UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

| | x | ANNUAL
                                                                                                             REPORT PURSUANT TO
                                                                                                             SECTION 13 OR 15(d)
                                                                                                             OF THE SECURITIES
                                                                                                             EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the fiscal year ended December 31,
2011

Commission File
No. 001-34995

Preferred Apartment Communities, Inc.

(Exact name of registrant as specified
in its charter)



|                                                               |                                     
|-------------------------------------------------------------- | ------------------------------------
|MARYLAND                                                       | 27-1712193                          
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)



3625 Cumberland Boulevard, Suite 400,
Atlanta, GA 30339

(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number,
including area code: (770) 818-4100

Securities registered pursuant to Section 12(b)
of the Act:



|                                           |                                                  
|------------------------------------------ | -------------------------------------------------
|Title of each class                        | Name of each exchange on
        which registered
|Common Stock,
    par value $.01 per share | NYSE MKT                                         



Securities registered pursuant to Section 12(g)
of the Act: None



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ̈Nox



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ̈Nox



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.    YesxNo ̈



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YesxNo ̈



Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in PART III of this Form 10-K or any amendment to this Form 10-K. ̈



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Exchange
Act Rule 12b-2).

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filerxSmaller reporting company ̈



Indicate
by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes ̈Nox



The aggregate market value of the registrant’s
common stock held by non-affiliates of the registrant as of June 30, 2011, the last business day of registrant’s most
recently completed second fiscal quarter, was $30,454,827 based on the closing price of the common stock on the NYSE Amex (now
known as the NYSE MKT) on such date.



The number of shares outstanding of the
registrant’s common stock, as of March 12, 2012 was 5,178,313.



DOCUMENTS INCORPORATED BY REFERENCE

Certain information is incorporated by
reference to the registrant’s definitive Proxy Statement filed on March 23, 2012 for the registrant’s 2012 Annual
Meeting of Stockholders in PART III of this Annual Report on Form 10-K.






















Explanatory Note



This Amendment No. 1 on Form 10-K/A (this
“Amendment No. 1”) amends the Preferred Apartment Communities, Inc. Annual Report on Form 10-K for the year ended
December 31, 2011, filed with the Securities and Exchange Commission on March 15, 2012 (the “Original Filing”) as
follows:



|(i) | The Report of Independent Registered Public Accounting Firm,
    or Audit Report, is amended to include the city and state of the principal local office of our independent registered public
    accounting firm;
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(ii)  | The Audit Report is also amended to clarify that the independent
    registered public accounting firm’s audit included audits of Schedule III, Real Estate Investments and Accumulated Depreciation,
    and Schedule IV, Mortgage Loans on Real Estate; and                      
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                    
|(iii) | The cover of this Amendment No. 1 reflects the change in name of the exchange
    on which our common stock is registered from NYSE Amex to NYSE MKT. This was a change in the name of the exchange only, not
    a change of the exchange on which our common stock is registered.



Pursuant to Rule 12b-15 under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, the certifications required pursuant to the rules promulgated under the
Exchange Act, as adopted pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, which were included as exhibits to
the Original Report, have been amended, restated and re-executed as of the date of this Amendment No. 1 and are included as Exhibits
31.1, 31.2, 32.1 and 32.2 hereto.



Except as expressly set forth above, this
Amendment No. 1 does not, and does not purport to, amend, update, change or restate the information in any other item of the Original
Filing or reflect any events that have occurred after the date of the Original Filing. Please refer to our Quarterly Reports on
Form 10-Q for the periods ended March 31, 2012 and June 30, 2012 and current reports on Form 8-K for such subsequent events or
transactions.





















PART IV



| | Item 15. | Exhibits and Financial Statement Schedules
| | -------- | ------------------------------------------



|(a)(1) Financial Statements                                                                                      |     
|---------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                 |     
|Consolidated Balance Sheets as of December 31, 2011 and 2010                                                     | F-3 
|                                                                                                                 |     
|Consolidated Statements of Operations for the twelve months ended December 31, 2011 and 2010                     | F-4 
|                                                                                                                 |     
|Consolidated Statements of Equity and Accumulated Deficit for the twelve months ended December 31, 2011 and 2010 | F-5 
|                                                                                                                 |     
|Consolidated Statements of Cash Flows for the twelve months ended December 31, 2011 and 2010                     | F-6 
|                                                                                                                 |     
|Notes to Consolidated Financial Statements                                                                       | F-7 
|                                                                                                                 |     
|Schedule III— Real Estate Investments and Accumulated Depreciation as of December 31, 2011                       | F-24
|                                                                                                                 |     
|Schedule IV—Mortgage Loans on Real Estate as of December 31, 2011                                                | F-25
|                                                                                                                 |     
|(a)(3) Exhibits                                                                                                  |     
|                                                                                                                 |     
|Exhibit index                                                                                                    | F-26



F-1











Report of Independent Registered Public
Accounting Firm





To the Board of Directors and Stockholders

of Preferred Apartment Communities, Inc.:





In our opinion, theconsolidated
financial statements listed in the index appearing under Item 15 (a)(1)present fairly, in all material respects, the financial position ofPreferred
Apartment Communities, Inc.and its subsidiaries atDecember 31, 2011and December 31,2010, and the results oftheiroperations andtheircash flows for each of the two years in the period ended December 31, 2011 in conformity
with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under Item 15 (a)(1)present
fairly, in all material respects, the information set forth therein when read in conjunction with the relatedconsolidated
financial statements. These financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement
schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.







/s/ PricewaterhouseCoopers LLP

Atlanta, GA



March 15, 2012





F-2













Preferred Apartment Communities,
Inc.

Consolidated Balance Sheets



|                                                                                                                                                                                                |  | December 31, |            |   | December 31, |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ------------ | -
|                                                                                                                                                                                                |  | 2011         |            |   | 2010         |  
|                                                                                                                                                                                                |  |              |            |   |              |  
|Assets                                                                                                                                                                                          |  |              |            |   |              |  
|                                                                                                                                                                                                |  |              |            |   |              |  
|Real estate                                                                                                                                                                                     |  |              |            |   |              |  
|Land                                                                                                                                                                                            |  | $            | 13,052,000 |   |              | $
|Building and improvements                                                                                                                                                                       |  |              | 60,268,867 |   |              |  
|Furniture, fixtures, and equipment                                                                                                                                                              |  |              | 8,392,446  |   |              |  
|Construction in progress                                                                                                                                                                        |  |              | 67,877     |   |              |  
|Gross real estate                                                                                                                                                                               |  |              | 81,781,190 |   |              |  
|Less:  accumulated depreciation                                                                                                                                                                 |  |              | (2,698,305 | ) |              |  
|Net real estate                                                                                                                                                                                 |  |              | 79,082,885 |   |              |  
|Real estate loan                                                                                                                                                                                |  |              | 6,000,000  |   |              |  
|Total real estate and real estate loan, net                                                                                                                                                     |  |              | 85,082,885 |   |              |  
|                                                                                                                                                                                                |  |              |            |   |              |  
|Cash and cash equivalents                                                                                                                                                                       |  |              | 4,548,020  |   |              |  
|Restricted cash                                                                                                                                                                                 |  |              | 567,346    |   |              |  
|Tenant receivables, net of allowance of $15,924                                                                                                                                                 |  |              | 23,811     |   |              |  
|Deferred loan costs, net of amortization of $64,480                                                                                                                                             |  |              | 551,660    |   |              |  
|Deferred offering costs                                                                                                                                                                         |  |              | 1,388,421  |   |              |  
|Other assets                                                                                                                                                                                    |  |              | 303,397    |   |              |  
|                                                                                                                                                                                                |  |              |            |   |              |  
|Total assets                                                                                                                                                                                    |  | $            | 92,465,540 |   |              | $
|                                                                                                                                                                                                |  |              |            |   |              |  
|Liabilities and equity                                                                                                                                                                          |  |              |            |   |              |  
|                                                                                                                                                                                                |  |              |            |   |              |  
|Liabilities                                                                                                                                                                                     |  |              |            |   |              |  
|Mortgage notes payable                                                                                                                                                                          |  | $            | 55,637,000 |   |              | $
|Accounts payable and accrued expenses                                                                                                                                                           |  |              | 1,158,530  |   |              |  
|Note payable, related party                                                                                                                                                                     |  |              | -          |   |              |  
|Revolving line of credit, related party                                                                                                                                                         |  |              | -          |   |              |  
|Non-revolving line of credit, related party                                                                                                                                                     |  |              | -          |   |              |  
|Accrued interest payable                                                                                                                                                                        |  |              | 176,084    |   |              |  
|Dividends payable                                                                                                                                                                               |  |              | 646,916    |   |              |  
|Security deposits and prepaid rents                                                                                                                                                             |  |              | 163,663    |   |              |  
|Deferred real estate loan income                                                                                                                                                                |  |              | 65,446     |   |              |  
|Total liabilities                                                                                                                                                                               |  |              | 57,847,639 |   |              |  
|                                                                                                                                                                                                |  |              |            |   |              |  
|Commitments and contingencies (Note 12)                                                                                                                                                         |  |              |            |   |              |  
|                                                                                                                                                                                                |  |              |            |   |              |  
|Equity (deficit)                                                                                                                                                                                |  |              |            |   |              |  
|Stockholder's equity (deficit)                                                                                                                                                                  |  |              |            |   |              |  
|Series A Redeemable Preferred Stock, $0.01 par value per share; 150,000 shares authorized; 0 shares issued and outstanding at December 31, 2011                                                 |  |              | -          |   |              |  
|Common Stock, $0.01 par value per share; 400,066,666 shares authorized; 5,149,325 shares issued and outstanding at December 31, 2011; 36,666 shares issued and outstanding at December 31, 2010 |  |              | 51,493     |   |              |  
|Additional paid in capital                                                                                                                                                                      |  |              | 43,828,030 |   |              |  
|Accumulated deficit                                                                                                                                                                             |  |              | (9,261,623 | ) |              |  
|Total stockholders' equity (deficit)                                                                                                                                                            |  |              | 34,617,900 |   |              |  
|Non-controlling interest                                                                                                                                                                        |  |              | 1          |   |              |  
|Total equity (deficit)                                                                                                                                                                          |  |              | 34,617,901 |   |              |  
|                                                                                                                                                                                                |  |              |            |   |              |  
|Total liabilities and equity                                                                                                                                                                    |  | $            | 92,465,540 |   |              | $



The accompanying notes are an integral
part of these consolidated financial statements.



F-3







Preferred Apartment Communities,
Inc.

Consolidated Statements of
Operations



|                                                                                 |  | Twelve months ended |           
|-------------------------------------------------------------------------------- |  | ------------------- | ----------
|                                                                                 |  | December 31, 2011   |           
|Revenues:                                                                        |  |                     |           
|Rental revenues                                                                  |  | $                   | 6,199,946 
|Other property revenues                                                          |  |                     | 700,512   
|Interest income on real estate loan                                              |  |                     | 250,245   
|Total revenues                                                                   |  |                     | 7,150,703 
|                                                                                 |  |                     |           
|Operating expenses:                                                              |  |                     |           
|Property operating and maintenance                                               |  |                     | 1,591,962 
|Property management fees                                                         |  |                     | 276,358   
|Real estate taxes                                                                |  |                     | 519,500   
|General and administrative                                                       |  |                     | 141,078   
|Depreciation and amortization                                                    |  |                     | 8,238,444 
|Acquisition costs                                                                |  |                     | 1,680,432 
|Organizational costs                                                             |  |                     | 172,395   
|Insurance                                                                        |  |                     | 111,900   
|Professional fees                                                                |  |                     | 380,382   
|Other                                                                            |  |                     | 109,655   
|Total operating expenses                                                         |  |                     | 13,222,106
|                                                                                 |  |                     |           
|Operating loss                                                                   |  |                     | (6,071,403
|                                                                                 |  |                     |           
|Management fees                                                                  |  |                     | 505,441   
|Insurance                                                                        |  |                     | 167,689   
|Interest expense                                                                 |  |                     | 1,514,581 
|Other expense                                                                    |  |                     | 236,310   
|Net loss                                                                         |  |                     | (8,495,424
|                                                                                 |  |                     |           
|Less consolidated net loss attributable  to non-controlling interests            |  |                     | -         
|                                                                                 |  |                     |           
|Net loss attributable to the Company                                             |  | $                   | (8,495,424
|                                                                                 |  |                     |           
|Net loss per share of Common Stock,  basic and diluted                           |  | $                   | (2.23     
|                                                                                 |  |                     |           
|Weighted average number of shares of Common Stock outstanding, basic and diluted |  |                     | 3,822,303 



The accompanying notes are an integral
part of these consolidated financial statements.



F-4







Preferred Apartment Communities,
Inc.

Consolidated Statements of
Equity and Accumulated Deficit

For the twelve months ended
December 31, 2011 and December 31, 2010



|                                                                                         |  | Series A
    Redeemable Preferred Stock |   |  | Common Stock |   |        | Additional Paid
    in Capital |  |   | Accumulated Deficit |   |  | Total Stockholders'
    Equity (Deficit) |            |   | Non Controlling
    Interest |   |            | Total Equity
    (Deficit) | 
|---------------------------------------------------------------------------------------- |  | --------------------------------------- | - |  | ------------ | - | ------ | ------------------------------ |  | - | ------------------- | - |  | ---------------------------------------- | ---------- | - | ---------------------------- | - | ---------- | -------------------------- | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Balance at  January 1, 2010                                                              |  | $                                       | - |  |              | $ | -      |                                |  | $ | -                   |   |  | $                                        | -          |   |                              | $ | -          |                            | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Issuance
    of Common Stock                                                             |  |                                         | - |  |              |   | 366    |                                |  |   | 109,632             |   |  |                                          | -          |   |                              |   | 109,998    |                            | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Issuance of partnership
    interest in Operating Partnership to noncontrolling interest |  |                                         | - |  |              |   | -      |                                |  |   | -                   |   |  |                                          | -          |   |                              |   | -          |                            | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Net
    loss                                                                             |  |                                         | - |  |              |   | -      |                                |  |   | -                   |   |  |                                          | (766,199   | ) |                              |   | (766,199   | )                          | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Balance at December 31, 2010                                                             |  |                                         | - |  |              |   | 366    |                                |  |   | 109,632             |   |  |                                          | (766,199   | ) |                              |   | (656,201   | )                          | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Issuance of warrant to
    purchase Common Stock                                         |  |                                         | - |  |              |   | -      |                                |  |   | 462,330             |   |  |                                          | -          |   |                              |   | 462,330    |                            | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Proceeds from sale of
    Common Stock                                                   |  |                                         | - |  |              |   | 51,074 |                                |  |   | 51,022,536          |   |  |                                          | -          |   |                              |   | 51,073,610 |                            | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Issuance of stock compensation                                                           |  |                                         | - |  |              |   | 53     |                                |  |   | 238,099             |   |  |                                          | -          |   |                              |   | 238,152    |                            | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Syndication and offering
    costs                                                       |  |                                         | - |  |              |   | -      |                                |  |   | (6,064,489          | ) |  |                                          | -          |   |                              |   | (6,064,489 | )                          | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Net loss                                                                                 |  |                                         | - |  |              |   | -      |                                |  |   | -                   |   |  |                                          | (8,495,424 | ) |                              |   | (8,495,424 | )                          | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Dividends
    to common stockholders                                                     |  |                                         | - |  |              |   | -      |                                |  |   | (1,940,078          | ) |  |                                          | -          |   |                              |   | (1,940,078 | )                          | 
|                                                                                         |  |                                         |   |  |              |   |        |                                |  |   |                     |   |  |                                          |            |   |                              |   |            |                            | 
|Balance at December
    31, 2011                                                         |  | $                                       | - |  |              | $ | 51,493 |                                |  | $ | 43,828,030          |   |  | $                                        | (9,261,623 | ) |                              | $ | 34,617,900 |                            | 



The accompanying notes are an integral
part of these consolidated financial statements.



F-5







Preferred Apartment Communities,
Inc.

Consolidated Statements of
Cash Flows



|                                                                                       |  | Twelve months ended |            
|-------------------------------------------------------------------------------------- |  | ------------------- | -----------
|                                                                                       |  | December 31, 2011   |            
|Operating activities:                                                                  |  |                     |            
|Net loss                                                                               |  | $                   | (8,495,424 
|Reconciliation of net loss to net cash provided by (used in) operating
    activities: |  |                     |            
|Depreciation expense                                                                   |  |                     | 2,698,305  
|Amortization expense                                                                   |  |                     | 5,540,139  
|Deferred fee income amortization                                                       |  |                     | (8,887     
|Deferred loan cost amortization                                                        |  |                     | 64,479     
|Non-cash stock compensation                                                            |  |                     | 238,152    
|Changes in operating assets and liabilities:                                           |  |                     |            
|(Increase) in tenant accounts receivable                                               |  |                     | (23,811    
|Decrease (increase) in other assets                                                    |  |                     | 6,327      
|Increase in accounts payable and accrued expenses                                      |  |                     | 340,844    
|Increase in accrued interest                                                           |  |                     | 161,020    
|Increase in security deposits                                                          |  |                     | 6,578      
|Increase in prepaid rents                                                              |  |                     | 238        
|Net cash provided by (used in) operating activities                                    |  |                     | 527,960    
|                                                                                       |  |                     |            
|Investing activities:                                                                  |  |                     |            
|Investment in real estate loan                                                         |  |                     | (6,000,000 
|Deferred acquisition fee on real estate loan                                           |  |                     | (60,000    
|Deferred real estate loan income                                                       |  |                     | 134,333    
|Refund (payment) of deposit on real estate investment                                  |  |                     | 150,000    
|Acquisition of properties, net of cash acquired                                        |  |                     | (87,449,341
|Additions to real estate assets - improvements                                         |  |                     | (458,272   
|Increase in cash held in escrow and restricted cash                                    |  |                     | (1,631     
|Net cash used in investing activities                                                  |  |                     | (93,684,911
|                                                                                       |  |                     |            
|Financing activities:                                                                  |  |                     |            
|Proceeds from mortgage notes payable                                                   |  |                     | 55,637,000 
|Payments for mortgage loan costs                                                       |  |                     | (616,139   
|Payments on revolving lines of credit                                                  |  |                     | (200,000   
|Payments on non-revolving lines of credit                                              |  |                     | (1,240,000 
|Proceeds from revolving lines of credit                                                |  |                     | -          
|Proceeds from non-revolving lines of credit                                            |  |                     | 434,102    
|Proceeds from note payable to related parties                                          |  |                     | -          
|Payments on note payable to related parties                                            |  |                     | (465,050   
|Proceeds from sales of common stock, net of offering costs                             |  |                     | 46,117,663 
|Dividends declared and paid                                                            |  |                     | (1,293,162 
|Increase in deferred offering costs, net of non cash items                             |  |                     | (691,718   
|Proceeds from noncontrolling interest                                                  |  |                     | -          
|Net cash provided by financing activities                                              |  |                     | 97,682,696 
|                                                                                       |  |                     |            
|Net increase in cash and cash equivalents                                              |  |                     | 4,525,745  
|Cash beginning of period                                                               |  |                     | 22,275     
|Cash end of period                                                                     |  | $                   | 4,548,020  
|                                                                                       |  |                     |            
|Supplemental cash flow information:                                                    |  |                     |            
|Cash paid for interest                                                                 |  | $                   | 1,287,240  
|                                                                                       |  |                     |            
|Supplemental disclosure of non-cash activities:                                        |  |                     |            
|Accrued capital expenditures                                                           |  | $                   | 32,486     
|Dividends payable                                                                      |  | $                   | 646,916    
|Accrued and payable deferred offering costs                                            |  | $                   | 701,899    
|Other net non-cash property assets acquired                                            |  | $                   | 599,341    



The accompanying notes are an integral
part of these consolidated financial statements.



F-6







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements

December 31, 2011



| | 1. | Organization
| | -- | ------------



Preferred Apartment Communities, Inc.,
or the Company, was formed as a Maryland corporation on September 18, 2009, and intends to elect and qualify as a real estate investment
trust, or REIT, for U.S. federal income tax purposes, commencing with our tax year ended December 31, 2011. The Company was
formed primarily to acquire and operate multifamily properties in select targeted markets throughout the United States. As part
of its property acquisition strategy, the Company may enter into forward purchase contracts or purchase options for to-be-built
multifamily communities and it may make mezzanine loans, provide deposit arrangements, or provide performance assurances, as may
be necessary or appropriate, in connection with the construction of these properties. As a secondary strategy, the Company may
acquire senior mortgage loans, subordinated loans or mezzanine debt secured by interests in multifamily properties, membership
or partnership interests in multifamily properties and other multifamily related assets as determined by our manager. The Company
is externally managed and advised by Preferred Apartment Advisors, LLC ("PAA"), a Delaware limited liability company
and related party, or our Manager (see Note 6).



On January 26, 2010, the Company concluded
a private placement of 33,333 shares of Class B Common Stock to NELL Partners, Inc., a Georgia corporation, and a related party,
at a price of $3.00 per share of Class B Common Stock. In addition, on that same day the Company conducted a private placement
of 3,333 shares of Class A Common Stock to NELL Partners, Inc. at a price of $3.00 per share of Class A Common Stock.



On February 22, 2011, the Company effected
a change in the designation of its issued and outstanding and authorized but unissued shares of Class A Common Stock, $0.01 par
value per share, to shares of common stock, par value $0.01 per share, or Common Stock, and effected a change of each of its issued
and outstanding shares of Class B Common Stock, $0.01 par value per share, into one issued and outstanding share of Common Stock,
all pursuant to an amendment to the Company's charter. As a result of these actions, NELL Partners, Inc. held 36,666 shares of
the Company's Common Stock as of February 22, 2011. The consolidated balance sheets and consolidated statement of equity and accumulated
deficit at December 31, 2010 have been retroactively restated to reflect this change.



The Company completed its initial public
offering (the "IPO") on April 5, 2011. The IPO resulted in the sale of 4,500,000 shares of Common Stock at a price per
share of $10.00, generating gross proceeds of $45.0 million. The aggregate proceeds to the Company, net of underwriters' discounts
and commissions and other offering costs, were approximately $39.8 million. Concurrently with the closing of the IPO, in a separate
private placement pursuant to Regulation D under the Securities Act of 1933, as amended (the "Securities Act"), the Company
sold 500,000 shares of its Common Stock to the Williams Opportunity Fund, LLC, or WOF, at the public offering price of $10.00 per
share, for gross proceeds to the Company of $5 million. Aggregated estimated offering expenses in connection with the private placement
were approximately $297,700. WOF is an affiliate of the Company and PAA.



On May 4, 2011, in conjunction with the
IPO, the Company issued and sold 107,361 shares of Common Stock at $10.00 per share pursuant to the underwriters' exercise of their
over-allotment option, for gross proceeds of approximately $1.1 million. After deducting underwriters’ commissions and
offering expenses, net proceeds to the Company from the over-allotment option were approximately $1.0 million.



On November 18, 2011, the Securities and
Exchange Commission declared effective our registration statement on Form S-11 (registration number 333-176604) for our offering
of a minimum of 2,000 and a maximum of 150,000 Units, with each Unit consisting of one share of our Series A redeemable preferred
stock, or Preferred Stock, and one warrant, or Warrant, to purchase 20 shares of our Common Stock.



The consolidated financial statements include
the accounts of the Company and Preferred Apartment Communities Operating Partnership, L.P., or the Operating Partnership. The
Company controls through its sole general partner interest the Operating Partnership and plans to conduct substantially all of
its business through the Operating Partnership.



| | 2. | Summary of Significant Accounting Policies
| | -- | ------------------------------------------



| |  | Basis of Presentation
| |  | ---------------------



The consolidated
financial statements include all of the accounts of the Company and the Operating Partnership as of December 31, 2011,
presented in accordance with accounting principles generally accepted in the United States of America, or GAAP. All
significant intercompany transactions have been eliminated in consolidation. Certain adjustments have been made consisting of
normal recurring accruals, which in the opinion of management, are necessary for a fair presentation of the Company's
financial condition and results of operations.



F-7







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



| |  | Use of Estimates
| |  | ----------------



The preparation of the
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.



| |  | Acquisitions and Impairments of Real Estate Assets
| |  | --------------------------------------------------



The Company generally
records its initial investments in income-producing real estate at fair value at the acquisition date, in accordance with ASC 805-10,
Business Combinations. Acquisition costs, which include fees and expenses for due diligence, legal, environmental and consulting
services, will be expensed as incurred.



The aggregate purchase
price of acquired properties is apportioned to the tangible and identifiable intangible assets and liabilities acquired at their
estimated fair values. The value of acquired land, buildings and improvements is estimated by formal appraisals, observed comparable
sales transactions, and information gathered during pre-acquisition due diligence activities and the valuation approach considers
the value of the property as if it were vacant. The values of furniture, fixtures, and equipment are estimated by calculating their
replacement cost and reducing that value by factors based upon estimates of their remaining useful lives.



Intangible assets include
the values of in-place leases and customer relationships. In-place lease values are estimated by calculating the estimated time
to fill a hypothetically empty apartment complex to its stabilization level (estimated to be 92% occupancy) based on historical
observed move-in rates for each property. Carrying costs during these hypothetical expected lease-up periods are estimated, considering
current market conditions and include real estate taxes, insurance and other operating expenses and estimates of lost rentals at
market rates. The intangible assets are calculated by estimating the net cash flows of the in-place leases to be realized, as compared
to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up.
The acquired in-place lease values are amortized to operating expense over the average remaining non-cancelable term of the respective
in-place leases. The above-market or below-market lease values are recorded as a reduction or increase, respectively, to rental
income over the remaining average non-cancelable term of the respective leases. The values of customer relationships are estimated
by calculating the product of the avoided hypothetical lost revenue and the average renewal probability and are likewise amortized
to operating expense over the average remaining non-cancelable term of the respective in-place leases. Acquired intangible assets
generally have no residual value.



The Company evaluates
its tangible and identifiable intangible real estate assets for impairment annually or when events such as declines in a property’s
operating performance, deteriorating market conditions, or environmental or legal concerns bring recoverability of the carrying
value of one or more assets into question. The total undiscounted cash flows of the asset, including proceeds from disposition,
are compared to the net book value of the asset. If this test indicates that impairment exists, an impairment loss is recorded
in earnings equal to the shortage of the book value versus the discounted net cash flows of the asset.



| |  | Loans Held for Investment
| |  | -------------------------



The Company records its
investments in real estate loans at cost with assessments made for impairment in the event recoverability of the principal amount
becomes doubtful. If, upon testing for impairment, the fair value result is lower than the carrying amount of the loan, a valuation
allowance is recorded to lower the carrying amount to fair value, with a loss recorded in earnings. Recoveries of valuation allowances
are only recognized in the event of maturity or a sale or disposition in an amount above amortized cost.



| |  | Cash and Cash Equivalents and Restricted Cash
| |  | ---------------------------------------------



The Company considers
all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Restricted
cash includes cash restricted by state law or contractual requirement and, as of December 31, 2011, relates primarily to tax and
insurance escrows and resident security deposits.



| |  | Fair Value Measurements
| |  | -----------------------



Certain assets and liabilities
are required to be carried at fair value, or if they are deemed impaired, to be adjusted to reflect this condition. The Company
follows the guidance provided by ASC 820, Fair Value Measurements and Disclosures, in accounting and reporting for real
estate assets where appropriate, as well as debt instruments both held for investment and as liabilities. The standard requires
disclosure of fair values calculated under each level of inputs within the following hierarchy:



F-8







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



| | · | Level 1 – Quoted prices in active markets for identical assets or liabilities at the measurement date.
| | - | ------------------------------------------------------------------------------------------------------

| | · | Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
| | - | ------------------------------------------------------------------------------------------------------------------------

| | · | Level 3 – Unobservable inputs for the asset or liability.
| | - | ---------------------------------------------------------



| |  | Deferred Loan Costs
| |  | -------------------



Deferred loan costs are amortized using the
straight-line method, which approximates the effective interest method, over the terms of the related indebtedness.



| |  | Deferred Offering Costs
| |  | -----------------------



Deferred offering costs
represent offering costs incurred by the Company related to, but prior to the issuance of equity offerings. Following the issuance,
these offering costs are reclassified to the stockholders’ equity section of the consolidated balance sheet as a reduction
of proceeds raised.



| |  | Non-controlling Interest
| |  | ------------------------



Non-controlling interest
represents the equity interest of the Operating Partnership that is not owned by the Company. Non-controlling interest is adjusted
for contributions, distributions and earnings (loss) attributable to the non-controlling interest in the consolidated entity in
accordance with the Agreement of Limited Partnership of the Operating Partnership, as amended.



| |  | Revenue Recognition
| |  | -------------------



Rental revenue is recognized when earned
from residents, which is over the terms of rental agreements, typically of 13 months’ duration. Differences from the straight-line
method, which recognize the effect of any up-front concessions and other adjustments ratably over the lease term, have not been
material. The Company evaluates the collectability of amounts due from residents and maintains an allowance for doubtful accounts
for estimated losses resulting from the inability of residents to make required payments then due under lease agreements. The balance
of amounts due from residents are generally deemed uncollectible 30 days beyond the due date, at which point they are written off.



Interest income on the
real estate loan is recognized on an accrual basis over the life of the loan using the effective interest method. Direct loan origination
fees and origination or acquisition costs are amortized over the life of the loan as an adjustment to interest income. The accrual
of interest is stopped when there is concern as to the ultimate collection of principal or interest of the loan, which is generally
a delinquency of 30 days in required payments of interest or principal. Any payments received on such non-accrual loans are recorded
as interest income when the payments are received. Real estate loan investments are reclassified as accrual-basis once interest
and principal payments become current.



| |  | Stock-Based Compensation
| |  | ------------------------



The Company accounts
for stock-based compensation in accordance with guidance provided by ASC 505, Equity-Based Payments to Non-Employees and
ASC 718, Stock Compensation. We calculate the fair value of equity compensation instruments at the date of grant based upon
estimates of their expected term, the expected volatility of and dividend yield on our Common Stock over this expected term period
and the market risk-free rate of return. We will also estimate forfeitures of these instruments and accrue the compensation expense,
net of estimated forfeitures, over the vesting period(s). We record the fair value of restricted stock awards based upon the closing
stock price on the trading day immediately preceding the date of grant.



| |  | Acquisition Costs
| |  | -----------------



The Company expenses
property acquisition costs as incurred, which include costs such as due diligence, legal, environmental and consulting.



F-9







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



| |  | Capitalization and Depreciation
| |  | -------------------------------



The Company
capitalizes replacements of furniture, fixtures and equipment which exceed $500, as well as carpet, appliances, air
conditioning units, certain common area items, and other assets. Significant repair and renovation costs that improve the
usefulness or extend the useful life of the properties are also capitalized. These assets are then depreciated on a
straight-line basis over their estimated useful lives, as follows:



|· | Buildings                          | 40 years                    
|- | ---------------------------------- | ----------------------------
|· | Furniture, fixtures & equipment    | 5 - 10 years                
|· | Improvements to buildings and land | 5 - 10 years                
|· | Acquired customer intangibles      | average remaining lease term



Operating expenses related to unit turnover
costs, such as carpet cleaning, painting, mini-blind replacements, and minor repairs are expensed as incurred.



| |  | Income Taxes
| |  | ------------



The Company intends to elect and qualify
as a real estate investment trust for U.S. federal income tax purposes, commencing with its tax year ended December 31, 2011.
To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute
at least 90% of the Company's annual REIT taxable income to its stockholders (which is computed without regard to the dividends
paid deduction or net capital gain which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT,
the Company generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders.
If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at
regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax
purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants
the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company's net income
and net cash available for distribution to stockholders. The Company intends to operate in such a manner as to qualify for treatment
as a REIT.



Since the Company intends
for its REIT election to be effective January 1, 2011 (See Note 11), it expects to be subject to U.S. federal and state income
taxes for the period prior to that date. The provision for income taxes is based on income before taxes reported for financial
statement purposes after adjustment for transactions that do not have tax consequences. Deferred tax assets and liabilities are
realized according to the estimated future tax consequences attributable to differences between the carrying value of existing
assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates
as of the date of the balance sheet. The effect of a change in tax rates on deferred tax assets and liabilities is reflected in
the period that includes the statutory enactment date. A deferred tax asset valuation allowance is recorded when it has been determined
that it is more likely than not that deferred tax assets will not be realized. If a valuation allowance is needed, a subsequent
change in circumstances in future periods that causes a change in judgment about the realization of the related deferred tax amount
could result in the reversal of the deferred tax valuation allowance.



The Company recognizes
a liability for uncertain tax positions. An uncertain tax position is defined as a position taken or expected to be taken in a
tax return that is not based on clear and unambiguous tax law and which is reflected in measuring current or deferred income tax
assets and liabilities for interim or annual periods. The Company recognizes the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical
merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax
benefits in its provision for income taxes.



| |  | Loss Per Share
| |  | --------------



Basic loss per share
is computed by dividing net loss available to the Company by the weighted average number of shares of Common Stock outstanding
for the period. Diluted loss per share is computed by dividing net loss available to the Company by the weighted average number
of shares of Common Stock outstanding plus potentially dilutive securities such as share grants or warrants. No adjustment is made
for potential Common Stock equivalents that are anti-dilutive during the period.



F-10







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



| |  | Recent Adoption of Accounting Pronouncements
| |  | --------------------------------------------



In December 2010, the
FASB issued ASU 2010-29, Business Combination (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.
This new guidance requires pro forma disclosure of revenue and earnings for the combined entity as though all business combinations
that occurred during the period had occurred as of the beginning of the current annual reporting period. If comparative financial
statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period
should be reported as though the acquisition date for all business combinations that occurred during the current year had
been as of the beginning of the comparable prior annual reporting period. This new guidance was effective for the first annual
reporting period beginning after December 15, 2010. Adoption had no effect on the Company’s financial position or results
of operations.



In April 2011, the FASB
issued ASU 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt
Restructuring. This new guidance sets forth specific criteria for a creditor to evaluate whether a debt modification constitutes
a troubled debt restructuring. Specifically, the creditor must conclude (i) that a restructuring involves the granting of a concession
and (ii) that the debtor is experiencing financial difficulties. The new guidance will be effective for annual and interim periods
beginning on or after June 15, 2011. The Company does not expect its adoption of this guidance to have a material effect on its
financial position or results of operations.



In May 2011, the FASB
issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S. GAAP and IFRSs. The substantive changes in this new guidance require the application of a premium or discount in valuing
an instrument that is absent Level 1 inputs, when a market participant would apply such a factor in valuing an instrument. The
guidance also enhances disclosure requirements: (i) for fair values of Level 3 assets, the valuation process used for those assets
and the sensitivity of those calculations to changes in the amount of unobservable inputs; (ii) a reporting entity’s use
of a nonfinancial asset in a way that differs from the asset’s highest and best use when that asset is measured at fair value
in the statement of financial position; and (iii) the categorization by level within the fair value hierarchy of items that are
not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. This
guidance will be effective for interim and annual periods beginning after December 15, 2011. The Company does not expect its adoption
of this guidance to have a material effect on its financial position or results of operations.



In June 2011, the FASB
issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This new guidance removes the
option of presenting elements of other comprehensive income within the statements of changes to stockholders’ equity. Instead,
the total of comprehensive income, the components of net income, and the components of other comprehensive income may be presented
either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance will
be effective for interim and annual periods beginning after December 15, 2011, with retrospective application required. The Company
does not expect its adoption of this guidance to have a material effect on its financial position or results of operations.



In September 2011, the
FASB issued ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This new standard
provides the option to utilize a qualitative assessment of facts and circumstances to determine whether the carrying value of a
reporting segment is more likely than not greater than its fair value, for purposes of proceeding with annual goodwill impairment
testing. If this qualitative assessment indicates that the existence of an impairment condition is more likely than not, then the
analysis proceeds according to existing guidance. If not, then no further action is necessary. This guidance will be effective
for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company does
not expect its adoption of this guidance to have a material effect on its financial position or results of operations.



In December 2011, the
FASB issued ASU 2011-10, Property, Plant and Equipment (Topic 360): Derecognition of in Substance Real Estate – a Scope
Clarification.This new standard clarifies the guidance concerning deconsolidation of a subsidiary that is in substance real
estate upon the event of default of that subsidiary’s nonrecourse debt. Generally, deconsolidation of a subsidiary in this
circumstance is not appropriate until the collateral is legally transferred to the lender and the indebtedness is extinguished.
This guidance will be effective for annual and interim periods beginning after June 15, 2012. The Company does not expect its adoption
of this guidance to have a material effect on its financial position or results of operations.



In December 2011, the
FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.This new standard
enhances the required disclosures concerning derivatives and certain other financial instruments that are either netted together
and presented as one amount, or are subject to a master netting arrangement. Retrospective adoption of this guidance will be effective
for annual and interim periods beginning on or after January 1, 2013. The Company does not expect its adoption of this guidance
to have a material effect on its financial position or results of operations.



F-11







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



In December 2011, the
FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation
of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05.This new
standard defers the effective date for the presentation requirements for reclassification adjustments into accumulated other comprehensive
income by component as mandated by ASU 2011-08. This guidance as well as all other guidance from ASU 2011-08 are effective for
fiscal years beginning after December 15, 2011. The Company does not expect its adoption of this guidance to have a material effect
on its financial position or results of operations.



3.    Real Estate Assets



The Company acquired
the following three properties which were either partly or wholly owned by parties related to the Company. The acquisition price
for each property was determined pursuant to the appraisals of two independent real estate appraisers.



On April 15, 2011, the
Company acquired 100% of the membership interests in Stone Rise Apartments, LLC, a Delaware limited liability company (f/k/a Oxford
Rise JV LLC), the fee-simple owner of a 216-unit multifamily community located in suburban Philadelphia, Pennsylvania, or Stone
Rise, for a total purchase price of $30.15 million, exclusive of acquisition-related and financing-related transaction costs. The
membership interests in Oxford Rise JV LLC were owned by WOF.



On April 21, 2011, the
Company acquired 100% of the membership interests in PAC Summit Crossing, LLC, a Georgia limited liability company (f/k/a Oxford
Summit Partners, LLC), the fee-simple owner of a 345-unit multifamily community located in suburban Atlanta, Georgia, or Summit
Crossing, for a total purchase price of $33.2 million, exclusive of acquisition-related and financing-related transaction costs.
Williams Realty Fund I, LLC, or WRF, owned a majority of the membership interests in PAC Summit Crossing, LLC.



On April 29, 2011, the
Company, through its wholly owned subsidiary Trail Creek Apartments, LLC, acquired Oxford Trail, a 204-unit multifamily community
located in Hampton, Virginia, or Trail Creek, for a total purchase price of $23.5 million, exclusive of acquisition-related and
financing-related transaction costs. The Company purchased a fee-simple interest in the property from Oxford Trail JV LLC. WRF
owned indirectly an approximately 10% membership interest in Oxford Trail JV LLC.



Reported revenues and
expenses related to these three acquired properties are from results of operations beginning from the respective dates of acquisition
through December 31, 2011.



The Company allocated
the purchase prices of the three properties to the acquired assets and liabilities based upon their fair values, as follows:



|                                      |  | Trail Creek |            |   | Stone Rise |   |            | Summit Crossing |  |   | Total      |  
|------------------------------------- |  | ----------- | ---------- | - | ---------- | - | ---------- | --------------- |  | - | ---------- | -
|Land                                  |  | $           | 2,652,000  |   |            | $ | 6,950,000  |                 |  | $ | 3,450,000  |  
|Buildings and improvements            |  |             | 17,257,845 |   |            |   | 18,637,356 |                 |  |   | 24,112,767 |  
|Furniture, fixtures and equipment     |  |             | 1,841,990  |   |            |   | 2,819,094  |                 |  |   | 3,591,881  |  
|Intangibles                           |  |             | 1,748,165  |   |            |   | 1,743,550  |                 |  |   | 2,045,352  |  
|Cash                                  |  |             | 9,301      |   |            |   | 16,101     |                 |  |   | 486        |  
|Deposits                              |  |             | 28,160     |   |            |   | 61,276     |                 |  |   | 41,525     |  
|Prepaids and reserves                 |  |             | 93,967     |   |            |   | 439,041    |                 |  |   | 154,744    |  
|Accounts payable and accrued expenses |  |             | (48,374    | ) |            |   | (81,677    | )               |  |   | (89,321    | )
|                                      |  |             |            |   |            |   |            |                 |  |   |            |  
|Net assets acquired                   |  | $           | 23,583,054 |   |            | $ | 30,584,741 |                 |  | $ | 33,307,434 |  
|Net assets excluding cash             |  | $           | 23,573,753 |   |            | $ | 30,568,640 |                 |  | $ | 33,306,948 |  



The Company recorded
depreciation and amortization of tangible and identifiable intangible assets as follows:



F-12







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



|                                           |  | Twelve months ended |          
|------------------------------------------ |  | ------------------- | ---------
|                                           |  | December 31, 2011   |          
|Depreciation:                              |  |                     |          
|Buildings and improvements                 |  | $                   | 1,129,835
|Furniture, fixtures, and equipment         |  |                     | 1,568,470
|                                           |  |                     | 2,698,305
|Amortization of acquired intangible assets |  |                     | 5,537,067
|Website development costs                  |  |                     | 3,072    
|Total depreciation and amortization        |  | $                   | 8,238,444



Acquired intangible assets consist of the
values of leases in place, customer relationships, and above-market or below-market leases, each of which are amortized over the
non-cancelable remaining average lease terms. The combined balance of acquired intangible assets for the three multifamily communities
was amortized in full during 2011.



Contributions of revenues and earnings
by the acquisitions of Stone Rise, Summit Crossing, and Trail Creek to the Company’s results of operations from the dates
of acquisition (April 15, 2011, April 21, 2011 and April 29, 2011 for Stone Rise, Summit Crossing and Trail Creek, respectively)
through December 31, 2011 were:



|                                      |  | Stone |            |   | Summit   |   |            | Trail |  |   |            |  
|------------------------------------- |  | ----- | ---------- | - | -------- | - | ---------- | ----- |  | - | ---------- | -
|                                      |  | Rise  |            |   | Crossing |   |            | Creek |  |   | Total      |  
|Revenues                              |  | $     | 2,467,435  |   |          | $ | 2,607,715  |       |  | $ | 1,825,308  |  
|                                      |  |       |            |   |          |   |            |       |  |   |            |  
|Depreciation and amortization expense |  |       | 2,543,979  |   |          |   | 3,203,627  |       |  |   | 2,487,765  |  
|                                      |  |       |            |   |          |   |            |       |  |   |            |  
|Other expenses                        |  |       | 1,385,894  |   |          |   | 1,627,817  |       |  |   | 1,035,534  |  
|                                      |  |       |            |   |          |   |            |       |  |   |            |  
|Earnings                              |  | $     | (1,462,438 | ) |          | $ | (2,223,729 | )     |  | $ | (1,697,991 | )



| | 4. | Real Estate Loan
| | -- | ----------------



On June 30, 2011, the Company made a mezzanine
loan investment of $6.0 million to Oxford Hampton Partners LLC (“Hampton Partners”), a Georgia limited liability company
and a related party, to partially finance the construction of a 96-unit multifamily community located adjacent to the Company’s
existing Trail Creek multifamily community in Hampton, Virginia. Hampton Partners was required to fully draw down the mezzanine
loan on the closing date. Approximately 100% of the membership interests in Hampton Partners are owned by WRF.



The mezzanine loan matures on June 29,
2016, with no option to extend and pays interest at a fixed rate of 8.0% per annum. Interest will be paid monthly with principal
and any accrued but unpaid interest due at maturity. Under the terms of a purchase option agreement entered into in connection
with the closing of the mezzanine loan, the Company has an option (but not an obligation) to purchase the property between and
including April 1, 2014 and June 30, 2014 for $17,825,600, which is the amount of the aggregate project costs as set forth in the
approved construction budget on the closing date. If the property is sold to, or refinanced by, a third party before July 1, 2014,
the Company will be entitled to receive an exit fee equal to the amount required to provide it with a 14% cumulative internal rate
of return on the loan. If the property is sold to, or refinanced by, a third party on or after July 1, 2014, then the Company will
be entitled to receive an exit fee equal to the amount required to provide it with a 12% cumulative internal rate of return on
the loan. The calculation of the cumulative internal rate of return will include the loan’s fees received at closing. Since
the minimum exit fee, assuming the purchase option is not exercised, is the amount needed to provide a 12% cumulative internal
rate of return, the Company will accrue each period the additional exit fee earned based on the 12% rate assuming the loan was
paid off at period end as the borrower cannot control whether the option is exercised. The accrued exit fee will be recorded as
interest income in the consolidated statements of operations. As of December 31, 2011, no additional exit fee was earned by the
Company.



If the Company exercises the purchase option
and acquires the property, any accrued and unpaid exit fee will be treated as additional basis in the acquired project.



The mezzanine loan is secured by a pledge
of 100% of the membership interests of Hampton Partners. Partial prepayment of the mezzanine loan is not permitted without the
Company’s consent. The mezzanine loan is subordinate to a senior loan of up to an aggregate amount of $10 million that is
held by an unrelated third party. W. Daniel Faulk, Jr. and Richard A. Denny, both unaffiliated third parties, have guaranteed the
completion of the project in accordance with the plans and specifications. This guaranty is subject to the rights held by the senior
lender pursuant to a standard intercreditor agreement with the senior lender.



In connection with the closing of the mezzanine
loan, the Company received a loan fee of 2% of the loan amount, or $120,000, and a loan commitment fee of $14,333. The Company
paid an acquisition fee of $60,000 to PAA out of these funds. The net fees received by the Company will be recognized as an adjustment
of yield over the term of the loan using the effective interest method.



5.   Stockholders’
Equity (Deficit)



On January 26, 2010,
the Company issued to NELL Partners, Inc. 3,333 shares of Class A Common Stock at $3.00 per share and 33,333 shares of Class B
Common Stock at $3.00 per share in a private placement.



F-13







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



On February 22, 2011,
the Company effected a change in the designation of its shares of Class A Common Stock, $0.01 par value per share, to shares of
Common Stock, par value $0.01 per share, and effected a change of each of its issued and outstanding shares of Class B Common Stock,
$0.01 par value per share, into one issued and outstanding share of Common Stock, all pursuant to an amendment to the Company's
charter. As a result of these actions, NELL Partners, Inc. held 36,666 shares of Common Stock as of February 22, 2011.



On July 29, 2010, the
Board of Directors of the Company authorized the issuance and sale of up to $75.0 million in Class A Common Stock in an underwritten
public offering. On February 25, 2011, the Company amended its prior authorization to issue up to $75.0 million in Class A Common
Stock in accordance with the change in designation of all shares of Class A Common Stock to shares of Common Stock, as described
above, and, as a result, the Board of Directors of the Company authorized the issuance and sale of up to $75.0 million in Common
Stock in an initial public offering.



On July 29, 2010,
WOF entered into a subscription agreement with the Company. Pursuant to this agreement, WOF subscribed for the purchase from
the Company such number of shares of Class A Common Stock ($0.01 par value per share) of the Company having an aggregate
value of $5.0 million. The price per share would equal the price per share of Class A Common Stock sold in the underwritten
public offering. The subscription agreement between the Company and WOF was amended on February 28, 2011, to reflect the
charter amendment changing all shares of Class A Common Stock to shares of Common Stock, as described above.



Pursuant to this amendment,
a subscription by WOF for such shares of Common Stock of the Company having an aggregate value of $5.0 million replaced WOF's original
subscription for shares of Class A Common Stock. On April 5, 2011, WOF purchased 500,000 shares of the Company's Common Stock pursuant
to this subscription agreement.



6. Related
Party Transactions



John A. Williams, the
Company's Chief Executive Officer, President and Chairman of the Board of Directors and Leonard A. Silverstein, the Company's Executive
Vice President, General Counsel, Secretary and Vice Chairman of the Board of Directors, are also executive officers and directors
of NELL Partners, Inc., which controls PAA, the Company’s external management company. Mr. Williams is the Chief Executive
Officer and President and Mr. Silverstein is the Executive Vice President, General Counsel and Secretary of PAA.



Mr. Williams, Mr. Silverstein
and Michael J. Cronin, the Company's Chief Accounting Officer, are executive officers of Williams Realty Advisors, LLC, or WRA,
which is the manager of the day-to-day operations of WOF. WRA is also the manager of the day-to-day operations of WRF.



The third amended and restated management
agreement, or Management Agreement, between the Company, the Operating Partnership and PAA entitles PAA to receive compensation
for various services it performs related to acquiring and managing properties on the Company's behalf:



|                                        |  |                       |                                                                                     |  | Twelve months ended |  
|--------------------------------------- |  | --------------------- | ----------------------------------------------------------------------------------- |  | ------------------- | -
|Type of Compensation                    |  | Basis of Compensation |                                                                                     |  | December 31, 2011   |  
|                                        |  |                       |                                                                                     |  |                     |  
|Acquisition fees                        |  |                       | 1% of the gross purchase price of real estate assets acquired or loans advanced     |  |                     | $
|Asset management fees                   |  |                       | Monthly fee equal to one-twelfth of 0.50% of the total value of assets, as adjusted |  |                     |  
|Property management fees                |  |                       | Monthly fee equal to 4% of the monthly gross revenues of the properties managed     |  |                     |  
|General and administrative expense fees |  |                       | Monthly fee equal to 2% of the monthly gross revenues of the Company                |  |                     |  
|                                        |  |                       |                                                                                     |  |                     |  
|                                        |  |                       |                                                                                     |  |                     | $



F-14







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



As of December 31, 2011, the Company owed
PAA $5,164 in fees pursuant to the Management Agreement, which are included in accounts payable and accrued expenses.



In addition to property management fees,
the Company incurred reimbursable expenses owed to the affiliate’s property manager at the properties of $676,413 during
the twelve-month period ended December 31, 2011. These reimbursed expenses consisted of on-site personnel salary and related benefits.



PAA utilizes certain personnel of its affiliates
to accomplish certain tasks related to raising capital, including, but not limited to, legal, and marketing functions. As permitted
under the Management Agreement, PAA has requested reimbursement of $203,762 for the twelve-month period ended December 31, 2011.
These costs are recorded as deferred offering costs until such time as closings occur on the Series A Redeemable Preferred Stock
and Warrant Unit offering, at which time they are reclassified on a pro-rata basis as a reduction of offering proceeds within stockholders’
equity.



In addition to the fees described above,
the management agreement also entitles PAA to other potential fees, as follows:



| | · | Disposition fees - Based on the lesser of (A) one-half of the commission that would be reasonable
and customary; and (B) 1% of the sale price of the asset
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Construction, development, and landscaping fees - Customary and competitive market rates in light
of the size, type and location of the asset
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------

| | · | Special limited partnership interest - 15% of distributions from the sale of an asset and prior
operations that are remaining after the payment of (i) the capital
and expenses allocable to all realized investments (including the sold asset), and (ii) a 7% priority annual return on such capital
and expense; provided that all accrued and unpaid dividends on the Preferred Stock have been paid in full
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company did not incur any of these
other potential fees during either of the twelve-month periods ended December 31, 2011 or 2010.



See note 8 for a discussion of activity
related to lines of credit the Company entered into with WOF.



7. Dividends



The Company’s dividend activity for the twelve-month period
ended December 31, 2011 consisted of:



|Declaration date |  | Dividend per share of Common Stock |       |  | Record date |  |            | Payment date |  |  | Total amount paid | 
|---------------- |  | ---------------------------------- | ----- |  | ----------- |  | ---------- | ------------ |  |  | ----------------- | 
|                 |  |                                    |       |  |             |  |            |              |  |  |                   | 
|5/5/2011         |  | $                                  | 0.125 |  |             |  | 6/30/2011  |              |  |  | 7/15/2011         | 
|8/4/2011         |  |                                    | 0.125 |  |             |  | 9/30/2011  |              |  |  | 10/17/2011        | 
|11/10/2011       |  |                                    | 0.125 |  |             |  | 12/30/2011 |              |  |  | 1/17/2012         | 
|                 |  |                                    |       |  |             |  |            |              |  |  |                   | 
|                 |  | $                                  | 0.375 |  |             |  |            |              |  |  |                   | 



Dividend income to holders of the Company’s
Common Stock is generally characterized as ordinary income, capital gains, or a return of capital. All dividend income distributed
by the Company for the twelve-month period ended December 31, 2011 consisted of return of capital for federal income tax purposes
for the recipients.



F-15







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



8. Lines of Credit



On October 12, 2010, the Company entered
into a $1.0 million unsecured non-revolving line of credit arrangement with WOF, which matured on March 31, 2011. On March 25,
2011, the line of credit was increased to $1.25 million and the maturity date was extended to April 30, 2011. The line was to be
used to fund approved expenses incurred by the Company such as organization, offering and property acquisition expenses. The line
had an interest rate of 4.25% per annum. For the twelve-month period ended December 31, 2011, the Company incurred interest of
$10,758 on this instrument. On April 5, 2011, the Company paid off and terminated this line of credit in conjunction with the closing
of the IPO and the private placement with WOF.



On October 12, 2010, the Company entered
into a $1.0 million unsecured revolving line of credit arrangement with WOF, which matured on March 31, 2011. On March 25, 2011,
the line of credit was reduced to $750,000 and the maturity date was extended to April 30, 2011. The line was only to be used to
fund certain approved deposits and escrows related to the acquisition of real estate projects and related financings. The line
had an interest rate of 4.25% per annum. For the twelve-month period ended December 31, 2011, the Company incurred interest of
$880 on this instrument. On April 5, 2011, the Company paid off and terminated this line of credit in conjunction with the closing
of the IPO and the private placement with WOF. As of December 31, 2011, the Company had no outstanding lines of credit.



9. Equity Compensation



On February 25, 2011 the Company’s
Board of Directors adopted, and the Company’s stockholders approved the Preferred Apartment Communities, Inc. 2011 Stock
Incentive Plan (the “2011 Plan”), to incentivize, compensate and retain eligible employees, consultants, and non-employee
directors. A maximum of 567,500 shares of Common Stock may be issued under the 2011 Plan. Awards may be made in the form of issuances
of Common Stock, restricted stock, stock appreciation rights (“SARs”), performance shares, incentive stock options,
non-qualified stock options, or other forms. Eligibility for receipt of, amounts, and all terms governing awards pursuant to the
2011 Plan, such as vesting periods and voting and dividend rights on unvested awards, are determined by the Compensation Committee
of the Company’s Board of Directors.



Restricted Stock
Grant



On April 5, 2011, the Company granted a
total of 26,000 shares of restricted stock to its non-employee board members, in payment of their annual retainer fees. The Company
generally recognizes the fair value per share for restricted stock grants as the closing price on the grant date. The fair value
per share was deemed to be $10.00 per share (the IPO offering price) by board resolution. Compensation cost in the amount of $260,000
will be recognized on a straight-line basis over the vesting period, which ends on the first anniversary of the grant date. The
shares of restricted stock were immediately eligible to receive dividends at the grant date.



For the twelve-month period ended December
31, 2011, stock compensation expense for these grants was $193,041 and is included in other expense on the consolidated statement
of operations. Unrecognized compensation expense for this restricted stock grant was $66,959 and all 26,000 unvested shares were
outstanding at December 31, 2011.



Directors’
Stock Grants



The Company made the following grants
of Common Stock to its non-employee board members, in payment of their meeting fees. Each of these awards vested immediately
and the total compensation cost was recorded in full at each grant date. The per-share fair values of these stock grants
approximate the closing market price of the Company’s Common Stock on the grant dates.



|Date of issuance |  | Number of shares |       |  | Per-share fair value |  |      | Compensation cost | 
|---------------- |  | ---------------- | ----- |  | -------------------- |  | ---- | ----------------- | 
|                 |  |                  |       |  |                      |  |      |                   | 
|5/5/2011         |  |                  | 1,872 |  |                      |  | 9.62 |                   | 
|8/4/2011         |  |                  | 1,500 |  |                      |  | 7.99 |                   | 
|11/9/2011        |  |                  | 1,926 |  |                      |  | 6.00 |                   | 
|                 |  |                  |       |  |                      |  |      |                   | 
|                 |  |                  | 5,298 |  |                      |  |      |                   | 



F-16







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



Warrant



On March 31, 2011, as partial compensation
for services rendered for the IPO, the Company issued to International Assets Advisory, LLC (“IAA”) a warrant to purchase
up to 150,000 shares of the Company’s Common Stock. The exercise price is $12.50 per share, which is 125% of the gross IPO
price of $10.00 per share. The warrant became exercisable as of September 28, 2011 and expires on March 31, 2015.



The Company calculated the per-share fair
value of the warrant using the Black-Scholes method. The underlying valuation assumptions were:



|Dividend yield               |  |  | 5.0   | %
|---------------------------- |  |  | ----- | -
|Expected volatility          |  |  | 62.69 | %
|Risk-free interest rate      |  |  | 1.765 | %
|Expected option term (years) |  |  | 4     |  



The expected dividend yield assumption
was derived from the Company’s gross IPO price per share and its projected future quarterly dividend payments of $0.125 per
share.



Since the Company has a limited amount
of operating history in the public equity market, the expected volatility assumption was derived from the observed historical volatility
of the common stock prices of a select group of peer companies within the REIT industry that most closely approximate the Company’s
size, capitalization, leverage, line of business and geographic focus markets.



The risk-free rate assumption was obtained
from the treasury constant maturities nominal yield table obtained from the Federal Reserve, interpolated between the three-year
and five-year yield percentages on U. S. Treasury securities on March 31, 2011.



The expected term assumption of 4
years is equal to the contractual term of the instrument. The fair value of the warrant was calculated to be $462,330 ($3.08
per share) and, since all service conditions had been met as of the date of issuance, was recorded in full at March 31, 2011
as an increase in the deferred offering costs on the consolidated balance sheet and an increase in additional paid-in
capital. Subsequent to the closing of the IPO, these deferred offering costs were removed from the consolidated balance sheet
and charged against stockholders’ equity.



The warrant is exercisable, at IAA’s
option, in whole or in part, by either payment of the aggregate exercise price for the number of shares exercised, plus applicable
transfer taxes, or by a cashless net share settlement. Upon exercise of the warrant, shares of Common Stock will be issued from
authorized but unissued Common Stock.



Class B Units



On December 30, 2011, pursuant to its Third
Amended and Restated Agreement of Limited Partnership of the Partnership, the Company granted for 2011, 107,164 Class B Units,
representing ownership interests in the Operating Partnership, to certain of its executive officers. The Class B Units become Vested
Class B Units at the Initial Valuation Date, which is one year from the date of grant. On the Initial Valuation Date, the market
capitalization of the number of shares of Common Stock at the date of grant is compared to the market capitalization of the same
number of shares of Common Stock at the Initial Valuation Date. If the market capitalization measure results in an increase of
at least $650,000, the Vested Class B Units become Earned Class B Units, automatically convert into Class A Units of the Operating
Partnership and which are henceforth entitled to distributions from the Operating Partnership and become exchangeable for Common
Stock of the Company on a one-to-one basis at the option of the holder. Vested Class B Units may become Earned Class B Units on
a pro-rata basis should the result of the market capitalization test be an increase of less than $650,000. Any Vested Class B Units
that do not become Earned Class B Units on the Initial Valuation Date are subsequently remeasured on a quarterly basis until such
time as all Vested Class B Units become Earned Class B Units or are forfeited due to termination of continuous service as an officer
of the Company due to an event other than as a result of a qualified event, which is generally the death or disability of the holder.
Continuous service through the final valuation date is required for the Vested Class B Units to qualify to become fully Earned
Class B Units. The fair value of the grant of the Class B Units was determined to be $4.48 per unit, with a total value of $479,559.
Because of the market condition determining the transition of the Vested Class B Units to Earned Class B Units, a Monte Carlo simulation
was utilized to calculate the total fair value, which will be amortized as compensation expense over the one-year period beginning
on the grant date through the Initial Valuation Date. For the twelve-month period ended December 31, 2011, stock compensation expense
for these grants was $3,562 and is included in other expense on the consolidated statement of operations. Unrecognized compensation
expense for this restricted stock grant as of December 31, 2011 was $475,997 and all 107,164 unvested Class B Units were outstanding
at December 31, 2011.



F-17







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



The underlying valuation assumptions for
the Class B Units were:



|Dividend yield                 |  |  | 8.7   | %
|------------------------------ |  |  | ----- | -
|Expected volatility            |  |  | 35.29 | %
|Risk-free interest rate        |  |  | 2.73  | %
|                               |  |  |       |  
|Derived service period (years) |  |  | 1     |  



The expected dividend yield assumption
was derived from the Company’s closing price of its Common Stock on the grant date and its projected future quarterly dividend
payments of $0.13 per share.



Since the Company has a limited amount
of operating history in the public equity market, the expected volatility assumption was derived from the observed historical volatility
of the common stock prices of a select group of peer companies within the REIT industry that most closely approximate the Company’s
size, capitalization, leverage, line of business and geographic focus markets.



The risk-free rate assumption was obtained
from the Federal Reserve yield table and is the interpolated rate between the 20 and 30 year yield percentages on U. S. Treasury
securities on December 30, 2011.



Since the likelihood of attainment of the
market condition for the Class B Units to become earned is believed to be high and the vesting period is relatively short (1 year),
the forfeiture rate assumption for these Class B Units was set to 0%.



Since the Class B Units have no expiration
date, a derived service period of 1 year was utilized, which equals the period of time from the grant date to the initial valuation
date.



10. Debt



Note
Payable



On September 2, 2010, the Company borrowed
$465,050 from WOF through the issuance of a promissory note. The note had an interest rate of 4.25% per annum and had a maturity
date of April 30, 2011. The proceeds were used to reimburse the Manager and its affiliates for organizational, offering, acquisition
and due diligence expenses. On April 5, 2011, the Company paid off this note in conjunction with the closing of the IPO and the
private placement with WOF. For the twelve-month period ended December 31, 2011, the Company incurred interest on this note of
$5,090.



Mortgage Notes Payable



The Company partially
financed the acquisitions of Stone Rise, Summit Crossing and Trail Creek with non-recourse mortgage notes collateralized only by
the associated real estate assets for each community. Each mortgage requires payments of interest only from
the dates of closing through May 1, 2014, then principal and interest are due on a 30-year amortization schedule through May 1,
2018, the date of maturity of each instrument.



|                |  |  | Acquisition date |  |  |   | Principal balance at December 31, 2011 |  |  |  | Interest rate         |  |  |   | Interest expense Twelve months ended December 31, 2011 | 
|--------------- |  |  | ---------------- |  |  | - | -------------------------------------- |  |  |  | --------------------- |  |  | - | ------------------------------------------------------ | 
|                |  |  |                  |  |  |   |                                        |  |  |  |                       |  |  |   |                                                        | 
|Stone Rise      |  |  | 4/15/2011        |  |  | $ | 19,500,000                             |  |  |  | 1 month LIBOR + 2.77% |  |  | $ | 420,912                                                | 
|Summit Crossing |  |  | 4/21/2011        |  |  |   | 20,862,000                             |  |  |  | Fixed 4.71%           |  |  |   | 696,009                                                | 
|Trail Creek     |  |  | 4/29/2011        |  |  |   | 15,275,000                             |  |  |  | 1 month LIBOR + 2.80% |  |  |   | 316,434                                                | 
|Total           |  |  |                  |  |  | $ | 55,637,000                             |  |  |  |                       |  |  | $ | 1,433,355                                              | 



F-18







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



Variable, all-in, monthly interest rates
are capped at 7.25% and 6.85% for Stone Rise and Trail Creek, respectively. LIBOR was 0.295% on December 31, 2011. Based upon this
rate, the Company’s estimated future principal payments due on its debt instruments as of December 31, 2011 were:



|Period     |  | Future principal payments |           
|---------- |  | ------------------------- | ----------
|2012       |  | $                         | -         
|2013       |  |                           | -         
|2014       |  |                           | 602,623   
|2015       |  |                           | 1,062,820 
|2016       |  |                           | 1,101,636 
|thereafter |  |                           | 52,869,921
|           |  |                           |           
|Total      |  | $                         | 55,637,000



11. Income Taxes



The Company intends to elect to
be taxed as a REIT effective January 1, 2011, and therefore, the Company will not be subject to federal and state income
taxes after this effective date.  The election will be made in 2012 with the filing of the REIT's December 31, 2011
federal tax return.  For the period preceding this election date, the Company's operations resulted in a net operating
loss (NOL) when the company was taxed as a C corporation.  Generally, a NOL can  be carried forward and utilized
for 20 years; thus the NOL would expire in 2030. As of December 31, 2010, the Company had deferred federal and state tax
assets totaling approximately $298,100, none of which were based upon tax positions deemed to be uncertain.  Because
the Company acquired all of its real estate assets after the effective date of the REIT election and, as such will have no
"built in gains" on its real estate assets, it is anticipated that the NOL will not be utilized prior to fully
expiring. Since these deferred tax assets will most likely not be used once the Company elects REIT status, management has
determined that a 100% valuation allowance is appropriate for the period ended December 31, 2011.



12. Commitments and Contingencies



The Company is not currently subject to
any known material commitments or contingencies from its business operations, nor any material known or threatened litigation.



13. Loss Per Share



The following is a reconciliation of weighted
average basic and diluted shares outstanding used in the calculation of loss per share of Common Stock:



F-19







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



|                                                                       |  | Twelve months ended: |           
|---------------------------------------------------------------------- |  | -------------------- | ----------
|                                                                       |  | December 31, 2011    |           
|Numerator:                                                             |  |                      |           
|                                                                       |  |                      |           
|Consolidated net loss                                                  |  | $                    | (8,495,424
|                                                                       |  |                      |           
|Net loss attributable to non-controlling interests                     |  |                      | -         
|                                                                       |  |                      |           
|Earnings attributable to unvested restricted shares (See Note A below) |  |                      | (9,750    
|                                                                       |  |                      |           
|Net loss attributable to the Company's stockholders                    |  | $                    | (8,505,174
|                                                                       |  |                      |           
|Denominator:                                                           |  |                      |           
|                                                                       |  |                      |           
|Weighted average  number of shares of Common Stock - basic             |  |                      | 3,822,303 
|                                                                       |  |                      |           
|Effect of dilutive securities:                                         |  |                      |           
|                                                                       |  |                      |           
|Warrant (See Note B below)                                             |  |                      | -         
|                                                                       |  |                      |           
|Weighted average number of shares of Common Stock - diluted            |  |                      | 3,822,303 
|                                                                       |  |                      |           
|Loss per weighted average share - basic and diluted                    |  | $                    | (2.23     



(A) The Company's unvested
restricted share awards contain non forfeitable rights to distributions or distribution equivalents. The impact of the
unvested restricted share awards on earnings per share has been calculated using the two-class method whereby earnings are
allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares'
participation rights in undistributed earnings. Given the Company has incurred net losses to date the cumulative dividends
declared as of December 31, 2011 are adjusted in determining the calculation of loss per share of Common Stock since the
unvested restricted share awards are defined as participating securities. The Company’s unvested Class B Units are not
entitled to dividends or distributions as of December 31, 2011 and are therefore excluded from this calculation.



(B) Potential dilution from 150,000 shares
of Common Stock that would be outstanding due to the hypothetical exercise of a warrant issued by the Company on March 31, 2011
as well as 107,164 Class B Units issued by the Company on December 30, 2011 were excluded from the diluted shares calculation because
the effect was antidilutive.



14. Select Quarterly Financial Data



Quarterly financial information for 2011
and 2010 was as follows:



F-20







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



|                                                                      |  | Three months ended: |         
|--------------------------------------------------------------------- |  | ------------------- | --------
|                                                                      |  | 3/31/2011           |         
|                                                                      |  |                     |         
|Revenues                                                              |  | $                   | -       
|Operating loss                                                        |  |                     | -       
|Net loss                                                              |  |                     | (433,233
|Less: consolidated net loss attributable to non-controlling interests |  |                     | -       
|Net loss attributable to the Company                                  |  |                     | (433,233
|Net loss per share, basic and diluted                                 |  | $                   | (11.82  
|                                                                      |  |                     |         
|Weighted average shares outstanding, basic and diluted                |  |                     | 36,666  



|                                                                      |  | Three months ended: |       
|--------------------------------------------------------------------- |  | ------------------- | ------
|                                                                      |  | 3/31/2010           |       
|                                                                      |  |                     |       
|Revenues                                                              |  | $                   | -     
|Operating loss                                                        |  |                     | -     
|Net loss                                                              |  |                     | -     
|Less: consolidated net loss attributable to non-controlling interests |  |                     | -     
|Net loss attributable to the Company                                  |  |                     | -     
|Net loss per share, basic and diluted                                 |  | $                   | -     
|                                                                      |  |                     |       
|Weighted average shares outstanding, basic and diluted                |  |                     | 26,481



15. Pro Forma Financial
Information (unaudited)





The Company’s condensed pro forma
financial results, assuming the acquisitions of Stone Rise, Summit Crossing, and Trail Creek were hypothetically completed on January
1, 2010 were:



F-21







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



|                                                                 |  | Twelve months ended: |           
|---------------------------------------------------------------- |  | -------------------- | ----------
|                                                                 |  | December 31, 2011    |           
|Pro forma:                                                       |  |                      |           
|Revenue                                                          |  | $                    | 10,081,482
|Amortization of intangibles                                      |  |                      | -         
|Depreciation expense                                             |  |                      | (3,199,126
|Acquisition costs                                                |  |                      | (811,932  
|Organization costs                                               |  |                      | (172,395  
|Property operating expenses                                      |  |                      | (4,121,777
|Other expenses                                                   |  |                      | (3,232,237
|                                                                 |  |                      |           
|Net loss                                                         |  | $                    | (1,455,985
|                                                                 |  |                      |           
|Pro forma basic and diluted loss per share                       |  | $                    | (0.30     
|Pro Forma weighted average outstanding shares, basic and diluted |  |                      | 4,859,408 



Since the Company commenced operations with its IPO on April
5, 2011, pro forma adjustments have been made to corporate general and administrative expenses for the twelve-month periods ended
December 31, 2011 and 2010. These pro forma results are not necessarily indicative of what historical performance would have been
had these business combinations been effective January 1, 2010, nor should they be interpreted as expectations of future results.



16. Fair Values of Financial Instruments



Fair value is defined as the price at which
an asset or liability is exchanged between market participants in an orderly transaction at the reporting date. The Company’s
cash equivalents, accounts receivable and payables and accrued expenses all approximate fair value due to their short term nature.
The Company does not have any assets or liabilities measured at fair value on a recurring basis.



The following table provides disclosure
on the fair value of the Company’s other financial instruments, which include mortgage notes collateralized only by the three
acquired apartment communities, and the real estate loan investment:



|                         |  |                |            |  |            |   |            | Fair value measurements using fair value hierarchy | 
|------------------------ |  | -------------- | ---------- |  | ---------- | - | ---------- | -------------------------------------------------- | 
|                         |  | Carrying value |            |  | Fair Value |   |            | Level 1                                            | 
|Financial Assets:        |  |                |            |  |            |   |            |                                                    | 
|Real estate related loan |  | $              | 6,000,000  |  |            | $ | 6,490,022  |                                                    | 
|Financial Liabilities:   |  |                |            |  |            |   |            |                                                    | 
|Mortgage notes payable   |  | $              | 55,637,000 |  |            | $ | 56,728,053 |                                                    | 



The fair values of these instruments were
calculated using discounted cash flow valuation methodologies and are based upon unobservable (Level 3) assumption inputs, which
included fixed-rate yield index data and spread quotes as of December 31, 2011.



F-22







Preferred Apartment Communities, Inc.

Notes to Consolidated Financial Statements
– (continued)

December 31, 2011



| | 17. | Subsequent Events
| | --- | -----------------



On January 3, 2012, pursuant to its Third
Amended and Restated Agreement of Limited Partnership of the Partnership, the Company granted for 2012, 106,988 Class B Units,
representing ownership interests in the Operating Partnership, to certain of its executive officers for service to be rendered
during 2012. The Class B Units become Vested Class B Units at the Initial Valuation Date, which is one year from the date of grant.
On the Initial Valuation Date, the market capitalization of the number of shares of Common Stock at the date of grant is compared
to the market capitalization of the same number of shares of Common Stock at the Initial Valuation Date. If the market capitalization
measure results in an increase of at least $650,000, the Vested Class B Units become Earned Class B Units, which are henceforth
entitled to distributions from the Operating Partnership and become exchangeable for Common Stock on a one-to-one basis. Vested
Class B Units may become Earned Class B Units on a pro-rata basis should the result of the market capitalization test be an increase
of less than $650,000. Any Vested Class B Units that do not become Earned Class B Units on the Initial Valuation Date are subsequently
remeasured on a quarterly basis until such time as all Vested Class B Units become Earned Class B Units or are forfeited due to
termination of continuous service as an officer of the Company due to an event other than as a result of a qualified event. Continuous
service through the final valuation date is required for the Vested Class B Units to qualify to become fully earned Class B Units.



The fair value of the grant of Class B
Units were determined to be $4.49 per unit, with a total value of $479,841. Because of the market condition determining the transition
of the Vested Class B Units to Earned Class B Units, a Monte Carlo simulation model was utilized to calculate the total fair value,
which will be amortized as compensation expense over the one-year period beginning on the grant date through the Initial Valuation
Date.



On February 2, 2012, the Company granted
2,988 shares of Common Stock to its non-employee board members, in payment of their meeting fees. The per-share fair value of this
immediate-vesting award was $6.12 and the total compensation cost of $18,287 was recorded in full at that date.



On February 2, 2012, the Company declared
a quarterly dividend on its Common Stock of $0.13 per share. The dividend is payable on April 16, 2012 to all holders of Common
Stock of record as of March 30, 2012.



In March 2012, the Company entered into
a license agreement with our Manager, with the Company as licensee with respect to all intellectual property of the Manager other
than trademarks. The license agreement will terminate automatically in the event of the termination of the Third Amended and Restated
Management Agreement, or upon a material breach of the license agreement that remains uncured for more than 30 days after receipt
of notice of such breach. Also in March 2012, our Manager entered into a trademark assignment and license agreement with the Company
as licensee with respect to our Manager’s trademarks that had achieved federal registration status on substantially similar
terms as the initial intellectual property license agreement. The trademark license agreement may be terminated by either party
with 30 days’ written notice. In such an event, the Company would immediately forfeit the rights to any trademark covered
by the agreement.



F-23







Schedule III

Preferred Apartment Communities, Inc.

Real Estate Investments and Accumulated
Depreciation

December 31, 2011



|                |  |                                                                                                                  |  |             |  |   |             |  |  |   |               |  |  |   |              |  |  |   | Costs              |  |  |   |                               |  |  |   |              |  |  |   |              |  |  |   |            |  |   |              |   |  |              |  |  |           |  |  |                                                                                                             | 
|--------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----------- |  | - | ----------- |  |  | - | ------------- |  |  | - | ------------ |  |  | - | ------------------ |  |  | - | ----------------------------- |  |  | - | ------------ |  |  | - | ------------ |  |  | - | ---------- |  | - | ------------ | - |  | ------------ |  |  | --------- |  |  | ----------------------------------------------------------------------------------------------------------- | 
|                |  |                                                                                                                  |  |             |  |   |             |  |  |   |               |  |  |   |              |  |  |   | Capitalized        |  |  |   | Gross Amount at Which Carried |  |  |   |              |  |  |   |              |  |  |   |            | 
|                |  |                                                                                                                  |  |             |  |   |             |  |  |   | Initial Costs |  |  |   | Subsequent   |  |  |   | at Close of Period |  |  |   |                               |  |  |   |              |  |  |   | Depreciable  | 
|                |  | Location                                                                                                         |  |             |  |   | Related     |  |  |   |               |  |  |   | Building and |  |  |   | To                 |  |  |   |                               |  |  |   | Building and |  |  |   | Construction |  |  |   |            |  |   | Accumulated  |   |  | Date of      |  |  | Date      |  |  | Lives -                                                                                                     | 
|                |  | (MSA)                                                                                                            |  | Description |  |   | Ecumbrances |  |  |   | Land          |  |  |   | Improvements |  |  |   | Acquisition        |  |  |   | Land                          |  |  |   | Improvements |  |  |   | in Progress  |  |  |   | Total (1)  |  |   | Depreciation |   |  | Construction |  |  | Acquired  |  |  | Years                                                                                                       | 
|                |  |                                                                                                                  |  |             |  |   |             |  |  |   |               |  |  |   |              |  |  |   |                    |  |  |   |                               |  |  |   |              |  |  |   |              |  |  |   |            |  |   |              |   |  |              |  |  |           |  |  |                                                                                                             | 
|Stone Rise      |  | Philadelphia,
                                                                                PA                 |  | Apartments  |  | $ | 19,500,000  |  |  | $ | 6,950,000     |  |  | $ | 21,456,450   |  |  | $ | 68,539             |  |  | $ | 6,950,000                     |  |  | $ | 21,524,989   |  |  | $ | 3,453        |  |  | $ | 28,478,442 |  | $ | (800,429     | ) |  | 11/2008      |  |  | 4/15/2011 |  |  | 5
                                                                                - 40                      | 
|Summit Crossing |  | Atlanta,
                                                                                GA                      |  | Apartments  |  |   | 20,862,000  |  |  |   | 3,450,000     |  |  |   | 27,704,648   |  |  |   | 143,873            |  |  |   | 3,450,000                     |  |  |   | 27,848,521   |  |  |   | -            |  |  |   | 31,298,521 |  |   | (1,158,275   | ) |  | 9/2007       |  |  | 4/21/2011 |  |  | 5
                                                                                - 40                      | 
|Trail Creek     |  | Hampton,
                                                                                                     VA |  | Apartments  |  |   | 15,275,000  |  |  |   | 2,652,000     |  |  |   | 19,099,835   |  |  |   | 187,968            |  |  |   | 2,652,000                     |  |  |   | 19,287,803   |  |  |   | 64,425       |  |  |   | 22,004,228 |  |   | (739,600     | ) |  | 4/2007       |  |  | 4/29/2011 |  |  | 5
                                                                                                     - 40 | 
|Total           |  |                                                                                                                  |  |             |  | $ | 55,637,000  |  |  | $ | 13,052,000    |  |  | $ | 68,260,933   |  |  | $ | 400,380            |  |  | $ | 13,052,000                    |  |  | $ | 68,661,313   |  |  | $ | 67,877       |  |  | $ | 81,781,190 |  | $ | (2,698,305   | ) |  |              |  |  |           |  |  |                                                                                                             | 



(1) The aggregate cost for Federal Income Tax purposes to the
Company was approximately $88,900,707 at December 31, 2011.



A summary of activity for real estate investment and accumulated
depreciation is as follows:



|                                     |  | 2011 |           
|------------------------------------ |  | ---- | ----------
|Real estate investments              |  |      |           
|Balance at the beginning of the year |  | $    | -         
|Acquisitions                         |  |      | 81,312,933
|Improvements                         |  |      | 400,380   
|Construction in progress             |  |      | 67,877    
|Balance at the end of the year       |  | $    | 81,781,190
|                                     |  |      |           
|Accumulated Depreciation             |  |      |           
|Balance at the beginning of the year |  | $    | -         
|Depreciation (a)                     |  |      | (2,698,305
|Balance at the end of the year       |  | $    | (2,698,305



(a) Represents depreciation expense of real estate assets. Amounts
exclude amortization of lease intangible assets.



F-24







Schedule IV

Preferred Apartment Communities, Inc.

Mortgage Loans on Real Estate

December 31, 2011



|            |  |  | Location
                                                                                                                             (MSA) |  |  |  | Description                                                                                                                      |  |  |  | Interest
                                                                                                                             Rate (1) |   |  |  | Final Maturity Date |  |  |  | Periodic Payment Terms (2)                                                                                                 |  |  |   | Prior Liens (3) |  |  |   | Face Amount
                                                                                                                             of Mortgage |  |  |   | Carrying Amount
                                                                                                                             of Mortgage (4) | 
|----------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------- | - |  |  | ------------------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------- |  |  | - | --------------- |  |  | - | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|            |  |  |                                                                                                                                             |  |  |  |                                                                                                                                  |  |  |  |                                                                                                                                                |   |  |  |                     |  |  |  |                                                                                                                            |  |  |   |                 |  |  |   |                                                                                                                                                      |  |  |   |                                                                                                                                                              | 
|Trail Creek |  |  | Hampton,
                                                                                                     VA                            |  |  |  | Mezzanine
                                                                                                     construction loan |  |  |  | 8.0                                                                                                                                            | % |  |  | 6/29/2016           |  |  |  | Fixed
                                                                                rate, interest only, payable monthly |  |  | $ | 10,000,000      |  |  | $ | 6,000,000                                                                                                                                            |  |  | $ | 6,000,000                                                                                                                                                    | 



(1) Under the terms of a purchase option agreement entered into
in connection with the closing of the mezzanine loan, we have an option (but not an obligation) to purchase the property between
and including April 1, 2014 and June 30, 2014 for $17,825,600. If the property is sold to, or refinanced by, a third party before
July 1, 2014, we will be entitled to receive an exit fee equal to the amount required to provide us with a 14% cumulative internal
rate of return on the loan. If the property is sold to, or refinanced by, a third party on or after July 1, 2014, then we will
be entitled to receive an exit fee equal to the amount required to provide us with a 12% cumulative internal rate of return on
the loan.



(2) We will accrue an additional amount necessary to equal at
least a 12% internal rate of return, after consideration of net loan and loan commitment fees of $74,333 received for originating
the loan. As of December 31, 2011, we had accrued no additional exit fee.



(3) Senior construction loan held by an unrelated third party.



(4) The aggregate cost for Federal income tax purposes was $6,000,000
at December 31, 2011.



|                                     |  | 2011 |          
|------------------------------------ |  | ---- | ---------
|Mortgage loans                       |  |      |          
|Balance at the beginning of the year |  | $    | -        
|Originations                         |  |      | 6,000,000
|Balance at the end of the year       |  | $    | 6,000,000



F-25







EXHIBIT INDEX



The following exhibits are included in this Amendment No.
1 (and are numbered in accordance with Item 601 of Regulation S-K):



|Exhibit |  |  |                                                                                              
|------- |  |  | ---------------------------------------------------------------------------------------------
|No.     |  |  | Description                                                                                  
|31.1    |  |  | Certification of John A. Williams, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 
|31.2    |  |  | Certification of Michael J. Cronin, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|32.1    |  |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                      
|32.2    |  |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                      







F-26







SIGNATURES



Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.





|                      | PREFERRED APARTMENT COMMUNITIES, INC. |                                     
|--------------------- | ------------------------------------- | ------------------------------------
|                      |                                       |                                     
|                      |                                       |                                     
|                      |                                       |                                     
|Date: August 31, 2012 | By:                                   | /s/ John A. Williams                
|                      |                                       | John A. Williams                    
|                      |                                       | Chief Executive Officer and Director
|                      |                                       | (Principal Executive Officer)