UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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): January 20, 2017
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 January 20, 2017, Sandstone Creek, LLC (the "Seller"), an indirect, wholly-owned subsidiary of Preferred Apartment Communities Operating Partnership, L.P. ("PAC-OP"), completed the disposition of a fee simple interest in a 364-unit multifamily community in Kansas City, KS ("Sandstone Creek") to DRA FUND IX, LLC (the "Purchaser"), an unrelated third party. The aggregate purchase price paid by the Purchaser to Seller was $48.1 million, exclusive of acquisition-related transaction costs. Preferred Apartment Communities, Inc. (the "Company") is the general partner of, and as of September 30, 2016, owner of an approximate 96.5% interest in, PAC-OP.
Since the results of operations for Sandstone Creek exceeded 10% of the consolidated net loss reported by the Company for the twelve-month period ended December 31, 2015, Sandstone Creek is deemed to be a significant disposition under the income test from Regulation S-X 1-02(w). The Company therefore submits this Current Report on Form 8-K to provide certain financial information related to its disposition of Sandstone Creek required by Item 9.01(b) of Form 8-K.
Item 9.01 Financial Statements and Exhibits
(b) | Pro Forma Financial Information. |
Unaudited Pro Forma Consolidated Financial Statements | F-1 |
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2016 | F-2 |
Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2016 | F-3 |
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2015 | F-4 |
Notes to Unaudited Pro Forma Consolidated Financial Statements | 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 regard to a certain real estate disposition transaction.
The accompanying Unaudited Pro Forma Consolidated Balance Sheet is presented as of September 30, 2016 and the Unaudited Pro Forma Consolidated Statements of Operations of the Company are presented for the nine months ended September 30, 2016 and the year ended December 31, 2015 (the "Pro Forma Periods"), and include certain pro forma adjustments to illustrate the estimated effect of the Company's disposition of its Sandstone Creek multifamily community as described in Note 1.
This pro forma consolidated financial information is presented for informational purposes only and does not purport to be indicative of the Company's financial results as if the transaction reflected herein had occurred on the date or been in effect during the periods 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, 2015 and on Form 10-Q for the interim period ended September 30, 2016.
F-1
Preferred Apartment Communities, Inc. |
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2016 |
PAC REIT Historical (See Note 1) | Disposition of Sandstone Creek (See Note 1) | PAC REIT Pro Forma | |||||||||
Assets | |||||||||||
Real estate | |||||||||||
Land | $ | 260,222,888 | $ | (2,846,197 | ) | A | $ | 257,376,691 | |||
Building and improvements | 1,333,186,314 | (41,755,153 | ) | A | 1,291,431,161 | ||||||
Tenant improvements | 14,132,772 | — | 14,132,772 | ||||||||
Furniture, fixtures, and equipment | 125,292,571 | (4,672,299 | ) | A | 120,620,272 | ||||||
Construction In progress | 2,879,528 | (206,319 | ) | A | 2,673,209 | ||||||
Gross real estate | 1,735,714,073 | (49,479,968 | ) | 1,686,234,105 | |||||||
Less: accumulated depreciation | (87,020,014 | ) | 4,281,440 | A | (82,738,574 | ) | |||||
Net real estate | 1,648,694,059 | (45,198,528 | ) | 1,603,495,531 | |||||||
Real estate loans, net of deferred fee income | 195,971,159 | — | 195,971,159 | ||||||||
Real estate loans to related parties, net | 109,436,327 | — | 109,436,327 | ||||||||
Total real estate and real estate loans, net | 1,954,101,545 | (45,198,528 | ) | 1,908,903,017 | |||||||
Cash and cash equivalents | 10,462,384 | 14,874,728 | B, C | 25,337,112 | |||||||
Restricted cash | 32,948,161 | (612,969 | ) | A | 32,335,192 | ||||||
Notes receivable | 14,341,875 | — | 14,341,875 | ||||||||
Note receivable and line of credit to related party | 20,986,537 | — | 20,986,537 | ||||||||
Accrued interest receivable on real estate loans | 17,669,121 | — | 17,669,121 | ||||||||
Acquired intangible assets, net of amortization | 49,825,572 | — | 49,825,572 | ||||||||
Deferred loan costs for revolving line of credit | 1,738,508 | — | 1,738,508 | ||||||||
Deferred offering costs | 3,809,014 | — | 3,809,014 | ||||||||
Tenant receivables and other assets | 17,654,353 | (42,489 | ) | A | 17,611,864 | ||||||
Total assets | $ | 2,123,537,070 | $ | (30,979,258 | ) | $ | 2,092,557,812 | ||||
Liabilities and equity | |||||||||||
Liabilities | |||||||||||
Mortgage notes payable, principal amount | $ | 1,183,335,433 | $ | (31,063,707 | ) | A | $ | 1,152,271,726 | |||
Less: deferred loan costs, net of amortization | (19,317,090 | ) | 211,444 | A | (19,105,646 | ) | |||||
Mortgage notes payable, net of deferred loan costs | 1,164,018,343 | (30,852,263 | ) | 1,133,166,080 | |||||||
Revolving line of credit | 82,000,000 | — | 82,000,000 | ||||||||
Term note payable | 11,000,000 | — | 11,000,000 | ||||||||
Less: deferred loan costs, net of amortization | (67,032 | ) | — | (67,032 | ) | ||||||
Term note payable, net of deferred loan costs | 10,932,968 | — | 10,932,968 | ||||||||
Real estate loan participation obligation | 19,638,232 | — | 19,638,232 | ||||||||
Accounts payable and accrued expenses | 25,309,813 | (619,281 | ) | A | 24,690,532 | ||||||
Accrued interest payable | 3,490,151 | (82,319 | ) | A | 3,407,832 | ||||||
Dividends and partnership distributions payable | 9,056,611 | — | 9,056,611 | ||||||||
Acquired below market lease intangibles | 19,180,354 | — | 19,180,354 | ||||||||
Security deposits and other liabilities | 5,161,358 | (80,568 | ) | A | 5,080,790 | ||||||
Total liabilities | 1,338,787,830 | (31,634,431 | ) | 1,307,153,399 | |||||||
Commitments and contingencies | |||||||||||
Equity | |||||||||||
Stockholder's equity | |||||||||||
Series A Redeemable Preferred Stock, $0.01 par value per share; | |||||||||||
1,050,000 shares authorized; 809,460 shares issued and | |||||||||||
802,032 shares outstanding | 8,020 | — | 8,020 | ||||||||
Common Stock, $0.01 par value per share; 400,066,666 shares | |||||||||||
authorized; 24,658,034 shares issued and outstanding | 246,580 | — | 246,580 | ||||||||
Additional paid-in capital | 802,559,257 | — | 802,559,257 | ||||||||
Accumulated deficit | (19,384,106 | ) | 655,173 | C | (18,728,933 | ) | |||||
Total stockholders' equity | 783,429,751 | 655,173 | 784,084,924 | ||||||||
Non-controlling interest | 1,319,489 | — | 1,319,489 | ||||||||
Total equity | 784,749,240 | 655,173 | 785,404,413 | ||||||||
Total liabilities and equity | $ | 2,123,537,070 | $ | (30,979,258 | ) | $ | 2,092,557,812 | ||||
The accompanying notes are an integral part of this consolidated pro forma financial statement.
F-2
Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 2016
PAC REIT Historical (See Note 1) | Disposition of Sandstone Creek (See Note 1) | PAC REIT Pro Forma | |||||||||
Revenues: | |||||||||||
Rental revenues | $ | 96,541,544 | $ | (2,981,668 | ) | AA | $ | 93,559,876 | |||
Other property revenues | 13,290,330 | (388,034 | ) | AA | 12,902,296 | ||||||
Interest income on loans and notes receivable | 20,984,625 | — | 20,984,625 | ||||||||
Interest income from related parties | 10,310,563 | — | 10,310,563 | ||||||||
Total revenues | 141,127,062 | (3,369,702 | ) | 137,757,360 | |||||||
Operating expenses: | |||||||||||
Property operating and maintenance | 13,883,133 | (652,558 | ) | AA | 13,230,575 | ||||||
Property salary and benefits reimbursement to related party | 7,688,470 | (385,134 | ) | AA | 7,303,336 | ||||||
Property management fees | 4,308,841 | (135,344 | ) | AA | 4,173,497 | ||||||
Real estate taxes | 15,457,134 | (505,335 | ) | AA | 14,951,799 | ||||||
General and administrative | 3,255,728 | (116,537 | ) | AA | 3,139,191 | ||||||
Equity compensation to directors and executives | 1,867,706 | — | 1,867,706 | ||||||||
Depreciation and amortization | 54,981,064 | (1,611,036 | ) | AA | 53,370,028 | ||||||
Acquisition and pursuit costs | 6,179,442 | — | 6,179,442 | ||||||||
Acquisition fees to related parties | 706,422 | — | 706,422 | ||||||||
Asset management fees to related party | 9,484,161 | — | 9,484,161 | ||||||||
Insurance, professional fees and other expenses | 4,216,838 | (58,528 | ) | AA | 4,158,310 | ||||||
Total operating expenses | 122,028,939 | (3,464,472 | ) | 118,564,467 | |||||||
Contingent asset management and general | |||||||||||
and administrative expense fees | (1,458,245 | ) | — | (1,458,245 | ) | ||||||
Net operating expenses | 120,570,694 | (3,464,472 | ) | 117,106,222 | |||||||
Operating income | 20,556,368 | 94,770 | 20,651,138 | ||||||||
Interest expense | 30,688,505 | (810,752 | ) | AA | 29,877,753 | ||||||
Net loss before gain on sale of real estate | (10,132,137 | ) | 905,522 | (9,226,615 | ) | ||||||
Gain on sale of real estate, net of disposition expenses | 4,271,506 | — | 4,271,506 | ||||||||
Net loss | (5,860,631 | ) | 905,522 | (4,955,109 | ) | ||||||
Consolidated net loss attributable to | |||||||||||
non-controlling interests | 175,045 | (32,508 | ) | BB | 142,537 | ||||||
Net loss attributable to the Company | (5,685,586 | ) | 873,014 | (4,812,572 | ) | ||||||
Dividends declared to Series A preferred stockholders | (28,341,723 | ) | — | (28,341,723 | ) | ||||||
Earnings attributable to unvested restricted stock | (12,434 | ) | — | (12,434 | ) | ||||||
Net loss attributable to common stockholders | $ | (34,039,743 | ) | $ | 873,014 | $ | (33,166,729 | ) | |||
Net loss per share of Common Stock available to | |||||||||||
common stockholders, basic and diluted | $ | (1.45 | ) | $ | (1.41 | ) | |||||
Dividends per share declared on Common Stock | $ | 0.5975 | $ | 0.5975 | |||||||
Weighted average number of shares of Common Stock | |||||||||||
outstanding, basic and diluted | 23,552,951 | 23,552,951 | |||||||||
The accompanying notes are an integral part of this consolidated pro forma financial statement.
F-3
Preferred Apartment Communities, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2015
PAC REIT Historical (See Note 1) | Disposition of Sandstone Creek (See Note 1) | PAC REIT Pro Forma | |||||||||
Revenues: | |||||||||||
Rental revenues | $ | 69,128,280 | $ | (4,155,357 | ) | AA | $ | 64,972,923 | |||
Other property revenues | 9,495,522 | (503,222 | ) | AA | 8,992,300 | ||||||
Interest income on loans and notes receivable | 23,207,610 | — | 23,207,610 | ||||||||
Interest income from related parties | 7,474,100 | — | 7,474,100 | ||||||||
Total revenues | 109,305,512 | (4,658,579 | ) | 104,646,933 | |||||||
Operating expenses: | |||||||||||
Property operating and maintenance | 10,878,872 | (671,355 | ) | AA | 10,207,517 | ||||||
Property salary and benefits reimbursement to related party | 5,885,242 | (479,080 | ) | AA | 5,406,162 | ||||||
Property management fees | 3,014,801 | (139,064 | ) | AA | 2,875,737 | ||||||
Real estate taxes | 9,934,412 | (657,197 | ) | AA | 9,277,215 | ||||||
General and administrative | 2,285,789 | (86,381 | ) | AA | 2,199,408 | ||||||
Equity compensation to directors and executives | 2,362,453 | — | 2,362,453 | ||||||||
Depreciation and amortization | 38,096,334 | (2,451,244 | ) | AA | 35,645,090 | ||||||
Acquisition and pursuit costs | 4,186,092 | — | 4,186,092 | ||||||||
Acquisition fees to related parties | 4,967,671 | — | 4,967,671 | ||||||||
Asset management fees to related party | 7,041,226 | — | 7,041,226 | ||||||||
Insurance, professional fees and other expenses | 3,568,356 | (79,831 | ) | AA | 3,488,525 | ||||||
Total operating expenses | 92,221,248 | (4,564,152 | ) | 87,657,096 | |||||||
Contingent asset management and general | |||||||||||
and administrative expense fees | (1,805,478 | ) | — | (1,805,478 | ) | ||||||
Net operating expenses | 90,415,770 | (4,564,152 | ) | 85,851,618 | |||||||
Operating income | 18,889,742 | (94,427 | ) | 18,795,315 | |||||||
Interest expense | 21,315,731 | (1,098,756 | ) | AA | 20,216,975 | ||||||
Net loss | (2,425,989 | ) | 1,004,329 | (1,421,660 | ) | ||||||
Consolidated net loss attributable to | |||||||||||
non-controlling interests | 25,321 | (12,328 | ) | BB | 12,993 | ||||||
Net loss attributable to the Company | (2,400,668 | ) | 992,001 | (1,408,667 | ) | ||||||
Dividends declared to Series A preferred stockholders | (18,751,934 | ) | — | (18,751,934 | ) | ||||||
Earnings attributable to unvested restricted stock | (19,256 | ) | — | (19,256 | ) | ||||||
Net loss attributable to common stockholders | $ | (21,171,858 | ) | $ | 992,001 | $ | (20,179,857 | ) | |||
Net loss per share of Common Stock available to | |||||||||||
common stockholders, basic and diluted | $ | (0.95 | ) | $ | (0.91 | ) | |||||
Weighted average number of shares of Common Stock | |||||||||||
outstanding, basic and diluted | 22,182,971 | 22,182,971 | |||||||||
The accompanying notes are an integral part of this consolidated pro forma financial statement.
F-4
Preferred Apartment Communities, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements
1. Basis of Presentation
On January 20, 2017, Preferred Apartment Communities, Inc., or the Company, closed on the sale of its 364-unit multifamily community in Kansas City, KS, or Sandstone Creek, to an unrelated third party for a purchase price of $48.1 million, exclusive of closing costs.
The Unaudited Pro Forma Consolidated Balance Sheet includes three columns. The first column labeled "PAC REIT Historical" represents the actual financial position of the Company as of September 30, 2016. The second column, entitled "Disposition of Sandstone Creek" 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 September 30, 2016, as described in note 2. The third column, entitled "PAC REIT Pro Forma" presents the pro forma condensed consolidated balance sheet of the Company as of September 30, 2016, excluding Sandstone Creek.
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 nine months ended September 30, 2016 and the year ended December 31, 2015. The second column, entitled "Disposition of Sandstone Creek" represents the adjustments to remove the historical revenues and expenses of Sandstone Creek 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 nine months ended September 30, 2016 and the year ended December 31, 2015, excluding Sandstone Creek.
The results presented on the Unaudited Pro Forma Consolidated Statements of Operations assume the sale of Sandstone Creek closed on January 1, 2015 and present pro forma operating results for the Company for the nine months ended September 30, 2016 and the twelve months ended December 31, 2015. These Unaudited Pro Forma Financial Statements should not be considered indicative of future results.
2. Adjustments to Unaudited Pro Forma Consolidated Balance Sheet
(A) The Company removed the net carrying values of the disposed Sandstone Creek assets and liabilities, as shown in the following table.
Sandstone Creek multifamily community | |||
Land | $ | 2,846,197 | |
Buildings and improvements | 41,755,153 | ||
Furniture, fixtures and equipment | 4,672,299 | ||
Construction in progress | 206,319 | ||
Accumulated depreciation | (4,281,440 | ) | |
Restricted cash | 612,969 | ||
Tenant receivables and other assets | 42,489 | ||
Mortgage defeasance | (31,063,707 | ) | |
Deferred loan costs | 211,444 | ||
Accounts payable and accrued expenses | (619,281 | ) | |
Accrued interest payable | (82,319 | ) | |
Security deposits and other liabilities | (80,568 | ) | |
Net assets disposed | $ | 14,219,555 | |
F-5
Preferred Apartment Communities, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements
(B) The pro forma adjustment to cash was calculated as follows:
Net proceeds from purchaser | $ | 16,916,830 | ||
less: | ||||
Cash balances transferred to purchaser | (50,491 | ) | ||
Pro forma disposition fee paid to Manager | (481,000 | ) | ||
Pro forma mortgage defeasance fee paid to third party | (1,510,611 | ) | ||
Net cash adjustment | $ | 14,874,728 | ||
(C) The adjustment to cash and accumulated deficit includes (i) a pro forma disposition fee that would be due to Preferred Apartment Advisors, LLC, or the Manager, of 1% of the purchase price of Sandstone Creek and (ii) a defeasance fee and other charges paid to relieve the Company of the mortgage obligation on Sandstone Creek. These adjustments are not reflected in the Unaudited Pro Forma Consolidated Statements 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 Statement of Operations for the nine months ended September 30, 2016 and and year ended December 31, 2015 are as follows:
(AA) These pro forma adjustments remove the actual historical revenues and expenses recorded from the operations of Sandstone Creek for the respective periods.
(BB) Outstanding Class A Units of the Operating Partnership become entitled to pro-rata distributions of profit and allocations of loss as non-controlling interests of the Operating Partnership. The weighted-average percentage of ownership by the non-controlling interests was approximately 3.59% and 1.23% for the nine months ended September 30, 2016 and year ended December 31, 2015, respectively. These adjustments reflect the pro-rata adjustment to the amount of net loss attributable to the non-controlling interests.
F-6
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: January 26, 2017 | By: | /s/ Jeffrey R. Sprain |
Jeffrey R. Sprain | ||
General Counsel and Secretary | ||