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): March 7, 2017
Preferred Apartment Communities, Inc.
(Exact Name of Registrant as Specified in its Charter)
paca06.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 March 7, 2017, Ashford Park, 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 408-unit multifamily community in Atlanta, Georgia ("Ashford Park") to FPACP3 Ashford, LLC (the "Purchaser"), an unrelated third party. The aggregate purchase price paid by the Purchaser to Seller was $65.5 million, exclusive of acquisition-related transaction costs. The proceeds from the sale are being held by a 1031 intermediary with the goal being to use the proceeds for a like-kind exchange. Preferred Apartment Communities, Inc. (the "Company") is the general partner of, and as of December 31, 2016, owner of an approximate 96.8% interest in, PAC-OP.

Since the results of operations for Ashford Park exceeded 10% of the average consolidated net income/loss reported by the Company for the trailing five years, most recently ended December 31, 2016, Ashford Park 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 Ashford Park 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 December 31, 2016
F-2
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2016
F-3
Notes to Unaudited Pro Forma Consolidated Financial Statements
F-4





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 December 31, 2016 and the Unaudited Pro Forma Consolidated Statement of Operations of the Company are presented for the year ended December 31, 2016 (the "Pro Forma Period"), and include certain pro forma adjustments to illustrate the estimated effect of the Company's disposition of its Ashford Park 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 period 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, 2016.



F-1


Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
as of December 31, 2016
 
PAC REIT Historical
(See Note 1)
 
Disposition of Ashford Park
(See Note 1)
 
PAC REIT
Pro Forma
Assets
 
 
 
 
 
Real estate
 
 
 
 
 
Land
$
299,547,501

 
$
(10,600,000
)
A
$
288,947,501

Building and improvements
1,499,129,649

 
(24,055,463
)
A
1,475,074,186

Tenant improvements
37,806,472

 
—

 
37,806,472

Furniture, fixtures, and equipment
126,357,742

 
(4,230,928
)
A
122,126,814

Construction In progress
2,645,634

 
—

 
2,645,634

Gross real estate
1,965,486,998

 
(38,886,391
)
 
1,926,600,607

Less: accumulated depreciation
(103,814,894
)
 
6,758,554

A
(97,056,340
)
Net real estate
1,861,672,104

 
(32,127,837
)
 
1,829,544,267

Real estate loans, net of deferred fee income
201,855,604

 
—

 
201,855,604

Real estate loans to related parties, net
130,905,464

 
—

 
130,905,464

Total real estate and real estate loans, net
2,194,433,172

 
(32,127,837
)
 
2,162,305,335

 
 
 
 
 
 
Cash and cash equivalents
12,321,787

 
30,609,526

B, C
42,931,313

Restricted cash
55,392,984

 
(725,107
)
A
54,667,877

Notes receivable
15,499,699

 
—

 
15,499,699

Note receivable and line of credit to related party
22,115,976

 
—

 
22,115,976

Accrued interest receivable on real estate loans
21,894,549

 
—

 
21,894,549

Acquired intangible assets, net of amortization
79,156,400

 
—

 
79,156,400

Deferred loan costs for revolving line of credit
1,768,779

 
—

 
1,768,779

Deferred offering costs
2,677,023

 
—

 
2,677,023

Tenant receivables and other assets
15,572,233

 
(270,991
)
A
15,301,242

 
 
 
 
 
 
Total assets
$
2,420,832,602

 
$
(2,514,409
)
 
$
2,418,318,193

 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Mortgage notes payable, principal amount
$
1,327,878,112

 
$
(32,030,575
)
A
$
1,295,847,537

Less: deferred loan costs, net of amortization
(22,007,641
)
 
245,617

A
(21,762,024
)
Mortgage notes payable, net of deferred loan costs
1,305,870,471

 
(31,784,958
)
 
1,274,085,513

Revolving line of credit
127,500,000

 
—

 
127,500,000

Term note payable
11,000,000

 
—

 
11,000,000

Less: deferred loan costs, net of amortization
(40,095
)
 
—

 
(40,095
)
Term note payable, net of deferred loan costs
10,959,905

 
—

 
10,959,905

Real estate loan participation obligation
20,761,819

 
—

 
20,761,819

Accounts payable and accrued expenses
20,814,910

 
(170,797
)
A
20,644,113

Accrued interest payable
3,541,640

 
(91,846
)
A
3,449,794

Dividends and partnership distributions payable
10,159,629

 
—

 
10,159,629

Acquired below market lease intangibles
29,774,033

 
—

 
29,774,033

Security deposits and other liabilities
6,189,033

 
(139,801
)
A
6,049,232

Total liabilities
1,535,571,440

 
(32,187,402
)
 
1,503,384,038

 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
Stockholder's equity
 
 
 
 
 
Series A Redeemable Preferred Stock, $0.01 par value per share;
 
 
 
 
 
3,050,000 shares authorized; 924,855 shares issued and
 
 
 
 
 
914,422 shares outstanding
9,144

 
—

 
9,144

Common Stock, $0.01 par value per share; 400,066,666 shares
 
 
 
 
 
authorized; 26,498,192 shares issued and outstanding
264,982

 
—

 
264,982

Additional paid-in capital
906,737,470

 
—

 
906,737,470

Accumulated deficit
(23,231,643
)
 
29,672,993

C
6,441,350

Total stockholders' equity
883,779,953

 
29,672,993

 
913,452,946

Non-controlling interest
1,481,209

 
—

 
1,481,209

Total equity
885,261,162

 
29,672,993

 
914,934,155

 
 
 
 
 
 
Total liabilities and equity
$
2,420,832,602

 
$
(2,514,409
)
 
$
2,418,318,193


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 Year Ended December 31, 2016


 
PAC REIT Historical
(See Note 1)
 
Disposition of Ashford Park
(See Note 1)
 
PAC REIT
Pro Forma
Revenues:
 
 
 
 
 
Rental revenues
$
137,330,774

 
$
(5,622,786
)
AA
$
131,707,988

Other property revenues
19,302,548

 
(649,728
)
AA
18,652,820

Interest income on loans and notes receivable
28,840,857

 
—

 
28,840,857

Interest income from related parties
14,644,736

 
—

 
14,644,736

Total revenues
200,118,915

 
(6,272,514
)
 
193,846,401

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Property operating and maintenance
19,981,640

 
(1,019,947
)
AA
18,961,693

Property salary and benefits reimbursement to related party
10,398,711

 
(658,535
)
AA
9,740,176

Property management fees
5,980,735

 
(251,663
)
AA
5,729,072

Real estate taxes
21,594,369

 
(772,144
)
AA
20,822,225

General and administrative
4,557,990

 
(139,139
)
AA
4,418,851

Equity compensation to directors and executives
2,524,042

 
—

 
2,524,042

Depreciation and amortization
78,139,798

 
(1,352,859
)
AA
76,786,939

Acquisition and pursuit costs
7,607,737

 
—

 
7,607,737

Acquisition fees to related parties
939,806

 
—

 
939,806

Asset management fees to related party
13,637,458

 
—

 
13,637,458

Insurance, professional fees and other expenses
6,172,972

 
(116,135
)
AA
6,056,837

Total operating expenses
171,535,258

 
(4,310,422
)
 
167,224,836

Contingent asset management and general
 
 
 
 
 
 and administrative expense fees
(1,585,567
)
 
—

 
(1,585,567
)
 
 
 
 
 
 
Net operating expenses
169,949,691

 
(4,310,422
)
 
165,639,269

 
 
 
 
 
 
Operating income
30,169,224

 
(1,962,092
)
 
28,207,132

Interest expense
44,284,144

 
(1,167,376
)
AA
43,116,768

 
 
 
 
 
 
Net loss before gain on real estate
(14,114,920
)
 
(794,716
)
 
(14,909,636
)
Gain on sale of real estate
4,271,506

 
—

 
4,271,506

 
 
 
 
 
 
Net loss
(9,843,414
)
 
(794,716
)
 
(10,638,130
)
 
 
 
 
 
 
Consolidated net loss attributable to
 
 
 
 
 
non-controlling interests
310,291

 
26,226

BB
336,517

 
 
 
 
 
 
Net loss attributable to the Company
(9,533,123
)
 
(768,490
)
 
(10,301,613
)
 
 
 
 
 
 
Dividends declared to Series A preferred stockholders
(41,080,645
)
 
—

 
(41,080,645
)
Earnings attributable to unvested restricted stock
(15,843
)
 
—

 
(15,843
)
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(50,629,611
)
 
$
(768,490
)
 
$
(51,398,101
)
 
 
 
 
 
 
Net loss per share of Common Stock available to
 
 
 
 
 
common stockholders, basic and diluted
$
(2.11
)
 
 
 
$
(2.14
)
 
 
 
 
 
 
Weighted average number of shares of Common Stock
 
 
 
 
outstanding, basic and diluted
23,969,494

 
 
 
23,969,494


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


F-3

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

1.    Basis of Presentation

On March 7, 2017, Preferred Apartment Communities, Inc., or the Company, closed on the sale of its 408-unit multifamily community in Atlanta, GA, or Ashford Park, to an unrelated third party for a purchase price of $65.5 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 December 31, 2016.  The second column, entitled "Disposition of Ashford Park" 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 December 31, 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 December 31, 2016, excluding Ashford Park.

The Unaudited Pro Forma Consolidated Statement of Operations includes three columns. The first column labeled "PAC REIT Historical" represents the actual results of operations for the year ended December 31, 2016. The second column, entitled "Disposition of Ashford Park" represents the adjustments to remove the historical revenues and expenses of Ashford Park for the period 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 year ended December 31, 2016, excluding Ashford Park.

The results presented on the Unaudited Pro Forma Consolidated Statement of Operations assume the sale of Ashford Park closed on January 1, 2016 and presents pro forma operating results for the Company for the year ended December 31, 2016. 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 Ashford Park assets and liabilities, as shown in the following table.
 
Ashford Park multifamily community
 
Land
$
10,600,000

 
Buildings and improvements
24,055,463

 
Furniture, fixtures and equipment
4,230,928

 
Accumulated depreciation
(6,758,554
)
 
Restricted cash
725,107

 
Tenant receivables and other assets
270,991

 
Mortgage defeasance
(32,030,575
)
 
Deferred loan costs
245,617

 
Accounts payable and accrued expenses
(170,797
)
 
Accrued interest payable
(91,846
)
 
Security deposits and other liabilities
(139,801
)
 
 
 
 
Net assets disposed
$
936,533

 

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

Net proceeds from purchaser
 
$
31,328,806

less:
 
 
Cash balances transferred to purchaser
 
(64,280
)
Pro forma disposition fee paid to Manager
 
(655,000
)
 
 
 
Net cash adjustment
 
$
30,609,526


F-4

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


(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 Ashford Park and (ii) is net of a mortgage defeasance fee of $1,142,907 and other charges paid to relieve the Company of the mortgage obligation on Ashford Park. This adjustment is not reflected in the Unaudited Pro Forma Consolidated Statement of Operations as the effect of the transaction is nonrecurring.

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

(AA)    These pro forma adjustments remove the actual historical revenues and expenses recorded from the operations of Ashford Park for the year ended December 31, 2016.    

(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 3.30% for the year ended December 31, 2016. These adjustments reflect the pro-rata adjustment to the amount of net loss attributable to the non-controlling interests.
  




F-5



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: March 13, 2017
By:
 /s/ Jeffrey R. Sprain
 
 
Jeffrey R. Sprain
 
 
General Counsel and Secretary