2 2016 ANNUAL REPORT S O A R I N G 2016 ANNUAL REPORT 3 2016 ANNUAL REPORT PREFERRED APARTMENT COMMUNITIES WE L C OME COMPANY PROFILES LETTER TO STOCKHOLDERS FORM 10-K COMPANY INFORMATION W ith assets in 25 cities across 9 states, the PAC family of companies provides the full gamut of services for our core business, including Investment Management, Acquisition and Disposition, Asset Management and Property Management. Our guiding philosophy is to provide our residents and tenants with an exceptional experience by offering quality apartment homes and retail centers, superior resident and tenant services, and total customer satisfaction. ... As of December 31, 2016, our assets grew to $2.4 Billion and revenues soared to $200 Million. COMPANY PROFILES Preferred Apartment Communities, Inc. (NYSE: APTS) is a Maryland corporation formed primarily to acquire and operate multifamily properties in select targeted markets throughout the United States. As part of our business strategy, we may enter into forward purchase contracts or purchase options for to-be-built multifamily communities and we may make real estate related loans, provide deposit arrangements, or provide performance assurances, as may be necessary or appropriate, in connection with the development of multifamily communities and other properties. As a secondary strategy, we may acquire or originate senior mortgage loans, subordinate loans or real estate loans secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest a lesser portion of our assets in other real estate related investments, including other income-producing property types, senior mortgage loans, subordinate loans or real estate loans secured by interests in other income-producing property types, membership or partnership interests in other income- producing property types as determined by our manager as appropriate for us. Preferred Apartment Communities, Inc. has elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, commencing with its tax year ended December 31, 2011. 3 2016 ANNUAL REPORT PREFERRED APARTMENT ADVISORS, LLC is the operating arm of Preferred Apartment Communities, which is responsible for the overall operations and controls of our company. P P REFERRED RESIDENTIAL MANAGEMENT, LLC REFERRED CAPITAL SECURITIES, LLC is a subsidiary of Preferred Apartment Advisors, is focused on the wholesale distribution of LLC, the external manager for Preferred Apartment securities to broker dealer and registered investment Communities, Inc. PRM manages PAC’s communities advisory firms located in the United States and throughout the United States. Its goal is to provide its territories. PCS is the distribution platform for residents an exceptional living experience by offering Preferred Apartment Communities’ Series A quality apartment homes, superior resident services Redeemable Preferred Stock and Warrant Offering and and total satisfaction. From its cutting edge amenities, mShares Preferred Stock Offering. PCS is a registered meticulously groomed landscaping and superior broker dealer in all 50 states and territories in the U.S. and maintenance service to its well-trained staff, PRM is a member of the Financial Industry Regulatory Authority committed to creating a higher standard of living that (FINRA) and the Security Investment Protection sets its communities apart from all others. Corporation (SIPC). P P REFERRED CAMPUS MANAGEMENT, LLC REFERRED OFFICE PROPERTIES, LLC is a subsidiary of Preferred Apartment Advisors, is a subsidiary of Preferred Apartment LLC, the external manager for Preferred Apartment Communities, Inc. formed to invest in Class A office Communities, Inc. PCM is a student housing property properties across the United States. The company management company that provides turn-key property sources portfolio assets through acquisitions of management services to student housing communities operating properties as well as strategic, structured utilizing PAC’s loan investment program. PCM’s goal participations in new developments. is to provide residents an extraordinary living experience through superior resident services, N innovative technology, cutting edge amenities and EW MARKET PROPERTIES, LLC meticulously groomed landscaping. is a subsidiary of Preferred Apartment Communities, Inc. and is focused on the grocery- anchored shopping center sector. New Market’s P REFERRED CAMPUS COMMUNITIES, LLC strategy is to aggressively grow its existing portfolio is a subsidiary of Preferred Apartment throughout the mid-Atlantic, the Southeast and Communities, Inc. PCC was formed to acquire off-campus Texas. New Market targets high quality suburban student communities in select targeted university markets markets with dominant grocers such as Publix, Kroger, with growing enrollments throughout the United States. and Tom Thumb. 4 2016 ANNUAL REPORT “ W ” e consider our stockholders as our partners. - John A. WillliAms Chief exeCutive offiCer Y ASTER AT LELY RESORT L I M A F I T NAPLES, FLORIDA L U M 5 2016 ANNUAL REPORT TO OUR STOCKHOLDERS 2016 represents a truly outstanding year for Preferred Apartment Communities. We increased our funds from operation (FFO) 21.6% per share and our core FFO 12.9% per share.1 We also increased our common stock dividends 12.4% per share compared to last year. On an annualized basis, our common stock dividend growth rate since June 30, 2011, the first quarter-end following our initial public offering (IPO) and commencement of operations in April 2011, is 13.9% per share. Since our IPO, our stockholders’ annualized return on investment is 20.25% assuming automatic reinvestment of all dividends. These performance results have far exceeded our goals of a 10% per share increase for earnings and dividend growth and are among the best in the REIT industry, if not the best. During the year we concentrated on enhancing the three key elements forming the foundation of Preferred Apartment Communities: our Product, Associates, and Customers (PAC). We remained laser-focused on our multifamily community operations, including student housing, although we continued to invest a portion of our assets in non-multifamily properties such as grocery-anchored shopping centers and office properties. We strengthened the experience and depth of our management team and refined and implemented a training program for all of our associates designed to make them second to none. We also began implementing a bench-marking system through which we are able to measure the success of our interactions with all of our customers; that is, our residents, tenants, vendors and stockholders. Last, we installed a series of technology enhancements across all levels of our operations that we believe places us in the forefront of having best-in-class financial and operational controls and efficiencies. Demonstration Kitchen at The Encore, Atlanta, GA Y RETREAT AT LENOX VILLAGE L I M A F I T NASHVILLE, TENNESSEE L U M 7 2016 ANNUAL REPORT OPERATIONAL RESULTS AND CAPITAL MARKETS ACTIVITIES For 2016, our revenue totaled $200.1 million, an 83.1% increase over 2015. This revenue growth reflects the success of our property management efforts for our multifamily communities, grocery-anchored shopping centers and office properties, our 86.8% growth in assets to $2.4 billion compared to 2015, and our unique real estate loan investment program. As of the end of 2016, we owned an aggregate of 59 properties in 25 cities across 9 states. We have continued to focus on our cash flow from operations, and are pleased to report that our cash flow from operations was approximately $61.7 million for 2016, a 75.1% increase compared to 2015. Moreover, we continue to emphasize our objective to cover the payment of dividends to both our common and preferred stockholders out of our cash flow from operations. We also are pleased to report that our core FFO payout ratio to our common stockholders and unitholders for 2016 was approximately 63.6% and to our preferred stockholders was approximately 55.9%. We believe our payout ratios to our preferred stockholders are the lowest ratios for securities sold through the independent broker dealer and registered investment advisory channels. Our extensive growth activities through acquisitions and our real estate loan investment program are supported, in part, by our multifaceted capital markets activities and our asset divestiture program. COMMON STOCKHOLDERS’ ANNUALIZED RETURN ON INVESTMENT: 20.25% Since IPO, April 2011 (ASSUMING AUTOMATIC DIVIDEND REINVESTMENT) “ O ur outstanding performance results for 2016 are a direct reflection of the collaborative strength ” of the PAC team. - leonArd A. silverstein President And Chief oPerAting offiCer Y BALDWIN PARK L I M A F I T ORLANDO, FLORIDA L U M