Common Stock, par value $.01 per shareMD0001481832false8-K11/6/2020Preferred Apartment Communities, Inc.3284 Northside Parkway NW, Suite 150,Atlanta,GA30327(770)818-4100001-3499527-1712193APTSNYSEfalsetruefalsefalsefalse00014818322020-11-062020-11-060001481832us-gaap:CommonClassAMember2020-11-062020-11-060001481832us-gaap:SeriesAPreferredStockMember2020-11-062020-11-060001481832us-gaap:WarrantMember2020-11-062020-11-060001481832apts:SeriesMpreferredstockMember2020-11-062020-11-060001481832apts:UsGaap_SeriesA1PreferredStockMemberMember2020-11-062020-11-060001481832apts:UsGaap_SeriesM1PreferredStockMember2020-11-062020-11-06

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): November 6, 2020
apts-20201106_g1.jpg
Preferred Apartment Communities, Inc.
(Exact Name of Registrant as Specified in its Charter)
Maryland                001-34995                27-1712193
(State or other jurisdiction             (Commission File Number)    (IRS Employer Identification No.)                                                                
of incorporation)
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

Not applicable
(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))

Trading Symbol
Common Stock, par value $.01 per share         APTS                 NYSE

Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Series A Redeemable Preferred Stock, par value $0.01 per share
Warrant to Purchase Common Stock, par value $0.01 per share
Series M Redeemable Preferred Stock, par value $0.01 per share
Series A1 Redeemable Preferred Stock, par value $0.01 per share
Series M1 Redeemable Preferred Stock, par value $0.01 per share

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ¨




Item 2.01 Completion of Acquisition or Disposition of Assets.

On November 3, 2020, PCC TALLAHASSEE, LLC, a Delaware limited liability company ("Tallahassee Seller"), PCC ORLANDO, LLC, a Delaware limited liability company ("Orlando Seller"), PCC COLLEGE STATION, LLC, a Delaware limited liability company ("College Station Seller"), PCC LUBBOCK, LLC, a Delaware limited liability company ("Lubbock Seller"), PCC WACO, LLC, a Delaware limited liability company ("Waco Seller"), PCC TEMPE, LLC, a Delaware limited liability company ("Tempe Seller"), HAVEN CAMPUS COMMUNITIES-KENNESAW, LLC, a Delaware limited liability company ("Kennesaw Seller"), and HAVEN CAMPUS COMMUNITIES-CHARLOTTE, LLC, a Georgia limited liability company ("Charlotte Seller", and together with Tallahassee Seller, Orlando Seller, College Station Seller, Lubbock Seller, Waco Seller, Tempe Seller and Kennesaw Seller, jointly and severally, "Seller"), each an indirect, wholly-owned subsidiary of Preferred Apartment Communities Operating Partnership, L.P. ("PAC-OP"), completed the disposition of its fee simple interests in its portfolio of eight student housing communities and other student-housing related assets (collectively, the "Student Housing Portfolio") to TPG REAL ESTATE PARTNERS INVESTMENTS, LLC, a Delaware limited liability company ("Purchaser"), an unrelated third party. The aggregate purchase price paid by the Purchaser to Seller was approximately $478.7 million, exclusive of disposition-related transaction costs. Preferred Apartment Communities, Inc. (the "Company") is the general partner of, and as of June 30, 2020, owner of an approximate 98.5% interest in, PAC-OP. Since the assets of Seller exceeded 10% of the consolidated assets of the Company as of December 31, 2019, the transaction is deemed to be a significant disposition under the asset 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 the Student Housing Portfolio required by Item 9.01(b) of Form 8-K.

Item 7.01 Regulation FD Disclosure.

The Company issued a press release on November 3, 2020 regarding the disposition of the Student Housing Portfolio. A copy of that press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.

The information contained in this Item 7.01, including the information contained in the press release attached as Exhibit 99.1 hereto, is being “furnished" and shall not be deemed to be “filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act"), or otherwise subject to the liabilities of that section, nor shall such information be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. Reference to the Company’s website in the press release attached as Exhibit 99.1 to this Current Report on Form 8-K do not incorporate by reference the information on such website into this Current Report on Form 8-K and the Company disclaims any such incorporation by reference.

Item 9.01 Financial Statements and Exhibits.

(b)     Pro Forma Financial Information.

Unaudited Pro Forma Consolidated Financial Statements                     1
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2020                 2
Unaudited Pro Forma Consolidated Statement of Operations
for the six-month period ended June 30, 2020                    3
Unaudited Pro Forma Consolidated Statement of Operations
for the year ended December 31, 2019                        4
Notes to Unaudited Pro Forma Consolidated Financial Statements                 5
Signature                                        8

(d)    Exhibits.

99.1    Press Release Dated November 3, 2020






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. On November 3, 2020, PCC TALLAHASSEE, LLC, a Delaware limited liability company ("Tallahassee Seller"), PCC ORLANDO, LLC, a Delaware limited liability company ("Orlando Seller"), PCC COLLEGE STATION, LLC, a Delaware limited liability company ("College Station Seller"), PCC LUBBOCK, LLC, a Delaware limited liability company ("Lubbock Seller"), PCC WACO, LLC, a Delaware limited liability company ("Waco Seller"), PCC TEMPE, LLC, a Delaware limited liability company ("Tempe Seller"), HAVEN CAMPUS COMMUNITIES-KENNESAW, LLC, a Delaware limited liability company ("Kennesaw Seller"), and HAVEN CAMPUS COMMUNITIES-CHARLOTTE, LLC, a Georgia limited liability company ("Charlotte Seller", and together with Tallahassee Seller, Orlando Seller, College Station Seller, Lubbock Seller, Waco Seller, Tempe Seller and Kennesaw Seller, jointly and severally, "Seller"), each an indirect, wholly-owned subsidiary of Preferred Apartment Communities Operating Partnership, L.P. ("PAC-OP"), completed the disposition of its fee simple interests in its portfolio of eight student housing communities and other student housing related assets (collectively, the "Student Housing Portfolio") to TPG REAL ESTATE PARTNERS INVESTMENTS, LLC, a Delaware limited liability company ("Purchaser"), an unrelated third party. The aggregate purchase price paid by the Purchaser to Seller was approximately $478.7 million, exclusive of disposition-related transaction costs.

The accompanying Unaudited Pro Forma Consolidated Balance Sheet is presented as of June 30, 2020 and the Unaudited Pro Forma Consolidated Statements of Operations of the Company are presented for the six-month period ended June 30, 2020 and the year ended December 31, 2019 (the "Pro Forma Periods"), and include certain pro forma adjustments to illustrate the estimated effect of the Company's disposition of the Student Housing Portfolio 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, 2019 and on Form 10-Q for the six months ended June 30, 2020.















1


Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
As of June 30, 2020
(In thousands, except per-share par values)PAC REIT HistoricalDisposition of Student Housing PortfolioPAC REIT Pro Forma
Assets
Real estate
Land$671,687 $(61,149)A$610,538 
Building and improvements3,375,631 (390,521)A2,985,110 
Tenant improvements174,565 — 174,565 
Furniture, fixtures, and equipment354,340 (67,342)A286,998 
Construction in progress22,539 (435)A22,104 
Gross real estate4,598,762 (519,447)4,079,315 
Less: accumulated depreciation(503,467)52,487 A(450,980)
Net real estate4,095,295 (466,960)A3,628,335 
Real estate loan investments, net 306,026 — 306,026 
Real estate loan investments to related parties, net2,568 (2,568)A— 
Total real estate and real estate loan investments, net4,403,889 (469,528)3,934,361 
Cash and cash equivalents60,101 251,730 B311,831 
Restricted cash56,333 (4,949)A51,384 
Notes receivable7,758 — 7,758 
Note receivable and revolving lines of credit due from related parties9,011 — 9,011 
Accrued interest receivable on real estate loans23,046 (1,208)A21,838 
Acquired intangible assets, net of amortization 145,187 — 145,187 
Deferred loan costs on Revolving Line of Credit950 — 950 
Deferred offering costs4,088 — 4,088 
Tenant lease inducements19,103 — 19,103 
Tenant receivables and other assets89,817 (2,648)A87,169 
Total assets$4,819,283 $(226,603)$4,592,680 
Liabilities and equity
Liabilities
Mortgage notes payable, net $2,762,291 $(214,999)A$2,547,292 
Revolving line of credit 92,500 — 92,500 
Unearned purchase option termination fees1,585 — 1,585 
Deferred revenue37,862 — 37,862 
Accounts payable and accrued expenses56,143 (3,764)A52,379 
Deferred liability to Former Manager23,168 — 23,168 
Contingent liability due to Former Manager14,880 — 14,880 
Accrued interest payable7,927 (808)A7,119 
Dividends and partnership distributions payable20,570 — 20,570 
Acquired below market lease intangibles57,793 — 57,793 
Prepaid rent, security deposits, and other liabilities34,568 (2,802)A31,766 
Total liabilities3,109,287 (222,373)2,886,914 
Commitments and contingencies
Equity
Stockholders' equity
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized;
  2,026 shares issued; 1,991 shares outstanding at June 30, 202020 — 20 
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares
   authorized; 68 shares issued and outstanding June 30, 2020— — — 
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized;
  106 shares issued; 93 shares outstanding at June 30, 2020 — 
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares
authorized; 5 shares issued and outstanding at June 30, 2020— — — 
Common Stock, $0.01 par value per share; 400,067 shares authorized; 49,283 shares issued and
outstanding at June 30, 2020493 — 493 
Additional paid-in capital1,917,212 — 1,917,212 
Accumulated (deficit) earnings (206,724)(3,690)A, C(210,414)
Total stockholders' equity1,711,002 (3,690)1,707,312 
Non-controlling interest(1,006)(540)A(1,546)
Total equity1,709,996 (4,230)1,705,766 
Total liabilities and equity$4,819,283 $(226,603)$4,592,680 

The accompanying notes are an integral part of this consolidated pro forma financial statement.
2



Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2020
Disposition ofPAC REIT
PAC REITStudent Housing
(In thousands, except per-share par values)HistoricalPortfolioPro Forma
Revenues:
Rental and other property revenues$223,440 $(24,373)AA$199,067 
Interest income on loans and notes receivable23,846 — 23,846 
Interest income on note from related party3,141 (387)AA2,754 
Miscellaneous revenues3,952 — 3,952 
Total revenues254,379 (24,760)229,619 
Operating expenses:
Property operating and maintenance33,641 (5,317)AA28,324 
Property salary and benefits to related party10,911 (1,901)AA9,010 
Property management costs3,045 (277)AA2,768 
Real estate taxes and insurance32,031 (3,460)AA28,571 
General and administrative15,211 (56)AA15,155 
Equity compensation to directors and executives476 — 476 
Depreciation and amortization101,302 (10,285)AA91,017 
Asset management and general and administrative
expense fees to related party3,099 (312)AA2,787 
Provision for expected credit losses5,615 (387)AA5,228 
Management internalization expense179,251 — 179,251 
Total operating expenses384,582 (21,995)362,587 
Waived asset management and
general and administrative expense fees(1,136)282 AA(854)
Net operating expenses383,446 (21,713)361,733 
Operating income (loss)(129,067)(3,047)(132,114)
Interest expense60,729 (5,402)AA55,327 
Loss on extinguishment of debt(6,156)— (6,156)
Gain on the sale of real estate loan investment479 — 479 
Net (loss) income(195,473)2,355 (193,118)
Less consolidated net (loss) income attributable
to non-controlling interests 3,407 (39)BB3,368 
Net (loss) income attributable to the Company(192,066)2,316 (189,750)
Dividends to preferred stockholders(68,692)— (68,692)
Earnings attributable to unvested restricted stock(13)— (13)
Net (loss) income attributable to common stockholders$(260,771)$2,316 $(258,455)
Net (loss) income per share of Common Stock
attributable to common stockholders, basic and diluted$(5.47)$(5.42)
Weighted average number of shares of Common
Stock outstanding, basic and diluted47,674 47,674 

The accompanying notes are an integral part of this consolidated pro forma financial statement.
3



Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2019
Disposition ofPAC REIT
PAC REITStudent Housing
(In thousands, except per-share par values)HistoricalPortfolioPro Forma
Revenues:
Rental and other property revenues$406,916 $(46,648)AA$360,268 
Interest income on loans and notes receivable49,542 — 49,542 
Interest income on note from related party11,946 (618)AA11,328 
Miscellaneous revenues2,023 — 2,023 
Total revenues470,427 (47,266)423,161 
Operating expenses:
Property operating and maintenance59,845 (11,251)AA48,594 
Property salary and benefits to related party20,693 (4,561)AA16,132 
Property management costs13,981 (1,862)AA12,119 
Real estate taxes and insurance56,832 (6,439)AA50,393 
General and administrative5,772 (4)AA5,768 
Equity compensation to directors and executives1,223 — 1,223 
Depreciation and amortization185,065 (22,007)AA163,058 
Asset management and general and administrative
expense fees to related party33,516 (3,796)AA29,720 
Loan loss allowance2,038 (1,624)AA414 
Management internalization expense2,988 — 2,988 
Total operating expenses381,953 (51,544)330,409 
Waived asset management and
general and administrative expense fees(11,764)3,202 AA(8,562)
Net operating expenses370,189 (48,342)321,847 
Operating income before gain on sale of trading investment100,238 1,076 101,314 
Gain on sale of trading investment1,567 — 1,567 
Operating income101,805 1,076 102,881 
Interest expense111,964 (14,758)AA97,206 
Change in fair value of net assets of consolidated VIEs
from mortgage-backed pools1,831 — 1,831 
Loss on extinguishment of debt(84)— (84)
Gain on the sale of real estate loan investment954 — 954 
Net (loss) income(7,458)15,834 8,376 
Less consolidated net (loss) income attributable
to non-controlling interests 214 (294)BB(80)
Net (loss) income attributable to the Company(7,244)15,540 8,296 
Dividends to preferred stockholders(113,772)— (113,772)
Earnings attributable to unvested restricted stock(17)— (17)
Net (loss) income attributable to common stockholders$(121,033)$15,540 $(105,493)
Net (loss) income per share of Common Stock
attributable to common stockholders, basic and diluted$(2.73)$(2.38)
Weighted average number of shares of Common
Stock outstanding, basic and diluted44,265 44,265 

The accompanying notes are an integral part of this consolidated pro forma financial statement.
4




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

1.Basis of Presentation

On November 3, 2020, Preferred Apartment Communities, Inc. (the “Company”), closed on the sale of its eight student housing properties listed below and a real estate loan investment partially financing Haven 12, a student housing property located adjacent to Mississippi State University in Starkville, Mississippi (the “Student Housing Portfolio”) to an unrelated third party for an aggregate purchase price of approximately $478.7 million, exclusive of closing costs.

Student Housing PropertyBedsUniversityLocation
North by Northwest679 Florida State UniversityTallahassee, FL
SoL
639 Arizona State UniversityTempe, AZ
Stadium Village 792Kennesaw State UniversityAtlanta, GA
Ursa 840Baylor UniversityWaco, TX
The Tradition808Texas A&M UniversityCollege Station, TX
Knightshade894University of Central FloridaOrlando, FL
The Bloc556Texas Tech UniversityLubbock, TX
Rush887University of North Carolina-CharlotteCharlotte, NC
Total6,095 

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 June 30, 2020. The second column, entitled "Disposition of Student Housing Portfolio" 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 June 30, 2020, 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 June 30, 2020, excluding the Student Housing Portfolio and real estate loan investment.

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 six months ended June 30, 2020 and the year ended December 31, 2019. The second column, entitled "Disposition of Student Housing Portfolio" represents the adjustments to remove the historical revenues and expenses of the disposed assets 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 six months ended June 30, 2020 and the year ended December 31, 2019, excluding the Student Housing Portfolio. The results presented on the Unaudited Pro Forma Consolidated Statements of Operations assume the sale of the Student Housing Portfolio closed on January 1, 2019 and presents pro forma operating results for the Company for the periods presented.

These Unaudited Pro Forma Financial Statements should not be considered indicative of future results.






5



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


2. Adjustments to Unaudited Pro Forma Consolidated Balance Sheet

(A) The Company received the sales proceeds and removed the carrying values of the disposed Student Housing Portfolio’s assets and liabilities, as shown in the following table.

(In thousands)
Gross sales price$478,722 
Closing and transaction costs(7,061)
Net sales proceeds471,661 
Less: Carrying value of real estate assets(466,960)
Less: Carrying value of real estate loan investment(2,568)
Less: Carrying value of other assets(11,684)
Less: Carrying value of unamortized DLCs(2,053)
Plus: Carrying value of other liabilities7,374 
Proforma loss(4,230)
Less: Attributable to non-controlling interest540 
Proforma loss attributable to common stockholders$(3,690)
(B) The pro forma adjustment to cash was calculated as follows:

(In thousands)
Net proceeds from purchaser$254,609 
less: Cash balances transferred to purchaser(2,879)
Net cash adjustment$251,730 
(C) The adjustment to accumulated deficit consists of the excess of cash received from the seller over the carrying value of the net assets transferred. 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 Statements of Operations

The adjustments to the Unaudited Pro Forma Consolidated Statements of Operations for the six-month period ended June 30, 2020 and the year ended December 31, 2019 are as follows:

(AA) These pro forma adjustments remove the actual historical revenues and expenses recorded from the operations of the Student Housing Properties.




6


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



(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 1.64% for the six months ended June 30, 2020 and 1.93% for the year ended December 31, 2019. These adjustments reflect the pro-rata adjustment to the amount of net loss attributable to the non-controlling interests.

7




SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, 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: November 6, 2020
By:
/s/ Jeffrey R. Sprain
Jeffrey R. Sprain
Executive Vice President, General Counsel and Corporate Secretary
8