Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
(Mark
One)
x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended December 31, 2009
or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period
from
to
Commission
file number
001-32417
Education
Realty Trust, Inc.
(Exact
Name of Registrant as Specified in Its Charter)
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Maryland
(State
or Other Jurisdiction of
Incorporation
or Organization)
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20-1352180
(IRS
Employer
Identification
No.)
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530
Oak Court Drive, Suite 300
Memphis
Tennessee
(Address
of Principal Executive Offices)
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38117
(Zip
Code)
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Registrant’s
Telephone Number, Including Area Code (901) 259-2500
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name Of Each Exchange On Which
Registered
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Common
Stock, $.01 par value per share
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New
York Stock Exchange
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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 ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes ¨ No x
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. Yes x No ¨
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). oYes oNo
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405) 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.x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
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Accelerated
filer
x
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Non-accelerated
filer ¨
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Smaller
reporting company ¨
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(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes ¨ No x
As of
June 30, 2009, the last business day of the registrant’s most recently
completed second quarter, the aggregate market value of the registrant’s common
stock held by non-affiliates of the registrant was approximately $121 million,
based on the closing sales price of $4.29 per share as reported on the New York
Stock Exchange. (For purposes of this calculation all of the registrant’s
directors and executive officers are deemed affiliates of the
registrant.)
As of
March 15, 2010, the registrant had 56,761,966 shares of common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The
Registrant incorporates by reference portions of its Definitive Proxy Statement
for the 2010 Annual Meeting of Stockholders to be filed subsequently with the
Securities and Exchange Commission into Part III of this Form 10-K to the
extent stated herein.
FORWARD-LOOKING
STATEMENTS
Our
disclosure and analysis in this Annual Report on Form 10-K and the documents
that are or will be incorporated by reference herein contain “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements provide our current expectations or forecasts of
future events and are not statements of historical fact. These forward-looking
statements include information about possible or assumed future events,
including, among other things, discussion and analysis of our future financial
condition, results of operations and funds from operations, our strategic plans
and objectives, cost management, occupancy and leasing rates and trends,
liquidity and ability to refinance our indebtedness as it matures, anticipated
capital expenditures (and access to capital) required to complete projects,
amounts of anticipated cash distributions to our stockholders in the future and
other matters. Words such as “anticipates,” “expects,” “intends,” “plans,”
“believes,” “seeks,” “estimates” and variations of these words and similar
expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and/or could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements.
Forward-looking
statements involve inherent uncertainty and may ultimately prove to be incorrect
or false. You are cautioned to not place undue reliance on forward-looking
statements. Except as otherwise may be required by law, we undertake no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or actual operating results.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including, but not
limited to:
•
risks and uncertainties related to the current recession, the national and local
economies, and the real estate industry in general and in our specific markets
(including university enrollment conditions and admission policies, and our
relationship with these universities);
•
volatility in the capital markets;
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rising interest and insurance rates;
•
competition from university-owned or other private student housing and our
inability to obtain new tenants on favorable terms, or at all, upon the
expiration of existing leases;
•
availability and terms of capital and financing, both to fund our operations and
to refinance our indebtedness as it matures;
•
legislative or regulatory changes, including changes to laws governing student
housing, construction and real estate investment trusts;
•
our possible failure to qualify as a REIT and the risk of changes in laws
affecting REITs;
•
our dependence upon key personnel whose continued service is not
guaranteed;
•
our ability to identify, hire and retain highly qualified executives in the
future and to successfully execute our leadership succession plan;
•
availability of appropriate acquisition and development targets;
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failure to integrate acquisitions successfully;
•
the financial condition and liquidity of, or disputes with, our joint venture
and development partners;
•
impact of ad valorem, property and income taxes;
•
changes in generally accepted accounting principles;
•
construction delays, increasing construction costs or construction costs that
exceed estimates;
•
potential liability for uninsured losses and environmental
liabilities;
•
lease-up risks; and
•
the potential need to fund improvements or other capital expenditures out of
operating cash flow.
This list
of risks and uncertainties, however, is only a summary of some of the most
important factors and is not intended to be exhaustive. You should carefully
review the risks described under “Item 1A. – Risk Factors” below. New factors
may also emerge from time to time that could materially and adversely affect
us.
EDUCATION
REALTY TRUST,
INC. FISCAL
2009 FORM 10-K
(Dollars
in thousands, except selected property information and share data)
Our
Company
Education
Realty Trust, Inc., which we refer to as EDR or the Trust, is a self-managed and
self-advised real estate investment trust, or REIT, organized in July 2004
to develop, acquire, own and manage high quality student housing communities
located near university campuses. We were formed to continue and expand upon the
student housing business of Allen & O’Hara, Inc., a company with over 40
years of experience as an owner, manager and developer of student housing. As of
December 31, 2009, we owned 40 student housing communities located in 19
states containing 25,454
beds in 7,813 apartment units located near 35 universities. As of
December 31, 2009, we provided third-party management services for 20
student housing communities located in 9 states containing 10,186 beds in 3,272
apartment units at 16 universities. We selectively develop student housing
communities for our own account and also provide third-party development
consulting services on student housing development projects for universities and
other third parties.
All of
our assets are held by, and we have conducted substantially all of our
activities through Education Realty Operating Partnership, LP, our Operating
Partnership, and its wholly owned subsidiaries, Allen & O’Hara Education
Services, Inc., which we refer to as our Management Company or AOES, and Allen
& O’Hara Development Company, LLC, which we refer to as our Development
Company or AODC. The majority of our operating expenses are borne by our
Operating Partnership, our Management Company or our Development Company, as the
case may be.
We are
the sole general partner of our Operating Partnership. As a result, our board of
directors effectively directs all of our Operating Partnership’s affairs. We own
98.0% of the outstanding partnership units of our Operating Partnership, and
1.5% of the partnership units are held by the former owners of our initial
properties and assets, including members of our management team. Some of our
officers and employees also own an indirect interest in our Operating
Partnership, which we refer to as “profits interest units,” which is held
through ownership of units in Education Realty Limited Partner, LLC, a Delaware
limited liability company controlled by us and that holds 0.5% of the aggregate
interests in our Operating Partnership.
University
Towers Operating Partnership, LP, or the University Towers Partnership, which is
our affiliate, holds, owns and operates our University Towers property located
in Raleigh, North Carolina. We own 72.7% of the units in the University Towers
Partnership, and 27.3% of the University Towers Partnership is held by the
former owners of our initial properties and assets including members of our
management team.
REIT
Status and Taxable REIT Subsidiary
We have
elected to be taxed as a real estate investment trust, or REIT, for federal
income tax purposes. With the exception of income from our “taxable REIT
subsidiary” or TRS, income earned under the REIT is generally not subject to
income taxes. In order to qualify as a REIT, a specified percentage of our gross
income must be derived from real property sources, which would generally exclude
our income from providing development and management services to third parties
as well as our income from certain services afforded to our student-tenants. In
order to avoid realizing such income in a manner that would adversely affect our
ability to qualify as a REIT, we provide some services through our Management
Company and our Development Company, with our Management Company being treated
as our TRS. Our Management Company is wholly owned and controlled by our
Operating Partnership, and our Management Company wholly owns our Development
Company. Our Development Company is a disregarded entity for federal income tax
purposes and all assets owned and income earned by our Development Company are
deemed to be owned and earned by our Management Company.
Business
and Growth Strategy
Our
primary business objective is to achieve sustainable long-term growth in cash
flow per share in order to maximize long-term stockholder value. We intend to
achieve this objective by (i) acquiring student housing communities
nationwide that meet our focused investment criteria, (ii) maximizing net
operating income from the operation of our owned properties through proactive
and goal-oriented property management strategies, (iii) building our
third-party business of management services and development consulting services
and (iv) selectively developing properties for our own account. For a
discussion of revenues, profit and loss and total assets by segment see “Item 7
– Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and Note 11, “Segments” to our accompanying consolidated financial
statements.
Acquisition
and Development Strategy
We seek
to acquire or develop high quality well-located garden-style communities
with modern floor plans and amenities. Our ideal acquisition targets generally
are located in markets that have stable or increasing student populations and
limited barriers to entry. We also seek to acquire or develop investments in
student housing communities that possess sound market fundamentals but are
under-performing and would benefit from re-positioning, renovation and/or
improved property management. We consider the following property and market
factors to identify potential property acquisitions:
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university
and campus reputation;
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competitive
admissions criteria;
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limited
number of on-campus beds and limited plans for
expansion;
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distance
of property from campus;
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significant
out-of-state enrollment;
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past
operating performance;
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potential
for improved management;
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ownership
and capital structure;
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presence
of desired amenities;
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maintenance
and condition of the property;
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access
to a university-sponsored or public transportation line;
and
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In some
cases we utilize joint venture agreements, in which case we hold a minority
ownership interest in properties and earn a fee for the management of the
properties. This strategy enables us to accretively diversify our portfolio by
expanding into geographic markets where we are not currently present with lower
capital requirements than if we acquired the properties on our own. We expect to
continue pursuing joint venture arrangements in the future.
In August
2009, we completed the development of the second phase of a student housing
community in Carbondale, Illinois of which the first phase was opened during
August of 2008.
In 2009,
the Trust also announced the branding of its private equity program for
universities as The On-Campus Equity Plan (“The One Plan”) which is a
partnership that allows universities to use the Trust’s equity and financial
stability to develop and revitalize campus housing while preserving their credit
capacity for other campus projects. The One Plan offers one partner and one
equity source to universities seeking to modernize on-campus housing to meet the
needs of today’s students. In August 2009, we completed the development of a
wholly owned student housing community located on the campus of Syracuse
University in Syracuse, New York. The Trust owns and manages the community under
a long-term ground lease from Syracuse University. This is the first community
EDR developed under The One Plan.
We
believe the Trust will continue to enter into more partnerships under The One
Plan due to our years of success in the university housing
business. The One Plan allows us to provide the perfect opportunity
to universities to develop new housing and boost enrollment with a plan tailored
to specific needs while preserving the university’s credit
capacity.
Operating
Strategy
We seek
to maximize funds from the operations of the student housing communities that we
own and manage through the following operational strategies.
Maximize property
profitability. We seek to maximize property-level profitability through
the use of cost control systems and our focused on-site management personnel.
Some of our specific cost control initiatives include:
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establishing
internal controls and procedures for cost control consistently throughout
our communities;
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operating
with flat property-level management structures, minimizing multiple layers
of management; and
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negotiating
service-level pricing arrangements with national and regional vendors and
requiring corporate-level approval of service agreements for each
community.
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Proactive marketing
practices. We have developed and implemented proactive marketing
practices to enhance the visibility of our student housing communities and to
optimize our occupancy rates. We study our competitors, our residents and
university policies affecting enrollment and housing. Based on our findings at
each property, we formulate a marketing and sales plan for each academic leasing
period. This plan is closely monitored and adjusted, if need be, throughout the
leasing period. We intend to continue to market our properties to students,
parents and universities by emphasizing student-oriented living areas,
state-of-the-art technology infrastructure, a wide variety of amenities and
services and close proximity to university campuses.
Develop and retain personnel.
We staff each student housing community that we own or manage with a
full-service on-site property management team. Each of our property management
teams includes Community Assistants who plan activities and interact with
students, enhancing their college experiences. We have developed policies and
procedures to train each team of on-site employees and to provide them with
corporate-based support for each essential operating function. To retain
employees, we have developed an incentive-based compensation structure that is
available to all of our on-site personnel.
Maintain and develop strategic
relationships. We believe that establishing and maintaining relationships
with universities is important to the ongoing success of our business. We
believe that these relationships will continue to provide us with referrals that
enhance our leasing efforts, opportunities for additional acquisitions of
student housing communities and contracts for third-party services.
Third-Party
Services
In
addition to managing our owned student housing communities and developing
communities for our ownership, we also provide management and development
consulting services for third-parties. Universities and other third-party owners
look to the private sector for assistance in developing and managing their
student housing properties. We perform third-party services in order to enhance
our reputation with universities and to benefit our primary goal of owning high
quality student housing communities. We perform third-party services for student
housing communities serving some of the nation’s most prominent systems of
higher education, including the University of North Carolina, the California
State University System and the Pennsylvania State System of Higher
Education.
In order
to comply with the rules applicable to our status as a REIT, we provide our
third-party services through our Management Company and our Development Company.
Unlike the income earned from our properties under the REIT, the income earned
by our Management Company and our Development Company is subject to regular
federal income tax and state and local income taxes where
applicable.
Third-party
management services
We
provide third-party management services for student housing communities owned by
educational institutions, charitable foundations and others. Our management
services typically cover all aspects of operations, including residence life and
student development, marketing, leasing administration, strategic relationships,
information systems and accounting services. These services are comparable
to the services that we provide for our owned properties. We typically provide
these services pursuant to multi-year management agreements. These
agreements typically have an initial term of two to five years with renewal
options of like terms. We believe that providing these services allows us to
increase cash flow with little incremental cost by leveraging our existing
management expertise and infrastructure. For the year ended
December 31, 2009, our fees from third-party management
services represented 2.6% of our revenue, excluding operating expense
reimbursements.
The
following table presents certain summary information regarding the student
housing communities that we managed for other owners as of December 31,
2009:
Property
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University
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# of Beds
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# of Units
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On-campus
properties
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University
Park — Calhoun Street Apartments
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University
of Cincinnati
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749 |
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288 |
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Reinhard
Villages
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Clarion
University of Pennsylvania
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656 |
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180 |
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University
Park
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Salisbury
University (Maryland)
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578 |
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145 |
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University
Park — Phase II
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Salisbury
University (Maryland)
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312 |
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108 |
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Bettie
Johnson Hall
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University
of Louisville
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490 |
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224 |
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Herman
& Heddy Kurz Hall
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University
of Louisville
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402 |
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224 |
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Billy
Minardi Hall
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University
of Louisville
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38 |
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20 |
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Community
Park
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University
of Louisville
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358 |
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101 |
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University
Village
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California
State University — San Marcos
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627 |
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126 |
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Arlington
Park Apartments
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University
of Northern Colorado
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394 |
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179 |
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Total
on-campus
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4,604 |
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1,595 |
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Off-campus
properties
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Granville
Towers
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University
of North Carolina at Chapel Hill
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1,333 |
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363 |
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Honeysuckle
Apartments
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Bloomsburg
University of Pennsylvania
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407 |
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104 |
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Evergreen
Commons
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Lock
Haven University of Pennsylvania
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408 |
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108 |
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Campus
Village
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University
of Colorado — Denver
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689 |
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210 |
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The
College Inn
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North
Carolina State University
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440 |
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121 |
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Upper
Eastside Lofts
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Sacramento
State University
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309 |
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134 |
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100
Midtown
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Georgia
Tech and Georgia State
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330 |
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118 |
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The
Courtyards
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University
of Michigan
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896 |
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320 |
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Vulcan
Village I
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California
University of Pennsylvania
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432 |
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108 |
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Vulcan
Village II
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California
University of Pennsylvania
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338 |
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91 |
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University
Village (1)
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University
of North Carolina – Greensboro
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600 |
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203 |
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University
Village Towers (1)
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University
of California – Riverside
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548 |
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149 |
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The
Reserve on Stinson (1)
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University
of Oklahoma
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612 |
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204 |
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Fontainebleu
(1)
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University
of California – Santa Barbara
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435 |
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99 |
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Total
off-campus
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7,777 |
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2,332 |
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Totals
(for both on- and off-campus)
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12,381 |
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3,927 |
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(1)
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EDR
holds a noncontrolling interest in the community pursuant to its joint
venture arrangements.
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Third-party
development consulting services
We
provide third-party development consulting services primarily to universities
seeking to modernize their on-campus student housing communities but also to
other third-party investors. Our development consulting services typically
include the following:
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market
analysis and evaluation of housing needs and
options;
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cooperation
with university in architectural
design;
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negotiation
of ground lease, development agreement, construction contract,
architectural contract and bond
documents;
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oversight
of architectural design process;
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coordination
of governmental and university plan
approvals;
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oversight
of construction process;
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design,
purchase and installation of
furniture;
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pre-opening
marketing to students; and
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obtaining
final approvals of
construction.
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By
providing these services, we are able to observe emerging trends in student
housing development and market acceptance of unit and community amenities. Our
development consulting services also provide us with opportunities to obtain
additional third-party property management contracts. Of the 19 clients we
have provided development-consulting services to since 2000, we currently
offer third-party management services contracts for 11 with 8 property owners
electing to manage the communities in house under their existing infrastructure.
In 2009, our fees from third-party development consulting
services represented 6.6% of our revenues, excluding operating expense
reimbursements.
Since
2000, we have provided third-party development consulting services to clients
for projects totaling over $1.4 billion in value. We are currently providing
third-party development services pursuant to signed definitive contracts with
projects under construction at Indiana University of Pennsylvania and Colorado
State University Pueblo. The aggregate project cost of these two
projects is approximately $77,000. Additionally, we are providing
pre-construction development consulting services on new projects and additional
projects pursuant to signed pre-closing development contracts at East
Stroudsburg University of Pennsylvania and State University of New York College
of Environmental Services and Forestry. In aggregate, these total
approximately$100,000 in project costs. We typically
are notified that we have been awarded development consulting services projects
on the basis of a competitive award process and thereafter begin to work on the
project. In the case of tax exempt bond financed projects, definitive contracts
are not executed until bond closing.
Our
Operations
We staff
each of our owned and managed student housing communities with a full-service
property management team. We typically staff each property with one Community
Manager, a marketing/leasing manager, a resident services director, a
maintenance supervisor, one on-site resident Community Assistant for each 50-85
students and general office staff. Each property management team markets, leases
and manages the community with a focus on maximizing its profitability. In
addition, each property management team is trained to provide social and
developmental opportunities for students, enhancing the students’ college
experiences as well as the desirability of our communities.
We have
developed policies and procedures to carefully select and develop each team of
on-site employees and to provide each team with corporate-based support for each
essential operating area, including lease administration, sales/marketing,
community and university relations, student life administration, maintenance and
loss prevention, accounting, human resources/benefits administration and
information systems. The corporate level personnel responsible for each of these
areas support each Community Manager’s leadership role, and are available as a
resource to the Community Managers around the clock.
Residence
Life and Student Development
Our
corporate director of residence life and student personnel development designs
and directs our residence life program. Our programs are developed at the
corporate level and implemented at each community by our Community Assistants,
together with our other on-site personnel. We provide educational, social and
recreational activities designed to help students achieve academic goals,
promote respect and harmony throughout the community, and help bridge
interaction with the respective university. Examples of our residence life and
student development programs include:
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community-building
and social activities geared to university-related events, holidays,
public safety and education;
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study
and attention skills counseling;
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career
development, resume writing and employment search skill
training;
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sponsorship
of intramural sport teams, academic clubs and alumni-based
activities;
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parent
and resident appreciation events;
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community
service activities including recycling, blood drives, food drives and
student volunteer committees;
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lectures
focused on social issues, including effective communication,
multi-cultural awareness and substance
abuse;
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university
outreach activities; and
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voter
registration, enrollment and
education.
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The
Community Assistants perform key roles in the administrative functioning of the
community and interface with students through constructive programs, activities
and listening to student interests and concerns. Our on-site leadership selects
students to serve as Community Assistants who meet criteria established by our
corporate director of residence life and student personnel
development.
Marketing
We begin
our annual marketing campaign by thoroughly segmenting the student population
attending each of the primary universities where our student housing communities
are located, and compiling market surveys of comparable student apartment
properties. With this information, we formulate a marketing/sales strategy that
consists of a renewal campaign for current residents and a broader campaign
directed at the eligible student population. We assess university regulations
regarding housing requirements to avoid targeting markets in which significant
numbers of students are not eligible to live off-campus until they achieve
certain credit hour levels.
We
typically begin our renewal campaign between November and January of each year.
Signage, social networking, direct mailings to the students and their parents,
appreciation parties and staff selling incentives are key elements of the
renewal campaign. The Community Assistant team plays a key role in communicating
the renewal message throughout its assigned property area. We use a database of
current resident demographic data to direct sales information to primary feeder
high schools, particularly where new freshmen are eligible to live off-campus.
Other database criteria include gender, high school location, prior apartment
community, academic class standing, field of study and activity
preferences.
We appeal
to the greater university population through theme-based newspaper advertising
campaigns, open house activities, housing fairs conducted by the university, web
based advertising and social networking media. Our professional leasing
& marketing staff targets certain university-sponsored on-campus events
to distribute handouts displaying our logo and offering incentives to visit our
sales center. Wherever possible, our student housing communities appear on
university websites in listings of off-campus housing options, together with
banner advertising where available.
Leasing
Our
standard lease begins in August and runs for approximately 11.5 months,
ending July 31 or early August to coincide with the university’s fall
academic term. The primary exception to our standard lease term is our
University Towers community, which we generally rent on nine-month academic year
leases. Our standard lease is an agreement between the student and parental
guarantor, and the specific student housing community. All leases are for a bed
in a private or shared bedroom, with rights to share common areas within the
unit and throughout the community. The “individual lease” is a strong selling
attraction as it limits a student’s liability to the rental for one bedroom
instead of burdening the student with shared liability for the entire unit
rental amount.
We lease
our units by floor plan type using internally-generated occupancy spreadsheets
to maximize full leasing of entire units, avoiding spotty vacancies particularly
in the four-bedroom units. We offer roommate-matching services to facilitate
full occupancy. We develop wait lists and monitor popular floor plans that fill
to capacity early in the leasing season. If any fully vacant units remain
available after the beginning of any academic semester, we seek to lease such
units on a temporary basis to university-related visitors and our tenants’
parents and family members, or keep them available for future leasing to
students.
Unlike
conventional apartment communities that have monthly move-outs and renewals, our
student housing community occupancies remain relatively stable throughout the
academic year, but must be entirely re-leased at the beginning of each academic
year. Because of the nature of leasing to students, we are highly dependent upon
the success of our marketing and leasing efforts during the annual leasing
season, generally November through August. Our leasing staff undergoes intensive
annual professional training to maximize the success of our leasing
efforts.
We
typically require rent to be paid in 12 equal monthly payments throughout the
lease term, with the first installment due on July 15. Residents of University
Towers and residence halls that we manage for third parties typically pay their
annual rent in two installments on July 1 and December 1. We replace contracted
students who fail to pay the first installment with students on our waiting list
or from walk-in traffic while the market is still active with students seeking
housing at the commencement of the academic year.
Strategic
Relationships
We assign
high priority to establishing and nurturing relationships with the
administration of each of the primary universities where our student housing
communities are located. Our corporate staff establishes this network, and
on-site management then sustains it with follow-up by corporate staff during
routine visits to the community. As a result of our strategic relationships,
universities often refer their students to our properties, thus enhancing our
leasing effort throughout the year. These networks create goodwill for our
student housing communities throughout the university administration, including
departments of admissions, student affairs, public safety, athletics and
international affairs.
Most
universities promote off-campus housing alternatives to their student
population. It is our intention to be among the most preferred off-campus
residences and for universities to include our communities in listings and
literature provided to students. We seek to obtain student mailing lists and to
be featured in Internet-based student housing listings wherever permitted by the
institution and incorporate these initiatives into our marketing efforts. Our
Community Managers make scheduled personal visits with academic departments to
further our community exposure at this level.
Our
management team has developed long-standing relationships with developers,
owners and brokers of student housing properties that allow us to identify and
capitalize on acquisition opportunities. As a result, we have generated an
internal database of contacts that we use to identify and evaluate acquisition
candidates. As it is our intention to develop a diverse portfolio of student
housing communities, we also develop strategic relationships with equity
investors in order to pursue acquisitions through joint venture arrangements.
Acquisitions, through joint venture arrangements, allow us to obtain a
noncontrolling interest in student housing communities in geographic markets
where we are not currently present with less capital than if we acquired the
properties on our own.
Competition
Competition
from universities
We
typically compete for student tenants with the owners of on-campus student
housing, which is generally owned by educational institutions or charitable
foundations. Educational institutions can generally avoid real estate taxes and
borrow funds at lower interest rates, while we and other private sector
operators pay full real estate tax rates and have higher borrowing costs. The
competitive advantages of on-campus student housing also include its physical
proximity to the university campus and captive student body. Many universities
have policies requiring students to live in their on-campus facilities during
their freshman year.
On-campus
housing is limited, however, and most universities are able to house only a
small percentage of their students. As a result, educational institutions depend
upon, and may serve as referral sources for, private providers of off-campus
housing. In addition, off-campus housing facilities tend to offer more relaxed
rules and regulations than on-campus properties and therefore tend to be more
appealing to students. Off-campus student housing offers freedom from
restrictions such as quiet hours or gender visitation limitations, and is
especially appealing to upperclassmen who are transitioning towards their
independence.
Competition
from private owners
We
compete with several regional and national owner-operators of off-campus student
housing, including one publicly-traded competitor, American Campus
Communities, Inc. (ACC). We also compete with privately held developers and
other real estate firms and in a number of markets with smaller local
owner-operators. Currently, the industry is fragmented with no participant
holding a dominant market share. We believe that a number of other large
national companies with substantial financial resources may be potential
entrants in the student housing business. The entry of one or more of these
companies could increase competition for students and for the acquisition,
management and development of student housing properties.
Environmental
Matters
As a
current or prior owner, manager and developer of real estate, we are subject to
various federal, state and local environmental laws, regulations and ordinances
and also could be liable to third parties resulting from environmental
contamination or noncompliance at our properties. Environmental laws often
impose liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of the contaminants, and the costs of any required
investigation or cleanup of these substances can be substantial. The liability
is generally not limited under such laws and could exceed the property’s value
and the aggregate assets of the liable party. The presence of contamination or
the failure to remediate contamination at our properties also may expose us to
third-party liability for personal injury or property damage, or adversely
affect our ability to sell, lease or develop the real property or to borrow
using the real property as collateral. These and other risks related to
environmental matters are described in more detail in “Item 1A. – Risk Factors”
below.
Employees
At
December 31, 2009, we had approximately 1,249 employees,
including:
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1,158
on-site employees, including 536 Community
Assistants;
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24
people in our property management services
department;
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7
people in our development consulting services department;
and
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60
executive, corporate administration and financial
personnel.
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Our
management team’s in-depth knowledge of the student housing industry results
from hands-on experiences. Several of our executive officers began their careers
as student-tenant employees or Community Managers responsible for managing
individual student housing communities.
On
December 31, 2009, Paul Bower, Chairman of the Board of Directors, Chief
Executive Officer and President of the Trust, retired from active employment
with the Trust upon the appointment of his successor, Randy
Churchey. Mr. Bower will remain on the Board of Directors and
continue to serve as the Chairman. Prior to accepting the Chief Executive
Officer position with the Trust, Mr. Churchey served as the Interim Chief
Executive Officer of Great Wolf Resorts, Inc. where he has served as a member of
the board since 2004. In February 2010, Craig Cardwell, President of Allen &
O’Hara Education Services, Inc., resigned from the Trust in order to pursue
entrepreneurial opportunities outside of the Trust. Upon his
departure, Christine Richards was named Senior Vice President of Operations and
is responsible for overseeing the daily operations of the Trust’s owned and
joint venture student housing communities. Ms. Richards most recently served as
Vice President of Operations for the Trust.
NYSE
Certifications
Our CEO
certified to the New York Stock Exchange in 2009 that we were in compliance with
the NYSE listing standards. Our CEO and CFO have executed the certifications
required by section 302 of the Sarbanes-Oxley Act of 2002, which are contained
herein as exhibits to this Form 10-K for the fiscal year ended December 31,
2009.
Code
of Business Conduct and Ethics
We have
adopted a Code of Business Conduct and Ethics that applies to all employees. It
is available in the corporate governance section of our investor website at www.educationrealty.com. Any
waiver of the Code of Business Conduct and Ethics for an executive officer or
director will be promptly disclosed to stockholders in any manner that is
acceptable under New York Stock Exchange listing standards, including but not
limited to, distribution of a press release, disclosure on our website, or
disclosure on Form 8-K. We intend to satisfy our disclosure
obligations under Item 5.05 of Form 8-K related to amendments or waivers of the
Code of Business Conduct and Ethics by posting such information on our
website.
Available
Information
EDR files
annual, periodic, current and other reports and information with the
Securities and Exchange Commission, or the SEC. All filings made by EDR with the
SEC may be copied or read at the SEC’s Public Reference Room at 100 F Street NE,
Washington, DC 20549. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC as EDR does.
The website address is http://www.sec.gov.
Additionally,
a copy of this Annual Report on Form 10-K, along with EDR’s Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and any amendments to the aforementioned
filings, are available on EDR’s website, www.educationrealty.com, free of charge
as soon as reasonably practicable after EDR electronically files such reports or
amendments with, or furnishes them to, the SEC. The filings can be found in the
SEC filings section of our website. EDR’s website also contains its Corporate
Governance Guidelines, Code of Business Conduct and Ethics and the charters
of the committees of the Board of Directors. These items can be found in the
Corporate Governance section of our website. Reference to EDR’s website does not
constitute incorporation by reference of the information contained on the site
and should not be considered part of this document. All of the aforementioned
materials may also be obtained free of charge by contacting the Investor
Relations Department at Education Realty Trust, Inc., 530 Oak Court Drive,
Suite 300, Memphis, Tennessee 38117.
Risks
related to our properties, our business and the real estate
industry
Adverse
macroeconomic and business conditions may significantly and negatively affect
our cash flows, profitability and results of operations.
The
United States is currently experiencing a prolonged recession that has resulted
in higher unemployment, weakening of consumer financial condition, large-scale
business failures and tight credit markets. Our results of operations may be
sensitive to changes in overall economic conditions that impact tenant leasing
practices. A continuation of ongoing adverse economic conditions affecting
disposable tenant income, such as employment levels, business conditions,
interest rates, tax rates, fuel and energy costs and other matters, could reduce
overall tenant leasing or cause tenants to shift their leasing practices. At
this time, it is difficult to determine the breadth and duration of the economic
and financial market problems and the many ways in which they may affect our
tenants and our business in general. A general reduction in the level of tenant
leasing could adversely affect our growth and profitability.
We own,
directly or indirectly, interests in student housing communities located near
major universities in the United States. Accordingly, we are dependant upon the
levels of student enrollment and the admission policies of the respective
universities which attract a significant portion of our leasing base. As a
result of the overall market quality deterioration, many students may be unable
to obtain student loans on favorable terms. If student loans are not available
or their costs are prohibitively high, enrollment numbers for universities may
decrease. The demand for, occupancy rates at, rental income from and value of
our properties would be adversely affected if student enrollment levels become
stagnant or decrease in the current environment. Accordingly, a continuation or
further worsening of these difficult financial and macroeconomic conditions
could have a significant adverse effect on our cash flows, profitability and
results of operations.
Our
performance and the value of our real estate assets are subject to risks
associated with real estate assets and with the real estate
industry.
Our
performance and ability to make distributions to our stockholders depends on our
ability to generate cash revenues in excess of expenses, scheduled debt service
obligations and capital expenditure requirements. Events and conditions
generally applicable to owners and operators of real property that are beyond
our control may decrease cash available for distribution and the value of our
properties.
These
events include:
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local
oversupply of student housing units, increased competition or reduction in
demand for student housing;
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inability
to collect rent from tenants;
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vacancies
or our inability to lease beds on favorable
terms;
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inability
to finance property development and acquisitions on favorable
terms;
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increased
operating costs, including insurance premiums, utilities, and real estate
taxes;
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costs
of complying with changes in governmental
regulations;
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the
relative illiquidity of real estate
investments;
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changing
student demographics;
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decreases
in student enrollment at particular colleges and
universities;
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changes
in university policies related to
admissions;
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national,
regional and local economic conditions;
and
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Our results of operations are subject
to the following risks inherent in the student housing industry: leasing cycles,
concentrated lease-up period, seasonal cash flows and increased risk of student
defaults during the summer months of 11.5 month leases.
We
generally lease our properties under 11.5 month leases, but we may also lease
for terms of nine months or less. Furthermore, all of our properties must be
entirely re-leased each year, exposing us to increased leasing risk. We may not
be able to relet the property on similar terms, if we are able to relet the
property at all. The terms of renewal or re-lease (including the cost of
required renovations and/or concessions to tenants) may be less favorable to us
than the prior lease. If we are unable to relet all or a substantial portion of
our properties, or if the rental rates upon such reletting are significantly
lower than expected rates, our cash flow from operations and our ability to make
distributions to stockholders and service indebtedness could be adversely
affected.
In
addition, we are subject to increased leasing risk on properties that we acquire
that we have not previously managed due to our lack of experience leasing those
properties and unfamiliarity with their leasing cycles. Student housing
communities are typically leased during a leasing season that begins in November
and ends in August of each year. We are therefore highly dependent on the
effectiveness of our marketing and leasing efforts and personnel during this
season. Prior to the commencement of each new lease period, mostly during the
first two weeks of August but also during September at some communities, we
prepare the units for new incoming tenants. Other than revenue generated by
in-place leases for returning tenants, we do not generally recognize lease
revenue during this period referred to as “Turn” as we have no leases in place.
In addition, during Turn, we incur significant expenses making our units ready
for occupancy, which we recognize immediately. This lease Turn period results in
seasonality in our operating results during the third quarter of each year. As a
result, we may experience significantly reduced cash flows during the summer
months at properties leased for terms shorter than twelve months.
In
addition, students leasing under 11.5 month leases may be more likely to default
on their rental payments during the summer months. Although we typically require
a student’s parents to guarantee the student’s lease, we may have to spend
considerable effort and expense in pursuing payment upon a defaulted lease, and
our efforts may not be successful.
We
rely on our relationships with universities, and changes in university personnel
and/or policies could adversely affect our operating results.
In some
cases, we rely on our relationships with universities for referrals of
prospective tenants or for mailing lists of prospective tenants and their
parents. The failure to maintain good relationships with personnel at these
universities could therefore have a material adverse effect on us. If
universities refuse to make their lists of prospective student-tenants and their
parents available to us or increase the costs of these lists, the increased
costs or failure to obtain such lists could also have a material adverse effect
on us.
We may be
adversely affected by a change in university admission policies. For example, if
a university reduces the number of student admissions, the demand for our
properties may be reduced and our occupancy rates may decline. In addition,
universities may institute a policy that a certain class of students, such as
freshmen, must live in a university-owned facility, which would also reduce the
demand for our properties. While we may engage in marketing efforts to
compensate for such policy changes, we may not be able to effect such marketing
efforts prior to the commencement of the annual lease-up period or at
all.
We
face significant competition from university-owned student housing and from
other private student housing communities located within close proximity to
universities.
Many
students prefer on-campus housing to off-campus housing because of the closer
physical proximity to campus and integration of on-campus facilities into the
academic community. Universities can generally avoid real estate taxes and
borrow funds at lower interest rates while we and other private-sector operators
pay full real estate tax rates and have higher borrowing costs. Consequently,
universities often can offer more convenient and/or less expensive student
housing than we can which can adversely affect our occupancy and rental
rates.
We also
compete with other national and regional owner-operators of off-campus student
housing in a number of markets as well as with smaller local owner-operators.
There are a number of purpose-built student housing properties that compete
directly with us located near or in the same general vicinity of many of our
student housing communities. Such competing student housing communities may be
newer than our student housing communities, located closer to campus, charge
less rent, possess more attractive amenities, or offer more services, shorter
lease terms or more flexible leases. The construction of competing properties or
decreases in the general levels of rents for housing in competing properties
could adversely affect our rental income.
We
believe that a number of other large national companies may be potential
entrants in the student housing business. In some cases, these potential
competitors possess substantially greater financial and marketing resources than
we do. The entry of one or more of these companies could increase competition
for student tenants and for the acquisition, development and management of other
student housing communities.
We
may not be able to recover our costs for our development consulting
services.
We
typically are awarded development consulting services business on the basis of a
competitive award process, but definitive contracts are typically not executed
until the formal approval of the transaction by the institution’s governing body
at the completion of the process. In the intervening period, we may incur
significant predevelopment and other costs in the expectation that the
development consulting services contract will be executed. These costs could
range up to $2,000 or more per project and typically include architects’ fees to
design the property and contractors’ fees to price the construction. We
typically seek to enter into a reimbursement agreement with the institution that
requires the institution to provide a guarantee of our advances. However, we may
not be successful in negotiating such an agreement. In addition, if an
institution’s governing body does not ultimately approve our selection and the
underlying terms of a pending development, we may not be able to recover these
costs from the institution. In addition, when we are awarded development
consulting business, we generally receive a significant percentage of our fees
for development consulting services upon closing of the project financing, a
portion of the fee over the construction period and the balance upon substantial
completion of construction. As a result, the recognition and timing of revenues
will, among other things differ from the timing of payments and be contingent
upon the project owner’s successful structuring and closing of the project
financing as well as the timing of construction.
We may not be able to recover
internal development costs.
When
developing student housing communities for our ownership on university land,
definitive contracts are not executed until the formal approval of the
transaction by the institution’s governing body at the completion of the
process. In the intervening period, we may incur significant predevelopment and
other costs in the expectation that a ground lease will be executed. These costs
could range up to $1,000 or more and typically include architects’ fees to
design the property and third party fees related to other predevelopment
services. If an institution’s governing body does not ultimately approve the
lease we will not be able to recover these predevelopment costs.
We
may be unable to take advantage of certain disposition opportunities because of
additional costs we have agreed to pay if we sell certain of our properties in
taxable transactions for a period of five years.
Under the
terms of the purchase agreement with Place Properties, we remain a party to a
tax indemnification agreement whereby a payment could be required to be made to
the former owner if any properties are sold within five years of the purchase
date. The contingency expires in January of 2011. We also issued University
Towers Partnership units for our interest in University Towers. So long as the
contributing owners of such property hold at least 25% of the University Towers
Partnership units, we have agreed to maintain certain minimum amounts of debt on
the properties so as to avoid triggering gain to the contributing owners. If we
fail to do this, we will owe to the contributing owners the amount of taxes that
they incur. In each case, the amount of tax is computed assuming the highest
federal and state rates. As a result, these agreements may preclude us from
selling the restricted properties at the optimal time.
Our growth will be dependent upon our
ability to acquire and/or develop, lease, integrate and manage additional
student housing communities successfully.
We cannot
assure you that we will be able to identify real estate investments, including
joint ventures, that meet our investment criteria, that we will be successful in
completing any acquisition we identify or that any acquisition we complete will
produce a return on our investment.
Our
future growth will be dependent upon our ability to successfully acquire new
properties and enter into joint ventures on favorable terms, which may be
adversely affected by the following significant risks:
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we
may be unable to acquire a desired property at all or at a desired
purchase price because of competition from other purchasers of student
housing;
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many
of our future acquisitions are likely to be dependent on external
financing, and we may be unable to finance an acquisition on favorable
terms or at all;
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we
may be required to incur significant capital expenditures to improve or
renovate acquired properties;
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we
may incur an increase in operating costs or may not have the proceeds
available to implement renovations or improvements at existing properties
which are necessary to attract and retain
tenants;
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we
may be unable to quickly and efficiently integrate new acquisitions,
particularly acquisitions of portfolios of properties, into our existing
operations;
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market
conditions may result in higher than expected vacancy rates and lower than
expected rental rates; and
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we
may acquire properties subject to liabilities but without any recourse, or
with only limited recourse, to the sellers, or with liabilities that are
unknown to us, such as liabilities for undisclosed environmental
contamination, claims by tenants, vendors or other persons dealing with
the former owners of the properties and claims for indemnification by
members, directors, officers and others indemnified by the former owners
of the properties.
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As
we acquire additional properties, we will be subject to risks associated with
managing new properties, including lease-up and integration risks. Newly
acquired properties may not perform as expected, and newly acquired properties
may have characteristics or deficiencies unknown to us at the time of
acquisition.
Our ownership of properties through
ground leases exposes us to the loss of such properties upon breach or
termination of the ground leases.
We have
acquired an interest in certain of our properties by acquiring a leasehold
interest in the property on which the building is located (or under
development), and we may acquire additional properties in the future through the
purchase of interests in ground leases. As the lessee under a ground lease, we
are exposed to the possibility of losing the property (or building we may be
developing) upon termination of the ground lease or an earlier breach of the
ground lease by us.
We have limited time to perform due
diligence on many of our acquired properties, which could subject us to
significant unexpected liabilities and under-performance of the acquired
properties.
When we
enter into an agreement to acquire a property, we often have limited time to
complete our due diligence prior to acquiring the property. Because our internal
resources are limited, we may rely on third parties to conduct a portion of our
due diligence. To the extent these third parties or we underestimate or fail to
identify risks and liabilities associated with the properties we acquire, we may
incur unexpected liabilities, or the property may fail to perform in accordance
with our projections. If, during the due diligence phase, we do not accurately
assess the value of and liabilities associated with a particular property, we
may pay a purchase price that exceeds the current fair value of the assets. As a
result, material goodwill and other intangible assets would be recorded, which
could result in significant charges to earnings in future periods. These
charges, in addition to the financial impact of significant liabilities that we
may assume, could materially and adversely impact our financial and operating
results, as well as our ability to pay dividends.
Certain losses may not be covered by
insurance or may be underinsured.
We carry
insurance covering comprehensive liability, fire, earthquake, terrorism,
business interruption, vandalism and malicious mischief, extended coverage
perils, physical loss perils, commercial general liability, personal injury,
workers’ compensation, business, automobile, errors and omissions, employee
dishonesty, employment practices liability and rental loss with respect to all
of the properties in our portfolio and the operation of our Management Company
and Development Company. We also carry insurance covering flood (when the
property is located in whole or in material part in a designated flood plain
area) on some of our properties. We believe the policy specifications and
insured limits are appropriate and adequate given the relative risk of loss, the
cost of the coverage and industry practice. There are, however, certain types of
losses (such as property damage from riots or wars, employment discrimination
losses, punitive damage awards, or acts of God) that may be either uninsurable
or not economically insurable. Some of our policies are subject to large
deductibles or co-payments and policy limits that may not be sufficient to cover
losses. In addition, we may discontinue earthquake, terrorism or other insurance
on some or all of our properties in the future if the cost of premiums for these
policies exceeds, in our judgment, the value of the coverage discounted for the
risk of loss. If we experience a loss that is uninsured or that exceeds policy
limits, we could lose the capital invested in the damaged properties as well as
the anticipated future cash flows from those properties. In addition, if the
damaged properties are subject to recourse indebtedness, we would continue to be
liable for the indebtedness, even if these properties were irreparably
damaged.
We could incur significant costs
related to government regulation and private litigation over environmental
matters.
Under
various environmental laws, including the Comprehensive Environmental Response,
Compensation and Liability Act, or CERCLA, a current or previous owner or
operator of real property may be liable for contamination resulting from the
release or threatened release of hazardous or toxic substances or petroleum at
that property, and an entity that arranges for the disposal or treatment of a
hazardous or toxic substance or petroleum at another property may be held
jointly and severally liable for the cost to investigate and clean up such
property or other affected property. Such parties are known as potentially
responsible parties, or PRPs. Environmental laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence of the contaminants, and the costs of any required investigation or
cleanup of these substances can be substantial. PRPs are liable to the
government as well as to other PRPs who may have claims for contribution. The
liability is generally not limited under such laws and could exceed the
property’s value and the aggregate assets of the liable party. The presence of
contamination or the failure to remediate contamination at our properties also
may expose us to third-party liability for personal injury or property damage,
or adversely affect our ability to sell, lease or develop the real property or
to borrow using the real property as collateral. We do not carry environmental
insurance on any of the properties in our portfolio.
Environmental
laws also impose ongoing compliance requirements on owners and operators of real
property. Environmental laws potentially affecting us address a wide variety of
matters, including, but not limited to, asbestos-containing building materials,
storage tanks, storm water and wastewater discharges, lead-based paint, wetlands
and hazardous wastes. Failure to comply with these laws could result in fines
and penalties and/or expose us to third-party liability. Some of our properties
may have conditions that are subject to these requirements, and we could be
liable for such fines or penalties and/or liable to third parties for those
conditions.
We could be exposed to liability and
remedial costs related to environmental matters.
Certain
properties in our portfolio may contain, or may have contained,
asbestos-containing building materials, or ACBMs. Environmental laws require
that ACBMs be properly managed and maintained, and may impose fines and
penalties on building owners and operators for failure to comply with these
requirements. Also, certain properties may contain, or may have contained, or
are adjacent to or near other properties that have contained or currently
contain storage tanks for the storage of petroleum products or other hazardous
or toxic substances. These operations create a potential for the release of
petroleum products or other hazardous or toxic substances. Certain properties in
our portfolio contain, or may have contained, elevated radon levels. Third
parties may be permitted by law to seek recovery from owners or operators for
property damage and/or personal injury associated with exposure to contaminants,
including, but not limited to, petroleum products, hazardous or toxic substances
and asbestos fibers. Also, some of the properties may contain regulated wetlands
that can delay or impede development or require costs to be incurred to mitigate
the impact of any disturbance. Absent appropriate permits, we can be held
responsible for restoring wetlands and be required to pay fines and
penalties.
Some of
the properties in our portfolio may contain microbial matter such as mold and
mildew. The presence of microbial matter could adversely affect our results of
operations. In addition, if any property in our portfolio is not properly
connected to a water or sewer system, or if the integrity of such systems are
breached, or if water intrusion into our buildings otherwise occurs, microbial
matter or other contamination can develop. When excessive moisture accumulates
in buildings or on building materials, mold growth may occur, particularly if
the moisture problem remains undiscovered or is not addressed over a period of
time. Some molds may produce airborne toxins or irritants. If this were to
occur, we could incur significant remedial costs and we may also be subject to
material private damage claims and awards. Concern about indoor exposure to mold
has been increasing, as exposure to mold may cause a variety of adverse health
effects and symptoms, including allergic or other reactions. If we become
subject to claims in this regard, it could materially and adversely affect us
and our future insurability for such matters.
Independent
environmental consultants conduct Phase I environmental site assessments on all
of our acquisitions. Phase I environmental site assessments are intended to
evaluate information regarding the environmental condition of the surveyed
property and surrounding properties based generally on visual observations,
interviews and certain publicly available databases. These assessments do not
typically take into account all environmental issues including, but not limited
to, testing of soil or groundwater or the possible presence of asbestos,
lead-based paint, radon, wetlands or mold. The results of these assessments are
addressed and could result in either a cancellation of the purchase, the
requirement of the seller to remediate issues, or additional costs on our part
to remediate the issue.
None of
the previous site assessments revealed any past or present environmental
liability that we believe would be material to us. However, the assessments may
have failed to reveal all environmental conditions, liabilities or compliance
concerns. Material environmental conditions, liabilities or compliance concerns
may have arisen after the assessments were conducted or may arise in the future;
and future laws, ordinances or regulations may impose material additional
environmental liability. We cannot assure you that costs of future environmental
compliance will not affect our ability to make distributions or that such costs
or other remedial measures will not be material to us.
We may incur significant costs
complying with the Americans with Disabilities Act and similar
laws.
Under the
Americans with Disabilities Act of 1990, or the ADA, all public accommodations
must meet federal requirements related to access and use by disabled persons.
Additional federal, state and local laws also may require modifications to our
properties, or restrict our ability to renovate our properties. For example, the
Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties
first occupied after March 13, 1990 to be accessible to the handicapped. We have
not conducted an audit or investigation of all of our properties to determine
our compliance with present ADA requirements. Noncompliance with the ADA or FHAA
could result in the imposition of fines or an award for damages to private
litigants and also could result in an order to correct any non-complying
feature. We cannot predict the ultimate amount of the cost of compliance with
the ADA, FHAA or other legislation. If we incur substantial costs to comply with
the ADA, FHAA or any other legislation, we could be materially and adversely
affected. In connection with the acquisition of certain of our properties, the
previous owner disclosed to us in 2004 that, in June 2001, the United States
Department of Justice, or DOJ, had notified the previous owner of an on-going
investigation regarding possible violations of the ADA and the FHAA. The
previous owner disclosed to us in 2004 that DOJ had reviewed the property plans
for certain of its properties, that DOJ had not issued a report regarding its
review, that in October 2002, DOJ had indicated to the previous owner that the
investigation was being delayed for an undetermined period of time, and that DOJ
had not contacted the previous owner between 2002 and August 2004. In February
2010 DOJ served a subpoena on us seeking access to one of the purchased
properties in connection with a complaint filed by DOJ in March 2009 against the
previous owner. The investigation has not been resolved and, at this point, no
conclusion can be reached regarding what will be required to conclude it or
whether it will result in a dispute or legal proceedings between us and DOJ or
the previous owner. Noncompliance with the ADA and the FHAA could result in the
imposition of injunctive relief, fines, awards of damages to private litigants
or additional capital expenditures to remedy such noncompliance. We are unable
to predict the outcome of the DOJ’s investigation.
Joint venture investments could be
adversely affected by our lack of sole decision making authority, our reliance
on co-venturers’ financial condition and disputes between our co-venturers and
us.
We have
co-invested and anticipate that we will continue to co-invest with third parties
through partnerships, joint ventures or other entities, acquiring
non-controlling interests in or sharing responsibility for managing the affairs
of a property, partnership, joint venture or other entity. In such event, we
will not have sole decision-making authority regarding the property,
partnership, joint venture or other entity. Investments in partnerships, joint
ventures or other entities may, under certain circumstances, involve risks not
present were a third party not involved, including the possibility that partners
or co-venturers may become bankrupt or fail to fund their share of required
capital contributions. Partners or co-venturers also may have economic or other
business interests or goals that are inconsistent with our business interests or
goals and may be in a position to take actions contrary to our preferences,
policies or objectives. Such investments also will have the potential risk of
our reaching impasses with our partners or co-venturers on key decisions, such
as a sale, because neither we nor the partner or co-venturer would have full
control over the partnership or joint venture. Disputes between us and partners
or co-venturers may result in litigation or arbitration that would increase our
expenses and prevent our management team from focusing its time and effort
exclusively on our business. In addition, we may in some circumstances be liable
for the actions of our third-party partners or co-venturers.
Illiquidity of real estate
investments could significantly impede our ability to respond to adverse changes
in the performance of our properties.
Because
real estate investments are relatively illiquid, our ability to promptly sell
one or more properties in our portfolio in response to changing economic,
financial and investment conditions is limited. The real estate market is
affected by many factors, such as general economic conditions, availability of
financing, interest rates and other factors, including supply and demand, that
are beyond our control. We cannot predict whether we will be able to sell any
property for the price or on the terms set by us or whether any price or other
terms offered by a prospective purchaser would be acceptable to us. We also
cannot predict the length of time needed to find a willing purchaser and to
close the sale of a property.
We may be
required to expend funds to correct defects or to make improvements before a
property can be sold. We cannot ensure that we will have funds available to
correct those defects or to make those improvements. In acquiring a property, we
may agree to transfer restrictions that materially restrict us from selling that
property for a period of time or impose other restrictions, such as a limitation
on the amount of debt that can be placed or repaid on that property. These
transfer restrictions would impede our ability to sell a property even if we
deem it necessary or appropriate.
Risks
Associated with Our Indebtedness and Financing
We depend heavily on the availability
of debt and equity capital to fund our business.
In order
to maintain our qualification as a REIT, we are required under the Internal
Revenue Code of 1986, as amended, or the Code, to distribute annually at least
90% of our REIT taxable income, determined without regard to the deduction for
dividends paid and excluding any net capital gain. To the extent that we satisfy
this distribution requirement but distribute less than 100% of our net taxable
income, including any net capital gains, we will be subject to federal corporate
income tax on our undistributed taxable income. In addition, we will be subject
to a 4% nondeductible excise tax if the actual amount that we pay out to our
stockholders in a calendar year is less than a minimum amount specified under
federal tax laws. Because of these distribution requirements, REITs are largely
unable to fund capital expenditures, such as acquisitions, renovations,
development and property upgrades from operating cash flow. Consequently, we
will be largely dependent on the public equity and debt capital markets and
private lenders to provide capital to fund our growth and other capital
expenditures. We may not be able to obtain this financing on favorable terms or
at all. Our access to equity and debt capital depends, in part, on:
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general
market conditions;
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our
current debt levels and the number of properties subject to
encumbrances;
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our
current performance and the market’s perception of our growth
potential;
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our
cash flow and cash distributions;
and
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the
market price per share of our common
stock.
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If we
cannot obtain capital from third-party sources, we may not be able to acquire
properties when strategic opportunities exist, satisfy our debt service
obligations or make the cash distributions to our stockholders, including those
necessary to maintain our qualification as a REIT.
Current market conditions could
affect our ability to refinance existing indebtedness or obtain additional
financing on acceptable terms and may have other adverse effects on
us.
The
United States credit markets have recently experienced significant dislocations
and liquidity disruptions, including the bankruptcy, insolvency or restructuring
of certain financial institutions. These circumstances have materially impacted
liquidity in the debt markets, making financing terms for borrowers less
attractive, and in certain cases have resulted in the unavailability of certain
types of debt financing. Although we believe that our Master Secured Credit
Facility and Second Amended Revolver (each defined below) are sufficient for our
current operations, any reductions in our available borrowing capacity, or our
inability to renew or replace these facilities when required or when business
conditions warrant, could have a material adverse effect on our business,
financial condition and results of operations. Furthermore, if prevailing
interest rates or other factors at the time of refinancing result in higher
interest rates upon refinancing, then the interest expense relating to that
refinanced indebtedness would increase. Higher interest rates on newly incurred
debt may negatively impact us as well. If interest rates increase, our interest
costs and overall costs of capital will increase, which could adversely affect
our transaction and development activity, financial condition, results of
operation, cash flow, the market price of our stock, our ability to pay
principal and interest on our debt and our ability to pay dividends to our
stockholders.
If we are
unable to secure additional financing or refinancing on favorable terms or our
operating cash flow is insufficient, we may not be able to satisfy our
outstanding financial obligations under our mortgage and construction debt.
Furthermore, if financing is not available when needed, or is available on
unfavorable terms, we may be unable to take advantage of business opportunities
or respond to competitive pressures, any of which could have a material adverse
effect on our business, financial condition and results of operations. A
prolonged downturn in the credit markets may cause us to seek alternative
sources of potentially less attractive financing, which such sources may not
then be available, and may require us to adjust our business plan accordingly or
significantly cutback or curtail operations and development plans. In addition,
these factors may make it more difficult for us to sell properties or may
adversely affect the price we receive for properties that we do sell as
prospective buyers may experience increased costs of debt financing or
difficulties in obtaining debt financing.
In
addition, we mortgage most of our properties to secure payment of indebtedness.
In 2010, $20,082 or 5.0%, of our debt reaches maturity. If we are unable to
service the debt, including in the event we are not successful in refinancing
our debt upon maturity, then the properties could be foreclosed upon or
transferred to the mortgagee, or we might be forced to dispose of some of our
properties on disadvantageous terms, with a consequent loss of income and asset
value. A foreclosure of a mortgaged property could cause cross defaults under
the Master Secured Credit Facility or the Second Amended Revolver. A foreclosure
or disadvantageous disposal on one or more of our properties could adversely
affect our financial condition, results of operations, cash flow and ability to
pay dividends on, and the market price of, our stock.
Our
use of debt financing reduces cash available for distribution and may expose us
to the risk of default under our debt obligations.
Our
charter and bylaws impose no limitation on the amount of debt we may incur. Our
debt service obligations expose us to the risk of default and reduce (or
eliminate) cash resources that are available to operate our business. The Master
Secured Credit Facility and Second Amended Revolver contain customary
affirmative and negative covenants and provide for potential availability of
$300,000 and $150,000, respectively. The amount available to us and our ability
to borrow from time to time under these facilities is subject to certain
conditions which include borrowing base calculations that limit availability
based upon the underlying value of the collateral and the satisfaction of
specified financial and other covenants, which include, without limitation,
limiting distributions to our stockholders. If the income generated
by our properties and other assets fails to cover our debt service, we would be
forced to reduce or eliminate distributions to our stockholders and may
experience losses. Our level of debt and the operating limitations imposed on us
by our debt agreements could have significant adverse consequences, including
the following:
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we
may be unable to borrow additional funds as needed or on favorable
terms;
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we
may be unable to refinance our indebtedness at maturity or the refinancing
terms may be less favorable than the terms of our original
indebtedness;
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we
may be forced to dispose of one or more of our properties, possibly on
disadvantageous terms;
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we
may default on our payment or other obligations as a result of
insufficient cash flow or otherwise, and the lenders or mortgagees may
foreclose on our properties that secure their loans and receive an
assignment of rents and leases;
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a
default under the Master Credit Facility or the Second Amended Revolver
may preclude further availability;
and
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foreclosures
could create taxable income without accompanying cash proceeds, a
circumstance that could hinder our ability to meet the REIT distribution
requirements.
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Our
Master Secured Credit Facility could be materially impacted by the financial
condition of the Federal National Mortgage Association.
A
significant portion of student housing financing and, as of December 31, 2009,
$243,923 of borrowings under our Master Secured Credit Facility are provided or
credit-enhanced by Federal National Mortgage Association, or Fannie Mae, which
is under the conservatorship of the U.S. Government. If our Master Secured
Credit Facility were to fail, or Red Mortgage Capital, Inc. and Fannie Mae’s
ability to lend money to finance student housing communities became impaired, we
would have to seek alternative sources of capital, which might not be available
on terms acceptable to us, if at all. In addition, any such event would most
likely cause our interest costs to rise. The occurrence of any of the
foregoing events could have a material adverse affect on our business, financial
condition and results of operations.
A
change in U.S. government policy with regard to Fannie Mae could materially
impact our financial condition.
The U. S.
Treasury recently removed the $200 billion cap on the amount of financial aid
available for Fannie Mae and extended its conservatorship of Fannie Mae through
2012. The Treasury also recently capped Fannie Mae’s retained mortgage portfolio
limitation at $900 billion and required that this portfolio be reduced on a
phased basis beginning in 2010. Through expansion of its off-balance sheet
lending products, we believe that Fannie Mae’s balance sheet limitations will
not restrict its support of lending to the student housing industry and to us in
particular. Should loan availability be reduced, it could impact the value of
student housing assets and impair the value of our properties, and we would seek
alternative sources of funding. We anticipate that additional capital may be
available only at a higher cost and have less attractive terms, if available at
all.
A
change in the value of our assets could cause us to experience a cash shortfall,
be in default of our loan covenants, lose management control or incur a charge
for the impairment of assets.
We borrow
on a secured basis under the Master Secured Credit Facility and the Second
Amended Revolver. A significant reduction in value of the assets secured as
collateral could require us to post additional collateral or pay down the
balance of the facilities. While we believe that we have significant excess
collateral and capacity, future asset values are uncertain. If we were unable to
meet a request to add collateral to these facilities, this inability would have
a material adverse affect on our liquidity and our ability to meet our loan
covenants. We may determine that the value of an individual asset, or group of
assets, was irrevocably impaired, and that we may need to record a charge to
write-down the value of the asset to reflect its current estimated value based
on its intended use.
Our
student housing communities have previously been — and in the future may be —
subject to impairment charges, which could adversely affect our results of
operations and funds from operations.
We are
required to periodically evaluate our properties for impairment indicators. A
property’s value is considered impaired if management’s estimate of the
aggregate future cash flows (undiscounted and without interest charges) to be
generated by the property, based on its intended use, is less than the carrying
value of the property. These estimates of cash flows are based on factors such
as expected future operating income, trends and prospects, as well as the
effects of interest and capitalization rates, demand and occupancy, competition
and other factors. Ongoing adverse market and economic conditions and market
volatility make it difficult to value our student housing communities. These
factors may result in uncertainty in valuation estimates and instability in the
estimated value of our student housing communities which, in turn, could result
in a substantial decrease in the value of the communities and significant
impairment charges.
We
continually assess our student housing communities to determine if any
dispositions are necessary or appropriate. No assurance can be given that we
will be able to recover the current carrying amount of our student housing
communities in the future. Our failure to do so would require us to recognize
additional impairment charges for the period in which we reached that
conclusion, which could materially and adversely affect us and our results of
operations and funds from operations.
Variable rate debt is subject to
interest rate risk.
We have
mortgage debt with varying interest rates dependent upon LIBOR plus an
applicable margin. In addition, our Master Secured Credit Facility and Second
Amended Revolver bear interest at a variable rate on all amounts drawn under
these facilities. We may incur additional variable rate debt in the future.
Increases in interest rates on variable rate debt would increase our interest
expense, unless we make arrangements which hedge the risk of rising interest
rates, which would adversely affect net income and cash available for payment of
our debt obligations and distributions to stockholders.
We
may incur losses on interest rate hedging arrangements.
Periodically,
we have entered into agreements to reduce the risks associated with changes in
interest rates, and we may continue to do so in the future. Although these
agreements may partially protect against rising interest rates, they may also
reduce the benefits to us if interest rates decline. If a hedging arrangement is
not indexed to the same rate as the indebtedness which is hedged, we may be
exposed to losses to the extent which the rate governing the indebtedness and
the rate governing the hedging arrangement change independently of each other.
Additionally, nonperformance by the other party to the hedging arrangement may
subject us to increased credit risks.
Broad
market fluctuations could negatively impact the market price of our common
stock.
As with
other publicly traded equity securities, the value of our common stock depends
on various market conditions, which may change from time to time. The stock
market has recently experienced extreme price and volume fluctuations that have
affected the market price of many companies in industries similar or related to
ours and that are outside of management’s control. These broad market
fluctuations could adversely impact the market price of our common stock.
Accordingly, the market price of our common stock could change in ways that may
or may not be related to our business, our industry or our operating performance
and financial condition. Furthermore, our operating results and prospects may
not meet the expectations of public market analysts and investors or may not be
comparable to companies within our industry and with comparable market
capitalizations. Any of these factors could lead to a material decline in the
market price of our common stock.
Additional issuances of equity
securities may be dilutive to stockholders.
The
interests of our stockholders could be diluted if we issue additional equity
securities to finance future developments or acquisitions or to repay
indebtedness. Our Board of Directors may authorize the issuance of additional
equity securities without stockholder approval. Our ability to execute our
business strategy depends upon our access to an appropriate blend of debt
financing, including revolving credit facilities and other forms of secured and
unsecured debt, and equity financing, including the issuance of common
equity.
We may reduce the amount of dividends
declared on our common stock or elect to pay a portion of the dividend in shares
of our common stock.
In order
for EDR to continue to qualify as a REIT, we are required to distribute annual
dividends equal to a minimum of 90% of our REIT taxable income, computed without
regard to the dividends paid deduction and our net capital gains. However, in
the event of, among other factors, continued material future deterioration in
business conditions, or continuing tightening in the credit markets, our Board
of Directors may decide to further reduce the amount of our dividend while
ensuring compliance with the requirements of the Code related to REIT
qualification.
The IRS
recently issued guidance that permits certain distributions made by a publicly
traded REIT consisting of both cash and its shares to be treated as dividend
distributions for purposes of satisfying the annual distribution requirements
applicable to REITs. We may elect to pay a portion of dividends in shares of our
common stock which would cause dilution to our earnings per share given the
additional shares outstanding.
Taxable
stockholders receiving such dividends will be required to include the full
amount of the dividend as income to the extent of our current and accumulated
earnings and profits for federal income tax purposes. As a result, a U.S.
stockholder may be required to pay tax with respect to such dividends in excess
of the cash received. If a U.S. stockholder sells the stock it receives as a
dividend in order to pay this tax, the sales proceeds may be less than the
amount included in income with respect to the dividend, depending on the market
price of our stock at the time of the sale. Furthermore, with respect to
non-U.S. stockholders, we may be required to withhold U.S. tax with respect to
such dividends, including in respect of all or a portion of such dividend that
is payable in our stock. In addition, if a significant number of our
stockholders sell shares of our stock in order to pay taxes owed on dividends,
that may put downward pressure on the trading price of our stock.
Risks
related to our organization and structure
To maintain our REIT status, we may
be forced to limit the activities of our Management Company.
To
maintain our status as a REIT, no more than 25% of the value of our total assets
may consist of the securities of one or more taxable REIT subsidiaries, such as
our Management Company and our Development Company. Some of our activities, such
as our third-party management, development consulting and food services, must be
conducted through our Management Company and Development Company for us to
maintain our REIT qualification. In addition, certain non-customary services
such as cleaning, transportation, security and, in some cases, parking, must be
provided by one of our taxable REIT subsidiaries or an independent contractor.
If the revenues from such activities create a risk that the value of our
Management Company, based on revenues or otherwise, approaches the 25%
threshold, we will be forced to curtail such activities or take other steps to
remain under the 25% threshold. Because the 25% threshold is based on value, it
is possible that the Internal Revenue Service, or IRS, could successfully
contend that the value of our Management Company exceeds the 25% threshold even
if our Management Company accounts for less than 25% of our consolidated
revenues, income or cash flow, in which case our status as a REIT could be
jeopardized.
Our charter contains restrictions on
the ownership and transfer of our stock.
Our
charter provides that, subject to certain exceptions, no person or entity may
beneficially own, or be deemed to own by virtue of the applicable constructive
ownership provisions of the Code, more than 9.8% (by value, by number of shares
or by voting power, whichever is more restrictive) of the outstanding shares of
our common stock or more than 9.8% (by value, by number of shares or by voting
power, whichever is more restrictive) of the outstanding shares of our capital
stock, including both common and preferred stock. We refer to these restrictions
collectively as the “ownership limit.” Generally, if a beneficial owner of our
shares exceeds the ownership limit, such owner will be effectively divested of
all ownership rights with respect to shares exceeding the limit and may suffer a
loss on such investment.
The
constructive ownership rules under the Code are complex and may cause stock
owned actually or constructively by a group of related individuals and/or
entities to be owned constructively by one individual or entity. As a result,
the acquisition of less than 9.8% of our stock (or the acquisition of an
interest in an entity that owns, actually or constructively, our stock) by an
individual or entity, could, nevertheless cause that individual or entity, or
another individual or entity, to own constructively in excess of 9.8% of our
outstanding common stock or capital stock and thereby subject certain shares to
the ramifications of exceeding the ownership limit. Our charter, however,
permits exceptions to be made to this limitation if our Board of Directors
determines that such exceptions will not jeopardize our tax status as a REIT.
This ownership limit could delay, defer or prevent a change of control or other
transaction that might otherwise result in a premium price for our common stock
or otherwise be in the best interest of our stockholders.
Certain
tax and anti-takeover provisions of our charter and bylaws may inhibit a change
of our control.
Certain
provisions contained in our charter and bylaws and the Maryland General
Corporation Law may discourage a third party from making a tender offer or
acquisition proposal to us, or could delay, defer or prevent a change in control
or the removal of existing management. These provisions also may delay or
prevent our stockholders from receiving a premium for their shares of common
stock over then-prevailing market prices. These provisions include:
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the
REIT ownership limit described above;
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authorization
of the issuance of our preferred shares with powers, preferences or rights
to be determined by our Board of Directors;
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the
right of our Board of Directors, without a stockholder vote, to increase
our authorized shares and classify or reclassify unissued shares;
and
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advance
notice requirements for stockholder nomination of directors and for other
proposals to be presented at stockholder
meetings.
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The
Maryland business statutes also impose potential restrictions on a change of
control of EDR.
Various
Maryland laws may have the effect of discouraging offers to acquire us, even if
the acquisition would be advantageous to our stockholders. Our bylaws exempt us
from some of those laws, such as the control share acquisition provisions, but
our Board of Directors can change our bylaws at any time to make these
provisions applicable to us.
We have the right to change some of
our policies that may be important to our stockholders without stockholder
consent.
Our major
policies, including our policies with respect to investments, leverage,
financing, growth, debt and capitalization, are determined by our Board of
Directors or those committees or officers to whom our Board of Directors has
delegated that authority. Our Board of Directors also establishes the amount of
any distributions that we make to our stockholders. Our Board of Directors may
amend or revise the foregoing policies, our distribution payment amounts and
other policies from time to time without a stockholder vote. Accordingly, our
stockholders may not have control over changes in our policies.
The
ability of our Board of Directors to revoke our REIT election without
stockholder approval may cause adverse consequences to our
stockholders.
Our
charter provides that our Board of Directors may revoke or otherwise terminate
our REIT election, without the approval of our stockholders, if it determines
that it is no longer in our best interests to continue to qualify as a REIT. If
we cease to qualify as a REIT, we would become subject to federal income tax on
our taxable income and would no longer be required to distribute most of our
taxable income to our stockholders, which may have adverse consequences on the
total return to our stockholders.
Our
rights and the rights of our stockholders to take action against our directors
and officers are limited.
Maryland
law provides that a director or officer has no liability in that capacity if he
or she performs his or her duties in good faith, in a manner he or she
reasonably believes to be advisable and in our best interests and with the care
that an ordinarily prudent person in a like position would use under similar
circumstances. In addition, our charter eliminates our directors’ and officers’
liability to us and our stockholders for money damages except for liability
resulting from actual receipt of an improper benefit in money, property or
services or active and deliberate dishonesty established by a final judgment and
that is material to the cause of action. Our bylaws require us to indemnify
directors and officers for liability resulting from actions taken by them in
those capacitates to the maximum extent permitted by Maryland law. As a result,
our stockholders and we may have more limited rights against our directors and
officers than might otherwise exist under common law. In addition, we may be
obligated to fund the defense costs incurred by our directors and
officers.
Our success depends upon key
personnel whose continued service is not guaranteed.
We depend
upon the services of our key personnel, particularly Randy Churchey, President
and Chief Executive Officer, Randall H. Brown, our Executive Vice President and
Chief Financial Officer, Thomas Trubiana, our Chief Investment Officer and
Christine Richards, our Senior Vice President of Property Operations. Mr.
Churchey’s considerable experience as a senior executive officer of publicly
traded real estate companies, including REITs, prior service to EDR as a member
of the Board of Directors and familiarity with our operational and
organizational structure are critical to the oversight and implementation of our
strategic initiatives and the evaluation of our operational performance. In
addition, Mr. Brown possesses detailed knowledge of and experience with our
financial and ancillary support operations that are critical to our operations
and financial reporting obligations as a public company. Mr. Trubiana
has been in the student housing business for over 30 years, and has developed a
network of contacts and a reputation that attracts business and investment
opportunities and assists us in negotiations with universities, lenders and
industry personnel. Ms. Richards possesses detailed knowledge of our property
operations that is critical to the oversight of our communities’ performance and
has considerable experience in the student housing industry. We will continue to
need to attract and retain qualified additional senior executive officers as we
grow our business. The loss of the services of any of our senior executive
officers, or our inability to recruit and retain qualified personnel could have
a material adverse effect on our business and financial results.
Any
weaknesses identified in our system of internal controls by us and our
independent registered public accounting firm pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on
our business.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that public companies evaluate
and report on their systems of internal control over financial reporting. In
addition, our independent registered public accounting firm must report on
management’s evaluation of those controls. In future periods, we may identify
deficiencies in our system of internal controls over financial reporting that
may require remediation. There can be no assurances that any such future
deficiencies identified may not be material weaknesses that would be required to
be reported in future periods.
Federal
income tax risks
Failure to qualify as a REIT would
have significant adverse consequences to us and the value of our
stock.
We intend
to continue to be organized and to operate in a manner that will allow us to
qualify as a REIT under the Code. We have not requested and do not plan to
request a ruling from the IRS that we qualify as a REIT. If we lose our REIT
status, we will face serious tax consequences that could substantially reduce
the funds available for distribution to our stockholders for each year that we
fail to qualify as a REIT because:
|
•
|
we
would not be allowed a deduction for distributions to stockholders in
computing our taxable income; therefore, such amounts would be subject to
federal income tax at regular corporate
rates;
|
|
•
|
we
also could be subject to the federal alternative minimum tax and possibly
increased state and local taxes;
and
|
|
•
|
unless
we are entitled to relief under applicable statutory provisions, we could
not elect to be taxed as a REIT for four taxable years following the year
during which we were
disqualified.
|
In
addition, if we fail to qualify as a REIT, we will not be required to make
distributions to stockholders, and all distributions to stockholders will be
subject to tax, potentially at reduced rates applicable to “qualified
dividends,” to the extent of our current and accumulated earnings and profits.
As a result of all these factors, our failure to qualify as a REIT also could
impair our ability to expand our business and raise capital and would adversely
affect the value of our common stock.
Qualification
as a REIT involves the application of highly technical and complex Code
provisions for which there are only limited judicial and administrative
interpretations. The complexity of these provisions and of the applicable
Treasury Regulations that have been promulgated under the Code is greater in the
case of a REIT that, like us, holds its assets through partnerships and limited
liability companies. The determination of various factual matters and
circumstances not entirely within our control may affect our ability to qualify
as a REIT. In order to qualify as a REIT, we must satisfy a number of
requirements, including requirements regarding the composition of our assets and
two “gross income tests.” To satisfy the two “gross income tests:” (a) at least
75% of our gross income in any year must be derived from qualified sources, such
as “rents from real property,” mortgage interest, distributions from other REITs
and gains from sale of such assets, and (b) at least 95% of our gross income
must be derived from sources meeting the 75% gross income test above, and other
passive investment sources, such as other interest and dividends and gains from
sales of securities. Also, we must make distributions to stockholders
aggregating annually at least 90% of our REIT taxable income, determined without
regard to the deduction for dividends paid and excluding any net capital gains.
In addition, new legislation, regulations, administrative interpretations or
court decisions may adversely affect our investors, our ability to qualify as a
REIT for federal income tax purposes or the desirability of an investment in a
REIT relative to other investments.
We may be subject to federal and
state income taxes that would harm our financial condition.
Even if
we qualify and maintain our status as a REIT, we may become subject to federal
income taxes and related state taxes. For example, if we have net income from a
sale of dealer property or inventory or if our Management Company enters into
agreements with us or our tenants on a basis that is determined to be other than
an arm’s length basis, that income will be subject to a 100% penalty tax. If we
believe that a sale of a property might be treated as a prohibited transaction,
we will attempt to structure a sale through a taxable REIT subsidiary, in which
case the gain from the sale would be subject to corporate income tax but not the
100% prohibited transaction tax. We cannot assure you, however, that the IRS
would not assert successfully that sales of properties that we make directly,
rather than through a taxable REIT subsidiary, were sales of “dealer” property
or inventory, in which case the 100% penalty tax will apply. In addition, we may
not be able to make sufficient distributions to avoid corporate income tax
and/or the 4% excise tax on undistributed income. We may also be subject to
state and local taxes on our income or property, either directly or at the level
of our Operating Partnership or the University Towers Partnership or at a level
of the other entities through which we indirectly own our properties that would
aversely affect our operating results.
An investment in our common stock has
various tax risks, including the treatment of distributions in excess of
earnings and the inability to apply “passive losses” against
distributions.
Distributions
in excess of current and accumulated earnings and profits, to the extent that
they exceed the adjusted basis of an investor’s common stock, will be treated as
long-term capital gain (or short-term capital gain if the shares have been held
for less than one year). Any gain or loss realized upon a taxable disposition of
shares by a stockholder who is not a dealer in securities will be treated as a
long-term capital gain or loss if the shares have been held for more than one
year and otherwise will be treated as short-term capital gain or loss.
Distributions that we properly designate as capital gain distributions (to the
extent that they do not exceed our actual net capital gain for the taxable year)
will be treated as taxable to stockholders as gains from the sale or disposition
of a capital asset held for greater than one year. Distributions we make and
gain arising from the sale or exchange by a stockholder of shares of our stock
will not be treated as passive income, meaning stockholders generally will not
be able to apply any “passive losses” against such income or gain.
Future distributions may include a
significant portion as a return of capital.
Our
distributions have historically exceeded, and may continue to exceed, the amount
of our net income as a REIT. Any distributions in excess of a stockholder’s
shares of our current and accumulated earnings and profits will be treated as a
return of capital to the extent of the stockholder’s basis in our stock, and the
stockholder’s basis in our stock will be reduced by such amount. To the extent
distributions exceed both the stockholder’s share of our current and accumulated
earnings and profits and the stockholder’s basis in our stock, the stockholder
will recognize capital gain, assuming the stock is held as a capital
asset.
None.
(Dollars
in thousands, except selected property information)
General
As of
December 31, 2009, our wholly-owned portfolio consisted of 40 communities
located in 19 states containing 24,454 beds in 7,813 apartment units located
near 35 universities. On January 6, 2006, we completed the acquisition of
13 collegiate student housing communities with a combined total of 5,894 beds
from Place Properties, L.P. of Atlanta, Georgia. Under terms of the transaction,
Place Properties sold its owned portfolio to the Operating Partnership and then
leased back the properties and operated them with the existing management team
under a renewable, initial five-year lease agreement with the
Trust. On February 1, 2008, the lease was terminated early, and we
began operating these properties.
In August
of 2009, we completed the development of the second phase of a student housing
community near Southern Illinois University (referred to as “The Reserve at
Saluki Point”). The first phase opened in August of 2008. We also
completed the development of a wholly owned student housing community located on
the campus of Syracuse University in Syracuse, New York in August of 2009. The
Trust owns and manages the community under a long-term ground lease from
Syracuse University.
Thirty-nine
of our 40 communities are modern apartments, with clusters of low-rise buildings
that consist of student housing units with fully furnished private bedrooms and
one or more bathrooms centered around a common area consisting of a fully
furnished living room, fully-equipped eat-in kitchen, and washers/dryers.
University Towers is a high-rise residence hall that has a cafeteria on the
premises and no individual kitchens in the units. We provide food services
through our Management Company to residents of University Towers. Our student
housing communities typically contain a swimming pool, recreational facilities
and common areas, and each bedroom has individual locks, high-speed Internet
access and cable television connections.
Our
wholly-owned student housing communities typically have the following
characteristics:
|
•
|
located
in close proximity to university campuses (within two miles or
less);
|
|
•
|
average
age of approximately 10 years;
|
|
•
|
designed
specifically for students with modern unit plans and amenities;
and
|
|
•
|
supported
by our long-standing Community Assistant program and other
student-oriented activities and services that enhance the college
experience.
|
Communities
The
following table provides certain summary information about our wholly-owned
communities as of December 31, 2009. All communities are owned
in fee with the exception of University Towers and University Village on Colvin
which are operated under a ground lease.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Monthly
|
|
|
Revenue
per
|
|
|
|
Primary
University
|
|
Year
|
|
|
Acquisition
|
|
#
of
|
|
|
#
of
|
|
|
Occupancy
|
|
|
Total
|
|
|
Available
|
|
Name
|
|
Served
|
|
Built
|
|
|
Date
|
|
Beds
|
|
|
Units
|
|
|
Rate(1)
|
|
|
Revenue
|
|
|
Bed(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
and Operated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NorthPointe
|
|
University
of Arizona
Tucson,
Arizona
|
|
1999
|
|
|
Jan
’05
|
|
|
912 |
|
|
|
300 |
|
|
|
89.3 |
% |
|
$ |
330 |
|
|
$ |
361 |
|
The
Reserve at Athens
|
|
University
of Georgia
Athens,
Georgia
|
|
1999
|
|
|
Jan
’05
|
|
|
612 |
|
|
|
200 |
|
|
|
98.4 |
|
|
|
241 |
|
|
|
394 |
|
The
Reserve at Clemson
|
|
Clemson
University
Clemson,
South Carolina
|
|
1999
|
|
|
Jan
’05
|
|
|
590 |
|
|
|
177 |
|
|
|
92.7 |
|
|
|
195 |
|
|
|
331 |
|
Players
Club
|
|
Florida
State University
Tallahassee,
Florida
|
|
1994
|
|
|
Jan
’05
|
|
|
336 |
|
|
|
84 |
|
|
|
97.6 |
|
|
|
150 |
|
|
|
446 |
|
The
Gables
|
|
Western
Kentucky University
Bowling
Green, Kentucky
|
|
1996
|
|
|
Jan
’05
|
|
|
288 |
|
|
|
72 |
|
|
|
95.5 |
|
|
|
87 |
|
|
|
303 |
|
University
Towers
|
|
North
Carolina State University
Raleigh,
North Carolina
|
|
1989
|
|
|
Jan
’05
|
|
|
953 |
|
|
|
251 |
|
|
|
74.6 |
|
|
|
462 |
(4) |
|
|
485 |
(4) |
The
Pointe at South Florida
|
|
University
of South Florida
Tampa,
Florida
|
|
1999
|
|
|
Jan
’05
|
|
|
1,002 |
|
|
|
336 |
|
|
|
86.7 |
|
|
|
381 |
|
|
|
380 |
|
Commons
at Knoxville
|
|
University
of Tennessee
Knoxville,
Tennessee
|
|
1999
|
|
|
Jan
’05
|
|
|
708 |
|
|
|
211 |
|
|
|
97.1 |
|
|
|
341 |
|
|
|
481 |
|
The
Commons
|
|
Florida
State University
Tallahassee,
Florida
|
|
1997
|
|
|
Jan
’05
|
|
|
732 |
|
|
|
252 |
|
|
|
79.5 |
|
|
|
223 |
|
|
|
305 |
|
The
Reserve on Perkins
|
|
Oklahoma
State University
Stillwater,
Oklahoma
|
|
1999
|
|
|
Jan
’05
|
|
|
732 |
|
|
|
234 |
|
|
|
91.0 |
|
|
|
239 |
|
|
|
327 |
|
The
Reserve at Star Pass
|
|
University
of Arizona
Tucson,
Arizona
|
|
2001
|
|
|
Jan
’05
|
|
|
1,020 |
|
|
|
336 |
|
|
|
81.2 |
|
|
|
339 |
|
|
|
332 |
|
The
Pointe at Western
|
|
Western
Michigan University
Kalamazoo,
Michigan
|
|
2000
|
|
|
Jan
’05
|
|
|
876 |
|
|
|
324 |
|
|
|
84.7 |
|
|
|
271 |
|
|
|
309 |
|
College
Station at W. Lafayette
|
|
Purdue
University
West
Lafayette, Indiana
|
|
2000
|
|
|
Jan
’05
|
|
|
960 |
|
|
|
336 |
|
|
|
94.5 |
|
|
|
355 |
|
|
|
370 |
|
Commons
on Kinnear
|
|
The
Ohio State University
Columbus,
Ohio
|
|
2000
|
|
|
Jan
’05
|
|
|
502 |
|
|
|
166 |
|
|
|
96.5 |
|
|
|
248 |
|
|
|
494 |
|
The
Pointe
|
|
Pennsylvania
State University
State
College, Pennsylvania
|
|
1999
|
|
|
Jan
’05
|
|
|
984 |
|
|
|
294 |
|
|
|
98.8 |
|
|
|
460 |
|
|
|
468 |
|
The
Reserve at Columbia
|
|
University
of Missouri
Columbia,
Missouri
|
|
2000
|
|
|
Jan
’05
|
|
|
676 |
|
|
|
260 |
|
|
|
98.8 |
|
|
|
264 |
|
|
|
390 |
|
The
Reserve on Frankford
|
|
Texas
Tech University
Lubbock, Texas
|
|
1997
|
|
|
Jan
’05
|
|
|
737 |
|
|
|
243 |
|
|
|
88.7 |
|
|
|
241 |
|
|
|
327 |
|
The
Lofts
|
|
University
of Central Florida
Orlando,
Florida
|
|
2002
|
|
|
Jan
’05
|
|
|
731 |
|
|
|
254 |
|
|
|
96.7 |
|
|
|
449 |
|
|
|
615 |
|
The
Reserve on West 31st
|
|
University
of Kansas
Lawrence,
Kansas
|
|
1998
|
|
|
Jan
’05
|
|
|
714 |
|
|
|
192 |
|
|
|
94.4 |
|
|
|
241 |
|
|
|
337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Monthly
|
|
|
Revenue
per
|
|
|
|
Primary
University
|
|
Year
|
|
|
Acquisition
|
|
#
of
|
|
|
#
of
|
|
|
Occupancy
|
|
|
Total
|
|
|
Available
|
|
Name
|
|
Served
|
|
Built
|
|
|
Date
|
|
Beds
|
|
|
Units
|
|
|
Rate(1)
|
|
|
Revenue
|
|
|
Bed(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Campus
Creek
|
|
University
of Mississippi
Oxford,
Mississippi
|
|
2004
|
|
|
Feb
’05
|
|
|
636 |
|
|
|
192 |
|
|
|
91.8 |
|
|
|
212 |
|
|
|
333 |
|
Pointe
West
|
|
University
of South Carolina
Cayce,
South Carolina
|
|
2003
|
|
|
Mar
’05
|
|
|
480 |
|
|
|
144 |
|
|
|
92.4 |
|
|
|
205 |
|
|
|
427 |
|
Campus
Lodge
|
|
University
of Florida
Gainesville,
Florida
|
|
2001
|
|
|
Jun
’05
|
|
|
1,115 |
|
|
|
360 |
|
|
|
89.6 |
|
|
|
499 |
|
|
|
447 |
|
College
Grove
|
|
Middle
Tennessee State University
Murfreesboro,
Tennessee
|
|
1998
|
|
|
Apr
’05
|
|
|
864 |
|
|
|
240 |
|
|
|
94.5 |
|
|
|
298 |
|
|
|
345 |
|
The
Reserve on South College
|
|
Auburn
University
Auburn,
Alabama
|
|
1999
|
|
|
Jul
’05
|
|
|
576 |
|
|
|
180 |
|
|
|
86.0 |
|
|
|
179 |
|
|
|
311 |
|
The
Avenue at Southern
|
|
Georgia
Southern University
Statesboro,
Georgia
|
|
1993
|
|
|
Jun
’06
|
|
|
624 |
|
|
|
214 |
|
|
|
81.9 |
|
|
|
200 |
|
|
|
320 |
|
The
Reserve at Saluki Pointe
|
|
Southern
Illinois University
Carbondale,
Illinois
|
|
2008
|
(5) |
|
Aug
’08
|
(5) |
|
768 |
|
|
|
288 |
|
|
|
85.7 |
|
|
|
619 |
|
|
|
411 |
|
University
Village on Colvin
|
|
Syracuse
University
Syracuse,
New York
|
|
2009
|
|
|
Aug
‘09
|
|
|
432 |
|
|
|
120 |
|
|
|
78.1 |
|
|
|
269 |
|
|
|
624 |
|
Troy
Place
|
|
Troy
State University
Troy,
Alabama
|
|
2000
|
|
|
Jan
’06
|
|
|
408 |
|
|
|
108 |
|
|
|
92.7 |
|
|
|
159 |
|
|
|
358 |
|
The
Reserve at Jacksonville
|
|
Jacksonville
State University
Jacksonville,
Alabama
|
|
2000
|
|
|
Jan
’06
|
|
|
504 |
|
|
|
132 |
|
|
|
70.8 |
|
|
|
154 |
|
|
|
279 |
|
Macon
Place
|
|
Macon
State College
Macon,
Georgia
|
|
1999
|
|
|
Jan
’06
|
|
|
336 |
|
|
|
84 |
|
|
|
73.9 |
|
|
|
110 |
|
|
|
300 |
|
Clayton
Place
|
|
Clayton
College & State University
Morrow,
Georgia
|
|
1999
|
|
|
Jan
’06
|
|
|
854 |
|
|
|
221 |
|
|
|
48.9 |
|
|
|
205 |
|
|
|
220 |
|
River
Place
|
|
State
University of West Georgia Carrollton, Georgia
|
|
2000
|
|
|
Jan
’06
|
|
|
504 |
|
|
|
132 |
|
|
|
82.4 |
|
|
|
167 |
|
|
|
303 |
|
The
Chase at Murray
|
|
Murray
State University
Murray,
Kentucky
|
|
2000
|
|
|
Jan
’06
|
|
|
408 |
|
|
|
108 |
|
|
|
85.8 |
|
|
|
121 |
|
|
|
272 |
|
Cape
Place
|
|
Southeast
Missouri State University
Cape
Girardeau, Missouri
|
|
2000
|
|
|
Jan
’06
|
|
|
360 |
|
|
|
96 |
|
|
|
97.8 |
|
|
|
139 |
|
|
|
354 |
|
Clemson
Place
|
|
Clemson
University
Clemson, South
Carolina
|
|
1998
|
|
|
Jan
’06
|
|
|
288 |
|
|
|
96 |
|
|
|
95.3 |
|
|
|
108 |
|
|
|
344 |
|
The
Reserve at Martin
|
|
University
of Tennessee at Martin
Martin,
Tennessee
|
|
2000
|
|
|
Jan
’06
|
|
|
384 |
|
|
|
96 |
|
|
|
71.2 |
|
|
|
116 |
|
|
|
277 |
|
Berkeley
Place
|
|
Clemson
University
Clemson,
South Carolina
|
|
1999
|
|
|
Jan
’06
|
|
|
480 |
|
|
|
132 |
|
|
|
92.8 |
|
|
|
169 |
|
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Monthly
|
|
|
Revenue
per
|
|
|
|
Primary
University
|
|
Year
|
|
|
Acquisition
|
|
#
of
|
|
|
#
of
|
|
|
Occupancy
|
|
|
Total
|
|
|
Available
|
|
Name
|
|
Served
|
|
Built
|
|
|
Date
|
|
Beds
|
|
|
Units
|
|
|
Rate(1)
|
|
|
Revenue
|
|
|
Bed(2)
|
|
Carrollton
Place
|
|
State
University of West Georgia Carrollton, Georgia
|
|
1998
|
|
|
Jan
’06
|
|
|
336 |
|
|
|
84 |
|
|
|
92.5 |
|
|
|
124 |
|
|
|
340 |
|
The
Pointe at Southern
|
|
Georgia
Southern University
Statesboro,
Georgia
|
|
1999
|
|
|
Jan
’06
|
|
|
528 |
|
|
|
132 |
|
|
|
92.4 |
|
|
|
190 |
|
|
|
330 |
|
Western
Place
|
|
Western
Kentucky University Bowling Green, Kentucky
|
|
2000
|
|
|
Jan
’06
|
|
|
504 |
|
|
|
132 |
|
|
|
90.2 |
|
|
|
151 |
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
wholly-owned communities
|
|
|
|
1999
|
(3) |
|
|
|
|
25,454 |
|
|
|
7,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Average
of the physical month-end occupancy
rates.
|
(2)
|
Monthly
revenue per available bed for 2009 is equal to total revenue for the year
ended December 31, 2009 divided by the sum of the total beds
(including staff and model beds) at the property each month. For
properties acquired during the year, monthly revenue per available bed
equals total revenue for the period subsequent to acquisition through
December 31, 2009 divided by the sum of the total beds
(including staff and model beds) at the property each month while
owned.
|
(3)
|
Represents
average year for all properties in
portfolio.
|
(4)
|
Revenues
and revenue per available bed for University Towers excludes revenue from
food service operations.
|
(5)
|
The
first phase of The Reserve at Saluki Pointe, which included 528 beds, was
completed in August 2008. The second phase, which included 240 beds, was
completed in August 2009.
|
Mortgage
and Construction Indebtedness
The
following table contains summary information concerning the mortgage and
construction debt encumbering our wholly-owned communities as of
December 31, 2009:
|
|
Outstanding
as of
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
Maturity
|
|
|
|
Property
|
|
2009
|
|
|
Interest
Rate
|
|
Date
|
|
Amortization
|
|
University
Towers
|
|
$ |
25,000 |
|
|
|
5.99 |
% |
7/1/2013
|
|
30
Year
|
|
The
Reserve at Clemson
|
|
|
12,000 |
|
|
|
5.55 |
% |
3/1/2012
|
|
30
Year
|
|
The
Gables
|
|
|
4,213 |
|
|
|
5.50 |
% |
11/1/2013
|
|
30
Year
|
|
NorthPointe
|
|
|
18,800 |
|
|
|
5.55 |
% |
3/1/2012
|
|
30
Year
|
|
The
Pointe at S. Florida/The Reserve at Columbia/ The Commons at
Knoxville/College Grove
|
|
|
59,629 |
|
|
|
6.02 |
% |
1/1/2019
|
|
30
Year
|
|
The
Reserve at Perkins
|
|
|
15,328 |
|
|
|
5.99 |
% |
1/1/2014
|
|
30
Year
|
|
The
Lofts
|
|
|
27,000 |
|
|
|
5.59 |
% |
5/1/2014
|
|
30
Year
|
|
College
Station at W. Lafayette/The Pointe at Penn State/The Reserve at Star
Pass
|
|
|
71,347 |
|
|
|
6.02 |
% |
1/1/2016
|
|
30
Year
|
|
Campus
Lodge
|
|
|
35,276 |
|
|
|
6.97 |
% |
5/1/2012
|
|
30
Year
|
|
Pointe
West
|
|
|
10,448 |
|
|
|
4.92 |
% |
8/1/2014
|
|
30
Year
|
|
The
Pointe at Western/The Commons on Kinnear/The Reserve on South College/The
Avenue at Southern
|
|
|
42,353 |
|
|
|
3.64 |
% |
1/1/2014
|
|
30
Year
|
|
The
Reserve on Frankford
|
|
|
6,938 |
|
|
|
3.54 |
% |
1/1/2014
|
|
30
Year
|
|
Reserve
at Saluki Pointe – Phase I
|
|
|
10,759 |
|
|
|
1.33 |
% |
6/28/2010
|
|
(1)
|
|
Reserve
at Saluki Pointe – Phase II
|
|
|
9,323 |
|
|
|
2.23 |
% |
6/28/2010
|
|
(1)
|
|
University
Village Apartments on Colvin
|
|
|
8,826 |
|
|
|
1.33 |
% |
9/29/2011
|
|
(2)
|
|
Troy
Place/Clemson Place/Western Place
|
|
|
17,359 |
|
|
|
5.45 |
% |
1/1/2017
|
|
30
Year
|
|
Carrollton
Place/Murray Place
|
|
|
7,700 |
|
|
|
4.96 |
% |
1/1/2015
|
|
30
Year
|
|
Berkeley
Place/River Place/Cape Place
|
|
|
23,269 |
|
|
|
5.67 |
% |
1/1/2020
|
|
30
Year
|
|
Total
debt /weighted average rate
|
|
|
405,568 |
|
|
|
5.33 |
% |
|
|
|
|
|
Unamortized
premium
|
|
|
797 |
|
|
|
|
|
|
|
|
|
|
Total
net of unamortized premium
|
|
|
406,365 |
|
|
|
|
|
|
|
|
|
|
Less
current portion
|
|
|
(23,957 |
) |
|
|
|
|
|
|
|
|
|
Total
long-term debt, net of current portion
|
|
$ |
382,408 |
|
|
|
|
|
|
|
|
|
|
(1)
|
The
construction debt encumbering The Reserve at Saluki Pointe is interest
only through June 28, 2010, the initial maturity date. The
Trust has the ability to extend the construction loan if certain criteria
are met on the initial maturity
date.
|
(2)
|
The
construction debt encumbering the University Village Apartments on Colvin
is interest only through September 29, 2011, the initial maturity
date. The Trust has the ability to extend the construction loan
if certain criteria are met on the initial maturity
date.
|
The weighted average interest rate of
the mortgage and construction indebtedness was 5.33% at December 31, 2009. Each of these mortgages is a
non-recourse obligation subject to customary exceptions. The loans generally do not allow
prepayment prior to maturity. However, prepayment is allowed in certain cases
subject to prepayment penalties.
In the
normal course of business, we are subject to claims, lawsuits and legal
proceedings. While it is not possible to ascertain the ultimate outcome of such
matters, in management’s opinion, the liabilities, if any, in excess of amounts
provided or covered by insurance, are not expected to have a material adverse
effect on our financial position, results of operations or
liquidity.
Market
Information
Our
common stock has been and is trading on the New York Stock Exchange under the
symbol “EDR.” There were approximately 922 holders of record of the 56,761,966
shares outstanding on March 11, 2010. On the same day, our common stock
closed at $5.73. The following table provides information on the high and low
prices for our common stock on the NYSE and the dividends declared for 2008 and
2009:
|
|
|
|
|
|
|
|
Distributions
|
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
Fiscal
2008
|
|
|
|
|
|
|
|
|
|
Quarter
1
|
|
$ |
13.50 |
|
|
$ |
10.29 |
|
|
$ |
0.210 |
|
Quarter
2
|
|
|
14.31 |
|
|
|
11.65 |
|
|
|
0.210 |
|
Quarter
3
|
|
|
13.00 |
|
|
|
10.33 |
|
|
|
0.210 |
|
Quarter
4
|
|
|
10.83 |
|
|
|
2.60 |
|
|
|
0.103 |
|
Fiscal
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
1
|
|
$ |
6.03 |
|
|
$ |
2.61 |
|
|
$ |
0.103 |
|
Quarter
2
|
|
|
5.24 |
|
|
|
3.32 |
|
|
|
0.103 |
|
Quarter
3
|
|
|
6.44 |
|
|
|
4.22 |
|
|
|
0.050 |
|
Quarter
4
|
|
|
6.01 |
|
|
|
4.56 |
|
|
|
0.050 |
|
Since our
initial quarter as a publicly-traded REIT, we have made regular quarterly
distributions to our stockholders. We intend to continue to declare
quarterly distributions. However, we cannot provide any assurance as to the
amount or timing of future distributions. For a description of restrictions on
EDR regarding the payment of distributions, see “Item 7 – Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Liquidity and Capital Resources – Revolving Credit Facility and Other
Indebtedness,” “Item 7 – Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Distributions,” and Note 10, “Debt,” to
our accompanying consolidated financial statements.
To the
extent that we make distributions in excess of our earnings and profits, as
computed for federal income tax purposes, these distributions will represent a
return of capital, rather than a dividend, for federal income tax purposes.
Distributions that are treated as a return of capital for federal income tax
purposes generally will not be taxable as a dividend to a U.S. stockholder, but
will reduce the stockholder’s basis in its shares (but not below zero) and
therefore can result in the stockholder having a higher gain upon a subsequent
sale of such shares. Return of capital distributions in excess of a
stockholder’s basis generally will be treated as gain from the sale of such
shares for federal income tax purposes.
Amended
and Restated Dividend Reinvestment and Direct Stock Purchase Plan
In June
2008, the Trust adopted the Amended and Restated Dividend Reinvestment and
Direct Stock Purchase Plan (“DRSPP”) which offers the following:
|
•
|
automatic
reinvestment of some or all of the cash distributions paid on common
stock, shares of other classes of stock that we might issue in the future
and units of limited partnership
interest;
|
|
•
|
an
opportunity to make an initial purchase of our common stock and to acquire
additional shares over time; and
|
|
•
|
safekeeping
of shares and accounting for distributions received and reinvested at no
cost.
|
Shares of
common stock purchased under the DRSPP will be either issued by EDR or acquired
directly from third parties in the open market or in privately negotiated
transactions. Subject to certain conditions and at our sole discretion, the
discount from market prices, if any, on all shares of common stock purchased
directly from us will range from 0% to 5%. We will
determine the source of shares available through the plan based on market
conditions, relative transaction costs and our need for additional capital. To
the extent the plan acquires shares of common stock directly from EDR, we will
receive additional capital for general corporate purposes.
During
the three months ended December 31, 2009, in connection with the DRSPP, we
directed the plan administrator to purchase 455 shares of our common stock for
$2 in the aggregate in the open market pursuant to the dividend reinvestment
component of the plan with respect to our dividend for the fourth quarter of
2009. We also directed the plan administrator to purchase 2,276 shares of
our common stock for $12 in the aggregate in the open market for investors
pursuant to the direct stock purchase component of the plan. The following
chart summarizes these purchases of our common stock for the three months ended
December 31, 2009.
Period
|
|
Total Number
of Shares
Purchased(1)
|
|
|
Average Price Paid
per Share
|
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
|
|
|
Maximum
Number (or
Approximate
Dollar Value)
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
|
|
October
1-31, 2009
|
|
|
1,059 |
|
|
$ |
5.75 |
|
|
|
— |
|
|
|
— |
|
November
1-30, 2009
|
|
|
836 |
|
|
$ |
5.24 |
|
|
|
— |
|
|
|
— |
|
December
1-31, 2009
|
|
|
836 |
|
|
$ |
5.02 |
|
|
|
— |
|
|
|
— |
|
Total
|
|
|
2,731 |
|
|
$ |
5.34 |
|
|
|
— |
|
|
|
— |
|
(1)
All shares of common stock were purchased in the open market pursuant to
the terms of our DRSPP. Our Board of Directors authorized the issuance or
purchase of 4,000,000 shares of common stock under the
DRSPP.
COMPARISON
OF 59 MONTH CUMULATIVE TOTAL RETURN
*
Among
Education Realty Trust, Inc., The S&P 500 Index
And
The MSCI US REIT Index
*$100
invested on 1/26/05 in stock or in index, including reinvestment of dividends.
Fiscal year ending December 31.
|
|
Period ending
|
|
Index
|
|
01/26/05
|
|
|
06/30/05
|
|
|
12/31/05
|
|
|
06/30/06
|
|
|
12/31/06
|
|
|
06/30/07
|
|
|
12/31/07
|
|
|
06/30/08
|
|
|
12/31/08
|
|
|
06/30/09
|
|
|
12/31/09
|
|
Education
Reality Trust, Inc.
|
|
|
100.00 |
|
|
|
112.57 |
|
|
|
82.17 |
|
|
|
110.59 |
|
|
|
101.28 |
|
|
|
98.90 |
|
|
|
81.68 |
|
|
|
87.59 |
|
|
|
41.82 |
|
|
|
35.83 |
|
|
|
41.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P
500
|
|
|
100.00 |
|
|
|
102.31 |
|
|
|
108.21 |
|
|
|
111.14 |
|
|
|
125.30 |
|
|
|
134.02 |
|
|
|
132.18 |
|
|
|
116.44 |
|
|
|
83.28 |
|
|
|
82.91 |
|
|
|
105.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSCI
US REIT
|
|
|
100.00 |
|
|
|
115.39 |
|
|
|
121.67 |
|
|
|
138.07 |
|
|
|
165.37 |
|
|
|
154.71 |
|
|
|
137.57 |
|
|
|
132.82 |
|
|
|
85.33 |
|
|
|
74.73 |
|
|
|
109.74 |
|
We cannot
assure you that our share performance will continue into the future with the
same or similar trends depicted in the graph above. We do and will not make or
endorse any predictions as to future share performance.
The
performance comparisons noted in the graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Annual Report
on Form 10-K into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that we specifically
incorporate this graph by reference, and shall not otherwise be deemed filed
under such acts.
Recent
Sales of Unregistered Securities
As an
inducement to enter into his executive employment agreement with the Trust, Mr.
Churchey was granted an inducement award of 50,000 shares of restricted common
stock on January 12, 2010. The restrictions on the shares subject to the
inducement award will lapse ratably over 5 years as long as Mr. Churchey remains
employed by the Trust. The inducement award was granted outside of the Trust’s
2004 Incentive Plan, approved by the Compensation Committee of the Trust’s Board
of Directors and granted as an inducement material to Mr. Churchey’s employment
with the Trust in accordance with Section 303A.08 of the New York Stock Exchange
Listed Company Manual. The issuance of these shares of restricted
common stock was made in reliance upon exemptions from registration provided by
Section 4(2) under the Securities Act.
During
the fourth quarter of 2010, the Trust issued an aggregate of 10,000 unregistered
shares of common stock to a limited partner of the Operating Partnership on a
one-for-one basis upon redemption and conversion of an equal number of limited
partnership units in our Operating Partnership. The issuance of these shares of
common stock was made in reliance upon exemptions from registration provided by
Section 4(2) under the Securities Act.
The
following table sets forth selected financial and operating data on a
consolidated historical basis for EDR and on a combined historical basis for the
legal entities that formerly made up the predecessor of EDR. The results of
operations for the year ended December 31, 2005 represent the combined
historical operations of the EDR Predecessor for the period January 1, 2005
through January 30, 2005, prior to our IPO, as well as the consolidated
historical operations of EDR for the year ended December 31,
2005.
The
following information presented below does not provide all of the information
contained in our financial statements, including related notes. You should read
the information below in conjunction with the historical consolidated and
combined financial statements and related notes and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” included elsewhere in
this Annual Report on Form 10-K.
STATEMENT
OF OPERATIONS DATA
|
|
Year
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except share and
per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing revenue
|
|
$ |
110,810 |
|
|
$ |
107,149 |
|
|
$ |
85,175 |
|
|
$ |
80,777 |
|
|
$ |
69,558 |
|
Student
housing food service revenue
|
|
|
2,267 |
|
|
|
2,378 |
|
|
|
2,359 |
|
|
|
3,634 |
|
|
|
3,491 |
|
Other
leasing revenue
|
|
|
— |
|
|
|
7,145 |
|
|
|
13,811 |
|
|
|
14,012 |
|
|
|
— |
|
Third-party
development services
|
|
|
8,178 |
|
|
|
8,303 |
|
|
|
5,411 |
|
|
|
3,773 |
|
|
|
1,759 |
|
Third-party
management services
|
|
|
3,221 |
|
|
|
3,672 |
|
|
|
3,391 |
|
|
|
2,796 |
|
|
|
1,968 |
|
Operating
expense reimbursements
|
|
|
9,722 |
|
|
|
10,796 |
|
|
|
9,330 |
|
|
|
7,638 |
|
|
|
6,694 |
|
Total
revenues
|
|
|
134,198 |
|
|
|
139,443 |
|
|
|
119,477 |
|
|
|
112,630 |
|
|
|
83,470 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing operations
|
|
|
55,161 |
|
|
|
55,120 |
|
|
|
40,798 |
|
|
|
39,100 |
|
|
|
34,390 |
|
Student
housing food service operations
|
|
|
2,156 |
|
|
|
2,257 |
|
|
|
2,236 |
|
|
|
3,318 |
|
|
|
3,275 |
|
Reimbursable
operating expenses
|
|
|
9,722 |
|
|
|
10,796 |
|
|
|
9,330 |
|
|
|
7,638 |
|
|
|
6,694 |
|
General
and administrative
|
|
|
15,752 |
|
|
|
16,348 |
|
|
|
14,561 |
|
|
|
12,331 |
|
|
|
12,549 |
|
Depreciation
and amortization
|
|
|
29,089 |
|
|
|
29,318 |
|
|
|
32,119 |
|
|
|
33,877 |
|
|
|
26,676 |
|
Impairment
losses
|
|
|
1,726 |
|
|
|
2,021 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
operating expenses
|
|
|
113,606 |
|
|
|
115,860 |
|
|
|
99,044 |
|
|
|
96,264 |
|
|
|
83,584 |
|
Operating
income (loss)
|
|
|
20,592 |
|
|
|
23,583 |
|
|
|
20,433 |
|
|
|
16,366 |
|
|
|
(114 |
) |
Nonoperating
expenses
|
|
|
24,332 |
|
|
|
30,208 |
|
|
|
27,675 |
|
|
|
29,933 |
|
|
|
17,267 |
|
Loss before
equity in earnings (losses) of unconsolidated entities, income taxes,
redeemable noncontrolling interests, and discontinued
operations
|
|
|
(3,740 |
) |
|
|
(6,625 |
) |
|
|
(7,242 |
) |
|
|
(13,567 |
) |
|
|
(17,381 |
) |
Equity
in earnings (losses) of unconsolidated entities
|
|
|
(1,410 |
) |
|
|
(196 |
) |
|
|
(277 |
) |
|
|
740 |
|
|
|
880 |
|
Loss before
income taxes, redeemable noncontrolling interests, and discontinued
operations
|
|
|
(5,150 |
) |
|
|
(6,821 |
) |
|
|
(7,519 |
) |
|
|
(12,827 |
) |
|
|
(16,501 |
) |
Income
tax expense
|
|
|
1,920 |
|
|
|
1,123 |
|
|
|
258 |
|
|
|
659 |
|
|
|
497 |
|
Loss before
redeemable noncontrolling interests and discontinued
operations
|
|
|
(7,070 |
) |
|
|
(7,944 |
) |
|
|
(7,777 |
) |
|
|
(13,486 |
) |
|
|
(16,998 |
) |
Income
(loss) attributable to redeemable noncontrolling interests
|
|
|
177 |
|
|
|
(75 |
) |
|
|
85 |
|
|
|
(251 |
) |
|
|
(881 |
) |
Loss
from continuing operations
|
|
|
(7,247 |
) |
|
|
(7,869 |
) |
|
|
(7,862 |
) |
|
|
(13,235 |
) |
|
|
(16,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations of discontinued operations
|
|
|
(21 |
) |
|
|
(131 |
) |
|
|
777 |
|
|
|
886 |
|
|
|
424 |
|
Gain
on sale of student housing property
|
|
|
— |
|
|
|
— |
|
|
|
1,644 |
|
|
|
— |
|
|
|
— |
|
Income
(loss) from discontinued operations
|
|
|
(21 |
) |
|
|
(131 |
) |
|
|
2,421 |
|
|
|
886 |
|
|
|
424 |
|
Net
loss
|
|
|
(7,268 |
) |
|
|
(8,000 |
) |
|
|
(5,441 |
) |
|
|
(12,349 |
) |
|
|
(15,693 |
) |
Less:
Net loss attributable to the noncontrolling interests
|
|
|
(13 |
) |
|
|
(53 |
) |
|
|
(25 |
) |
|
|
(104 |
) |
|
|
(159 |
) |
Net
loss attributable to Education Realty Trust, Inc.
|
|
$ |
(7,255 |
) |
|
$ |
(7,947 |
) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
|
$ |
(15,534 |
) |
Earnings
per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share – basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
(0.18 |
) |
|
|
(0.28 |
) |
|
|
(0.28 |
) |
|
|
(0.49 |
) |
|
|
(0.69 |
) |
Discontinued
operations
|
|
|
— |
|
|
|
— |
|
|
|
0.08 |
|
|
|
0.03 |
|
|
|
0.02 |
|
Net
loss per share
|
|
$ |
(0.18 |
) |
|
$ |
(0.28 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.67 |
) |
Weighted
average common shares outstanding — basic and diluted
|
|
|
40,495,558 |
|
|
|
28,512,777 |
|
|
|
28,103,208 |
|
|
|
26,516,611 |
|
|
|
23,229,182 |
|
Distributions
per common share
|
|
$ |
0.36 |
|
|
$ |
0.82 |
|
|
$ |
0.82 |
|
|
$ |
1.10 |
|
|
$ |
0.79 |
|
Amounts
attributable to Education Realty Trust, Inc. – common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations, net of tax
|
|
|
(7,235 |
) |
|
|
(7,822 |
) |
|
|
(7,738 |
) |
|
|
(13,089 |
) |
|
|
(15,930 |
) |
Income
(loss) from discontinued operations, net of tax
|
|
|
(20 |
) |
|
|
(125 |
) |
|
|
2,322 |
|
|
|
844 |
|
|
|
396 |
|
Net
loss
|
|
$ |
(7,255 |
)
|
|
$ |
(7,947 |
) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
|
$ |
(15,534 |
) |
BALANCE
SHEET DATA
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing properties, net
|
|
$ |
749,884 |
|
|
$ |
733,507 |
|
|
$ |
732,979 |
|
|
$ |
804,759 |
|
|
$ |
620,305 |
|
Other
assets, net
|
|
|
54,729 |
|
|
|
44,140 |
|
|
|
34,481 |
|
|
|
30,699 |
|
|
|
83,744 |
|
Total
assets
|
|
$ |
804,613 |
|
|
$ |
777,647 |
|
|
$ |
767,460 |
|
|
$ |
835,458 |
|
|
$ |
704,049 |
|
Liabilities
and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
and construction notes payable
|
|
$ |
406,365 |
|
|
$ |
442,259 |
|
|
$ |
420,940 |
|
|
$ |
423,933 |
|
|
$ |
328,335 |
|
Other
indebtedness
|
|
|
— |
|
|
|
32,900 |
|
|
|
11,500 |
|
|
|
69,400 |
|
|
|
— |
|
Other
liabilities
|
|
|
22,004 |
|
|
|
20,559 |
|
|
|
19,080 |
|
|
|
19,837 |
|
|
|
17,255 |
|
Total
liabilities
|
|
|
428,369 |
|
|
|
495,718 |
|
|
|
451,520 |
|
|
|
513,170 |
|
|
|
345,590 |
|
Redeemable
noncontrolling interests
|
|
|
11,079 |
|
|
|
11,751 |
|
|
|
14,879 |
|
|
|
15,868 |
|
|
|
24,151 |
|
Equity
|
|
|
365,165 |
|
|
|
270,178 |
|
|
|
301,061 |
|
|
|
306,420 |
|
|
|
334,308 |
|
Total
liabilities and equity
|
|
$ |
804,613 |
|
|
$ |
777,647 |
|
|
$ |
767,460 |
|
|
$ |
835,458 |
|
|
$ |
704,049 |
|
OTHER
DATA (UNAUDITED)
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands, except per share and selected property
information)
|
|
Funds
from operations (FFO) (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Education Realty Trust, Inc.
|
|
$ |
(7,255 |
) |
|
$ |
(7,947 |
) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
|
$ |
(15,534 |
) |
Gain
on sale of student housing property
|
|
|
— |
|
|
|
— |
|
|
|
(1,644 |
) |
|
|
— |
|
|
|
— |
|
Loss
on sale of student housing assets
|
|
|
— |
|
|
|
512 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Student
housing property depreciation and amortization of lease
intangibles
|
|
|
28,497 |
|
|
|
28,720 |
|
|
|
31,675 |
|
|
|
33,522 |
|
|
|
26,676 |
|
Equity
portion of real estate depreciation and amortization on equity
investees
|
|
|
512 |
|
|
|
496 |
|
|
|
424 |
|
|
|
54 |
|
|
|
— |
|
Depreciation
and amortization of discontinued operations
|
|
|
25 |
|
|
|
99 |
|
|
|
815 |
|
|
|
2,206 |
|
|
|
2,492 |
|
Noncontrolling
interests
|
|
|
164 |
|
|
|
(128 |
) |
|
|
60 |
|
|
|
(355 |
) |
|
|
(1,040 |
) |
Funds
from operations available to all share and unitholders
|
|
$ |
21,943 |
|
|
$ |
21,752 |
|
|
$ |
25,914 |
|
|
$ |
23,182 |
|
|
$ |
12,594 |
|
Elimination
of impairment and refinancing charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
cost write-off, net of tax benefit
|
|
|
— |
|
|
|
417 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Impairment
losses
|
|
|
3,173 |
|
|
|
2,021 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Loss
(gain) on extinguishment of debt
|
|
|
(830 |
) |
|
|
4,360 |
|
|
|
174 |
|
|
|
— |
|
|
|
1,084 |
|
Impact
of impairment and refinancing charges
|
|
|
2,343 |
|
|
|
6,798 |
|
|
|
174 |
|
|
|
— |
|
|
|
1,084 |
|
Funds
from operations- adjusted available to all share and unitholders
(2)
|
|
$ |
24,286 |
|
|
$ |
28,550 |
|
|
$ |
26,088 |
|
|
$ |
23,182 |
|
|
$ |
13,678 |
|
Cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operations
|
|
$ |
33,235 |
|
|
$ |
26,011 |
|
|
$ |
26,806 |
|
|
$ |
25,187 |
|
|
$ |
18,373 |
|
Net
cash provided by (used in) investing
|
|
|
(41,638 |
) |
|
|
(31,656 |
) |
|
|
33,399 |
|
|
|
(120,830 |
) |
|
|
(200,157 |
) |
Net
cash provided by (used in) financing
|
|
|
30,569 |
|
|
|
10,614 |
|
|
|
(62,598 |
) |
|
|
40,408 |
|
|
|
243,445 |
|
Per
share and distribution data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share – basic and diluted
|
|
$ |
(0.18 |
) |
|
$ |
(0.28 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.67 |
) |
Cash
distributions declared per share/unit
|
|
|
0.36 |
|
|
|
0.82 |
|
|
|
0.82 |
|
|
|
1.10 |
|
|
|
0.79 |
|
Cash
distributions declared
|
|
|
15,330 |
|
|
|
25,797 |
|
|
|
22,985 |
|
|
|
29,114 |
|
|
|
18,721 |
|
Selected
property information (3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
7,813 |
|
|
|
7,537 |
|
|
|
5,852 |
|
|
|
5,852 |
|
|
|
5,638 |
|
Beds
|
|
|
25,454 |
|
|
|
24,788 |
|
|
|
18,368 |
|
|
|
18,368 |
|
|
|
17,744 |
|
Occupancy
(4)
|
|
|
88.0 |
% |
|
|
90.6 |
% |
|
|
93.7 |
% |
|
|
93.5 |
% |
|
|
92.2 |
% |
Revenue
per available bed (5)
|
|
$ |
368 |
|
|
$ |
372 |
|
|
$ |
387 |
|
|
$ |
372 |
|
|
$ |
369 |
|
(1)
|
As
defined by the National Association of Real Estate Investment Trusts
(“NAREIT”), FFO represents net income (loss) (computed in accordance with
GAAP), excluding gains (or losses) from sales of property, plus real
estate-related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be calculated to
reflect funds from operations on the same basis. We present FFO available
to all stockholders and unitholders because we consider it an important
supplemental measure of our operating performance and believe it is
frequently used by securities analysts, investors and other interested
parties in the evaluation of REITs, many of which present FFO when
reporting their results. As such, we also exclude the impact of
noncontrolling interest in our calculation. FFO is intended to exclude
GAAP historical cost depreciation and amortization of real estate and
related assets, which assumes that the value of real estate diminishes
ratably over time. Historically, however, real estate values have risen or
fallen with market conditions. Because FFO excludes depreciation and
amortization unique to real estate, gains and losses from property
dispositions and extraordinary items, it provides a performance measure
that, when compared year over year, reflects the impact to operations from
trends in occupancy rates, rental rates, operating costs, development
activities and interest costs, providing perspective not immediately
apparent from net income. For a reconciliation of our FFO available
to our stockholders and unitholders to our net loss for the years ended
December 31, 2009, 2008, and 2007, see “Item 7 – Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Funds From
Operations.”
|
(2)
|
Funds
from operations- adjusted excludes the impact of asset impairment and
financing charges from FFO as defined
above.
|
(3)
|
The
selected community information represents all wholly-owned
communities for 2009 (40), 2008 (39), 2007 (25), 2006 (25) and 2005 (24)
(2007, 2006 and 2005 exclude the Place portfolio). This information
excludes property information related to Tharpe and College Station
(discontinued operations) for all
years.
|
(4)
|
Average
of the month-end occupancy rates for the
period.
|
(5)
|
Revenue
per available bed is equal to the total revenue divided by the sum of the
design beds (including staff and model beds) at the property each month.
Revenue and design beds for any acquired properties are included
prospectively from acquisition
date.
|
(Dollars
in thousands, except selected property information and per share
data)
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) is designed to provide a reader of our financial statements with a
narrative from the perspective of our management on our financial condition,
results of operations, liquidity and certain other factors that may affect our
future results. Our MD&A is presented in eleven sections:
|
·
|
Critical
Accounting Policies
|
|
·
|
Liquidity
and Capital Resources
|
|
·
|
Off-Balance
Sheet Arrangements
|
|
·
|
Recent
Accounting Pronouncements
|
We
believe our MD&A should be read in conjunction with the Consolidated
Financial Statements and related Notes included in Item 8, Financial Statements and
Supplementary Data, and the Risk Factors included in Item 1A. of
this Annual Report on Form 10-K.
Unless
otherwise noted, this MD&A relates only to results from continuing
operations. The years ended December 31, 2009, 2008 and 2007 reflect the
classification of College Station’s financial results as discontinued
operations. The year ended December 31, 2007 reflects the Village on
Tharpe’s financial results as discontinued operations.
Overview
We are a
self-managed and self-advised real estate investment trust (“REIT”) engaged in
the development, acquisition, ownership and management of high quality
student housing communities. We also provide student housing management and
development consulting services to universities, charitable foundations and
other third parties. We believe that we are one of the largest owners,
developers and managers of high quality student housing communities in the
United States in terms of both total beds owned and under
management.
We earn
income from rental payments we receive as a result of our ownership of student
housing communities. We also earn income by performing property management
services and development consulting services for third parties through our
taxable REIT subsidiaries AOES and AODC, respectively. While we manage 100% of
the properties we own, we do not recognize any fee income from their management
on a consolidated basis. Furthermore, we do not recognize development
fee income on a consolidated basis for properties that are being developed for
ownership by the Trust.
We have
elected to be taxed as a REIT for federal income tax purposes.
Our
Business Segments
We define
business segments by their distinct customer base and service provided.
Management has identified three reportable segments: student housing leasing,
management services and development consulting services. We evaluate each
segment’s performance based on pre-tax net operating income, which is defined as
income before depreciation, amortization, impairment losses, interest expense
(income), gains (losses) on extinguishment of debt, equity in earnings of
unconsolidated entities, noncontrolling interests and discontinued operations.
The accounting policies of the reportable segments are described in more detail
in the summary of significant accounting policies in the footnotes to the
consolidated financial statements. Inter-company fees are reflected at their
contractually stipulated amounts.
Student
housing leasing
Student
housing leasing revenue represented approximately 86.9% of our revenue,
excluding operating expense reimbursements, for the year ended December 31,
2009. Our revenue related to food service operations is included in this
segment. Additionally, for all of 2007 and the first month of 2008, this segment
included other leasing revenue related to the Place lease which was terminated
on February 1, 2008.
Unlike
multi-family housing where apartments are leased by the unit, student-housing
communities are typically leased by the bed on an individual lease liability
basis. Individual lease liability limits each resident’s liability to his or her
own rent without liability for a roommate’s rent. The number of lease contracts
that we administer is therefore equivalent to the number of beds occupied
instead of the number of apartment units occupied. A parent or guardian is
required to execute each lease as a guarantor unless the resident provides
adequate proof of income and/or pays a deposit, which is usually equal to two
months rent.
Due to
our predominantly private bedroom accommodations, the high level of
student-oriented amenities, the fact that units are furnished and in most cases
rent includes utilities, cable television and internet service and because of
the individual lease liability, we believe our properties can typically command
higher per-unit and per-square foot rental rates than most multi-family
properties in the same geographic markets. We are also typically able to command
higher rental rates than on-campus student housing, which tends to offer fewer
amenities.
The
majority of our leases commence mid-August and terminate on the last day of
July. These dates generally coincide with the commencement of the universities’
fall academic term and the completion of the subsequent summer school session.
As such, we are required to re-lease each community in its entirety at the same
time each year, resulting in significant turnover in our tenant population from
year to year. In 2009 and 2008, approximately 70.0% and 69.3%, respectively, of
our leased beds were to students who were first-time residents at our
communities. As a result, we are highly dependent upon the effectiveness of our
marketing and leasing efforts during the annual leasing season which typically
begins in November and ends in August of each year. Our communities’ occupancy
rates are therefore typically stable during the August to July academic year but
are susceptible to fluctuation at the commencement of each new academic
year.
Prior to
the commencement of each new lease period, mostly during the first two weeks of
August but also during September at some communities, we prepare the units for
new incoming tenants. Other than revenue generated by in-place leases for
returning tenants, we do not generally recognize lease revenue during this
period referred to as “Turn” as we have no leases in place. In addition, we
incur significant expenses during Turn to make our units ready for
occupancy. These expenses are recognized when incurred. This Turn
period results in seasonality in our operating results during the third quarter
of each year.
Management
services
For the
year ended December 31, 2009, revenue from our management services segment
represented approximately 5.9% of our revenue, excluding operating expense
reimbursements. We provide management services for student housing communities
owned by educational institutions, charitable foundations, the REIT and others.
Our management services typically cover all aspects of community operations,
including residence life and student development, marketing, leasing
administration, strategic relationships, information systems and accounting
services. We typically provide these services pursuant to multi-year management
agreements under which management fees are typically 3-5% of leasing revenue.
These agreements usually have an initial term of two to five years with renewal
options of like terms. As part of the management agreements, there are certain
payroll and related expenses we pay on behalf of the property owners. These
costs are included in reimbursable operating expenses and are required to be
reimbursed to us by the property owners. We recognize the expense and revenue
related to these reimbursements when incurred. These operating expenses are
wholly reimbursable without markup and therefore not considered by management
when analyzing the operating performance of our management services
business.
Development
consulting services
For the
year ended December 31, 2009, revenue from our development consulting services
segment represented approximately 7.2% of our revenue, excluding operating
expense reimbursements. We provide development consulting services primarily to
universities seeking to modernize their on-campus student housing communities
but also to the REIT and other third-party investors. Our development consulting
services typically include the following:
|
•
|
market
analysis and evaluation of housing needs and
options;
|
|
•
|
cooperation
with university in architectural
design;
|
|
•
|
negotiation
of ground lease, development agreement, construction contract,
architectural contract and bond
documents;
|
|
•
|
oversight
of architectural design process;
|
|
•
|
coordination
of governmental and university plan
approvals;
|
|
•
|
oversight
of construction process;
|
|
•
|
design,
purchase and installation of
furniture;
|
|
•
|
pre-opening
marketing to students; and
|
|
•
|
obtaining
final approvals of construction.
|
Fees for
these services are typically 3-5% of the total cost of a project and are payable
over the life of the construction period, which in most cases is one to two
years in length. Occasionally, the development consulting contracts include a
provision whereby the Trust can participate in project savings resulting from
successful cost management efforts. These revenues are recognized
once all contractual terms have been satisfied and no future performance
requirements exist. This typically occurs after construction is
complete. For the years ended December 31, 2009, 2008 and 2007, there was
$3,337, $1,944 and $848 of revenue recognized related to cost savings,
respectively.
In 2007,
we began developing projects for our ownership and plan to increase
self-development activity going forward. We opened the first of these
self-developed projects in 2008 in Carbondale, Illinois (Reserve at Saluki
Point). In August of 2009, we opened a second phase at Carbondale and
also completed the development of a wholly-owned self-developed property in
Syracuse, New York.
Trends
and Outlook
Rents
and occupancy
We manage
our properties to maximize revenues, which are primarily driven by two
components: rental rates and occupancy rates. We customarily adjust rental rates
in order to maximize revenues, which in some cases results in a lower occupancy
rate, but in most cases results in stable or increasing revenue from the
property. As a result, a decrease in occupancy may be offset by an increase in
rental rates and may not be material to our operations. Periodically, certain of
our markets experience increases in new on-campus student housing being provided
by universities and off-campus student housing being provided by developers.
This additional student housing both on and off campus can create competitive
pressure on rental rates and occupancy.
For the
year ended December 31, 2009, same-community revenue per available bed
decreased to $387 and same-community physical occupancy decreased to 90.2%
compared to revenue per available bed of $393 and physical occupancy of 92.6%
for the year ended December 31, 2008. These results represent averages for
the Trust’s portfolio which are not necessarily indicative of every property in
the portfolio. As would be expected, individual properties can and do perform
both above and below these averages, and, at times, an individual property may
show a decline in total revenue due to local university and economic conditions.
Our management focus is to assess these situations and address them as quickly
as possible in an effort to minimize the Trust’s exposure and reverse any
negative trend.
The
average physical and economic occupancies on a legacy-community basis (which are
the same-communities, excluding the Place-communities) for the
fourth quarter of 2009 were 92.5% and 93.1%, respectively, compared to 93.5% and
94.7% for the same quarter in 2008. The Place-communities had average
physical and economic occupancies of 84.0% and 80.7%, respectively, compared to
81.3% and 79.0% in the fourth quarter of 2008. The occupancies achieved during
the 2009-2010 lease term required greater discounting of rents and a higher
level of concessions than in the past.
Student
housing operating costs
Cost
reduction initiatives put in place in the fourth quarter of 2008 helped drive a
4.1% or $8 per bed reduction in same-community operating expenses for the year
ended December 31, 2009. This decrease is partially attributable to a loss of
$512 on the sale of the land and parking garage at our University Towers
community in 2008; however, excluding this transaction there was still a $1,178
or 3.3% improvement in community operating expenses. For the fourth quarter of
2009, we achieved cost reductions of 4.8% and 3.7% at our legacy-communities and
our Place-communities, respectively, which represents over twelve consecutive
months of cost reductions. Although we do not expect to continue to
reduce expenses at this same rate in the future, we will continue to maintain
our focus to operate the communities as efficiently as possible.
General
and administrative costs
For the
year ended December 31, 2009, general and administrative expenses decreased
to $15,752 or 3.6% from fiscal 2008. This decrease is primarily attributable to
$706 of development costs that were written off in 2008 related to a project we
are no longer pursuing as company owned. We will continue to cut costs where
appropriate and curb discretionary spending in order to improve profitability
going forward.
Termination
of Place Lease
On
February 1, 2008, the Trust terminated the lease with Place Properties, Inc.
(“Place”) for 13 properties owned by the Trust but previously operated and
managed by Place. Under the termination agreement, the Trust received
a lease termination fee of $6,000. As a result of the lease termination, the
Trust began managing the Place-communities and began recognizing the results of
operations for the Place-communities in its consolidated financial statements as
of the lease termination date. Previously, the Trust recognized base rental
income of $13,740 annually for the lease and had the right to receive
“Additional Rent” annually if the Place-communities exceeded certain criteria
defined in the lease agreement. The net operating income generated by the
Place-communities has been less than the rental income received under the lease;
thus, negatively impacting our net income from continuing operations. The Trust
negotiated the lease termination fee of $6,000 in part to offset the expected
shortfall in operating results of the Place-communities. Over time,
we expect to be able to improve the operating results of the Place-communities
through revenue growth driven by improved marketing and customer service
strategies. However, as with all its communities, management continually
assesses each Place-community and its respective market to determine if such
growth is achievable or if other alternatives should be pursued. The
Place-communities opened the 2009-2010 lease year with an occupancy of 84.3%
compared to 81.9% for the prior lease year and an average 1.2% decline in rental
rates.
Development
Consulting Services
Through
December 31, 2008, the Trust has had four consecutive years of growth in its
development consulting services revenue as a result of an increase in the number
of development projects it has been awarded. For the year ended
December 31, 2009, third-party development consulting services revenue was
$8,178, a decrease of $125 over the prior period. AODC continues to
see indications of interest from universities that are considering new housing
and continues to receive requests for proposals on new development
projects. However, due to the recent tightening in credit markets,
some identified projects have not been able to obtain credit enhancement or
viable financing that would allow projects to move beyond the development phase
and into project financing and construction. AODC is currently
expecting fewer development projects in 2010 until the credit markets begin
returning to more historical norms.
The
amount and timing of future revenues from development consulting services will
be contingent upon our ability to successfully compete in public universities’
competitive procurement processes, our ability to successfully structure
financing of these projects and our ability to ensure completion of construction
within agreed construction timelines and budgets. To date, we have completed
construction on all of our development projects in time for their targeted
occupancy dates.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”) requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in our financial statements and related notes. In preparing these financial
statements, management has utilized all available information, including its
past history, industry standards and the current economic environment, among
other factors, in forming its estimates and judgments of certain amounts
included in the financial statements, giving due consideration to materiality.
The ultimate outcome anticipated by management in formulating its estimates may
not be realized. Application of the critical accounting policies below involves
the exercise of judgment and use of assumptions as to future uncertainties and,
as a result, actual results could differ from these estimates. In addition,
other companies in similar businesses may utilize different estimation policies
and methodologies, which may impact the comparability of our results of
operations and financial condition to those companies.
Student
housing leasing revenue recognition
Student
housing leasing revenue is comprised of all revenue related to the leasing
activities at our student housing communities and includes revenues from leasing
apartments by the bed, parking space rentals and certain ancillary services.
Revenue from our food service operations is also included in this segment.
Additionally, this segment included other leasing revenue related to the Place
lease, which was terminated February 1, 2008. Additional information is
included below regarding revenue recognition for student housing food service
and other leasing revenue.
Students
are required to execute lease contracts with payment schedules that vary from
per semester to monthly. Generally, a parental guarantee must accompany each
executed contract. Receivables are recorded when due, while leasing revenue and
related lease incentives/concessions and nonrefundable application and service
fees are recognized on a straight-line basis over the term of the contracts.
Balances are considered past due when payment is not received on the contractual
due date. Allowances for doubtful accounts are established by management when it
is determined that collection is doubtful.
Student
housing food service revenue recognition
We
maintain a dining facility at our University Towers community, which offers meal
plans to the tenants as well as dining to other third-party customers. The meal
plans typically require upfront payment by the tenant covering the school
semester and the related revenue is recognized on a straight-line basis over the
corresponding semester.
Other
leasing revenue recognition
Other
leasing revenue relates to our leasing of the Place Portfolio that we acquired
from Place on January 1, 2006. Previously, the Trust leased the assets to
Place and received base monthly rent of $1,145 and had the right to receive
“Additional Rent” annually if the Place-communities exceeded certain criteria
defined in the lease agreement. Base rent was recognized on a straight-line
basis over the lease term and Additional Rent was recognized only upon
satisfaction of certain defined criteria. On February 1, 2008, the lease was
terminated. Under the termination agreement, the Trust received a
lease termination fee totaling $6,000 in 2008.
Revenue
and cost recognition of development consulting services
Costs
associated with the pursuit of third-party development consulting contracts are
expensed as incurred until such time as we have been notified of a contract
award or reimbursement has been otherwise guaranteed by the customer. At such
time, the reimbursable portion of such costs is recorded as a receivable.
Development consulting revenues are recognized using the percentage of
completion method as determined by construction costs incurred relative to the
total estimated construction costs. Occasionally, our development consulting
contracts include a provision whereby we can participate in project savings
resulting from our successful cost management efforts. We recognize these
revenues once all contractual terms have been satisfied and we have no future
performance requirements. This typically occurs after construction is complete.
Costs associated with development consulting services are expensed as incurred.
We generally receive a significant percentage of our fees for development
consulting services upon closing of the project financing, a portion of the fee
over the construction period and the balance upon substantial completion of
construction. Because revenue from these services is recognized for financial
reporting purposes utilizing the percentage of completion method, differences
occur between amounts received and revenues recognized. Differences also occur
between amounts recognized for tax purposes and those recognized from financial
reporting purposes. Because REITs are required to distribute 90% of their
taxable income, our distribution requirement with respect to our income from
third-party services may exceed that reflected as net income for financial
reporting purposes from such activities.
We also
periodically enter into joint venture arrangements whereby we provide
development consulting services to third-party student housing owners in an
agency capacity. We recognize our portion of the earnings in each joint venture
based on our ownership interest, which is reflected after net operating income
in our consolidated statement of operations as equity in earnings of
unconsolidated entities. Our revenue and operating expenses could fluctuate from
period to period based on the extent to which we utilize joint venture
arrangements to provide third-party development consulting
services.
Student
housing property acquisitions and dispositions
Land,
land improvements, buildings and improvements and furniture, fixtures and
equipment are recorded at cost. Buildings and improvements are depreciated over
30 to 40 years, land improvements are depreciated over 15 years and
furniture, fixtures, and equipment are depreciated over 3 to 7 years.
Depreciation is computed using the straight-line method for financial reporting
purposes.
Acquired
student housing properties’ results of operations are included in the Trust’s
results of operations from the respective dates of
acquisition. Appraisals, estimates of cash flows and valuation
techniques are used to allocate the purchase price of acquired property between
land, land improvements, buildings and improvements, furniture, fixtures and
equipment and identifiable intangibles such as amounts related to in-place
leases. On January 1, 2009, the Trust adopted the authoritative guidance issued
by the FASB, which prospectively changed the requirements for how an acquirer
recognizes and measures the identifiable assets acquired, the liabilities
assumed, any noncontrolling interests in the acquiree and the goodwill
acquired. The guidance also enhanced the disclosures to enable the
evaluation of the nature and financial effects of the business combination and
requires that pre-acquisition costs be expensed as incurred. Pre-acquisition
costs, which include legal and professional fees and other third-party costs
related directly to the acquisition of a property, were accounted for as part of
the purchase price prior to the adoption of the guidance issued by the
FASB.
When a
student housing property has met the criteria to be classified as held for sale,
the fair value less cost to sell such asset is estimated. If fair value less
cost to sell the asset is less than the carrying amount of the asset, an
impairment charge is recorded for the estimated loss. Depreciation expense is no
longer recorded once a student housing property has met the held for sale
criteria. The related carrying value of the property is recorded as held for
sale in the consolidated balance sheet and operations of student housing
properties that are sold or classified as held for sale are recorded as part of
discontinued operations for all periods presented. For the years ended December
31, 2009 and 2008, no impairment losses on student housing properties held for
sale were recognized.
Repairs
and maintenance
The costs
of ordinary repairs and maintenance are charged to operations when incurred.
Major improvements that extend the life of an asset beyond one year are
capitalized and depreciated over the remaining useful life of the asset. Planned
major repair, maintenance and improvement projects are capitalized when
performed. In some circumstances, the lenders require us to maintain a reserve
account for future repairs and capital expenditures. These amounts are not
available for current use and are recorded as restricted cash on our
consolidated balance sheet.
Long
lived assets — impairment
Management
is required to assess whether there are any indicators that our real estate
assets may be impaired. A property’s value is considered impaired if
management’s estimate of the aggregate future cash flows (undiscounted and
without interest charges) to be generated by the property, based on its intended
use, is less than the carrying value of the property. These estimates of cash
flows are based on factors such as future intended use of the asset, expected
future operating income, trends and prospects, as well as the effects of demand,
competition and other factors. To the extent impairment has occurred, the loss
will be measured as the excess of the carrying amount of the property over the
fair value of the property, thereby reducing our net income. As a
result of management’s assessment in 2009 and 2008, the Trust recognized an
impairment loss of $1,726 and $1,633, respectively.
Use
of Estimates
Significant
estimates and assumptions are used by management in determining the recognition
of third-party development consulting revenue under the percentage of completion
method, useful lives of student housing assets, the valuation of goodwill, the
initial valuations and underlying allocations of purchase price in connection
with student housing property acquisitions, the determination of fair value for
impairment assessments, and in recording the allowance for doubtful
accounts. Actual results could differ from those
estimates.
We review
our assets, including our student housing properties, properties under
development, and goodwill for potential impairment indicators whenever events or
circumstances indicate that the carrying value might not be
recoverable. Impairment indicators include, but are not limited to,
declines in our market capitalization, overall market factors, changes in cash
flows, significant decreases in net operating income and occupancies at our
operating properties, changes in projected completion dates of our development
projects, and sustainability of development projects. Our tests for
impairment are based on the most current information available and if conditions
change or if our plans regarding our assets change, it could result in
additional impairment charges in the future. However, based on our
plans with respect to our operating properties and those under development, we
believe the carrying amounts are recoverable.
Results
of Operations for the Years Ended December 31, 2009 and 2008
|
|
Year
Ended December 31, 2009
|
|
|
Year
Ended December 31, 2008
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
Segment
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing revenue
|
|
$ |
110,810 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
110,810 |
|
|
$ |
107,149 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
107,149 |
|
Student
housing food service revenue
|
|
|
2,267 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,267 |
|
|
|
2,378 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,378 |
|
Other
leasing revenue
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,145 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,145 |
|
Third-party
development consulting services
|
|
|
— |
|
|
|
8,178 |
|
|
|
— |
|
|
|
— |
|
|
|
8,178 |
|
|
|
— |
|
|
|
8,303 |
|
|
|
— |
|
|
|
— |
|
|
|
8,303 |
|
Third-party
management services
|
|
|
— |
|
|
|
— |
|
|
|
3,221 |
|
|
|
— |
|
|
|
3,221 |
|
|
|
— |
|
|
|
— |
|
|
|
3,672 |
|
|
|
— |
|
|
|
3,672 |
|
Intersegment
revenues
|
|
|
— |
|
|
|
1,129 |
|
|
|
4,419 |
|
|
|
(5,548 |
) |
|
|
— |
|
|
|
— |
|
|
|
661 |
|
|
|
4,290 |
|
|
|
(4,951 |
) |
|
|
— |
|
Operating
expense reimbursements
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,722 |
|
|
|
9,722 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,796 |
|
|
|
10,796 |
|
Total
segment revenues
|
|
|
113,077 |
|
|
|
9,307 |
|
|
|
7,640 |
|
|
|
4,174 |
|
|
|
134,198 |
|
|
|
116,672 |
|
|
|
8,964 |
|
|
|
7,962 |
|
|
|
5,845 |
|
|
|
139,443 |
|
Segment
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing operations
|
|
|
55,161 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
55,161 |
|
|
|
55,120 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
55,120 |
|
Student
housing food service operations
|
|
|
2,156 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,156 |
|
|
|
2,257 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,257 |
|
General
and administrative
|
|
|
— |
|
|
|
3,261 |
|
|
|
7,135 |
|
|
|
(96 |
) |
|
|
10,300 |
|
|
|
3 |
|
|
|
4,196 |
|
|
|
7,234 |
|
|
|
(337 |
) |
|
|
11,096 |
|
Intersegment
expenses
|
|
|
4,419 |
|
|
|
— |
|
|
|
— |
|
|
|
(4,419 |
) |
|
|
— |
|
|
|
4,290 |
|
|
|
— |
|
|
|
— |
|
|
|
(4,290 |
) |
|
|
— |
|
Reimbursable
operating expenses
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,722 |
|
|
|
9,722 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,796 |
|
|
|
10,796 |
|
Total
segment operating expenses
|
|
|
61,736 |
|
|
|
3,261 |
|
|
|
7,135 |
|
|
|
5,207 |
|
|
|
77,339 |
|
|
|
61,670 |
|
|
|
4,196 |
|
|
|
7,234 |
|
|
|
6,169 |
|
|
|
79,269 |
|
Net
operating income (loss)
|
|
|
51,341 |
|
|
|
6,046 |
|
|
|
505 |
|
|
|
(1,033 |
) |
|
|
56,859 |
|
|
|
55,002 |
|
|
|
4,768 |
|
|
|
728 |
|
|
|
(324 |
) |
|
|
60,174 |
|
Nonoperating
expenses (1)
|
|
|
54,349 |
|
|
|
(86 |
) |
|
|
— |
|
|
|
— |
|
|
|
54,263 |
|
|
|
60,114 |
|
|
|
(76 |
) |
|
|
— |
|
|
|
— |
|
|
|
60,038 |
|
|
|
Year
Ended December 31, 2009
|
|
|
Year
Ended December 31, 2008
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
Income
(loss) before equity in earnings (losses) of unconsolidated entities,
income taxes, redeemable noncontrolling interests and discontinued
operations
|
|
|
(3,008 |
) |
|
|
6,132 |
|
|
|
505 |
|
|
|
(1,033 |
) |
|
|
2,596 |
|
|
|
(5,112 |
) |
|
|
4,844 |
|
|
|
728 |
|
|
|
(324 |
) |
|
|
136 |
|
Equity
in earnings (losses) of unconsolidated entities
|
|
|
(1,406 |
) |
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,410 |
) |
|
|
(192 |
) |
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(196 |
) |
Income
(loss) before taxes, redeemable noncontrolling interests and
discontinued operations (2)
|
|
$ |
(4,414 |
) |
|
$ |
6,128 |
|
|
$ |
505 |
|
|
$ |
(1,033 |
) |
|
$ |
1,186 |
|
|
$ |
(5,304 |
) |
|
$ |
4,840 |
|
|
$ |
728 |
|
|
$ |
(324 |
) |
|
$ |
(60 |
) |
(1)
|
Nonoperating
expenses include interest expense, interest income, gain (losses) on
extinguishment of debt, amortization of deferred financing costs,
depreciation, amortization of intangibles and impairment losses on assets.
Certain expenses which are classified as operating expenses in accordance
with GAAP, are classified as nonoperating expenses for presentation
purposes above based on how management evaluates segment operating
performance.
|
(2)
|
The
following is a reconciliation of the reportable segments’ net income
(loss) before income taxes, redeemable noncontrolling interests and
discontinued operations to the Trust’s consolidated net loss before
income taxes, redeemable noncontrolling interests and discontinued
operations for the years ended December
31:
|
|
|
2009
|
|
|
2008
|
|
Income
(loss) before income taxes, redeemable noncontrolling interests
and discontinued operations for reportable segments
|
|
$ |
1,186 |
|
|
$ |
(60 |
) |
Other
unallocated corporate expenses
|
|
|
(6,336 |
)
|
|
|
(6,761 |
) |
Loss before
income taxes, redeemable noncontrolling interests and discontinued
operations
|
|
$ |
(5,150 |
)
|
|
$ |
(6,821 |
) |
Student
housing leasing
Wholly-owned
community operating statistics for 2009 and 2008 were as follows:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
|
|
2009
(9)
|
|
|
2008
(9)
|
|
|
Difference
|
|
Occupancy
|
|
|
|
|
|
|
|
|
|
Physical
(1)
|
|
|
88.0 |
% |
|
|
90.6 |
% |
|
|
(2.6 |
)% |
Economic
(2)
|
|
|
84.3 |
% |
|
|
87.3 |
% |
|
|
(3.0 |
)% |
NarPAB
(3)
|
|
$ |
346 |
|
|
$ |
350 |
|
|
$ |
(4 |
) |
Other
income per avail. bed (4)
|
|
$ |
22 |
|
|
$ |
22 |
|
|
$ |
— |
|
RevPAB
(5)
|
|
$ |
368 |
|
|
$ |
372 |
|
|
$ |
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expense per bed (6) (7)
|
|
$ |
183 |
|
|
$ |
190 |
|
|
$ |
7 |
|
Operating
margin (10)
|
|
|
50.2 |
% |
|
|
49.0 |
% |
|
|
1.2 |
% |
Design
Beds (8)
|
|
|
300,762 |
|
|
|
287,876 |
|
|
|
12,886 |
|
|
(1)
|
Physical
occupancy represents a weighted average of the month-end occupancies for
the respective period.
|
|
(2)
|
Economic
occupancy represents the effective occupancy calculated by taking net
apartment rent accounted for on a GAAP basis for the respective period
divided by market rent for the respective
period.
|
|
(3)
|
NarPAB
represents GAAP net apartment rent for the respective period divided by
the sum of the design beds in the portfolio for each of the included
months. Does not include food service revenue or other leasing
revenue.
|
|
(4)
|
Represents
other GAAP-based income for the respective period divided by the sum of
the design beds in the portfolio for each of the included months. Other
income includes service/application fees, late fees, termination fees,
parking fees, transfer fees, damage recovery, utility recovery, and other
miscellaneous fees.
|
|
(5)
|
Represents
total revenue (net apartment rent plus other income) for the respective
period divided by the sum of the design beds in the portfolio for each of
the included months.
|
|
(6)
|
Represents
property-level operating expense excluding management fees, depreciation
and amortization divided by the sum of the design beds for each of the
included months.
|
|
(7)
|
For
the year ended December 31, 2008, approximately $2 per bed related to the
loss on the sale of land and the parking garage at University Towers (see
Note 5 in the consolidated financial statements) is
excluded.
|
|
(8)
|
Represents
the sum of the monthly design beds in the portfolio during the period. As
of February 1, 2008, the design beds related to the Place Portfolio were
included in the total for year ended December 31, 2008 due to the
termination of the lease with
Place.
|
|
(9)
|
This
information excludes property information related to College Station
(discontinued operations).
|
|
(10)
|
Represents
wholly-owned community operating income divided by wholly-owned community
revenue.
|
Same-community
operating statistics for 2009 and 2008 were as follows:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
|
|
2009
(9)
|
|
|
2008
(9)
|
|
|
Difference
|
|
Occupancy
|
|
|
|
|
|
|
|
|
|
Physical
(1)
|
|
|
90.2 |
% |
|
|
92.6 |
% |
|
|
(2.4 |
)% |
Economic
(2)
|
|
|
86.9 |
% |
|
|
89.5 |
% |
|
|
(2.6 |
)% |
NarPAB
(3)
|
|
$ |
362 |
|
|
$ |
368 |
|
|
$ |
(6 |
) |
Other
income per avail. bed (4)
|
|
$ |
25 |
|
|
$ |
25 |
|
|
$ |
— |
|
RevPAB
(5)
|
|
$ |
387 |
|
|
$ |
393 |
|
|
$ |
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expense per bed (6) (7)
|
|
$ |
185 |
|
|
$ |
193 |
|
|
$ |
8 |
|
Operating
margin (10)
|
|
|
52.2 |
% |
|
|
50.9 |
% |
|
|
1.3 |
% |
Design
Beds (8)
|
|
|
220,338 |
|
|
|
220,402 |
|
|
|
(64 |
) |
|
(1)
|
Physical
occupancy represents a weighted average of the month-end occupancies for
the respective period.
|
|
(2)
|
Economic
occupancy represents the effective occupancy calculated by taking net
apartment rent accounted for on a GAAP basis for the respective period
divided by market rent for the respective
period.
|
|
(3)
|
NarPAB
represents GAAP net apartment rent for the respective period divided by
the sum of the design beds in the portfolio for each of the included
months. Does not include food service revenue or other leasing
revenue.
|
|
(4)
|
Represents
other GAAP-based income for the respective period divided by the sum of
the design beds in the portfolio for each of the included months. Other
income includes service/application fees, late fees, termination fees,
parking fees, transfer fees, damage recovery, utility recovery, and other
miscellaneous fees.
|
|
(5)
|
Represents
total revenue (net apartment rent plus other income) for the respective
period divided by the sum of the design beds in the portfolio for each of
the included months.
|
|
(6)
|
Represents
property-level operating expense excluding management fees, depreciation
and amortization divided by the sum of the design beds for each of the
included months.
|
|
(7)
|
For
the year ended December 31, 2008, approximately $2 per bed related to the
loss on the sale of land and the parking garage at University Towers (see
Note 5 in the consolidated financial statements) is
excluded.
|
|
(8)
|
Represents
the sum of the monthly design beds in the portfolio during the
period.
|
|
(9)
|
This
information excludes property information related to College Station
(discontinued operations).
|
|
(10)
|
Represents
same-community operating income divided by same-community
revenue.
|
Total
revenue in the student housing leasing segment was $113,077 for the year
ended December 31, 2009. This represents a decrease of $3,595, or 3.1%,
from the same period in 2008. Student housing leasing revenue increased 3.4%, or
$3,661, to $110,810, while other leasing revenue declined $7,145 as a result of
the February 1, 2008 Place Portfolio lease termination and related termination
fee recognized in 2008. The student housing leasing revenue increase of
$3,661 included $1,790 related to one additional month of operating results from
the Place-communities in 2009 compared to 2008 and a $220 decline in revenue
since the lease termination due to lower rates and occupancy. Two new
communities, Reserve at Saluki Point (Carbondale) and University Village on
Colvin (Syracuse), which opened in August of 2008 and 2009, respectively,
contributed $3,247 of revenue growth year over year. Same-community revenue
declined $1,156 or 1.3% compared to the prior year, reflecting an approximate
1.1% increase in rates and a 0.1% increase in other income offset by an
approximate 2.5% decline in occupancy.
For the
year ended December 31, 2009, operating expenses in the student housing leasing
segment of $61,736 were relatively flat compared to $61,760 for the prior
year. Same-community cost reductions of 4.1% and a 5.5% cost reduction at
our Place-communities for the comparable periods since the lease termination
contributed a $2,560 reduction in operating expenses. These
reductions were offset by $928 of expense growth related to one additional month
of operations of the Place-communities in 2009 compared to 2008 as well as
$1,673 of additional operating expenses related to the two new communities, The
Reserve at Saluki Point and University Village on Colvin. The
same and Place community cost reductions included $512 related to a loss on the
sale of the University Towers land and parking garage in the prior year, an $871
reduction in payroll costs, a $620 reduction in credit card fees, a $394
reduction in real estate taxes and a $140 decline in insurance costs compared to
the prior year.
Development
consulting services
The
following table represents the development consulting projects that were active
during the years ended December 31, 2009 and 2008:
|
|
|
|
|
Recognized
Earnings
|
|
Project
|
|
Beds
|
|
|
2009
|
|
|
2008
|
|
|
Difference
|
|
University
of Michigan
|
|
|
896 |
|
|
$ |
183 |
|
|
$ |
314 |
|
|
$ |
(131 |
) |
University
of Alabama – Tuscaloosa
|
|
|
631 |
|
|
|
— |
|
|
|
670 |
|
|
|
(670 |
) |
Slippery
Rock University – Phase II
|
|
|
746 |
|
|
|
— |
|
|
|
1,019 |
|
|
|
(1,019 |
) |
Indiana
University of Pennsylvania – Phase II
|
|
|
1,102 |
|
|
|
— |
|
|
|
2,341 |
|
|
|
(2,341 |
) |
Fontainebleu
Renovation Project
|
|
|
435 |
|
|
|
68 |
|
|
|
171 |
|
|
|
(103 |
) |
West
Chester – Phase I
|
|
|
1,197 |
|
|
|
3,287 |
|
|
|
2,033 |
|
|
|
1,254 |
|
West
Chester – Phase II
|
|
|
— |
|
|
|
65 |
|
|
|
— |
|
|
|
65 |
|
Indiana
University of Pennsylvania – Phase III
|
|
|
1,084 |
|
|
|
1,946 |
|
|
|
1,339 |
|
|
|
607 |
|
Colorado
State University – Pueblo I
|
|
|
253 |
|
|
|
791 |
|
|
|
234 |
|
|
|
557 |
|
Colorado
State University – Pueblo II
|
|
|
500 |
|
|
|
1,051 |
|
|
|
— |
|
|
|
1,051 |
|
Auraria
Higher Education System
|
|
|
685 |
|
|
|
182 |
|
|
|
182 |
|
|
|
— |
|
Indiana
University of Pennsylvania – Phase IV
|
|
|
596 |
|
|
|
605 |
|
|
|
— |
|
|
|
605 |
|
Third-party
development consulting services
|
|
|
|
|
|
|
8,178 |
|
|
|
8,303 |
|
|
|
(125 |
) |
Southern
Illinois University – Carbondale
|
|
|
768 |
|
|
|
100 |
|
|
|
199 |
|
|
|
(99 |
) |
Syracuse
University
|
|
|
432 |
|
|
|
1,029 |
|
|
|
462 |
|
|
|
567 |
|
Intersegment
development services
|
|
|
|
|
|
|
1,129 |
|
|
|
661 |
|
|
|
468 |
|
Development
consulting services
|
|
|
|
|
|
$ |
9,307 |
|
|
$ |
8,964 |
|
|
$ |
343 |
|
Development
consulting services revenue increased $343, or 3.8%, to $9,307 for the year
ended December 31, 2009. As shown above third-party development consulting
revenue was down $125 to $8,178 for the year due to a decline in the number of
active jobs year over year. This decline was net of an approximate
$1,400 increase in fees representing AODC’s share of development cost savings on
successfully completed projects. The inter-segment development
revenue relates to development services performed on projects owned by the
Trust, that are eliminated in the accompanying consolidated financial
statements. Inter-segment revenue increased $468 over the prior year due to the
timing of the two developments at Carbondale and Syracuse.
General
and administrative expenses declined $935 to $3,261 during the year ended
December 31, 2009 primarily due to a $706 write off of development costs in 2008
related to a project we were no longer pursing as company owned and a $348
reduction in payroll expenses in 2009 as a result of cost reduction measures
implemented in the fall of 2008. These cost reductions were offset by higher
project pursuit costs in 2009.
Management
services
Total
management services revenue decreased by $322, or 4.0%, to $7,640 for the year
ended December 31, 2009. Third-party management fee revenue decreased $451, or
12.3%, to $3,221 for the year ended December 31, 2009. The cancellation of a
contract in 2008 related to a five property portfolio in Michigan, for which the
owner chose to take management in-house, contributed to $443 of the decrease and
an additional $245 of the decrease resulted from two other contracts that were
cancelled in 2008. Four new contracts signed in 2008 added $173 of
revenue growth in 2009 while fees from existing customers improved $65, or 2.3%.
Growth in our wholly-owned portfolio helped offset the decline in third-party
management fee revenue by contributing an increase in intersegment revenue of
$129, which related to an additional month of managing the Place Portfolio in
2009 as well as the addition of the two new communities that came out of
development in 2008 and 2009.
General
and administrative costs for our third-party management services segment
decreased $99 or 1.4% to $7,135 for the year ended December 31, 2009 compared to
the same period in 2008. This decrease is primarily attributable to the cost
reduction measures implemented in the fall of 2008.
Unallocated
corporate expenses
Unallocated
corporate expenses represent general and administrative expenses that are not
allocated to any of our business segments. For the year ended December 31, 2009,
unallocated corporate expenses decreased $425 or 6.3% when compared to the prior
year. This decrease is primarily attributable to a decrease in interest expense
related to the repayment of the Amended Revolver (as defined below) in July of
2009.
Nonoperating
expenses
Nonoperating
expenses decreased $5,775 or 9.6% to $54,263 for the year ended December
31, 2009, compared to the same period in 2008. This decrease was primarily a
$4,360 loss on the extinguishment of debt related to the Trust’s debt
refinancing in December of 2008 and an $830 gain on the extinguishment of debt
resulting from the refund of defeasance costs in 2009. In
2008, an impairment loss of $1,633
related to student housing assets and an impairment loss of $388 related to
goodwill also contributed to the decrease. These decreases were
offset by an impairment loss of $1,726 related to student housing assets in 2009
and a decline in depreciation expense due to fully depreciated assets that
remain in service.
Equity
in losses of unconsolidated entities
Equity in
losses of unconsolidated entities primarily represents our share of the net loss
related to four investments in unconsolidated entities that own student housing
communities. These communities are also managed by the Trust. For the year ended
December 31, 2009, equity in losses was $1,410 compared to equity in losses
of $196 in the prior year. This increase in equity in losses was primarily
related to the Trust recording $1,447 of its share of an impairment loss related
to the underlying student housing assets of one of these joint
ventures.
Results
of Operations for the Years Ended December 31, 2008 and 2007
|
|
Year
Ended December 31, 2008
|
|
|
Year
Ended December 31, 2007
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
Segment
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing revenue
|
|
$ |
107,149 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
107,149 |
|
|
$ |
85,175 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
85,175 |
|
Student
housing food service revenue
|
|
|
2,378 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,378 |
|
|
|
2,359 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,359 |
|
Other
leasing revenue
|
|
|
7,145 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,145 |
|
|
|
13,811 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,811 |
|
Third-party
development consulting services
|
|
|
— |
|
|
|
8,303 |
|
|
|
— |
|
|
|
— |
|
|
|
8,303 |
|
|
|
— |
|
|
|
5,411 |
|
|
|
— |
|
|
|
— |
|
|
|
5,411 |
|
Third-party
management services
|
|
|
— |
|
|
|
— |
|
|
|
3,672 |
|
|
|
— |
|
|
|
3,672 |
|
|
|
— |
|
|
|
— |
|
|
|
3,391 |
|
|
|
— |
|
|
|
3,391 |
|
Intersegment
revenues
|
|
|
— |
|
|
|
661 |
|
|
|
4,290 |
|
|
|
(4,951 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,409 |
|
|
|
(3,409 |
) |
|
|
— |
|
Operating
expense reimbursements
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,796 |
|
|
|
10,796 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,330 |
|
|
|
9,330 |
|
Total
segment revenues
|
|
|
116,672 |
|
|
|
8,964 |
|
|
|
7,962 |
|
|
|
5,845 |
|
|
|
139,443 |
|
|
|
101,345 |
|
|
|
5,411 |
|
|
|
6,800 |
|
|
|
5,921 |
|
|
|
119,477 |
|
Segment
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing operations
|
|
|
55,120 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
55,120 |
|
|
|
40,798 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40,798 |
|
Student
housing food service operations
|
|
|
2,257 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,257 |
|
|
|
2,236 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,236 |
|
General
and administrative
|
|
|
3 |
|
|
|
4,196 |
|
|
|
7,234 |
|
|
|
(337 |
) |
|
|
11,096 |
|
|
|
105 |
|
|
|
2,787 |
|
|
|
6,628 |
|
|
|
— |
|
|
|
9,520 |
|
Intersegment
expenses
|
|
|
4,290 |
|
|
|
— |
|
|
|
— |
|
|
|
(4,290 |
) |
|
|
— |
|
|
|
3,409 |
|
|
|
— |
|
|
|
— |
|
|
|
(3,409 |
) |
|
|
— |
|
Reimbursable
operating expenses
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,796 |
|
|
|
10,796 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,330 |
|
|
|
9,330 |
|
Total
segment operating expenses
|
|
|
61,670 |
|
|
|
4,196 |
|
|
|
7,234 |
|
|
|
6,169 |
|
|
|
79,269 |
|
|
|
46,548 |
|
|
|
2,787 |
|
|
|
6,628 |
|
|
|
5,921 |
|
|
|
61,884 |
|
Net
operating income (loss)
|
|
|
55,002 |
|
|
|
4,768 |
|
|
|
728 |
|
|
|
(324 |
) |
|
|
60,174 |
|
|
|
54,797 |
|
|
|
2,624 |
|
|
|
172 |
|
|
|
|
|
|
|
57,593 |
|
Nonoperating
expenses (1)
|
|
|
60,114 |
|
|
|
(76 |
) |
|
|
— |
|
|
|
— |
|
|
|
60,038 |
|
|
|
58,007 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,007 |
|
Income
(loss) before equity in earnings (losses) of unconsolidated entities,
income taxes, redeemable noncontrolling interests and discontinued
operations
|
|
|
(5,112 |
) |
|
|
4,844 |
|
|
|
728 |
|
|
|
(324 |
) |
|
|
136 |
|
|
|
(3,210 |
) |
|
|
2,624 |
|
|
|
172 |
|
|
|
— |
|
|
|
(414 |
) |
|
|
Year
Ended December 31, 2008
|
|
|
Year
Ended December 31, 2007
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
Equity
in earnings (losses) of unconsolidated entities
|
|
|
(192 |
) |
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(196 |
) |
|
|
(510 |
) |
|
|
233 |
|
|
|
— |
|
|
|
— |
|
|
|
(277 |
) |
Income
(loss) before taxes, redeemable noncontrolling interests and
discontinued operations (2)
|
|
$ |
(5,304 |
) |
|
$ |
4,840 |
|
|
$ |
728 |
|
|
$ |
(324 |
) |
|
$ |
(60 |
) |
|
$ |
(3,720 |
) |
|
$ |
2,857 |
|
|
$ |
172 |
|
|
$ |
— |
|
|
$ |
(691 |
) |
(1)
|
Nonoperating
expenses include interest expense, interest income, gain (losses) on
extinguishment of debt, amortization of deferred financing costs,
depreciation, amortization of intangibles and impairment losses on assets.
Certain expenses which are classified as operating expenses in accordance
with GAAP, are classified as nonoperating expenses for presentation
purposes above based on how management evaluates segment operating
performance.
|
(2)
|
The
following is a reconciliation of the reportable segments’ net
loss before income taxes, redeemable noncontrolling interests and
discontinued operations to the Trust’s consolidated net loss before
income taxes, redeemable noncontrolling interests and discontinued
operations for the years ended December
31:
|
|
|
2008
|
|
|
2007
|
|
Loss before
income taxes, redeemable noncontrolling interests and discontinued
operations for reportable segments
|
|
$ |
(60 |
) |
|
$ |
(691 |
) |
Other
unallocated corporate expenses
|
|
|
(6,761 |
) |
|
|
(6,828 |
) |
Loss before
income taxes, redeemable noncontrolling interests and discontinued
operations
|
|
$ |
(6,821 |
) |
|
$ |
(7,519 |
) |
Student
housing leasing
Wholly-owned
operating statistics for 2008 and 2007 were as follows:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
|
|
2008
(9)
|
|
|
|
2007 (10)
|
|
|
Difference
|
|
Occupancy
|
|
|
|
|
|
|
|
|
|
|
Physical
(1)
|
|
|
90.6 |
% |
|
|
93.7 |
% |
|
|
(3.1 |
)% |
Economic
(2)
|
|
|
87.3 |
% |
|
|
91.1 |
% |
|
|
(3.8 |
)% |
NarPAB
(3)
|
|
$ |
350 |
|
|
$ |
362 |
|
|
$ |
(12 |
) |
Other
income per avail. bed (4)
|
|
$ |
22 |
|
|
$ |
25 |
|
|
$ |
(3 |
) |
RevPAB
(5)
|
|
$ |
372 |
|
|
$ |
387 |
|
|
$ |
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expense per bed (6) (7)
|
|
$ |
190 |
|
|
$ |
185 |
|
|
$ |
(5 |
) |
Operating
margin (11)
|
|
|
49.0 |
% |
|
|
52.2 |
% |
|
|
(3.2 |
)% |
Design
Beds (8)
|
|
|
287,876 |
|
|
|
220,416 |
|
|
|
67,460 |
|
|
(1)
|
Physical
occupancy represents a weighted average of the month-end occupancies for
the respective period.
|
|
(2)
|
Economic
occupancy represents the effective occupancy calculated by taking net
apartment rent accounted for on a GAAP basis for the respective period
divided by market rent for the respective
period.
|
|
(3)
|
NarPAB
represents GAAP net apartment rent for the respective period divided by
the sum of the design beds in the portfolio for each of the included
months. Does not include food service revenue or other leasing
revenue.
|
|
(4)
|
Represents
other GAAP-based income for the respective period divided by the sum of
the design beds in the portfolio for each of the included months. Other
income includes service/application fees, late fees, termination fees,
parking fees, transfer fees, damage recovery, utility recovery, and other
miscellaneous fees.
|
|
(5)
|
Represents
total revenue (net apartment rent plus other income) for the respective
period divided by the sum of the design beds in the portfolio for each of
the included months.
|
|
(6)
|
Represents
property-level operating expense excluding management fees, depreciation
and amortization divided by the sum of the design beds for each of the
included months.
|
|
(7)
|
For
the year ended December 31, 2008, approximately $2 per bed related to the
loss on the sale of land and the parking garage at University Towers (see
Note 5 in the consolidated financial statements) is
excluded.
|
|
(8)
|
Represents
the sum of the monthly design beds in the portfolio during the period. As
of February 1, 2008, the design beds related to the Place Portfolio were
included in the total for year ended December 31, 2008 due to the
termination of the lease with
Place.
|
|
(9)
|
This
information excludes property information related to College Station
(discontinued operations).
|
|
(10)
|
This
information excludes property information related to Tharpe and College
Station (discontinued operations).
|
|
(11)
|
Represents
wholly-owned community operating income divided by wholly-owned community
revenue.
|
The
community statistics shown above on a consolidated basis reflect a decline in
physical occupancy of 3.1%, a decline in RevPAB of 3.9% and a decline in margins
of 320 basis points. These results are not indicative of the year over year
performance of our existing portfolio as they include the impact of assuming
management of the Place Portfolio, whose underlying economics are currently
different from our existing communities. For the year ended December 31,
2008, the Place Portfolio had an average physical occupancy of 83.3%, RevPAB of
$301, and operating margins of 39.2% compared to 92.6%, $393, and 50.7%,
respectively, on a same community basis.
Same-community
operating statistics for 2008 and 2007 were as follows:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
|
|
2008
(9)
|
|
|
|
2007
(10)
|
|
|
Difference
|
|
Occupancy
|
|
|
|
|
|
|
|
|
|
|
Physical
(1)
|
|
|
92.6 |
% |
|
|
93.7 |
% |
|
|
(1.1 |
)% |
Economic
(2)
|
|
|
89.5 |
% |
|
|
91.1 |
% |
|
|
(1.6 |
)% |
NarPAB
(3)
|
|
$ |
368 |
|
|
$ |
362 |
|
|
$ |
6 |
|
Other
income per avail. bed (4)
|
|
$ |
25 |
|
|
$ |
25 |
|
|
$ |
— |
|
RevPAB
(5)
|
|
$ |
393 |
|
|
$ |
387 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expense per bed (6) (7)
|
|
$ |
193 |
|
|
$ |
185 |
|
|
$ |
(8 |
) |
Operating
margin (11)
|
|
|
50.9 |
% |
|
|
52.2 |
% |
|
|
(1.3 |
)% |
Design
Beds (8)
|
|
|
220,402 |
|
|
|
220,416 |
|
|
|
(14 |
) |
|
(1)
|
Physical
occupancy represents a weighted average of the month-end occupancies for
the respective period.
|
|
(2)
|
Economic
occupancy represents the effective occupancy calculated by taking net
apartment rent accounted for on a GAAP basis for the respective period
divided by market rent for the respective
period.
|
|
(3)
|
NarPAB
represents GAAP net apartment rent for the respective period divided by
the sum of the design beds in the portfolio for each of the included
months. Does not include food service revenue or other leasing
revenue.
|
|
(4)
|
Represents
other GAAP-based income for the respective period divided by the sum of
the design beds in the portfolio for each of the included months. Other
income includes service/application fees, late fees, termination fees,
parking fees, transfer fees, damage recovery, utility recovery, and other
miscellaneous fees.
|
|
(5)
|
Represents
total revenue (net apartment rent plus other income) for the respective
period divided by the sum of the design beds in the portfolio for each of
the included months.
|
|
(6)
|
Represents
property-level operating expense excluding management fees, depreciation
and amortization divided by the sum of the design beds for each of the
included months.
|
|
(7)
|
For
the year ended December 31, 2008, approximately $2 per bed related to the
loss on the sale of land and the parking garage at University Towers (see
Note 5 in the consolidated financial statements) is
excluded.
|
|
(8)
|
Represents
the sum of the monthly design beds in the portfolio during the
period.
|
|
(9)
|
This
information excludes property information related to College Station
(discontinued operations).
|
|
(10)
|
This
information excludes property information related to Tharpe and College
Station (discontinued operations).
|
|
(11)
|
Represents
same-community operating income divided by same-community
revenue.
|
Total
revenue in the student housing leasing segment was $116,672 for the year ended
December 31, 2008. This represents an increase of $15,327, or 15.1%, from
the same period in 2007. Student housing leasing revenue increased 25.8%,
contributing $21,974 to the overall increase, while student housing food service
revenue contributed growth of $19. These increases were offset by a decline in
other leasing revenue of $6,666 as a result of the Place lease termination.
Subsequent to the termination in February 2008, we began managing the Place
Portfolio and therefore the majority of the increase in student housing leasing
revenue is attributable to leasing revenues related to the Place properties of
$19,485 since the termination date. Other leasing revenue for the year ended
December 31, 2008 includes the lease termination fee revenue of $6,000 and
January 2008 base rent of $1,145 compared to $13,811 of lease revenue recognized
in the prior year. Same-community revenue growth of 1.5% year over year
contributed to a $1,295 increase in student housing leasing revenue. The growth
in same-community revenue for the period was driven by a 2.8% improvement in
rental rates, representing an increase of $2,377 that was offset by a 120 basis
point decline in occupancies, representing a decline of $1,021. Furthermore,
same-community revenue declined $92 due to more vacant days during the turn
period in the current leasing year compared to the prior leasing year. The
Reserve at Saluki Point, which opened in August of 2008, also contributed $1,193
to the increase in student housing leasing revenue.
Operating
expenses in the student housing leasing segment increased $15,122, or 32.5%, to
$61,670 for the year ended December 31, 2008, as compared to the same
period in 2007. Student housing leasing operations increased a total of $14,322,
or 35.1%, over the prior year, with an increase of $11,845, or 29.0%,
attributable to operating expenses associated with managing the Place Portfolio
since the termination as discussed above. A 4.5% growth in same community
operating expenses contributed $1,842 of expense increase while $496 came from
The Reserve at Saluki Point community that opened in August of
2008. Furthermore, an additional $82 in pre-opening expenses were
incurred for properties under development.
The
same-community operating expense growth of $1,842 includes the impact of a $225
real estate tax refund in the first quarter of 2007 and a $512 loss on sale of
the land and parking garage at the University Towers community in February 2008.
Excluding these two items same community operating expenses grew $1,105, or
2.7%, for the year ended December 31, 2008. A trend of higher operating
expenses occurred in the first three quarters of 2008 across most expense
categories. In response to this trend management implemented cost
containment measures to control discretionary spending and took steps to
solidify the Trust’s cost structure through staff reduction, hiring freezes and
wage freezes. As a result, same community operating expenses were
reduced during the fourth quarter of 2008 and were $601 below the fourth quarter
of 2007.
Since the
lease termination on February 1, 2008, the Place Portfolio produced net
operating income of $7,640 for the eleven months ended December 31, 2008 on
student housing leasing revenue of $19,485 and operating expenses of $11,845.
The net operating income of $7,640 for the eleven months ended December 31,
2008, represents a $5,026 or $0.17 per share/unit decrease from the $12,666 of
other lease revenue received under the lease agreement with Place during the
same eleven month period ended December 31, 2007. The Trust negotiated the
lease termination fee in part to offset the expected shortfall in operating
results of the communities. However, the noted shortfall through December 31,
2008 was more than originally projected due to occupancy issues at several
communities that were more significant than expected. The Place
Portfolio opened the 2008-2009 lease year with an average occupancy of 81.9%
compared to 87.8% in the prior year. Over time, the Trust expects to
be able to improve the operating results of the Place Portfolio through revenue
growth driven by improved marketing and customer service
strategies.
Development
consulting services
The
following table represents the development consulting projects that were active
during the years ended December 31, 2008 and 2007:
|
|
|
|
|
Recognized
Earnings
|
|
Project
|
|
Beds
|
|
|
2008
|
|
|
2007
|
|
|
Difference
|
|
Slippery
Rock University — Phase I
|
|
|
1,390 |
|
|
$ |
— |
|
|
$ |
46 |
|
|
$ |
(46 |
) |
Indiana
University of Pennsylvania — Phase I
|
|
|
734 |
|
|
|
— |
|
|
|
1,597 |
|
|
|
(1,597 |
) |
University
of Michigan
|
|
|
895 |
|
|
|
314 |
|
|
|
285 |
|
|
|
29 |
|
University
of North Carolina — Greensboro
|
|
|
600 |
|
|
|
— |
|
|
|
50 |
|
|
|
(50 |
) |
University
of Alabama – Tuscaloosa
|
|
|
631 |
|
|
|
670 |
|
|
|
978 |
|
|
|
(308 |
) |
Slippery
Rock University – Phase II
|
|
|
746 |
|
|
|
1,019 |
|
|
|
1,067 |
|
|
|
(48 |
) |
Indiana
University of Pennsylvania – Phase II
|
|
|
1,102 |
|
|
|
2,341 |
|
|
|
1,378 |
|
|
|
963 |
|
Fontainebleu
Renovation Project
|
|
|
435 |
|
|
|
171 |
|
|
|
10 |
|
|
|
161 |
|
West
Chester – Phase I
|
|
|
1,197 |
|
|
|
2,033 |
|
|
|
— |
|
|
|
2,033 |
|
Indiana
University of Pennsylvania – Phase III
|
|
|
1,084 |
|
|
|
1,339 |
|
|
|
— |
|
|
|
1,339 |
|
Colorado
State University – Pueblo
|
|
|
253 |
|
|
|
234 |
|
|
|
— |
|
|
|
234 |
|
Auraria
Higher Education System
|
|
|
685 |
|
|
|
182 |
|
|
|
— |
|
|
|
182 |
|
Third-party
development consulting services
|
|
|
|
|
|
|
8,303 |
|
|
|
5,411 |
|
|
|
2,892 |
|
Southern
Illinois University – Carbondale
|
|
|
528 |
|
|
|
199 |
|
|
|
— |
|
|
|
199 |
|
Syracuse
University
|
|
|
432 |
|
|
|
462 |
|
|
|
— |
|
|
|
462 |
|
Intersegment
development services
|
|
|
|
|
|
|
661 |
|
|
|
— |
|
|
|
661 |
|
Development
consulting services
|
|
|
|
|
|
$ |
8,964 |
|
|
$ |
5,411 |
|
|
$ |
3,553 |
|
California
University of Pennsylvania — Phase V
|
|
|
354 |
|
|
$ |
— |
|
|
$ |
124 |
|
|
$ |
(124 |
) |
University
of North Carolina — Greensboro
|
|
|
600 |
|
|
|
— |
|
|
|
118 |
|
|
|
(118 |
) |
University
of Louisville — Phase III
|
|
|
359 |
|
|
|
— |
|
|
|
(9 |
) |
|
|
9 |
|
Other
|
|
|
|
|
|
|
(4 |
) |
|
|
— |
|
|
|
(4 |
) |
Equity
in earnings of unconsolidated entities
|
|
|
|
|
|
$ |
(4 |
) |
|
$ |
233 |
|
|
$ |
(237 |
) |
Development
consulting services revenue increased $3,553, or 65.7%, to $8,964 for the year
ended December 31, 2008, as compared to the same period in 2007. The
increase in revenue is indicative of an increase in the number and size of
projects as well as an increase in development fee incentives earned by
completing projects under budget. There were eight main projects representing
6,237 beds and a renovation project active in 2008 compared to five active
projects representing 4,108 beds and a renovation project active in
2007. In 2008, approximately $852 of contingent fees were recognized
related to the previously completed University of Alabama and Auraria Higher
Education System projects. The construction oversight fee and
development fee recognized for Southern Illinois University-Carbondale and
Syracuse University, respectively, are intersegment revenue related to projects
developed for the Trust’s ownership; therefore, they are eliminated in the
accompanying consolidated financial statements.
General
and administrative costs in the third-party development consulting services
segment increased $1,409 to $4,196 for the year ended December 31, 2008, as
compared to the same period in 2007. About $703, or 50% of the
increase, is a result of increases in staffing and related expenses and
corporate overhead costs allocated to the segment to support the 65.7% growth in
revenue. The other 50% of the increase represents a $706 write off of
development costs related to a project we are no longer pursuing as company
owned. As discussed under the “Student Housing Leasing” section above,
management has implemented certain cost control measures focused on reducing the
rate of expense growth across the Trust that are expected to impact general and
administrative costs in the development consulting services
segment.
Management
services
Total
management services revenue increased by $1,162, or 17.1%, to $7,962 for the
year ended December 31, 2008, as compared to the same period in 2007. The
addition of managing the Place Portfolio as discussed under “Student housing
leasing” above contributed to $878 of the increase by way of intersegment
revenue while third-party management fee revenue increased $281, or 8.3%, to
$3,672 for the year ended December 31, 2008. The increase in third-party
fees consists of $48 related to two new management contracts entered into at
various times during 2007, $108 related to three new management contracts
entered into in 2008, $91 related to one community that came out of development
in 2007 and $66 related to one community that came out of development in
2008. In addition, a 6.4% increase in revenue from existing contracts
contributed $183 of revenue growth. These increases were partially offset by a
decrease of $215 in third-party fees as a result of three contracts that were
terminated in 2007.
During
2008, the Trust also received notice of termination related to the management of
a five property portfolio in Michigan. The owner chose to take management
in-house and terminated the management agreement with the Trust effective
October 8, 2008. On an annualized basis the Trust recognized fees of
approximately $420 or $248 on an after-tax basis. As the Trust received a
termination fee, the impact of the termination on 2008 operating results was
minimal.
General
and administrative costs for our management services segment increased $606 to
$7,234 for the year ended December 31, 2008, as compared to the same period
in 2007. This increase is due to increases in staffing and related costs
resulting from the management of the Place Portfolio. As discussed under the
“Student Housing Leasing” section above, management has implemented certain cost
control measures focused on reducing the rate of expense growth across the
company that are expected to impact general and administrative costs in the
management services segment.
Unallocated
corporate expenses
Unallocated
corporate expenses represent general and administrative and nonoperating
expenses that are not allocated to any of our business segments. For the year
ended December 31, 2008, unallocated corporate expenses decreased $67, or
1.0%, to $6,761. The majority of this decrease is due to an increase in interest
income of $231 primarily related to an intercompany loan between the Operating
Partnership and the University Towers student housing community and a decrease
in deferred financing costs of $224 related to the write-off of deferred
financing fees associated with the Term Loan that was repaid in the second
quarter of 2007. These favorable variances were offset by higher salary and
overhead costs related to growth driven increases in head count. As discussed
under the “Student Housing Leasing” section above, management has implemented
certain cost control measures focused on reducing the rate of expense growth
across the Trust.
Nonoperating
expenses
Nonoperating
expenses related to student housing increased $2,107 to $60,114 for the year
ended December 31, 2008, as compared to same period in 2007. This increase
was primarily driven by a $4,360 loss on the early retirement of debt, an
impairment loss of $1,633 related to student housing assets and an impairment
loss of $388 related to goodwill. These impairment and refinancing
charges were offset by $2,938 decline in depreciation expense due primarily to
fully depreciated assets that remain in service and a $1,474 decline in interest
expense. Interest expense benefited from a lower average outstanding debt
balance, an approximate 300 basis point drop in interest rates related to the
Amended Revolver, and capitalized interest of $439 related to ongoing
development projects.
Nonoperating
expenses related to development included $76 of interest income, primarily
related to the Trust advancing predevelopment costs under predevelopment
agreements, for which the Trust is reimbursed with interest when the
institution’s governing body formally approves the final development contract
and project financing is put in place.
Equity
in earnings/ (losses)
Equity in
earnings/ (losses) of unconsolidated entities related to
student housing represents our share of the net income or loss
related to four investments in unconsolidated entities that own student housing
communities. These communities are also managed by the Trust. For the year ended
December 31, 2008, equity in earnings was a loss of $192 compared to a loss
of $510 in the prior year. The improvement comes from a full year of operations
in our joint venture community in Greensboro, North Carolina as well as better
operating results from the three existing investments, which are a result of the
management company’s focused efforts to improve performance for the joint
venture owners.
Equity in
earnings of unconsolidated entities related to development decreased $237 from
the prior year to a loss of $4 in the current year. There were two joint
ventures with active development projects in 2007, and none in 2008, which
reflects the Trust’s desire to provide third-party development services directly
and not through joint venture arrangements.
Liquidity
and Capital Resources
Second
Amended Revolver, Master Secured Credit Facility and other
indebtedness
On
November 20, 2009, the Operating Partnership entered into a Second Amended
and Restated Credit Agreement (the “Second Amended Revolver”). The Second
Amended Revolver amended and restated the existing secured revolving credit
facility dated March 30, 2006. The previous facility had a maximum
availability of $100,000 and was scheduled to mature on March 30, 2010 (the
“Amended Revolver”). The Second Amended Revolver has a maximum availability of
$95,000 and within the first two years of the agreement may be, upon
satisfaction of certain conditions, expanded to a total of
$150,000.
Availability
under the Second Amended Revolver is limited to a “borrowing base availability”
equal to the lesser of (i) 60% of the property asset value (as defined in
the agreement) of the properties securing the facility and (ii) the loan
amount which would produce a debt service coverage ratio of no less than 1.40.
As of December 31, 2009, our borrowing base was $43,187, we had no amounts
outstanding under the agreement and we had letters of credit outstanding of
$2,000 (see Note 16 to our accompanying consolidated financial statements);
thus, our remaining borrowing base availability was $41,187. The Trust has five
communities unencumbered by debt of which two of these communities are eligible
to be included in the pool of properties pledged as collateral against
borrowings on the Second Amended Revolver. The Trust estimates that
the borrowing base availability would increase by approximately $9,000 if these
two communities were included.
The Trust
serves as the guarantor for any funds borrowed by the Operating Partnership
under the Second Amended Revolver. Additionally, the Second Amended Revolver is
secured by a cross-collateralized, first mortgage lien on five otherwise
unmortgaged properties. The Second Amended Revolver matures on November 20,
2012, and provides that the Operating Partnership may extend the maturity date
for one year subject to certain conditions. The interest rate per annum
applicable to the Second Amended Revolver is, at the Operating Partnership’s
option, equal to a base rate or London InterBank Offered Rate (“LIBOR”) plus an
applicable margin based upon our leverage.
The
Second Amended Revolver contains customary affirmative and negative covenants
and contains financial covenants that, among other things, require the Trust and
its subsidiaries to maintain certain minimum ratios of “EBITDA” (earnings before
payment or charges of interest, taxes, depreciation, amortization or
extraordinary items) as compared to interest expense and total fixed charges.
The financial covenants also include consolidated net worth and leverage ratio
tests.
The Trust
is prohibited from making distributions unless either of the following
conditions is met: (a) after giving effect to the distribution, the total
leverage ratio shall remain less than or equal to 65% prior to November 20,
2012, and less than or equal to 60% thereafter; or (b) the distribution,
when considered along with all other distributions for the last 3 quarters, does
not exceed 90% of funds from operations for the applicable period.
During
the year ended December 31, 2009, the Trust used $30,600 of the proceeds
received in connection with the follow-on common stock offering that occurred in
July 2009 (see Note 2 in the consolidated financial statements) to repay all
balances outstanding under the Amended Revolver.
The Trust
also has a Fannie Mae master credit facility (the “Master Secured Credit
Facility”) that was entered into on December 31, 2008. The initial proceeds of
approximately $197,735 were used to prepay approximately $185,557 of mortgage
debt that was due to mature in July of 2009. The remaining proceeds were used to
pay $4,295 in defeasance costs and other costs related to the early repayment of
the debt, pay $2,052 in deferred financing costs, pay down the Amended Revolver
and pay for other corporate working capital needs. As of December 31, 2009,
$49,292 of the amount outstanding under the Master Secured Credit Facility bears
interest at variable rates based on the 30-day LIBOR plus an applicable margin
(3.62%). The remaining outstanding balance of $146,304 bears interest
at a weighted average fixed rate of 6.01%. The Trust accounted for the
transaction as a legal defeasance and recognized a loss of $4,360 on the early
extinguishment of debt during 2008. During 2009, the Trust received a
refund of defeasance costs resulting in a subsequent $830 gain on the
extinguishment.
On
November 6, 2009, the Trust repaid $98,660 of mortgage debt bearing an annual
fixed interest rate of 6.44% that was due to mature on December 9,
2009. The debt was repaid with proceeds of $76,000 from the follow-on
common stock offering and the remaining $22,660 was repaid using availability
under the Amended Revolver. On December 2, 2009, the Trust completed a $48,327
expansion of the existing Master Secured Credit Facility and used a portion of
the proceeds to repay amounts which were rolled over from the Amended Revolver
and which remained outstanding under the Second Amended Revolver. The facility
expansion consisted of fixed rate loans of $7,699, $17,359 and $23,269 with
maturities of five, seven, and ten-year terms, respectively. The weighted
average annual interest rate at December 31, 2009 was 5.48%. Eight of the
thirteen Place-communities were used as collateral for the
expansion.
At
December 31, 2009, we had borrowed $10,759 and $9,323 on construction loans with
availability of $11,000 and $12,285, respectively, related to the development of
a wholly-owned student apartment community near Southern Illinois University
(Carbondale). The loans bear interest equal to LIBOR plus 110 and 200 basis
point margins, respectively, and are interest only through June 28, 2010.
Commencing on June 28, 2010, and annually thereafter, a debt service
coverage ratio calculated on a rolling 12 months basis, of not less than
1.25 to 1, must be maintained in order to extend the loans until June 28,
2012, with principal and interest being repaid on a monthly basis. Upon initial
maturity the Trust expects to exercise its option to extend these loans. The
Trust incurred $81 in deferred financing costs in connection with these
construction loans in 2008.
At
December 31, 2009, the Trust had $8,826 outstanding on a $14,300 construction
loan related to the development of a wholly-owned student apartment community at
Syracuse University. The loan bears interest equal to LIBOR plus a 110 basis
point margin and is interest only through September 29, 2011. Commencing
with the quarter ended June 30, 2011, and annually thereafter, a debt
service coverage ratio calculated on a rolling 12 month basis, of not less
than 1.25 to 1, must be maintained in order to extend the loan until
September 29, 2013, with principal and interest being repaid on a monthly
basis. Upon initial maturity the Trust expects to exercise its option to extend
this loan.
On
March 3, 2008, mortgage debt in the amount of $22,977, secured by the
student housing community referred to as University Towers, bearing interest at
an effective rate of 5.48%, matured and was repaid by the Trust with additional
borrowings on the Amended Revolver. On June 27, 2008, the Trust refinanced
the debt with a $25,000, interest only, fixed rate mortgage bearing interest at
5.99% through June 30, 2013. After the initial maturity, the Trust has the
option to extend the loan for 12 months with principal and interest equal
to LIBOR plus a 250 basis point margin per annum being repaid on a monthly
basis. The Trust used the proceeds from the refinancing to pay down the Amended
Revolver.
At
December 31, 2009, the Trust had ten properties unencumbered by mortgage debt.
Five of these ten properties have, however, been pledged as collateral against
any borrowings under our Second Amended Revolver.
Liquidity
outlook and capital requirements
On July
28, 2009, we completed a follow-on common stock offering, selling 28,175,000
shares, including the exercise of the over-allotment option by the underwriters,
at a price per share to the public of $4.35. The stock issuance
raised $116,133 in net proceeds which were used to pay down all outstanding
balances under the Amended Revolver, to partially pay down balances on
Place-community mortgage debt, and provide cash for future operations and
growth.
During
the year ended December 31, 2009, we raised net cash proceeds of $116,133 from
our follow-on common stock offering, generated $33,235 of cash from operations,
borrowed $17,815 on construction loans related to the two company owned
developments and borrowed $48,327 of new mortgage debt related to the
Place-communities. This allowed us to invest $31,098 in new
developments, invest $11,298 in existing communities, distribute $15,330 to our
stockholders and unitholders, repay the outstanding balance of $32,900 on our
Amended Revolver, repay mortgage debt of $101,631, fund other investment needs
and increase our cash balances by $22,166 to $31,169 at December 31,
2009.
Our
current liquidity needs include funds for distributions to our stockholders and
unitholders, including those required to maintain our REIT status and satisfy
our current annual distribution target of $0.20 per share/unit, funds for
capital expenditures, funds for debt repayment and, potentially, funds for new
property acquisition and development. We generally expect to meet our short-term
liquidity requirements through cash provided by operations, debt refinancing,
existing cash and recycling capital by way of potential asset
sales.
Distributions
for the year ended December 31, 2009 totaled $15,330 or $0.37 per weighted
average share/unit, compared to cash provided by operations of $33,235, or $0.79
per weighted average share/unit. The Trust’s Board of Directors
lowered the annual dividend target from $0.82 in 2008 to $0.41 per share/unit
beginning in 2009. Subsequently, and in conjunction with the Trust’s follow-on
common stock offering, the Board of Directors lowered the annual dividend rate
to $0.20 per share/unit effective with the
November 16, 2009 dividend.
Based on
our closing share price of $4.84 on December 31, 2009, our total enterprise
value was $685,412. With total debt outstanding on December 31, 2009
of $405,568, our debt to enterprise value was 59.2% compared to 75.4% at
December 31, 2008. On December 31, 2009, gross assets of $946,120,
which excludes accumulated depreciation of $141,507, our debt to gross assets
was 42.9% compared to 53.1% at December 31, 2008.
Management
believes that it has strengthened the Company’s balance sheet through its
follow-on equity offering in July 2009 and the successful pay down and
refinancing of the debt related to the Place-communities as evidenced by the
improved leverage ratios noted above. This has relieved near-term
pressure on our balance sheet and coupled with the lower annual dividend rate of
$0.20 that was established by our Board of Directors in 2009 the Company is
positioned to take advantage of growth opportunities by way of acquisition and
development, both on and off campus.
We intend
to invest in additional properties only as suitable opportunities arise. We also
plan to develop properties for our ownership and management. In the short term,
we intend to fund any acquisitions or developments with working capital,
borrowings under first mortgage property secured debt, construction loans or our
Second Amended Revolver. We intend to finance property acquisitions and
development projects over the longer term with cash from operations, the
proceeds from potential asset sales, additional issuances of common or preferred
stock, private capital in the form of joint ventures, debt financing and
issuances of units in our Operating Partnership. There can be no assurance,
however, that such funding will be obtained on reasonable terms, or at all,
particularly in light of current capital market conditions.
An
additional source of capital, subject to appropriate market conditions, is the
possible disposition of non-strategic properties. We continually assess all of
our properties, the markets they are in and the universities they serve to
determine if any dispositions are necessary or appropriate. The net proceeds
from the sale of any asset would provide additional capital which would most
likely be used to pay down debt or possibly finance acquisition/development
growth or other operational needs.
Predevelopment
expenditures
Our
third-party development consulting activities have historically required us to
fund predevelopment expenditures such as architectural fees, permits and
deposits. Because the closing of a development project’s financing is often
subject to third-party delay, we cannot always predict accurately the liquidity
needs of these activities. We frequently incur these predevelopment expenditures
before a financing commitment has been obtained and, accordingly, bear the risk
of the loss of these predevelopment expenditures if financing cannot ultimately
be arranged on acceptable terms. However, we typically obtain a guarantee of
repayment of these predevelopment expenditures from the project owner, but no
assurance can be given that we would be successful in collecting the amount
guaranteed in the event that project financing is not obtained.
In 2007,
we began developing projects for the Trust’s ownership and plan to increase
self-development activity going forward. We opened two wholly-owned,
self-developed communities in August of 2008 and 2009 which serve Southern
Illinois University and Syracuse University, respectively. As opposed to our
third-party development services, all risk, exposure and capital requirements
for these developments remain with the Trust.
Long-term
liquidity requirements
Our
long-term liquidity requirements consist primarily of funds necessary for
scheduled debt maturities, renovations and other non-recurring capital
expenditures that are needed periodically for our communities. We expect to meet
these needs through existing working capital, cash provided by operations,
additional borrowings under our Second Amended Revolver, net proceeds from
potential asset sales, the issuance of equity instruments, including common or
preferred stock, Operating Partnership units or additional debt, if market
conditions permit. We believe these sources of capital will be sufficient to
provide for our long-term capital needs. Current market conditions (or a
continuing deterioration in such conditions), however, may make additional
capital more expensive for us. There can be no assurance that we will be able to
obtain additional financing under satisfactory conditions, or at all, or that we
will make any investments in additional properties. Our Second
Amended Revolver is a material source to satisfy our long-term liquidity
requirements. As such, compliance with the financial and operating debt
covenants is material to our liquidity. As of December 31, 2009, we
were in compliance with all covenants related to our Second Amended
Revolver.
Capital
expenditures
The
historical recurring capital expenditures at our wholly-owned communities, which
in 2009 and 2008 includes the 13 Place-communities, are set forth as
follows:
|
|
As of and for the Years Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Total
units
|
|
|
7,537 |
|
|
|
7,466 |
|
|
|
6,400 |
|
Total
beds
|
|
|
24,782 |
|
|
|
24,463 |
|
|
|
20,125 |
|
Total
recurring capital expenditures
|
|
$ |
5,214 |
|
|
$ |
3,815 |
|
|
$ |
2,487 |
|
Average
per unit
|
|
$ |
691.79 |
|
|
$ |
510.98 |
|
|
$ |
388.56 |
|
Average
per bed
|
|
$ |
210.39 |
|
|
$ |
155.95 |
|
|
$ |
123.57 |
|
Recurring
capital expenditures exclude capital spending on renovations, community
repositioning or other major periodic projects. Capital expenditures associated
with newly developed communities are typically capitalized as part of their
development costs. As a result such communities typically require little to
no recurring capital expenditures until their second year of operation or
later.
Additionally,
we are required by certain of our lenders to contribute contractual amounts
annually to reserves for capital repairs and improvements at the mortgaged
communities. These contributions are typically less than but could exceed the
amount of capital expenditures actually incurred during any given year at such
communities.
Commitments
The
following table summarizes our contractual obligations as of December 31,
2009:
|
|
Less
than
|
|
|
1-3
|
|
|
3-5
|
|
|
More
than 5
|
|
|
|
|
|
|
1
Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt Obligations(1)
|
|
$ |
23,957 |
|
|
$ |
81,569 |
|
|
$ |
133,143 |
|
|
$ |
166,899 |
|
|
$ |
405,568 |
|
Contractual
Interest Obligations(2)
|
|
|
21,618 |
|
|
|
39,043 |
|
|
|
26,491 |
|
|
|
24,746 |
|
|
|
111,898 |
|
Operating
Lease and Future Purchase Obligations(3)
|
|
|
3,873 |
|
|
|
5,922 |
|
|
|
2,540 |
|
|
|
250 |
|
|
|
12,585 |
|
Capital
Reserve Obligations(4)
|
|
|
1,788 |
|
|
|
3,507 |
|
|
|
2,844 |
|
|
|
3,025 |
|
|
|
11,164 |
|
Total
|
|
$ |
51,236 |
|
|
$ |
130,041 |
|
|
$ |
165,018 |
|
|
$ |
194,920 |
|
|
$ |
541,215 |
|
(1)
|
Includes
required monthly principal amortization and amounts due at maturity on
first mortgage debt secured by student housing properties and any amounts
due under the Second Amended Revolver and construction loan agreements.
The first mortgage debt does not include $797 of unamortized debt
premium.
|
(2)
|
Includes
contractual fixed-rate interest payments as well as estimates of variable
rate interest payments based on the variable interest rates effective as
of December 31, 2009. The Trust has $78,200 of variable rate debt as of
December 31, 2009.
|
(3)
|
Includes
future minimum lease commitments under operating lease obligations and
future purchase obligations for
advertising.
|
(4)
|
Includes
future annual contributions to the capital reserve as required by certain
mortgage debt.
|
Long-term
indebtedness
As of
December 31, 2009, ten of our communities were unencumbered by mortgage
debt. Five of these ten communities have, however, been pledged as collateral
against any borrowings under our Second Amended Revolver.
At
December 31, 2009, we had outstanding indebtedness of $406,365 (net of
unamortized debt premium of $797). The scheduled future maturities of all
outstanding indebtedness at December 31, 2009 were as follows:
Year
|
|
|
|
2010
|
|
$ |
23,957 |
|
2011
|
|
|
12,952 |
|
2012
|
|
|
68,617 |
|
2013
|
|
|
33,028 |
|
2014
|
|
|
100,115 |
|
Thereafter
|
|
|
166,899 |
|
Total
|
|
|
405,568 |
|
Debt
premium
|
|
|
797 |
|
Outstanding
as of December 31, 2009, net of debt premium
|
|
$ |
406,365 |
|
At
December 31, 2009, the outstanding mortgage debt had a weighted average
interest rate of 5.33% and carried an average term to maturity of
5.08 years.
The Trust
had no amounts outstanding under the Second Amended Revolver at December 31,
2009. The Second Amended Revolver has a term of three years and matures on
November 20, 2012, and provides that the Operating Partnership may extend
the maturity date one year subject to certain conditions. The Second Amended
Revolver requires interest only payments through maturity. The interest rate per
annum applicable to the Second Amended Revolver is, at the Operating
Partnership’s option, equal to a base rate or LIBOR plus an applicable margin
based upon our leverage.
Distributions
We are
required to distribute 90% of our REIT taxable income (excluding the deduction
for dividends paid and capital gains) on an annual basis in order to qualify as
a REIT for federal income tax purposes. Accordingly, we intend to make, but are
not contractually bound to make, regular quarterly distributions to holders of
our common stock. All such distributions are authorized at the discretion of our
Board of Directors. We may be required to use borrowings under our Second
Amended Revolver, if necessary, to meet REIT distribution requirements and
maintain our REIT status. We consider market factors and our performance in
addition to REIT requirements in determining distribution levels.
In
January 2009, in an effort to increase financial stability, the Trust’s Board of
Directors lowered the annual dividend target from $0.82 to $0.41 per
share/unit. In conjunction with our follow-on common stock offering
in July of 2009, the board again lowered the annual dividend target from $0.41
to $0.20 per share/unit effective with the November 16, 2009
dividend.
On
January 8, 2010, we announced our fourth quarter distribution of $0.05 per
share of common stock for the quarter ended on December 31, 2009. The
distribution is payable on February 15, 2010 to stockholders of record at
the close of business on January 29, 2010.
Off-Balance
Sheet Arrangements
On
May 10, 2006, the Operating Partnership guaranteed $23,200 of construction
debt held by University Village-Greensboro LLC in order to receive a 25%
ownership stake in the joint venture with College Park Apartments ($22,870
outstanding at December 31, 2009). Construction was completed and the student
housing community was occupied in August 2007. The Operating Partnership
has determined that it will not guarantee the debt after the construction loan
is refinanced which is expected to occur in December of 2010.
Additionally,
as discussed in Note 8 to the accompanying consolidated financial statements, we
hold investments in unconsolidated entities. These unconsolidated entities had
third-party mortgage and construction indebtedness totaling $86,216 at
December 31, 2009.
Funds
From Operations (FFO)
As
defined by the National Association of Real Estate Investment Trusts (“NAREIT”),
FFO represents net income (loss) (computed in accordance with GAAP), excluding
gains (or losses) from sales of property, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis. We present FFO
available to all stockholders and unitholders because we consider it an
important supplemental measure of our operating performance and believe it is
frequently used by securities analysts, investors and other interested parties
in the evaluation of REITs, many of which present FFO when reporting their
results. As such, we also exclude the impact of minority interest in our
calculation. FFO is intended to exclude GAAP historical cost depreciation and
amortization of real estate and related assets, which assumes that the value of
real estate diminishes ratably over time. Historically, however, real estate
values have risen or fallen with market conditions. Because FFO excludes
depreciation and amortization unique to real estate, gains and losses from
property dispositions and extraordinary items, it provides a performance measure
that, when compared year over year, reflects the impact to operations from
trends in occupancy rates, rental rates, operating costs, development activities
and interest costs, providing perspective not immediately apparent from net
income.
We
compute FFO in accordance with standards established by the Board of Governors
of NAREIT in its March 1995 White Paper (as amended in November 1999
and April 2002), which may differ from the methodology for calculating FFO
utilized by other equity REITs and, accordingly, may not be comparable to such
other REITs. Further, FFO does not represent amounts available for management’s
discretionary use because of needed capital replacement or expansion, debt
service obligations or other commitments and uncertainties. FFO should not be
considered as an alternative to net income (loss) (computed in accordance with
GAAP) as an indicator of our financial performance or to cash flow from
operating activities (computed in accordance with GAAP) as an indicator of our
liquidity, nor is it indicative of funds available to fund our cash needs,
including our ability to make distributions.
The
following table presents a reconciliation of our FFO available to our
stockholders and unitholders to our net loss for the years ended
December 31, 2009, 2008, and 2007.
|
|
Year
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Education Realty Trust, Inc.
|
|
$ |
(7,255 |
) |
|
$ |
(7,947 |
) |
|
$ |
(5,416 |
) |
Gain
on sale of student housing property
|
|
|
— |
|
|
|
— |
|
|
|
(1,644 |
) |
Loss
on sale of student housing assets
|
|
|
— |
|
|
|
512 |
|
|
|
— |
|
Student
housing property depreciation and amortization of lease
intangibles
|
|
|
28,497 |
|
|
|
28,720 |
|
|
|
31,675 |
|
Equity
portion of real estate depreciation and amortization on equity
investees
|
|
|
512 |
|
|
|
496 |
|
|
|
424 |
|
Depreciation
and amortization of discontinued operations
|
|
|
25 |
|
|
|
99 |
|
|
|
815 |
|
Noncontrolling
interests
|
|
|
164 |
|
|
|
(128 |
) |
|
|
60 |
|
Funds
from operations available to all stock and unit
holders
|
|
$ |
21,943 |
|
|
$ |
21,752 |
|
|
$ |
25,914 |
|
Inflation
Our
student housing leases typically do not have terms that extend beyond twelve
months. Accordingly, although on a short-term basis we would be required to bear
the impact of rising costs resulting from inflation, we have the opportunity to
raise rental rates at least annually to offset such rising costs. However, our
ability to raise rental rates may be limited by a weak economic environment,
increased competition from new student housing in our primary markets or a
reduction in student enrollment at our principal universities.
Recently
Adopted Accounting Pronouncements
On
January 1, 2009, the Trust adopted the authoritative guidance issued by the FASB
on business combinations. The guidance establishes principles and requirements
for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling
interest in the acquiree and the goodwill acquired. The guidance also
establishes disclosure requirements to enable the evaluation of the nature and
financial effects of the business combination and requires that pre-acquisition
costs be expensed as incurred. The adoption did not have a material impact on
the consolidated financial statements.
On
January 1, 2009, the Trust adopted the authoritative guidance issued by the FASB
that changes the accounting and reporting for noncontrolling interests. The
guidance establishes accounting and reporting standards for ownership interests
in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated.
The guidance also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. As a result of the adoption, the Trust has reported
nonredeemable noncontrolling interests as a component of equity in the
consolidated balance sheets and the net income or loss attributable to
noncontrolling interests has been separately identified in the consolidated
statements of operations. The prior periods presented have also been
reclassified to conform to the current classification.
In June
2008, the FASB issued guidance on determining whether instruments granted in
share-based payment transactions are participating securities. The guidance
clarifies that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and are to be included in the computation of earnings
per share under the two-class method. The guidance requires
all presented prior-period earnings per share data to be adjusted
retrospectively. The adoption resulted in shares of unvested restricted stock
being included in the computation of earnings per share for all periods. The
adoption did not have a material impact on the consolidated financial
statements.
In
May 2009, the FASB issued new
authoritative guidance on subsequent events. The new guidance is
intended to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. Specifically, this standard sets forth
the period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, the circumstances under
which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements, and the disclosures that an
entity should make about events or transactions that occurred after the balance
sheet date. This guidance is effective for financial statements issued for
fiscal years and interim periods beginning after June 15, 2009 and is
applied prospectively. The Trust adopted this authoritative guidance
during the three months ended September 30, 2009. In
February 2010, the FASB amended the authoritative guidance on subsequent events
to remove the requirement for SEC filers to disclose the date through which an
entity has evaluated subsequent events. The new guidance is effective upon
issuance and had no impact on the Trust’s consolidated financial
statements.
In
June 2009, the FASB issued guidance to establish only two levels of GAAP,
authoritative and nonauthoritative. The FASB Accounting Standards Codification
(the “Codification”) is the source of authoritative, nongovernmental GAAP,
except for rules and interpretive releases of the SEC, which are sources of
authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC
accounting literature not included in the Codification is nonauthoritative. This
standard is effective for financial statements issued for fiscal years and
interim periods ending after September 15, 2009. As the
Codification was not intended to change or alter existing GAAP, it did not have
any impact on the consolidated financial statements.
Recently
Issued Accounting Pronouncements
In
June 2009, the FASB issued authoritative guidance to improve financial
reporting by enterprises involved with variable interest entities. The new
guidance is effective for financial statements issued for fiscal years beginning
after November 15, 2009, with earlier adoption prohibited. The adoption is
not expected to have a material impact on the consolidated financial
statements.
In
January 2010, the FASB updated the authoritative guidance for accounting and
reporting for decreases in ownership of a subsidiary. The updated guidance
clarifies the scope of the guidance related to a decrease in ownership
provisions and expands the disclosures related to the deconsolidation of a
subsidiary or group of assets. The updated guidance is effective for financial
statements issued for fiscal years and interim periods beginning after December
15, 2009. The Trust is currently evaluating the impact of adoption on
its consolidated financial statements.
Our
future income, cash flows and fair values relevant to financial instruments are
dependent upon prevailing market interest rates. Market risk refers to the risk
of loss from adverse changes in market prices and interest rates. The Trust’s
interest rate risk objective is to limit the impact of interest rate
fluctuations on earnings and cash flows and to lower its overall borrowing
costs. To achieve this objective, the Trust manages its exposure to fluctuations
in market interest rates for its borrowings through the use of fixed rate debt
instruments to the extent that reasonably favorable rates are
obtainable.
For fixed
rate debt, interest rate changes affect the fair market value but do not impact
net income to common stockholders or cash flows. Conversely, for floating rate
debt, interest changes generally do not affect the fair market value but do
impact net income to common stockholders and cash flows, assuming other factors
are held constant. At December 31, 2009, we had fixed rate debt of
$327,368. Holding other variables constant a 100 basis point increase in
interest rates would cause a $14,742 decline in the fair value for our fixed
rate debt. Conversely, a 100 basis point decrease in interest rates would cause
a $15,781 increase in the fair value of our fixed rate debt. At
December 31, 2009, 80.7% of the outstanding principal amounts of our
mortgage notes payable on the properties we own have fixed interest rates with a
weighted average rate of 5.91% and an average term to maturity of
5.61 years.
At
December 31, 2009, we had borrowed $10,759 and $9,323 on construction loans with
availability of $11,000 and $12,285, respectively, related to the development of
a wholly owned student apartment community near Southern Illinois University
(Carbondale). The loans bear interest equal to LIBOR plus 110 and 200 basis
point margins, respectively, and are interest only through June 14, 2010.
Commencing on June 14, 2010, and annually thereafter, a debt service
coverage ratio calculated on a rolling 12 months basis, of not less than
1.25 to 1, must be maintained in order to extend the loans until June 28,
2012, with principal and interest being repaid on a monthly basis.
At
December 31, 2009, the Trust had $8,826 outstanding on a $14,300 construction
loan related to the development of a wholly-owned student apartment community at
Syracuse University. The loan bears interest equal to LIBOR plus a 110 basis
point margin and is interest only through September 29, 2011. Commencing
with the quarter ended June 30, 2011, and annually thereafter, a debt
service coverage ratio calculated on a rolling 12 month basis, of not less
than 1.25 to 1, must be maintained in order to extend the loan until
September 29, 2013, with principal and interest being repaid on a monthly
basis.
Additionally,
in 2008, we borrowed $49,874 to refinance mortgage debt. The
loans bear interest at 30-day LIBOR plus an applicable margin and mature on
January 1, 2014. In order to hedge the interest rate risk associated
with these loans, the Operating Partnership purchased an interest rate cap from
the Royal Bank of Canada on December 22, 2008 for $120. The interest
rate cap effectively limits the interest rate on $49,874 of the refinanced
mortgage debt at 7.0% per annum through December 31, 2013. The Operating
Partnership has chosen not to designate the cap as a hedge and will recognize
all gain or loss associated with this derivative instrument in
earnings.
We do
not, and do not expect to, use derivatives for trading or speculative purposes,
and we expect to enter into contracts only with major financial
institutions.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31, 2009 based
upon the guidelines established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Our internal control over financial reporting
includes policies and procedures that provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external reporting purposes in accordance with accounting principles
generally accepted in the United States of America.
Based on
the results of our evaluation, our management concluded that our internal
control over financial reporting was effective as of December 31, 2009. We
reviewed the results of management’s assessment with our Audit
Committee.
The
effectiveness of our internal control over financial reporting as of
December 31, 2009 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their attestation
report which appears on the following page.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Education
Realty Trust, Inc.
Memphis,
Tennessee
We have
audited the accompanying consolidated balance sheets of Education Realty Trust,
Inc. and subsidiaries (the "Trust") as of December 31, 2009 and 2008, and the
related consolidated statements of operations, equity, and cash flows for each
of the three years in the period ended December 31, 2009. We also have
audited the Trust's internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Trust’s management is responsible for these
financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying management’s report on
internal control over financial reporting. Our responsibility is to
express an opinion on these financial statements and an opinion on the Trust’s
internal control over financial reporting based on our audits.
We
conducted our audits 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 and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Trust as of December 31,
2009 and 2008, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of America.
Also, in our opinion, the Trust maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on the
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
/s/
DELOITTE & TOUCHE LLP
Memphis,
Tennessee
March 15,
2010
CONSOLIDATED
BALANCE SHEETS
As
of December 31,
|
|
2009
|
|
|
2008
|
|
|
|
(Amounts
in thousands, except
|
|
|
|
share
and per share data)
|
|
|
|
Assets:
|
|
|
|
|
|
|
Student
housing properties, net
|
|
$ |
749,884 |
|
|
$ |
733,507 |
|
Assets
under development
|
|
|
— |
|
|
|
6,572 |
|
Corporate
office furniture, net
|
|
|
1,118 |
|
|
|
1,465 |
|
Cash
and cash equivalents
|
|
|
31,169 |
|
|
|
9,003 |
|
Restricted
cash
|
|
|
4,579 |
|
|
|
5,595 |
|
Student
contracts receivable, net
|
|
|
386 |
|
|
|
533 |
|
Receivable
from affiliate
|
|
|
18 |
|
|
|
25 |
|
Receivable
from managed third parties
|
|
|
277 |
|
|
|
401 |
|
Goodwill
and other intangibles, net
|
|
|
3,073 |
|
|
|
3,111 |
|
Other
assets
|
|
|
14,109 |
|
|
|
17,435 |
|
Total
assets
|
|
$ |
804,613 |
|
|
$ |
777,647 |
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Mortgage
and construction loans, net of unamortized
premium/discount
|
|
$ |
406,365 |
|
|
$ |
442,259 |
|
Revolving
line of credit
|
|
|
— |
|
|
|
32,900 |
|
Accounts
payable
|
|
|
235 |
|
|
|
303 |
|
Accrued
expenses
|
|
|
11,423 |
|
|
|
10,302 |
|
Deferred
revenue
|
|
|
10,346 |
|
|
|
9,954 |
|
Total
liabilities
|
|
|
428,369 |
|
|
|
495,718 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (see Note 16)
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Redeemable
noncontrolling interests
|
|
|
11,079 |
|
|
|
11,751 |
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Education
Realty Trust, Inc. stockholders’ equity:
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value, 200,000,000 shares authorized, 56,705,605 and
28,475,855 shares issued and outstanding as of December 31, 2009
and 2008, respectively
|
|
|
567 |
|
|
|
285 |
|
Preferred
shares, $0.01 par value, 50,000,000 shares authorized, no shares issued
and outstanding
|
|
|
— |
|
|
|
— |
|
Additional
paid-in capital
|
|
|
410,455 |
|
|
|
308,356 |
|
Warrants
|
|
|
— |
|
|
|
— |
|
Accumulated
deficit
|
|
|
(48,636 |
) |
|
|
(41,381 |
) |
Total
Education Realty Trust, Inc. stockholders’ equity
|
|
|
362,386 |
|
|
|
267,260 |
|
Noncontrolling
interests
|
|
|
2,779 |
|
|
|
2,918 |
|
Total
equity
|
|
|
365,165 |
|
|
|
270,178 |
|
Total
liabilities and equity
|
|
$ |
804,613 |
|
|
$ |
777,647 |
|
See
accompanying notes to the consolidated financial statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
Ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands, except share and per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Student
housing leasing revenue
|
|
$ |
110,810 |
|
|
$ |
107,149 |
|
|
$ |
85,175 |
|
Student
housing food service revenue
|
|
|
2,267 |
|
|
|
2,378 |
|
|
|
2,359 |
|
Other
leasing revenue
|
|
|
— |
|
|
|
7,145 |
|
|
|
13,811 |
|
Third-party
development services
|
|
|
8,178 |
|
|
|
8,303 |
|
|
|
5,411 |
|
Third-party
management services
|
|
|
3,221 |
|
|
|
3,672 |
|
|
|
3,391 |
|
Operating
expense reimbursements
|
|
|
9,722 |
|
|
|
10,796 |
|
|
|
9,330 |
|
Total
revenues
|
|
|
134,198 |
|
|
|
139,443 |
|
|
|
119,477 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing operations
|
|
|
55,161 |
|
|
|
55,120 |
|
|
|
40,798 |
|
Student
housing food service operations
|
|
|
2,156 |
|
|
|
2,257 |
|
|
|
2,236 |
|
General
and administrative
|
|
|
15,752 |
|
|
|
16,348 |
|
|
|
14,561 |
|
Depreciation
and amortization
|
|
|
29,089 |
|
|
|
29,318 |
|
|
|
32,119 |
|
Loss
on impairment of student housing properties
|
|
|
1,726 |
|
|
|
1,633 |
|
|
|
— |
|
Loss
on impairment of goodwill
|
|
|
— |
|
|
|
388 |
|
|
|
— |
|
Reimbursable
operating expenses
|
|
|
9,722 |
|
|
|
10,796 |
|
|
|
9,330 |
|
Total
operating expenses
|
|
|
113,606 |
|
|
|
115,860 |
|
|
|
99,044 |
|
Operating
income
|
|
|
20,592 |
|
|
|
23,583 |
|
|
|
20,433 |
|
Nonoperating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
24,585 |
|
|
|
25,229 |
|
|
|
26,957 |
|
Amortization
of deferred financing costs
|
|
|
1,047 |
|
|
|
992 |
|
|
|
1,036 |
|
Loss
(gain) on extinguishment of debt
|
|
|
(830 |
) |
|
|
4,360 |
|
|
|
174 |
|
Interest
income
|
|
|
(470 |
) |
|
|
(373 |
) |
|
|
(492 |
) |
Total
nonoperating expenses
|
|
|
24,332 |
|
|
|
30,208 |
|
|
|
27,675 |
|
Loss
from continuing operations before equity in earnings (losses) of
unconsolidated entities, income taxes, redeemable noncontrolling
interests and discontinued operations
|
|
|
(3,740 |
) |
|
|
(6,625 |
) |
|
|
(7,242 |
) |
Equity
in earnings (losses) of unconsolidated entities
|
|
|
(1,410
|
) |
|
|
(196 |
) |
|
|
(277 |
) |
Loss
from continuing operations before income taxes, redeemable
noncontrolling interests and discontinued operations
|
|
|
(5,150 |
) |
|
|
(6,821 |
) |
|
|
(7,519 |
) |
Income
tax expense
|
|
|
1,920 |
|
|
|
1,123 |
|
|
|
258 |
|
Loss from
continuing operations before redeemable noncontrolling interests and
discontinued operations
|
|
|
(7,070 |
) |
|
|
(7,944 |
) |
|
|
(7,777 |
) |
Income
(loss) attributable to redeemable noncontrolling interests
|
|
|
177 |
|
|
|
(75 |
) |
|
|
85 |
|
Loss
from continuing operations
|
|
|
(7,247 |
) |
|
|
(7,869 |
) |
|
|
(7,862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations of discontinued operations
|
|
|
(21 |
) |
|
|
(131 |
) |
|
|
777 |
|
Gain
on sale of student housing property
|
|
|
— |
|
|
|
— |
|
|
|
1,644 |
|
Income
(loss) from discontinued operations
|
|
|
(21 |
) |
|
|
(131 |
) |
|
|
2,421 |
|
Net
loss
|
|
|
(7,268 |
) |
|
|
(8,000 |
) |
|
|
(5,441 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Net loss attributable to the noncontrolling interests
|
|
|
(13 |
) |
|
|
(53 |
) |
|
|
(25 |
) |
Net
loss attributable to Education Realty Trust, Inc.
|
|
$ |
(7,255 |
) |
|
$ |
(7,947 |
) |
|
$ |
(5,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) attributable to Education Realty Trust, Inc. common stockholders
per share — basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.18 |
) |
|
$ |
(0.28 |
) |
|
$ |
(0.28 |
) |
Discontinued
operations
|
|
|
— |
|
|
|
— |
|
|
|
0.08 |
|
Net
loss attributable to Education Realty Trust, Inc. common stockholders per
share
|
|
$ |
(0.18 |
) |
|
$ |
(0.28 |
) |
|
$ |
(0.20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding — basic and diluted
|
|
|
40,495,558 |
|
|
|
28,512,777 |
|
|
|
28,103,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to Education Realty Trust, Inc. – common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations, net of tax
|
|
$ |
(7,235 |
) |
|
$ |
(7,822 |
) |
|
$ |
(7,738 |
) |
Income
(loss) from discontinued operations, net of tax
|
|
|
(20 |
) |
|
|
(125 |
) |
|
|
2,322 |
|
Net
loss
|
|
$ |
(7,255 |
) |
|
$ |
(7,947 |
) |
|
$ |
(5,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
per common share
|
|
$ |
0.36 |
|
|
$ |
0.82 |
|
|
$ |
0.82 |
|
See
accompanying notes to the consolidated financial statements.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
Years
Ended December 31,
(Amounts
in thousands, except shares)
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Warrants
|
|
|
Deficit
|
|
|
Interests
|
|
|
Total
|
|
Balance,
December 31, 2006
|
|
|
26,810,552 |
|
|
$ |
268 |
|
|
$ |
330,374 |
|
|
$ |
375 |
|
|
$ |
(28,018 |
) |
|
$ |
3,421 |
|
|
$ |
306,420 |
|
Common
stock issued to officers and directors
|
|
|
8,000 |
|
|
|
— |
|
|
|
113 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
113 |
|
Amortization
of restricted stock
|
|
|
36,000 |
|
|
|
— |
|
|
|
604 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
604 |
|
Net
proceeds from issuance of common shares – direct stock purchase plan and
dividend reinvestment plan
|
|
|
1,577,303 |
|
|
|
16 |
|
|
|
22,476 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,492 |
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
(22,985 |
) |
|
|
— |
|
|
|
— |
|
|
|
(223 |
) |
|
|
(23,208 |
) |
Expiration
of Warrants
|
|
|
— |
|
|
|
— |
|
|
|
375 |
|
|
|
(375 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
PIU
Repurchase
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
PIU’s
Issued
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
81 |
|
|
|
81 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,416 |
) |
|
|
(25 |
) |
|
|
(5,441 |
) |
Balance,
December 31, 2007
|
|
|
28,431,855 |
|
|
|
284 |
|
|
|
330,969 |
|
|
|
— |
|
|
|
(33,434 |
) |
|
|
3,242 |
|
|
|
301,061 |
|
Common
stock issued to officers and directors
|
|
|
8,000 |
|
|
|
— |
|
|
|
101 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
101 |
|
Amortization
of restricted stock
|
|
|
36,000 |
|
|
|
1 |
|
|
|
604 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
605 |
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
(23,379 |
) |
|
|
— |
|
|
|
— |
|
|
|
(259 |
) |
|
|
(23,638 |
) |
PIU
Repurchase
|
|
|
— |
|
|
|
— |
|
|
|
61 |
|
|
|
— |
|
|
|
— |
|
|
|
(61 |
) |
|
|
— |
|
PIU’s
Issued
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
|
|
49 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,947 |
) |
|
|
(53 |
) |
|
|
(8,000 |
) |
Balance,
December 31, 2008
|
|
|
28,475,855 |
|
|
|
285 |
|
|
|
308,356 |
|
|
|
— |
|
|
|
(41,381 |
) |
|
|
2,918 |
|
|
|
270,178 |
|
Net
proceeds from issuance of common shares – secondary
offering
|
|
|
28,175,000 |
|
|
|
282 |
|
|
|
115,851 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
116,133 |
|
Common
stock issued to officers and directors
|
|
|
8,000 |
|
|
|
— |
|
|
|
34 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34 |
|
Amortization
of restricted stock
|
|
|
36,750 |
|
|
|
— |
|
|
|
617 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
617 |
|
Cash
dividends
|
|
|
— |
|
|
|
— |
|
|
|
(14,491 |
) |
|
|
— |
|
|
|
— |
|
|
|
(100 |
) |
|
|
(14,591 |
) |
PIU
Repurchase
|
|
|
— |
|
|
|
— |
|
|
|
39 |
|
|
|
— |
|
|
|
— |
|
|
|
(39 |
) |
|
|
— |
|
PIU’s
Issued
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
13 |
|
OP
Unit Conversion
|
|
|
10,000 |
|
|
|
— |
|
|
|
49 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
(7,255 |
) |
|
|
(13 |
) |
|
|
(7,268 |
) |
Balance,
December 31, 2009
|
|
|
56,705,605 |
|
|
$ |
567 |
|
|
$ |
410,455 |
|
|
$ |
— |
|
|
$ |
(48,636 |
) |
|
$ |
2,779 |
|
|
$ |
365,165 |
|
See
accompanying notes to the consolidated financial statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts
in thousands)
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(7,268 |
) |
|
$ |
(8,000 |
) |
|
$ |
(5,441 |
) |
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
29,089 |
|
|
|
29,318 |
|
|
|
32,119 |
|
Depreciation
included in discontinued operations
|
|
|
25 |
|
|
|
99 |
|
|
|
815 |
|
Deferred
tax expense (benefit)
|
|
|
228 |
|
|
|
59 |
|
|
|
(178 |
) |
Loss
on disposal of assets
|
|
|
28 |
|
|
|
532 |
|
|
|
38 |
|
Gain
on sale of student housing property
|
|
|
— |
|
|
|
— |
|
|
|
(1,644 |
) |
Gain
on redemption of noncontrolling interest
|
|
|
(60 |
) |
|
|
— |
|
|
|
— |
|
Loss
on impairment of student housing properties
|
|
|
1,726 |
|
|
|
1,633 |
|
|
|
— |
|
Loss
on impairment of goodwill
|
|
|
— |
|
|
|
388 |
|
|
|
— |
|
Loss
(gain) on extinguishment of debt
|
|
|
(830 |
) |
|
|
4,360 |
|
|
|
138 |
|
Amortization
of deferred financing costs
|
|
|
1,047 |
|
|
|
992 |
|
|
|
1,036 |
|
Loss
(gain) on interest rate cap
|
|
|
(204 |
) |
|
|
38 |
|
|
|
— |
|
Amortization
of unamortized debt premiums/discounts
|
|
|
(406 |
) |
|
|
(470 |
) |
|
|
(583 |
) |
Distributions
of earnings from unconsolidated entities
|
|
|
393 |
|
|
|
277 |
|
|
|
364 |
|
Noncash
compensation expense related to PIUs and restricted stock
|
|
|
677 |
|
|
|
761 |
|
|
|
772 |
|
Equity
in (earnings) losses of unconsolidated entities
|
|
|
1,410 |
|
|
|
196 |
|
|
|
277 |
|
Redeemable
noncontrolling interests in continuing operations
|
|
|
178 |
|
|
|
(71 |
) |
|
|
8 |
|
Redeemable
noncontrolling interests in discontinued operations
|
|
|
(1 |
) |
|
|
(4 |
) |
|
|
77 |
|
Change
in operating assets and liabilities (net of acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
contracts receivable
|
|
|
112 |
|
|
|
(204 |
) |
|
|
(291 |
) |
Management
fees receivable
|
|
|
124 |
|
|
|
205 |
|
|
|
63 |
|
Other
assets
|
|
|
5,461 |
|
|
|
(5,678 |
) |
|
|
(1,104 |
) |
Accounts
payable and accrued expenses
|
|
|
1,063 |
|
|
|
(446 |
) |
|
|
509 |
|
Accounts
receivable (payable) affiliate
|
|
|
7 |
|
|
|
(67 |
) |
|
|
411 |
|
Deferred
revenue
|
|
|
436 |
|
|
|
2,093 |
|
|
|
(580 |
) |
Net
cash provided by operating activities
|
|
|
33,235 |
|
|
|
26,011 |
|
|
|
26,806 |
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of corporate furniture and fixtures
|
|
|
(209 |
) |
|
|
(317 |
) |
|
|
(1,348 |
) |
Restricted
cash
|
|
|
1,016 |
|
|
|
2,593 |
|
|
|
966 |
|
Insurance
proceeds received from property damage
|
|
|
234 |
|
|
|
613 |
|
|
|
— |
|
Investment
in student housing properties
|
|
|
(11,298 |
) |
|
|
(13,986 |
) |
|
|
(8,463 |
) |
Proceeds
from sale of assets
|
|
|
— |
|
|
|
2,578 |
|
|
|
— |
|
Proceeds
from sale of student housing properties
|
|
|
210 |
|
|
|
— |
|
|
|
48,942 |
|
Loan
to equity investee
|
|
|
— |
|
|
|
— |
|
|
|
(845 |
) |
Investment
in assets under development
|
|
|
(31,098 |
) |
|
|
(22,576 |
) |
|
|
(5,675 |
) |
Investments
in unconsolidated entities
|
|
|
(493 |
) |
|
|
(561 |
) |
|
|
(178 |
) |
Net
cash provided by (used in) investing activities
|
|
|
(41,638 |
) |
|
|
(31,656 |
) |
|
|
33,399 |
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of mortgage notes
|
|
|
(101,631 |
) |
|
|
(212,038 |
) |
|
|
(60,158 |
) |
Borrowings
under mortgage and construction loans
|
|
|
66,143 |
|
|
|
233,827 |
|
|
|
57,800 |
|
Repayments
of long-term debt
|
|
|
— |
|
|
|
— |
|
|
|
(47,000 |
) |
Debt
issuance costs
|
|
|
(2,676 |
) |
|
|
(2,363 |
) |
|
|
(551 |
) |
Debt
extinguishment costs
|
|
|
830 |
|
|
|
(4,295 |
) |
|
|
— |
|
Interest
rate cap issuance cost
|
|
|
— |
|
|
|
(120 |
) |
|
|
— |
|
Borrowings
on line of credit
|
|
|
28,000 |
|
|
|
68,600 |
|
|
|
27,900 |
|
Repayments
of line of credit
|
|
|
(60,900 |
) |
|
|
(47,200 |
) |
|
|
(38,800 |
) |
Proceeds
from issuance of common stock
|
|
|
122,561 |
|
|
|
— |
|
|
|
22,414 |
|
Payment
of offering costs
|
|
|
(6,428 |
) |
|
|
— |
|
|
|
— |
|
Dividends
and distributions paid to common and restricted
stockholders
|
|
|
(14,491 |
) |
|
|
(23,379 |
) |
|
|
(22,907 |
) |
Dividends
and distributions paid to noncontrolling interests
|
|
|
(839 |
) |
|
|
(2,418 |
) |
|
|
(1,296 |
) |
Net
cash provided by (used in) financing activities
|
|
|
30,569 |
|
|
|
10,614 |
|
|
|
(62,598 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
22,166 |
|
|
|
4,969 |
|
|
|
(2,393 |
) |
Cash
and cash equivalents, beginning of period
|
|
|
9,003 |
|
|
|
4,034 |
|
|
|
6,427 |
|
Cash
and cash equivalents, end of period
|
|
$ |
31,169 |
|
|
$ |
9,003 |
|
|
$ |
4,034 |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
25,269 |
|
|
$ |
26,828 |
|
|
$ |
27,520 |
|
Income
taxes paid
|
|
$ |
1,658 |
|
|
$ |
755 |
|
|
$ |
796 |
|
Supplemental
disclosure of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of noncontrolling interests from unit holder
|
|
$ |
109 |
|
|
$ |
893 |
|
|
$ |
— |
|
Warrants
issued (expired)
|
|
|
— |
|
|
|
— |
|
|
|
(375 |
) |
Common
stock issued under the dividend reinvestment plan
|
|
|
— |
|
|
|
— |
|
|
|
78 |
|
See
accompanying notes to the consolidated financial statements.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands, except share and per share data)
1.
Organization and description of business
Education
Realty Trust, Inc. (the “Trust”) was organized in the state of Maryland on
July 12, 2004 and commenced operations as a real estate investment trust
(“REIT”) effective with the initial public offering (the “Offering”) that was
completed on January 31, 2005. Under the Trust’s Articles of Incorporation,
as amended, the Trust is authorized to issue up to 200 million shares of
common stock and 50 million shares of preferred stock, each having a par
value of $0.01 per share.
The Trust
operates primarily through a majority-owned Delaware limited partnership,
Education Realty Operating Partnership, LP (the “Operating Partnership”). The
Operating Partnership owns, directly or indirectly, interests in student housing
communities located near major universities in the United States.
The Trust
also provides real estate facility management, development and other advisory
services through the following subsidiaries of the Operating
Partnership:
|
•
|
Allen
& O’Hara Education Services, Inc. (“AOES”), a Delaware corporation
performing student housing management
activities.
|
|
•
|
Allen
& O’Hara Development Company, LLC (“AODC”), a Delaware limited
liability company providing development consulting services for third
party student housing properties.
|
The Trust
is subject to the risks involved with the ownership and operation of residential
real estate near major universities throughout the United States. The risks
include, among others, those normally associated with changes in the demand for
housing by students at the related universities, competition for tenants,
creditworthiness of tenants, changes in tax laws, interest rate levels, the
availability of financing, and potential liability under environmental and other
laws.
2.
Summary of significant accounting policies
Basis
of presentation and principles of consolidation
The
accompanying consolidated financial statements have been prepared on the accrual
basis of accounting in conformity with accounting principles generally accepted
in the United States (“GAAP”). The accompanying consolidated financial
statements of the Trust represent the assets and liabilities and operating
results of the Trust and its majority owned subsidiaries.
The
Trust, as the sole general partner of the Operating Partnership, has the
responsibility and discretion in the management and control of the Operating
Partnership, and the limited partners of the Operating Partnership, in such
capacity, have no authority to transact business for, or participate in the
management activities of the Operating Partnership. Accordingly, the Trust
accounts for the Operating Partnership using the consolidation
method.
All
intercompany balances and transactions have been eliminated in the accompanying
consolidated financial statements.
Use
of estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates and assumptions are used by
management in determining the recognition of third-party development consulting
services revenue under the percentage of completion method, useful lives of
student housing assets, the valuation of goodwill, the initial valuations and
underlying allocations of purchase price in connection with student property
acquisitions, the determination of fair value for impairment assessments, and in
the recording of the allowance for doubtful accounts. Actual results could
differ from those estimates.
Reclassifications
In the
consolidated statements of cash flows, proceeds from borrowings on (repayments
of) the line of credit within cash flows from financing had previously been
presented on a net basis, rather than on a gross basis in accordance with
Accounting Standards Codification (ASC) 230, “Statements of Cash flows”. The correction to present
borrowings and repayments on our line of credit on a gross basis was not
material to our consolidated financial statements and had no impact on our
previously reported net loss, changes in equity, financial position or net cash
flows from financing activities.
Cash
and cash equivalents
All
highly liquid investments with a maturity of three months or less when purchased
are considered cash equivalents. Restricted cash is excluded from cash for the
purpose of preparing the consolidated statements of cash flows. The Trust
maintains cash balances in various banks. At times, the amounts of cash may
exceed the amount the Federal Deposit Insurance Corporation (FDIC)
insures. As of December 31, 2009, the Trust had $21,954 of cash on
deposit that was uninsured by the FDIC or in excess of the FDIC
limits.
Restricted
cash
Restricted
cash includes escrow accounts held by lenders for the purpose of paying taxes,
insurance, principal and interest, and to fund capital
improvements.
Distributions
The Trust
pays regular quarterly cash distributions to stockholders. These distributions
are determined quarterly by the Board based on the operating results, economic
conditions, capital expenditure requirements, the Internal Revenue Code’s REIT
annual distribution requirements, leverage covenants imposed by our revolving
credit facility and other debt documents, and any other matters the Board deems
relevant.
Student
housing properties
Land,
land improvements, buildings and improvements, and furniture, fixtures and
equipment are recorded at cost. Buildings and improvements are depreciated over
30 to 40 years, land improvements are depreciated over 15 years and
furniture, fixtures, and equipment are depreciated over 3 to 7 years.
Depreciation is computed using the straight-line method for financial reporting
purposes over the estimated useful life.
Acquired
student housing properties’ results of operations are included in the Trust’s
results of operations from the respective dates of
acquisition. Appraisals, estimates of cash flows and valuation
techniques are used to allocate the purchase price of acquired property between
land, land improvements, buildings and improvements, furniture, fixtures and
equipment and identifiable intangibles such as amounts related to in-place
leases. On January 1, 2009, the Trust adopted the authoritative guidance issued
by the Financial Accounting Standards Board (“FASB”), which prospectively
changed the requirements for how an acquirer recognizes and measures the
identifiable assets acquired, the liabilities assumed, any noncontrolling
interest in the acquiree and the goodwill acquired. The guidance also
enhanced the disclosures to enable the evaluation of the nature and financial
effects of the business combination and requires that pre-acquisition costs be
expensed as incurred. Pre-acquisition costs, which include legal and
professional fees and other third-party costs related directly to the
acquisition of a property, were accounted for as part of the purchase price
prior to the adoption of the guidance issued by the FASB.
Management
assesses impairment of long-lived assets to be held and used whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Management uses an estimate of future undiscounted cash flows of
the related asset based on its intended use to determine whether the carrying
value is recoverable. If the Trust determines that the carrying value of an
asset is not recoverable, the fair value of the asset is estimated and an
impairment loss is recorded to the extent the carrying value exceeds estimated
fair value.
When a
student housing property has met the criteria to be classified as held for sale,
the fair value less cost to sell such asset is estimated. If the fair value less
cost to sell the asset is less than the carrying amount of the asset, an
impairment charge is recorded for the estimated loss. Depreciation expense is no
longer recorded once a student housing property has met the held for sale
criteria. Operations of student housing properties that are sold or classified
as held for sale are recorded as part of discontinued operations for all periods
presented.
Deferred
financing costs
Deferred
financing costs represent costs incurred in connection with acquiring debt
facilities. The costs incurred during the years ended December 31, 2009,
2008 and 2007 were $2,676, $2,363 and $551, respectively, and are being
amortized over the terms of the related debt using a method that approximates
the effective interest method.
Amortization
expense totaled $1,047, $992 and $1,036 for the years ended December 31,
2009, 2008 and 2007, respectively. At December 31 2009 and 2008,
accumulated amortization totaled $4,462 and $3,415, respectively. Deferred
financing costs, net of accumulated amortization, are included in other assets
in the accompanying consolidated balance sheets (see Note 7).
Common
stock issuances and offering costs
Specific
incremental costs directly attributable to the issuance of common stock are
charged against the gross proceeds. Accordingly, underwriting commissions and
other stock issuance costs are reflected as a reduction of additional paid-in
capital in the accompanying consolidated statement of changes in
equity.
On July
28, 2009, the Trust completed a follow-on common stock offering, selling
28,175,000 shares of the Trust’s common stock, including 3,675,000 shares
issued as a result of the exercise of the underwriters’ overallotment option in
full at closing, at a price of $4.35 per share to the public. The offering
generated gross proceeds of $122,561. The net proceeds to the Trust, after
the underwriting discount and other expenses of the offering were
approximately $116,133.
Debt
premiums/discounts
Differences
between the estimated fair value of debt and the principal value of debt assumed
in connection with student housing property acquisitions are amortized over the
term of the related debt as an offset to interest expense using the effective
interest method. As of December 31, 2009 and 2008, the Trust had net
unamortized debt premiums of $797 and $1,203, respectively. These amounts are
included in mortgage and construction loans in the accompanying consolidated
balance sheets.
Income
taxes
The Trust
qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the
“Code”). The Trust is generally not subject to federal, state and local income
taxes to the extent that it distributes at least 90% of its taxable income for
each tax year to its stockholders. REITs are subject to a number of
organizational and operational requirements. If the Trust fails to qualify as a
REIT in any taxable year, the Trust will be subject to federal, state and local
income taxes (including any applicable alternative minimum tax) on its taxable
income and property and to federal income and excise taxes on its undistributed
income.
The Trust
has elected to treat its management company, AOES, as a taxable REIT subsidiary
(“TRS”). The TRS is subject to federal, state and local income taxes. AOES
manages the Trust’s non-REIT activities which include management services and
development services, which are provided through AODC. Deferred tax assets and
liabilities are recognized based on the difference between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates in effect in the years in which those temporary differences
are expected to reverse.
The Trust
had no unrecognized tax benefits as of December 31, 2009, 2008 and
2007. As of December 31, 2009, the Trust does not expect to record
any unrecognized tax benefits. The Trust, and its subsidiaries, file
federal and state income tax returns. As of December 31, 2009, open tax years
generally include tax years for 2006, 2007 and 2008. The Trust’s policy is to
include interest and penalties related to unrecognized tax benefits in general
and administrative expenses. At December 31, 2009, 2008 and 2007, the
Trust had no interest or penalties recorded related to unrecognized tax
benefits.
Noncontrolling
interests
On
January 1, 2009, the Trust adopted the authoritative guidance issued by the FASB
that changed the accounting and reporting for noncontrolling interests. The
guidance established the accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interests, changes in a parent’s ownership interest and the valuation of
retained noncontrolling equity investments when a subsidiary is
deconsolidated. The guidance also established disclosure requirements
to clearly distinguish between the interests of the parent and the interests of
the noncontrolling owners. The Operating Partnership Units, the University
Towers Operating Partnership Units and profits interest units (“PIU”) (see Note
9) are now referred to as noncontrolling interests (formerly minority
interests).
In
connection with the adoption, the Trust also considered the guidance issued by
the FASB regarding the classification and measurement of redeemable
securities. The Operating Partnership Units and the University Towers
Operating Partnership Units are redeemable at the option of the holder and
essentially have the same characteristics as common stock as they participate in
net income and distributions. Accordingly, the Trust determined that the
Operating Partnership Units and the University Towers Operating Partnership
Units meet the requirements to be classified outside of permanent equity and are
therefore classified as redeemable noncontrolling interests in the accompanying
consolidated balance sheets. The value of redeemable noncontrolling
interests is reported at the greater of fair value or historical cost at the end
of each reporting period. The following table sets forth the activity with the
redeemable noncontrolling interests for the years ended December
31:
|
|
2009
|
|
|
2008
|
|
Beginning
balance- redeemable noncontrolling interests
|
|
$ |
11,751 |
|
|
$ |
14,879 |
|
Conversion
of operating partnership units to common stock
|
|
|
(109 |
) |
|
|
— |
|
Net
income (loss) attributable to redeemable noncontrolling
interests
|
|
|
177 |
|
|
|
(75 |
) |
Repurchase
of partnership units from redeemable noncontrolling
interests
|
|
|
— |
|
|
|
(893 |
) |
Distributions
attributable to redeemable noncontrolling interests
|
|
|
(740 |
) |
|
|
(2,160 |
) |
Ending
balance- redeemable noncontrolling interests
|
|
$ |
11,079 |
|
|
$ |
11,751 |
|
The PIU’s
were determined to be noncontrolling interests that are not redeemable and
accordingly these amounts were reclassified to equity in the accompanying
consolidated balance sheets and statements of changes in equity. The
PIU holder’s share of income or loss is reported in the accompanying
consolidated statements of operations as net income attributable to
noncontrolling interests.
Earnings
per share
Basic
earnings per share is calculated by dividing net earnings available to common
shares by weighted average common shares outstanding. Diluted earnings per share
is calculated similarly, except that it includes the dilutive effect of the
assumed exercise of potentially dilutive securities. Beginning January 1, 2009,
the Trust adopted the authoritative guidance on determining whether certain
instruments are participating securities. All unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents are to be included in the computation of earnings per share under
the two-class method. This resulted in shares of unvested restricted
stock being included in the computation of basic earnings per share for all
periods presented. The adoption did not have a material impact on the
consolidated financial statements.
At
December 31, 2009 and 2008, the following potentially dilutive securities
were outstanding, but were not included in the computation of diluted earnings
per share because the effects of their inclusion would be
anti-dilutive:
|
|
2009
|
|
|
2008
|
|
Operating
Partnership units
|
|
|
903,738 |
|
|
|
913,738 |
|
University
Towers Operating Partnership units
|
|
|
207,257 |
|
|
|
207,257 |
|
Profits
Interest Units
|
|
|
275,000 |
|
|
|
275,000 |
|
Total
potentially dilutive securities
|
|
|
1,385,995 |
|
|
|
1,395,995 |
|
A
reconciliation of the numerators and denominators for the basic and diluted
earnings per share computations is not required as the Trust reported a loss
from continuing operations for all periods presented, and therefore the effect
of the inclusion of all potentially dilutive securities would be anti-dilutive
when computing diluted earnings per share; thus, the computation for both basic
and diluted earnings per share is the same.
Repairs,
maintenance, and major improvements
The costs
of ordinary repairs and maintenance are charged to operations when incurred.
Major improvements that extend the life of an asset are capitalized and
depreciated over the remaining useful life of the asset. Planned major repair,
maintenance and improvement projects are capitalized when performed. In some
circumstances, the lenders require the Trust to maintain a reserve account for
future repairs and capital expenditures. These amounts are classified as
restricted cash as the funds are not available for current use.
Goodwill
and other intangible assets
Goodwill
is tested annually for impairment as of December 31, and is tested for
impairment more frequently if events and circumstances indicate that the assets
might be impaired. An impairment loss is recognized to the extent that the
carrying amount exceeds the asset’s fair value. The carrying value of
goodwill was $3,070 at December 31, 2009 and 2008. During the fourth
quarter of 2008, the Trust performed an impairment test that indicated the
carrying value of the goodwill recorded on the student housing leasing segment
was not recoverable. The Trust utilized the discounted cash flow present value
technique to determine the fair value of the reporting unit resulting in an
impairment of $388. As of December 31, 2009 and 2008, there is no goodwill
recorded on the student housing leasing segment, $2,149 of goodwill recorded on
the management services segment and $921 of goodwill recorded on the
development consulting services segment. Goodwill is not subject to
amortization. Other intangible assets generally include in-place
leases and management contracts acquired in connection with acquisitions and are
amortized over the estimated life of the lease/contract term. The
carrying value of other intangible assets was $3 and $41 at December 31, 2009
and 2008, respectively.
Investment
in unconsolidated entities
The
Operating Partnership accounts for its investments in unconsolidated joint
ventures, limited liability companies and limited partnerships using the equity
method whereby the cost of an investment is adjusted for the Trust’s share of
earnings of the respective investment reduced by distributions received. The
earnings and distributions of the unconsolidated joint ventures, limited
liability companies and limited partnerships are allocated based on each owner’s
respective ownership interests. These investments are classified as other assets
in the accompanying consolidated balance sheets (see Note 7). As of
December 31, 2009 and 2008, the Trust had investments, directly or
indirectly, in the following unconsolidated joint ventures, limited liability
companies and limited partnerships that are accounted for under the equity
method:
|
•
|
University
Village-Greensboro LLC, a Delaware limited liability company, 25% owned by
the Operating Partnership
|
|
•
|
AODC/CPA,
LLC, a Delaware limited liability company, 50% owned by
AODC
|
|
•
|
WEDR
Riverside Investors V, LLC, a Delaware limited liability company, 10%
owned by the Operating Partnership
|
|
•
|
APF
EDR, LP, a Delaware limited partnership, 10% owned by the Operating
Partnership
|
|
•
|
APF
EDR Food Services, LP, a Delaware limited partnership, 10% owned by the
Operating Partnership
|
|
•
|
WEDR
Stinson Investors V, LLC, a Delaware limited liability company, 10% owned
by the Operating Partnership
|
Comprehensive
Income
The Trust
follows the authoritative guidance issued by the FASB relating to the reporting
and display of comprehensive income and its components. For all periods
presented, comprehensive income (loss) is equal to net income
(loss).
Revenue
recognition
The Trust
recognizes revenue related to leasing activities at the student housing
properties owned by the Trust, management fees related to managing third-party
student housing properties, development consulting fees related to the general
oversight of third-party student housing development and operating expense
reimbursements for payroll and related expenses incurred for third-party student
housing properties managed by the Trust.
Student housing leasing revenue
— Student housing leasing revenue is comprised of all activities related
to leasing and operating the student housing properties and includes revenues
from leasing apartments by the bed, parking lot rentals and providing certain
ancillary services. This revenue is reflected in student housing leasing revenue
in the accompanying consolidated statements of operations. Students are required
to execute lease contracts with payment schedules that vary from annual to
monthly payments. Generally, the Trust requires each executed leasing contract
to be accompanied by a signed parental guarantee. Receivables are recorded when
billed. Revenues and related lease incentives and nonrefundable application and
service fees are recognized on a straight-line basis over the term of the
contracts. The Trust has no contingent rental contracts, except as noted below,
related to other leasing revenue. At certain student housing facilities, the
Trust offers parking lot rentals to the tenants. The related revenues are
recognized on a straight-line basis over the term of the related
agreement.
Due to
the nature of the Trust’s business, accounts receivable result primarily from
monthly billings of student rents. Payments are normally received within
30 days. Balances are considered past due when payment is not received on
the contractual due date. Allowances for uncollectible accounts are established
by management when it is determined that collection is doubtful. Such allowances
are reviewed periodically based upon experience. The following table reconciles
the allowance for doubtful accounts as of and for the years ended
December 31, 2009, 2008 and 2007:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Balance,
beginning of period
|
|
$ |
141 |
|
|
$ |
173 |
|
|
$ |
43 |
|
Provision
for uncollectible accounts
|
|
|
1,836 |
|
|
|
1,327 |
|
|
|
804 |
|
Deductions
|
|
|
(1,770 |
) |
|
|
(1,359 |
) |
|
|
(674 |
) |
Balance,
end of period
|
|
$ |
207 |
|
|
$ |
141 |
|
|
$ |
173 |
|
Student housing food service revenue
— The Trust maintains a dining facility at University Towers, which
offers meal plans to the tenants as well as dining to other third-party
customers. The meal plans typically require upfront payment by the tenant
covering the school semester, and the related revenue is recognized on a
straight-line basis over the corresponding semester.
Other leasing revenue — Other
leasing revenue relates to our leasing of the 13 properties (“Place Portfolio”)
we acquired from Place Properties, Inc. (“Place”) in January 2006.
Simultaneous with the acquisition of the Place Portfolio, the Trust leased the
assets to Place and received base monthly rent of $1,145 and had the right to
receive “Additional Rent” annually if the properties exceeded certain criteria
defined in the lease agreement. Base rent was recognized on a straight-line
basis over the lease term and Additional Rent was recognized only upon
satisfaction of the defined criteria. The lease was terminated on
February 1, 2008. In connection with the termination of the lease, Place
paid the Operating Partnership a lease termination fee of $6,000.
Third-party development services
revenue — The Trust provides development consulting services in an agency
capacity with third parties whereby the fee is determined based upon the total
construction costs. Total fees vary from 3-5% of the total estimated costs, and
we typically receive a portion of the fees up front. These fees, including the
upfront fee, are recognized using the percentage of completion method in
proportion to the contract costs incurred by the owner over the course of
construction of the respective projects. Occasionally, the
development consulting contracts include a provision whereby the Trust can
participate in project savings resulting from successful cost management
efforts. These revenues are recognized once all contractual terms have been
satisfied and no future performance requirements exist. This
typically occurs after construction is complete. For the years
ended December 31, 2009, 2008 and 2007, contingent fees of $3,337, $1,944 and
$848, respectively, were recognized related to cost savings agreements on
development projects.
Third-party management services
revenue — The Trust enters into management contracts to manage
third-party student housing facilities. Management revenues are recognized when
earned in accordance with each management contract. Incentive management fees
are recognized when the incentive criteria have been met.
Operating expense reimbursements
— The Trust pays certain payroll and related costs to operate third-party
student housing properties that are managed by the Trust. Under the terms of the
related management agreements, the third-party property owners reimburse these
costs. The amounts billed to the third-party owners are recognized as
revenue.
Costs
related to third party development consulting services
Costs
associated with the pursuit of development consulting contracts are expensed as
incurred, until such time that management has been notified of a contract award.
At such time, the reimbursable costs are recorded as receivables and are
reflected as other assets in the accompanying consolidated balance sheets (see
Note 7).
Advertising
expense
Advertising
expenses are charged to income during the period incurred. The Trust does not
use direct response advertising. Advertising expense was $2,441, $2,195 and
$1,627 for the years ended December 31, 2009, 2008 and 2007,
respectively.
Segment
information
The Trust
discloses certain operating and financial data with respect to separate business
activities within its enterprise. The Trust has identified three reportable
business segments: student housing leasing, student housing development
consulting services and student housing management services.
Stock-based
compensation
The Trust
adopted the Education Realty Trust, Inc. 2004 Incentive Plan (the “Plan”)
effective upon the closing of the Offering. The Plan is described more fully in
Note 9. The Trust recognizes compensation costs related to share-based payments
in the consolidated financial statements in accordance with authoritative
guidance.
Fair
value of financial instruments
The Trust
discloses the fair value of financial instruments for which it is practicable to
estimate. The Trust does not hold or issue financial instruments for trading
purposes. The Trust considers the carrying amounts of cash and cash equivalents,
restricted cash, student contracts receivable, accounts payable and accrued
expenses to approximate fair value due to the short maturity of these
instruments. The Trust has estimated the fair value of the mortgage notes
payable utilizing present value techniques. At December 31, 2009, the
carrying amount and estimated fair value of the fixed rate mortgage notes
payable was $327,368 and $333,344, respectively. At December 31, 2008, the
carrying amount and estimated fair value of the mortgage notes payable was
$380,090 and $380,099, respectively. At December 31, 2008, the Trust had $32,900
outstanding on the revolving credit facility, which bears interest at variable
rates and therefore cost approximates market value. No amounts are outstanding
on the revolving credit facility as of December 31,
2009. Additionally, the Trust holds various variable rate
construction and mortgage debt with a carrying value of $78,200 and $60,966 on
December 31, 2009 and 2008, respectively, which also approximates market
value.
Recent
accounting pronouncements
In
May 2009, the FASB issued new
authoritative guidance on subsequent events. The new guidance is
intended to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. Specifically, this standard sets forth
the period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, the circumstances under
which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements, and the disclosures that an
entity should make about events or transactions that occurred after the balance
sheet date. This guidance is effective for financial statements issued for
fiscal years and interim periods beginning after June 15, 2009 and is
applied prospectively. The Trust adopted this authoritative guidance
during the three months ended September 30, 2009. In February 2010, the FASB
amended the authoritative guidance on subsequent events to remove the
requirement for SEC filers to disclose the date through which an entity has
evaluated subsequent events. The new guidance is effective upon issuance and had
no impact on the Trust’s consolidated financial statements.
In
June 2009, the FASB issued guidance to establish only two levels of GAAP,
authoritative and nonauthoritative. The FASB Accounting Standards Codification
(the “Codification”) is the source of authoritative, nongovernmental GAAP,
except for rules and interpretive releases of the SEC, which are sources of
authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC
accounting literature not included in the Codification is nonauthoritative. This
standard is effective for financial statements issued for fiscal years and
interim periods ending after September 15, 2009. As the
Codification was not intended to change or alter existing GAAP, it did not have
any impact on the consolidated financial statements.
In
June 2009, the FASB issued authoritative guidance to improve financial
reporting by enterprises involved with variable interest entities. The new
guidance is effective for financial statements issued for fiscal years beginning
after November 15, 2009, with earlier adoption prohibited. The adoption is
not expected to have a material impact on the consolidated financial
statements.
In
January 2010, the FASB updated the authoritative guidance for accounting and
reporting for decreases in ownership of a subsidiary. The updated guidance
clarifies the scope of the guidance related to a decrease in ownership
provisions and expands the disclosures related to the deconsolidation of a
subsidiary or group of assets. The updated guidance is effective for financial
statements issued for fiscal years and interim periods beginning after December
15, 2009. The Trust is currently evaluating the impact of adoption on
its consolidated financial statements.
3.
Income taxes
Deferred
income taxes result from temporary differences between the carrying amounts of
assets and liabilities of the TRS for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the deferred tax
assets and liabilities at December 31, 2009 and 2008, respectively, are as
follows:
|
|
2009
|
|
|
2008
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
$
|
35
|
|
|
$
|
—
|
|
Depreciation
and amortization
|
|
|
113
|
|
|
|
365
|
|
Accrued
expenses
|
|
|
166
|
|
|
|
178
|
|
Straight
line rent
|
|
|
81
|
|
|
|
110
|
|
Total
deferred tax assets
|
|
|
395
|
|
|
|
653
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
|
—
|
|
|
|
(4
|
)
|
Depreciation
and amortization
|
|
|
—
|
|
|
|
(12
|
)
|
Amortization
of management contracts intangible
|
|
|
(1
|
)
|
|
|
(15
|
)
|
Net
deferred tax assets
|
|
$
|
394
|
|
|
$
|
622
|
|
Significant
components of the income tax provision (benefit) for the years ended
December 31, 2009, 2008 and 2007, respectively, are as
follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
197 |
|
|
$ |
26 |
|
|
$ |
(127
|
) |
State
|
|
|
31 |
|
|
|
33 |
|
|
|
(51
|
) |
Deferred
expense (benefit)
|
|
|
228 |
|
|
|
59 |
|
|
|
(178
|
) |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,333 |
|
|
|
802 |
|
|
|
377 |
|
State
|
|
|
359 |
|
|
|
262 |
|
|
|
59 |
|
Current
expense
|
|
|
1,692 |
|
|
|
1,064 |
|
|
|
436 |
|
Total
provision
|
|
$ |
1,920 |
|
|
$ |
1,123 |
|
|
$ |
258 |
|
TRS
earnings subject to tax consisted of $3,601, $2,596 and $666 for the years ended
December 31, 2009, 2008 and 2007, respectively. The reconciliation of
income tax attributable to income before redeemable noncontrolling interests
computed at the U.S. statutory rate to income tax provision is as
follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Tax
provision at U.S. statutory rates on TRS income subject to
tax
|
|
$ |
1,224 |
|
|
$ |
883 |
|
|
$ |
226 |
|
State
income tax, net of federal benefit
|
|
|
252 |
|
|
|
156 |
|
|
|
29 |
|
Other
|
|
|
444 |
|
|
|
84 |
|
|
|
3 |
|
Tax
provision
|
|
$ |
1,920 |
|
|
$ |
1,123 |
|
|
$ |
258 |
|
4.
Acquisition of real estate investments
On
June 28, 2007, the Trust acquired land in Carbondale, Illinois for $1,099
in order to develop a wholly owned student apartment community near Southern
Illinois University. After the acquisition, we incurred an additional $20,580
and $11,797 in costs to develop the first and second phases of the development
which opened in August 2008 and 2009, respectively. During the years ended
December 31, 2009 and 2008, the Trust capitalized interest costs of $67 and
$386, respectively, related to the development.
During
2008, the Trust also began development of a wholly owned student apartment
property located on the campus of Syracuse University. The Trust incurred
$25,792 in costs to develop the property which opened in August of 2009. In
addition, the Trust owns and manages the property under a long-term ground lease
from Syracuse University. During the years ended December 31, 2009 and 2008, the
Trust capitalized interest costs of $487 and $67 related to the
development.
All costs
related to the completed developments are classified in student housing
properties, net in the accompanying consolidated balance sheets. All costs
related to projects under development are classified as assets under development
in the accompanying consolidated balance sheets. At December 31, 2008, the Trust
had $6,572 of costs incurred related to assets under development ($327 related
to Carbondale Phase II and $6,245 related to Syracuse).
5.
Disposition of real estate investments and discontinued operations
On
April 7, 2009, the Trust sold the College Station student housing property
for a purchase price of $2,550. The Trust received proceeds of $250
and a note receivable of $2,300. The note is interest only and accrues interest
at a rate of 3% per annum through August 31, 2009 and matures on December 31,
2010 (option to extend from December 31, 2009 to December 31, 2010 was exercised
in September 2009). Beginning on September 1, 2009, the note accrues interest at
a rate of 6% per annum and is payable in monthly installments through maturity.
All unpaid principal and interest is due at maturity. However, if no default
exists at the maturity date, the note may be extended to June 30, 2011. The note
would remain interest only at a rate of 6% per annum payable in monthly
installments through December 31, 2010; thereafter, payments of principal and
interest (at a rate of 6% per annum) would be made on a monthly basis. Any
unpaid principal and interest would be due in full on June 30,
2011. The resulting net gain on disposition of approximately $374 has
been deferred against the note receivable. The accompanying
consolidated statements of operations have been adjusted to reflect the results
of operations of College Station as discontinued operations for all periods
presented.
On
June 5, 2007, the Trust sold the Village on Tharpe (“Tharpe”) student
housing property for a sales price of $50,000, resulting in net proceeds of
approximately $48,942. The net proceeds were used to pay off $47,000 of
long-term debt resulting in a loss on early extinguishment of $174 related to
the write off of unamortized deferred financing costs. The resulting gain on
disposition of approximately $1,579, net of redeemable noncontrolling interests
and noncontrolling interests, is included in discontinued operations in the
accompanying consolidated statement of operations for the year ended
December 31, 2007. Accordingly, the results of operations of Tharpe are
included in discontinued operations for the year ended December 31, 2007. The
Trust ceased depreciation on the property when it met the held for sale
criteria.
The
following table summarizes income/(loss) from discontinued operations, net of
redeemable noncontrolling interests and noncontrolling interests, and the
related realized gains on sales of real estate from discontinued operations, net
of redeemable noncontrolling interests and noncontrolling interests, for the
years ended December 31, 2009, 2008 and 2007:
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing revenue
|
|
$
|
131
|
|
|
$
|
417
|
|
|
$
|
3,168
|
|
Student
housing leasing operating expenses
|
|
|
(127
|
)
|
|
|
(449
|
)
|
|
|
(1,576
|
)
|
Depreciation
and amortization
|
|
|
(25
|
)
|
|
|
(99
|
)
|
|
|
(815
|
)
|
Redeemable
noncontrolling interests
|
|
|
1
|
|
|
|
5
|
|
|
|
(27
|
)
|
Noncontrolling
interests
|
|
|
—
|
|
|
|
1
|
|
|
|
(7
|
)
|
Income/(loss)
from discontinued operations attributable to Education Realty Trust,
Inc.
|
|
$
|
(20
|
)
|
|
|
(125
|
)
|
|
|
743
|
|
Gain
on sale of student housing property
|
|
|
—
|
|
|
|
—
|
|
|
|
1,644
|
|
Redeemable
noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(51
|
)
|
Noncontrolling
interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(14
|
)
|
Gain
on sale of student housing property attributable to Education Realty
Trust, Inc.
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,579
|
|
During
2008, the Trust sold the parking garage and land associated with the University
Towers residence hall to a unit holder for a loss of $512. The Trust redeemed
the unit holder’s units and received cash valued at $2,616. The loss on the sale
is included in the student housing leasing operations expense in the
accompanying consolidated statement of operations for the year ended December
31, 2008. The Trust simultaneously entered into a 40-year ground
lease.
6.
Student housing properties
Student
housing properties consist of the following at December 31, 2009 and 2008,
respectively:
|
|
2009
|
|
|
2008
|
|
Land
|
|
$
|
58,511
|
|
|
$
|
58,754
|
|
Land
improvements
|
|
|
52,133
|
|
|
|
51,837
|
|
Construction
in progress
|
|
|
2,467
|
|
|
|
2,453
|
|
Buildings
|
|
|
731,330
|
|
|
|
691,451
|
|
Furniture,
fixtures and equipment
|
|
|
46,950
|
|
|
|
43,102
|
|
|
|
|
891,391
|
|
|
|
847,597
|
|
Less
accumulated depreciation
|
|
|
(141,507
|
)
|
|
|
(114,090
|
)
|
Student
housing properties, net
|
|
$
|
749,884
|
|
|
$
|
733,507
|
|
Following
is certain information related to investment in student housing properties as of
December 31, 2009:
|
|
|
|
|
Initial Cost
|
|
|
|
|
|
Total Costs
|
|
|
|
|
|
|
Property(4)
|
|
Encumbrances
|
|
|
Land
|
|
|
Buildings and
Improvements
|
|
|
Total
|
|
|
Cost
Capitalized
Subsequently
|
|
|
Land
|
|
|
Buildings and
Improvements
|
|
|
Total
|
|
|
Accumulated
Depreciation(5)
|
|
Date of
Acquisition/
Construction
|
|
University
Towers
|
|
$ |
25,000 |
|
|
$ |
— |
|
|
$ |
28,652 |
|
|
$ |
28,652 |
|
|
$ |
2,039 |
|
|
$ |
— |
|
|
$ |
30,691 |
|
|
$ |
30,691 |
|
|
$ |
6,405 |
|
01/31/05
|
|
The
Gables
|
|
|
4,213 |
|
|
|
198 |
|
|
|
5,099 |
|
|
|
5,297 |
|
|
|
304 |
|
|
|
198 |
|
|
|
5,403 |
|
|
|
5,601 |
|
|
|
1,123 |
|
01/31/05
|
|
The
Reserve at Athens
|
|
|
— |
|
|
|
1,740 |
|
|
|
17,985 |
|
|
|
19,725 |
|
|
|
508 |
|
|
|
1,740 |
|
|
|
18,493 |
|
|
|
20,233 |
|
|
|
3,375 |
|
01/31/05
|
|
Players
Club
|
|
|
— |
|
|
|
727 |
|
|
|
7,498 |
|
|
|
8,225 |
|
|
|
670 |
|
|
|
727 |
|
|
|
8,168 |
|
|
|
8,895 |
|
|
|
1,598 |
|
01/31/05
|
|
The
Reserve at Clemson
|
|
|
12,000 |
|
|
|
625 |
|
|
|
18,230 |
|
|
|
18,855 |
|
|
|
747 |
|
|
|
625 |
|
|
|
18,977 |
|
|
|
19,602 |
|
|
|
3,836 |
|
01/31/05
|
|
NorthPointe
|
|
|
18,800 |
|
|
|
2,498 |
|
|
|
27,323 |
|
|
|
29,821 |
|
|
|
1,148 |
|
|
|
2,498 |
|
|
|
28,471 |
|
|
|
30,969 |
|
|
|
5,436 |
|
01/31/05
|
|
The
Pointe at South Florida (1)
|
|
|
8,571 |
|
|
|
3,508 |
|
|
|
30,510 |
|
|
|
34,018 |
|
|
|
3,443 |
|
|
|
3,508 |
|
|
|
33,953 |
|
|
|
37,461 |
|
|
|
6,568 |
|
01/31/05
|
|
The
Reserve on Perkins
|
|
|
15,328 |
|
|
|
913 |
|
|
|
15,795 |
|
|
|
16,708 |
|
|
|
1,194 |
|
|
|
913 |
|
|
|
16,989 |
|
|
|
17,902 |
|
|
|
3,415 |
|
01/31/05
|
|
The
Commons at Knoxville(1)
|
|
|
21,545 |
|
|
|
4,630 |
|
|
|
18,386 |
|
|
|
23,016 |
|
|
|
902 |
|
|
|
4,630 |
|
|
|
19,288 |
|
|
|
23,918 |
|
|
|
3,854 |
|
01/31/05
|
|
The
Reserve at Tallahassee
|
|
|
— |
|
|
|
2,743 |
|
|
|
21,176 |
|
|
|
23,919 |
|
|
|
1,888 |
|
|
|
2,743 |
|
|
|
23,064 |
|
|
|
25,807 |
|
|
|
4,405 |
|
01/31/05
|
|
The
Pointe at Western (3)
|
|
|
5,559 |
|
|
|
1,096 |
|
|
|
30,647 |
|
|
|
31,743 |
|
|
|
2,347 |
|
|
|
1,096 |
|
|
|
32,994 |
|
|
|
34,090 |
|
|
|
6,163 |
|
01/31/05
|
|
College
Station at W. Lafayette (2)
|
|
|
19,359 |
|
|
|
1,887 |
|
|
|
19,528 |
|
|
|
21,415 |
|
|
|
1,293 |
|
|
|
1,887 |
|
|
|
20,821 |
|
|
|
22,708 |
|
|
|
4,350 |
|
01/31/05
|
|
The
Commons on Kinnear (3)
|
|
|
14,825 |
|
|
|
1,327 |
|
|
|
20,803 |
|
|
|
22,130 |
|
|
|
913 |
|
|
|
1,327 |
|
|
|
21,716 |
|
|
|
23,043 |
|
|
|
3,854 |
|
01/31/05
|
|
The
Pointe at Penn State(2)
|
|
|
28,385 |
|
|
|
2,151 |
|
|
|
35,094 |
|
|
|
37,245 |
|
|
|
1,603 |
|
|
|
2,151 |
|
|
|
36,697 |
|
|
|
38,848 |
|
|
|
6,739 |
|
01/31/05
|
|
The
Reserve at Star Pass(2)
|
|
|
23,603 |
|
|
|
1,585 |
|
|
|
30,810 |
|
|
|
32,395 |
|
|
|
1,124 |
|
|
|
1,585 |
|
|
|
31,934 |
|
|
|
33,519 |
|
|
|
6,137 |
|
01/31/05
|
|
The
Reserve at Columbia (1)
|
|
|
14,845 |
|
|
|
1,071 |
|
|
|
26,134 |
|
|
|
27,205 |
|
|
|
978 |
|
|
|
1,071 |
|
|
|
27,112 |
|
|
|
28,183 |
|
|
|
4,807 |
|
01/31/05
|
|
|
|
|
|
|
Initial Cost
|
|
|
|
|
|
Total Costs
|
|
|
|
|
|
|
Property(4)
|
|
Encumbrances
|
|
|
Land
|
|
|
Buildings and
Improvements
|
|
|
Total
|
|
|
Cost
Capitalized
Subsequently
|
|
|
Land
|
|
|
Buildings and
Improvements
|
|
|
Total
|
|
|
Accumulated
Depreciation(5)
|
|
Date of
Acquisition/
Construction
|
|
The
Reserve on Frankford
|
|
|
6,938 |
|
|
|
1,181 |
|
|
|
26,758 |
|
|
|
27,939 |
|
|
|
1,167 |
|
|
|
1,181 |
|
|
|
27,925 |
|
|
|
29,106 |
|
|
|
5,799 |
|
01/31/05
|
|
The
Lofts
|
|
|
27,000 |
|
|
|
2,801 |
|
|
|
34,117 |
|
|
|
36,918 |
|
|
|
770 |
|
|
|
2,801 |
|
|
|
34,887 |
|
|
|
37,688 |
|
|
|
6,010 |
|
01/31/05
|
|
The
Reserve on West 31st
|
|
|
— |
|
|
|
1,896 |
|
|
|
14,920 |
|
|
|
16,816 |
|
|
|
1,597 |
|
|
|
1,896 |
|
|
|
16,517 |
|
|
|
18,413 |
|
|
|
3,350 |
|
01/31/05
|
|
Campus
Creek
|
|
|
— |
|
|
|
2,251 |
|
|
|
21,604 |
|
|
|
23,855 |
|
|
|
1,027 |
|
|
|
2,251 |
|
|
|
22,631 |
|
|
|
24,882 |
|
|
|
4,448 |
|
02/22/05
|
|
Pointe
West
|
|
|
10,448 |
|
|
|
2,318 |
|
|
|
10,924 |
|
|
|
13,242 |
|
|
|
538 |
|
|
|
2,318 |
|
|
|
11,462 |
|
|
|
13,780 |
|
|
|
2,531 |
|
03/17/05
|
|
Campus
Lodge
|
|
|
35,276 |
|
|
|
2,746 |
|
|
|
44,415 |
|
|
|
47,161 |
|
|
|
694 |
|
|
|
2,746 |
|
|
|
45,109 |
|
|
|
47,855 |
|
|
|
7,776 |
|
06/07/05
|
|
College
Grove (1)
|
|
|
14,668 |
|
|
|
1,334 |
|
|
|
19,270 |
|
|
|
20,604 |
|
|
|
2,236 |
|
|
|
1,334 |
|
|
|
21,506 |
|
|
|
22,840 |
|
|
|
4,740 |
|
04/27/05
|
|
The
Reserve on South College (3)
|
|
|
12,601 |
|
|
|
1,744 |
|
|
|
10,784 |
|
|
|
12,528 |
|
|
|
1,967 |
|
|
|
1,744 |
|
|
|
12,751 |
|
|
|
14,495 |
|
|
|
2,805 |
|
07/06/05
|
|
The
Avenue at Southern(3)
|
|
|
9,368 |
|
|
|
2,028 |
|
|
|
10,675 |
|
|
|
12,703 |
|
|
|
2,329 |
|
|
|
2,028 |
|
|
|
13,004 |
|
|
|
15,032 |
|
|
|
2,115 |
|
06/15/06
|
|
The
Reserve at Saluki Pointe
|
|
|
20,082 |
|
|
|
1,099 |
|
|
|
32,377 |
|
|
|
33,476 |
|
|
|
214 |
|
|
|
1,099 |
|
|
|
32,591 |
|
|
|
33,690 |
|
|
|
1,112 |
|
08/01/08
|
(6) |
University
Apartments on Colvin
|
|
|
8,826 |
|
|
|
— |
|
|
|
25,792 |
|
|
|
25,792 |
|
|
|
— |
|
|
|
— |
|
|
|
25,792 |
|
|
|
25,792 |
|
|
|
380 |
|
08/01/09
|
|
Troy
Place(7)
|
|
|
6,999 |
|
|
|
523 |
|
|
|
12,404 |
|
|
|
12,927 |
|
|
|
694 |
|
|
|
523 |
|
|
|
13,098 |
|
|
|
13,621 |
|
|
|
1,955 |
|
01/01/06
|
|
The
Reserve at Jacksonville
|
|
|
— |
|
|
|
628 |
|
|
|
14,532 |
|
|
|
15,160 |
|
|
|
656 |
|
|
|
628 |
|
|
|
15,188 |
|
|
|
15,816 |
|
|
|
2,240 |
|
01/01/06
|
|
The
Pointe at Southern
|
|
|
— |
|
|
|
1,180 |
|
|
|
17,288 |
|
|
|
18,468 |
|
|
|
717 |
|
|
|
1,180 |
|
|
|
18,005 |
|
|
|
19,185 |
|
|
|
2,626 |
|
01/01/06
|
|
Macon
Place
|
|
|
— |
|
|
|
340 |
|
|
|
9,856 |
|
|
|
10,196 |
|
|
|
(1,144
|
) |
|
|
340 |
|
|
|
8,712 |
|
|
|
9,052 |
|
|
|
1,552 |
|
01/01/06
|
|
Clayton
Place
|
|
|
— |
|
|
|
4,291 |
|
|
|
28,843 |
|
|
|
33,134 |
|
|
|
(1,186
|
) |
|
|
4,291 |
|
|
|
27,657 |
|
|
|
31,948 |
|
|
|
3,949 |
|
01/01/06
|
|
Carrollton
Place(8)
|
|
|
4,078 |
|
|
|
682 |
|
|
|
12,166 |
|
|
|
12,848 |
|
|
|
474 |
|
|
|
682 |
|
|
|
12,640 |
|
|
|
13,322 |
|
|
|
1,725 |
|
01/01/06
|
|
River
Place(9)
|
|
|
7,238 |
|
|
|
837 |
|
|
|
17,746 |
|
|
|
18,583 |
|
|
|
594 |
|
|
|
837 |
|
|
|
18,340 |
|
|
|
19,177 |
|
|
|
2,656 |
|
01/01/06
|
|
The
Chase at Murray(8)
|
|
|
3,622 |
|
|
|
550 |
|
|
|
8,864 |
|
|
|
9,414 |
|
|
|
766 |
|
|
|
550 |
|
|
|
9,630 |
|
|
|
10,180 |
|
|
|
1,597 |
|
01/01/06
|
|
Western
Place(7)
|
|
|
4,744 |
|
|
|
660 |
|
|
|
16,332 |
|
|
|
16,992 |
|
|
|
497 |
|
|
|
660 |
|
|
|
16,829 |
|
|
|
17,489 |
|
|
|
2,372 |
|
01/01/06
|
|
Cape
Place(9)
|
|
|
7,631 |
|
|
|
445 |
|
|
|
11,207 |
|
|
|
11,652 |
|
|
|
538 |
|
|
|
445 |
|
|
|
11,745 |
|
|
|
12,190 |
|
|
|
1,716 |
|
01/01/06
|
|
Clemson
Place(7)
|
|
|
5,616 |
|
|
|
759 |
|
|
|
10,317 |
|
|
|
11,076 |
|
|
|
370 |
|
|
|
759 |
|
|
|
10,687 |
|
|
|
11,446 |
|
|
|
1,514 |
|
01/01/06
|
|
Berkeley
Place(9)
|
|
|
8,400 |
|
|
|
1,048 |
|
|
|
18,497 |
|
|
|
19,545 |
|
|
|
360 |
|
|
|
1,048 |
|
|
|
18,857 |
|
|
|
19,905 |
|
|
|
2,619 |
|
01/01/06
|
|
The
Reserve at Martin
|
|
|
— |
|
|
|
471 |
|
|
|
11,784 |
|
|
|
12,255 |
|
|
|
762 |
|
|
|
471 |
|
|
|
12,546 |
|
|
|
13,017 |
|
|
|
1,855 |
|
01/01/06
|
|
Totals
|
|
$ |
405,568 |
|
|
$ |
58,511 |
|
|
$ |
795,142 |
|
|
$ |
853,653 |
|
|
$ |
37,738 |
|
|
$ |
58,511 |
|
|
$ |
832,880 |
|
|
$ |
891,391 |
|
|
$ |
141,507 |
|
|
|
(1)
|
The
Pointe at South Florida, College Grove, The Commons at Knoxville and The
Reserve at Columbia are cross collateralized against the
$59,629 outstanding loan discussed in Note
10.
|
(2)
|
The
Pointe at Penn State, The Reserve at Star Pass and College Station at West
Lafayette are cross collateralized against the $71,347 outstanding loan
discussed in Note 10.
|
(3)
|
The Pointe at Western, The
Commons on Kinnear, The Reserve on South College and at The Avenue at
Southern are cross collateralized against the $42,353 outstanding loan discussed in
Note 10.
|
(4)
|
All
properties are garden-style student housing communities except for
University Towers which is a traditional residence
hall.
|
(5)
|
Assets
have useful lives ranging from 3 to
40 years.
|
(6)
|
The
first phase of The Reserve at Saluki Pointe, which included 528 beds, was
completed in August 2008. The second phase, which included 240 beds, was
completed in August 2009.
|
(7)
|
Troy
Place, Clemson Place and Western Place are cross collateralized against
the $17,359 outstanding loan discussed in Note
10.
|
(8)
|
Carrolton
Place and The Chase at Murray are cross collateralized against the $7,700
outstanding loan discussed in Note
10.
|
(9)
|
Berkeley
Place, River Place and Cape Place are cross collateralized against the
$23,269 outstanding loan discussed in Note
10.
|
The
following table reconciles the historical cost of the Trust’s investment in
student housing properties for the years ended December 31, 2009, 2008 and
2007:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Balance,
beginning of period
|
|
$ |
847,597 |
|
|
$ |
819,188 |
|
|
$ |
863,248 |
|
Student
housing acquisitions or completed developments
|
|
|
37,670 |
|
|
|
21,679 |
|
|
|
— |
|
Student
housing dispositions
|
|
|
(2,652 |
) |
|
|
— |
|
|
|
(52,406 |
) |
Impairment
loss
|
|
|
(1,726 |
) |
|
|
(1,633 |
) |
|
|
— |
|
Additions
|
|
|
11,298 |
|
|
|
13,986 |
|
|
|
8,463 |
|
Disposals
|
|
|
(796 |
) |
|
|
(5,623 |
) |
|
|
(117 |
) |
Balance,
end of period
|
|
$ |
891,391 |
|
|
$ |
847,597 |
|
|
$ |
819,188 |
|
The
following table reconciles the accumulated depreciation of the Trust’s
investment in student housing properties for the years ended December 31,
2009, 2008 and 2007:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Balance,
beginning of period
|
|
$ |
114,090 |
|
|
$ |
86,209 |
|
|
$ |
58,489 |
|
Depreciation
|
|
|
28,522 |
|
|
|
28,819 |
|
|
|
32,409 |
|
Disposals
|
|
|
(535 |
) |
|
|
(938 |
) |
|
|
(77 |
) |
Student
housing dispositions
|
|
|
(570 |
) |
|
|
— |
|
|
|
(4,612 |
) |
Balance,
end of period
|
|
$ |
141,507 |
|
|
$ |
114,090 |
|
|
$ |
86,209 |
|
When the
Trust determines that an asset is not recoverable, management estimates fair
value using discounted cash flow models, market appraisals if available, and
other market participant data. During 2009 and 2008, management
determined that the carrying value of two different student housing communities
(one property in 2009 and the other in 2008) may not be recoverable due to a
decline in occupancy and trends at the individual communities. The fair value of
the properties was estimated and management recorded an impairment loss in the
accompanying consolidated statements of operations for the years ended December
31, 2009 and 2008 of $1,726 and $1,633, respectively.
7.
Corporate office furniture and other assets
As of
December 31, 2009 and 2008, the Trust had corporate office furniture with a
historical cost of $3,109 and $2,938, respectively, and accumulated depreciation
of $1,991 and $1,473, respectively. Depreciation is computed using
the straight-line method for financial reporting purposes over the estimated
useful lives of the related assets, generally 3 to 7
years. Depreciation expense totaled $556, $544 and $407 for the years
ended December 31, 2009, 2008 and 2007, respectively.
Other
assets consist of the following at December 31, 2009 and 2008:
|
|
2009
|
|
|
2008
|
|
Accounts
receivable related to pre-development costs
|
|
$
|
1,563
|
|
|
$
|
965
|
|
Refundable
deposit
|
|
|
—
|
|
|
|
7,162
|
|
Prepaid
expenses
|
|
|
416
|
|
|
|
371
|
|
Deferred
tax asset
|
|
|
395
|
|
|
|
653
|
|
Deferred
financing costs
|
|
|
5,141
|
|
|
|
3,306
|
|
Investments
in unconsolidated entities
|
|
|
1,450
|
|
|
|
2,759
|
|
Note
receivable (see Note 12)
|
|
|
2,021
|
|
|
|
834
|
|
Note
receivable (see Note 5)
|
|
|
2,300
|
|
|
|
—
|
|
Other
|
|
|
823
|
|
|
|
1,385
|
|
Total
other assets
|
|
$
|
14,109
|
|
|
$
|
17,435
|
|
8.
Investments in unconsolidated entities
The
Trust’s ownership in AODC/CPA, LLC, University Village-Greensboro LLC, WEDR
Riverside Investors V, LLC, WEDR Stinson Investors V, LLC, APF EDR, LP, and APF
EDR Food Services, LP is accounted for under the equity method. The following is
a summary of financial information for the Trust’s unconsolidated joint
ventures, limited liability companies and limited partnerships.
Financial
Position:
|
|
|
|
|
|
|
As of December
31,
|
|
2009
|
|
|
2008
|
|
Total
assets
|
|
$
|
134,781
|
|
|
$
|
147,951
|
|
Total
liabilities
|
|
|
113,161
|
|
|
|
114,348
|
|
Equity
|
|
$
|
21,620
|
|
|
$
|
33,603
|
|
Trust’s
investment in unconsolidated entities
|
|
$
|
1,450
|
|
|
$
|
2,759
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
$ |
15,957 |
|
|
$ |
16,415 |
|
|
$ |
13,283 |
|
Net
loss
|
|
|
(15,145 |
) |
|
|
(1,890 |
) |
|
|
(4,194 |
) |
Trust’s
equity in earnings (losses) of unconsolidated entities
|
|
$ |
(1,410 |
) |
|
$ |
(196 |
) |
|
$ |
(277 |
) |
These
entities provide development consulting services to third party student housing
owners in an agency capacity or own student housing communities which are
managed by the Trust.
The
equity in losses of unconsolidated entities includes a loss of $1,447 for the
year ended December 31, 2009 which resulted from impairment in an underlying
student housing asset owned by the unconsolidated limited
partnership. After recognizing the equity in losses of the limited
partnership, the Trust reviewed its remaining equity method investment for
impairment and determined the carrying value of the investment was not
impaired.
9.
Incentive plans
The Trust
adopted the Education Realty Trust, Inc. 2004 Incentive Plan (the “Plan”)
effective January 31, 2005. The Plan provides for the grant of stock options,
restricted stock, restricted stock units, stock appreciation rights, other
stock-based incentive awards and profits interest units to employees, directors
and other key persons providing services to the Trust. As of December 31, 2009,
the Trust had 904,000 shares of its common stock reserved for issuance pursuant
to the Plan, subject to adjustments for changes in the Trust’s capital
structure, including share splits, dividends and recapitalizations. The number
of shares reserved under the Plan is also subject to an annual adjustment,
beginning on January 1, 2006, so that the total number of shares reserved
under the Plan is equal to 4% of the aggregate number of shares outstanding on
the last day of the preceding fiscal year; provided that such annual increase
generally may not exceed 80,000 shares.
A
restricted stock award is an award of the Trust’s common stock that is subject
to restrictions on transferability and other restrictions as the Trust’s
compensation committee determines in its sole discretion on the date of grant.
The restrictions may lapse over a specified period of employment or the
satisfaction of pre-established criteria as our compensation committee may
determine. Except to the extent restricted under the award agreement, a
participant awarded restricted shares will have all of the rights of a
stockholder as to those shares, including, without limitation, the right to vote
and the right to receive dividends or distributions on the shares. Restricted
stock is generally taxed at the time of vesting. At December 31, 2009 and
2008, unearned compensation totaled $40 and $657, respectively, and will be
recorded as expense over the applicable vesting period. The value is determined
based on the market value of the Trust’s common stock on the grant date. During
the years ended December 31, 2009, 2008 and 2007, compensation expense of $617,
$604 and$604, respectively, was recognized in the accompanying consolidated
statements of operations, related to the vesting of restricted
stock.
Profits
interest units, or PIUs, are units in a limited liability company controlled by
the Trust that holds a special class of partnership interests in the Operating
Partnership. For purposes of the Plan, each PIU is deemed equivalent to an
award of one share of the Trust’s common stock and will entitle the owner of
such unit to receive the same quarterly per unit distributions as one common
unit of the Operating Partnership. This treatment with respect to quarterly
distributions is similar to the expected treatment of restricted stock awards,
which will generally receive full dividends whether vested or not. PIUs will not
initially have full parity with common units of the Operating Partnership with
respect to liquidating distributions.
Upon the
occurrence of specified capital equalization events, PIUs may, over time,
achieve full or partial parity with common units of the Operating Partnership
for all purposes and could accrete to an economic value equivalent to the
Trust’s common stock on a one-for-one basis. If such parity is reached, PIUs may
be exchanged into an equal number of the Trust’s shares of common stock at any
time. However, there are circumstances under which full parity would not be
reached. Until such parity is reached, the value that may be realized for PIUs
will be less than the value of an equal number of shares of the Trust’s common
stock, if there is any value at all. The grant or vesting of PIUs is not
expected to be a taxable transaction to recipients. Conversely, we will not
receive any tax deduction for compensation expense from the grant of PIUs. PIUs
are treated as noncontrolling interests in the accompanying consolidated
financial statements at an amount equal to the holders’ ownership percentage of
the net equity of the Operating Partnership.
Total
compensation cost recognized in general and administrative expense in the
accompanying consolidated statements of operations for the years ended December
31, 2009, 2008 and 2007 was $677, $761 and $772, respectively.
Additionally
during each of the years ended December 31, 2009 and 2008, the Trust issued
4,000 shares of common stock to an executive officer and 4,000 shares to its
independent directors pursuant to the Plan.
A summary
of the stock-based incentive plan activity as of and for the years ended
December 31, 2009, 2008 and 2007 is as follows:
|
|
|
|
|
Stock
|
|
|
|
|
|
|
PIU’s
|
|
|
Awards(1)
|
|
|
Total
|
|
Outstanding
at December 31, 2006
|
|
|
265,000 |
|
|
|
192,000 |
|
|
|
457,000 |
|
Granted
|
|
|
17,500 |
|
|
|
8,000 |
|
|
|
25,500 |
|
Retired
|
|
|
(5,000 |
) |
|
|
— |
|
|
|
(5,000 |
) |
Outstanding
at December 31, 2007
|
|
|
277,500 |
|
|
|
200,000 |
|
|
|
477,500 |
|
Granted
|
|
|
10,000 |
|
|
|
8,000 |
|
|
|
18,000 |
|
Retired
|
|
|
(12,500 |
) |
|
|
— |
|
|
|
(12,500 |
) |
Outstanding
at December 31, 2008
|
|
|
275,000 |
|
|
|
208,000 |
|
|
|
483,000
|
|
Granted
|
|
|
5,000 |
|
|
|
8,000 |
|
|
|
13,000 |
|
Retired
|
|
|
(5,000 |
) |
|
|
— |
|
|
|
(5,000 |
) |
Outstanding
at December 31, 2009
|
|
|
275,000 |
|
|
|
216,000 |
|
|
|
491,000 |
|
Vested
at December 31, 2009
|
|
|
275,000 |
|
|
|
213,639 |
|
|
|
488,639 |
|
(1)
|
Includes
restricted stock awards.
|
10.
Debt
Revolving
credit facility
On
November 20, 2009, the Operating Partnership entered into a Second Amended
and Restated Credit Agreement (the “Second Amended Revolver”). The Second
Amended Revolver amended and restated the existing secured revolving credit
facility (the “Amended Revolver”) dated March 30, 2006. The Amended Revolver had
a maximum availability of $100,000 and was scheduled to mature on March 30,
2010. The Second Amended Revolver has a maximum availability of $95,000 and
within the first two years of the agreement may be expanded to a total of
$150,000 upon satisfaction of certain conditions.
Availability
under the Second Amended Revolver is limited to a “borrowing base availability”
equal to the lesser of (i) 60% of the property asset value (as defined in
the agreement) of the properties securing the facility and (ii) the loan
amount which would produce a debt service coverage ratio of no less than 1.40.
As of December 31, 2009, our borrowing base was $43,187, we had no amounts
outstanding under the agreement and we had letters of credit outstanding of
$2,000 (see Note 16); thus, our remaining borrowing base availability was
$41,187.
The Trust
serves as the guarantor for any funds borrowed by the Operating Partnership
under the Second Amended Revolver. Additionally, the Second Amended Revolver is
secured by a cross-collateralized, first mortgage lien on five otherwise
unmortgaged properties. The Second Amended Revolver matures on November 20,
2012, provided that the Operating Partnership may extend the maturity date for
one year subject to certain conditions. The interest rate per annum applicable
to the Second Amended Revolver is, at the Operating Partnership’s option, equal
to a base rate or London InterBank Offered Rate (“LIBOR”) plus an applicable
margin based upon our leverage.
The
Second Amended Revolver contains customary affirmative and negative covenants
and contains financial covenants that, among other things, require the Trust and
its subsidiaries to maintain certain minimum ratios of “EBITDA” (earnings before
payment or charges of interest, taxes, depreciation, amortization or
extraordinary items) as compared to interest expense and total fixed charges.
The financial covenants also include consolidated net worth and leverage ratio
tests.
The Trust
is prohibited from making distributions unless either of the following
conditions is met: (a) after giving effect to the distribution, the total
leverage ratio is less than or equal to 65% prior to November 20, 2012, and less
than or equal to 60% thereafter; or (b) the distribution, when considered
along with all other distributions for the last 3 quarters, does not exceed 90%
of funds from operations for the applicable period.
During
the year ended December 31, 2009, the Trust used $30,600 of the proceeds
received in connection with the follow-on common stock offering that occurred in
July 2009 (see Note 2) to repay the Amended Revolver.
Mortgage
and construction debt
At
December 31, 2009, the Trust had mortgage and construction notes payable
consisting of the following which were secured by the underlying student housing
properties or leaseholds of:
|
|
Outstanding at
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
Maturity
|
|
|
Property
|
|
2009
|
|
|
Interest Rate
|
|
|
Date
|
|
Amortization
|
University
Towers
|
|
$
|
25,000
|
|
|
|
5.99
|
%
|
|
|
7/1/2013
|
|
30
Year
|
The
Reserve at Clemson
|
|
|
12,000
|
|
|
|
5.55
|
%
|
|
|
3/1/2012
|
|
30
Year
|
The
Gables
|
|
|
4,213
|
|
|
|
5.50
|
%
|
|
|
11/1/2013
|
|
30
Year
|
NorthPointe
|
|
|
18,800
|
|
|
|
5.55
|
%
|
|
|
3/1/2012
|
|
30
Year
|
The
Pointe at S. Florida/The Reserve at Columbia/ The Commons at
Knoxville/College Grove
|
|
|
59,629
|
|
|
|
6.02
|
%
|
|
|
1/1/2019
|
|
30
Year
|
The
Reserve at Perkins
|
|
|
15,328
|
|
|
|
5.99
|
%
|
|
|
1/1/2014
|
|
30
Year
|
The
Lofts
|
|
|
27,000
|
|
|
|
5.59
|
%
|
|
|
5/1/2014
|
|
30
Year
|
College
Station at W. Lafayette/The Pointe at Penn State/The Reserve at Star
Pass
|
|
|
71,347
|
|
|
|
6.02
|
%
|
|
|
1/1/2016
|
|
30
Year
|
Campus
Lodge
|
|
|
35,276
|
|
|
|
6.97
|
%
|
|
|
5/1/2012
|
|
30
Year
|
Pointe
West
|
|
|
10,448
|
|
|
|
4.92
|
%
|
|
|
8/1/2014
|
|
30
Year
|
The
Pointe at Western/The Commons on Kinnear/The Reserve on South College/The
Avenue at Southern
|
|
|
42,353
|
|
|
|
3.64
|
%
|
|
|
1/1/2014
|
|
30
Year
|
The
Reserve on Frankford
|
|
|
6,938
|
|
|
|
3.54
|
%
|
|
|
1/1/2014
|
|
30
Year
|
The
Reserve at Saluki Pointe – Phase I
|
|
|
10,759
|
|
|
|
1.33
|
%
|
|
|
6/28/2010
|
|
(1)
|
The
Reserve at Saluki Pointe – Phase II
|
|
|
9,323
|
|
|
|
2.23
|
%
|
|
|
6/28/2010
|
|
(1)
|
University
Village Apartments on Colvin
|
|
|
8,826
|
|
|
|
1.33
|
%
|
|
|
9/29/2011
|
|
(2)
|
Troy
Place/Clemson Place/Western Place
|
|
|
17,359
|
|
|
|
5.45
|
%
|
|
|
1/1/2017
|
|
30
Year
|
Carrollton
Place/Murray Place
|
|
|
7,700
|
|
|
|
4.96
|
%
|
|
|
1/1/2015
|
|
30
Year
|
Berkeley
Place/River Place/Cape Place
|
|
|
23,269
|
|
|
|
5.67
|
%
|
|
|
1/1/2020
|
|
30
Year
|
Total
debt /weighted average rate
|
|
|
405,568
|
|
|
|
5.33
|
%
|
|
|
|
|
|
Unamortized
premium
|
|
|
797
|
|
|
|
|
|
|
|
|
|
|
Total
net of unamortized premium
|
|
|
406,365
|
|
|
|
|
|
|
|
|
|
|
Less
current portion
|
|
|
(23,957
|
)
|
|
|
|
|
|
|
|
|
|
Total
long-term debt, net of current portion
|
|
$
|
382,408
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
construction debt encumbering The Reserve at Saluki Pointe is interest
only through June 28, 2010, the initial maturity date. The
Trust has the ability to extend the construction loan if certain criteria
are met on the initial maturity
date.
|
(2)
|
The
construction debt encumbering the University Village Apartments on Colvin
is interest only through September 29, 2011, the initial maturity
date. The Trust has the ability to extend the construction loan
if certain criteria are met on the initial maturity
date.
|
The Trust
also has a credit facility with Fannie Mae (the “Master Secured Credit
Facility”) that was entered into on December 31, 2008. The proceeds of
approximately $197,735 were used to prepay approximately $185,557 of mortgage
debt that was due to mature in July of 2009. The remaining proceeds were used to
pay $4,295 in defeasance costs and other costs related to the early repayment of
the debt, $2,052 in deferred financing costs, pay down the Amended Revolver and
pay for other corporate working capital needs. The Trust accounted for the
transaction as a legal defeasance and recognized a loss of $4,360 on the early
extinguishment of debt during 2008. During 2009, the Trust received a
refund of defeasance costs resulting in an $830 gain on the
extinguishment. The Master Secured Credit Facility contains financial
covenants that include consolidated net worth and liquidity tests. As
of December 31, 2009 and 2008, $49,292 and $49,874 of the amounts outstanding
under the Master Secured Credit Facility bear interest at variable rates based
on the 30-day LIBOR plus an applicable margin, respectively. In order
to hedge the interest rate risk associated with the variable rate loans, the
Operating Partnership purchased an interest rate cap from the Royal Bank of
Canada on December 22, 2008 for $120. The notional amount of the cap
is $49,874, the cap will terminate on December 31, 2013 and the cap rate is 7.0%
per annum. The Operating Partnership has chosen not to designate the
cap as a hedge and will recognize all gain or loss associated with this
derivative instrument in earnings. At December 31, 2009 and 2008, the
cap had a value of $286 and $82, respectively, and is classified in other assets
in the accompanying consolidated balance sheets. Fair value was determined at
each balance sheet date using Level 2 inputs as defined by the authoritative
guidance that describes the fair value hierarchy.
On
November 6, 2009, the Trust repaid $98,660 of mortgage debt that was due to
mature on December 9, 2009 with proceeds of $76,000 from the follow-on common
stock offering discussed in Note 2. The remaining $22,660 of debt was
repaid using availability under the Amended Revolver. The following debt was
repaid on November 6, 2009:
|
|
Prepaid
on
|
|
|
|
|
|
|
|
|
|
|
November
6,
|
|
|
Contractual
Fixed
|
|
|
Maturity
|
|
|
Property
|
|
2009
|
|
|
Interest Rate
|
|
|
Date
|
|
Amortization
|
Troy
Place
|
|
$
|
9,440
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Jacksonville
Place
|
|
|
11,120
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Macon
Place
|
|
|
7,440
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Clayton
Place
|
|
|
24,540
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
River
Place
|
|
|
13,680
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Murray
Place
|
|
|
6,800
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Cape
Place
|
|
|
8,520
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Clemson
Place
|
|
|
8,160
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Martin
Place
|
|
|
8,960
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Total
|
|
$
|
98,660
|
|
|
|
|
|
|
|
|
|
|
On
December 2, 2009, the Trust completed a $48,327 expansion of the existing Master
Secured Credit Facility and used a portion of the proceeds to repay the Second
Amended Revolver. In connection with the expansion the following
properties were encumbered (including Western Place, Berkeley Place and
Carrolton Place that were previously unencumbered):
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
Maturity
|
|
|
Property
|
|
2009
|
|
Interest Rate
|
|
|
Date
|
|
Amortization
|
Troy
Place/ Clemson Place/ Western Place
|
|
$
|
17,359
|
|
fixed
|
|
5.45
|
%
|
|
|
1/1/2017
|
|
30
Year
|
River
Place/ Cape Place/ Berkeley Place
|
|
|
23,269
|
|
fixed
|
|
5.67
|
%
|
|
|
1/1/2020
|
|
30
Year
|
Murray
Place/ Carrollton Place
|
|
|
7,699
|
|
fixed
|
|
4.96
|
%
|
|
|
1/1/2015
|
|
30
Year
|
Total
|
|
$
|
48,327
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2009, we had borrowed $10,759 and $9,323 on construction loans with
availability of $11,000 and $12,285, respectively, related to the development of
a wholly owned student apartment community near Southern Illinois University
(The Reserve at Saluki Pointe- Carbondale). The loans bear interest equal to
LIBOR plus 110 and 200 basis point margins, respectively, and are interest only
through June 14, 2010. Commencing on June 28, 2010, and annually
thereafter, a debt service coverage ratio calculated on a rolling 12 months
basis, of not less than 1.25 to 1, must be maintained in order to extend the
loans until June 28, 2012, with principal and interest being repaid on a
monthly basis. The Trust incurred $81 in deferred financing costs in connection
with the construction loans in 2008.
At
December 31, 2009, the Trust had $8,826 outstanding on a $14,300 construction
loan related to the development of a wholly-owned student apartment community at
Syracuse University (University Village Apartments on Colvin). The loan bears
interest equal to LIBOR plus a 110 basis point margin and is interest only
through September 29, 2011. Commencing with the quarter ended June 30,
2011, and annually thereafter, a debt service coverage ratio calculated on a
rolling 12 month basis, of not less than 1.25 to 1, must be maintained in
order to extend the loan until September 29, 2013, with principal and
interest being repaid on a monthly basis.
At
December 31, 2008, the Trust had mortgage and construction notes payable
consisting of the following which were secured by the underlying student housing
properties or leaseholds of:
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
Maturity
|
|
|
Property
|
|
2008
|
|
|
Interest Rate
|
|
|
Date
|
|
Amortization
|
University
Towers
|
|
$
|
25,000
|
|
|
|
5.99
|
%
|
|
|
7/1/2013
|
|
30
Year
|
The
Reserve at Clemson
|
|
|
12,000
|
|
|
|
5.55
|
%
|
|
|
3/1/2012
|
|
30
Year
|
The
Gables
|
|
|
4,291
|
|
|
|
5.50
|
%
|
|
|
11/1/2013
|
|
30
Year
|
NorthPointe
|
|
|
18,800
|
|
|
|
5.55
|
%
|
|
|
3/1/2012
|
|
30
Year
|
The
Pointe at S. Florida/The Reserve at Columbia/ The Commons at
Knoxville/College Grove
|
|
|
60,263
|
|
|
|
6.02
|
%
|
|
|
1/1/2019
|
|
30
Year
|
The
Reserve at Perkins
|
|
|
15,492
|
|
|
|
5.99
|
%
|
|
|
1/1/2014
|
|
30
Year
|
The
Lofts
|
|
|
27,000
|
|
|
|
5.59
|
%
|
|
|
5/1/2014
|
|
30
Year
|
College
Station at W. Lafayette/The Pointe at Penn State/The Reserve at Star
Pass
|
|
|
72,106
|
|
|
|
6.02
|
%
|
|
|
1/1/2016
|
|
30
Year
|
Campus
Lodge
|
|
|
35,841
|
|
|
|
6.97
|
%
|
|
|
5/1/2012
|
|
30
Year
|
Pointe
West
|
|
|
10,637
|
|
|
|
4.92
|
%
|
|
|
8/1/2014
|
|
30
Year
|
The
Pointe at Western/The Commons on Kinnear/The Reserve on South College/The
Avenue at Southern
|
|
|
42,854
|
|
|
|
3.91
|
%
|
|
|
1/1/2014
|
|
30
Year
|
The
Reserve on Frankford
|
|
|
7,020
|
|
|
|
3.81
|
%
|
|
|
1/1/2014
|
|
30
Year
|
The
Reserve at Saluki Pointe
|
|
|
10,901
|
|
|
|
2.57
|
%
|
|
|
6/28/2012
|
|
30
Year
|
University
Village Apartments on Colvin
|
|
|
191
|
|
|
|
2.30
|
%
|
|
|
9/29/2013
|
|
30
Year
|
Troy
Place
|
|
|
9,440
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
The
Reserve at Jacksonville
|
|
|
11,120
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Macon
Place
|
|
|
7,440
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Clayton
Place
|
|
|
24,540
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
River
Place
|
|
|
13,680
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Murray
Place
|
|
|
6,800
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Cape
Place
|
|
|
8,520
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Clemson
Place
|
|
|
8,160
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
The
Reserve at Martin
|
|
|
8,960
|
|
|
|
6.44
|
%
|
|
|
12/9/2009
|
|
30
Year
|
Total
debt /weighted average rate
|
|
|
441,056
|
|
|
|
5.77
|
%
|
|
|
|
|
|
Unamortized
premium
|
|
|
1,203
|
|
|
|
|
|
|
|
|
|
|
Total
net of unamortized premium
|
|
|
442,259
|
|
|
|
|
|
|
|
|
|
|
Less
current portion
|
|
|
101,631
|
|
|
|
|
|
|
|
|
|
|
Total
long-term debt, net of current portion
|
|
$
|
340,628
|
|
|
|
|
|
|
|
|
|
|
On
March 3, 2008, mortgage debt in the amount of $22,977, secured by the
student housing community referred to as University Towers, bearing interest at
an effective rate of 5.48%, matured and was repaid by the Trust with additional
borrowings on the Amended Revolver. On June 27, 2008, the Trust refinanced
the debt with a $25,000, interest only, fixed rate mortgage bearing interest at
5.99% through June 30, 2013. After the initial maturity, the Trust has the
option to extend the loan for 12 months with principal and interest equal
to LIBOR plus a 250 basis point margin per annum being repaid on a monthly
basis. The Trust used the proceeds from the refinancing to pay down the Amended
Revolver.
The
following table reconciles the carrying amount of mortgage and construction
notes payable as of and for the years ended December 31, 2009, 2008 and
2007:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Balance,
beginning of period
|
|
$ |
442,259 |
|
|
$ |
420,940 |
|
|
$ |
423,933 |
|
Additions
|
|
|
66,143 |
|
|
|
233,827 |
|
|
|
57,800 |
|
Repayments
of principal
|
|
|
(101,631 |
) |
|
|
(212,038 |
) |
|
|
(60,158 |
) |
Amortization
of premium
|
|
|
(406 |
) |
|
|
(470 |
) |
|
|
(635 |
) |
Balance,
end of period
|
|
$ |
406,365 |
|
|
$ |
442,259 |
|
|
$ |
420,940 |
|
Scheduled
maturities of all outstanding debt as of December 31, 2009 are as
follows:
Year
|
|
|
|
|
2010
|
|
$
|
23,957
|
|
2011
|
|
|
12,952
|
|
2012
|
|
|
68,617
|
|
2013
|
|
|
33,028
|
|
2014
|
|
|
100,115
|
|
Thereafter
|
|
|
166,899
|
|
Total
|
|
|
405,568
|
|
Debt
premium
|
|
|
797
|
|
Outstanding
as of December 31, 2009, net of debt premium
|
|
$
|
406,365
|
|
11.
Segments
The Trust
defines business segments by their distinct customer base and service provided.
The Trust has identified three reportable segments: student housing leasing,
development-consulting services, and management services. Management evaluates
each segment’s performance based on pretax income and on net operating income,
which is defined as income before depreciation, amortization, impairment losses,
interest expense (income), gains (losses) on extinguishment of debt, equity in
earnings of unconsolidated entities, and noncontrolling interests. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies. Intercompany fees are
reflected at the contractually stipulated amounts. Discontinued operations are
not included in segment reporting as management addresses these items on a
corporate level.
The
following tables represent the Trust’s segment information for the years ended
December 31, 2009, 2008 and 2007:
|
|
Year Ended December 31, 2009
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
Segment Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing revenue
|
|
$
|
110,810
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
110,810
|
|
|
$
|
107,149
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
107,149
|
|
Student
housing food service revenue
|
|
|
2,267
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,267
|
|
|
|
2,378
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,378
|
|
Other
leasing revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,145
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,145
|
|
Third-party
development consulting services
|
|
|
—
|
|
|
|
8,178
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,178
|
|
|
|
—
|
|
|
|
8,303
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,303
|
|
Third-party
management services
|
|
|
—
|
|
|
|
—
|
|
|
|
3,221
|
|
|
|
—
|
|
|
|
3,221
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,672
|
|
|
|
—
|
|
|
|
3,672
|
|
Intersegment
revenues
|
|
|
—
|
|
|
|
1,129
|
|
|
|
4,419
|
|
|
|
(5,548
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
661
|
|
|
|
4,290
|
|
|
|
(4,951
|
)
|
|
|
—
|
|
Operating
expense reimbursements
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,722
|
|
|
|
9,722
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,796
|
|
|
|
10,796
|
|
Total
segment revenues
|
|
|
113,077
|
|
|
|
9,307
|
|
|
|
7,640
|
|
|
|
4,174
|
|
|
|
134,198
|
|
|
|
116,672
|
|
|
|
8,964
|
|
|
|
7,962
|
|
|
|
5,845
|
|
|
|
139,443
|
|
Segment
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing operations
|
|
|
55,161
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,161
|
|
|
|
55,120
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,120
|
|
Student
housing food service operations
|
|
|
2,156
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,156
|
|
|
|
2,257
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,257
|
|
General
and administrative
|
|
|
—
|
|
|
|
3,261
|
|
|
|
7,135
|
|
|
|
(96
|
)
|
|
|
10,300
|
|
|
|
3
|
|
|
|
4,196
|
|
|
|
7,234
|
|
|
|
(337
|
)
|
|
|
11,096
|
|
Intersegment
expenses
|
|
|
4,419
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,419
|
)
|
|
|
—
|
|
|
|
4,290
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,290
|
)
|
|
|
—
|
|
Reimbursable
operating expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,722
|
|
|
|
9,722
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,796
|
|
|
|
10,796
|
|
Total
segment operating expenses
|
|
|
61,736
|
|
|
|
3,261
|
|
|
|
7,135
|
|
|
|
5,207
|
|
|
|
77,339
|
|
|
|
61,670
|
|
|
|
4,196
|
|
|
|
7,234
|
|
|
|
6,169
|
|
|
|
79,269
|
|
Net
operating income (loss)
|
|
|
51,341
|
|
|
|
6,046
|
|
|
|
505
|
|
|
|
(1,033
|
)
|
|
|
56,859
|
|
|
|
55,002
|
|
|
|
4,768
|
|
|
|
728
|
|
|
|
(324
|
)
|
|
|
60,174
|
|
Nonoperating
expenses(1)
|
|
|
54,349
|
|
|
|
(86
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
54,263
|
|
|
|
60,114
|
|
|
|
(76
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
60,038
|
|
Income
(loss) before equity in earnings (losses) of unconsolidated entities,
income taxes, redeemable noncontrolling interests and discontinued
operations
|
|
|
(3,008
|
)
|
|
|
6,132
|
|
|
|
505
|
|
|
|
(1,033
|
)
|
|
|
2,596
|
|
|
|
(5,112
|
)
|
|
|
4,844
|
|
|
|
728
|
|
|
|
(324
|
)
|
|
|
136
|
|
Equity
in earnings (losses) of unconsolidated entities
|
|
|
(1,406
|
)
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,410
|
)
|
|
|
(192
|
)
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(196
|
)
|
Income
(loss) before income taxes, redeemable noncontrolling interests and
discontinued operations (2)
|
|
$
|
(4,414
|
)
|
|
$
|
6,128
|
|
|
$
|
505
|
|
|
$
|
(1,033
|
)
|
|
$
|
1,186
|
|
|
$
|
(5,304
|
)
|
|
$
|
4,840
|
|
|
$
|
728
|
|
|
$
|
(324
|
)
|
|
$
|
(60
|
)
|
Total
segment assets, as of December 31, 2009 and 2008
(3)(4)
|
|
$
|
766,655
|
|
|
$
|
3,742
|
|
|
$
|
5,535
|
|
|
$
|
—
|
|
|
$
|
775,932
|
|
|
$
|
760,477
|
|
|
$
|
2,381
|
|
|
$
|
4,567
|
|
|
$
|
—
|
|
|
$
|
767,425
|
|
(1)
Nonoperating expenses include interest expense, interest income, gains (losses)
on extinguishment of debt, amortization of deferred financing costs,
depreciation, amortization of intangibles and impairment losses on assets.
Certain expenses, which are classified as operating expenses in accordance with
GAAP, are classified as nonoperating expenses for presentation purposes above
based on how management evaluates segment operating performance.
(2)
Reconciliation of segment revenues and segment net income (loss) before income
taxes, redeemable noncontrolling interests and discontinued operations to the
Trust’s consolidated revenues and net loss before income taxes, redeemable
noncontrolling interests and discontinued operations for the years
ended December 31:
|
|
|
2009
|
|
|
|
2008
|
|
Total
segment revenues
|
|
$
|
139,746
|
|
|
$
|
144,394
|
|
Elimination
of intersegment revenues
|
|
|
(5,548
|
)
|
|
|
(4,951
|
)
|
Total
consolidated revenues
|
|
|
134,198
|
|
|
|
139,443
|
|
|
|
|
|
|
|
|
|
|
Segment
net income (loss) before income taxes, redeemable noncontrolling interests
and discontinued operations
|
|
|
1,186
|
|
|
|
(60
|
)
|
Other
unallocated corporate expenses
|
|
|
(6,336
|
)
|
|
|
(6,761
|
)
|
Net
loss before income taxes, redeemable noncontrolling interests
and discontinued operations
|
|
$
|
(5,150
|
)
|
|
$
|
(6,821
|
)
|
|
|
|
|
|
|
|
|
|
(3)
Reconciliation of segment assets to the Trust’s total
assets:
|
|
|
|
|
|
|
|
|
Total
segment assets, end of period (includes goodwill of $2,149 related to
management services and $921 related to development consulting
services)
|
|
$
|
775,932
|
|
|
$
|
767,425
|
|
Unallocated
corporate amounts:
|
|
|
|
|
|
|
|
|
Cash
|
|
|
22,638
|
|
|
|
3,765
|
|
Other
assets
|
|
|
4,019
|
|
|
|
6,242
|
|
Deferred
financing costs, net
|
|
|
2,024
|
|
|
|
215
|
|
Total
assets, end of period
|
|
$
|
804,613
|
|
|
$
|
777,647
|
|
(4)
|
The
increase in segment assets related to student housing leasing is primarily
related to the development of two wholly owned student apartment
communities in Carbondale, IL and Syracuse, NY (see Note 4) offset by
the impairment loss of $1,726 recorded in 2009 (see Note
6). The increase in segment assets related to development
consulting services is primarily due to a $610 increase in operating cash
related to the timing of the receipt of project fees and a $946 net
increase in receivables for reimbursable project costs related to
development projects. The increase in segment assets related to management
services is primarily due to an increase in operating cash related to
distributions from AODC.
|
|
|
Year
Ended December 31, 2008
|
|
|
Year
Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
Student
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
Housing
|
|
|
Consulting
|
|
|
Management
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
Leasing
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
Segment
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing revenue
|
|
|
107,149
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
107,149
|
|
|
$
|
85,175
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
85,175
|
|
Student
housing food
service revenue
|
|
|
2,378
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,378
|
|
|
|
2,359
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,359
|
|
Other
leasing revenue
|
|
|
7,145
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,145
|
|
|
|
13,811
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,811
|
|
Third-party
development consulting services
|
|
|
—
|
|
|
|
8,303
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,303
|
|
|
|
—
|
|
|
|
5,411
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,411
|
|
Third-party
management services
|
|
|
—
|
|
|
|
—
|
|
|
|
3,672
|
|
|
|
—
|
|
|
|
3,672
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,391
|
|
|
|
—
|
|
|
|
3,391
|
|
Intersegment
revenues
|
|
|
—
|
|
|
|
661
|
|
|
|
4,290
|
|
|
|
(4,951
|
)
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,409
|
|
|
|
(3,409
|
)
|
|
|
—
|
|
Operating
expense reimbursements
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,796
|
|
|
|
10,796
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,330
|
|
|
|
9,330
|
|
Total
segment revenues
|
|
|
116,672
|
|
|
|
8,964
|
|
|
|
7,962
|
|
|
|
5,845
|
|
|
|
139,443
|
|
|
|
101,345
|
|
|
|
5,411
|
|
|
|
6,800
|
|
|
|
5,921
|
|
|
|
119,477
|
|
Segment
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student
housing leasing operations
|
|
|
55,120
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,120
|
|
|
|
40,798
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,798
|
|
Student
housing food service operations
|
|
|
2,257
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,257
|
|
|
|
2,236
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,236
|
|
General
and administrative
|
|
|
3
|
|
|
|
4,196
|
|
|
|
7,234
|
|
|
|
(337
|
)
|
|
|
11,096
|
|
|
|
105
|
|
|
|
2,787
|
|
|
|
6,628
|
|
|
|
—
|
|
|
|
9,520
|
|
Intersegment
expenses
|
|
|
4,290
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,290
|
)
|
|
|
—
|
|
|
|
3,409
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,409
|
)
|
|
|
—
|
|
Reimbursable
operating expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,796
|
|
|
|
10,796
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,330
|
|
|
|
9,330
|
|
Total
segment operating expenses
|
|
|
61,670
|
|
|
|
4,196
|
|
|
|
7,234
|
|
|
|
6,169
|
|
|
|
79,269
|
|
|
|
46,548
|
|
|
|
2,787
|
|
|
|
6,628
|
|
|
|
5,921
|
|
|
|
61,884
|
|
Net
operating income
|
|
|
55,002
|
|
|
|
4,768
|
|
|
|
728
|
|
|
|
(324
|
)
|
|
|
60,174
|
|
|
|
54,797
|
|
|
|
2,624
|
|
|
|
172
|
|
|
|
—
|
|
|
|
57,593
|
|
Nonoperating
expenses(1)
|
|
|
60,114
|
|
|
|
(76
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
60,038
|
|
|
|
58,007
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
58,007
|
|
Income
(loss) before equity in earnings (losses) of unconsolidated entities,
income taxes, redeemable noncontrolling interests and discontinued
operations
|
|
|
(5,112
|
)
|
|
|
4,844
|
|
|
|
728
|
|
|
|
(324
|
)
|
|
|
136
|
|
|
|
(3,210
|
)
|
|
|
2,624
|
|
|
|
172
|
|
|
|
—
|
|
|
|
(414
|
)
|
Equity
in earnings (losses) of unconsolidated entities
|
|
|
(192
|
)
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(196
|
)
|
|
|
(510
|
)
|
|
|
233
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(277
|
)
|
Income
(loss) before income taxes, redeemable noncontrolling interests and
discontinued operations (2)
|
|
$
|
(5,304
|
)
|
|
$
|
4,840
|
|
|
$
|
728
|
|
|
$
|
(324
|
)
|
|
$
|
(60
|
)
|
|
$
|
(3,720
|
)
|
|
$
|
2,857
|
|
|
$
|
172
|
|
|
$
|
—
|
|
|
$
|
(691
|
)
|
Total
segment assets, as of December 31, 2008 and 2007 (3)
|
|
$
|
760,477
|
|
|
$
|
2,381
|
|
|
$
|
4,567
|
|
|
$
|
—
|
|
|
$
|
767,425
|
|
|
$
|
751,086
|
|
|
$
|
4,528
|
|
|
$
|
6,505
|
|
|
$
|
—
|
|
|
$
|
762,119
|
|
(1)
Nonoperating expenses include interest expense, interest income, gains (losses)
on extinguishment of debt, amortization of deferred financing costs,
depreciation, amortization of intangibles and impairment losses. Certain
expenses, which are classified as operating expenses in accordance with GAAP,
are classified as nonoperating expenses for presentation purposes above based on
how management evaluates segment operating performance.
(2)
Reconciliation of segment revenues and segment net loss before income taxes,
redeemable noncontrolling interests and discontinued operations to the Trust’s
consolidated revenues and net loss before income taxes, redeemable
noncontrolling interests and discontinued operations for the years ended
December 31:
|
|
|
2008
|
|
|
|
2007
|
|
Total
segment revenues
|
|
$
|
144,394
|
|
|
$
|
122,886
|
|
Elimination
of intersegment revenues
|
|
|
(4,951
|
)
|
|
|
(3,409
|
)
|
Total
consolidated revenues
|
|
|
139,443
|
|
|
|
119,477
|
|
|
|
|
|
|
|
|
|
|
Segment
net loss before income taxes, redeemable noncontrolling interests and
discontinued operations
|
|
|
(60
|
)
|
|
|
(691
|
)
|
Other
unallocated corporate expenses
|
|
|
(6,761
|
)
|
|
|
(6,828
|
)
|
Net
loss before income taxes, redeemable noncontrolling interests
and discontinued operations
|
|
$
|
(6,821
|
)
|
|
$
|
(7,519
|
)
|
|
|
|
|
|
|
|
|
|
(3)
Reconciliation of segment assets to the Trust’s total
assets:
|
|
|
|
|
|
|
|
|
Total
segment assets, end of period (includes goodwill of $2,149 related to
management services and $921 related to development consulting
services)
|
|
$
|
767,425
|
|
|
$
|
762,119
|
|
Unallocated
corporate amounts:
|
|
|
|
|
|
|
|
|
Cash
|
|
|
3,765
|
|
|
|
298
|
|
Other
assets
|
|
|
6,242
|
|
|
|
4,377
|
|
Deferred
financing costs, net
|
|
|
215
|
|
|
|
666
|
|
Total
assets, end of period
|
|
$
|
777,647
|
|
|
$
|
767,460
|
|
12.
Related party transactions
In
October of 2007, the Operating Partnership entered into a note receivable with
University Village-Greensboro, LLC (“the LLC”) in the amount of
$845. The note was interest only through December 31, 2007 and
accrued interest at 10% per annum. On January 1, 2008, the entire
principal balance was converted to a term loan maturing on January 1, 2028 with
principal and interest of 10% per annum being repaid on a monthly basis. On
November 11, 2009, the Operating Partnership amended the note receivable
with the LLC by increasing the amount outstanding under the note to $2,021 and
revising the maturity date to December 31, 2019. The amended note
also contains provisions for the distribution of excess cash to the Operating
Partnership as defined by the agreement and limits the amount of cash
distributions available to the LLC’s owners. On the maturity date, all unpaid
principal and interest are due in full. As of December 31, 2009 and
2008, the note had an outstanding balance of $2,021 and $834,
respectively. The Operating Partnership has a 25% ownership stake in
the LLC (see Note 2) and is secured by a second deed of trust to the student
housing property; thus, the loan is subordinated to the construction debt held
by the LLC discussed in Note 16.
The Trust
incurs certain common costs on behalf of Allen & O’Hara, Inc. (“A&O”),
which is100% owned by the chairman of the board of directors of the Trust. These
costs relate to human resources, information technology, legal and certain
management personnel. The Trust allocates the costs to A&O based on time and
effort expended. Indirect costs are allocated monthly in an amount that
approximates what management believes costs would have been had A&O operated
on a stand-alone basis. For the years ended December 31, 2009, 2008 and
2007, the Trust incurred common costs on behalf of A&O in the amount of
$141, $152 and $186, respectively.
The Trust
engages A&O to procure furniture, fixtures and equipment from third party
vendors for its owned and managed properties and for third-party owners in
connection with its development consulting projects. The Trust incurs a service
fee in connection with this arrangement and the expense totaled $244 and $200
for the years ended December 31, 2009 and 2008, respectively, and less than $100
for the year ended December 31, 2007.
13.
Lease commitments and unconditional purchase obligations
The Trust
has various operating leases for furniture, office and technology equipment
which expire at varying times through fiscal year 2015. Rental expense under the
operating lease agreements totaled $593, $512 and $557, for the years ended
December 31, 2009, 2008 and 2007, respectively. Furthermore, the Trust has
entered into various contracts for advertising which will expire at varying
times through fiscal year 2010.
Future
minimum rental payments required under operating leases that have initial or
remaining noncancellable lease terms as well as future minimum payments required
under advertising contracts that have noncancellable terms in excess of one year
as of December 31, 2009 are as follows:
Year
Ending
|
|
Advertising
|
|
Leases
|
2010
|
|
$
|
49
|
|
|
$
|
3,873
|
|
2011
|
|
|
6
|
|
|
|
3,385
|
|
2012
|
|
|
2
|
|
|
|
2,537
|
|
2013
|
|
|
—
|
|
|
|
1,836
|
|
2014
|
|
|
—
|
|
|
|
704
|
|
Thereafter
|
|
|
—
|
|
|
|
250
|
|
Additionally
the Trust leases corporate office space and the agreement contains rent
escalation clauses based on pre-determined annual rate increases. The Trust
recognizes rent expense under the straight-line method over the term of the
lease. Any difference between the straight-line rent amounts and amounts payable
under the lease terms are recorded as deferred rent in accrued expenses in the
accompanying consolidated balance sheets. At December 31, 2009 and 2008,
deferred rent totaled $207 and $279, respectively.
14.
Employee savings plan
The
Trust’s eligible employees may participate in a 401(k) savings plan (the
“Plan”). Participants may contribute up to 15% of their earnings to the Plan.
Employees are eligible to participate in the Plan on the first day of the next
calendar quarter following six months of service and reaching 21 years of
age. Additionally a matching contribution of 50% is provided on eligible
employees’ contributions up to the first 3% of compensation. Employees vest in
the matching contribution over a 3-year period. Matching contributions were
approximately $191, $198 and $168 for the years ended December 31, 2009, 2008
and 2007, respectively.
15.
Accrued expenses
Accrued
expenses consist of the following at December 31, 2009 and
2008:
|
|
2009
|
|
|
2008
|
|
Payroll
|
|
$
|
2,424
|
|
|
$
|
2,473
|
|
Real
estate taxes
|
|
|
3,715
|
|
|
|
3,548
|
|
Interest
|
|
|
1,618
|
|
|
|
1,158
|
|
Utilities
|
|
|
1,170
|
|
|
|
1,095
|
|
Other
|
|
|
2,496
|
|
|
|
2,028
|
|
Total
accrued expenses
|
|
$
|
11,423
|
|
|
$
|
10,302
|
|
16.
Commitments and contingencies
In
June 2001, the previous owner of one of our properties received
notification from the United States Department of Justice of an on-going
investigation regarding possible violations of the American Disabilities Act of
1990 and the Fair Housing Amendments Act of 1988. In October 2002, the
investigations were delayed for an undetermined period of time and therefore
such has not been fully resolved. Management does not believe the resolution of
this matter will result in a material adverse effect on the Trust’s consolidated
financial statements.
The
Operating Partnership entered into a letter of credit agreement in conjunction
with the closing of the acquisition of a student housing property at the
University of Florida. The letter of credit remains outstanding in the amount of
$1,500 at December 31, 2009 and is secured by the Second Amended
Revolver.
On
May 10, 2006, the Operating Partnership guaranteed $23,200 of construction
debt held by University Village – Greensboro LLC (“LLC”) in order to receive a
25% ownership stake in the venture with College Park Apartments. The debt
matures on May 10, 2011. Construction was completed, and the student housing
community occupied in August 2007. The Operating Partnership has determined that
it will not guarantee the debt after the construction loan is refinanced. The
debt has an outstanding balance of $22,870 at December 31, 2009. On October
30, 2008, the LLC borrowed an additional $1,200, which was also guaranteed by
the Operating Partnership that was repaid on November 10, 2009. The Operating
Partnership loaned the LLC an additional $1,200 in order to repay this loan by
increasing the note receivable due to the Operating Partnership to $2,021 and
amending the maturity date to December 31, 2019 as discussed in Note
12.
Additionally,
three of the Trust’s other investments in unconsolidated entities have
outstanding mortgage indebtedness totaling $87,850 at December 31,
2009.
As owners
and operators of real estate, environmental laws impose ongoing compliance
requirements on the Trust. The Trust is not aware of any environmental matters
or liabilities with respect to the student housing properties that would have a
material adverse effect on the Trust’s consolidated financial
statements.
In the
normal course of business, the Trust is subject to claims, lawsuits and legal
proceedings. While it is not possible to ascertain the ultimate outcome of such
matters, in management’s opinion, the liabilities, if any, in excess of amounts
provided or covered by insurance, are not expected to have a material adverse
effect on our consolidated financial statements.
Under the
terms of the University Towers Partnership agreement so long as the contributing
owners of such property hold at least 25% of the University Towers Partnership
units, the Trust has agreed to maintain certain minimum amounts of debt on the
property to avoid triggering gain to the contributing owners. If the Trust fails
to do this, the Trust will owe to the contributing owners the amount of taxes
they incur.
Under the
terms of the purchase agreement with Place Properties, the Trust remains a party
to a tax indemnification agreement whereby a payment could be required to be
made to the former owner if any properties are sold within five years of
the purchase date. The contingency expires in January
2011.
The
Operating Partnership entered into a letter of credit agreement to the benefit
of the lender in conjunction with the termination of the lease with Place on
February 1, 2008. The letter of credit remains outstanding in the amount of $500
at December 31, 2009 and is secured by the Second Amended
Revolver.
After
being awarded a development consulting contract, the Trust will enter
predevelopment consulting contracts with educational institutions to develop
student housing properties on their behalf. The Trust will enter
reimbursement agreements that provide for the Trust to be reimbursed for the
predevelopment costs incurred prior to the institution’s governing body formally
approving the final development contract. At December 31, 2009 and
2008, the Trust had recorded $1,563 and $965, respectively, of predevelopment
costs which are reflected in other assets in the accompanying consolidated
balance sheets (see Note 7).
17.
Quarterly financial information (unaudited)
Quarterly
financial information for the years ended December 31, 2009 and 2008 is
summarized below:
2009
|
|
1st Quarter
|
|
|
2nd Quarter
|
|
|
3rd Quarter
|
|
|
4th Quarter
|
|
|
Total
|
|
Revenues
|
|
$
|
33,869
|
|
|
$
|
31,985
|
|
|
$
|
32,502
|
|
|
$
|
35,842
|
|
|
$
|
134,198
|
|
Operating
expenses (1)
|
|
|
26,518
|
|
|
|
25,916
|
|
|
|
33,045
|
|
|
|
28,127
|
|
|
|
113,606
|
|
Nonoperating
expenses (2)
|
|
|
6,604
|
|
|
|
5,433
|
|
|
|
6,373
|
|
|
|
5,922
|
|
|
|
24,332
|
|
Equity
in earnings (losses) of unconsolidated entities (3)
|
|
|
100
|
|
|
|
46
|
|
|
|
(152
|
)
|
|
|
(1,404
|
)
|
|
|
(1,410
|
)
|
Income
taxes expense
|
|
|
(188
|
)
|
|
|
(502
|
)
|
|
|
(513
|
)
|
|
|
(717
|
)
|
|
|
(1,920
|
)
|
Noncontrolling
interests
|
|
|
(210
|
)
|
|
|
53
|
|
|
|
200
|
|
|
|
(207
|
)
|
|
|
(164
|
)
|
Discontinued
operations (6)
|
|
|
(16
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(21
|
)
|
Net
income (loss) attributable to Education Realty Trust, Inc.
|
|
$
|
433
|
|
|
$
|
231
|
|
|
$
|
(7,384
|
)
|
|
$
|
(535
|
)
|
|
$
|
(7,255
|
)
|
Net
income (loss) per share-basic and diluted
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.18
|
)
|
2008
|
|
1st Quarter
|
|
|
2nd Quarter
|
|
|
3rd Quarter
|
|
|
4th Quarter
|
|
|
Total
|
|
Revenues
|
|
$
|
34,212
|
|
|
$
|
36,828
|
|
|
$
|
32,333
|
|
|
$
|
36,070
|
|
|
$
|
139,443
|
|
Operating
expenses(4)
|
|
|
26,753
|
|
|
|
27,165
|
|
|
|
32,418
|
|
|
|
29,524
|
|
|
|
115,860
|
|
Nonoperating
expenses(5)
|
|
|
6,289
|
|
|
|
6,221
|
|
|
|
6,519
|
|
|
|
11,179
|
|
|
|
30,208
|
|
Equity
in earnings (losses) of unconsolidated entities
|
|
|
(1
|
)
|
|
|
(26
|
)
|
|
|
(196
|
)
|
|
|
27
|
|
|
|
(196
|
)
|
Income
taxes (expense)/benefit
|
|
|
(191
|
)
|
|
|
18
|
|
|
|
(709
|
)
|
|
|
(241
|
)
|
|
|
(1,123
|
)
|
Noncontrolling
interests
|
|
|
(97
|
)
|
|
|
(74
|
)
|
|
|
329
|
|
|
|
(30
|
)
|
|
|
128
|
|
Discontinued
operations (6)
|
|
|
8
|
|
|
|
(42
|
)
|
|
|
(79
|
)
|
|
|
(18
|
)
|
|
|
(131
|
)
|
Net
income (loss) attributable to Education Realty Trust, Inc.
|
|
$
|
889
|
|
|
$
|
3,318
|
|
|
$
|
(7,259
|
)
|
|
$
|
(4,895
|
)
|
|
$
|
(7,947
|
)
|
Net
income (loss) per share-basic and diluted
|
|
$
|
0.03
|
|
|
$
|
0.12
|
|
|
$
|
(0.26
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.28
|
)
|
(1)
Operating expenses in the 4th quarter
of 2009 include a $1,726 impairment loss.
(2)
Nonoperating expenses in the 2nd quarter
of 2009 include a $830 gain on extinguishment of debt.
(3)
Equity in earnings for the 4th quarter
of 2009 includes the Trust’s share of an impairment loss of student housing
assets recorded by one of the joint ventures in the amount of
$1,447.
(4)
Operating expenses in the 4th quarter
of 2008 include a $2,021 impairment loss.
(5)
Nonoperating expenses in the 4th quarter
of 2008 include a $4,360 loss on the early retirement of debt.
(6) All
quarterly information presented above for 2009 and 2008 reflects the
classification of College Station’s financial results as discontinued
operations. The property was sold during 2009.
18.
Subsequent events
On
January 8, 2010, our board of directors declared a fourth quarter distribution
of $0.05 per share of common stock for the quarter ended on December 31, 2009.
The distribution is payable on February 15, 2010 to stockholders of record at
the close of business on January 29, 2010.
Subsequent
to December 31, 2009, the Company violated the change in control provision
contained in the Master Secured Credit Facility due to changes in senior
management. The Company amended the Master Secured Credit Facility to
change the definition of change in control prospectively and obtained a waiver
of the event of default from the creditor.
None.
Disclosure
Controls and Procedures
The Trust
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Trust’s filings under the Securities
Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and to
ensure that such information is accumulated and communicated to the Trust’s
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. The
Trust also has investments in unconsolidated entities which are not under its
control. Consequently, the Trust’s disclosure controls and procedures with
respect to these entities are necessarily more limited than those it maintains
with respect to its consolidated subsidiaries.
Our
management, with the participation of our principal executive officer and
financial officers, has evaluated the effectiveness of the design and operation
of the Trust’s disclosure controls and procedures pursuant to
Rule 13a-15(e) and 15d-15(e) of the Exchange Act. Based on their evaluation
as of December 31, 2009, our Chief Executive Officer and Chief Financial
Officer have concluded that the Trust’s disclosure controls and procedures were
effective to ensure that information required to be disclosed by the Trust in
the Trust’s Exchange Act filings is recorded, processed, summarized and reported
within the time periods specified in the applicable SEC rules and
forms.
Changes
in Internal Control Over Financial Reporting
During
the quarter ended December 31, 2009, the Trust continued with the
implementation of a financial reporting analyses package. There were no other
changes in the Trust’s internal control over financial reporting that materially
affected, or are reasonably likely to materially affect, the Trust’s internal
control over financial
reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange
Act).
Management’s
Report on Internal Control Over Financial Reporting
Management’s
report on our internal control over financial reporting is included in Item 8,
Financial Statements and
Supplementary Data, of this Annual Report on Form 10-K.
Amendment
of Master Secured Credit Facility
As of
December 31, 2009, the Trust was in compliance with all covenants related to our
Master Secured Credit Facility. Due to certain changes in senior management of
the Trust, as of February 13, 2010, the Trust was not in compliance with the
change of control provisions of the Master Secured Credit Facility. Though it
provided no notice of such non-compliance, the lender retroactively waived any
event of default arising from such non-compliance. On February 25, 2010, we
amended our Master Secured Credit Facility to (i) modify the definition of
“Change of Control” to delete the requirements related to certain individuals
holding positions of senior management of the Trust and (ii) provide that we
will give the lender notice of any change in the individuals holding the offices
of Chief Executive Officer or Chief Financial Officer of the Trust within ten
(10) days of such change. The remaining terms and conditions of the Master
Secured Credit Facility remain unchanged.
The
foregoing description of the amendments to the Master Secured Credit Facility
does not purport to be complete and is qualified in its entirety by reference to
the full text of Amendment No. 1 to the Master Secured Credit Facility, a copy
of which is filed herewith as Exhibit 10.45 to this Annual Report and which is
incorporated herein by reference.
Adoption
of Education Realty Trust, Inc. 2010 Long-Term Incentive Plan
On March
11, 2010, the Compensation Committee adopted the 2010 Long-Term Incentive Plan
(the “LTIP”). The purposes of the LTIP are to attract, retain and motivate the
executive officers and certain key employees of the Trust (the “Participants”)
and to promote the long-term growth and profitability of the Trust. Awards under
the LTIP will be made pursuant to the Trust’s 2004 Incentive Plan and will
consist of a mixture of time vested restricted stock and performance vested
restricted stock units.
Restricted
Stock (Time Vested)
One-half
(1/2) of a Participant’s award will consist of a grant of restricted shares of
the Trust’s common stock (“Restricted Stock”). The Restricted Stock will vest in
three equal annual installments as long as the Participant is an employee of the
Trust on the vesting date. The Restricted Stock is entitled to voting and
dividend rights from the effective date of the grant but is not transferable by
the Participant until such shares have vested in accordance with the terms of
the Participant’s Restricted Stock Award Agreement (the “RSA
Agreement”).
In the
event of a “Change of Control” (as defined in the LTIP) of the Trust, a
termination of the Participant’s employment by the Trust without “Cause” (as
defined in the LTIP) or a termination of employment by the Participant for “Good
Reason” (as defined in the LTIP), all unvested shares of Restricted Stock will
accelerate and be fully vested and delivered to the Participant. Unvested shares
of Restricted Stock will also vest in the event of termination of the
Participant’s employment due to death or “Disability” (as defined in the
LTIP).
Restricted Stock Units (Performance
Shares)
The
remaining one-half (1/2) of a Participant’s award will consist of a grant of
restricted stock units (“RSUs”) with each RSU representing the right to receive
in the future one share of the Trust’s common stock. The vesting of RSUs is
based upon the Trust’s achievement of total stockholder returns in relation to
the average total stockholder return of a peer group over the period beginning
January 1, 2010 to January 1, 2013 (the “Performance Period”). RSUs granted to
Participants will be subject to the terms and conditions of the Participant’s
Restricted Stock Unit Award Agreement (“RSU Agreement”).
The
Compensation Committee will grant RSUs to each Participant equal to the number
of shares that such Participant would earn if “maximum performance” were
achieved. The Compensation Committee will determine whether and to what extent
the performance goal has been met at the end of the Performance Period (the
“Determination Date”). RSUs will be converted into shares of common stock based
upon the Trust’s achievement of the “threshold,” “target” or “maximum” total
stockholder return performance goals on the Determination Date. Only the number
of RSUs that equate to actual performance, as determined by the Compensation
Committee pursuant to Schedule A of the LTIP, will be eligible to vest (such
RSUs that satisfy the performance goals on the Determination Date are referred
to as “Eligible Shares”) and convert to fully vested shares of common stock, as
further set forth in the applicable Restricted Stock Unit Award Agreement. After
the Determination Date, any RSUs that are not converted into Eligible Shares
will be forfeited by the Participant.
No
dividend payments will accrue or be paid with respect to any RSUs. If the
performance goals are met, a Participant will earn dividends on the Eligible
Shares and will have voting rights with respect to the Eligible
Shares.
Termination
of a Participant’s employment prior to the end of the Performance Period will
result in the forfeiture of the RSUs by the Participant, and no payments will be
made with respect thereto; provided, however, that, if Participant’s employment
is terminated prior to the end of the Performance Period as a result of
Participant’s death or Disability, the Compensation Committee will determine the
number of RSUs that will convert to Eligible Shares by (i) applying the
performance criteria set forth in the LTIP using the effective date of the
Disability or the date of death, as applicable, and (ii) multiplying the number
of Eligible Shares so determined by 0.3333, 0.6667 or 1.0 if the if the death or
Disability occurs in 2010, 2011 or 2012, respectively.
If a
Change of Control occurs prior to the end of the Performance Period, the
Compensation Committee will determine the number of RSUs that will convert to
Eligible Shares by (i) applying the performance criteria set forth in the LTIP
using the effective date of the Change of Control as the end of the Performance
Period, and by proportionately adjusting the performance criteria for such
shortened Performance Period, and (ii) multiplying the number of Eligible Shares
by 0.3333, 0.6667 or 1 if the Change of Control occurs in 2010, 2011 or 2012,
respectively.
The
foregoing description of the LTIP, the Restricted Stock Award Agreement and the
Restricted Stock Unit Award Agreement does not purport to be complete and is
qualified in its entirety by reference to the full text of the LTIP, the form of
RSA Agreement and the form of RSU Agreement, copies of which are filed herewith
as Exhibits 10.40, 10.41 and 10.42, respectively, to this Annual Report and
which are incorporated herein by reference.
Amendment
to 2004 Incentive Plan
On March
11, 2010, the Compensation Committee adopted an amendment to the 2004 Incentive
Plan which excludes “Restricted Stock Awards” (as defined in the 2004 Incentive
Plan) from the annual limitation of 100,000 shares of common stock that an
individual may receive pursuant to “Incentive Awards” (as defined in the 2004
Incentive Plan) granted to such individual (the “Annual Limitation Amendment”).
The Annual Limitation Amendment has no effect on the total number of shares of
common stock available for issuance under the 2004 Incentive Plan, has no
dilutive effect upon the stockholders of the Trust and has no effect on the
Trust’s ability to avail itself of the beneficial federal income tax treatment
afforded by Section 162(m) of the Code with respect to “performance-based”
compensation. The remaining terms and conditions of the 2004 Incentive Plan
remain unchanged.
The
foregoing description of the Annual Limitation Amendment does not purport to be
complete and is qualified in its entirety by reference to the full text of
Amendment No.1 to the 2004 Incentive Plan, a copy of which is filed herewith as
Exhibit 10.47 to this Annual Report and which is incorporated herein by
reference.
Amendment
of Education Realty Trust, Inc. Incentive Compensation Plan For Executive
Officers
On
March 11, 2010, the Compensation Committee adopted an amendment to the Education
Realty Trust, Inc. Incentive Compensation Plan for executive officers (the
“Incentive Plan”) which provides that budgeted funds from operations-adjusted
will serve as the performance metric for determining financial achievement of
quantitative goals at the consolidated Trust level for annual incentive cash
bonus awards granted to executive officers of the Trust. The Trust
previously used budgeted pre-tax net operating income as the performance metric
for establishing the payout applicable to the Trust performance component of
such annual incentive cash bonus awards. The remaining terms and conditions of
the Incentive Plan remain unchanged.
The
foregoing description of the amendment to the Incentive Plan does not purport to
be complete and is qualified in its entirety by reference to the full text of
the Incentive Plan, a copy of which is filed herewith as Exhibit 10.38 to this
Annual Report and which is incorporated herein by reference.
Retirement
of Thomas J. Hickey
On March
15, 2010, the Trust and Thomas J. Hickey mutually agreed that Mr. Hickey would
receive a reduced annual base salary of $140,000 effective as of March 1, 2010
(the “Reduction”) and would retire from his employment with the Trust effective
May 1, 2010 (the “Retirement Date”) in order to afford Mr. Hickey the
opportunity to devote more time to his other interests outside of the
Trust.
In
connection with the foregoing actions, Mr. Hickey has entered into an Amendment,
Waiver and Retirement Agreement with the Trust (the “Retirement Agreement”).
Additionally, as required by Section 6(b) of Mr. Hickey’s Amended and Restated
Executive Employment dated October 29, 2008 (the “Employment Agreement”), a copy
of which was filed as Exhibit 10.5 to the Trust’s Quarterly Report on Form 10-Q
filed on November 4, 2008 and which is incorporated herein by reference, Mr.
Hickey has agreed to execute a Release on the Retirement Date, the form of which
is included as Exhibit A to the Retirement Agreement.
Pursuant
to the Retirement Agreement, the Trust will pay Mr. Hickey: (i) all accrued but
unpaid wages and vacation through the Retirement Date based upon the Reduction,
(ii) all approved, but unreimbursed, business expenses, and (iii) any COBRA
continuation coverage premiums required for the coverage of Mr. Hickey and his
eligible dependents under the Trust’s major medical group health plan for a
period of up to eighteen (18) months. In addition, the Trust will pay Mr. Hickey
a severance payment in the amount of $171,000 payable over a period
of twelve (12) months, in accordance with the Trust’s regular payroll
practices. In consideration of these payments, Mr. Hickey has agreed that, on
the Retirement Date, he will execute the Release which will serve as a general
release of potential claims against the Trust and certain of its related parties
as of the Retirement Date.
Additionally,
Mr. Hickey has acknowledged that all payments and benefits to be received under
the Retirement Agreement are conditioned upon (i) his execution and
non-revocation of the Retirement Agreement and the Release and (ii) his
continued compliance with the restrictive covenants set forth in Sections
8(f)-(i) of the Employment Agreement and any and all other post-termination
obligations set forth in the Employment Agreement, Retirement Agreement and
Release.
The
foregoing description of the Retirement Agreement and the Release does not
purport to be complete and is qualified in its entirety by reference to the full
text of the Retirement Agreement and the Release, copies of which are filed
herewith as Exhibit 10.16 to this Annual Report and which are incorporated
herein by reference.
The
information required by this Item will be presented in the Trust’s definitive
proxy statement for the annual meeting of stockholders to be held on
May 19, 2010, which will be filed with the Securities and Exchange
Commission and is incorporated herein by reference.
The
information required by this Item will be presented in the Trust’s definitive
proxy statement for the annual meeting of stockholders to be held on
May 19, 2010, which will be filed with the Securities and Exchange
Commission and is incorporated herein by reference.
The
following table provides information with respect to compensation plans under
which our equity securities are authorized for issuance as of December 31,
2009.
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
|
|
|
|
Future Issuance under
|
|
|
|
|
|
|
|
Equity Compensation
|
|
Plan Category
|
|
of Outstanding Options, Warrants and Rights(1)
|
|
Outstanding Options Warrants and Rights(1)(2)
|
|
Plans (excluding securities
reflected in column (a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity compensation plans approved by security
holders
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
629,000( |
3)
|
Equity
compensation plans not approved by security holders
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A( |
2)
|
Total
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
629,000
|
|
(1)
|
Does not include
27,000 shares of restricted stock that are subject to vesting requirements
and 275,000 PIUs which were issued through EDR’s 2004 Incentive
Plan. As
of February 21, 2010, each of the remaining 27,000 shares of restricted
common stock had fully vested and were no longer subject to restriction.
For a more detailed discussion of PIUs, see Note 9, “Incentive Plans,” to
our accompanying consolidated financial
statements.
|
|
|
(2)
|
Does
not include 50,000 shares of restricted common stock which were granted to
Randall Churchey on January 12, 2010 pursuant to an inducement
award. For a more detailed discussion of the inducement award,
see “Item 5 – Market For Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities – Recent Sales of
Unregistered Securities”
above.
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|
|
(3)
|
The
2004 Incentive Plan initially reserved 800,000 shares of our common stock
for issuance under the plan. The amount of
shares may be increased annually on January 1st of each year so
that the total number of shares reserved under the 2004 Incentive Plan is
equal to 4% of the aggregate number of shares outstanding on the last day
of the preceding fiscal year; provided that such annual increase generally
may not exceed 80,000 shares.
|
The
remaining information required by this Item will be presented in the Trust’s
definitive proxy statement for the annual meeting of stockholders to be held on
May 19, 2010, which will be filed with the Securities and Exchange
Commission and is incorporated herein by reference.
The
information required by this Item will be presented in the Trust’s definitive
proxy statement for the annual meeting of stockholders to be held on
May 19, 2010, which will be filed with the Securities and Exchange
Commission and is incorporated herein by reference.
The
information required by this Item will be presented in the Trust’s definitive
proxy statement for the annual meeting of stockholders to be held on
May 19, 2010, which will be filed with the Securities and Exchange
Commission and is incorporated herein by reference.
(a) List
of Documents Filed.
1. Financial
Statements
All
financial statements as set forth under Item 8 of this Annual Report on Form
10-K.
2. Financial Statement
Schedules
All
schedules required are included in the financial statements and notes
thereto.
3. Exhibits
The list
of exhibits filed as part of this Annual Report on Form 10-K is submitted in the
Exhibit Index in response to Item 601 of
Regulation S-K.
(b) Exhibits.
The
exhibits filed in response to Item 601 of Regulation S-K are listed on
the Exhibit Index attached hereto.
(c) None.
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.
|
|
Education
Realty Trust, Inc.
|
|
|
By:
|
|
/s/ Randy Churchey
|
|
|
|
|
Randy
Churchey
|
|
|
|
|
President,
Chief Executive Officer and
Director
|
Date:
March 15, 2010
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacity and on the dates indicated.
Signature
|
|
Date
|
|
|
|
/s/ Randy Churchey
|
|
March
15, 2010
|
Randy
Churchey
|
|
|
President,
Chief Executive Officer and Director (Principal Executive
Officer)
|
|
|
|
|
|
/s/ Randall H. Brown
|
|
March
15, 2010
|
Randall
H. Brown
|
|
|
Executive
Vice President, Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer)
|
|
|
|
|
|
/s/ J. Drew Koester
|
|
March
15, 2010
|
J.
Drew Koester
|
|
|
Vice
President , Assistant Secretary and Chief Accounting Officer (Principal
Accounting Officer)
|
|
|
|
|
|
/s/Paul O. Bower
|
|
March
15, 2010
|
Paul
O. Bower
Chairman
of the Board of Directors
|
|
|
|
|
|
/s/ Monte J. Barrow
|
|
March
15, 2010
|
Monte
J. Barrow
|
|
|
Director
|
|
|
|
|
|
/s/
William J. Cahill, III
|
|
March
15, 2010
|
William
J. Cahill, III
|
|
|
Director
|
|
|
|
|
|
/s/
John L. Ford
|
|
March
15, 2010
|
John
L. Ford
|
|
|
Director
|
|
|
|
|
|
/s/
Howard A. Silver
|
|
March
15, 2010
|
Howard
A. Silver
Director
|
|
|
|
|
|
/s/
Wendell W. Weakley
|
|
March
15, 2010
|
Wendell
W. Weakley
|
|
|
Director
|
|
|
INDEX
TO EXHIBITS
Exhibit
|
|
|
Number
|
|
Description
|
3.1
|
|
Second
Articles of Amendment and Restatement of Education Realty Trust, Inc.
(Incorporated by reference to Exhibit 3.1 to the Trust’s Amendment
No. 2 to its Registration Statement on Form S-11 (File
No. 333-119264), filed on December 10, 2004.)
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws of Education Realty Trust, Inc. (Incorporated by
reference to Exhibit 3.2 to the Trust’s Current Report on
Form 8-K, filed on February 20, 2009.)
|
|
|
|
4.1
|
|
Form
of Certificate for Common Stock of Education Realty Trust, Inc., filed
herewith.
|
|
|
|
10.1
|
|
Amended
and Restated Agreement of Limited Partnership of Education Realty
Operating Partnership, LP. (Incorporated by reference to Exhibit 10.1 to
the Trust’s Annual Report on Form 10-K, filed on March 16,
2009.)
|
|
|
|
10.2
|
|
First
Amendment to the Amended and Restated Agreement of Limited Partnership of
Education Realty Operating Partnership, LP. (Incorporated by reference to
Exhibit 10.2 to the Trust’s Quarterly Report on Form 10-Q, filed on August
1, 2008.)
|
|
|
|
10.3
|
|
Amended
and Restated Agreement of Limited Partnership of University Towers
Operating Partnership, LP. (Incorporated by reference to Exhibit 10.2
to the Trust’s Registration Statement on Form S-11 (File No.
333-119264), filed on September 24, 2004.)
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|
|
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10.4(1)
|
|
Education
Realty Trust, Inc. 2004 Incentive Plan. (Incorporated by reference to
Exhibit 10.3 to the Trust’s Amendment No. 4 to its Registration
Statement on Form S-11 (File No. 333-119264), filed on
January 11, 2005.)
|
|
|
|
10.5
|
|
Form
of Indemnification Agreement between Education Realty Trust, Inc. and its
directors and officers. (Incorporated by reference to Exhibit 10.4 to
the Trust’s Amendment No. 1 to its Registration Statement on Form
S-11 (File No. 333-119264), filed on November 4,
2004.)
|
|
|
|
10.6(1)
|
|
Executive
Employment Agreement between Education Realty Trust, Inc. and Randall L.
Churchey, effective as of January 1, 2010. (Incorporated by reference to
Exhibit 10.1 to the Trust’s Current Report on Form 8-K, filed on January
12, 2010.)
|
|
|
|
10.7(1)
|
|
Amended
and Restated Executive Employment Agreement between Education Realty
Trust, Inc. and Paul O. Bower, dated as of October 29, 2008. (Incorporated
by reference to Exhibit 10.1 to the Trust’s Quarterly Report on
Form 10-Q, filed on November 4, 2008.)
|
|
|
|
10.8(1)
|
|
Amended
and Restated Executive Employment Agreement between Education Realty
Trust, Inc. and Randall H. Brown, dated as of October 29, 2008.
(Incorporated by reference to Exhibit 10.2 to the Trust’s Quarterly
Report on Form 10-Q, filed on November 4,
2008.)
|
10.9(1)
|
|
Amended
and Restated Executive Employment Agreement between Education Realty
Trust, Inc. and William W. Harris, dated as of October 29, 2008.
(Incorporated by reference to Exhibit 10.6 to the Trust’s Quarter
Report on Form 10-Q, filed on November 4,
2008.)
|
|
|
|
10.10
(1)
|
|
Amended
and Restated Executive Employment Agreement between Education Realty
Trust, Inc. and Thomas Trubiana, dated as of October 29, 2008.
(Incorporated by reference to Exhibit 10.9 to the Trust’s Annual Report on
Form 10-K, filed on March 16, 2009.)
|
|
|
|
10.11
(1)
|
|
Executive
Employment Agreement between Education Realty Trust, Inc. and J. Drew
Koester, dated as of October 29, 2008. (Incorporated by reference to
Exhibit 10.7 to the Trust’s Quarterly Report on Form 10-Q, filed on
November 4, 2008.)
|
|
|
|
10.12(1)
|
|
Amended
and Restated Executive Employment Agreement between Education Realty
Trust, Inc. and Thomas J. Hickey, dated as of October 29, 2008.
(Incorporated by reference to Exhibit 10.5 to the Trust’s Quarterly
Report on Form 10-Q, filed on November 4,
2008.)
|
|
|
|
10.13(1)
|
|
Amended
and Restated Employment Agreement between Education Realty Trust, Inc. and
Craig L. Cardwell, dated as of October 29, 2008. (Incorporated by
reference to Exhibit 10.3 to the Trust’s Quarterly Report on
Form 10-Q, filed on November 4, 2008.)
|
|
|
|
10.14
(1)
|
|
Restricted
Stock Award Agreement between Education Realty Trust, Inc. and Randall L.
Churchey, dated as of January 12, 2010 (Incorporated by reference to
Exhibit 10.2 to the Trust’s Current Report on Form 8-K, filed on January
12, 2010.)
|
|
|
|
10.15
(1)
|
|
Separation
and Release Agreement by and between Craig L. Cardwell and Education
Realty Trust, Inc., dated as of February 1, 2010 (Incorporated by
reference to Exhibit 10.1 to the Trust’s Current Report on Form 8-K, filed
on February 2, 2010.)
|
|
|
|
10.16
(1)
|
|
Amendment,
Waiver and Retirement Agreement by and between Education Realty Trust,
Inc. and Thomas J. Hickey, dated as of March 15, 2010, filed
herewith.
|
|
|
|
10.17
|
|
Contribution
Agreement dated as of September 24, 2004, by and among University
Towers Operating Partnership, LP, Allen & O’Hara, Inc., Paul O. Bower,
Clyde C. Porter, Robert D. Bird, Thomas J. Hickey, Barbara S. Hays and
Hays Enterprises III, Ltd. (Incorporated by reference to Exhibit 10.8
to the Trust’s Amendment No. 2 to its Registration Statement on Form
S-11 (File No. 333-119264), filed on December 10,
2004.)
|
|
|
|
10.18
|
|
Contribution
Agreement dated as of September 20, 2004, by and between Melton E.
Valentine, Jr. and University Towers Operating Partnership, LP.
(Incorporated by reference to Exhibit 10.9 to the Trust’s Amendment
No. 2 to its Registration Statement on Form S-11 (File No.
333-119264), filed on December 10, 2004.)
|
|
|
|
10.19
|
|
Contribution
Agreement dated September 20, 2004, by and among Allen & O’Hara
Educational Properties, LLC, Allen & O’Hara, Inc., Thomas J. Hickey,
Craig L. Cardwell, Randall H. Brown, William W. Harris, Wallace L. Wilcox
and Education Realty Operating Partnership, LP. (Incorporated by reference
to Exhibit 10.10 to the Trust’s Registration Statement on Form S-11
(File No. 333-119264), filed on September 24,
2004.)
|
10.20
|
|
Agreement
and Plan of Merger dated September 20, 2004 by and among C Station,
L.L.C., Allen & O’Hara, Inc., Paul O. Bower, Craig L. Cardwell,
Student Management Associates, LLC, Thomas J. Hickey, Randall H. Brown,
William W. Harris, Wallace L. Wilcox, EDR C Station, LLC and Education
Realty Operating Partnership, LP. (Incorporated by reference to
Exhibit 10.11 to the Trust’s Amendment No. 2 to its Registration
Statement on Form S-11 (File No. 333-119264), filed on
December 10, 2004.)
|
|
|
|
10.21
|
|
Agreement
and Plan of Merger dated September 20, 2004, by and among Allen &
O’Hara Education Services, LLC, Allen & O’Hara, Inc., Student
Management Associates, LLC, Thomas J. Hickey, Craig L. Cardwell, Randall
H. Brown, William W. Harris, Wallace L. Wilcox, Allen & O’Hara
Education Services, Inc., and Education Realty Operating Partnership, LP.
(Incorporated by reference to Exhibit 10.12 to the Trust’s Amendment
No. 2 to its Registration Statement on Form S-11 (File
No. 333-119264), filed on December 10, 2004.)
|
|
|
|
10.22
|
|
Contract
of Sale/Contribution made effective as of September 17, 2004, among
JPI-CG Mezz LLC, JPI-MC Mezz LLC, JPI Genpar Realty LLC, JPI Investment
Company, L.P. and Education Realty Operating Partnership, LP.
(Incorporated by reference to Exhibit 10.13 to the Trust’s Amendment
No. 2 to its Registration Statement on Form S-11 (File
No. 333-119264), filed on December 10, 2004.)
|
|
|
|
10.
23
|
|
Contract
of Sale made effective as of September 17, 2004, between Jefferson
Commons — Lawrence, L.P., Jefferson Commons — Wabash, L.P. and Education
Realty Operating Partnership, LP. (Incorporated by reference to
Exhibit 10.14 to the Trust’s Amendment No. 2 to its Registration
Statement on Form S-11 (File No. 333-119264), filed on
December 10, 2004.)
|
|
|
|
10.24
|
|
Contract
of Sale/Contribution made effective as of September 17, 2004, between
Jefferson Commons — Tucson Phase II Limited Partnership, Jefferson Commons
— Columbia, L.P. and Education Realty Operating Partnership, LP.
(Incorporated by reference to Exhibit 10.15 to the Trust’s Amendment
No. 2 to its Registration Statement on Form S-11 (File
No. 333-119264), filed on December 10, 2004.)
|
|
|
|
10.25
|
|
Contribution
Agreement dated September 23, 2004 by and among Allen & O’Hara
Educational Properties, LLC, FSPP Education I, L.L.C., FSPP Education II,
L.L.C., Allen & O’Hara, Inc., Thomas J. Hickey, Craig L. Cardwell,
Randall H. Brown, William W. Harris, Wallace L. Wilcox and Education
Realty Operating Partnership, LP. (Incorporated by reference to
Exhibit 10.16 to the Trust’s Amendment No. 2 to its Registration
Statement on Form S-11 (File No. 333-119264), filed on
December 10, 2004.)
|
|
|
|
10.26
|
|
Purchase
and Sale Agreement dated August 27, 2004 by and between The Gables,
LLC and Education Realty Operating Partnership, LP. (Incorporated by
reference to Exhibit 10.20 to the Trust’s Registration Statement on
Form S-11 (File No. 333-119264), filed on September 24,
2004.)
|
10.27
|
|
Second
Amendment to Contribution Agreement, dated January 6, 2006, by and
between Place Properties, L.P., Place Mezz Borrower, LLC and Education
Realty Operating Partnership, LP. (Incorporated by reference to
Exhibit 10.1 to the Trust’s Current Report on Form 8-K filed on
January 12, 2006.)
|
|
|
|
10.28
|
|
Required
Repair Escrow Agreement, dated as of January 1, 2006, by and between
Place Properties, L.P., Place Mezz Borrower, LLC, Education Realty
Operating Partnership, LP and Chicago Title Insurance Company.
(Incorporated by reference to Exhibit 10.2 to the Trust’s Current
Report on Form 8-K filed on January 12,
2006.)
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10.29
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Lease
Agreement, dated as of January 1, 2006, by and between Education Realty
Operating Partnership, LP and Place Portfolio Lessee, LLC. (Incorporated
by reference to Exhibit 10.3 to the Trust’s Current Report on Form 8-K
filed on January 12, 2006.)
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10.30
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Consent,
Ratification, Assumption and Release Agreement made effective as of
January 6, 2006, by and among Cape Place (DE), LLC, Martin Place
(DE), LLC, Clayton Place (DE), LLC, Macon Place (DE), LLC, River Place
(DE), LLC, Jacksonville Place (DE), LLC, Clemson Place (DE), LLC, Troy
Place (DE), LLC, Murray Place (DE), LLC, EDR Lease Holdings, LLC, Cecil M.
Philips, Place Properties, L.P., Education Realty Operating Partnership,
LP, and LaSalle Bank, National Association, as Trustee. (Incorporated by
reference to Exhibit 10.1 to the Trust’s Current Report on
Form 8-K/A filed on January 25, 2006.)
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10.31
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Loan
and Security Agreement dated as of December 3, 2004, between Cape
Place (DE), LLC; Clayton Place (DE), LLC; Clemson Place (DE), LLC;
Jacksonville Place (DE), LLC; Macon Place (DE), LLC; Martin Place (DE),
LLC; Murray Place (DE), LLC; River Place (DE), LLC; and Troy Place (DE),
LLC and Greenwich Capital Financial Products, Inc. (Incorporated by
reference to Exhibit 10.2 to the Trust’s Current Report on
Form 8-K/A filed on January 25, 2006.)
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10.32
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Promissory
Note, dated December 3, 2004, between Cape Place (DE), LLC, Clayton
Place (DE), LLC, Clemson Place (DE), LLC, Jacksonville Place (DE), LLC,
Macon Place (DE), LLC, Martin Place (DE), LLC, Murray Place (DE), LLC,
River Place (DE), LLC, Troy Place (DE), LLC and Greenwich Capital
Financial Products, Inc. (Incorporated by reference to Exhibit 10.3
to the Trust’s Current Report on Form 8-K/A filed on January 25,
2006.)
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10.33
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Exceptions
to Non-Recourse Guaranty dated as of January 6, 2006, by Education
Realty Operating Partnership, LP for the benefit of LaSalle Bank, National
Association. (Incorporated by reference to Exhibit 10.4 to the
Trust’s Current Report on Form 8-K/A filed on January 25,
2006.)
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10.34
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Environmental
Indemnity Agreement, dated January 6, 2006, by Cape Place (DE), LLC,
Clayton Place (DE), LLC, Clemson Place (DE), LLC, Jacksonville Place (DE),
LLC, Macon Place (DE), LLC, Martin Place (DE), LLC, Murray Place (DE),
LLC, River Place (DE), LLC, Troy Place (DE), LLC, and EDR Lease Holdings,
LLC and EDR Clemson Place Limited Partnership and Education Realty
Operating Partnership, LP in favor of LaSalle Bank, National Association.
(Incorporated by reference to Exhibit 10.5 to the Trust’s Current
Report on Form 8-K/A filed on January 25,
2006.)
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10.35
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Credit
Agreement dated as of March 30, 2006 among Education Realty Operating
Partnership, L.P., as borrower, the lenders party thereto and KeyBank,
National Association as administrative agent. (Incorporated by reference
to Exhibit 10.1 to the Trust’s Current Report on Form 8-K filed
on April 6, 2006.)
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10.36
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Amended
and Restated Credit Agreement dated as of March 30, 2006 among
Education Realty Operating Partnership, L.P., and certain of its
subsidiaries as borrowers, the lenders party thereto and KeyBank, National
Association as administrative agent. (Incorporated by reference to
Exhibit 10.2 to the Trust’s Current Report on Form 8-K filed on
April 6, 2006.)
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10.37
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Second
Amended and Restated Credit Agreement dated as of November 20, 2009 among
Education Realty Operating Partnership, L.P., and certain of its
subsidiaries as borrowers, the lenders party thereto and KeyBank, National
Association as administrative agent. (Incorporated by reference to Exhibit
10.1 to the Trust’s Current Report on Form 8-K filed on November 24,
2009.)
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10.38(1)
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Incentive
Compensation Plan for Executive Officers filed
herewith.
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10.39(1)
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Form
of Restricted Stock Award Agreement. (Incorporated by reference to
Exhibit 10.1 to the Trust’s Current Report on Form 8-K filed on
August 17, 2006.)
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10.40(1)
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Education
Realty Trust, Inc. 2010 Long-Term Incentive Plan, filed
herewith.
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10.41(1)
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Form
of Restricted Stock Award Agreement (Time-Vested Restricted Stock) for the
Education Realty Trust, Inc. 2010 Long-Term Incentive Plan, filed
herewith.
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10.42(1)
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Form
of Restricted Stock Unit Award Agreement (Performance Shares) for the
Education Realty Trust, Inc. 2010 Long-Term Incentive Plan, filed
herewith.
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10.43
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Master
Credit Facility Agreement, dated as of December 31, 2008, by and among
Education Realty Trust, Inc., Education Realty Operating Partnership, LP
and certain subsidiaries, and Red Mortgage Capital Inc. (Incorporated by
reference to Exhibit 10.35 to the Trust’s Annual Report on Form 10-K,
filed on March 16, 2009.)
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10.44
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Amended
and Restated Master Credit Facility, dated as of December 2, 2009, by and
among Education Realty Trust, Inc., Education Realty Operating
Partnership, LP and certain subsidiaries, Red Mortgage Capital Inc. and
Fannie Mae. (Incorporated by reference to Exhibit 10.1 to the Trust’s
Current Report on Form 8-K, filed on December 8, 2009.)
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10.45
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Amendment
No. 1 to Amended and Restated Master Credit Facility Agreement, dated as
of February 25, 2010, Education Realty Trust, Inc., Education Realty
Operating Partnership, LP and certain subsidiaries, Red Mortgage Capital
Inc. and Fannie Mae, filed herewith.
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10.46
(1)
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Schedule
of 2009 Annual Incentive Compensation Payouts and 2010 Base Salaries for
Named Executive Officers, filed herewith.
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10.47
(1)
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Amendment
No. 1 to the Education Realty Trust, Inc. 2004 Incentive Plan, filed
herewith.
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11
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Statement
Regarding Computation of Per Share Earnings (included within Annual Report
on Form 10-K).
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12
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Statement
Regarding Computation of Ratios, filed herewith.
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14
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Code
of Business Conduct and Ethics (Incorporated by reference to Exhibit 14 to
the Trust’s Annual Report on Form 10-K, filed on March 16,
2009.)
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21.1
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List
of Subsidiaries of the Registrant.
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23.1
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Consent
of Independent Registered Public Accounting Firm, Deloitte & Touche
LLP.
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31.1
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Certificate
of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certificate
of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32.1
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Certificate
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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32.2
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Certificate
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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(1)
Denotes a management contract or compensatory plan, contract or
arrangement.
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