Preferred Apartment Communities, Inc. Reports Results for Second Quarter 2017

Our operating results are presented below.

Three months ended June 30,

Six months ended June 30,

2017

2016

% change

2017

2016

% change

Revenues

$

70,890,913

$

45,853,944

54.6%

$

137,452,248

$

87,589,725

Per share data:

Net income (loss) ⁽¹⁾

$

(0.40)

$

(0.40)

—

$

0.09

$

(0.88)

—

FFO ⁽²⁾

$

0.31

$

0.18

72.2%

$

0.65

$

0.35

85.7%

Core FFO ⁽²⁾

$

0.37

$

0.31

19.4%

$

0.73

$

0.61

19.7%

Dividends ⁽³⁾

$

0.235

$

0.2025

16.0%

$

0.455

$

0.395

15.2%

⁽²⁾ FFO and Core FFO are presented per weighted average share of Common Stock and Class A Unit in our Operating Partnership outstanding for the periods indicated. See Reconciliations of FFO, Core FFO and AFFO (each as defined below) to Net Income (Loss) Attributable to Common Stockholders on pages S-3 and S-4.

⁽³⁾  Per share of Common Stock and Class A Unit outstanding.

- During the second quarter 2017, we acquired the following properties:

Property

Location

Type

Units

Leasable square feet

Castleberry-Southard

Atlanta, GA

Grocery-anchored shopping center

n/a

80,018

Rockbridge Village

Atlanta, GA

Grocery-anchored shopping center

n/a

102,432

Claiborne Crossing

Louisville, KY

Multifamily community

242

n/a

Real Estate Assets

Owned as of
June 30, 2017

Potential additions
from real estate
loan investment
portfolio ⁽¹⁾

Potential total

Multifamily communities:

Properties

25

16

41

Units

8,074

4,712

12,786

Grocery-anchored shopping centers:

Properties

33

1

34

Gross leasable area (square feet)

3,477,941

200,000

⁽²⁾

3,677,941

Student housing properties:

Properties

2

8

10

Units

444

1,874

2,318

Beds

1,319

5,693

7,012

Office buildings:

Properties

3

—

3

Rentable square feet

1,094,000

—

1,094,000

⁽¹⁾ We evaluate each project individually and we make no assurance that we will acquire any of the underlying properties from our real estate loan investment portfolio.

⁽²⁾ Square footage represents area covered by our purchase options and excludes 123,590 square feet owned by the grocery anchor.

Year over year growth

three months ended June 30, 2017 versus 2016

Total Revenues

Operating
Expenses

Net
Operating
Income

Multifamily

0.1%

(1.0)%

1.0%

Preferred Apartment Communities, Inc.

Consolidated Statements of Operations

(Unaudited)

Three months ended June 30,

2017

2016

Revenues:

Rental revenues

$

48,241,306

$

30,966,738

Other property revenues

8,821,245

4,308,360

Interest income on loans and notes receivable

8,490,327

6,847,724

Interest income from related parties

5,338,035

3,731,122

Total revenues

70,890,913

45,853,944

Operating expenses:

Property operating and maintenance

7,198,159

4,356,923

Property salary and benefits reimbursement to related party

3,218,870

2,516,605

Property management fees

2,060,774

1,356,409

Real estate taxes

7,680,277

5,494,608

General and administrative

1,653,999

1,191,520

Equity compensation to directors and executives

871,153

618,867

Depreciation and amortization

28,457,001

17,969,975

Acquisition and pursuit costs

5,000

2,764,742

Asset management fees to related party

4,864,397

2,958,991

Insurance, professional fees, and other expenses

1,376,545

1,571,514

Total operating expenses

57,386,175

40,800,154

Contingent asset management and general and administrative expense fees

(170,838)

(451,684)

Net operating expenses

57,215,337

40,348,470

Operating income

13,675,576

5,505,474

Interest expense

16,397,895

9,559,501

Loss on extinguishment of debt

888,428

—

Net loss before gain on sale of real estate

(3,610,747)

(4,054,027)

Gain on sale of real estate

6,914,949

4,271,506

Net income

3,304,202

217,479

Consolidated net (income) attributable to non-controlling interests

(96,823)

(7,961)

Net income attributable to the Company

3,207,379

209,518

Dividends declared to Series A preferred stockholders

(15,235,138)

(9,444,282)

Earnings attributable to unvested restricted stock

(5,736)

(4,824)

Net loss attributable to common stockholders

$

(12,033,495)

$

(9,239,588)

Net loss per share of Common Stock available to common stockholders,

basic and diluted

$

(0.40)

$

(0.40)

Dividends per share declared on Common Stock

$

0.235

$

0.2025

Weighted average number of shares of Common Stock outstanding,

basic and diluted

29,893,736

23,325,663

Reconciliation of FFO, Core FFO, and AFFO

to Net Income (Loss) Attributable to Common Stockholders ^(A)

Three months ended June 30,

2017

2016

Net loss attributable to common stockholders (See note 1)

$

(12,033,495)

$

(9,239,588)

Less:

Gain on sale of real estate

(6,914,949)

(4,271,506)

Add:

Loss attributable to non-controlling interests (See note 2)

96,823

7,961

Depreciation of real estate assets

20,616,264

12,639,224

Amortization of acquired real estate intangible assets and deferred leasing costs

7,670,002

5,194,303

FFO

9,434,645

4,330,394

Add:

Acquisition and pursuit costs

5,000

2,764,742

Loan cost amortization on acquisition term note (See note 3)

43,231

32,974

Amortization of loan coordination fees paid to the Manager (See note 4)

415,892

155,683

Mortgage loan refinancing and extinguishment costs (See note 5)

1,058,055

—

Costs incurred from extension of management agreement with advisor (See note 6)

—

309,774

Contingent fees paid on sale of real estate (See note 7)

386,570

—

Core FFO

11,343,393

7,593,567

Add:

Non-cash equity compensation to directors and executives

871,153

618,867

Amortization of loan closing costs (See note 8)

1,053,448

513,455

Depreciation/amortization of non-real estate assets

170,735

136,448

Net loan fees received (See note 9)

417,444

422,857

Accrued interest income received (See note 10)

2,794,776

2,667,051

Amortization of lease inducements (See note 11)

92,471

—

Less:

Non-cash loan interest income (See note 9)

(4,349,044)

(3,268,168)

Cash paid for loan closing costs

—

(9,042)

Amortization of acquired above and below market lease intangibles

and straight-line rental revenues (See note 12)

(1,739,642)

(577,437)

Amortization of deferred revenues (See note 13)

(169,890)

—

Normally recurring capital expenditures and leasing costs (See note 14)

(971,595)

(698,527)

AFFO

$

9,513,249

$

7,399,071

Common Stock dividends and distributions to Unitholders declared:

Common Stock dividends

$

7,539,376

$

4,772,587

Distributions to Unitholders (See note 2)

211,781

179,449

Total

$

7,751,157

$

4,952,036

Common Stock dividends and Unitholder distributions per share

$

0.235

$

0.2025

FFO per weighted average basic share of Common Stock and Unit outstanding

$

0.31

$

0.18

Core FFO per weighted average basic share of Common Stock and Unit outstanding

$

0.37

$

0.31

AFFO per weighted average basic share of Common Stock and Unit outstanding

$

0.31

$

0.31

Weighted average shares of Common Stock and Units outstanding: ^(A)

Basic:

29,893,736

23,325,663

Common Stock

902,415

886,346

Class A Units

30,796,151

24,212,009

Common Stock and Class A Units

Diluted Common Stock and Class A Units ^(B)

32,626,680

25,461,338

Actual shares of Common Stock outstanding, including 24,408 and 30,990 unvested shares

 of restricted Common Stock at June 30, 2017 and 2016, respectively

32,444,799

23,723,168

Actual Class A Units outstanding

901,195

886,168

Total

33,345,994

24,609,336

(A) Units and Unitholders refer to Class A Units in our Operating Partnership, or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 2.93% weighted average non-controlling interest in the Operating Partnership for the three-month period ended June 30, 2017.

(B) Since our Core FFO and AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.

       See Notes to Reconciliation of FFO, Core FFO and AFFO to Net Loss Attributable to Common Stockholders on page S-5.

Reconciliation of FFO, Core FFO, and AFFO

to Net Income (Loss) Attributable to Common Stockholders ^(A)

Six months ended June 30,

2017

2016

Net income (loss) attributable to common stockholders (See note 1)

$

2,641,167

$

(20,423,703)

Less:

Gain on sale of real estate

(37,639,009)

(4,271,506)

Add:

Income (loss) attributable to non-controlling interests (See note 2)

1,095,889

(80,600)

Depreciation of real estate assets

38,747,800

23,722,849

Amortization of acquired real estate intangible assets and deferred leasing costs

14,201,962

9,333,053

FFO

19,047,809

8,280,093

Add:

Acquisition and pursuit costs

14,002

5,528,327

Loan cost amortization on acquisition term note (See note 3)

70,168

112,807

Amortization of loan coordination fees paid to the Manager (See note 4)

771,441

263,527

Mortgage loan refinancing and extinguishment costs (See note 5)

1,058,055

—

Costs incurred from extension of management agreement with advisor (See note 6)

—

421,387

Contingent fees paid on sale of real estate (See note 7)

386,570

—

Core FFO

21,348,045

14,606,141

Add:

Non-cash equity compensation to directors and executives

1,744,255

1,229,292

Amortization of loan closing costs (See note 8)

1,851,146

1,016,985

Depreciation/amortization of non-real estate assets

333,428

260,799

Net loan fees received (See note 9)

417,444

1,124,226

Accrued interest income received (See note 10)

5,318,808

6,875,957

Amortization of lease inducements (See note 11)

92,471

—

Less:

Non-cash loan interest income (See note 9)

(8,647,546)

(6,507,078)

Cash paid for loan closing costs

—

(13,276)

Amortization of acquired above and below market lease intangibles

and straight-line rental revenues (See note 12)

(3,556,272)

(1,071,669)

Amortization of deferred revenues (See note 13)

(169,890)

—

Normally recurring capital expenditures and leasing costs (See note 14)

(1,817,511)

(1,186,439)

AFFO

$

16,914,378

$

16,334,938

Common Stock dividends and distributions to Unitholders declared:

Common Stock dividends

$

13,510,034

$

9,208,076

Distributions to Unitholders (See note 2)

410,523

296,844

Total

$

13,920,557

$

9,504,920

Common Stock dividends and Unitholder distributions per share

$

0.455

$

0.395

FFO per weighted average basic share of Common Stock and Unit outstanding

$

0.65

$

0.35

Core FFO per weighted average basic share of Common Stock and Unit outstanding

$

0.73

$

0.61

AFFO per weighted average basic share of Common Stock and Unit outstanding

$

0.58

$

0.68

Weighted average shares of Common Stock and Units outstanding: ^(A)

Basic:

28,423,171

23,154,702

Common Stock

914,130

751,489

Class A Units

29,337,301

23,906,191

Common Stock and Class A Units

Diluted Common Stock and Class A Units ^(B)

30,855,196

24,916,652

Actual shares of Common Stock outstanding, including 24,408 and 30,990 unvested shares

 of restricted Common Stock at June 30, 2017 and 2016, respectively

32,444,799

23,723,168

Actual Class A Units outstanding

901,195

886,168

Total

33,345,994

24,609,336

(A) Units and Unitholders refer to Class A Units in our Operating Partnership, or Class A Units, and holders of Class A Units, respectively. Unitholders include recipients of awards of Class B Units in our Operating Partnership, or Class B Units, for annual service which became vested and earned and automatically converted to Class A Units. Unitholders also include the entity that contributed the Wade Green grocery-anchored shopping center. The Class A Units collectively represent an approximate 3.12% weighted average non-controlling interest in the Operating Partnership for the six-month period ended June 30, 2017.

(B) Since our Core FFO and AFFO results are positive for the periods reflected above, we are presenting recalculated diluted weighted average shares of Common Stock and Class A Units for these periods for purposes of this table, which includes the dilutive effect of common stock equivalents from grants of the Class B Units, warrants included in units of Series A Preferred Stock issued, as well as annual grants of restricted Common Stock. The weighted average shares of Common Stock outstanding presented on the Consolidated Statements of Operations are the same for basic and diluted for any period for which we recorded a net loss available to common stockholders.

       See Notes to Reconciliation of FFO, Core FFO and AFFO to Net Loss Attributable to Common Stockholders on page S-5.

Preferred Apartment Communities, Inc.

Consolidated Balance Sheets

(Unaudited)

June 30, 2017

December 31, 2016

Assets

Real estate

Land

$

311,350,832

$

299,547,501

Building and improvements

1,621,575,150

1,513,293,760

⁽¹⁾

Tenant improvements

33,544,458

23,642,361

⁽¹⁾

Furniture, fixtures, and equipment

149,377,900

126,357,742

Construction in progress

13,045,259

2,645,634

Gross real estate

2,128,893,599

1,965,486,998

Less: accumulated depreciation

(127,310,989)

(103,814,894)

Net real estate

2,001,582,610

1,861,672,104

Real estate loan investments, net of deferred fee income

234,031,624

201,855,604

Real estate loan investments to related parties, net

159,357,590

130,905,464

Total real estate and real estate loan investments, net

2,394,971,824

2,194,433,172

Cash and cash equivalents

13,055,897

12,321,787

Restricted cash

47,905,398

55,392,984

Notes receivable

17,296,399

15,499,699

Note receivable and revolving line of credit due from related party

22,620,235

22,115,976

Accrued interest receivable on real estate loans

24,871,043

21,894,549

Acquired intangible assets, net of amortization

81,455,656

79,156,400

Deferred loan costs on Revolving Line of Credit, net of amortization

1,736,201

1,768,779

Deferred offering costs

5,351,680

2,677,023

Tenant lease inducements, net

7,408,163

261,492

Tenant receivables and other assets

22,860,026

15,310,741

Total assets

$

2,639,532,522

$

2,420,832,602

Liabilities and equity

Liabilities

Mortgage notes payable, net of deferred loan costs

$

1,400,670,042

$

1,305,870,471

Revolving line of credit

38,500,000

127,500,000

Term note payable, net of deferred loan costs

10,994,410

10,959,905

Real estate loan investment participation obligation

18,598,928

20,761,819

Deferred revenue

16,029,840

—

Accounts payable and accrued expenses

25,525,913

20,814,910

Accrued interest payable

3,443,723

3,541,640

Dividends and partnership distributions payable

12,731,472

10,159,629

Acquired below market lease intangibles, net of amortization

29,065,548

29,774,033

Security deposits and other liabilities

6,571,096

6,189,033

Total liabilities

1,562,130,972

1,535,571,440

Commitments and contingencies

Equity

Stockholder's equity

Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050,000

   shares authorized; 1,064,054 and 924,855 shares issued; 1,043,551 and 914,422

shares outstanding at June 30, 2017 and December 31, 2016, respectively

10,436

9,144

Series M Redeemable Preferred Stock, $0.01 par value per share; 500,000

   shares authorized; 7,850 and 0 shares issued and outstanding

at June 30, 2017 and December 31, 2016, respectively

79

—

Common Stock, $0.01 par value per share; 400,066,666 shares authorized;

  32,420,391 and 26,498,192 shares issued and outstanding at

June 30, 2017 and December 31, 2016, respectively

324,204

264,982

Additional paid-in capital

1,065,382,200

906,737,470

Accumulated earnings (deficit)

9,038,150

(23,231,643)

      Total stockholders' equity

1,074,755,069

883,779,953

Non-controlling interest

2,646,481

1,481,209

Total equity

1,077,401,550

885,261,162

Total liabilities and equity

$

2,639,532,522

$

2,420,832,602

⁽¹⁾ In the Company's Annual Report on Form 10-K for the year ended December 31, 2016, the Company reported an amount of tenant improvements on its acquisition of the Three Ravinia office building that should have been classified as building and improvements. Adjusted amounts are shown here.

Preferred Apartment Communities, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

Six months ended June 30,

2017

2016

Operating activities:

Net income (loss )

$

33,365,682

$

(3,172,011)

Reconciliation of net income (loss) to net cash provided by operating activities:

Depreciation expense

39,063,687

23,973,536

Amortization expense

14,219,503

9,343,165

Amortization of above and below market leases

(1,561,873)

(593,455)

Deferred revenues and fee income amortization

(804,532)

(492,490)

Lease incentive cost amortization

92,471

—

Deferred loan cost amortization

2,649,602

1,393,318

(Increase) decrease in accrued interest income on real estate loans

(2,976,494)

543,167

Equity compensation to executives, directors and consultants

1,744,255

1,256,296

Other

189,400

(1,067)

Gain on sale of real estate

(37,639,009)

(4,271,506)

Loss on extinguishment of debt

888,428

—

Changes in operating assets and liabilities:

(Increase) decrease in tenant receivables and other assets

(3,619,041)

433,419

(Increase) in tenant lease incentives

(7,239,142)

—

Increase in accounts payable and accrued expenses

4,136,539

3,374,618

(Decrease) increase in accrued interest and other liabilities

(159,833)

1,072,770

Net cash provided by operating activities

42,349,643

32,859,760

Investing activities:

Investment in real estate loans

(70,319,643)

(75,603,964)

Repayments of real estate loans

9,866,000

27,695,229

Notes receivable issued

(3,728,561)

(8,051,980)

Notes receivable repaid

1,967,124

9,615,213

Note receivable issued to and draws on line of credit by related party

(14,978,535)

(18,653,990)

Repayments of line of credit by related party

14,254,008

13,842,681

Loan origination fees received

834,888

2,249,137

Loan origination fees paid to Manager

(417,444)

(1,124,226)

Acquisition of properties

(191,992,655)

(404,186,508)

Disposition of properties, net

118,241,692

10,606,386

Additions to real estate assets - improvements

(7,763,257)

(3,990,551)

Deposits paid on acquisitions

(919,534)

(11,194,950)

Decrease in restricted cash

7,108,164

(4,291,485)

Net cash used in investing activities

(137,847,753)

(463,089,008)

Financing activities:

Proceeds from mortgage notes payable

156,280,000

249,840,000

Payment for mortgage notes payable

(116,052,865)

(4,692,524)

Payments for deposits and other mortgage loan costs

(6,038,969)

(9,616,676)

Payments for mortgage prepayment costs

(817,313)

—

Proceeds from real estate loan participants

165,840

135,398

Payments to real estate loan participants

(2,466,500)

—

Proceeds from lines of credit

97,000,000

195,500,000

Payments on lines of credit

(186,000,000)

(201,500,000)

Proceeds from term loan

—

46,000,000

Repayment of the term loan

—

(5,000,000)

Proceeds from sales of Units, net of offering costs and redemptions

128,699,644

180,446,649

Proceeds from sales of Common Stock

56,115,635

—

Proceeds from exercises of warrants

14,900,868

9,380,346

Common stock dividends paid

(11,711,273)

(8,750,488)

Preferred stock dividends paid

(28,990,642)

(16,284,348)

Distributions to non-controlling interests

(393,699)

(170,630)

Payments for deferred offering costs

(4,458,506)

(1,780,973)

Net cash provided by financing activities

96,232,220

433,506,754

Net increase (decrease) in cash and cash equivalents

734,110

3,277,506

Cash and cash equivalents, beginning of year

12,321,787

2,439,605

Cash and cash equivalents, end of year

$

13,055,897

$

5,717,111

Real Estate Loan Investments

The following tables present details pertaining to our portfolio of fixed rate, interest-only real estate loan investments.

Project/Property

Location

Maturity date

Optional extension date

Total loan commitments

Carrying amount ⁽¹⁾ as of

Current / deferred interest % per annum

June 30, 2017

December 31, 2016

Multifamily communities:

Founders Village

Williamsburg, VA

—

N/A

$

—

$

—

₍₂₎

$

9,866,000

—

Encore

Atlanta, GA

4/8/2019

10/8/2020

10,958,200

10,958,200

10,958,200

8.5 / 5

Encore Capital

Atlanta, GA

4/8/2019

10/8/2020

9,758,200

7,124,104

6,748,380

8.5 / 5

Palisades

Northern VA

2/18/2018

8/18/2019

17,270,000

16,877,906

16,214,545

8 / 5

Fusion

Irvine, CA

5/31/2018

5/31/2020

63,911,961

54,523,182

49,456,067

8.5 / 7.5

Green Park

Atlanta, GA

12/1/2017

12/1/2019

13,464,372

13,464,372

13,464,372

8.5 / 5.83

Summit Crossing III

Atlanta, GA

2/26/2018

2/26/2020

7,246,400

7,246,400

7,246,400

8.5 / 7.5

Overture

Tampa, FL

7/21/2018

7/21/2020

6,920,000

6,390,213

6,123,739

8.5 / 7.5

Aldridge at Town Village

Atlanta, GA

12/27/2017

12/27/2019

10,975,000

10,975,000

10,656,171

8.5 / 6

Bishop Street

Atlanta, GA

2/18/2020

N/A

12,693,457

11,630,285

11,145,302

8.5 / 6.5

Hidden River

Tampa, FL

12/3/2018

12/3/2020

4,734,960

4,734,960

4,734,960

8.5 / 6.5

Hidden River Capital

Tampa, FL

12/4/2018

12/4/2020

5,380,000

4,827,547

4,626,238

8.5 / 6.5

CityPark II

Charlotte, NC

1/7/2019

1/7/2021

3,364,800

3,364,800

3,364,800

8.5 / 6.5

CityPark II Capital

Charlotte, NC

1/8/2019

1/31/2021

3,916,000

3,470,383

3,325,668

8.5 / 6.5

Park 35 on Clairmont

Birmingham, AL

6/26/2018

6/26/2020

21,060,160

20,657,297

19,795,886

8.5 / 2

Fort Myers

Fort Myers, FL

9/25/2017

N/A

4,000,000

3,880,810

3,654,621

12 / 0

Wiregrass

Tampa, FL

5/15/2020

5/15/2023

14,975,853

11,187,948

1,862,548

8.5 / 6.5

Wiregrass Capital

Tampa, FL

5/15/2020

5/15/2023

3,744,147

3,410,327

3,268,114

8.5 / 6.5

360 Forsyth

Atlanta, GA

12/1/2017