Form 10-Q
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
Quarterly Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the
quarterly period ended September 30, 2006.
o
Transition Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the
Transition Period From ______________________ to
_________________________.
Commission
file number 001-32265
AMERICAN
CAMPUS COMMUNITIES, INC.
(Exact
name of registrant as specified in its charter)
Maryland
|
|
76-0753089
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(IRS
Employer Identification No.)
|
805
Las Cimas Parkway, Suite 400
Austin,
TX
(Address
of Principal Executive Offices)
|
|
78746
(Zip
Code)
|
(512)
732-1000
Registrant’s
telephone number, including area code
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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, orJ a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer o |
|
Accelerated
Filer x
|
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
Yes
o
No
x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
There
were 22,903,073 shares of American Campus Communities, Inc.'s common stock
with a par value of $0.01 per share outstanding as of the close of business
on
November 3, 2006.
FORM
10-Q
FOR
THE QUARTER ENDED SEPTEMBER 30, 2006
TABLE
OF CONTENTS
|
PAGE
NO.
|
|
|
|
PART
I.
|
|
|
|
|
|
Item
1.
|
Consolidated
Financial Statements
|
|
|
|
|
|
|
1
|
|
|
|
|
|
2
|
|
|
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
17
|
|
|
|
|
|
34
|
|
|
|
|
|
34
|
|
|
|
PART
II.
|
|
|
|
|
|
|
|
34
|
|
|
|
35
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
(in
thousands, except share and per share data)
|
|
September
30, 2006
|
|
December
31, 2005
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in real estate:
|
|
|
|
|
|
Owned
off-campus properties, net
|
|
$
|
684,160
|
|
$
|
384,758
|
|
Owned
off-campus property-held for sale
|
|
|
31,851
|
|
|
32,340
|
|
On-campus
participating properties, net
|
|
|
77,633
|
|
|
80,370
|
|
Investments
in real estate, net
|
|
|
793,644
|
|
|
497,468
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
32,245
|
|
|
24,641
|
|
Restricted
cash
|
|
|
12,681
|
|
|
9,502
|
|
Student
contracts receivable, net
|
|
|
3,028
|
|
|
2,610
|
|
Other
assets
|
|
|
22,831
|
|
|
16,641
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
864,429
|
|
$
|
550,862
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Secured
debt
|
|
$
|
425,421
|
|
$
|
291,646
|
|
Accounts
payable and accrued expenses
|
|
|
16,133
|
|
|
7,983
|
|
Other
liabilities
|
|
|
30,288
|
|
|
25,155
|
|
Total
liabilities
|
|
|
471,842
|
|
|
324,784
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
38,176
|
|
|
2,851
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Common
shares, $.01 par value, 800,000,000 shares authorized,
22,900,073 and 17,190,00 shares issued and outstanding at
|
|
|
|
|
|
|
|
September
30, 2006 and December 31, 2005, respectively
|
|
|
229
|
|
|
172
|
|
Additional
paid in capital
|
|
|
382,115
|
|
|
233,388
|
|
Accumulated
earnings and distributions
|
|
|
(28,374
|
)
|
|
(10,817
|
)
|
Accumulated
other comprehensive income
|
|
|
441
|
|
|
484
|
|
Total
stockholders’ equity
|
|
|
354,411
|
|
|
223,227
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
864,429
|
|
$
|
550,862
|
|
See
accompanying notes to consolidated financial statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
(Unaudited,
in thousands, except share and per share data)
|
|
Three
Months Ended September 30,
|
|
Nine
Months Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
$
|
24,340
|
|
$
|
14,155
|
|
$
|
64,687
|
|
$
|
38,814
|
|
On-campus
participating properties
|
|
|
3,971
|
|
|
3,637
|
|
|
13,450
|
|
|
12,263
|
|
Third
party development services
|
|
|
1,693
|
|
|
1,979
|
|
|
4,355
|
|
|
3,882
|
|
Third
party development services - on-campus participating
properties
|
|
|
36
|
|
|
38
|
|
|
108
|
|
|
112
|
|
Third
party management services
|
|
|
491
|
|
|
783
|
|
|
1,844
|
|
|
2,055
|
|
Resident
services
|
|
|
328
|
|
|
256
|
|
|
993
|
|
|
676
|
|
Total
revenues
|
|
|
30,859
|
|
|
20,848
|
|
|
85,437
|
|
|
57,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
|
13,178
|
|
|
7,696
|
|
|
31,710
|
|
|
18,876
|
|
On-campus
participating properties
|
|
|
2,455
|
|
|
2,173
|
|
|
6,660
|
|
|
6,034
|
|
Third
party development and management services
|
|
|
1,338
|
|
|
1,609
|
|
|
4,402
|
|
|
4,646
|
|
General
and administrative
|
|
|
1,468
|
|
|
1,534
|
|
|
4,879
|
|
|
4,823
|
|
Depreciation
and amortization
|
|
|
6,735
|
|
|
4,015
|
|
|
18,672
|
|
|
11,384
|
|
Ground/facility
leases
|
|
|
238
|
|
|
245
|
|
|
676
|
|
|
697
|
|
Total
operating expenses
|
|
|
25,412
|
|
|
17,272
|
|
|
66,999
|
|
|
46,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
5,447
|
|
|
3,576
|
|
|
18,438
|
|
|
11,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
294
|
|
|
396
|
|
|
623
|
|
|
498
|
|
Interest
expense
|
|
|
(7,445
|
)
|
|
(4,319
|
)
|
|
(19,847
|
)
|
|
(12,761
|
)
|
Amortization
of deferred financing costs
|
|
|
(334
|
)
|
|
(318
|
)
|
|
(1,078
|
)
|
|
(840
|
)
|
Other
nonoperating income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
430
|
|
Total
nonoperating expenses
|
|
|
(7,485
|
)
|
|
(4,241
|
)
|
|
(20,302
|
)
|
|
(12,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes, minority interests, and discontinued
operations
|
|
|
(2,038
|
)
|
|
(665
|
)
|
|
(1,864
|
)
|
|
(1,331
|
)
|
Income
tax provision
|
|
|
-
|
|
|
(6
|
)
|
|
-
|
|
|
(6
|
)
|
Minority
interests
|
|
|
149
|
|
|
(10
|
)
|
|
202
|
|
|
(85
|
)
|
Loss
from continuing operations
|
|
|
(1,889
|
)
|
|
(681
|
)
|
|
(1,662
|
)
|
|
(1,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
attributable to discontinued operations
|
|
|
278
|
|
|
85
|
|
|
1,648
|
|
|
1,343
|
|
Gain
from disposition of real estate
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,883
|
|
Total
discontinued operations
|
|
|
278
|
|
|
85
|
|
|
1,648
|
|
|
7,226
|
|
Net
(loss) income
|
|
$
|
(1,611
|
)
|
$
|
(596
|
)
|
$
|
(14
|
)
|
$
|
5,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income per share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations per share
|
|
$
|
(0.10
|
)
|
$
|
(0.04
|
)
|
$
|
(0.09
|
)
|
$
|
(0.10
|
)
|
Net
(loss) income per share
|
|
$
|
(0.09
|
)
|
$
|
(0.04
|
)
|
$
|
-
|
|
$
|
0.41
|
|
(Loss)
income per share - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations per share
|
|
$
|
(0.10
|
)
|
$
|
(0.04
|
)
|
$
|
(0.10
|
)
|
$
|
(0.09
|
)
|
Net
(loss) income per share
|
|
$
|
(0.09
|
)
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,218,128
|
|
|
17,005,462
|
|
|
17,553,627
|
|
|
14,100,631
|
|
Diluted
|
|
|
20,535,276
|
|
|
17,126,462
|
|
|
19,397,571
|
|
|
14,221,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
declared per common share
|
|
$
|
0.3375
|
|
$
|
0.3375
|
|
$
|
1.0125
|
|
$
|
1.0125
|
|
See
accompanying notes to consolidated financial statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
(Unaudited,
in thousands)
|
|
Nine Months
Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
Net
(loss) income
|
|
$
|
(14
|
) |
$
|
5,804
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swap
|
|
|
(43
|
) |
|
362
|
|
Net
comprehensive (loss) income
|
|
$
|
(57
|
) |
$
|
6,166
|
|
See
accompanying notes to consolidated financial statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
(Unaudited,
in thousands)
|
|
Nine
Months Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
Operating
activities
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(14
|
)
|
$
|
5,804
|
|
Adjustments
to reconcile net (loss) income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Gain
from disposition of real estate
|
|
|
-
|
|
|
(5,883
|
)
|
Minority
interests share of (loss) income
|
|
|
(202
|
)
|
|
85
|
|
Depreciation
and amortization
|
|
|
19,305
|
|
|
12,143
|
|
Amortization
of deferred financing costs and debt premiums/discounts
|
|
|
98
|
|
|
329
|
|
Share-based
compensation
|
|
|
568
|
|
|
323
|
|
Income
tax provision
|
|
|
-
|
|
|
6
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
(1,283
|
)
|
|
1,848
|
|
Student
contracts receivable, net
|
|
|
(418
|
)
|
|
(120
|
)
|
Other
assets
|
|
|
(5,697
|
)
|
|
(1,767
|
)
|
Accounts
payable and accrued expenses
|
|
|
6,517
|
|
|
2,777
|
|
Other
liabilities
|
|
|
467
|
|
|
401
|
|
Net
cash provided by operating activities
|
|
|
19,341
|
|
|
15,946
|
|
Investing
activities
|
|
|
|
|
|
|
|
Net
proceeds from disposition of real estate
|
|
|
-
|
|
|
28,023
|
|
Cash
paid for property acquisitions
|
|
|
(69,633
|
)
|
|
(72,763
|
)
|
Investments
in owned off-campus properties
|
|
|
(66,209
|
)
|
|
(39,032
|
)
|
Investments
in on-campus participating properties
|
|
|
(395
|
)
|
|
(16,280
|
)
|
Purchase
of corporate furniture, fixtures and equipment
|
|
|
(442
|
)
|
|
(520
|
)
|
Net
cash used in investing activities
|
|
|
(136,679
|
)
|
|
(100,572
|
)
|
Financing
activities
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
140,036
|
|
|
102,938
|
|
Offering
costs
|
|
|
(6,755
|
)
|
|
(6,251
|
)
|
Paydowns
of revolving credit facility, net of proceeds
|
|
|
-
|
|
|
(11,800
|
)
|
Proceeds
from construction loans
|
|
|
33,541
|
|
|
15,135
|
|
Paydown
of construction loan
|
|
|
(20,224
|
)
|
|
-
|
|
Proceeds
from bridge/mortgage loan
|
|
|
-
|
|
|
38,800
|
|
Principal
payments on debt
|
|
|
(5,153
|
)
|
|
(3,120
|
)
|
Change
in construction accounts payable
|
|
|
4,184
|
|
|
694
|
|
Debt
issuance and assumption costs
|
|
|
(1,823
|
)
|
|
(2,082
|
)
|
Distributions
to common and restricted stockholders
|
|
|
(17,524
|
)
|
|
(14,383
|
)
|
Distributions
to Predecessor owners
|
|
|
-
|
|
|
(1,671
|
)
|
Distributions
to minority partners
|
|
|
(1,340
|
)
|
|
(123
|
)
|
Net
cash provided by financing activities
|
|
|
124,942
|
|
|
118,137
|
|
Net
change in cash and cash equivalents
|
|
|
7,604
|
|
|
33,511
|
|
Cash
and cash equivalents at beginning of period
|
|
|
24,641
|
|
|
4,050
|
|
Cash
and cash equivalents at end of period
|
|
$
|
32,245
|
|
$
|
37,561
|
|
Supplemental
disclosure of non-cash investing and financing
activities
|
|
|
|
|
|
|
|
Loans
assumed in connection with property acquisitions
|
|
$
|
(123,649
|
)
|
$
|
(47,169
|
)
|
Issuance
of Common Units in connection with property acquisitions
|
|
$
|
(49,096
|
)
|
$
|
-
|
|
Issuance
of Preferred Units in connection with property
acquisitions
|
|
$
|
(3,075
|
)
|
$
|
-
|
|
Change
in fair value of derivative instruments, net
|
|
$
|
(43
|
)
|
$
|
362
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
21,771
|
|
$
|
14,282
|
|
See
accompanying notes to consolidated financial statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
1. Organization
and Description of Business
American
Campus Communities, Inc. (the “Company”) is a real estate investment trust
(“REIT”) that was incorporated on March 9, 2004 and commenced operations
effective with the completion of an initial public offering (“IPO”) on August
17, 2004. Through the Company’s controlling interest in American Campus
Communities Operating Partnership LP (the “Operating Partnership”) and American
Campus Communities Services, Inc., (the Company’s taxable REIT subsidiary or
“TRS”), the Company is one of the largest owners, managers and developers of
high quality student housing properties in the United States in terms of
beds
owned and under management. The Company is a fully integrated, self-managed
and
self-administered equity REIT with expertise in the acquisition, design,
financing, development, construction management, leasing and management of
student housing properties.
On
September 15, 2006, the Company completed an equity offering, consisting
of the
sale of 5,692,500 shares of the Company’s common stock at a price per share of
$24.60, including the exercise of 742,500 shares issued as a result of the
exercise of the underwriters’ overallotment option in full at closing. The
offering generated gross proceeds of approximately $140.0 million. The aggregate
proceeds to the Company, net of the underwriter’s discount and offering costs,
were approximately $133.0 million.
As
of
September 30, 2006, the Company’s property portfolio contained 38 student
housing properties with approximately 22,700 beds and approximately 7,400
apartment units, consisting of 34 owned off-campus properties that are in
close
proximity to colleges and universities and four on-campus participating
properties operated under ground/facility leases with the related university
systems. These communities contain modern housing units, offer resort-style
amenities and are supported by a resident assistant system and other
student-oriented programming.
Through
the TRS, the Company also provides construction management and development
services for student housing properties owned by colleges and universities,
charitable foundations, and others. As of September 30, 2006, the Company
provided third party management and leasing services for 15 student housing
properties (9 of which the Company served as the third party developer and
construction manager) that represented approximately 9,300 beds in approximately
3,200 units. Third party management and leasing services are typically provided
pursuant to multi-year management contracts that have initial terms that
range
from one to five years. As of September 30, 2006, the Company’s total owned and
managed portfolio included 53 properties with approximately 32,000 beds in
approximately 10,600 units.
2.
Summary
of Significant Accounting Policies
Principles
of Consolidation and Combination
The
accompanying consolidated financial statements include all of the accounts
of
the Company, the Operating Partnership and the subsidiaries of the Operating
Partnership. The Company consolidates entities in which it has an ownership
interest and over which it exercises significant control over major operating
decisions, such as budgeting, investment and financing decisions. The real
estate entities included in the consolidated financial statements have been
consolidated only for the periods that such entities were under control by
the
Company. All significant intercompany balances and transactions have been
eliminated in consolidation. All dollar amounts in the tables herein, except
share and per share amounts, are stated in thousands unless otherwise indicated.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 157, Fair
Value Measurements
(“SFAS
157”). SFAS 157 defines fair value, establishes guidelines for measuring fair
value and expands disclosures regarding fair value measurements. SFAS 157
does
not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting pronouncements.
SFAS 157 is effective for fiscal years beginning after November 15, 2007.
The Company does not expect its adoption to
have a
material impact on the Company’s consolidated financial
statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Interim
Financial Statements
The
accompanying interim financial statements are unaudited, but have been prepared
in accordance with U.S. generally accepted accounting principles (“GAAP”) for
interim financial information and in conjunction with the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include
all
disclosures required by GAAP for complete financial statements. In the opinion
of management, all adjustments (consisting solely of normal recurring matters)
necessary for a fair presentation of the financial statements for these interim
periods have been included. Because of the seasonal nature of the Company’s
operations, the results of operations and cash flows for any interim period
are
not necessarily indicative of results for other interim periods or for the
full
year. These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2005.
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, 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. Actual results could differ from those
estimates.
Investments
in Real Estate
Investments
in real estate are recorded at historical cost. Major improvements that extend
the life of an asset are capitalized and depreciated over the remaining useful
life of the asset. The cost of ordinary repairs and maintenance is charged
to
expense when incurred. Depreciation and amortization are recorded on a
straight-line basis over the estimated useful lives of the assets as
follows:
Buildings
and improvements
|
|
7-40
years
|
Leasehold
interest - on-campus participating properties
|
|
25-34
years (shorter of useful life or respective lease term)
|
Furniture,
fixtures and equipment
|
|
3-7
years
|
The
cost
of buildings and improvements includes the purchase price of the property,
including legal fees and acquisition costs. Project costs directly associated
with the development and construction of an owned real estate project, which
include interest, property taxes, and amortization of deferred finance costs,
are capitalized as construction in progress. Upon completion of the project,
costs are transferred into the applicable asset category and depreciation
commences. Interest totaling approximately $0.6 million was capitalized during
both the three month periods ended September 30, 2006 and 2005, respectively,
and $1.7 million and $1.4 million was capitalized during the nine months
ended
September 30, 2006 and 2005, respectively. Amortization of deferred financing
costs totaling approximately $0.1 million and $38,000 was capitalized during
the
three months ended September 30, 2006 and 2005, respectively, and approximately
0.1 million was capitalized during both the nine month periods ended September
30, 2006 and 2005.
Management
assesses whether there has been an impairment in the value of the Company’s
investments in real estate whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Impairment is
recognized when estimated expected future cash flows (undiscounted and before
interest charges) are less than the carrying value of the property. The
estimation of expected future net cash flows is inherently uncertain and
relies
on assumptions regarding current and future economics and market conditions.
If
such conditions change, then an adjustment to the carrying value of the
Company’s long-lived assets could occur in the future period in which the
conditions change. To the extent that a property is impaired, the excess
of the
carrying amount of the property over its estimated fair value is charged
to
earnings. The Company believes that there were no impairments of the carrying
values of its investments in real estate as of September 30, 2006.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company allocates the purchase price of acquired properties to net tangible
and
identified intangible assets based on relative fair values in accordance
with
Statement of Financial Accounting Standard (“SFAS”) No. 141, Business
Combinations.
Fair
value estimates are based on information obtained from a number of sources,
including independent appraisals that may be obtained in connection with
the
acquisition or financing of the respective property and other market data.
Information obtained about each property as a result of due diligence, marketing
and leasing activities is also considered. The value of in-place leases is
based
on the difference between (i) the property valued with existing in-place
leases
adjusted to market rental rates and (ii) the property valued “as-if” vacant. As
lease terms are typically one year or less, rates on in-place leases generally
approximate market rental rates. Factors considered in the valuation of in-place
leases include an estimate of the carrying costs during the expected lease-up
period considering current market conditions, nature of the tenancy, and
costs
to execute similar leases. Carrying costs include estimates of lost rentals
at
market rates during the expected lease-up period, as well as marketing and
other
operating expenses. The value of in-place leases is amortized over the remaining
initial term of the respective leases, generally less than one year. The
purchase price of property acquisitions is not expected to be allocated to
tenant relationships, considering the terms of the leases and the expected
levels of renewals. The Company’s allocation of purchase price is contingent
upon the final true-up of certain prorations.
Long-Lived
Assets-Held for Sale
Long-lived
assets to be disposed of are classified as held for sale in the period in
which
all of the following criteria are met:
a. Management,
having the authority to approve the action, commits to a plan to sell the
asset
b. The
asset
is available for immediate sale in its present condition subject only to
terms
that are usual and customary for sales of such assets
c. An
active
program to locate a buyer and other actions required to complete the plan
to
sell the asset have been initiated
d. The
sale
of the asset is probable, and transfer of the asset is expected to qualify
for
recognition as a completed sale, within one year
e. The
asset
is being actively marketed for sale at a price that is reasonable in relation
to
its current fair value
f.
Actions
required to complete the plan indicate that it is unlikely that significant
changes to the plan will be made or that the plan will be
withdrawn.
Concurrent
with this classification, the asset is recorded at the lower of cost or fair
value, and depreciation ceases.
Intangible
Assets
In
connection with property acquisitions completed during the nine months ended
September 30, 2006 and 2005, the Company capitalized approximately $2.3 million
and $1.1 million, respectively, related to management’s estimate of the fair
value of the in-place leases assumed. These intangible assets are amortized
on a
straight-line basis over a term of approximately six months, which represents
the average remaining term of the underlying leases. The amortization is
included in depreciation expense in the accompanying consolidated statements
of
operations. See Note 3 for a detailed discussion of the property acquisitions
completed during the nine months ended September 30, 2006.
Debt
Premiums and Discounts
Debt
premiums and discounts represent fair value adjustments to account for the
difference between the stated rates and market rates of debt assumed in
connection with the Company’s property acquisitions. The debt premiums and
discounts are amortized to interest expense over the term of the related
loans
using the effective-interest method. As of September 30, 2006 and December
31,
2005, net unamortized debt premiums were $6.8 million and $4.4 million,
respectively, and net unamortized debt discounts were $0.5
million and $-0-,
respectively. Debt premiums and discounts are included in secured debt on
the
accompanying consolidated balance sheets.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Third
Party Development Services Costs
Costs
associated with the pursuit of third party development and construction
management contracts are expensed as incurred, until such time that management
believes it is probable the contract will be executed. To the extent such
costs
will be reimbursed from a third party, those costs are capitalized and included
in other assets on the accompanying consolidated balance sheets. If the costs
will not be reimbursed, they are deferred and recognized in relation to the
revenues earned on executed contracts. Management evaluates the status of
awarded projects on a periodic basis and expenses any deferred costs related
to
projects whose current status indicates the costs may not provide future
value
to the Company in the form of revenues. Such write-offs are included in third
party development and management services expenses on the accompanying
consolidated statements of operations. As of September 30, 2006, the Company
has
deferred approximately $3.8 million in pre-development costs related to awarded
projects that have not yet commenced construction. Such costs are included
in
other assets in the accompanying consolidated balance sheets.
Stock-Based
Compensation
The
Company accounts for equity based awards in accordance with SFAS No. 123
(R),
Share-Based
Payment.
Accordingly, the Company has recognized compensation expense related to certain
restricted stock grants (see Note 9) over the underlying vesting periods
of
approximately $0.2 million and $0.1 million during the three months ended
September 30, 2006 and 2005, respectively, and $0.6 million and $0.3 million
during the nine months ended September 30, 2006 and 2005, respectively.
Income
Taxes
The
Company has elected to be taxed as a REIT under the Internal Revenue Code
of
1986, as amended (the “Code”). To continue to qualify as a REIT, the Company
must meet a number of organizational and operational requirements, including
a
requirement that it currently distribute at least 90% of its adjusted taxable
income to its stockholders. As a REIT, the Company is generally not subject
to
corporate level federal income tax on taxable income it currently distributes
to
its stockholders. If the Company fails to qualify as a REIT in any taxable
year,
it will be subject to federal income taxes at regular corporate rates (including
any applicable alternative minimum tax) and may not be able to qualify as
a REIT
for the subsequent four taxable years. Even though the Company qualifies
for
taxation as a REIT, the Company could be subject to certain state and local
income and excise taxes on its income and property, and to federal income
and
excise taxes on its undistributed income.
The
TRS
manages the Company’s non-REIT activities and is subject to federal, state and
local income taxes.
Other
Nonoperating Income
Other
nonoperating income of approximately $0.4 million for the nine months ended
September 30, 2005 consists of a gain recognized related to insurance proceeds
received for a fire that occurred at one of the Company’s owned off-campus
properties in 2003.
Income
Per Share
Basic
income per share is computed using net income and the weighted average number
of
shares of the Company’s common stock outstanding during the period, including
restricted stock units (“RSUs”) issued to outside directors. RSUs are included
in both basic and diluted weighted average common shares outstanding because
they were fully vested on the date of grant and all conditions required in
order
for the recipients to earn the RSUs have been satisfied. Diluted income per
share reflects weighted average common shares issuable from the assumed
conversion of unvested restricted stock awards (“RSAs”) granted to employees and
common and preferred units of limited partnership interest in the Operating
Partnership (“Common Units” and “Series A Preferred Units,” respectively). See
Note 7 for a discussion of Common Units and Series A Preferred Units and
Note 9
for a discussion of RSAs.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following is a summary of the elements used in calculating basic and diluted
income per share:
|
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Basic
net (loss) income per share calculation:
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(1,889
|
)
|
$
|
(681
|
)
|
$
|
(1,662
|
)
|
$
|
(1,422
|
)
|
Discontinued
operations
|
|
|
278
|
|
|
85
|
|
|
1,648
|
|
|
7,226
|
|
Net
(loss) income
|
|
$
|
(1,611
|
)
|
$
|
(596
|
)
|
$
|
(14
|
)
|
$
|
5,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations - per share
|
|
$
|
(0.10
|
)
|
$
|
(0.04
|
)
|
$
|
(0.09
|
)
|
$
|
(0.10
|
)
|
Income
from discontinued operations - per share
|
|
$
|
0.01
|
|
$
|
-
|
|
$
|
0.09
|
|
$
|
0.51
|
|
Net
(loss) income - per share
|
|
$
|
(0.09
|
)
|
$
|
(0.04
|
)
|
$
|
-
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
18,218,128
|
|
|
17,005,462
|
|
|
17,553,627
|
|
|
14,100,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net (loss) income per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(1,889
|
)
|
$
|
(681
|
)
|
$
|
(1,662
|
)
|
$
|
(1,422
|
)
|
Series
A Preferred Unit distributions
|
|
|
46
|
|
|
-
|
|
|
107
|
|
|
-
|
|
(Loss)
income allocated to Common Units
|
|
|
(227
|
)
|
|
(1
|
)
|
|
(416
|
)
|
|
74
|
|
Loss
from continuing operations, as adjusted
|
|
|
(2,070
|
)
|
|
(682
|
)
|
|
(1,971
|
)
|
|
(1,348
|
)
|
Discontinued
operations
|
|
|
278
|
|
|
85
|
|
|
1,648
|
|
|
7,226
|
|
Net
(loss) income, as adjusted
|
|
$
|
(1,792
|
)
|
$
|
(597
|
)
|
$
|
(323
|
)
|
$
|
5,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations - per share
|
|
$
|
(0.10
|
)
|
$
|
(0.04
|
)
|
$
|
(0.10
|
)
|
$
|
(0.09
|
)
|
Income
from discontinued operations - per share
|
|
$
|
0.01
|
|
$
|
0.01
|
|
$
|
0.08
|
|
$
|
0.50
|
|
Net
(loss) income - per share
|
|
$
|
(0.09
|
)
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
18,218,128
|
|
|
17,005,462
|
|
|
17,553,627
|
|
|
14,100,631
|
|
Common
Units
|
|
|
2,202,185
|
|
|
121,000
|
|
|
1,753,826
|
|
|
121,000
|
|
Series
A Preferred Units
|
|
|
114,963
|
|
|
-
|
|
|
90,118
|
|
|
-
|
|
Diluted
weighted average common shares outstanding (1)
|
|
|
20,535,276
|
|
|
17,126,462
|
|
|
19,397,571
|
|
|
14,221,631
|
|
|
(1) |
Weighted
average restricted stock awards are excluded from diluted weighted
average
common shares outstanding for the three and nine months ended September
30, 2006 and 2005 because they would be anti-dilutive due to the
Company’s
loss position for these
periods.
|
3.
Property Acquisitions
On
March
1, 2006, the Company completed the acquisition of a portfolio of 13 student
housing properties (the “Royal Portfolio”) pursuant to a contribution and sale
agreement with contributors affiliated with Royal Properties for a contribution
value of $244.3 million, which was paid as follows: (i) the issuance to certain
partners of the contributors of approximately 2.1 million Common Units valued
at
$23.50 per unit and approximately 0.1 million Series A Preferred Units valued
at
$26.75 per unit (See Note 7); (ii) the assumption of $123.6 million of
fixed-rate mortgage debt (see Note 8); and (iii) the remainder in cash and
promissory notes. As of September 30, 2006, as anticipated, the Company has
incurred an additional $4.9 million in closing costs and other external
acquisition costs related to this acquisition.
The
Company retained approximately $6.9 million of the contribution value, which
will be utilized to satisfy indemnification obligations that may arise during
a
one-year survival period, with any remaining amounts to be paid to the
contributors upon expiration of such one-year survival period. The retained
amount is composed of Common Units, Series A Preferred Units, cash, and secured
promissory notes of approximately $1.9 million, payable on February 28, 2007
together with accrued interest at 4.39% per annum.
The
Royal
Portfolio consists of five properties in Florida, four properties in Texas,
two
properties in Tennessee, and one property each in Arizona and Kentucky. The
13
properties contain approximately 1,800 units and approximately 5,700
beds.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
acquired properties’ results of operations have been included in the
accompanying consolidated statements of operations since the acquisition
date.
The following pro forma information for the three and nine months ended
September 30, 2006 and 2005 presents consolidated information for the Company
as
if the property acquisitions discussed above, the 2005 acquisitions and the
July
2005 and September 2006 equity offerings had occurred at the beginning of
the
earliest period presented. The unaudited pro forma information is provided
for
informational purposes only and is not indicative of results that would have
occurred or which may occur in the future:
|
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Total
revenues
|
|
$
|
30,859
|
|
$
|
28,110
|
|
$
|
90,546
|
|
$
|
80,211
|
|
Net
(loss) income
|
|
$
|
(1,101
|
)
|
$
|
(1,851
|
)
|
$
|
1,673
|
|
$
|
1,782
|
|
Net
(loss) income per share - basic
|
|
$
|
(0.05
|
)
|
$
|
(0.08
|
)
|
$
|
0.07
|
|
$
|
0.08
|
|
Net
(loss) income per share - diluted
|
|
$
|
(0.05
|
)
|
$
|
(0.07
|
)
|
$
|
0.05
|
|
$
|
0.07
|
|
4.
Property Disposition and Discontinued Operations
In
November 2004, California State University - San Bernardino exercised its
option
to purchase from the Company the University Village at San Bernardino off-campus
student housing property for an aggregate purchase price of approximately
$28.3
million. This transaction was consummated in January 2005, resulting in net
proceeds of approximately $28.1 million. The resulting gain on disposition
of
approximately $5.9 million is included in discontinued operations in the
accompanying consolidated statement of operations for the nine months ended
September 30, 2005.
In
August
2006, in accordance with the provisions of Statement
of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(“SFAS
144”), management classified The Village on University as Owned Off Campus
Property - Held for Sale. The disposition of this property is expected to
be
consummated in the fourth quarter of 2006.
The
related net income or loss of the aforementioned properties is reflected
in the
accompanying consolidated statements of operations as discontinued operations
for the periods presented in accordance with SFAS 144. Below is a summary
of the
results of operations of University Village - San Bernardino through its
disposition date as well as the results of operations of The Village on
University for all periods presented:
|
|
Three
Months Ended September 30,
|
|
Nine
Months Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Total
revenues
|
|
$
|
991
|
|
$
|
1,029
|
|
$
|
3,739
|
|
$
|
3,652
|
|
Total
operating expenses
|
|
|
(716
|
)
|
|
(944
|
)
|
|
(2,094
|
)
|
|
(2,309
|
)
|
Operating
income
|
|
|
275
|
|
|
85
|
|
|
1,645
|
|
|
1,343
|
|
Total
nonoperating income
|
|
|
3
|
|
|
-
|
|
|
3
|
|
|
-
|
|
Net
income
|
|
$
|
278
|
|
$
|
85
|
|
$
|
1,648
|
|
$
|
1,343
|
|
5.
Investments in Owned Off-Campus Properties
Owned
off-campus properties consisted of the following:
|
|
September
30, 2006
|
|
December
31, 2005
|
Land
|
|
$
|
75,270
|
|
$
|
46,510
|
|
|
Buildings
and improvements
|
|
|
577,906
|
|
|
330,380
|
|
|
Furniture,
fixtures and equipment
|
|
|
28,850
|
|
|
17,119
|
|
|
Construction
in progress
|
|
|
43,184
|
|
|
18,962
|
|
|
|
|
|
725,210
|
|
|
412,971
|
|
|
Less
accumulated depreciation
|
|
|
(41,050
|
)
|
|
(28,213
|
)
|
|
Owned
off-campus properties, net
|
|
$
|
684,160
|
|
$
|
384,758
|
|
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
6.
On-Campus Participating Properties
The
Company is a party to ground/facility lease agreements (“Leases”) with certain
state university systems and colleges (each, a “Lessor”) for the purpose of
developing, constructing, and operating student housing facilities on university
campuses. Under the terms of the Leases, title to the constructed facilities
is
held by the applicable Lessor and such Lessor receives a de minimus base
rent
paid at inception and 50% of defined net cash flows on an annual basis through
the term of the lease. The Leases terminate upon the earlier to occur of
the
final repayment of the related debt, the amortization period of which is
contractually stipulated, or the end of the lease term.
Pursuant
to the Leases, in the event the leasehold estates do not achieve Financial
Break
Even (defined as revenues less operating expenses, excluding management fees,
less debt service), the applicable Lessor would be required to make a rental
payment, also known as the Contingent Payment, sufficient to achieve Financial
Break Even. The Contingent Payment provision remains in effect until such
time
as any financing placed on the facilities would receive an investment grade
rating without the Contingent Payment provision. In the event that the Lessor
is
required to make a Contingent Payment, future net cash flow distributions
would
be first applied to repay such Contingent Payments and then to unpaid management
fees prior to normal distributions. Beginning in November 1999 and December
2002, as a result of the debt financing on the facilities achieving investment
grade ratings without the Contingent Payment provision, the Texas A&M
University System is no longer required to make Contingent Payments under
either
the Prairie View A&M University Village or University College Leases. In
August 2006, Texas A&M International University made a Contingent Payment to
achieve Financial Break Even under the Texas A&M International University
Lease. The Contingent Payment obligation continues to be in effect for the
Texas
A&M International University and University of Houston leases.
In
the
event the Company seeks to sell its leasehold interest, the Leases provide
the
applicable Lessor the right of first refusal of a bona fide purchase offer
and
an option to purchase the lessee’s rights under the applicable
Lease.
In
conjunction with the execution of each Lease, the Company has entered into
separate five-year agreements to manage the related facilities for 5% of
defined
gross receipts. The five-year terms of the management agreements are not
contingent upon the continuation of the Leases. Upon expiration of the initial
five year terms, the agreements continue on a month-to-month basis.
On-campus
participating properties are as follows:
|
|
|
|
|
|
Historical
Cost
|
|
Lessor/University
|
|
Lease
Commencement
|
|
Required
Debt Repayment (1)
|
|
September
30, 2006
|
|
December
31, 2005
|
|
Texas
A&M University System /
Prairie
View A&M University (2)
|
|
|
2/1/96
|
|
|
9/1/23
|
|
$
|
38,229
|
|
$
|
38,037
|
|
Texas
A&M University System /
Texas
A&M International
|
|
|
2/1/96
|
|
|
9/1/23
|
|
|
5,994
|
|
|
5,920
|
|
Texas
A&M University System /
Prairie
View A&M University (3)
|
|
|
10/1/99
|
|
|
8/31/25
/ 8/31/28
|
|
|
23,862
|
|
|
23,777
|
|
University
of Houston System /
University
of Houston (4)
|
|
|
9/27/00
|
|
|
8/31/35
|
|
|
34,599
|
|
|
34,603
|
|
|
|
|
|
|
|
|
|
|
102,684
|
|
|
102,337
|
|
Less
accumulated amortization
|
|
|
|
|
|
|
|
|
(25,051
|
)
|
|
(21,967
|
)
|
On-campus
participating properties, net
|
|
|
|
|
|
|
|
$
|
77,633
|
|
$
|
80,370
|
|
(1) |
Represents
the effective lease termination date. The Leases terminate upon the
earlier to occur of the final repayment of the related debt or the
end of
the contractual lease term.
|
(2) |
Consists
of three phases placed in service between 1996 and
1998.
|
(3) |
Consists
of two phases placed in service in 2000 and
2003.
|
(4) |
Consists
of two phases placed in service in 2001 and 2005.
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
7.
Minority Interests
The
Company consolidates the accounts of the Operating Partnership and its
subsidiaries into its consolidated financial statements. However, the Company
does not own 100% of the Operating Partnership and certain consolidated real
estate joint ventures. The amounts reported as minority interests on the
Company’s consolidated balance sheet reflect the portion of these consolidated
entities’ equity that the Company does not own. Accordingly, the amounts
reported as minority interest on the Company’s consolidated statements of
operations reflect the portion of these consolidated entities’ net income or
loss not allocated to the Company.
Equity
interests in the Operating Partnership not owned by the Company are held
in the
form of Common Units and Series A Preferred Units. On March 1, 2006,
approximately 2.1 million Common Units valued at $23.50 per unit and
approximately 0.1 million Series A Preferred Units valued at $26.75 per unit
were issued to individuals and entities affiliated with Royal Properties
in
connection with the acquisition of the Royal Portfolio (see Note 3). Such
Common
Units and Series A Preferred Units are exchangeable on or after March 1,
2007
into an equal number of shares of the Company’s common stock, or, at the
Company’s election, cash. A Common Unit and a share of the Company’s common
stock have essentially the same economic characteristics, as they effectively
participate equally in the net income and distributions of the Operating
Partnership. Series A Preferred Units have a cumulative preferential per
annum
cash distribution rate of 5.99%, payable quarterly concurrently with the
payment
of dividends on the Company’s common stock.
Income
or
loss allocated to minority interests on the Company’s consolidated statements of
operations includes the Series A Preferred Unit distributions as well as
the pro
rata share of the Operating Partnership’s net income or loss allocated to Common
Units. The Common Unitholders’ minority interest in the Operating Partnership is
reported at an amount equal to their ownership percentage of the net equity
of
the Operating Partnership at the end of each reporting period. As of September
30, 2006, approximately 9% of the equity interests of the Operating Partnership
was held by persons affiliated with Royal Properties and certain current
and
former members of management in the form of Common Units and Series A Preferred
Units. As of December 31, 2005, approximately 0.7% of the equity interests
of
the Operating Partnership was held by certain current and former members
of
management in the form of Common Units.
Minority
interests also include the equity interests of unaffiliated joint venture
partners in three joint ventures. Two of the joint ventures own and operate
the
Company’s Callaway House and University Village at Sweet Home owned-off campus
properties, which are located near the campuses of Texas A&M University and
the State University of New York - Buffalo, respectively. The other joint
venture was formed to develop, own, and operate the Company’s University Centre
owned off-campus property, which is currently under development and is located
near the campuses of Rutgers University, New Jersey Institute of Technology
and
Essex County Community College.
8.
Debt
A
summary
of the Company’s outstanding consolidated indebtedness, including unamortized
debt premiums and discounts, is as follows:
|
|
September
30, 2006
|
|
December
31, 2005
|
|
Debt
secured by owned off-campus properties:
|
|
|
|
|
|
Mortgage
loans payable
|
|
$
|
316,204
|
|
$
|
195,871
|
|
Construction
loan payable
|
|
|
12,782
|
|
|
-
|
|
|
|
|
328,986
|
|
|
195,871
|
|
Debt
secured by on-campus participating properties:
|
|
|
|
|
|
|
|
Mortgage
loans payable
|
|
|
16,584
|
|
|
16,786
|
|
Construction
loan payable
|
|
|
16,852
|
|
|
16,411
|
|
Bonds
payable
|
|
|
56,675
|
|
|
58,215
|
|
|
|
|
90,111
|
|
|
91,412
|
|
Unamortized
debt premiums, net of discounts
|
|
|
6,324
|
|
|
4,363
|
|
Total
debt
|
|
$
|
425,421
|
|
$
|
291,646
|
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Loans
Assumed or Entered Into in Conjunction with Property
Acquisitions
In
connection with the March 1, 2006 acquisition of the Royal Portfolio (see
Note
3), the Company assumed approximately $123.6 million of fixed-rate mortgage
debt. At the time of assumption, the debt had a weighted average interest
rate
of 5.95% and an average term to maturity of 6.3 years. Upon assumption of
this
debt, the Company recorded debt premiums of approximately $2.9 million, net
of
discounts, to reflect the estimated fair value of the debt assumed. These
mortgage loans are secured by the related properties.
Revolving
Credit Facility
On
August
17, 2006, the Operating Partnership amended and restated its $100 million
revolving credit facility to increase the size of the facility to $115 million,
which may be expanded by up to an additional $110 million upon the satisfaction
of certain conditions. The maturity date was extended two years to August
17,
2009 and the Company continues to guarantee the Operating Partnership’s
obligations under the facility.
Availability
under the revolving credit facility is limited to an "aggregate borrowing
base
amount" equal to the lesser of (i) 65% of the value of certain properties,
calculated as set forth in the credit facility, and (ii) the adjusted net
operating income from these properties divided by a formula amount. The facility
bears interest at a variable rate, at the Company’s option, based upon a base
rate or one-, two-, three-, or six-month LIBOR plus, in each case, a spread
based upon the Company’s total leverage. Additionally, the Company is required
to pay an unused commitment fee ranging from 0.15% to 0.20% per annum, depending
on the aggregate unused balance. In September 2006, the Company paid off
the
entire balance on the revolving credit facility using proceeds from its
September 15, 2006 equity offering (see Note 1). As of September 30, 2006,
the
total availability under the facility (subject to the satisfaction of certain
financial covenants) totaled approximately $113.8 million.
The
terms
of the facility include certain restrictions and covenants, which limit,
among
other items, the incurrence of additional indebtedness, liens, and the
disposition of assets. The facility contains customary affirmative and negative
covenants and also contains financial covenants that, among other things,
require the Company to maintain certain minimum ratios of "EBITDA" (earnings
before interest, taxes, depreciation and amortization) to fixed charges.
The
Company may not pay distributions that exceed 100% of funds from operations
for
any four consecutive quarters. The financial covenants also include consolidated
net worth and leverage ratio tests. As of September 30, 2006, the Company
was in
compliance with all such covenants.
Construction
Loan Activity
In
connection with the September 15, 2006 equity offering, the Company paid
off the
entire $20.2 million balance of the construction loan for Callaway Villas,
an
owned off-campus property which completed construction and opened for occupancy
in August 2006.
The
development and construction of University Centre, an owned off-campus property
scheduled to complete construction in Summer 2007 and open for occupancy
in Fall
2007, is partially financed with a construction loan. The loan amount is
$45.5
million and the Company began making draws on this loan in July 2006. As
of
September 30, 2006, the balance outstanding on the construction loan totaled
$12.8 million, bearing interest at a rate of 6.83%.
9.
Incentive Award Plan
The
Company has adopted the 2004 Incentive Award Plan (the “Plan”). The Plan
provides for the grant to selected employees and directors of the Company
and
the Company’s affiliates of stock options, RSUs, RSAs, and other stock-based
incentive awards. The Company has reserved a total of 1,210,000 shares of
the
Company’s common stock for issuance pursuant to the Plan, subject to certain
adjustments for changes in the Company’s capital structure, as defined in the
Plan. As of September 30, 2006, the Company has issued 622,680 awards under
the
Plan. A summary of the Company’s stock-based incentive awards under the Plan as
of September 30, 2006 and changes during the nine months ended September
30,
2006, is presented below:
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Common
Units
|
|
Restricted
Stock Units (RSUs)
|
|
Restricted
Stock Awards (RSAs)
|
|
Outperformance
Bonus Plan
|
|
Total
|
|
Outstanding
at December 31, 2005
|
|
|
121,000
|
|
|
14,375
|
|
|
45,868
|
|
|
367,682
|
|
|
548,925
|
|
Granted
(1)
(2)
|
|
|
-
|
|
|
6,180
|
|
|
69,966
|
|
|
-
|
|
|
76,146
|
|
Vested
|
|
|
-
|
|
|
-
|
|
|
(12,194
|
)
|
|
-
|
|
|
(12,194
|
)
|
Forfeited
|
|
|
-
|
|
|
-
|
|
|
(2,391
|
)
|
|
-
|
|
|
(2,391
|
)
|
Converted
to common shares
|
|
|
(8,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,000
|
)
|
Outstanding
at September 30, 2006
|
|
|
113,000
|
|
|
20,555
|
|
|
101,249
|
|
|
367,682
|
|
|
602,486
|
|
Vested
at September 30, 2006
|
|
|
113,000
|
|
|
20,555
|
|
|
12,194
|
|
|
-
|
|
|
145,749
|
|
(1) |
In
May 2006, certain outside members of the Board of Directors were
each
granted RSUs valued at $25,000, with the number of RSUs determined
based
on the fair market value of the Company’s stock on the date of grant, as
defined in the Plan. All awards vested immediately on the date of
grant;
accordingly, a compensation charge of approximately $0.2 million
was
recorded during the three months ended June 30, 2006 related to these
awards.
|
(2) |
On
January 31, 2006, the Company granted 69,966 RSAs to its executive
officers and certain employees that vest in equal annual installments
over
five years. Unvested awards are forfeited upon the termination of
an
individual’s employment with the Company. Each recipient of RSAs receives
dividends, as declared by the Company’s Board of Directors, on unvested
RSAs provided that such recipient continues to be an employee of
the
Company.
|
10.
Interest
Rate Hedges
In
connection with the December 2003 extension of a construction loan payable
for
Cullen Oaks, an on-campus participating property, the Company’s predecessor
entered into an interest rate swap (effective December 15, 2003 through November
15, 2008) that was designated to hedge its exposure to fluctuations on interest
payments attributed to changes in interest rates associated with payments
on its
advancing construction loan payable. Under the terms of the interest rate
swap
agreement, the Company pays a fixed rate of 5.5% and receives a floating
rate of
LIBOR plus 1.9%. The interest rate swap had an estimated fair value of
approximately $0.5 million at both September 30, 2006 and December 31, 2005
and
is reflected in other assets in the accompanying consolidated balance sheets.
The
Company does not expect to reclassify a material amount of net gains on hedge
instruments from accumulated other comprehensive income to earnings in 2006.
Ineffectiveness resulting from the Company’s hedges is not
material.
11.
Commitments and Contingencies
Commitments
Development-related
guarantees: The
Company commonly provides alternate housing and project cost guarantees,
subject
to force majeure. These guarantees are typically limited, on an aggregate
basis,
to the amount of the projects’ related development fees or a contractually
agreed-upon maximum exposure amount. Alternate housing guarantees typically
expire five days after construction is complete and generally require the
Company to provide substitute living quarters and transportation for students
to
and from the university if the project is not completed by an agreed-upon
completion date. Project cost guarantees hold the Company responsible for
the
cost of a project in excess of an approved budget. The budget consists primarily
of costs included in the general contractors’ guaranteed maximum price contract
(“GMP”). In most cases, the GMP obligates the general contractor, subject to
force majeure and approved change orders, to provide completion date guarantees
and to cover cost overruns and liquidated damages. In addition, the GMP is
typically secured with payment and performance bonds. Project cost guarantees
expire upon completion of certain developer obligations, which normally expire
within one year after completion of the project.
On
two
completed projects, the Company has guaranteed losses up to $6.0 million
in
excess of the development fee if the loss is due to any failure of the Company
to maintain, or cause its professionals to maintain, required insurance for
a
period of five years after completion of the projects (August 2009 and August
2011, respectively).
The
Company’s estimated maximum exposure amount under the above guarantees is
approximately $13.7 million.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
At
September 30, 2006, management does not anticipate any material deviations
from
schedule or budget related to third party development projects currently
in
progress. The Company has estimated the fair value of guarantees entered
into or modified after December 31, 2002, the effective date of FASB
Interpretation No. 45, Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others,
to be
immaterial.
In
the
normal course of business, the Company enters into various development-related
purchase commitments with parties that provide development-related goods
and
services. In the event that the Company was to terminate development
services prior to the completion of projects under construction, the Company
could potentially be committed to satisfy outstanding purchase orders with
such
parties.
Contract
to Acquire Development Property:
The
Company is under contract to acquire a $24.8 million development property
in
Waco, Texas. The closing of this transaction is dependent upon completion
of
construction and lease-up and the achievement of certain occupancy levels
and
rental rates. There can be no assurance that such conditions will be satisfied
or that this acquisition will be consummated.
Contingencies
Litigation:
In
the
normal course of business, the Company is subject to claims, lawsuits, and
legal
proceedings. While it is not possible to ascertain the ultimate outcome of
such
matters, management believes that the aggregate amount of such liabilities,
if
any, in excess of amounts provided or covered by insurance, will not have
a
material adverse effect on the consolidated financial position or results
of
operations of the Company.
Environmental
Matters: The
Company is not aware of any environmental liability with respect to the
properties that would have a material adverse effect on the Company's business,
assets or results of operations. However, there can be no assurance that
such a
material environmental liability does not exist. The existence of any such
material environmental liability could have an adverse effect on the Company's
results of operations and cash flows.
12.
Segments
The
Company defines business segments by their distinct customer base and service
provided. The Company has identified four reportable segments: Owned Off-Campus
Properties, On-Campus Participating Properties, Development Services, and
Property Management Services. Management evaluates each segment’s performance
based on operating income before depreciation, amortization, minority interests
and allocation of corporate overhead. Intercompany fees are reflected at
the
contractually stipulated amounts.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Three
Months Ended September 30,
|
|
Nine
Months Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Owned
Off-Campus Properties
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$
|
24,668
|
|
$
|
14,411
|
|
$
|
65,680
|
|
$
|
39,490
|
|
Interest
income
|
|
|
79
|
|
|
2
|
|
|
127
|
|
|
52
|
|
Total
revenues from external customers
|
|
|
24,747
|
|
|
14,413
|
|
|
65,807
|
|
|
39,542
|
|
Operating
expenses before depreciation and amortization
|
|
|
13,105
|
|
|
7,601
|
|
|
31,402
|
|
|
18,584
|
|
Interest
expense
|
|
|
5,113
|
|
|
3,290
|
|
|
13,788
|
|
|
9,008
|
|
Insurance
gain
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
430
|
|
Operating
income before depreciation and
amortization, minority
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interests
and allocation of corporate overhead
|
|
$
|
6,529
|
|
$
|
3,522
|
|
$
|
20,617
|
|
$
|
12,380
|
|
Depreciation
and amortization
|
|
$
|
5,563
|
|
$
|
2,996
|
|
$
|
15,201
|
|
$
|
8,418
|
|
Capital
expenditures
|
|
$
|
26,260
|
|
$
|
13,711
|
|
$
|
66,209
|
|
$
|
39,032
|
|
Total
segment assets at September 30,
|
|
$
|
710,141
|
|
$
|
393,736
|
|
$
|
710,141
|
|
$
|
393,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Campus
Participating Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$
|
3,971
|
|
$
|
3,637
|
|
$
|
13,450
|
|
$
|
12,263
|
|
Interest
income
|
|
|
102
|
|
|
53
|
|
|
255
|
|
|
105
|
|
Total
revenues from external customers
|
|
|
4,073
|
|
|
3,690
|
|
|
13,705
|
|
|
12,368
|
|
Operating
expenses
before depreciation, amortization, and |
|
|
|
|
|
|
|
|
|
|
|
|
|
ground/facility
leases
|
|
|
2,305
|
|
|
2,032
|
|
|
6,217
|
|
|
5,635
|
|
Ground/facility
leases
|
|
|
238
|
|
|
245
|
|
|
676
|
|
|
697
|
|
Interest
expense
|
|
|
1,638
|
|
|
1,403
|
|
|
4,838
|
|
|
4,103
|
|
Operating
(loss)
income before depreciation and amortization, minority |
|
|
|
|
|
|
|
|
|
|
|
|
|
interests
and allocation of corporate overhead
|
|
$
|
(108
|
)
|
$
|
10
|
|
$
|
1,974
|
|
$
|
1,933
|
|
Depreciation
and amortization
|
|
$
|
1,037
|
|
$
|
913
|
|
$
|
3,083
|
|
$
|
2,675
|
|
Capital
expenditures
|
|
$
|
275
|
|
$
|
5,330
|
|
$
|
395
|
|
$
|
16,280
|
|
Total
segment assets at September 30,
|
|
$
|
88,735
|
|
$
|
92,484
|
|
$
|
88,735
|
|
$
|
92,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
and construction management fees from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
external
customers
|
|
$
|
1,729
|
|
$
|
2,017
|
|
$
|
4,463
|
|
$
|
3,994
|
|
Intersegment
revenues
|
|
|
-
|
|
|
15
|
|
|
-
|
|
|
173
|
|
Total
revenues
|
|
|
1,729
|
|
|
2,032
|
|
|
4,463
|
|
|
4,167
|
|
Operating
expenses
|
|
|
1,150
|
|
|
1,057
|
|
|
3,618
|
|
|
2,929
|
|
Operating
income before depreciation and amortization,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
minority
interests and allocation of corporate overhead
|
|
$
|
579
|
|
$
|
975
|
|
$
|
845
|
|
$
|
1,238
|
|
Total
segment assets at September 30,
|
|
$
|
6,275
|
|
$
|
2,272
|
|
$
|
6,275
|
|
$
|
2,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
Management Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
management fees from external customers
|
|
$
|
491
|
|
$
|
783
|
|
$
|
1,844
|
|
$
|
2,055
|
|
Intersegment
revenues
|
|
|
862
|
|
|
614
|
|
|
2,535
|
|
|
1,866
|
|
Total
revenues
|
|
|
1,353
|
|
|
1,397
|
|
|
4,379
|
|
|
3,921
|
|
Operating
expenses
|
|
|
577
|
|
|
501
|
|
|
1,865
|
|
|
1,367
|
|
Operating
income before depreciation and amortization, minority
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interests
and allocation of corporate overhead
|
|
$
|
776
|
|
$
|
896
|
|
$
|
2,514
|
|
$
|
2,554
|
|
Total
segment assets at September 30,
|
|
$
|
1,296
|
|
$
|
1,652
|
|
$
|
1,296
|
|
$
|
1,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment revenues
|
|
$
|
31,902
|
|
$
|
21,532
|
|
$
|
88,354
|
|
$
|
59,998
|
|
Unallocated
interest income earned on corporate cash
|
|
|
113
|
|
|
341
|
|
|
241
|
|
|
341
|
|
Elimination
of intersegment revenues
|
|
|
(862
|
)
|
|
(629
|
)
|
|
(2,535
|
)
|
|
(2,039
|
)
|
Total
consolidated revenues, including interest income
|
|
$
|
31,153
|
|
$
|
21,244
|
|
$
|
86,060
|
|
$
|
58,300
|
|
Segment
operating income before depreciation, amortization,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
minority
interests and allocation of corporate overhead
|
|
$
|
7,776
|
|
$
|
5,403
|
|
$
|
25,950
|
|
$
|
18,105
|
|
Depreciation
and amortization, including amortization of deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing
costs
|
|
|
7,069
|
|
|
4,333
|
|
|
19,750
|
|
|
12,224
|
|
Net
unallocated expenses relating to corporate overhead
|
|
|
2,745
|
|
|
1,735
|
|
|
8,064
|
|
|
7,212
|
|
Income
tax provision
|
|
|
-
|
|
|
(6
|
)
|
|
-
|
|
|
(6
|
)
|
Minority
interests
|
|
|
149
|
|
|
(10
|
)
|
|
202
|
|
|
(85
|
)
|
Loss
from continuing operations
|
|
$
|
(1,889
|
)
|
$
|
(681
|
)
|
$
|
(1,662
|
)
|
$
|
(1,422
|
)
|
Total
segment assets
|
|
$
|
806,447
|
|
$
|
490,144
|
|
$
|
806,447
|
|
$
|
490,144
|
|
Unallocated
corporate assets and assets held for sale
|
|
|
57,982
|
|
|
64,325
|
|
|
57,982
|
|
|
64,325
|
|
Total
assets
|
|
$
|
864,429
|
|
$
|
554,469
|
|
$
|
864,429
|
|
$
|
554,469
|
|
Forward-looking
Statements
This
report contains forward-looking statements within the meaning of the federal
securities laws. We caution investors that any forward-looking statements
presented in this report, or which management may make orally or in writing
from
time to time, are based on management’s beliefs and assumptions made by, and
information currently available to, management. When used, the words
“anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,”
“project,” “should,” “will,” “result” and similar expressions, which do not
relate solely to historical matters, are intended to identify forward-looking
statements. Such statements are subject to risks, uncertainties and assumptions
and may be affected by known and unknown risks, trends, uncertainties and
factors that are beyond our control. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. We caution you that while forward-looking statements reflect our
good
faith beliefs when we make them, they are not guarantees of future performance
and are impacted by actual events when they occur after we make such statements.
We expressly disclaim any responsibility to update forward-looking statements,
whether as a result of new information, future events or otherwise. Accordingly,
investors should use caution in relying on past forward-looking statements,
which are based on results and trends at the time they were made, to anticipate
future results or trends.
Some
of
the risks and uncertainties that may cause our actual results, performance
or
achievements to differ materially from those expressed or implied by
forward-looking statements include, among others, the following: general risks
affecting the real estate industry (including, without limitation, the inability
to enter into or renew leases, dependence on tenants’ financial condition, and
competition from other developers, owners and operators of real estate); risks
associated with changes in University admission or housing policies; risks
associated with the availability and terms of financing and the use of debt
to
fund acquisitions and developments; failure to manage effectively our growth
and
expansion into new markets or to integrate acquisitions successfully; risks
and
uncertainties affecting property development and construction (including,
without limitation, construction delays, cost overruns, inability to obtain
necessary permits and public opposition to such activities); risks associated
with downturns in the national and local economies, increases in interest rates,
and volatility in the securities markets; costs of compliance with the Americans
with Disabilities Act and other similar laws; potential liability for uninsured
losses and environmental contamination; risks associated with our potential
failure to qualify as a REIT under the Internal Revenue Code of 1986 (the
“Code”), as amended, and possible adverse changes in tax and environmental laws;
and risks associated with our dependence on key personnel whose continued
service is not guaranteed.
The
risks
included here are not exhaustive, and additional factors could adversely affect
our business and financial performance, including factors and risks included
in
other sections of this report. Moreover, we operate in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and
it
is not possible for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
Our
Company and Our Business
American
Campus Communities, Inc. (referred to herein as “the Company,” “us,” “we,” and
“our”) is a real estate investment trust (“REIT”) that was incorporated on March
9, 2004 and commenced operations effective with the completion of our initial
public offering (“IPO”) on August 17, 2004. Through our controlling interest in
American Campus Communities Operating Partnership LP (the “Operating
Partnership”) and American Campus Communities Services, Inc., (our taxable REIT
subsidiary or “TRS”), we are one of the largest owners, managers and developers
of high quality student housing properties in the United States in terms of
beds
owned and under management. We are a fully integrated, self-managed and
self-administered equity REIT with expertise in the acquisition, design,
financing, development, construction management, leasing and management of
student housing properties.
On
September 15, 2006, we completed an equity offering, consisting of the sale
of
5,692,500 shares of our common stock at a price per share of $24.60, including
the exercise of 742,500 shares issued as a result of the exercise of the
underwriters’ overallotment option in full at closing. The offering generated
gross proceeds of approximately $140.0 million. The aggregate proceeds, net
of
the underwriter’s discount and offering costs, were approximately $133.0
million.
As
of
September 30, 2006, our property portfolio contained 38 student housing
properties with approximately 22,700 beds and approximately 7,400 apartment
units, consisting of 34 owned off-campus properties that are in close proximity
to colleges and universities and four on-campus participating properties
operated under ground/facility leases with the related university systems.
These
communities contain modern housing units, offer resort-style amenities and
are
supported by a resident assistant system and other student-oriented
programming.
Through
the TRS, we also provide construction management and development services for
student housing properties owned by colleges and universities, charitable
foundations, and others. As of September 30, 2006, we provided third party
management and leasing services for 15 student housing properties (9 of which
we
served as the third party developer and construction manager) that represented
approximately 9,300 beds in approximately 3,200 units. Third party management
and leasing services are typically provided pursuant to multi-year management
contracts that have initial terms that range from one to five years. As of
September 30, 2006, our total owned and managed portfolio included 53 properties
with approximately 32,000 beds in approximately 10,600 units.
Third-Party
Development Services
Our
third-party development and construction management services as of September
30,
2006 consisted of three projects under contract and currently in progress with
fees ranging from $0.7 million to $2.1 million. As of September 30, 2006, fees
of approximately $2.0 million remained to be earned by us with respect to these
projects, which have scheduled completion dates of August 2007 through July
2008. In addition, as of September 30, 2006, we had been awarded three projects
which have not yet commenced construction.
We
completed four projects in August 2006 with a total of approximately 2,800
beds
in approximately 900 units, and earned approximately $6.1 million of fees for
these four projects over a period of approximately 22 months.
While
we
believe that our third party development/construction management and property
management services allow us to develop strong and key relationships with
colleges and universities, revenue from this area has over time become a smaller
portion of our operations due to the continued focus on and growth of our owned
property portfolio. Nevertheless, we believe these services continue to provide
synergies with respect to our ability to identify, acquire or develop, and
successfully operate, student housing properties.
Owned
Development Activities
Callaway
Villas:
In
August 2006, we completed the final stages of construction on this owned
off-campus property, which contains 704 beds in 236 units. Total development
costs incurred for the project were approximately $37.5 million.
University
Centre:
As of
September 30, 2006, our University Centre (formerly Village at Newark) owned
off-campus property was under construction with total development costs
estimated to be approximately $74.4 million. The project is scheduled to
complete construction in Summer 2007 and open for occupancy in Fall 2007 in
connection with the commencement of the 2007/2008 academic year. As of September
30, 2006, the project was approximately 64% complete and we estimate that
remaining development costs will be approximately $32.8 million. As of September
30, 2006, we have funded $25.5 million of the project’s development costs
internally, with the remaining development costs to be funded through a
construction loan.
Acquisitions
On
March
1, 2006, we completed the acquisition of a portfolio of 13 student housing
properties (the “Royal Portfolio”) pursuant to a contribution and sale agreement
with contributors affiliated with Royal Properties for a contribution value
of
$244.3 million, which was paid as follows: (i) the issuance to certain partners
of the contributors of approximately 2.1 million Common Units valued at $23.50
per unit and approximately 0.1 million Series A Preferred Units valued at $26.75
per unit; (ii) the assumption of $123.6 million of fixed-rate mortgage debt;
and
(iii) the remainder in cash and promissory notes. As of September 30, 2006,
as
anticipated, we have incurred an additional $4.9 million in closing costs and
other external acquisition costs related to this acquisition.
We
retained approximately $6.9 million of the contribution value, which will be
utilized to satisfy indemnification obligations that may arise during a one-year
survival period with any remaining amounts to be paid to the contributors upon
expiration of such one-year survival period. The retained amount is composed
of
Common Units, Series A Preferred Units, cash, and secured promissory notes
of
approximately $1.9 million, payable on February 28, 2007 together with accrued
interest at 4.39% per annum.
The
Royal
Portfolio consists of five properties in Florida, four properties in Texas,
two
properties in Tennessee, and one property each in Arizona and Kentucky. The
13
properties contain approximately 1,800 units and approximately 5,700 beds.
Property
Operations
As
of
September 30, 2006, our property portfolio consisted of the following:
PROPERTY
|
|
YEAR
ACQUIRED / DEVELOPED
(1)
|
|
LOCATION
|
|
PRIMARY
UNIVERSITY SERVED
|
|
UNITS
|
|
BEDS
|
|
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties:
|
|
|
|
|
|
|
|
|
|
|
1.
Villas on Apache (2)
|
|
1999
|
|
Tempe,
AZ
|
|
Arizona
State University Main Campus
|
|
111
|
|
288
|
2.
The Village at Blacksburg
|
|
2000
|
|
Blacksburg,
VA
|
|
Virginia
Polytechnic Institute and
State
University
|
|
288
|
|
1,056
|
3.
The Village on University(3)
|
|
1999
|
|
Tempe,
AZ
|
|
Arizona
State University Main Campus
|
|
288
|
|
918
|
4.
River Club Apartments
|
|
1999
|
|
Athens,
GA
|
|
The
University of Georgia-Athens
|
|
266
|
|
794
|
5.
River Walk Townhomes
|
|
1999
|
|
Athens,
GA
|
|
The
University of Georgia-Athens
|
|
100
|
|
340
|
6.
The Callaway House
|
|
2001
|
|
College
Station, TX
|
|
Texas
A&M University
|
|
173
|
|
538
|
7.
The Village at Alafaya Club
|
|
2000
|
|
Orlando,
FL
|
|
The
University of Central Florida
|
|
228
|
|
840
|
8.
The Village at Science Drive
|
|
2001
|
|
Orlando,
FL
|
|
The
University of Central Florida
|
|
192
|
|
732
|
9.
University Village at Boulder Creek
|
|
2002
|
|
Boulder,
CO
|
|
The
University of Colorado at Boulder
|
|
82
|
|
309
|
10.
University Village at Fresno
|
|
2004
|
|
Fresno,
CA
|
|
California
State University, Fresno
|
|
105
|
|
406
|
11.
University Village at TU
|
|
2004
|
|
Philadelphia,
PA
|
|
Temple
University
|
|
220
|
|
749
|
12.
University Club Tallahassee
|
|
2005
|
|
Tallahassee,
FL
|
|
Florida
State University
|
|
152
|
|
608
|
13.
The Grove at University Club
|
|
2005
|
|
Tallahassee,
FL
|
|
Florida
State University
|
|
64
|
|
128
|
14.
College Club Tallahassee
|
|
2005
|
|
Tallahassee,
FL
|
|
Florida
A&M University
|
|
96
|
|
384
|
15.
The Greens at College Club
|
|
2005
|
|
Tallahassee,
FL
|
|
Florida
A&M University
|
|
40
|
|
160
|
16.
University Club Gainesville
|
|
2005
|
|
Gainesville,
FL
|
|
University
of Florida
|
|
94
|
|
376
|
17.
City Parc at Fry Street
|
|
2005
|
|
Denton,
TX
|
|
University
of North Texas
|
|
136
|
|
418
|
18.
The Estates
|
|
2005
|
|
Gainesville,
FL
|
|
University
of Florida
|
|
396
|
|
1,044
|
19.
University Village at Sweet Home
|
|
2005
|
|
Amherst,
NY
|
|
State
University of New York - Buffalo
|
|
269
|
|
828
|
20.
Entrada Real
|
|
2006
|
|
Tucson,
AZ
|
|
University
of Arizona
|
|
98
|
|
363
|
21.
Royal Oaks
|
|
2006
|
|
Tallahassee,
FL
|
|
Florida
State University
|
|
82
|
|
224
|
22.
Royal Pavilion
|
|
2006
|
|
Tallahassee,
FL
|
|
Florida
State University
|
|
60
|
|
204
|
23.
Royal Village Tallahassee
|
|
2006
|
|
Tallahassee,
FL
|
|
Florida
State University
|
|
75
|
|
288
|
24.
Royal Village Gainesville
|
|
2006
|
|
Gainesville,
FL
|
|
University
of Florida
|
|
118
|
|
448
|
25.
Northgate Lakes
|
|
2006
|
|
Orlando,
FL
|
|
The
University of Central Florida
|
|
194
|
|
710
|
26.
Royal Lexington
|
|
2006
|
|
Lexington,
KY
|
|
University
of Kentucky
|
|
94
|
|
364
|
27.
The Woods at Greenland
|
|
2006
|
|
Murfreesboro,
TN
|
|
Middle
Tennessee State University
|
|
78
|
|
276
|
28.
Raiders Crossing
|
|
2006
|
|
Murfreesboro,
TN
|
|
Middle
Tennessee State University
|
|
96
|
|
276
|
29.
Raiders Pass
|
|
2006
|
|
Lubbock,
TX
|
|
Texas
Tech University
|
|
264
|
|
828
|
30.
Aggie Station
|
|
2006
|
|
College
Station, TX
|
|
Texas
A&M University
|
|
156
|
|
450
|
31.
The Outpost San Marcos
|
|
2006
|
|
San
Marcos, TX
|
|
Texas
State University - San Marcos
|
|
162
|
|
486
|
32.
The Outpost San Antonio
|
|
2006
|
|
San
Antonio, TX
|
|
University
of Texas - San Antonio
|
|
276
|
|
828
|
33.
Callaway Villas (4)
|
|
2006
|
|
College
Station, TX
|
|
Texas
A&M University
|
|
236
|
|
704
|
34.
University Centre (5)
|
|
2007
|
|
Newark,
NJ
|
|
Rutgers
University, NJIT, Essex CCC
|
|
234
|
|
838
|
Total
owned off-campus properties
|
|
|
|
|
|
|
|
5,523
|
|
18,203
|
PROPERTY
|
|
YEAR
ACQUIRED
/ DEVELOPED (1)
|
|
LOCATION
|
|
PRIMARY
UNIVERSITY SERVED
|
|
UNITS
|
|
BEDS
|
|
|
|
|
|
|
|
|
|
|
|
On-campus
participating properties:
|
|
|
|
|
|
|
|
|
|
|
35.
University Village—PVAMU
|
|
1996
/ 97 / 98
|
|
Prairie
View, TX
|
|
Prairie
View A&M University
|
|
612
|
|
1,920
|
36.
University College—PVAMU
|
|
2000
/ 2003
|
|
Prairie
View, TX
|
|
Prairie
View A&M University
|
|
756
|
|
1,470
|
37.
University Village—TAMIU
|
|
1997
|
|
Laredo,
TX
|
|
Texas
A&M International University
|
|
84
|
|
252
|
38.
Cullen Oaks - Phase I and II
|
|
2001
/ 2005
|
|
Houston,
TX
|
|
The
University of Houston
|
|
411
|
|
879
|
Total
on-campus participating properties
|
|
|
|
|
|
|
|
1,863
|
|
4,521
|
|
|
|
|
|
|
|
|
|
|
|
Total
- all properties
|
|
|
|
|
|
|
|
7,386
|
|
22,724
|
(1) |
As
of September 30, 2006, the average age of our operating properties
was
approximately 6.5 years.
|
(2) |
Villas
on Apache (formerly Commons on Apache) was reconfigured from 444
beds to
288 beds in August 2006.
|
(3) |
This
property is expected to be sold in the fourth quarter
2006.
|
(4) |
Construction
was completed and property commenced operations in August
2006.
|
(5) |
Formerly
Village at Newark. Currently under development - scheduled to complete
construction in Summer 2007 and open for occupancy in Fall 2007.
|
Results
of Operations
Comparison
of the Three Months Ended September 30, 2006 and September 30,
2005
The
following table presents our results of operations for the three months ended
September 30, 2006 and 2005, including the amount and percentage change in
these
results between the two periods:
|
|
Three
Months Ended
September
30,
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
Change
($)
|
|
Change
(%)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
$
|
24,340
|
|
$
|
14,155
|
|
$
|
10,185
|
|
|
72.0
|
%
|
On-campus
participating properties
|
|
|
3,971
|
|
|
3,637
|
|
|
334
|
|
|
9.2
|
%
|
Third
party development services
|
|
|
1,729
|
|
|
2,017
|
|
|
(288
|
)
|
|
(14.3
|
%)
|
Third
party management services
|
|
|
491
|
|
|
783
|
|
|
(292
|
)
|
|
(37.3
|
%)
|
Resident
services
|
|
|
328
|
|
|
256
|
|
|
72
|
|
|
28.1
|
%
|
Total
revenues
|
|
|
30,859
|
|
|
20,848
|
|
|
10,011
|
|
|
48.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
|
13,178
|
|
|
7,696
|
|
|
5,482
|
|
|
71.2
|
%
|
On-campus
participating properties
|
|
|
2,455
|
|
|
2,173
|
|
|
282
|
|
|
13.0
|
%
|
Third
party development and management services
|
|
|
1,338
|
|
|
1,609
|
|
|
(271
|
)
|
|
(16.8
|
%)
|
General
and administrative
|
|
|
1,468
|
|
|
1,534
|
|
|
(66
|
)
|
|
(4.3
|
%)
|
Depreciation
and amortization
|
|
|
6,735
|
|
|
4,015
|
|
|
2,720
|
|
|
67.7
|
%
|
Ground/facility
leases
|
|
|
238
|
|
|
245
|
|
|
(7
|
)
|
|
(2.9
|
%)
|
Total
operating expenses
|
|
|
25,412
|
|
|
17,272
|
|
|
8,140
|
|
|
47.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
5,447
|
|
|
3,576
|
|
|
1,871
|
|
|
52.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
294
|
|
|
396
|
|
|
(102
|
)
|
|
(25.8
|
%)
|
Interest
expense
|
|
|
(7,445
|
)
|
|
(4,319
|
)
|
|
(3,126
|
)
|
|
72.4
|
%
|
Amortization
of deferred financing costs
|
|
|
(334
|
)
|
|
(318
|
)
|
|
(16
|
)
|
|
5.0
|
%
|
Total
nonoperating expenses
|
|
|
(7,485
|
)
|
|
(4,241
|
)
|
|
(3,244
|
)
|
|
76.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes, minority interests, and discontinued
operations
|
|
|
(2,038
|
)
|
|
(665
|
)
|
|
(1,373
|
)
|
|
206.5
|
%
|
Income
tax provision
|
|
|
-
|
|
|
(6
|
)
|
|
6
|
|
|
(100.0
|
%)
|
Minority
interests
|
|
|
149
|
|
|
(10
|
)
|
|
159
|
|
|
(1590.0
|
%)
|
Loss
from continuing operations
|
|
|
(1,889
|
)
|
|
(681
|
)
|
|
(1,208
|
)
|
|
177.4
|
%
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
attributable to discontinued operations
|
|
|
278
|
|
|
85
|
|
|
193
|
|
|
227.1
|
%
|
Total
discontinued operations
|
|
|
278
|
|
|
85
|
|
|
193
|
|
|
227.1
|
%
|
Net
loss
|
|
$
|
(1,611
|
)
|
$
|
(596
|
)
|
$
|
(1,015
|
)
|
|
170.3
|
%
|
Owned Off-Campus Properties Operations
Revenues
from our owned off-campus properties for the three months ended September 30,
2006 compared with the same period in 2005 increased by $10.2 million primarily
due to the acquisition of the Royal Portfolio on March 1, 2006 and the
completion of construction and opening of University Village at Sweet Home
in
August 2005 and Callaway Villas in August 2006. Operating expenses increased
approximately $5.5 million for the three months ended September 30, 2006
compared with the same period in 2005, primarily due to the same factors which
affected the increase in revenues.
New
Property Operations.
On March
1, 2006, we acquired the Royal Portfolio, which consists of 13 properties
containing 5,745 beds located in Florida, Texas, Tennessee, Arizona and
Kentucky. In addition, in August 2005 we completed construction of and opened
an
828-bed property serving the State University of New York - Buffalo and in
August 2006 we completed construction of and opened a 704-bed property serving
Texas A&M University. These new properties contributed $9.6 million of
additional revenues and $5.1 million of additional operating expenses during
the
three months ended September 30, 2006 as compared to the three months ended
September 30, 2005.
Same
Store Property Operations (Excluding New Property Activity).
We had
17 properties containing 9,170 beds which were operating during both the three
months ended September 30, 2006 and 2005, excluding The Village on University,
which is classified as discontinued operations (see below). These properties
produced revenues of $14.3 million and $13.7 million during the three months
ended September 30, 2006 and 2005, respectively, an increase of $0.6 million.
This increase was primarily due to an increase in average rental rates during
the three months ended September 30, 2006 as compared to the same period in
2005, offset by a slight decrease in average occupancy rates from 95.8% during
the three months ended September 30, 2005 to 95.6% during the three months
ended
September 30, 2006. Future revenues will be dependent on, among other items,
our
ability to maintain our current leases in effect for the 2006/2007 academic
year
and our ability to obtain appropriate rental rates and desired occupancy for
the
2007/2008 academic year at our various properties during our leasing period,
which typically begins in January and ends in August.
At
these
existing properties, operating expenses were $7.9 million and $7.5 million
during the three months ended September 30, 2006 and 2005, respectively, an
increase of $0.4 million. This increase was primarily due to increases in
utilities, insurance costs and property taxes. We anticipate that operating
expenses for the full year 2006 will increase slightly as compared with 2005
as
a result of expected increases in insurance costs, utility costs, property
taxes
and general inflation.
On-Campus
Participating Properties (“OCPP”) Operations
New
Property Operations.
In
August 2005, we completed construction of and opened an additional phase of
our
Cullen Oaks property, consisting of 180 units and 354 beds. This additional
phase contributed approximately $0.2 million of additional revenues and
approximately $0.2 million of additional operating expenses during the three
months ended September 30, 2006.
Same
Store OCPP Operations.
We had
four on-campus participating properties containing 4,167 beds which were
operating during both the three month periods ended September 30, 2006 and
2005.
Revenues from our same store on-campus participating properties increased to
$3.5 million during the three months ended September 30, 2006 from $3.4 million
for the three months ended September 30, 2005, an increase of $0.1 million.
This
increase was primarily due to an increase in average rental rates during the
three months ended September 30, 2006 as compared to the same period in 2005,
offset by a slight decrease in average occupancy rates from 66.0% during the
three months ended September 30, 2005 to 65.7% during the three months ended
September 30, 2006. Occupancy at our on-campus participating properties is
typically low in the second and third quarter of each calendar year due to
the
expiration of the 9 month leases at these properties concurrent with the end
of
the spring semester.
At
these
existing properties, operating expenses remained relatively constant at $2.2
million and $2.1 million during the three months ended September 30, 2006 and
2005, respectively. We
anticipate that operating expenses for the full year 2006 will increase slightly
as compared with 2005 as a result of expected increases in insurance costs,
utility costs and general inflation.
Third
Party Development Services Revenue
Third
party development services revenue decreased by $0.3 million from $2.0 million
during the three months ended September 30, 2005 to $1.7 million for the three
months ended September 30, 2006. This decrease was primarily due to a lower
percentage of construction completed during the three months ended September
30,
2006 as compared to the same period in 2005. This decrease was slightly offset
by a higher average contractual fee per project during the three months ended
September 30, 2006 as compared to the same period in 2005. Of the total
contractual fees of the projects in progress during the respective periods,
approximately 15% of the total contractual fees were recognized during the
three
months ended September 30, 2006, as compared to approximately 23% for the three
months ended September 30, 2005. We had seven projects in progress during the
three months ended September 30, 2006 with an average contractual fee of
approximately $1.6 million, as compared to the three months ended September
30,
2005, in which we had eight projects in progress with an average contractual
fee
of $1.1 million.
Development
services revenues are dependent on our ability to successfully be awarded such
projects, the amount of the contractual fee related to the project and the
timing and completion of the construction of the project. In addition, to the
extent projects are completed under budget, we may be entitled to a portion
of
such savings, which are recognized as revenue upon third party verification
of
the project costs. It is possible that projects for which we have deferred
pre-development costs will not close and that we will not be reimbursed for
such
costs. The pre-development costs associated therewith will ordinarily be charged
against income for the then-current period.
Third
Party Management Services Revenues
Third
party management services revenues decreased by $0.3 million for the three
months ended September 30, 2006 as compared to the same period in 2005. This
decrease was primarily the result of the discontinuation of the Texas State
University System management contracts in July 2006, which was slightly offset
by the commencement of four management contracts in August 2006. We anticipate
that revenues in our third party management segment for the full year 2006
will
decrease slightly as compared with 2005, as a result of changes in the portfolio
of third-party managed properties.
Third
Party Development and Management Services Expenses
Third
party development and management services expenses decreased by $0.3 million,
from $1.6 million during the three months ended September 30, 2005, to $1.3
million for the three months ended September 30, 2006. This decrease was
primarily due to lower expenses incurred during the three months ended September
30, 2006 as compared to the same period in 2005 in relation to the West Virginia
University third party development projects. Expenses in our third party
development segment in 2006 will be dependent on the level of awards we pursue,
and as previously mentioned, any pre-development costs charged against income
for projects which did not close.
Depreciation
and Amortization
Depreciation
and amortization increased by $2.7 million, from $4.0 million during the three
months ended September 30, 2005 to $6.7 million for the three months ended
September 30, 2006. This increase was due to the acquisition of the Royal
Portfolio on March 1, 2006, the opening of one owned off-campus property in
August 2005 and one owned off-campus property in August 2006, and the completion
of an additional phase at an on-campus participating property in August 2005.
In
conjunction with the acquisition of the 13-property Royal Portfolio on March
1,
2006 and the seven properties acquired during the first quarter of 2005, a
valuation was assigned to in-place leases which was amortized over the remaining
lease terms of the acquired leases (generally less than one year). This
contributed $0.6 million and $0.2 million of additional depreciation and
amortization expense for the three months ended September 30, 2006 and 2005,
respectively, an increase of $0.4 million. We expect depreciation and
amortization for the full year 2006 to increase significantly from 2005 levels
primarily due to 2006 acquisitions, additional depreciation on the owned
off-campus property that opened in August 2006 and a full year of depreciation
on properties acquired and placed into service in 2005.
Interest
Expense
Interest
expense increased $3.1 million, from $4.3 million during the three months ended
September 30, 2005, to $7.4 million for the three months ended September 30,
2006. This increase was primarily due to additional interest incurred during
the
three months ended September 30, 2006 associated with debt assumed in connection
with the previously mentioned Royal Portfolio acquisition, net of the
amortization of debt premiums and discounts recorded to reflect the market
value
of debt assumed. In addition, we incurred additional interest expense on our
revolving credit facility as a result of an increase in the weighted average
balance from $3.8 million to $70.6 million for the three months ended September
30, 2005 and 2006, respectively, and an increase in the weighted average
interest rate incurred under the facility from 5.06% to 6.85% for the three
months ended September 30, 2005 and 2006, respectively. We anticipate that
interest expense for the full year 2006 will increase from 2005 levels primarily
due to the debt assumed in connection with the previously mentioned property
acquisitions.
Minority Interests
Minority
interests increased by $0.2 million for the three months ended September 30,
2006 as compared to the same period in 2005. This increase was primarily due
to
the issuance of Common Units and Series A Preferred Units in our Operating
Partnership on March 1, 2006 in connection with our acquisition of the Royal
Portfolio. See Note 7 in the accompanying Notes to Consolidated Financial
Statements contained in Item 1 herein for a detailed discussion of Common Units
and Series A Preferred Units.
Discontinued Operations
Statement
of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets (“SFAS
No. 144”), requires, among other items, that the operating results of real
estate properties sold or classified as held for sale be included in
discontinued operations in the statements of operations for all periods
presented. The Village on University, an owned off-campus property, was
classified as held for sale in August 2006 and is therefore included in
discontinued operations for the three months ended September 30, 2006 and 2005.
Comparison
of the Nine Months Ended September 30, 2006 and September 30,
2005
The
following table presents our results of operations for the nine months ended
September 30, 2006 and 2005, including the amount and percentage change in
these
results between the two periods:
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
Change
($)
|
|
Change
(%)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
$
|
64,687
|
|
$
|
38,814
|
|
$
|
25,873
|
|
|
66.7
|
%
|
On-campus
participating properties
|
|
|
13,450
|
|
|
12,263
|
|
|
1,187
|
|
|
9.7
|
%
|
Third
party development services
|
|
|
4,463
|
|
|
3,994
|
|
|
469
|
|
|
11.7
|
%
|
Third
party management services
|
|
|
1,844
|
|
|
2,055
|
|
|
(211
|
)
|
|
(10.3
|
%)
|
Resident
services
|
|
|
993
|
|
|
676
|
|
|
317
|
|
|
46.9
|
%
|
Total
revenues
|
|
|
85,437
|
|
|
57,802
|
|
|
27,635
|
|
|
47.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
|
31,710
|
|
|
18,876
|
|
|
12,834
|
|
|
68.0
|
%
|
On-campus
participating properties
|
|
|
6,660
|
|
|
6,034
|
|
|
626
|
|
|
10.4
|
%
|
Third
party development and management services
|
|
|
4,402
|
|
|
4,646
|
|
|
(244
|
)
|
|
(5.3
|
%)
|
General
and administrative
|
|
|
4,879
|
|
|
4,823
|
|
|
56
|
|
|
1.2
|
%
|
Depreciation
and amortization
|
|
|
18,672
|
|
|
11,384
|
|
|
7,288
|
|
|
64.0
|
%
|
Ground/facility
leases
|
|
|
676
|
|
|
697
|
|
|
(21
|
)
|
|
(3.0
|
%)
|
Total
operating expenses
|
|
|
66,999
|
|
|
46,460
|
|
|
20,539
|
|
|
44.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
18,438
|
|
|
11,342
|
|
|
7,096
|
|
|
62.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
623
|
|
|
498
|
|
|
125
|
|
|
25.1
|
%
|
Interest
expense
|
|
|
(19,847
|
)
|
|
(12,761
|
)
|
|
(7,086
|
)
|
|
55.5
|
%
|
Amortization
of deferred financing costs
|
|
|
(1,078
|
)
|
|
(840
|
)
|
|
(238
|
)
|
|
28.3
|
%
|
Other
nonoperating income
|
|
|
-
|
|
|
430
|
|
|
(430
|
)
|
|
(100.0
|
%)
|
Total
nonoperating expenses
|
|
|
(20,302
|
)
|
|
(12,673
|
)
|
|
(7,629
|
)
|
|
60.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes, minority interests, and discontinued
operations
|
|
|
(1,864
|
)
|
|
(1,331
|
)
|
|
(533
|
)
|
|
40.0
|
%
|
Income
tax provision
|
|
|
-
|
|
|
(6
|
)
|
|
6
|
|
|
(100.0
|
%)
|
Minority
interests
|
|
|
202
|
|
|
(85
|
)
|
|
287
|
|
|
(337.6
|
%)
|
Loss
from continuing operations
|
|
|
(1,662
|
)
|
|
(1,422
|
)
|
|
(240
|
)
|
|
16.9
|
%
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
attributable to discontinued operations
|
|
|
1,648
|
|
|
1,343
|
|
|
305
|
|
|
22.7
|
%
|
Gain
from disposition of real estate
|
|
|
-
|
|
|
5,883
|
|
|
(5,883
|
)
|
|
(100.0
|
%)
|
Total
discontinued operations
|
|
|
1,648
|
|
|
7,226
|
|
|
(5,578
|
)
|
|
(77.2
|
%)
|
Net
(loss) income
|
|
$
|
(14
|
)
|
$
|
5,804
|
|
$
|
(5,818
|
)
|
|
(100.2
|
%)
|
Owned Off-Campus Properties Operations
Revenues
from our owned off-campus properties for the nine months ended September 30,
2006 compared with the same period in 2005 increased by $25.9 million primarily
due to the acquisition of the Royal Portfolio on March 1, 2006, the acquisition
of seven properties during the first quarter of 2005 and the completion of
construction and opening of University Village at Sweet Home in August 2005
and
Callaway Villas in August 2006. Operating expenses increased approximately
$12.8
million for the nine months ended September 30, 2006 compared with the same
period in 2005, primarily due to the same factors which affected the increase
in
revenues.
New
Property Operations.
On March
1, 2006, we acquired the Royal Portfolio and on various dates during the three
months ended March 31, 2005, we acquired seven properties containing 3,118
beds
located in Florida and Texas. In addition, in August 2005 we completed
construction of and opened an 828-bed property serving the State University
of
New York - Buffalo and in August 2006 we completed construction of and opened
a
704-bed property serving Texas A&M University. These new properties
contributed $25.5 million of additional revenues and $12.8 million of additional
operating expenses during the nine months ended September 30, 2006 as compared
to the nine months ended September 30, 2005.
Same
Store Property Operations (Excluding New Property Activity).
We had
10 properties containing 6,052 beds which were operating during both the nine
month periods ended September 30, 2006 and 2005, excluding The Village on
University, which is classified as discontinued operations (see below). These
properties produced revenues of $28.9 million and $28.2 million during the
nine
month periods ended September 30, 2006 and 2005, respectively, an increase
of
$0.7 million. This increase was primarily due to an increase in average rental
rates during the nine months ended September 30, 2006 as compared to the same
period in 2005, as well as the improved lease up for the 2006/07 academic year,
which resulted in average occupancy rates increasing to 95.7% during the nine
months ended September 30, 2006 from 95.3% during the nine months ended
September 30, 2005.
At
these
existing properties, operating expenses remained relatively constant at $12.7
million for the nine months ended September 30, 2006, as compared to $12.6
million for the same period in 2005.
On-Campus Participating Properties (“OCPP”)
Operations
New
Property Operations.
In
August 2005, we completed construction of and opened an additional phase at
our
Cullen Oaks property, consisting of 180 units and 354 beds. This additional
phase contributed approximately $1.3 million of additional revenues and
approximately $0.6 million of additional operating expenses during the nine
months ended September 30, 2006.
Same
Store OCPP Operations. We
had
four on-campus participating properties containing 4,167 beds which were
operating during both the nine month periods ended September 30, 2006 and 2005.
Revenues from our same store on-campus participating properties decreased to
$11.9 million during the nine months ended September 30, 2006 from $12.0 million
for the nine months ended September 30, 2005, a decrease of $0.1 million. This
decrease was primarily due to a decrease in average occupancy rates from 66.7%
during the nine months ended September 30, 2005 to 64.4% during the nine months
ended September 30, 2006, offset by an increase in average rental rates during
the nine months ended September 30, 2006 as compared to the same period in
2005.
Occupancy at our on-campus participating properties is typically low in the
second and third quarter of each calendar year due to the expiration of the
9
month leases at these properties concurrent with the end of the spring semester.
At
these
existing properties, operating expenses remained relatively constant at $6.0
million and $5.9 million for the nine months ended September 30, 2006 and 2005,
respectively.
Third Party Development Services Revenue
Third
party development services revenue increased by $0.5 million from $4.0 million
during the nine months ended September 30, 2005 to $4.5 million for the nine
months ended September 30, 2006. This increase was primarily due to a higher
average contractual fee per project during the nine months ended September
30,
2006 as compared to the same period in 2005. This increase was slightly offset
by a decrease in the percentage of construction completed during the nine months
ended September 30, 2006 as compared to the same period in 2005. We had eight
projects in progress during the nine months ended September 30, 2006 with an
average contractual fee of approximately $1.6 million, as compared to the nine
months ended September 30, 2005 in which we had eight projects in progress
with
an average contractual fee of $1.1 million. As an offset to the factors
discussed above, a lower percentage of the contractual fees was recognized
during the nine months ended September 30, 2006 as compared to the same period
in 2005. Of the total contractual fees of the projects in progress during the
respective periods, approximately 35% of the total contractual fees was
recognized during the nine months ended September 30, 2006, compared to
approximately 48% for the nine months ended September 30, 2005.
Resident Services
Resident
services revenue represents revenue earned by our TRS related to the provision
of certain services to residents at our properties, such as food service,
housekeeping, and resident programming activities. Revenue from resident
services increased by $0.3 million, to $1.0 million during the nine months
ended
September 30, 2006, as compared to $0.7 million during the nine months ended
September 30, 2005. This increase was primarily due to additional revenue earned
during the nine months ended September 30, 2006 from the acquired properties
discussed above and the completion of construction and opening of University
Village at Sweet Home in August 2005 and Callaway Villas in August 2006. We
anticipate that resident services revenue will continue to increase in 2006
as
compared to 2005 as additional revenues are generated from the timing of
acquisitions and development properties placed into service.
General and Administrative
General
and administrative expenses increased approximately $0.1 million from $4.8
million during the nine months ended September 30, 2005, to $4.9 million for
the
nine months ended September 30, 2006. This increase was primarily due to an
increase in payroll and other related costs as a result of overall increases
in
corporate staffing levels due to recent growth in our owned off-campus portfolio
from the property acquisitions completed in 2006 and 2005. The increase in
payroll and other related costs was offset by a $0.4 million compensation charge
recorded in April 2005 to reflect a separation agreement entered into with
a
former executive officer. General and administrative expenses for the full
year
2006 will be dependent on expenditures required to maintain the growth of the
company, on-going monitoring and compliance costs related to internal controls,
the level of cash incentive awarded based on the financial results of the
company and general inflation.
Depreciation and Amortization
Depreciation
and amortization increased by $7.3 million, from $11.4 million during the nine
months ended September 30, 2005 to $18.7 million for the nine months ended
September 30, 2006. This increase was due to the acquisition of the Royal
Portfolio on March 1, 2006, the acquisition of seven properties during the
nine
months ended September 30, 2005, the opening of one owned off-campus property
in
August 2005 and one owned off-campus property in August 2006, and the completion
of an additional phase at an on-campus participating property in August 2005.
In
conjunction with the acquisition of the 13-property Royal Portfolio on March
1,
2006 and the seven properties acquired during the first quarter of 2005, a
valuation was assigned to in-place leases which was amortized over the remaining
lease terms of the acquired leases (generally less than one year). This
contributed $2.3 million and $1.1 million of additional depreciation and
amortization expense for the nine months ended September 30, 2006 and 2005,
respectively, an increase of $1.2 million.
Amortization
of deferred financing costs increased $0.2 million from $0.9 million to $1.1
million for the nine months ended September 30, 2005 and 2006, respectively.
This increase was primarily due to debt assumed in connection with the
previously mentioned Royal Portfolio acquisition and additional finance costs
incurred in June 2005 related to an amendment to our revolving credit facility.
This increase was slightly offset by a decrease related to the August 2006
amendment to our revolving credit facility, which extended the term of the
facility through August 2009.
Interest
Income
Interest
income increased by $0.1 million, from $0.5 million during the nine months
ended
September 30, 2005 to $0.6 million for the nine months ended September 30,
2006.
This increase was primarily due to higher interest rates in 2006 which resulted
in more interest earned on cash and cash equivalents and restricted cash.
Interest
Expense
Interest
expense increased $7.1 million from $12.8 million to $19.9 million for the
nine
months ended September 30, 2005 and 2006, respectively. This increase was
primarily due to additional interest incurred during the nine months ended
September 30, 2006 associated with debt assumed in connection with the
previously mentioned 2006 and 2005 acquisitions, net of the amortization of
debt
premiums and discounts recorded to reflect the market value of debt assumed.
In
addition, we incurred additional interest expense on our revolving credit
facility as a result of an increase in the weighted average balance from $18.0
million to $55.0 million for the nine months ended September 30, 2005 and 2006,
respectively, and an increase in the weighted average interest rate incurred
under the revolving credit facility from 4.47% to 6.61% for the nine months
ended September 30, 2005 and 2006, respectively. We also incurred additional
interest in 2006 related to the construction loan incurred to fund the
additional phase at an on-campus participating property that opened in August
2005. These increases were offset by an increase in capitalized interest as
a
result of two owned off-campus properties being under construction during the
nine months ended September 30, 2006 as compared to one property being under
construction during the nine months ended September 30, 2005.
Other Nonoperating Income
Other
non-operating income for the nine months ended September 30, 2005 represents
a
gain of approximately $0.4 million related to insurance proceeds received for
a
fire that occurred at one of our owned off-campus properties in 2003.
Minority
Interests
Minority
interests increased by $0.3 million for the nine months ended September 30,
2006
as compared to the same period in 2005. This increase was primarily due to
the
issuance of Common Units and Series A Preferred Units in our Operating
Partnership on March 1, 2006 in connection with our acquisition of the Royal
Portfolio.
Discontinued
Operations
Statement
of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets (“SFAS
No. 144”), requires, among other items, that the operating results of real
estate properties sold or classified as held for sale be included in
discontinued operations in the statements of operations for all periods
presented. The Village on University, an owned off-campus property, was
classified as held for sale in August 2006 and is included in discontinued
operations for the nine months ended September 30, 2006 and 2005. In addition,
our University Village at San Bernardino property was sold to Cal State
University - San Bernardino in January 2005. The net operating loss attributable
to this property and the resulting gain on disposition are also included in
discontinued operations for the nine months ended September 30, 2005.
Cash
Flows
Comparison
of Nine Months Ended September 30, 2006 and September 30,
2005
Operating Activities
For
the
nine months ended September 30, 2006, net cash provided by operating activities
was $19.3 million, as compared to $15.9 million for the nine months ended
September 30, 2005, an increase of $3.4 million. This change was primarily
due to an increase in depreciation and amortization resulting from the
acquisition of the Royal Portfolio on March 1, 2006, the acquisition of seven
properties during the nine months ended September 30, 2005, the opening of
one
owned off-campus property and an additional phase at an on-campus participating
property in August 2005 and the opening of one owned off-campus property in
August 2006.
Investing
Activities
Investing
activities utilized $136.7 million and $100.6 million for the nine months ended
September 30, 2006 and 2005, respectively. This increase related primarily
to
proceeds received from the sale of our University Village at San Bernardino
property in January 2005 as well as an increase in cash used to fund the
construction of our owned off-campus development properties. During the nine
months ended September 30, 2006, two owned off-campus properties were under
development, of which one was completed and opened for occupancy in August
2006.
During the nine months ended September 30, 2005, only one owned off-campus
property was under development, which was completed and opened for occupancy
in
Fall 2005. These increases were offset by development costs incurred during
the
nine months ended September 30, 2005 on an additional phase of an on-campus
participating property that was completed and opened for occupancy in Fall
2005.
For the nine months ended September 30, 2006 and 2005, our cash used in
investing activities was comprised of the following:
|
|
Nine
Months Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
Property
acquisitions
|
|
$
|
(69,633
|
)
|
$
|
(72,763
|
)
|
Property
dispositions
|
|
|
-
|
|
|
28,023
|
|
Capital
expenditures for on-campus participating properties
|
|
|
(395
|
)
|
|
(267
|
)
|
Capital
expenditures for owned off-campus properties
|
|
|
(5,690
|
)
|
|
(2,980
|
)
|
Investments
in on-campus participating properties under development
|
|
|
-
|
|
|
(16,013
|
)
|
Renovation
expenditures for owned off-campus property
|
|
|
(1,611
|
)
|
|
-
|
|
Investment
in owned off-campus properties under development
|
|
|
(58,908
|
)
|
|
(36,052
|
)
|
Purchase
of corporate furniture, fixtures, and equipment
|
|
|
(442
|
)
|
|
(520
|
)
|
Total
|
|
$
|
(136,679
|
)
|
$
|
(100,572
|
)
|
Financing
Activities
Cash
provided by financing activities totaled $124.9 million and $118.1 million
for
the nine months ended September 30, 2006 and 2005, respectively. The increase
in
cash provided by financing activities was primarily the result of our equity
offering in September 2006 which raised $133.3 million, net of offering costs,
as compared to the $96.7 million, net of offering costs, raised in our July
2005
equity offering. In addition, during the nine months ended September 30, 2005,
we paid down $11.8 million on our revolving credit facility, net of proceeds
received. Paydowns of our revolving credit facility during the nine months
ended
September 30, 2006, net of proceeds, were $-0-. Proceeds from our revolving
credit facility were used to fund our 2005 and 2006 acquisitions, distributions
to our common and restricted stockholders, and the construction of our owned
off-campus developments. During the nine months ended September 30, 2006, we
received $33.5 million of construction loan proceeds, which were used to fund
the construction of two of our owned development properties, as compared to
$15.1 million of construction loan proceeds received during the nine months
ended September 30, 2005 to fund the development of an additional phase at
an
on-campus participating property. These increases were offset by the receipt
of
proceeds from a $38.8 million bridge loan during the nine months ended September
30, 2005 and the $20.2 million pay down of a construction loan with proceeds
from our September 2006 equity offering. In addition, there was a $3.1 million
increase in distributions to common and restricted stockholders during the
nine
months ended September 30, 2006, as a result of our July 2005 equity
offering.
Structure
of On-campus Participating Properties
At
our
on-campus participating properties, the subject universities own both the land
and improvements. We then have a leasehold interest under a ground/facility
lease. Under the lease, we receive an annual distribution representing 50%
of
these properties’ net cash available for distribution after payment of operating
expenses (which includes our management fees), debt service (which includes
repayment of principal) and capital expenditures. We also manage these
properties under multi-year management agreements and are paid a management
fee
representing 5% of receipts.
We
do not
have access to the cash flows and working capital of these participating
properties except for the annual net cash distribution as described above.
Additionally, a substantial portion of these properties’ cash flow is dedicated
to capital reserves required under the applicable property indebtedness and
to
the amortization of such indebtedness. These amounts do not increase our
economic interest in these properties since our interest, including our right
to
share in the net cash available for distribution from the properties, terminates
upon the amortization of their indebtedness. Our economic interest in these
properties is therefore limited to our interest in the net cash flow and
management and development fees from these properties, as reflected in our
calculation of Funds from Operations modified for the operational performance
of
on-campus participating properties (“FFOM”) contained herein. Accordingly, when
considering these properties’ contribution to our operations, we focus upon our
share of these properties’ net cash available for distribution and the
management fees that we receive from these properties, rather than upon their
contribution to our gross revenues and expenses for financial reporting
purposes.
The
following table reflects the amounts related to our on-campus participating
properties included in our consolidated financial statements for the three
and
nine months ended September 30, 2006 and 2005:
|
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Revenues
|
|
$
|
3,971
|
|
$
|
3,637
|
|
$
|
13,450
|
|
$
|
12,263
|
|
Direct
operating expenses (1)
|
|
|
(2,305
|
)
|
|
(2,032
|
)
|
|
(6,217
|
)
|
|
(5,635
|
)
|
Amortization
|
|
|
(1,037
|
)
|
|
(913
|
)
|
|
(3,083
|
)
|
|
(2,675
|
)
|
Amortization
of deferred financing costs
|
|
|
(46
|
)
|
|
(63
|
)
|
|
(197
|
)
|
|
(155
|
)
|
Ground/facility
leases (2)
|
|
|
(238
|
)
|
|
(245
|
)
|
|
(676
|
)
|
|
(697
|
)
|
Net
operating income
|
|
|
345
|
|
|
384
|
|
|
3,277
|
|
|
3,101
|
|
Interest
income
|
|
|
102
|
|
|
53
|
|
|
255
|
|
|
105
|
|
Interest
expense (3)
|
|
|
(1,638
|
)
|
|
(1,403
|
)
|
|
(4,838
|
)
|
|
(4,103
|
)
|
Net
loss
(4)
|
|
$
|
(1,191
|
)
|
$
|
(966
|
)
|
$
|
(1,306
|
)
|
$
|
(897
|
)
|
(1) |
Excludes
property management fees of $0.2 million for both three month periods
ended September 30, 2006 and 2005, and $0.6 million for both nine
month
periods ended September 30, 2006 and 2005. This expense and the
corresponding fee revenue recognized by us have been eliminated in
consolidation. Also excludes allocation of expenses related to corporate
management and oversight.
|
(2) |
Represents
the universities’ 50% share of the properties’ net cash available for
distribution after payment of operating expenses, debt service (including
payment of principal) and capital
expenditures.
|
(3) |
Interest
expense is net of approximately $0.1 million and $0.2 million of
capitalized interest for the three and nine months ended September
30,
2005, respectively, related to the additional phase at Cullen Oaks,
which
was completed in August 2005.
|
(4) |
Debt
service expenditures for these properties totaled $2.3 million and
$2.0
million for the three months ended September 30, 2006 and 2005,
respectively, and $6.3 million and $5.7 million for the nine months
ended
September 30, 2006 and 2005, respectively.
|
Liquidity
and Capital Resources
Cash
Balances and Liquidity
As
of
September 30, 2006, excluding our on-campus participating properties, we had
$38.6 million in cash and cash equivalents and restricted cash as compared
to
$27.2 million in cash and cash equivalents and restricted cash as of December
31, 2005. This increase was primarily due to the completion of our equity
offering in September 2006, which generated net proceeds of approximately $133.0
million. We used $89.9 million of the proceeds to pay off the balance on our
revolving credit facility. An additional $20.2 million of the proceeds was
used
to pay off the construction loan for Callaway Villas, our recently completed
owned off-campus property. As of September 30, 2006, our cash and cash
equivalents balance included $23.0 of remaining equity offering proceeds, which
were invested in short-term commercial paper. Restricted cash primarily consists
of escrow accounts held by lenders and resident security deposits, as required
by law in certain states. Additionally, restricted cash as of September 30,
2006
also included $0.5 million of funds held in escrow in connection with potential
property acquisitions and development opportunities.
As
of
September 30, 2006, our short-term liquidity needs included, but were not
limited to, the following: (i) anticipated distribution payments to our common
and restricted stockholders totaling approximately $31.0 million based on an
anticipated annual distribution of $1.35 per share based on the number of our
shares currently outstanding, including those distributions required to maintain
our REIT status and satisfy our current distribution policy, (ii) anticipated
distribution payments to our Operating Partnership unitholders totaling
approximately $3.2 million based on an anticipated annual distribution of $1.35
per Common Unit and a cumulative preferential per annum cash distribution rate
of 5.99% on our Series A Preferred Units based on the number of units currently
outstanding, and (iii) funds for other potential future development projects,
including remaining pre-development expenditures for the Arizona State
University project which are estimated to range from $5.0 to $6.0 million.
We
expect to meet our short-term liquidity requirements by using remaining proceeds
from our recent equity offering, net proceeds from the disposition of The
Village on University, net cash provided by operations, borrowings under our
revolving credit facility, and offerings under a shelf registration statement
under which we may offer up to $360 million of debt securities, preferred stock,
common stock and securities warrants.
We
may
seek additional funds to undertake initiatives not contemplated by our business
plan or obtain additional cushion against possible shortfalls. We also may
pursue additional financing as opportunities arise. Future financings may
include a range of different sizes or types of financing, including the sale
of
additional debt or equity securities. While we believe we will be able to obtain
such funds, these funds may not be available on favorable terms or at all.
Our
ability to obtain additional financing depends on several factors, including
future market conditions, our success or lack of success in penetrating our
markets, our future creditworthiness, and restrictions contained in agreements
with our investors or lenders, including the restrictions contained in the
agreements governing our revolving credit facility. These financings could
increase our level of indebtedness or result in dilution to our equity holders.
Revolving
Credit Facility
On
August
17, 2006, the Operating Partnership amended and restated its $100 million
revolving credit facility to increase the size of the facility to $115 million,
which may be expanded by up to an additional $110 million upon the satisfaction
of certain conditions. The maturity date was extended two years to August 17,
2009 and we continue to guarantee the Operating Partnership’s obligations under
the facility.
Availability
under the revolving credit facility is limited to an "aggregate borrowing base
amount" equal to the lesser of (i) 65% of the value of certain properties,
calculated as set forth in the credit facility, and (ii) the adjusted net
operating income from these properties divided by a formula amount. The facility
bears interest at a variable rate, at the Company’s option, based upon a base
rate or one-, two-, three-, or six-month LIBOR plus, in each case, a spread
based upon the Company’s total leverage. Additionally, the Company is required
to pay an unused commitment fee ranging from 0.15% to 0.20% per annum, depending
on the aggregate unused balance. In September 2006, we paid off the entire
balance on the revolving credit facility using proceeds from our September
2006
equity offering. As of September 30, 2006, the total availability under the
facility (subject to the satisfaction of certain financial covenants) totaled
approximately $113.8 million.
The
terms
of the facility include certain restrictions and covenants, which limit, among
other items, the incurrence of additional indebtedness, liens, and the
disposition of assets. The facility contains customary affirmative and negative
covenants and also contains financial covenants that, among other things,
require us to maintain certain minimum ratios of "EBITDA" (earnings before
interest, taxes, depreciation and amortization) to fixed charges. We may not
pay
distributions that exceed 100% of funds from operations for any four consecutive
quarters. The financial covenants also include consolidated net worth and
leverage ratio tests. As of September 30, 2006, we were in compliance with
all
such covenants.
Distributions
We
are
required to distribute 90% of our REIT taxable income (excluding 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 common stockholders and Common
Unitholders. All such distributions are at the discretion of the Board of
Directors. We may use borrowings under the credit facility, if necessary, to
meet REIT distribution requirements and maintain our REIT status. The Board
of
Directors considers, among other things, market factors and our Company’s
performance in addition to REIT requirements in determining distribution
levels.
Pre-Development Expenditures
Our
third
party development activities have historically required us to fund
pre-development 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 pre-development expenditures before
a financing commitment has been obtained and, accordingly, bear the risk of
the
loss of these pre-development expenditures if financing cannot ultimately be
arranged on acceptable terms. Historically, the development projects that we
have been awarded have been successfully structured and financed; however,
these
developments have at times been delayed beyond the period initially scheduled,
causing revenue to be recognized in later periods. As of September 30, 2006,
we
have deferred approximately $3.8 million in pre-development costs related to
awarded projects that have not yet commenced construction.
Indebtedness
As
of
September 30, 2006, we had approximately $419.1 million of outstanding
consolidated indebtedness (excluding net unamortized debt premiums, net of
discounts, of approximately $6.3 million), comprised of $329.0 million in
mortgage and construction loans secured by 27 of our owned off-campus
properties, $33.4 million in mortgage and construction loans secured by two
phases of an on-campus participating property, and $56.7 million in bond
issuances secured by three of our on-campus participating properties. The
weighted average interest rate on our consolidated indebtedness as of September
30, 2006 was 6.66%. As of September 30, 2006, approximately 7.0% of our total
consolidated indebtedness was variable rate debt, comprised of our University
Centre and Cullen Oaks Phase II construction loans discussed below.
Owned
Off-Campus Properties
The
weighted average interest rate of the $329.0 million of owned off-campus
mortgage and construction debt was 6.54% as of September 30, 2006. Each of
the
27 mortgages is a non-recourse obligation subject to customary exceptions.
Each
of these mortgages has a 30 year amortization, and none are cross-defaulted
or
cross-collateralized to any other indebtedness. The loans generally may not
be
prepaid prior to maturity; in certain cases prepayment is allowed, subject
to
prepayment penalties.
In
connection with our September 2006 equity offering, we paid off the entire
$20.2
million balance of the construction loan for Callaway Villas, an owned
off-campus property which completed construction and opened for occupancy in
August 2006.
The
development and construction of University Centre, an owned off-campus property
scheduled to complete construction in Summer 2007 and open for occupancy in
Fall
2007, is partially financed with a construction loan. The loan amount is $45.5
million and we began making draws on this loan in July 2006. For each borrowing,
we have the option of choosing the Prime rate or one-, two-, or three-month
LIBOR plus 1.50%. The loan requires payments of interest only during the term
of
the loan and any accrued interest and outstanding borrowings become due on
the
maturity date of October 1, 2008. As of September 30, 2006, the balance
outstanding on the construction loan totaled $12.8 million, bearing interest
at
a rate of 6.83%.
On-Campus
Participating Properties
Three
of
our on-campus participating properties are 100% financed with $56.7 million
of
outstanding project-based taxable bonds. Under the terms of these financings,
one of our special purpose subsidiaries publicly issued three series of taxable
bonds and loaned the proceeds to three special purpose subsidiaries that each
hold a separate leasehold interest. Although a default in payment by these
special purpose subsidiaries could result in a default under one or more series
of bonds, the indebtedness of any of these special purpose subsidiaries is
not
cross-defaulted or cross-collateralized with indebtedness of the Company, the
Operating Partnership or other special purpose subsidiaries. Repayment of
principal and interest on these bonds is insured by MBIA, Inc. The loans
encumbering the leasehold interests are non-recourse, subject to customary
exceptions.
Cullen
Oaks Phase I is currently encumbered by a mortgage loan originated in September
2000 in the original principal amount of approximately $17.7 million. The loan
bears interest at the Prime rate, or LIBOR plus 1.9%, at our election with
principal amortizing on a 30 year schedule. We have in place an interest rate
swap agreement which effectively caps the interest on the outstanding balance
as
of September 30, 2006 of approximately $16.6 million at 5.54%. The loan matures
in November 2008. Pursuant to the Leases, in the event the leasehold estate
does
not achieve Financial Break Even (defined as revenues less operating expenses,
excluding management fees, less debt service), the applicable Lessor would
be
required to make a rental payment, also known as the Contingent Payment,
sufficient to achieve Financial Break Even. The Contingent Payment provision
remains in effect until such time as any financing placed on the facilities
would receive an investment grade rating without the Contingent Payment
provision. In the event that the Lessor is required to make a Contingent
Payment, future net cash flow distributions would be first applied to repay
such
Contingent Payments and then to unpaid management fees prior to normal
distributions Pursuant to the leases, in the event the leasehold estates do
not.
In turn, we have guaranteed payment of this property’s indebtedness.
In
addition, the construction of Cullen Oaks Phase II, which was completed in
August 2005, was financed by a construction loan. The balance on this
construction loan as of September 30, 2006 was approximately $16.8 million,
bearing interest at a weighted average rate of 7.39%. In June 2006 we extended
the maturity date of this construction loan to November 17, 2008. The terms
of
the loan were modified to require monthly payments of principal and interest
beginning in July 2006.
The
weighted average interest rate of the indebtedness encumbering our on-campus
participating properties was 7.08% at September 30, 2006.
We
do not
have any off-balance sheet arrangements.
Funds
From Operations
As
defined by NAREIT, Funds from Operations (“FFO”) represents income (loss) before
allocation to minority interests (computed in accordance with GAAP), excluding
gains (or losses) from sales of property, plus real estate related depreciation
and amortization (excluding amortization of loan origination costs) and after
adjustments for unconsolidated partnerships and joint ventures. We present
FFO
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. 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
pay dividends or make distributions.
The
following table presents a reconciliation of our FFO to our net (loss)
income:
|
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
(loss) income
|
|
$
|
(1,611
|
)
|
$
|
(596
|
)
|
$
|
(14
|
)
|
$
|
5,804
|
|
Minority
interests
|
|
|
(149
|
)
|
|
10
|
|
|
(202
|
)
|
|
85
|
|
Gain
from disposition of real estate
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,883
|
)
|
Real
estate related depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
depreciation and amortization
|
|
|
6,853
|
|
|
4,269
|
|
|
19,306
|
|
|
12,143
|
|
Corporate
furniture, fixtures, and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
depreciation
|
|
|
(142
|
)
|
|
(116
|
)
|
|
(397
|
)
|
|
(320
|
)
|
Funds
from operations
|
|
$
|
4,951
|
|
$
|
3,567
|
|
$
|
18,693
|
|
$
|
11,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
per share - diluted
|
|
$
|
0.24
|
|
$
|
0.21
|
|
$
|
0.96
|
|
$
|
0.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - diluted
|
|
|
20,637,239
|
|
|
17,174,663
|
|
|
19,495,171
|
|
|
14,263,981
|
|
While
our
on-campus participating properties contributed $4.0 million and $3.6 to our
revenues for the three months ended September 30, 2006 and 2005, respectively,
and $13.5 million and $12.3 million to our revenues for the nine months ended
September 30, 2006 and 2005, respectively, under our participating ground
leases, we and the participating university systems each receive 50% of the
properties’ net cash available for distribution after payment of operating
expenses, debt service (which includes significant amounts towards repayment
of
principal) and capital expenditures. A substantial portion of our revenues
attributable to these properties is reflective of cash that is required to
be
used for capital expenditures and for the amortization of applicable property
indebtedness. These amounts do not increase our economic interest in these
properties or otherwise benefit us since our interest in the properties
terminates upon the repayment of the applicable property
indebtedness.
As
noted
above, FFO excludes GAAP historical cost depreciation and amortization of real
estate and related assets because these GAAP items assume that the value of
real
estate diminishes over time. However, unlike the ownership of our owned
off-campus properties, the unique features of our ownership interest in our
on-campus participating properties cause the value of these properties to
diminish over time. For example, since the ground/facility leases under which
we
operate the participating properties require the reinvestment from operations
of
specified amounts for capital expenditures and for the repayment of debt while
our interest in these properties terminates upon the repayment of the debt,
such
capital expenditures do not increase the value of the property to us and
mortgage debt amortization only increases the equity of the ground lessor.
Accordingly, when considering our FFO, we believe it is also a meaningful
measure of our performance to modify FFO to exclude the operations of our
on-campus participating properties and to consider their impact on performance
by including only that portion of our revenues from those properties that are
reflective of our share of net cash flow and the management fees that we
receive, both of which increase and decrease with the operating measure of
the
properties, a measure referred to herein as FFOM.
Funds
From Operations—Modified for Operational Performance of On-Campus Participating
Properties:
|
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Funds
from operations
|
|
$
|
4,951
|
|
$
|
3,567
|
|
$
|
18,693
|
|
$
|
11,829
|
|
Elimination
of operations of on-campus participating properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from on-campus participating properties
|
|
|
1,191
|
|
|
966
|
|
|
1,306
|
|
|
897
|
|
Amortization
of investment in on-campus participating properties
|
|
|
(1,037
|
)
|
|
(913
|
)
|
|
(3,083
|
)
|
|
(2,675
|
)
|
|
|
|
5,105
|
|
|
3,620
|
|
|
16,916
|
|
|
10,051
|
|
Modifications
to reflect operational performance of on-campus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
participating
properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
share of net cash flow (1)
|
|
|
238
|
|
|
245
|
|
|
676
|
|
|
697
|
|
Management
fees
|
|
|
171
|
|
|
167
|
|
|
615
|
|
|
588
|
|
On-campus
participating properties development fees (2)
|
|
|
-
|
|
|
253
|
|
|
305
|
|
|
1,068
|
|
Impact
of on-campus participating properties
|
|
|
409
|
|
|
665
|
|
|
1,596
|
|
|
2,353
|
|
Funds from operations - modified for
operational performance of
on-campus |
|
|
|
|
|
|
|
|
|
|
|
|
|
participating
properties (“FFOM”)
|
|
$
|
5,514
|
|
$
|
4,285
|
|
$
|
18,512
|
|
$
|
12,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFOM
per share - diluted
|
|
$
|
0.27
|
|
$
|
0.25
|
|
$
|
0.95
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - diluted
|
|
|
20,637,239
|
|
|
17,174,663
|
|
|
19,495,171
|
|
|
14,263,981
|
|
(1) |
50%
of the properties’ net cash available for distribution after payment of
operating expenses, debt service (including repayment of principal)
and
capital expenditures. Represents amounts accrued for the interim
periods.
|
(2) |
Development
and construction management fees, including construction savings
earned
under the general construction contract, related to the Cullen Oaks
Phase
II on-campus participating property, which was completed in August
2005.
|
This
narrower measure of performance measures our profitability for these properties
in a manner that is similar to the measure of our profitability from our
services business where we similarly incur no initial or ongoing capital
investment in a property and derive only consequential benefits from capital
expenditures and debt amortization. We believe, however, that this narrower
measure of performance is inappropriate in traditional real estate ownership
structures where debt amortization and capital expenditures enhance the property
owner’s long-term profitability from its investment.
Our
FFOM
may have limitations as an analytical tool because it reflects the unique
contractual calculation of net cash flow from our on-campus participating
properties, which is different from that of our owned off-campus properties.
Additionally, FFOM reflects features of our ownership interests in our on-campus
participating properties that are unique to us. Companies that are considered
to
be in our industry may not have similar ownership structures; and therefore
those companies may not calculate a FFOM in the same manner that we do, or
at
all, limiting its usefulness as a comparative measure. We compensate for these
limitations by relying primarily on our GAAP and FFO results and using our
FFOM
only supplementally.
Inflation
Our
leases do not typically provide for rent escalations. However, they typically
do
not have terms that extend beyond 12 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, a weak economic environment or declining
student enrollment at our principal universities may limit our ability to raise
rental rates.
Market
risk is the risk of loss from adverse changes in market prices and interest
rates. Our future earnings and cash flows are dependent upon prevailing market
rates. Accordingly, we manage our market risk by matching projected cash inflows
from operating, investing and financing activities with projected cash outflows
for debt service, acquisitions, capital expenditures, distributions to
stockholders and unitholders, and other cash requirements. The majority of
our
outstanding debt has fixed interest rates, which minimizes the risk of
fluctuating interest rates. Our exposure to market risk includes interest rate
fluctuations in connection with our revolving credit facility and variable
rate
construction loans and our ability to incur more debt without stockholder
approval, thereby increasing our debt service obligations, which could adversely
affect our cash flows. No material changes have occurred in relation to
market risk since our Annual Report on Form 10-K for the year ended December
31,
2005.
Evaluation
of Disclosure Controls and Procedures
As
required by SEC Rule 13a-15(b), we have carried out an evaluation, under
the supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end
of
the quarter covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls
and
procedures for the quarter covered by this report were effective at the
reasonable assurance level.
There
has
been no change in our internal controls over financial reporting during our
most
recent fiscal quarter that has materially affected, or is reasonably likely
to
materially affect, our internal controls over financial reporting.
PART
II. OTHER INFORMATION
Item
6. Exhibits
Exhibit
Number
Description
of Document
31.1
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of
2002.
31.2
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of
2002.
32.1
Certification
of Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
AMERICAN
CAMPUS COMMUNITIES, INC.
|
|
|
|
|
|
|
|
By:
|
/s/
William C. Bayless, Jr.
|
|
|
|
|
|
William
C. Bayless, Jr.
President
and Chief Executive Officer
|
|
|
|
|
|
|
|
By:
|
/s/
Brian B. Nickel
|
|
|
|
|
|
Brian
B. Nickel
Executive
Vice President, Chief
Financial
Officer and Secretary
|
|
|
|
|
|
|
|
By:
|
/s/
Jonathan A. Graf
|
|
|
|
|
|
Jonathan
A. Graf
Senior
Vice President,
Chief
Accounting Officer and
Treasurer
|
35