apts-20200630

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

For the quarterly period ended June 30, 2020

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

For the transition period from to

Commission File No. 001-34995

Preferred Apartment Communities, Inc.

(Exact name of registrant as specified in its charter)


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

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

(Address of principal executive offices) (Zip Code)

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

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


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

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

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

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

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

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

The number of shares outstanding of the registrant’s Common Stock, as of August 5, 2020 was 49,622,321.

PART I - FINANCIAL INFORMATION

INDEX

Item 1.

Financial Statements

Page No.

Condensed Consolidated Balance Sheets (unaudited) – as of June 30, 2020 and December 31, 2019

Condensed Consolidated Statements of Operations (unaudited) – Three Months and Six Months Ended June 30, 2020 and 2019

Condensed Consolidated Statements of Stockholders' Equity (unaudited) – Three Months and Six Months Ended June 30, 2020 and 2019

Condensed Consolidated Statements of Cash Flows (unaudited) – Six Months Ended June 30, 2020 and 2019

Notes to Condensed Consolidated Financial Statements (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits


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

(In thousands, except per-share par values)	June 30, 2020			December 31, 2019
Assets
Real estate
Land	$	671,687		$	635,757
Building and improvements	3,375,631			3,256,223
Tenant improvements	174,565			167,275
Furniture, fixtures, and equipment	354,340			323,381
Construction in progress	22,539			11,893
Gross real estate	4,598,762			4,394,529
Less: accumulated depreciation	(503,467)			(421,551)
Net real estate	4,095,295			3,972,978
Real estate loan investments, net of deferred fee income of $1,416 and $1,460 and allowance for expected
loan loss of $9,796 and $0	306,026			325,790
Real estate loan investments to related parties, net of deferred fee income of $0 and $16, allowance for expected
loan loss of $2,148 and $0 and allowance for doubtful accounts of $1,400 and $1,400	2,568			23,692
Total real estate and real estate loan investments, net	4,403,889			4,322,460

Cash and cash equivalents	60,101			94,381
Restricted cash	56,333			42,872
Notes receivable	7,758			17,079
Note receivable and revolving lines of credit due from related parties	9,011			24,838
Accrued interest receivable on real estate loans	23,046			25,755
Acquired intangible assets, net of amortization of $169,867 and $149,896	145,187			154,803
Deferred loan costs on Revolving Line of Credit, net of amortization of $1,185 and $849	950			1,286
Deferred offering costs	4,088			2,147
Tenant lease inducements, net of amortization of $4,454 and $3,567	19,103			19,607
Tenant receivables and other assets	89,817			65,332

Total assets	$	4,819,283		$	4,770,560

Liabilities and equity
Liabilities
Mortgage notes payable, net of deferred loan costs and mark-to-market adjustment of $49,893 and $42,807	$	2,762,291		$	2,567,022
Revolving line of credit	92,500			—
Term note payable, net of deferred loan costs of $0 and $511	—			69,489
Unearned purchase option termination fees	1,585			2,859
Deferred revenue	37,862			39,722
Accounts payable and accrued expenses	56,143			42,191
Deferred liability to Former Manager	23,168			—
Contingent liability due to Former Manager	14,880			—
Accrued interest payable	7,927			8,152
Dividends and partnership distributions payable	20,570			23,519
Acquired below market lease intangibles, net of amortization of $28,831 and $23,655	57,793			62,611
Prepaid rent, security deposits, and other liabilities	34,568			20,879
Total liabilities	3,109,287			2,836,444

Commitments and contingencies (Note 11)

Equity
Stockholders' equity
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 and 2,161 shares
issued; 2,026 and 2,028 shares outstanding at June 30, 2020 and December 31, 2019, respectively			20			20
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 68 and 5 shares
issued and outstanding at June 30, 2020 and December 31, 2019, respectively			—			—
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares issued;
93 and 103 shares outstanding at June 30, 2020 and December 31, 2019, respectively			1			1
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 5 and zero shares
issued and outstanding at June 30, 2020 and December 31, 2019, respectively			—			—
Common Stock, $0.01 par value per share; 400,067 shares authorized; 49,283 and 46,443 shares issued and
outstanding at June 30, 2020 and December 31, 2019, respectively			493			464
Additional paid-in capital	1,917,212			1,938,057
Accumulated (deficit) earnings	(206,724)			(7,244)
Total stockholders' equity	1,711,002			1,931,298
Non-controlling interest	(1,006)			2,818
Total equity	1,709,996			1,934,116

Total liabilities and equity	$	4,819,283		$	4,770,560

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


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

(In thousands, except per-share figures)	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Revenues:
Rental and other property revenues	$	111,574	$	99,127	$	223,440	$	193,520
Interest income on loans and notes receivable	10,407		12,093		23,846		23,381
Interest income from related parties	604		1,632		3,141		7,434
Miscellaneous revenues	692		1,000		3,952		1,023
Total revenues	123,277		113,852		254,379		225,358

Operating expenses:
Property operating and maintenance	16,841		13,864		33,641		26,743
Property salary and benefits (including reimbursements of $0, $4,213, $1,430
and $8,292 to related party)	5,720		4,828		10,911		9,485
Property management costs (including $0, $2,502, $894 and $4,969 to related parties)	1,042		3,373		3,045		6,640
Real estate taxes and insurance	16,506		14,081		32,031		28,172
General and administrative	8,847		1,388		15,211		2,807
Equity compensation to directors and executives	246		306		476		617
Depreciation and amortization	51,793		45,663		101,302		90,952
Asset management and general and administrative expense fees to related party	—		8,209		3,099		16,038
Provision for expected credit losses	482		—		5,615		—
Management internalization expense	458		280		179,251		325
Total operating expenses	101,935		91,992		384,582		181,779

Waived asset management and general and administrative expense fees	—		(2,795)		(1,136)		(5,424)

Net operating expenses	101,935		89,197		383,446		176,355

Operating (loss) income before gain on sale of trading investment	21,342		24,655		(129,067)		49,003
Gain on sale of trading investment	—		—		—		4
Operating (loss) income	21,342		24,655		(129,067)		49,007
Interest expense	31,136		27,611		60,729		54,367
Change in fair value of net assets of consolidated VIEs from mortgage-backed pools	—		584		—		725
Loss on extinguishment of debt	(6,156)		(52)		(6,156)		(69)
Gain on sale of real estate loan investment	—		747		479		747

Net loss	(15,950)		(1,677)		(195,473)		(3,957)
Consolidated net loss (income) attributable to non-controlling interests	266		571		3,407		79

Net loss attributable to the Company	(15,684)		(1,106)		(192,066)		(3,878)

Dividends declared to preferred stockholders	(35,624)		(27,542)		(68,692)		(53,081)
Earnings attributable to unvested restricted stock	(11)		(7)		(13)		(9)

Net loss attributable to common stockholders	$	(51,319)	$	(28,655)	$	(260,771)	$	(56,968)

Net loss per share of Common Stock available
to common stockholders, basic and diluted	$	(1.06)	$	(0.66)	$	(5.47)	$	(1.32)

Weighted average number of shares of Common Stock outstanding,
basic and diluted	48,220		43,703		47,674		43,194

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


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

(In thousands, except dividend per-share figures)	Series A, Series A1, Series M and Series M1 Redeemable Preferred Stock		Common Stock		Additional Paid in Capital		Accumulated Earnings		Total Stockholders' Equity		Non-Controlling Interest		Total Equity

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

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


Preferred Apartment Communities, Inc.
Condensed Consolidated Statements of Stockholders' Equity, continued
For the three-month period ended June 30, 2019
(Unaudited)

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


Balance at April 1, 2019	$	18	$	432	$	1,698,810	$	—	$	1,699,260	$	309	$	1,699,569