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, the Company or its dealer manager, Preferred Capital Securities, LLC, will arrange to send you a prospectus with respect to the Series A1/M1 Offering upon request by contacting John A. Isakson at (770) 818-4109, 3284 Northside Parkway NW, Suite 150, Atlanta, Georgia 30327.

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

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

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

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

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

See Definitions of Non-GAAP Measures beginning below.

Real Estate Loan Investments

The following tables present details pertaining to our portfolio of fixed rate, interest-only real estate loan investments.