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APTS Preferred Apartment Communities

Filed: 4 Aug 21, 4:27pm

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): August 4, 2021
apts-20210804_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))

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 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 July 29, 2021, POP 4208 SIX FORKS ROAD, L.P., a Delaware limited partnership ("CAPTRUST Seller"), POP MORROCROFT, L.P., a Delaware limited partnership ("Morrocroft Seller"), POP 150 FAYETTEVILLE, L.P., a Delaware limited partnership ("150 Fayetteville Seller"), POP CAPITOL TOWERS, L.P., a Delaware limited partnership ("Capitol Towers Seller"), PAC GALLERIA 75, LLC, a Delaware limited liability company ("Galleria 75 Seller"), and POP 8 West Mezzanine Lending, LLC, a Delaware limited liability company ("8 West Seller", and together with CAPTRUST Seller, Morrocroft Seller, 150 Fayetteville Seller, Capital Towers Seller, Galleria 75 Seller and 8 West 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 five office properties and one real estate loan investment (collectively, the "Office Portfolio") to HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina limited partnership ("Purchaser"), an unrelated third party. The aggregate purchase price paid by the Purchaser to Seller was approximately $645.5 million, exclusive of disposition-related transaction costs. Preferred Apartment Communities, Inc. (the "Company") is the general partner of, and as of March 31, 2021, owner of an approximate 98.9% interest in, PAC-OP. Since the Company’s investment in the assets of Seller exceeded 20% of the aggregate worldwide market value of the voting and non-voting common equity of the Company as of December 31, 2020, 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 Office Portfolio required by Item 9.01(b) of Form 8-K.


Item 7.01 Regulation FD Disclosure.

The Company issued a press release on July 29, 2021 announcing the closing of the disposition of the Office 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 Condensed Consolidated Financial Statements                 1
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2021         2
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the three-month period ended March 31, 2021                    3
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 2020                        4
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements             5
Signature                                        7

(d)    Exhibits.





UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The following unaudited pro forma condensed consolidated financial statements have been prepared to provide pro forma information with regard to a certain real estate disposition transaction. On July 29, 2021, POP 4208 SIX FORKS ROAD, L.P., a Delaware limited partnership ("CAPTRUST Seller"), POP MORROCROFT, L.P., a Delaware limited partnership ("Morrocroft Seller"), POP 150 FAYETTEVILLE, L.P., a Delaware limited partnership ("150 Fayetteville Seller"), POP CAPITOL TOWERS, L.P., a Delaware limited partnership ("Capitol Towers Seller"), PAC GALLERIA 75, LLC, a Delaware limited liability company ("Galleria 75 Seller"), and POP 8 West Mezzanine Lending, LLC, a Delaware limited liability company ("8 West Seller", and together with CAPTRUST Seller, Morrocroft Seller, 150 Fayetteville Seller, Capital Towers Seller, Galleria 75 Seller and 8 West 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 five office properties and other office related assets (collectively, the "Office Portfolio") to HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina limited partnership ("Purchaser"), an unrelated third party. The aggregate purchase price paid by the Purchaser to Seller was approximately $645.5 million, exclusive of disposition-related transaction costs.

The accompanying Unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as of March 31, 2021 and the Unaudited Pro Forma Condensed Consolidated Statements of Operations of the Company are presented for the three-month period ended March 31, 2021 and the year ended December 31, 2020 (the "Pro Forma Periods"), and include certain pro forma adjustments to illustrate the estimated effect of the Company's disposition of the Office 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, 2020 and on Form 10-Q for the three months ended March 31, 2021.















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Preferred Apartment Communities, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2021
(In thousands, except per-share par values)PAC REIT HistoricalTransaction Accounting Adjustments: Disposition of Office PortfolioPAC REIT Pro Forma
Assets
Real estate
Land$605,282 $(63,670)A$541,612 
Building and improvements3,039,783 (494,855)A2,544,928 
Tenant improvements186,843 (59,548)A127,295 
Furniture, fixtures, and equipment308,222 (24)A308,198 
Construction in progress11,649 (4,974)A6,675 
Gross real estate4,151,779 (623,071)3,528,708 
Less: accumulated depreciation(546,634)36,199 A(510,435)
Net real estate3,605,145 (586,872)3,018,273 
Real estate loan investments, net280,938 (11,890)A269,048 
Total real estate and real estate loan investments, net3,886,083 (598,762)3,287,321 
Cash and cash equivalents32,322 235,389 B267,711 
Restricted cash45,052 (2,385)A42,667 
Notes receivable1,784 — 1,784 
Note receivable and revolving lines of credit due from related parties9,011 — 9,011 
Accrued interest receivable on real estate loans22,241 (683)A21,558 
Acquired intangible assets, net of amortization118,388 (42,731)A75,657 
Tenant lease inducements17,803 (25)A17,778 
Investment in unconsolidated joint venture6,463 — 6,463 
Tenant receivables and other assets95,821 (24,768)A71,053 
Total assets$4,234,968 $(433,965)$3,801,003 
Liabilities and equity
Liabilities
Mortgage notes payable, net$2,587,660 $(389,168)A$2,198,492 
Revolving line of credit40,000 — 40,000 
Unearned purchase option termination fees473 — 473 
Deferred revenue35,070 — 35,070 
Accounts payable and accrued expenses37,237 (9,105)A28,132 
Deferred liability to Former Manager23,512 — 23,512 
Contingent liability due to Former Manager14,755 — 14,755 
Accrued interest payable7,997 (979)A7,018 
Dividends and partnership distributions payable20,410 — 20,410 
Acquired below market lease intangibles, net of amortization49,879 (8,571)A41,308 
Prepaid rent, security deposits, and other liabilities31,122 (3,117)A28,005 
Total liabilities2,848,115 (410,940)2,437,175 
Commitments and contingencies
Equity
Stockholders' equity
Series A Redeemable Preferred Stock, $0.01 par value per share; 3,050 shares authorized; 2,226 shares
issued; 1,694 shares outstanding at March 31, 202117 — 17 
Series A1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized;
184 shares issued and outstanding at March 31, 2021— 
Series M Redeemable Preferred Stock, $0.01 par value per share; 500 shares authorized; 106 shares
issued; 87 shares outstanding at March 31, 2021— 
Series M1 Redeemable Preferred Stock, $0.01 par value per share; up to 1,000 shares authorized; 22
shares issued; 21 shares outstanding at March 31, 2021— — — 
Common Stock, $0.01 par value per share; 400,067 shares authorized; 50,095 shares
issued and outstanding at March 31, 2021501 — 501 
Additional paid-in capital1,582,193 — 1,582,193 
Accumulated (deficit) earnings(195,093)(20,953)A(216,046)
Total stockholders' equity1,387,620 (20,953)1,366,667 
Non-controlling interest(767)(2,072)A(2,839)
Total equity1,386,853 (23,025)1,363,828 
Total liabilities and equity$4,234,968 $(433,965)$3,801,003 

The accompanying notes are an integral part of this pro forma condensed consolidated financial statement.
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Preferred Apartment Communities, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 2021
Transaction Accounting Adjustments: Disposition of Office PortfolioPAC REIT
PAC REIT
(In thousands, except per-share values)HistoricalPro Forma
Revenues:
Rental and other property revenues$104,459 $(15,273)AA$89,186 
Interest income on loans and notes receivable10,512 (413)AA10,099 
Interest income on note from related party405 — 405 
Miscellaneous revenues324 — 324 
Total revenues115,700 (15,686)100,014 
Operating expenses:
Property operating and maintenance15,249 (2,037)AA13,212 
Property salary and benefits to related party4,821 (625)AA4,196 
Property management costs1,105 (253)AA852 
Real estate taxes and insurance16,140 (1,385)AA14,755 
General and administrative7,539 (5)AA7,534 
Equity compensation to directors and executives574 — 574 
Depreciation and amortization45,827 (6,850)AA38,977 
Allowance for expected credit losses522 — 522 
Management internalization expense245 — 245 
Total operating expenses92,022 (11,155)80,867 
Operating income before gain on sale of real estate and loss
from unconsolidated joint venture23,678 (4,531)19,147 
Gain on sale of real estate798 — 798 
Loss from unconsolidated joint venture(194)— (194)
Operating income24,282 (4,531)19,751 
Interest expense26,991 (4,107)AA22,884 
Net loss(2,709)(424)(3,133)
Less consolidated net loss attributable
to non-controlling interests62 (2)BB60 
Net loss attributable to the Company(2,647)(426)(3,073)
Dividends to preferred stockholders(33,820)— (33,820)
Earnings attributable to unvested restricted stock(142)— (142)
Net loss attributable to common stockholders$(36,609)$(426)$(37,035)
Net loss per share of Common Stock
attributable to common stockholders, basic and diluted$(0.73)$(0.74)
Weighted average number of shares of Common
Stock outstanding, basic and diluted50,033 50,033 

The accompanying notes are an integral part of this pro forma condensed consolidated financial statement.
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Preferred Apartment Communities, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2020
Transaction Accounting Adjustments: Disposition of Office PortfolioPAC REIT
PAC REIT
(In thousands, except per-share values)HistoricalPro Forma
Revenues:
Rental and other property revenues$445,815 $(60,027)AA$385,788 
Interest income on loans and notes receivable46,610 (1,192)AA45,418 
Interest income on note from related party4,235 — 4,235 
Miscellaneous revenues5,537 — 5,537 
Total revenues502,197 (61,219)440,978 
Operating expenses:
Property operating and maintenance69,255 (8,084)AA61,171 
Property salary and benefits to related party22,377 (2,434)AA19,943 
Property management costs4,989 (953)AA4,036 
Real estate taxes and insurance63,294 (5,270)AA58,024 
General and administrative30,809 (35)AA30,774 
Equity compensation to directors and executives1,644 — 1,644 
Depreciation and amortization201,677 (26,874)AA174,803 
Asset management and general and administrative
expense fees to related party3,099 (376)AA2,723 
Allowance for expected credit losses6,103 — 6,103 
Management internalization expense180,116 — 180,116 
Total operating expenses583,363 (44,026)539,337 
Waived asset management and
general and administrative expense fees(1,136)361 (775)
Net operating expenses582,227 (43,665)538,562 
Operating loss before gain on sale of real estate and loss from unconsolidated joint venture(80,030)(17,554)(97,584)
Gain on sale of real estate23,456 — 23,456 
Loss from unconsolidated joint venture(314)— (314)
Operating loss(56,888)(17,554)(74,442)
Interest expense118,558 (16,648)AA101,910 
Loss on extinguishment of debt(6,674)— (6,674)
Gain on the sale of real estate loan investment517 — 517 
Net loss(181,603)(906)(182,509)
Less consolidated net loss attributable
to non-controlling interests3,815 (985)BB2,830 
Net loss attributable to the Company(177,788)(1,891)(179,679)
Dividends to preferred stockholders(160,908)— (160,908)
Earnings attributable to unvested restricted stock(205)— (205)
Net loss attributable to common stockholders$(338,901)$(1,891)$(340,792)
Net loss per share of Common Stock
attributable to common stockholders, basic and diluted$(6.95)$(6.99)
Weighted average number of shares of Common
Stock outstanding, basic and diluted48,743 48,743 

The accompanying notes are an integral part of this pro forma condensed consolidated financial statement.
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Preferred Apartment Communities, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

1.Basis of Presentation

On July 29, 2021, Preferred Apartment Communities, Inc. (the “Company”), closed on the sale of the five office building properties listed below and a real estate loan investment partially financing 8 West, a class A office building in Atlanta, Georgia (the “Office Portfolio”) to an unrelated third party for an aggregate purchase price of approximately $645.5 million, exclusive of closing costs.
Office PropertyLocationGross Leasable Area (square feet)
150 FayettevilleRaleigh, North Carolina560,000 
Capitol TowersCharlotte, North Carolina479,000 
CAPTRUST TowerRaleigh, North Carolina300,000 
Morrocroft CentreCharlotte, North Carolina291,000 
Galleria 75Atlanta, Georgia111,000 
Total1,741,000 

The Unaudited Pro Forma Condensed Consolidated Balance Sheet includes three columns. The first column labeled "PAC REIT Historical" represents the actual financial position of the Company as of March 31, 2021. The second column, entitled "Transaction Accounting Adjustments: Disposition of Office 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 March 31, 2021, 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 March 31, 2021, excluding the Office Portfolio.

The Unaudited Pro Forma Condensed Consolidated Statements of Operations include three columns. The first column labeled "PAC REIT Historical" represents the actual results of operations for the three months ended March 31, 2021 and the year ended December 31, 2020. The second column, entitled "Transaction Accounting Adjustments: Disposition of Office 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 three months ended March 31, 2021 and the year ended December 31, 2020, excluding the Office Portfolio. The results presented on the Unaudited Pro Forma Condensed Consolidated Statements of Operations assume the sale of the Office Portfolio closed on January 1, 2020 and presents pro forma operating results for the Company for the periods presented.

The first column labeled "PAC REIT Historical" on the Unaudited Pro Forma Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 reflect certain reclassification adjustments to (i) present sublease income received by the Company for a portion of its corporate office space as a net adjustment against rent expense, which is included in the general and administrative expense line on the consolidated statements of operations and (ii) to present certain expenses such as franchise taxes and insurance claims within the real estate taxes and insurance line on the consolidated statements of operations. These reclassification adjustments had no effect on previously-reported net loss attributable to common stockholders. The first column labeled "PAC REIT Historical" on the Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended December 31, 2020 has not been restated to conform to the current presentation.

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

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

2. Adjustments to Unaudited Pro Forma Condensed Consolidated Balance Sheet

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

(In thousands)
Gross sales price$645,500 
Closing and transaction costs(10,821)
Mortgage debt assumed by purchaser(393,196)
Net sales proceeds241,483 
Less: Carrying value of real estate assets(586,872)
Less: Carrying value of real estate loan investment(11,890)
Less: Carrying value of other assets(76,686)
Plus: Carrying value of mortgages389,168 
Plus: Carrying value of other liabilities21,772 
Proforma loss(23,025)
Less: Attributable to non-controlling interest2,072 
Proforma loss attributable to common stockholders$(20,953)
(B) The pro forma adjustment to cash was calculated as follows:

(In thousands)
Net proceeds from purchaser$241,483 
Less: Cash balances transferred to purchaser(6,094)
Net cash adjustment$235,389 


3. Adjustments to Unaudited Pro Forma Condensed Consolidated Statements of Operations

The adjustments to the Unaudited Pro Forma Condensed Consolidated Statements of Operations for the three-month period ended March 31, 2021 and the year ended December 31, 2020 are as follows:

(AA) These pro forma adjustments remove the actual historical revenues and expenses recorded from the operations of the Office Portfolio.

(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 1.20% for the three months ended March 31, 2021 and 1.54% for the year ended December 31, 2020. These adjustments reflect the pro-rata adjustment to the amount of net loss attributable to the non-controlling interests.
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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: August 4, 2021By:/s/ Jeffrey R. Sprain
Jeffrey R. Sprain
Executive Vice President, General Counsel and Corporate Secretary
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