Form 10-K
.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x Annual
Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the
fiscal year ended December 31, 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
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76-0753089
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(IRS
Employer Identification No.)
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805
Las Cimas Parkway, Suite 400 Austin, TX
(Address
of Principal Executive Offices)
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78746
(Zip
Code)
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(512)
732-1000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
(Title
of Each Class)
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|
(Name
of Each Exchange on Which Registered)
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Common
Stock, $.01 par value
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|
New
York Stock Exchange
|
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes
o
No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
o
No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined 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 Act). Yes o
No x
The
aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant was $374,644,365 based on the last sale price
of the common equity on June 30, 2006, which is the last business day of the
Company’s most recently completed second quarter.
There
were 22,903,073 shares of the Company’s common stock with a par value of $0.01
per share outstanding as of the close of business on March 9, 2007.
DOCUMENTS
INCORPORATED BY REFERENCE
Part
III
of this report incorporates information by reference from the definitive Proxy
Statement for the 2007 Annual Meeting of Stockholders.
FOR
THE YEAR ENDED DECEMBER 31, 2006
TABLE
OF CONTENTS
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PAGE
NO.
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7
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16
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20
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20
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HPART
II.H
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21
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24
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45
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45
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46
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PART
III.
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47
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47
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47
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47
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47
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PART
IV.
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48
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52
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PART
I
Overview
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.
Concurrent
with the consummation of various formation transactions, the IPO consisted
of
the sale of 12,615,000 shares of our common stock at a price per share of
$17.50, including the exercise of the underwriters’ over-allotment option. The
offering generated gross proceeds of approximately $220.8 million (approximately
$197.8 million net of the underwriters’ discount and offering costs). As part of
the various formation transactions, we redeemed the ownership interests of
its
Predecessor owners, acquired a minority ownership interest in four owned
off-campus properties, repaid certain construction and permanent indebtedness,
distributed an owned off-campus property and other non-core assets to its
Predecessor owners, and entered into a revolving credit facility.
As
of
December 31, 2006, our property portfolio contained 38 student housing
properties with approximately 23,700 beds and approximately 7,700 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 December 31, 2006, we provided third-party
management and leasing services for 15 student housing properties (nine 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 December 31, 2006, our total owned and managed portfolio included 53
properties with approximately 33,000 beds in approximately 10,900
units.
Business
Objectives, Investment Strategies, and Operating
Segments
Business
Objectives
Our
primary business objectives are to create long-term stockholder value by
deploying capital to develop, redevelop, acquire and operate student housing
communities, and to sell communities when they no longer meet our long-term
investment strategy or when market conditions are favorable. We believe we
can
achieve these objectives by continuing to implement our investment strategies
and successfully manage our operating segments, which are described in more
detail below.
Investment
Strategies
We
seek
to own high quality, well designed and well located student housing properties.
We seek to acquire or develop properties in under-serviced markets that have
stable or increasing student populations, are in submarkets with barriers to
entry and provide opportunities for economic growth as a result of their
differentiated design and close proximity to campuses, or through our superior
operational capabilities. We believe that our reputation and close relationship
with universities give us an advantage in sourcing acquisitions and developments
and obtaining municipal approvals and community support for our development
projects.
Acquisitions:
During 2006, we acquired a 13 property portfolio (the “Royal Portfolio”)
containing 5,745 beds in 1,753 units for a contribution value of $244.3 million,
not including closing costs, anticipated capital expenditures, and initial
integration expenses necessary to bring the properties up to our operating
standards. Also, as of December 31, 2006, we were in the due diligence period
related to the acquisition of four operating properties. The acquisition of
these four properties was consummated in January and February 2007. We believe
that our relationship with university systems and individual educational
institutions, our knowledge of the student housing market and our prominence
as
the first publicly-traded REIT focused exclusively on student housing in the
United States will afford us a competitive advantage in acquiring additional
student housing properties.
Development: Since
1996, we have developed ten of our owned properties, consisting of six owned
off-campus properties and four on-campus participating properties. This includes
one owned off-campus property that opened for occupancy in August 2006 and
one
in August 2005, as well as an additional phase at one of our existing on-campus
participating properties that opened for occupancy in August 2005. In addition,
as of December 31, 2006, we had two owned properties under development with
a
total combined development budget of approximately $211.9 million. These two
properties are scheduled to open for occupancy in Fall 2007 and August 2008.
Our
experienced development staff intends to continue to identify and acquire land
parcels in close proximity to colleges and universities that offer location
advantages or that allow for the development of unique products that offer
a
competitive advantage. We will also continue to benefit from opportunities
derived from our extensive network with colleges and universities as well as
our
relationship with certain developers with whom we have previously developed
off-campus student housing properties.
Operating
Segments
We
define
business segments by their distinct customer base and service provided. We
have
identified four reportable segments: Owned Off-Campus Properties, On-Campus
Participating Properties, Development Services and Property Management Services.
For a detailed financial analysis of our segments’ results of operations and
financial position, please refer to Note 17 in the accompanying Notes to
Consolidated and Combined Financial Statements contained in Item 8.
Property
Operations
Unique
Leasing Characteristics:
Student
housing properties are typically leased by the bed on an individual lease
liability basis, unlike multifamily housing where leasing is by the unit.
Individual lease liability limits each resident’s liability to his or her own
rent without liability for a roommate’s rent. A parent or guardian is required
to execute each lease as a guarantor unless the resident provides adequate
proof
of income. The number of lease contracts that we administer is therefore
equivalent to the number of beds occupied and not the number of units. Unlike
traditional multifamily housing, most of our leases commence and terminate
on
the same dates and may have terms of 9, 10, or 12 months. (Please refer to
the
property table contained in Item 2 - Properties for a listing of the typical
lease terms at our properties.) As an example, in the case of our typical
12-month leases, the commencement date coincides with the commencement of the
respective university’s Fall academic term and the termination date is the date
of the last subsequent summer school session. As such, we must re-lease each
property in its entirety each year.
Management
Philosophy: Our
management philosophy is based upon meeting the following
objectives:
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Satisfying
the specialized needs of residents by providing the highest levels
of
customer service;
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Developing
and maintaining an academically oriented environment via a premier
residence life/student development
program;
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Maintaining
each project’s physical plant in top
condition;
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Maximizing
revenue through the development and implementation of a strategic
annual
marketing plan and leasing administration program;
and
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Maximizing
cash flow through maximizing revenue coupled with prudent control
of
expenses.
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Owned
Off-Campus Properties: As
of
December 31, 2006, our Owned Off-Campus Properties segment consisted of 34
owned
off-campus properties within close proximity to 34 colleges and universities
in
12 states. Off-campus properties are generally located in close proximity to
the
school campus, generally with pedestrian, bicycle, or University shuttle access.
We tend to offer more relaxed rules and regulations than on-campus housing
that
is generally more appealing to upper-classmen. We believe that the support
of
colleges and universities can be beneficial to the success of our off-campus
properties. We actively seek to have these institutions recommend our off-campus
facilities to their students or to provide us with mailing lists so that we
may
directly market to students and parents. In some cases, the institutions
actually promote our off-campus facilities in their recruiting and admissions
literature. In cases where the educational institutions do not offer
recommendations for off-campus housing or mailing lists, most nonetheless
provide lists of suitable properties to their students, and we continually
work
to ensure that our properties are on these lists in each of the markets that
we
serve.
This
segment is subject to competition for tenants with on-campus housing owned
by
colleges and universities. Colleges and universities can generally avoid real
estate taxes and borrow funds at lower interest rates than us (and other private
sector operators), thereby decreasing their operating costs. Residence halls
owned and operated by the primary colleges and universities in the markets
of
our owned properties typically charge lower rental rates, but offer fewer
amenities than those offered by our properties. Additionally, most universities
are only able to house a small percentage of their overall enrollment, and
are
therefore highly dependant upon the off-campus market to provide housing for
their students. High-quality, well run off-campus student housing can be a
critical component to an institution’s ability to attract and retain students.
Therefore, developing and maintaining good relationships with educational
institutions can result in a privately owned off-campus facility becoming,
in
effect, an extension of the institution’s housing program, with the institution
providing highly valued references and recommendations to students and
parents.
This
segment also competes with national and regional owner-operators of off-campus
student housing in a number of markets as well as with smaller local
owner-operators. Therefore, the performance of this segment could be affected
by
the construction of new off-campus residences in close proximity to our existing
properties, increases or decreases in the general levels of rents for housing
in
competing communities, increases or decreases in the number of students enrolled
at one or more of the colleges or universities in the market of a property,
and
other general economic conditions.
On-Campus
Participating Properties: Our
On-Campus Participating Properties segment includes on-campus properties owned
by our TRS that are operated under ground/facility leases with the related
university systems. We participate with two university systems in the operations
and cash flows of four on-campus participating properties under long-term
ground/facility leases. The subject universities hold title to both the land
and
improvements on these properties.
Under
our
ground/facility leases, 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 have developed each of our on-campus
participating properties. For purposes of our consolidated financial statements
contained in Item 8, the development fee earned by our TRS during the
construction period is deferred and recognized in revenue over the term of
the
underlying ground leases. However, for purposes of our calculation of Funds
from
Operations –
Modified for Operational Performance of On-Campus Participating Properties
(“FFOM”) contained in Item 7, we reflect such development fees as earned over
the construction period based on the percentage-of-completion method.
While
the
terms of each specific ground/facility lease agreement tend to vary in certain
respects, the following terms are generally common to all: (i) a term of 30-40
years, subject to early termination upon repayment of the related financing,
which generally has a 25-year amortization; (ii) ground/facility lease rent
of a
nominal amount (e.g., $100 per annum over the lease term) plus 50% of net cash
flow; (iii) the
right
of first refusal by the institution to purchase our leasehold interest in the
event we propose to sell it to any third-party; (iv) an obligation by the
educational institution to promote the project, include information relative
to
the project in brochures and mailings and to permit us to advertise the project;
(v) the requirement to receive the educational institution’s consent to increase
rental rates by a percentage greater than the percentage increase in our
property operating expenses plus the amount of any increases in debt service,
and (vi) the option of the institution to purchase our interest in and assume
management of the facility, with the purchase price calculated at the discounted
present cash value of our leasehold interest.
We
do not
have access to the cash flows and working capital of these on-campus
participating properties except for the annual net cash distribution.
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, management
fees, and development fees from these properties. 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/development fees that we receive from these properties rather than
upon their contribution to our gross revenues and expenses for financial
reporting purposes.
Our
on-campus participating properties are susceptible to some of the same risks
as
our owned off-campus properties, including: (i) seasonality in rents; (ii)
annual re-leasing that is highly dependent on marketing and university admission
policies; and (iii) competition for tenants from other on-campus housing
operated by educational institutions or other off-campus
properties.
Third-Party
Services
Our
third-party services consist of development services and management services
and
are typically provided to university and college clients. The majority of our
third-party management services are provided to clients for whom we also provide
development services. While management evaluates the operational performance
of
our third-party services based on the distinct segments identified below, at
times we also evaluate these segments on a combined basis.
Development
Services: Our
Development Services segment consists of development and construction management
services that we provide through our TRS for third-party owners. These services
range from short-term consulting projects to long-term full-scale development
and construction projects. Development revenues are generally recognized based
on a proportionate performance method based on contract deliverables and
construction revenues are generally recognized based on the
percentage-of-completion method. We typically provide these services to colleges
and universities seeking to modernize their on-campus student housing
properties. They look to us to bring our student housing experience and
expertise to ensure they develop marketable, functional, and financially
sustainable facilities. Educational institutions usually seek to build housing
that will enhance their recruitment and retention of students while facilitating
their academic objectives. Most of these development service contracts are
awarded via a competitive request for proposal (“RFP”) process that qualifies
developers based on their overall capability to provide specialized student
housing design, development, construction management, financial structuring,
and
property management services. Our development services typically include
pre-development, design and financial structuring services. Our pre-development
services typically include feasibility studies for third-party owners and design
services. Feasibility studies include an initial feasibility analysis, review
of
conceptual design, and assistance with master planning. Some of the documents
produced in this process include the conceptual design documents, preliminary
development and operating budgets, cash flow projections and a preliminary
market assessment. Our design services include coordination with the architect
and other members of the design team, review of construction plans and
assistance with project due diligence and project budgets.
Construction
management services typically consist of coordinating and supervising the
construction, equipping and furnishing process on behalf of the project owner,
including site visits, hiring of a general contractor and project professionals,
and full coordination and administration of all activities necessary for project
completion in accordance with plans and specifications and with verification
of
adequate insurance.
Our
development services activities benefit our primary goal of owning and operating
student housing properties in a number of ways. By providing these services
to
others, we are able to expand and refine our unit plan and community design,
the
operational efficiency of our material specifications and our ability to
determine market acceptance of unit and community amenities. Our development
and
construction management personnel enable us to establish relationships with
general contractors, architects and project professionals throughout the nation.
Through these services, we gain experience and expertise in residential and
commercial construction methodologies under various labor conditions, including
right-to-work labor markets, markets subject to prevailing wage requirements
and
fully unionized environments. This segment is subject to competition from other
specialized student housing development companies as well as from national
real
estate development companies.
Property
Management Services: Our
Property Management Services segment, conducted by our TRS, includes revenues
generated from third-party management contracts in which we are typically
responsible for all aspects of operations, including marketing, leasing
administration, facilities maintenance, business administration, accounts
payable, accounts receivable, financial reporting, capital projects, and
residence life student development. As of December 31, 2006, we provided
third-party management and leasing services for 15 student housing properties
that represented approximately 9,300 beds in approximately 3,200 units, nine
of
which we developed. We provide these services pursuant to multi-year management
agreements (generally ranging between one to five years).
There
are
several housing options that compete with our third-party managed properties
including, but not limited to, multifamily housing, for-rent single family
dwellings, other off-campus specialized student housing and the aforementioned
on-campus participating properties.
Americans
with Disabilities Act and Federal Fair Housing Act
Many
laws
and governmental regulations are applicable to our properties and changes in
the
laws and regulations, or their interpretation by agencies and the courts, occur
frequently. Our properties must comply with Title III of the Americans with
Disabilities Act, or ADA, to the extent that such properties are “public
accommodations” as defined by the ADA. The ADA may require removal of structural
barriers to access by persons with disabilities in certain public areas of
our
properties where such removal is readily achievable. We believe that the
existing properties are in substantial compliance with the ADA and that we
will
not be required to make substantial capital expenditures to address the
requirements of the ADA. However, noncompliance with the ADA could result in
imposition of fines or an award of damages to private litigants. The obligation
to make readily achievable accommodations is an ongoing one, and we intend
to
continue to assess our properties and to make alterations as appropriate in
this
respect.
Under
the
Federal Fair Housing Act and state fair housing laws, discrimination on the
basis of certain protected classes is prohibited. Violation of these laws can
result in significant damage awards to victims. The Company has a strong policy
against any kind of discriminatory behavior and trains its employees to avoid
discrimination or the appearance of discrimination. There is no assurance,
however, that an employee will not violate the Company’s policy against
discrimination and thus violate fair housing laws. This could subject the
Company to legal actions and the possible imposition of damage
awards.
Environmental
Matters
Under
various laws and regulations relating to the protection of the environment,
an
owner of real estate may be held liable for the costs of removal or remediation
of certain hazardous or toxic substances located on or in its property. These
laws often impose liability without regard to whether the owner was responsible
for, or even knew of, the presence of such substances. The presence of such
substances may adversely affect the owner’s ability to rent or sell the property
or use the property as collateral. Independent environmental consultants
conducted Phase I environmental site assessments (which involve visual
inspection but not soil or groundwater analysis) on all of the owned off-campus
properties and on-campus participating properties in our existing portfolio.
Phase I environmental site assessments did not reveal any environmental
liabilities that would have a material adverse effect on us. In addition, we
are
not aware of any environmental liabilities that management believes would have
a
material adverse effect on the Company. There is no assurance that Phase I
environmental site assessments would reveal all environmental liabilities or
that environmental conditions not known to us may exist now or in the future
which would result in liability to the Company for remediation or fines, either
under existing laws and regulations or future changes to such
requirements.
From
time
to time, the United States Environmental Protection Agency, or EPA, designates
certain sites affected by hazardous substances as “Superfund” sites pursuant to
CERCLA. Superfund sites can cover large areas, affecting many different parcels
of land. Although CERCLA imposes joint and several liability for contamination
on property owners and operators regardless of fault, the EPA may choose to
pursue potentially responsible parties (“PRPs”) based on their actual
contribution to the contamination. PRPs are liable for the costs of responding
to the hazardous substances. Each of Villas on Apache, The Village on University
(disposed of in December 2006) and University Village at San Bernardino
(disposed of in January 2005) are located within federal Superfund sites. The
EPA designated these areas as Superfund sites because groundwater underneath
these areas is contaminated. We have not been named, and do not expect to be
named, as a PRP with respect to these sites. However, there can be no assurance
regarding potential future developments concerning such sites.
Insurance
We
carry
comprehensive liability and property insurance on our properties, which we
believe is of the type and amount customarily obtained on real property assets.
We intend to obtain similar coverage for properties we acquire in the future.
However, there are certain types of losses, generally of a catastrophic nature,
such as losses from floods or earthquakes, which may be subject to limitations
in certain areas. When not otherwise contractually stipulated, we exercise
our
judgment in determining amounts, coverage limits, and deductibles, in an effort
to maintain appropriate levels of insurance on our investments. If we suffer
a
substantial loss, our insurance coverage may not be sufficient due to market
conditions at the time or other unforeseen factors. Inflation, changes in
building codes and ordinances, environmental considerations and other factors
also might make it infeasible to use insurance proceeds to replace a property
after it has been damaged or destroyed.
Employees
As
of
December 31, 2006, we had approximately 897 employees, consisting
of:
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·
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approximately
376 on-site employees in our owned off-campus properties segment,
including 113 Resident Assistants;
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·
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approximately
99 on-site employees in our on-campus participating properties
segment,
including 41 Resident Assistants;
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·
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approximately
345 employees in our property management services segment, including
314
on-site employees and 31 corporate office
employees;
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·
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approximately
23 corporate office employees in our development services segment;
and
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·
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approximately
54 executive, corporate administration and financial
personnel.
|
Our
employees are not currently represented by a labor union.
Offices
and Website
Our
principal executive offices are located at 805 Las Cimas Parkway, Suite 400,
Austin, Texas 78746. Our telephone number at that location is (512) 732-1000.
We
file
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and other reports required by Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934. You may read and copy any materials we file
with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington,
DC 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of that
site is www.sec.gov.
Our
website is located at www.americancampuscommunities.com or
www.studenthousing.com. We make available free of charge through our website
our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on
Form 8-K and amendments to these reports filed or furnished pursuant to Sections
13(a) or 15(d) of the Securities Act of 1934, as amended, as soon as reasonably
practicable after we electronically file such material with, or furnish it
to,
the SEC. Our website also contains copies of our Corporate Governance Guidelines
and Code of Business Ethics as well as the charters of our Nominating and
Corporate Governance, Audit, and Compensation committees. The information on
our
website is not part of this filing.
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.
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; 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; 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 Company’s 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 the other factors discussed in the “Risk Factors” contained in Item 1A of
this report.
The
following risk factors may contain defined terms that are different from those
used in other sections of this report. Unless otherwise indicated, when used
in
this section, the terms “we” and “us” refer to American Campus Communities, Inc.
and its subsidiaries, including American Campus Communities Operating
Partnership LP, our Operating Partnership, and the term “securities” refers to
shares of common stock of American Campus Communities, Inc. and units of limited
partnership interest in our Operating Partnership.
The
factors described below represent the Company’s principal risks. Other factors
may exist that the Company does not consider to be significant based on
information that is currently available or that the Company is not currently
able to anticipate.
Risks
Related to Our Properties and Our Business
Our
results of operations are subject to an annual leasing cycle, short lease-up
period, seasonal cash flows, changing university admission and housing policies
and other risks inherent in the student housing
industry.
We
generally lease our owned properties under 12-month leases, and in certain
cases, under ten-month, nine-month or shorter-term semester leases. As a result,
we may experience significantly reduced cash flows during the summer months
at
properties leased under leases having terms shorter than 12 months. Furthermore,
all of our properties must be entirely re-leased each year, exposing us to
increased leasing risk. In addition, we are subject to increased leasing risk
on
our properties under construction and future acquired properties based on our
lack of experience leasing those properties and unfamiliarity with their leasing
cycles. Student housing properties are also typically leased during a limited
leasing season that usually begins in January and ends in August of each year.
We are therefore highly dependent on the effectiveness of our marketing and
leasing efforts and personnel during this season.
Changes
in university admission policies could adversely affect us. For example, if
a
university reduces the number of student admissions or requires that a certain
class of students, such as freshman, live in a university owned facility, the
demand for beds at our properties may be reduced and our occupancy rates may
decline. While we may engage in marketing efforts to compensate for such change
in admission policy, we may not be able to effect such marketing efforts prior
to the commencement of the annual lease-up period or our additional marketing
efforts may not be successful.
We
rely
on our relationships with colleges and universities for referrals of prospective
student-tenants or for mailing lists of prospective student-tenants and their
parents. Many of these colleges and universities own and operate their own
competing on-campus facilities. Any failure to maintain good relationships
with
these colleges and universities could therefore have a material adverse effect
on us. If colleges and universities refuse to make their lists of prospective
student-tenants and their parents available to us or increase the costs of
these
lists, there could be a material adverse effect on us.
Federal
and state laws require colleges to publish and distribute reports of on-campus
crime statistics, which may result in negative publicity and media coverage
associated with crimes occurring on or in the vicinity of our on-campus
participating properties. Reports of crime or other negative publicity regarding
the safety of the students residing on, or near, our properties may have an
adverse effect on both our on-campus and off-campus business.
We
face significant competition from university-owned on-campus student housing,
from other off-campus student housing properties and from traditional
multifamily housing located within close proximity to
universities.
On-campus
student housing has certain inherent advantages over off-campus student housing
in terms of physical proximity to the university campus and integration of
on-campus facilities into the academic community. Colleges and universities
can
generally avoid real estate taxes and borrow funds at lower interest rates
than
us and
other
private sector operators. We also compete with national and regional
owner-operators of off-campus student housing in a number of markets as well
as
with smaller local owner-operators.
Currently,
the industry is fragmented with no participant holding a significant market
share. There are a number of student housing complexes that are located near
or
in the same general vicinity of many of our owned properties and that compete
directly with us. Such competing student housing complexes may be newer than
our
properties, located closer to campus, charge less rent, possess more attractive
amenities or offer more services or shorter term or more flexible
leases.
Rental
income at a particular property could also be affected by a number of other
factors, including the construction of new on-campus and off-campus residences,
increases or decreases in the general levels of rents for housing in competing
communities, increases or decreases in the number of students enrolled at one
or
more of the colleges or universities in the market of the property and other
general economic conditions.
We
believe that a number of other large national companies with substantial
financial and marketing resources may be potential entrants in the student
housing business. The entry of one or more of these companies could increase
competition for students and for the acquisition, development and management
of
other student housing properties.
We
may be unable to successfully complete and operate our properties or our
third-party developed properties.
We
intend
to continue to develop and construct student housing in accordance with our
growth strategies. These activities may also include any of the following
risks:
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we
may be unable to obtain financing on favorable terms or at
all;
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we
may not complete development projects on schedule, within budgeted
amounts
or in conformity with building plans and
specifications;
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we
may encounter delays or refusals in obtaining all necessary zoning,
land
use, building, occupancy and other required governmental permits
and
authorizations;
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occupancy
and rental rates at newly developed or renovated properties may
fluctuate
depending on a number of factors, including market and economic
conditions, and may reduce or eliminate our return on
investment;
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we
may become liable for injuries and accidents occurring during the
construction process and for environmental liabilities, including
off-site
disposal of construction materials;
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we
may decide to abandon our development efforts if we determine that
continuing the project would not be in our best interests;
and
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we
may encounter strikes, weather, government regulations and other
conditions beyond our control.
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Our
newly
developed properties will be subject to risks associated with managing new
properties, including lease-up and integration risks. In addition, new
development activities, regardless of whether or not they are ultimately
successful, typically will require a substantial portion of the time and
attention of our development and management personnel. Newly developed
properties may not perform as expected.
We
anticipate that we will, from time to time, elect not to proceed with ongoing
development projects. If we elect not to proceed with a development project,
the
development costs associated therewith will ordinarily be charged against income
for the then-current period. Any such charge could have a material adverse
effect on our results of operations in the period in which the charge is
taken.
We
may in
the future develop properties nationally, internationally or in geographic
regions other than those in which we currently operate. We do not possess the
same level of familiarity with development in these new markets, which could
adversely affect our ability to develop such properties successfully or at
all
or to achieve expected performance. Future development opportunities may not
be
available to us on terms that meet our investment criteria or we may be
unsuccessful in capitalizing on such opportunities. Our ability to capitalize
on
such opportunities will be largely dependent upon external sources of capital
that may not be available to us on favorable terms or at all.
We
typically provide guarantees of timely completion of projects that we develop
for third parties. In certain cases, our contingent liability under these
guarantees may exceed our development fee from the project. Although we seek
to
mitigate this risk by, among other things, obtaining similar guarantees from
the
project contractor, we could sustain significant losses if development of a
project were to be delayed or stopped and we were unable to cover our guarantee
exposure with the guarantee received from the project contractor.
We
may be unable to successfully acquire properties on favorable
terms.
Our
future growth will be dependent upon our ability to successfully acquire new
properties on favorable terms. As we acquire additional properties, we will
be
subject to risks associated with managing new properties, including lease-up
and
integration risks. Newly developed and recently acquired properties may not
perform as expected and may have characteristics or deficiencies unknown to
us
at the time of acquisition. Future acquisition opportunities may not be
available to us on terms that meet our investment criteria or we may be
unsuccessful in capitalizing on such opportunities. Our ability to capitalize
on
such opportunities will be largely dependent upon external sources of capital
that may not be available to us on favorable terms or at all.
Our
ability to acquire properties on favorable terms and successfully operate them
involves the following significant risks:
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our
potential inability to acquire a desired property may be caused
by
competition from other real estate
investors;
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competition
from other potential acquirers may significantly increase the purchase
price and decrease expected yields;
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we
may be unable to finance an acquisition on favorable terms or at
all;
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we
may have to incur significant unexpected capital expenditures to
improve
or renovate acquired properties;
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we
may be unable to quickly and efficiently integrate new acquisitions,
particularly acquisitions of portfolios of properties, into our
existing
operations;
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market
conditions may result in higher than expected costs and vacancy
rates and
lower than expected rental rates;
and
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we
may acquire properties subject to liabilities but without any recourse,
or
with only limited recourse, to the sellers, or with liabilities
that are
unknown to us, such as liabilities for clean-up of undisclosed
environmental contamination, claims by tenants, vendors or other
persons
dealing with the former owners of our properties and claims for
indemnification by members, directors, officers and others indemnified
by
the former owners of our
properties.
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Our
failure to finance property acquisitions on favorable terms, or operate acquired
properties to meet our financial expectations, could adversely affect
us.
Our
debt level reduces cash available for distribution and may expose us to the
risk
of default under our debt obligations.
As
of
December 31, 2006, our total consolidated indebtedness was approximately $426.3
million (excluding unamortized debt premiums and discounts). Our debt service
obligations expose us to the risk of default and reduce
or
eliminate cash resources that are available to operate our business or pay
distributions that are necessary to maintain our qualification as a REIT. There
is no limit on the amount of indebtedness that we may incur except as provided
by the covenants in our revolving credit facility. We expect to incur additional
indebtedness under our revolving credit facility to fund future property
development and acquisitions and other working capital needs, which may include
the payment of distributions to our security holders. The amount available
to us
and our ability to borrow from time to time under our revolving credit facility
is subject to certain conditions and the satisfaction of specified financial
covenants. Our
level
of debt and the limitations imposed on us by our debt agreements could have
significant adverse consequences,
including the following:
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We
may be unable to borrow additional funds as needed or on favorable
terms.
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We
may be unable to refinance our indebtedness at maturity or the
refinancing
terms may be less favorable than the terms of our original
indebtedness.
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We
may be forced to dispose of one or more of our properties, possibly
on
disadvantageous terms.
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We
may default on our scheduled principal payments or other obligations
as a
result of insufficient cash flow or otherwise, and the lenders
or
mortgagees may foreclose on our properties that secure their loans
and
receive an assignment of rents and
leases.
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Foreclosures
could create taxable income without accompanying cash proceeds,
a
circumstance that could hinder our ability to meet the REIT distribution
requirements imposed by the Internal Revenue
Code.
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We
may not be able to recover pre-development costs for third-party university
developments.
University
systems and educational institutions typically award us development services
contracts on the basis of a competitive award process, but such contracts are
typically executed following the formal approval of the transaction by the
institution’s governing body. In the intervening period, we may incur
significant pre-development and other costs in the expectation that the
development services contract will be executed. If an institution’s governing
body does not ultimately approve our selection and the terms of the pending
development contract, we may not be able to recoup these costs from the
institution and the resulting losses could be material.
Our
awarded projects may not be successfully structured or financed and may delay
our recognition of revenues.
The
recognition and timing of revenues from our awarded development services
projects will, among other things, be contingent upon successfully structuring
and closing project financing as well as the timing of construction. The
development projects that we have been awarded have at times been delayed beyond
the originally scheduled construction commencement date. If such delays were
to
occur with our current awarded projects, our recognition of expected revenues
and receipt of expected fees from these projects would be delayed.
We
may encounter delays in completion or experience cost overruns with respect
to
our properties that are under construction.
As
of
December 31, 2006, we were in the process of constructing two owned properties.
These properties are subject to the various risks relating to properties that
are under construction referred to elsewhere in these risk factors, including
the risks that we may encounter delays in completion and that these projects
may
experience cost overruns. These properties may not be completed on time.
Additionally, if we do not complete the construction of certain of our
properties on schedule, we may be required to provide alternative housing to
the
students with whom we have signed leases. We
generally do not make any arrangements for such alternative housing for these
properties and we would likely incur significant expenses in the event we
provide such housing. If construction is not completed on schedule, students
may
attempt to break their leases and our occupancy at such properties for that
academic year may suffer.
Our
guarantees could result in liabilities in excess of our development
fees.
In
third-party developments, we typically provide guarantees of the obligations
of
the developer, including development budgets and timely project completion.
These guarantees include, among other things, the cost of providing alternate
housing for students in the event we do not timely complete a development
project. These guarantees typically exclude delays resulting from force majeure
and also, in third-party transactions, are typically limited in amount to the
amount of our development fees from the project. In certain cases, however,
our
contingent liability under these guarantees has exceeded our development fee
from the project and we may agree to such arrangements in the future. Our
obligations under alternative housing guarantees typically expire five days
after construction is complete. Project cost guarantees are normally satisfied
within one year after completion of the project.
Universities
have the right to terminate our participating ground
leases.
The
ground leases through which we own our on-campus participating properties
provide that the university lessor may purchase our interest in and assume
the
management of the facility, with the purchase price calculated at the discounted
present value of cash flows from our leasehold interest. The exercise of any
such buyout would result in a reduction in our portfolio.
Changes
in laws and litigation risks could affect our
business.
We
are
generally not able to pass through to our residents under existing leases real
estate taxes, income taxes or other taxes. Consequently, any such tax increases
may adversely affect our financial condition and limit our ability to satisfy
our financial obligations and make distributions to security holders. Changes
that increase our potential liability under environmental laws or our
expenditures on environmental compliance could have the same
impact.
As
a
publicly traded owner of properties, we may become involved in legal
proceedings, including consumer, employment, tort or commercial litigation,
that
if decided adversely to or settled by us, and not adequately covered by
insurance, could result in liability that is material to our financial condition
or results of operations.
Risks
Related to the Real Estate Industry
Our
performance and value are subject to risks associated with real estate assets
and with the real estate industry.
Our
ability to satisfy our financial obligations and make expected distributions
to
our security holders depends on our ability to generate cash revenues in excess
of expenses and capital expenditure requirements. Events and conditions
generally applicable to owners and operators of real property that are beyond
our control may decrease cash available for distribution and the value of our
properties. These events include:
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general
economic conditions;
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rising
level of interest rates;
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local
oversupply, increased competition or reduction in demand for student
housing;
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inability
to collect rent from tenants;
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vacancies
or our inability to rent units on favorable
terms;
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inability
to finance property development and acquisitions on favorable
terms;
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increased
operating costs, including insurance premiums, utilities, and real
estate
taxes;
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costs
of complying with changes in governmental
regulations;
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the
relative illiquidity of real estate
investments;
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decreases
in student enrollment at particular colleges and
universities;
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changes
in university policies related to admissions and housing; and
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changing
student demographics.
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In
addition, periods of economic slowdown or recession, rising interest rates
or
declining demand for real estate, or the public perception that any of these
events may occur, could result in a general decline in rents or an increased
incidence of defaults under existing leases, which would adversely affect
us.
Potential
losses may not be covered by insurance.
We
carry
fire, earthquake, terrorism, business interruption, vandalism, malicious
mischief, boiler and machinery, commercial general liability and workers’
compensation insurance covering all of the properties in our portfolio under
various policies. We believe the policy specifications and insured limits are
appropriate and adequate given the relative risk of loss, the cost of the
coverage and industry practice. There are, however, certain types of losses,
such as property damage from generally unsecured losses such as riots, wars,
punitive damage awards or acts of God, that may be either uninsurable or not
economically insurable. Some of our properties are insured subject to
limitations involving large deductibles and policy limits that may not be
sufficient to cover losses. In addition, we may discontinue earthquake,
terrorism or other insurance on some or all of our properties in the future
if
the cost of premiums from any of these policies exceeds, in our judgment, the
value of the coverage discounted for the risk of loss.
If
we
experience a loss that is uninsured or that exceeds policy limits, we could
lose
the capital invested in the damaged properties as well as the anticipated future
cash flows from those properties. In addition, if the damaged properties are
subject to recourse indebtedness, we would continue to be liable for the
indebtedness, even if these properties were irreparably damaged and require
substantial expenditures to rebuild or repair. In the event of a significant
loss at one or more of our properties, the remaining insurance under our
policies, if any, could be insufficient to adequately insure our other
properties. In such event, securing additional insurance, if possible, could
be
significantly more expensive than our current policies.
Unionization
or work stoppages could have an adverse effect on us.
We
are at
times required to use unionized construction workers or to pay the prevailing
wage in a jurisdiction to such workers. Due to the highly labor intensive and
price competitive nature of the construction business, the cost of unionization
and/or prevailing wage requirements for new developments could be substantial.
Unionization and prevailing wage requirements could adversely affect a new
development’s profitability. Union activity or a union workforce could increase
the risk of a strike, which would adversely affect our ability to meet our
construction timetables.
We
could incur significant costs related to government regulation and private
litigation over environmental matters.
Under
various environmental laws, including the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”), a current or previous owner or
operator of real property may be liable for contamination resulting from the
release or threatened release of hazardous or toxic substances or petroleum
at
that property, and an entity that arranges for the disposal or treatment of
a
hazardous or toxic substance or petroleum at another property may be held
jointly and severally liable for the cost to investigate and clean up such
property or other affected property. Such parties are known as potentially
responsible parties (“PRPs”). Such environmental laws often impose liability
without regard to whether the owner or operator knew of, or was responsible
for,
the presence of the contaminants, and the costs of any required investigation
or
cleanup of these substances can be substantial. PRPs are liable to the
government as well as to other PRPs who may have claims for contribution. The
liability is generally not limited under such laws and could exceed the
property’s value and the aggregate assets of the liable party. The presence of
contamination or the failure to remediate contamination at our properties may
expose us to third-party liability for personal injury or property damage,
or
adversely affect our ability to sell, lease or develop the real property or
to
borrow using the real property as collateral.
Environmental
laws also impose ongoing compliance requirements on owners and operators of
real
property. Environmental laws potentially affecting us address a wide variety
of
matters, including, but not limited to, asbestos-containing building materials
(“ACBM”), storage tanks, storm water and wastewater discharges, lead-based
paint, wetlands, and hazardous wastes. Failure to comply with these laws could
result in fines and penalties or expose us to third-party liability. Some of
our
properties may have conditions that are subject to these requirements and we
could be liable for such fines or penalties or liable to third
parties.
Existing
conditions at some of our properties may expose us to liability related to
environmental matters.
Some
of
the properties in our portfolio may contain asbestos-containing building
materials, or ACBMs. Environmental laws require that ACBMs be properly managed
and maintained, and may impose fines and penalties on building owners or
operators for failure to comply with these requirements. Also, some of the
properties in our portfolio contain, or may have contained, or are adjacent
to
or near other properties that have contained or currently contain storage tanks
for the storage of petroleum products or other hazardous or toxic substances.
These operations create a potential for the release of petroleum products or
other hazardous or toxic substances. Third parties may be permitted by law
to
seek recovery from owners or operators for personal injury associated with
exposure to contaminants, including, but not limited to, petroleum products,
hazardous or toxic substances, and asbestos fibers. Also, some of the properties
may contain regulated wetlands that can delay or impede development or require
costs to be incurred to mitigate the impact of any disturbance. Absent
appropriate permits, we can be held responsible for restoring wetlands and
be
required to pay fines and penalties.
Over
the
past several years, there have been an increasing number of lawsuits against
owners and managers of residential properties, although not against us, alleging
personal injury and property damage caused by the presence of mold in
residential real estate. Some of these lawsuits have resulted in substantial
monetary judgments or settlements. Insurance carriers have reacted to these
liability awards by excluding mold related programs designed to minimize the
existence of mold in any of our properties as well as guidelines for promptly
addressing and resolving reports of mold to minimize any impact mold might
have
on residents or the property.
We
do not
carry environmental insurance on our properties. Environmental liability at
any
of our properties may have a material adverse effect on our financial condition,
results of operations, cash flow, the trading price of our stock or our ability
to satisfy our debt service obligations and pay dividends or distributions
to
our security holders.
We
may incur significant costs complying with the Americans with Disabilities
Act
and similar laws.
Under
the
Americans with Disabilities Act of 1990, or the ADA, all public accommodations
must meet federal requirements related to access and use by disabled persons.
Additional federal, state and local laws also may require modifications to
our
properties, or restrict our ability to renovate our properties. For example,
the
Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties
first occupied after March 13, 1990 to be accessible to the handicapped. We
have
not conducted an audit or investigation of all of our properties to determine
our compliance with present requirements. Noncompliance with the ADA or FHAA
could result in the imposition of fines or an award or damages to private
litigants and also could result in an order to correct any non-complying
feature. We cannot predict the ultimate amount of the cost of compliance with
the ADA, FHAA or other legislation. If we incur substantial costs to comply
with
the ADA, FHAA or any other legislation, we could be materially and adversely
affected.
We
may incur significant costs complying with other
regulations.
The
properties in our portfolio are subject to various federal, state and local
regulatory requirements, such as state and local fire and life safety
requirements. If we fail to comply with these various requirements, we might
incur governmental fines or private damage awards. Furthermore, existing
requirements could change and require us to make significant unanticipated
expenditures that would materially and adversely affect us.
Joint
venture investments could be adversely affected by our lack of sole
decision-making authority, our reliance on co-venturers’ financial condition and
disputes between our co-venturers and us.
We
have
co-invested, and anticipate that we will continue in the future to co-invest,
with third parties through partnerships, joint ventures or other entities,
acquiring non-controlling interests in or sharing responsibility for managing
the affairs of a property, partnership, joint venture or other entity. In
connection with joint venture investments, we do not have sole decision-making
control regarding the property, partnership,
joint venture or other entity. Investments in partnerships, joint ventures
or
other entities may, under certain circumstances, involve risks not present
were
a third-party not involved, including the possibility that our partners or
co-venturers might become bankrupt or fail to fund their share of required
capital contributions. Our partners or co-venturers also may have economic
or
other business interests or goals that are inconsistent with our business
interests or goals, and may be in a position to take actions contrary to our
preferences, policies or objectives. Such investments also will have the
potential risk of impasses on decisions, such as a sale, because neither we
nor
our partners or co-venturers would have full control over the partnership or
joint venture. Disputes between us and our partners or co-venturers may result
in litigation or arbitration that would increase our expenses and prevent our
officers and/or directors from focusing their time and effort exclusively on
our
business. Consequently, actions by or disputes with our partners or co-venturers
might result in subjecting properties owned by the partnership, joint venture
or
other entity to additional risk. In addition, we may in certain circumstances
be
liable for the actions of our partners or co-venturers.
Risks
Related to Our Organization and Structure
We
are recently organized and have a limited operating
history.
We
were
organized in March 2004 and have a limited operating history. In addition,
all
of our properties have been acquired or developed by us or our predecessors
within the past ten years and have limited operating histories under current
management. Consequently, our historical operating results may not be useful
in
assessing our likely future performance. The operating performance of the
properties may decline under our management. We may not be able to generate
sufficient cash from operations to satisfy our financial obligations and make
distributions to our security holders.
We
will
also be subject to the risks generally associated with the operation of a
relatively new business.
To
qualify as a REIT, we may be forced to limit the activities of our
TRS.
To
qualify as a REIT, no more than 20% of the value of our total assets may consist
of the securities of one or more taxable REIT subsidiaries, such as American
Campus Communities Services, Inc., our TRS. Certain of our activities, such
as
our third-party development, management and leasing services, must be conducted
through our TRS for us to qualify as a REIT. In addition, certain non-customary
services must be provided by a TRS or an independent contractor. If the revenues
from such activities create a risk that the value of our TRS, based on revenues
or otherwise, approaches the 20% threshold, we will be forced to curtail such
activities or take other steps to remain under the 20% threshold. Since the
20%
threshold is based on value, it is possible that the IRS could successfully
contend that the value of our TRS exceeds the 20% threshold even if our TRS
accounts for less than 20% of our consolidated revenues, income or cash flow.
Our on-campus participating properties and our third-party services are held
by
our TRS. Consequently, income earned from our on-campus participating properties
and our third-party services will be subject to regular federal income taxation
and state and local income taxation where applicable, thus reducing the amount
of cash available for distribution to our security holders.
Our
TRS
is not permitted to directly or indirectly operate or manage a “hotel, motel or
other establishment more than one-half of the dwelling units in which are used
on a transient basis.” We believe that our method of operating our TRS will not
be considered to constitute such an activity. Future Treasury Regulations or
other guidance interpreting the applicable provisions might
adopt a different approach, or the IRS might disagree with our conclusion.
In
such event we might be forced to change our method of operating our TRS, which
could adversely affect us, or our TRS could fail to qualify as a taxable REIT
subsidiary, which would likely cause us to fail to qualify as a
REIT.
Failure
to qualify as a REIT would have significant adverse consequences to us and
the
value of our securities.
We
intend
to operate in a manner that will allow us to qualify as a REIT for federal
income tax purposes under the Internal Revenue Code. If we lose our REIT status,
we will face serious tax consequences that would substantially reduce or
eliminate the funds available for investment and for distribution to security
holders for each of the years involved, because:
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we
would not be allowed a deduction for dividends to security holders
in
computing our taxable income and such amounts would be subject
to federal
income tax at regular corporate
rates;
|
|
·
|
we
also could be subject to the federal alternative minimum tax and
possibly
increased state and local taxes;
and
|
|
·
|
unless
we are entitled to relief under applicable statutory provisions,
we could
not elect to be taxed as a REIT for four taxable years following
the year
during which we were disqualified.
|
In
addition, if we fail to qualify as a REIT, we will not be required to pay
dividends to stockholders, and all dividends to stockholders will be subject
to
tax as ordinary income to the extent of our current and accumulated earnings
and
profits. As a result of all these factors, our failure to qualify as a REIT
also
could impair our ability to expand our business and raise capital, and would
adversely affect the value of our common stock.
Qualification
as a REIT involves the application of highly technical and complex Internal
Revenue Code provisions for which there are only limited judicial and
administrative interpretations. The complexity of these provisions and of the
applicable Treasury Regulations that have been promulgated under the Internal
Revenue Code is greater in the case of a REIT that, like us, holds its assets
through a partnership or a limited liability company. The determination of
various factual matters and circumstances not entirely within our control may
affect our ability to qualify as a REIT. In order to qualify as a REIT, we
must
satisfy a number of requirements, including requirements regarding the
composition of our assets and “two gross income tests”: (a) at least 75% of our
gross income in any year must be derived from qualified sources, such as “rents
from real property,” mortgage interest, dividends from other REITs and gains
from sale of such assets, and (b) at least 95% of our gross income must be
derived from sources meeting the 75% income test above, and other passive
investment sources, such as other interest and dividends and gains from sale
of
securities. Also, we must pay dividends to stockholders aggregating annually
at
least 90% of our REIT taxable income, excluding any net capital gains. In
addition, legislation, new regulations, administrative interpretations or court
decisions may adversely affect our investors, our ability to qualify as a REIT
for federal income tax purposes or the desirability of an investment in a REIT
relative to other investments.
Even
if
we qualify as a REIT for federal income tax purposes, we may be subject to
some
federal, state and local taxes on our income or property and, in certain cases,
a 100% penalty tax, in the event we sell property as a dealer or if our TRS
enters into agreements with us or our tenants on a basis that is determined
to
be other than an arm’s length basis.
To
qualify as a REIT, we may be forced to borrow funds on a short-term basis during
unfavorable market conditions.
In
order
to qualify as a REIT, we are required under the Internal Revenue Code to
distribute annually at least 90% of our REIT taxable income, determined without
regard to the dividends paid deduction and excluding any net
capital gain. Our TRS may, in its discretion, retain any income it generates
net
of any tax liability it incurs on that income without affecting the 90%
distribution requirements to which we are subject as a REIT. Net income of
our
TRS is included in REIT taxable income and increases the amount required to
be
distributed, only if such amounts are paid out as a dividend by our TRS. If
our
TRS distributes any of its after-tax income to us, that distribution will be
included in our REIT taxable income. In addition, we will be subject to income
tax at regular corporate rates to the extent that we distribute less than 100%
of our net taxable income, including any net capital gains. Because of these
distribution requirements, we may not be able to fund future capital needs,
including any necessary acquisition financing, from operating cash flow.
Consequently, we will be compelled to rely on third-party sources to fund our
capital needs. We may not be able to obtain this financing on favorable terms
or
at all. Any additional indebtedness that we incur will increase our leverage.
Our access to third-party sources of capital depends, in part, on:
|
·
|
general
market conditions;
|
|
·
|
our
current debt levels and the number of properties subject to
encumbrances;
|
|
·
|
our
current performance and the market’s perception of our growth
potential;
|
|
·
|
our
cash flow and cash dividends; and
|
|
·
|
the
market price per share of our
stock.
|
If
we
cannot obtain capital from third-party sources, we may not be able to acquire
or
develop properties when strategic opportunities exist, satisfy our debt service
obligations or make the cash distributions to our security holders, including
those necessary to qualify as a REIT.
Our
charter contains restrictions on the ownership and transfer of our
stock.
Our
charter provides that, subject to certain exceptions, no person or entity may
beneficially own, or be deemed to own by virtue of the applicable constructive
ownership provisions of the Internal Revenue Code, more than 9.8% (by value
or
by number of shares, whichever is more restrictive) of the outstanding shares
of
our common stock or more than 9.8% by value of all our outstanding shares,
including both common and preferred stock. We refer to this restriction as
the
“ownership limit.” A person or entity that becomes subject to the ownership
limit by virtue of a violative transfer that results in a transfer to a trust
is
referred to as a “purported beneficial transferee” if, had the violative
transfer been effective, the person or entity would have been a record owner
and
beneficial owner or solely a beneficial owner of our stock, or is referred
to as
a “purported record transferee” if, had the violative transfer been effective,
the person or entity would have been solely a record owner of our
stock.
The
constructive ownership rules under the Internal Revenue Code are complex and
may
cause stock owned actually or constructively by a group of related individuals
and/or entities to be owned constructively by one individual or entity. As
a
result, the acquisition of less than 9.8% of our stock (or the acquisition
of an
interest in an entity that owns, actually or constructively, our stock) by
an
individual or entity, could, nevertheless cause that individual or entity,
or
another individual or entity, to own constructively in excess of 9.8% of our
outstanding stock and thereby subject the stock to the ownership limit. Our
charter, however, requires exceptions to be made to this limitation if our
board
of directors determines that such exceptions will not jeopardize our tax status
as a REIT. This ownership limit could delay, defer or prevent a change of
control or other transaction that might involve a premium price for our common
stock or otherwise be in the best interest of our security holders.
Certain
tax and anti-takeover provisions of our charter and bylaws may inhibit a change
of our control.
Certain
provisions contained in our charter and bylaws and the Maryland General
Corporation Law may discourage a third-party from making a tender offer or
acquisition proposal to us. If this were to happen, it could delay, deter or
prevent a change in control or the removal of existing management. These
provisions also may delay or prevent the security holders from receiving a
premium for their securities over then-prevailing market prices. These
provisions include:
|
·
|
the
REIT ownership limit described
above;
|
|
·
|
authorization
of the issuance of our preferred shares with powers, preferences
or rights
to be determined by our board of
directors;
|
|
·
|
the
right of our board of directors, without a stockholder vote, to
increase
our authorized shares and classify or reclassify unissued
shares;
|
|
·
|
advance-notice
requirements for stockholder nomination of directors and for other
proposals to be presented to stockholder meetings;
and
|
|
·
|
the
requirement that a majority vote of the holders of common stock
is needed
to remove a member of our board of directors for
“cause.”
|
The
Maryland business statutes also impose potential restrictions on a change of
control of our company.
Various
Maryland laws may have the effect of discouraging offers to acquire us, even
if
the acquisition would be advantageous to security holders. Our bylaws exempt
us
from some of those laws, such as the control share acquisition provisions,
but
our board of directors can change our bylaws at any time to make these
provisions applicable to us.
Our
rights and the rights of our security holders to take action against our
directors and officers are limited.
Maryland
law provides that a director or officer has no liability in that capacity if
he
or she performs his or her duties in good faith, in a manner he or she
reasonably believe to be in our best interests and with the care that an
ordinary prudent person in a like position would use under similar
circumstances. In addition, our charter eliminates our directors’ and officers’
liability to us and our stockholders for money damages except for liability
resulting from actual receipt of an improper benefit in money, property or
services or active and deliberate dishonesty established by a final judgment
and
which is material to the cause of action. Our bylaws require us to indemnify
directors and officers for liability resulting from actions taken by them in
those capacitates to the maximum extent permitted by Maryland law. As a result,
we and our security holders may have more limited rights against our directors
and officers than might otherwise exist under common law. In addition, we may
be
obligated to fund the defense costs incurred by our directors and
officers.
Item
1B. Unresolved Staff Comments
There
were no unresolved comments from the staff of the SEC at December 31,
2006.
The
following table presents certain summary information about our properties.
Our
properties generally are modern facilities, and amenities at most of our
properties include a swimming pool, basketball courts and a large community
center featuring a fitness center, computer center, tanning beds, study areas,
and a recreation room with billiards and other games. Some properties also
have
a jacuzzi/hot tub, volleyball courts, tennis courts and in-unit washers and
dryers. Callaway House also has a food service facility. One owned property
completed construction and opened in Fall 2006 and two owned properties are
currently under construction with scheduled completion dates of Fall 2007 and
August 2008. Lease terms are generally 12 months at our off-campus properties
and nine months at our on-campus properties. These properties are included
in
the Owned Off-Campus Properties and On-Campus Participating Properties segments
discussed in Item 1 and the accompanying Notes to Consolidated and Combined
Financial Statements contained in Item 8. All dollar amounts in this table
and
others herein, except share and per share amounts, are stated in thousands
unless otherwise indicated.
We
own
fee title to all of these properties except for:
|
·
|
University
Village at TU, which is subject to a 75-year ground lease with
Temple
University (with four additional six-year extensions);
|
|
·
|
University
Centre, which is subject to a 95-year ground lease;
|
|
·
|
Arizona
State University –
South
Campus Residential Community (“ASU-SCRC”), which is subject to a 65-year
ground lease (with two additional ten-year extensions);
and
|
|
·
|
Four
on-campus participating properties held under ground/facility leases
with
two university systems.
|
Property
|
|
Year
Built
|
|
Date
Acquired/ Developed
|
|
Primary
University Served
|
|
Typical
Lease Term (Mos)
|
|
Year
Ended December 31, 2006 Revenue
|
|
Average
Monthly Revenue/ Bed (1)
|
|
2006
Average Occupancy (1)
|
|
Occupancy
as of 12/31/06
|
|
#
of Buildings
|
|
#
of Units
|
|
#
of Beds
|
OWNED
PROPERTIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Villas
on Apache (2)
|
|
1987
|
|
May-99
|
|
Arizona
State University Main Campus
|
|
12
|
|
$
1,829
|
|
$
419
|
|
94.9%
|
|
99.0%
|
|
6
|
|
111
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Village at Blacksburg
|
|
1990/
1998
|
|
Dec-00
|
|
Virginia
Polytechnic Institute and State University
|
|
12
|
|
4,221
|
|
329
|
|
99.0%
|
|
99.3%
|
|
26
|
|
288
|
|
1,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
River
Club Apartments
|
|
1996
|
|
Aug-99
|
|
The
University of Georgia - Athens
|
|
12
|
|
3,450
|
|
359
|
|
98.5%
|
|
99.4%
|
|
18
|
|
266
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
River
Walk Townhomes
|
|
1998
|
|
Aug-99
|
|
The
University of Georgia - Athens
|
|
12
|
|
1,483
|
|
355
|
|
98.1%
|
|
99.1%
|
|
20
|
|
100
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Callaway House (3)
|
|
1999
|
|
Mar-01
|
|
Texas
A&M University
|
|
9
|
|
6,140
|
(4)
|
n/a
|
(4)
|
103.6%
|
|
103.5%
|
|
1
|
|
173
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Village at Alafaya Club
|
|
1999
|
|
Jul-00
|
|
The
University of Central Florida
|
|
12
|
|
5,734
|
|
528
|
|
99.4%
|
|
99.5%
|
|
20
|
|
228
|
|
839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Village at Science Drive
|
|
2000
|
|
Nov-01
|
|
The
University of Central Florida
|
|
12
|
|
4,992
|
|
535
|
|
98.9%
|
|
98.6%
|
|
17
|
|
192
|
|
732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at Boulder Creek
|
|
2002
|
|
Aug-02
|
|
The
University of Colorado at Boulder
|
|
12
|
|
2,423
|
|
648
|
|
95.1%
|
|
98.7%
|
|
4
|
|
82
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at Fresno
|
|
2004
|
|
Aug-04
|
|
California
State University, Fresno
|
|
12
|
|
2,751
|
|
529
|
|
97.2%
|
|
95.1%
|
|
9
|
|
105
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at TU (5)
|
|
2004
|
|
Aug-04
|
|
Temple
University
|
|
12
|
|
6,027
|
|
616
|
|
98.9%
|
|
99.5%
|
|
3
|
|
220
|
|
749
|
Subtotal
- Same Store Owned Properties (6)
|
39,050
|
|
467
|
|
98.7%
|
|
99.3%
|
|
124
|
|
1,765
|
|
6,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at Sweet Home
|
|
2005
|
|
Aug-05
|
|
State
University of New York - Buffalo
|
|
12
|
|
5,989
|
|
568
|
|
99.5%
|
|
99.5%
|
|
9
|
|
269
|
|
828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Club Tallahassee (7)
|
|
2000
|
|
Feb-05
|
|
Florida
State University
|
|
12
|
|
3,821
|
|
400
|
|
98.6%
|
|
99.0%
|
|
17
|
|
152
|
|
608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Grove at University Club (7)
|
|
2002
|
|
Feb-05
|
|
Florida
State University
|
|
12
|
|
805
|
|
400
|
|
98.8%
|
|
99.2%
|
|
8
|
|
64
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
College
Club Tallahassee (7)
|
|
2001
|
|
Feb-05
|
|
Florida
A&M University
|
|
12
|
|
2,190
|
|
371
|
|
93.5%
|
|
88.8%
|
|
11
|
|
96
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Greens at College Club (7)
|
|
2004
|
|
Feb-05
|
|
Florida
A&M University
|
|
12
|
|
912
|
|
353
|
|
98.0%
|
|
99.4%
|
|
5
|
|
40
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Club Gainesville
|
|
1999
|
|
Feb-05
|
|
University
of Florida
|
|
12
|
|
1,975
|
|
366
|
|
98.1%
|
|
98.9%
|
|
8
|
|
94
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City
Parc at Fry Street
|
|
2004
|
|
Mar-05
|
|
University
of North Texas
|
|
12
|
|
2,573
|
|
489
|
|
98.7%
|
|
97.6%
|
|
7
|
|
136
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Estates
|
|
2002
|
|
Mar-05
|
|
University
of Florida
|
|
12
|
|
6,681
|
|
517
|
|
98.8%
|
|
98.3%
|
|
18
|
|
396
|
|
1,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entrada
Real (8)
|
|
1999
|
|
Mar-06
|
|
University
of Arizona
|
|
12
|
|
1,721
|
|
459
|
|
98.6%
|
|
99.4%
|
|
8
|
|
98
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Oaks (7) (8)
|
|
1990
|
|
Mar-06
|
|
Florida
State University
|
|
12
|
|
934
|
|
391
|
|
99.7%
|
|
98.7%
|
|
4
|
|
82
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Pavilion (7) (8)
|
|
1991
|
|
Mar-06
|
|
Florida
State University
|
|
12
|
|
851
|
|
394
|
|
99.1%
|
|
98.0%
|
|
4
|
|
60
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Village Tallahassee (7) (8)
|
|
1992
|
|
Mar-06
|
|
Florida
State University
|
|
12
|
|
1,201
|
|
396
|
|
98.5%
|
|
99.3%
|
|
4
|
|
75
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Village Gainesville (8)
|
|
1996
|
|
Mar-06
|
|
University
of Florida
|
|
12
|
|
2,031
|
|
443
|
|
96.3%
|
|
97.5%
|
|
8
|
|
118
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northgate
Lakes (8)
|
|
1998
|
|
Mar-06
|
|
The
University of Central Florida
|
|
12
|
|
3,467
|
|
460
|
|
99.2%
|
|
98.0%
|
|
13
|
|
194
|
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Lexington (8)
|
|
1994
|
|
Mar-06
|
|
The
University of Kentucky
|
|
12
|
|
1,362
|
|
366
|
|
93.6%
|
|
92.0%
|
|
4
|
|
94
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Woods at Greenland (8)
|
|
2001
|
|
Mar-06
|
|
Middle
Tennessee State University
|
|
12
|
|
1,020
|
|
376
|
|
93.2%
|
|
95.7%
|
|
3
|
|
78
|
|
276
|
Property
|
|
Year
Built
|
|
Date
Acquired/ Developed
|
|
Primary
University Served
|
|
Typical
Lease Term (Mos)
|
|
Year
Ended December 31, 2006 Revenue
|
|
Average
Monthly Revenue/ Bed (1)
|
|
2006
Average
Occupancy
(1)
|
|
Occupancy
as of 12/31/06
|
|
#
of Buildings
|
|
#
of Units
|
|
#
of Beds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raider’s
Crossing (8)
|
|
2002
|
|
Mar-06
|
|
Middle
Tennessee State University
|
|
12
|
|
$
1,091
|
|
$
399
|
|
93.5%
|
|
95.7%
|
|
4
|
|
96
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raider’s
Pass (8)
|
|
2002
|
|
Mar-06
|
|
Texas
Tech University
|
|
12
|
|
2,914
|
|
447
|
|
75.4%
|
|
69.4%
|
|
12
|
|
264
|
|
828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggie
Station (8)
|
|
2002
|
|
Mar-06
|
|
Texas
A&M University
|
|
12
|
|
2,003
|
|
439
|
|
97.3%
|
|
98.0%
|
|
5
|
|
156
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Outpost San Marcos (8)
|
|
2004
|
|
Mar-06
|
|
Texas
State University - San Marcos
|
|
12
|
|
2,232
|
|
429
|
|
99.3%
|
|
99.6%
|
|
5
|
|
162
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Outpost San Antonio (8)
|
|
2005
|
|
Mar-06
|
|
University
of Texas - San Antonio
|
|
12
|
|
3,938
|
|
447
|
|
99.8%
|
|
100.0%
|
|
10
|
|
276
|
|
828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Callaway
Villas (9)
|
|
2006
|
|
Aug-06
(9)
|
|
Texas
A&M University
|
|
12
|
|
1,922
|
|
574
|
|
99.9%
|
|
100.0%
|
|
18
|
|
236
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Centre (10)
|
|
2007
|
|
Fall
2007 (10)
|
|
Rutgers
University, NJIT, Essex CCC
|
|
12
|
|
—
|
|
n/a
|
|
n/a
|
|
n/a
|
|
2
|
|
234
|
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASU-SCRC
(11)
|
|
2008
|
|
Aug-08
(11)
|
|
Arizona
State University
|
|
12
|
|
—
|
|
n/a
|
|
n\a
|
|
n/a
|
|
10
|
|
613
|
|
1,866
|
Subtotal
– New Owned Properties
|
|
51,633
|
|
454
|
|
96.3%
|
|
95.8%
|
|
197
|
|
4,083
|
|
13,099
|
Total
– Owned Properties
|
|
90,683
|
|
459
|
|
97.2%
|
|
97.1%
|
|
321
|
|
5,848
|
|
19,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ON-CAMPUS
PARTICIPATING PROPERTIES (12)
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village – PVAMU
|
|
1996/
97/98
|
|
Aug-96-
Aug-98
|
|
Prairie
View A&M University
|
|
9
|
|
7,982
|
|
448
|
|
94.5%
|
|
95.8%
|
|
30
|
|
612
|
|
1,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
College – PVAMU
|
|
2000/
2003
|
|
Aug-00
Aug-03
|
|
Prairie
View A&M University
|
|
9
|
|
5,281
|
|
434
|
|
84.6%
|
|
89.3%
|
|
14
|
|
756
|
|
1,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village – TAMIU
|
|
1997
|
|
Aug-97
|
|
Texas
A&M International University
|
|
9
|
|
1,114
|
|
431
|
|
84.7%
|
|
83.6%
|
|
4
|
|
84
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cullen
Oaks
|
|
2001/
2005
|
|
Aug-01
Aug-05
|
|
The
University of Houston
|
|
9
|
|
5,583
|
|
614
|
|
98.4%
|
|
96.1%
|
|
4
|
|
411
|
|
879
|
Total
- On-Campus Participating Properties
|
|
19,960
|
|
475
|
|
91.5%
|
|
93.1%
|
|
52
|
|
1,863
|
|
4,519
|
Grand
Total- All Properties
|
|
$110,643
|
(14)
|
$
462
|
(15)
|
96.0%
|
|
96.2%
|
|
373
|
|
7,711
|
|
23,663
|
(1) |
Average
monthly revenue per bed is calculated based upon our base rental
revenue
earned during typical lease terms for the year ended December 31,
2006
divided by average occupied beds over the typical lease term. Average
occupancy is calculated based on the average number of occupied beds
during typical lease terms for the year ended December 31, 2006 divided
by
total beds.
|
(2) |
Formerly
Commons on Apache
|
(3) |
Although
we hold an 80% interest in the property, because of our preferred
distribution rights, we currently receive substantially all of the
property’s net cash flow.
|
(4) |
As
rent at this property includes food services, revenue is not comparable
to
the other properties in this chart. Subsequent to our IPO, this property’s
food services revenue is now recognized by our
TRS.
|
(5) |
Subject
to a 75-year ground lease with Temple University.
|
(6) |
Our
same store portfolio represents properties that were owned by us
for both
of the full years ended December 31, 2006 and
2005.
|
(7) |
For
lease administration purposes, University Club Tallahassee and The
Grove
at University Club are reported combined, College Club Tallahassee
and The
Greens at College Club are reported combined, and Royal Oaks, Royal
Pavilion, and Royal Village Tallahassee are reported combined. As
a
result, revenue for the year ended December 31, 2006 is allocated
to the
respective properties based on relative bed
count.
|
(8) |
These
properties were acquired during 2006. Average occupancy is calculated
based on the period these properties were owned and operated by us
in
2006.
|
(9) |
This
property completed construction and opened in the Fall 2006 semester.
Average occupancy is calculated based on the period this property
was
operating in 2006.
|
(10) |
Currently
under development with a scheduled completion date of Fall 2007.
Subject
to a 95-year ground lease.
|
(11) |
Currently
under development with a scheduled completion date of August 2008.
Subject
to a 65-year ground lease with Arizona State University.
|
(12) |
Although
our on-campus participating properties accounted for 24.2% of our
units,
19.1% of our beds and 18.0% of our revenues for the year ended December
31, 2006, because of the structure of their ownership and financing
we
have only received approximately $0.9 million in distributions of
excess
cash flow during the year ended December 31, 2006. The ground/facility
leases through which we own our on-campus participating properties
provide
that the university lessor may purchase our interest in and assume
the
management of the facility.
|
(13) |
Subject
to ground/facility leases with their primary university systems.
Average
occupancy is calculated based on the nine month academic year (excluding
the summer months).
|
(14) |
Excludes
revenue from The Village on University, which was sold in December
2006.
These revenues are included in discontinued operations discussed
in Item 7
– Management’s Discussion and Analysis of Financial Condition and Results
of Operations and Item 8 – Consolidated and Combined Financial
Statements.
|
(15) |
Does
not include revenues from The Callaway House because of its food
service
component, which is now recognized by our TRS subsequent to our
IPO.
|
Property
Activity Subsequent to Year End
Acquisitions
In
January 2007, we acquired a 248-unit, 752-bed property (The Village on Sixth)
located near the campus of Marshall University in Huntington, West Virginia,
for
a purchase price of $25.6 million, which excludes $1.7 million of anticipated
transaction costs, initial integration expenses and capital expenditures
necessary to bring this property up to our operating standards. As part of
the
transaction, we assumed two fixed-rate mortgage loans, which includes one for
$16.2 million with an annual interest rate of 5.5% and remaining term to
maturity of 7.5 years and the second loan for $1.4 million with an annual
interest rate of 6.6% and remaining term to maturity of 9.9 years.
In
February 2007, we acquired a three property portfolio (the “Edwards Portfolio”)
for a purchase price of $102.0 million, which excludes $3.5 million of
anticipated transaction costs, initial integration expenses and capital
expenditures necessary to bring these properties up to our operating standards.
As part of the transaction, we assumed $70.7 million in fixed-rate mortgage
debt
with a weighted average annual interest rate of 5.7% and an average remaining
term to maturity of 8.5 years. The transaction also includes the pre-sale of
an
additional phase containing 84 beds currently under construction for $4.6
million, subject to the satisfaction of certain conditions. The completion
of
the additional phase is expected in August 2007.
The
Edwards Portfolio consists of one property in Lexington, Kentucky located near
the campus of the University of Kentucky, one property in Toledo, Ohio located
near the campus of the University of Toledo and one property in Ypsilanti,
Michigan located near the campus of Eastern Michigan University. These three
properties total 764 units and 1,971 beds. Subsequent to these transactions,
our
total owned and managed portfolio is comprised of 57 properties that represent
approximately 35,700 beds in approximately 11,900 units.
From
time
to time, we are subject to various lawsuits, claims and proceedings arising
in
the ordinary course of business. As of December 31, 2006, none of these were
expected to have a material adverse effect on our cash flows, financial
condition, or results of operations.
No
matters were submitted to a vote of our stockholders during the quarter ended
December 31, 2006.
PART
II
Market
Information
The
Company’s common stock has been listed and is traded on the New York Stock
Exchange (“NYSE”) under the symbol “ACC”. The following table sets forth, for
the periods indicated, the high and low sale prices in dollars on the NYSE
for
our common stock and the distributions we declared with respect to the periods
indicated.
|
|
High
|
|
Low
|
|
Distributions
Declared
|
|
Quarter
ended March 31, 2005
|
|
$
|
22.75
|
|
$
|
19.09
|
|
$
|
0.3375
|
|
Quarter
ended June 30, 2005
|
|
$
|
23.36
|
|
$
|
19.04
|
|
$
|
0.3375
|
|
Quarter
ended September 30, 2005
|
|
$
|
25.25
|
|
$
|
21.75
|
|
$
|
0.3375
|
|
Quarter
ended December 31, 2005
|
|
$
|
26.49
|
|
$
|
22.60
|
|
$
|
0.3375
|
|
Quarter
ended March 31, 2006
|
|
$
|
28.58
|
|
$
|
24.24
|
|
$
|
0.3375
|
|
Quarter
ended June 30, 2006
|
|
$
|
26.20
|
|
$
|
22.40
|
|
$
|
0.3375
|
|
Quarter
ended September 30, 2006
|
|
$
|
26.27
|
|
$
|
23.80
|
|
$
|
0.3375
|
|
Quarter
ended December 31, 2006
|
|
$
|
30.23
|
|
$
|
24.85
|
|
$
|
0.3375
|
|
Holders
As
of
March 9, 2007, there were approximately 5,100 holders of record of the Company’s
common stock and 22,903,073 shares of common stock outstanding.
Distributions
We
intend
to continue to declare quarterly distributions on our common stock. The actual
amount and timing of distributions, however, will be at the discretion of our
Board of Directors and will depend upon our financial condition in addition
to
the requirements of the Code, and no assurance can be given as to the amounts
or
timing of future distributions. The payment of distributions is subject to
restrictions under the Company’s $115 million revolving credit facility
described in Note 10 to the Consolidated and Combined Financial Statements
in
Item 8 and discussed in Management’s Discussion and Analysis of Financial
Condition and Results of Operations in Item 7 under Liquidity and Capital
Resources.
Equity
Compensation Plans
We
have
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, common units of limited partnership interest
in the
Operating Partnership (formerly profits interest units or “PIUs”), restricted
stock units (“RSUs”), restricted stock awards (“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. Refer to Note 11 in the accompanying Notes to Consolidated and Combined
Financial Statements in Item 8 for a more detailed description of the Plan.
As
of December 31, 2006, the total units and shares issued under the Plan were
as
follows:
|
|
#
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants,
and Rights
|
|
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants, and
Rights
|
|
#
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans
|
|
Equity
Compensation Plans Approved by Security Holders (2)
|
|
|
251,175
|
(1)
|
|
$
|
-0-
|
|
|
958,825
|
|
Equity
Compensation Plans Not Approved by Security Holders
|
|
|
n/a
|
|
|
|
n/a
|
|
|
n/a
|
|
(1) |
Consists
of RSUs granted to non-employee Board of Director members in connection
with our IPO and in May 2005 and May 2006, RSAs granted to its executive
officers and certain employees in February 2005 and January 2006
and
common units of limited partnership interest in the Operating Partnership
|
(2) |
Table
does not include 367,682 common stock awards in the form of an
outperformance bonus plan. Upon the occurrence of certain events
or the
achievement of certain performance measures, the common stock awards
under
the outperformance bonus plan will be paid to the recipients in either
stock or cash, at the discretion of the Compensation Committee of
the
Board of Directors. If these awards were included in the above table,
we
would have 591,143 shares available for future issuance under the
Plan.
|
The
following table sets forth selected financial and operating data on a
consolidated historical basis for the Company and on a combined historical
basis
for the Predecessor. Results for the year ended December 31, 2004 represent
the
combined historical data for our Predecessor for the period from January 1,
2004
to August 16, 2004 as well as the consolidated results for our Company for
the
period from August 17, 2004 to December 31, 2004.
The
following data should be read in conjunction with the Notes to Consolidated
and
Combined Financial Statements in Item 8 and Management’s Discussion and Analysis
of Financial Condition and Results of Operations included in Item
7.
|
|
As
of and for the Year Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
Statements
of Operations Information:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
118,953
|
|
$
|
82,522
|
|
$
|
56,230
|
|
$
|
52,792
|
|
$
|
47,091
|
|
Income
(loss) from continuing operations
|
|
|
1,662
|
|
|
1,751
|
|
|
(1,350
|
)
|
|
(186
|
)
|
|
(2,790
|
)
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations
|
|
|
2,287
|
|
|
2,028
|
|
|
50
|
|
|
(774
|
)
|
|
356
|
|
Gain
(loss) from disposition of real estate
|
|
|
18,648
|
|
|
5,883
|
|
|
(39
|
)
|
|
16
|
|
|
295
|
|
Net
Income (loss)
|
|
|
22,597
|
|
|
9,662
|
|
|
(1,339
|
)
|
|
(944
|
)
|
|
(2,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share and Distribution Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
per diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
0.08
|
|
$
|
0.12
|
|
$
|
0.05
|
(1)
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
1.09
|
|
|
0.53
|
|
|
0.10
|
(1)
|
|
|
|
|
|
|
Net
income
|
|
|
1.17
|
|
|
0.65
|
|
|
0.15
|
(1)
|
|
|
|
|
|
|
Cash
distributions declared per share / unit
|
|
|
1.35
|
|
|
1.35
|
|
|
0.1651
|
(1)
|
|
|
|
|
|
|
Cash
distributions declared
|
|
|
25,287
|
|
|
20,180
|
|
|
2,084
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
884,381
|
|
$
|
550,862
|
|
$
|
367,628
|
|
$
|
330,566
|
|
$
|
307,658
|
|
Secured
debt
|
|
|
432,294
|
|
|
291,646
|
|
|
201,014
|
|
|
267,518
|
|
|
249,706
|
|
Capital
lease obligations
|
|
|
2,348
|
|
|
1,679
|
|
|
598
|
|
|
410
|
|
|
402
|
|
Stockholders’
and Predecessor owners’
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equity
(2)
|
|
|
369,474
|
|
|
223,227
|
|
|
138,229
|
|
|
27,658
|
|
|
35,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Owned Property Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
properties
|
|
|
38
|
|
|
25
|
|
|
18
|
|
|
14
|
|
|
14
|
|
Units
|
|
|
7,711
|
|
|
5,620
|
|
|
4,317
|
|
|
3,567
|
|
|
3,459
|
|
Beds
|
|
|
23,663
|
|
|
17,109
|
|
|
12,955
|
|
|
10,546
|
|
|
10,336
|
|
Occupancy
as of December 31,
|
|
|
96.2
|
%
|
|
97.0
|
%
|
|
97.1
|
%
|
|
91.5
|
%
|
|
91.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$
|
35,237
|
|
$
|
20,429
|
|
$
|
17,778
|
|
$
|
6,846
|
|
$
|
7,647
|
|
Net
cash used in investing activities
|
|
|
(102,718
|
)
|
|
(111,755
|
)
|
|
(63,621
|
)
|
|
(33,738
|
)
|
|
(21,678
|
)
|
Net
cash provided by financing activities
|
|
|
121,947
|
|
|
111,332
|
|
|
45,251
|
|
|
21,553
|
|
|
11,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
From Operations (“FFO”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
22,597
|
|
$
|
9,662
|
|
$
|
(1,339
|
)
|
$
|
(944
|
)
|
$
|
(2,139
|
)
|
Minority
interests
|
|
|
2,038
|
|
|
164
|
|
|
(100
|
)
|
|
(16
|
)
|
|
(30
|
)
|
(Gain)
loss from disposition of real estate
|
|
|
(18,648
|
)
|
|
(5,883
|
)
|
|
39
|
|
|
(16
|
)
|
|
(295
|
)
|
Real
estate related depreciation and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization
|
|
|
24,956
|
|
|
16,032
|
|
|
10,009
|
|
|
8,937
|
|
|
8,233
|
|
Funds
from operations (3)(4)
|
|
$
|
30,943
|
|
$
|
19,975
|
|
$
|
8,609
|
|
$
|
7,961
|
|
$
|
5,769
|
|
(1) |
Represents
per share information and cash distributions declared during the
period
from August 17, 2004 (our IPO date) through December 31,
2004.
|
(2) |
Information
for the years ended December 31, 2006, 2005 and 2004 reflects our
stockholders’ equity as a result of and subsequent to the IPO while
previous years reflect our Predecessor owners’ equity.
|
(3) |
As
defined by the National Association of Real Estate Investment Trusts
or
NAREIT, funds from operations or 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 distributions.
(4) |
When
considering our FFO, we believe it is also a meaningful measure of
our
performance to make certain adjustments related to our on-campus
participating properties. See Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Funds from Operations in
Item 7 contained herein.
|
Our
Company and Our Business
Overview
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
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 (See Note 9); (ii) the assumption of $123.6 million of fixed-rate
mortgage debt (see Note 10); and (iii) the remainder in cash and promissory
notes. As of December 31, 2006, as anticipated, the Company has 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.
As
of
December 31, 2006, we were also under contract to acquire a $24.8 million
property in Waco, Texas. The closing of this transaction was dependent upon
completion of construction and lease-up and the achievement of certain occupancy
levels and rental rates, which were not met and the contract was terminated
in
2007.
Property
Portfolio
As
of
December 31, 2006, our total property portfolio contained 38 student housing
properties with approximately 23,700 beds and 7,700 apartment units, all of
which we manage. These communities contain modern housing units, offer
resort-style amenities and are supported by a resident assistant system and
other student-oriented programming.
Our
property portfolio includes 34 owned properties that are in close proximities
to
34 colleges and universities in 12 states, two of which are currently under
construction. The net operating income of these student housing communities,
which is one of the financial measures that we use to evaluate community
performance, is affected by the demand and supply dynamics within our markets,
which drives our rental rates and occupancy levels and is affected by our
ability to control operating costs. Our overall operating performance is also
impacted by the general availability and cost of capital and the performance
of
our newly developed and acquired student housing communities. We create
long-term stockholder value by accessing capital on cost effective terms,
deploying that capital to develop, redevelop and acquire student housing
communities and selling communities when they no longer meet our long-term
investment strategy and when market conditions are favorable.
Additionally,
we participate with two university systems in the ownership of four on-campus
properties under long-term ground/facility leases; we refer to these properties
as our “on-campus participating properties.”
Third-Party
Development and Management Services
We
also
provide development and construction management services for student housing
properties owned by universities, 501(c) 3 foundations and others. Our clients
have included some of the nation’s most prominent systems of higher education,
including the State University of New York System, the University of California
System, the University of Houston System, the Texas A&M University System,
the Texas State University System, the University of Georgia System, the
University of North Carolina System, the Purdue University System, the
University of Colorado System, and the West Virginia University System. We
have
developed student housing properties for these clients and a majority of the
time have been retained to manage these properties following their opening.
Since 1996, we have developed and assisted in securing financing for 28
third-party student housing properties, including four projects with scheduled
completion dates ranging between August 2007 and July 2008. As of December
31,
2006, we were under contract on four projects that are currently in progress
and
whose fees range from $0.4 million to $3.1 million. As of December 31, 2006,
fees of approximately $2.8 million remained to be earned by us with respect
to
these projects, which have scheduled completion dates of August 2007 through
July 2008.
We
also
provide third-party management and leasing services for 15 student housing
properties that represent approximately 9,300 beds in approximately 3,200 units,
nine of which we developed. Our third-party management and leasing services
are
typically provided pursuant to multi-year management contracts that have an
initial term that ranges from one to five years. As of December 31, 2006, our
total owned and managed portfolio included 53 properties that represented
approximately 33,000 beds in approximately 10,900 units.
We
believe that the ownership and operation of student housing communities in
close
proximity to selected colleges and universities present an attractive long-term
investment opportunity for our investors. We intend to continue to execute
our
strategy of identifying existing differentiated, typically highly amenitized,
student housing communities or development opportunities in close proximity
to
university campuses with high barriers to entry which are projected to
experience substantial increases in enrollment and/or are under-serviced in
terms of existing on and/or off-campus student housing. While fee revenue from
our third-party development, construction management and property management
services allows us to develop strong and key relationships with colleges and
universities, 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, close, and successfully operate student
housing properties.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”) requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in our consolidated and combined financial statements and related notes. In
preparing these financial statements, management has utilized all available
information, including its past history, industry standards and the current
economic environment, among other factors, in forming its estimates and
judgments of certain amounts included in the consolidated and combined financial
statements, giving due consideration to materiality. It is possible that the
ultimate outcome anticipated by management in formulating its estimates may
not
be realized. Application of the critical accounting policies below involves
the
exercise of judgment and use of assumptions as to future uncertainties and,
as a
result, actual results could differ from these estimates. In addition, other
companies in similar businesses may utilize different estimation policies and
methodologies, which may impact the comparability of our results of operations
and financial condition to those companies.
Revenue
and Cost Recognition of Third-Party Development and Management
Services
Costs
associated with the pursuit of third-party development and management service
contracts are expensed as incurred until such time as we have been notified
of a
contract award or otherwise believe that it is probable a contract will be
awarded. At such time, the reimbursable portion of such costs are recorded
as
receivables with the remaining portion deferred and expensed in relation to
the
revenues earned on such contracts. Development revenues are generally recognized
based on a proportionate performance method based on contract deliverables,
while construction revenues are recognized and related costs (including the
costs of our construction personnel involved in the project) are deferred and
expensed using the percentage of completion method as determined by construction
costs incurred relative to the total estimated construction costs. Fees received
in excess of those recognized are reflected as deferred revenue, which is
included in other liabilities in the accompanying consolidated balance sheets.
Revenues recognized in excess of amounts received are included in other assets
on the accompanying consolidated balance sheets. Incentive fees are generally
recognized when the project is complete and performance has been agreed upon
by
all parties, or when performance has been verified by an independent
third-party.
Third-party
management fees are generally received and recognized on a monthly basis and
are
computed as a percentage of property receipts, revenues or a fixed monthly
amount, in accordance with the applicable management contract. Incentive
management fees are recognized when the contractual criteria are anticipated
to
be met.
Student
Housing Rental Revenue Recognition and Accounts
Receivable
Student
housing rental revenue is recognized on a straight-line basis over the term
of
the contract. Ancillary and other property related income is recognized in
the
period earned. In estimating the collectibility of our accounts receivable,
we
analyze the aging of resident receivables, historical bad debts, and current
economic trends. These estimates have a direct impact on our net income, as
an
increase in our allowance for doubtful accounts reduces our net
income.
Allocation
of Fair Value to Acquired Properties
The
price
that we pay to acquire a property is impacted by many factors, including the
condition of the buildings and improvements, the occupancy of the building,
favorable or unfavorable financing, and numerous other factors. Accordingly,
we
are required to make subjective assessments to allocate the purchase price
paid
to acquire investments in real estate among the assets acquired and liabilities
assumed based on our estimate of the fair values of such assets and liabilities.
This includes, among other items, determining the value of the buildings and
improvements, land, in-place tenant leases, and any debt assumed from the
seller. Each of these estimates requires a great deal of judgment and some
of
the estimates involve complex calculations. Our calculation methodology is
summarized in Note 2 to our consolidated and combined financial statements
contained in Item 8 herein. These allocation assessments have a direct impact
on
our results of operations because if we were to allocate more value to land
there would be no depreciation with respect to such amount or if we were to
allocate more value to the buildings as opposed to allocating to the value
of
in-place tenant leases, this amount would be recognized as an expense over
a
much longer period of time, since the amounts allocated to buildings are
depreciated over the estimated lives of the buildings whereas amounts allocated
to in-place tenant leases are amortized over the terms of the leases (generally
less than one year).
Long-Lived
Assets–Impairment
On
a
periodic basis, management is required to assess whether there are any
indicators that the value of our real estate properties may be impaired. A
property’s value is considered impaired if management’s estimate of the
aggregate future cash flows (undiscounted and without interest charges) to
be
generated by the property are less than the carrying value of the property.
These estimates of cash flows consider factors such as expected future operating
income, trends and prospects, as well as the effects of demand, competition
and
other factors. To the extent impairment has occurred, the loss will be measured
as the excess of the carrying amount of the property over the fair value of
the
property, thereby reducing our net income.
Outperformance
Bonus Plan
Vesting
of stock-based awards under our outperformance bonus plan (discussed in Note
11
in the accompanying Notes to Consolidated and Combined Financial Statements
contained in Item 8 herein) will occur on the third anniversary of our IPO,
provided that the employees have maintained continued service and that at least
one performance measure, as outlined in our 2004 Incentive Award Plan, has
been
achieved. Management’s assessment of the probability of the achievement of the
required performance measures is a highly judgmental determination that is
based
on the facts and circumstances existing at the date of the financial statements
as well as management’s expectations of our and our peer group’s future
performance. As of December 31, 2006, nothing has been reflected in our
financial statements related to these awards, because management has determined
that the achievement of the required performance measures is not probable.
In
the event that in a future period management determines that one of the required
performance measures becomes probable, a charge to compensation expense will
be
recognized based on a proportionate amount of the total fair value of the awards
from the date the award is considered probable to the ultimate settlement date.
The total potential charge to compensation expense, should management determine
that the vesting of the awards becomes probable, could be in excess of $10.0
million.
Construction
Property Savings and Fire Proceeds
An
entity
formed by our Predecessor owners was entitled to any savings in the budgeted
completion cost of three of our owned off-campus construction properties that
were completed in Fall 2004. In February 2005, our Predecessor owners received
such funds. Additionally, in April 2005, our Predecessor owners received
insurance proceeds originally received by the Company in connection with the
fire that occurred at the University Village at Fresno in 2003. These payments
were accounted for as equity distributions.
Capital
Expenditures
We
distinguish between capital expenditures necessary for the ongoing operations
of
our properties and acquisition-related improvements incurred within one to
two
years of acquisition of the related property. (Acquisition-related improvements
are expenditures that have been identified at the time the property is acquired,
and which we intended to incur in order to position the property to be
consistent with our physical standards). We capitalize non-recurring
expenditures for additions and betterments to buildings and land improvements.
In addition, we generally capitalize expenditures for exterior painting,
roofing, and other major maintenance projects that substantially extend the
useful life of the existing assets. The cost of ordinary repairs and maintenance
that do not improve the value of an asset or extend its useful life are charged
to expense when incurred. Planned major repair, maintenance and improvement
projects are capitalized when performed. In some circumstances, lenders require
us to maintain a reserve account for future repairs and capital expenditures.
These amounts are classified as restricted cash on the accompanying consolidated
balance sheets, as the funds are not available to us for current
use.
Results
of Operations
Comparison
of the Years Ended December 31, 2006 and December 31,
2005
The
following table presents our results of operations for the years ended December
31, 2006 and 2005, including the amount and percentage change in these results
between the two periods.
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
Change($)
|
|
Change(%)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
$
|
89,264
|
|
$
|
54,287
|
|
$
|
34,977
|
|
|
64.4
|
%
|
On-campus
participating properties
|
|
|
19,960
|
|
|
18,470
|
|
|
1,490
|
|
|
8.1
|
%
|
Third-party
development services
|
|
|
5,778
|
|
|
5,854
|
|
|
(76
|
)
|
|
(1.3
|
%)
|
Third-party
management services
|
|
|
2,532
|
|
|
2,786
|
|
|
(254
|
)
|
|
(9.1
|
%)
|
Resident
services
|
|
|
1,419
|
|
|
1,125
|
|
|
294
|
|
|
26.1
|
%
|
Total
revenues
|
|
|
118,953
|
|
|
82,522
|
|
|
36,431
|
|
|
44.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
|
42,620
|
|
|
25,653
|
|
|
16,967
|
|
|
66.1
|
%
|
On-campus
participating properties
|
|
|
8,970
|
|
|
8,325
|
|
|
645
|
|
|
7.7
|
%
|
Third-party
development and management services
|
|
|
5,564
|
|
|
6,969
|
|
|
(1,405
|
)
|
|
(20.2
|
%)
|
General
and administrative
|
|
|
6,278
|
|
|
6,714
|
|
|
(436
|
)
|
|
(6.5
|
%)
|
Depreciation
and amortization
|
|
|
24,864
|
|
|
15,447
|
|
|
9,417
|
|
|
61.0
|
%
|
Ground/facility
lease
|
|
|
857
|
|
|
873
|
|
|
(16
|
)
|
|
(1.8
|
%)
|
Total
operating expenses
|
|
|
89,153
|
|
|
63,981
|
|
|
25,172
|
|
|
39.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
29,800
|
|
|
18,541
|
|
|
11,259
|
|
|
60.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,230
|
|
|
825
|
|
|
405
|
|
|
49.1
|
%
|
Interest
expense
|
|
|
(25,937
|
)
|
|
(17,368
|
)
|
|
(8,569
|
)
|
|
49.3
|
%
|
Amortization
of deferred financing costs
|
|
|
(1,365
|
)
|
|
(1,176
|
)
|
|
(189
|
)
|
|
16.1
|
%
|
Other
nonoperating income
|
|
|
—
|
|
|
1,279
|
|
|
(1,279
|
)
|
|
(100.0
|
%)
|
Total
nonoperating expenses
|
|
|
(26,072
|
)
|
|
(16,440
|
)
|
|
(9,632
|
)
|
|
58.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes, minority interests, and discontinued
operations
|
|
|
3,728
|
|
|
2,101
|
|
|
1,627
|
|
|
77.4
|
%
|
Income
tax provision
|
|
|
(28
|
)
|
|
(186
|
)
|
|
158
|
|
|
(84.9
|
%)
|
Minority
interests
|
|
|
(2,038
|
)
|
|
(164
|
)
|
|
(1,874
|
)
|
|
1,142.7
|
%
|
Income
from continuing operations
|
|
|
1,662
|
|
|
1,751
|
|
|
(89
|
)
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
attributable to discontinued operations
|
|
|
2,287
|
|
|
2,028
|
|
|
259
|
|
|
12.8
|
%
|
Gain
from disposition of real estate
|
|
|
18,648
|
|
|
5,883
|
|
|
12,765
|
|
|
217.0
|
%
|
Total
discontinued operations
|
|
|
20,935
|
|
|
7,911
|
|
|
13,024
|
|
|
164.6
|
%
|
Net
income
|
|
$
|
22,597
|
|
$
|
9,662
|
|
$
|
12,935
|
|
|
133.9
|
%
|
Owned
Off-Campus Properties Operations
Revenues
and operating expenses from our owned off-campus properties increased by $35.0
million and $17.0 million, respectively, in 2006 as compared to 2005. These
increases were 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. The Village on
University was sold in December 2006 and is therefore not reflected in operating
revenues and expenses but is included in discontinued operations.
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 $34.2 million of
additional revenues and $16.9 million of additional operating expenses in 2006
as compared to 2005.
Same
Store Property Operations (Excluding New Property Activity).
We had
ten properties containing 6,045 beds which were operating during both 2006
and
2005. These properties produced revenues of $39.1 million and $38.0 million
during 2006 and 2005, respectively, an increase of $1.1 million. Excluding
resident services revenues, which are provided through our TRS subsequent to
our
IPO, these properties produced revenues of $38.1 million during 2006, as
compared to $37.0 million in 2005, an increase of $1.1 million. This increase
was primarily due to an increase in average rental rates during 2006 as compared
to 2005, as well as the improved lease up for the 2006/2007 academic year,
which
resulted in average occupancy rates increasing to 96.6% in 2006 from 96.2%
in
2005. Revenues in 2007 will be dependent on 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 remained relatively constant at $16.5
million for both 2006 and 2005. We anticipate that operating expenses in 2007
will increase slightly as compared with 2006 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 $1.3 million of additional revenues and
approximately $0.6 million of additional operating expenses during
2006.
Same
Store OCPP Operations.
We had
four on-campus participating properties containing 4,165 beds which were
operating during both 2006 and 2005. Revenues from our same store on-campus
participating properties increased to $17.7 million in 2006 from $17.6 million
in 2005, an increase of $0.1 million. This increase was due to increased rental
rates, which were offset by a decrease in average occupancy from 73.3% in 2005
to 71.9% in 2006.
At
these
existing properties, operating expenses remained relatively constant at $8.1
million and $8.0 million for the years ended December 31, 2006 and 2005,
respectively. We anticipate that operating expenses in 2007 will increase
slightly as compared with 2006 as a result of expected increases in utility
costs, insurance costs and general inflation.
Third-Party
Development Services Revenue
Third-party
development services revenue was approximately $5.8 million in both 2006 and
2005. 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 development and 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 when
performance has been agreed upon by all parties, or when performance has been
verified by an independent third-party. 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 Revenue
Third-party
management services revenues decreased by $0.3 million from $2.8 million in
2005
to $2.5 million in 2006. 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 third-party management services
revenues in 2007 will increase slightly as compared with 2006, as a result
of
the four management contracts obtained in August 2006 and anticipated new
contracts in 2007.
Third-Party
Development and Management Services Expenses
Third-party
development and management services expenses decreased approximately $1.4
million, from $7.0 million in 2005 to $5.6 million in 2006. This decrease was
primarily due to a decrease of approximately $0.9 million in expenses incurred
during 2006 as compared to 2005 in relation to the West Virginia University
third-party development projects, a result of the progress of those projects
during the respective years. Additionally, a reserve of approximately $0.3
million was recorded in 2005 related to our Blinn College development project
which was not awarded as anticipated. Third-party development and management
services expenses in 2007 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.
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. These services are provided
to the residents at market rates and under an agreement between the TRS and
the
Operating Partnership, payments from residents are collected by the properties
on behalf of the TRS in conjunction with their collection of rents. Revenue
from
resident services increased approximately $0.3 million from $1.1 million in
2005
to $1.4 million in 2006. This increase was primarily due to additional revenue
earned during 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. As a business strategy, our
level of services provided to residents by the TRS is only incidental to that
which is necessary to maintain or increase occupancy. We anticipate that
resident services revenue will increase in 2007 as compared to 2006 as
additional revenues are generated from the timing of acquisitions and
development properties placed into service.
General
and Administrative
General
and administrative expenses (relating primarily to corporate operations)
decreased approximately $0.4 million from $6.7 million in 2005 to $6.3 million
in 2006. This decrease was primarily due to a $0.4 million compensation charge
recorded in April 2005 to reflect a separation agreement entered into with
a
former executive officer. In addition, the level of cash incentive awards
decreased in 2006 as compared to 2005, which was offset by 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 portfolio from the property
acquisitions completed in 2006 and 2005. As a result of this growth, we
anticipate general and administrative expenses to increase substantially in
2007
as a result of the annualization of these costs as well as increases in general
inflation.
Depreciation
and Amortization
Depreciation
and amortization increased approximately $9.4 million from $15.5 million in
2005
to $24.9 million in 2006. This increase was primarily due to the acquisition
of
the Royal Portfolio on March 1, 2006, the acquisition of seven properties during
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
year ended December 31, 2006 and 2005, respectively, an increase of $1.2
million. We expect depreciation and amortization in 2007 to increase
significantly from 2006 primarily due to a full year’s depreciation on
properties acquired and placed in service during 2006 and the $127.6 million
of
recently completed 2007 acquisitions.
Amortization
of deferred financing costs increased $0.2 million from $1.2 million in 2005
to
$1.4 million in 2006. 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. We expect amortization
of
deferred financing costs in 2007 to remain fairly constant as compared to 2006
due to a full year’s amortization of debt assumed in connection with
acquisitions made during 2006 and the debt assumed in connection with the $127.6
million of recently completed 2007 acquisitions, which will be offset by a
reduction in amortization on the revolving credit facility as a result of the
previously mentioned August 2006 amendment.
Interest
Income
Interest
income increased by approximately $0.4 million, from $0.8 million in 2005 to
$1.2 million in 2006. This increase is primarily due to additional interest
earned in 2006 on the remaining proceeds from our September 2006 equity offering
and net proceeds from the sale of our owned off-campus property in December
2006, which was invested in money market investments during the year. In
addition, higher interest rates in 2006 resulted in more interest earned on
cash
and cash equivalents and restricted cash.
Interest
Expense
Interest
expense increased approximately $8.5 million, from $17.4 in 2005 to $25.9
million in 2006. This increase was primarily due to $6.4 million of additional
interest incurred in 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 $13.5
million to $41.1 million for the years ended December 31, 2005 and 2006,
respectively, and an increase in the weighted average interest rate incurred
under the revolving credit facility from 4.5% to 6.6% for the years ended
December 31, 2005 and 2006, respectively. We also incurred additional interest
in 2006 related to the construction loans 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 2006 as compared
to
one owned off-campus property being under construction for the same period
in
2005. We anticipate that interest expense in 2007 will increase from 2006 levels
due to interest expense assumed or incurred in connection with property
acquisitions and increases in potential borrowing rates that may impact our
floating rate on our credit facility.
Other
Nonoperating Income
Other
non-operating income for 2005 includes a gain of approximately $0.9 million
related to the sale of our option to acquire a 23.33% interest in Dobie Center,
an off-campus student housing property held by an affiliate of our Predecessor
owners. In addition, we also recognized a gain of approximately $0.4 million
in
2005 related to insurance proceeds received for a fire that occurred at one
of
our owned off-campus properties in 2003.
Income
Taxes
Subsequent
to our IPO formation transactions, our TRS manages our non-REIT activities.
The
TRS is subject to federal, state and local income taxes and is required to
recognize the future tax benefits attributable to deductible temporary
differences between book and tax basis, to the extent that the asset will be
realized. Accordingly, an initial income tax benefit of $0.7 million was
recorded in connection with our IPO during 2004. An income tax provision of
approximately $0.2 million and $28,000 was recorded by our TRS during 2005
and
2006, respectively, to better reflect our estimate of the realization of our
deferred tax asset based on management’s estimate of future taxable income of
our TRS.
We
are
subject to federal, state and local income taxes as a result of the services
provided by our TRS, which include our third-party services revenues, resident
services revenues and the operations of our on-campus participating properties.
As a result, the income earned by our TRS, unlike our results from our owned
properties, is subject to taxation. The amount of income taxes to be recognized
is dependent on the operating results of the TRS.
Minority
Interests
Minority
interests increased by approximately $1.8 million from $0.2 million in 2005
to
$2.0 million in 2006. 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 9 in the
accompanying Notes to Consolidated and Combined Financial Statements contained
in Item 8 herein for a detailed description of minority interests.
Discontinued
Operations
Statement
of Financial Accounting Standards (“SFAS”) No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets,
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 sold in December 2006
for $51.0 million and the resulting gain on disposition of $18.6 million is
included in discontinued operations for the year ended December 31, 2006. The
net operating income attributable to this property is included in discontinued
operations for the years ended December 31, 2006 and 2005. In addition, our
University Village at San Bernardino property was sold to Cal State University
-
San Bernardino in January 2005. The net operating loss and the resulting gain
on
disposition are also included in discontinued operations for the year ended
December 31, 2005.
Please
refer to Note 6 in the accompanying Notes to Consolidated and Combined Financial
Statements contained in Item 8 herein for a table summarizing the results of
operations of the properties sold during the years ended December 31, 2006
and
2005.
Comparison
of the Years Ended December 31, 2005 and December 31,
2004
The
following table presents our results of operations for the years ended December
31, 2005 and 2004, including the amount and percentage change in these results
between the two periods. The results for the year ended December 31, 2004 as
presented below represent the consolidated financial results of our Company
for
the period from August 17, 2004 to December 31, 2004 and the combined financial
results of our Predecessor for the period from January 1, 2004 to August 16,
2004. The presentation of results for the year ended December 31, 2004 below
is
not in accordance with GAAP and is presented only for comparison purposes.
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
Change($)
|
|
Change(%)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
$
|
54,287
|
|
$
|
30,522
|
|
$
|
23,765
|
|
|
77.9
|
%
|
On-campus
participating properties
|
|
|
18,470
|
|
|
17,418
|
|
|
1,052
|
|
|
6.0
|
%
|
Third-party
development services
|
|
|
5,854
|
|
|
5,803
|
|
|
51
|
|
|
0.9
|
%
|
Third-party
management services
|
|
|
2,786
|
|
|
2,105
|
|
|
681
|
|
|
32.4
|
%
|
Resident
services and other income
|
|
|
1,125
|
|
|
382
|
|
|
743
|
|
|
194.5
|
%
|
Total
revenues
|
|
|
82,522
|
|
|
56,230
|
|
|
26,292
|
|
|
46.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
|
25,653
|
|
|
14,894
|
|
|
10,759
|
|
|
72.2
|
%
|
On-campus
participating properties
|
|
|
8,325
|
|
|
7,995
|
|
|
330
|
|
|
4.1
|
%
|
Third-party
development and management services
|
|
|
6,969
|
|
|
5,543
|
|
|
1,426
|
|
|
25.7
|
%
|
General
and administrative
|
|
|
6,714
|
|
|
5,234
|
|
|
1,480
|
|
|
28.3
|
%
|
Depreciation
and amortization
|
|
|
15,447
|
|
|
8,985
|
|
|
6,462
|
|
|
71.9
|
%
|
Ground/facility
lease
|
|
|
873
|
|
|
812
|
|
|
61
|
|
|
7.5
|
%
|
Total
operating expenses
|
|
|
63,981
|
|
|
43,463
|
|
|
20,518
|
|
|
47.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
18,541
|
|
|
12,767
|
|
|
5,774
|
|
|
45.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
825
|
|
|
81
|
|
|
744
|
|
|
918.5
|
%
|
Interest
expense
|
|
|
(17,368
|
)
|
|
(14,835
|
)
|
|
(2,533
|
)
|
|
17.1
|
%
|
Amortization
of deferred financing costs
|
|
|
(1,176
|
)
|
|
(1,118
|
)
|
|
(58
|
)
|
|
5.2
|
%
|
Other
nonoperating income
|
|
|
1,279
|
|
|
927
|
|
|
352
|
|
|
38.0
|
%
|
Total
nonoperating expenses
|
|
|
(16,440
|
)
|
|
(14,945
|
)
|
|
(1,495
|
)
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes, minority interests, and discontinued
operations
|
|
|
2,101
|
|
|
(2,178
|
)
|
|
4,279
|
|
|
(196.5
|
%)
|
Income
tax (provision) benefit
|
|
|
(186
|
)
|
|
728
|
|
|
(914
|
)
|
|
(125.5
|
%)
|
Minority
interests
|
|
|
(164
|
)
|
|
100
|
|
|
(264
|
)
|
|
(264.0
|
%)
|
Income
(loss) from continuing operations
|
|
|
1,751
|
|
|
(1,350
|
)
|
|
3,101
|
|
|
(229.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
attributable to discontinued operations
|
|
|
2,028
|
|
|
50
|
|
|
1,978
|
|
|
3,956.0
|
%
|
Gain
(loss) from disposition of real estate
|
|
|
5,883
|
|
|
(39
|
)
|
|
5,922
|
|
|
(15,184.6
|
%)
|
Total
discontinued operations
|
|
|
7,911
|
|
|
11
|
|
|
7,900
|
|
|
71,818.2
|
%
|
Net
Income (loss)
|
|
$
|
9,662
|
|
$
|
(1,339
|
)
|
|
11,001
|
|
|
(821.6
|
%)
|
Owned
Off-Campus Properties Operations
Revenues
and operating expenses from our owned off-campus properties increased by $23.8
million and $10.8 million, respectively, in 2005 as compared to 2004. These
increases were primarily due to the acquisition of seven properties during
the
first quarter of 2005, the completion of construction and opening of two
properties in August 2004, the completion of construction and opening of one
property in August 2005, and higher year-to-date occupancy at a majority of
the
same store properties operated during both periods, as described below. The
Village on University and University Village at San Bernardino owned off-campus
properties were sold in December 2006 and January 2005, respectively, and are
therefore not reflected in operating revenues and expenses but are included
in
discontinued operations.
New
Property Operations.
We
acquired seven properties containing 3,118 beds at various times during the
first quarter of 2005, located in Florida (Gainesville and Tallahassee) and
Denton, Texas. We also completed construction of and opened an 828-bed property
serving the State University of New York - Buffalo in August 2005. Additionally,
in August 2004, we completed construction of and opened a 406-bed property
serving California State University, Fresno and a 749-bed property serving
Temple University. These new properties contributed $22.9 million of additional
revenues and $10.7 million of additional operating expenses in 2005 as compared
to 2004.
Same
Store Property Operations (Excluding New Property Activity).
We had
eight properties containing 5,053 beds which were operating during both 2005
and
2004. These properties produced revenues of $29.3 million and $27.7 million
during 2005 and 2004, respectively, an increase of $1.6 million. Excluding
resident services revenues, which are provided through our TRS subsequent to
our
IPO, these properties produced revenues of $28.4 million during 2005, as
compared to $27.3 million in 2004, an increase of $1.1 million. These increases
were due primarily to the improved lease up for the 2005/2006 academic year,
which resulted in average occupancy rates increasing to 95.7% in 2005 from
90.8%
in 2004.
At
these
existing properties, operating expenses remained relatively constant at $13.5
million and $13.4 million for 2005 and 2004, respectively.
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 $0.6 million of additional revenues and
approximately $0.2 million of additional operating expenses during
2005.
Same
Store OCPP Operations.
We had
four on-campus participating properties containing 4,167 beds which were
operating during both 2005 and 2004. Revenues from our same store on-campus
participating properties increased to $17.6 million in 2005 from $17.4 million
in 2004, an increase of $0.2 million. This increase was due to increased rental
rates, which were offset by a decrease in average occupancy from 76.1% in 2004
to 73.3% in 2005, as well as an increase in other miscellaneous income items.
At
these
existing properties, operating expenses remained constant at $8.0 million for
both 2005 and 2004.
Third-Party
Development Services Revenue
Third-party
development services revenue increased by $0.1 million from $5.8 million in
2004
as compared to $5.9 million in 2005. The increase in our third-party development
revenue was primarily due to a slightly higher average contractual fee per
project and a higher percentage of the contractual fees recognized during 2005
as compared to 2004. These factors were offset by fewer projects in progress
and
a decrease in construction savings revenue earned during 2005. We had eight
projects in progress during 2005 with an average contractual fee of
approximately $1.2 million compared to 2004 in which we had 12 projects in
progress with an average contractual fee of $1.1 million. Also, due to
differences in the percentage of construction completed during the periods,
of
the total contractual fees of the projects in progress during the respective
periods, approximately 57.3% of the total contractual fees were recognized
during 2005 compared to approximately 34.6% for 2004. In addition, our
third-party development revenue decreased as a result of approximately $0.6
million of construction savings revenue that was recognized during 2004. No
construction savings revenue was earned on our third-party development projects
during 2005.
Development
services revenue earned in relation to our on-campus participating properties
is
recognized over the term of the underlying ground leases. Approximately $0.4
million of deferred development and construction revenue was recognized in
2004
upon the transfer of one of our on-campus participating properties (Coyote
Village) to Weatherford College in April 2004.
Third-Party
Management Services Revenues
Third-party
management services revenue increased $0.7 million from $2.1 million in 2004
as
compared to $2.8 million in 2005. The increase was due to a full academic year
of revenues earned related to seven new management contracts that commenced
in
Fall 2004.
Third-Party
Development and Management Services Expenses
Third-party
development and management services operating expenses increased approximately
$1.4 million, from $5.5 million in 2004, to $6.9 million in 2005. This increase
was primarily due to expenses incurred during 2005 in relation to three West
Virginia University fixed price projects that were in progress during 2005
which
contributed $1.1 million to the increase and a reserve of approximately $0.3
million of development costs associated with our Blinn College development
project which was not awarded as anticipated.
Resident
Services
Concurrent
with our commencement of operations and our designation as a REIT in 2004,
certain services previously provided to residents by our properties are now
provided by our TRS. Revenue from resident services increased by $0.7 million
in
2005 as compared to 2004. This increase is due to 2004 reflecting only
approximately 4.5 months of resident services revenue, which was classified
as
such beginning with our IPO and concurrent formation of our TRS on August 17,
2004. Accordingly, resident services revenue for 2005 reflects a full year
of
revenue.
General
and Administrative
General
and administrative expenses (relating primarily to corporate operations)
increased $1.5 million in 2005 compared to 2004. This increase was primarily
due
to the following items: (i) additional expenses of $0.5 million incurred in
2005
related to Sarbanes-Oxley Section 404 compliance costs, (ii) a compensation
charge of approximately $0.4 million to reflect a separation agreement entered
into with an executive officer in April 2005, (iii) a full year of expenses
incurred as a public company during 2005, (iv) general increases in corporate
staffing as a result of the growth experienced by the Company in 2005, and
(v)
normal inflationary increases in such items as payroll costs, benefits, and
other related corporate items. These increases were offset by a compensation
charge of approximately $2.1 million recorded during 2004 in connection with
the
issuance of profits interest units (“PIUs”) to certain of our executive and
senior officers in connection with our IPO.
Depreciation
and Amortization
Depreciation
and amortization increased $6.5 million in 2005 compared to 2004 primarily
due
to the acquisition of seven properties during the first quarter of 2005, the
opening of two owned off-campus properties in August 2004, and the opening
of
one owned off-campus property in August 2005. In conjunction with the
acquisition of the seven previously mentioned properties, a valuation was
assigned to in-place leases which was amortized over the average remaining
lease
terms of the acquired leases (generally less than one year). This contributed
approximately $1.1 million of additional depreciation and amortization expense
in 2005.
Amortization
of deferred financing costs increased by $0.1 million, from $1.1 million in
2004
to $1.2 million in 2005. This increase was primarily due to additional finance
cost amortization incurred in 2005 related to debt assumed or incurred in
connection with the property acquisitions closed during the first quarter of
2005 as well as finance costs incurred under our revolving credit facility.
These increases were offset by a reduction in amortization of deferred financing
costs as a result of the payoff of one mortgage loan in connection with our
IPO.
Interest
Income
Interest
income increased by $0.7 million, from $0.1 million in 2004 to $0.8 million
in
2005. This increase is primarily due to additional interest earned in 2005
on
the remaining proceeds from our July 2005 equity offering that were invested
in
commercial paper and money market investments during the year.
Interest
Expense
Interest
expense increased $2.5 million in 2005 compared to 2004. This increase was
primarily due to additional interest of $3.8 million related to debt assumed
or
incurred in relation to the acquisition of the seven previously mentioned
properties in the first quarter 2005 as well as additional interest expense
of
$0.5 million incurred in 2005 under our revolving credit facility. Approximately
six months of interest was recognized under our revolving credit facility in
2005 as a result of the facility being fully paid down in July 2005 in
connection with our equity offering. This is in comparison to only approximately
4.5 months of interest recognized under our revolving credit facility in 2004
due to the facility being obtained in connection with the IPO in August 2004.
These increases were offset by a $1.3 million increase of capitalized interest
in 2005 as compared to 2004 as a result of increased activity related to the
construction of our owned off-campus properties. The retirement of a $19.5
million mortgage loan in connection with our IPO resulted in an additional
decrease in interest expense of approximately $0.7 million.
Other
Nonoperating Income
Other
non-operating income for 2005 includes a gain of approximately $0.9 million
related to the sale of our option to acquire a 23.33% interest in Dobie Center,
an off-campus student housing property held by an affiliate of our Predecessor
owners. In addition, we also recognized a gain of approximately $0.4 and $0.7
million in 2005 and 2004, respectively, related to insurance proceeds received
for a fire that occurred at one of our owned off-campus properties in 2003.
A
gain of approximately $0.2 million was also recognized in 2004 related to
insurance proceeds received for hail damage that occurred at one of our
on-campus participating properties in 2003.
Income
Taxes
Subsequent
to our IPO formation transactions, our TRS manages our non-REIT activities.
The
TRS is subject to federal, state and local income taxes and is required to
recognize the future tax benefits attributable to deductible temporary
differences between book and tax basis, to the extent that the asset will be
realized. Accordingly, an initial income tax benefit of $0.7 million was
recorded in connection with our IPO during 2004. An income tax provision of
approximately $0.2 million was recorded by our TRS during 2005 to better reflect
our estimate of the realization of our deferred tax asset based on management’s
estimate of future taxable income of our TRS.
Minority
Interests
Minority
interests in 2005 represent the 0.7% interest in the net income of our Operating
Partnership held by holders of common units in our Operating Partnership as
well
as a minority partner’s interest in the net income of our University Village at
Sweet Home property, which commenced operations in August 2005. Minority
interests in 2004 represent a minority partner’s share of the net loss of four
owned off-campus properties. We redeemed this minority partner’s interest in
connection with our IPO. See Note 9 in the accompanying Notes to Consolidated
and Combined Financial Statements contained in Item 8 herein for a detailed
description of minority interests.
Discontinued
Operations
Statement
of Financial Accounting Standards (“SFAS”) No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets,
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 sold in December 2006
and is included in discontinued operations for the years ended December 31,
2005
and 2004. In addition, our University Village at San Bernardino property was
sold to Cal State University - San Bernardino in January 2005 and is included
in
discontinued operations for the years ended December 31, 2005 and 2004. The
properties included in discontinued operations for the year ended December
31,
2004 also include the Village at Riverside and other non-core assets that were
distributed to our Predecessor owners as part of the IPO as well as an on-campus
participating property (Coyote Village) whose ground lease was transferred
to
the Weatherford College in April 2004.
Please
refer to Note 6 in the accompanying Notes to Consolidated and Combined Financial
Statements contained in Item 8 herein for a table summarizing the results of
operations of the properties sold, distributed, or classified as held for sale
during the years ended December 31, 2005 and 2004.
Cash
Flows
Comparison
of Years Ended December 31, 2006 and December 31,
2005
Operating
Activities
For
the
year ended December 31, 2006, net cash provided by operating activities before
changes in working capital accounts provided approximately $32.3 million, as
compared to $20.6 million for the year ended December 31, 2005, an increase
of
$11.7 million. Changes in working capital accounts provided $2.9 million
for the year ended December 31, 2006 while working capital accounts utilized
$0.2 million for the year ended December 31, 2005. These changes were
primarily due to an increase in depreciation and amortization and operating
cash
flow generated from the acquisition of the Royal Portfolio on March 1, 2006,
the
acquisition of seven properties during the first quarter of 2005, the opening
of
one owned off-campus property in both August 2006 and August 2005 and an
additional phase at an on-campus participating property in August
2005.
Investing
Activities
Investing
activities utilized $102.7 million and $111.8 million for the years ended
December 31, 2006 and 2005, respectively. The decrease in cash utilized in
investing activities during the year ended December 31, 2006 related primarily
to proceeds received from the sale of our owned off-campus property, The Village
on University, in December 2006 and development costs incurred in 2005 on an
additional phase of an on-campus participating property that was completed
and
opened for occupancy in Fall 2005. These decreases were offset by a $25.6
million increase in cash used to fund the construction of our owned off-campus
development properties and proceeds received from the sale of University Village
at San Bernardino in January 2005. During the years ended December 31, 2006,
three owned off-campus properties were under development, of which one was
completed and opened for occupancy in August 2006. During the year ended
December 31, 2005, three owned off-campus properties were under development,
of
which one was completed and opened for occupancy in August 2005. For the years
ended December 31, 2006, 2005 and 2004, our cash utilized in investing
activities was comprised of the following:
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Property
disposition
|
|
$
|
50,045
|
|
$
|
28,023
|
|
$
|
—
|
|
Property
acquisitions
|
|
|
(69,697
|
)
|
|
(72,763
|
)
|
|
—
|
|
Capital
expenditures for on-campus participating properties
|
|
|
(483
|
)
|
|
(489
|
)
|
|
(1,045
|
)
|
Capital
expenditures for owned off-campus properties
|
|
|
(6,887
|
)
|
|
(3,639
|
)
|
|
(7,674
|
)
|
Investments
in on-campus participating properties under development
|
|
|
—
|
|
|
(15,398
|
)
|
|
(836
|
)
|
Renovation
expenditures for owned off-campus property
|
|
|
(1,662
|
)
|
|
—
|
|
|
—
|
|
Investments
in owned off-campus properties under development
|
|
|
(73,048
|
)
|
|
(47,398
|
)
|
|
(53,446
|
)
|
Purchase
of corporate furniture, fixtures, and equipment
|
|
|
(986
|
)
|
|
(742
|
)
|
|
(620
|
)
|
Sale
of option to acquire interest in student housing property
|
|
|
—
|
|
|
651
|
|
|
—
|
|
Total
|
|
$
|
(102,718
|
)
|
$
|
(111,755
|
)
|
$
|
(63,621
|
)
|
Financing
Activities
Cash
provided by financing activities totaled $121.9 million and $111.3 million
for
the years ended December 31, 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 $133.2 million, net of offering costs, as
compared to the $96.6 million, net of offering costs, raised in our July 2005
equity offering. In addition, during 2005 we paid down $11.8 million, net of
draws, on our revolving credit facility. During 2006 we received $42.1 million
of construction loan proceeds, which were used to fund the construction of
two
of our owned development properties, as compared to $15.9 million of
construction loan proceeds received during 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 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 $5.1 million increase
in distributions to common and restricted stockholders during 2006 as a result
of our July 2005 and September 2006 equity offerings.
Comparison
of Years Ended December 31, 2005 and December 31,
2004
Operating
Activities
For
the
year ended December 31, 2005, net cash provided by operating activities before
changes in working capital accounts provided approximately $20.6 million, as
compared to $11.8 million for the year ended December 31, 2004, an increase
of
$8.8 million. Changes in working capital accounts utilized $0.2 million for
the
year ended December 31, 2005 while $6.0 million was provided by working capital
accounts for the year ended December 31, 2004, a decrease of $6.2 million.
This
change was primarily the result of a $2.9 million increase in accounts
receivable from our third-party development and management services operations
due to the increased activities in these operations in 2005 as compared to
2004.
Additionally, various working capital accounts experienced an increase in 2005
over 2004 such as student contracts receivable and prepaid expenses due to
the
properties acquired or placed in service during 2005.
Investing
Activities
Investing
activities utilized $111.8 million and $63.6 million for the years ended
December 31, 2005 and 2004, respectively. The increase in cash utilized in
investing activities during the year ended December 31, 2005 related primarily
to the use of cash to acquire seven properties in the first quarter of 2005
and
to fund the development of an additional phase of an on-campus participating
property, which was completed in Fall 2005. This increase in cash utilized
was
offset by proceeds received from the sale of University Village at San
Bernardino in January 2005 as well as a decrease in cash used to fund owned
off-campus development properties. During the year ended December 31, 2005,
three owned off-campus properties were under development, of which one was
completed in Fall 2005, while four properties were under development during
the
year ended December 31, 2004, of which three were completed in Fall 2004.
Financing
Activities
Cash
provided by financing activities totaled $111.3 million and $45.3 million for
the years ended December 31, 2005 and 2004, respectively. Cash flows provided
by
financing activities for the year ended December 31, 2005 consisted primarily
of
proceeds received from our equity offering, net of offering costs, of
approximately $96.6 million in July 2005. Other significant financing activities
occurring during the year ended December 31, 2005 included the receipt of
proceeds from a bridge loan (subsequently converted to a mortgage loan) in
the
amount of $38.8 million and draws on a construction loan used to fund the
development of an additional phase of an on-campus participating property in
the
amount of approximately $15.9 million. These items were offset by the use of
cash to fund distributions to our common and restricted stockholders in the
amount of approximately $20.2 million as well as the use of cash to pay down
our
revolving credit (net of draws on the facility during the period) in the amount
of approximately $11.8 million.
Cash
flows provided by financing activities for the year ended December 31, 2004
consisted primarily of proceeds received from our initial public offering,
net
of offering costs, of approximately $197.8 million in August 2004. Approximately
$105.5 million of these proceeds was used to pay down mortgage and construction
loan indebtedness, and an additional $85.9 million was used to redeem the
interests of our Predecessor owners. In connection with the IPO, we also entered
into a revolving credit facility, of which $11.8 million was outstanding at
December 31, 2004. In addition, during the year ended December 31, 2004, we
received approximately $41.7 million in proceeds from construction loans used
to
fund the development of three owned off-campus properties. Also, a $2.1 million
partial-quarter distribution for the third quarter 2004 was paid in November
2004.
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/combined financial statements for the
years ended December 31, 2006, 2005, and 2004:
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Revenues
|
|
$
|
19,960
|
|
$
|
18,470
|
|
$
|
17,730
|
|
Direct
operating expenses (1)
|
|
|
(8,382
|
)
|
|
(7,738
|
)
|
|
(7,621
|
)
|
Amortization
|
|
|
(4,131
|
)
|
|
(3,661
|
)
|
|
(3,532
|
)
|
Amortization
of deferred financing costs
|
|
|
(241
|
)
|
|
(234
|
)
|
|
(240
|
)
|
Ground/facility
lease (2)
|
|
|
(857
|
)
|
|
(873
|
)
|
|
(846
|
)
|
Net
operating income
|
|
|
6,349
|
|
|
5,964
|
|
|
5,491
|
|
Interest
income
|
|
|
330
|
|
|
178
|
|
|
53
|
|
Interest
expense (3) (4)
|
|
|
(6,447
|
)
|
|
(5,718
|
)
|
|
(5,547
|
)
|
Other
non-operating income
|
|
|
—
|
|
|
—
|
|
|
234
|
|
Net
income (6)
|
|
$
|
232
|
|
$
|
424
|
|
$
|
231
|
(5)
|
(1) |
Excludes
property management fees of $0.9 million for the years ended December
31,
2006, 2005, and 2004. This expense and the corresponding fee revenue
recognized by us have been eliminated in consolidation/combination.
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 $0.2 million of capitalized interest
for
the year ended December 31, 2005 related to Cullen Oaks Phase II,
an
additional phase of the Cullen Oaks on-campus participating property
which
was completed in August 2005.
|
(4) |
Debt
service expenditures for these properties totaled $8.7 million,
$7.8
million and $7.1 million for the years ended December 31, 2006,
2005, and
2004, respectively.
|
(5) |
Includes
the results of Coyote Village, which was transferred to Weatherford
College in April 2004. This property is classified as discontinued
operations in the accompanying Consolidated and Combined Financial
Statements contained in Item 8.
|
(6) |
Excludes
income taxes associated with these properties, which are owned
by our TRS
subsequent to the IPO.
|
Liquidity
and Capital Resources
Cash
Balances and Liquidity
As
of
December 31, 2006, excluding our on-campus participating properties, we had
$83.5 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 $133.2
million, as well as the recent disposition of an owned off-campus property,
The
Village on University, which generated net proceeds of approximately $50.0
million. We used $89.9 million of the equity offering proceeds to pay off the
balance on our revolving credit facility. An additional $20.2 million of the
equity offering proceeds was used to pay off the construction loan for Callaway
Villas, our recently completed owned off-campus property. 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 December 31, 2006 also included $0.8 million of funds held in escrow in
connection with potential property acquisitions and development
opportunities.
As
of
December 31, 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 $31.1 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, (iii) funds for potential future acquisitions including
approximately $38.4 million used toward the purchase of four properties in
January and February 2007, (iv) remaining development costs on our ASU-SCRC
owned development project funded outside of the construction loan, estimated
to
be approximately $34.9 million, (v) remaining development costs on our Chestnut
Ridge owned development project funded outside of the construction loan,
estimated to be approximately $4.6 million, and (vi) funds for other potential
future development projects, including remaining pre-development expenditures
for component II and III of the Arizona State University project which are
estimated to range from $6.0 to $7.0 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.
2006
Equity Offering
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 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 $133.2 million.
Approximately
$89.9 million of these proceeds were used to repay the outstanding balance
under
our revolving credit facility and $20.2
million of the proceeds were used to pay off the construction loan for Callaway
Villas, our recently completed owned off-campus property.
University
Centre (formerly
Village at Newark) Financing
In
September 2005, we obtained a construction loan in the amount of $45.5 million
to fund a portion of the development and construction of University Centre,
an
owned property scheduled to open for occupancy in Fall 2007. We began making
draws under the loan in July 2006. The loan has an initial term of 36 months
and
bears interest, at the Company’s option, at either Prime (8.25% at December 31,
2006) or one-, two-, or three-month LIBOR plus 1.50% (6.85% at December 31,
2006). The term of the loan can be extended through September 2010 through
the
exercise of two 12-month extension periods. The loan requires payments of
interest only through the original maturity date and the first extension period.
The loan requires monthly principal and interest payments during the second
extension period based on a 30-year amortization. As of December 31, 2006,
the
balance outstanding on the construction loan totaled $21.4 million, bearing
interest at a rate of 6.85%.
Arizona
State University - South Campus Residential Community
In
December 2006, we obtained a new construction loan in the amount of $100.0
million to fund a portion of the development and construction of ASU-SCRC,
an
owned property scheduled to open for occupancy in August 2008. We expect to
begin making draws under the loan in the third quarter of 2007, once our
internal funding requirements are met. The loan has an initial term of 36 months
and bears interest, at the Company’s option, at one-, two-, or three-month LIBOR
plus 1.45%. The term of the loan can be extended through December 2011 through
the exercise of two 12-month extension periods. The loan requires payments
of
interest only through the original maturity date and the respective extension
periods.
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 December 31, 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 December 31, 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 unit holders.
Distributions to common stockholders are at the discretion of the Board of
Directors. We may be required to use borrowings under the credit facility,
if
necessary, to meet REIT distribution requirements and maintain our REIT status.
The Board of Directors considers market factors and our Company’s performance in
addition to REIT requirements in determining distribution levels.
On
January 29, 2007, we declared a fourth quarter 2006 distribution per share
of
$0.3375 which was paid on March 1, 2007 to all common stockholders of record
as
of February 16, 2007. At the same time, the Operating Partnership paid an
equivalent amount per unit to holders of Common Units, as well as the quarterly
cumulative preferential distribution to holders of Series A Preferred Units.
Recurring
Capital Expenditures
Our
properties require periodic investments of capital for general capital
expenditures and improvements. Our policy is to capitalize costs related to
the
acquisition, development, rehabilitation, construction, and improvement of
properties, including interest and certain internal personnel costs related
to
the communities under rehabilitation and construction. Capital
improvements are costs that increase the value and extend the useful life of
an
asset. Ordinary repair and maintenance costs that do not extend the useful
life of the asset are expensed as incurred. Recurring capital expenditures
represent non-incremental building improvements required to maintain current
revenues and typically include: appliances, carpeting and flooring, HVAC
equipment, kitchen/bath cabinets, new roofs, site improvements and various
exterior building improvements. Non-recurring capital expenditures include
expenditures that were taken into consideration when underwriting the purchase
of a property which were considered necessary to bring the property up to
“operating standard,” and incremental improvements that include, among other
items: community centers, new windows, and kitchen/bath apartment
upgrades. Additionally, we are required by certain of our lenders to
contribute amounts to reserves for capital repairs and improvements at their
mortgaged properties. These annual contributions may exceed the amount of
capital expenditures actually incurred in such year at such
properties.
Our
historical recurring capital expenditures at our owned off-campus properties,
excluding the Village at Riverside, which was distributed to our Predecessor
owners in connection with the IPO, are set forth below:
|
|
As
of and for the Year Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Average
beds
|
|
|
15,995
|
|
|
9,941
|
|
|
6,548
|
|
Total
recurring capital expenditures
|
|
$
|
2,758
|
|
$
|
1,828
|
|
$
|
1,262
|
|
Average
per bed
|
|
$
|
172
|
|
$
|
184
|
|
$
|
193
|
|
Pre-Development
Expenditures
Our
third-party and owned development activities have historically required us
to
fund pre-development expenditures such as architectural fees, permits and
deposits. The closing and/or commencement of construction of these development
projects is subject to a number of risks such as our inability to obtain
financing on favorable terms and delays or refusals in obtaining necessary
zoning, land use, building, and other required governmental permits and
authorizations As such, we cannot always predict accurately the liquidity needs
of these activities. We frequently incur these pre-development expenditures
before a financing commitment and/or required permits and authorizations have
been obtained. Accordingly, we bear the risk of the loss of these
pre-development expenditures if financing cannot ultimately be arranged on
acceptable terms or we are unable to successfully obtain the required permits
and authorizations. Historically, our third-party and owned development projects
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 December 31, 2006, we have deferred
approximately $3.3 million in pre-development costs related to third-party
and
owned development projects that have not yet commenced construction.
Indebtedness
As
of
December 31, 2006, we had approximately $426.3 million of outstanding
consolidated indebtedness (excluding net unamortized debt premiums, net of
discounts, of approximately $6.0 million), comprised of $336.4 million in
mortgage and construction loans secured by 28 of our owned off-campus
properties, $33.2 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 December
31, 2006 was 6.7%. As of December 31, 2006, approximately 8.8% of our total
consolidated indebtedness was variable rate debt, comprised of our revolving
credit facility, which had no outstanding balance as of December 31, 2006 and
the University Centre and Cullen Oaks Phase II construction loans discussed
below.
Owned
Off-Campus Properties
The
weighted average interest rate of the $336.4 million of owned off-campus
mortgage and construction debt was 6.6% as of December 31, 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 property scheduled
to 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 1.5%. 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
December 31, 2006, the balance outstanding on the construction loan totaled
$21.4 million, bearing interest at a rate of 6.9%.
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 December 31, 2006 of approximately $16.5 million at 5.5%. 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 December 31, 2006 was approximately $16.7 million,
bearing interest at a weighted average rate of 7.35%. 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 7.1% at December 31, 2006.
Subsequent
to year end, we extended the maturity date of the Cullen Oaks Phase I and Phase
II loans to February 2014. The extended loans bear interest at a rate of LIBOR
plus 1.35% and require payments of interest only through May 2008 and monthly
payments of principal and interest from May 2008 through the maturity date.
In
connection with these loan extensions, we terminated the existing interest
rate
swap agreement which will result in the reclassification of a gain from
accumulated other comprehensive income to earnings, amounting to $0.2 million
in
2007 and $0.2 million in 2008.
In
addition, we entered into an interest rate swap on February 12, 2007 (effective
February 15, 2007 through February 15, 2014) that is designated to hedge our
exposure to fluctuations on interest payments attributed to changes in interest
rates associated with payments on the Cullen Oaks Phase I and Phase II loans.
Under the terms of the interest rate swap agreement, we pay a fixed rate of
6.69% and receive a floating rate of LIBOR plus 1.35%.
Off
Balance Sheet Items
We
do not
have any off-balance sheet arrangements.
Contractual
Obligations
The
following table summarizes our contractual obligations as of December 31,
2006:
|
|
Total
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Thereafter
|
|
Long-term
debt (1)
|
|
$
|
569,475
|
|
$
|
33,261
|
|
$
|
85,887
|
|
$
|
78,804
|
|
$
|
73,056
|
|
$
|
62,608
|
|
$
|
235,859
|
|
Operating
leases (2)
|
|
|
45,374
|
|
|
644
|
|
|
1,354
|
|
|
1,360
|
|
|
1,371
|
|
|
1,006
|
|
|
39,639
|
|
Capital
leases
|
|
|
2,693
|
|
|
907
|
|
|
713
|
|
|
552
|
|
|
329
|
|
|
192
|
|
|
—
|
|
Owned
development project (3)
|
|
|
34,941
|
|
|
34,941
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Third-party
development
|
|
|
1,402
|
|
|
1,402
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
653,885
|
|
$
|
71,155
|
|
$
|
87,954
|
|
$
|
80,716
|
|
$
|
74,756
|
|
$
|
63,806
|
|
$
|
275,498
|
|
(1) |
Long-term
debt obligations reflect the payment of both principal and interest.
For
long-term obligations with a variable interest rate, the rate in
effect at
December 31, 2006 was assumed to remain constant over all periods
presented.
|
(2) |
Includes
minimum annual lease payments under the ground leases for University
Village at TU, University Centre (formerly Village at Newark) and
ASU-SCRC.
|
(3) |
Consists
of the completion costs related to ASU-SCRC, which is scheduled to
be
completed in August 2008. The amounts do not include completion costs
which are funded through the construction loan. We have entered into
a
contract with a general contractor for certain phases of the construction
of this project. However, this contract does not generally cover
all of
the costs that are necessary to place the property into service,
including
the cost of furniture and marketing and leasing costs. The unfunded
commitments presented include all such costs, not only those costs
that we
are obligated to fund under the construction contract.
|
Funds
From Operations
As
defined by NAREIT, 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 income
(loss):
|
|
Company
|
|
Predecessor
|
|
|
|
Year
Ended
December
31,
2006
|
|
Year
Ended
December
31,
2005
|
|
Period
from
August
17,
2004
to
December
31,
2004
|
|
Period
from
January
1,
2004
to
August
16,
2004
|
|
Net
income (loss)
|
|
$
|
22,597
|
|
$
|
9,662
|
|
$
|
1,802
|
|
$
|
(3,141
|
)
|
Minority
interests
|
|
|
2,038
|
|
|
164
|
|
|
29
|
|
|
(129
|
)
|
(Gain)
loss from disposition of real estate
|
|
|
(18,648
|
)
|
|
(5,883
|
)
|
|
—
|
|
|
39
|
|
Real
estate related depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
depreciation and amortization
|
|
|
25,499
|
|
|
16,471
|
|
|
4,310
|
|
|
6,034
|
|
Corporate
furniture, fixtures, and equipment depreciation
|
|
|
(543
|
)
|
|
(439
|
)
|
|
(154
|
)
|
|
(181
|
)
|
Funds
from operations (“FFO”)
|
|
$
|
30,943
|
|
$
|
19,975
|
|
$
|
5,987
|
|
$
|
2,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
per share –
basic
|
|
$
|
1.64
|
|
$
|
1.34
|
|
$
|
0.48
|
|
|
|
|
FFO
per share – diluted
|
|
$
|
1.48
|
|
$
|
1.33
|
|
$
|
0.47
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,907,061
|
|
|
14,882,944
|
|
|
12,513,130
|
|
|
|
|
Diluted
|
|
|
20,967,946
|
|
|
15,047,202
|
|
|
12,634,130
|
|
|
|
|
Our
FFO
for the year ended December 31, 2004 was impacted by a series of charges
totaling approximately $2.6 million related to our IPO and related formation
transactions. The primary components of the charges include: (i) PIU grants
of
approximately $2.1 million, (ii) RSU grants of $0.1 million, and (iii) the
write-off of loan origination costs and exit fees associated with the repayment
of indebtedness of approximately $1.2 million. These items were partially offset
by the recognition of an initial deferred tax asset associated with the
formation of our TRS, resulting in an income tax benefit of $0.8 million.
While
our
on-campus participating properties contributed $20.0 million, $18.5 million
and
$17.4 million to our revenues for the years ended December 31, 2006, 2005,
and
2004, 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 (“FFOM”):
|
|
Company
|
|
Predecessor
|
|
|
|
Year
Ended
December
31,
2006
|
|
Year
Ended
December
31,
2005
|
|
Period
from
August
17, 2004 to December 31, 2004
|
|
Period
from
January
1, 2004 to
August
16, 2004
|
|
Funds
from operations
|
|
$
|
30,943
|
|
$
|
19,975
|
|
$
|
5,987
|
|
$
|
2,622
|
|
Elimination
of operations of on-campus participating properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(income) loss from on-campus participating properties (1)
|
|
|
(232
|
)
|
|
(424
|
)
|
|
(1,023
|
)
|
|
753
|
|
Amortization
of investment in on-campus participating properties
|
|
|
(4,131
|
)
|
|
(3,661
|
)
|
|
(1,309
|
)
|
|
(2,222
|
)
|
|
|
|
26,580
|
|
|
15,890
|
|
|
3,655
|
|
|
1,153
|
|
Modifications
to reflect operational performance of on-campus participating
properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
share of net cash flow (2)
|
|
|
861
|
|
|
842
|
|
|
214
|
|
|
583
|
|
Management
fees
|
|
|
920
|
|
|
878
|
|
|
371
|
|
|
489
|
|
On-campus
participating properties development fees (3)
|
|
|
279
|
|
|
1,275
|
|
|
15
|
|
|
—
|
|
Impact
of on-campus participating properties
|
|
|
2,060
|
|
|
2,995
|
|
|
600
|
|
|
1,072
|
|
Funds
from operations - modified for operational performance of on-campus
participating properties (“FFOM”)
|
|
$
|
28,640
|
|
$
|
18,885
|
|
$
|
4,255
|
|
$
|
2,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFOM
per share –
basic
|
|
$
|
1.51
|
|
$
|
1.27
|
|
$
|
0.34
|
|
|
|
|
FFOM
per share – diluted
|
|
$
|
1.37
|
|
$
|
1.26
|
|
$
|
0.34
|
|
|
|
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,907,061
|
|
|
14,882,944
|
|
|
12,513,130
|
|
|
|
|
Diluted
|
|
|
20,967,946
|
|
|
15,047,202
|
|
|
12,634,130
|
|
|
|
|
(1) |
Excludes
the loss on the sale of an on-campus participating property of $39,000
during the period from January 1, 2004 to August 16, 2004, which
has been
reflected in the calculation of FFO
above.
|
(2) |
50%
of the properties’ net cash available for distribution after payment of
operating expenses, debt service (including repayment of principal)
and
capital expenditures. Amounts represent actual cash received for
the
year-to-date periods and amounts accrued for the interim periods.
As a
result of using accrual-based results in interim periods and cash-based
results for year-to-date periods, the sum of reported interim results
may
not agree to annual cash received.
|
(3) |
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 off campus owned 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
modified FFO 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.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
We
use
fixed and floating rate debt to finance acquisitions, developments and maturing
debt. These borrowings expose us to market risk related to changes in interest
rates. For fixed rate debt, interest rate changes affect the fair market value
but do not impact net income to common stockholders or cash flows. Conversely,
for floating rate debt, interest rate changes generally do not affect the fair
market value but do impact net income to common stockholders and cash flows,
assuming other factors are held constant.
At
December 31, 2006 and 2005 we had fixed rate debt of $331.6 million and $212.7
million, respectively. Holding other variables constant (such as debt levels),
a
one percentage point increase in interest rates (100 basis points) would cause
a
$13.6 million and $10.0 million decline in the fair value of our fixed rate
debt
as of December 31, 2006 and 2005, respectively. Conversely, a one percentage
point decrease in interest rates would cause a $14.3 million and $10.6 million
increase in the fair value of our fixed rate debt as of December 31, 2006 and
2005, respectively. Due to the structure of our floating rate debt and interest
rate protection instruments, the impact of a one percentage point increase
or
decrease in interest rates on our net income to common stockholders and cash
flows would not be significant at December 31, 2006 or 2005.
All
of
our outstanding indebtedness is fixed rate except for our revolving credit
facility and the Cullen Oaks Phase II and University Centre construction loans.
Our revolving credit facility had no outstanding balance at December 31, 2006
and bears interest at the lender’s Prime rate or LIBOR plus, in each case, a
spread based on our total leverage. The Cullen Oaks Phase II construction loan
had an outstanding balance of $16.7 million at December 31, 2006 and bears
interest at the lender’s Prime rate or LIBOR plus 2.0%, at our election. The
University Centre construction loan had an outstanding balance of $21.4 million
at December 31, 2006 and bears interest at the lender’s Prime rate or one-,
two-, or three-month LIBOR plus 1.50%, at our election. We have in place an
interest rate swap agreement, designated as a cash flow hedge, which effectively
fixes the interest rate on the outstanding balance of the Cullen Oaks Phase
I
mortgage loan at 5.5% through maturity in 2008. We anticipate incurring
additional variable rate indebtedness in the future, including draws under
our
$115 million revolving credit facility. We may in the future use derivative
financial instruments to manage, or hedge, interest rate risks related to such
variable rate borrowings. We do not, and do not expect to, use derivatives
for
trading or speculative purposes, and we expect to enter into contracts only
with
major financial institutions.
Item
8. Financial Statements and Supplementary
Data
The
information required herein is included as set forth in Item 15 (a) - Financial
Statements.
Item
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not
applicable.
Evaluation
of Disclosure Controls and Procedures
We
have
adopted and maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act reports
is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As
required by SEC Rule 13a-15(b), we have carried out an evaluation, under
the supervision of 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 period 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 period covered by this report were effective.
There
has
been no change in our internal control over financial reporting during our
most
recent fiscal quarter that has materially affected, or is reasonably likely
to
materially affect, our internal control over financial reporting.
Management’s
Annual Report on Internal Control over Financial
Reporting
The
management of American Campus Communities, Inc. is responsible for establishing
and maintaining adequate internal control over financial reporting. We have
designed our internal control over financial reporting to provide reasonable
assurance that our published financial statements are fairly presented, in
all
material respects, in conformity with generally accepted accounting
principles.
Our
management is required by paragraph (c) of Rule 13a-15 of the
Securities Exchange Act of 1934, as amended, to assess the effectiveness of
our
internal control over financial reporting as of the end of each fiscal year.
In
making this assessment, our management used the
Internal Control — Integrated Framework
issued
in July 1994 by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”).
Our
management conducted the required assessment of the effectiveness of our
internal control over financial reporting as of December 31, 2006. Based upon
this assessment, our management believes that our internal control over
financial reporting is effective as of December 31, 2006.
Ernst &
Young LLP, our independent registered public accounting firm, issued an
attestation report on our assessment of our internal control over financial
reporting. This report appears on page F-1.
PART
III
The
information required by Part III is incorporated by reference from our
definitive proxy statement for our 2007 Annual Meeting of
Stockholders.
The
information contained in the sections captioned “Board of Directors - Board Size
and Composition, Board Committees, and Guidelines on Governance and Codes of
Ethics”, “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting
Compliance” of the definitive proxy statement is incorporated herein by
reference.
The
information contained in the section captioned “Board of Directors -
Compensation of Directors”, “Compensation - Executive Officer Compensation” and
“Compensation - Employment Contracts, Termination of Employment and
Change-In-Control Arrangements” of the definitive proxy statement is
incorporated herein by reference.
Item
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The
information contained in the section captioned “Security Ownership” of the
definitive proxy statement is incorporated herein by reference.
Item
13. Certain Relationships, Related Transactions and Director
Independence
The
information contained in the section captioned “Certain Relationships and
Related Transactions” of the definitive proxy statement is incorporated herein
by reference.
Item
14. Principal Accounting Fees and
Services
The
information contained in the section captioned “Independent Auditor Fees” of the
definitive proxy statement is incorporated herein by reference.
PART
IV
Item
15. Exhibits and Financial Statement
Schedules
The
following consolidated and combined financial information is included as a
separate section of this Annual Report on Form 10-K:
|
|
Page
No.
|
Report
of Independent Registered Public Accounting Firm - Internal Control
over
Financial Reporting
|
|
F-1
|
Report
of Independent Registered Public Accounting Firm - Audit
|
|
F-2
|
Consolidated
Balance Sheets as of December 31, 2006 and December 31,
2005
|
|
F-3
|
Consolidated
and Combined Statements of Operations for the Company for the years
ended
December 31, 2006 and 2005 and for the period from August 17, 2004
through
December 31, 2004 and for the Predecessor for the period from January
1,
2004 through August 16, 2004
|
|
F-4
|
Consolidated
and Combined Statements of Changes in Stockholders’ and Predecessor
Owners’ Equity for the Company for the years ended December 31, 2006 and
2005 and for the period from August 17, 2004 through December 31,
2004 and
for the Predecessor for the period from January 1, 2004 through August
16,
2004
|
|
F-5
|
Consolidated
and Combined Statements of Cash Flows for the Company for the years
ended
December 31, 2006 and 2005 and for the period from August 17, 2004
through
December 31, 2004 and for the Predecessor for the period from January
1,
2004 through August 16, 2004
|
|
F-6
|
Notes
to Consolidated and Combined Financial Statements
|
|
F-7
|
(b)
Exhibits
Exhibit
Number
|
|
Description
of Document
|
3.1
|
|
Articles
of Amendment and Restatement of American Campus Communities, Inc.
Incorporated by reference to Exhibit 3.1 to the Registration Statement
on
Form S-11 (Registration No. 333-114813) of American Campus Communities,
Inc.
|
|
|
|
3.2
|
|
Bylaws
of American Campus Communities, Inc. Incorporated by reference
to Exhibit
3.2 to the Registration Statement on Form S-11 (Registration No.
333-114813) of American Campus Communities, Inc.
|
|
|
|
4.1
|
|
Form
of Certificate for Common Stock of American Campus Communities,
Inc.
Incorporated by reference to Exhibit 4.1 to the Registration Statement
on
Form S-11 (Registration No. 333-114813) of American Campus Communities,
Inc.
|
|
|
|
10.1
|
|
Form
of Amended and Restated Partnership Agreement of American Campus
Communities Operating Partnership LP. Incorporated by reference
to Exhibit
10.1 to the Registration Statement on Form S-11 (Registration No.
333-114813) of American Campus Communities, Inc.
|
|
|
|
10.2
|
|
Form
of First Amendment to Amended and Restated Agreement of Limited
Partnership of American Campus Communities Operating Partnership
LP, dated
as of March 1, 2006, between American Campus Communities Holdings
LLC and
those persons who have executed such amendment as limited partners.
Incorporated by reference to Exhibit 99.2 to Current Report on
Form 8-K of
American Campus Communities, Inc. (File No. 001-32265) filed on
March 7,
2006.
|
|
|
|
10.3*
|
|
American
Campus Communities, Inc. 2004 Incentive Award Plan. Incorporated
by
reference to Exhibit 10.2 to the Registration Statement on Form
S-11
(Registration No. 333-114813) of American Campus Communities,
Inc.
|
|
|
|
10.4*
|
|
American
Campus Communities, Inc. 2004 Outperformance Bonus Plan. Incorporated
by
reference to Exhibit 10.3 to the Registration Statement on Form
S-11
(Registration No. 333-114813) of American Campus Communities,
Inc.
|
|
|
|
10.5
|
|
Form
of PIU Grant Notice (including Registration Rights). Incorporated
by
reference to Exhibit 10.4 to the Registration Statement on Form
S-11
(Registration No. 333-114813) of American Campus Communities,
Inc.
|
|
|
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10.6
|
|
Form
of Indemnification Agreement between American Campus Communities,
Inc. and
certain of its directors and officers. Incorporated by reference
to
Exhibit 10.5 to the Registration Statement on Form S-11 (Registration
No.
333-114813) of American Campus Communities, Inc.
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|
|
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10.7
|
|
Form
of Employment Agreement between American Campus Communities, Inc.
and
William C. Bayless, Jr. Incorporated by reference to Exhibit 10.6
to the
Registration Statement on Form S-11 (Registration No. 333-114813)
of
American Campus Communities, Inc.
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10.8
|
|
Amendment
No. 1 to Employment Agreement, dated as of April 28, 2005, between
American Campus Communities, Inc. and William C. Bayless, Jr. Incorporated
by reference to Exhibit 99.6 to Current Report on Form 8-K of American
Campus Communities, Inc. (File No. 001-32265) filed on May 3,
2005.
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|
|
|
10.9
|
|
Form
of Employment Agreement between American Campus Communities, Inc.
and
Brian B. Nickel. Incorporated by reference to Exhibit 10.7 to the
Registration Statement on Form S-11 (Registration No. 333-114813)
of
American Campus Communities, Inc.
|
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|
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10.10
|
|
Amendment
No. 1 to Employment Agreement, dated as of April 28, 2005, between
American Campus Communities, Inc. and Brian B. Nickel. Incorporated
by
reference to Exhibit 99.7 to Current Report on Form 8-K of American
Campus
Communities, Inc. (File No. 001-32265) filed on May 3,
2005.
|
|
|
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10.11
|
|
Employment
Agreement, dated as of April 18, 2005, between American Campus
Communities, Inc. and James C. Hopke. Incorporated by reference
to Exhibit
99.1 to Current Report on Form 8-K of American Campus Communities,
Inc.
(File No. 001-32265) filed on May 3, 2005.
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|
|
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10.12
|
|
Employment
Agreement, dated as of April 28, 2005, between American Campus
Communities, Inc. and Greg A. Dowell. Incorporated by reference
to Exhibit
99.2 to Current Report on Form 8-K of American Campus Communities,
Inc.
(File No. 001-32265) filed on May 3, 2005.
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|
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10.13
|
|
Form
of Confidentiality and Noncompetition Agreement. Incorporated by
reference
to Exhibit 10.9 to the Registration Statement on Form S-11 (Registration
No. 333-114813) of American Campus Communities, Inc.
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10.14
|
|
First
Amended and Restated Credit Agreement, dated as of August 17, 2006,
among
American Campus Communities Operating Partnership LP, American
Campus
Communities, Inc., as Parent Guarantor, the Subsidiary Guarantors
listed
on the signature pages thereto, KeyBank National Association, as
Administrative Agent, and the other lenders that are signatories
thereto.
Incorporated by reference to Exhibit 99.1 to Current Report on
Form 8-K of
American Campus Communities, Inc. (File No. 001-32265) filed on
August 22,
2006.
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|
|
|
10.15
|
|
Form
of Contribution and Sale Agreement, dated as of December 2, 2005,
among
Royal Tallahassee Partnership, Royal Tallahassee Partnership II
Limited
Partnership, Royal Tallahassee III Partnership, Royal Gainesville
Limited
Partnership, Royal Orlando Limited Partnership, Royal Lexington
Limited
Partnership, Royal Tucson Entrada Real Limited Partnership, Royal
Texas-Tennessee Limited Partnership, Royal Texas-Tennessee II Limited
Partnership, Raiders Pass Phase II Limited Partnership, Royal San
Marcos
Limited Partnership and Royal San Antonio Limited Partnership,
on the one
hand, and American Campus Communities, Inc. and American Campus
Communities Operating Partnership LP, on the other hand. Incorporated
by
reference to Exhibit 99.1 to Current Report on Form 8-K of American
Campus
Communities, Inc. (File No. 001-32265) filed on February 13,
2006.
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|
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|
10.16
|
|
Form
of First Amendment to Contribution and Sale Agreement, dated as
of
December 16, 2005, among Royal Tallahassee Partnership, Royal Tallahassee
Partnership II Limited Partnership, Royal Tallahassee III Partnership,
Royal Gainesville Limited Partnership, Royal Orlando Limited Partnership,
Royal Lexington Limited Partnership, Royal Tucson Entrada Real
Limited
Partnership, Royal Texas-Tennessee Limited Partnership, Royal
Texas-Tennessee II Limited Partnership, Raiders Pass Phase II Limited
Partnership, Royal San Marcos Limited Partnership and Royal San
Antonio
Limited Partnership, on the one hand, and American Campus Communities,
Inc. and American Campus Communities Operating Partnership LP,
on the
other hand. Incorporated by reference to Exhibit 99.2 to Current
Report on
Form 8-K of American Campus Communities, Inc. (File No. 001-32265)
filed
on February 13, 2006.
|
10.17
|
|
Form
of Second Amendment to Contribution and Sale Agreement, dated as
of
January 30, 2006, among Royal Tallahassee Partnership, Royal Tallahassee
Partnership II Limited Partnership, Royal Tallahassee III Partnership,
Royal Gainesville Limited Partnership, Royal Orlando Limited Partnership,
Royal Lexington Limited Partnership, Royal Tucson Entrada Real
Limited
Partnership, Royal Texas-Tennessee Limited Partnership, Royal
Texas-Tennessee II Limited Partnership, Raiders Pass Phase II Limited
Partnership, Royal San Marcos Limited Partnership and Royal San
Antonio
Limited Partnership, on the one hand, and American Campus Communities,
Inc. and American Campus Communities Operating Partnership LP,
on the
other hand. Incorporated by reference to Exhibit 99.3 to Current
Report on
Form 8-K of American Campus Communities, Inc. (File No. 001-32265)
filed
on February 13, 2006.
|
|
|
|
10.18
|
|
Form
of Third Amendment to Contribution and Sale Agreement, dated as
of
February 7, 2006, among Royal Tallahassee Partnership, Royal Tallahassee
Partnership II Limited Partnership, Royal Tallahassee III Partnership,
Royal Gainesville Limited Partnership, Royal Orlando Limited Partnership,
Royal Lexington Limited Partnership, Royal Tucson Entrada Real
Limited
Partnership, Royal Texas-Tennessee Limited Partnership, Royal
Texas-Tennessee II Limited Partnership, Raiders Pass Phase II Limited
Partnership, Royal San Marcos Limited Partnership and Royal San
Antonio
Limited Partnership, on the one hand, and American Campus Communities,
Inc. and American Campus Communities Operating Partnership LP,
on the
other hand. Incorporated by reference to Exhibit 99.4 to Current
Report on
Form 8-K of American Campus Communities, Inc. (File No. 001-32265)
filed
on February 13, 2006.
|
|
|
|
10.19
|
|
Form
of Fourth Amendment to Contribution and Sale Agreement, dated as
of
February 8, 2006, among Royal Tallahassee Partnership, Royal Tallahassee
Partnership II Limited Partnership, Royal Tallahassee III Partnership,
Royal Gainesville Limited Partnership, Royal Orlando Limited Partnership,
Royal Lexington Limited Partnership, Royal Tucson Entrada Real
Limited
Partnership, Royal Texas-Tennessee Limited Partnership, Royal
Texas-Tennessee II Limited Partnership, Raiders Pass Phase II Limited
Partnership, Royal San Marcos Limited Partnership and Royal San
Antonio
Limited Partnership, on the one hand, and American Campus Communities,
Inc. and American Campus Communities Operating Partnership LP,
on the
other hand. Incorporated by reference to Exhibit 99.5 to Current
Report on
Form 8-K of American Campus Communities, Inc. (File No. 001-32265)
filed
on February 13, 2006.
|
|
|
|
10.20
|
|
Form
of Agreement, dated as of March 1, 2006, between American Campus
Communities, Inc., and Michael J. Henneman. Incorporated by reference
to
Exhibit 99.1 to Current Report on Form 8-K of American Campus Communities,
Inc. (File No. 001-32265) filed on March 7, 2006.
|
|
|
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10.21
|
|
Form
of Registration Rights and Lock-Up Agreement, dated as of March
1, 2006,
between American Campus Communities, Inc. and each of the persons
who are
signatory thereto. Incorporated by reference to Exhibit 99.3 to
Current
Report on Form 8-K of American Campus Communities, Inc. (File No.
001-32265) filed on March 7, 2006.
|
|
|
|
10.22
|
|
Form
of Tax Matters Agreement, dated as of March 1, 2006, among American
Campus
Communities Operating Partnership LP, American Campus Communities,
Inc.,
American Campus Communities Holdings LLC and each of the limited
partners
of American Campus Communities Operating Partnership LP who have
executed
a signature page thereto. Incorporated by reference to Exhibit
99.4 to
Current Report on Form 8-K of American Campus Communities, Inc.
(File No.
001-32265) filed on March 7, 2006.
|
|
|
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10.23
|
|
Form
of Right of First Offer Agreement, dated as of March 1, 2006, between
Royal Apartments USA, Inc. and American Campus Communities, Inc.
Incorporated by reference to Exhibit 99.5 to Current Report on
Form 8-K of
American Campus Communities, Inc. (File No. 001-32265) filed on
March 7,
2006.
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21.1
|
|
List
of Subsidiaries of the Registrant.
|
|
|
|
23.2
|
|
Consent
of Ernst & Young LLP.
|
|
|
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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.
|
* Indicates
management compensation plan.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
|
|
March
16, 2007 |
AMERICAN
CAMPUS COMMUNITIES, INC.
|
|
|
|
|
By: |
/s/
William C. Bayless, Jr. |
|
President
and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
UName
|
|
UTitleU
|
|
UDateU
|
|
|
|
|
|
U/s/
William C. Bayless, Jr. U
William
C. Bayless, Jr.
|
|
President,
Chief Executive Officer and Director
(Principal
Executive Officer)
|
|
March
16, 2007
|
|
|
|
|
|
U/s/
Brian B. Nickel
Brian
B. Nickel
|
|
Executive
Vice President, Chief Financial Officer, Secretary and Director
(Principal
Financial Officer)
|
|
March
16, 2007
|
|
|
|
|
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U/s/
Jonathan A. Graf
Jonathan
A. Graf
|
|
Senior
Vice President, Chief Accounting Officer and Treasurer
(Principal
Accounting Officer)
|
|
March
16, 2007
|
|
|
|
|
|
U/s/
R.D. Burck U
R.D.
Burck
|
|
Chairman
of the Board of Directors
|
|
March
16, 2007
|
|
|
|
|
|
U/s/
G. Steven Dawson
G.
Steven Dawson
|
|
Director
|
|
March
16, 2007
|
|
|
|
|
|
U/s/
Cydney Donnell U
Cydney
Donnell
|
|
Director
|
|
March
16, 2007
|
|
|
|
|
|
U/s/
Edward Lowenthal
Edward
Lowenthal
|
|
Director
|
|
March
16, 2007
|
|
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|
|
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U/s/
Scott H. Rechler
Scott
H. Rechler
|
|
Director
|
|
March
16, 2007
|
|
|
|
|
|
U/s/
Winston W. Walker
Winston
W. Walker
|
|
Director
|
|
March
16, 2007
|
|
|
|
|
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U/s/
Michael Henneman
Michael
Henneman
|
|
Director
|
|
March
16, 2007
|
Report
of Independent Registered Public Accounting Firm
The
Board of Directors and Shareholders of American Campus Communities, Inc.
We
have
audited management’s assessment, included in the accompanying Management Report
on Internal Control over Financial Reporting, that American Campus Communities,
Inc. maintained effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). American Campus Communities, Inc.’s management
is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management’s
assessment and an opinion on the effectiveness of the company’s internal control
over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that American Campus Communities, Inc.
maintained effective internal control over financial reporting as of December
31, 2006, is fairly stated, in all material respects, based on the COSO
criteria. Also, in our opinion, American Campus Communities, Inc. maintained,
in
all material respects, effective internal control over financial reporting
as of
December 31, 2006, based on the
COSO
criteria.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of American
Campus Communities, Inc. and Subsidiaries as of December 31, 2006 and 2005,
and
the related consolidated statements of operations, changes in stockholders’
equity, and cash flows for the two years in the period ended December 31, 2006,
and the period from August 17, 2004 to December 31, 2004, and the related
combined statements of operations, changes in owners’ equity, and cash flows of
the American Campus Predecessor (American Campus Communities, L.L.C. and
Affiliated Student Housing Properties) for the period from January 1, 2004
through August 16, 2004 and our report dated March 14, 2007 expressed an
unqualified opinion thereon.
Ernst
& Young LLP
Austin,
Texas
March
14,
2007
Report
of Independent Registered Public Accounting Firm
The
Board of Directors and Shareholders of American Campus Communities,
Inc.
We
have
audited the accompanying consolidated balance sheets of American Campus
Communities, Inc. and Subsidiaries as of December 31, 2006 and 2005, and the
related consolidated statements of operations, changes in stockholders’ equity,
and cash flows for the two years in the period ended December 31, 2006, and
the
period from August 17, 2004 to December 31, 2004, and the related combined
statements of operations, changes in owners’ equity, and cash flows of the
American Campus Predecessor (American Campus Communities, L.L.C. and Affiliated
Student Housing Properties) for the period from January 1, 2004 through August
16, 2004. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of American Campus
Communities, Inc. at December 31, 2006 and 2005, and the consolidated statements
of operations, changes in stockholders’ equity, and cash flows for the two years
in the period ended December 31, 2006, and the period from August 17, 2004
to
December 31, 2004, and the related combined statements of operations, changes
in
owners’ equity, and cash flows of the American Campus Predecessor for the period
from January 1, 2004 through August 16, 2004, in conformity with U.S. generally
accepted accounting principles.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of American Campus
Communities, Inc.’s internal control over financial reporting as of December 31,
2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 14, 2007 expressed an unqualified opinion
thereon.
Ernst
& Young
Austin,
Texas
March
14,
2007
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except share and per share data)
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in real estate:
|
|
|
|
|
|
|
|
Owned
off-campus properties, net
|
|
$
|
694,197
|
|
$
|
384,758
|
|
Owned
off-campus property-held for sale
|
|
|
—
|
|
|
32,340
|
|
On-campus
participating properties, net
|
|
|
76,688
|
|
|
80,370
|
|
Investments
in real estate, net
|
|
|
770,885
|
|
|
497,468
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
79,107
|
|
|
24,641
|
|
Restricted
cash
|
|
|
11,260
|
|
|
9,502
|
|
Student
contracts receivable, net
|
|
|
3,129
|
|
|
2,610
|
|
Other
assets
|
|
|
20,000
|
|
|
16,641
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
884,381
|
|
$
|
550,862
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Secured
debt
|
|
$
|
432,294
|
|
$
|
291,646
|
|
Accounts
payable and accrued expenses
|
|
|
13,616
|
|
|
7,983
|
|
Other
liabilities
|
|
|
29,436
|
|
|
25,155
|
|
Total
liabilities
|
|
|
475,346
|
|
|
324,784
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
39,561
|
|
|
2,851
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Common
shares, $.01 par value, 800,000,000 shares authorized, 22,903,073
and
17,190,000 shares issued and outstanding at December 31, 2006 and
2005,
respectively
|
|
|
229
|
|
|
172
|
|
Additional
paid in capital
|
|
|
382,367
|
|
|
233,388
|
|
Accumulated
earnings and distributions
|
|
|
(13,533
|
)
|
|
(10,817
|
)
|
Accumulated
other comprehensive income
|
|
|
411
|
|
|
484
|
|
Total
stockholders’ equity
|
|
|
369,474
|
|
|
223,227
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
884,381
|
|
$
|
550,862
|
|
See
accompanying notes to consolidated and combined financial
statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
CONSOLIDATED
AND COMBINED STATEMENTS OF OPERATIONS
(in
thousands, except share and per share data)
|
|
COMPANY
|
|
PREDECESSOR
|
|
|
|
Year
Ended
December
31,
2006
|
|
Year
Ended
December
31,
2005
|
|
Period
from August 17, 2004 to December 31,
2004
|
|
Period
from January 1, 2004 to August 16,
2004
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
$
|
89,264
|
|
$
|
54,287
|
|
$
|
13,530
|
|
$
|
16,992
|
|
On-campus
participating properties
|
|
|
19,960
|
|
|
18,470
|
|
|
8,078
|
|
|
9,340
|
|
Third-party
development services
|
|
|
5,634
|
|
|
5,717
|
|
|
1,367
|
|
|
3,896
|
|
Third-party
development services - on-campus participating properties
|
|
|
144
|
|
|
137
|
|
|
43
|
|
|
497
|
|
Third-party
management services - affiliates
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
178
|
|
Third-party
management services
|
|
|
2,532
|
|
|
2,786
|
|
|
1,138
|
|
|
789
|
|
Resident
services
|
|
|
1,419
|
|
|
1,125
|
|
|
382
|
|
|
—
|
|
Total
revenues
|
|
|
118,953
|
|
|
82,522
|
|
|
24,538
|
|
|
31,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
|
42,620
|
|
|
25,653
|
|
|
6,003
|
|
|
8,891
|
|
On-campus
participating properties
|
|
|
8,970
|
|
|
8,325
|
|
|
2,604
|
|
|
5,391
|
|
Third-party
development and management services
|
|
|
5,564
|
|
|
6,969
|
|
|
2,140
|
|
|
3,403
|
|
General
and administrative
|
|
|
6,278
|
|
|
6,714
|
|
|
4,202
|
|
|
1,032
|
|
Depreciation
and amortization
|
|
|
24,864
|
|
|
15,447
|
|
|
3,787
|
|
|
5,198
|
|
Ground/facility
lease
|
|
|
857
|
|
|
873
|
|
|
214
|
|
|
598
|
|
Total
operating expenses
|
|
|
89,153
|
|
|
63,981
|
|
|
18,950
|
|
|
24,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
29,800
|
|
|
18,541
|
|
|
5,588
|
|
|
7,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,230
|
|
|
825
|
|
|
39
|
|
|
42
|
|
Interest
expense
|
|
|
(25,937
|
)
|
|
(17,368
|
)
|
|
(5,556
|
)
|
|
(9,279
|
)
|
Amortization
of deferred financing costs
|
|
|
(1,365
|
)
|
|
(1,176
|
)
|
|
(842
|
)
|
|
(276
|
)
|
Other
nonoperating income
|
|
|
—
|
|
|
1,279
|
|
|
653
|
|
|
274
|
|
Total
nonoperating expenses
|
|
|
(26,072
|
)
|
|
(16,440
|
)
|
|
(5,706
|
)
|
|
(9,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes, minority interests, and discontinued
operations
|
|
|
3,728
|
|
|
2,101
|
|
|
(118
|
)
|
|
(2,060
|
)
|
Income
tax (provision) benefit
|
|
|
(28
|
)
|
|
(186
|
)
|
|
728
|
|
|
—
|
|
Minority
interests
|
|
|
(2,038
|
)
|
|
(164
|
)
|
|
(29
|
)
|
|
129
|
|
Income
(loss) from continuing operations
|
|
|
1,662
|
|
|
1,751
|
|
|
581
|
|
|
(1,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) attributable to discontinued operations
|
|
|
2,287
|
|
|
2,028
|
|
|
1,221
|
|
|
(1,171
|
)
|
Gain
(loss) from disposition of real estate
|
|
|
18,648
|
|
|
5,883
|
|
|
—
|
|
|
(39
|
)
|
Total
discontinued operations
|
|
|
20,935
|
|
|
7,911
|
|
|
1,221
|
|
|
(1,210
|
)
|
Net
income (loss)
|
|
$
|
22,597
|
|
$
|
9,662
|
|
$
|
1,802
|
|
$
|
(3,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
per share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations per share
|
|
$
|
0.09
|
|
$
|
0.12
|
|
$
|
0.05
|
|
|
|
|
Net
income per share
|
|
$
|
1.20
|
|
$
|
0.65
|
|
$
|
0.14
|
|
|
|
|
Income
per share - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations per share
|
|
$
|
0.08
|
|
$
|
0.12
|
|
$
|
0.05
|
|
|
|
|
Net
income per share
|
|
$
|
1.17
|
|
$
|
0.65
|
|
$
|
0.15
|
|
|
|
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,907,061
|
|
|
14,882,944
|
|
|
12,513,130
|
|
|
|
|
Diluted
|
|
|
20,967,946
|
|
|
15,047,202
|
|
|
12,634,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
declared per common share
|
|
$
|
1.35
|
|
$
|
1.35
|
|
$
|
0.1651
|
|
|
|
|
See
accompanying notes to consolidated and combined financial
statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
CONSOLIDATED
AND COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS’ AND PREDECESSOR OWNERS’
EQUITY
(in
thousands, except share data)
Predecessor
|
|
Common
Shares
|
|
Par
Value of
Common
Shares
|
|
Additional
Paid
in
Capital
|
|
Accumulated
Earnings and Distributions
|
|
Accumulated
Other Comprehensive (Loss) Income
|
|
Predecessor
Owners’
Equity
|
|
Total
|
|
Predecessor
owners’ equity, December 31, 2003
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(197
|
)
|
|
27,855
|
|
|
27,658
|
|
Contributions
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
860
|
|
|
860
|
|
Distributions
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,212
|
)
|
|
(2,212
|
)
|
Distribution
of the Village at Riverside and other non-core assets to Predecessor
owners
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,005
|
)
|
|
(2,005
|
)
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swap
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,141
|
)
|
|
(3,141
|
)
|
Total
comprehensive loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,138
|
)
|
Predecessor
owners’ equity, August 16, 2004
|
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(194
|
)
|
$
|
21,357
|
|
$
|
21,163
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassify
Predecessor owners’ equity
|
|
|
—
|
|
$
|
—
|
|
$
|
21,357
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(21,357
|
)
|
$
|
—
|
|
Net
proceeds from sale of common stock
|
|
|
12,615,000
|
|
|
126
|
|
|
197,694
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
197,820
|
|
Issuance
of fully vested restricted stock units
|
|
|
—
|
|
|
—
|
|
|
125
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
125
|
|
Fair
value of profits interest units granted
|
|
|
—
|
|
|
—
|
|
|
2,117
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,117
|
|
Record
minority interests for profits interest units
|
|
|
—
|
|
|
—
|
|
|
(1,424
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,424
|
)
|
Redemption
of ownership interest of Predecessor owners
|
|
|
—
|
|
|
—
|
|
|
(80,127
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(80,127
|
)
|
Distributions
to Predecessor owners
|
|
|
—
|
|
|
—
|
|
|
(1,399
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,399
|
)
|
Distributions
to common and restricted stockholders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,084
|
)
|
|
—
|
|
|
—
|
|
|
(2,084
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swap
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
191
|
|
|
—
|
|
|
191
|
|
Expiration
of interest rate cap
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
—
|
|
|
45
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,802
|
|
|
—
|
|
|
—
|
|
|
1,802
|
|
Total
comprehensive income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,038
|
|
Stockholders’
equity, December 31, 2004
|
|
|
12,615,000
|
|
|
126
|
|
|
138,343
|
|
|
(282
|
)
|
|
42
|
|
|
—
|
|
|
138,229
|
|
Net
proceeds from sale of common stock
|
|
|
4,575,000
|
|
|
46
|
|
|
96,549
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
96,595
|
|
Issuance
of fully vested restricted stock units
|
|
|
—
|
|
|
—
|
|
|
150
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
150
|
|
Record
minority interests for common units
|
|
|
—
|
|
|
—
|
|
|
(202
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(202
|
)
|
Amortization
of restricted stock awards
|
|
|
—
|
|
|
—
|
|
|
219
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
219
|
|
Distributions
to Predecessor owners
|
|
|
—
|
|
|
—
|
|
|
(1,671
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,671
|
)
|
Distributions
to common and restricted stockholders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,197
|
)
|
|
—
|
|
|
—
|
|
|
(20,197
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swap
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
442
|
|
|
—
|
|
|
442
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,662
|
|
|
—
|
|
|
—
|
|
|
9,662
|
|
Total
comprehensive income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,104
|
|
Stockholders’
equity, December 31, 2005
|
|
|
17,190,000
|
|
|
172
|
|
|
233,388
|
|
|
(10,817
|
)
|
|
484
|
|
|
—
|
|
|
223,227
|
|
Net
proceeds from sale of common stock
|
|
|
5,692,500
|
|
|
57
|
|
|
133,005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
133,062
|
|
Issuance
of fully vested restricted stock units
|
|
|
—
|
|
|
—
|
|
|
150
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
150
|
|
Record
minority interests for common units
|
|
|
—
|
|
|
—
|
|
|
15,153
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,153
|
|
Amortization
of restricted stock awards
|
|
|
—
|
|
|
—
|
|
|
560
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
560
|
|
Vesting
of restricted stock awards
|
|
|
9,573
|
|
|
—
|
|
|
(56
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(56
|
)
|
Distributions
to common and restricted stockholders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,313
|
)
|
|
—
|
|
|
—
|
|
|
(25,313
|
)
|
Conversion
of common units to common stock
|
|
|
11,000
|
|
|
—
|
|
|
167
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
167
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swap
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(73
|
)
|
|
—
|
|
|
(73
|
)
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,597
|
|
|
—
|
|
|
—
|
|
|
22,597
|
|
Total
comprehensive income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,524
|
|
Stockholders’
equity, December 31, 2006
|
|
|
22,903,073
|
|
$
|
229
|
|
$
|
382,367
|
|
$
|
(13,533
|
)
|
$
|
411
|
|
$
|
—
|
|
$
|
369,474
|
|
See
accompanying notes to consolidated and combined financial
statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
CONSOLIDATED
AND COMBINED STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
COMPANY
|
|
PREDECESSOR
|
|
|
|
Year
Ended
December
31,
2006
|
|
Year
Ended
December
31,
2005
|
|
Period
from
August
17, 2004 to December 31, 2004
|
|
Period
from
January
1, 2004
to
August 16, 2004
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
22,597
|
|
$
|
9,662
|
|
$
|
1,802
|
|
$
|
(3,141
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain)
loss from disposition of real estate
|
|
|
(18,648
|
)
|
|
(5,883
|
)
|
|
—
|
|
|
39
|
|
Gain
on sale of option to acquire interest in student housing property
|
|
|
—
|
|
|
(849
|
)
|
|
—
|
|
|
—
|
|
Minority
interests share of income (loss)
|
|
|
2,038
|
|
|
164
|
|
|
29
|
|
|
(129
|
)
|
Depreciation
and amortization
|
|
|
25,499
|
|
|
16,471
|
|
|
4,395
|
|
|
5,949
|
|
Amortization
of deferred financing costs and debt premiums
|
|
|
26
|
|
|
463
|
|
|
933
|
|
|
421
|
|
Share-based
compensation
|
|
|
710
|
|
|
369
|
|
|
2,242
|
|
|
—
|
|
Income
tax provision (benefit)
|
|
|
28
|
|
|
186
|
|
|
(728
|
)
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
138
|
|
|
308
|
|
|
4,970
|
|
|
(5,016
|
)
|
Student
contracts receivable, net
|
|
|
(550
|
)
|
|
(446
|
)
|
|
(727
|
)
|
|
860
|
|
Other
assets
|
|
|
(2,402
|
)
|
|
(4,082
|
)
|
|
746
|
|
|
2,321
|
|
Accounts
payable and accrued expenses
|
|
|
4,245
|
|
|
2,254
|
|
|
(910
|
)
|
|
2,591
|
|
Other
liabilities
|
|
|
1,556
|
|
|
1,812
|
|
|
199
|
|
|
932
|
|
Net
cash provided by operating activities
|
|
|
35,237
|
|
|
20,429
|
|
|
12,951
|
|
|
4,827
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from disposition of real estate
|
|
|
50,045
|
|
|
28,023
|
|
|
—
|
|
|
—
|
|
Cash
paid for property acquisitions
|
|
|
(69,697
|
)
|
|
(72,763
|
)
|
|
—
|
|
|
—
|
|
Investments
in owned off-campus properties
|
|
|
(81,597
|
)
|
|
(51,037
|
)
|
|
(13,220
|
)
|
|
(47,900
|
)
|
Investments
in on-campus participating properties
|
|
|
(483
|
)
|
|
(15,887
|
)
|
|
(1,316
|
)
|
|
(565
|
)
|
Purchase
of corporate furniture, fixtures and equipment
|
|
|
(986
|
)
|
|
(742
|
)
|
|
(401
|
)
|
|
(219
|
)
|
Net
proceeds from sale of option to acquire interest in student housing
property
|
|
|
—
|
|
|
651
|
|
|
—
|
|
|
—
|
|
Net
cash used in investing activities
|
|
|
(102,718
|
)
|
|
(111,755
|
)
|
|
(14,937
|
)
|
|
(48,684
|
)
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(paydown of) proceeds from revolving credit facility and line of
credit
|
|
|
—
|
|
|
(11,800
|
)
|
|
9,930
|
|
|
1,796
|
|
Proceeds
from construction loans
|
|
|
42,146
|
|
|
15,871
|
|
|
540
|
|
|
41,170
|
|
Pay
off of construction loan
|
|
|
(20,224
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Proceeds
from bridge/mortgage loan
|
|
|
—
|
|
|
38,800
|
|
|
—
|
|
|
—
|
|
Repayment
of debt in connection with IPO
|
|
|
—
|
|
|
—
|
|
|
(105,499
|
)
|
|
—
|
|
Principal
payments on debt
|
|
|
(6,527
|
)
|
|
(3,772
|
)
|
|
(1,650
|
)
|
|
(1,403
|
)
|
Change
in construction accounts payable
|
|
|
3,203
|
|
|
(404
|
)
|
|
(6,860
|
)
|
|
2,044
|
|
Debt
issuance and assumption costs
|
|
|
(2,418
|
)
|
|
(1,689
|
)
|
|
(259
|
)
|
|
(1,653
|
)
|
Proceeds
from sale of common stock
|
|
|
140,036
|
|
|
102,938
|
|
|
220,763
|
|
|
—
|
|
Offering
costs
|
|
|
(6,854
|
)
|
|
(6,598
|
)
|
|
(21,596
|
)
|
|
(1,348
|
)
|
Distributions
to common and restricted stockholders
|
|
|
(25,287
|
)
|
|
(20,180
|
)
|
|
(2,084
|
)
|
|
—
|
|
Contributions
from Predecessor owners
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
860
|
|
Distributions
to Predecessor owners
|
|
|
—
|
|
|
(1,671
|
)
|
|
(1,399
|
)
|
|
(2,212
|
)
|
Redemption
of ownership interests of Predecessor owners
|
|
|
—
|
|
|
—
|
|
|
(85,853
|
)
|
|
—
|
|
Distributions
to minority partners
|
|
|
(2,128
|
)
|
|
(163
|
)
|
|
(20
|
)
|
|
(16
|
)
|
Net
cash provided by financing activities
|
|
|
121,947
|
|
|
111,332
|
|
|
6,013
|
|
|
39,238
|
|
Net
change in cash and cash equivalents
|
|
|
54,466
|
|
|
20,006
|
|
|
4,027
|
|
|
(4,619
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
24,641
|
|
|
4,635
|
|
|
608
|
|
|
5,227
|
|
Cash
and cash equivalents at end of period
|
|
$
|
79,107
|
|
$
|
24,641
|
|
$
|
4,635
|
|
$
|
608
|
|
Supplemental
disclosure of non-cash investing and financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
assumed in connection with property acquisitions
|
|
$
|
(123,649
|
)
|
$
|
(47,170
|
)
|
$
|
—
|
|
$
|
—
|
|
Issuance
of Common Units in connection with property acquisitions
|
|
$
|
(49,096
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Issuance
of Preferred Units in connection with property
acquisitions
|
|
$
|
(3,075
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Financing
of equipment through capital lease obligations
|
|
$
|
1,518
|
|
$
|
388
|
|
$
|
69
|
|
$
|
302
|
|
Change
in fair value of derivative instruments, net
|
|
$
|
(73
|
)
|
$
|
442
|
|
$
|
(134
|
)
|
$
|
373
|
|
Transfer
of leasehold asset
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
7,976
|
|
Repayment
by transferee of note payable on leasehold asset held for
sale
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(8,080
|
)
|
Contribution
of land from minority partner in development joint venture
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,220
|
|
$
|
—
|
|
Distribution
of assets of The Village at Riverside and other non-core assets
to
Predecessor owners
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(13,845
|
)
|
$
|
—
|
|
Distribution
of liabilities of The Village at Riverside and other non-core assets
to Predecessor owners
|
|
$
|
—
|
|
$
|
—
|
|
$
|
11,840
|
|
$
|
—
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
27,034
|
|
$
|
18,030
|
|
$
|
7,657
|
|
$
|
9,960
|
|
Income
taxes paid
|
|
$
|
9
|
|
$
|
6
|
|
$
|
67
|
|
$
|
|
|
See
accompanying notes to consolidated and combined financial
statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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.
Concurrent
with the consummation of various formation transactions, the IPO consisted
of
the sale of 12,615,000 shares of the Company’s common stock at a price per share
of $17.50, including the exercise of the underwriters’ over-allotment option.
Gross proceeds to the Company were approximately $220.8 million (approximately
$197.8 million net of the underwriters’ discount and offering costs). As part of
the various formation transactions, the Company redeemed the ownership interests
of its Predecessor owners, acquired a minority ownership interest in four owned
off-campus properties, repaid certain construction and permanent indebtedness,
distributed an owned off-campus property and other non-core assets to its
Predecessor owners, and entered into a revolving credit facility.
On
July
5, 2005, the Company completed an equity offering, consisting of the sale of
4,575,000 shares of the Company’s common stock at a price per share of $22.50,
including the exercise of the underwriters’ over-allotment option. The offering
generated gross proceeds of approximately $102.9 million (approximately $96.6
million net of the underwriters’ discount and offering costs).
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 $133.2 million.
As
of
December 31, 2006, the Company’s property portfolio contained 38 student housing
properties with approximately 23,700 beds and approximately 7,700 apartment
units, consisting of 34 owned 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 December 31, 2006, the Company
provided third-party management and leasing services for 15 student housing
properties (nine 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 December 31, 2006, the Company’s total owned and
managed portfolio included 53 properties with approximately 33,000 beds in
approximately 10,900 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. Ownership interests contributed to the Operating Partnership by
the
Predecessor entities have been accounted for as a reorganization of entities
under common control in a manner similar to a pooling-of-interests. Accordingly,
the contributed assets and assumed liabilities were recorded at the
Predecessor’s historical cost basis. This method of accounting also requires the
reporting of results of operations for the period in which the reorganization
occurred as though the entities had been combined at either the beginning of
the
period or inception. The reorganization did not require any material adjustments
to conform to the accounting policies of the separate entities.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The
historical financial data prior to August 17, 2004 presented in this report
is
the historical data for the Predecessor and reflects the combined historical
results of operations and financial position of the Predecessor including the
operations of The Village at Riverside and certain other non-core assets which
were distributed to the Predecessor owners as a part of the formation
transactions. As a result, the historical results of operations and financial
position prior to the IPO are not indicative of, or in some instances directly
comparable to, the Company’s results of operations and financial position after
the IPO.
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 and combined financial statements have been consolidated
or
combined only for the periods that such entities were under control by the
Company or the Predecessor. All significant intercompany balances and
transactions have been eliminated in consolidation or combination. All dollar
amounts in the tables herein, except share and per share amounts, are stated
in
thousands unless otherwise indicated.
In
January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 46, “Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51, Consolidated Financial Statements” (FIN 46”),
which was revised in December 2003. This interpretation requires certain
variable interest entities (“VIEs”) to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have
the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. This interpretation was
effective for periods ending after March 15, 2004. As none of the Company’s
joint ventures meet the definition of a VIE as defined in FIN 46, the issuance
of this interpretation had no effect on the Company’s consolidated financial
statements.
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.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“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 are 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:
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
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 $3.2 million, $1.7 million and $1.8
million was capitalized during the years ended December 31, 2006, 2005, and
2004, respectively. Amortization of deferred financing costs totaling
approximately $0.2 million, $0.1 million, and $0.2 million was capitalized
during the years ended December 31, 2006, 2005, and 2004, respectively.
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 December 31,
2006.
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.
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
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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.
On-Campus
Participating Properties
The
Company enters into ground and facility leases (“Leases”) with university
systems and colleges (“Lessor”) to finance, construct, and manage student
housing facilities. Under the terms of the leases, the Lessor has title to
the
land and any improvements placed thereon. The Lease terminates upon final
repayment of the construction related financing, the amortization period of
which is contractually stipulated. Pursuant to EITF No. 97-10: The
Effect of Lessee Involvement in Asset Construction,
the
Company’s involvement in construction requires the Lessor’s post construction
ownership of the improvements to be treated as a sale with a subsequent
leaseback by the Company. The sale-leaseback transaction has been accounted
for
as a financing, and as a result, any fee earned during construction is deferred
and recognized over the term of the lease. The resulting financing obligation
is
reflected at the terms of the underlying financing, i.e., interest is accrued
at
the contractual rates and principal reduces in accordance with the contractual
principal repayment schedules.
The
Company reflects these assets subject to ground/facility leases at historical
cost, less amortization. Costs are amortized, and deferred fee revenue in excess
of the cost of providing the service are recognized, over the lease
term.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. The Company maintains cash
balances in various banks. At times the Company’s balances may exceed the $0.1
million amount insured by the FDIC. As the Company only uses money-centered
financial institutions, the Company does not believe it is exposed to any
significant credit risk related to its cash and cash equivalents.
Restricted
Cash
Restricted
cash consists of funds held in trust and invested in low risk investments,
generally consisting of government backed securities, as permitted by the
indentures of trusts, which were established in connection with three bond
issues. Additionally, restricted cash includes escrow accounts held by lenders
and resident security deposits, as required by law in certain states. Certain
funds held by a trustee in a required escrow account are being invested under
a
forward delivery agreement in government backed securities that have a remaining
maturity when purchased of six months. Restricted cash also consists of escrow
deposits made in connection with potential property acquisitions and development
opportunities. These escrow deposits are invested in an interest-bearing account
at a federally-insured bank. Realized and unrealized gains and losses are not
material for the periods presented.
Intangible
Assets
In
connection with property acquisitions completed in 2006 and 2005, as discussed
in Note 5, 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 were amortized on a straight-line basis
over a term of approximately six months, which represents the average remaining
term of the underlying leases. These assets were fully amortized as of December
31, 2006 and 2005, respectively, and the amortization is included in
depreciation expense in the accompanying consolidated and combined statements
of
operations for the years ended December 31, 2006 and 2005.
Deferred
Financing Costs
The
Company defers financing costs and amortizes the costs over the terms of the
related debt using the effective interest method. Upon repayment of or in
conjunction with a material change in the terms of the underlying debt
agreement, any unamortized costs are charged to earnings. Accordingly,
concurrent with the pay off of two mortgage loans and three construction loans
in connection with the IPO, unamortized finance costs totaling approximately
$0.6 million were charged to earnings for the year ended December 31, 2004.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Amortization
expense, net of amounts capitalized, approximated $1.4 million, $1.2 million,
and $1.4 million for the years ended December 31, 2006, 2005, and 2004,
respectively. Accumulated amortization at December 31, 2006 and 2005
approximated $4.5 million and $2.9 million, respectively. Deferred financing
costs, net of amortization, are included in other assets on the accompanying
consolidated balance sheets.
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 December 31, 2006 and December 31,
2005, net unamortized debt premiums were $6.4 million and $4.4 million,
respectively, and net unamortized debt discounts were $0.4 million and $-0-,
respectively. Debt premiums and discounts are included in secured debt on the
accompanying consolidated balance sheets.
Rental
Revenues and Related Receivables
Students
are required to execute lease contracts with payment schedules that vary from
single to monthly payments. Receivables are recorded when billed, revenues
and
related lease incentives are recognized on a straight-line basis over the term
of the contracts, and balances are considered past due when payment is not
received on the contractual due date. Generally, the Company requires each
executed contract to be accompanied by a refundable security deposit and a
signed parental guaranty. Security deposits are refundable, net of any
outstanding charges, upon expiration of the underlying contract.
Allowances
for doubtful accounts are established when management determines that collection
of receivables are doubtful. When management has determined receivables to
be
uncollectible, they are removed as an asset with a corresponding reduction
in
the allowance for doubtful accounts.
The
allowance for doubtful accounts is summarized as follows:
|
|
Balance,
Beginning of Period
|
|
Charged
to Expense
|
|
Write-Offs
|
|
Balance,
End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2004 (1)
|
|
$
|
2,057
|
|
$
|
646
|
|
$
|
(1,851
|
)
|
$
|
852
|
|
Year
ended December 31, 2005
|
|
$
|
852
|
|
$
|
808
|
|
$
|
(501
|
)
|
$
|
1,159
|
|
Year
ended December 31, 2006
|
|
$
|
1,159
|
|
$
|
1,409
|
|
$
|
(410
|
)
|
$
|
2,158
|
|
(1) |
In
2004, the Company wrote off essentially all receivables that were
100%
reserved.
|
Third-Party
Development Services Revenue and Costs
Development
revenues are generally recognized based on a proportionate performance method
based on contract deliverables, while construction revenues are recognized
using
the percentage of completion method, as determined by construction costs
incurred relative to total estimated construction costs. Costs associated with
such projects are deferred and recognized in relation to the revenues earned
on
executed contracts. For projects where the Company’s fee is based on a fixed
price, any cost overruns incurred during construction, as compared to the
original budget, will reduce the net fee generated on those projects. Incentive
fees are generally recognized when the project is complete and performance
has
been agreed upon by all parties, or when performance has been verified by an
independent third-party.
The
Company also evaluates the collectibility of fee income and expense
reimbursements generated through the provision of development and construction
management services based upon the individual facts and circumstances, including
the contractual right to receive such amounts in accordance with the terms
of
the various projects, and reserves any amounts that are deemed to be
uncollectible.
Pre-development
expenditures such as architectural fees, permits and deposits associated with
the pursuit of third-party and owned development projects are expensed as
incurred, until such time that management believes it is probable that the
contract will be executed and/or construction will commence. Because the Company
frequently incurs these pre-development expenditures before a financing
commitment and/or required permits and authorizations have been obtained, the
Company bears the risk of loss of these pre-development expenditures if
financing cannot ultimately be arranged on acceptable terms or the Company
is
unable to successfully obtain the required permits and authorizations. As such,
management evaluates the status of third-party and owned projects that have
not
yet commenced construction on a periodic basis and expenses any deferred costs
related to projects whose current status indicates the commencement of
construction is unlikely and/or 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 (in the case of third-party
development projects) or general and administrative expenses (in the case of
owned development projects) on the accompanying consolidated and combined
statements of operations. As of December 31, 2006, we have deferred
approximately $3.3 million in pre-development costs related to third-party
and
owned development projects that have not yet commenced construction. Such costs
are included in other assets on the accompanying consolidated balance
sheets.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Third-Party
Management Services Revenue
Management
fees are recognized when earned in accordance with each management contract.
Incentive management fees are recognized when the incentive criteria are
anticipated to be met.
Advertising
Costs
Advertising
costs are expensed during the period incurred. The Company uses no direct
response advertising. Advertising expense approximated $2.0 million, $1.6
million, and $0.4 million in 2006, 2005, and 2004, respectively.
Derivative
Instruments and Hedging Activities
Derivative
financial instruments are reported on the balance sheet at fair value. Changes
in fair value are recognized either in earnings or as other comprehensive
income, depending on whether the derivative has been designated as a fair value
or cash flow hedge and whether it qualifies as part of a hedging relationship,
the nature of the exposure being hedged, and how effective the derivative is
at
offsetting movements in underlying exposure. The Company discontinues hedge
accounting when: (i) it determines that the derivative is no longer effective
in
offsetting changes in the fair value or cash flows of a hedged item; (ii) the
derivative expires or is sold, terminated, or exercised; (iii) it is no longer
probable that the forecasted transaction will occur; or (iv) management
determines that designating the derivative as a hedging instrument is no longer
appropriate. In all situations in which hedge accounting is discontinued and
the
derivative remains outstanding, the Company will carry the derivative at its
fair value on the balance sheet, recognizing changes in the fair value in
current-period earnings. The
Company uses interest rate swaps to effectively convert a portion of its
floating rate debt to fixed rate, thus reducing the impact of rising interest
rates on interest payments. These instruments are designated as cash flow hedges
and qualify for the short cut method under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities,
as
amended. The interest differential to be paid or received is accrued as interest
expense. The Company’s counter-parties are major financial institutions.
Common
Stock Issuance Costs
In
accordance with the Securities and Exchange Commission’s Staff Accounting
Bulletin No. 5, specific incremental costs directly attributable to the
Company’s equity offerings were deferred and charged against the gross proceeds
of the offering. As such, underwriting commissions and other common stock
issuance costs are reflected as a reduction of additional paid in capital.
Comprehensive
Income (Loss)
Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss),
consisting of unrealized gains (losses) on derivative instruments. Comprehensive
income (loss) is presented in the accompanying consolidated and combined
statements of changes in stockholders’ and Predecessor owners’ equity, and
accumulated other comprehensive income (loss) is displayed as a separate
component of stockholders’ equity.
Stock-Based
Compensation
The
Company accounts for equity based awards in accordance with SFAS No. 123 (R),
Share-Based
Payment,
which
the Company adopted in the first quarter of 2005. Accordingly, the Company
has
recognized compensation expense related to certain restricted stock awards
(see
Note 11) over the underlying vesting periods. The adoption of this statement
did
not have a material impact on the Company’s consolidated or combined financial
position or results of operations and did not require any cumulative adjustments
to previously reported results.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Income
Taxes
The
Company has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the “Code”). 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 will generally not be 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 if the Company qualifies for
taxation as a REIT, the Company may 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 $1.3 million and $0.9 million was recognized for the
years ended December 31, 2005 and 2004, respectively. In December 2005, the
Company recognized a gain of approximately $0.8 million related to the sale
of
the Company’s option to acquire a 23.33% interest held by an affiliate of its
Predecessor owners in Dobie Center, an off-campus student housing property.
The
Company received approximately $0.6 million in cash proceeds at the time of
the
sale of the option and the remaining hold-back portion of approximately $0.2
million in 2007. In addition, the Company also recognized a gain of
approximately $0.4 million and $0.7 million in 2005 and 2004, respectively,
related to insurance proceeds received for a fire that occurred at one of the
Company’s owned off-campus properties in 2003. A gain of approximately $0.2
million was also recognized in 2004 related to insurance proceeds received
for
hail damage that occurred at one of the Company’s on-campus participating
properties in 2003.
Financial
Instruments
The
Company does not hold or issue financial instruments for trading purposes.
The
fair value of financial instruments was estimated based on the following methods
and assumptions:
Cash
and Cash Equivalents, Restricted Cash, Student Contracts Receivable, Other
Assets, Accounts Payable and Accrued Expenses and
Other Liabilities: the
carrying amount approximates fair value, due to the short maturity of these
instruments.
Mortgage
Loans:
the fair
value of mortgage loans is based on the present value of the cash flows at
current rates through maturity. As of December 31, 2006, the Company estimated
the fair value of its fixed-rate mortgage loans to be approximately $339.9
million.
Construction
Loans:
the fair
value of the Company’s construction loans approximates carrying value due to the
variable interest rate feature of these instruments.
Bonds
Payable:
the fair
value of bonds payable is based on market quotes for bonds outstanding. As
of
December 31, 2006, the Company estimated the fair value of its bonds payable
to
be approximately $65.0 million.
Derivative
Instruments:
these
instruments are reported on the balance sheet at fair value, which is based
on
calculations provided by independent, third-party financial institutions and
represent the discounted future cash flows expected, based on the projected
future interest rate curves over the life of the instrument.
Reclassifications
Certain
prior period amounts have been reclassified due to current year dispositions
and
discontinued operations. These reclassifications had no impact on
stockholders’ equity or net income (loss).
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
3. Earnings
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 9 for a discussion of Common Units and Series A Preferred Units and Note
11
for a discussion of RSUs and RSAs.
The
following is a summary of the elements used in calculating basic and diluted
income per share for the years ended December 31, 2006 and 2005 and for the
period subsequent to the IPO (August 17, 2004 through December 31,
2004):
|
|
Year
Ended
December
31, 2006
|
|
Year
Ended
December
31, 2005
|
|
Period
from
August
17, 2004 through
December
31, 2004
|
|
Basic
net income per share calculation:
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1,662
|
|
$
|
1,751
|
|
$
|
581
|
|
Discontinued
operations
|
|
|
20,935
|
|
|
7,911
|
|
|
1,221
|
|
Net
income
|
|
$
|
22,597
|
|
$
|
9,662
|
|
$
|
1,802
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations – per share
|
|
$
|
0.09
|
|
$
|
0.12
|
|
$
|
0.05
|
|
Income
from discontinued operations – per share
|
|
$
|
1.11
|
|
$
|
0.53
|
|
$
|
0.09
|
|
Net
income – per share
|
|
$
|
1.20
|
|
$
|
0.65
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
18,907,061
|
|
|
14,882,944
|
|
|
12,513,130
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share calculation:
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1,662
|
|
$
|
1,751
|
|
$
|
581
|
|
Series
A Preferred Unit distributions
|
|
|
154
|
|
|
—
|
|
|
|
|
Income
from continuing operations allocated to Common
Units
|
|
|
(61
|
)
|
|
30
|
|
|
30
|
|
Income
from continuing operations, as adjusted
|
|
|
1,755
|
|
|
1,781
|
|
|
611
|
|
Discontinued
operations
|
|
|
20,935
|
|
|
7,911
|
|
|
1,221
|
|
Income
from discontinued operations allocated to Common Units
|
|
|
1,802
|
|
|
75
|
|
|
|
|
Income
from discontinued operations, as adjusted
|
|
|
22,737
|
|
|
7,986
|
|
|
1,221
|
|
Net
income, as adjusted
|
|
$
|
24,492
|
|
$
|
9,767
|
|
$
|
1,832
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations –
per
share
|
|
$
|
0.08
|
|
$
|
0.12
|
|
$
|
0.05
|
|
Income
from discontinued operations – per share
|
|
$
|
1.09
|
|
$
|
0.53
|
|
$
|
0.10
|
|
Net
income – per share
|
|
$
|
1.17
|
|
$
|
0.65
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
18,907,061
|
|
|
14,882,944
|
|
|
12,513,130
|
|
Common
Units
|
|
|
1,866,183
|
|
|
121,000
|
|
|
121,000
|
|
Series
A Preferred Units
|
|
|
96,380
|
|
|
|
|
|
|
|
Restricted
Stock Awards
|
|
|
98,322
|
|
|
43,258
|
|
|
|
|
Diluted
weighted average common shares outstanding
|
|
|
20,967,946
|
|
|
15,047,202
|
|
|
12,634,130
|
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
4. Income
Taxes
Deferred
income taxes result from temporary differences between the carrying amounts
of
assets and liabilities of the TRS for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the deferred
tax
assets and liabilities are as follows:
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Fixed
and intangible assets
|
|
$
|
9,416
|
|
$
|
10,537
|
|
Net
operating loss carryforwards
|
|
|
1,027
|
|
|
584
|
|
Prepaid
and deferred rent
|
|
|
922
|
|
|
1,010
|
|
Bad
debt reserves
|
|
|
223
|
|
|
152
|
|
Accrued
expenses and other
|
|
|
101
|
|
|
82
|
|
Stock
Compensation
|
|
|
141
|
|
|
46
|
|
Total
deferred tax assets
|
|
|
11,830
|
|
|
12,411
|
|
Valuation
allowance for deferred tax assets
|
|
|
(10,662
|
)
|
|
(11,107
|
)
|
Deferred
tax assets, net of valuation allowance
|
|
|
1,168
|
|
|
1,304
|
|
|
|
|
|
|
|
|
|
Deferred
tax liability:
|
|
|
|
|
|
|
|
Deferred
financing costs
|
|
|
652
|
|
|
762
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
516
|
|
$
|
542
|
|
Significant
components of the income tax (provision) benefit are as follows:
|
|
|
|
Period
from
August
17, 2004 through
December
31, 2004
|
|
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1
|
)
|
$
|
—
|
|
$
|
—
|
|
State
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
6
|
|
|
(163
|
)
|
|
660
|
|
State
|
|
|
(32
|
)
|
|
(23
|
)
|
|
68
|
|
Total
(provision) benefit —
continuing
operations
|
|
$
|
(28
|
)
|
$
|
(186
|
)
|
$
|
728
|
|
TRS
earnings subject to tax consisted of an approximate $1.0 million and $1.9
million loss for the years ended December 31, 2006 and 2005, respectively,
and
$0.4 million of income for the period from August 17, 2004 (IPO and TRS
formation date) to December 31, 2004. The reconciliation of income tax
attributable to continuing operations computed at the U.S. statutory rate to
income tax (provision) benefit is as follows:
|
|
|
|
Period
from
August
17, 2004 through
December
31, 2004
|
|
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
Tax
(provision) benefit at U.S. statutory rates on TRS income subject
to
tax
|
|
$
|
228
|
|
$
|
655
|
|
$
|
(132
|
)
|
State
income tax, net of federal income tax benefit
|
|
|
8
|
|
|
65
|
|
|
(14
|
)
|
Change
in the state statutory rate
|
|
|
(683
|
)
|
|
—
|
|
|
—
|
|
Effect
of permanent differences
|
|
|
(25
|
)
|
|
(29
|
)
|
|
(8
|
)
|
Decrease
(increase) in valuation allowance
|
|
|
444
|
|
|
(877
|
)
|
|
217
|
|
Initial
adoption of SFAS No. 109
|
|
|
—
|
|
|
—
|
|
|
665
|
|
Income
tax (provision) benefit
|
|
$
|
(28
|
)
|
$
|
(186
|
)
|
$
|
728
|
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Upon
formation, the TRS became subject to federal and state income taxation and,
accordingly, established deferred tax assets and liabilities. The net deferred
tax asset recorded upon formation was approximately $0.7 million. The valuation
allowance decreased by approximately $0.4 million during the year ended December
31, 2006 and increased by approximately $0.4 million during the year ended
December 31, 2005.
At
December 31, 2006, the Company had net operating loss carryforwards
(“NOLs”) of approximately $2.8 million for income tax purposes that begin to
expire in 2025. These NOLs may be used to offset future taxable income generated
by the TRS.
5. 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 9); (ii) the assumption of $123.6 million of
fixed-rate mortgage debt (see Note 10); and (iii) the remainder in cash and
promissory notes. As of December 31, 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.
In
March
2005, the Company acquired a 396-unit, 1,044-bed off-campus student housing
property (The Estates) located near the University of Florida campus in
Gainesville, Florida, for a contract purchase price of $47.5 million, not
including anticipated capital expenditures and initial integration expenses
necessary to bring the property up to the Company’s operating standards. The
Company also incurred an additional $0.5 million in closing costs and other
external acquisition costs related to this acquisition. In addition, as
discussed in Note 10, the Company entered into a bridge loan in the amount
of
$37.4 million in connection with this acquisition. The bridge loan was
subsequently converted into a mortgage loan with a total principal amount of
$38.8 million.
In
March
2005, the Company acquired a 136-unit, 418-bed off-campus student housing
property (City Parc at Fry Street) located near the University of North Texas
in
Denton, Texas, for a contract purchase price of $19.2 million, not including
anticipated capital expenditures and initial integration expenses necessary
to
bring the property up to the Company’s operating standards. The Company also
incurred an additional $0.1 million in closing costs and other external
acquisition costs related to this acquisition. In addition, as discussed in
Note
10, the Company assumed fixed rate mortgage debt with an outstanding principal
balance of approximately $11.8 million in connection with this
acquisition.
In
February 2005, the Company acquired a five-property portfolio (the “Proctor
Portfolio”) for a contract purchase price of approximately $53.5 million, not
including anticipated capital expenditures and initial integration expenses
necessary to bring the properties up to the Company’s operating standards. Four
of the properties are located in Tallahassee, Florida and one property is
located in Gainesville, Florida. These five communities total 53 buildings,
446
units, and 1,656 beds. The Company also incurred an additional $0.3 million
in
closing costs and other external acquisition costs related to this acquisition.
In addition, as discussed in Note 10, the Company assumed fixed rate mortgage
debt with an outstanding principal balance of approximately $35.4 million in
connection with this acquisition.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The
acquired properties’ results of operations have been included in the
accompanying consolidated statements of operations since their respective
acquisition closing dates. The following pro forma information for the years
ended December 31, 2006, 2005 and 2004, present consolidated and combined
information for the Company and the Predecessor as if the property acquisitions
discussed above, the September 2006 and July 2005 equity offerings and IPO
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:
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Total
revenues
|
|
$
|
124,062
|
|
$
|
111,868
|
|
$
|
94,145
|
|
Net
income (loss)
|
|
$
|
24,920
|
|
$
|
12,557
|
|
$
|
(1,450
|
)
|
Net
income (loss) per share – basic
|
|
$
|
1.09
|
|
$
|
0.55
|
|
$
|
(0.06
|
)
|
Net
income (loss) per share – diluted
|
|
$
|
1.06
|
|
$
|
0.50
|
|
$
|
(0.06
|
)
|
6. Property
Disposition and Discontinued Operations
In
December 2006, the Company sold The Village on University off-campus student
housing property for a purchase price of $51.0 million, resulting in net
proceeds of approximately $50.0 million. The resulting gain on disposition
of
approximately $18.6 million is included in discontinued operations in the
accompanying consolidated statement of operations for the year ended December
31, 2006. Accordingly, net income for The Village on University is included
in
discontinued operations for all periods presented.
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 year ended December
31, 2005. Accordingly, net income for University Village at San Bernardino
is
included in discontinued operations for the years ended December 31, 2005 and
2004.
Additionally,
discontinued operations for the year ended December 31, 2004 also include The
Village at Riverside and certain other non-core assets that were distributed
to
an affiliate of the Company’s Predecessor owners in connection with the IPO and
the Company’s leasehold interest in Coyote Village, which was transferred to
Weatherford College in April 2004, as contemplated in the structuring of the
related ground lease agreement.
The
related net income or loss for the afore-mentioned properties is reflected
in
the accompanying consolidated and combined statements of operations as
discontinued operations for the periods presented in accordance with SFAS No.
144. Below is a summary of the results of operations for the properties sold
or
distributed through their respective sale or distribution dates:
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Total
revenues
|
|
$
|
4,692
|
|
$
|
4,981
|
|
$
|
7,360
|
|
Total
operating expenses
|
|
|
2,412
|
|
|
2,953
|
|
|
4,598
|
|
Operating
income
|
|
|
2,280
|
|
|
2,028
|
|
|
2,762
|
|
Total
nonoperating income (expenses)
|
|
|
7
|
|
|
|
|
|
(2,712
|
)
|
Net
income
|
|
$
|
2,287
|
|
$
|
2,028
|
|
$
|
50
|
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
As
of
December 31, 2006 and 2005, assets and liabilities attributable to the
properties held for sale consisted of the following:
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Cash
and cash equivalents
|
|
$
|
|
|
$
|
140
|
|
Other
assets
|
|
$
|
|
|
$
|
95
|
|
Land,
buildings and improvements, and furniture, fixtures,
and equipment, net of accumulated depreciation
|
|
$
|
|
|
$
|
32,340
|
|
Accounts
payable and accrued expenses
|
|
$
|
|
|
$
|
197
|
|
Other
liabilities
|
|
$
|
|
|
$
|
617
|
|
7. Investments
in Owned Off-Campus Properties
Owned
off-campus properties consisted of the following:
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Land
|
|
$
|
75,263
|
|
$
|
46,510
|
|
Buildings
and improvements
|
|
|
579,906
|
|
|
330,380
|
|
Furniture,
fixtures and equipment
|
|
|
28,111
|
|
|
17,119
|
|
Construction
in progress
|
|
|
56,958
|
|
|
18,962
|
|
|
|
|
740,238
|
|
|
412,971
|
|
Less
accumulated depreciation
|
|
|
(46,041
|
)
|
|
(28,213
|
)
|
Owned
off-campus properties, net
|
|
$
|
694,197
|
|
$
|
384,758
|
|
8. 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.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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 - December 31,
|
|
Lessor/University
|
|
Lease
Commencement
|
|
Required
Debt
Repayment
(1)
|
|
2006
|
|
2005
|
|
Texas
A&M University System / Prairie
View A&M University (2)
|
|
|
2/1/96
|
|
|
9/1/23
|
|
$
|
38,277
|
|
$
|
38,037
|
|
Texas
A&M University System / Texas
A&M International
|
|
|
2/1/96
|
|
|
9/1/23
|
|
|
6,009
|
|
|
5,920
|
|
Texas
A&M University System / Prairie
View A&M University (3)
|
|
|
10/1/99
|
|
|
8/31/25
/ 8/31/28
|
|
|
23,872
|
|
|
23,777
|
|
University
of Houston System / University
of Houston - (4)
|
|
|
9/27/00
|
|
|
8/31/35
|
|
|
34,628
|
|
|
34,603
|
|
|
|
|
|
|
|
|
|
|
102,786
|
|
|
102,337
|
|
Less
accumulated amortization
|
|
|
|
|
|
|
|
|
(26,098
|
)
|
|
(21,967
|
)
|
On-campus
participating properties, net
|
|
|
|
|
|
|
|
$
|
76,688
|
|
$
|
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.
|
9. 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 5). 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 December
31, 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.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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.
Minority
interests in 2004 also include a minority partner’s ownership in four owned
off-campus properties. As part of the IPO formation transactions, the Company
redeemed the minority partner’s interest.
10. Debt
A
summary
of the Company’s outstanding consolidated indebtedness, including unamortized
debt premiums, is as follows:
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Debt
secured by owned off-campus properties:
|
|
|
|
|
|
Mortgage
loans payable
|
|
$
|
315,044
|
|
$
|
195,871
|
|
Construction
loan payable
|
|
|
21,386
|
|
|
—
|
|
|
|
|
336,430
|
|
|
195,871
|
|
Debt
secured by on-campus participating properties:
|
|
|
|
|
|
|
|
Mortgage
loan payable
|
|
|
16,513
|
|
|
16,786
|
|
Construction
loan payable
|
|
|
16,710
|
|
|
16,411
|
|
Bonds
payable
|
|
|
56,675
|
|
|
58,215
|
|
|
|
|
89,898
|
|
|
91,412
|
|
Unamortized
debt premiums, net of discounts
|
|
|
5,966
|
|
|
4,363
|
|
Total
debt
|
|
$
|
432,294
|
|
$
|
291,646
|
|
During
the twelve months ended December 31, 2006, the following transactions
occurred:
|
|
Year
Ended
December
31, 2006
|
|
Balance,
beginning of period
|
|
$
|
291,646
|
|
Additions:
|
|
|
|
|
Draws
on revolving credit facility
|
|
|
91,900
|
|
Draws
under advancing construction loans
|
|
|
42,146
|
|
Assumption
of debt upon acquisition of properties (including debt premiums,
net of
discounts of approximately $2.9 million)
|
|
|
126,592
|
|
Deductions:
|
|
|
|
|
Pay
down of revolving credit facility
|
|
|
(91,900
|
)
|
Pay
off of construction loan
|
|
|
(20,224
|
)
|
Scheduled
repayments of principal
|
|
|
(6,527
|
)
|
Amortization
of debt premiums and discounts
|
|
|
(1,339
|
)
|
|
|
$
|
432,294
|
|
Loans
Assumed or Entered Into in Conjunction with Property
Acquisitions
In
connection with the March 1, 2006 acquisition of the Royal Portfolio (see Note
5), 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.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
In
connection with the March 2005 acquisition of The Estates, an owned off-campus
property, the Company entered into a bridge loan in the amount of $37.4 million.
The bridge loan bore interest at a fixed rate of 5.1% through the initial
maturity date of September 2005. In May 2005, the Company amended the bridge
loan. The amended loan is a mortgage facility with a total principal amount
of
$38.8 million, bearing interest at a fixed rate of 5.2% and maturing in June
2015. In connection with this amendment, the Company received approximately
$1.3
million of additional proceeds, after the payment of related financing
costs.
In
connection with the March 2005 acquisition of City Parc at Fry Street, an owned
off-campus property, the Company assumed approximately $11.8 million of
fixed-rate mortgage debt. The debt bears interest at 5.96% and matures in 2014.
Upon assumption of this debt, the Company recorded a debt premium of
approximately $0.6 million to reflect the estimated fair value of the debt
assumed.
In
connection with the February 2005 acquisition of the Proctor Portfolio, the
Company assumed approximately $35.4 million of fixed-rate mortgage debt. At
the
time of assumption, the debt had a weighted average interest rate of 7.4% and
an
average term to maturity of six years. Upon assumption of this debt, the Company
recorded debt premiums of approximately $4.5 million to reflect the estimated
fair value of the debt assumed.
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 July 2005 and September 2006, the Company
paid off the entire balance on the revolving credit facility using proceeds
from
its July 2005 and September 2006 equity offerings (see Note 1). As of December
31, 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 December 31, 2006, the Company was
in
compliance with all such covenants.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Construction
Loans and Mortgage Notes Payable
Construction
loans and mortgage notes payable at December 31, 2006, excluding debt premiums
and discounts, consisted of 30 loans secured by owned off-campus and on-campus
participating properties consisting of:
Property
|
|
Principal
Outstanding
(1)
|
|
|
Interest
Rate at
December
31, 2006
|
|
Maturity
Date
|
|
Amortization
|
Cullen
Oaks –
Phase I
|
|
$
|
16,513 |
|
|
5.54%
|
(2)
|
November
2008
|
|
30
years
|
Cullen
Oaks –
Phase II
|
|
16,710
|
|
|
7.35%
|
(3)
|
November
2008
|
|
n/a
|
University
Village at Boulder Creek
|
|
16,058
|
|
|
5.71%
|
|
November
2012
|
|
30
years
|
River
Club Apartments
|
|
18,137
|
|
|
8.18%
|
|
August
2010
|
|
30
years
|
River
Walk Townhomes
|
|
7,498
|
|
|
8.00%
|
|
September
2009
|
|
30
years
|
The
Village at Alafaya Club
|
|
20,037
|
|
|
8.16%
|
|
August
2010
|
(4)
|
30
years
|
Northgate
Lakes
|
|
11,085
|
(5)
|
|
7.00%
|
|
July
2009
|
|
30
years
|
University
Club Tallahassee
|
|
13,321
|
|
|
7.99%
|
|
October
2010
|
|
30
years
|
The
Grove at University Club Tallahassee
|
|
4,281
|
|
|
5.75%
|
|
March
2013
|
|
30
years
|
College
Club Tallahassee
|
|
8,701
|
|
|
6.74%
|
|
December
2011
|
|
30
years
|
Royal
Oaks Tallahassee
|
|
2,969
|
(5)
|
|
7.13%
|
|
July
2009
|
|
30
years
|
Royal
Pavilion Tallahassee
|
|
2,481
|
(5)
|
|
6.92%
|
|
July
2009
|
|
30
years
|
Royal
Village Tallahassee
|
|
3,337
|
(5)
|
|
6.83%
|
|
July
2009
|
|
30
years
|
University
Club Gainesville
|
|
8,312
|
|
|
7.88%
|
|
November
2009
|
|
30
years
|
The
Estates
|
|
37,963
|
|
|
5.20%
|
|
June
2015
|
|
30
years
|
Royal
Village Gainesville
|
|
6,076
|
(5)
|
|
6.87%
|
|
July
2009
|
|
30
years
|
The
Village at Blacksburg
|
|
20,843
|
|
|
7.50%
|
|
January
2011
|
|
30
years
|
Royal
Lexington
|
|
4,761
|
(5)
|
|
6.86%
|
|
July
2009
|
|
30
years
|
The
Woods at Greenland
|
|
6,138
|
(5)
|
|
5.69%
|
|
October
2012
|
|
30
years
|
Raiders
Crossing
|
|
6,560
|
(5)
|
|
6.18%
|
|
December
2012
|
|
30
years
|
Villas
on Apache
|
|
7,459
|
|
|
7.66%
|
|
June
2009
|
|
30
years
|
Entrada
Real
|
|
9,652
|
(5)
|
|
5.61%
|
|
November
2012
|
|
30
years
|
The
Outpost San Marcos
|
|
13,607
|
(5)
|
|
5.74%
|
|
October
2013
|
|
30
years
|
The
Outpost San Antonio
|
|
24,069
|
(5)
|
|
4.99%
|
|
October
2014
|
|
30
years
|
City
Parc at Fry Street
|
|
11,494
|
|
|
5.96%
|
|
September
2014
|
|
30
years
|
Raiders
Pass - Phase I
|
|
15,621
|
(5)
|
|
5.91%
|
|
October
2012
|
|
30
years
|
Raiders
Pass –
Phase II
|
|
3,835
|
(5)
|
|
5.66%
|
|
October
2012
|
|
30
years
|
The
Callaway House
|
|
19,227
|
|
|
7.10%
|
|
April
2011
|
|
30
years
|
Aggie
Station
|
|
11,522
|
(5)
|
|
5.96%
|
|
October
2012
|
|
30
years
|
University
Centre
|
|
21,386
|
(6)
|
|
6.85%
|
|
October
2008
|
|
n/a
|
Total
|
|
$
|
369,653
|
Wtd
Avg Rate
|
6.54%
|
|
|
|
|
(1) |
For
federal income tax purposes, the aggregate cost of the loans is equal
to
the carrying amount.
|
(2) |
Floating
rate on this mortgage loan was swapped to a fixed rate of 5.54%.
This swap
terminates in November 2008, at which time the interest rate will
revert
back to a variable rate. The TRS has guaranteed payment of this
indebtedness.
|
(3) |
In
June 2006, the Company extended the maturity date of this construction
loan to November 17, 2008, in which the terms of the loan were modified
to
require monthly payments of principal and interest beginning in July
2006.
The principal payments are applied to the portion of the principal
balance
which bears interest at the Prime rate and the remainder of the principal
balance bears interest at LIBOR plus 2.0%. The TRS has guaranteed
this
indebtedness, up to a limit of $4.0 million of construction loan
principal
plus interest and litigation fees potentially incurred by the lender.
This
guaranty will remain in effect until the balance on the construction
loan
is paid in full.
|
(4) |
Represents
the Anticipated Repayment Date, as defined in the loan agreement.
If the
loan is not repaid on the Anticipated Repayment Date, then certain
monthly
payments including excess cash flow, as defined, become due through
the
maturity date of August 2030.
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(5) |
These
mortgage loans were assumed or obtained in conjunction with property
acquisitions in the first quarter of
2006.
|
(6) |
For
each borrowing on the construction loan, the Company has the option
of
choosing Prime rate or one-, two-, or three-month LIBOR plus 1.50%.
The
loan has an initial term of 36 months and can be extended through
September 2010 through the exercise of two 12-month extension periods.
The
loan requires payments of interest only through the original maturity
date
and the first extension period. The loan requires monthly principal
and
interest payments during the second extension period based on a 30-year
amortization.
|
Bonds
Payable
Bonds
payable consist of three issues secured by student housing ground/facility
leases, with interest and principal paid semi-annually and annually,
respectively, through maturity. Covenants include, among other items, budgeted
and actual debt service coverage ratios. The bonds are nonrecourse to the
Company. Payment of regularly scheduled principal payments is guaranteed by
MBIA
Insurance Corporation. Bonds payable at December 31, 2006 consisted of the
following:
|
|
Mortgaged
Facilities
Subject
to Leases
|
|
Original
|
|
Principal
December
31,
2006
|
|
|
|
Maturity
Through
|
|
Required
Monthly
Debt Service
|
|
1999
|
|
|
University
Village-PVAMU/TAMIU
|
|
$
|
39,270
|
|
$
|
33,700
|
|
|
7.67
|
%
|
|
September
2023
|
|
$
|
302
|
|
2001
|
|
|
University
College-PVAMU
|
|
|
20,995
|
|
|
18,935
|
|
|
7.37
|
%
|
|
August
2025
|
|
|
158
|
|
2003
|
|
|
University
College-PVAMU
|
|
|
4,325
|
|
|
4,040
|
|
|
5.84
|
%
|
|
August
2028
|
|
|
28
|
|
|
|
|
Total/weighted
average rate
|
|
$
|
64,590
|
|
$
|
56,675
|
|
|
7.44
|
%
|
|
|
|
$
|
488
|
|
Schedule
of Debt Maturities
Scheduled
debt maturities (reflecting automatic extensions where applicable) for each
of
the five years subsequent to December 31, 2006 and thereafter, are as
follows:
|
|
Scheduled
Principal
|
|
Due
at
Maturity
|
|
Total
|
|
2007
|
|
$
|
7,466
|
|
$
|
—
|
|
$
|
7,466
|
|
2008
|
|
|
7,801
|
|
|
52,960
|
|
|
60,761
|
|
2009
|
|
|
6,821
|
|
|
50,775
|
|
|
57,596
|
|
2010
|
|
|
6,241
|
|
|
49,040
|
|
|
55,281
|
|
2011
|
|
|
5,427
|
|
|
45,557
|
|
|
50,984
|
|
Thereafter
|
|
|
53,480
|
|
|
140,760
|
|
|
194,240
|
|
|
|
$
|
87,236
|
|
$
|
339,092
|
|
$
|
426,328
|
|
Payment
of principal and interest were current at December 31, 2006. Mortgage notes
and
bonds payable are subject to prepayment penalties.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
11.
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, common units of limited partnership
interest in the Operating Partnership (formerly profits interest units or
“PIUs”), restricted stock units (“RSUs”), restricted stock awards (“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. A summary of the Company’s stock-based
incentive awards under the Plan, as of December 31, 2005 and 2006, respectively,
and changes during the years ended December 31, 2005 and 2006 are presented
below:
|
|
Common
Units
|
|
Restricted
Stock Units (RSUs)
|
|
Restricted
Stock Awards (RSAs)
|
|
Outperformance
Bonus Plan
|
|
Total
|
|
Outstanding
at December 31, 2004
|
|
|
121,000
|
|
|
7,145
|
|
|
|
|
|
367,682
|
|
|
495,827
|
|
Granted
|
|
|
—
|
|
|
7,230
|
|
|
55,130
|
|
|
|
|
|
62,360
|
|
Forfeited
|
|
|
|
|
|
|
|
|
(9,262
|
)
|
|
|
|
|
(9,262
|
)
|
Outstanding
at December 31, 2005
|
|
|
121,000
|
|
|
14,375
|
|
|
45,868
|
|
|
367,682
|
|
|
548,925
|
|
Granted
|
|
|
|
|
|
6,180
|
|
|
69,966
|
|
|
|
|
|
76,146
|
|
Vested
|
|
|
|
|
|
|
|
|
(9,573
|
)
|
|
|
|
|
(9,573
|
)
|
Forfeited
|
|
|
|
|
|
|
|
|
(6,214
|
)
|
|
|
|
|
(6,214
|
)
|
Converted
to common shares
|
|
|
(11,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,000
|
)
|
Outstanding
at December 31, 2006
|
|
|
110,000
|
|
|
20,555
|
|
|
100,047
|
|
|
367,682
|
|
|
598,284
|
|
Vested
at December 31, 2006
|
|
|
110,000
|
|
|
20,555
|
|
|
9,573
|
|
|
|
|
|
140,128
|
|
Common
Units
PIUs
were
issued to certain executive and senior officers upon consummation of the IPO.
In
connection with the Company’s equity offering in July 2005, all 121,000 PIUs
were converted to common units of limited partnership interest in the Operating
Partnership, as contemplated in the OP Agreement. Each common unit is deemed
equivalent to one share of the Company’s common stock. Common units receive the
same quarterly per unit distribution as the per share distributions on the
Company’s common stock. The Operating Partnership recognized approximately $2.1
million of compensation expense on the IPO date, reflecting the fair value
of
the PIUs issued.
Restricted
Stock Units
Upon
reelection to the Board of Directors at each Annual Meeting of Stockholders,
each outside member of the Board of Directors is granted RSUs. No shares of
stock are issued at the time of the RSU awards, and the Company is not required
to set aside a fund for the payment of any such award; however, the stock is
deemed to be awarded on the date of grant. Upon the Settlement Date, which
is
three years from the date of grant, the Company will deliver to the recipients
a
number of shares of common stock equal to the number of RSUs held by the
recipients. In addition, recipients of RSUs are entitled to dividend equivalents
equal to the cash distributions paid by the Company on one share of common
stock
for each RSU issued, payable currently or on the Settlement Date, as determined
by the Compensation Committee of the Board of Directors. The RSUs are fully
vested on the date of grant. Accordingly, the Company recognized expense of
approximately $0.2 million, $0.2 million and $0.1 million for the years ended
December 31, 2006, 2005 and 2004, respectively, reflecting the fair value of
the
RSUs issued on the date of grant. Such expense is included in general and
administrative expenses in the accompanying consolidated and combined statements
of operations. The weighted-average grant-date fair value for each RSU granted
during the years ended December 31, 2006, 2005, and 2004 was $24.28, $20.76,
and
$17.50, respectively.
Restricted
Stock Awards
The
Company awards RSAs to its executive officers and certain employees that vest
in
equal annual installments over a three to five year period. Unvested awards
are
forfeited upon the termination of an individual’s employment with the Company.
Recipients of RSAs receive dividends, as declared by the Company’s Board of
Directors, on unvested shares, provided that the recipients continue to be
employees of the Company. In accordance with SFAS No. 123(R), the Company
recognizes the value of these awards as an expense over the vesting periods,
which amounted to approximately $0.6 million and $0.2 million for the years
ended December 31, 2006 and 2005, respectively.
The
weighted-average grant-date fair value for each RSA granted during the years
ended December 31, 2006 and 2005 was $24.80 and $21.54, respectively. The
weighted-average grant-date fair value for each RSA vested during the year
ended
December 31, 2006 was $21.54. The weighted-average grant-date fair value for
each RSA forfeited during the years ended December 31, 2006 and 2005 was $24.28
and $21.54, respectively. As of December 31, 2006 and 2005, the weighted-average
grant-date fair value of outstanding unvested RSAs was $23.72 and $21.54,
respectively. The total fair value of RSAs vested during the year ended December
31, 2006, was approximately $0.3 million. Additionally, as of December 31,
2006,
the Company had approximately $1.9 million of total unrecognized compensation
cost related to these RSAs, which is expected to be recognized over a remaining
weighted-average period of 3.6 years.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Outperformance
Bonus Plan
Upon
consummation of the IPO, the Company granted to its executive officers and
certain key employees a special award based upon the individuals’ continued
service and attaining certain performance measures. These awards consist of
a
bonus pool equal to the value on the date of vesting of 367,682 shares of common
stock. No dividends or dividend equivalent payments will accrue with respect
to
the shares of common stock underlying this bonus pool. Vesting of the awards
will occur on the third anniversary of the IPO, provided that the employees
have
maintained continued service and that at least one performance measure, as
outlined in the Plan, has been achieved. These performance measures include
(i)
a total return on the Company’s stock of at least 25% per annum from the IPO
date through the vesting date, or (ii) a total return on the Company’s stock of
at least 12% per annum from the IPO date through the vesting date, and such
return is at or above the 60PthP
percentile of the total return achieved by “peer” companies during the same
period. Payments of vested awards will be made within 120 days of vesting.
The
Compensation Committee of the Board of Directors may, in its sole discretion,
elect to pay such an award in cash or through the issuance of shares of common
stock, PIUs or similar securities, valued at the date of issuance. Because
the
achievement of the required performance measures was not considered probable
as
of December 31, 2006, nothing has been reflected in the accompanying financial
statements related to these awards. In the event that one of the required
performance measures becomes probable, the potential charge to compensation
expense could be in excess of $10.0 million. This estimate is based on the
previously mentioned 25% per annum performance measure, but such valuation
will
be measured based on the Company’s stock price on the third anniversary of the
IPO.
12. Interest
Rate Hedges
In
connection with the December 2003 extension of a construction note payable
for
Cullen Oaks, an on-campus participating property, the Predecessor entered into
an interest rate swap on November 19, 2003 (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 note payable. Under the terms of the
interest rate swap agreement, the Company pays a fixed rate of 5.54% and
receives a floating rate of LIBOR plus 1.9%. The interest rate swap had an
estimated fair value of approximately $0.4 million and $0.5 million at December
31, 2006 and 2005, respectively, and is reflected in other assets in the
accompanying consolidated balance sheets.
Refer
to
Note 19 for a discussion regarding termination of the interest rate swap
agreement in 2007. Ineffectiveness resulting from the Company’s hedges is not
material.
13.
Related Party Transactions
Prior
to
the IPO, an affiliate of the Predecessor had an ownership interest in Dobie
Center Properties, Ltd. which owns Dobie Center, a student housing facility.
Pursuant to a management agreement with the Dobie Center, the Company received
facility management fees representing 3% of gross receipts and 6% of qualifying
capital projects, and commercial leasing fees of 4% of commercial leases. Such
fees totaled approximately $0.2 million for the year ended December 31, 2004,
and are reflected as third-party management services - affiliates on the
accompanying consolidated and combined statements of operations. The management
agreement began operating on a month-to-month basis upon expiration in May
2002.
Upon consummation of the Company’s IPO, the Company no longer has an ownership
interest in this property; as such, the management fees earned subsequent to
the
IPO are reflected as third-party management services on the accompanying
consolidated statements of operations.
Subsequent
to the IPO, the Company paid its Predecessor owners approximately $1.7 million
and $1.4 million for the years ended December 31, 2005 and 2004, respectively,
related to a guarantee fee and the distribution of insurance proceeds from
a
fire that occurred at an off-campus student housing property.
14.
Lease Commitments
The
Company is a party to a sublease for corporate office space beginning August
15,
2002, and expiring December 31, 2010. The terms of the sublease provide for
a
period of free rent and scheduled rental rate increases and common area
maintenance charges upon expiration of the free rent period.
The
Company entered into a ground lease agreement on October 2, 2003 for the purpose
of constructing a student housing facility near the campus of Temple University
in Philadelphia, Pennsylvania. The agreement terminates June 30, 2079 and has
four six year extensions available. Under the terms of the ground lease, the
lessor receives annual minimum rents of $0.1 million and contingent rental
payments which are based upon the operating performance of the property. The
contingent rental payment was approximately $0.1 million for 2006 and 2005.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The
Company entered into a 95-year ground lease agreement on August 3, 2005 for
the
purpose of constructing a student housing facility near the campuses of Rutgers
University and the New Jersey Institute of Technology in Newark, New Jersey.
The
agreement terminates May 2102 with no extensions or renewals available. Under
the terms of the ground lease, the lessor receives escalating annual rents
ranging from $0.1 million to $0.4 million and contingent rental payments based
upon the operating performance of the property. Straight-lined rental amounts
are capitalized during the construction period and will be expensed once the
property commences operations.
The
Company entered into a 65-year ground lease agreement on December 22, 2006
for
the purpose of constructing a student housing facility on the campus of Arizona
State University in Tempe, Arizona. The agreement will terminate on the
65th
anniversary date of the opening date (August 2073) and has two ten year
extensions available. During the first five years, under the terms of the ground
lease, the lessor will receive annual minimum rents of approximately $0.7
million and variable rent payments based upon the operating performance of
the
property. For the remaining years of the lease, the lessor will receive variable
rent payments based upon the operating performance of the property.
The
Company also has various operating and capital leases for furniture, office
and
technology equipment, which expire through 2011. Rental expense under the
operating lease agreements approximated $0.6 million, $0.6 million, and $0.5
million for the years ended December 31, 2006, 2005, and 2004,
respectively.
Owned
off-campus properties, net at December 31, 2006 included approximately $1.8
million related to capital leases of furniture, net of approximately $0.3
million of accumulated amortization. On-campus participating properties, net
at
December 31, 2006 included approximately $0.4 million related to capital leases
of technology equipment, net of approximately $0.2 million of accumulated
amortization. Other assets at December 31, 2006 included approximately $0.4
million related to corporate assets under capital leases, net of $0.2 million
of
accumulated amortization.
Future
minimum commitments over the life of all leases subsequent to December 31,
2006, are as follows:
|
|
Operating
|
|
Capital
|
|
2007
|
|
$
|
644
|
|
$
|
907
|
|
2008
|
|
|
1,354
|
|
|
713
|
|
2009
|
|
|
1,360
|
|
|
552
|
|
2010
|
|
|
1,371
|
|
|
329
|
|
2011
|
|
|
1,006
|
|
|
192
|
|
Thereafter
|
|
|
39,639
|
|
|
—
|
|
Total
minimum lease payments
|
|
|
45,374
|
|
|
2,693
|
|
Amount
representing interest
|
|
|
—
|
|
|
(345
|
)
|
Balance
of minimum lease payments
|
|
$
|
45,374
|
|
$
|
2,348
|
|
The
capital lease obligations are reflected in other liabilities in the accompanying
consolidated balance sheets. Amortization of assets recorded under capital
leases is included in depreciation expense and was approximately $0.5 million
for the years ended December 31, 2006 and 2005 and immaterial for the year
ended
December 31, 2004.
15.
Concentration of Risks
The
Company has a significant presence on a single university campus, Prairie View
A&M University. These on-campus participating properties represent
approximately 10.7%, 15.3%, and 21.0% of the Company’s consolidated and combined
revenues for 2006, 2005, and 2004, respectively. The percentage of consolidated
and combined net income attributable to those facilities is minimal. The
unlikely event of significantly diminished enrollment at this university could
have a negative impact on the Company’s ability to achieve its forecasted
profitability.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS
16.
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 complete 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 are normally
satisfied within one year after completion of the project.
On
one
completed project, the Company has guaranteed losses up to $3.0 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 project (August 2009).
The
Company’s estimated maximum exposure amount under the above guarantees is
approximately $10.4 million.
At
December 31, 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:
At
December 31, 2006, the Company was under contract to acquire a $24.8 million
property in Waco, Texas. The closing of this transaction was dependent upon
completion of construction and lease-up and the achievement of certain occupancy
levels and rental rates, which were not met and the contract was terminated
in
2007.
Debt-related
guarantees:
RAP
Student Housing Properties, LLC’s (“RAP SHP”), an entity wholly owned by the
Operating Partnership, limited guaranty of certain obligations of the borrower
in connection with the mortgage loan for The Village at Riverside, a property
which was retained by the Predecessor owners in connection with the IPO,
continues to be in effect. In December 2004, the property was foreclosed
upon by the lender. Pursuant to the guaranty, RAP SHP agreed to
indemnify the lender against, among other things, the borrower’s fraud or
misrepresentation, the borrower’s failure to maintain
insurance, certain environmental matters, and the borrower’s criminal
acts. As part of the formation transactions, the Predecessor owners have
indemnified the Company and its affiliates from and against all claims, costs,
expenses, losses and damages incurred by the Company under or in connection
with
this guaranty. Even if the Company was required to perform
under the guaranty, the Predecessor owners would be obligated to reimburse
the Company for the amount of such liability under the indemnity. The
Company does not expect to incur material exposure under this guarantee.
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.
Letters
of Intent:
In the
ordinary course of the Company’s business, the Company enters into letters
of intent indicating a willingness to negotiate for acquisitions, dispositions
or joint ventures. Such letters of intent are non-binding, and neither party
to
the letter of intent is obligated to pursue negotiations unless and until a
definitive contract is entered into by the parties. Even if definitive contracts
are entered into, the letters of intent relating to the acquisition and
disposition of real property and resulting contracts generally contemplate
that
such contracts will provide the acquirer with time to evaluate the property
and
conduct due diligence, during which periods the acquiror will have the ability
to terminate the contracts without penalty or forfeiture of any deposit or
earnest money. There can be no assurance that definitive contracts will be
entered into with respect to any matter covered by letters of intent or that
the
Company will consummate any transaction contemplated by any definitive contract.
Furthermore, due diligence periods for real property are frequently extended
as
needed. An acquisition or disposition of real property becomes probable at
the
time that the due diligence period expires and the definitive contract has
not
been terminated. The Company is then at risk under a real property acquisition
contract, but only to the extent of any earnest money deposits associated with
the contract, and is obligated to sell under a real property sales
contract.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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.
17.
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 AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Owned
Off-Campus Properties
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$
|
90,683
|
|
$
|
55,412
|
|
$
|
30,904
|
|
Interest
and other income
|
|
|
203
|
|
|
19
|
|
|
20
|
|
Total
revenues from external customers
|
|
|
90,886
|
|
|
55,431
|
|
|
30,924
|
|
Operating
expenses before depreciation and amortization
|
|
|
42,341
|
|
|
25,181
|
|
|
13,630
|
|
Interest
expense
|
|
|
18,744
|
|
|
12,283
|
|
|
9,186
|
|
Insurance
gain
|
|
|
—
|
|
|
430
|
|
|
654
|
|
Operating
income before depreciation, amortization, minority interests
and allocation of corporate overhead
|
|
$
|
29,801
|
|
$
|
18,397
|
|
$
|
8,762
|
|
Depreciation
and amortization
|
|
$
|
20,216
|
|
$
|
11,352
|
|
$
|
5,532
|
|
Capital
expenditures
|
|
$
|
81,597
|
|
$
|
51,037
|
|
$
|
61,120
|
|
Total
segment assets at December 31,
|
|
$
|
718,428
|
|
$
|
400,971
|
|
$
|
247,637
|
|
On-Campus
Participating Properties
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$
|
19,960
|
|
$
|
18,470
|
|
$
|
17,418
|
|
Interest
and other income
|
|
|
330
|
|
|
182
|
|
|
61
|
|
Total
revenues from external customers
|
|
|
20,290
|
|
|
18,652
|
|
|
17,479
|
|
Operating
expenses before depreciation, amortization, ground/facility
lease, and allocation of corporate overhead
|
|
|
8,382
|
|
|
7,594
|
|
|
7,476
|
|
Ground/facility
lease
|
|
|
857
|
|
|
873
|
|
|
812
|
|
Interest
expense
|
|
|
6,447
|
|
|
5,717
|
|
|
5,469
|
|
Insurance
gain
|
|
|
—
|
|
|
—
|
|
|
273
|
|
Operating
income before depreciation, amortization, minority interests
and allocation of corporate overhead
|
|
$
|
4,604
|
|
$
|
4,468
|
|
$
|
3,995
|
|
Depreciation
and amortization
|
|
$
|
4,131
|
|
$
|
3,662
|
|
$
|
3,532
|
|
Capital
expenditures
|
|
$
|
483
|
|
$
|
15,887
|
|
$
|
1,881
|
|
Total
segment assets at December 31,
|
|
$
|
88,814
|
|
$
|
92,522
|
|
$
|
79,686
|
|
Development
Services
|
|
|
|
|
|
|
|
|
|
|
Development
and construction management fees from external
customers
|
|
$
|
5,778
|
|
$
|
5,854
|
|
$
|
5,803
|
|
Intersegment
revenues
|
|
|
—
|
|
|
2,651
|
|
|
234
|
|
Total
revenues
|
|
|
5,778
|
|
|
8,505
|
|
|
6,037
|
|
Operating
expenses
|
|
|
4,566
|
|
|
4,626
|
|
|
3,796
|
|
Operating
income before depreciation, amortization, minority
interests and allocation of corporate overhead
|
|
$
|
1,212
|
|
$
|
3,879
|
|
$
|
2,241
|
|
Total
segment assets at December 31,
|
|
$
|
2,513
|
|
$
|
3,438
|
|
$
|
1,246
|
|
Property
Management Services
|
|
|
|
|
|
|
|
|
|
|
Property
management fees from external customers
|
|
$
|
2,532
|
|
$
|
2,786
|
|
$
|
2,105
|
|
Intersegment
revenues
|
|
|
3,627
|
|
|
2,650
|
|
|
1,152
|
|
Total
revenues
|
|
|
6,159
|
|
|
5,436
|
|
|
3,257
|
|
Operating
expenses
|
|
|
2,501
|
|
|
2,110
|
|
|
1,480
|
|
Operating
income before depreciation, amortization, minority interests
and allocation of corporate overhead
|
|
$
|
3,658
|
|
$
|
3,326
|
|
$
|
1,777
|
|
Total
segment assets at December 31,
|
|
$
|
1,639
|
|
$
|
1,459
|
|
$
|
1,141
|
|
Reconciliations
|
|
|
|
|
|
|
|
|
|
|
Total
segment revenues
|
|
$
|
123,113
|
|
$
|
88,024
|
|
$
|
57,697
|
|
Unallocated
interest income earned on corporate cash
|
|
|
697
|
|
|
624
|
|
|
—
|
|
Elimination
of intersegment revenues
|
|
|
(3,627
|
)
|
|
(5,301
|
)
|
|
(1,386
|
)
|
Total
consolidated revenues, including interest income
|
|
$
|
120,183
|
|
$
|
83,347
|
|
$
|
56,311
|
|
Segment
operating income before depreciation, amortization, minority
interests and allocation of corporate overhead
|
|
$
|
39,275
|
|
$
|
30,070
|
|
$
|
16,775
|
|
Depreciation
and amortization
|
|
|
(26,229
|
)
|
|
(16,623
|
)
|
|
(10,103
|
)
|
Net
unallocated expenses relating to corporate overhead
|
|
|
(9,318
|
)
|
|
(11,346
|
)
|
|
(8,850
|
)
|
Income
tax (provision) benefit
|
|
|
(28
|
)
|
|
(186
|
)
|
|
728
|
|
Minority
interests
|
|
|
(2,038
|
)
|
|
(164
|
)
|
|
100
|
|
Income
(loss) from continuing operations
|
|
$
|
1,662
|
|
$
|
1,751
|
|
$
|
(1,350
|
)
|
Total
segment assets
|
|
$
|
811,394
|
|
$
|
498,390
|
|
$
|
329,710
|
|
Unallocated
corporate assets and assets held for sale
|
|
|
72,987
|
|
|
52,472
|
|
|
37,918
|
|
Total
assets
|
|
$
|
884,381
|
|
$
|
550,862
|
|
$
|
367,628
|
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
18.
Quarterly Financial Information (Unaudited)
The
information presented below represents the consolidated financial results of
the
Company for the years ended December 31, 2006 and 2005.
|
|
2006
|
|
|
|
1st
Quarter
|
|
2nd
Quarter
|
|
3rd
Quarter
|
|
4th
Quarter
|
|
Total
|
|
Total
revenues
|
|
$
|
28,089
|
|
$
|
29,237
|
|
$
|
31,850
|
|
$
|
34,469
|
|
$
|
123,645
|
(1)
|
Net
income (loss)
|
|
$
|
3,664
|
|
$
|
(2,067
|
)
|
$
|
(1,611
|
)
|
$
|
22,611
|
|
$
|
22,597
|
|
Net
income (loss) per share-basic
|
|
$
|
0.21
|
|
$
|
(0.12
|
)
|
$
|
(0.09
|
)
|
$
|
0.99
|
|
$
|
1.20
|
|
Net
income (loss) per share-diluted
|
|
$
|
0.21
|
|
$
|
(0.12
|
)
|
$
|
(0.09
|
)
|
$
|
0.98
|
|
$
|
1.17
|
|
|
|
2005
|
|
|
|
1st
Quarter
|
|
2nd
Quarter
|
|
3rd
Quarter
|
|
4th
Quarter
|
|
Total
|
|
Total
revenues
|
|
$
|
19,570
|
|
$
|
20,007
|
|
$
|
21,877
|
|
$
|
26,049
|
|
$
|
87,503
|
(1)
|
Net
income (loss)
|
|
$
|
8,192
|
|
$
|
(1,792
|
)
|
$
|
(596
|
)
|
$
|
3,858
|
|
$
|
9,662
|
|
Net
income per share-basic
|
|
$
|
0.65
|
|
$
|
(0.14
|
)
|
$
|
(0.04
|
)
|
$
|
0.22
|
|
$
|
0.65
|
|
Net
income per share-diluted
|
|
$
|
0.65
|
|
$
|
(0.14
|
)
|
$
|
(0.03
|
)
|
$
|
0.22
|
|
$
|
0.65
|
|
(1)
|
Includes
revenues from discontinued operations of $4.7 million and $5.0
million for
the years ended December 31, 2006 and 2005,
respectively.
|
19.
Subsequent Events
Acquisitions:
In
January 2007, the Company acquired a 248-unit, 752-bed property (The Village
on
Sixth) located near the campus of Marshall University in Huntington, West
Virginia, for a purchase price of $25.6 million, which excludes $1.7 million
of
anticipated transaction costs, initial integration expenses and capital
expenditures necessary to bring this property up to the Company’s operating
standards. As part of the transaction, the Company assumed two fixed-rate
mortgage loans, which includes one for $16.2 million with an annual interest
rate of 5.5% and remaining term to maturity of 7.5 years and the second loan
for
$1.4 million with an annual interest rate of 6.6% and remaining term to maturity
of 9.9 years.
In
February 2007, the Company acquired a three property portfolio (the “Edwards
Portfolio”) for a purchase price of $102.0 million, which excludes $3.5 million
of anticipated transaction costs, initial integration expenses and capital
expenditures necessary to bring these properties up to the Company’s operating
standards. As part of the transaction, the Company assumed $70.7 million in
fixed-rate mortgage debt with a weighted average annual interest rate of 5.7%
and an average remaining term to maturity of 8.5 years. The transaction also
includes the pre-sale of an additional phase containing 84 beds currently under
construction for $4.6 million, subject to the satisfaction of certain
conditions. The completion of the additional phase is expected in August
2007.
The
Edwards Portfolio consists of one property in Lexington, Kentucky located near
the campus of the University of Kentucky, one property in Toledo, Ohio located
near the campus of the University of Toledo and one property in Ypsilanti,
Michigan located near the campus of Eastern Michigan University. These three
properties total 764 units and 1,971 beds. Subsequent to these transactions,
the
Company’s total owned and managed portfolio is comprised of 57 properties that
represent approximately 35,700 beds in approximately 11,900 units.
Distributions:
On
January 29, 2007, the Company declared a fourth quarter 2006 distribution per
share of $0.3375 which was paid on March 1, 2007 to all common stockholders
of
record as of February 16, 2007. At the same time, the Operating Partnership
was
paid an equivalent amount per unit to holders of Common Units, as well as the
quarterly cumulative preferential distribution to holders of Series A Preferred
Units (see Note 9).
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Cullen
Oaks Loans:
In
February 2007, the Company extended the maturity date of the Cullen Oaks Phase
I
and Phase II loans to February 2014. The extended loans bear interest at a
rate
of LIBOR plus 1.35% and require payments of interest only through May 2008
and
monthly payments of principal and interest from May 2008 through the maturity
date. In connection with these loan extensions, the Company terminated the
existing interest rate swap agreement which resulted in the reclassification
of
a gain from accumulated other comprehensive income to earnings, amounting to
$0.2 million in 2007 and $0.2 million in 2008.
In
addition, the Company entered into an interest rate swap on February 12, 2007
(effective February 15, 2007 through February 15, 2014) that is designated
to
hedge its exposure to fluctuations on interest payments attributed to changes
in
interest rates associated with payments on the Cullen Oaks Phase I and Phase
II
loans. Under the terms of the interest rate swap agreement, the Company pays
a
fixed rate of 6.69% and receives a floating rate of LIBOR plus 1.35%.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
20.
Schedule
of Real Estate and Accumulated Depreciation
|
|
|
|
|
|
Initial
Costs
|
|
Basis
Step-Up
|
|
|
|
Total
Costs
|
|
|
|
|
|
|
|
|
|
Units
|
|
Beds
|
|
Land
|
|
Buildings
and Improvements and
Furniture,
Fixtures and Equipment
|
|
Land
|
|
Buildings
and Improvements and
Furniture,
Fixtures and Equipment
|
|
Costs
Capitalized Subsequent to Acquisition
|
|
Land
|
|
Buildings
and Improvements and
Furniture,
Fixtures and Equipment
|
|
Total
(1)
|
|
Accumulated
Depreciation (2)
|
|
Encumbrances
(3)
|
|
Year
Built
|
|
Owned
Off-campus Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Villas
on Apache
|
|
|
111
|
|
|
288
|
|
$
|
1,465
|
|
$
|
8,071
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,971
|
|
$
|
1,465
|
|
$
|
11,042
|
|
$
|
12,507
|
|
$
|
2,804
|
|
$
|
7,459
|
|
|
1987
|
|
The
Village at Blacksburg
|
|
|
288
|
|
|
1,056
|
|
|
3,826
|
|
|
22,155
|
|
|
—
|
|
|
—
|
|
|
2,260
|
|
|
3,826
|
|
|
24,415
|
|
|
28,241
|
|
|
4,495
|
|
|
20,843
|
|
|
1990/
1998
|
|
River
Club Apartments
|
|
|
266
|
|
|
792
|
|
|
3,478
|
|
|
19,655
|
|
|
—
|
|
|
—
|
|
|
964
|
|
|
3,478
|
|
|
20,619
|
|
|
24,097
|
|
|
4,470
|
|
|
18,137
|
|
|
1996
|
|
River
Walk Townhomes
|
|
|
100
|
|
|
336
|
|
|
1,442
|
|
|
8,194
|
|
|
—
|
|
|
—
|
|
|
416
|
|
|
1,442
|
|
|
8,610
|
|
|
10,052
|
|
|
1,855
|
|
|
7,498
|
|
|
1998
|
|
The
Callaway House
|
|
|
173
|
|
|
538
|
|
|
5,080
|
|
|
20,500
|
|
|
—
|
|
|
—
|
|
|
870
|
|
|
5,080
|
|
|
21,370
|
|
|
26,450
|
|
|
4,155
|
|
|
19,227
|
|
|
1999
|
|
The
Village at Alafaya
Club
|
|
|
228
|
|
|
839
|
|
|
3,788
|
|
|
21,851
|
|
|
—
|
|
|
—
|
|
|
980
|
|
|
3,788
|
|
|
22,831
|
|
|
26,619
|
|
|
4,233
|
|
|
20,037
|
|
|
1999
|
|
The
Village at Science
Drive
|
|
|
192
|
|
|
732
|
|
|
4,673
|
|
|
19,021
|
|
|
—
|
|
|
—
|
|
|
409
|
|
|
4,673
|
|
|
19,430
|
|
|
24,103
|
|
|
2,776
|
|
|
—
|
|
|
2000
|
|
University
Village at Boulder Creek
|
|
|
82
|
|
|
309
|
|
|
939
|
|
|
14,887
|
|
|
96
|
|
|
1,506
|
|
|
640
|
|
|
1,035
|
|
|
17,033
|
|
|
18,068
|
|
|
2,333
|
|
|
16,058
|
|
|
2002
|
|
University
Village at Fresno
|
|
|
105
|
|
|
406
|
|
|
900
|
|
|
15,070
|
|
|
29
|
|
|
483
|
|
|
54
|
|
|
929
|
|
|
15,607
|
|
|
16,536
|
|
|
1,256
|
|
|
—
|
|
|
2004
|
|
University
Village at TU
|
|
|
220
|
|
|
749
|
|
|
—
|
|
|
38,739
|
|
|
—
|
|
|
2,380
|
|
|
228
|
|
|
—
|
|
|
41,347
|
|
|
41,347
|
|
|
2,969
|
|
|
—
|
|
|
2004
|
|
University
Village at Sweet Home
|
|
|
269
|
|
|
828
|
|
|
2,473
|
|
|
34,626
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
2,473
|
|
|
34,673
|
|
|
37,146
|
|
|
1,592
|
|
|
—
|
|
|
2005
|
|
University
Club Tallahassee (4)
|
|
|
152
|
|
|
608
|
|
|
4,065
|
|
|
17,368
|
|
|
—
|
|
|
—
|
|
|
1,672
|
|
|
4,065
|
|
|
19,040
|
|
|
23,105
|
|
|
1,607
|
|
|
13,321
|
|
|
2000
|
|
The
Grove at University Club (4)
|
|
|
64
|
|
|
128
|
|
|
600
|
|
|
5,735
|
|
|
—
|
|
|
—
|
|
|
316
|
|
|
600
|
|
|
6,051
|
|
|
6,651
|
|
|
379
|
|
|
4,281
|
|
|
2002
|
|
College
Club Tallahassee (5)
|
|
|
96
|
|
|
384
|
|
|
1,498
|
|
|
11,156
|
|
|
—
|
|
|
—
|
|
|
340
|
|
|
1,498
|
|
|
11,496
|
|
|
12,994
|
|
|
895
|
|
|
8,701
|
|
|
2001
|
|
The
Greens at College Club (5)
|
|
|
40
|
|
|
160
|
|
|
601
|
|
|
4,893
|
|
|
—
|
|
|
—
|
|
|
142
|
|
|
601
|
|
|
5,035
|
|
|
5,636
|
|
|
348
|
|
|
—
|
|
|
2004
|
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
Initial
Costs
|
|
Basis
Step-Up
|
|
|
|
Total
Costs
|
|
|
|
|
|
|
|
|
|
Units
|
|
Beds
|
|
Land
|
|
Buildings
and Improvements and
Furniture,
Fixtures and Equipment
|
|
Land
|
|
Buildings
and Improvements and
Furniture,
Fixtures and Equipment
|
|
Costs
Capitalized Subsequent to Acquisition
|
|
Land
|
|
Buildings
and Improvements and
Furniture,
Fixtures and Equipment
|
|
Total
(1)
|
|
Accumulated
Depreciation (2)
|
|
Encumbrances
(3)
|
|
Year
Built
|
|
University
Club Gainesville
|
|
|
94
|
|
|
376
|
|
|
1,416
|
|
|
11,848
|
|
|
—
|
|
|
—
|
|
|
289
|
|
|
1,416
|
|
|
12,137
|
|
|
13,553
|
|
|
781
|
|
|
8,312
|
|
|
1999
|
|
The
Estates
|
|
|
396
|
|
|
1,044
|
|
|
4,254
|
|
|
43,164
|
|
|
—
|
|
|
—
|
|
|
846
|
|
|
4,254
|
|
|
44,010
|
|
|
48,264
|
|
|
2,273
|
|
|
37,963
|
|
|
2002
|
|
City
Parc at Fry Street
|
|
|
136
|
|
|
418
|
|
|
1,902
|
|
|
17,678
|
|
|
—
|
|
|
—
|
|
|
513
|
|
|
1,902
|
|
|
18,191
|
|
|
20,093
|
|
|
1,048
|
|
|
11,494
|
|
|
2004
|
|
Callaway
Villas
|
|
|
236
|
|
|
704
|
|
|
3,903
|
|
|
32,287
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,903
|
|
|
32,287
|
|
|
36,190
|
|
|
421
|
|
|
—
|
|
|
2006
|
|
Northgate
Lakes
|
|
|
194
|
|
|
710
|
|
|
4,807
|
|
|
27,284
|
|
|
—
|
|
|
—
|
|
|
505
|
|
|
4,807
|
|
|
27,789
|
|
|
32,596
|
|
|
690
|
|
|
11,085
|
|
|
1998
|
|
Royal
Oaks (6)
|
|
|
82
|
|
|
224
|
|
|
1,346
|
|
|
8,153
|
|
|
—
|
|
|
—
|
|
|
67
|
|
|
1,346
|
|
|
8,220
|
|
|
9,566
|
|
|
198
|
|
|
2,969
|
|
|
1990
|
|
Royal
Pavilion (6)
|
|
|
60
|
|
|
204
|
|
|
1,212
|
|
|
7,304
|
|
|
—
|
|
|
—
|
|
|
61
|
|
|
1,212
|
|
|
7,365
|
|
|
8,577
|
|
|
180
|
|
|
2,481
|
|
|
1991
|
|
Royal
Village Tallahassee (6)
|
|
|
75
|
|
|
288
|
|
|
1,764
|
|
|
10,768
|
|
|
—
|
|
|
—
|
|
|
86
|
|
|
1,764
|
|
|
10,854
|
|
|
12,618
|
|
|
255
|
|
|
3,337
|
|
|
1992
|
|
Royal
Village Gainesville
|
|
|
118
|
|
|
448
|
|
|
2,484
|
|
|
15,153
|
|
|
—
|
|
|
—
|
|
|
379
|
|
|
2,484
|
|
|
15,532
|
|
|
18,016
|
|
|
394
|
|
|
6,076
|
|
|
1996
|
|
Royal
Lexington
|
|
|
94
|
|
|
364
|
|
|
2,848
|
|
|
12,783
|
|
|
—
|
|
|
—
|
|
|
304
|
|
|
2,848
|
|
|
13,087
|
|
|
15,935
|
|
|
331
|
|
|
4,761
|
|
|
1994
|
|
The
Woods at Greenland
|
|
|
78
|
|
|
276
|
|
|
1,050
|
|
|
7,286
|
|
|
—
|
|
|
—
|
|
|
141
|
|
|
1,050
|
|
|
7,427
|
|
|
8,477
|
|
|
185
|
|
|
6,138
|
|
|
2001
|
|
Raider’s
Crossing
|
|
|
96
|
|
|
276
|
|
|
1,089
|
|
|
8,404
|
|
|
—
|
|
|
—
|
|
|
134
|
|
|
1,089
|
|
|
8,538
|
|
|
9,627
|
|
|
208
|
|
|
6,560
|
|
|
2002
|
|
Entrada
Real
|
|
|
98
|
|
|
363
|
|
|
1,475
|
|
|
15,859
|
|
|
—
|
|
|
—
|
|
|
227
|
|
|
1,475
|
|
|
16,086
|
|
|
17,561
|
|
|
378
|
|
|
9,652
|
|
|
1999
|
|
The
Outpost San Marcos
|
|
|
162
|
|
|
486
|
|
|
1,987
|
|
|
18,973
|
|
|
—
|
|
|
—
|
|
|
148
|
|
|
1,987
|
|
|
19,121
|
|
|
21,108
|
|
|
447
|
|
|
13,607
|
|
|
2004
|
|
The
Outpost San Antonio
|
|
|
276
|
|
|
828
|
|
|
3,262
|
|
|
36,252
|
|
|
—
|
|
|
—
|
|
|
185
|
|
|
3,262
|
|
|
36,437
|
|
|
39,699
|
|
|
847
|
|
|
24,069
|
|
|
2005
|
|
Raider’s
Pass
|
|
|
264
|
|
|
828
|
|
|
3,877
|
|
|
32,445
|
|
|
—
|
|
|
—
|
|
|
803
|
|
|
3,877
|
|
|
33,248
|
|
|
37,125
|
|
|
791
|
|
|
19,456
|
|
|
2002
|
|
Aggie
Station
|
|
|
156
|
|
|
450
|
|
|
1,634
|
|
|
18,821
|
|
|
—
|
|
|
—
|
|
|
268
|
|
|
1,634
|
|
|
19,089
|
|
|
20,723
|
|
|
447
|
|
|
11,522
|
|
|
2002
|
|
University
Centre (7)
|
|
|
234
|
|
|
838
|
|
|
—
|
|
|
52,996
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,996
|
|
|
52,996
|
|
|
—
|
|
|
21,386
|
|
|
2007
|
|
ASU
–
SCRC
(8)
|
|
|
613
|
|
|
1,866
|
|
|
—
|
|
|
3,962
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,962
|
|
|
3,962
|
|
|
—
|
|
|
—
|
|
|
2008
|
|
Subtotal
|
|
|
5,848
|
|
|
19,144
|
|
$
|
75,138
|
|
$
|
643,341
|
|
$
|
125
|
|
$
|
4,369
|
|
$
|
17,265
|
|
$
|
75,263
|
|
$
|
664,975
|
|
$
|
740,238
|
|
$
|
46,041
|
|
$
|
336,430
|
|
|
|
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
Initial
Costs
|
|
Basis
Step-Up
|
|
|
|
Total
Costs
|
|
|
|
|
|
|
|
|
|
Units
|
|
Beds
|
|
Land
|
|
Buildings
and Improvements and
Furniture,
Fixtures and Equipment
|
|
Land
|
|
Buildings
and Improvements and
Furniture,
Fixtures and Equipment
|
|
Costs
Capitalized Subsequent to Acquisition
|
|
Land
|
|
Buildings
and Improvements and
Furniture,
Fixtures and Equipment
|
|
Total
(1)
|
|
Accumulated
Depreciation (2)
|
|
Encumbrances
(3)
|
|
Year
Built
|
|
On-Campus
Participating Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village
- PVAMU
|
|
|
612
|
|
|
1,920
|
|
$
|
—
|
|
$
|
36,506
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,771
|
|
$
|
—
|
|
$
|
38,277
|
|
$
|
38,277
|
|
$
|
13,847
|
|
$
|
29,229
|
|
|
1996/
97/98
|
|
University
College - PVAMU
|
|
|
756
|
|
|
1,470
|
|
|
—
|
|
|
22,650
|
|
|
—
|
|
|
—
|
|
|
1,222
|
|
|
—
|
|
|
23,872
|
|
|
23,872
|
|
|
5,853
|
|
|
22,975
|
|
|
2000/2003
|
|
University
Village
- TAMIU
|
|
|
84
|
|
|
250
|
|
|
—
|
|
|
5,844
|
|
|
—
|
|
|
—
|
|
|
165
|
|
|
—
|
|
|
6,009
|
|
|
6,009
|
|
|
2,162
|
|
|
4,471
|
|
|
1997
|
|
Cullen
Oaks Phase
I and II
|
|
|
411
|
|
|
879
|
|
|
—
|
|
|
33,910
|
|
|
—
|
|
|
—
|
|
|
718
|
|
|
—
|
|
|
34,628
|
|
|
34,628
|
|
|
4,236
|
|
|
33,223
|
|
|
2001/2005
|
|
Subtotal
|
|
|
1,863
|
|
|
4,519
|
|
|
—
|
|
|
98,910
|
|
|
—
|
|
|
—
|
|
|
3,876
|
|
|
—
|
|
|
102,786
|
|
|
102,786
|
|
|
26,098
|
|
|
89,898
|
|
|
|
|
Total-all
properties
|
|
|
7,711
|
|
|
23,663
|
|
$
|
75,138
|
|
$
|
742,251
|
|
$
|
125
|
|
$
|
4,369
|
|
$
|
21,141
|
|
$
|
75,263
|
|
$
|
767,761
|
|
$
|
843,024
|
|
$
|
72,139
|
|
$
|
426,328
|
|
|
|
|
|
(1)
|
Total
aggregate costs for Federal income tax purposes is $875.7 million.
|
|
(2)
|
The
depreciable lives for buildings and improvements and furniture, fixtures
and equipment range from three to forty
years.
|
|
(3)
|
Total
encumbrances exclude net unamortized debt premiums of $6.4 million
and net
unamortized debt discounts of $0.4 million as of December 31,
2006.
|
|
(4)
|
For
lease administration purposes, University Club Tallahassee and The
Grove
at University Club are reported combined. As a result, costs capitalized
subsequent to acquisition and accumulated depreciation are allocated
to
the respective properties based on relative bed
count.
|
|
(5)
|
For
lease administration purposes, College Club Tallahassee and The Greens
at
College Club are reported combined. As a result, costs capitalized
subsequent to acquisition and accumulated depreciation are allocated
to
the respective properties based on relative bed
count.
|
|
(6)
|
For
lease administration purposes, Royal Oaks, Royal Pavilion, and Royal
Village Tallahassee are reported combined. As a result, costs capitalized
subsequent to acquisition and accumulated depreciation are allocated
to
the respective properties based on relative bed
count.
|
|
(7) |
University
Centre (formerly Village at Newark) commenced construction in September
2005. Initial costs represent construction costs associated with
the
development of this property. Year built represents the scheduled
completion date.
|
|
(8) |
ASU-SCRC
commenced construction in December 2006. Initial costs represent
construction costs associated with the development of this property.
Year
built represents the scheduled completion
date.
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND
AMERICAN
CAMPUS PREDECESSOR
NOTES
TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The
changes in the Company’s and the Predecessor’s investments in real estate and
related accumulated depreciation for each of the years ended December 31, 2006,
2005, and 2004 are as follows:
|
|
For
the Year Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
Off-Campus(1)
|
|
On-Campus(2)
|
|
Off-Campus(1)
|
|
On-Campus(2)
|
|
Off-Campus(1)
|
|
On-Campus(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
451,033
|
|
$
|
102,337
|
|
$
|
295,313
|
|
$
|
86,370
|
|
$
|
240,504
|
|
$
|
92,463
|
|
Basis
step-up
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,589
|
|
|
—
|
|
Acquisition
of land for development
|
|
|
—
|
|
|
—
|
|
|
3,903
|
|
|
—
|
|
|
2,532
|
|
|
—
|
|
Acquisition
of properties
|
|
|
248,321
|
|
|
—
|
|
|
126,176
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Improvements
and development expenditures
|
|
|
79,099
|
|
|
449
|
|
|
48,214
|
|
|
15,967
|
|
|
61,286
|
|
|
1,883
|
|
Disposition
of properties
|
|
|
(38,216
|
)
|
|
—
|
|
|
(22,573
|
)
|
|
—
|
|
|
—
|
|
|
(7,976
|
)
|
Distribution
of non-core assets to Predecessor owners
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,598
|
)
|
|
—
|
|
Balance,
end of year
|
|
$
|
740,237
|
|
$
|
102,786
|
|
$
|
451,033
|
|
$
|
102,337
|
|
$
|
295,313
|
|
$
|
86,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
(33,935
|
)
|
$
|
(21,967
|
)
|
$
|
(22,863
|
)
|
$
|
(18,306
|
)
|
$
|
(17,597
|
)
|
$
|
(14,774
|
)
|
Depreciation
for the year
|
|
|
(18,462
|
)
|
|
(4,131
|
)
|
|
(11,241
|
)
|
|
(3,661
|
)
|
|
(6,520
|
)
|
|
(3,532
|
)
|
Disposition
of properties
|
|
|
6,357
|
|
|
—
|
|
|
169
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Distribution
of non-core assets to Predecessor owners
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,254
|
|
|
—
|
|
Balance,
end of year
|
|
$
|
(46,040
|
)
|
$
|
(26,098
|
)
|
$
|
(33,935
|
)
|
$
|
(21,967
|
)
|
$
|
(22,863
|
)
|
$
|
(18,306
|
)
|
|
|
Owned
off-campus properties
|
|
(2)
|
On-campus
participating properties
|