PREFERRED APARTMENT COMMUNITIES INC (Form: 10-Q, Received: 08/09/2021 16:20:33)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2021

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

For the transition period from to

Commission File No. 001-34995

Preferred Apartment Communities, Inc.

(Exact name of registrant as specified in its charter)


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

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

(Address of principal executive offices) (Zip Code)

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

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


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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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

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

The number of shares outstanding of the registrant’s Common Stock, as of August 5, 2021 was 52,417,692.


PART I - FINANCIAL INFORMATION

INDEX


Item 1.	Financial Statements	Page No.

	Condensed Consolidated Balance Sheets (unaudited) – as of June 30, 2021 and December 31, 2020	2

	Condensed Consolidated Statements of Operations (unaudited) – Three and Six Months Ended June 30, 2021 and 2020	3

	Condensed Consolidated Statements of Stockholders' Equity (unaudited) – Three and Six Months Ended June 30, 2021 and 2020	4

	Condensed Consolidated Statements of Cash Flows (unaudited) – Six Months Ended June 30, 2021 and 2020	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	73

Item 4.	Controls and Procedures	74

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	74

Item 1A.	Risk Factors	74

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74

Item 3.	Defaults Upon Senior Securities	74

Item 4.	Mine Safety Disclosures	74

Item 5.	Other Information	74

Item 6.	Exhibits	75


Preferred Apartment Communities, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

(In thousands, except per-share par values)	June 30, 2021		December 31, 2020
Assets
Real estate
Land	$	611,966	$	605,282
Building and improvements	3,092,932		3,034,727
Tenant improvements	189,413		184,288
Furniture, fixtures, and equipment	319,328		306,725
Construction in progress	10,980		12,269
Gross real estate	4,224,619		4,143,291
Less: accumulated depreciation	(582,583)		(509,547)
Net real estate	3,642,036		3,633,744
Real estate loan investments, net of deferred fee income and allowance for expected
credit loss of $9,684 and $10,261	269,862		279,895
Total real estate and real estate loan investments, net	3,911,898		3,913,639

Cash and cash equivalents	37,105		28,657
Restricted cash	53,679		47,059
Notes receivable	2,977		1,863
Note receivable and revolving lines of credit due from related parties	9,011		9,011
Accrued interest receivable on real estate loans	23,183		22,528
Acquired intangible assets, net of amortization of $186,751 and $169,718	110,656		127,138
Tenant lease inducements, net of amortization of $6,250 and $5,350	17,352		18,206
Investment in unconsolidated joint venture	6,288		6,657
Tenant receivables and other assets	98,050		106,321

Total assets	$	4,270,199	$	4,281,079

Liabilities and equity
Liabilities
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $43,674 and $46,241	$	2,636,752	$	2,594,464
Revolving line of credit	56,500		22,000
Unearned purchase option termination fees	246		723
Deferred revenue	34,130		36,010
Accounts payable and accrued expenses	47,216		41,912
Deferred liability to Former Manager	23,675		23,335
Contingent liability due to Former Manager	14,725		14,814
Accrued interest payable	7,825		7,877
Dividends and partnership distributions payable	20,811		20,137
Acquired below market lease intangibles, net of amortization of $38,115 and $34,006	47,820		51,934
Prepaid rent, security deposits, and other liabilities	30,119		29,425
Total liabilities	2,919,819		2,842,631

Commitments and contingencies (Note 11)

Equity
Stockholders' equity
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 shares
issued; 1,647 and 1,735 shares outstanding at June 30, 2021 and December 31, 2020, respectively	16		17
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 218 and 149 shares
issued; 217 and 149 shares outstanding at June 30, 2021 and December 31, 2020, respectively	2		1
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued;
86 and 89 shares outstanding at June 30, 2021 and December 31, 2020, respectively	1		1
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 26 and 19
shares issued; 25 and 19 shares outstanding at June 30, 2021 and December 31, 2020, respectively	—		—
Common Stock, $0.01 par value per share; 400,067 shares authorized; 51,728 and 49,994 shares issued and
outstanding at June 30, 2021 and December 31, 2020, respectively	517		500
Additional paid-in capital	1,543,665		1,631,646
Accumulated (deficit) earnings	(193,539)		(192,446)
Total stockholders' equity	1,350,662		1,439,719
Non-controlling interest	(282)		(1,271)
Total equity	1,350,380		1,438,448

Total liabilities and equity	$	4,270,199	$	4,281,079

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


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)

(In thousands, except per-share figures)	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Revenues:
Rental and other property revenues	$	105,161	$	111,574	$	209,620	$	223,440
Interest income on loans and notes receivable	12,814		10,407		23,326		23,846
Interest income from related parties	410		604		815		3,141
Miscellaneous revenues	321		395		645		3,435
Total revenues	118,706		122,980		234,406		253,862

Operating expenses:
Property operating and maintenance	15,580		17,283		30,829		34,129
Property salary and benefits (including reimbursements of
$0, $0, $0 and $1,430 to related party)	4,914		5,720		9,735		10,911
Property management costs (including $0, $0, $0 and $894 to related parties)	927		1,042		2,032		3,045
Real estate taxes and insurance	15,509		16,787		31,649		32,462
General and administrative	7,696		7,827		15,235		13,775
Equity compensation to directors and executives	925		246		1,499		476
Depreciation and amortization	44,732		51,793		90,559		101,302
Asset management and general and administrative expense fees to related party	—		—		—		3,099
Allowance for expected credit losses	(845)		482		(323)		5,615
Management Internalization expense	240		458		485		179,251
Total operating expenses	89,678		101,638		181,700		384,065

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

Net operating expenses	89,678		101,638		181,700		382,929

Operating income (loss) before gains on sales of real estate and loss from unconsolidated joint venture	29,028		21,342		52,706		(129,067)
Loss from unconsolidated joint venture	(175)		—		(369)		—
Gain on sale of real estate	—		—		798		—
Operating income (loss)	28,853		21,342		53,135		(129,067)
Interest expense	27,296		31,136		54,287		60,729
Loss on extinguishment of debt	—		(6,156)		—		(6,156)
Gain on sale of land	—		—		—		479

Net income (loss)	1,557		(15,950)		(1,152)		(195,473)
Net (income) loss attributable to non-controlling interests	(3)		266		59		3,407

Net income (loss) attributable to the Company	1,554		(15,684)		(1,093)		(192,066)

Dividends declared to preferred stockholders	(33,983)		(35,624)		(67,803)		(68,692)
Earnings attributable to unvested restricted stock	(138)		(11)		(280)		(13)

Net loss attributable to common stockholders	$	(32,567)	$	(51,319)	$	(69,176)	$	(260,771)


Net loss per share of Common Stock available to common stockholders, basic and diluted	$	(0.64)	$	(1.06)	$	(1.38)	$	(5.47)


Weighted average number of shares of Common Stock outstanding, basic and diluted	50,518		48,220		50,277		47,674

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


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the three-month period ended June 30, 2021
(Unaudited)

(In thousands, except dividend per-share figures)	Redeemable Preferred Stock		Common Stock		Additional Paid in Capital		Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total Equity

Balance at April 1, 2021	$	19	$	501	$	1,582,193	$	(195,093)	$	1,387,620	$	(767)	$	1,386,853
Issuance of Preferred Stock	1		—		37,778		—		37,779		—		37,779
At-the-market issuance of common stock	—		14		15,091		—		15,105		—		15,105
Redemptions of preferred stock	(1)		—		(43,272)		—		(43,273)		—		(43,273)
Syndication and offering costs	—		—		(5,071)		—		(5,071)		—		(5,071)
Equity compensation to executives and directors	—		—		803		—		803		—		803
Vesting of restricted stock	—		1		(1)				—				—
Conversion of Class A Units to common stock	—		1		606		—		607		(607)		—
Net income	—		—		—		1,554		1,554		3		1,557
Reallocation of non-controlling interest to Class A Unitholders	—		—		(1,220)		—		(1,220)		1,220		—
Distributions to non-controlling interests	—		—		—		—		—		(44)		(44)
Distributions to Class A Unitholders	—		—		—		—		—		(87)		(87)
Dividends to Series A preferred stockholders ($5.00 per share per month)	—		—		(29,024)		—		(29,024)		—		(29,024)
Dividends to mShares preferred stockholders ($4.79 - $6.25 per share per month)	—		—		(1,444)		—		(1,444)		—		(1,444)
Dividends to Series A1/M1 preferred stockholders ($5.00 and $5.08 - $5.92 per share per month, respectively)	—		—		(3,512)		—		(3,512)		—		(3,512)
Dividends to PAC Carveout REIT preferred stockholders ($60 per share semi-annually)	—		—		(3)		—		(3)		—		(3)
Dividends to common stockholders ($0.175 per share)	—		—		(9,259)		—		(9,259)		—		(9,259)
Balance at June 30, 2021	$	19	$	517	$	1,543,665	$	(193,539)	$	1,350,662	$	(282)	$	1,350,380

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


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity, continued
For the three-month period ended June 30, 2020
(Unaudited)

(In thousands, except dividend per-share figures)	Redeemable Preferred Stock		Common Stock		Additional Paid in Capital		Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total Equity


Balance at April 1, 2020	$	22	$	476	$	1,969,534	$	(191,040)	$	1,778,992	$	(843)	$	1,778,149
Issuance of Preferred Stock	1		—		34,525		—		34,526		—		34,526
Redemptions of preferred stock	(2)		17		(38,324)		—		(38,309)		—		(38,309)
Syndication and offering costs	—		—		(4,288)		—		(4,288)		—		(4,288)
Equity compensation to executives and directors	—		—		196		—		196		—		196
Conversion of Class A Units to common stock	—		—		279		—		279		(279)		—
Current period amortization of Class B Units	—		—		—		—		—		50		50
Net loss	—		—		—		(15,684)		(15,684)		(266)		(15,950)
Reallocation of minority interest in PAC OP	—		—		(462)		—		(462)		462		—
Distributions to non-controlling interests	—		—		—		—		—		(130)		(130)
Dividends to Series A preferred stockholders ($5.00 per share per month)	—		—		(33,208)		—		(33,208)		—		(33,208)
Dividends to mShares preferred stockholders ($4.79 - $6.25 per share per month)	—		—		(1,610)		—		(1,610)		—		(1,610)
Dividends to Series A1/M1 preferred stockholders ($5.00 and $5.08 - $5.92 per share per month, respectively)	—		—		(806)		—		(806)		—		(806)
Dividends to common stockholders ($0.175 per share)	—		—		(8,624)		—		(8,624)		—		(8,624)
Balance at June 30, 2020	$	21	$	493	$	1,917,212	$	(206,724)	$	1,711,002	$	(1,006)	$	1,709,996

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


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the six-month period ended June 30, 2021
(Unaudited)

(In thousands, except dividend per-share figures)	Redeemable Preferred Stock		Common Stock		Additional Paid in Capital			Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total Equity

Balance at January 1, 2021	$	19	$	500	$	1,631,646		$	(192,446)	$	1,439,719	$	(1,271)	$	1,438,448
Issuance of Preferred Stock	1		—		75,707			—		75,708		—		75,708
At-the-market issuance of common stock	—		14		15,091			—		15,105		—		15,105
Redemptions of preferred stock	(1)		—		(83,310)			—		(83,311)		—		(83,311)
Syndication and offering costs	—		—		(9,459)			—		(9,459)		—		(9,459)
Equity compensation to executives and directors	—		—		1,416			—		1,416		—		1,416
Vesting of restricted stock	—		1		(1)			—		—		—		—
Conversion of Class A Units to common stock	—		2		1,339			—		1,341		(1,341)		—
Current period amortization of Class B Units	—		—		—			—		—		(39)		(39)
Net loss	—		—		—			(1,093)		(1,093)		(59)		(1,152)
Reallocation of non-controlling interest to Class A Unitholders	—		—		(2,711)			—		(2,711)		2,711		—
Distributions to non-controlling interests	—		—		—			—		—		(100)		(100)
Distributions to Class A Unitholders	—		—		—			—		—		(183)		(183)
Dividends to Series A preferred stockholders ($5.00 per share per month)	—		—		(58,455)			—		(58,455)		—		(58,455)
Dividends to mShares preferred stockholders ($4.79 - $6.25 per share per month)	—		—		(2,937)			—		(2,937)		—		(2,937)
Dividends to Series A1/M1 preferred stockholders ($5.00 and $5.08 - $5.92 per share per month, respectively)	—		—		(6,405)			—		(6,405)		—		(6,405)
Dividends to PAC Carveout REIT preferred stockholders ($60 per share semi-annually)	—		—		(6)			—		(6)		—		(6)
Dividends to common stockholders ($0.35 per share)	—		—		(18,250)			—		(18,250)		—		(18,250)
Balance at June 30, 2021	$	19	$	517	$	1,543,665	$1543665000	$	(193,539)	$	1,350,662	$	(282)	$	1,350,380

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


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity, continued
For the six-month period ended June 30, 2020
(Unaudited)

(In thousands, except dividend per-share figures)	Redeemable Preferred Stock			Common Stock		Additional Paid in Capital		Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total Equity


Balance at January 1, 2020	$	21		$	464	$	1,938,057	$	(7,244)	$	1,931,298	$	2,818	$	1,934,116
Cumulative adjustment to reflect the adoption of ASU 2016-13	—			—		—		(7,414)		(7,414)		—		(7,414)
Issuance of Preferred Stock	2			—		133,077		—		133,079		—		133,079
Exercises of warrants	—			—		8		—		8		—		8
Redemptions of preferred stock	(2)			28		(48,235)		—		(48,209)		—		(48,209)
Syndication and offering costs	—			—		(16,648)		—		(16,648)		—		(16,648)
Equity compensation to executives and directors	—			—		352		—		352		—		352
Conversion of Class A Units to common stock	—			1		1,383		—		1,384		(1,384)		—
Current period amortization of Class B Units	—			—		—		—		—		124		124
Net loss	—			—		—		(192,066)		(192,066)		(3,407)		(195,473)
Contributions from non-controlling interests	—			—		—		—		—		201		201
Reallocation of minority interest in PAC OP	—			—		(975)		—		(975)		975		—
Distributions to non-controlling interests	—			—		—		—		—		(333)		(333)
Dividends to Series A preferred stockholders ($5.00 per share per month)	—			—		(64,308)		—		(64,308)		—		(64,308)
Dividends to mShares preferred stockholders ($4.79 - $6.25 per share per month)	—			—		(3,356)		—		(3,356)		—		(3,356)
Dividends to Series A1/M1 preferred stockholders ($5.00 and $5.08 - $5.92 per share per month, respectively)	—			—		(1,028)		—		(1,028)		—		(1,028)
Dividends to common stockholders ($0.4375 per share)	—			—		(21,115)		—		(21,115)		—		(21,115)
Balance at June 30, 2020	$	21	21	$	493	$	1,917,212	$	(206,724)	$	1,711,002	$	(1,006)	$	1,709,996

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


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

(In thousands)	Six-month periods ended June 30,
	2021		2020
Operating activities:
Net loss	$	(1,152)	$	(195,473)
Reconciliation of net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense	90,559		101,302
Amortization of above and below market leases	(2,871)		(3,570)
Amortization of deferred revenues and other non-cash revenues	(2,545)		(2,482)
Amortization of purchase option termination fees	(4,440)		(4,475)
Amortization of equity compensation, lease incentives and other non-cash expenses	2,809		1,781
Deferred loan cost amortization	3,307		3,424
Non-cash accrued interest income on real estate loan investments	(5,585)		(6,156)
Receipt of accrued interest income on real estate loan investments	4,930		8,865
Gains on sale of real estate and land, net	(798)		(479)
Loss from unconsolidated joint venture	369		—
Cash received for purchase option terminations	4,463		4,800
Loss on extinguishment of debt	—		6,156
Increase in allowance for expected credit losses	(323)		5,615
Changes in operating assets and liabilities:
Decrease (increase) in tenant receivables and other assets	3,710		(12,112)
(Increase) in tenant lease incentives	(45)		(382)
Increase in accounts payable and accrued expenses	7,476		36,431
Increase in deferred liability to Former Manager	—		22,851
Increase in contingent liability	—		15,004
Increase (decrease) in accrued interest, prepaid rents and other liabilities	2,047		(2,234)
Net cash provided by (used in) operating activities	101,911		(21,134)

Investing activities:
Investments in real estate loans	(30,825)		(24,547)
Repayments of real estate loans	41,435		53,896
Notes receivable issued	(1,257)		(686)
Notes receivable repaid	143		10,041
Notes receivable issued to and draws on line of credit by related parties	—		(9,624)
Repayments of notes receivable and lines of credit by related parties	—		4,546
Origination fees received on real estate loan investments	1,203		467
Acquisition of properties	(66,772)		(185,970)
Disposition of properties, net	4,798		—
Proceeds from sale of land	259		738
Capital improvements to real estate assets	(18,278)		(26,422)
Investment in property development	—		(50)
Deposits paid on acquisitions	(1,558)		(105)
Net cash used in investing activities	(70,852)		(177,716)


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


Preferred Apartment Communities, Inc.
Consolidated Statements of Cash Flows - continued
(Unaudited)
(In thousands)	Six-month periods ended June 30,
	2021		2020

Financing activities:
Proceeds from mortgage notes payable	60,293		336,849
Repayments of mortgage notes payable	(20,572)		(134,493)
Payments for deposits and other mortgage loan costs	(2,411)		(10,541)
Payments for debt prepayment and other debt extinguishment costs	—		(5,919)
Proceeds from lines of credit	225,000		284,000
Payments on lines of credit	(190,500)		(191,500)
Repayment of the Term Loan	—		(70,000)
Proceeds from sales of Common Stock	14,879		—
Proceeds from the sales of Preferred Stock and Units, net of offering costs	68,283		120,497
Proceeds from exercises of Warrants	—		29
Payments for redemptions of preferred stock	(83,256)		(48,202)
Common Stock dividends paid	(17,736)		(24,647)
Preferred stock dividends and Class A Unit distributions paid	(67,870)		(68,538)
Payments for deferred offering costs	(2,001)		(9,701)
(Distributions to) contributions from non-controlling interests	(100)		197
Net cash (used in) provided by financing activities	(15,991)		178,031

Net increase (decrease) in cash, cash equivalents and restricted cash	15,068		(20,819)
Cash, cash equivalents and restricted cash, beginning of year	75,716		137,253
Cash, cash equivalents and restricted cash, end of period	$	90,784	$	116,434

Supplemental cash flow information:
Cash paid for interest	$	50,854	$	56,693

Supplemental disclosure of non-cash investing and financing activities:
Accrued capital expenditures	$	3,041	$	6,315
Noncash extinguishment of notes receivable	$	—	$	20,865
Dividends payable - Common Stock	$	9,438	$	8,625
Dividends declared - Preferred Stock	$	11,373	$	11,945
Reclass of offering costs from deferred asset to equity	$	1,911	$	4,098
Fair value issuances of equity compensation	$	6,648	$	4,616
Noncash repayment of mortgages through refinance	$	—	$	86,669
Operating lease liabilities assumed from Former Manager	$	—	$	15,912

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

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 30, 2021

1. Organization and Basis of Presentation

Preferred Apartment Communities, Inc. (NYSE: APTS), or the Company, is a real estate investment trust 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 June 30, 2021, the Company owned or was invested in 117 properties in 13 states, predominantly in the Southeast region of the United States. Preferred Apartment Communities, Inc. has elected to be taxed as a real estate investment trust 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). We refer to this transaction as the Internalization.

As of June 30, 2021, the Company had 51,728,456 shares of common stock, par value $0.01 per share, or Common Stock, issued and outstanding and was the approximate 99.1% owner of Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership, at that date. The number of partnership units not owned by the Company totaled 497,291 at June 30, 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 controlled the Operating Partnership through its sole general partner interest and conducted 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 Carveout, LLC, or Carveout, a subsidiary of the Operating Partnership. Carveout intends to elect to be taxed as a real estate investment trust 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 subsidiaries of the Operating Partnership.

Basis of Presentation

These consolidated financial statements include all of the accounts of the Company and the Operating Partnership. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not contain all disclosures required by accounting principles generally accepted in the United States of America, or GAAP. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. 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 results of operations for the three months and six months ended June 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for the full year. 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.

The potential reach, severity and duration of impacts of the COVID-19 pandemic, and recent developments related to the Delta variant, will cause our estimates and forecasts of future events to be inherently less certain. Actual results could differ from those estimates. Amounts are presented in thousands where indicated.

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 30, 2021

Reclassification Adjustments

The Company recorded certain reclassification adjustments on its Condensed Consolidated Statement of Operations for the three-month period ended June 30, 2020 to conform the prior period presentation to the current presentation as shown in the table below. The adjustment is made to present sublease income received by the Company for a portion of its corporate office space as a net adjustment against rent expense, which is included in the general and administrative expense line on the consolidated statements of operations. Additionally, an adjustment has been made to present certain expenses such as franchise taxes and insurance claims within the real estate taxes and insurance line on the consolidated statements of operations. These reclassification adjustments had no effect on previously-reported net loss attributable to common stockholders.


	For the three-month period ended June 30, 2020
(in thousands)	As reported in Quarterly Report on Form 10-Q at June 30, 2020		Reclassification adjustments		As reported in Quarterly Report on Form 10-Q at June 30, 2021

Revenues:
Miscellaneous revenues	$	692	$	(297)	$	395

Operating expenses:
Property operating and maintenance	$	16,841	$	442	$	17,283
Real estate taxes and insurance	$	16,506	$	281	$	16,787
General and administrative	$	8,847	$	(1,020)	$	7,827


	For the six-month period ended June 30, 2020
(in thousands)	As reported in Quarterly Report on Form 10-Q at June 30, 2020		Reclassification adjustments		As reported in Quarterly Report on Form 10-Q at June 30, 2021

Revenues:
Miscellaneous revenues	$	3,952	$	(517)	$	3,435

Operating expenses:
Property operating and maintenance	$	33,641	$	488	$	34,129
Real estate taxes and insurance	$	32,031	$	431	$	32,462
General and administrative	$	15,211	$	(1,436)	$	13,775

Preferred Apartment Communities, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 30, 2021

2.Summary of Significant Accounting Policies

The Company's significant accounting policies have not changed materially from those described in its Annual Report on Form 10-K as of December 31, 2020.


Standard	Description	Date of Adoption	Effect on the Consolidated Financial Statements
Recently Issued Accounting Guidance Not Yet Adopted
ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The new standard enables affected entities to elect from a series of practical expedients designed to ease the transition from referenced base rates within contracts designated to be replaced by Reference Rate Reform.	The amendments are effective March 12, 2020 through December 31, 2022.	ASU 2020-04 will be applicable to the Company's variable-rate debt instruments for which the Company is the borrower, which bear interest at a spread over the 1-month London Interbank Offer Rate (1-month LIBOR). Among the practical expedients are the option to elect prospective adjustment of the effective interest rate, foregoing reassessment of any instruments under loan modification rules. The Company is monitoring developments pertaining to Reference Rate Reform and does not currently anticipate ASU 2020-04 to have a material effect on its results of operations.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

3. Real Estate Assets

The Company's real estate assets consisted of:


	As of:
	June 30, 2021	December 31, 2020
Residential Properties:
Properties (1,2)	38	37
Units	11,393	11,143
New Market Properties:
Properties (2)	54	54
Gross leasable area (square feet) (3)	6,208,278	6,208,278
Preferred Office Properties: (4)
Properties (2)	9	9
Rentable square feet	3,169,000	3,169,000
Development properties	2	2
Rentable square feet	35,000	35,000

(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 grocery-anchored shopping centers and two office buildings are owned through consolidated joint ventures. One grocery-anchored shopping center is an investment in an unconsolidated joint venture.
(3) The Company also owns approximately 47,600 square feet of gross leasable area of ground floor retail space which is embedded within the Lenox Portfolio and is not included in the totals above for New Market Properties.
(4) Five of our office properties and the real estate loan investment supporting the 8West office building were sold to Highwoods Realty Limited Partnership, an unrelated party, on July 29, 2021.

Impacts of COVID-19 Pandemic

The COVID-19 pandemic that spread throughout the country during 2020 impacted earnings for commercial real estate to some degree but has not had a profound widespread negative effect on the valuations of real estate assets. The Company is continuing to monitor the spread and impact of the Delta variant of COVID-19 as well as vaccination rates in its markets. The Company does not consider this event to be a triggering event for purposes of impairment, since overall occupancy rates for the Company’s real estate assets have not materially declined and the Company has continued to collect substantially all rent due. Thus, there is no evidence of declining valuations or a triggering event.

Sale of Office Properties

Purchase and Sale Agreements were signed on April 16, 2021 for the sale by the Company of five office properties: 150 Fayetteville, Morrocroft, Capitol Towers, CapTrust and Galleria 75, plus one real estate loan investment. The transaction was closed on July 29, 2021. As of June 30, 2021, the five office properties (Galleria 75, 150 Fayetteville, Capitol Towers, CapTrust and Morrocroft) did not meet the criteria in ASC 360-10-45-9 to be classified as held for sale. In applying the Company's policy to address the held for sale criteria, the Company used all available information as of June 30, 2021. Primary consideration was given to the financing contingencies in place, that if not satisfied, would likely result in the entire deal being terminated and the full reimbursement to the buyer of all earnest money deposits. The Company did not commit to a plan to sell the properties should the pending transaction not close.

The purchase price offered for the five properties was considered as part of the Company's impairment analysis as of June 30, 2021. In considering possible outcomes driven by the uncertainty of the transaction resulting from the financing contingencies in place as of the reporting date, the Company applied probabilities to the possible outcomes in assessing the recoverability of the real estate asset group. Based on the analysis performed using the available information including management's intent and

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

ability to continue to operate the assets and certain judgements and assumptions, the asset group was determined to be recoverable and no impairment was recognized in the second quarter of 2021. The transaction closed on July 29, 2021, upon the satisfaction of the in-place financing contingencies and will result in a loss on the sale of between $20.0 million and $21.0 million. Refer to the subsequent event note for further details.

Residential Properties Acquired

During the six-month periods ended June 30, 2021 and 2020, the Company completed the acquisition of the following multifamily communities:

Acquisition date

Property

Location

Units

2021:

6/30/2021

The Ellison

Atlanta, Georgia

250

2020:

3/31/2020

Horizon at Wiregrass

Tampa, Florida

392

4/30/2020

Parkside at the Beach

Panama City Beach, Florida

288

680

The Company allocated the purchase price and capitalized acquisition costs of The Ellison to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocation was based upon the Company's best estimates of the fair values of the acquired assets and liabilities.


(In thousands, except amortization period data)	The Ellison

Land	$	6,943
Buildings and improvements	49,871
Furniture, fixtures and equipment	9,483
Lease intangibles	714
Prepaids & other assets	231
Accrued taxes	(183)
Security deposits, prepaid rents, and other liabilities	(287)

Net assets acquired	$	66,772

Cash paid	$	18,781
Mortgage debt, net	47,991

Total consideration	$	66,772



Capitalized acquisition costs incurred by the Company	$	111
Remaining amortization period of intangible
assets and liabilities (months)	5.5

The aggregate purchase price of the multifamily communities acquired during the six-month period ended June 30, 2020 was approximately $141.2 million, exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

New Market Properties Assets Acquired

The Company acquired no grocery-anchored shopping centers during the six-month period ended June 30, 2021. During the six-month period ended June 30, 2020, the Company completed the acquisition of the following grocery-anchored shopping centers:

Acquisition date

Property

Location

Gross leasable area (square feet)

1/29/2020

Wakefield Crossing

Raleigh, North Carolina

75,927

3/19/2020

Midway Market

Dallas, Texas

85,599

161,526

The aggregate purchase price of the New Market Properties acquisitions for the six-month period ended June 30, 2020 was approximately $27.7 million, exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

The Company recorded aggregate amortization and depreciation expense of:


(In thousands)	Three-month periods ended June 30,				Six-month periods ended June 30,
	2021		2020		2021		2020
Depreciation:
Buildings and improvements	$	26,664	$	28,755	$	53,359	$	56,762
Furniture, fixtures, and equipment	9,695		12,926		20,223		25,315
	36,359		41,681		73,582		82,077
Amortization:
Acquired intangible assets	7,858		9,714		15,950		18,363
Deferred leasing costs	472		348		941		764
Website development costs	43		50		86		98
Total depreciation and amortization	$	44,732	$	51,793	$	90,559	$	101,302

At June 30, 2021, the Company had recorded acquired gross intangible assets of $297.4 million, accumulated amortization of $186.8 million, gross intangible liabilities of $85.9 million and accumulated amortization of $38.1 million. Net intangible assets and liabilities as of June 30, 2021 will be amortized over the weighted average remaining amortization periods of approximately 7.0 and 8.4 years, respectively.

At June 30, 2021, the Company held restricted cash that totaled approximately $53.7 million. Of this total, $14.0 million was contractually restricted to fund capital expenditures and other property-level commitments such as tenant improvements and leasing commissions. Another $33.8 million was for lender-required escrows for real estate taxes, insurance premiums and COVID-19 reserves. The remainder of the Company's restricted cash consisted primarily of resident and tenant security deposits.

Purchase Options

In the course of extending real estate loan investments for property development, the Company will often receive an exclusive option to purchase the property once development and stabilization are complete. If the Company determines that it does not wish to acquire the property, in certain cases it has the right to sell its purchase option back to the borrower for a termination fee in the amount of the purchase option discount.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

These fees are treated as additional interest revenue and are amortized over the period ending with the earlier of (i) the sale of the underlying property and (ii) the maturity of the real estate loans. The Company recorded approximately $3.2 million and $0.4 million of interest revenue from the amortization of these purchase option terminations for the three-month periods ended June 30, 2021 and 2020, respectively and $4.4 million and $4.5 million for the six-month periods ended June 30, 2021 and 2020, respectively. Remaining unamortized termination fee revenue of approximately $246,000 at June 30, 2021 will be recognized by December 31, 2021.

Joint Venture Investment

On July 15, 2020, the Company contributed its Neapolitan Way grocery-anchored shopping center that was previously wholly-owned and consolidated into a joint venture in exchange for approximately $19.2 million and 50% interest in the joint venture. In doing so, the Company realized a gain on the transaction of approximately $3.3 million and now holds its remaining interest in the property via an unconsolidated joint venture and retains a 50% voting and financial interest. The following tables summarize the balance sheet and statements of income data for the Neapolitan Way shopping center subsequent to its contribution into the joint venture as of and for the periods presented:


(in thousands)	June 30, 2021		December 31, 2020
Total assets	$	37,826	$	39,109
Total liabilities	$	25,250	$	25,795


	Three months ended June 30, 2021		Six months ended June 30, 2021
Rental and other property revenues	$	821	$	1,636
Total operating expenses	$	940	$	1,913
Interest expense	$	231	$	461
Net income (loss)	$	(350)	$	(738)
Net income (loss) attributable to the Company	$	(175)	$	(369)

4. Real Estate Loans, Notes Receivable, and Line of Credit

Our portfolio of fixed rate, interest-only real estate loans consisted of:


	June 30, 2021			December 31, 2020
Number of loans	20			20
Number of underlying properties in development	14			14
(In thousands)
Drawn amount	$	279,546		$	290,156
Deferred loan origination fees	(1,755)			(1,194)
Allowance for expected credit losses	(7,929)			(9,067)
Carrying value	$	269,862		$	279,895

Unfunded loan commitments	$	53,125		$	44,403
Weighted average current interest, per annum (paid monthly)	8.62		%	8.50		%
Weighted average accrued interest, per annum	3.67		%	3.91		%

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021


(In thousands)	Principal balance		Deferred loan origination fees		Allowances and CECL Reserves		Carrying value
Balances as of December 31, 2020	$	290,156	$	(1,194)	$	(9,067)	$	279,895
Loan fundings	30,825		—		—		30,825
Loan repayments	(41,435)		—		—		(41,435)
Loan origination fees collected	—		(1,203)		—		(1,203)
Amortization of loan origination fees	—		642		—		642
Reserve increases due to loan originations	—		—		(566)		(566)
Net decreases in reserves on existing or loans repaid	—		—		1,704		1,704

Balances as of June 30, 2021	$	279,546	$	(1,755)	$	(7,929)	$	269,862


Property type	Number of loans	Carrying value		Commitment amount		Percentage of portfolio
(In thousands)

Residential properties	19	$	257,378	$	313,478	95	%

Preferred Office Properties (1)	1	12,484		19,193		5	%
Balances as of June 30, 2021	20	$	269,862	$	332,671

(1) Five of our office properties and the real estate loan investment supporting the 8West office building were sold to Highwoods Realty Limited Partnership, an unrelated party, on July 29, 2021.

On March 1, 2021, we closed on a real estate loan investment of up to approximately $16.8 million to partially finance the development and construction of a 320-unit multifamily community to be located in Orlando, Florida. The loan pays a current monthly interest rate of 8.5% per annum and accrues additional deferred interest of 4.5% per annum and matures on September 1, 2024.

On May 28, 2021, we closed on two real estate loan investments of up to approximately $17.1 million to partially finance the development and construction of a 316-unit multifamily community to be located near Savannah, Georgia. The loans pay a current monthly interest rate of 8.5% per annum and accrue additional deferred interest of 4.25% per annum and mature on May 27, 2025.

The Company's real estate loan investments are primarily collateralized by 100% of the membership interests of the underlying project entity, and, where considered necessary, by unconditional joint and several repayment guaranties and performance guaranties by the principal(s) of the borrowers. These guaranties generally remain in effect until the receipt of a final certificate of occupancy. All of the guaranties are subject to the rights held by the senior lender pursuant to a standard intercreditor agreement. Prepayment of the real estate loans are permitted in whole, but not in part, without the Company's consent.

The Company's allowance for expected credit losses includes allowances on interest receivable on certain instruments, as shown in the following table:

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021


	For the three-month periods ended June 30,				For the six-month periods ended June 30,
(In thousands)	2021		2020		2021		2020
Allowance for expected credit losses:
Haven Campus Communities, LLC line of credit	$	410	$	410	$	815	$	820
Starkville real estate loan	—		193		—		387
Net (decreases) increases in current expected loss reserves on new and existing loans	(1,255)		(121)		(1,138)		4,408

Total	$	(845)	$	482	$	(323)	$	5,615

The Company incurred an aggregate net decrease in its allowance for expected credit losses of approximately $0.8 million and an aggregate net increase of $0.5 million for the three-month periods ended June 30, 2021 and 2020, respectively. In the six-month period ended June 30, 2020, $4.5 million of the $5.6 million aggregate increase in the Company’s allowance for expected credit losses was due to the onset of the COVID-19 pandemic and the Company updating its estimates to the valuations of the underlying developments. The Company does not anticipate such a large increase in future periods.

The Company assesses the credit quality of its real estate loan investments by a calculated loss reserve ratio, which is an internally-developed credit quality indicator. Loss reserve ratios reflect the amount of protection afforded by the amount of equity and debt financing subordinate to the Company's position in the project; higher reserve ratios reflect a lower amount of invested dollars junior to the Company's position. The following table presents the Company's aggregation of loan amounts (including unpaid interest) by final reserve ratio as of June 30, 2021:


Final reserve ratio	Number of loans	Total receivables by project, net of reserves (in thousands)
< 1.00%	12	$	111,197
1.00% - 1.99%	6	40,085
2.00% - 2.99%	1	9,985
3.00% - 3.99%	—	—
4.00% - 4.99%	1	138,235
5.00% +	—	—

	20	$	299,502

The Company continues to monitor the extent of any impact the COVID-19 pandemic has on development activity underlying our real estate loan investments, including the availability of labor, the supply and availability of construction materials and the ability to achieve leased stabilization. The Company assesses its real estate loan investment portfolio for impacts from COVID-19 at the outset of the project, as well as both quantitatively and qualitatively at the achievement of construction and leasing milestones during the projects' lives.

The Company can make no assurances that economic or industry conditions or other circumstances will not lead to increases in allowances for credit losses.

Management monitors the credit quality of the obligors under each of the Company's real estate loans by tracking the timeliness of scheduled interest and principal payments relative to the due dates as specified in the loan documents, as well as draw requests on the loans relative to the project budgets. In addition, management monitors the actual progress of development and construction relative to the construction plan, as well as local, regional and national economic conditions that may bear on our current and target markets.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

The Company's portfolio of notes and lines of credit receivable consisted of:


(In thousands) Borrower	Date of loan	Maturity date	Total loan commitments		Outstanding balance as of:				Interest rate
					June 30, 2021		December 31, 2020

Haven Campus Communities, LLC (1)	6/11/2014	12/31/2018	$	11,660	$	9,011	$	9,011	8	%
Oxford Capital Partners, LLC (2,4)	10/5/2015	3/15/2022	1,250		1,173		1,256		10	%
Oxford Capital Partners II, LLC (2,4)	3/30/2021	3/15/2022	5,300		1,114		—		10	%
Mulberry Development Group, LLC (3)	3/31/2016	6/30/2022	750		690		607		12	%
Unamortized loan fees					—		—

			$	18,960	$	11,988	$	10,874

(1) 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. See related party disclosure in Note 6.
(2) 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.
(3) The amounts payable under the terms of these revolving credit lines are collateralized by a personal guaranty of repayment by the principal of the borrower.
(4) The commitment was reduced from $8 million to $1.25 million for the Oxford Capital Partners, LLC line of credit on March 30, 2021. A second Oxford line of credit was opened on March 30, 2021 with a commitment of $5.3 million.

On November 20, 2018, the borrower on the Haven Campus Communities, LLC line of credit defaulted on the loan, triggering the accrual of an additional 10% default interest rate, which is incremental to the original 8% current interest rate. The amount of default interest recorded from the default date through June 30, 2021 was approximately $2.5 million. Under the terms of the loan, amounts collected are applied first to any legal costs incurred by the Company to collect amounts due on the loan; second, to pay any accrued default and current interest on the loan; and third, to repay the principal amount owed. The Company retains a pledge of a 49.49% interest in an unrelated shopping center located in Atlanta, Georgia as collateral on the Haven Campus Communities, LLC line of credit, as well as personal guaranties of repayment from the principals of the borrower.

In January 2019 the Company filed a lawsuit to collect the amounts owed under the line of credit it provided to Haven Campus Communities, LLC. In September 2019, Haven Campus Communities, LLC answered the lawsuit and filed counterclaims against the Company and its affiliates. At this time, the case is in discovery, so the Company is unable to make any estimates on timing or amounts that may be collected by the Company on its Haven Campus Communities, LLC line of credit.

Additionally, in November 2020, the Company filed two lawsuits to collect past due rent owed to the Former Manager of the Company, as sub-landlord pursuant to (i) an office sublease agreement dated May 1, 2017 by and between the Former Manager and Elevation Development Group, LLC and (ii) an office sublease agreement dated October 1, 2014 by and among the Former Manager, as sub-landlord, and Haven Campus Communities, LLC and Madison Retail, LLC as sub-tenants. The Company retains partial personal guaranties of repayment from the principals of Haven Campus Communities, LLC and Madison Retail, LLC. In December 2020, the defendants answered the lawsuit and filed counterclaims against the Company and its affiliates. At this time, the case is in discovery, so the Company is unable to make any estimates on timing or amounts that may be collected by the Company on its subleases.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

The Company recorded interest income and other revenue from these instruments as follows:


(In thousands) Interest income	Three-month periods ended June 30,				Six-month periods ended June 30,
	2021		2020		2021		2020
Real estate loans:
Current interest	$	6,373	$	6,792	$	12,539	$	14,149
Accrued interest	2,763		2,860		5,585		6,156
Loan origination fee amortization	398		250		642		527
Purchase option termination fee amortization	3,210		434		4,440		4,475
Default interest	—		62		—		124

Total real estate loan revenue	12,744		10,398		23,206		25,431
Notes and lines of credit	480		607		935		1,518
Bank and money market accounts	—		6		—		38


Interest income on loans and notes receivable	$	13,224	$	11,011	$	24,141	$	26,987

The Company extends loans for purposes such as to partially finance the development of multifamily residential communities, to acquire land in anticipation of developing and constructing multifamily residential communities, and for other real estate or real estate related projects. Certain of these loans include characteristics such as exclusive options to purchase the project within a specific time window following project completion and stabilization, the sufficiency of the borrowers' investment at risk and the existence of payment and performance guaranties provided by the borrowers, any of which can cause the loans to create variable interests to the Company and require further evaluation as to whether the variable interest creates a VIE, which would necessitate consolidation of the project.

The Company considers the facts and circumstances pertinent to each entity borrowing under the loan, including the relative amount of financing the Company is contributing to the overall project cost, decision making rights or control held by the Company, guarantees provided by third parties, and rights to expected residual gains or obligations to absorb expected residual losses that could be significant from the project. If the Company is deemed to be the primary beneficiary of a VIE, consolidation treatment would be required.

The Company has no decision making authority or power to direct activity, except normal lender rights, which are subordinate to the rights of the senior lenders on the projects. The Company has concluded that it is not the primary beneficiary of the borrowing entities and therefore it has not consolidated these entities in its consolidated financial statements. The Company's maximum exposure to loss from these loans is their drawn amount as of June 30, 2021 of approximately $279.5 million. The maximum aggregate amount of loans to be funded as of June 30, 2021 was approximately $332.7 million, which includes approximately $53.1 million of loan committed amounts not yet funded.

The Company has evaluated its real estate loans, where appropriate, for accounting treatment as loans versus real estate development projects, as required by ASC 310. The Company evaluates the expected residual profit it expects to collect under the terms of the loan versus the expected residual profit expected to be collected by the developer (in conjunction with any equity investors, if applicable), along with the "loan versus investment" characteristics as set forth by ASC 310-25. For each loan, the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate in cases where (i) the majority of the expected residual profit is expected to be due to the developer and (ii) the majority of "loan versus investment" tests indicate that the instrument is a loan.

The Company is subject to a geographic concentration of risk that could be considered significant with regard to the 8West and Solis Cumming Town Center, Populus at Pooler, and Populus at Pooler Capital real estate loan investments, as well as the Club Drive land loan investment, all of which are partially supporting various real estate projects in Georgia. The drawn amount, in addition to outstanding accrued interest, for these loans as of June 30, 2021 totaled approximately $33.9 million (with a total commitment amount of approximately $64.7 million). The Company is also subject to a geographic concentration of risk that could be considered significant with regard to the Hidden River II, Hidden River II Capital, Vintage Horizon West and The Hudson real estate loan investments, all of which are partially supporting various real estate projects in Florida. The drawn amount, in addition to outstanding accrued interest, for these loans as of June 30, 2021 totaled approximately $21.5 million

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

(with a total commitment amount of approximately $34.9 million). The event of a total failure to perform by the borrowers and guarantors would subject the Company to a total possible loss of the drawn amount and all outstanding accrued interest.

5. Redeemable Preferred Stock and Equity Offerings

On February 14, 2020, the Company's offering of a maximum of 1,500,000 Units, with each Unit consisting of 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.

The Series A Preferred Stock, Series A1 Preferred Stock, mShares, and Series M1 Preferred Stock are collectively defined as “Preferred Stock”.

At June 30, 2021, the Company's active equity offerings consisted of:

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

•an offering of up to $125 million of Common Stock from time to time in an "at the market" offering (the "2019 ATM Offering") under our $400 million shelf registration statement (the "2019 Shelf Registration Statement") on Form S-3 that was filed with the SEC on March 21, 2019.

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 reflected in the asset section of the consolidated balance sheets as deferred offering costs.

Cumulative gross proceeds and offering costs for the Company's active equity offerings consisted of:


(In thousands)					Deferred Offering Costs
Offering	Total offering		Gross proceeds as of June 30, 2021		Reclassified as reductions of stockholders' equity		Recorded as deferred assets		Total		Specifically identifiable offering costs (1)		Total offering costs

Series A1/M1 Offering	$	1,000,000	$	243,996	$	2,568	$	3,747	$	6,315	$	23,242	$	29,557
2019 ATM Offering	125,000		19,720		126		1,075		1,201		319		1,520


Total	$	1,125,000	$	263,716	$	2,694	$	4,822	$	7,516	$	23,561	$	31,077

(1) These offering costs specifically identifiable to preferred stock or ATM 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.

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.

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

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

aggregate gross proceeds of the offering. Dealer manager fees and sales commissions for the Series A1/M1 Preferred Stock Offering are not reimbursable.

2019 ATM Offering

During the three-month period ended June 30, 2021, the Company issued and sold 1,442,214 shares of Common Stock under the 2019 ATM Offering, generating gross proceeds of approximately $15.1 million and, after deducting commissions and other costs, net proceeds of approximately $14.9 million.

6. Related Party Transactions

On January 31, 2020, the Company internalized the functions performed by the Former Manager and Sub-Manager by acquiring the entities that owned the Former Manager and the Sub-Manager for an aggregate purchase price of $154 million, plus up to $25 million of additional consideration to be paid within 36 months, due upon the earlier of (i) if, for the immediately preceding fiscal year beginning on January 1, funds from operations ("FFO") of the Company per weighted average basic share of the Company’s common stock and Class A Unit (as defined in the limited partnership agreement of PAC OP) outstanding for such fiscal year is determined to be greater than or equal to $1.55 or (ii) on the thirty-six (36) month anniversary of the closing of the Internalization. Pursuant to the Stock Purchase Agreement, the sellers sold all of the outstanding shares of capital stock of NELL Partners, Inc. ("NELL") and NMA Holdings, Inc. ("NMA") to Carveout in exchange for an aggregate of approximately $111.1 million in cash paid at the closing which reflects the satisfaction of certain indebtedness of NELL, the estimated net working capital adjustment, and a hold back of $15 million for certain specified matters (the "Specified Matters Holdback Amount"). The Specified Matters Holdback Amount is payable to the NELL sellers less certain losses following final resolution of any such specified matters.

Daniel M. DuPree and Leonard A. Silverstein were executive directors of NELL Partners, Inc., which controlled the Former Manager through the date of the Internalization. Daniel M. DuPree was the Chief Executive Officer and Leonard A. Silverstein was the President and Chief Operating Officer of the Former Manager. Trusts established, or entities owned, by the family of John A. Williams, Daniel M. DuPree, the family of Leonard A. Silverstein, the Company’s former Vice Chairman of the Board, and former President and Chief Operating Officer, were the owners of NELL. Trusts established, or entities owned, by Joel T. Murphy, the Company’s Chief Executive Officer and a member of the Board, the family of Mr. Williams, Mr. DuPree and the family of Mr. Silverstein were the owners of the Sub-Manager.

The Company's Haven Campus Communities LLC line of credit is supported in part by a guaranty of repayment and performance by John A. Williams, Jr., the son of the late John A. Williams, the Company's former Chief Executive Officer and Chairman of the Board. Because the terms of these loans were negotiated and agreed upon while John A. Williams was the Chief Executive Officer of the Company, these instruments will continue to be reported as related party transactions until the loans are repaid.

The Company's Wiregrass and Wiregrass Capital real estate loan investments partially financed the development of a multifamily community in Tampa, Florida by the Altman Companies. Timothy A. Peterson is a member of management of the Altman Companies as well as Chairman of the Audit Committee of the Company's Board of Directors. The Wiregrass loans and the acquisition of the underlying property on March 31, 2020 as described in note 3, therefore qualify as related party transactions.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

The Management Agreement entitled the Former Manager to receive compensation for various services it performed related to acquiring assets and managing properties on the Company's behalf, as shown in the following table. There were no such fees incurred during the six-month period ended June 30, 2021.


Type of Compensation	Basis of Compensation	Three-month period ended June 30, 2020 (in thousands)		Six-month period ended June 30, 2020 (in thousands)

Acquisition fees	1.0% of the gross purchase price of real estate assets	$	—	$	235
Loan coordination fees	0.6% of any assumed, new or supplemental debt incurred in connection with an acquired property	—		47
Asset management fees	Monthly fee equal to one-twelfth of 0.50% of the total book value of assets, as adjusted	—		1,349
Property management fees	Monthly fee up to 4% of the monthly gross revenues of the properties managed	—		890
General and administrative expense fees	Monthly fee equal to 2% of the monthly gross revenues of the Company	—		616
Construction management fees	Quarterly fee for property renovation and takeover projects	—		14

		$	—	$	3,151

The Former Manager waived some of the asset management, property management, or general and administrative fees for properties owned by the Company. A cumulative total of approximately $25.6 million of combined asset management and general and administrative fees related to acquired properties had been waived by the Former Manager; at the date of Internalization, all of the remaining contingent fees of $24.1 million were eliminated in conjunction with the Company's Internalization transaction.

In addition to property management fees, the Company incurred reimbursable on-site personnel salary and related benefits expenses at the properties that totaled $0 and $1.43 million for the three-month and six-month periods ended June 30, 2020, respectively. These costs are listed on the company's Consolidated Statements of Operations.

The Former Manager utilized its own and its affiliates' personnel to accomplish certain tasks related to raising capital that would typically be performed by third parties, including, but not limited to, legal and marketing functions. As permitted under the Management Agreement, the Former Manager was reimbursed $0 and $40,451 for the three-month and six-month periods ended June 30, 2020 respectively. These costs were recorded as deferred offering costs until such time as additional closings occur on the Series A1/M1 Preferred Stock Offering or the 2019 Shelf Offering, at which time they are reclassified on a pro-rata basis as a reduction of offering proceeds within stockholders’ equity. In conjunction with the winding down of the $1.5 Billion Unit Offering, the Company engaged PCS to perform certain termination-related services. These services began in October 2019 and continued through April 2020. The Company paid an additional $0.8 million and $3.1 million for these services for the three-month and six-month periods period ended June 30, 2020 respectively, which were recorded as deferred offering costs.

Prior to the Internalization, the Company held a promissory note in the amount of approximately $650,000 due from Preferred Capital Marketing Services, LLC, or PCMS, which was a wholly-owned subsidiary of NELL Partners, and a revolving line of credit with a maximum borrowing amount of $24.0 million to its Manager. Both of these instruments were extinguished in connection with the Internalization transaction.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

7. Dividends and Distributions

The Company declares and pays monthly cash dividend distributions in the amount of $5.00 per share per month on its Series A Preferred Stock and its Series A1 Preferred Stock. For the Company's Series M Preferred Stock, or mShares, 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 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 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 $0.175 and $0.175 per share for the three-month periods ended June 30, 2021 and 2020, respectively and $0.350 and $0.4375 per share for the six-month periods ended June 30, 2021 and 2020, 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 June 30, 2021, the Company had 497,291 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:


	Dividends and distributions declared
	For the three-month periods ended June 30,				For the six-month periods ended June 30,
(In thousands)	2021		2020		2021		2020

Series A Preferred Stock	$	29,025	$	33,208	$	58,456	$	64,308
mShares	1,444		1,610		2,937		3,356
Series A1 Preferred Stock	3,111		756		5,661		968
Series M1 Preferred Stock	400		50		743		60
PAC Carveout REIT Preferred Stock	3		—		6		—
Common Stock	9,259		8,624		18,250		21,115
Restricted Stock and Class A OP Units	87		130		183		333

Total	$	43,329	$	44,378	$	86,236	$	90,140

8. Equity Compensation

Stock Incentive Plan

On May 2, 2019, the Company’s board of directors adopted, and the holders of the Company’s Common Stock approved, the Preferred Apartment Communities, Inc. 2019 Stock Incentive Plan, or the 2019 Plan, to incentivize, compensate and retain eligible officers, consultants, and non-employee directors. The 2019 Plan increased the aggregate number of shares of Common Stock authorized for issuance under the 2011 Plan from 2,617,500 to 3,617,500. On June 3, 2021, the holders of the Company's Common Stock approved an amendment to the 2019 Plan that increased the available shares of Common Stock available for issuance from 3,617,500 to 5,517,500. The 2019 Plan does not have a stated expiration date.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

Equity compensation expense by award type for the Company was:


(In thousands)	Three-month periods ended June 30,				Six-month periods ended June 30,				Unamortized expense as of June 30, 2021
	2021		2020		2021		2020

Class B Unit awards to employees:
2017	$	—	$	—	$	—	$	3	$	—
2018	—		50		(39)		121		—
Restricted stock grants to Board members:
2019	—		35		—		140		—
2020	44		89		177		89		—
2021	40		—		40		—		440
Restricted stock grants for employees:
2020	243		37		486		37		2,873
2021	175		—		204		—		2,589
Performance-based restricted stock units:
2020	138		—		276		—		1,339
2021	246		—		285		—		2,869
Restricted stock units to employees:
2018	(2)		10		(2)		24		—
2019	13		12		29		31		34
2020	11		13		22		31		80
2021	17		—		21		—		195

Total	$	925	$	246	$	1,499	$	476	$	10,419

Performance-based Restricted Stock Unit Grants

On March 15, 2021 and July 31, 2020, the Company awarded performance-based restricted stock units (“PSUs”) to certain of its senior executives. Each PSU represents the right to receive one share of Common Stock upon satisfaction of both (i) the market condition, at which time the PSUs become earned PSUs, and (ii) the service requirement, beyond which point the PSUs become vested PSUs.

The market condition requirement of the PSUs consists of a relative measure of total shareholder return (“TSR”) of the Company's Common Stock versus the average TSR of a select group of publicly-traded peer companies. TSR is calculated by dividing the sum of price appreciation and cumulative dividends over the performance period divided by the beginning value of the Common Stock at the performance period commencement date (July 1, 2020 for the 2020 awards and January 1, 2021 for the 2021 awards), where the determining values are derived by calculating the 20-day volume weighted average stock price preceding both the performance period commencement date and the performance period end date (June 30, 2023 for the 2020 awards and December 31, 2023 for the 2021 awards). PSUs will become earned PSUs according to the percentile rank of the TSR of Company's Common Stock versus the peer group’s average TSR, as shown in the following table:


Level	Relative TSR performance (percentile rank versus peers)	Earned PSUs (% of target)
< Threshold	<35th Percentile	0%
Threshold	35th Percentile	50%
Target	55th Percentile	100%
Maximum	>=75th Percentile	200%

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

The number of PSUs that become earned PSUs can range between 0% and 200% of the original (target) number of PSUs awarded for the 2020 awards and between 0% and 250% of the original (target) number of PSUs for the 2021 awards, and actual percentile ranking results between the 35th and 75th percentile are to be interpolated between the percentage earned values shown.

In order for earned PSUs to become vested PSUs, the participant must remain continuously employed by the Company or an affiliate company (i) from the grant date through the payout determination date (expected to be no more than 5 days following the performance period end date) for 50% of the PSU award and (ii) from the grant date through the first anniversary of the performance period end date for the remaining 50% of the PSU award.

Since the PSUs vest in part based upon achievement of a market condition, they were valued utilizing a Monte-Carlo simulation that excludes the value of Common Stock dividends since dividend equivalents accrue separately to the award holders. The underlying valuation assumptions and results for the PSUs were:


Grant date	3/15/2021			7/31/2020

Stock price on grant date	$	10.86		$	7.23
Dividend yield	7.19		%	6.87		%
Expected volatility	49.81		%	44.40		%
Risk-free interest rate	0.29		%	0.11		%

Target number of PSUs granted:
First vesting tranche	103,511			136,462
Second vesting tranche	103,517			136,467
	207,028			272,929

Calculated fair value per PSU	$	15.24		$	6.76

Total fair value of PSUs	$	3,155,107		$	1,845,000

The expected dividend yield assumptions were derived from the Company’s closing prices of the Common Stock and historical dividend amounts over the trailing five-year period from the grant date.

The Company's own stock price history over the 2.80 year and 2.91 year periods trailing the grant dates was utilized as the expected volatility assumptions for the 2021 and 2020 awards, respectively.

The risk-free rate assumptions were obtained from the grant date yields on zero coupon U.S. Treasury STRIPS that have a term equal to the length of the remaining Performance Period and were calculated as the interpolated rate between the two-year and three-year yield percentages.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

Restricted Stock Grants

The following annual grants of restricted stock were made to the Company's independent directors, as payment of the annual retainer fees. The restricted stock grants for service years 2019-2021 vested (or are scheduled to vest) on a pro-rata basis over the four consecutive 90-day periods following the date of grant. The restricted stock grant for service year 2020 and 2021 is scheduled to vest on the earlier of the one-year anniversary of the date of grant and the next annual meeting of stockholders..


Service year	Shares	Fair value per share		Total compensation cost (in thousands)
2019	26,446	$	15.88	$	420
2020	66,114	$	8.05	$	532
2021	46,782	$	10.26	$	480

On June 17, 2020, the Company granted restricted stock to certain of its executives and employees. The fair value per share of $8.05 was based upon the closing price of the Company's Common Stock on the business day preceding the grant date. A total of 137,741 shares representing a fair value of approximately $1.1 million will vest on the four year anniversary of the grant date and 344,356 shares representing a fair value of approximately $2.8 million will vest on a pro-rata basis on each of the four succeeding anniversaries of the grant date.

On March 15, 2021, the Company granted restricted stock to certain of its executives and employees. The fair value per share of $10.69 was based upon the closing price of the Company's Common Stock on the grant date. A total of 261,226 shares representing a fair value of approximately $2.8 million will vest on a pro-rata basis on each of the four succeeding anniversaries of the grant date.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

Class B OP Units

As of June 30, 2021, cumulative activity of grants of Class B Units of the Operating Partnership, or Class B OP Units, was:


						Grant date
						1/2/2018

Units granted						256,087
Units forfeited:
John A. Williams (1)						(38,284)
Voluntary forfeiture by senior executives (2)						(128,258)
Other						(27,658)

Total forfeitures						(194,200)

Units earned and converted into Class A Units						—

Class B Units outstanding at June 30, 2021						61,887

Units unearned but vested						61,887
Units unearned and not yet vested						—

Class B Units outstanding at June 30, 2021						61,887

(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.

There were no grants of Class B OP Units subsequent to January 2, 2018.

The underlying valuation assumptions and results for the 2018 Class B OP Unit awards were:


Grant date	1/2/2018
Stock price	$	20.19
Dividend yield	4.95		%
Expected volatility	25.70		%
Risk-free interest rate	2.71		%

Number of Units granted:
One year vesting period	171,988
Three year vesting period	84,099
	256,087

Calculated fair value per Unit	$	16.66

Total fair value of Units	$	4,266,409

Target market threshold increase	$	5,660,580

The expected dividend yield assumptions were derived from the Company’s closing prices of the Common Stock on the grant dates and the projected future quarterly dividend payments per share of $0.25 for the 2018 awards.

For the 2018 awards, the Company's own stock price history was utilized as the basis for deriving the expected volatility assumption.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

The risk-free rate assumptions were obtained from the Federal Reserve yield table and were calculated as the interpolated rate between the 20 and 30 year yield percentages on U. S. Treasury securities on the grant date.

Since the Class B OP Units have no expiration date, a derived service period of one year was utilized, which equals the period of time from the grant date to the initial valuation date.

Restricted Stock Units

The Company made grants of restricted stock units, or RSUs, to its employees under the 2019 Plan, and prior to Internalization, made grants of RSUs to certain employees of affiliates of the Company under the 2011 Plan, as shown in the following table:


Grant date	3/15/2021		1/2/2020		1/2/2019		1/2/2018
Service period	2021-2023		2020-2022		2019-2021		2018-2020

RSU activity:
Granted	20,600		21,400		27,760		20,720
Forfeited	(400)		(4,400)		(8,541)		(8,274)

RSUs outstanding at June 30, 2021	20,200		17,000		19,219		12,446

RSUs unearned but vested	—		5,692		12,897		12,446
RSUs unearned and not yet vested	20,200		11,308		6,322		—

RSUs outstanding at June 30, 2021	20,200		17,000		19,219		12,446

Fair value per RSU	$	10.69	$	9.47	$	10.77	$	16.66
Total fair value of RSU grant	$	220,214	$	202,658	$	298,975	$	345,195

The RSUs vest in three equal consecutive one-year tranches from the date of grant. For each grant prior to March 15, 2021, on the Initial Valuation Date, the market capitalization of the number of shares of Common Stock at the date of grant is compared to the market capitalization of the same number of shares of Common Stock at the Initial Valuation Date. If the market capitalization measure results in an increase which exceeds the target market threshold, the Vested RSUs become earned RSUs and are settled in shares of Common Stock on a one-to-one basis. Vested RSUs may become Earned RSUs on a pro-rata basis should the result of the market capitalization test be an increase of less than the target market threshold. Any Vested RSUs that do not become Earned RSUs on the Initial Valuation Date are subsequently remeasured on a quarterly basis until such time as all Vested RSUs become Earned RSUs or are forfeited due to termination of continuous service due to an event other than as a result of a qualified event, which is generally the death or disability of the holder. Continuous service through the final valuation date is required for the Vested RSUs to qualify to become fully Earned RSUs. RSUs issued on March 15, 2021 may become vested subject only to satisfaction of the service requirement.

Because RSUs are valued using the identical market condition vesting requirement that determines the transition of the Vested Class B Units to Earned Class B Units, the same valuation assumptions per RSU were utilized to calculate the total fair values of the RSUs. The total fair value amounts pertaining to grants of RSUs, net of forfeitures, are amortized as compensation expense over the three one-year periods ending on the three successive anniversaries of the grant dates.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

9. Indebtedness

Mortgage Notes Payable

Mortgage financing of property acquisitions

During the six-month periods ended June 30, 2021 and 2020, the Company obtained original mortgage financing on the following properties as shown in the following table:

Property

Date

Initial principal amount
(in thousands)

Fixed/Variable rate

Interest rate

Maturity date

2021:

Midway Market (1)

4/15/2021

10,150

Fixed

3.06

5/1/2031

The Ellison

6/30/2021

47,991

Variable

L + 150

3/31/2022

58,141

2020:

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

Horizon at Wiregrass Ranch

4/23/2020

52,000

Fixed

2.90

5/1/2030

Parkside at the Beach

4/30/2020

45,037

Fixed

2.95

5/1/2030

178,450

(1) Midway Market Shopping Center was acquired on March 19, 2020 and the mortgage financing was obtained on the property on April 15, 2021.

Repayments and refinancings

The following table summarizes our mortgage debt refinancing and repayment activity for the six-month periods ended June 30,

2021 and 2020:


Date	Property	Previous balance (millions)		Previous interest rate / spread over 1 month LIBOR		Loan refinancing costs expensed (thousands)		New balance (millions)		New interest rate		Additional deferred loan costs from refinancing (thousands)

2021:
2/28/2021	Village at Baldwin Park	$	69.4	3.59	%	$	6	$	69.4	3.27	%	$	923

		$	69.4			$	6	$	69.4			$	923

2020:
1/3/2020	Ursa	$	31.4	L + 300		$	—	$	—	—		$	—
6/25/2020	CityPark View	19.8		3.27	%	1,314		29.0		2.75%		314
6/29/2020	Aster at Lely Resort	30.7		3.84	%	293		50.4		2.95%		2,777
6/29/2020	Avenues at Northpointe	26.0		3.16	%	166		33.5		2.79%		1,247
6/30/2020	Avenues at Cypress	20.5		3.43	%	1,607		28.4		2.96%		336
6/30/2020	Venue at Lakewood Ranch	27.8		3.55	%	2,457		36.6		2.99%		384
6/30/2020	Crosstown Walk	29.9		3.90	%	248		46.5		2.92%		2,841
6/30/2020	Summit Crossing II	13.1		4.49	%	779		20.7		L + 278		136

		$	199.2			$	6,864	$	245.1			$	8,035

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

The following table summarizes our mortgage notes payable at June 30, 2021:


(In thousands)
Fixed rate mortgage debt:	Principal balances due		Weighted-average interest rate		Weighted average remaining life (years)
Residential Properties	$	1,362,404	3.55	%	8.60
New Market Properties	570,570		3.98	%	6.90
Preferred Office Properties	631,611		4.13	%	11.90

Total fixed rate mortgage debt	$	2,564,585	3.79	%	9.01

Variable rate mortgage debt:
Residential Properties	$	68,691	1.99	%	3.24
New Market Properties	47,150		2.78	%	2.35
Preferred Office Properties	—		—	%	0

Total variable rate mortgage debt	$	115,841	2.31	%	2.88

Total mortgage debt:
Residential Properties	$	1,431,095	3.47	%	8.37
New Market Properties	617,720		3.89	%	6.52
Preferred Office Properties	631,611		4.13	%	11.90

Total principal amount	2,680,426		3.72	%	8.78
Deferred loan costs	(39,726)
Mark to market loan adjustment	(3,948)
Mortgage notes payable, net	$	2,636,752

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 June 30, 2021, the weighted-average remaining life of deferred loan costs related to the Company's mortgage indebtedness was approximately 9.3 years. Our mortgage notes have maturity dates between September 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. The maximum borrowing capacity on the Revolving Line of Credit is $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 May 4, 2021, the Fourth Amended and Restated Credit Agreement, or the Amended and Restated Credit Agreement, was amended to extend the maturity to May 4, 2024, with an option to extend the maturity date to May 4, 2025, 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 1.50% to 3.50% per annum, depending upon the Company’s leverage ratio. The weighted average interest rate for the Revolving Line of Credit was 3.63% for the six-month period ended June 30, 2021. The commitment fee on the average daily

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

unused portion of the Revolving Line of Credit is 0.20% or 0.25% 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 accrued interest at a rate of LIBOR plus 1.7% per annum. The 2019 Term Loan was repaid in conjunction with the closing of permanent mortgage financing for Morrocroft Centre on March 19, 2020.

The Fourth Amended and Restated Credit Agreement, as amended on May 4, 2021, contains certain affirmative and negative covenants, including negative covenants that limit or restrict secured and unsecured indebtedness, mergers and fundamental changes, investments and acquisitions, liens and encumbrances, dividends, transactions with affiliates, burdensome agreements, changes in fiscal year and other matters customarily restricted in such agreements. The amount of dividends that may be paid out by the Company is restricted to a maximum of 100% of AFFO for the trailing four quarters without the lender's consent; solely for purposes of this covenant, AFFO is calculated as earnings before interest, taxes, depreciation and amortization expense, plus reserves for capital expenditures, less normally recurring capital expenditures, less consolidated interest expense.

As of June 30, 2021, the Company was in compliance with all covenants related to the Revolving Line of Credit, as amended, as shown in the following table:

Covenant (1)

Requirement

Result

Net worth

Minimum $1.6 billion

(2)

$2.1 billion

Debt yield

Minimum 8.75%

(3)

9.76%

Payout ratio

Maximum 100%

(4)

92.9%

Total leverage ratio

Maximum 65%

61.9%

Debt service coverage ratio

Minimum 1.50x

(5)

1.88x

(1) All covenants are as defined in the credit agreement for the Revolving Line of Credit.

(2) The minimum net worth covenant decreased to a minimum of $1.3 billion on July 29, 2021 with the office properties closing.

(3) The minimum debt yield covenant increases to a minimum of 9.0% on May 5, 2023.

(4) Calculated on a trailing four-quarter basis. For the period ended June 30, 2021, the maximum dividends and distributions allowed under this covenant was approximately $173.6 million.

(5) Minimum of 1.50x if AFFO payout ratio is less than or equal to 95% and 1.70x if greater than 95%.

Loan fees and closing costs for the establishment and subsequent amendments of the Credit Facility are amortized utilizing the straight line method over the life of the Credit Facility. At June 30, 2021, unamortized loan fees and closing costs for the Credit Facility were approximately $2.1 million, which will be amortized over a remaining loan life of approximately 2.9 years. Loan fees and closing costs for the mortgage debt on the Company's properties are amortized utilizing the effective interest rate method over the lives of the loans.

Acquisition Facility

On February 28, 2017, the Company entered into a credit agreement, or Acquisition Credit Agreement, with Freddie Mac through KeyBank to obtain an acquisition revolving credit facility, or Acquisition Facility, with a maximum borrowing capacity of $200 million. The purpose of the Acquisition Facility is to finance acquisitions. On March 25, 2019, the maximum borrowing capacity was decreased to $90 million by agreement between the Company and KeyBank. The Acquisition Facility accrues interest at a variable rate of one month LIBOR plus a margin of between 1.75% per annum and 2.20% per annum, depending on the type of assets acquired and the resulting property debt service coverage ratio. The Acquisition Facility has a maturity date of March 1, 2022 and has two one-year extension options, subject to certain conditions described therein.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

Interest Expense

Interest expense, including amortization of deferred loan costs was:


(In thousands)	Three-month periods ended June 30,				Six-month periods ended June 30,
	2021		2020		2021		2020

Residential Properties	$	13,260	$	15,932	$	26,485	$	30,798
New Market Properties	6,490		6,587		12,934		13,337
Preferred Office Properties	6,652		6,699		13,320		13,557

Total	26,402		29,218		52,739		57,692

Credit Facility and Acquisition Facility	894		1,918		1,548		3,037
Interest Expense	$	27,296	$	31,136	$	54,287	$	60,729

Future Principal Payments

The Company’s estimated future principal payments due on its debt instruments as of June 30, 2021 were:


Period	Future principal payments (in thousands)
2021 (1)	$	139,788
2022	121,001
2023	116,768
2024	290,171
2025	58,234
2026	255,709
2027	280,530
2028	339,189
2029	322,040
2030	359,458
Thereafter	454,038

Total	$	2,736,926

(1) Includes the principal amount due on our revolving line of credit of $56.5 million as of June 30, 2021.

10. Income Taxes

The Company elected to be taxed as a REIT effective with its tax year ended December 31, 2011, and therefore, the Company will not be subject to federal and state income taxes, so long as it distributes 100% of the Company's annual REIT taxable income (which does not equal net income as calculated in accordance with GAAP and determined without regard for the deduction for dividends paid and excluding net capital gains) to its stockholders. For the Company's tax years prior to its REIT election year, its operations resulted in a tax loss. As of December 31, 2010, the Company had deferred federal and state tax assets totaling approximately $298,100, none of which were based upon tax positions deemed to be uncertain. These deferred tax assets will most likely not be used since the Company elected REIT status; therefore, management has determined that a 100% valuation allowance is appropriate as of June 30, 2021 and December 31, 2020.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

11. Commitments and Contingencies

On January 31, 2020, the Company assumed its Former Manager's eleven-year office lease as amended, which began on October 9, 2014. As of June 30, 2021, the amount of rent due from the Company was $13.1 million over the remaining term of the lease.

At June 30, 2021, the Company had unfunded commitments on its real estate loan portfolio of approximately $53.1 million.

At June 30, 2021, the Company had unfunded contractual commitments for tenant, leasing, and capital improvements of approximately $3.5 million.

The Company is otherwise currently subject to neither any known material commitments or contingencies from its business operations, nor any material known or threatened litigation, other than as described herein.

12. Operating Leases

Company as Lessor

For the six months ended June 30, 2021 and 2020, the Company recognized rental property revenues of $204.1 million and $218.5 million, respectively, of which $21.9 million and $20.5 million, respectively, represented variable rental revenue.

Company as Lessee

The Company has three ground leases related to its office and grocery-anchored shopping center assets that 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, as of January 31, 2020 following the Internalization, the lessee of office space for its property support center which expires in May 2026, and of furniture and office equipment, which leases generally are three to five years in duration with minimal rent increases. The Company subleases a portion of its leased office space to third parties; office rental expense is included net of the revenue from these subleases in the general and administrative expense line on the consolidated statements of operations. Revenue from subleased office space was approximately $470,000 and $516,000 for the three-month periods ended June 30, 2021 and 2020, respectively.

The Company recorded lease expense as follows:


	For the six-month periods ended June 30,								As of June 30, 2021
(In thousands)	2021				2020				Weighted average remaining lease term (years)	Weighted average discount rate
	Lease expense		Cash paid		Lease expense		Cash paid

Office space	$	1,456	$	1,460	$	1,214	$	1,189	4.5	3.0	%
Ground leases	29		26		29		25		35.3	4.4	%
Office equipment	70		70		191		191		2.5	3.0	%

Total	$	1,555	$	1,556	$	1,434	$	1,405

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

Future minimum rent expense for office space, ground leases and office equipment were:


For the year ending December 31:		Future Minimum Rents as of June 30, 2021
(in thousands)		Office space		Ground leases		Office equipment		Total

2021	(1)	$	1,470	$	26	$	64	$	1,560
2022		2,855		51		61		2,967
2023		2,497		51		34		2,582
2024		3,139		51		17		3,207
2025		2,808		52		11		2,871
Thereafter		355		1,084		—		1,439

Total		$	13,124	$	1,315	$	187	$	14,626

(1) Remaining six months

13. Segment Information

The Company's Chief Operating Decision Maker, or CODM, evaluates the performance of the Company's business operations and allocates financial and other resources by assessing the financial results and outlook for future performance across 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 as well as the Company's portfolio of owned student housing properties. Preferred Campus Communities, LLC owned and conducted the business of our portfolio of off-campus student housing communities until the sale of all our student housing communities on November 3, 2020. As of and for the three-month and six-month periods ended June 30, 2021, the Residential Properties segment only consists of the Company's multifamily communities.

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 the consolidated assets of VIEs.

New Market Properties - consists of the Company's portfolio of grocery-anchored shopping centers.

Preferred Office Properties - consists of the Company's portfolio of office buildings.

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 right of use assets, deferred offering costs recorded but not yet reclassified as reductions of stockholders' equity and cash balances at the Company and Operating Partnership levels.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021


(In thousands)	June 30, 2021		December 31, 2020

Assets:
Residential properties	$	1,780,471	$	1,745,020
Financing	313,103		321,026
New Market Properties	1,045,399		1,072,090
Preferred Office Properties	1,103,670		1,121,992
Other	27,556		20,951
Consolidated assets	$	4,270,199	$	4,281,079

Total capitalized expenditures (inclusive of additions to construction in progress, but exclusive of the purchase price of acquisitions) were as follows:


(In thousands)	Three-month periods ended June 30,				Six-month periods ended June 30,
	2021		2020		2021		2020

Capitalized expenditures:
Residential properties	$	3,906	$	3,453	$	6,412	$	6,590
New Market Properties	1,957		1,264		3,580		2,540
Preferred Office Properties	861		9,857		3,868		16,679
Total	$	6,724	$	14,574	$	13,860	$	25,809

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:


(In thousands)	Three-month periods ended June 30,				Six-month periods ended June 30,
	2021		2020		2021		2020
Revenues

Rental and other property revenues:
Residential properties	$	51,765	$	59,100	$	102,284	$	119,683
New Market Properties	26,876		26,105		53,843		54,108
Preferred Office Properties (1)	26,821		26,736		54,097		53,198
Total rental and other property revenues	105,462		111,941		210,224		226,989

Financing revenues	13,224		11,018		24,141		26,843
Miscellaneous revenues	20		21		41		30
Consolidated revenues	$	118,706	$	122,980	$	234,406	$	253,862

(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 June 30, 2021, the Company has recorded deferred revenue in an aggregate amount of $47.0 million in connection with such improvements. The remaining balance to be recognized is approximately $34.1 million which is included in the deferred revenues line on the consolidated balance sheets at June 30, 2021. These total costs will be amortized over the lesser of the useful lives of the improvements or the individual lease terms. The Company recorded non-cash revenue of approximately $1.9 million for both the six-month periods ended June 30, 2021 and 2020, respectively.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

The CODM 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 was as follows:


	Three-month periods ended June 30,				Six-month periods ended June 30,
(In thousands)	2021		2020		2021		2020
Segment net operating income (Segment NOI)

Residential Properties	$	30,029	$	33,607	$	59,252	$	69,453
New Market Properties	19,163		18,155		37,759		37,974
Preferred Office Properties	19,343		19,347		38,977		39,015
Financing	13,221		11,018		24,132		26,843
Miscellaneous revenues	20		21		41		30

Consolidated segment net operating income	81,776		82,148		160,161		173,315

Interest expense:
Residential Properties	13,260		15,932		26,485		30,798
New Market Properties	6,490		6,587		12,934		13,337
Preferred Office Properties	6,652		6,699		13,320		13,557
Corporate	894		1,918		1,548		3,037
Depreciation and amortization:
Residential Properties	21,380		26,755		43,474		51,140
New Market Properties	11,624		13,308		23,386		26,722
Preferred Office Properties	11,672		11,670		23,586		23,351
Corporate	56		60		113		89
Equity compensation to directors and executives	925		246		1,499		476
Management fees, net of waived fees	—		—		—		1,963
Management Internalization	240		458		485		179,251
Allowance for expected credit losses	(845)		482		(323)		5,615
(Gain) / loss on sale of real estate	—		—		(798)		—
(Gain) / loss on sale of land, net	—		—		—		(479)
(Gain) / loss on extinguishment of debt	—		6,156		—		6,156
Loss from unconsolidated joint venture	175		—		369		—
Corporate G&A	7,696		7,827		15,235		13,775

Net income (loss)	$	1,557	$	(15,950)	$	(1,152)	$	(195,473)

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

14. Income (Loss) Per Share

The following is a reconciliation of weighted average basic and diluted shares outstanding used in the calculation of income (loss) per share of Common Stock:


	(In thousands, except per-share figures)	Three-month periods ended June 30,				Six-month periods ended June 30,
		2021		2020		2021		2020
Numerator:
	Operating income (loss) before gains on sales of real estate and loss from unconsolidated joint venture	$	29,028	$	21,342	$	52,706	$	(129,067)
	Loss from unconsolidated joint venture	(175)		—		(369)		—
	Gain on sale of real estate	—		—		798		—

	Operating income (loss)	28,853		21,342		53,135		(129,067)
	Interest expense	27,296		31,136		54,287		60,729
	Loss on extinguishment of debt	—		(6,156)		—		(6,156)
	Gain on sale of land	—		—		—		479

	Net income (loss)	1,557		(15,950)		(1,152)		(195,473)
	Net (income) loss attributable to non-controlling interests (A)	(3)		266		59		3,407

	Net income (loss) attributable to the Company	1,554		(15,684)		(1,093)		(192,066)

	Dividends declared to preferred stockholders (B)	(33,983)		(35,624)		(67,803)		(68,692)
	Net loss attributable to unvested restricted stock (C)	(138)		(11)		(280)		(13)

	Net loss attributable to common stockholders	$	(32,567)	$	(51,319)	$	(69,176)	$	(260,771)

Denominator:
	Weighted average number of shares of Common Stock - basic	50,518		48,220		50,277		47,674

	Effect of dilutive securities: (D)	—		—		—		—

	Weighted average number of shares of Common Stock - basic and diluted	50,518		48,220		50,277		47,674

	Net loss per share of Common Stock attributable to
	common stockholders, basic and diluted	$	(0.64)	$	(1.06)	$	(1.38)	$	(5.47)

(A) The Company's outstanding Class A Units of the Operating Partnership (497 and 742 Units at June 30, 2021, and 2020, respectively) contain rights to distributions in the same amount per unit as for dividends declared on the Company's Common Stock. The impact of the Class A Unit distributions on earnings per share has been calculated using the two-class method whereby earnings are allocated to the Class A Units based on dividends declared and the Class A Units' participation rights in undistributed earnings.

(B) The Company’s shares of Series A Preferred Stock outstanding accrue dividends at an annual rate of 6% of the stated value of $1,000 per share, payable monthly. The Company had 1,647 and 2,026 outstanding shares of Series A Preferred Stock at June 30, 2021 and 2020, respectively and 217 and 68 outstanding shares of Series A1 Preferred Stock at June 30, 2021 and 2020, respectively. The Company's mShares accrue dividends at an escalating rate of 5.75% in year one to 7.50% in year eight and thereafter. The Company had 86 and 93 mShares outstanding at June 30, 2021 and 2020, respectively. The Company's shares of Series M1 Preferred Stock accrue dividends at an escalating rate of 6.1% in year one to 7.1% in year ten and thereafter. The Company had 25 and 5 shares of Series M1 Preferred Stock outstanding at June 30, 2021 and 2020, respectively.

(C) The Company's outstanding unvested restricted share awards (704 and 548 shares of Common Stock at June 30, 2021 and 2020, respectively) contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares' participation rights in undistributed earnings.

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

Given the Company's unvested restricted share awards are defined as participating securities, the dividends declared for that period are adjusted in determining the calculation of loss per share of Common Stock.

(D) Potential dilution from (i) warrants outstanding from issuances of Units from our Series A Preferred Stock offerings that are potentially exercisable into 23,235 shares of Common Stock; (ii) 62 Class B Units; (iii) 704 shares of unvested restricted common stock; (iv) 69 outstanding Restricted Stock Units; and (v) 480 PSUs are excluded from the diluted shares calculations because the effect was antidilutive. Class A Units were excluded from the denominator because earnings were allocated to non-controlling interests in the calculation of the numerator.

15. Fair Values of Financial Instruments

Fair value is defined as the price at which an asset or liability is exchanged between market participants in an orderly transaction at the reporting date. The Company’s cash equivalents, notes receivable, accounts receivable and payables and accrued expenses all approximate fair value due to their short term nature.

The following tables provide estimated fair values of the Company’s financial instruments. The carrying values of the Company's real estate loans include accrued interest receivable from additional interest or exit fee allowances and are presented net of deferred loan fee revenue and credit losses reserves, where applicable.


	As of June 30, 2021
(In thousands)	Carrying value				Fair value measurements using fair value hierarchy
			Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Real estate loans	$	293,045	$	299,145	$	—	$	—	$	299,145
Notes receivable and line of credit receivable	11,988		11,988		—		—		11,988
	$	305,033	$	311,133	$	—	$	—	$	311,133
Financial Liabilities:
Mortgage notes payable	$	2,680,426	$	2,683,785	$	—	$	—	$	2,683,785
Revolving line of credit	56,500		56,500		—		—		56,500
	$	2,736,926	$	2,740,285	$	—	$	—	$	2,740,285


	As of December 31, 2020
(In thousands)	Carrying value				Fair value measurements using fair value hierarchy
			Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Real estate loans	$	302,423	$	315,074	$	—	$	—	$	315,074
Notes receivable and line of credit receivable	10,874		10,874		—		—		10,874
	$	313,297	$	325,948	$	—	$	—	$	325,948
Financial Liabilities:
Mortgage notes payable	$	2,640,705	$	2,666,471	$	—	$	—	$	2,666,471
Revolving line of credit	22,000		22,000		—		—		22,000
	$	2,662,705	$	2,688,471	$	—	$	—	$	2,688,471

The fair value of the real estate loans within the level 3 hierarchy are comprised of estimates of the fair value of the notes, which were developed utilizing a discounted cash flow model over the remaining terms of the notes until their maturity dates and utilizing discount rates believed to approximate the market risk factor for notes of similar type and duration. The fair values also contain a separately-calculated estimate of any applicable additional interest payment due the Company at the maturity date

Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

of the loan, based on the outstanding loan balances at June 30, 2021 and December 31, 2020, discounted to the reporting date utilizing a discount rate believed to be appropriate for multifamily development projects.

The fair values of the fixed rate mortgages on the Company’s properties were developed using market quotes of the fixed rate yield index and spread for 4, 5, 6, 7, 10, 15, 25 and 35 year notes as of the reporting date. The present values of the cash flows were calculated using the original interest rate in place on the fixed rate mortgages and again at the current market rate. The difference between the two results was applied as a fair market adjustment to the carrying value of the mortgages.

16. Subsequent Events

On July 29, 2021, the Company sold five office properties (Galleria 75, 150 Fayetteville, Capitol Towers, CapTrust and Morrocroft) and its 8West real estate loan investment in a single transaction, for a gross sales price of approximately $645.5 million. Aggregate net proceeds were approximately $241.5 million, after the satisfaction of approximately $404 million of property level debt and other closing adjustments and costs. Based on estimated closing costs, the Company will recognize a loss on sale of between $20 and $21 million in the third quarter. A portion of the proceeds was used to call approximately $221.6 million of the Company's outstanding Series A Redeemable Preferred Stock on August 3, 2021.

Between July 1, 2021 and July 31, 2021, the Company issued 532,917 shares of Common Stock under the 2019 ATM Offering, for aggregate gross proceeds of approximately $5.5 million and, after deducting commissions and other costs, net proceeds of approximately $5.4 million.

On July 8, 2021, the Company completed the acquisition of a 231-unit multifamily community located in Ft. Worth, Texas.

On July 19, 2021, the Company closed on the sale of Vineyards, a 369-unit multifamily community located in Houston, Texas.

On July 22, 2021, the Company entered into an agreement to sell two office properties, Armour Yards and 251 Armour Yards (the “Armour Yards Portfolio”), to Northwood Investors.

On August 6, 2021, the Company's board of directors declared a quarterly dividend on its Common Stock of $0.175 per share, payable on October 15, 2021 to stockholders of record on September 15, 2021.

Between July 1, 2021 and July 31, 2021, we issued 29,552 shares of Series A1 Preferred Stock and collected net proceeds of approximately $26.6 million after commissions and fees and issued 2,743 shares of Series M1 Preferred Stock and collected net proceeds of approximately $2.7 million after commissions and fees. During the same period, we redeemed 9,735 shares of Series A Preferred Stock, 871 mShares, 70 shares of Series A1 Preferred Stock, and 52 shares of Series M1 Preferred Stock.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Significant Developments

During the three-month period ended June 30, 2021, we acquired The Ellison, a 250-unit multifamily community located in suburban Atlanta, Georgia, and we closed on two real estate loan investments in the combined amount of up to approximately $17.1 million, in partial support of the development of a 316-unit multifamily community in Savannah, Georgia.

During the three-month period ended June 30, 2021, we issued 33,167 shares of Series A1 Preferred Stock and collected net proceeds of approximately $29.9 million. During the same period, we issued 4,705 shares of Series M1 Preferred Stock and collected net proceeds of approximately $4.6 million. We also issued and sold an aggregate of 1,442,214 shares of Common Stock under our ATM Offering, generating gross proceeds of approximately $15.1 million and, after deducting commissions and other costs, net proceeds of approximately $14.9 million. Our equity offerings are discussed in detail in the Liquidity and Capital Resources section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

On July 29, 2021, we sold five office properties (Galleria 75, 150 Fayetteville, Capitol Towers, CapTrust and Morrocroft) and our 8West real estate loan investment in a single transaction for a gross sales price of approximately $645.5 million. Based on estimated closing costs, we will recognize a loss on sale of between $20.0 and $21.0 million in the third quarter. Upon the closing of this transaction, we expect the disposition of these assets to result in a potentially material decrease in our revenues and results of operations. We used part of the proceeds from the sale to call approximately $221.6 million of Series A Preferred Stock on August 3, 2021.

Forward-Looking Statements

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

• our business and investment strategy;

• our projected operating results;

• actions and initiatives of the U.S. Government, changes to U.S. Government policies and the state of the U.S.

economy generally or in specific geographic areas;

• economic trends and economic recoveries;

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

• financing and advance rates for our target assets;

• our expected leverage;

• changes in the values of our assets;

• our expected portfolio of assets;

• our expected investments;

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

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

• changes in prepayment rates on our target assets;

• effects of hedging instruments on our target assets;

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

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

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

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

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

purposes;

• the possibility that the anticipated benefits from the Internalization may not be realized or may take longer to

realize than expected, or that unexpected costs or unexpected liabilities may arise from the Internalization;

• the impact of the coronavirus (COVID-19) pandemic, including any variants, on our business operations and the

economic conditions in the markets in which we operate;

• our ability to mitigate the impacts arising from COVID-19 or any variants thereof;

• our ability to maintain our exemption from registration under the Investment Company Act of 1940, as

amended;

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

securities;

• the availability of qualified personnel;

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

• our understanding of our competition;

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

economy;

• weakness in the national, regional and local economies, which could adversely impact consumer spending and

retail sales and in turn tenant demand for space and could lead to increased store closings;

• changes in market rental rates, including the potential for the slowing of recent multifamily rent growth;

• 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 our property types;

• 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

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

Forward-looking statements are found throughout this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, or SEC, we do not have any intention or obligation to publicly release any revisions to forward-looking statements to reflect unforeseen or other events after the date of this report. The forward-looking statements should be read in light of the risk factors indicated in the section entitled "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 and as may be supplemented by any amendments to our risk factors in our subsequent quarterly reports on Form 10-Q and other reports filed with the SEC, which are accessible on the SEC’s website at www.sec.gov.

General

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

Industry Outlook

In spite of the COVID-19 pandemic, we believe continued, albeit sporadic, improvement in the United States' economy will take hold for 2021, with continued improvement in the job market from pandemic lows and growth and improvements in the overall economy. As the country combats the effects of the COVID-19 pandemic with vaccine rollouts and other measures, it should be the case that the impact from the pandemic lessens and the economy can begin a path to normalcy. We believe a recovering economy, improving job market and increased consumer confidence should help create favorable conditions in the recovery for the multifamily sector, grocery-anchored shopping centers and Class A office demand.

Multifamily Communities

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

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

Fundamentally, the multifamily industry is benefiting from the current housing shortage in the United States, which Freddie Mac estimates at 3.8 million housing units as of the fourth quarter of 2020, an increase in the housing stock deficit of 52% from the 2.5 million housing units Freddie Mac estimated in 2018. Furthermore, we believe the U.S. is in the early stages of an economic expansion, which we believe will drive job growth and lead to increased multifamily demand. The sector continues to show resiliency and positive momentum as forecasts generally support stable occupancy, rent growth and net absorption of units.

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

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

New Market Properties

We specialize in owning and operating shopping centers anchored by market-leading grocers complemented by convenience-based retailers across high growth suburban Sunbelt markets. These centers are primarily anchored by Publix, Kroger, Harris Teeter and other market share leading grocers with high sales per square foot. Our focus on an e-commerce resilient, convenience and essential focused merchandising mix benefited from the accelerated pandemic recovery in the Sunbelt with foot traffic returning above pre-pandemic levels in our core portfolio, according to Placer.ai.

The second quarter continued to show strong signs of an expedited recovery in the retail sector amidst continued rollout of the COVID-19 vaccine and easing restrictions across the U.S. Consumers evidenced their desire to get back to their pre-pandemic lifestyles by returning to in person, brick and mortar shopping. Recognizing the accelerated recovery, the National Retail Federation ("NRF") raised their projected 2021 retail sales growth to 10.5% to 13.5%, up from the originally projected 6.5%. The NRF attributes their increased projections to Americans getting back to work and returning to their pre-pandemic spending habits.

Our retail portfolio is predominately located in affluent and growing suburbs across the Sunbelt that have tremendously benefited from the accelerated migration trends. In car dependent areas, or suburbs, in the US, home prices have increased 33% since the pandemic compared to a 16% increase in more transit-oriented urban core areas. The influx in demand in the suburbs generates further confidence in our retail portfolio’s strong positioning as the dominant neighborhood shopping center in many of these flourishing suburbs.

We are encouraged by the strong retailer demand in our shopping centers and are strategically focusing on improving our overall merchandising mix to better our positioning in the ever changing retail landscape. Our grocery partners are all engaged in further developing their curbside pickup and Buy Online Pickup in Store ("BOPIS") offerings as they establish themselves as the optimal last mile touchpoint for shoppers. Our tenant base has proven its resiliency during the pandemic. Our grocery partners continue to thrive, and our e-commerce and convenience focused tenancy is positioned well to benefit from the strong tailwinds that the suburbs throughout the Sunbelt are experiencing today.

Preferred Office Properties

Preferred Office Properties operates a 3.2 million square foot portfolio of Class A office assets in markets across the Sunbelt. New leasing activity has slowed and sublease availability has increased in most markets due to uncertainty from COVID-19. We expect to see some level of continued soft demand in the near-term. Despite these challenges, the Company’s office investments are 91% leased with only approximately 5.7% of the portfolio leases expiring through the end of 2022. Furthermore, multi-year contractual leases and rent schedules paired with high quality tenant balance sheets have offered protection against adverse impacts of COVID-19.

The pandemic has highlighted the trend of relocations out of larger gateway cities to the suburban, Sunbelt target markets. As the pandemic eases this trend could continue or abate as the market settles from the disruption of COVID-19. We continue to see interest in our assets from companies of varying sizes and from varying industries, which is a positive trend for our investment thesis and the markets in which we have invested.

As previously announced and referenced in the Subsequent Events section footnote of our Supplemental Financial Data Report, the company sold a substantial majority of its office assets to Highwoods Properties on July 29, 2021. The sale of these assets marks a continuation of our stated strategy to simplify our investment focus and realign our balance sheet. We used almost all of the proceeds from this sale to call over $221 million worth of our Series A Preferred Stock. This call represented all of the Series A Preferred Stock available to us to call at the time.

Critical Accounting Policies

There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-

K for the year ended December 31, 2020.

Off-Balance Sheet Arrangements

As of June 30, 2021, we had 1,161,748 outstanding Warrants from our sales of Units. The Warrants are exercisable by the holder at an exercise price of 120% of the current market price per share of the Common Stock on the date of issuance of such Warrant, with a minimum exercise price of $19.50 per share for Warrants issued after February 15, 2017. The current market price per share is determined using the closing market price of the Common Stock immediately preceding the issuance of the Warrant. The Warrants are not exercisable until one year following the date of issuance and expire four years following the date of issuance. As of June 30, 2021, a total of 531,522 Warrants had been exercised into 10,630,440 shares of Common stock. The 1,161,748 Warrants outstanding at June 30, 2021 have exercise prices that range between $19.50 and $26.34 per share. If all the Warrants outstanding at June 30, 2021 became exercisable and were exercised, gross proceeds to us would be approximately $472.0 million and we would as a result issue an additional 23,234,960 shares of Common Stock.

New Accounting Pronouncements

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

Results of Operations

Certain financial highlights of our results of operations for the three-month and six-month periods ended June 30, 2021 and 2020 were:



	Three months ended June 30,				% change		Six months ended June 30,				% change
	2021		2020				2021		2020

Revenues (in thousands)	$	118,706	$	122,980	(3.5)	%	$	234,406	$	253,862	(7.7)	%

Per share data:
Net income (loss) (1)	$	(0.64)	$	(1.06)	—		$	(1.38)	$	(5.47)	—
FFO (2)	$	0.23	$	(0.01)	—		$	0.39	$	(3.39)	—
Core FFO (2)	$	0.33	$	0.22	50.0	%	$	0.58	$	0.50	16.0	%
AFFO (2)	$	0.17	$	0.05	240.0	%	$	0.34	$	0.52	(34.6)	%
Dividends (3)	$	0.175	$	0.175	—		$	0.35	$	0.4375	(20.0)	%

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

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

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

Financial

•Our total revenues for the quarter ended June 30, 2021 decreased approximately $4.3 million, or 3.5%, to $118.7 million from the quarter ended June 30, 2020, due to the absence of revenues from the eight student housing properties that we sold on November 3, 2020. The student housing properties contributed approximately $12.0 million, or 9.8% of our total revenues for the quarter ended June 30, 2020. Excluding the student housing properties' contributions to the second quarter 2020, our total revenues would have increased $7.7 million, or 7.0%.

•Our net loss per share was $(0.64) and $(1.06) for the three-month periods ended June 30, 2021 and 2020, respectively. Funds From Operations, or FFO, was $0.23 and $(0.01) per weighted average share of Common Stock and Class A Unit outstanding for the three months ended June 30, 2021 and 2020, respectively. The increase in FFO per share was driven by:

*the absence of the loss on extinguishment of debt that was incurred in second quarter 2020 of $0.13 per share;

*lower preferred stock dividends of $0.10 per share;

*purchase option termination revenue from the repayment of our Vintage Destin loan of $0.05 per share;

*lower interest expense of $0.05 per share;

*improved property results and increases from acquired properties of $0.03 per share;

*lower FFO resulting from the sale of our student housing properties in the fourth quarter 2020 of ($0.08) per share; and

*lower current interest from our real estate loan investment portfolio of ($0.02).

•Our Core FFO per share (A) increased to $0.33 for the second quarter 2021 from $0.22 for the second quarter 2020, due to:

*lower preferred stock dividends of $0.10 per share;

*purchase option termination revenue from the repayment of our Vintage Destin loan of $0.05 per share;

*lower interest expense of $0.05 per share;

*improved property results and increases from acquired properties of $0.03 per share;

*lower Core FFO resulting from the sale of our student housing properties in the fourth quarter 2020 of ($0.08) per share; and

*lower current interest from our real estate loan investment portfolio of ($0.02).

•Our AFFO per share increased to $0.17 for the second quarter 2021 from $0.05 for the second quarter 2020 due to:

*lower preferred stock dividends of $0.10 per share;

*cash received from purchase option terminations of $0.06 per share;

*lower interest expense of $0.05 per share;

*improved property results and increases from acquired properties of $0.03 per share;

*accrued interest received of $0.03 per share;

*lower AFFO resulting from the sale of our student housing properties in the fourth quarter 2020 of ($0.08) per share;

*cash paid for closing costs for our renewed revolving line of credit of ($0.04) per share;

*lower current interest from our real estate loan investment portfolio of ($0.02); and

*higher recurring capital expenditures of ($0.01) per share.

•Our Core FFO payout ratio to Common Stockholders and Unitholders was approximately 55.3% and our Core FFO payout ratio to our preferred stockholders was approximately 66.8% for the second quarter 2021. (B)

•Our AFFO payout ratio to Common Stockholders and Unitholders was approximately 110.3% and our AFFO payout ratio to our preferred stockholders was approximately 80.0% for the second quarter 2021.

•As of June 30, 2021, our total assets were approximately $4.3 billion, a decrease from our total assets of approximately $4.8 billion at June 30, 2020, that primarily resulted from the sale of our student housing portfolio during the fourth quarter 2020 for approximately $478.7 million.

(A) Our Core FFO result for the three-month period ended June 30, 2020 has been amended to reflect the movement of the adjustment for expense for current expected credit losses from an adjustment for Core FFO to an adjustment for AFFO.

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

Operational

•Our rental rates for our multifamily same-store properties for new and renewal leases increased 11.6% and 5.3% respectively for second quarter 2021 as compared to the expiring leases, excluding shorter-term leases.

•Our rental rates for our multifamily same-store properties for new and renewal leases increased 21.3% and 7.5% respectively for July 2021 as compared to the expiring leases, excluding shorter-term leases.

•As of June 30, 2021, the average age of our multifamily communities was approximately 6.6 years, which is the youngest in the public multifamily REIT industry.

•As of June 30, 2021, all of our owned multifamily communities had achieved stabilization except for one second quarter 2021 acquisition. We define stabilization as reaching 93% for all three consecutive months within a single quarter.

•The average physical occupancy of our same-store multifamily communities increased to 96.9% for the three-month period ended June 30, 2021 from 94.7% for the three-month period ended June 30, 2020 and 95.8% for the three-month period ended March 31, 2021.

•Our average recurring rental revenue collections before and after any effect of rent deferrals for the second quarter 2021 were approximately 99.3% and 99.3% for multifamily communities, 98.9% and 98.9% for grocery-anchored retail properties and 99.7% and 99.9% for office properties, respectively. Rent deferments provided to our residents and tenants are limited and are primarily related to a change of timing of rent payments with no significant changes to total payments or term.

•We granted an additional $78,000 of deferred retail rent during the second quarter 2021, raising the total deferred retail rent granted to approximately $2.0 million, or approximately 1.7% of recurring retail rental revenue cumulatively over the last five quarters. Including this deferred rent, our average recurring rental revenue collections were 98.9%, 98.7%, 98.7% and 97.9% for second quarter 2021, first quarter 2021, fourth quarter 2020 and third quarter 2020, respectively. As of June 30, 2021, $1.2 million of the $2.0 million of deferred rent was in repayment, of which 93.7% has been collected. In addition to the deferrals, we granted an additional $200,000 of COVID-related abatements to retail tenants, raising the total abatement granted to $876,000, or approximately 0.7% of our retail portfolio's recurring rental revenues cumulatively over the last five quarters. These rental abatements were generally accompanied by an increase in the tenant’s lease term or the lease terms were amended to be more favorable to us. We reduced our reserve by $216,000, or 0.8% of total retail revenue in the second quarter 2021, or 0.1% of our consolidated rental and other property revenues. Our retail portfolio's total rent reserves over the last five quarters were approximately $2.1 million, or approximately 1.8% of our retail portfolio's recurring rental revenues cumulatively over the same period.

Financing and Capital Markets

•As of June 30, 2021, approximately 95.7% of our permanent property-level mortgage debt has fixed interest rates and approximately 0.8% 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 3.47% for multifamily communities, 4.13% for office properties, 3.89% for grocery-anchored retail properties and 3.72% in the aggregate.

•At June 30, 2021, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 56.4%.

•At June 30, 2021, we had $143.5 million available to be drawn on our revolving line of credit and approximately $37.1 million of cash on hand.

•During the second quarter 2021, we issued and sold an aggregate of 37,872 shares of preferred stock and redeemed or called an aggregate of 47,986 shares of preferred stock, resulting in a net reduction of 10,114 outstanding shares of preferred stock, for a net redemption cost of approximately $12.9 million. For the period of November 1, 2020 through August 3, 2021, we issued and sold an aggregate of 143,498 shares of preferred stock and redeemed or called an aggregate of 558,190 shares of preferred stock, resulting in a net reduction of 414,692 outstanding shares of preferred stock, for a net redemption cost of approximately $425.0 million.

•During the second quarter 2021, we issued and sold an aggregate of 1,442,214 shares of Common Stock under our 2019 ATM Offering, generating gross proceeds of approximately $15.1 million and, after deducting commissions and other costs, net proceeds of approximately $14.9 million.

Significant Transactions

•During the second quarter 2021, we closed on the acquisition of The Ellison, a 250-unit multifamily community located in suburban Atlanta, Georgia.

•During the second quarter 2021, we received the full principal amounts totaling approximately $23.5 million from the repayment of two real estate loan investments, plus a purchase option termination fee of approximately $3.0 million and $1.8 million of accrued interest from these loan payoffs. These transactions collectively returned approximately $28.3 million of capital to us during the second quarter for investment, preferred stock redemptions, or other corporate purposes.

•During the second quarter 2021, we originated two real estate loan investments with a combined commitment amount of $17.1 million, in support of the development of a 316-unit multifamily community in Savannah, Georgia.

Subsequent to Quarter End

•On July 29, 2021, we sold five office properties (Galleria 75, 150 Fayetteville, Capitol Towers, CapTrust and Morrocroft) and our 8West real estate loan investment in a single transaction, for a gross sales price of approximately $645.5 million. Based on estimated closing costs, the sale will result in a loss on sale of between $20.0 million and $21.0 million in the third quarter. We utilized a significant portion of the net proceeds to call approximately $221.6 million of our outstanding Series A Redeemable Preferred Stock on August 3, 2021.

•Between July 1, 2021 and July 31, 2021, the Company issued 532,917 shares of Common Stock under the 2019 ATM Offering, for aggregate gross proceeds of approximately $5.5 million at an average price of $10.30 per share.

•On July 8, 2021, we completed the acquisition of Alleia at Presidio, a 231-unit multifamily community located in Ft. Worth, Texas.

•On July 19, 2021, we closed on the sale of Vineyards, a 369-unit multifamily community located in Houston, Texas.

•On August 6, 2021, our board of directors declared a quarterly dividend on our Common Stock of $0.175 per share, payable on October 15, 2021 to stockholders of record on September 15, 2021.

•On July 22, 2021, we entered into an agreement to sell two office properties, Armour Yards and 251 Armour Yards (the “Armour Yards Portfolio”), to Northwood Investors.

Real Estate Loan Investments

Certain real estate loan investments include limited purchase options and additional amounts of accrued interest, which becomes due in cash to us on the earliest to occur of: (i) the maturity of the loan, (ii) any uncured event of default as defined in the associated loan agreement, (iii) the sale of the project or the refinancing of the loan (other than a refinancing loan by us or one of our affiliates) and (iv) any other repayment of the loan. There are no contingent events that are necessary to occur for us to realize the additional interest amounts. We hold options and rights of first offer, but not obligations, to purchase certain of the properties which are partially financed by our real estate loans, as shown in the table below. The option purchase prices are negotiated at the time of the loan closing and are to be calculated based upon market cap rates at the time of exercise of the purchase option, with discounts up to 15 basis points (if any), depending on the loan. As the market has become more competitive, our ability to negotiate purchase option discounts has become more difficult and we expect that to continue for the foreseeable future. Our purchase options are unlikely to include any discounts going forward unless the market has a significant change or reversal.

As of June 30, 2021, potential property acquisitions and units from projects in our real estate loan investment portfolio consisted of:

Total units upon

Purchase option window

Project/Property

Location

completion (1)

Begin

End

Multifamily communities

Purchase options at discount to market:

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)

Hidden River II

Tampa, FL

204

S + 90 days (2)

S + 150 days (2)

Purchase options with no discount or rights of first offer:

Hudson at Metro West

Orlando, FL

320

S + 90 days (2)

S + 150 days (2)

Vintage Horizon West

Orlando, FL

340

(3)

Vintage Jones Franklin

Raleigh, NC

277

(3)

Club Drive

Atlanta, GA

352

(5)

Populus at Pooler

Savannah, GA

316

(6)

Cameron Square

Alexandria, VA

302

(4)

Solis Chestnut Farm

Charlotte, NC

256

(4)

Solis Cumming Town Center

Atlanta, GA

320

(4)

Office property

8West

Atlanta, GA

—

(7)

3,566

(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.

(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 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.

(4) We hold a right of first offer on the property.

(5) The underlying loan is a land acquisition bridge loan that is anticipated to be converted to a real estate loan investment in the future with a purchase option or right of first offer.

(6) The option period begins upon the property's achievement of 80% occupancy. If we are unable to reach an agreement on the property's market value, we have a right of first offer.

(7) The real estate loan investment supporting the 8West office building and five of our office properties were sold to Highwoods Properties, an unrelated party, on July 29, 2021.

Three-month and six-month periods ended June 30, 2021 compared to 2020

The following discussion and tabular presentations highlight the major drivers behind the line item changes in our results of operations for the three-month and six-month periods ended June 30, 2021 versus 2020:


Preferred Apartment Communities, Inc.	Three-month periods ended June 30,				Change inc (dec)
(in thousands)	2021		2020		Amount		Percentage
Revenues:
Rental and other property revenues	$	105,161	$	111,574	$	(6,413)	(5.7)	%
Interest income on loans and notes receivable	12,814		10,407		2,407		23.1	%
Interest income from related parties	410		604		(194)		(32.1)	%
Miscellaneous revenues	321		395		(74)		(18.7)	%

Total revenues	118,706		122,980		(4,274)		(3.5)	%

Operating expenses:
Property operating and maintenance	15,580		17,283		(1,703)		(9.9)	%
Property salary and benefits	4,914		5,720		(806)		(14.1)	%
Property management costs	927		1,042		(115)		(11.0)	%
Real estate taxes and insurance	15,509		16,787		(1,278)		(7.6)	%
General and administrative	7,696		7,827		(131)		(1.7)	%
Equity compensation to directors and executives	925		246		679		276.0	%
Depreciation and amortization	44,732		51,793		(7,061)		(13.6)	%
Allowance for expected credit losses	(845)		482		(1,327)		—
Management internalization expense	240		458		(218)		(47.6)	%

Total operating expenses	89,678		101,638		(11,960)		(11.8)	%

Operating income (loss) before loss from unconsolidated joint venture	29,028		21,342		7,686		36.0	%
Loss from unconsolidated joint venture	(175)		—		(175)		—
Operating income	28,853		21,342		7,511		—
Interest expense	27,296		31,136		(3,840)		(12.3)	%
Loss on extinguishment of debt	—		(6,156)		6,156		—

Net income (loss)	1,557		(15,950)		17,507		—
Consolidated net (income) loss attributable to non-controlling interests	(3)		266		(269)		(101.1)	%

Net income (loss) attributable to the Company	$	1,554	$	(15,684)	$	17,238	—


Preferred Apartment Communities, Inc.	Six-month periods ended June 30,				Change inc (dec)
(in thousands)	2021		2020		Amount		Percentage
Revenues:
Rental and other property revenues	$	209,620	$	223,440	$	(13,820)	(6.2)	%
Interest income on loans and notes receivable	23,326		23,846		(520)		(2.2)	%
Interest income from related parties	815		3,141		(2,326)		(74.1)	%
Miscellaneous revenues	645		3,435		(2,790)		(81.2)	%

Total revenues	234,406		253,862		(19,456)		(7.7)	%

Operating expenses:
Property operating and maintenance	30,829		34,129		(3,300)		(9.7)	%
Property salary and benefits	9,735		10,911		(1,176)		(10.8)	%
Property management costs	2,032		3,045		(1,013)		(33.3)	%
Real estate taxes and insurance	31,649		32,462		(813)		(2.5)	%
General and administrative	15,235		13,775		1,460		10.6	%
Equity compensation to directors and executives	1,499		476		1,023		214.9	%
Depreciation and amortization	90,559		101,302		(10,743)		(10.6)	%
Asset management and general and administrative expense fees to related party	—		3,099		(3,099)		—
Allowance for expected credit losses	(323)		5,615		(5,938)		—
Management internalization expense	485		179,251		(178,766)		(99.7)	%

Total operating expenses	181,700		384,065		(202,365)		(52.7)	%

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

Net operating expenses	181,700		382,929		(201,229)		(52.5)	%

Operating income (loss) before loss from unconsolidated joint venture and gain on sale of real estate	52,706		(129,067)		181,773		(140.8)	%
Loss from unconsolidated joint venture	(369)		—		(369)		—
Gain on sale of real estate, net	798		—		798		—
Operating income (loss)	53,135		(129,067)		182,202		—
Interest expense	54,287		60,729		(6,442)		(10.6)	%
Loss on extinguishment of debt	—		(6,156)		6,156		—
Gain on sale of land	—		479		(479)		—

Net loss	(1,152)		(195,473)		194,321		—
Consolidated net loss attributable to non-controlling interests	59		3,407		(3,348)		(98.3)	%

Net loss attributable to the Company	$	(1,093)	$	(192,066)	$	190,973	—

New Market Properties, LLC

Our New Market Properties, LLC business consists of our portfolio of grocery-anchored shopping centers. Comparative statements of operations of New Market Properties, LLC for the three-month and six-month periods ended June 30, 2021 versus 2020 are presented below. These statements of operations exclude certain allocations of corporate overhead or other expenses.


New Market Properties, LLC	Three-month periods ended June 30,				Change inc (dec)
(in thousands)	2021		2020		Amount		Percentage
Revenues:
Rental revenues & other property revenues	$	26,876	$	26,105	$	771	3.0	%

Operating expenses:
Property operating and maintenance	3,325		3,216		109		3.4	%
Property management fees	540		606		(66)		(10.9)	%
Real estate taxes and insurance	3,848		4,129		(281)		(6.8)	%
General and administrative	902		976		(74)		(7.6)	%
Equity compensation to directors and executives	64		15		49		326.7	%
Depreciation and amortization	11,624		13,308		(1,684)		(12.7)	%
Total operating expenses	20,303		22,250		(1,947)		(8.8)	%

Operating income before gain on sale of real estate and loss from unconsolidated joint venture	6,573		3,855		2,718		70.5	%
Loss from unconsolidated joint venture	(175)		—		(175)		—
Operating income	6,398		3,855		2,543		66.0	%

Interest expense	6,490		6,587		(97)		(1.5)	%
Gain on sale of land	15		—		15		—
Net income (loss)	(77)		(2,732)		2,655		(97.2)	%

Consolidated net loss (income) attributable to non-controlling interests	(11)		(8)		(3)		—

Net income (loss) attributable to the Company	$	(66)	$	(2,724)	$	2,658	—


New Market Properties, LLC	Six-month periods ended June 30,				Change inc (dec)
(in thousands)	2021		2020		Amount		Percentage
Revenues:
Rental revenues & other property revenues	$	53,843	$	53,944	$	(101)	(0.2)	%
Interest income on notes receivable	—		164		(164)		—
Total revenues	53,843		54,108		(265)		(0.5)	%

Operating expenses:
Property operating and maintenance	6,793		6,540		253		3.9	%
Property management fees	1,199		1,393		(194)		(13.9)	%
Real estate taxes and insurance	8,092		8,201		(109)		(1.3)	%
General and administrative	1,806		1,717		89		5.2	%
Equity compensation to directors and executives	94		28		66		235.7	%
Depreciation and amortization	23,386		26,722		(3,336)		(12.5)	%
Asset management and general and administrative expense fees to related parties	—		720		(720)		—
Total operating expenses	41,370		45,321		(3,951)		(8.7)	%
Waived asset management and general and administrative expense fees	—		(17)		17		—
Net operating expenses	41,370		45,304		(3,934)		(8.7)	%

Operating income before gain on sale of real estate and loss from unconsolidated joint venture	12,473		8,804		3,669		41.7	%
Loss from unconsolidated joint venture	(369)		—		(369)		—
Operating income	12,104		8,804		3,300		37.5	%

Interest expense	12,934		13,337		(403)		(3.0)	%
Gain on sale of land	15		479		(464)		—
Net income (loss)	(815)		(4,054)		3,239		(79.9)	%

Consolidated net loss (income) attributable to non-controlling interests	(35)		(39)		4		—

Net income (loss) attributable to the Company	$	(780)	$	(4,015)	$	3,235	—

Recent acquisitions

Our dispositions (partially offset by acquisitions) of real estate assets since January 1, 2020 were the primary drivers behind our decreases in rental and property revenues and property operating expenses for the three-month and six-month periods ended June 30, 2021 versus 2020, as listed in the tables below:

Real estate assets acquired

Acquisition date

Property

Location

Units

Leasable square feet

Residential Properties:

3/31/2020

Horizon at Wiregrass

Tampa, FL

392

—

4/30/2020

Parkside at the Beach

Panama City Beach, FL

288

—

11/2/2020

The Blake

Orlando, FL

281

—

12/15/2020

The Menlo

Jacksonville, FL

332

—

6/30/2021

The Ellison

Atlanta, GA

250

—

New Market Properties:

1/29/2020

Wakefield Crossing

Raleigh, NC

—

75,927

3/19/2020

Midway Market

Dallas, TX

—

85,599

1,543

161,526

Real estate assets sold

Disposition date

Property

Location

Units

Beds

Student housing properties:

11/3/2020

North by Northwest

Tallahassee, FL

219

679

11/3/2020

SoL

Tempe, AZ

224

639

11/3/2020

Stadium Village

Atlanta, GA

198

792

11/3/2020

Ursa

Waco, TX

250

840

11/3/2020

The Tradition

College Station, TX

427

808

11/3/2020

Knightshade

Orlando, FL

221

894

11/3/2020

The Bloc

Lubbock, TX

140

556

11/3/2020

Rush

Charlotte, NC

332

887

Multifamily community:

11/12/2020

Avenues at Creekside

San Antonio, TX

395

—

Rental and other property revenues

Rental and other property revenues decreased 5.7% and 6.2% for the three-month and six-month periods ended June 30, 2021, respectively, versus the corresponding periods of 2020, primarily due to the sale of our student housing properties in the fourth quarter 2020. Changes in occupancy rates and in percentages of leased space and rent growth are the primary drivers of changes in rental revenue from our owned properties. Factors which we believe affect market rents include vacant unit inventory in local markets, local and national economic growth and resultant employment stability, income levels and growth, the ease of obtaining credit for home purchases, and changes in demand due to consumer confidence in the above factors.

Interest income

Interest income from our real estate loan and note investments increased 23.1% for the three-month period ended June 30, 2021 versus the corresponding period of 2020, primarily due to the recognition in full of a purchase option discount of approximately $3.0 million from our Vintage Destin real estate loan investment that was repaid on June 1, 2021. The principal

amount outstanding on our portfolio of real estate loan investments decreased to approximately $279.5 million at June 30, 2021 from $323.2 million at June 30, 2020. Interest income from related parties decreased 32.1% and 74.1% for the three-month and six-month periods ended June 30, 2021, respectively, versus the corresponding periods of 2020, primarily due to the repayment of the Wiregrass real estate loan investment and the recognition of all the purchase option termination revenue on the loan during 2020. We recorded interest income and other revenue from these instruments as presented in Note 4 to our Consolidated Financial Statements.

Miscellaneous revenues

Miscellaneous revenues decreased 81.2% for the six-month period ended June 30, 2021 versus the corresponding period of 2020, primarily due to the recognition of a forfeited earnest money deposit of $2.75 million from a prospective purchaser of six of our student housing properties during the first quarter 2020.

Property operating and maintenance

Property operating and maintenance costs decreased 9.9% and 9.7% for the three-month and six-month periods ended June 30, 2021, respectively, versus the corresponding periods of 2020, primarily due to the sale of our student housing properties in the fourth quarter 2020. The primary components of operating and maintenance expense are utilities, property repairs, and landscaping costs. The expenses incurred for property repairs and, to a lesser extent, utilities could generally be expected to increase gradually over time as the buildings and properties age. Utility costs may generally be expected to increase in future periods as rate increases from providing carriers are passed on to our residents and tenants.

Property salary and benefits

Property salary and benefits costs decreased 14.1% and 10.8% for the three-month and six-month periods ended June 30, 2021, respectively, versus the corresponding periods of 2020, primarily due to the sale of our student housing properties in the fourth quarter 2020 and the absence in the 2021 periods of costs for individuals who handled the on-site management, operations and maintenance of the student housing properties.

Property management costs

Property management costs decreased 11.0% and 33.3% for the three-month and six-month periods ended June 30, 2021, respectively, versus the corresponding periods of 2020, primarily due to the cessation of property management fees paid to our Former Manager effective with our Internalization on January 31, 2020. In addition, the decrease for the three-month period ended June 30, 2021 was due to the absence of property management costs related to our student housing properties. We paid fees for property management services to our Former Manager in an amount of 4% of gross property revenues as compensation for services such as rental, leasing, operation and management of our multifamily communities and the supervision of any subcontractors; for grocery-anchored shopping center assets, property management costs were generally 4% of gross property revenues, of which generally 2.0% to 2.5% were paid to a third party management company. Property management costs for office building assets are 1.25% to 2.00% and are paid to a third party property management company.

Real estate taxes and insurance

Real estate taxes and insurance costs decreased 7.6% and 2.5% for the three-month and six-month periods ended June 30, 2021, respectively, versus the corresponding periods of 2020, primarily due to the sale of our student housing properties in the fourth quarter 2020.

Equity compensation to directors and executives

Equity compensation expenses increased 276.0% and 214.9% for the three-month and six-month periods ended June 30, 2021, respectively, versus the corresponding periods of 2020, primarily due to issuances of restricted stock and restricted stock units since March 31, 2020. These instruments have a collective fair value of approximately $12.9 million, that will be amortized as described in Note 8 to our Consolidated Financial Statements.

Asset management fees and general and administrative fees to related party

Monthly asset management fees and general and administrative expense fees ceased effective with the closing of our Internalization Transaction on January 31, 2020.

Allowance for expected credit losses

Our allowance for expected credit losses on our real estate loan investments decreased for the three-month and six-month periods ended June 30, 2021, versus the corresponding periods of 2020, primarily due to recent market movements in multifamily cap rates and valuations. Cap rate compression has pushed multifamily valuations higher, resulting in more protection for our real estate loan investments. Given this reduced risk, we reduced the reserves related to loans supporting multiple developments.

Management Internalization expense

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

Interest expense

Our interest expense decreased 12.3% and 10.6% for the three-month and six-month periods ended June 30, 2021, respectively, versus the corresponding periods of 2020, primarily due to the sale of our student housing properties in the fourth quarter 2020.

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

Definitions of Non-GAAP Measures

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

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

FFO is one of the most commonly utilized Non-GAAP measures currently in practice. In its 2002 “White Paper on Funds From Operations,” which was restated in 2018, the National Association of Real Estate Investment Trusts ("NAREIT") standardized the definition of how Net income/loss should be adjusted to arrive at FFO, in the interests of uniformity and comparability. We have adopted the NAREIT definition for computing FFO as a meaningful supplemental gauge of our operating results, and as is most often presented by other REIT industry participants.

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

Net income/loss, excluding:

•depreciation and amortization related to real estate;

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

•gains and losses from change in control, and

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

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

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

The Company makes adjustments to FFO to remove costs incurred and revenues recorded that are singular in nature and outside the normal operations of the Company and portray its primary operational results. The Company calculates Core FFO as:

FFO, plus:

• acquisition and pursuit (dead deal) costs;

• loan cost amortization on acquisition term notes and loan coordination fees;

• losses on debt extinguishments or refinancing costs;

• Internalization costs;

• expenses incurred on calls of preferred stock;

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

• expenses related to the COVID-19 global pandemic; and

Less:

• earnest money forfeitures by prospective asset purchasers.

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

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

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

Core FFO, plus:

• non-cash equity compensation to directors and executives;

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

• amortization of loan closing costs;

• depreciation and amortization of non-real estate assets;

• net loan origination fees received;

• deferred interest income received;

• amortization of lease inducements;

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

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

• earnest money forfeiture from prospective asset purchaser;

Less:

• non-cash loan interest income;

• cash paid for loan closing costs related to our Revolving Line of Credit;

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

• amortization of deferred revenues; and

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

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


Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO
to Net (Loss) Income Attributable to Common Stockholders (A)
		Three months ended June 30,
(In thousands, except per-share figures)		2021		2020

Net loss attributable to common stockholders (See note 1)		$	(32,567)	$	(51,319)

Add:	Depreciation of real estate assets	35,977		40,996
	Amortization of acquired intangible assets and deferred leasing costs	8,486		9,973
	Net loss attributable to Class A Unitholders (See note 2)	16		(249)
FFO attributable to common stockholders and unitholders		11,912		(599)

	Acquisition and pursuit costs	1		132
	Loan cost amortization on acquisition term notes and loan coordination fees (See note 3)	482		528
	Payment of costs related to property refinancing	118		6,863
	Internalization costs (See note 4)	240		458
	Deemed dividends for redemptions of and non-cash dividends on preferred stock	4,110		2,772
	Expenses related to the COVID-19 global pandemic (See note 5)	27		419
Core FFO attributable to common stockholders and unitholders (A)		16,890		10,573

Add:	Non-cash equity compensation to directors and executives	925		246
	Amortization of loan closing costs (See note 7)	1,245		1,177
	Depreciation/amortization of non-real estate assets	447		616
	Net loan origination fees received (See note 8)	386		200
	Deferred interest income received (See note 9)	1,569		—
	Amortization of lease inducements (See note 10)	452		447
Less:	Amortization of purchase option termination revenues in excess of cash received (See note 11)	(227)		(435)
	Non-cash loan interest income (See note 9)	(2,909)		(3,109)
	Non-cash (income) expense for current expected credit losses (See note 6)	(1,256)		(122)
	Cash paid for loan closing costs	(1,881)		—
	Amortization of acquired real estate intangible liabilities and SLR (See note 12)	(3,248)		(4,144)
	Amortization of deferred revenues (See note 13)	(941)		(941)
	Normally recurring capital expenditures (See note 14)	(2,977)		(2,124)

AFFO attributable to common stockholders and Unitholders		$	8,475	$	2,384

Common Stock dividends and distributions to Unitholders declared:
	Common Stock dividends	$	9,259	$	8,624
	Distributions to Unitholders (See note 2)	87		130
	Total	$	9,346	$	8,754

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

FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.23	$	(0.01)
Core FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.33	$	0.22
AFFO per weighted average basic share of Common Stock and Unit outstanding		$	0.17	$	0.05

Weighted average shares of Common Stock and Units outstanding:
	Basic:
	Common Stock	50,518		48,220
	Class A Units	535		759
	Common Stock and Class A Units	51,053		48,979

	Diluted Common Stock and Class A Units (See note 15)	51,579		48,980

Actual shares of Common Stock outstanding, including 704 and 548 unvested shares
of restricted Common Stock at June 30, 2021 and 2020, respectively.		52,432		49,831
Actual Class A Units outstanding at June 30, 2021 and 2020, respectively.		497		742
	Total	52,929		50,573

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


Reconciliation of FFO Attributable to Common Stockholders and Unitholders, Core FFO and AFFO
to Net (Loss) Income Attributable to Common Stockholders (A)
		Six months ended June 30,
(In thousands, except per-share figures)		2021		2020

Net loss attributable to common stockholders (See note 1)		$	(69,176)	$	(260,771)

Add:	Depreciation of real estate assets	72,809		80,771
	Amortization of acquired intangible assets and deferred leasing costs	17,196		18,955
	Gain on sale of real estate	(798)		—
	Net loss attributable to Class A Unitholders (See note 2)	(17)		(3,343)
FFO attributable to common stockholders and unitholders		20,014		(164,388)
	Acquisition and pursuit costs	5		378
	Loan cost amortization on acquisition term notes and loan coordination fees (See note 3)	906		1,206
	Payment of costs related to property refinancing	118		6,863
	Internalization costs (See note 4)	485		179,251
	Deemed dividends for redemptions of and non-cash dividends on preferred stock	7,937		3,316
	Expenses related to the COVID-19 global pandemic (See note 5)	81		448
	Earnest money forfeited by prospective asset purchaser	—		(2,750)
Core FFO attributable to common stockholders and unitholders (A)		29,546		24,324

Add:	Non-cash equity compensation to directors and executives	1,499		476
	Amortization of loan closing costs (See note 7)	2,457		2,343
	Depreciation/amortization of non-real estate assets	891		1,172
	Net loan origination fees received (See note 8)	1,203		467
	Deferred interest income received (See note 9)	4,486		8,277
	Amortization of lease inducements (See note 10)	900		886
	Earnest money forfeited by prospective asset purchaser	—		2,750
	Cash received in excess of amortization of purchase option termination revenues (See note 11)	23		325
Less:	Non-cash loan interest income (See note 9)	(5,783)		(6,128)
	Non-cash (income) expense for current expected credit losses (See note 6)	(1,139)		4,408
	Cash paid for loan closing costs	(1,891)		—
	Amortization of acquired real estate intangible liabilities and SLR (See note 12)	(6,563)		(8,797)
	Amortization of deferred revenues (See note 13)	(1,881)		(1,881)
	Normally recurring capital expenditures (See note 14)	(6,330)		(3,542)

AFFO attributable to common stockholders and Unitholders		$	17,418	$	25,080
Common Stock dividends and distributions to Unitholders declared:
	Common Stock dividends	$	18,250	$	21,115
	Distributions to Unitholders (See note 2)	183		333
	Total	$	18,433	$	21,448

Common Stock dividends and Unitholder distributions per share		$	0.35	$	0.4375

FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.39	$	(3.39)
Core FFO per weighted average basic share of Common Stock and Unit outstanding		$	0.58	$	0.50
AFFO per weighted average basic share of Common Stock and Unit outstanding		$	0.34	$	0.52
Weighted average shares of Common Stock and Units outstanding:
	Basic:
	Common Stock	50,277		47,674
	Class A Units	572		793
	Common Stock and Class A Units	50,849		48,467

	Diluted Common Stock and Class A Units (See note 15)	51,271		48,474

Actual shares of Common Stock outstanding, including 704 and 548 unvested shares
of restricted Common Stock at June 30, 2021 and 2020, respectively.		52,432		49,831
Actual Class A Units outstanding at June 30, 2021 and 2020, respectively.		497		742
	Total	52,929		50,573

(A) Our Core FFO result for the six-month period ended June 30, 2020 has been amended to reflect the movement of the adjustment for expense for current expected credit losses from an adjustment for Core FFO to an adjustment for AFFO.

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

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

Net Loss Attributable to Common Stockholders

1)Rental and other property revenues and property operating expenses for the three months ended June 30, 2021 include activity for the properties acquired since June 30, 2020. Rental and other property revenues and expenses for the three-month and six-month periods ended June 30, 2020 include activity for the acquisitions made during that period only from their respective dates of acquisition.

2)Non-controlling interests in our Operating Partnership, consisted of a total of 497,291 Class A Units as of June 30, 2021. Included in this total are 419,228 Class A Units which were granted as partial consideration to the seller in conjunction with the seller's contribution to us on February 29, 2016 of the Wade Green grocery-anchored shopping center. The remaining Class A units were awarded primarily to our key executive officers. The Class A Units are apportioned a percentage of our financial results as non-controlling interests. The weighted average ownership percentage of these holders of Class A Units was calculated to be 1.05% and 1.55% for the three-month periods ended June 30, 2021 and 2020, respectively.

3) We paid loan coordination fees to our Former Manager to reflect the administrative effort involved in arranging debt financing for acquired properties prior to the Internalization Transaction. 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 June 30, 2021, aggregate unamortized loan coordination fees were approximately $10.9 million, which will be amortized over a weighted average remaining loan life of approximately 10.2 years.

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

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

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

7) We incur loan closing costs on our existing mortgage loans, which are secured on a property-by-property basis by each of our acquired real estate assets, and also for occasional amendments to our syndicated revolving line of credit with Key Bank National Association, or our Revolving Line of Credit. These loan closing costs are also amortized over the lives of the respective loans and the Revolving Line of Credit, and this non-cash amortization expense is an addition to FFO in the calculation of AFFO. Neither we nor the Operating Partnership have any recourse liability in connection with any of the mortgage loans, nor do we have any cross-collateralization arrangements with respect to the assets securing the mortgage loans, other than security interests in 49% of the equity interests of the subsidiaries owning such assets, granted in connection with our Revolving Line of Credit, which provides for full recourse liability. At June 30, 2021, unamortized loan costs on all the Company's indebtedness were approximately $30.9 million, which will be amortized over a weighted average remaining loan life of approximately 8.5 years.

8) 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.

9) This adjustment reflects the receipt during the periods presented of additional interest income (described in note 8 above) which was earned and accrued on various real estate loans prior to those periods and previously deducted in our calculation of AFFO.

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

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

12) 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 June 30, 2021, the balance of unamortized below-market lease intangibles was approximately $47.8 million, which will be recognized over a weighted average remaining lease period of approximately 8.4 years.

13) 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.

14) 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 $17,000 and $35,000 of recurring capitalized expenditures incurred at our corporate offices during the three-month and six-month periods ended June 30, 2021. No adjustment is made in the calculation of AFFO for nonrecurring capital expenditures. See Capital Expenditures, Grocery-Anchored Shopping Center Portfolio, and Office Building Portfolio sections for definitions of these terms.

15) Since our AFFO results are positive for the periods reflected, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock and restricted stock units. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.

Liquidity and Capital Resources

Short-Term Liquidity

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

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

•operating expenses related to salaries, benefits, and general and administrative expenses (that were 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, 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.

We have a credit facility, or Credit Facility, with KeyBank National Association, or KeyBank, which defines a revolving line of credit, or Revolving Line of Credit, which is used to fund investments, capital expenditures, dividends (with consent of KeyBank), working capital and other general corporate purposes on an as needed basis. On May 4, 2021, Carveout and PAC-OP, (collectively, the “Borrowers”) and the Company entered into Amendment No. 3 to the Fourth Amended and Restated Credit Agreement which (i) extended the maturity date for the Revolving Facility to May 4, 2024, with an option to extend the maturity date to May 4, 2025, (ii) added Carveout as a borrower and (iii) modified certain of the financial covenants. As of June 30, 2021, the outstanding balance on the Revolving Facility was approximately $56.5 million. The Revolving Line of Credit accrues interest at a variable rate of KeyBank's prime rate plus 0.5%, the Adjusted Eurodollar Rate for a one-month interest period plus 1.00%, or the one- or three-month per annum LIBOR, as selected by the Borrowers, plus an applicable margin of 1.50% to 3.50% per annum, depending upon our leverage ratio. The weighted average interest rate for the Revolving Line of Credit was 3.63% for the six months ended June 30, 2021. The Amended and Restated Credit Agreement also reduced the commitment fee on the average daily unused portion of the Revolving Line of Credit to 0.20% or 0.25% per annum, depending upon our outstanding Credit Facility balance. At June 30, 2021, we had $143.5 million available to be drawn by us on the Revolving Line of Credit.

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

The Amended and Restated Credit Agreement contains certain affirmative and negative covenants including negative covenants that limit or restrict secured and unsecured indebtedness, mergers and fundamental changes, investments and acquisitions, liens and encumbrances, dividends, transactions with affiliates, burdensome agreements, changes in fiscal year and other matters customarily restricted in such agreements. The material financial covenants include minimum net worth and debt service coverage ratios and maximum leverage and dividend payout ratios. As of June 30, 2021, we were in compliance with all covenants related to the Fourth Amended and Restated Credit Agreement, as amended. Our results with respect to such compliance are presented in Note 9 to the company's Consolidated Financial Statements.

On December 20, 2019, we utilized proceeds from an interim term loan to partially finance the acquisition of Morrocroft Centre, an office building located in Charlotte, North Carolina, or the 2019 Interim Term Loan. The 2019 Interim Term Loan accrued interest at a rate of LIBOR plus 170 basis points per annum. We repaid the 2019 Interim Term Loan during the first quarter 2020 with permanent mortgage financing.

On February 28, 2017, we entered into a revolving acquisition credit agreement, or Acquisition Credit Agreement, with Freddie Mac through KeyBank to obtain the Acquisition Facility, with a maximum borrowing capacity of $200 million. The sole purpose of the Acquisition Credit Agreement is to finance our acquisitions of multifamily communities prior to obtaining permanent conventional mortgage financing on the acquired assets. The maximum borrowing capacity on the Acquisition Facility was reduced by agreement with KeyBank to $90 million on March 25, 2019. The Acquisition Facility accrues interest at a variable rate of one month LIBOR plus a margin of between 1.75% per annum and 2.20% per annum,

depending on the type of assets acquired and the resulting property debt service coverage ratio. The Acquisition Facility has a maturity date of March 1, 2022 and has two one-year extension options, subject to certain conditions described therein. At June 30, 2021, we had $90 million available to be drawn by us on the Acquisition Facility.

Our net cash provided by operating activities for the six-month period ended June 30, 2021 was approximately $101.9 million and net cash used in operating activities for the six-month period ended June 30, 2020 was approximately $21.1 million. The Internalization transaction that closed in the first quarter 2020 reflected one-time cash payments to the entities that owned the Former Manager and Former Sub-Manager that totaled approximately $111.1 million, plus approximately $3.8 million in related professional fees.

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

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

Our net cash used in investing activities for the six-month periods ended June 30, 2021 and 2020 was approximately $70.9 million and $177.7 million, respectively. For the six-month period ended June 30, 2021, cash disbursed for property acquisitions totaled approximately $67 million, as compared to approximately $186.0 million for the six-month period ended June 30, 2020.

Cash used in investing activities is primarily driven by acquisitions and dispositions of multifamily properties, office properties and grocery-anchored shopping centers and acquisitions and maturities or other dispositions of real estate loans and other real estate and real estate-related assets, and secondarily by capital expenditures related to our owned properties. We will seek to acquire more multifamily communities and grocery-anchored shopping centers at costs that we expect will be accretive to our financial results. Capital expenditures may be nonrecurring and discretionary, as part of a strategic plan intended to increase a property’s value and corresponding revenue-generating power, or may be normally recurring and necessary to maintain the income streams and present value of a property. Certain capital expenditures may be budgeted and reserved for upon acquiring a property as initial expenditures necessary to bring a property up to our standards or to add features or amenities that we believe make the property a compelling value to prospective residents or tenants in its individual market. These budgeted nonrecurring capital expenditures in connection with an acquisition are funded from the capital source(s) for the acquisition and are not dependent upon subsequent property operational cash flows for funding.

For the six-month period ended June 30, 2021, our capital expenditures for our multifamily communities, not including changes in related payables, were as follows:


(In thousands, except per-unit amounts)	Capital Expenditures
	Recurring				Non-recurring				Total
	Amount		Per Unit		Amount		Per Unit		Amount		Per Unit
Appliances	$	356	$	31.92	$	—	$	—	$	356	$	31.92
Carpets	960		86.12		—		—		960		86.12
Wood flooring / vinyl	150		13.43		254		22.83		404		36.26
Blinds and ceiling fans	74		6.66		—		—		74		6.66
Fire safety	—		—		220		19.71		220		19.71
Furnace, air (HVAC)	331		29.76		—		—		331		29.76
Computers, equipment, misc.	25		2.24		125		11.11		150		13.35
Elevators	—		—		20		1.82		20		1.82
Exterior painting and lighting	—		—		1,369		122.84		1,369		122.84
Leasing office / common amenities	37		3.32		449		40.29		486		43.61
Major structural	—		—		921		82.68		921		82.68
Cabinets, countertops and unit upgrades	—		—		390		35.01		390		35.01
Landscaping & fencing	—		—		374		33.54		374		33.54
Parking lots and sidewalks	19		1.72		133		11.99		152		13.71
Signage and sanitation	—		—		31		2.77		31		2.77

	$	1,952	$	175.17	$	4,286	$	384.59	$	6,238	$	559.76

In addition, second-generation capital expenditures within our grocery-anchored shopping center portfolio for the six-month periods ended June 30, 2021 and 2020 totaled $3.3 million and $0.9 million, respectively, and within our office properties portfolio for the six-month periods ended June 30, 2021 and 2020 totaled $1.1 million and $0.5 million, respectively. We define second-generation capital expenditures as those that exclude expenditures made in our grocery-anchored shopping center and office properties portfolios (i) to lease space to "first generation" tenants (i.e. leasing capital for existing vacancies and known move-outs at the time of acquisition), (ii) to bring recently acquired properties up to our ownership standards, and (iii) for property re-developments and repositioning.

At June 30, 2021, we had restricted cash of approximately $53.7 million. These funds are restricted for a variety of purposes, such as commitments to fund capital expenditures and lender required escrows for future real estate tax and insurance payments. At June 30, 2021, our restricted cash for future real estate tax and insurance payments was approximately $24.2 million. Typically these escrows increase in the second and third quarters of each calendar year as the Company pays monthly mortgage installments, of which a portion goes to these escrows, until payments are made to the taxing authorities (generally in the first and fourth quarters of each calendar year). Additionally, through the mortgage refinances that the Company executed since March 31, 2020, our lenders required us to put an additional $9.6 million into escrows related to the COVID-19 pandemic. These escrows will be released back to us upon the cessation of all governmental emergency declarations and certain other performance conditions.

Net cash used in financing activities for the six-month period ended June 30, 2021 was approximately $16.0 million and net cash provided by financing activities for the six-month period ended June 30, 2020 was approximately $178.0 million. For the six-month period ended June 30, 2021, payments for redemptions of preferred stock totaled approximately $83.3 million, as compared to approximately $48.2 million for the six-month period ended June 30, 2020. Net proceeds from draws on our revolving line of credit were $34.5 million for the six-month period ended June 30, 2021, versus $92.5 million for the six-month period ended June 30, 2020.

Distributions

In order to maintain our status as a REIT for U.S. federal income tax purposes, we must comply with a number of organizational and operating requirements, including a requirement to distribute 90% of our annual REIT taxable income (which does not equal net income as calculated in accordance with GAAP and determined without regard for the deduction for dividends paid and excluding net capital gains) to our stockholders. As a REIT, we generally will not be subject to federal income taxes on the taxable income we distribute to our stockholders. Generally, our objective is to meet our short-term liquidity requirement of funding the payment of our quarterly Common Stock dividends, as well as monthly dividends to holders of our Series A Preferred Stock, mShares, Series A1 Redeemable Preferred Stock and Series M1 Redeemable Preferred Stock (collectively, our Preferred Stock), through net cash generated from operating results.

Our board of directors reviews the Preferred Stock dividends monthly to determine whether we have funds legally available for payment of such dividends in cash, and there can be no assurance that the Preferred Stock dividends will consistently be paid in cash. Dividends may be paid as a combination of cash and stock in order to satisfy the annual distribution requirements applicable to REITs. We expect the aggregate dollar amount of monthly Preferred Stock dividend payments to increase at a rate that approximates the rate at which we issue new shares of Preferred Stock, less those shares redeemed.

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

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

For the six months ended June 30, 2021, our aggregate dividends and distributions totaled approximately $86.2 million and our net cash provided by operating activities were approximately $101.9 million. We expect our cash flow from operations over time to be sufficient to fund our quarterly Common Stock dividends, Class A Unit distributions and our monthly Preferred Stock dividends.

Long-Term Liquidity Needs

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

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

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

•costs associated with current and future capital raising activities;

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

•our minimum distributions necessary to maintain our REIT status.

We intend to finance our future investments with the net proceeds from additional issuances of our securities, including our Series A1/M1 Offering (as defined and described in Note 5 to our Consolidated Financial Statements), Common Stock, and units of limited partnership interest in our Operating Partnership, and/or borrowings. The success of our acquisition strategy may depend, in part, on our ability to access further capital through issuances of additional securities. If we are unsuccessful in raising additional funds, we may not be able to obtain any assets in addition to those we have acquired.

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

At June 30, 2021, the Company's active equity offerings consisted of:

During the second quarter 2021, we issued and sold an aggregate of 37,872 shares of Preferred Stock and redeemed an aggregate of 47,986 shares of Preferred Stock, resulting in a net redemption of 10,114 shares of Preferred Stock, for a net redemption cost of $12.9 million. Also during the second quarter 2021, we issued and sold an aggregate of 1,442,214 shares of Common Stock under our 2019 ATM Offering, generating gross proceeds of approximately $15.1 million and, after deducting commissions and other costs, net proceeds of approximately $14.9 million.

Our ability to raise funds through the issuance of our securities is dependent on, among other things, general market conditions for REITs, market perceptions about us, and the current trading price of our Common Stock. We will continue to analyze which source of capital is most advantageous to us at any particular point in time, but the equity and credit markets may not consistently be available on terms that are attractive to us or at all. In addition, the impacts of the COVID-19 pandemic on capital markets, including the availability and costs of debt and equity capital, remain uncertain and may have material adverse effects on our access to capital on attractive terms.

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

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

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

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

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

•The availability and cost of financing an asset;

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

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

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

that our board of directors will consider many factors, including without limitation the lending standards of government-sponsored enterprises, such as Fannie Mae and Freddie Mac, for loans in connection with the financing of multifamily properties, the leverage ratios of publicly traded and non-traded REITs with similar investment strategies, and general market conditions. There is no limitation on the amount that we may borrow for any single investment.

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

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

Furthermore, if interest rates or other factors at the time of financing result in higher costs of financing, then the interest expense relating to that financed indebtedness would be higher. Higher interest rates on newly incurred debt may negatively impact us as well. If interest rates increase, our interest costs and overall costs of capital will increase, which could adversely affect our transaction and development activity, financial condition, results of operations, cash flow, our ability to pay principal and interest on our debt and our ability to pay distributions to our stockholders. Finally, sellers may be less inclined to offer to sell to us if they believe we may be unable to obtain financing.

As of June 30, 2021, we had approximately $37.1 million in unrestricted cash and cash equivalents available to meet our short-term and long-term liquidity needs. We believe that our long-term liquidity needs are and will continue to be adequately funded through the sources discussed above.

As of June 30, 2021, we had long term mortgage indebtedness of approximately $2.7 billion, all of which was incurred by us in connection with the acquisition or refinancing of our real estate properties, as presented in the following table:


		Principal balance as of								Interest only through date (1)
(in thousands)	Acquisition/ refinancing date	June 30, 2021		December 31, 2020		Maturity date	Interest rate		Basis point spread over 1 Month LIBOR

Multifamily communities:
Summit Crossing	10/31/2017	$	36,555	$	36,929	11/1/2024	3.99	%	Fixed rate	N/A
Summit Crossing II	6/30/2020	20,700		20,700		7/1/2030	2.87	%	278	7/31/2022
Vineyards	9/26/2014	32,351		32,703		10/1/2021	3.68	%	Fixed rate	N/A
Avenues at Cypress	6/30/2020	28,366		28,366		7/1/2027	2.96	%	Fixed rate	7/31/2022
Avenues at Northpointe	6/29/2020	33,546		33,546		7/1/2027	2.79	%	Fixed rate	7/31/2022
Venue at Lakewood Ranch	6/30/2020	36,555		36,555		7/1/2030	2.99	%	Fixed rate	7/31/2022
Aster at Lely Resort	6/29/2020	50,400		50,400		7/1/2030	2.95	%	Fixed rate	7/31/2022
CityPark View	6/25/2020	29,000		29,000		7/1/2030	2.75	%	Fixed rate	7/31/2023
Citi Lakes	7/29/2019	39,931		40,324		8/1/2029	3.66	%	Fixed rate	N/A
Stone Creek	6/22/2017	19,272		19,451		7/1/2052	3.22	%	Fixed rate	N/A
Lenox Village Town Center	2/28/2019	37,832		38,169		3/1/2029	4.34	%	Fixed rate	N/A
Retreat at Lenox	12/21/2015	16,561		16,751		1/1/2023	4.04	%	Fixed rate	N/A
Overton Rise	2/1/2016	37,180		37,607		8/1/2026	3.98	%	Fixed rate	N/A
Village at Baldwin Park	2/28/2021	69,134		69,608		1/1/2054	3.27	%	Fixed rate	N/A
Crosstown Walk	6/30/2020	46,500		46,500		7/1/2027	2.92	%	Fixed rate	7/31/2022
525 Avalon Park	6/15/2017	62,598		63,256		7/1/2024	3.98	%	Fixed rate	N/A
City Vista	7/1/2016	32,556		32,938		7/1/2026	3.68	%	Fixed rate	N/A
Sorrel	8/24/2016	30,373		30,740		9/1/2023	3.44	%	Fixed rate	N/A
Citrus Village	7/10/2020	40,900		40,900		8/1/2027	2.95	%	Fixed rate	8/31/2022
Retreat at Greystone	11/21/2017	33,118		33,439		12/1/2024	4.31	%	Fixed rate	N/A
Founders Village	3/31/2017	29,339		29,635		4/1/2027	4.31	%	Fixed rate	N/A
Claiborne Crossing	4/26/2017	25,275		25,503		6/1/2054	2.89	%	Fixed rate	N/A
Luxe at Lakewood Ranch	7/26/2017	36,536		36,922		8/1/2027	3.93	%	Fixed rate	N/A
Adara at Overland Park	9/27/2017	29,712		30,024		4/1/2028	3.90	%	Fixed rate	N/A
Aldridge at Town Village	10/31/2017	35,538		35,892		11/1/2024	4.19	%	Fixed rate	N/A
Reserve at Summit Crossing	9/29/2017	18,691		18,893		10/1/2024	3.87	%	Fixed rate	N/A


Table continued from previous page		Principal balance as of						Interest only through date (1)
	Acquisition/ refinancing date	June 30, 2021	December 31, 2020	Maturity date	Interest rate		Basis point spread over 1 Month LIBOR
		(in thousands)
Overlook at Crosstown Walk	11/21/2017	20,823	21,038	12/1/2024	3.95	%	Fixed rate	N/A
Colony at Centerpointe	12/20/2017	31,098	31,445	10/1/2026	3.68	%	Fixed rate	N/A
Lux at Sorrel	1/9/2018	29,557	29,868	2/1/2030	3.91	%	Fixed rate	N/A
Green Park	2/28/2018	37,403	37,785	3/10/2028	4.09	%	Fixed rate	N/A
The Lodge at Hidden River	9/27/2018	39,838	40,204	10/1/2028	4.32	%	Fixed rate	N/A
Vestavia Reserve	11/9/2018	36,187	36,511	12/1/2030	4.40	%	Fixed rate	N/A
CityPark View South	11/15/2018	23,175	23,379	6/1/2029	4.51	%	Fixed rate	N/A
Artisan at Viera	8/8/2019	38,734	39,104	9/1/2029	3.93	%	Fixed rate	N/A
Five Oaks at Westchase	10/17/2019	30,495	30,818	11/1/2031	3.27	%	Fixed rate	N/A
Horizon at Wiregrass Ranch	4/23/2020	50,803	51,360	5/1/2030	2.90	%	Fixed rate	N/A
Parkside at the Beach	4/30/2020	45,037	45,037	5/1/2030	2.95	%	Fixed rate	N/A
The Blake	11/2/2020	44,435	44,435	5/1/2030	2.82	%	Fixed rate	12/31/2025
The Menlo	12/15/2020	47,000	47,000	1/1/2031	2.68	%	Fixed rate	1/31/2024
The Ellison	6/30/2021	47,991	—	3/31/2022	1.61	%	150	3/30/2022

Total multifamily communities		1,431,095	1,392,735

Grocery-anchored shopping centers:
Spring Hill Plaza	9/17/2019	7,859	7,962	10/1/2031	3.72	%	Fixed rate	N/A
Parkway Town Centre	9/17/2019	7,762	7,866	10/1/2031	3.72	%	Fixed rate	N/A
Woodstock Crossing	8/8/2014	2,786	2,818	9/1/2021	4.71	%	Fixed rate	N/A
Deltona Landings	8/16/2019	6,064	6,141	9/1/2029	4.18	%	Fixed rate	N/A
Powder Springs	8/13/2019	7,646	7,749	9/1/2029	3.65	%	Fixed rate	(2)
Barclay Crossing	8/16/2019	6,011	6,086	9/1/2029	4.18	%	Fixed rate	N/A
Parkway Centre	8/16/2019	4,368	4,423	9/1/2029	4.18	%	Fixed rate	N/A
The Market at Salem Cove	10/6/2014	8,793	8,889	11/1/2024	4.21	%	Fixed rate	N/A
Independence Square	8/27/2015	11,044	11,184	9/1/2022	3.93	%	Fixed rate	N/A
Royal Lakes Marketplace	4/12/2019	9,228	9,345	5/1/2029	4.29	%	Fixed rate	N/A
The Overlook at Hamilton Place	12/22/2015	18,870	19,088	1/1/2026	4.19	%	Fixed rate	N/A
Summit Point	10/30/2015	10,924	11,118	11/1/2022	3.57	%	Fixed rate	N/A
East Gate Shopping Center	4/29/2016	5,036	5,118	5/1/2026	3.97	%	Fixed rate	N/A
Fury's Ferry	4/29/2016	5,817	5,912	5/1/2026	3.97	%	Fixed rate	N/A
Rosewood Shopping Center	4/29/2016	3,907	3,971	5/1/2026	3.97	%	Fixed rate	N/A
Southgate Village	4/29/2016	6,946	7,059	5/1/2026	3.97	%	Fixed rate	N/A


Table continued from previous page		Principal balance as of							Interest only through date (1)
	Acquisition/ refinancing date	June 30, 2021	December 31, 2020	Maturity date	Interest rate		Basis point spread over 1 Month LIBOR
		(in thousands)

The Market at Victory Village	5/16/2016	8,667	8,751	9/11/2024	4.40	%	Fixed rate		N/A
Wade Green Village	4/7/2016	7,402	7,488	5/1/2026	4.00	%	Fixed rate		N/A
Lakeland Plaza	7/15/2016	26,206	26,632	8/1/2026	3.85	%	Fixed rate		N/A
University Palms	8/8/2016	11,830	12,030	9/1/2026	3.45	%	Fixed rate		N/A
Cherokee Plaza	4/12/2019	23,972	24,277	5/1/2027	4.28	%	Fixed rate		N/A
Sandy Plains Exchange	8/8/2016	8,264	8,404	9/1/2026	3.45	%	Fixed rate		N/A
Thompson Bridge Commons	8/8/2016	11,047	11,234	9/1/2026	3.45	%	Fixed rate		N/A
Heritage Station	8/8/2016	8,177	8,315	9/1/2026	3.45	%	Fixed rate		N/A
Oak Park Village	8/8/2016	8,438	8,580	9/1/2026	3.45	%	Fixed rate		N/A
Shoppes of Parkland	8/8/2016	15,264	15,414	9/1/2023	4.67	%	Fixed rate		N/A
Champions Village	10/18/2016	27,400	27,400	11/1/2021	3.25	%	300	(3)	11/1/2021
Castleberry-Southard	4/21/2017	10,618	10,734	5/1/2027	3.99	%	Fixed rate		N/A
Rockbridge Village	6/6/2017	13,162	13,310	7/5/2027	3.73	%	Fixed rate		N/A
Irmo Station	7/26/2017	9,614	9,758	8/1/2030	3.94	%	Fixed rate		N/A
Maynard Crossing	8/25/2017	16,698	16,953	9/1/2032	3.74	%	Fixed rate		N/A
Woodmont Village	9/8/2017	7,980	8,096	10/1/2027	4.13	%	Fixed rate		N/A
West Town Market	9/22/2017	8,135	8,260	10/1/2025	3.65	%	Fixed rate		N/A
Crossroads Market	12/5/2017	17,369	17,622	1/1/2030	3.95	%	Fixed rate		N/A
Anderson Central	3/16/2018	11,094	11,246	4/1/2028	4.32	%	Fixed rate		N/A
Greensboro Village	5/22/2018	7,931	8,040	6/1/2028	4.20	%	Fixed rate		N/A
Governors Towne Square	5/22/2018	10,552	10,696	6/1/2028	4.20	%	Fixed rate		N/A
Conway Plaza	6/29/2018	9,285	9,375	7/5/2028	4.29	%	Fixed rate		N/A
Brawley Commons	7/6/2018	17,290	17,519	8/1/2028	4.36	%	Fixed rate		N/A
Hollymead Town Center	12/21/2018	25,819	26,139	1/1/2029	4.64	%	Fixed rate		N/A
Gayton Crossing	1/17/2019	17,068	17,276	2/1/2029	4.71	%	Fixed rate		N/A
Free State Shopping Center	5/28/2019	45,115	45,549	6/1/2029	3.99	%	Fixed rate		N/A
Polo Grounds Mall	6/12/2019	12,861	12,986	7/1/2034	3.93	%	Fixed rate		N/A
Disston Plaza	6/12/2019	17,410	17,578	7/1/2034	3.93	%	Fixed rate		N/A
Fairfield Shopping Center	8/16/2019	19,750	19,750	8/16/2026	2.13	%	205		8/16/2022
Berry Town Center	11/14/2019	11,675	11,794	12/1/2034	3.49	%	Fixed rate		N/A
Hanover Shopping Center	12/19/2019	30,812	31,217	12/19/2026	3.62	%	Fixed rate		N/A
Wakefield Crossing	1/29/2020	7,627	7,728	2/1/2032	3.66	%	Fixed rate		N/A
Midway Market	4/15/2021	10,127	—	5/1/2031	3.06	%	Fixed rate		N/A

Total grocery-anchored shopping centers (4)		617,720	614,880


Table continued from previous page		Principal balance as of								Interest only through date (1)
	Acquisition/ refinancing date	June 30, 2021		December 31, 2020		Maturity date	Interest rate		Basis point spread over 1 Month LIBOR
		(in thousands)		(in thousands)

Office buildings:
Brookwood Center	8/29/2016	29,517		29,925		9/10/2031	3.52	%	Fixed rate	N/A
Galleria 75	11/4/2016	5,023		5,131		7/1/2022	4.25	%	Fixed rate	N/A
Three Ravinia	12/30/2016	115,500		115,500		1/1/2042	4.46	%	Fixed rate	1/31/2022
Westridge at La Cantera	11/13/2017	49,735		50,449		12/10/2028	4.10	%	Fixed rate	N/A
Armour Yards	1/29/2018	39,071		39,425		2/1/2028	4.10	%	Fixed rate	N/A
150 Fayetteville	7/31/2018	112,804		113,768		8/10/2028	4.27	%	Fixed rate	N/A
Capitol Towers	12/20/2018	121,637		122,720		1/10/2037	4.60	%	Fixed rate	N/A
CAPTRUST Tower	7/25/2019	82,650		82,650		8/1/2029	3.61	%	Fixed rate	7/31/2029
Morrocroft Centre	3/19/2020	70,000		70,000		4/10/2033	3.40	%	Fixed rate	4/10/2025
251 Armour Yards (5)	1/22/2020	5,674		3,522		1/22/2025	4.50	%	Fixed rate	1/21/2023

Total office buildings		631,611		633,090
Grand total		2,680,426		2,640,705
Less: deferred loan costs		(39,726)		(42,233)
Less: below market debt adjustment		(3,948)		(4,008)
Mortgage notes, net		$	2,636,752	$	2,594,464

Footnotes to Mortgage Notes Table

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

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

(3) The interest rate has a floor of 3.25%.

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

(5) A construction loan financing redevelopment of the property.

Contractual Obligations

As of June 30, 2021, our contractual obligations consisted of the mortgage notes secured by our acquired properties and the Revolving Credit Facility. Based on a LIBOR rate of 0.10% at June 30, 2021, our estimated future required payments on these instruments were:


(In thousands)	Total		Less than one year		1-3 years		3-5 years		More than five years
Principal payments:
Mortgage debt	$	2,680,426	$	153,361	$	194,504	$	389,191	$	1,943,370
Line of credit	56,500		56,500		—		—		—
Total principal	$	2,736,926	$	209,861	$	194,504	$	389,191	$	1,943,370
Interest payments:
Mortgage debt	$	760,744	$	97,990	$	183,371	$	155,817	$	323,566
Line of credit	65		65		—		—		—

Total interest	$	760,809	$	98,055	$	183,371	$	155,817	$	323,566

In addition, we had unfunded real estate loan balances totaling approximately $53.1 million at June 30, 2021.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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


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

Summit Crossing II	$	20,700			2.5	%	5.3	%
Total capped floating-rate debt	20,700		0.8	%

Champions Village	27,400				—		—
Fairfield Shopping Center	19,750				—		—
The Ellison	47,991
Total uncapped floating-rate debt	95,141		3.6	%

Total floating-rate debt	$	115,841	4.3	%

Our Revolving Line of Credit accrued interest at a spread of 3.0% over LIBOR as of June 30, 2021; this combined rate is uncapped. Because of the short term nature of the Revolving Line of Credit and Acquisition Credit Facility instruments, we believe our interest rate risk is minimal.

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

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

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

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

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

If interest rates under our floating-rate LIBOR-based indebtedness fluctuated by 100 basis points, our interest costs, based on outstanding borrowings at June 30, 2021, would increase by approximately $876,000 or decrease by approximately $75,000 on an annualized basis.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures.

Management of the Company evaluated, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15(e)) as of June 30, 2021, the end of the period covered by this report. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in internal control over financial reporting.

As required by the Exchange Act Rule 13a-15(d), the Company's Chief Executive Officer and Chief Financial Officer evaluated the Company's internal control over financial reporting to determine whether any change occurred during the quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Based on that evaluation, there has been no such change during such period.

PART II

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

A description of certain factors that may affect our future results and risk factors is set forth in our Annual Report on Form 10-K for the year ended December 31, 2020. As of June 30, 2021, there have been no material changes in our risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In connection with the vesting of restricted stock awards on June 17, 2021, the Company withheld 11,643 shares of our Common Stock having an aggregate fair value of approximately $122,500 from various employees of the Company who are holders of restricted stock to satisfy withholding tax requirements due to the vesting. This withholding is deemed to be a repurchase of the shares of restricted stock. The Company did not have any other unregistered sales of its equity securities during the three months ended June 30, 2021.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

The Company announced that on August 5, 2021, its Board of Directors approved extending the closing date of the Company's combined $1.0 billion Series A1/M1 Redeemable Preferred Stock Offering from September 27, 2021 to September 27, 2022.

Information Security

Board and Committee Oversight

The Company takes risks related to information security seriously. The Company’s Board of Directors has designated its Nominating and Corporate Governance Committee responsible for information security and this committee is made up entirely of independent directors. While no member of this committee has information security experience, the Company is bringing educational opportunities to the committee members to give them information and training related to their oversight role. Management has formed an internal Security Committee that reports at least semi-annually to the Nominating and Corporate Governance Committee and/or the full Board on the Company’s cybersecurity risks and mitigation efforts. The role of the Security Committee is to oversee cyber risk assessments, monitor applicable key risk indicators, review cybersecurity training procedures, created oversee our cybersecurity incident response plans and engage third parties to conduct periodic audits and penetration testing. The most recent presentation from the Security Committee occurred at the Company’s quarterly Board meeting on August 5, 2021.

Insurance

The Company has in place an industry standard cyber security insurance policy with Brit Insurance. This policy provides for some coverage for cyber risks arising out of data and network breaches, third party related breaches, and phishing attacks, data manipulation and potential business interruptions, subject to policy limits and per occurrence deductibles.

Incidents and Responses

During the past three years the Company has suffered only one information security breach related to a phishing email. This event resulted in no additional costs or expenses for the Company. This event occurred in the second quarter of 2021. The Company has not had any expenses related to security breach penalties or settlements in the past three years.

Training and Audits

In 2021 the Company completed a full third-party audit of its cyber security readiness using the National Institute of Technology (NIST) Cyber Security Framework. The Company is reviewing the results of this audit and is in the process of preparing responses to the recommendations. As part of the response to these recommendations, the Company has assembled a nine-course training program with Brit. This training program will be rolled out in the near future to all employees as the part of a planned cyber security awareness month at the Company. This training program is required for all current employees and will be required for all new hires.

Item 6. Exhibits

See Exhibit Index.


EXHIBIT INDEX
Exhibit Number		Description
3.1		Articles of Amendment and Restatement of Preferred Apartment Communities, Inc. (Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2021).
3.2		Fifth Amended and Restated By-laws of Preferred Apartment Communities, Inc. (Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2020).
10.1		Amendment No. 3 to that certain Fourth Amended and Restated Credit Agreement dated as of August 5, 2016 among Preferred Apartment Communities, Inc., Preferred Apartment Communities Operating Partnership, L.P., the lenders party thereto and KeyBank National Association (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2021).
10.2	+	Form of 2021 Performance Restricted Stock Unit Agreement (Officer) (Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2021).
10.3	+	Separation Agreement dated July 15, 2021 by and between Preferred Apartment Advisors, LLC, a subsidiary of the Company and Parker Boone DuPree (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 19, 2021).
10.4	*	Purchase and Sale Agreement dated as of April 16, 2021 by and among POP 4208 Six Forks Road, L.P., POP Morrocroft, L.P., POP 150 Fayetteville, LP, POP Capitol Towers, LP, PAC Galleria 75, LLC, POP 8 West Mezzanine Lending, LLC and Highwoods Realty Limited Partnership
10.5	*	Purchase and Sale Agreement dated as of April 16, 2021 by and among POP Armour Yards, LLC, POP 251 Armour Yards, LLC and Highwoods Realty Limited Partnership (portions of the exhibit have been omitted)
31.1	*	Certification of Joel T. Murphy, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	*	Certification of John A. Isakson, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	*	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	*	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	*	Inline XBRL Taxonomy Extension Schema Document
101.CAL	*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	*	Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

	*	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: August 9, 2021

By:

/s/ Joel T. Murphy

Joel T. Murphy

Chief Executive Officer

(Principal Executive Officer)

Date: August 9, 2021

By:

/s/ John A. Isakson

John A. Isakson

Chief Financial Officer

(Principal Financial Officer)

EXHIBIT 10.4

PURCHASE AND SALE

AGREEMENT

dated

April 16, 2021

by and among

POP 4208 SIX FORKS ROAD, L.P., POP MORROCROFT, L.P., POP 150 FAYETTEVILLE, LP, POP CAPITOL TOWERS, LP, PAC GALLERIA 75, LLC, POP 8 WEST MEZZANINE LENDING, LLC, PREFERRED OFFICE PROPERTIES, LLC

SELLER

and

HIGHWOODS REALTY LIMITED PARTNERSHIP,

PURCHASER

TABLE OF CONTENTS

Page


ARTICLE I SALE OF THE PROPERTY AND MEZZANINE LOAN			1
1.1 Sale of Property			1
1.2 No Representations			3
1.3 No Reliance			3
1.4 Acceptance of Deeds and Ground Leases			3
1.5 “AS IS”			4
1.6 Seller Release from Liability			4
1.7 Purchaser’s Waiver of Objections			6
1.8 Survival			6
1.9 Sale of Mezzanine Loan.			6
ARTICLE II PURCHASE PRICE			6
2.1 Purchase Price			6
ARTICLE III DEPOSIT AND OPENING OF ESCROW			7
3.1 Deposit			7
3.2 Interest Bearing			7
3.3 Application			7
3.4 Independent Consideration			7
ARTICLE IV CONDITIONS TO CLOSING			7
4.1 Conditions to Purchaser’s Obligation to Purchase			7
4.2 Conditions to Seller’s Obligation to Sell			12
4.3 No Financing Contingency			13
4.4 Existing Debt Assumptions; Assignment of Mezzanine Loan.			13
ARTICLE V THE CLOSING			16
5.1 Date and Manner of Closing			16
5.2 Closing			16
ARTICLE VI DUE DILIGENCE PERIOD EXPIRED; DEPOSIT NON-REFUNDABLE			16
6.1 Approval of Documents and Materials			16
6.2 Reliability of Information			17
6.3 Due Diligence Period Expired			17
6.4 Deposit Non-Refundable to Purchaser.			17
ARTICLE VII INSPECTIONS			17
ARTICLE VIII TITLE AND SURVEY; REA			17
8.1 Approval of Title Documents and Survey			17
8.2 Title Updates			18
8.3 Encumbrances			18
8.4 Notice of Commencement			18
8.5 Seller’s Failure to Remove			19


ARTICLE IX RISK OF LOSS			19
9.1 Casualty			19
9.2 Condemnation			19
ARTICLE X OPERATION OF THE PROPERTY			20
10.1 Operations			20
10.2 Tenant Defaults; Other Proceedings			20
10.3 New Services Agreements / New Leases / New Tract Improvements			21
10.4 Tenant Inducement Costs / Tract Improvements			21
ARTICLE XI CLOSING PRORATIONS AND ADJUSTMENTS; PAYMENT OF CLOSING COSTS			22
11.1 General			22
11.2 Prorations			22
11.3 Rents			23
11.4 Security Deposits			24
11.5 Existing Debt			25
11.6 Mezzanine Loan Prorations.			25
11.7 Final Adjustment After Closing			25
11.8 Galleria 75 Tract Prepayment Penalty.			26
11.9 Thirty-Day Month			26
ARTICLE XII DEFAULT			26
12.1 Default by Purchaser			26
12.2 Default by Seller			27
ARTICLE XIII REPRESENTATIONS AND WARRANTIES			27
13.1 Seller’s Representations			27
13.2 Definition of Seller’s Knowledge			30
13.3 Purchaser’s Representations, Warranties, and Covenants			30
13.4 Survival			31
ARTICLE XIV ESCROW PROVISIONS			32
14.1 Escrow Provisions			32
ARTICLE XV GENERAL PROVISIONS			33
15.1 No Agreement Lien			33
15.2 Confidentiality			33
15.3 Headings			34
15.4 Brokers			34
15.5 Modifications			35
15.6 Notices			35
15.7 Assignment			36
15.8 Further Assurances			36
15.9 Governing Law			36
15.10 Offer Only			36
15.11 Counterparts			36


15.12 E-mail or PDF Signatures			36
15.13 Entire Agreement; Severability			37
15.14 No Waiver			37
15.15 Limitation of Liability			37
15.16 Waiver of Jury Trial			37
15.17 Successors and Assigns			37
15.18 No Partnership or Joint Venture			38
15.19 No Recordation			38
15.20 Designation Agreement			38
15.21 Survival			39
15.22 Third Party Beneficiaries			40
15.23 Access to Records Following Closing.			40
15.24 Joint and Several			40
15.25 Cooperation with Purchaser’s Auditors and SEC Filing Requirements.			40
15.26 Section 1031 Exchange.			40
15.27 Force Majeure Event.			41

iii

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this “Agreement”) is dated and made as of April 16, 2021 (the “Effective Date”) by and among (i) POP 4208 SIX FORKS ROAD, L.P., a Delaware limited partnership, POP MORROCROFT, L.P., a Delaware limited partnership, POP 150 FAYETTEVILLE, LP, a Delaware limited partnership, POP CAPITOL TOWERS, LP, a Delaware limited partnership, PAC GALLERIA 75, LLC, a Delaware limited liability company, and POP 8 WEST MEZZANINE LENDING, LLC, a Delaware limited liability company (individually and collectively, “Seller”), having an address at 3284 Northside Parkway, Suite 150, Atlanta, GA 30327, and (ii) HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina limited partnership with an office at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604 (“Purchaser”). PREFERRED OFFICE PROPERTIES, LLC, a Delaware limited liability company (“POP”) executes this agreement for the sole purpose of agreeing to the provisions of Section 4.4(g)(ii).

RECITALS

A. Seller desires to sell and Purchaser desires to purchase all of Seller’s right, title and interest in and to the Property, upon the terms and conditions set forth in this Agreement.

B. Certain rules of construction for interpreting this Agreement are set forth on Schedule 1 attached hereto which is hereby incorporated in and constitutes part of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and provisions contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as set forth below.

ARTICLE I

SALE OF THE PROPERTY AND MEZZANINE LOAN

1.1 Sale of Property. Seller agrees to sell, transfer and assign to Purchaser and Purchaser agrees to purchase, accept and assume from Seller, subject to and in accordance with the terms and conditions of this Agreement, all of Seller’s right, title and interest in and to the following (collectively, the “Property”):

(a) Land. The following parcels of real property (individually, a “Tract”, and collectively, the “Land” or “Tracts”):

(i) fee simple interest in a tract or tracts of land located in Raleigh, Wake County, North Carolina, described on Exhibit A-1, on which is located one (1) office building containing approximately 300,389 square feet known as “Captrust Tower” (the “Captrust Tower Tract”);

(ii) fee simple interest and leasehold interest in a tract or tracts of land located in Raleigh, Wake County, North Carolina, described on Exhibit A-2, on which is located one (1) office building containing approximately 560,000 square feet known as “150 Fayetteville” (the “150 Fayetteville Tract”);

(iii) fee simple interest in a tract or tracts of land located in Charlotte, Mecklenburg County, North Carolina, described on Exhibit A-3, on which is located four (4) office buildings and one (1) retail building) containing approximately 478,630 square feet, in the aggregate, known as “Capitol Towers” (the “Capitol Towers Tract”);

(iv) fee simple interest in a tract or tracts of land located in Charlotte, Mecklenburg County, North Carolina, described on Exhibit A-4, on which is located three (3) office buildings containing approximately 292,000 square feet, in the aggregate, known as “Morrocroft Centre” (the “Morrocroft Centre Tract”); and

(v) fee simple interest in a tract or tracts of land in Atlanta, Cobb County, Georgia, described on Exhibit A-5, known as “Galleria 75” (the “Galleria 75 Tract”);

together with all and singular easements, covenants, agreements, rights, privileges, tenements, and hereditaments thereunto now or hereafter belonging or appertaining thereto, and any and all oil, gas and mineral rights relating to such real estate, water and water rights, ditch and any other rights to use and appropriate water from or relating to such real estate;

(b) Appurtenances. All rights, easements, licenses, appurtenances, tenements, hereditaments, privileges and other rights appurtenant to the Land (the “Appurtenances”);

(c) Improvements. All buildings, structures, facilities, installations, fixtures and other improvements of every kind located on, under or within the Land (the “Improvements”);

(d) Leases.

(i) Ground Leases. Seller’s right, title and interest, as tenant, under (A) that certain Terms and Conditions of Ground Lease by and between Thomas E. Green, Jr., Thomas E. Green, III, David Phillip Fisher Green, Anna Green Ligon, and husband J. Henry Ligon, and Catherine S. Green (collectively, as landlord), and Charles E. Marsh, III (as tenant), a memorandum of which is recorded in Book 3530, Page 36, Wake County Registry, as subsequently assigned (the “Green Ground Lease”); and (B) that certain Parking Ground Lease Agreement, including the option to purchase, by and between First Union National Bank (as landlord) and G&I II Capitol Center Garage LLC (as tenant), a memorandum of which is recorded in Book 8430, Page 1615, Wake County Registry, as subsequently assigned (the “Parking Ground Lease” and together with the Green Ground Lease each, a “Ground Lease” and collectively, the “Ground Leases”);

(ii) Seller’s right, title and interest in and to all leases, subleases, licenses or other occupancy agreements including all amendments, affecting the Land and Improvements which are shown on Exhibit B attached hereto and any New Leases (as hereinafter defined in Section 10.3) (collectively, the “Leases”), including any guaranties of such Leases and any security deposits under such Leases;

(e) Fixtures and Personal Property. All tangible personal property (the “Tangible Personal Property”) upon, under or within the Land or Appurtenances, including specifically, without limitation, fixtures, machinery systems, equipment and other items of tangible personal property owned by Seller and used in connection with the ownership, use, maintenance and operation of the Land or the Improvements (with the Building Systems (as defined below) the “Fixtures and Personal Property”). The Fixtures and Personal Property shall include the building management systems, including the software and the associated server (including those utilized in the operation of the HVAC and card access controls), together with any controller or programmable logic control that is part of the base building system of any building, including, but not limited to mechanical, electrical and life safety systems (all collectively referred to herein as the “Building Systems”), but only if the Building Systems, or any portion thereof, are located in, and maintained at, any of the buildings located on the Improvements (a “Building” or “Buildings”), that is, no Building System will be conveyed to Purchaser if it is located and/or maintained off site from the Buildings;

(f) Service Agreements. All service agreements listed on Exhibit C attached hereto and any New Service Agreements (as defined in Section 10.3) (collectively, the “Service Agreements”); and

(g) Intangible Property. All of the following items, to the extent assignable and without warranty: consents, licenses, approvals, certificates, permits, development rights, warranties, guarantees and floor plans, plans and specifications relating to the Improvements (including but not limited to the plans and specifications, and construction, design or engineering documents for any proposed improvements to any of the Tracts) and the Fixtures and Personal Property (and non-proprietary and non-confidential records owned by Seller and used solely in connection with the operation of the Land and Improvements, as well as all of the names of all of the Buildings (collectively, “Intangible Property”).

1.2 No Representations. Except for Seller’s representations set forth in Article XIII or in the Closing Documents (as hereinafter defined in Section 4.1(b)), Seller makes no express or implied representation or warranty with respect to the Property, and to the extent permitted by law, excludes and disclaims any statutory or other representations or warranties.

1.3 No Reliance. Purchaser agrees that except for Seller’s representations set forth in Article XIII or in the Closing Documents, Purchaser is not relying on and has not relied on any statements, promises, information or representations made or furnished by Seller or by any real estate broker, agent or any other person representing or purporting to represent Seller but rather is relying solely on its own expertise and on the expertise of its consultants and on the inspections and investigations Purchaser and its consultants has or will conduct.

1.4 Acceptance of Deeds and Ground Leases. Purchaser hereby acknowledges and agrees that the acceptance of the Deeds (as hereinafter defined in Section 4.1(b)(i)) and acceptance of the assignment of Ground Leases by Purchaser shall be deemed to be full performance and discharge of every agreement and obligation on the part of Seller to be performed under this Agreement except those, if any, which are herein specifically stated to survive delivery of the Deeds and assignment of the Ground Leases. No agreement or representation or warranty made in this Agreement by Seller will survive the Closing and the delivery of the Deeds and assignment of Ground Leases, unless expressly provided otherwise herein.

1.5 “AS IS”. EXCEPT AS SPECIFICALLY SET FORTH TO THE CONTRARY IN THIS AGREEMENT OR IN THE CLOSING DOCUMENTS, PURCHASER AGREES (A) TO TAKE THE PROPERTY “AS IS, WHERE IS, WITH ALL FAULTS” AND (B) THAT NO REPRESENTATIONS OR WARRANTIES ARE MADE OR RESPONSIBILITIES ASSUMED BY SELLER AS TO THE CONDITION OF THE PROPERTY, AS TO THE TERMS OF ANY LEASES OR OTHER DOCUMENTS OR AS TO ANY INCOME, EXPENSE, OPERATION OR ANY OTHER MATTER OR THING AFFECTING OR RELATING TO THE PROPERTY, NOW OR ON THE CLOSING DATE. EXCEPT AS SPECIFICALLY SET FORTH HEREIN AND IN THE CLOSING DOCUMENTS, AND SUBJECT TO AND WITHOUT LIMITING PURCHASER’S RIGHTS UNDER ARTICLE IX, PURCHASER AGREES TO ACCEPT THE PROPERTY IN THE CONDITION EXISTING ON THE CLOSING DATE, SUBJECT TO ALL FAULTS OF EVERY KIND AND NATURE WHATSOEVER WHETHER LATENT OR PATENT AND WHETHER NOW OR HEREAFTER EXISTING.

PURCHASER ACKNOWLEDGES THAT AS OF THE CLOSING DATE, PURCHASER WILL HAVE INSPECTED THE PROPERTY AND OBSERVED ITS PHYSICAL CHARACTERISTICS AND CONDITIONS AND WILL HAVE HAD THE OPPORTUNITY TO CONDUCT SUCH INVESTIGATIONS AND STUDIES ON OR OVER THE PROPERTY AND ADJACENT AREAS AS IT DEEMS NECESSARY AND, EXCEPT FOR THE EXCEPTED CLAIMS (AS HEREINAFTER DEFINED IN SECTION 1.6(a)), HEREBY WAIVES ANY AND ALL OBJECTIONS TO OR COMPLAINTS REGARDING THE PHYSICAL CHARACTERISTICS AND CONDITIONS OF THE PROPERTY AND ITS CONDITION, INCLUDING, BUT NOT LIMITED TO, FEDERAL, STATE OR COMMON LAW-BASED ACTIONS AND ANY PRIVATE RIGHT OF ACTION UNDER STATE AND FEDERAL LAW TO WHICH THE PROPERTY IS OR MAY BE SUBJECT, INCLUDING, BUT NOT LIMITED TO, CLAIMS RELATING TO CERCLA, RCRA, PHYSICAL CHARACTERISTICS AND EXISTING CONDITIONS, INCLUDING STRUCTURAL AND GEOLOGICAL CONDITIONS, SUBSURFACE SOIL AND WATER CONDITIONS, AND SOLID AND HAZARDOUS WASTE AND HAZARDOUS MATERIALS ON, UNDER, ADJACENT TO OR OTHERWISE AFFECTING THE PROPERTY. PURCHASER FURTHER ASSUMES THE RISK OF CHANGES IN APPLICABLE LAWS AND REGULATIONS RELATING TO PAST, PRESENT AND FUTURE ENVIRONMENTAL CONDITIONS ON THE PROPERTY AND THE RISK THAT ADVERSE PHYSICAL CHARACTERISTICS AND CONDITIONS, INCLUDING THE PRESENCE OF HAZARDOUS MATERIALS OR

OTHER CONTAMINANTS, MAY NOT HAVE BEEN REVEALED BY ITS INVESTIGATION.

1.6 Seller Release from Liability. Except with respect to the Seller’s Representations or as otherwise expressly provided in this Agreement or in the Closing Documents, Purchaser hereby fully and forever waives, and Seller hereby fully and forever disclaims and shall not be liable or bound in any manner by, any and all warranties, guarantees, promises, statements, representations or information of whatever type or kind with respect to the Property, whether express, implied or otherwise, including warranties of fitness for a particular purpose, habitability or use. Purchaser agrees that:

(a) Except for (i) any Claims (as hereinafter defined) arising out of a breach or default by Seller under this Agreement (including a breach of any of Seller’s representations and warranties in Article XIII) or the Closing Documents, and (ii) any Claims alleging that a default or breach by Seller occurred prior to the Closing (during Seller’s respective periods of ownership) under the Leases and/or Ground Leases that results in damages to Purchaser or its Affiliates that were actually incurred prior to the Closing, in each case, subject to Section 15.15 and Section 15.21 and of which Purchaser had no knowledge prior to Closing (collectively, “Excepted Claims”), Purchaser and anyone claiming by, through or under Purchaser hereby waives its right to recover from and fully and irrevocably releases Seller and Seller’s employees, officers, directors, trustees, shareholders, members, partners, representatives, agents, servants, attorneys, Affiliates (as hereinafter defined in Article VII), parents, subsidiaries, successors and assigns, and all persons, firms, corporations and organizations in its behalf (“Released Parties”) from any and all claims, responsibility and/or liability that it may now have or hereafter acquire against any of the Released Parties for any and all costs, losses, claims, liabilities, damages, expenses, demands, debts, controversies, claims, actions or causes of actions (collectively, “Claims”) arising from or related to the condition (including any construction defects, errors, omissions or other conditions, latent or otherwise, and the presence in the soil, air, structures and surface and subsurface waters of materials or substances that have been or may in the future be deemed to be hazardous materials or otherwise toxic, hazardous, undesirable or subject to regulation and that may need to be specifically treated, handled and/or removed from the Property under current or future federal, state and local laws, regulations or guidelines or common law), valuation, salability or utility of the Property, condition of title to the Property, compliance with any applicable federal, state or local law, rule or regulations or common law with respect to the Property, or the Property’s suitability for any purposes whatsoever, and any information furnished by the Released Parties in connection with this Agreement.

Claims, Purchaser hereby fully and forever releases, acquits and discharges Seller and each Property Documents Preparer of and from any such claims, actions, causes of action, proceedings or liability, whether known or unknown. This release expressly includes claims of which Purchaser is presently unaware or which Purchaser does not presently suspect to exist which, if known by Purchaser, would materially affect Purchaser’s release of Seller.

(c) To the extent permitted by law, Purchaser hereby agrees, represents and warrants that Purchaser realizes and acknowledges that factual matters now unknown to it may have given or may hereafter give rise to Claims which are presently unknown, unanticipated and unsuspected, and Purchaser further agrees, represents and warrants that the waivers and releases herein have been negotiated and agreed upon in light of such realization, and that Purchaser nevertheless hereby intends to release, discharge and acquit the Released Parties from any and all Claims, except for Excepted Claims.

(d) Notwithstanding the foregoing releases of the Released Parties, Purchaser reserves the right to assert as a defense in response to any tort claim that Purchaser did not own the Property at the time of the alleged injury; provided, however, Purchaser shall not have a right to implead Seller or any of the Released Parties in any such action.

1.7 Purchaser’s Waiver of Objections. Notwithstanding anything to the contrary herein, Purchaser and Seller acknowledge that any written disclosures or discovery made by Purchaser prior to the Closing shall constitute notice to Purchaser of the matter disclosed or discovered, and Seller shall have no further liability if Purchaser thereafter consummates the transaction contemplated hereby.

1.8 Survival. Seller and Purchaser have agreed upon the Purchase Price relating to the Property and other provisions of this Agreement in contemplation and consideration of Purchaser’s agreeing to the provisions of Sections 1.2, 1.3, 1.4, 1.5, 1.6, and 1.7, which Sections shall survive the Closing indefinitely and the delivery of the Deed and/or termination of this Agreement and shall not be deemed merged into the Deed or other Closing Documents.

1.9 Sale of Mezzanine Loan. In addition to the sale of the Property, Seller and Purchaser have agreed upon the sale of the Mezzanine Loan (as defined in Section 4.4(g)) pursuant to Section 4.4(g) below.

ARTICLE II

PURCHASE PRICE

2.1 Purchase Price. The purchase price to be paid for the Property and the Mezzanine Loan is SIX HUNDRED FORTY-FIVE MILLION, FIVE HUNDRED THOUSAND and 00/100 DOLLARS ($645,500,000.00) (the “Purchase Price”), and shall be paid as follows:

(a) Assumption of Existing Debt: Assumption by Purchaser at Closing of all or any portion of the Existing Debt (as defined and determined pursuant to Section 4.4 hereof), and

(b) Cash Portion of Purchase Price: The difference between the Purchase Price and the amount of the unpaid principal balance of the Existing Debt assumed at Closing, to be paid in cash, plus or minus proration adjustments as described herein by wire transfer of federal funds to an account designated by Seller in writing by notice to Purchaser (unless the Closing is conducted through escrow with the Escrow Agent (as hereinafter defined in Section 3.1), in which case the funds shall be wire transferred to Escrow Agent) (such amount, as adjusted as provided herein, being referred to herein as the “Cash Portion of the Purchase Price”).

The Cash Portion of the Purchase Price will have been deposited by Purchaser with Escrow Agent (as hereinafter defined in Section 3.1) no later than the time of Closing by wire transfer of immediately available federal funds. No portion of the Purchase Price shall be allocated, nor attributable, to items of personal property. The Purchase Price must be received by Seller by 2:00 P.M. (Atlanta, Georgia local time) on a particular day in order for the Closing to be deemed to have taken place as of such date.

ARTICLE III

DEPOSIT AND OPENING OF ESCROW

3.1 Deposit. Within one (1) business day following the Effective Date and as a condition precedent to this Agreement becoming a binding agreement between the parties, Purchaser will deposit FORTY-FIVE MILLION AND 00/100 DOLLARS ($45,000,000.00) (the “Initial Deposit”, together with the Extension Deposits (as hereinafter defined in Section 5.1) collectively, the “Deposit”) with Chicago Title Insurance Company, c/o Republic Commercial Title Company, 6111 Peachtree Dunwoody Road, Building D, Atlanta, Georgia 30328, Attention: Andrew Weiss(“Escrow Agent”) by wire transfer of immediately available federal funds and will provide Escrow Agent with a fully completed form W-9 which provides Purchaser’s tax identification number. If Purchaser fails to deposit the Deposit within the time period provided for above, Seller may at any time following the due date therefor and prior to Escrow Agent’s receipt of such Deposit, terminate this Agreement, in which case this Agreement shall be null and void ab initio and in such event Escrow Agent will immediately deliver to Seller all copies of this Agreement in its possession and thereafter neither party shall have any further rights or obligations to the other hereunder, except as otherwise set forth in this Agreement. The Deposit shall be non-refundable to Purchaser except as otherwise expressly set forth in this Agreement.

3.2 Interest Bearing. The Deposit shall be held in an interest-bearing escrow account by Escrow Agent in an institution as directed by Seller and reasonably acceptable to Purchaser. All interest and income on the Deposit will be remitted to the party entitled to the Deposit pursuant to this Agreement.

3.3 Application. If Closing occurs, the Deposit will be credited against the Purchase Price at Closing. If the Closing does not occur in accordance with the terms hereof, the Deposit shall be delivered to the party entitled to the Deposit, as provided in this Agreement. In all

events, the Deposit shall be held in escrow by Escrow Agent, in trust in accordance with the provisions of Article XIV.

3.4 Independent Consideration. Contemporaneously with the execution and delivery of this Agreement, Purchaser has paid to Seller as further consideration for this Agreement, in cash, the sum of ONE HUNDRED DOLLARS AND 00/100 ($100.00) (the “Independent Consideration”), in addition to the Deposit and the Purchase Price. The Independent Consideration is independent of any other consideration provided hereunder, shall be fully earned by Seller upon the Effective Date hereof, and is not refundable under any circumstances.

ARTICLE IV

CONDITIONS TO CLOSING

4.1 Conditions to Purchaser’s Obligation to Purchase. Purchaser’s obligation to purchase the Property is expressly conditioned upon satisfaction of those conditions set forth below. In the event any of the conditions set forth below are not satisfied at Closing, Purchaser may (i) waive such failed condition and close this transaction as contemplated hereby, or (ii) terminate this Agreement by written notice to Seller on the Closing Date, in which event, the Deposit shall be promptly returned to Purchaser and neither party shall have any obligation to the other hereunder, except for those obligations of Seller or Purchaser which, by their terms, expressly survive Closing. Notwithstanding the foregoing, if any of the conditions to Closing for Purchaser under this Section 4.1 or any of the conditions to Closing for Seller under Section 4.2 are not satisfied as a result of a default by Purchaser or Seller, then their respective rights, remedies and obligations shall be governed in accordance with Article XII.

(a) Performance by Seller. Seller’s performance in all material respects of the obligations, covenants and deliveries required of Seller under this Agreement.

(b) Seller’s Deliveries. Seller’s delivery at Closing of the following, all documents to be executed originals and, if applicable, witnessed and properly acknowledged (the Closing Documents”):

(i) Limited or special warranty deeds (as applicable in each jurisdiction) from each entity constituting Seller as to the portion of the Property each such entity owns in the form attached hereto as Exhibit D (with respect to the Land located in Georgia) and Exhibit D-1 (with respect to the Land located in North Carolina), subject to the following matters (collectively, the “Deed”):

(A) Non-delinquent real property taxes, water and sewer charges and all assessments (governmental and private) and unpaid installments thereof which are not yet due and payable, subject to the provisions of Section 11.2 below;

(B) Any matter (including any lien, encumbrance or easement) voluntarily imposed or consented to in writing by Purchaser prior to or as of the Closing;

(C) Laws and governmental regulations, including all building codes, zoning regulations and ordinances, that affect the use, operation and maintenance of the Property, and any violations thereof;

(D) Such state of facts as may be shown on an accurate and current survey or by inspection of the Property;

(E) Variations between locations of fences, retaining walls, guy poles, hedges, treelines and shrubs;

(F) Rights of tenants, as tenants only, of the Land and Improvements under the terms and conditions of all Leases with Purchaser hereby acknowledging that Purchaser has examined such Leases; and

(G) the Permitted Exceptions, as defined in Section 8.1.

(ii) An Assignment and Assumption of Ground Leases (with respect to the 150 Fayetteville Tract) in the form attached hereto as Exhibit E (the “Assignment of Ground Leases”);

(iii) The Assignment and Assumption Agreement in the form attached as Exhibit F (the “Assignment and Assumption Agreement”);

(iv) The Leases, together with any letters of credit held as security deposits under any of the Leases and all instruments reasonably required to transfer such letters of credit to Purchaser;

(v) The Certification in the form attached hereto as Exhibit G that Seller is not a “foreign person”;

(vi) An Assistant Secretary’s Certificate evidencing the authority of individuals to execute any instruments executed and delivered by Seller at Closing, together with a certificate of good standing of Seller;

(vii) The Bill of Sale in the form attached hereto as Exhibit H;

(viii) A closing statement in form and content satisfactory to Seller and Purchaser (the “Closing Statement”) signed by Seller;

(ix) All keys and lock combinations for the Property and all leasing and other files relating to the Property and all other licenses, certificates, permits, plans, books, records and reports and other materials that comprise the Intangible Property, to the extent such items are in Seller’s actual possession or control;

(x) At least three (3) business days prior to closing Seller must have delivered to Purchaser original tenant estoppel certificates executed by tenants under existing Leases from the following tenants of the Improvements: (1) Albemarle, (2) CapFinancial, (3) Smith Anderson, (4) Wells Fargo (f/k/a Wachovia Bank, N.A.), (5) AgData, (6) Dixon Hughes Goodman, (7) US Attorney’s Office, (8) Garretson, (9) Discovery Education, and (10) J.P. Morgan (collectively, the “Major Tenants”) and from a sufficient number of other tenants of the Improvements (the “Minor Tenants”) so that estoppel certificates are received from tenants leasing no less than seventy percent (70%) of the aggregate area leased in the Improvements, exclusive of any parking leases (the “Required Tenant Estoppel Certificates”). Each Required Tenant Estoppel Certificate (1) will be on the form attached to the applicable Lease, if any, or if there is no form attached to the Lease, then will be substantially on the form attached hereto as Exhibit I (provided, however, if any Lease limits the provisions to be included in any estoppel certificate, the form shall be modified accordingly); and (2) will not have been modified in any substantive, adverse manner. The addition of a knowledge qualification or other non-material change to an estoppel certificate will not cause such tenant estoppel certificate to fail to satisfy the requirements for an acceptable Required Tenant Estoppel Certificate. Seller, at its sole option, may elect to satisfy part of the requirements under this Section 4.1(b)(x) by delivery of a Seller estoppel certificate in the form attached hereto as Exhibit N (a “Seller Estoppel Certificate”) for up to ten percent (10%) of the leased square footage of the Improvement leased by Minor Tenants whose Required Tenant Estoppel Certificates have not been received by Closing. Any Seller Estoppel Certificate delivered by Seller to Purchaser shall be subject to all terms and conditions of Sections 15.15 and 15.21 of this Agreement. If Seller or Purchaser subsequently obtains a Required Tenant Estoppel Certificate meeting the requirements of this Section 4.1(b)(x) hereof, from a tenant for which Seller has delivered a Seller Estoppel Certificate, the delivered Seller Estoppel Certificate will be null and void, and Purchaser will accept the Required Tenant Estoppel Certificate in its place. In the event Seller fails, for any reason, to deliver to the Purchaser the required number of Required Tenant Estoppel Certificates in accordance with the provisions of this Section 4.1(b)(x) prior to the Closing, then Seller will not be deemed in default hereunder, and Purchaser’s sole remedy will be to terminate this Agreement, whereupon the Title Company will return the Deposit to Purchaser, and both parties will be relieved of any further obligations hereunder, except for the obligations hereunder which expressly survive Closing or other termination of this Agreement. Seller will deliver to Purchaser a draft of each Required Tenant Estoppel Certificate for Purchaser’s review and approval prior to Seller’s delivery thereof to the tenants. Seller agrees to request a Tenant Estoppel Certificate from each of the tenants under the Leases and to diligently pursue the execution and delivery thereof, provided, Seller shall not be required to pay any money or sue any tenant to procure a Required Tenant Estoppel Certificate. If Seller has not delivered the Required Tenant Estoppel Certificates prior to Closing, Seller may, at Seller’s option, elect to: (i) adjourn the Closing for a period not to exceed fifteen (15) business days to allow Seller to continue its efforts to obtain the Required Tenant Estoppel Certificates to satisfy. In the event after adjourning the Closing as set forth above, Seller fails to provide a sufficient number of Required Tenant Estoppel Certificates, Purchaser’s sole remedy shall be to either (Y)

waive the Estoppel Requirement and proceed to Closing without any abatement in the Purchase Price, or (Z) terminate this Agreement and receive a refund of the Deposit.

(xi) a ground lease estoppel shall be delivered to the ground lessor of each Ground Lease in the form attached hereto as Exhibit N-1 and incorporated herein by reference (the “Ground Lease Estoppel”), and the executed Ground Lease Estoppel for the Parking Ground Lease must be delivered to Purchaser prior to Closing. Seller shall use commercially reasonable efforts to obtain such Ground Lease Estoppels; provided, notwithstanding the foregoing, (x) Seller shall not be required to pay any money or enforce any contractual rights to procure any Ground Lease Estoppel, and (y) the receipt of a Ground Lease Estoppel for the Green Ground Lease shall not be a condition to Closing. Seller shall also deliver to each of the ground lessors a consent to assignment for each Ground Lease contained in the Ground Lease Estoppel; provided, for the avoidance of doubt, the receipt of any such consent for an assignment of a Ground Lease shall not be a condition to Closing;

(xii) A Tenant Notice Letter in the form attached hereto as Exhibit M executed by Seller to be mailed out by Purchaser upon Closing;

(xiii) An assignment and assumption of the Mezzanine Loan Documents (as hereinafter defined in Section 4.4(g)), in the form attached to this Agreement as Exhibit J (the “Assignment of Mezzanine Loan”);

(xiv) An assignment and assumption of the Option Agreement (as hereinafter defined in Section 4.4(g)), in the form attached to this Agreement as Exhibit R (the “Assignment of Option Agreement”);

(xv) A right of first offer for the benefit of Seller and its Affiliates with respect to certain matters related to the Galleria 75 Tract, in the form attached to this Agreement as Exhibit S (the “Galleria 75 ROFO”);

(xvi) Such documents of Seller which authorize the sale of the Property to Purchaser and other documents as all are reasonably required by the Title Company and reasonably approved by Seller;

(xvii) A lien waiver executed by the Broker on a customary form, in a form acceptable to the Title Company;

(xviii) An owner’s affidavit in the form attached hereto as Exhibit T in order to cause the Title Company to issue to Purchaser an owner’s title insurance policy or policies in the form and condition required by this Agreement (but all such affidavits, certificates or other documents must be reasonably acceptable to Seller);

(xix) A certificate or affidavit as is required under applicable provisions of Georgia law to assure Purchaser and Title Company that Georgia withholding tax is not required; and

(xx) Such additional assignments, instruments and documents, including title affidavits, certificates or other documents customarily required by the Title Company as defined in Section 8.1 hereof on Seller’s and Title Company’s customary forms, appropriate to be executed and delivered by Seller as may be reasonably necessary to complete the transaction contemplated hereby and to carry out the intent and purposes of this Agreement provided the same are commercially reasonable and do not require disclosure of proprietary information.

(c) Seller’s Representations and Warranties. The representations and warranties of Seller set forth in Section 13.1 being true and correct in all material respects as of the Closing.

(d) No MAE on Assumption of Existing Debt. An Existing Debt Assumption and Release shall be executed and delivered by the applicable Existing Debt lender and delivered at Closing, which such Existing Debt Assumption and Release shall not impose any new or different economic requirement or financing term on Purchaser as the new borrower at variance with those imposed by the Existing Debt documents binding as of the date hereof on Seller as the existing borrower, which has a material adverse effect on Purchaser in the aggregate in the context of the transactions under this Agreement (excluding any (y) new terms required by Purchaser’s 1031 exchange or reverse 1031 exchange and (z) any adjustments to the amounts of the reserves required by the applicable Existing Debt lender using commercially reasonable lending standards) (the “Debt MAE Condition”).

4.2 Conditions to Seller’s Obligation to Sell. Seller’s obligation to sell the Property is expressly conditioned upon satisfaction of those conditions set forth below. In the event any of the conditions set forth below are not satisfied at Closing, Seller may (i) waive such failed condition and close this transaction as contemplated hereby, or (ii) terminate this Agreement by written notice to Purchaser on the Closing Date, in which event, the Deposit shall be promptly returned to Purchaser and neither party shall have any obligation to the other hereunder, except for those obligations of Seller or Purchaser which, by their terms, expressly survive Closing. Notwithstanding the foregoing, if any of the conditions to Closing for Seller under this Section 4.2 or any of the conditions to Closing for Purchaser under Section 4.1 are not satisfied as a result of a default by Purchaser or Seller, then their respective rights, remedies and obligations shall be governed in accordance with Article XII.

(a) Performance by Purchaser. Purchaser’s performance in all material respects of the obligations, covenants, and deliveries required of Purchaser under this Agreement.

(b) Receipt of Purchase Price. Receipt by Seller (or as Seller may direct) of the Purchase Price in the manner provided in this Agreement.

(c) Purchaser’s Deliveries. Delivery at Closing of the following, all documents to be executed originals and, if applicable, witnessed and properly acknowledged:

(i) The Assignment and Assumption Agreement;

(ii) The Closing Statement (signed by Purchaser), with a copy thereof to be delivered to Seller;

(iii) A Tenant Notice Letter in the form attached hereto as Exhibit M executed by Purchaser;

(iv) The certificate of any permitted assignee required under Section 15.7;

(v) Evidence of the authority and the incumbency of any individuals to execute any instruments executed and delivered by Purchaser at Closing, together with a certificate of good standing of Purchaser;

(vi) All Existing Debt Fees and all documents, instruments, guaranties and other items or funds required by each Existing Debt lender to cause the Existing Debt Assumption and Release;

(vii) The Assignment of Mezzanine Loan;

(viii) The Assignment of Option Agreement;

(ix) The Galleria 75 ROFO;

(x) Such documents of Purchaser which authorize the purchase of the Property from Seller and other documents as all are reasonably required by the Title Company; and

(xi) Such additional documents and instruments appropriate to be executed and delivered by Purchaser as may be reasonably necessary to complete the transaction contemplated hereby and to carry out the intent and purposes of this Agreement, provided the same are commercially reasonable and do not require disclosure of proprietary information.

(d) Purchaser’s Representations and Warranties. The representations and warranties of Purchaser set forth in Section 13.3 being true and correct in all material respects as of Closing.

4.3 No Financing Contingency. Subject to Section 4.4, it is expressly understood and acknowledged by Purchaser that this Agreement and Purchaser’s obligations hereunder are not contingent or conditioned upon obtaining a commitment for or closing any financing and the failure of Purchaser to obtain or close any financing for any reason whatsoever, shall not be a failure of condition to Purchaser’s performance hereunder. In addition, Seller will have no obligation to or privity with any lender to Purchaser.

4.4 Existing Debt Assumptions; Assignment of Mezzanine Loan.

(b) Purchaser acknowledges that it has reviewed the provisions of Existing Debt relating to the assumptions of the Existing Debt and agrees to use diligent and commercially reasonable efforts to promptly satisfy all conditions that each of the Existing Debt lenders, any servicer and/or the rating agencies may require in order to cause the Existing Debt Assumption and Release. Without limiting the foregoing, Purchaser hereby agrees (i) to cooperate with all reasonable requests made by or on behalf of each of the Existing Debt lenders, any servicer and/or any rating agencies for information regarding Purchaser and its Affiliates as potential new guarantors or indemnitors of the Existing Debt (including providing all financial statements, organizational documents, background information regarding Purchaser and its Affiliates and other information and documents requested by each of the Existing Debt lenders, any servicer and/or any rating agencies and/or required to be provided relating to the Existing Debt assumption, (ii) to not request or negotiate any amendments or modifications to the Existing Debt except for those provisions which are personal to the identity of the borrower and necessary to consummate the Existing Debt Assumption and Release, (iii) to execute and to cause its Affiliates to execute all documentation reasonably requested by the Existing Debt lenders, any servicer and/or the rating agencies and/or required to be executed relating to the Existing Debt assumption, (iv) to pay all fees and expenses relating to the Existing Debt assumption, (v) propose new guarantor(s) or indemnitor(s) (consisting of Purchaser’s general partner and/or its Affiliates acceptable to the Existing Debt lenders and the rating agencies, to enter into replacement guaranties and indemnities in accordance with the Existing Debt documents and (vi) to otherwise cause all other Existing Debt Assumption and Release requirements to be satisfied. Seller agrees to reasonably cooperate with Purchaser (provided that Seller shall have no obligation to incur any liability or expense other than the fees of its own attorneys) to seek and obtain the Existing Debt Assumption and Release.

(c) Without limiting Purchaser’s obligations under Section 4.4(b), Purchaser shall, at its sole cost and expense and within fifteen (15) business days following the Effective Date (the “Existing Debt Application Submittal Deadline”) submit to the Existing Debt lenders, with a copy to Seller, complete applications required by each of the Existing Debt lenders to obtain the Existing Debt Assumption and Release, together with all documents and information (exclusive of confidential and proprietary information) required in connection therewith (collectively, the “Existing Debt Assumption Application”). As part of the Existing Debt Assumption Application, Purchaser shall prepare and deliver to each Existing Debt lender (with a copy to Seller) on or before the Existing Debt Application Submittal Deadline a written notice setting forth the terms of the transfer of the Property to Purchaser pursuant to this Agreement (the “Existing Debt Assumption Notice”), together with (x) all such information concerning the transfer, Purchaser and the new guarantor or indemnitor as each of the Existing Debt lenders shall require in evaluating an initial extension of credit, which information shall include a fully executed copy of this Agreement and all amendments and assignments thereto, as well as the sources and uses of funds or closing or settlement statement relating to the transfer to

the extent available to Purchaser and (y) a payment of a non-refundable processing fee, if any, as required by each of the Existing Debt lenders. Upon the Existing Debt Lender’s receipt of (i) the Existing Debt Assumption Application (including the Existing Debt Assumption Notice) and all information submitted therewith in accordance with this Section and (ii) the applicable processing fees, Purchaser shall submit same to Seller. Purchaser acknowledges and agrees that Purchaser is solely responsible for the preparation of the Existing Debt Assumption Application (including the Existing Debt Assumption Notice), the collection of all materials, documents, certificates, financial statements, signatures, and other items required to be submitted in connection with the Existing Debt Assumption Application.

(d) Purchaser shall (and shall cause any new guarantor or indemnitor to) use its diligent and commercially reasonable efforts to promptly satisfy and comply with the Existing Debt Assumption and Release requirements and any and all other assumption guidelines of an Existing Debt lender in connection with the Existing Debt Assumption and Release. Purchaser shall be responsible, at its sole cost and expense, for correcting and re-submitting any deficiencies noted by Seller, any of the Existing Debt lenders or servicer in connection with the Existing Debt Assumption Application (including the Existing Debt Assumption Notice) no later than three (3) days after notification from such Existing Debt lender or servicer of such deficiency. Purchaser shall provide Seller with a copy of any correspondence from any of the Existing Debt lender or servicer with respect to the Existing Debt Assumption Application and/or the Existing Debt Assumption and Release no later than three (3) days after receipt of such correspondence from such Existing Debt lender or servicer. Purchaser agrees promptly to (and shall cause any new guarantor or indemnitor to promptly to) deliver to each of the Existing Debt lenders all documents and information required by the Existing Debt documents, and such other information or documentation as any of the Existing Debt lenders or servicer may reasonably request, including financial statements, income tax returns and other financial information for Purchaser and any new guarantor or indemnitor.

(e) Purchaser shall pay all fees, costs and expenses to be paid to or on behalf of each Existing Debt lender, any servicer and/or any rating agency(ies) and to their agents, attorneys or other representatives, in connection with seeking and obtaining the Existing Debt Assumption and Release, including all transfer, processing, application, servicing and/or assumption fees, additional reserves and escrows, title and UCC insurance fees, endorsement fees, rating agency fees, non-refundable deposits and reasonable legal fees and disbursements, including the payment of fees and expenses, but exclusive of legal fees incurred by Seller in connection with any legal advice received by Seller related to any loan assumption and release document required to be executed by Seller and/or its Affiliates in connection with the Existing Debt lenders’ approval of the assignment to and assumption by Purchaser of the Existing Debt (collectively, “Existing Debt Fees”) when due, whether before, at or after the Closing and whether or not the Closing occurs, imposed or charged by any of the Existing Debt lenders, servicer, the rating agencies and their respective counsel in connection with the Existing Debt Assumption Application and the Existing Debt Assumption and Release, and Seller shall have no obligation to pay any Existing Debt Fees.

Except as provided in Section 4.1(d), (i) neither obtaining the Existing Debt Assumption and Release approval, nor the occurrence of the Existing Debt Assumption and Release on the Closing Date, shall be a condition to Purchaser’s obligation to consummate the transactions described herein, and (ii) Purchaser shall have no right to extend the Closing Date on account of Purchaser’s failure to obtain the Existing Debt Assumption and Release approval or the failure of the Existing Debt Assumption and Release to occur on the Closing Date.

(g) In consideration of the mutual covenants and agreements set forth herein, and other consideration (the receipt and sufficiency of which are hereby acknowledged), (i) POP 8 West Mezzanine Lending, LLC (“8 West”), hereby agrees to assign to Purchaser, effective as of the Closing Date, all rights, title and interests of 8 West in, to and under or arising out that certain loan in the principal face amount of NINETEEN MILLION, ONE HUNDRED NINETY-TWO THOUSAND, FIVE HUNDRED NINETY-SEVEN AND 00/100 DOLLARS ($19,192,597.00) (the “Mezzanine Loan”), which is evidenced, secured by and more particularly described in those documents set forth in Exhibit J-1 attached hereto and made a part hereof (collectively, the “Mezzanine Loan Documents”), and (ii) POP, , an Affiliate of Seller hereby agrees to assign to Purchaser effective as of the Closing, all of POP’s right, title and interest in, to and under or arising out of that certain Purchase Option Agreement with Right of First Offer, dated as of November 30, 2018, by and between 8West Holdings, LLC, and POP (the “Option Agreement”), that was entered into in connection with the Mezzanine Loan. Purchaser hereby agrees to accept the foregoing assignments and assume all rights and obligations of (x) 8 West arising after the Closing Date under the Mezzanine Loan Documents and otherwise relating to the Mezzanine Loan, and (y) POP arising after the Closing Date under the Option Agreement. Seller agrees to reasonably cooperate and deliver any notices or documents as required to comply with the terms of the Intercreditor Agreement identified on Exhibit J-1.

(h) The provisions of clauses (d), (e), (f) and this (h) of this Section 4.4 shall survive the Closing or termination of this Agreement.

ARTICLE V

THE CLOSING

5.1 Date and Manner of Closing. The closing of the transaction contemplated by this Agreement (the “Closing”) will occur through an escrow with Escrow Agent, no later than 2:00 P.M. Atlanta, Georgia local time on July 1, 2021 (the “Closing Date”) or such earlier or later date as is agreed by the parties. Notwithstanding the foregoing, (i) Seller shall have the right

to extend the Closing Date for up to fifteen (15) business days in order to obtain the Required Tenant Estoppel Certificates by delivering written notice of such extension to Purchaser prior to the original Closing Date, and (ii) Purchaser shall have the right to extend the Closing Date for up to two (2) consecutive thirty (30) day periods (each, an “Extension Option”); provided, that in order for Purchaser to validly exercise each Extension Option, Purchaser must (x) provide written notice delivered to Seller no less than ten (10) business days prior to the then-scheduled Closing Date, and (y) deposit with the Escrow Agent FIVE MILLION AND 00/100 DOLLARS ($5,000,000) (each, an “Extension Deposit” and collectively, the “Extension Deposits”) by wire transfer of immediately available federal funds.

5.2 Closing. On the day prior to the Closing Date, Purchaser and Seller shall execute a settlement statement generated by Escrow Agent. Subject to satisfaction of the conditions to Closing set forth in Article IV hereof, Escrow Agent will (i) not later than 2:00 P.M. Atlanta, Georgia local time on the Closing Date deliver the Purchase Price to Escrow Agent for the benefit of Seller in the form of a wire transfer of immediately available funds, and (ii) release for recordation the Deed and such other documents as may be recorded.

ARTICLE VI

DUE DILIGENCE PERIOD EXPIRED; DEPOSIT NON-REFUNDABLE

6.1 Approval of Documents and Materials. Purchaser acknowledges that Seller has made available to Purchaser the documents (i) which pertain to the Property, (ii) are located at the Property or are in any property manager’s office and (iii) are non-proprietary and not privileged, available at the Property for review and copying by Purchaser at Purchaser’s sole cost and expense (the “Property Documents”), in each case, in accordance with the Site Access and Indemnification Agreement (as defined in Article VII hereof). The Property Documents include, but have not been limited to:

(a) Copies of the Leases and all amendments;

(b) Copies of the Service Agreements;

(c) Income and expense information for the period commencing January 1, 2018 through December 31, 2020 pertaining to the operation of the Property;

(d) A current rent roll for the Property; and

(e) A copy of title information and the surveys.

6.2 Reliability of Information. The Property Documents and other information provided by Seller and/or its agents to Purchaser under the terms of this Agreement and under the Site Access and Indemnification Agreement are for informational purposes only. Subject to Seller’s Representations (as hereinafter defined in Section 13.1), Purchaser (a) is not in any way entitled to rely upon the accuracy or completeness of the information within the Property Documents and other information provided by Seller and/or its agents and (b) Purchaser will rely

exclusively on its own inspections and consultants with respect to all matters Purchaser deems relevant to its decision to acquire the Property. The provisions of this Section 6.2 shall survive the Closing and the delivery of the Deed.

6.3 Due Diligence Period Expired. Purchaser acknowledges that this Agreement does not provide a due diligence period, and that Purchaser has thoroughly reviewed and is satisfied in all respects with the Property Documents, other materials pertaining to the Property and is fully satisfied with all aspects of the Property for purchase under this Agreement including the results of all such studies, tests and inspections that Purchaser deems appropriate to analyze the feasibility of the acquisition and ownership of the Property and to determine, in Purchaser’s sole and absolute discretion, that the Property is suitable for acquisition by Purchaser.

6.4 Deposit Non-Refundable to Purchaser. Purchaser has approved acquisition of the Property and to have waived any right to terminate this Agreement as a result of any due diligence inspections of the Property, except as may be otherwise specifically provided for in this Agreement. The Deposit is non-refundable to Purchaser except as otherwise expressly set forth in this Agreement.

ARTICLE VII

INSPECTIONS

Either Purchaser or one of its designated Affiliates (as hereinafter defined) has previously executed and delivered a separate site access and indemnification agreement to Seller, a copy of which is attached hereto as Exhibit K (the “Site Access and Indemnification Agreement”). The terms of such Site Access and Indemnification Agreement are hereby extended through the Closing or other termination of this Agreement. As used herein, “Affiliate” means, with respect to a person, any other person controlling, controlled by or under common control with such person.

ARTICLE VIII

TITLE AND SURVEY; REA

8.1 Approval of Title Documents and Survey. Purchaser has approved the status of title to the Property after obtaining commitments for title insurance (“Title Commitments”) for the Land and the Leasehold Parcels from Chicago Title Insurance Company (the “Title Company”) and any recertification of the surveys delivered by Seller to Purchaser (the “Current Surveys”) or new surveys that Purchaser has elected to obtain with respect to the Land and the Leasehold Parcels (the “New Surveys”). All of the matters disclosed on the Title Commitments and New Surveys, together with and all other matters otherwise affecting title to the Land and Leasehold Parcels will constitute the “Permitted Exceptions”.

8.2 Title Updates. If any supplemental title report or update issued subsequent to the Effective Date contains exceptions other than those in the Title Commitments or New Surveys and which have a material adverse effect on the use, value or operation of the Property (“New

Exceptions”), Purchaser will be entitled to object to the New Exceptions by delivery of a notice of objections to Seller on or before the date that is five (5) days following Purchaser’s receipt of such supplement or update. If Purchaser fails to deliver to Seller a notice of objections on or before such date, Purchaser will be deemed to have waived any objection to the New Exceptions, and the New Exceptions will be included as Permitted Exceptions. Seller will have not less than ten (10) days from the receipt of Purchaser’s notice (and, if necessary, Seller may extend the Closing Date to provide for such ten (10) day period and for five (5) days following such period for Purchaser’s response), within which time Seller may, but is under no obligation to, remove the objectionable New Exceptions, provided, Seller will be required to remove prior to or at Closing all monetary liens constituting New Exceptions. If, within the ten (10) day period, Seller or Title Company does not (or does not agree to) remove the objectionable New Exceptions (provided Seller will remove all monetary liens), then Purchaser may terminate this Agreement upon notice to Seller no later than five (5) days following expiration of the (10) day cure period. If Purchaser terminates this Agreement, the Deposit will be promptly returned to Purchaser, and the parties shall be released from all further obligations under this Agreement (except those that expressly survive termination of this Agreement). If Purchaser fails to terminate this Agreement in the manner set forth above, the New Exceptions (except those Seller and/or Title Company has removed or agreed to remove) will be included as Permitted Exceptions.

8.3 Encumbrances. The Existing Debt is a Permitted Exception hereunder and may not be objected to. The existence of mortgages, liens, or other encumbrances not permitted hereby (and which are not relating to the Existing Debt) shall not be objections to title provided that properly executed instruments in recordable form necessary to satisfy the same are delivered to the Title Company at the Closing together with recording and/or filing fees (or an appropriate credit against the Purchase Price given for such fees), and Purchaser and Seller agree that such mortgages, liens or other encumbrances may be paid out of the cash consideration to be paid by Purchaser. Seller will be required to remove prior to or at Closing all monetary liens, including mechanics’ liens and material men’s liens (but only to the extent Seller would be liable for the payment of the underlying obligation as the contracting party), judgment liens and tax liens encumbering the property (exclusive of liens securing the Existing Debt), including those monetary liens constituting New Exceptions (collectively, “Liens”), (i) if such Liens were caused solely by the actions or omissions of Seller or any of its Affiliates, or (ii) with respect to all other Liens other than those described in the foregoing clause (i), up to a maximum amount of FIVE HUNDRED THOUSAND DOLLARS ($500,000.00) in the aggregate.

8.4 Notice of Commencement. Work performed or to be performed by a tenant under a Lease, or on behalf of a tenant or subtenant under a Lease, affecting the Property (in each case, as a result of the tenant contracting for such work) will not be Seller’s responsibility. Accordingly, neither notices of commencement of work to be performed by contractors or subcontractors engaged by such tenants or subtenants (but not Seller) nor any liens filed with respect to any such work performed will constitute New Exceptions, and the same, if any, shall constitute Permitted Exceptions. In addition, any ongoing work being performed by Seller shall not constitute New Exceptions and the costs and risks of such work shall be allocated between Purchaser and Seller in accordance with Section 10.5 below.

8.5 Seller’s Failure to Remove. Seller shall have the right to extend the Closing Date for up to thirty (30) days in order to remove any objectionable Exception or New Exception that Seller agreed in accordance with the terms of this Article to remove by delivering written notice of such extension to Purchaser prior to the original Closing Date. If Seller fails on or before Closing (as may be extended) to remove any objectionable Exception or New Exception that Seller agreed in accordance with the terms of this Article to remove, then Purchaser may elect either to close with no adjustment to the Purchase Price or exercise its remedies pursuant to Section 12.2.

ARTICLE IX

RISK OF LOSS

9.1 Casualty. If the Property is damaged or destroyed by fire or other casualty after the Effective Date and prior to the Closing then promptly after Seller becomes aware of the damage or destruction Seller will notify Purchaser thereof (the “Damage Notice”). If the cost of repair is less than two percent (2%) of the Purchase Price, repairs will, in Seller’s reasonable estimation, take less than six (6) months to effectuate, and no Major Tenant has the right to terminate its Lease as a result of such “minor casualty” which has not been waived, Closing will proceed in accordance with the terms of this Agreement for the full Purchase Price, notwithstanding the damage or destruction; provided, however, that Seller will pay or assign to Purchaser at Closing all insurance proceeds, if any, resulting from such casualty damage and pay to Purchaser any deductible due under Seller’s insurance policy(ies) less the costs of collection. If the cost of repair is equal to or greater than two percent (2%) of the Purchase Price, if a Major Tenant has the right to terminate its Lease as a result of such casualty which has not been waived, if repair will, in Seller’s reasonable estimation, take six (6) months or longer to effectuate, or if any portion of the loss is uninsured and Seller does not elect to credit Purchaser for such uninsured portion, Seller or Purchaser may elect to terminate this Agreement by delivering written notice to the other party within ten (10) days after the date of the Damage Notice and determination of the repair amount (and Closing will be extended as needed to provide for such 10-day period), in which event the Deposit will be refunded. If neither party terminates this Agreement within the 10-day period, Closing will proceed in accordance with the terms of this Agreement for the full Purchase Price, notwithstanding the damage or destruction and Seller will pay or assign to Purchaser at Closing all insurance proceeds, if any, resulting from the casualty and credit to Purchaser any applicable deductible amounts under the insurance policies.

9.2 Condemnation. If, after the Effective Date and prior to the Closing, a condemnation or eminent domain proceeding (“Taking”) is commenced against the Property, Seller will give Purchaser notice within ten (10) days after Seller receives notice that the proceeding has commenced.

(a) If the Taking is a Material Taking (as hereinafter defined), Purchaser may, by written notice to Seller (“Taking Notice”) elect to terminate this Agreement, which Taking Notice shall be sent no later than thirty (30) days after receipt of Seller’s notice, time being of the

essence, or such sooner period of time if the Closing is less than thirty (30) days after receipt of Seller’s notice. For purposes of this Agreement, a “Material Taking” shall be a Taking which(i) has, or would have, the effect of reducing the value of the Property which has been acquired or threatened to be acquired by the powers of eminent domain by greater than two percent (2%) of the Purchase Price, (ii) is reasonably anticipated to materially and permanently prevent access to the condemned Tract, (iii) results in the condemned Tract materially violating or failing to comply with any laws, applicable zoning ordinances (including, without limitation, parking), after the condemned Tract has been restored to an operable condition after the completion of the condemnation and any work to be completed by the condemning authority as a result of such condemnation, or (iv) results in any Major Tenant having the right to terminate its applicable Lease as the result of the condemnation of such Tract, and such Tenant has not waived its rights with respect thereto;

(b) If the Taking is not a Material Taking or if it is a Material Taking and Purchaser does not give Seller a Taking Notice in accordance with Section 9.2(a), Purchaser will complete the transaction contemplated hereby without abatement or reduction in the Purchase Price, and Seller shall assign to Purchaser all rights, if any, to receive the award payable as a result of such proceeding.

ARTICLE X

OPERATION OF THE PROPERTY

10.1 Operations. From the Effective Date through the Closing Date, Seller will continue to operate and maintain the Property consistent with its standards of operation and maintenance prevailing immediately prior to the Effective Date, Seller shall not be obligated, or have the authority, to make any commitment with respect to capital expenditures, except (i) as set forth in Section 10.3 below, (ii) as Landlord may be obligated to make under the terms of any Lease after a demand by a tenant therefor, and (iii) as may be required in emergency situations to prevent personal injury or property damage, and under no circumstances will Seller be in breach of its obligations under this Agreement for failing to authorize or commence any such capital expenditures.

10.2 Tenant Defaults; Other Proceedings. Seller will not institute any proceedings against a tenant without Purchaser’s prior approval which approval shall not be unreasonably withheld, conditioned or delayed, except that Seller may institute a proceeding for delinquent rent without Purchaser’s consent, provided it is brought within six (6) months of the Closing Date and does not seek eviction of tenant. Purchaser will be deemed to have approved commencement of proceedings if Purchaser fails to respond within three (3) business days after Purchaser receives written notice of Seller’s intent to commence proceedings. Notwithstanding any of the foregoing to the contrary, Seller shall have the right to prosecute (with Purchaser’s reasonable cooperation after Closing, at no expense or liability to Purchaser) and retain any recovery in connection with any tax appeals or contests with respect to taxes assessed against the Property for tax periods prior to Closing provided such recovery action will not result in a deferral of taxes or reassessment against the Property.

10.3 New Services Agreements / New Leases / New Tract Improvements. Seller will not, without first obtaining Purchaser’s consent (not to be unreasonably withheld, conditioned or delayed) enter into new service agreements or amend existing Service Agreements (“New Service Agreements”) unless the agreement is a New Service Agreement for usual and customary property management matters, which can be terminated at Closing. Furthermore, Seller will not (a) enter into new leases or amend existing Leases with respect to the Property (“New Leases”), or (b) commence any improvements on any Tract not already commenced as of the Effective Date (whether in connection with a New Lease or otherwise a “New Tract Improvement”) if any one New Tract Improvement is reasonably expected to cost in excess of $25,000, or all such New Tract Improvements are reasonably expected to cost in the aggregate more than $100,000 without first obtaining Purchaser’s consent (not to be unreasonably withheld, conditioned or delayed). Purchaser will be deemed to have consented to any proposed New Service Agreement, New Lease or New Tract Improvements unless Seller receives written notice from Purchaser, specifically setting forth the areas of objection within three (3) business days following receipt by Purchaser of the proposed New Service Agreement, New Lease or New Tract Improvements.

10.4 Tenant Inducement Costs / Tract Improvements. Upon Closing, Purchaser will assume all liability for, and shall thereafter pay (or reimburse Seller to the extent Seller has paid prior to Closing), all amounts (including (i) tenant concessions, tenant improvement costs, free rent and leasing commissions or fees collectively “Tenant Inducement Costs”) and (ii) New Tract Improvement costs) either of which is due under or in connection with, any New Service Agreement, New Lease or any New Tract Improvement, provided, any New Service Agreements, New Leases or New Tract Improvement have been approved (or deemed approved) by Purchaser pursuant to Section 10.3 above, and provided to the extent any portion of the term of a New Lease (for which (i) such tenant is paying full rent and (ii) Tenant Inducement Costs are due thereunder) occurs prior to the Closing Date, the amount of the Purchase Price will be reduced by a pro-rata share of such Tenant Inducement Costs based upon the percentage of such rent-paying term (exclusive of any renewal option) which occurs prior to the Closing Date compared to the portion of such rent-paying term (exclusive of any renewal option) which is scheduled to occur after the Closing Date. Seller shall be responsible for all Tenant Inducement Costs, and the costs of improvements to a Tract not constituting a New Tract Improvement (an “Existing Tract Improvement”), which are payable by the Seller (pursuant to the Leases or a contact for Existing Tract Improvements (without giving effect to any unexercised option, extension or similar right as of such date) after Closing as set forth in any Lease, or any contract for an Existing Tract Improvement in existence as March 17, 2021 which have not been approved by Purchaser, all of which are set forth on Exhibit O attached hereto, and Purchaser shall receive a credit at Closing for all unpaid Tenant Inducement Costs with respect to such Leases, except as otherwise provided in the last sentence of this Section 10.4. Purchaser shall be solely responsible for all Tenant Inducement Costs relating to Leases or New Leases (including, without limitation, any amendments or exercises of options to extend Leases by tenants thereunder after March 17, 2021) and New Tract Improvements (provided such New Leases and New Tract Improvements have been approved (or are deemed approved) by Purchaser pursuant to Section 10.3) executed or occurring after March 17, 2021). For the avoidance of doubt, Purchaser and Seller agree that the future tenant inducement costs due to tenants Public

Defenders (2023 for $130,888) and USAO (2026 for $442,440) shall be Purchaser’s sole responsibility after Closing without any Purchase Price credit due from Seller.

10.5 Current Construction Work. Seller is currently in the process of completing certain building improvements and tenant improvements on the property (the “Work”) pursuant to agreements (the “Construction Contracts”) between Seller and certain contractors (individually a “Contractor” or collectively the “Contactors”) who are performing the Work, each as described on Exhibit P. Purchaser acknowledges that a portion of the Work, and the costs thereof may be completed and expended prior to Closing. It is not expected that the Work will be complete by Closing. To the extent Seller is obligated to pay for the cost of such Work pursuant to Section 10.4 above, Purchaser will receive a credit against the Purchase Price for the cost of Work which has not been paid for by Closing. To the extent Purchaser is obligated to pay for such Work pursuant to Section 10.4 above, Seller will receive a credit at Closing for the cost of Work which Seller has paid as of Closing. Pursuant to an Assignment of the Contracts in the form set forth as Exhibit P-1 and incorporated herein by reference the (“Assignment of Construction Contract”), Purchaser will assume the obligations of Seller existing under Construction Contracts subject to the Assignment of Construction Contracts as of the date of Closing.

ARTICLE XI

CLOSING PRORATIONS AND ADJUSTMENTS; PAYMENT OF CLOSING COSTS

11.1 General. Seller shall pay (i) all of Seller’s legal fees, expenses Seller might incur in connection with its election to remove objections to title, and any apportionment to be made pursuant to this Article XI, (ii) the costs of curing all title objections for which Seller is responsible under this Agreement, and (iii) one-half of any escrow fees charged by the Escrow Agent. Purchaser shall pay (a) the Existing Debt Fees, (b) all applicable transfer taxes, documentary stamp taxes and similar charges relating to transfer of the Property, (c) the fees of any counsel representing Purchaser in connection with this transaction, (d) the fees for recording the Deed, (e) the premiums for any title insurance (including endorsements) requested by Purchaser or its lender, (f) the cost of Purchaser’s inspections of the Property, (g) the cost of any New Surveys, including updates or revisions necessary to comply with the requirements of Purchaser or its lender, (h) any costs to finance its purchase of the Property, including, but not limited to, any intangibles tax on the mortgage, and (i) one-half of any escrow fees charged by the Escrow Agent. All other costs and expenses incident to this transaction and the closing thereof shall be paid by the party incurring same.

income and the burden of expenses for the Closing Date and thereafter (provided, however, that in the event that any of the Leases or subleases, if any, covering all or part of the Property provide that the tenants or subtenants thereunder are responsible for direct payment of any of the expenses and the tenants or subtenants are current with respect to such direct payment obligations, such expenses shall not be apportioned as between Seller and Purchaser):

(a) Property taxes (which for all purposes under this Article XI, shall include personal property taxes) as more particularly set forth below and in Section 11.3(b);

(b) Rents as and when collected including base rents, escalations, additional rent and percentage rent (“Rents”) as further described below;

(d) Operating expenses for the Property including sums due or already paid pursuant to any Service Agreements;

(e) Amounts paid pursuant to all transferable licenses and permits, on the basis of the fiscal year for which levied;

(f) Assessments but only for the annual installment for the fiscal year in which the Closing occurs;

(g) Purchaser shall receive a credit against the Purchase Price at Closing for the amount of the termination fee paid by the tenants listed on Exhibit U (including the amount of such termination payments) in connection with Lease modification or termination agreements executed by such tenants; and

(h) Any other operating expenses or other items pertaining to the Property which are customarily prorated between a purchaser and a seller in comparable commercial transactions in the area in which the Property is located.

The provisions of this Section 11.2 shall survive the Closing and the delivery of the Deed.

11.3 Rents.

(a) Purchaser shall receive a credit to the Purchase Price for all prepaid Rents, if any, paid by any tenants. Rents under the Leases will be adjusted and prorated on an “if as and when collected” basis. If, on the Closing Date, there are any unpaid rents for the month of Closing or past due Rents owing by any tenant for any prior period (including, without limitation, any deferred rent scheduled to be received after Closing which relates to a period prior Closing), Rents collected by Purchaser after the Closing Date from such tenants will be applied first, to the month of the Closing; second, to amounts due Purchaser for periods following the month in which the Closing occurred; third, to amounts due Seller for the month prior to Closing; and fourth, to amounts due Seller for periods prior to the month before the

Closing occurred. The party receiving such amount shall pay to the other party the portion to which it is entitled, within ten (10) days of its receipt of same.

(b) Supplementing subsection (a) above, additional or escalation rent based upon: (x) a percentage of sales or (y) tenant’s share of real estate taxes, operating expenses, labor costs, costs of living indices or porter’s wages (collectively, “Overage Rent”) shall be adjusted and prorated on an if, as and when collected basis. The following shall apply to the extent Overage Rent is billed on the basis of Landlord’s estimates or an annual budget, which is subject to subsequent reconciliation and readjustment with each such tenant at the end of the applicable year:

(i) At least five (5) business days prior to the Closing Date, Seller shall provide Purchaser with a reconciliation statement for calendar year 2021, with all necessary supporting documentation, as to the Overage Rent paid by the tenants for calendar year 2021. Such reconciliation statement shall be based on the actual calendar year 2021 property tax bills and operating expenses. With respect to Overage Rent for the 2021 calendar year, to the extent the reconciliations indicate a net amount owed to Seller, Purchaser shall give Seller a credit at Closing in the amount of such of net amount, and to the extent the reconciliations indicate a net amount owed to the tenants, Seller shall give Purchaser a credit in the amount of such net amount. In either case, from and after the Closing, Purchaser shall be responsible for collecting any such net amounts owed from tenants or returning any net amounts owed to tenants in accordance with terms of the applicable Leases.

(ii) At least five (5) business days prior to the Closing Date, Seller shall provide Purchaser with a reconciliation statement for calendar year 2021 through the end of the calendar month preceding the Closing Date (or the most recent month for which a reconciliation is available if a reconciliation is not yet available for the calendar month preceding the Closing Date), with all necessary supporting documentation, as to the Overage Rent paid by the tenants for calendar year 2021. Such reconciliation statement shall be based on the actual calendar year 2020, property tax bills and the actual operating expenses for 2021 and indicate any difference between the Overage Rent paid by the tenants (based on Seller’s annual 2021 budget for real estate taxes and operating expenses) and the amount that should have been paid by the tenants through the Closing Date (based on the actual expenses covering such time period);

(iii) If the Seller has collected more on account of such Overage Rent than such actual amount for such time period (with it being acknowledged that such calculation shall be made only with respect to actually collected Overage Rent sums for such time period, and not any such sums that may be so receivable from tenants), then the amount of such difference shall be credited to Purchaser at the Closing;

(iv) If Seller has collected less from the tenants for Overage Rents than the actual amounts for such time period, then the amount of such under-collected rents shall be paid and delivered to Seller;

(v) Any Seller proposed prorations relating to Overage Rent shall be subject to Purchaser’s review and reasonable approval.

11.4 Security Deposits. All security deposits made by any of the tenants of the Property now held by Seller, including without limitation the security deposits as shown on Exhibit B-1, or received by Seller prior to Closing, will be turned over or credited to Purchaser at the Closing. If Seller is holding any Security Deposits in the form of letters of credit, Purchaser will not receive a credit for such Security Deposits. Purchaser will indemnify and hold Seller harmless and free from any liability with respect to security deposits turned over or credited to Purchaser and such hold harmless will include any security deposits in the form of letters of credit which are transferred to Purchaser. Seller shall reasonably cooperate with Purchaser to cause Security Deposits that are in the form of a letter of credit or other instrument to be transferred or re-issued to Purchaser, and, until such transfer or re-issuance, Seller shall, as Purchaser’s agent and at its request, draw on any letter of credit in accordance with the applicable Lease and deliver the proceeds to Purchaser. In the event Purchaser makes such a request, and Seller effects a draw on the letter of credit and delivers the applicable proceeds to Purchaser, Purchaser agrees to indemnify, defend, and hold Seller harmless from any claims arising therefrom, including any assertion by a tenant that such draw was wrongful or a breach of the applicable lease, which indemnification shall be inclusive of reasonable attorney’s fees. Any out-of-pocket expense incurred by Seller in such cooperation shall be promptly reimbursed by Purchaser (including the costs and expenses resulting from the transfer of the security deposits that are in the form of a letter of credit). The indemnity provided by Purchaser to Seller pursuant to this Section 11.4 shall survive the Closing and the delivery of the Deed.

11.5 Existing Debt. (i) Seller shall be responsible for all principal required to be paid under the terms of each Existing Debt promissory note prior to the Cut Off Time, together with all interest accrued under, and any other amounts due and payable under, such Existing Debt prior to the Cut Off Time (excluding any Existing Debt Fees, which shall be the obligation of Purchaser), and (ii) Purchaser shall be responsible for the payment of all principal required to be paid from and after the Cut Off Time, together with all interest accruing under, and any other amounts due and payable under, each Existing Debt from and after the Cut Off Time. Further, if the Existing Debt Assumption and Release occurs at Closing pursuant to Section 4.4, Seller shall be credited for and Purchaser shall be charged for all amounts held in reserves, impounds and other accounts maintained in connection with the Existing Debt as of the Cut Off Time, to the extent assigned to Purchaser.

11.6 Mezzanine Loan Prorations. Seller shall receive a credit to the Purchase Price equal to (i) the amount of any accrued and unpaid Current Interest (as defined in Section 5.1(a) of that certain Mezzanine Loan Agreement by and between 8West Holdings Mezz Member, LLC, and 8 West, dated as of November 30, 2018, as amended by that certain First Amendment thereto, dated as of July 12, 2019, but made effective as of June 30, 2019, that evidences the Mezzanine Loan the “Mezzanine Loan Agreement”) outstanding on the Mezzanine Loan which

is applicable to the period prior to Closing, plus (ii) the amount of the Accrued Interest (as defined in Section 5.1(a) the Mezzanine Loan Agreement) accruing during the period between the originally scheduled Closing Date and any later Closing Date that actually occurs under the terms of this Agreement in the event that the originally scheduled Closing Date is extended, plus (iii) the amount of any mezzanine loan principal advanced under the Mezzanine Loan Agreement between the Effective Date and the Closing Date and the Accrued Interest that has accrued thereon during the period between the date of such advance and the Closing Date.

11.7 Final Adjustment After Closing. If final bills are not available or cannot be issued prior to Closing for any item being prorated under this Article, then Purchaser and Seller shall re-prorate such items on a fair and equitable basis on or before the later of (x) ninety (90) days after Closing or (y) thirty (30) days after the date that Seller and Purchaser are able to determine 2021 calendar year property taxes, which proration shall be based on 100% of the assessed value; provided, however, if Purchaser elects to contest the property taxes for calendar year 2021, there shall be a final re-proration within thirty (30) days of receipt of the final 2021 calendar year property taxes. Such final re-proration shall be based on 100% of the final tax bills following the resolution of any such appeal. Purchaser shall promptly notify Seller of its election to appeal the calendar year 2021 real estate taxes and shall keep Seller reasonably informed of the progress of any appeal, including the final resolution. Payments in connection with the final adjustment will be due within ten (10) business days of notice. Purchaser and Seller agree to cooperate and to use commercially reasonable efforts to complete such adjustments in accordance with times set forth in this Section 11.7. In addition, if any error in either the calculations or amount of final figures used in a closing adjustment is discovered within sixty (60) days after Closing, Purchaser and Seller agree to correct such error promptly upon notice from the other party and to use commercially reasonable efforts to complete such adjustment within such sixty (60) day period after Closing. For the avoidance of doubt, except with respect to (x) 2021 calendar year property taxes and (y) deferred rent from tenants under Leases which relates to a period prior to the Closing Date and is received by Purchaser after Closing, all other proration, reconciliation, reproration and settlement obligations of Purchaser and Seller under this Section 11.7 shall terminate and be of no further force or effect from and after the date that is ninety (90) days after the Closing Date. This Section 11.7 shall survive the Closing and the delivery of the Deed for the time periods set forth in this Section 11.7.

11.8 Galleria 75 Tract Prepayment Penalty. Seller shall receive a credit to the Purchase Price equal to the amount of any prepayment penalty or premium required to be paid by Seller on the Closing Date to satisfy Seller’s obligations under that certain Promissory Note by and between Seller (as successor-in-interest to North Decatur Square Partners, LLC) and RGA Reinsurance Company, dated as of June 7, 2012, which is secured by that certain Deed to Secure Debt and Security Agreement encumbering the Galleria 75 Tract that shall be released at Closing using a portion of the proceeds from the Purchase Price.

11.9 Thirty-Day Month. All prorations and/or adjustments provided for in this Agreement will be made on the basis of a 30-day month, unless specifically stated otherwise.

ARTICLE XII

DEFAULT

12.1 Default by Purchaser. IF PURCHASER FAILS TO CONSUMMATE THIS AGREEMENT FOR ANY REASON OTHER THAN SELLER’S DEFAULT OR THE PERMITTED TERMINATION OF THIS AGREEMENT BY EITHER SELLER OR PURCHASER AS PROVIDED FOR IN THIS AGREEMENT, SELLER WILL BE ENTITLED, AS ITS SOLE REMEDY, TO TERMINATE THIS AGREEMENT AND RECEIVE THE DEPOSIT AS LIQUIDATED DAMAGES FOR THE BREACH OF THIS AGREEMENT. IT IS AGREED BETWEEN SELLER AND PURCHASER THAT THE ACTUAL DAMAGES TO SELLER IN THE EVENT OF SUCH BREACH ARE IMPRACTICAL TO ASCERTAIN, AND THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE THEREOF. NOTWITHSTANDING THE FOREGOING, SELLER SHALL RETAIN ALL ITS RIGHTS PURSUANT TO THIS AGREEMENT, AT LAW, OR IN EQUITY, AND NOTHING CONTAINED IN THIS SECTION 12.1, WILL LIMIT THE LIABILITY OF PURCHASER UNDER (I) ANY INDEMNITY PROVIDED BY PURCHASER UNDER THIS AGREEMENT; (II) ANY OF THE DOCUMENTS AND INSTRUMENTS EXECUTED AND DELIVERED TO SELLER PURSUANT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, OR (III) ANY ACTIONS COMMENCED AFTER CLOSING WITH RESPECT TO ANY OBLIGATION OR REPRESENTATION OF EITHER SELLER OR PURCHASER, WHICH BY THE TERMS OF THIS AGREEMENT SURVIVES CLOSING, INCLUDING BUT NOT LIMITED TO, PROVISIONS REGARDING CONFIDENTIALITY AND PAYMENT OF BROKERAGE FEES.

12.2 Default by Seller. In the event of any default by Seller prior to or on the Closing Date under the terms of this Agreement, Purchaser’s sole remedies will be either to: (i) terminate this Agreement and receive a refund of the Deposit in full consideration of any claims Purchaser may have against Seller; or (ii) to commence within sixty (60) days of the date the Closing was to have occurred and diligently prosecute an action in the nature of specific performance. If an action in the nature of specific performance is not an available remedy or if Purchaser elects to commence such action and is unsuccessful as a result of Seller’s acts in violation of the terms of this Agreement, then the Deposit will be returned to Purchaser, and in addition, Seller shall pay to Purchaser all of the third-party costs actually incurred by Purchaser in connection with this transaction, including but not limited to, Purchaser’s attorney’s fees incurred in connection with the preparation and negotiation of this Agreement and conducting legal due diligence with respect to the Property, engineering fees, and other consultants and other fees charged by third parties for assisting Purchaser with Purchaser’s due diligence of the Property up to a maximum aggregate amount of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00), and thereafter, the parties will be released from their obligations under this Agreement (except those that expressly survive termination of this Agreement). Under no circumstances will Purchaser have available to it an action at law or otherwise for damages, except as expressly set forth in this Agreement.

ARTICLE XIII

REPRESENTATIONS AND WARRANTIES

13.1 Seller’s Representations. Seller represents and warrants to Purchaser the following (collectively, “Seller’s Representations”) as of the Effective Date and as of the Closing Date, provided that certain of Seller’s Representations may be modified as a result of changes in facts or circumstances after the date hereof, which shall not be deemed to cause a breach of any of Seller’s Representations unless Seller causes such changed facts or circumstances in violation of the terms of this Agreement; and provided, further, that Purchaser’s remedies in the instance that any of Seller’s Representations are untrue as of the Closing Date, are limited to those set forth in Article XII:

(a) Seller is duly organized, validly existing and in good standing under the laws of the state of its formation set forth in the initial paragraph of this Agreement, has or at the Closing will have the entity power and authority to sell and convey the Property and to execute the documents to be executed by Seller and prior to the Closing will have taken as applicable, all corporate or equivalent entity actions required for the execution and delivery of this Agreement, and the consummation of the transactions contemplated by this Agreement.

(b) Except relating to the Existing Debt, Seller has all necessary approvals to execute and deliver this Agreement and perform its obligations hereunder, and no other authorization or approvals, whether of governmental bodies or otherwise, will be necessary in order to enable Seller to enter into or comply with the terms of this Agreement.

(c) This Agreement and the other documents to be executed by Seller hereunder, upon execution and delivery thereof by Seller, will have been duly entered into by Seller, and will constitute legal, valid and binding obligations of Seller. Neither this Agreement nor anything provided to be done under this Agreement violates or shall violate any contract, document, understanding, agreement or instrument to which Seller is a party or by which it is bound.

(d) Seller is a “United States person” within the meaning of Sections 1445(f)(3) and 7701(a)(30) of the Internal Revenue Code of 1986, as amended.

(e) The Leases provided to Purchaser by Seller are true, correct and complete copies of the Leases between Seller and the tenants thereunder, including any and all amendments, renewals and extensions thereof. The Schedule of Existing Tenants attached hereto as Exhibit B was prepared for Seller by Seller’s property manager of the Property, and to Seller’s knowledge, is true and correct in all material respects and lists all Leases as of the Effective Date and a report of delinquencies under the Leases existing as of the Effective Date and is the schedule of Leases maintained by Seller and relied on by Seller for internal administration purposes. As of the Effective Date and except as set forth on Exhibit B-2, (i) Seller has received no written notice of any default by the landlord under the Leases, and (ii) Seller has not entered into any oral leases affecting the Property.

(f) To Seller’s knowledge, Seller has received no written notice from any governmental body or agency of any violation or alleged violation of any zoning ordinance, land use law or building code with respect to the Property, which violation or alleged violation has not been corrected.

(g) Seller has received no written notice from any governmental body or agency of any violation or alleged violation of any applicable law with respect to Hazardous Materials on the Property.

(h) Seller and, to Seller’s knowledge, its partners, members, principal stockholders and any other constituent entities (i) has not been designated as a “specifically designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, <http://www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf> or at any replacement website or other replacement official publication of such list and (ii) is currently in compliance with and will at all times during the term of this Agreement (including any extension thereof) remain in compliance with the regulations of the Office of Foreign Asset Control of the Department of the Treasury and any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action relating thereto.

(i) Except as set forth on Schedule 2 attached hereto which is hereby incorporated in and constitutes part of this Agreement, to Seller’s knowledge, no pending or threatened litigation involving the Property or Seller exists which if determined adversely would restrain the consummation of the transactions contemplated by this Agreement or would declare illegal, invalid or non-binding any of Seller’s obligations or covenants to Purchaser pursuant to this Agreement.

(j) To Seller’s knowledge, the Service Agreements provided to Purchaser by Seller are true, correct and complete copies of the Service Agreements relevant to the Property, including any and all amendments, renewals and extensions thereof. To Seller’s knowledge, no party is in material default with respect to its obligations or liabilities under any of the Service Agreements.

(k) There are no employees who are employed by Seller or any property manager engaged by Seller in the operation, management or maintenance of the Property whose employment will continue after Closing. On and after the Closing, there will be no obligations concerning any pre-Closing employees of Seller, nor will there be any property management agreement which will be binding on Purchaser or the Property.

(l) There is no receivership, or voluntary or involuntary proceeding in bankruptcy or pursuant to any other debtor relief laws, pending by or against Seller.

(m) To Seller’s knowledge, there are no outstanding options to purchase, rights of first offer or rights of first refusal, with respect to the Property.

(n) To Seller’s knowledge, (i) copies of the Ground Leases delivered to Purchaser for review are true, accurate and complete copies thereof, and constitute the entire agreement between Seller and Ground Lessors with respect to the Ground Leases; (ii) the Ground Leases are in full force and effect and have not been amended or modified except as set forth in the documents evidencing the Ground Leases (and all amendments thereto) delivered from Seller to Purchaser; and (iii) Seller has not received any written notice from the Ground Lessors that Seller is in default in any respect of its obligations thereunder that has not been cured, and Seller has not delivered any written notice to Ground Lessors that Ground Lessors are in default in any respect of any of their obligations under the Ground Leases.

(o) (i) 8 West has the authority and right to sell and assign its right, title and interest in, to and under, or arising out of, the Mezzanine Loan; (ii) 8 West is the sole owner of the Mezzanine Loan and has not assigned, pledged, promised, encumbered or otherwise transferred any interest in the Mezzanine Loan or any of the Mezzanine Loan Documents to any other person or party; (iii) the copies of the Mezzanine Loan Documents provided by Seller to Purchaser are true and complete copies thereof, and to Seller’s actual knowledge, each of such instruments is in full force and effect and binding in accordance with its terms, and has not been modified; and (iv) as of the Effective Date, the principal balance of the Mezzanine Loan, the date to which interest has been paid thereunder, and the escrow/reserve funds, if any, paid under the terms of the Mezzanine Loan Documents are as set forth on Exhibit J-1. To the extent that 8 West receives any principal or interest payments from or on behalf of the borrower under the Mezzanine Loan Documents after the Effective Date, Seller shall provide Purchaser with a written statement on the Closing Date with any updates to the outstanding principal balance of the Mezzanine Loan, the date to which interest has been paid and the amount of any escrow/reserve funds, if any, paid in connection therewith.

(p) Seller has received no written notice from any Existing Lender of any default or alleged default by Seller (as Borrower) under the Existing Debt.

13.2 Definition of Seller’s Knowledge. Any representation made “to Seller’s knowledge” will not be deemed to imply any duty of inquiry. For purposes of this Agreement, the term Seller’s “knowledge” means the actual knowledge of the Designated Representative of Seller and will not be construed to refer to the knowledge of any other officer, director, agent, employee or representative of the Seller, or any Affiliate of Seller, or to impose upon such Designated Representative any duty to investigate the matter to which such actual knowledge or the absence thereof pertains, or to impose upon such Designated Representative any individual personal liability. As used herein, the term “Designated Representative of Seller” refers to Carl Dickson, who is Executive Vice President of Asset Management of Seller’s Affiliate, and has knowledge of the matters which are the subject of Seller’s representations and warranties in Section 13.1 above.

13.3 Purchaser’s Representations, Warranties, and Covenants. For the purpose of inducing Seller to enter into this Agreement and to consummate the sale and purchase of the Property in accordance herewith, Purchaser represents and warrants to Seller the following as of the Effective Date and as of the Closing Date:

(a) Purchaser is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of North Carolina.

(b) Purchaser, acting through any of its duly empowered and authorized officers or members, has all necessary entity power and authority to transact the business in which it is engaged, and has full power and authority to enter into this Agreement, to execute and deliver the documents and instruments required of Purchaser herein, and to perform its obligations hereunder; and no consent not obtained of any of Purchaser’s partners, directors, officers or members is required to so empower or authorize Purchaser. The compliance with or fulfillment of the terms and conditions hereof will not conflict with, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, any agreement to which Purchaser is a party or by which Purchaser is otherwise bound, which conflict, breach or default would have a material adverse effect on Purchaser’s ability to consummate the transaction contemplated by this Agreement.

(c) No pending or, to the knowledge of Purchaser, threatened litigation involving Purchaser exists which if determined adversely would restrain the consummation of the transactions contemplated by this Agreement or would declare illegal, invalid or non-binding any of Purchaser’s obligations or covenants to Seller.

(d) Other than Seller’s Representations and any representations of Seller made in the Closing Documents, Purchaser has not relied on any representation or warranty made by Seller or any representative of Seller, including Broker (as hereinafter defined in Section 2.2(a)), in connection with this Agreement and the acquisition of the Property.

(e) Purchaser and, to Purchaser’s knowledge, its partners, members, principal stockholders and any other constituent entities (i) has not been designated as a “specifically designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, <http://www.treas.gov/offices/enforcement/ofac/sdn/t11 sdn.pdf> or at any replacement website or other replacement official publication of such list; (ii) is currently in compliance with and will at all times during the term of this Agreement (including any extension thereof) remain in compliance with the regulations of the Office of Foreign Asset Control of the Department of the Treasury and any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action relating thereto; and (iii) has not used and will not use funds from illegal activities for any portion of the Purchase Price, including the Deposit.

(f) Purchaser is not an “employee benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”), which is subject to Title I of ERISA, or a “plan” as defined in Section 4975(e)(1) of the Code, which is subject to Section 4975 of the Code; and (b) the assets of Purchaser do not constitute “plan assets” of one or more such plans for purposes of Title I of ERISA or Section 4975 of the Code; and (c) Purchaser is not a “governmental plan” within the meaning of Section 3(32) of ERISA, and assets of Purchaser do not constitute plan assets of one or more such plans; or (d) transactions by or with Purchaser

are not in violation of state statutes applicable to Purchaser regulating investments of and fiduciary obligations with respect to governmental plans.

(g) Purchaser is (i) an “Eligible Assignee,” as such term is defined in that certain Mezzanine Loan Agreement, and (ii) a “Qualified Transferee,” as such term is defined in that certain Intercreditor Agreement by and between Rubenstein Direct Lending, LLC, and 8 West, dated as of July 12, 2019, but made effective as of June 30, 2019 (the “Intercreditor Agreement”). Upon Purchaser’s request, Seller shall use commercially reasonable good faith efforts to facilitate conversations and obtain consents from the counterparties under the Mezzanine Loan Agreement and/or the Intercreditor Agreement; provided, however, under no circumstances shall any such consent constitute a condition to Closing under this Agreement. Furthermore, if subsequent to Closing Seller or POP 8 West Mezzanine Lender, LLC receives any payments from 8West or any subsequent obligor under the Mezzanine Loan Documents, which are applicable to the period after Closing, Seller will within three (3) business days after receipt of such payment(s), Seller or POP 8 West Mezzanine Lender, LLC (as applicable) remit such payment(s) to Purchaser.

13.4 Survival. The representations and warranties made by Purchaser in Section 13.3 (other than those made in Sections 13.3 (e) and (f) which are meant to survive indefinitely) shall survive the Closing and delivery of the Deed for a period of six (6) months.

ARTICLE XIV

ESCROW PROVISIONS

14.1 Escrow Provisions. The Deposit and any other sums (including without limitation, any interest earned thereon) which the parties agree shall be held in escrow (collectively “Escrow Funds”), shall be held by Escrow Agent, in trust and disposed of only in accordance with the following provisions:

(a) Escrow Agent hereby agrees to hold, administer, and disburse the Escrow Funds pursuant to this Agreement. Escrow Agent shall invest such Escrow Funds in a segregated, interest-bearing money market account at a national bank reasonably acceptable to Seller and Purchaser. In the event any interest or other income shall be earned on such Escrow Funds, such interest or other income shall become a part of the Escrow Funds and will be the property of the party entitled to the Deposit pursuant to this Agreement. Purchaser’s and Seller’s Federal Identification Numbers are set forth below.

Escrow Funds for a period of ten (10) days after receipt of such notice of disbursement and if Escrow Agent receives written notice from either Purchaser or Seller within said ten (10) day period which notice countermands the earlier notice of disbursement, then Escrow Agent shall withhold such disbursement until both Purchaser and Seller can agree upon a disbursement of such Escrow Funds. Purchaser and Seller hereby agree to send to the other, pursuant to Section 15.6 below, a duplicate copy of any written notice sent to Escrow Agent and requesting any such disbursement or countermanding a request for disbursement.

(c) In performing any of its duties hereunder, Escrow Agent shall not incur any liability to anyone for any damages, losses, or expenses, except for willful default or breach of trust, and it shall accordingly not incur any such liability with respect to (i) any action taken or omitted in good faith upon advice of its legal counsel given with respect to any questions relating to the duties and responsibilities of Escrow Agent under this Agreement, or (ii) any action taken or omitted in reliance upon any instrument, including any written notice or instruction provided for in this Agreement, not only as to its due execution and the validity and effectiveness of its provisions but also as to the truth and accuracy of any information contained therein, which Escrow Agent shall in good faith believe to be genuine, to have been signed or presented by a proper person or persons, and to conform with the provisions of this Agreement.

(d) Notwithstanding the provisions of Section 14.1(b) above, in the event of a dispute between Purchaser and Seller sufficient, in the sole discretion of Escrow Agent to justify its doing so or in the event that Escrow Agent has not disbursed the Escrow Funds on or before ten (10) days after the Closing Date, Escrow Agent shall be entitled to tender into the registry or custody of any court of competent jurisdiction the Escrow Funds, together with such legal pleadings as it may deem appropriate, and thereupon be discharged from all further duties and liabilities under this Agreement. Any such legal action may be brought in a federal or state court in Wake County, North Carolina or, if is such courts do not have jurisdiction as to the parties or matters involved then such court as Escrow Agent shall determine to have jurisdiction thereof.

(e) Escrow Agent has executed this Agreement in the place indicated on the signature page hereof in order to confirm that the Escrow Agent has received the Deposit and shall hold the Escrow Funds in escrow, and shall disburse the Escrow Funds pursuant to the provisions of this Article XIV. A copy of the fully executed Agreement shall be delivered to both parties hereto.

ARTICLE XV

GENERAL PROVISIONS

15.1 No Agreement Lien. In no event will Purchaser have a lien against the Property by reason of any deposits made under this Agreement or expenses incurred in connection therewith and Purchaser waives any right that it might have to so lien the Property.

15.2 Confidentiality.

(a) Except as provided otherwise in this Section 15.2, Purchaser and Seller, for the benefit of each other, hereby agree that neither of them will release, or cause or permit to be released, to the public any press releases or notices except as set forth in Section 15.2(b) below, publicity (oral or written) or advertising promotion relating to, or otherwise publicly announce or disclose, or cause or permit to be publicly announced or disclosed, in any manner whatsoever (i) the names of Seller or Purchaser respectively, or any of their Affiliates or investors in relation to the transactions contemplated by this Agreement, or (ii) the existence of this Agreement or any of the terms, conditions or substance of this Agreement, without in each case first obtaining the consent of the other party hereto. Each of Seller and Purchaser shall cause its Representatives to comply with the terms of this Section 15.2 (and each party agrees that any breach of this Section 15.2 caused by any disclosure by any of its Representatives shall be deemed a breach by such party hereunder).

(b) It is understood and agreed that the foregoing shall not preclude (i) any party hereto from disclosing information that is or becomes public (so long as the disclosure is not the result of a violation of this Agreement), and the substance or any relevant details of the transactions contemplated by this Agreement, (ii) Purchaser from sharing information relating to the transactions contemplated by this Agreement, the Property and/or any other information obtained from any person in connection with the foregoing, on a confidential basis with Purchaser’s Affiliates and its and their respective officers, directors, employees, attorneys, accountants, professional consultants, advisors, financial advisors, rating agencies, potential joint venture partners, potential lenders and/or representatives (collectively, “Representatives”), (iii) any party hereto from making any Unrestricted Disclosure (as hereinafter defined), and (iv) any party hereto from disclosing information if necessary or advisable at the direction of legal counsel to comply with applicable laws or the requirements of a court of competent jurisdiction, including without limitation, governmental regulatory disclosure, tax and reporting requirements. The parties hereto hereby acknowledge that Preferred Apartment Communities, Inc. (“PAC”), the parent entity of Seller, and Highwoods Properties, Inc. (“HPI”), the parent entity of Purchaser, are each a publicly traded company, and as such, each is subject to extensive reporting and disclosure requirements under statutory and common law duties owed to each of its shareholders and in accordance with applicable securities laws. These requirements may include, but are not limited to: (A) filing a copy of this Agreement with the Securities and Exchange Commission (“SEC”), (B) reporting on the results of the transactions contemplated by this Agreement in filings and/or reports under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and related press releases; provided, however, Purchaser and Seller shall provide the other party with (I) a draft copy of any press release to be issued by such party in advance of issuing such press release, and (II) the opportunity to review and provide comments to the draft press release, which PAC or HPI, as applicable, shall consider in good faith; provided, further, for the avoidance of doubt, neither Purchaser nor Seller shall have a right to approve any press release to be issued by PAC or HPI, respectively; and (C) describing this Agreement and the transactions contemplated by this Agreement in such filings, reports and/or releases (the “Unrestricted Disclosures”). The Unrestricted Disclosures shall also include disclosures of information about this Agreement and the transactions contemplated by this Agreement by representatives of PAC or HPI (as applicable) in the ordinary course of business to The New York Stock Exchange, financial analysts, rating agencies, banks and other

similar persons or institutions, which information is of the same general nature as that disclosed about PAC or HPI (as applicable) to such persons or institutions in the ordinary course of business.

(c) In addition to any other remedies available at law to Seller and Purchaser, Seller and Purchaser shall each have the right to seek equitable relief, including injunctive relief or specific performance, against the other party and/or its Representatives in order to enforce the provisions of this Section 15.2.

(d) Notwithstanding any other provision of this Agreement, the provisions of this Section 15.2 shall survive the Closing or the earlier termination of this Agreement.

15.3 Headings. The captions and headings herein are for convenience and reference only and in no way define, describe or limit the scope, content or intent of this Agreement or in any way affect its provisions.

15.4 Brokers. Seller and Purchaser agree that Broker was the only broker with whom the parties negotiated in connection with the sale and purchase of the Property. Seller is obligated to pay any and all brokerage commissions payable to the Broker, in accordance with a separate agreement between it and the Broker. Seller agrees to indemnify and hold Purchaser harmless from the claims of any other party claiming a commission due it by reason of an agreement with Seller. Purchaser agrees to indemnify and hold Seller harmless from the claims of any other party claiming a commission due it by reason of an agreement with Purchaser. Purchaser will be responsible for paying an independent advisory fee to JP Morgan pursuant to an agreement between them regarding JP Morgan’s investment advice in connection with this transaction. The provisions of this Section will survive the Closing and the delivery of the Deed or termination of this Agreement.

15.5 Modifications. This Agreement may not be modified in any respect except by an instrument in writing and duly signed by the parties hereto. The parties agree that this Agreement contains all of the terms and conditions of the understanding between the parties hereto and that there are no oral understandings whatsoever between them.

15.6 Notices. All notices, consents, approvals, acceptances, demands, waivers and other communications (“Notice”) required or permitted hereunder must be in writing and must be sent by (i) personal delivery, (ii) certified mail, return receipt requested, (iii) for next day delivery by nationally recognized overnight delivery service that provides evidence of the date of delivery, or (iv) electronic mail, in any case with all charges prepaid, addressed to the appropriate party at its address listed below.

To Seller: Preferred Apartment Communities, Inc.

3284 Northside Parkway, Suite 150

Atlanta, Georgia 30327

Attention: Jared A. Seff, Esq.

Email: jseff@pacapts.com

With a copy to: King & Spalding LLP

1180 Peachtree Street, NE

Atlanta, GA 30309

Attention: Joshua M. Kamin, Esq.

Email: jkamin@kslaw.com

To Purchaser: Highwoods Realty Limited Partnership

3100 Smoketree Court, Suite 600

Raleigh, NC 27604

Attention: Jeffrey D. Miller, Esq.
Email: jeff.miller@highwoods.com

With a copy to: Allman Spry Davis Leggett & Crumpler, PA

380 Knollwood Street, Suite 700

Winston-Salem, NC 27103
Attention: Thomas T. Crumpler, Esq.
Email: tcrumpler@allmanspry.com

All Notices given in accordance with this Section will be deemed to have been received three (3) business days after having been deposited in any mail depository regularly maintained by the United States Postal Service, if sent by certified mail, on the date delivered if by personal delivery or electronic mail or one (1) business day after having been deposited with a nationally recognized overnight delivery service, if sent by overnight delivery, or on the date delivery is refused, as indicated on the return receipt or the delivery records of the delivery service, as applicable. Notices given by counsel to a party in accordance with the above shall be deemed given by such party.

15.7 Assignment. Purchaser will not assign this Agreement or its rights hereunder without Seller’s prior written consent, which may be withheld in Seller’s sole and absolute discretion, and any attempted assignment or transfer without Seller’s consent will be null and void ab initio and of no effect. The foregoing notwithstanding, provided that Purchaser is in compliance with the conditions hereinafter set forth, Purchaser shall have the right to assign this Agreement, without Seller’s consent, provided (a) the assignment is effective on the Closing Date, (b) the assignment is to an Affiliate of Purchaser created by Purchaser or its qualified intermediary which may organize an “exchange accommodation title holder” (“EAT”) for the purpose of “parking” the Property in connection with and to accommodate a reverse exchange of property under Section 1031 of the Internal Revenue Code as described in Section 15.26 hereof, (c) the assignment is on the form attached hereto as Exhibit Q or is a form required by Purchaser qualified intermediary and its EAT (provided, Seller incurs no cost in connection therewith) and includes all of Purchaser’s right, title and interest in and to the Deposit, and provides for the assumption, for the benefit of Seller as a third-party beneficiary, of all of Purchaser’s obligations under this Agreement, (d) that such assignee has assumed any and all obligations and liabilities of Purchaser under this Agreement, but, notwithstanding such assumption, Purchaser shall continue to be liable hereunder, and (e) Purchaser provides Seller, at least seven (7) business

days’ prior to Closing, with written notice of such assignment and executed counterparts of all documents evidencing or otherwise executed in connection with such assignment. Any assignment which fails to meet the criteria of this Section 15.7 or to which Seller has not otherwise consented shall be void and of no force or effect. Purchaser shall deliver to Seller prior to Closing, and as a condition to the effectiveness of any such assignment, such supporting evidence of the foregoing as is reasonably required by Seller.

15.8 Further Assurances. Purchaser and Seller hereby agree to complete, execute and deliver to the appropriate governmental authorities any returns, affidavits or other instruments that may be required with respect to any transfer, gains, sales, stamps and similar taxes, if any, arising out of this transaction.

15.9 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Georgia.

15.10 Offer Only. This Agreement will not constitute a binding agreement by and between the parties hereto until such time as this Agreement has been duly executed and delivered by each and the Deposit is deposited with the Escrow Agent in accordance with this Agreement.

15.11 Counterparts. This Agreement may be executed in counterparts, each of which, when taken together shall constitute fully executed originals.

15.12 E-mail or PDF Signatures. Signatures to this Agreement and the Site Access and Indemnification Agreement transmitted by e-mail or PDF shall be valid and effective to bind the party so signing. A copy of the electronic mail or PDF shall also be sent to the intended addressee by one of the means described in clauses (i) or (ii) of Section 15.6 above, in any case with all charges prepaid, addressed to the appropriate party at its address provided herein.

15.13 Entire Agreement; Severability. This Agreement, together with the Site and Access Agreement, embody the entire agreement between the parties relative to the subject matter hereof, and there are no oral or written agreements between the parties, nor any representations made by either party relative to the subject matter hereof, which are not expressly set forth herein. If any portion of this Agreement becomes or is held to be illegal, null or void or against public policy, for any reason, the remaining portions of this Agreement will not be affected thereby and will remain in force and effect to the fullest extent permissible by law.

15.14 No Waiver. No waiver by Purchaser or Seller of a breach of any of the terms, covenants or conditions of this Agreement by the other party will be construed or held to be a waiver of any succeeding or preceding breach of the same or any other term, covenant or condition herein contained. No waiver of any default by Purchaser or Seller under this Agreement will be implied from any omission by the other party to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect a default other than as specified in such waiver. The consent or approval by Purchaser or Seller to or of any act by the other party requiring the consent or approval of the first party will not be deemed

to waive or render unnecessary such party’s consent or approval to or of any subsequent similar acts by the other party.

15.15 Limitation of Liability. If Purchaser becomes aware after Closing of any breach and/or violation of any of Seller’s representations and/or warranties and/or Excepted Claims set forth herein, or of any other matter for which Seller would or could become liable to Purchaser, whether hereunder or under any Closing document, and Purchaser timely commences any action(s) to enforce any alleged breach and/or violation of any of the representations and/or warranties of Seller, or Seller’s liability for an Excepted Claim as set forth in this Agreement or to enforce any other claims for liability against Seller, and, notwithstanding any provision to the contrary contained herein or in any document executed by Seller pursuant hereto or in connection herewith, in no event shall Seller be liable for any special, consequential, speculative, punitive or similar damages, nor shall Seller’s liability in any such event or events exceed one and one-half percent (1.50%) of the Purchase Price (“Seller’s Maximum Liability”) and no claim by Purchaser may be made and Seller shall not be liable for any judgment in any action based upon any such claim unless and until Purchaser’s claims are for an aggregate amount in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) (the “Claims Threshold”), in which event Seller’s liability respecting any final judgment concurring such claim(s) shall be for the entire amount thereof, subject to Seller’s Maximum Liability. The amount of Seller’s Maximum Liability shall be inclusive of attorneys’ fees, and ancillary court and experts’ costs and fees. Purchaser agrees that, prior to making any claims against Seller, Purchaser shall, to the extent applicable, pursue any remedies it may have against the Title Company pursuant to the Title Policy. The provisions of this Section 15.15 will survive the Closing and the delivery of the Deed.

15.16 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

15.17 Successors and Assigns. Subject to the limitations set forth elsewhere in this Agreement, each and all of the covenants and conditions of this Agreement will inure to the benefit of and will be binding upon the successors-in-interest, assigns, and representatives of the parties hereto. As used in the foregoing, “successors” refers to the successors to all or substantially all of the assets of parties hereto and to their successors by merger or consolidation.

15.18 No Partnership or Joint Venture. Seller or Purchaser will not, by virtue of this Agreement, in any way or for any reason be deemed to have become a partner of the other in the conduct of its business or otherwise, or a joint venturer. In addition, by virtue of this Agreement there shall not be deemed to have occurred a merger of any joint enterprise between Purchaser and Seller.

indemnify Seller against all Liabilities (including reasonable attorneys’ fees, expenses and disbursements) incurred by Seller by reason of the filing by Purchaser of any such notice of pendency, lis pendens or other instrument.

15.20 Designation Agreement. Section 6045(e) of the United States Internal Revenue Code and the regulations promulgated thereunder (herein collectively called the “Reporting Requirements”) require an information return to be made to the United States Internal Revenue Service, and a statement to be furnished to Seller, in connection with the Transaction. Escrow Agent is either (x) the person responsible for closing the Transaction (as described in the Reporting Requirements) or (y) the disbursing title or escrow company that is most significant in terms of gross proceeds disbursed in connection with the Transaction (as defined in the Reporting Requirements). Accordingly:

(a) Escrow Agent is hereby designated as the “Reporting Person” (as defined in the Reporting Requirements) for the Transaction. Escrow Agent shall perform all duties that are required by the Reporting Requirements to be performed by the Reporting Person for the Transaction.

(b) Seller and Purchaser shall furnish to Escrow Agent, in a timely manner, any information requested by Escrow Agent and necessary for Escrow Agent to perform its duties as Reporting Person for the Transaction.

(c) Escrow Agent hereby requests Seller to furnish to Escrow Agent Seller’s correct taxpayer identification number. Seller acknowledges that any failure by Seller to provide Escrow Agent with Seller’s correct taxpayer identification number may subject Seller to civil or criminal penalties imposed by law. Accordingly, Seller hereby certifies to Escrow Agent, under penalties of perjury, that Seller’s correct taxpayer identification number is as set forth opposite Seller’s signature to this Agreement.

(d) Each of the parties hereto shall retain this Agreement for a period of four (4) years following the calendar year during which Closing occurs.

The provisions of this Section 15.20 will survive the Closing and the delivery of the Deed.

of no force or effect. The provisions of this Section 15.21 will survive the Closing and the delivery of the Deed and/or termination of this Agreement. Purchaser shall provide written notice to Seller prior to the expiration of the Survival Period of any alleged breach of such covenants, indemnities, warranties or representations and shall allow Seller thirty (30) days within which to cure such breach, or, if such breach cannot reasonably be cured within thirty (30) days, an additional reasonable period of time so long as a cure has been commenced and is being diligently pursued. If Seller fails to cure such breach after written notice and within such cure period, Purchaser’s sole remedy shall be an action at law for actual damages as a consequences thereof, which must be commenced, if at all, within the Survival Period; provided, however, that if within the Survival Period Purchaser gives Seller written notice of such a breach and Seller notifies Purchaser of Seller’s commencement of a cure, commences to cure and thereafter terminates such cure effort, Purchaser shall have an additional thirty (30) days from the date of such termination within which to commence an action at law for damages as a consequence of Seller’s failure to cure. The Survival Period referred to herein shall apply to known as well as unknown breaches of such covenants, indemnities, warranties or representations. Purchaser’s waiver(s) and release(s) set forth in Sections 1.6 and 1.7 shall apply fully to liabilities under such covenants, indemnities, representations and warranties and is hereby incorporated by this reference. Purchaser specifically acknowledges that such termination of liability represents a material element of the consideration to Seller. The limitation as to Seller’s liability in this Section 15.21 does not apply to Seller’s or Purchaser’s liability with respect to prorations and adjustments under Article XI.

Notwithstanding any contrary provision of this Agreement, if Seller becomes aware during the pendency of this Agreement prior to Closing of any matters which make any of its representations or warranties untrue in any material respect, Seller shall promptly disclose such matters to Purchaser in writing. In the event that Seller so discloses any matters which make any Seller’s representations and warranties so untrue in any material respect or in the event that Purchaser otherwise becomes aware during the pendency of this Agreement prior to Closing of any matters which so make any of Seller’s representations or warranties untrue in any material respect, Seller shall bear no liability for such matters (provided that such untruth is not the result of Seller’s breach of any express covenant set forth in this Agreement), but Purchaser shall have the right to elect in writing on or before the Closing Date, (i) to waive such matters and complete the purchase of the Property without reduction of the Purchase Price in accordance with the terms of this Agreement, or (ii) as to any matters disclosed following the Effective Date, to terminate this Agreement if the failure of such representations or warranties would, individually or in the aggregate, result in an adverse impact or cost on or to the Property or Purchaser which, either (x) is in excess of the Claims Threshold, or (y) is less than the Claims Threshold and Purchaser does not receive a credit toward the Purchase Price of such amount at Closing.

No claim for a breach of any of Seller’s Representations shall be actionable or payable (a) if such breach is due to or is based on a condition, state of facts or other matter that was known to Purchaser or disclosed to Purchaser or its Affiliate in the Property Documents or by email, overnight delivery or otherwise available to Purchaser or its Affiliate, or in writing delivered to Purchaser or its Affiliate prior to Closing.

15.22 Third Party Beneficiaries. This Agreement shall not confer any rights or remedies on any person other than the parties and their respective successors and permitted assigns.

15.23 Access to Records Following Closing. Purchaser agrees that for a period of six (6) months following Closing, Seller shall have the right during regular business hours, on five (5) days written notice to Purchaser, to examine and review at Purchaser's office (or, at Purchaser's election, at the Property), the books and records of Seller relating to the ownership and operation of the Property, which was delivered by Seller to Purchaser at the Closing. Likewise, Seller agrees that for a period of six (6) months following the Closing, Purchaser shall have the right during regular business hours, on fifteen (15) days written notice to Seller, to examine and review at Seller’s office, all non-confidential or non-proprietary books, records and files, if any, retained by Seller relating to the ownership and operation by Seller prior to the Closing of the Property. The provisions of this Section shall survive for a period of six (6) months after the Closing Date. Notwithstanding the foregoing, Seller and Purchaser shall cooperate with one another in a commercially reasonable manner in connection with any reconciliation or audit of tenant expenses, and such obligation shall survive Closing until all such matters are finally resolved.

15.24 Joint and Several. The liability of each constituent entity comprising Seller shall be joint and several with the liability of each other constituent entity comprising Seller.

15.25 Cooperation with Purchaser’s Auditors and SEC Filing Requirements. Seller shall provide to Purchaser (at Purchaser’s sole expense) copies of, or shall provide Purchaser access to, such factual information as may be reasonably requested by Purchaser, or its accountants, and in the possession or control of Seller, or its accountants (and will request its property manager as of the date of Closing to provide such information), and which is necessary to enable Purchaser (or HPI and/or its Affiliates) to file its or their Forms 8-K, 10-Q or 10-K if, as and when such filing may be required by the SEC. Purchaser hereby releases and agrees to indemnify, defend and hold Seller, its Affiliates, agents, employees, and partners, harmless from and against any claims, liability, expenses (including without limitation reasonable attorneys’ fees), losses and damages arising out of Seller's cooperation hereunder or any information provided by Seller pursuant hereto; provided, however, that this indemnity shall not apply to the extent such liability is caused by the gross negligence or willful misconduct of Seller. The indemnity obligations of Purchaser to Seller under this Section 15.25 shall survive the termination of this Agreement for any reason.

Closing. It is contemplated that Purchaser may assign this Agreement to a “qualified intermediary” pursuant to Treasury Regulation Section 1.103(k)-I(g)4(v) and/or Purchaser may cause the Property to be conveyed (i.e., “parked”) with an EAT organized by a qualified intermediary pending Purchaser’s sale of other properties owned by Purchaser (its “relinquished property”) as part of the Exchange. Accordingly, in the event of such assignment and/or “parking” arrangement, Seller shall, upon notice from Purchaser, convey the Property at Closing to the EAT or EATs organized by Purchaser’s qualified intermediary, and shall to the extent of the assignment, treat the qualified intermediary and/or EAT(s) as the valid assignee of Purchaser’s rights hereunder. Notwithstanding anything contained herein, (a) Seller shall not be required to acquire or hold legal or beneficial title to, or any other interest, in any property for purposes of consummating Purchaser’s Exchange, (b) Seller shall have the right to review and approval (which approval shall not be unreasonably withheld, conditioned or delayed) all documents Seller is required to execute in connection with any Exchange, and (c) in the event of any Exchange, and notwithstanding that in connection with such Exchange record title to the Property may be conveyed by Seller to an accommodation entity which thereupon will later convey title to the Property to Purchaser, all covenants, agreements and indemnifications of Purchaser pursuant to this Agreement shall be deemed to be made by Purchaser, shall survive any conveyance by Seller to an accommodation party, shall continue in favor of and inure to the benefit of Seller and shall be enforceable by Seller against Purchaser to the extent provided in this Agreement as though the Property had been conveyed directly by Seller to Purchaser and the exchange shall in no way reduce, abridge or modify any of Purchaser’s obligations or any of Seller’s rights or remedies hereunder. Seller will have no liability to Purchaser under or in connection with any Exchange, including in the event the Exchange is not consummated, or in the event Purchaser does not achieve the desired tax treatment.

15.27 Force Majeure Event. If Closing does not occur on the Closing Date because of the occurrence of a Force Majeure Event (as defined below) (but unless Purchaser and Seller otherwise agree in writing, no such Force Majeure Event extension shall exceed ten (10) days in the aggregate), the Closing Date shall be extended to the next business day immediately following the cessation of the Force Majeure Event. For purposes of this Agreement, the term “Force Majeure Event” means acts of God (including, but not limited to tornadoes, floods, hurricanes and/or other weather conditions or other national disasters), expropriation or confiscation of facilities by any governmental authority, compliance with any order or request of any governmental authority, strikes, lockouts, riots, or other labor troubles or a national emergency, a pandemic or epidemic, or a failure of the Automated Clearing House or similar wire transfer system utilized for the transfer of money or similar causes not within Seller’s or Purchaser’s control.

[Remainder of page intentionally left blank; signature page(s) to follow]

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto, as of the Effective Date.

SELLER:

POP 4208 Six Forks Road, L.P., a Delaware limited partnership

By: POP Cap Trust GP, LLC, a Delaware limited liability company, its sole general partner

By: POP Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Office Properties, LLC, a Maryland limited liability company, its sole member

By: PAC Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Apartment Communities Operating Partnership, L.P., a Delaware limited partnership, as sole member of the Board of Managers

By: Preferred Apartment Communities, Inc., a Maryland corporation, its sole general partner

By: /s/ Joel T. Murphy

Name: Joel T. Murphy

Title: Chief Executive Officer and President

SELLER SIGNATURES CONTINUE ON THE FOLLOWING PAGE

POP Morrocroft, L.P., a Delaware limited partnership

By: POP Morrocroft GP, LLC, a Delaware limited liability company, its sole general partner

By: POP Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Office Properties, LLC, a Maryland limited liability company, its sole member

By: PAC Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Apartment Communities Operating Partnership, L.P., a Delaware limited partnership, as sole member of the Board of Managers

By: Preferred Apartment Communities, Inc., a Maryland corporation, its sole general partner

By: /s/ Joel T. Murphy

Name: Joel T. Murphy

Title: Chief Executive Officer and President

SELLER SIGNATURES CONTINUE ON THE FOLLOWING PAGE

POP 150 Fayetteville, LP, a Delaware limited partnership

By: POP 150 GP, LLC, a Delaware limited liability company, its sole general partner

By: POP Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Office Properties, LLC, a Maryland limited liability company, its sole member

By: PAC Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Apartment Communities Operating Partnership, L.P., a Delaware limited partnership, as sole member of the Board of Managers

By: Preferred Apartment Communities, Inc., a Maryland corporation, its sole general partner

By: /s/ Joel T. Murphy

Name: Joel T. Murphy

Title: Chief Executive Officer and President

SELLER SIGNATURES CONTINUE ON THE FOLLOWING PAGE

POP Capitol Towers, LP, a Delaware limited partnership

By: POP NC GP, LLC, a Delaware limited liability company, its sole general partner

By: POP Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Office Properties, LLC, a Maryland limited liability company, its sole member

By: PAC Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Apartment Communities Operating Partnership, L.P., a Delaware limited partnership, as sole member of the Board of Managers

By: Preferred Apartment Communities, Inc., a Maryland corporation, its sole general partner

By: /s/ Joel T. Murphy

Name: Joel T. Murphy

Title: Chief Executive Officer and President

SELLER SIGNATURES CONTINUE ON THE FOLLOWING PAGE

PAC Galleria 75, LLC., a Delaware limited liability company

By: PAC Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Apartment Communities Operating Partnership, L.P., a Delaware limited partnership, as sole member of the Board of Managers

By: Preferred Apartment Communities, Inc., a Maryland corporation, its sole general partner

By: /s/ Joel T. Murphy

Name: Joel T. Murphy

Title: Chief Executive Officer and President

POP 8 West Mezzanine Lending, LLC., a Delaware limited liability company

By: PAC Lending, LLC, a Delaware limited liability company, its sole member

By: PAC Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Apartment Communities Operating Partnership, L.P., a Delaware limited partnership, as sole member of the Board of Managers

By: Preferred Apartment Communities, Inc., a Maryland corporation, its sole general partner

By: /s/ Joel T. Murphy

Name: Joel T. Murphy

Title: Chief Executive Officer and President

SELLER SIGNATURES CONTINUE ON THE FOLLOWING PAGE

Preferred Office Properties, LLC., a Maryland limited liability company

By: PAC Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Apartment Communities Operating Partnership, L.P., a Delaware limited partnership, as sole member of the Board of Managers

By: Preferred Apartment Communities, Inc., a Maryland corporation, its sole general partner

By: /s/ Joel T. Murphy

Name: Joel T. Murphy

Title: Chief Executive Officer and President

END OF SELLER SIGNATURES

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto, as of the Effective Date.

PURCHASER:

Highwoods Realty Limited Partnership, a North Carolina limited partnership

By: Highwoods Properties, Inc., a Maryland corporation, its Sole General Partner

By: /s/ Jeffrey D. Miller

Name: Jeffrey D. Miller

Title: Executive Vice President & General Counsel


Federal Tax Identification No.:

EXHIBIT 10.5

PURCHASE AND SALE

AGREEMENT

dated

April 16, 2021

by and among

POP ARMOUR YARDS, LLC, POP 251 ARMOUR YARDS, LLC

SELLER

and

HIGHWOODS REALTY LIMITED PARTNERSHIP,

PURCHASER

Note: Information designated with [●] has been omitted from this exhibit. The filer has determined that such information is both not material and is the type that the registrant treats as private or confidential.

TABLE OF CONTENTS

Page


ARTICLE I SALE OF THE PROPERTY			4
1.1 Sale of Property			4
1.2 No Representations			5
1.3 No Reliance			6
1.4 Acceptance of Deeds			6
1.5 “AS IS”			6
1.6 Seller Release from Liability			7
1.7 Purchaser’s Waiver of Objections			8
1.8 Survival			8
ARTICLE II PURCHASE PRICE			8
2.1 Purchase Price			8
2.2 Sale to Third Party Buyer.			9
ARTICLE III DEPOSIT AND OPENING OF ESCROW			10
3.1 Deposit			10
3.2 Interest Bearing			10
3.3 Application			11
3.4 Independent Consideration			11
ARTICLE IV CONDITIONS TO CLOSING			11
4.1 Conditions to Purchaser’s Obligation to Purchase			11
4.2 Conditions to Seller’s Obligation to Sell			16
4.3 No Financing Contingency			17
4.4 Existing Debt Assumptions.			17
ARTICLE V THE CLOSING			20
5.1 Date and Manner of Closing			20
5.2 Closing			20
ARTICLE VI DUE DILIGENCE PERIOD EXPIRED; DEPOSIT NON-REFUNDABLE			20
6.1 Approval of Documents and Materials			20
6.2 Reliability of Information			21
6.3 Due Diligence Period Expired			21
6.4 Deposit Non-Refundable to Purchaser.			21
ARTICLE VII INSPECTIONS			21
ARTICLE VIII TITLE AND SURVEY; REA			22
8.1 Approval of Title Documents and Survey			22
8.2 Title Updates			22
8.3 Encumbrances			22
8.4 Notice of Commencement			23
8.5 Seller’s Failure to Remove			23


ARTICLE IX RISK OF LOSS			23
9.1 Casualty			23
9.2 Condemnation			24
ARTICLE X OPERATION OF THE PROPERTY			24
10.1 Operations			24
10.2 Tenant Defaults; Other Proceedings			25
10.3 New Services Agreements / New Leases / New Tract Improvements			25
10.4 Tenant Inducement Costs / Tract Improvements			25
ARTICLE XI CLOSING PRORATIONS AND ADJUSTMENTS; PAYMENT OF CLOSING COSTS			26
11.1 General			26
11.2 Prorations			26
11.3 Rents			27
11.4 Security Deposits			28
11.5 Existing Debt			29
11.6 Reserved.			29
11.7 Final Adjustment After Closing			29
11.8 Reserved.			30
11.9 Thirty-Day Month			30
ARTICLE XII DEFAULT			30
12.1 Default by Purchaser			30
12.2 Default by Seller			30
ARTICLE XIII REPRESENTATIONS AND WARRANTIES			31
13.1 Seller’s Representations			31
13.2 Definition of Seller’s Knowledge			33
13.3 Purchaser’s Representations, Warranties, and Covenants			33
13.4 Survival			34
ARTICLE XIV ESCROW PROVISIONS			34
14.1 Escrow Provisions			34
ARTICLE XV GENERAL PROVISIONS			36
15.1 No Agreement Lien			36
15.2 Confidentiality			36
15.3 Headings			37
15.4 Brokers			37
15.5 Modifications			37
15.6 Notices			37
15.7 Assignment			38
15.8 Further Assurances			39
15.9 Governing Law			39
15.10 Offer Only			39
15.11 Counterparts			39


15.12 E-mail or PDF Signatures			39
15.13 Entire Agreement; Severability			39
15.14 No Waiver			39
15.15 Limitation of Liability			40
15.16 Waiver of Jury Trial			40
15.17 Successors and Assigns			40
15.18 No Partnership or Joint Venture			40
15.19 No Recordation			40
15.20 Designation Agreement			41
15.21 Survival			41
15.22 Third Party Beneficiaries			42
15.23 Access to Records Following Closing.			42
15.24 Joint and Several			43
15.25 Cooperation with Purchaser’s Auditors and SEC Filing Requirements.			43
15.26 Section 1031 Exchange.			43
15.27 Force Majeure Event.			44

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this “Agreement”) is dated and made as of April 16, 2021 (the “Effective Date”) by and among (i) POP ARMOUR YARDS, LLC, a Delaware limited liability company, and POP 251 ARMOUR YARDS, LLC, a Delaware limited liability company (individually and collectively, “Seller”), having an address at 3284 Northside Parkway, Suite 150, Atlanta, GA 30327, and (ii) HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina limited partnership with an office at 3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604 (“Purchaser”).

RECITALS

A. Seller desires to sell and Purchaser desires to purchase all of Seller’s right, title and interest in and to the Property, upon the terms and conditions set forth in this Agreement.

B. Certain rules of construction for interpreting this Agreement are set forth on Schedule 1 attached hereto which is hereby incorporated in and constitutes part of this Agreement.

ARTICLE I

SALE OF THE PROPERTY

(a) Land. The following parcels of real property (individually, a “Tract”, and collectively, the “Land” or “Tracts”):

(i) fee simple interest in a tract or tracts of land in Atlanta, Fulton County, Georgia, described on Exhibit A-1, on which is located four (4) office buildings containing approximately 186,779 square feet, in the aggregate, known as “Armour Yards” (the “Armour Yards Tract”);

(ii) fee simple interest in a tract or tracts of land in Atlanta, Fulton County, Georgia, described on Exhibit A-2, known as “251 Armour” (the “251 Armour Tract”);

together with all and singular easements, covenants, agreements, rights, privileges, tenements, and hereditaments thereunto now or hereafter belonging or appertaining thereto, and any and all

oil, gas and mineral rights relating to such real estate, water and water rights, ditch and any other rights to use and appropriate water from or relating to such real estate;

(b) Appurtenances. All rights, easements, licenses, appurtenances, tenements, hereditaments, privileges and other rights appurtenant to the Land (the “Appurtenances”);

(c) Improvements. All buildings, structures, facilities, installations, fixtures and other improvements of every kind located on, under or within the Land (the “Improvements”);

(d) Leases. Seller’s right, title and interest in and to all leases, subleases, licenses or other occupancy agreements including all amendments, affecting the Land and Improvements which are shown on Exhibit B attached hereto and any New Leases (as hereinafter defined in Section 10.3) (collectively, the “Leases”), including any guaranties of such Leases and any security deposits under such Leases;

(f) Service Agreements. All service agreements listed on Exhibit C attached hereto and any New Service Agreements (as defined in Section 10.3) (collectively, the “Service Agreements”); and

1.4 Acceptance of Deeds. Purchaser hereby acknowledges and agrees that the acceptance of the Deeds (as hereinafter defined in Section 4.1(b)(i)) by Purchaser shall be deemed to be full performance and discharge of every agreement and obligation on the part of Seller to be performed under this Agreement except those, if any, which are herein specifically stated to survive delivery of the Deeds. No agreement or representation or warranty made in this Agreement by Seller will survive the Closing and the delivery of the Deeds, unless expressly provided otherwise herein.

BUT NOT LIMITED TO, CLAIMS RELATING TO CERCLA, RCRA, PHYSICAL CHARACTERISTICS AND EXISTING CONDITIONS, INCLUDING STRUCTURAL AND GEOLOGICAL CONDITIONS, SUBSURFACE SOIL AND WATER CONDITIONS, AND SOLID AND HAZARDOUS WASTE AND HAZARDOUS MATERIALS ON, UNDER, ADJACENT TO OR OTHERWISE AFFECTING THE PROPERTY. PURCHASER FURTHER ASSUMES THE RISK OF CHANGES IN APPLICABLE LAWS AND REGULATIONS RELATING TO PAST, PRESENT AND FUTURE ENVIRONMENTAL CONDITIONS ON THE PROPERTY AND THE RISK THAT ADVERSE PHYSICAL CHARACTERISTICS AND CONDITIONS, INCLUDING THE PRESENCE OF HAZARDOUS MATERIALS OR OTHER CONTAMINANTS, MAY NOT HAVE BEEN REVEALED BY ITS INVESTIGATION.

(a) Except for (i) any Claims (as hereinafter defined) arising out of a breach or default by Seller under this Agreement (including a breach of any of Seller’s representations and warranties in Article XIII) or the Closing Documents, and (ii) any Claims alleging that a default or breach by Seller occurred prior to the Closing (during Seller’s respective periods of ownership) under the Leases that results in damages to Purchaser or its Affiliates that were actually incurred prior to the Closing, in each case, subject to Section 15.15 and Section 15.21 and of which Purchaser had no knowledge prior to Closing (collectively, “Excepted Claims”), Purchaser and anyone claiming by, through or under Purchaser hereby waives its right to recover from and fully and irrevocably releases Seller and Seller’s employees, officers, directors, trustees, shareholders, members, partners, representatives, agents, servants, attorneys, Affiliates (as hereinafter defined in Article VII), parents, subsidiaries, successors and assigns, and all persons, firms, corporations and organizations in its behalf (“Released Parties”) from any and all claims, responsibility and/or liability that it may now have or hereafter acquire against any of the Released Parties for any and all costs, losses, claims, liabilities, damages, expenses, demands, debts, controversies, claims, actions or causes of actions (collectively, “Claims”) arising from or related to the condition (including any construction defects, errors, omissions or other conditions, latent or otherwise, and the presence in the soil, air, structures and surface and subsurface waters of materials or substances that have been or may in the future be deemed to be hazardous materials or otherwise toxic, hazardous, undesirable or subject to regulation and that may need to be specifically treated, handled and/or removed from the Property under current or future federal, state and local laws, regulations or guidelines or common law), valuation, salability or utility of the Property, condition of title to the Property, compliance with any applicable federal, state or local law, rule or regulations or common law with respect to the Property, or the Property’s suitability for any purposes whatsoever, and any information furnished by the Released Parties in connection with this Agreement.

(b) Except with respect to the Excepted Claims, Purchaser agrees that under no circumstances will it make any claim against, bring any action, cause of action or proceeding against, or assert any liability upon, Seller, its agents, consultants, contractors, or any other persons who prepared or furnished any of the Property Documents (as hereinafter defined in Section 6.1) (such parties, collectively, the “Property Documents Preparers”) as a result of the inaccuracy, unreliability or insufficiency of, or any defect or mistake in, any of the Property Documents (including the negligence of any Property Documents Preparer in connection with the preparation or furnishing of any of the Property Documents), and, except for the Excepted Claims, Purchaser hereby fully and forever releases, acquits and discharges Seller and each Property Documents Preparer of and from any such claims, actions, causes of action, proceedings or liability, whether known or unknown. This release expressly includes claims of which Purchaser is presently unaware or which Purchaser does not presently suspect to exist which, if known by Purchaser, would materially affect Purchaser’s release of Seller.

ARTICLE II

PURCHASE PRICE

2.1 Purchase Price. The purchase price to be paid for the Property is [●] (the “Purchase Price”), and shall be paid as follows:

(a) Assumption of Existing Debt: Assumption by Purchaser at Closing of all or any portion of the Existing Debt (as defined and determined pursuant to Section 4.4 hereof), and

2.2 Sale to Third Party Buyer.

(a) Purchaser, Seller and Jones Lange LaSalle Americas, Inc. (“Broker”) are parties to that certain Exclusive Listing Agreement, to be entered into on or around the Effective Date, to sell the Property to a third-party buyer (the “Third Party Buyer”) prior to the Closing Date. Subject to Section 2.2(c), Seller shall have the unfettered right, and will use commercially reasonable efforts for the period beginning on the Effective Date and ending on September 1, 2021, to sell the Property to a Third Party Buyer prior to the Closing Date on terms acceptable to Seller in Seller’s sole and absolute discretion.

(b) In the event Seller receives a bona fide offer to purchase the Property from a Third Party Buyer for contract sales price in excess of [●], and on other terms and conditions acceptable to Seller in its sole and absolute discretion prior to the Closing Date, Seller shall be permitted to negotiate and enter into a definitive written agreement with such Third Party Buyer for the sale of the Property on terms acceptable to Seller in Seller’s sole and absolute discretion (the “Third Party Buyer PSA”). Upon the closing of a sale of the Property to a Third Party Buyer pursuant to a Third Party Buyer PSA where the contract sales price is in excess of [●], this Agreement shall automatically terminate and neither Seller nor Purchaser shall have any obligations hereunder except for those which expressly survive termination.

(c) In the event Seller receives a bona fide offer to purchase the Property from a Third Party Buyer for a contract sales price that is equal to or less than [●], and on terms and conditions acceptable to Seller in its sole and absolute discretion prior to the Closing Date, Seller shall promptly notify Purchaser in writing of such offer and the aggregate gross purchase price to be paid by the Third Party Buyer for the Property thereunder (the “Offer Notice”). Purchaser shall have five (5) Business Days following receipt of the Offer Notice (the “Offer Notice

Response Period”) to notify Seller in writing whether Purchaser elects or declines to purchase the Property in accordance with the terms of this Agreement. If Purchaser declines to purchase the Property or does not respond prior to the expiration of the Offer Notice Response Period, Seller shall be permitted to negotiate and enter into a Third Party Buyer PSA with such Third Party Buyer. For the avoidance of doubt, Seller may submit multiple Offer Notices to Purchaser prior to the Closing Date.

(d) In the event Seller is successful in selling the Property to a Third Party Buyer following Purchaser’s rejection (or deemed rejection) to purchase the Property pursuant to Section 2.2(c), Seller shall provide to Purchaser a copy of the Third Party Buyer PSA and a copy of the closing statement from such sale or otherwise certify to Purchaser the economic terms of such sale, and (i) provided the terms of the Third Party Buyer PSA are consistent with the terms of the closing statement, Purchaser shall pay to Seller the difference between the contract purchase price under such Third Party Buyer PSA minus [●], by wire transfer of federal funds to an account designated by Seller in writing to Purchaser, within five (5) Business Days following such sale, (ii) Purchaser shall receive a refund of the Deposit less if applicable, any portion of the Deposit disbursed to Seller in satisfaction of the obligations of Purchaser set forth in the preceding clause (i), and (iii) this Agreement shall terminate automatically upon the closing of the sale of the Property to the Third Party Buyer and, if applicable, following any payment required pursuant to clause (i) with no further action required by the parties hereto, and both parties will be relieved of any further obligations hereunder, except for the obligations hereunder which expressly survive the termination of this Agreement. For the avoidance of doubt, (x) Seller shall in no event be under any obligation to sell the Property prior to the Closing Date, and (y) Purchaser shall have no liability to Seller under this Section 2.2 in the event that Seller closes under a Third Party Buyer PSA for the sale of the Property to a Third Party Buyer with a contract sales price equal to or greater than [●].

(e) In the event that the Property is not sold to a Third Party Buyer before the Closing Date pursuant to this Section 2.2, Purchaser shall purchase the Property in accordance with the terms of this Agreement, provided, as set forth in Section 4.4(a)(ii) below, Purchaser shall have no obligation to purchase the Property after April 1, 2022.

(f) The provisions of this Section 2.2 shall survive Closing or the other termination of this Agreement.

ARTICLE III

DEPOSIT AND OPENING OF ESCROW

3.1 Deposit. Within one (1) business day following the Effective Date and as a condition precedent to this Agreement becoming a binding agreement between the parties, Purchaser will deposit FIVE MILLION AND 00/100 DOLLARS ($5,000,000.00) (the “Deposit”) with Chicago Title Insurance Company, c/o Republic Commercial Title Company, 6111 Peachtree Dunwoody Road, Building D, Atlanta, Georgia 30328, Attention: Andrew Weiss(“Escrow Agent”) by wire transfer of immediately available federal funds and will provide Escrow Agent with a fully completed form W-9 which provides Purchaser’s tax identification

number. If Purchaser fails to deposit the Deposit within the time period provided for above, Seller may at any time following the due date therefor and prior to Escrow Agent’s receipt of such Deposit, terminate this Agreement, in which case this Agreement shall be null and void ab initio and in such event Escrow Agent will immediately deliver to Seller all copies of this Agreement in its possession and thereafter neither party shall have any further rights or obligations to the other hereunder, except as otherwise set forth in this Agreement. The Deposit shall be non-refundable to Purchaser except as otherwise expressly set forth in this Agreement.

3.3 Application. If Closing occurs, the Deposit will be credited against the Purchase Price at Closing. If the Closing does not occur as a result of the Property being sold to a Third Party Buyer pursuant to Section 2.2(c), all or a portion of the Deposit will be credited against Purchaser’s payment obligations to Seller (if any) pursuant to Section 2.2(d)(i) within five (5) Business Days following the sale of the Property to the Third Party Buyer, and the remainder of the Deposit (if any) shall be delivered to Purchaser. If the Closing does not occur in accordance with the terms hereof other than pursuant to Section 2.2(c), the Deposit shall be delivered to the party entitled to the Deposit, as provided in this Agreement. In all events, the Deposit shall be held in escrow by Escrow Agent, in trust in accordance with the provisions of Article XIV.

ARTICLE IV

CONDITIONS TO CLOSING

(a) Performance by Seller. Seller’s performance in all material respects of the obligations, covenants and deliveries required of Seller under this Agreement.

Seller is a party to that Agreement Between Seller and Humphries and Company, LLC (the “Contractor”) dated September 25, 2020 for services to be rendered by Contractor in connection with the design, construction and development of certain improvements currently being constructed on the 251 Armour Tract (the “Construction Contract”). The Seller through the Contractor is currently undertaking the work required to be performed by the Contractor in Construction Contract (the “Work”). Seller anticipates that the Work will be completed prior to the Closing. Seller agrees, at Seller’s sole cost and expense, to utilize commercially reasonable efforts to complete, or cause the Contractor (and all subcontractors who have contracted to complete any portion of the Work collectively the “Contractors”) to achieve Final Completion (as defined below) of all of the Work prior to the Closing Date (including the completion any “punch-list items” identified in good faith by Seller pursuant to the terms of the Construction Contract), subject however to delays resulting from the occurrence of a Force Majeure (as defined in Paragraph 15.2.7 hereof). Seller shall complete, or cause the Contractor to complete, the Work, substantially in accordance with the terms and provisions of the Construction Contract in accordance with all laws, rules and regulations governing same. For purposes of this Agreement, (a) the term “Final Completion” means that (i) a Certificate of Completion, or similar document issued by the applicable governmental authority, for the building which is the subject of the Work has been issued by the appropriate governmental authority, (ii) Square Feet Studio (the architect for the Work, the “Architect”) has issued the final Certificate of Payment of all sums due to Contractor pursuant to the Construction Contract, and (iii) Seller has made the final payments due under the Construction Contract to the Contractor (the “Final Payment”); provided, however, that this Paragraph shall not require, or be interpreted to require, Seller to make the Final Payment to the Contractor until such time as the Final Payment is actually due and payable to the Contractor pursuant to the provisions of the Construction Contract. Seller shall enforce the terms and conditions of the Contract against the Contractor as reasonably required in order to achieve Final Completion.

Seller hereby agrees to assign to Purchaser the construction warranties relating to the Work, if any, given by the Contractor and all subcontractors in their agreements with Seller or the Contractor (with respect to subcontractors), but only to the extent assignable. In the event the Construction Contract (or any subcontract), or any warranties issued in connection therewith, prevent the assignment of any such construction warranties to Purchaser, Purchaser will either (i) have such Construction Contract (and subcontracts) and/or warranties amended to allow for the assignment of such warranties to Purchaser (provided, Seller shall not be obligated to expend any money to procure such amendments), or (ii) should the amendments referenced in (i) above not be procured, Seller will use commercially reasonable efforts to enforce, in each case at Seller’s sole cost and expense, the warranties contained in such Construction Contract (or any subcontract) against the Contractor (or subcontractors) pursuant to the terms thereof, but with respect to the subcontracts, only to the extent enforceable by Seller thereunder.

Upon completion of the Work, Seller will procure signed lien waivers from (i) the Contractor (and cause the Contractor to procure any signed lien waivers from any subcontractor),

(ii) any design professionals and engineers engaged by Seller in connection with the Work, and (iii) any other potential lien claimant listed on any registry setting forth notices of commencement filed by a contractor in connection with the Work ([i] through [iii] being collectively the “Claimants”). The form of lien waiver shall be sufficient to enable the title company to issue to Purchaser a title policy for the Land without exception to any liens which has or may be filed by the Claimants. If Seller is unable to procure signed lien waivers from any potential Claimant as a result of the Work performed by them related thereto and/or any “punch-list items” that will continue beyond Closing, Seller will be deemed to have satisfied this condition if it delivers or causes to be delivered such affidavits or indemnities to, or makes other arrangements with, the title company, in each case sufficient to enable the title company to issue a title policy on the land without exception to any contractor’s, mechanic’s or materialman’s lien other encumbrances which may be filed to protect contractors under Georgia law.

(b) Seller’s Deliveries. Seller’s delivery at Closing of the following, all documents to be executed originals and, if applicable, witnessed and properly acknowledged (the Closing Documents”):

(i) Limited warranty deeds from each entity constituting Seller as to the portion of the Property each such entity owns in the form attached hereto as Exhibit D, subject to the following matters (collectively, the “Deed”):

(B) Any matter (including any lien, encumbrance or easement) voluntarily imposed or consented to in writing by Purchaser prior to or as of the Closing;

(C) Laws and governmental regulations, including all building codes, zoning regulations and ordinances, that affect the use, operation and maintenance of the Property, and any violations thereof;

(D) Such state of facts as may be shown on an accurate and current survey or by inspection of the Property;

(E) Variations between locations of fences, retaining walls, guy poles, hedges, treelines and shrubs;

(F) Rights of tenants, as tenants only, of the Land and Improvements under the terms and conditions of all Leases with Purchaser hereby acknowledging that Purchaser has examined such Leases; and

(G) the Permitted Exceptions, as defined in Section 8.1.

(ii) Reserved;

(iii) The Assignment and Assumption Agreement in the form attached as Exhibit F (the “Assignment and Assumption Agreement”);

(iv) The Leases, together with any letters of credit held as security deposits under any of the Leases and all instruments reasonably required to transfer such letters of credit to Purchaser;

(v) The Certification in the form attached hereto as Exhibit G that Seller is not a “foreign person”;

(vii) The Bill of Sale in the form attached hereto as Exhibit H;

(viii) A closing statement in form and content satisfactory to Seller and Purchaser (the “Closing Statement”) signed by Seller;

(x) At least three (3) business days prior to closing Seller must have delivered to Purchaser original tenant estoppel certificates executed by tenants under existing Leases from the following tenants of the Improvements: (1) Coyote Logistics LLC, (2) AGS LLC, and (3) GSMA LTD.(collectively, the “Major Tenants”) and from a sufficient number of other tenants of the Improvements (the “Minor Tenants”) so that estoppel certificates are received from tenants leasing no less than seventy percent (70%) of the aggregate area leased in the Improvements, exclusive of any parking leases (the “Required Tenant Estoppel Certificates”). Each Required Tenant Estoppel Certificate (1) will be on the form attached to the applicable Lease, if any, or if there is no form attached to the Lease, then will be substantially on the form attached hereto as Exhibit I (provided, however, if any Lease limits the provisions to be included in any estoppel certificate, the form shall be modified accordingly); and (2) will not have been modified in any substantive, adverse manner. The addition of a knowledge qualification or other non-material change to an estoppel certificate will not cause such tenant estoppel certificate to fail to satisfy the requirements for an acceptable Required Tenant Estoppel Certificate. Seller, at its sole option, may elect to satisfy part of the requirements under this Section 4.1(b)(x) by delivery of a Seller estoppel certificate in the form attached hereto as Exhibit N (a “Seller Estoppel Certificate”) for up to ten percent (10%) of the leased square footage of the Improvement leased by Minor Tenants whose Required Tenant Estoppel Certificates have not been received by Closing. Any Seller Estoppel

Certificate delivered by Seller to Purchaser shall be subject to all terms and conditions of Sections 15.15 and 15.21 of this Agreement. If Seller or Purchaser subsequently obtains a Required Tenant Estoppel Certificate meeting the requirements of this Section 4.1(b)(x) hereof, from a tenant for which Seller has delivered a Seller Estoppel Certificate, the delivered Seller Estoppel Certificate will be null and void, and Purchaser will accept the Required Tenant Estoppel Certificate in its place. In the event Seller fails, for any reason, to deliver to the Purchaser the required number of Required Tenant Estoppel Certificates in accordance with the provisions of this Section 4.1(b)(x) prior to the Closing, then Seller will not be deemed in default hereunder, and Purchaser’s sole remedy will be to terminate this Agreement, whereupon the Title Company will return the Deposit to Purchaser, and both parties will be relieved of any further obligations hereunder, except for the obligations hereunder which expressly survive Closing or other termination of this Agreement. Seller will deliver to Purchaser a draft of each Required Tenant Estoppel Certificate for Purchaser’s review and approval prior to Seller’s delivery thereof to the tenants. Seller agrees to request a Tenant Estoppel Certificate from each of the tenants under the Leases and to diligently pursue the execution and delivery thereof, provided, Seller shall not be required to pay any money or sue any tenant to procure a Required Tenant Estoppel Certificate. If Seller has not delivered the Required Tenant Estoppel Certificates prior to Closing, Seller may, at Seller’s option, elect to: (i) adjourn the Closing for a period not to exceed fifteen (15) business days to allow Seller to continue its efforts to obtain the Required Tenant Estoppel Certificates to satisfy. In the event after adjourning the Closing as set forth above, Seller fails to provide a sufficient number of Required Tenant Estoppel Certificates, Purchaser’s sole remedy shall be to either (Y) waive the Estoppel Requirement and proceed to Closing without any abatement in the Purchase Price, or (Z) terminate this Agreement and receive a refund of the Deposit.

(xi) Reserved;

(xii) A Tenant Notice Letter in the form attached hereto as Exhibit M executed by Seller to be mailed out by Purchaser upon Closing;

(xiii) Reserved;

(xiv) Reserved;

(xv) Reserved;

(xvi) Such documents of Seller which authorize the sale of the Property to Purchaser and other documents as all are reasonably required by the Title Company and reasonably approved by Seller;

(xvii) A lien waiver executed by the Broker on a customary form, in a form acceptable to the Title Company;

(xviii) An owner’s affidavit in the form attached hereto as Exhibit T in order to cause the Title Company to issue to Purchaser an owner’s title insurance policy

or policies in the form and condition required by this Agreement (but all such affidavits, certificates or other documents must be reasonably acceptable to Seller);

(xix) A certificate or affidavit as is required under applicable provisions of Georgia law to assure Purchaser and Title Company that Georgia withholding tax is not required; and

(c) Seller’s Representations and Warranties. The representations and warranties of Seller set forth in Section 13.1 being true and correct in all material respects as of the Closing.

(a) Performance by Purchaser. Purchaser’s performance in all material respects of the obligations, covenants, and deliveries required of Purchaser under this Agreement.

(b) Receipt of Purchase Price. Receipt by Seller (or as Seller may direct) of the Purchase Price in the manner provided in this Agreement.

(c) Purchaser’s Deliveries. Delivery at Closing of the following, all documents to be executed originals and, if applicable, witnessed and properly acknowledged:

(i) The Assignment and Assumption Agreement;

(ii) The Closing Statement (signed by Purchaser), with a copy thereof to be delivered to Seller;

(iii) A Tenant Notice Letter in the form attached hereto as Exhibit M executed by Purchaser;

(iv) The certificate of any permitted assignee required under Section 15.7;

(vi) All Existing Debt Fees and all documents, instruments, guaranties and other items or funds required by each Existing Debt lender to cause the Existing Debt Assumption and Release;

(vii) Reserved;

(viii) Reserved;

(ix) Reserved;

(x) Such documents of Purchaser which authorize the purchase of the Property from Seller and other documents as all are reasonably required by the Title Company; and

(d) Purchaser’s Representations and Warranties. The representations and warranties of Purchaser set forth in Section 13.3 being true and correct in all material respects as of Closing.

4.3 No Financing Contingency. Subject to Section 4.4, it is expressly understood and acknowledged by Purchaser that this Agreement and Purchaser’s obligations hereunder are

not contingent or conditioned upon obtaining a commitment for or closing any financing and the failure of Purchaser to obtain or close any financing for any reason whatsoever, shall not be a failure of condition to Purchaser’s performance hereunder. In addition, Seller will have no obligation to or privity with any lender to Purchaser.

4.4 Existing Debt Assumptions.

(a) Purchaser shall assume the indebtedness listed on Exhibit L (the “Existing Debt”) at Closing and cause each Existing Debt lender to release Seller and all Existing Debt guarantors and indemnitors who are affiliated with Seller from all liability under the Existing Debt documents (collectively, the “Existing Debt Assumption and Release”). Purchaser and Seller acknowledge and agree that Seller’s marketing of the Property pursuant to Section 2.2 will include assumption of the Existing Debt by any prospective Third Party Buyer. Purchaser’s pursuit of the assumption of the Existing Debt under this Section 4.4 using commercially reasonable good faith efforts shall start immediately upon the earliest to occur of: (i) December 31, 2021, if Seller has not entered into a Third Party Buyer PSA which is in full force and effect on such date, (ii) if any such Third Party PSA is in effect on December 31, 2021, the date thereafter that Seller provides Purchaser with written notice that such Third Party Buyer PSA has been terminated, provided, if the Third Party Buyer PSA is in effect on December 31, 2021 and has not been terminated by January 31, 2022, Purchaser shall have no obligation to purchase the Property under this Section 4.4(a)(ii) after April 1, 2022, or (iii) the date Seller provides Purchaser with written notice that Seller has ceased marketing the Property for sale to a Third Party Buyer pursuant to Section 2.2, provided, such date shall be no earlier than September 1, 2021 (any of (i) through (iii) being referred to herein as the “Assumption Start Date”).

(b) Purchaser acknowledges that it has reviewed the provisions of Existing Debt relating to the assumptions of the Existing Debt and agrees, beginning on the Assumption Start Date, to use diligent and commercially reasonable efforts to promptly satisfy all conditions that each of the Existing Debt lenders, any servicer and/or the rating agencies may require in order to cause the Existing Debt Assumption and Release. Without limiting the foregoing, Purchaser hereby agrees (i) to cooperate with all reasonable requests made by or on behalf of each of the Existing Debt lenders, any servicer and/or any rating agencies for information regarding Purchaser and its Affiliates as potential new guarantors or indemnitors of the Existing Debt (including providing all financial statements, organizational documents, background information regarding Purchaser and its Affiliates and other information and documents requested by each of the Existing Debt lenders, any servicer and/or any rating agencies and/or required to be provided relating to the Existing Debt assumption, (ii) to not request or negotiate any amendments or modifications to the Existing Debt except for those provisions which are personal to the identity of the borrower and necessary to consummate the Existing Debt Assumption and Release, (iii) to execute and to cause its Affiliates to execute all documentation reasonably requested by the Existing Debt lenders, any servicer and/or the rating agencies and/or required to be executed relating to the Existing Debt assumption, (iv) to pay all fees and expenses relating to the Existing Debt assumption, (v) propose new guarantor(s) or indemnitor(s) (consisting of Purchaser’s general partner and/or its Affiliates acceptable to the Existing Debt

lenders and the rating agencies, to enter into replacement guaranties and indemnities in accordance with the Existing Debt documents and (vi) to otherwise cause all other Existing Debt Assumption and Release requirements to be satisfied. Seller agrees to reasonably cooperate with Purchaser (provided that Seller shall have no obligation to incur any liability or expense other than the fees of its own attorneys) to seek and obtain the Existing Debt Assumption and Release.

(c) Without limiting Purchaser’s obligations under Section 4.4(b), as soon as reasonably practicable after the Assumption Start Date but in any event within five (5) business days (the “Existing Debt Application Submittal Deadline”), Purchaser shall, at its sole cost and expense submit to the Existing Debt lenders, with a copy to Seller, complete applications required by each of the Existing Debt lenders to obtain the Existing Debt Assumption and Release, together with all documents and information (exclusive of confidential and proprietary information) required in connection therewith (collectively, the “Existing Debt Assumption Application”). As part of the Existing Debt Assumption Application, Purchaser shall prepare and deliver to each Existing Debt lender (with a copy to Seller) on or before the Existing Debt Application Submittal Deadline a written notice setting forth the terms of the transfer of the Property to Purchaser pursuant to this Agreement (the “Existing Debt Assumption Notice”), together with (x) all such information concerning the transfer, Purchaser and the new guarantor or indemnitor as each of the Existing Debt lenders shall require in evaluating an initial extension of credit, which information shall include a fully executed copy of this Agreement and all amendments and assignments thereto, as well as the sources and uses of funds or closing or settlement statement relating to the transfer to the extent available to Purchaser and (y) a payment of a non-refundable processing fee, if any, as required by each of the Existing Debt lenders. Upon the Existing Debt Lender’s receipt of (i) the Existing Debt Assumption Application (including the Existing Debt Assumption Notice) and all information submitted therewith in accordance with this Section and (ii) the applicable processing fees, Purchaser shall submit same to Seller. Purchaser acknowledges and agrees that Purchaser is solely responsible for the preparation of the Existing Debt Assumption Application (including the Existing Debt Assumption Notice), the collection of all materials, documents, certificates, financial statements, signatures, and other items required to be submitted in connection with the Existing Debt Assumption Application.

lenders all documents and information required by the Existing Debt documents, and such other information or documentation as any of the Existing Debt lenders or servicer may reasonably request, including financial statements, income tax returns and other financial information for Purchaser and any new guarantor or indemnitor.

(f) If the Existing Debt Assumption and Release occurs at Closing pursuant to this Section 4.4(f), at Closing, Purchaser shall be responsible for (i) replacing (and increasing to the extent required by any of the Existing Debt lenders) all reserves, impounds and other accounts required to be maintained in connection with the Existing Debt, to the extent such existing reserves, impounds and other accounts are not assigned to Purchaser and (ii) funding any additional reserves, impounds or accounts reasonably required by the Existing Debt lenders in connection with the Existing Debt. Except as provided in Section 4.1(d), (i) neither obtaining the Existing Debt Assumption and Release approval, nor the occurrence of the Existing Debt Assumption and Release on the Closing Date, shall be a condition to Purchaser’s obligation to consummate the transactions described herein, and (ii) Purchaser shall have no right to extend the Closing Date on account of Purchaser’s failure to obtain the Existing Debt Assumption and Release approval or the failure of the Existing Debt Assumption and Release to occur on the Closing Date.

(g) The provisions of clauses (d), (e), (f) and this (g) of this Section 4.4 shall survive the Closing or termination of this Agreement.

ARTICLE V

THE CLOSING

5.1 Date and Manner of Closing. The closing of the transaction contemplated by this Agreement (the “Closing”) will occur through an escrow with Escrow Agent, no later than 2:00 P.M. Atlanta, Georgia local time on the date that is sixty (60) days following the Assumption Start Date (the “Closing Date”) or such earlier or later date as is agreed by the

parties in writing, provided, in the event that either of the Existing Debt lenders is not ready to close the Existing Debt Assumption and Release related to their Existing Debt, notwithstanding that Purchaser has complied in good faith with all of its obligations hereunder with respect to the Existing Debt Assumption and Release set forth in Section 4.4 hereof, Purchaser shall have the one-time right to extend the Closing Date for up to fifteen (15) days provided Purchaser has given Seller written notice of Purchaser’s desire for such extension no less than five (5) business days prior to the then scheduled Closing Date. Notwithstanding the foregoing, Seller shall have the right to extend the Closing Date for up to fifteen (15) business days in order to obtain the Required Tenant Estoppel Certificates by delivering written notice of such extension to Purchaser prior to the original Closing Date.

ARTICLE VI

DUE DILIGENCE PERIOD EXPIRED; DEPOSIT NON-REFUNDABLE

(a) Copies of the Leases and all amendments;

(b) Copies of the Service Agreements;

(c) Income and expense information for the period commencing January 1, 2018 through December 31, 2020 pertaining to the operation of the Property;

(d) A current rent roll for the Property; and

(e) A copy of title information and the surveys.

Documents and other information provided by Seller and/or its agents and (b) Purchaser will rely exclusively on its own inspections and consultants with respect to all matters Purchaser deems relevant to its decision to acquire the Property. The provisions of this Section 6.2 shall survive the Closing and the delivery of the Deed.

ARTICLE VII

INSPECTIONS

ARTICLE VIII

TITLE AND SURVEY; REA

8.2 Title Updates. If any supplemental title report or update issued subsequent to the Effective Date contains exceptions other than those in the Title Commitments or New Surveys

and which have a material adverse effect on the use, value or operation of the Property (“New Exceptions”), Purchaser will be entitled to object to the New Exceptions by delivery of a notice of objections to Seller on or before the date that is five (5) days following Purchaser’s receipt of such supplement or update. If Purchaser fails to deliver to Seller a notice of objections on or before such date, Purchaser will be deemed to have waived any objection to the New Exceptions, and the New Exceptions will be included as Permitted Exceptions. Seller will have not less than ten (10) days from the receipt of Purchaser’s notice (and, if necessary, Seller may extend the Closing Date to provide for such ten (10) day period and for five (5) days following such period for Purchaser’s response), within which time Seller may, but is under no obligation to, remove the objectionable New Exceptions, provided, Seller will be required to remove prior to or at Closing all monetary liens constituting New Exceptions. If, within the ten (10) day period, Seller or Title Company does not (or does not agree to) remove the objectionable New Exceptions (provided Seller will remove all monetary liens), then Purchaser may terminate this Agreement upon notice to Seller no later than five (5) days following expiration of the (10) day cure period. If Purchaser terminates this Agreement, the Deposit will be promptly returned to Purchaser, and the parties shall be released from all further obligations under this Agreement (except those that expressly survive termination of this Agreement). If Purchaser fails to terminate this Agreement in the manner set forth above, the New Exceptions (except those Seller and/or Title Company has removed or agreed to remove) will be included as Permitted Exceptions.

8.3 Encumbrances. The Existing Debt is a Permitted Exception hereunder and may not be objected to. The existence of mortgages, liens, or other encumbrances not permitted hereby (and which are not relating to the Existing Debt) shall not be objections to title provided that properly executed instruments in recordable form necessary to satisfy the same are delivered to the Title Company at the Closing together with recording and/or filing fees (or an appropriate credit against the Purchase Price given for such fees), and Purchaser and Seller agree that such mortgages, liens or other encumbrances may be paid out of the cash consideration to be paid by Purchaser. Seller will be required to remove prior to or at Closing all monetary liens, including mechanics’ liens and material men’s liens (but only to the extent Seller would be liable for the payment of the underlying obligation as the contracting party), judgment liens and tax liens encumbering the property (exclusive of liens securing the Existing Debt), including those monetary liens constituting New Exceptions (collectively, “Liens”), (i) if such Liens were caused solely by the actions or omissions of Seller or any of its Affiliates, or (ii) with respect to all other Liens other than those described in the foregoing clause (i), up to a maximum amount of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) in the aggregate.

ARTICLE IX

RISK OF LOSS

ARTICLE X

OPERATION OF THE PROPERTY

10.4 Tenant Inducement Costs / Tract Improvements. Upon Closing, Purchaser will assume all liability for, and shall thereafter pay (or reimburse Seller to the extent Seller has paid prior to Closing), all amounts (including (i) tenant concessions, tenant improvement costs, free rent and leasing commissions or fees collectively “Tenant Inducement Costs”) and (ii) New Tract Improvement costs) either of which is due under or in connection with, any New Service Agreement, New Lease or any New Tract Improvement, provided, any New Service Agreements, New Leases or New Tract Improvement have been approved (or deemed approved) by Purchaser pursuant to Section 10.3 above, and provided to the extent any portion of the term of a New Lease (for which (i) such tenant is paying full rent and (ii) Tenant Inducement Costs are due thereunder) occurs prior to the Closing Date, the amount of the Purchase Price will be reduced by a pro-rata share of such Tenant Inducement Costs based upon the percentage of such rent-paying term (exclusive of any renewal option) which occurs prior to the Closing Date compared to the portion of such rent-paying term (exclusive of any renewal option) which is scheduled to occur after the Closing Date. Seller shall be responsible for all Tenant Inducement Costs, and the costs of improvements to a Tract not constituting a New Tract Improvement (an “Existing Tract Improvement”), which are payable by the Seller (pursuant to the Leases or a contact for Existing Tract Improvements (without giving effect to any unexercised option, extension or similar right as of such date) after Closing as set forth in any Lease, or any contract for an Existing Tract Improvement in existence as March 17, 2021 which have not been approved by Purchaser, all of which are set forth on Exhibit O attached hereto, and Purchaser shall receive a credit at Closing for all unpaid Tenant Inducement Costs with respect to such Leases. Purchaser shall be solely responsible for all Tenant Inducement Costs relating to Leases or New Leases (including, without limitation, any amendments or exercises of options to extend Leases by tenants thereunder after March 17, 2021) and New Tract Improvements (provided such New Leases and New Tract Improvements have been approved (or are deemed approved) by Purchaser pursuant to Section 10.3) executed or occurring after March 17, 2021).

10.5 Current Construction Work. The only construction work being performed at the Property as of the Effective Date is the Work described in Section 4.1(a), and Seller will complete the Work as set forth therein.

ARTICLE XI

CLOSING PRORATIONS AND ADJUSTMENTS; PAYMENT OF CLOSING COSTS

11.2 Prorations. All income and expenses in connection with the operation of the Property shall be apportioned, as of 11:59 p.m. (Eastern time) on the day prior to the Closing Date, (the “Cut Off Time”) as if Purchaser were vested with title to the Property during the entire Closing Date, such that, except as otherwise expressly provided to the contrary in this Agreement, Seller shall have the benefit of income and the burden of expenses for the day preceding the Closing Date (including, without limitation, any deferred rent received after Closing which relates to a period prior Closing) and the Purchaser shall have the benefit of income and the burden of expenses for the Closing Date and thereafter (provided, however, that in the event that any of the Leases or subleases, if any, covering all or part of the Property provide that the tenants or subtenants thereunder are responsible for direct payment of any of the expenses and the tenants or subtenants are current with respect to such direct payment obligations, such expenses shall not be apportioned as between Seller and Purchaser):

(a) Property taxes (which for all purposes under this Article XI, shall include personal property taxes) as more particularly set forth below and in Section 11.3(b);

(b) Rents as and when collected including base rents, escalations, additional rent and percentage rent (“Rents”) as further described below;

(d) Operating expenses for the Property including sums due or already paid pursuant to any Service Agreements;

(e) Amounts paid pursuant to all transferable licenses and permits, on the basis of the fiscal year for which levied;

(f) Assessments but only for the annual installment for the fiscal year in which the Closing occurs;

The provisions of this Section 11.2 shall survive the Closing and the delivery of the Deed.

11.3 Rents.

Purchaser shall give Seller a credit at Closing in the amount of such of net amount, and to the extent the reconciliations indicate a net amount owed to the tenants, Seller shall give Purchaser a credit in the amount of such net amount. In either case, from and after the Closing, Purchaser shall be responsible for collecting any such net amounts owed from tenants or returning any net amounts owed to tenants in accordance with terms of the applicable Leases. Notwithstanding the foregoing, if Closing occurs in 2022, reconciliations under this Section 11.3(b)(i) shall occur with respect to 2022 instead of 2021;

(iv) If Seller has collected less from the tenants for Overage Rents than the actual amounts for such time period, then the amount of such under-collected rents shall be paid and delivered to Seller;

(v) Any Seller proposed prorations relating to Overage Rent shall be subject to Purchaser’s review and reasonable approval.

letters of credit which are transferred to Purchaser. Seller shall reasonably cooperate with Purchaser to cause Security Deposits that are in the form of a letter of credit or other instrument to be transferred or re-issued to Purchaser, and, until such transfer or re-issuance, Seller shall, as Purchaser’s agent and at its request, draw on any letter of credit in accordance with the applicable Lease and deliver the proceeds to Purchaser. In the event Purchaser makes such a request, and Seller effects a draw on the letter of credit and delivers the applicable proceeds to Purchaser, Purchaser agrees to indemnify, defend, and hold Seller harmless from any claims arising therefrom, including any assertion by a tenant that such draw was wrongful or a breach of the applicable lease, which indemnification shall be inclusive of reasonable attorney’s fees. Any out-of-pocket expense incurred by Seller in such cooperation shall be promptly reimbursed by Purchaser (including the costs and expenses resulting from the transfer of the security deposits that are in the form of a letter of credit). The indemnity provided by Purchaser to Seller pursuant to this Section 11.4 shall survive the Closing and the delivery of the Deed.

11.6 Reserved.

within such sixty (60) day period after Closing. For the avoidance of doubt, except with respect to (x) 2021 calendar year property taxes and (y) deferred rent from tenants under Leases which relates to a period prior to the Closing Date and is received by Purchaser after Closing, all other proration, reconciliation, reproration and settlement obligations of Purchaser and Seller under this Section 11.7 shall terminate and be of no further force or effect from and after the date that is ninety (90) days after the Closing Date. This Section 11.7 shall survive the Closing and the delivery of the Deed for the time periods set forth in this Section 11.7. Notwithstanding the foregoing, if Closing occurs in 2022, reconciliations under this Section 11.7 shall occur with respect to calendar year 2022 instead of calendar year 2021.

11.8 Reserved.

11.9 Thirty-Day Month. All prorations and/or adjustments provided for in this Agreement will be made on the basis of a 30-day month, unless specifically stated otherwise.

ARTICLE XII

DEFAULT

commence such action and is unsuccessful as a result of Seller’s acts in violation of the terms of this Agreement, then the Deposit will be returned to Purchaser, and in addition, Seller shall pay to Purchaser all of the third-party costs actually incurred by Purchaser in connection with this transaction, including but not limited to, Purchaser’s attorney’s fees incurred in connection with the preparation and negotiation of this Agreement and conducting legal due diligence with respect to the Property, engineering fees, and other consultants and other fees charged by third parties for assisting Purchaser with Purchaser’s due diligence of the Property up to a maximum aggregate amount of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00), and thereafter, the parties will be released from their obligations under this Agreement (except those that expressly survive termination of this Agreement). Under no circumstances will Purchaser have available to it an action at law or otherwise for damages, except as expressly set forth in this Agreement.

ARTICLE XIII

REPRESENTATIONS AND WARRANTIES

(d) Seller is a “United States person” within the meaning of Sections 1445(f)(3) and 7701(a)(30) of the Internal Revenue Code of 1986, as amended.

(g) Seller has received no written notice from any governmental body or agency of any violation or alleged violation of any applicable law with respect to Hazardous Materials on the Property.

(i) To Seller’s knowledge, no pending or threatened litigation involving the Property or Seller exists which if determined adversely would restrain the consummation of the transactions contemplated by this Agreement or would declare illegal, invalid or non-binding any of Seller’s obligations or covenants to Purchaser pursuant to this Agreement.

(l) There is no receivership, or voluntary or involuntary proceeding in bankruptcy or pursuant to any other debtor relief laws, pending by or against Seller.

(m) To Seller’s knowledge, there are no outstanding options to purchase, rights of first offer or rights of first refusal, with respect to the Property.

(n) Seller has received no written notice from any Existing Lender of any default or alleged default by Seller (as Borrower) under the Existing Debt.

(a) Purchaser is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of North Carolina.

ARTICLE XIV

ESCROW PROVISIONS

(b) At such time as Escrow Agent receives written notice from either Purchaser or Seller, or both, setting forth the identity of the party to whom such Escrow Funds (or portions thereof) are to be disbursed and further setting forth the specific section or paragraph of the Agreement pursuant to which the disbursement of such Escrow Funds (or portions thereof) is being requested, Escrow Agent shall disburse such Escrow Funds pursuant to such notice; provided, however, that if such notice is given by either Purchaser or Seller but not both, Escrow Agent shall (i) promptly notify the other party (either Purchaser or Seller as the case may be) that Escrow Agent has received a request for disbursement, and (ii) withhold disbursement of such Escrow Funds for a period of ten (10) days after receipt of such notice of disbursement and if Escrow Agent receives written notice from either Purchaser or Seller within said ten (10) day period which notice countermands the earlier notice of disbursement, then Escrow Agent shall withhold such disbursement until both Purchaser and Seller can agree upon a disbursement of such Escrow Funds. Purchaser and Seller hereby agree to send to the other, pursuant to Section 15.6 below, a duplicate copy of any written notice sent to Escrow Agent and requesting any such disbursement or countermanding a request for disbursement.

ARTICLE XV

GENERAL PROVISIONS

15.2 Confidentiality.

shareholders and in accordance with applicable securities laws. These requirements may include, but are not limited to: (A) filing a copy of this Agreement with the Securities and Exchange Commission (“SEC”), (B) reporting on the results of the transactions contemplated by this Agreement in filings and/or reports under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and related press releases; provided, however, Purchaser and Seller shall provide the other party with (I) a draft copy of any press release to be issued by such party in advance of issuing such press release, and (II) the opportunity to review and provide comments to the draft press release, which PAC or HPI, as applicable, shall consider in good faith; provided, further, for the avoidance of doubt, neither Purchaser nor Seller shall have a right to approve any press release to be issued by PAC or HPI, respectively; and (C) describing this Agreement and the transactions contemplated by this Agreement in such filings, reports and/or releases (the “Unrestricted Disclosures”). The Unrestricted Disclosures shall also include disclosures of information about this Agreement and the transactions contemplated by this Agreement by representatives of PAC or HPI (as applicable) in the ordinary course of business to The New York Stock Exchange, financial analysts, rating agencies, banks and other similar persons or institutions, which information is of the same general nature as that disclosed about PAC or HPI (as applicable) to such persons or institutions in the ordinary course of business.

(d) Notwithstanding any other provision of this Agreement, the provisions of this Section 15.2 shall survive the Closing or the earlier termination of this Agreement.

15.5 Modifications. This Agreement may not be modified in any respect except by an instrument in writing and duly signed by the parties hereto. The parties agree that this Agreement

contains all of the terms and conditions of the understanding between the parties hereto and that there are no oral understandings whatsoever between them.

To Seller: Preferred Apartment Communities, Inc.

3284 Northside Parkway, Suite 150

Atlanta, Georgia 30327

Attention: Jared A. Seff, Esq.

Email: jseff@pacapts.com

With a copy to: King & Spalding LLP

1180 Peachtree Street, NE

Atlanta, GA 30309

Attention: Joshua M. Kamin, Esq.

Email: jkamin@kslaw.com

To Purchaser: Highwoods Realty Limited Partnership

3100 Smoketree Court, Suite 600

Raleigh, NC 27604

Attention: Jeffrey D. Miller, Esq.
Email: jeff.miller@highwoods.com

With a copy to: Allman Spry Davis Leggett & Crumpler, PA

380 Knollwood Street, Suite 700

Winston-Salem, NC 27103
Attention: Thomas T. Crumpler, Esq.
Email: tcrumpler@allmanspry.com

15.9 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Georgia.

15.11 Counterparts. This Agreement may be executed in counterparts, each of which, when taken together shall constitute fully executed originals.

15.15 Limitation of Liability. If Purchaser becomes aware after Closing of any breach and/or violation of any of Seller’s representations and/or warranties and/or Excepted Claims set forth herein or of any other matter for which Seller would or could become liable to Purchaser, whether hereunder or under any Closing document, and Purchaser timely commences any action(s) to enforce any alleged breach and/or violation of any of the representations and/or warranties of Seller, or Seller’s liability for an Excepted Claim, as set forth in this Agreement or to enforce any other claims for liability against Seller, and, notwithstanding any provision to the contrary contained herein or in any document executed by Seller pursuant hereto or in connection herewith, in no event shall Seller be liable for any special, consequential, speculative, punitive or similar damages, nor shall Seller’s liability in any such event or events exceed one and one-half percent (1.50%) of the Purchase Price (“Seller’s Maximum Liability”) and no claim by Purchaser may be made and Seller shall not be liable for any judgment in any action based upon any such claim unless and until Purchaser’s claims are for an aggregate amount in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) (the “Claims Threshold”), in which event Seller’s liability respecting any final judgment concurring such claim(s) shall be for the entire amount thereof, subject to Seller’s Maximum Liability. The amount of Seller’s Maximum Liability shall be inclusive of attorneys’ fees, and ancillary court and experts’ costs and fees. Purchaser agrees that, prior to making any claims against Seller, Purchaser shall, to the extent applicable, pursue any remedies it may have against the Title Company pursuant to the Title Policy. The provisions of this Section 15.15 will survive the Closing and the delivery of the Deed.

15.19 No Recordation. Seller and Purchaser each agrees that neither this Agreement nor any memorandum, short form agreement or notice hereof shall be recorded, and Purchaser further agrees (a) not to file any notice of pendency, lis pendens or other instrument (other than a judgment) against the Property or any portion thereof, and (b) to be responsible for and to indemnify Seller against all Liabilities (including reasonable attorneys’ fees, expenses and disbursements) incurred by Seller by reason of the filing by Purchaser of any such notice of pendency, lis pendens or other instrument.

(d) Each of the parties hereto shall retain this Agreement for a period of four (4) years following the calendar year during which Closing occurs.

The provisions of this Section 15.20 will survive the Closing and the delivery of the Deed.

15.21 Survival. Seller covenants, agreements, indemnities, warranties and representations contained in this Agreement and in any document executed by Seller pursuant to this Agreement, including, without limitation, all Excepted Claims (except for those set forth in Sections 13.1(d), 13.1(h), 15.2, 15.15, 15.20, and this Section 15.21 which are meant to survive indefinitely) shall survive Purchaser’s purchase of the Property only for a period commencing on the Closing Date and ending six (6) months after the Closing Date or, if another period of time is specified, such other period of time (as applicable, the “Survival Period”). It is expressly agreed that any action, suit or proceeding with respect to the truth, accuracy or completeness of all representations and warranties in this Agreement or the breach of any covenant or agreement in this Agreement or in any closing document, shall be commenced, if at all, on or before the end of the Survival Period and, if not commenced on or before such date, thereafter will be void and of no force or effect. The provisions of this Section 15.21 will survive the Closing and the delivery of the Deed and/or termination of this Agreement. Purchaser shall provide written notice to Seller prior to the expiration of the Survival Period of any alleged breach of such covenants, indemnities, warranties or representations and shall allow Seller thirty (30) days within which to cure such breach, or, if such breach cannot reasonably be cured within thirty (30) days, an additional reasonable period of time so long as a cure has been commenced and is being diligently pursued. If Seller fails to cure such breach after written notice and within such cure period, Purchaser’s sole remedy shall be an action at law for actual damages as a consequences thereof, which must be commenced, if at all, within the Survival Period; provided, however, that if within the Survival Period Purchaser gives Seller written notice of such a breach and Seller notifies Purchaser of Seller’s commencement of a cure, commences to cure and thereafter terminates such cure effort, Purchaser shall have an additional thirty (30) days from the date of such termination within which to commence an action at law for damages as a consequence of Seller’s failure to cure. The Survival Period referred to herein shall apply to known as well as unknown breaches of such covenants, indemnities, warranties or representations. Purchaser’s waiver(s) and release(s) set forth in Sections 1.6 and 1.7 shall apply fully to liabilities under such covenants, indemnities, representations and warranties and is hereby incorporated by this reference. Purchaser specifically acknowledges that such termination of liability represents a material element of the consideration to Seller. The limitation as to Seller’s liability in this Section 15.21 does not apply to Seller’s or Purchaser’s liability with respect to prorations and adjustments under Article XI.

any matters which so make any of Seller’s representations or warranties untrue in any material respect, Seller shall bear no liability for such matters (provided that such untruth is not the result of Seller’s breach of any express covenant set forth in this Agreement), but Purchaser shall have the right to elect in writing on or before the Closing Date, (i) to waive such matters and complete the purchase of the Property without reduction of the Purchase Price in accordance with the terms of this Agreement, or (ii) as to any matters disclosed following the Effective Date, to terminate this Agreement if the failure of such representations or warranties would, individually or in the aggregate, result in an adverse impact or cost on or to the Property or Purchaser which, either (x) is in excess of the Claims Threshold, or (y) is less than the Claims Threshold and Purchaser does not receive a credit toward the Purchase Price of such amount at Closing.

15.22 Third Party Beneficiaries. This Agreement shall not confer any rights or remedies on any person other than the parties and their respective successors and permitted assigns.

15.24 Joint and Several. The liability of each constituent entity comprising Seller shall be joint and several with the liability of each other constituent entity comprising Seller.

indemnify, defend and hold Seller, its Affiliates, agents, employees, and partners, harmless from and against any claims, liability, expenses (including without limitation reasonable attorneys fees), losses and damages arising out of Seller's cooperation hereunder or any information provided by Seller pursuant hereto; provided, however, that this indemnity shall not apply to the extent such liability is caused by the gross negligence or willful misconduct of Seller. The indemnity obligations of Purchaser to Seller under this Section 15.25 shall survive the termination of this Agreement for any reason.

15.26 Section 1031 Exchange. The parties acknowledge that the conveyance of the Property to Purchaser may be structured by Purchaser as a like-kind exchange (including a “reverse exchange”) pursuant to Section 1031 of the Internal Revenue Code and federal cases interpreting this rule (an “Exchange”). Seller agrees to reasonably cooperate with Purchaser in effecting such Exchange, provided that Purchaser shall bear all of the expenses and liabilities associated therewith, Seller shall not be subject to any liability, and provided further that Purchaser’s ability to undertake any such exchange shall not in any manner be considered a condition of Purchaser’s obligations under this Agreement and the same shall not delay the Closing. It is contemplated that Purchaser may assign this Agreement to a “qualified intermediary” pursuant to Treasury Regulation Section 1.103(k)-I(g)4(v) and/or Purchaser may cause the Property to be conveyed (i.e., “parked”) with an EAT organized by a qualified intermediary pending Purchaser’s sale of other properties owned by Purchaser (its “relinquished property”) as part of the Exchange. Accordingly, in the event of such assignment and/or “parking” arrangement, Seller shall, upon notice from Purchaser, convey the Property at Closing to the EAT or EATs organized by Purchaser’s qualified intermediary, and shall to the extent of the assignment, treat the qualified intermediary and/or EAT(s) as the valid assignee of Purchaser’s rights hereunder. Notwithstanding anything contained herein, (a) Seller shall not be required to acquire or hold legal or beneficial title to, or any other interest, in any property for purposes of consummating Purchaser’s Exchange, (b) Seller shall have the right to review and approval (which approval shall not be unreasonably withheld, conditioned or delayed) all documents Seller is required to execute in connection with any Exchange, and (c) in the event of any Exchange, and notwithstanding that in connection with such Exchange record title to the Property may be conveyed by Seller to an accommodation entity which thereupon will later convey title to the Property to Purchaser, all covenants, agreements and indemnifications of Purchaser pursuant to this Agreement shall be deemed to be made by Purchaser, shall survive any conveyance by Seller to an accommodation party, shall continue in favor of and inure to the benefit of Seller and shall be enforceable by Seller against Purchaser to the extent provided in this Agreement as though the Property had been conveyed directly by Seller to Purchaser and the exchange shall in no way reduce, abridge or modify any of Purchaser’s obligations or any of Seller’s rights or remedies hereunder. Seller will have no liability to Purchaser under or in connection with any Exchange, including in the event the Exchange is not consummated, or in the event Purchaser does not achieve the desired tax treatment.

following the cessation of the Force Majeure Event. For purposes of this Agreement, the term “Force Majeure Event” means acts of God (including, but not limited to tornadoes, floods, hurricanes and/or other weather conditions or other national disasters), expropriation or confiscation of facilities by any governmental authority, compliance with any order or request of any governmental authority, strikes, lockouts, riots, or other labor troubles or a national emergency, a pandemic or epidemic, or a failure of the Automated Clearing House or similar wire transfer system utilized for the transfer of money or similar causes not within Seller’s or Purchaser’s control.

[Remainder of page intentionally left blank; signature page(s) to follow]

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto, as of the Effective Date.

SELLER:

POP Armour Yards, LLC., a Delaware limited liability company

By: POP Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Office Properties, LLC, a Maryland limited liability company, its sole member

By: PAC Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Apartment Communities Operating Partnership, L.P., a Delaware limited partnership, as sole member of the Board of Managers

By: Preferred Apartment Communities, Inc., a Maryland corporation, its sole general partner

By: /s/ Joel T. Murphy

Name: Joel T. Murphy

Title: Chief Executive Officer and President

SELLER SIGNATURES CONTINUE ON THE FOLLOWING PAGE

POP 251 Armour Yards, LLC., a Delaware limited liability company

By: Preferred Office Growth REIT, LLC, a Delaware limited liability company, its sole member

By: Preferred Office Fund Manager, LLC, a Delaware limited liability company, the sole member of its board of managers

By: Preferred Office Properties, LLC, a Maryland limited liability company, its sole member

By: PAC Carveout, LLC, a Delaware limited liability company, its sole member

By: Preferred Apartment Communities Operating Partnership, L.P., a Delaware limited partnership, as sole member of the Board of Managers

By: Preferred Apartment Communities, Inc., a Maryland corporation, its sole general partner

By: /s/ Joel T. Murphy

Name: Joel T. Murphy

Title: Chief Executive Officer and President

END OF SELLER SIGNATURES

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto, as of the Effective Date.

PURCHASER:

Highwoods Realty Limited Partnership, a North Carolina limited partnership

By: Highwoods Properties, Inc., a Maryland corporation, its Sole General Partner

By: /s/ Jeffrey D. Miller

Name: Jeffrey D. Miller

Title: Executive Vice President & General Counsel


Federal Tax Identification No.:

EXHIBIT 31.1

CERTIFICATIONS

I, Joel T. Murphy, certify that:

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: August 9, 2021			/s/ Joel T. Murphy
			Joel T. Murphy
			Chief Executive Officer

EXHIBIT 31.2

CERTIFICATIONS

I, John A. Isakson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Preferred Apartment Communities, Inc.;

(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: August 9, 2021			/s/ John A. Isakson
			John A. Isakson
			Chief Financial Officer

Exhibit 32.1

Furnished (but not filed) as an exhibit to the periodic report identified in the Certification.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Preferred Apartment Communities, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2021 as filed with the Securities and Exchange Commission (the "Report"), I, Joel T. Murphy, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.




Date: August 9, 2021						/s/ Joel T. Murphy
						Joel T. Murphy
						Chief Executive Officer

Exhibit 32.2

Furnished (but not filed) as an exhibit to the periodic report identified in the Certification.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Preferred Apartment Communities, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2021 as filed with the Securities and Exchange Commission (the "Report"), I, John A. Isakson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: August 9, 2021						/s/ John A. Isakson
						John A. Isakson
						Chief Financial Officer