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): January 20, 2017
Preferred Apartment Communities, Inc.
(Exact Name of Registrant as Specified in its Charter)
paca03.jpg
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 January 20, 2017, Sandstone Creek, 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 364-unit multifamily community in Kansas City, KS ("Sandstone Creek") to DRA FUND IX, LLC (the "Purchaser"), an unrelated third party. The aggregate purchase price paid by the Purchaser to Seller was $48.1 million, exclusive of acquisition-related transaction costs. Preferred Apartment Communities, Inc. (the "Company") is the general partner of, and as of September 30, 2016, owner of an approximate 96.5% interest in, PAC-OP.

Since the results of operations for Sandstone Creek exceeded 10% of the consolidated net loss reported by the Company for the twelve-month period ended December 31, 2015, Sandstone 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 Sandstone 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 September 30, 2016
F-2
Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 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 regard to a certain real estate disposition transaction.

The accompanying Unaudited Pro Forma Consolidated Balance Sheet is presented as of September 30, 2016 and the Unaudited Pro Forma Consolidated Statements of Operations of the Company are presented for the nine months ended September 30, 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 Sandstone 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 September 30, 2016.



F-1


Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
as of September 30, 2016
 
PAC REIT Historical
(See Note 1)
 
Disposition of Sandstone Creek
(See Note 1)
 
PAC REIT
Pro Forma
Assets
 
 
 
 
 
Real estate
 
 
 
 
 
Land
$
260,222,888

 
$
(2,846,197
)
A
$
257,376,691

Building and improvements
1,333,186,314

 
(41,755,153
)
A
1,291,431,161

Tenant improvements
14,132,772

 
—

 
14,132,772

Furniture, fixtures, and equipment
125,292,571

 
(4,672,299
)
A
120,620,272

Construction In progress
2,879,528

 
(206,319
)
A
2,673,209

Gross real estate
1,735,714,073

 
(49,479,968
)
 
1,686,234,105

Less: accumulated depreciation
(87,020,014
)
 
4,281,440

A
(82,738,574
)
Net real estate
1,648,694,059

 
(45,198,528
)
 
1,603,495,531

Real estate loans, net of deferred fee income
195,971,159

 
—

 
195,971,159

Real estate loans to related parties, net
109,436,327

 
—

 
109,436,327

Total real estate and real estate loans, net
1,954,101,545

 
(45,198,528
)
 
1,908,903,017

 
 
 
 
 
 
Cash and cash equivalents
10,462,384

 
14,874,728

B, C
25,337,112

Restricted cash
32,948,161

 
(612,969
)
A
32,335,192

Notes receivable
14,341,875

 
—

 
14,341,875

Note receivable and line of credit to related party
20,986,537

 
—

 
20,986,537

Accrued interest receivable on real estate loans
17,669,121

 
—

 
17,669,121

Acquired intangible assets, net of amortization
49,825,572

 
—

 
49,825,572

Deferred loan costs for revolving line of credit
1,738,508

 
—

 
1,738,508

Deferred offering costs
3,809,014

 
—

 
3,809,014

Tenant receivables and other assets
17,654,353

 
(42,489
)
A
17,611,864

 
 
 
 
 
 
Total assets
$
2,123,537,070

 
$
(30,979,258
)
 
$
2,092,557,812

 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Mortgage notes payable, principal amount
$
1,183,335,433

 
$
(31,063,707
)
A
$
1,152,271,726

Less: deferred loan costs, net of amortization
(19,317,090
)
 
211,444

A
(19,105,646
)
Mortgage notes payable, net of deferred loan costs
1,164,018,343

 
(30,852,263
)
 
1,133,166,080

Revolving line of credit
82,000,000

 
—

 
82,000,000

Term note payable
11,000,000

 
—

 
11,000,000

Less: deferred loan costs, net of amortization
(67,032
)
 
—

 
(67,032
)
Term note payable, net of deferred loan costs
10,932,968

 
—

 
10,932,968

Real estate loan participation obligation
19,638,232

 
—

 
19,638,232

Accounts payable and accrued expenses
25,309,813

 
(619,281
)
A
24,690,532

Accrued interest payable
3,490,151

 
(82,319
)
A
3,407,832

Dividends and partnership distributions payable
9,056,611

 
—

 
9,056,611

Acquired below market lease intangibles
19,180,354

 
—

 
19,180,354

Security deposits and other liabilities
5,161,358

 
(80,568
)
A
5,080,790

Total liabilities
1,338,787,830

 
(31,634,431
)
 
1,307,153,399

 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
Stockholder's equity
 
 
 
 
 
Series A Redeemable Preferred Stock, $0.01 par value per share;
 
 
 
 
 
1,050,000 shares authorized; 809,460 shares issued and
 
 
 
 
 
802,032 shares outstanding
8,020

 
—

 
8,020

Common Stock, $0.01 par value per share; 400,066,666 shares
 
 
 
 
 
authorized; 24,658,034 shares issued and outstanding
246,580

 
—

 
246,580

Additional paid-in capital
802,559,257

 
—

 
802,559,257

Accumulated deficit
(19,384,106
)
 
655,173

C
(18,728,933
)
Total stockholders' equity
783,429,751

 
655,173

 
784,084,924

Non-controlling interest
1,319,489

 
—

 
1,319,489

Total equity
784,749,240

 
655,173

 
785,404,413

 
 
 
 
 
 
Total liabilities and equity
$
2,123,537,070

 
$
(30,979,258
)
 
$
2,092,557,812


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 Nine Months Ended September 30, 2016

 
PAC REIT Historical
(See Note 1)
 
Disposition of Sandstone Creek
(See Note 1)
 
PAC REIT
Pro Forma
Revenues:
 
 
 
 
 
Rental revenues
$
96,541,544

 
$
(2,981,668
)
AA
$
93,559,876

Other property revenues
13,290,330

 
(388,034
)
AA
12,902,296

Interest income on loans and notes receivable
20,984,625

 
—

 
20,984,625

Interest income from related parties
10,310,563

 
—

 
10,310,563

Total revenues
141,127,062

 
(3,369,702
)
 
137,757,360

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Property operating and maintenance
13,883,133

 
(652,558
)
AA
13,230,575

Property salary and benefits reimbursement to related party
7,688,470

 
(385,134
)
AA
7,303,336

Property management fees
4,308,841

 
(135,344
)
AA
4,173,497

Real estate taxes
15,457,134

 
(505,335
)
AA
14,951,799

General and administrative
3,255,728

 
(116,537
)
AA
3,139,191

Equity compensation to directors and executives
1,867,706

 
—

 
1,867,706

Depreciation and amortization
54,981,064

 
(1,611,036
)
AA
53,370,028

Acquisition and pursuit costs
6,179,442

 
—

 
6,179,442

Acquisition fees to related parties
706,422

 
—

 
706,422

Asset management fees to related party
9,484,161

 
—

 
9,484,161

Insurance, professional fees and other expenses
4,216,838

 
(58,528
)
AA
4,158,310

Total operating expenses
122,028,939

 
(3,464,472
)
 
118,564,467

Contingent asset management and general
 
 
 
 
 
 and administrative expense fees
(1,458,245
)
 
—

 
(1,458,245
)
 
 
 
 
 
 
Net operating expenses
120,570,694

 
(3,464,472
)
 
117,106,222

 
 
 
 
 
 
Operating income
20,556,368

 
94,770

 
20,651,138

Interest expense
30,688,505

 
(810,752
)
AA
29,877,753

 
 
 
 
 
 
Net loss before gain on sale of real estate
(10,132,137
)
 
905,522

 
(9,226,615
)
Gain on sale of real estate, net of disposition expenses
4,271,506

 
—

 
4,271,506

Net loss
(5,860,631
)
 
905,522

 
(4,955,109
)
Consolidated net loss attributable to
 
 
 
 
 
non-controlling interests
175,045

 
(32,508
)
BB
142,537

 
 
 
 
 
 
Net loss attributable to the Company
(5,685,586
)
 
873,014

 
(4,812,572
)
 
 
 
 
 
 
Dividends declared to Series A preferred stockholders
(28,341,723
)
 
—

 
(28,341,723
)
Earnings attributable to unvested restricted stock
(12,434
)
 
—

 
(12,434
)
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(34,039,743
)
 
$
873,014

 
$
(33,166,729
)
 
 
 
 
 
 
Net loss per share of Common Stock available to
 
 
 
 
 
common stockholders, basic and diluted
$
(1.45
)
 
 
 
$
(1.41
)
 
 
 
 
 
 
Dividends per share declared on Common Stock
$
0.5975

 
 
 
$
0.5975

 
 
 
 
 
 
Weighted average number of shares of Common Stock
 
 
 
 
 
outstanding, basic and diluted
23,552,951

 
 
 
23,552,951



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 Sandstone Creek
(See Note 1)
 
PAC REIT
Pro Forma
Revenues:
 
 
 
 
 
Rental revenues
$
69,128,280

 
$
(4,155,357
)
AA
$
64,972,923

Other property revenues
9,495,522

 
(503,222
)
AA
8,992,300

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

 
(4,658,579
)
 
104,646,933

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

 
(671,355
)
AA
10,207,517

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

 
(479,080
)
AA
5,406,162

Property management fees
3,014,801

 
(139,064
)
AA
2,875,737

Real estate taxes
9,934,412

 
(657,197
)
AA
9,277,215

General and administrative
2,285,789

 
(86,381
)
AA
2,199,408

Equity compensation to directors and executives
2,362,453

 
—

 
2,362,453

Depreciation and amortization
38,096,334

 
(2,451,244
)
AA
35,645,090

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

 
(79,831
)
AA
3,488,525

Total operating expenses
92,221,248

 
(4,564,152
)
 
87,657,096

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

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

 
(4,564,152
)
 
85,851,618

 
 
 
 
 
 
Operating income
18,889,742

 
(94,427
)
 
18,795,315

Interest expense
21,315,731

 
(1,098,756
)
AA
20,216,975

 
 
 
 
 
 
Net loss
(2,425,989
)
 
1,004,329

 
(1,421,660
)
Consolidated net loss attributable to
 
 
 
 
 
non-controlling interests
25,321

 
(12,328
)
BB
12,993

 
 
 
 
 
 
Net loss attributable to the Company
(2,400,668
)
 
992,001

 
(1,408,667
)
 
 
 
 
 
 
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
)
 
$
992,001

 
$
(20,179,857
)
 
 
 
 
 
 
Net loss per share of Common Stock available to
 
 
 
 
 
common stockholders, basic and diluted
$
(0.95
)
 
 
 
$
(0.91
)
 
 
 
 
 
 
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 January 20, 2017, Preferred Apartment Communities, Inc., or the Company, closed on the sale of its 364-unit multifamily community in Kansas City, KS, or Sandstone Creek, to an unrelated third party for a purchase price of $48.1 million, exclusive of closing costs.

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 September 30, 2016.  The second column, entitled "Disposition of Sandstone 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 September 30, 2016, as described in note 2. The third column, entitled "PAC REIT Pro Forma" presents the pro forma condensed consolidated balance sheet of the Company as of September 30, 2016, excluding Sandstone Creek.

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 nine months ended September 30, 2016 and the year ended December 31, 2015. The second column, entitled "Disposition of Sandstone Creek" represents the adjustments to remove the historical revenues and expenses of Sandstone Creek for the periods presented, as described in note 3. The third column, entitled "PAC REIT pro forma" presents the pro forma results of operations of the Company for the nine months ended September 30, 2016 and the year ended December 31, 2015, excluding Sandstone Creek.

The results presented on the Unaudited Pro Forma Consolidated Statements of Operations assume the sale of Sandstone Creek closed on January 1, 2015 and present pro forma operating results for the Company for the nine months ended September 30, 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 Sandstone Creek assets and liabilities, as shown in the following table.
 
Sandstone Creek multifamily community
Land
$
2,846,197

Buildings and improvements
41,755,153

Furniture, fixtures and equipment
4,672,299

Construction in progress
206,319

Accumulated depreciation
(4,281,440
)
Restricted cash
612,969

Tenant receivables and other assets
42,489

Mortgage defeasance
(31,063,707
)
Deferred loan costs
211,444

Accounts payable and accrued expenses
(619,281
)
Accrued interest payable
(82,319
)
Security deposits and other liabilities
(80,568
)
 
 
Net assets disposed
$
14,219,555



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
 
$
16,916,830

less:
 
 
Cash balances transferred to purchaser
 
(50,491
)
Pro forma disposition fee paid to Manager
 
(481,000
)
Pro forma mortgage defeasance fee paid to third party
 
(1,510,611
)
 
 
 
Net cash adjustment
 
$
14,874,728


(C)     The adjustment to cash and accumulated deficit includes (i) a pro forma disposition fee that would be due to Preferred Apartment Advisors, LLC, or the Manager, of 1% of the purchase price of Sandstone Creek and (ii) a defeasance fee and other charges paid to relieve the Company of the mortgage obligation on Sandstone Creek. These adjustments are 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 nine months ended September 30, 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 Sandstone 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 3.59% and 1.23% for the nine months ended September 30, 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: January 26, 2017
By:
 /s/ Jeffrey R. Sprain
 
 
Jeffrey R. Sprain
 
 
General Counsel and Secretary