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

ATLANTA, May 1, 2017 /PRNewswire/ -- Preferred Apartment Communities, Inc. (NYSE: APTS) ("we", "our", the "Company" or "Preferred Apartment Communities") today reported results for the quarter ended March 31, 2017. Unless otherwise indicated, all per share results are reported based on the basic weighted average shares of Common Stock and Class A Units of the Company's operating partnership ("Class A Units") outstanding.

"Our associates and properties all performed exceptionally well during the first quarter, giving us superb results," said John A. Williams, Preferred Apartment Communities' Chairman and Chief Executive Officer.

Acquisitions of Properties

• During the first quarter 2017, we acquired the following properties:

Sales of Properties

• During the first quarter 2017, we sold our Sandstone Creek and Ashford Park multifamily communities located in Kansas City, Kansas and Atlanta, Georgia, respectively, and collected aggregate gross proceeds of $113.6 million. We realized an average annualized return on these two properties of approximately 19.1%.

Financial Highlights

Our operating results are presented below.

⁽¹⁾ Per weighted average share of Common Stock outstanding for the periods indicated.
⁽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.
⁽³⁾  Per share of Common Stock and Class A Unit outstanding.

Net income per share for the three months ended March 31, 2017 reflects a realized gain on the sale of Sandstone Creek and Ashford Park of approximately $30.7 million, or $1.14 per share. Funds from operations ("FFO") in 2016 reflect acquisition-related costs of approximately $2.8 million. In 2017, the majority of these type of costs are deferred and amortized over the life of the acquired assets. Core Funds From Operations Attributable to Common Stockholders and Unitholders ("Core FFO") excludes acquisition costs and certain other costs not representative of our ongoing operations.

Real Estate Assets

• Our net income per share of $0.54 for the three months ended March 31, 2017 was driven by an aggregate realized gain on the sale of Sandstone Creek and Ashford Park of approximately $30.7 million, or $1.14 per share. The proceeds from one of the properties sold were deposited into a 1031 exchange account to be used for the acquisition of multiple assets in the future. Utilization of a 1031 exchange allowed us to defer the tax liability on the sale of this asset and more efficiently redeploy our capital. All of the proceeds were redeployed by the end of April 2017.
• For the first quarter 2017, our Core FFO payout ratio to our Common Stockholders and Unitholders was approximately 61.7% and our AFFO payout ratio to Common Stockholders and Unitholders was approximately 83.4%. ⁽¹⁾
• For the first quarter 2017, our Core FFO payout ratio (before the deduction of preferred dividends) to our Series A Preferred Stockholders was approximately 59.0% and our AFFO payout ratio (before the deduction of preferred dividends) to our Series A Preferred Stockholders was approximately 66.0%. ⁽¹⁾
• As of March 31, 2017, our total assets were approximately $2.5 billion compared to approximately $1.5 billion as of March 31, 2016, an increase of approximately $1.0 billion, or approximately 65.6%. This growth was driven primarily by the net addition of 25 real estate properties and an increase of approximately $79.0 million of the funded amount of our real estate loan investment portfolio since March 31, 2016.
• As of March 31, 2017, the average age of our multifamily communities was approximately 6.9 years, which we believe is among the youngest in the multifamily REIT industry.
• At March 31, 2017, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 57.3%.
• Cash flow from operations for the quarter ended March 31, 2017 was approximately $18.3 million, an increase of approximately $4.9 million, or 36.5%, compared to approximately $13.4 million for the quarter ended March 31, 2016.

⁽¹⁾ We calculate the Core FFO and AFFO payout ratios to Common Stockholders and Unitholders as the ratio of Common Stock dividends and distributions to Unitholders to Core FFO or AFFO, respectively. We calculate the Core FFO and AFFO payout ratios to Series A Preferred Stockholders as the ratio of Preferred Stock dividends to the sum of Preferred Stock dividends and Core FFO or AFFO, respectively. Since our operations resulted in a net loss from continuing operations for the periods presented, a payout ratio based on net loss is not calculable. See Definitions of Non-GAAP Measures on page S-14.

Subsequent to Quarter End

• On April 17, 2017, we declared a quarterly dividend on our Common Stock of $0.235 per share, payable on July 14, 2017 to stockholders of record on June 15, 2017. This is an increase of $0.015 per share or approximately 6.8% over the quarterly dividend of $0.22 per share paid to common stockholders for the first quarter 2017. This also represents an annualized dividend growth rate of 14.8% since our first dividend following our IPO in April 2011.
• On April 20, 2017, we closed on a loan investment of up to approximately $31.5 million to acquire a 6.5 acre site located in San Jose, California that is currently zoned to provide for up to 551 multifamily units and approximately 37,000 square feet of commercial space.
• On April 21, 2017 we closed on the acquisition of a 80,018 square foot grocery-anchored shopping center located in Atlanta, Georgia.
• On April 26, 2017 we closed on the acquisition of a 242-unit multifamily community located in Louisville, Kentucky.

Same Store Operations

The following table presents the percentage change in same store multifamily gross revenues, operating expenses and net operating income for the first quarter 2017 versus 2016. Our same store property operating results exclude any properties that are not comparable for the periods presented. See page S-13 of our Supplemental Financial Data Report for more details on our same store results.

Capital Markets Activities

On February 14, 2017, we closed our existing $900 million offering of Units (the "$900 Million Follow-on Offering"), with each Unit consisting of one share of our Series A Redeemable Preferred Stock and one Warrant to purchase up to 20 shares of our Common Stock, after a successful capital raise of $900 million. On the same day, our registration statement on Form S-3 (Registration No. 333-211924) (the "$1.5 Billion Follow-On Registration Statement") was declared effective by the Securities and Exchange Commission (the "SEC"). This $1.5 Billion Follow-On Registration Statement allows us to offer up to a maximum of 1,500,000 Units, with each Unit consisting of one share of Series A Redeemable Preferred Stock and one Warrant to purchase up to 20 shares of Common Stock (the "$1.5 Billion Unit Offering"). The price per Unit is $1,000, subject to adjustment if a participating broker-dealer reduces its commission. The Units are being offered by our affiliate, Preferred Capital Securities, LLC ("PCS"), on a "reasonable best efforts" basis and we intend to invest substantially all the net proceeds of the $1.5 Billion Unit Offering in connection with the acquisition of multifamily communities, other real estate-related investments and general working capital purposes.

During the first quarter 2017, we issued and sold an aggregate of 76,717 Units from the $900 Million Follow-on Offering and the $1.5 Billion Unit Offering, resulting in gross proceeds of approximately $76.6 million. In addition, during the first quarter 2017, we issued approximately 336,000 shares of Common Stock pursuant to the exercise of warrants issued under our Series A Preferred Stock offerings, resulting in aggregate gross proceeds of approximately $3.8 million.

Our registration statement on Form S-3 (Registration No. 333-214531) (the "mShares Registration Statement") allows us to offer up to a maximum of 500,000 shares of Series M Redeemable Preferred Stock ("mShares"), par value $0.01 per share (the "mShares Offering").  The mShares are being offered by PCS on a "reasonable best efforts" basis. The price per share is $1,000. We intend to invest substantially all the net proceeds of the mShares Offering in connection with the acquisition of multifamily communities, other real estate-related investments and general working capital purposes. During the first quarter 2017, we issued and sold 1,635 mShares resulting in gross proceeds of approximately $1.6 million.

Sales from our offering of up to $150 million of Common Stock from time to time in an "at the market" offering (the "2016 ATM Offering") were immaterial for the first quarter 2017.

Dividends

Quarterly Dividends on Common Stock and Class A OP Units

On February 2, 2017, we declared a quarterly dividend on our Common Stock of $0.22 per share for the first quarter 2017. This represents a 14.3% increase in our common stock dividend from our first quarter 2016 common stock dividend of $0.1925 per share, and an annualized dividend growth rate of 13.3% since June 30, 2011, the first quarter end following our initial public offering in April 2011. The first quarter dividend was paid on April 14, 2017 to all stockholders of record on March 15, 2017. In conjunction with the Common Stock dividend, the Company's operating partnership declared a distribution on its Class A Units of $0.22 per unit for the first quarter 2017, which was paid on April 14, 2017 to all Class A Unit holders of record as of March 15, 2017.

Monthly Dividends on Series A Redeemable Preferred Stock

We declared and paid monthly dividends of $5.00 per share on our Series A Redeemable Preferred Stock, which totaled approximately $14.4 million for the quarter ended March 31, 2017 and represents a 6% annual yield.

Conference Call and Supplemental Data

Preferred Apartment Communities will hold its quarterly conference call on Tuesday, May 2, 2017 at 11:00 a.m. Eastern Time to discuss its first quarter 2017 results. To participate in the conference call, please dial in to the following:

Live Conference Call Details
Domestic Dial-in Number: 1-(844) 890-1791
International Dial-in Number: 1-(412) 380-7408
Company: Preferred Apartment Communities, Inc.
Date: Tuesday, May 2, 2017
Time: 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time)

The live broadcast of Preferred Apartment Communities' first quarter conference call will be available online, on a listen-only basis, at the company's website, www.pacapts.com, under "Investors" and then click on the "Upcoming Events" link. A replay of the call will be archived on Preferred Apartment Communities' website under Investors/Audio Archive.

2017 Guidance:

Net income (loss) per share -  We are actively adding properties and real estate loan investments to our real estate portfolio and the specific timing of the closing of acquisitions is difficult to predict. Effective January 1, 2017, we adopted Accounting Standard Update 2017-01, which requires acquisition costs for asset acquisitions (which we believe our contemplated future acquisitions will be) to be capitalized and amortized rather than expensed as incurred, as was the case under previous guidance. Such activity by nature can cause material variation in our reported depreciation and amortization expense and interest income. Since net income (loss) per share is calculated net of depreciation and amortization expense, our net income (loss) results can fluctuate widely. For this reason, we are unable to reasonably forecast this measure or provide a reconciliation of our projected Core FFO per share to this measure.

Core FFO per share  -   We currently project Core FFO to be in the range of $1.40 - $1.48 per share for the full year 2017.

Revenue - We currently project total revenues to be in the range of $285 million - $315 million for the full year 2017.

Core FFO, AFFO and FFO are all calculated after deductions for all preferred stock dividends. A reconciliation of net income (loss) attributable to common stockholders to Core FFO, AFFO and FFO appears on page S-3 of the attached report, as well as on the Company's website and is available using the following link:

http://investors.pacapts.com/download/1Q17_Earnings_and_Supplemental_Data.pdf

Forward-Looking Statements

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:  Estimates of future earnings, guidance, goals and performance are, by definition, and certain other statements in this Supplemental Financial Data Report may constitute, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or transactions to be materially different from the results, guidance, goals, performance, achievements or transactions expressed or implied by the forward-looking statements.  Factors that impact such forward-looking statements include, among others, our business and investment strategy; legislative or regulatory actions; the state of the U.S. economy generally or in specific geographic areas; economic trends and economic recoveries; our ability to obtain and maintain debt or equity financing; financing and advance rates for our target assets; our leverage level; changes in the values of our assets; availability of attractive investment opportunities in our target markets; our ability to maintain our qualification as a real estate investment trust, or REIT, for U.S. federal income tax purposes; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended; availability of quality personnel; our understanding of our competition and market trends in our industry; and interest rates, real estate values, the debt securities markets and the general economy.

Except as otherwise required by the federal securities laws, we assume no liability to update the information in this Supplemental Financial Data Report.

We refer you to the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2016 that was filed with the Securities and Exchange Commission, or SEC, on March 1, 2017, which discuss various factors that could adversely affect our financial results. Such risk factors and information may be updated or supplemented by our Form 10-Q and Form 8-K filings and other documents filed from time to time with the SEC.

Additional Information

The SEC has declared effective the registration statement (including prospectus) filed by the Company for each of the offerings to which this communication may relate.  Before you invest, you should read the final prospectus, and any prospectus supplements, forming a part of the registration statement and other documents the Company has filed with the SEC for more complete information about the Company and the offering to which this communication may relate.  In particular, you should carefully read the risk factors described in the final prospectus and in any related prospectus supplement and in the documents incorporated by reference in the final prospectus and any related prospectus supplement to which this communication may relate. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov.  Alternatively, the Company or its dealer manager, Preferred Capital Securities, LLC, with respect to the mShares Offering and the $1.5 Billion Unit Offering, and JonesTrading Institutional Services LLC, with respect to the 2016 ATM Offering, will arrange to send you a prospectus if you request it by calling Leonard A. Silverstein at (770) 818-4100, 3284 Northside Parkway NW, Suite 150, Atlanta, Georgia 30327.

The prospectus for the 2016 ATM Offering, dated July 18, 2016, including a base prospectus, dated May 17, 2016, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183216000152/atmprospectus.htm

The final prospectus for the mShares Offering, dated January 19, 2017, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183217000008/a424prospectus-mshares1.htm

The final prospectus for the $1.5 Billion Unit Offering, dated March 16, 2017, can be accessed through the following link:

https://www.sec.gov/Archives/edgar/data/1481832/000148183217000061/a424prospectus-15bseriesar.htm

FIRST QUARTER 2017
SUPPLEMENTAL FINANCIAL DATA

See Notes to Reconciliation of FFO, Core FFO and AFFO to Net Loss Attributable to Common Stockholders on page S-4.

Notes to Reconciliation of FFO, Core FFO and AFFO to Net Income (Loss) Attributable to Common Stockholders

See Definitions of Non-GAAP Measures beginning on page S-14.

Real Estate Loan Investments

The following table presents our portfolio of real estate loan investments. The loan balance column lists the drawn amount of each loan as of March 31, 2017. We hold options, but not obligations, to purchase certain of the properties which are partially financed by our real estate loan investments. The option purchase prices are negotiated at the time of the loan closing and are to be calculated based upon market cap rates at the time of exercise of the purchase option, less a discount ranging from between 15 and 60 basis points, depending on the loan.

Multifamily Communities