8-K

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

_____________________

FORM 8-K/A

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

Date of Report (Date of earliest event reported): December 21, 2015
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 December 21, 2015: (i) PAC Lenox Village, LLC (the "Lenox Village Purchaser"), an indirect, wholly owned subsidiary of Preferred Apartment Communities Operating Partnership, L.P. ("PAC-OP"), completed the acquisition of a fee simple interest in a 273-unit multifamily community together with approximately 34,961 square feet of commercial retail space in Nashville, Tennessee ("Lenox Village"); (ii) PAC Lenox Regent, LLC (the "Lenox Regent Purchaser"), an indirect, wholly owned subsidiary of PAC-OP, completed the acquisition of a fee simple interest in an 18-unit multifamily community with approximately 12,655 square feet of retail space in Nashville, Tennessee ("Lenox Regent"); and (iii) PAC Lenox Retreat, LLC, an indirect, wholly owned subsidiary of PAC-OP, completed the acquisition of a 183-unit multifamily community in Nashville, Tennessee ("Lenox Retreat"). Lenox Village, Lenox Regent and Lenox Retreat acquired the properties, (the "Acquired Communities") from Lenox Village Properties, LLC, Lenox Village Lifestyle Center, LLC and Lenox Village Lifestyle Center III, LLC (collectively, the "Sellers"). The aggregate purchase price paid by the Purchasers to Sellers was approximately $77.6 million, exclusive of acquisition- and financing-related transaction costs.

Preferred Apartment Communities, Inc. (the "Company") is the general partner of, and owner of an approximate 99.1% interest in, PAC-OP. The Company hereby amends the Current Report on Form 8-K filed on December 22, 2015, reporting events on and after December 21, 2015, to provide certain financial information related to its acquisition of the Acquired Communities required by Item 9.01(a) of Form 8-K.




Item 9.01    Financial Statements and Exhibits

(a)
Financial Statements of Businesses Acquired.

Independent Auditor's Report
F-1
Combined Statements of Revenue and Certain Expenses for the nine-month period ended September 30, 2015 (unaudited) and the year ended December 31, 2014 (audited)
F-2
Notes to the Combined Statements of Revenue and Certain Expenses
F-3

(b)
Pro Forma Financial Information.

Unaudited Pro Forma Consolidated Financial Statements
F-6
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2015
F-7
Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2015
F-8
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2014
F-9
Notes to Unaudited Pro Forma Consolidated Financial Statements
F-10

(c)    Exhibits

23.1
Consent of Moore, Colson & Company, P.C.






INDEPENDENT AUDITOR’S REPORT
To the Board of Directors and Stockholders of Preferred Apartment Communities, Inc.
Atlanta, Georgia
We have audited the accompanying combined statement of revenue and certain expenses of Lenox Village Town Center, Regent Building and Lenox Village III (the “Lenox Village Portfolio”) for the year ended December 31, 2014, and the related notes to the combined statement of revenue and certain expenses.
Management’s Responsibility for the combined Statement of Revenue and Certain Expenses
Management is responsible for the preparation and fair presentation of the combined statement of revenue and certain expenses in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the combined statement of revenue and certain expenses that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the combined statement of revenue and certain expenses based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement of revenue and certain expenses is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined statement of revenue and certain expenses. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined statement of revenue and certain expenses, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined statement of revenue and certain expenses in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined statement of revenue and certain expenses.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined statement of revenue and certain expenses referred to above presents fairly, in all material respects, the combined revenue and certain expenses described in Note 2 of the Lenox Village Portfolio’s combined statement of revenue and certain expenses for the year ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
Emphasis of Matter
We draw attention to Note 2 to the combined statement of revenue and certain expenses, which describes that the accompanying combined statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and is not intended to be a complete presentation of the Lenox Village Portfolio’s combined revenue and expenses. Our opinion is not modified with respect to this matter.

/s/ Moore, Colson & Co., P.C.
Marietta, Georgia
March 2, 2016

F-1



Lenox Village Portfolio
 Combined Statement of Revenue and Certain Expenses
For the nine-month period ended September 30, 2015 (unaudited) and
For the year ended December 31, 2014 (audited)



 
 
Nine Months ended September 30, 2015
 
Twelve months ended December 31, 2014
REVENUE:
 
 
 
 
Base rent
 
$
4,765,644

 
$
4,761,155

Operating escalations and tenant reimbursements
 
135,670

 
172,498

Other income
 
269,416

 
237,288

 
 
 
 
 
Total revenue
 
5,170,730

 
5,170,941

 
 
 
 
 
CERTAIN EXPENSES:
 
 
 
 
Real estate taxes
 
684,447

 
638,664

Payroll
 
470,092

 
407,419

Repairs and maintenance
 
401,417

 
438,386

Utilities
 
226,714

 
202,732

Management fees
 
172,378

 
178,960

Insurance
 
144,455

 
99,402

General and administrative
 
79,180

 
88,142

Advertising
 
48,363

 
71,577

Professional fees
 
2,218

 
6,457

 
 
 
 
 
Total certain expenses
 
2,229,264

 
2,131,739

 
 
 
 
 
REVENUE IN EXCESS OF CERTAIN EXPENSES
 
$
2,941,466

 
$
3,039,202



See accompanying notes to Combined Statement of Revenue and Certain Expenses.


F-2


Lenox Village Portfolio
 
Notes to the Combined Statement of Revenue and Certain Expenses
For the Nine-month period ended September 30, 2015 (unaudited) and
For the year ended December 31, 2014 (audited)



1.NATURE OF BUSINESS
Preferred Apartment Communities, Inc. (the “Company”) was formed as a Maryland corporation on September 18, 2009, and has elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, effective with its tax year ended December 31, 2011. The Company was formed to acquire multifamily properties in select targeted markets throughout the United States. The Company is a majority owner in Preferred Apartment Communities Operating Partnership, L.P., which acquired the below multi-family and mixed use properties (the “Lenox Village Portfolio”) from an unaffiliated third party (the “Seller”) on December 21, 2015. Prior to December 21, 2015, the Seller was responsible for all accounting and management decisions of the properties.
 
 
 
 
Unaudited
 
 
 
 
Retail
 
Multifamily
Property
 
Location
 
Square feet
 
Occupancy %
as of
September 30, 2015
 
Square feet
 
Occupancy %
as of
September 30, 2015
Lenox Village Town Center
 
Nashville, TN
 
34,961
 
100%
 
247,338
 
97%
Regent Building
 
Nashville, TN
 
12,655
 
81%
 
19,296
 
100%
Lenox Village III
 
Nashville, TN
 
N/A
 
N/A
 
141,454
 
98%

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.    Basis of Presentation
The accompanying combined statement of revenue and certain expenses has been prepared for the purpose of complying with Rule 3-14 of Regulation S-X promulgated under the Securities Act of 1933, as amended, and accordingly, are not representative of the actual results of operations of the properties, due to the exclusion of the following revenue and expenses which may not be comparable to the proposed future operations of the Lenox Village Portfolio:
Depreciation and amortization
Interest income and expense
Amortization of in place leases and above and below market leases
Other miscellaneous revenue and expenses not directly related to the proposed future operations of the properties.

Except as noted above and for the subsequent lease activity related to Lenox Village Town Center, management is not aware of any material factors relating to the properties that would cause the reported financial information not to be indicative of future operating results.
The combined statement of revenue and certain expenses for the nine-month period ended September 30, 2015 is unaudited. However, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for the fair presentation of this combined statement of revenue and certain expenses for the interim period on the basis described above have been included. The results for such an interim period are not necessarily indicative of the results for the entire year.
B.    Use of Estimates
The preparation of the combined statement of revenue and certain expenses in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of revenue and certain expenses. Actual results could differ from those estimates.


F-3


Lenox Village Portfolio
 
Notes to the Combined Statement of Revenue and Certain Expenses
For the Nine-month period ended September 30, 2015 (unaudited) and
For the year ended December 31, 2014 (audited)


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
C.    Revenue Recognition
Revenue is recognized when realizable and earned. Amounts that have been received but not earned are deferred to future periods. Retail leases that contain rent abatements and contractual increases are recognized on a straight-line basis over the applicable terms of the related lease. Reimbursements from tenants for real estate taxes, insurance and other retail center operating expenses are recognized as revenue in the period that the applicable costs are incurred.
D.
Operating Expenses
Operating expenses represent the direct expenses of operating the properties and consist primarily of real estate taxes, payroll, repairs and maintenance, utilities, management fees, insurance and other operating expenses that are expected to continue in the proposed future operations of the properties.
E.
Subsequent Events
The Company has evaluated events through March 2, 2016, the date the combined statement of revenue and certain expenses were available to be issued.
3.
OPERATING LEASES
The future minimum lease payments to be received under non-cancelable operating leases in effect as of September 30, 2015 are as follows (unaudited):

2015 (three-month period ending December 31, 2015)
$
197,996

2016
 
620,399

2017
 
485,014

2018
 
265,787

2019
 
160,510

2020
 
41,744

Total
$
1,771,450


4.
COMMITMENTS AND CONTINGENCIES
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. There is no material litigation nor to management's knowledge is any material litigation currently threatened against the properties other than routine litigation, claims and administrative proceedings arising in the ordinary course of business.

5.
MANAGEMENT AGREEMENT
In connection with the management of the rental operations, a property management fee is paid to RAM Partners, LLC, a related party. The property management fee is based on the greater of a fixed dollar amount, ranging from $1,500 - $4,000, or 3.25% of gross rental income, as defined in the Management Agreement. During the pre-leasing period, an escalating monthly fee was charged before the opening of the leasing office as follows: 90 days ‑ $1,500 per month, 60 days - $2,500 per month and 30 days - $3,500 per month. For the nine-month period ended September 30, 2015 and for the year ended December 31, 2014, property management fees of $172,378 (unaudited) and $178,960, respectively, have been charged to operations.



F-4


Lenox Village Portfolio
 
Notes to the Combined Statement of Revenue and Certain Expenses
For the Nine-month period ended September 30, 2015 (unaudited) and
For the year ended December 31, 2014 (audited)


6.
CONCENTRATION OF RISK
The Lenox Village Portfolio’s real estate assets are located in the southeastern region of the United States. These concentrations of assets are subject to the risks of real property ownership and local and national economic growth trends.




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 certain real estate acquisitions and financing transactions, as applicable.

The accompanying Unaudited Pro Forma Consolidated Statements of Operations of the Company are presented for the nine months ended September 30, 2015 and the year ended December 31, 2014 (the "Pro Forma Periods"), and include certain pro forma adjustments to illustrate the estimated effect of the Company's acquisitions and transactions 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 transactions 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, 2014 and on Form 10-Q for the interim period ended September 30, 2015.



F-6



Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
as of September 30, 2015
 
PAC REIT Historical
(See Note 1)
 
Lenox Village Portfolio
(See Note 1)
 
PAC REIT
Pro Forma
Assets
 
 
 
 
 
Real estate
 
 
 
 
 
Land
$
121,990,344

 
$
7,877,823

A
$
129,868,167

Building and improvements
646,526,008

 
60,500,355

A
707,026,363

Tenant improvements
4,312,964

 
71,746

A
4,384,710

Furniture, fixtures, and equipment
81,754,519

 
6,281,010

A
88,035,529

Construction In progress
679,216

 

 
679,216

Gross real estate
855,263,051

 
74,730,934

 
929,993,985

Less: accumulated depreciation
(45,416,437
)
 

 
(45,416,437
)
Net real estate
809,846,614

 
74,730,934

 
884,577,548

Real estate loans, net of deferred fee income
154,187,851

 

 
154,187,851

Real estate loans to related parties, net
53,609,059

 

 
53,609,059

Total real estate and real estate loans, net
1,017,643,524

 
74,730,934

 
1,092,374,458

 
 
 
 
 
 
Cash and cash equivalents
8,046,824

 
271,020

B
8,317,844

Restricted cash
12,020,327

 
739,340

A
12,759,667

Notes receivable
10,449,914

 

 
10,449,914

Note receivable and line of credit to related party
17,845,319

 

 
17,845,319

Accrued interest receivable on real estate loans
11,227,275

 

 
11,227,275

Acquired intangible assets, net of amortization
14,948,140

 
2,122,241

A
17,070,381

Deferred loan costs for revolving line of credit
487,079

 

 
487,079

Deferred offering costs
6,413,474

 

 
6,413,474

Tenant receivables and other assets
5,758,320

 
849,731

A
6,608,051

 
 
 
 
 
 
Total assets
$
1,104,840,196

 
$
78,713,266

 
$
1,183,553,462

 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Mortgage notes payable, principal amount
$
598,045,978

 
$
49,804,461

B
$
647,850,439

Less: deferred loan costs, net of amortization
(7,241,722
)
 
(642,291
)
B
(7,884,013
)
Mortgage notes payable, net of deferred loan costs
590,804,256

 
49,162,170

B
639,966,426

Revolving line of credit
28,700,000

 
29,500,000

B
58,200,000

Real estate loan participation obligation
12,525,823

 

 
12,525,823

Accounts payable and accrued expenses
12,144,470

 
71,958

A
12,216,428

Accrued interest payable
1,544,500

 

 
1,544,500

Dividends and partnership distributions payable
5,892,424

 

 
5,892,424

Acquired below market lease intangibles
7,332,327

 

 
7,332,327

Security deposits and other liabilities
2,349,802

 
755,288

A
3,105,090

Total liabilities
661,293,602

 
79,489,416

 
740,783,018

 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
Stockholder's equity
 
 
 
 
 
Series A Redeemable Preferred Stock, $0.01 par value per share;
 
 
 
 
 
1,050,000 shares authorized; 386,912 shares issued and
 
 
 
 
 
384,112 shares outstanding
3,841

 

 
3,841

Common Stock, $0.01 par value per share; 400,066,666 shares
 
 
 
 
 
authorized; 22,301,202 shares issued and outstanding
223,012

 

 
223,012

Additional paid-in capital
454,470,254

 

 
454,470,254

Accumulated deficit
(13,319,000
)
 
(776,150
)
C
(14,095,150
)
Total stockholders' equity
441,378,107

 
(776,150
)
 
440,601,957

Non-controlling interest
2,168,487

 

 
2,168,487

Total equity
443,546,594

 
(776,150
)
 
442,770,444

 
 
 
 
 
 
Total liabilities and equity
$
1,104,840,196

 
$
78,713,266

 
$
1,183,553,462


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


F-7


Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 2015


 
PAC REIT Historical
(See Note 1)
 
Lenox Village Portfolio
(See Note 1)
 
Other Pro Forma Adjustments
(See Note 1)
 
PAC REIT
Pro Forma
Revenues:
 
 
 
 
 
 
 
Rental revenues
$
47,304,230

 
$
4,765,644

 
$

 
$
52,069,874

Other property revenues
6,685,752

 
405,086

 

 
7,090,838

Interest income on loans and notes receivable
16,367,864

 

 

 
16,367,864

Interest income from related parties
5,031,189

 

 

 
5,031,189

Total revenues
75,389,035

 
5,170,730

 

 
80,559,765

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Property operating and maintenance
7,722,017

 
676,494

 

 
8,398,511

Property salary and benefits reimbursement to related party
4,114,752

 
470,092

 

 
4,584,844

Property management fees
2,082,839

 
172,378

 
21,524

AA
2,276,741

Real estate taxes
6,911,034

 
684,447

 

 
7,595,481

General and administrative
1,553,666

 
79,180

 

 
1,632,846

Equity compensation to directors and executives
1,761,268

 

 

 
1,761,268

Depreciation and amortization
26,409,763

 

 
2,511,216

BB
28,920,979

Acquisition and pursuit costs
2,876,642

 

 
(90,702
)
CC
2,785,940

Acquisition fees to related parties
3,400,021

 

 

 
3,400,021

Asset management fees to related party
4,830,588

 

 
502,170

DD
5,332,758

Insurance, professional fees and other expenses
2,412,441

 
146,673

 

 
2,559,114

Total operating expenses
64,075,031

 
2,229,264

 
2,944,208

 
69,248,503

Asset management and general and administrative expense
 
 
 
 
 
 
 
fees deferred
(1,528,479
)
 

 

 
(1,528,479
)
 
 
 
 
 
 
 
 
Net operating expenses
62,546,552

 
2,229,264

 
2,944,208

 
67,720,024

 
 
 
 
 
 
 
 
Operating income (loss)
12,842,483

 
2,941,466

 
(2,944,208
)
 
12,839,741

Interest expense
14,884,343

 

 
2,332,577

EE
17,216,920

 
 
 
 
 
 
 
 
Net (loss) income
(2,041,860
)
 
2,941,466

 
(5,276,785
)
 
(4,377,179
)
Consolidated net loss (income) attributable to
 
 
 
 
 
 
 
non-controlling interests
20,712

 

 
65,925

FF
86,637

 
 
 
 
 
 
 
 
Net (loss) income attributable to the Company
(2,021,148
)
 
2,941,466

 
(5,210,860
)
 
(4,290,542
)
 
 
 
 
 
 
 
 
Dividends declared to Series A preferred stockholders
(12,377,580
)
 

 

 
(12,377,580
)
Earnings attributable to unvested restricted stock
(16,355
)
 

 

 
(16,355
)
 
 
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(14,415,083
)
 
$
2,941,466

 
$
(5,210,860
)
 
$
(16,684,477
)
 
 
 
 
 
 
 
 
Net loss per share of Common Stock available to
 
 
 
 
 
 
 
common stockholders, basic and diluted
$
(0.65
)
 
 
 
 
 
$
(0.75
)
 
 
 
 
 
 
 
 
Dividends per share declared on Common Stock
$
0.535

 
 
 
 
 
$
0.535

 
 
 
 
 
 
 
 
Weighted average number of shares of Common Stock
 
 
 
 
 
 
 
outstanding, basic and diluted
22,109,036

 
 
 
 
 
22,109,036



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


F-8


Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2014


 
PAC REIT Historical
(See Note 1)
 
Lenox Village Portfolio
(See Note 1)
 
Other Pro Forma Adjustments
(See Note 1)
 
PAC REIT
Pro Forma
Revenues:
 
 
 
 
 
 
 
Rental revenues
$
30,762,423

 
$
4,761,155

 
$

 
$
35,523,578

Other property revenues
3,946,222

 
409,786

 

 
4,356,008

Interest income on loans and notes receivable
18,531,899

 

 

 
18,531,899

Interest income from related parties
3,295,826

 

 

 
3,295,826

Total revenues
56,536,370

 
5,170,941

 

 
61,707,311

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Property operating and maintenance
4,887,903

 
712,695

 

 
5,600,598

Property salary and benefits reimbursement to related party
2,882,283

 
407,419

 

 
3,289,702

Property management fees
1,347,502

 
178,960

 
14,950

AA
1,541,412

Real estate taxes
3,587,287

 
638,664

 

 
4,225,951

General and administrative
1,051,849

 
88,142

 

 
1,139,991

Equity compensation to directors and executives
1,784,349

 

 

 
1,784,349

Depreciation and amortization
16,328,715

 

 
4,758,068

BB
21,086,783

Acquisition and pursuit costs
3,518,540

 

 

 
3,518,540

Acquisition fees to related parties
3,714,077

 

 

 
3,714,077

Asset management fees to related party
3,546,987

 

 
502,174

CC
4,049,161

Insurance, professional fees and other expenses
1,903,833

 
105,859

 

 
2,009,692

Total operating expenses
44,553,325

 
2,131,739

 
5,275,192

 
51,960,256

Asset management and general and administrative
 
 
 
 
 
 
 
expense fees deferred
(332,345
)
 

 

 
(332,345
)
 
 
 
 
 
 
 
 
Net operating expenses
44,220,980

 
2,131,739

 
5,275,192

 
51,627,911

 
 
 
 
 
 
 
 
Operating income (loss)
12,315,390

 
3,039,202

 
(5,275,192
)
 
10,079,400

Interest expense
10,188,187

 

 
3,106,390

DD
13,294,577

 
 
 
 
 
 
 
 
Net income (loss)
2,127,203

 
3,039,202

 
(8,381,582
)
 
(3,215,177
)
Consolidated net (income) loss attributable to
 
 
 
 
 
 
 
non-controlling interests
(33,714
)
 

 
78,763

EE
45,049

 
 
 
 
 
 
 
 
Net income (loss) attributable to the Company
2,093,489

 
3,039,202

 
(8,302,819
)
 
(3,170,128
)
 
 
 
 
 
 
 
 
Dividends declared to Series A preferred stockholders
(7,382,320
)
 

 

 
(7,382,320
)
Earnings attributable to unvested restricted stock
(24,090
)
 

 

 
(24,090
)
 
 
 
 
 
 
 
 
Net (loss) income attributable to common stockholders
$
(5,312,921
)
 
$
3,039,202

 
$
(8,302,819
)
 
$
(10,576,538
)
 
 
 
 
 
 
 
 
Net loss per share of Common Stock available to
 
 
 
 
 
 
 
common stockholders, basic and diluted
$
(0.31
)
 
 
 
 
 
$
(0.61
)
 
 
 
 
 
 
 
 
Dividends per share declared on Common Stock
$
0.655

 
 
 
 
 
$
0.655

 
 
 
 
 
 
 
 
Weighted average number of shares of Common Stock
 
 
 
 
 
 
outstanding, basic and diluted
17,399,147

 
 
 
 
 
17,399,147


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


F-9


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

1.    Basis of Presentation

Preferred Apartment Communities, Inc. was formed as a Maryland corporation on September 18, 2009, and elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, effective with its tax year ended December 31, 2011. Unless the context otherwise requires, references to the "Company", "we", "us", or "our" refer to Preferred Apartment Communities, Inc., together with its consolidated subsidiaries, including Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership. The Company was formed primarily to acquire and operate multifamily properties in select targeted markets throughout the United States. As part of its business strategy, the Company may enter into forward purchase contracts or purchase options for to-be-built multifamily communities and may make mezzanine loans, provide deposit arrangements, or provide performance assurances, as may be necessary or appropriate, in connection with the development of multifamily communities and other properties. As a secondary strategy, the Company also may acquire or originate senior mortgage loans, subordinate loans or mezzanine debt secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest not more than 20% of its assets in other real estate related investments such as owned grocery-anchored shopping centers, senior mortgage loans, subordinate loans or mezzanine debt secured by interests in grocery-anchored shopping centers, membership or partnership interests in grocery-anchored shopping centers and other grocery-anchored related assets, as determined by its Manager (as defined below) as appropriate for the Company. The Company is externally managed and advised by Preferred Apartment Advisors, LLC, or its Manager, a Delaware limited liability company and a related party.

On December 21, 2015, the Company acquired from three unaffiliated third parties the following three assets, each located in Nashville, Tennessee: Lenox Village Town Center, which consists of 273 multifamily units and 13 ground level retail suites, comprising an aggregate 34,961 square feet of gross leasable area; Lenox Village III, a 183 unit multifamily community; and the Regent Building, which consists of 18 multifamily units and eight ground level retail suites, comprising an aggregate 12,655 square feet of gross leasable area, for an aggregate purchase price of approximately $77.6 million. These three properties are referred to collectively as the Lenox Village Portfolio.

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, 2015.  The second column, entitled "Lenox Village Portfolio" represents the pro forma adjustments required in order to reflect the balance sheet impact of the addition of the acquired assets as if the acquisition had occurred on September 30, 2015, including the assumed and new mortgage financing obtained for the Lenox Portfolio.

The Unaudited Pro Forma Consolidated Statements of Operations include four columns.  The first column labeled "PAC REIT Historical" represents the actual results of operations for the nine months ended September 30, 2015 and the year ended December 31, 2014. The second column, entitled "Lenox Village Portfolio" represents the historical revenues and expenses of the assets underlying those portfolios for the periods presented. The third column, entitled "Other Pro Forma Adjustments" represents the pro forma adjustments required to reflect the acquired properties as described in note 3.

The results presented on the Unaudited Pro Forma Consolidated Statements of Operations assume these acquisitions closed on January 1, 2014 and present pro forma operating results for the nine months ended September 30, 2015 and the twelve months ended December 31, 2014. 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 allocated the purchase prices of the Lenox Village Portfolio 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, but is preliminary and is subject to refinement for a period of up to one year from the closing of the acquisition.

F-10


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

 
Lenox Village Portfolio
Land value
$
7,877,823

Site improvements
940,876

Buildings
59,559,479

Retail tenant improvements
71,746

FF&E 5-year
3,643,138

FF&E 10-year
2,637,872

Multifamily in-place leases
1,351,516

Retail in-place leases
770,725

Restricted cash
739,340

Prepaids and other assets
849,731

Security deposits, prepaid rents and other liabilities
(755,288
)
Accounts payable and accrued expenses
(71,958
)
 
 
Net assets acquired
$
77,615,000


The costs of the acquired tangible and intangible assets were determined based on estimates of their fair value.  The fair value of the buildings was estimated on an as-if-vacant basis, based on relevant information obtained in connection with the acquisition of these properties and is to be depreciated on a straight-line basis over their estimated remaining useful lives of 40 years. Retail tenant improvements are depreciated over the remaining individual non-cancelable lease terms. The acquired furniture, fixtures & equipment are to be depreciated on a straight-line basis over their estimated remaining useful lives. For five-year life assets totaling approximately $3.6 million, the remaining useful life is estimated to be from 2.5 years to five years. For ten-year life assets totaling approximately $2.6 million, the remaining useful life is estimated to be from five years to ten years. The estimated fair value of acquired in-place leases are estimates of the costs the Company would have incurred to lease the property to the occupancy level of the properties at the dates of acquisition. The acquired multifamily in-place leases are to be amortized over the average remaining lease terms. Retail in-place leases are to be amortized over the remaining individual non-cancelable lease terms.

(B)    Effective with the closing of the Lenox Village Portfolio, the Company assumed one mortgage with a principal amount of $31.4 million bearing interest at a fixed rate of 3.82% per annum and maturing on May 1, 2019 and entered into another mortgage with a principal amount of approximately $18.4 million bearing interest at a fixed rate of 4.04% per annum and maturing on January 1, 2023. In conjunction with the new and assumed mortgage financing, the Company incurred aggregate loan acquisition costs of $642,291, which are to be amortized over the lives of the mortgages using the effective interest method. The Company obtained the remaining funds to close the transaction by drawing $29.5 million on its revolving line of credit with Key Bank, which bore a variable rate of 3.44% per annum at September 30, 2015. The pro forma adjustment to cash was calculated as follows:

Net proceeds from mortgage debt financing on acquired properties
 
$
49,804,461

Proceeds from draw on revolving line of credit
 
29,500,000

less:
 
 
Purchase price of Lenox Village Portfolio
 
(77,615,000
)
Property acquisition costs
 
(776,150
)
Deferred loan costs
 
(642,291
)
 
 
 
Net cash adjustment
 
$
271,020


(C)     The adjustment to accumulated deficit is to reflect the acquisition fee due to the Manager of 1% of the purchase price of the Acquired Properties. This adjustment is not reflected in the Unaudited Pro Forma Consolidated Statements of Operations as the effect of the transaction is nonrecurring.


F-11


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

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, 2015 are as follows:

(AA)    The properties within the Lenox Village Portfolio were managed by RAM Partners, LLC, a related party to the Company, prior to the closing of the acquisition. Effective with the purchase of the Lenox Village Portfolio by the Company, the property management fee for the multifamily portions of the assets will be 4% of monthly gross rental income, as stipulated in the Management Agreement. The retail operations will be managed by an unrelated third party and the management fee for the retail portions of the assets will be 3.5% of monthly gross rental income, as stipulated in Property Sub-Management Agreement. The pro forma adjustments reflect this additional cost burden on the Lenox Village Portfolio's operations.    

(BB)    Reflected in the pro forma adjustment is the Company's estimate of the depreciation and amortization charges that would have been incurred by the Lenox Village Portfolio for the period of January 1, 2015 through September 30, 2015, which assumes a straight-line depreciation method using 40 year remaining useful lives for buildings, five to ten years for acquired furniture, fixtures and equipment, and one month to 4.75 years for retail tenant improvements. Also included is the amortization of the estimated fair values of the acquired intangible assets, which are to be amortized over the average remaining lease terms of approximately six months for multifamily leases and over the remaining lease terms for retail tenant leases, which range from one month to 4.75 years.
    
(CC)    The Company had recorded due diligence costs related to the Acquired Properties during the nine months ended September 31, 2015 of $90,702. These costs are removed for pro forma purposes.

(DD)    The estimated asset management fee is based on 0.5% of the total value of the Company's assets based on their adjusted cost before reduction for depreciation, amortization, impairment charges and cumulative acquisition costs charged to expense in accordance with GAAP (adjusted cost will include the purchase price, acquisition expenses, capital expenditures and other customarily capitalized costs). In calculating the estimated asset management fee, the Company used the total assets from the September 30, 2015 pro forma balance sheet, as adjusted, plus the pro forma acquisition costs incurred on the Lenox Village Portfolio. In addition, a similar adjustment is included for general and administrative expense fees, recorded as 2% of gross revenues of the Lenox Village Portfolio for the nine months ended September 30, 2015.

(EE)     Reflected in the pro forma adjustment is the Company's estimate of interest expense on the $49.8 million of mortgage debt, the amortization of associated debt issuance costs, and interest accrued on the drawn proceeds from the Company's revolving line of credit of $29.5 million. If the variable rate on the line of credit were to fluctuate upward or downward by 1/8%, it would result in an increase or decrease in interest expense of $27,656 for the pro forma nine month period ended September 30, 2015.
  
(FF)      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 1.25% for the nine months ended September 30, 2015. This adjustment reflects the pro-rata adjustment to the amount of net income (loss) attributable to the non-controlling interests.
  
The adjustments to the Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2014 are as follows:
 
(AA)    The properties within the Lenox Village Portfolio were managed by RAM Partners, LLC, a related party to the Company, prior to the closing of the acquisition. Effective with the purchase of the Lenox Village Portfolio by the Company, the property management fee for the multifamily portions of the assets will be 4% of monthly gross rental income, as stipulated in the Management Agreement. The retail operations are managed by an unrelated third party and the management fee for the retail portions of the assets will be 3.5% of monthly gross rental income, as stipulated in the Property Sub-Management Agreement. The pro forma adjustments reflect this additional cost burden

F-12


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

on the Lenox Village Portfolio's operations.

(BB)    Reflected in the pro forma adjustment is the Company's estimate of the depreciation charges and the amortization of the estimated fair values of the acquired intangible assets that would have been incurred by the Lenox Village Portfolio for the year ended December 31, 2014.

(CC)          The estimated asset management fee is based on 0.5% of the total value of the Company's assets based on their adjusted cost before reduction for depreciation, amortization, impairment charges and cumulative acquisition costs charged to expense in accordance with GAAP (adjusted cost will include the purchase price, acquisition expenses, capital expenditures and other customarily capitalized costs). In calculating the estimated asset management fee, the Company used the total assets from the September 30, 2015 pro forma balance sheet, as adjusted, plus the pro forma acquisition costs incurred on the Lenox Village Portfolio. In addition, a similar adjustment is included for general and administrative expense fees, recorded as 2% of gross revenues of the Lenox Village Portfolio for the twelve months ended December 31, 2014.
  
(DD)    Reflected in the pro forma adjustment is the Company's estimate of interest expense on the $49.8 million of mortgage debt, the amortization of associated debt issuance costs, and interest accrued on the drawn proceeds from the Company's revolving line of credit of $29.5 million. If the variable rate on the line of credit were to fluctuate upward or downward by 1/8%, it would result in an increase or decrease in interest expense of $36,875 for the pro forma twelve-month period ended December 31, 2014.

(EE)      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 0.94% for the twelve months ended December 31, 2014. This adjustment reflects the pro-rata adjustment to the amount of net income (loss) attributable to the non-controlling interests.



F-13




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 2, 2016
By:
 /s/ Jeffrey R. Sprain
 
 
Jeffrey R. Sprain
 
 
General Counsel and Secretary