Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

_____________________

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 19, 2016
Preferred Apartment Communities, Inc.
(Exact Name of Registrant as Specified in its Charter)

Maryland
001-34995
27-1712193
(State or other Jurisdiction
of Incorporation)
(Commission File Number)
(I.R.S. Employer
Identification No.)

3284 Northside Parkway NW, Suite 150, Atlanta, Georgia
30327
(Address of Principal Executive Offices)
(Zip Code)

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

 
(Former name or former address, if changed since last report)
_____________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




Item 2.01    Completion of Acquisition or Disposition of Assets.

On May 19, 2016, Trail Creek Apartments, LLC (the "Seller"), an indirect, wholly-owned subsidiary of Preferred Apartment Communities Operating Partnership, L.P. ("PAC-OP"), completed the disposition of a fee simple interest in a 300-unit multifamily community in Hampton, Virginia ("Trail Creek") to Trail Creek Community, LLC (the "Purchaser"), an unrelated third party. The aggregate purchase price paid by the Purchaser to Seller was $39.0 million, exclusive of acquisition-related transaction costs. Preferred Apartment Communities, Inc. (the "Company") is the general partner of, and owner of an approximate 96.3% interest in, PAC-OP.

Since the results of operations for Trail Creek exceeded 10% of the consolidated net loss reported by the Company for the for the twelve-month period ended December 31, 2015, Trail Creek is deemed to be a significant disposition under the income test from Regulation S-X 1-02(w). The Company therefore submits this Current Report on Form 8-K to provide certain financial information related to its disposition of Trail Creek required by Item 9.01(b) of Form 8-K.




Item 9.01    Financial Statements and Exhibits


(b)
Pro Forma Financial Information.

Unaudited Pro Forma Consolidated Financial Statements
F-1
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2016
F-2
Unaudited Pro Forma Consolidated Statement of Operations for the three months ended March 31, 2016
F-3
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2015
F-4
Notes to Unaudited Pro Forma Consolidated Financial Statements
F-5





UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma consolidated financial statements have been prepared to provide pro forma information with regards to a certain real estate disposition transaction.

The accompanying Unaudited Pro Forma Consolidated Balance Sheet and Unaudited Pro Forma Consolidated Statement of Operations of the Company are presented for the three months ended March 31, 2016 and the year ended December 31, 2015 (the "Pro Forma Periods"), and include certain pro forma adjustments to illustrate the estimated effect of the Company's disposition of its Trail Creek multifamily community as described in Note 1.

This pro forma consolidated financial information is presented for informational purposes only and does not purport to be indicative of the Company's financial results as if the transaction reflected herein had occurred on the date or been in effect during the periods indicated. This pro forma consolidated financial information should not be viewed as indicative of the Company's financial results in the future and should be read in conjunction with the Company's financial statements as filed on Form 10-K for the year ended December 31, 2015 and on Form 10-Q for the interim period ended March 31, 2016.



F-1


Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
as of March 31, 2016
 
PAC REIT Historical
(See Note 1)
 
Disposition of Trail Creek
(See Note 1)
 
PAC REIT
Pro Forma
Assets
 
 
 
 
 
Real estate
 
 
 
 
 
Land
$
174,662,174

 
$
—

 
$
174,662,174

Building and improvements
908,022,540

 
—

 
908,022,540

Tenant improvements
6,029,479

 
—

 
6,029,479

Furniture, fixtures, and equipment
102,159,856

 
—

 
102,159,856

Construction In progress
814,623

 
—

 
814,623

Gross real estate
1,191,688,672

 
—

 
1,191,688,672

Less: accumulated depreciation
(59,160,582
)
 
—

 
(59,160,582
)
Net real estate
1,132,528,090

 
—

 
1,132,528,090

Property held for sale
33,666,369

 
(33,666,369
)
A
—

Real estate loans, net of deferred fee income
169,409,097

 
—

 
169,409,097

Real estate loans to related parties, net
91,221,265

 
—

 
91,221,265

Total real estate and real estate loans, net
1,426,824,821

 
(33,666,369
)
 
1,393,158,452

 
 
 
 
 
 
Cash and cash equivalents
4,703,505

 
10,483,849

B, C
15,187,354

Restricted cash
13,597,705

 
(82,050
)
A
13,515,655

Notes receivable
12,864,229

 
—

 
12,864,229

Note receivable and line of credit to related party
26,181,955

 
—

 
26,181,955

Accrued interest receivable on real estate loans
13,219,191

 
—

 
13,219,191

Acquired intangible assets, net of amortization
22,094,521

 
—

 
22,094,521

Deferred loan costs for revolving line of credit
443,654

 
—

 
443,654

Deferred offering costs
5,031,237

 
—

 
5,031,237

Tenant receivables and other assets
11,874,629

 
(1,199,265
)
A
10,675,364

 
 
 
 
 
 
Total assets
$
1,536,835,447

 
$
(24,463,835
)
 
$
1,512,371,612

 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Mortgage notes payable, principal amount
$
818,291,100

 
$
—

 
$
818,291,100

Less: deferred loan costs, net of amortization
(10,642,652
)
 
—

 
(10,642,652
)
Mortgage notes payable, net of deferred loan costs
807,648,448

 
—

 
807,648,448

Mortgage note held for sale
28,109,000

 
(28,109,000
)
 
—

Revolving line of credit
17,000,000

 
—

 
17,000,000

Term note payable
30,000,000

 
—

 
30,000,000

Less: deferred loan costs, net of amortization
(5,611
)
 
—

 
(5,611
)
Term note payable, net of deferred loan costs
29,994,389

 
—

 
29,994,389

Real estate loan participation obligation
13,769,962

 
—

 
13,769,962

Accounts payable and accrued expenses
12,274,575

 
(214,045
)
A
12,060,530

Accrued interest payable
2,524,558

 
(102,145
)
A
2,422,413

Dividends and partnership distributions payable
7,322,267

 
—

 
7,322,267

Acquired below market lease intangibles
8,899,620

 
—

 
8,899,620

Security deposits and other liabilities
3,466,767

 
(161,449
)
A
3,305,318

Total liabilities
931,009,586

 
(28,586,639
)
 
902,422,947

 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
Stockholder's equity
 
 
 
 
 
Series A Redeemable Preferred Stock, $0.01 par value per share;
 
 
 
 
 
1,050,000 shares authorized; 587,219 shares issued and
 
 
 
 
 
583,110 shares outstanding
5,831

 
—

 
5,831

Common Stock, $0.01 par value per share; 400,066,666 shares
 
 
 
 
 
authorized; 23,063,026 shares issued and outstanding
230,630

 
—

 
230,630

Additional paid-in capital
621,265,574

 
—

 
621,265,574

Accumulated deficit
(16,999,449
)
 
4,122,804

C
(12,876,645
)
Total stockholders' equity
604,502,586

 
4,122,804

 
608,625,390

Non-controlling interest
1,323,275

 
—

 
1,323,275

Total equity
605,825,861

 
4,122,804

 
609,948,665

 
 
 
 
 
 
Total liabilities and equity
$
1,536,835,447

 
$
(24,463,835
)
 
$
1,512,371,612


The accompanying notes are an integral part of this consolidated pro forma financial statement.

F-2

Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Three Months Ended March 31, 2016


 
PAC REIT Historical
(See Note 1)
 
Disposition of Trail Creek
(See Note 1)
 
PAC REIT
Pro Forma
Revenues:
 
 
 
 
 
Rental revenues
$
28,255,599

 
$
(975,908
)
AA
$
27,279,691

Other property revenues
3,760,083

 
(75,585
)
AA
3,684,498

Interest income on loans and notes receivable
6,942,159

 
—

 
6,942,159

Interest income from related parties
2,777,940

 
—

 
2,777,940

Total revenues
41,735,781

 
(1,051,493
)
 
40,684,288

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Property operating and maintenance
4,021,362

 
(121,995
)
AA
3,899,367

Property salary and benefits reimbursement to related party
2,363,463

 
(93,526
)
AA
2,269,937

Property management fees
1,228,021

 
(33,021
)
AA
1,195,000

Real estate taxes
5,173,441

 
(119,494
)
AA
5,053,947

General and administrative
919,952

 
(19,742
)
AA
900,210

Equity compensation to directors and executives
610,425

 
—

 
610,425

Depreciation and amortization
15,346,726

 
(409,133
)
AA
14,937,593

Acquisition and pursuit costs
2,652,705

 
—

 
2,652,705

Acquisition fees to related parties
110,880

 
—

 
110,880

Asset management fees to related party
2,766,086

 
—

 
2,766,086

Insurance, professional fees and other expenses
1,306,981

 
(24,596
)
AA
1,282,385

Total operating expenses
36,500,042

 
(821,507
)
 
35,678,535

Contingent asset management and general
 
 
 
 
 
 and administrative expense fees
(269,601
)
 
—

 
(269,601
)
 
 
 
 
 
 
Net operating expenses
36,230,441

 
(821,507
)
 
35,408,934

 
 
 
 
 
 
Operating income
5,505,340

 
(229,986
)
 
5,275,354

Interest expense
8,894,830

 
(299,845
)
AA
8,594,985

 
 
 
 
 
 
Net loss
(3,389,490
)
 
69,859

 
(3,319,631
)
Consolidated net loss attributable to
 
 
 
 
 
non-controlling interests
88,561

 
(1,823
)
BB
86,738

 
 
 
 
 
 
Net loss attributable to the Company
(3,300,929
)
 
68,036

 
(3,232,893
)
 
 
 
 
 
 
Dividends declared to Series A preferred stockholders
(7,881,735
)
 
—

 
(7,881,735
)
Earnings attributable to unvested restricted stock
(1,451
)
 
—

 
(1,451
)
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(11,184,115
)
 
$
68,036

 
$
(11,116,079
)
 
 
 
 
 
 
Net loss per share of Common Stock available to
 
 
 
 
 
common stockholders, basic and diluted
$
(0.49
)
 
 
 
$
(0.48
)
 
 
 
 
 
 
Dividends per share declared on Common Stock
$
0.1925

 
 
 
$
0.1925

 
 
 
 
 
 
Weighted average number of shares of Common Stock
 
 
 
 
 
outstanding, basic and diluted
22,983,741

 
 
 
22,983,741



The accompanying notes are an integral part of this consolidated pro forma financial statement.


F-3

Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2015


 
PAC REIT Historical
(See Note 1)
 
Disposition of Trail Creek
(See Note 1)
 
PAC REIT
Pro Forma
Revenues:
 
 
 
 
 
Rental revenues
$
69,128,280

 
$
(3,824,731
)
AA
$
65,303,549

Other property revenues
9,495,522

 
(375,231
)
AA
9,120,291

Interest income on loans and notes receivable
23,207,610

 
—

 
23,207,610

Interest income from related parties
7,474,100

 
—

 
7,474,100

Total revenues
109,305,512

 
(4,199,962
)
 
105,105,550

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Property operating and maintenance
10,878,872

 
(569,826
)
AA
10,309,046

Property salary and benefits reimbursement to related party
5,885,242

 
(328,093
)
AA
5,557,149

Property management fees
3,014,801

 
(126,458
)
AA
2,888,343

Real estate taxes
9,934,412

 
(480,933
)
AA
9,453,479

General and administrative
2,285,789

 
(79,644
)
AA
2,206,145

Equity compensation to directors and executives
2,362,453

 
—

 
2,362,453

Depreciation and amortization
38,096,334

 
(1,544,559
)
AA
36,551,775

Acquisition and pursuit costs
4,186,092

 
—

 
4,186,092

Acquisition fees to related parties
4,967,671

 
—

 
4,967,671

Asset management fees to related party
7,041,226

 
—

 
7,041,226

Insurance, professional fees and other expenses
3,568,356

 
(104,786
)
AA
3,463,570

Total operating expenses
92,221,248

 
(3,234,299
)
 
88,986,949

Contingent asset management and general
 
 
 
 
 
 and administrative expense fees
(1,805,478
)
 
—

 
(1,805,478
)
 
 
 
 
 
 
Net operating expenses
90,415,770

 
(3,234,299
)
 
87,181,471

 
 
 
 
 
 
Operating income
18,889,742

 
(965,663
)
 
17,924,079

Interest expense
21,315,731

 
(1,274,325
)
AA
20,041,406

 
 
 
 
 
 
Net loss
(2,425,989
)
 
308,662

 
(2,117,327
)
Consolidated net loss attributable to
 
 
 
 
 
non-controlling interests
25,321

 
(3,766
)
BB
21,555

 
 
 
 
 
 
Net loss attributable to the Company
(2,400,668
)
 
304,896

 
(2,095,772
)
 
 
 
 
 
 
Dividends declared to Series A preferred stockholders
(18,751,934
)
 
—

 
(18,751,934
)
Earnings attributable to unvested restricted stock
(19,256
)
 
—

 
(19,256
)
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(21,171,858
)
 
$
304,896

 
$
(20,866,962
)
 
 
 
 
 
 
Net loss per share of Common Stock available to
 
 
 
 
 
common stockholders, basic and diluted
$
(0.95
)
 
 
 
$
(0.94
)
 
 
 
 
 
 
Weighted average number of shares of Common Stock
 
 
 
 
outstanding, basic and diluted
22,182,971

 
 
 
22,182,971


The accompanying notes are an integral part of this consolidated pro forma financial statement.


F-4

Preferred Apartment Communities, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements

1.    Basis of Presentation

On February 24, 2016, Preferred Apartment Communities, Inc., or the Company, reclassified the real estate assets and mortgage note payable of its 300-unit Trail Creek multifamily community located in Hampton, Virginia, or Trail Creek, from held and used to held for sale. These assets and the mortgage note for Trail Creek were reported as held for sale in the Company's Quarterly Report on Form 10-Q as of and for the three months ended March 31, 2016. On May 19, 2016, the Company closed on the sale of Trail Creek to an unrelated third party for a purchase price of $39.0 million, exclusive of closing costs and recorded a gain on the sale of approximately $4.1 million.

The Unaudited Pro Forma Consolidated Balance Sheet includes three columns.  The first column labeled "PAC REIT Historical" represents the actual financial position of the Company as of March 31, 2016.  The second column, entitled "Disposition of Trail Creek" represents the pro forma adjustments required in order to reflect the balance sheet impact of the removal of the disposed assets as if the transaction had occurred on March 31, 2016, including the assumption by the buyer of the existing mortgage note on Trail Creek, as described in note 2.

The Unaudited Pro Forma Consolidated Statements of Operations include three columns. The first column labeled "PAC REIT Historical" represents the actual results of operations for the three months ended March 31, 2016 and the year ended December 31, 2015. The second column, entitled "Disposition of Trail Creek" represents the adjustments to remove the historical revenues and expenses of Trail Creek for the periods presented, as described in note 3.

The results presented on the Unaudited Pro Forma Consolidated Statements of Operations assume the sale of Trail Creek closed on January 1, 2015 and present pro forma operating results for the Company for the three months ended March 31, 2016 and the twelve months ended December 31, 2015. These Unaudited Pro Forma Financial Statements should not be considered indicative of future results.

2.      Adjustments to Unaudited Pro Forma Consolidated Balance Sheet

(A)     The Company removed the net carrying values of the disposed Trail Creek assets and liabilities, as shown in the following table.
 
Trail Creek multifamily community
Land value
$
4,200,000

Site improvements
262,065

Buildings
27,363,448

Furniture, fixtures and equipment:
 
Five year life
595,187

Ten year life
1,245,669

 
 
Property reported as held for sale
33,666,369

 
 
Restricted cash, tenant receivables and other assets
1,312,677

Mortgage assumed by purchaser
(28,109,000
)
Security deposits and other liabilities
(161,449
)
Interest payable and accrued expenses
(316,190
)
 
 
Net assets disposed
$
6,392,407



F-5

Preferred Apartment Communities, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements

(B)    The pro forma adjustment to cash was calculated as follows:

Net proceeds from purchaser
 
$
10,905,211

less:
 
 
Cash balances transferred to purchaser
 
(31,362
)
Pro forma disposition fee paid to Manager
 
(390,000
)
 
 
 
Net cash adjustment
 
$
10,483,849


(C)     The adjustment to cash and accumulated deficit includes a pro forma disposition fee that would be due to Preferred Apartment Advisors, LLC, or the Manager, of 1% of the purchase price of Trail Creek. This adjustment is not reflected in the Unaudited Pro Forma Consolidated Statements of Operations as the effect of the transaction is nonrecurring.

3.     Adjustments to Unaudited Pro Forma Consolidated Statements of Operations
 
The adjustments to the Unaudited Pro Forma Consolidated Statement of Operations for the three months ended March 31, 2016 and and year ended December 31, 2015 are as follows:

(AA)    These pro forma adjustments remove the actual historical revenues and expenses recorded from the operations of Trail Creek for the respective periods.    

(BB)      Outstanding Class A Units of the Operating Partnership become entitled to pro-rata distributions of profit and allocations of loss as non-controlling interests of the Operating Partnership. The weighted-average percentage of ownership by the non-controlling interests was approximately 2.6% and 1.24% for the three months ended March 31, 2016 and year ended December 31, 2015, respectively. These adjustments reflect the pro-rata adjustment to the amount of net loss attributable to the non-controlling interests.
  




F-6



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
PREFERRED APARTMENT COMMUNITIES, INC.
(Registrant)

Date: May 25, 2016
By:
 /s/ Jeffrey R. Sprain
 
 
Jeffrey R. Sprain
 
 
General Counsel and Secretary