Preferred Apartment Communities, Inc. reported results for the quarter ended September 30, 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 outstanding.

"The third quarter continued our strong results for the year. Our FFO is up 53% per share for the first nine months; our Core FFO is up 12.1% and our dividend increase is 15.5% per share.  These were extraordinary accomplishments.  During the nine months, we have issued 9.1 million shares of Common Stock," said John A. Williams, Preferred Apartment Communities' Chairman and Chief Executive Officer.

Financial Highlights

Our operating results are presented below.

Funds from operations for the three months ended September 30, 2016 reflect acquisition-related costs of approximately $1.4 million, or $0.05 per share. In 2017, the majority of these types of costs are deferred and amortized over the life of the acquired assets (see "2017 Guidance" section). 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. Adjusted Funds From Operations Attributable to Common Stockholders and Unitholders removes significant non-cash revenues and expenses from our Core FFO results.

• For the third quarter 2017, our Core FFO payout ratio to our Common Stockholders and Unitholders was approximately 64.5% and our AFFO payout ratio to Common Stockholders and Unitholders was approximately 88.2%. ⁽¹⁾

• For the third quarter 2017, our Core FFO payout ratio (before the deduction of preferred dividends) to our Series A Preferred Stockholders was approximately 55.9% and our AFFO payout ratio (before the deduction of preferred dividends) to our Series A Preferred Stockholders was approximately 63.4%. ⁽¹⁾

• We issued approximately 3.2 million shares of Common Stock during the third quarter 2017 and approximately 9.1 million shares of Common Stock during the nine months ended September 30, 2017.

• At September 30, 2017, the market value of our common stock was $18.88. A hypothetical investment in our Common Stock in our initial public offering on April 5, 2011, assuming the reinvestment of all dividends and no transaction costs, would have resulted in an average annual return of approximately 28.7% through September 30, 2017.

• As of September 30, 2017, our total assets were approximately $2.9 billion compared to approximately $2.1 billion as of September 30, 2016, an increase of approximately $0.8 billion, or approximately 37.9%. This growth was driven primarily by the acquisition of 18 real estate properties (less the sale of three properties) and an increase of approximately $104.3 million of the funded amount of our real estate loan investment portfolio since September 30, 2016.

• As of September 30, 2017, the average age of our multifamily communities was approximately 5.9 years, which we believe is among the youngest in the multifamily REIT industry.

• At September 30, 2017, our leverage, as measured by the ratio of our debt to the undepreciated book value of our total assets, was approximately 54.3%.

• Cash flow from operations for the quarter ended September 30, 2017 was approximately $28.1 million, an increase of approximately $7.0 million, or 33.8%, compared to approximately $21.0 million for the quarter ended September 30, 2016.

• For the three-month period ended September 30, 2017, our average physical occupancy was 94.9%.

• We sustained damages at our Stone Creek multifamily community from Hurricane Harvey in the third quarter. The resulting impact required us to write off approximately $6.9 million in depreciated real estate assets. We expect our property insurance to cover all losses. Our income for the three-month period ended September 30, 2017 was impacted by approximately $217,000 for our insurance deductible, lost rent, and other related costs. Hurricane Irma also impacted our portfolio of multifamily and grocery-anchored shopping center properties in Florida. We anticipate costs associated with this storm to total approximately $300,000 to $500,000, which will be recognized during the fourth quarter 2017 and beyond.

⁽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.

Acquisitions of Properties

During the third quarter 2017, we acquired the following properties:

Real Estate Loan Investments

During the third quarter 2017, we closed on the following real estate loan investments in support of the development and construction of four multifamily communities and one student housing property. For each of these loans, we hold an option to purchase the property at a discount to market value, once stabilized.

Real Estate Assets

Subsequent to Quarter End

On October 27, 2017, we acquired a 98% interest in a joint venture which owns the Stadium Village student housing property in Atlanta, Georgia.

Multifamily Same Store Financial Data

The following chart presents same store operating results for the Company's multifamily communities. Effective with the third quarter 2017, we define our population of same store properties as those that are stabilized and that have been owned for at least 15 full months, as of the end of the first quarter of each year, enabling comparisons of the current year quarterly and annual reporting periods to the prior year comparative periods. The Company excludes the same store operating results of properties for which construction of adjacent phases has commenced (e.g., the Company holds real estate loans partially supporting an additional phase of the CityPark View multifamily community, which is excluded as well), properties which are undergoing significant capital projects, have sustained significant casualty losses, or are currently being marketed for sale. For the periods presented, same store operating results consist of the operating results of the following multifamily communities:

Same store net operating income is a non-GAAP measure that is most directly comparable to net income (loss), with a reconciliation following below.

Capital Markets Activities

During the third quarter 2017, we issued and sold an aggregate of 77,277 Units from our offering of up to 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 Series A Unit Offering"), resulting in proceeds of approximately $69.5 million after commissions and other fees. In addition, during the third quarter 2017, we issued approximately 1.9 million 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 $25.7 million. We also issued approximately 235,000 shares of Common Stock for redemptions of 4,545 shares of Series A Preferred Stock during the third quarter.

During the third quarter 2017, we issued and sold an aggregate of 4,546 shares of Series M Redeemable Preferred Stock ("mShares"), resulting in net proceeds after dealer manager fees of approximately $4.4 million.

During the third quarter 2017, we sold approximately 1.0 million shares of Common Stock pursuant to our "at the market" offering (the "Common Stock ATM Offering"), resulting in aggregate gross proceeds of approximately $18.4 million.

Collectively, these activities added approximately 3.2 million shares to our outstanding shares of Common Stock, which totaled approximately 35.6 million shares at September 30, 2017. The closing price of our Common Stock was $18.88 on September 29, 2017 versus $13.51 on September 30, 2016. Our total equity book value increased approximately 49% to $1.17 billion at September 30, 2017 from $785 million at September 30, 2016.

Dividends

Quarterly Dividends on Common Stock and Class A OP Units

On August 3, 2017, we declared a quarterly dividend on our Common Stock of $0.235 per share for the third quarter 2017. This represents a 16.0% increase in our common stock dividend from our third quarter 2016 common stock dividend of $0.2025 per share, and an annualized dividend growth rate of 14.2% since June 30, 2011, the first quarter end following our initial public offering in April 2011. The third quarter dividend was paid on October 16, 2017 to all stockholders of record on September 15, 2017. In conjunction with the Common Stock dividend, the Company's operating partnership declared a distribution on its Class A Units of $0.235 per unit for the third quarter 2017, which was paid on October 16, 2017 to all Class A Unit holders of record as of September 15, 2017.

Monthly Dividends on Preferred Stock

We declared and paid monthly dividends of $5.00 per share on our Series A Redeemable Preferred Stock, which totaled approximately $16.3 million for the quarter ended September 30, 2017 and represent a 6% annual yield. We declared and paid dividends totaling approximately $139,000 on our Series M Redeemable Preferred Stock, or mShares, for the quarter ended September 30, 2017. The mShares have an escalating dividend rate from 5.75% in year one to 7.50% in year eight and thereafter.