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.
American Campus Equity
(ACE): An emerging opportunity in the wholly owned property
segment is the equity investment and ownership of on-campus housing via
traditional long-term ground leases. Branded and marketed to colleges
and universities as the ACE program, the transaction structure provides the
company with what we believe will be a lower-risk opportunity, as our ACE
projects will have premier on-campus locations and marketing assistance from the
university. The subject university substantially benefits by
increasing its housing capacity with modern, well-amenitized student housing
with no or minimal impacts to its own credit ratios, preserving the University’s
credit capacity to fund academic and research facilities.
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 wholly owned 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, 2007, we provided third-party management and leasing services for
19 properties that represented approximately 15,200 beds in approximately 6,000
units, seven 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 wholly owned 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, 2007, we had approximately 1,084 employees, consisting
of:
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approximately
441 on-site employees in our wholly owned properties segment, including
142 Resident Assistants;
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approximately
106 on-site employees in our on-campus participating properties segment,
including 44 Resident Assistants;
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approximately
450 employees in our property management services segment, including 410
on-site employees and 40 corporate office employees;
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approximately
33 corporate office employees in our development services segment;
and
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approximately
54 executive, corporate administration and financial
personnel.
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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.
Item
1A. Risk Factors
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 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
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, 2007, our total consolidated indebtedness was approximately $538.7
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 to fund future property development, 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, 2007, we were in the process of constructing three wholly 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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·
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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.
|
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
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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·
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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;
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·
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we
also could be subject to the federal alternative minimum tax and possibly
increased state and local taxes; and
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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:
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general
market conditions;
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our
current debt levels and the number of properties subject to
encumbrances;
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our
current performance and the market's perception of our growth
potential;
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our
cash flow and cash dividends; and
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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:
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the
REIT ownership limit described above;
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authorization
of the issuance of our preferred shares with powers, preferences or rights
to be determined by our board of directors;
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the
right of our board of directors, without a stockholder vote, to increase
our authorized shares and classify or reclassify unissued
shares;
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advance-notice
requirements for stockholder nomination of directors and for other
proposals to be presented to stockholder meetings; and
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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,
2007.
Item
2. Properties
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 wholly owned property completed construction and opened
in Fall 2007 and three wholly owned properties are currently under construction
with scheduled completion dates that range from August 2008 through August
2009. Lease terms are generally 12 months at wholly owned properties
and nine months at our on-campus participating properties. These
properties are included in the Wholly Owned Properties and On-Campus
Participating Properties segments discussed in Item 1 and the accompanying Notes
to Consolidated 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:
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University
Village at TU, which is subject to a 75-year ground lease with Temple
University (with four additional six-year extensions);
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University
Centre, which is subject to a 95-year ground lease;
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Vista
del Sol (formerly ASU-SCRC), which is subject to a 65-year ground/facility
lease with Arizona State University (with two additional ten-year
extensions);
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Barrett
Honors College, which is subject to a 65-year ground/facility lease with
Arizona State University (with two additional ten-year extensions);
and
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Four
on-campus participating properties held under ground/facility leases with
two university systems.
|
Property
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|
Year
Built
|
|
Date
Acquired/
Developed
|
|
Primary
University Served
|
|
Typical
Lease
Term
(Mos)
|
|
|
Year
Ended December 31, 2007 Revenue
|
|
|
Average
Monthly Revenue/ Bed (1)
|
|
|
2007
Average Occupancy (1)
|
|
|
Occupancy
as of 12/31/07
|
|
|
#
of Buildings
|
|
|
#
of
Units
|
|
|
#
of Beds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
WHOLLY
OWNED PROPERTIES
|
|
|
|
Villas
on Apache
|
|
1987
|
|
May-99
|
|
Arizona
State University Main Campus
|
|
|
12 |
|
|
$ |
1,910 |
|
|
$ |
552 |
|
|
|
94.2 |
% |
|
|
99.3 |
% |
|
|
6 |
|
|
|
111 |
|
|
|
288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Village at Blacksburg
|
|
1990/
1998
|
|
Dec-00
|
|
Virginia
Polytechnic Institute and State University
|
|
|
12 |
|
|
|
4,443 |
|
|
|
343 |
|
|
|
99.2 |
% |
|
|
99.1 |
% |
|
|
26 |
|
|
|
288 |
|
|
|
1,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
River
Club Apartments
|
|
1996
|
|
Aug-99
|
|
The
University of Georgia - Athens
|
|
|
12 |
|
|
|
3,500 |
|
|
|
366 |
|
|
|
98.2 |
% |
|
|
97.6 |
% |
|
|
18 |
|
|
|
266 |
|
|
|
792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
River
Walk Townhomes
|
|
1998
|
|
Aug-99
|
|
The
University of Georgia - Athens
|
|
|
12 |
|
|
|
1,484 |
|
|
|
360 |
|
|
|
98.5 |
% |
|
|
97.6 |
% |
|
|
20 |
|
|
|
100 |
|
|
|
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Callaway House (2)
|
|
1999
|
|
Mar-01
|
|
Texas
A&M University
|
|
|
9 |
|
|
|
6,505 |
(3)
|
|
|
n/a |
(3)
|
|
|
103.6 |
% |
|
|
103.7 |
% |
|
|
1 |
|
|
|
173 |
|
|
|
538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Village at Alafaya Club
|
|
1999
|
|
Jul-00
|
|
The
University of Central Florida
|
|
|
12 |
|
|
|
5,849 |
|
|
|
545 |
|
|
|
99.0 |
% |
|
|
98.3 |
% |
|
|
20 |
|
|
|
228 |
|
|
|
839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Village at Science Drive
|
|
2000
|
|
Nov-01
|
|
The
University of Central Florida
|
|
|
12 |
|
|
|
5,199 |
|
|
|
553 |
|
|
|
99.1 |
% |
|
|
99.2 |
% |
|
|
17 |
|
|
|
192 |
|
|
|
732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at Boulder Creek
|
|
2002
|
|
Aug-02
|
|
The
University of Colorado at Boulder
|
|
|
12 |
|
|
|
2,504 |
|
|
|
644 |
|
|
|
98.0 |
% |
|
|
96.1 |
% |
|
|
4 |
|
|
|
82 |
|
|
|
309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at Fresno
|
|
2004
|
|
Aug-04
|
|
California
State University, Fresno
|
|
|
12 |
|
|
|
2,604 |
|
|
|
534 |
|
|
|
90.1 |
% |
|
|
83.5 |
% |
|
|
9 |
|
|
|
105 |
|
|
|
406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at TU (4)
|
|
2004
|
|
Aug-04
|
|
Temple
University
|
|
|
12 |
|
|
|
6,240 |
|
|
|
630 |
|
|
|
98.9 |
% |
|
|
97.5 |
% |
|
|
3 |
|
|
|
220 |
|
|
|
749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at Sweet Home
|
|
2005
|
|
Aug-05
|
|
State
University of New York - Buffalo
|
|
|
12 |
|
|
|
6,200 |
|
|
|
596 |
|
|
|
99.4 |
% |
|
|
99.5 |
% |
|
|
9 |
|
|
|
269 |
|
|
|
828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Club Tallahassee (5)
|
|
2000
|
|
Feb-05
|
|
Florida
State University
|
|
|
12 |
|
|
|
4,020 |
|
|
|
415 |
|
|
|
98.5 |
% |
|
|
97.5 |
% |
|
|
17 |
|
|
|
152 |
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Grove at University Club (5)
|
|
2002
|
|
Feb-05
|
|
Florida
State University
|
|
|
12 |
|
|
|
846 |
|
|
|
417 |
|
|
|
98.2 |
% |
|
|
96.9 |
% |
|
|
8 |
|
|
|
64 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
College
Club Tallahassee (5)
|
|
2001
|
|
Feb-05
|
|
Florida
A&M University
|
|
|
12 |
|
|
|
2,230 |
|
|
|
374 |
|
|
|
91.7 |
% |
|
|
91.9 |
% |
|
|
11 |
|
|
|
96 |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Greens at College Club (5)
|
|
2004
|
|
Feb-05
|
|
Florida
A&M University
|
|
|
12 |
|
|
|
929 |
|
|
|
361 |
|
|
|
95.2 |
% |
|
|
95.6 |
% |
|
|
5 |
|
|
|
40 |
|
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Club Gainesville
|
|
1999
|
|
Feb-05
|
|
University
of Florida
|
|
|
12 |
|
|
|
2,079 |
|
|
|
383 |
|
|
|
98.9 |
% |
|
|
98.9 |
% |
|
|
8 |
|
|
|
94 |
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City
Parc at Fry Street
|
|
2004
|
|
Mar-05
|
|
University
of North Texas
|
|
|
12 |
|
|
|
2,683 |
|
|
|
518 |
|
|
|
99.0 |
% |
|
|
98.6 |
% |
|
|
7 |
|
|
|
136 |
|
|
|
418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Estates
|
|
2002
|
|
Mar-05
|
|
University
of Florida
|
|
|
12 |
|
|
|
7,198 |
|
|
|
551 |
|
|
|
99.0 |
% |
|
|
98.6 |
% |
|
|
18 |
|
|
|
396 |
|
|
|
1,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
– Same Store Wholly Owned Properties (6)
|
|
|
|
66,423 |
|
|
|
488 |
|
|
|
98.3 |
% |
|
|
97.8 |
% |
|
|
207 |
|
|
|
3,012 |
|
|
|
9,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entrada
Real
|
|
1999
|
|
Mar-06
|
|
University
of Arizona
|
|
|
12 |
|
|
|
2,173 |
|
|
|
480 |
|
|
|
99.1 |
% |
|
|
97.0 |
% |
|
|
8 |
|
|
|
98 |
|
|
|
363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Oaks (5)
|
|
1990
|
|
Mar-06
|
|
Florida
State University
|
|
|
12 |
|
|
|
1,170 |
|
|
|
412 |
|
|
|
99.6 |
% |
|
|
100.0 |
% |
|
|
4 |
|
|
|
82 |
|
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Pavilion (5)
|
|
1991
|
|
Mar-06
|
|
Florida
State University
|
|
|
12 |
|
|
|
1,065 |
|
|
|
415 |
|
|
|
98.9 |
% |
|
|
99.5 |
% |
|
|
4 |
|
|
|
60 |
|
|
|
204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Village Tallahassee (5)
|
|
1992
|
|
Mar-06
|
|
Florida
State University
|
|
|
12 |
|
|
|
1,504 |
|
|
|
415 |
|
|
|
98.9 |
% |
|
|
97.9 |
% |
|
|
4 |
|
|
|
75 |
|
|
|
288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Village Gainesville
|
|
1996
|
|
Mar-06
|
|
University
of Florida
|
|
|
12 |
|
|
|
2,569 |
|
|
|
463 |
|
|
|
96.8 |
% |
|
|
96.4 |
% |
|
|
8 |
|
|
|
118 |
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northgate
Lakes
|
|
1998
|
|
Mar-06
|
|
The
University of Central Florida
|
|
|
12 |
|
|
|
4,418 |
|
|
|
495 |
|
|
|
98.6 |
% |
|
|
96.6 |
% |
|
|
13 |
|
|
|
194 |
|
|
|
710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Lexington
|
|
1994
|
|
Mar-06
|
|
The
University of Kentucky
|
|
|
12 |
|
|
|
1,697 |
|
|
|
384 |
|
|
|
93.2 |
% |
|
|
94.2 |
% |
|
|
4 |
|
|
|
94 |
|
|
|
364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Woods at Greenland
|
|
2001
|
|
Mar-06
|
|
Middle
Tennessee State University
|
|
|
12 |
|
|
|
1,288 |
|
|
|
378 |
|
|
|
97.1 |
% |
|
|
96.7 |
% |
|
|
3 |
|
|
|
78 |
|
|
|
276 |
|
Property
|
|
Year
Built
|
|
Date
Acquired/ Developed
|
|
Primary
University Served
|
|
Typical
Lease
Term
(Mos)
|
|
|
Year
Ended December 31, 2007 Revenue
|
|
|
Average
Monthly Revenue/ Bed (1)
|
|
|
|
2007
Average
Occupancy
(1)
|
|
|
Occupancy
as of 12/31/07
|
|
|
#
of Buildings
|
|
|
#
of
Units
|
|
|
#
of Beds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raider’s
Crossing
|
|
2002
|
|
Mar-06
|
|
Middle
Tennessee State University
|
|
|
12 |
|
|
$ |
1,349 |
|
|
$ |
394 |
|
|
|
|
97.7 |
% |
|
|
98.6 |
% |
|
|
4 |
|
|
|
96 |
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raider’s
Pass
|
|
2002
|
|
Mar-06
|
|
Texas
Tech University
|
|
|
12 |
|
|
|
3,741 |
|
|
|
422 |
|
|
|
|
85.1 |
% |
|
|
98.7 |
% |
|
|
12 |
|
|
|
264 |
|
|
|
828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggie
Station
|
|
2002
|
|
Mar-06
|
|
Texas
A&M University
|
|
|
12 |
|
|
|
2,502 |
|
|
|
453 |
|
|
|
|
98.9 |
% |
|
|
99.6 |
% |
|
|
5 |
|
|
|
156 |
|
|
|
450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Outpost San Marcos
|
|
2004
|
|
Mar-06
|
|
Texas
State University – San Marcos
|
|
|
12 |
|
|
|
2,642 |
|
|
|
436 |
|
|
|
|
98.6 |
% |
|
|
97.7 |
% |
|
|
5 |
|
|
|
162 |
|
|
|
486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Outpost San Antonio
|
|
2005
|
|
Mar-06
|
|
University
of Texas – San Antonio
|
|
|
12 |
|
|
|
4,958 |
|
|
|
470 |
|
|
|
|
99.7 |
% |
|
|
99.4 |
% |
|
|
10 |
|
|
|
276 |
|
|
|
828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Callaway
Villas
|
|
2006
|
|
Aug-06
|
|
Texas
A&M University
|
|
|
12 |
|
|
|
5,089 |
|
|
|
581 |
|
|
|
|
99.2 |
% |
|
|
98.9 |
% |
|
|
18 |
|
|
|
236 |
|
|
|
704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village
on Sixth (7)
|
|
2000/
2006
|
|
Jan-07
|
|
Marshall
University
|
|
|
12 |
|
|
|
2,747 |
|
|
|
418 |
|
|
|
|
74.8 |
% |
|
|
69.4 |
% |
|
|
14 |
|
|
|
248 |
|
|
|
752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newtown
Crossing (7)
|
|
2005/
2007
|
|
Feb-07
|
|
University
of Kentucky
|
|
|
12 |
|
|
|
4,818 |
|
|
|
502 |
|
|
|
|
93.2 |
% |
|
|
87.7 |
% |
|
|
7 |
|
|
|
356 |
|
|
|
942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olde
Town University Square (7)
|
|
2005
|
|
Feb-07
|
|
University
of Toledo
|
|
|
12 |
|
|
|
2,897 |
|
|
|
496 |
|
|
|
|
94.9 |
% |
|
|
94.0 |
% |
|
|
4 |
|
|
|
224 |
|
|
|
550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peninsular
Place (7)
|
|
2005
|
|
Feb-07
|
|
Eastern
Michigan University
|
|
|
12 |
|
|
|
2,514 |
|
|
|
581 |
|
|
|
|
86.8 |
% |
|
|
88.9 |
% |
|
|
2 |
|
|
|
183 |
|
|
|
478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Centre (8)
|
|
2007
|
|
Aug-07
(8)
|
|
Rutgers
University, NJIT, Essex CCC
|
|
|
9/12 |
|
|
|
2,199 |
|
|
|
776 |
|
|
|
|
75.7 |
% |
|
|
76.6 |
% |
|
|
2 |
|
|
|
234 |
|
|
|
838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vista
del Sol (9)
|
|
2008
|
|
Aug-08
(9)
|
|
Arizona
State University
|
|
|
12 |
|
|
|
61 |
|
|
|
n/a |
|
|
|
n\a
|
|
|
|
n/a |
|
|
|
10 |
|
|
|
613 |
|
|
|
1,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Villas
at Chestnut Ridge (10)
|
|
2008
|
|
Aug-08
(10)
|
|
State
University of New York – Buffalo
|
|
|
12 |
|
|
|
7 |
|
|
|
n/a |
|
|
|
n\a
|
|
|
|
n/a |
|
|
|
12 |
|
|
|
196 |
|
|
|
552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrett
Honors College (11)
|
|
2009
|
|
Aug-09
(11)
|
|
Arizona
State University
|
|
|
12 |
|
|
|
- |
|
|
|
n/a |
|
|
|
|
n/a |
|
|
|
n/a |
|
|
|
7 |
|
|
|
601 |
|
|
|
1,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
– New Wholly Owned Properties
|
|
|
|
51,408 |
|
|
|
454 |
|
|
|
|
92.4 |
% |
|
|
92.4 |
% |
|
|
160 |
|
|
|
4,644 |
|
|
|
14,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
– Wholly Owned Properties
|
|
|
|
117,831 |
|
|
|
459 |
|
|
|
|
95.3 |
% |
|
|
95.1 |
% |
|
|
367 |
|
|
|
7,656 |
|
|
|
24,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ON-CAMPUS PARTICIPATING
PROPERTIES (12) (13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village – PVAMU
|
|
1996/
97/98
|
|
Aug-96–
Aug-98
|
|
Prairie
View A&M University
|
|
|
9 |
|
|
|
8,126 |
|
|
|
458 |
|
|
|
|
96.5 |
% |
|
|
98.6 |
% |
|
|
30 |
|
|
|
612 |
|
|
|
1,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
College – PVAMU
|
|
2000/
2003
|
|
Aug-00
Aug-03
|
|
Prairie
View A&M University
|
|
|
9 |
|
|
|
5,909 |
|
|
|
455 |
|
|
|
|
91.1 |
% |
|
|
92.9 |
% |
|
|
14 |
|
|
|
756 |
|
|
|
1,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village – TAMIU
|
|
1997
|
|
Aug-97
|
|
Texas
A&M International University
|
|
|
9 |
|
|
|
1,110 |
|
|
|
443 |
|
|
|
|
89.2 |
% |
|
|
80.4 |
% |
|
|
4 |
|
|
|
84 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cullen
Oaks
|
|
2001/
2005
|
|
Aug-01
Aug-05
|
|
The
University of Houston
|
|
|
9 |
|
|
|
5,821 |
|
|
|
634 |
|
|
|
|
99.0 |
% |
|
|
96.1 |
% |
|
|
4 |
|
|
|
411 |
|
|
|
879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
- On-Campus Participating Properties
|
|
|
|
20,966 |
|
|
|
475 |
|
|
|
|
94.5 |
% |
|
|
95.3 |
% |
|
|
52 |
|
|
|
1,863 |
|
|
|
4,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Total- All Properties
|
|
|
$ |
138,797 |
|
|
$ |
462 |
|
(14)
|
|
|
95.2 |
% |
|
|
95.1 |
% |
|
|
419 |
|
|
|
9,519 |
|
|
|
28,657 |
|
(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, 2007
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, 2007 divided by total beds.
|
|
|
(2)
|
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.
|
|
|
(3)
|
As
rent at this property includes food services, revenue is not comparable to
the other properties in this chart.
|
|
|
(4)
|
Subject
to a 75-year ground lease with Temple University.
|
|
|
(5)
|
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,
2007 is allocated to the respective properties based on relative bed
count.
|
|
|
(6)
|
Our
same store portfolio represents properties that were owned by us for both
of the full years ended December 31, 2007 and 2006.
|
|
|
(7)
|
These
properties were acquired during 2007. Average occupancy is
calculated based on the period these properties were owned and operated by
us in 2007.
|
|
|
(8)
|
This
property completed construction and opened in the Fall 2007
semester. Average occupancy is calculated based on the period
this property was operating in 2007.
|
|
|
(9)
|
Currently
under development with a scheduled completion date of August
2008. Subject to a 65-year ground/facility lease with Arizona
State University.
|
|
|
(10)
|
Currently
under development with a scheduled completion date of August
2008.
|
|
|
(11)
|
Currently
under development with a scheduled completion date of August
2009. Subject to a 65-year ground/facility lease with Arizona
State University.
|
|
|
(12)
|
Although
our on-campus participating properties accounted for 19.6% of our units,
15.8% of our beds and 15.1% of our revenues for the year ended December
31, 2007, because of the structure of their ownership and financing we
have only received approximately $1.4 million in distributions of excess
cash flow during the year ended December 31, 2007. 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)
|
Does
not include revenues from The Callaway House because of its food service
component.
|
Property
Activity Subsequent to Year End
Acquisitions
In
February 2008, we acquired a 144-unit, 528-bed property (Pirate’s Place) located
near the campus of East Carolina University in Greenville, North Carolina, for a
purchase price of $10.6 million, which excludes $0.8 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 $7.0 million in fixed-rate mortgage debt
with an annual interest rate of 7.2% and remaining term to maturity of 14.9
years.
In
February 2008, we also acquired a 68-unit, 161-bed property (Sunnyside Commons)
located near the campus of West Virginia University in Morgantown, West
Virginia, for a purchase price of $7.5 million, which excludes $0.6 million of
anticipated transaction costs, initial integration expenses and capital
expenditures necessary to bring this property up to our operating
standards. We did not assume any debt as part of this
transaction.
Item
3. Legal Proceedings
From time
to time, we are subject to various lawsuits, claims and proceedings arising in
the ordinary course of business. As of December 31, 2007, 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, 2007.
PART
II
Item
5. Market for the Registrant’s Common Equity and Related Stockholder
Matters
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, 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 |
|
Quarter
ended March 31, 2007
|
|
$ |
32.52 |
|
|
$ |
28.35 |
|
|
$ |
0.3375 |
|
Quarter
ended June 30, 2007
|
|
$ |
31.68 |
|
|
$ |
27.12 |
|
|
$ |
0.3375 |
|
Quarter
ended September 30, 2007
|
|
$ |
29.56 |
|
|
$ |
24.30 |
|
|
$ |
0.3375 |
|
Quarter
ended December 31, 2007
|
|
$ |
30.52 |
|
|
$ |
23.18 |
|
|
$ |
0.3375 |
|
Holders
As of
February 29, 2008, there were approximately 14,000 holders of record of the
Company’s common stock and 27,328,869 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 11 to the Consolidated 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 (“Common Units”), profits interest units (“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 12 in the
accompanying Notes to Consolidated Financial Statements in Item 8 for a more
detailed description of the Plan. As of December 31, 2007, 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
|
|
|
482,782 |
(1)
|
|
$ |
-0- |
|
|
|
727,218 |
|
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, RSAs granted to
its executive officers and certain employees and common units of limited
partnership interest in the Operating
Partnership.
|
Item
6. Selected Financial Data
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
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Statements
of Operations Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
147,135 |
|
|
$ |
118,953 |
|
|
$ |
82,522 |
|
|
$ |
56,230 |
|
|
$ |
52,792 |
|
(Loss)
income from continuing operations
|
|
|
(1,686 |
) |
|
|
1,662 |
|
|
|
1,751 |
|
|
|
(1,350 |
) |
|
|
(186 |
) |
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations
|
|
|
- |
|
|
|
2,287 |
|
|
|
2,028 |
|
|
|
50 |
|
|
|
(774 |
) |
Gain
(loss) from disposition of real estate
|
|
|
- |
|
|
|
18,648 |
|
|
|
5,883 |
|
|
|
(39 |
) |
|
|
16 |
|
Net
(loss) Income
|
|
|
(1,686 |
) |
|
|
22,597 |
|
|
|
9,662 |
|
|
|
(1,339 |
) |
|
|
(944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share and Distribution Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$ |
(0.07 |
) |
|
$ |
0.08 |
|
|
$ |
0.12 |
|
|
$ |
0.05 |
(1)
|
|
|
|
|
Discontinued
operations
|
|
|
- |
|
|
|
1.09 |
|
|
|
0.53 |
|
|
|
0.10 |
(1)
|
|
|
|
|
Net
(loss) income
|
|
|
(0.07 |
) |
|
|
1.17 |
|
|
|
0.65 |
|
|
|
0.15 |
(1)
|
|
|
|
|
Cash
distributions declared per share / unit
|
|
|
1.35 |
|
|
|
1.35 |
|
|
|
1.35 |
|
|
|
0.1651 |
(1)
|
|
|
|
|
Cash
distributions declared
|
|
|
32,931 |
|
|
|
25,287 |
|
|
|
20,180 |
|
|
|
2,084 |
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,076,296 |
|
|
$ |
884,381 |
|
|
$ |
550,862 |
|
|
$ |
367,628 |
|
|
$ |
330,566 |
|
Secured
debt
|
|
|
533,430 |
|
|
|
432,294 |
|
|
|
291,646 |
|
|
|
201,014 |
|
|
|
267,518 |
|
Unsecured
revolving credit facility
|
|
|
9,600 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Capital
lease obligations
|
|
|
2,798 |
|
|
|
2,348 |
|
|
|
1,679 |
|
|
|
598 |
|
|
|
410 |
|
Stockholders'
and Predecessor owners'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equity
(2)
|
|
|
444,377 |
|
|
|
369,474 |
|
|
|
223,227 |
|
|
|
138,229 |
|
|
|
27,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Owned Property Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
properties
|
|
|
44 |
|
|
|
38 |
|
|
|
25 |
|
|
|
18 |
|
|
|
14 |
|
Units
|
|
|
9,519 |
|
|
|
7,711 |
|
|
|
5,620 |
|
|
|
4,317 |
|
|
|
3,567 |
|
Beds
|
|
|
28,657 |
|
|
|
23,663 |
|
|
|
17,109 |
|
|
|
12,955 |
|
|
|
10,546 |
|
Occupancy
as of December 31,
|
|
|
95.1 |
% |
|
|
96.2 |
% |
|
|
97.0 |
% |
|
|
97.1 |
% |
|
|
91.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$ |
29,047 |
|
|
$ |
35,237 |
|
|
$ |
20,429 |
|
|
$ |
17,778 |
|
|
$ |
6,846 |
|
Net
cash used in investing activities
|
|
|
(187,591 |
) |
|
|
(102,718 |
) |
|
|
(111,755 |
) |
|
|
(63,621 |
) |
|
|
(33,738 |
) |
Net
cash provided by financing activities
|
|
|
91,510 |
|
|
|
121,947 |
|
|
|
111,332 |
|
|
|
45,251 |
|
|
|
21,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
From Operations ("FFO"):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(1,686 |
) |
|
$ |
22,597 |
|
|
$ |
9,662 |
|
|
$ |
(1,339 |
) |
|
$ |
(944 |
) |
Minority
interests
|
|
|
255 |
|
|
|
2,038 |
|
|
|
164 |
|
|
|
(100 |
) |
|
|
(16 |
) |
(Gain)
loss from disposition of real estate
|
|
|
- |
|
|
|
(18,648 |
) |
|
|
(5,883 |
) |
|
|
39 |
|
|
|
(16 |
) |
Real
estate related depreciation and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization
|
|
|
29,824 |
|
|
|
24,956 |
|
|
|
16,032 |
|
|
|
10,009 |
|
|
|
8,937 |
|
Funds
from operations (3)(4)
|
|
$ |
28,393 |
|
|
$ |
30,943 |
|
|
$ |
19,975 |
|
|
$ |
8,609 |
|
|
$ |
7,961 |
|
(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, 2007, 2006, 2005 and 2004 reflects our
stockholders’ equity as a result of and subsequent to the IPO while the
previous year reflects 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.
|
Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
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.
In
January 2007, we acquired a 248-unit, 752-bed property (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 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 a 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 $3.7 million of
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. In August 2007, construction was
completed on an additional phase at one of these properties. As
contemplated in the original transaction, concurrent with the completion of
construction in August 2007, we purchased this additional phase consisting of 24
units and 84 beds, for approximately $4.6 million.
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. Including the purchase of the additional phase discussed
above, these three properties contain 764 units and 1,971 beds.
In
February 2008, we acquired a 144-unit, 528-bed property (Pirate’s Place) located
near the campus of East Carolina University in Greenville, North Carolina, for a
purchase price of $10.6 million, which excludes $0.8 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 $7.0 million in fixed-rate mortgage debt
with an annual interest rate of 7.2% and remaining term to maturity of 14.9
years.
In
February 2008, we also acquired a 68-unit, 161-bed property (Sunnyside Commons)
located near the campus of West Virginia University in Morgantown, West
Virginia, for a purchase price of $7.5 million, which excludes $0.6 million of
anticipated transaction costs, initial integration expenses and capital
expenditures necessary to bring this property up to our operating
standards. We did not assume any debt as part of this
transaction.
Property
Portfolio
As of
December 31, 2007, our total property portfolio contained 44 student housing
properties with approximately 28,600 beds and 9,500 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 40 wholly owned properties, which consists of 38
owned off-campus properties that are in close proximity to 33 colleges and
universities in 15 states, of which one is currently under construction, and two
owned on-campus properties 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.
The
construction of our two owned on-campus properties are funded with our equity
through the ACE program which enables colleges and universities to preserve
their credit capacity to fund core academic infrastructure. Each of
these properties will operate under a ground/facility lease with a related
university system.
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 30 third-party student housing
properties. As of December 31, 2007, we were under contract on four
projects that are currently in progress and whose fees range from $0.2 million
to $3.5 million. As of December 31, 2007, fees of approximately $2.6
million remained to be earned by us with respect to these projects, which have
scheduled completion dates of July 2008 through March 2010.
We also
provide third-party management and leasing services for 19 properties that
represent approximately 15,200 beds in approximately 6,000 units, seven 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,
2007, our total owned and managed portfolio included 63 properties that
represented approximately 43,800 beds in approximately 15,500
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
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 our 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.
We also
evaluate 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
we frequently incur these pre-development expenditures before a financing
commitment and/or required permits and authorizations have been obtained, we
bear the risk of 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. 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 us 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 statements of
operations.
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 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
The
Outperformance Bonus Plan was adopted upon consummation of our IPO in August
2004, and consisted of awards to key employees equal to the value of 367,682
shares of our common stock. Compensation related to these awards was
not recorded until 2007 when management determined that certain of the required
performance measures were probable of achievement. Such awards vested
on the third anniversary of the IPO (August 2007), upon our achievement of
specified performance measures. Upon vesting, the Compensation
Committee of the Board of Directors exercised its permitted discretion and
granted 132,400 of the awards to selected recipients in the form of PIUs, with
the remainder of the awards paid in cash in the amount of $6.7
million. A compensation charge of approximately $10.4 million was
recorded during the year ended December 31, 2007, to reflect the value of such
awards. As a result of our October 2007 equity offering discussed in
Note 2 in the accompanying Notes to Consolidated Financial Statements contained
in Item 8 herein, a book-up event occurred for tax purposes, resulting in the
132,400 PIUs being converted to Common Units of the Operating
Partnership.
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 us in connection with
the fire that occurred at the University Village at Fresno in
2003. These payments were accounted for as equity
distributions.
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, 2007 and December 31, 2006
The
following table presents our results of operations for the years ended December
31, 2007 and 2006, including the amount and percentage change in these results
between the two periods.
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change($)
|
|
|
Change(%)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
$ |
116,286 |
|
|
$ |
89,264 |
|
|
$ |
27,022 |
|
|
|
30.3 |
% |
On-campus
participating properties
|
|
|
20,966 |
|
|
|
19,960 |
|
|
|
1,006 |
|
|
|
5.0 |
% |
Third-party
development services
|
|
|
5,490 |
|
|
|
5,778 |
|
|
|
(288 |
) |
|
|
(5.0 |
%) |
Third-party
management services
|
|
|
2,821 |
|
|
|
2,532 |
|
|
|
289 |
|
|
|
11.4 |
% |
Resident
services
|
|
|
1,572 |
|
|
|
1,419 |
|
|
|
153 |
|
|
|
10.8 |
% |
Total
revenues
|
|
|
147,135 |
|
|
|
118,953 |
|
|
|
28,182 |
|
|
|
23.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
|
55,155 |
|
|
|
42,620 |
|
|
|
12,535 |
|
|
|
29.4 |
% |
On-campus
participating properties
|
|
|
9,379 |
|
|
|
8,970 |
|
|
|
409 |
|
|
|
4.6 |
% |
Third-party
development and management services
|
|
|
5,708 |
|
|
|
5,564 |
|
|
|
144 |
|
|
|
2.6 |
% |
General
and administrative
|
|
|
17,660 |
|
|
|
6,278 |
|
|
|
11,382 |
|
|
|
181.3 |
% |
Depreciation
and amortization
|
|
|
30,444 |
|
|
|
24,864 |
|
|
|
5,580 |
|
|
|
22.4 |
% |
Ground/facility
lease
|
|
|
1,622 |
|
|
|
857 |
|
|
|
765 |
|
|
|
89.3 |
% |
Total
operating expenses
|
|
|
119,968 |
|
|
|
89,153 |
|
|
|
30,815 |
|
|
|
34.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
27,167 |
|
|
|
29,800 |
|
|
|
(2,633 |
) |
|
|
(8.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,477 |
|
|
|
1,230 |
|
|
|
247 |
|
|
|
20.1 |
% |
Interest
expense
|
|
|
(27,871 |
) |
|
|
(25,937 |
) |
|
|
(1,934 |
) |
|
|
7.5 |
% |
Amortization
of deferred financing costs
|
|
|
(1,340 |
) |
|
|
(1,365 |
) |
|
|
25 |
|
|
|
(1.8 |
%) |
Loss
from unconsolidated joint venture
|
|
|
(108 |
) |
|
|
- |
|
|
|
(108 |
) |
|
|
100.0 |
% |
Total
nonoperating expenses
|
|
|
(27,842 |
) |
|
|
(26,072 |
) |
|
|
(1,770 |
) |
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes, minority interests, and discontinued
operations
|
|
|
(675 |
) |
|
|
3,728 |
|
|
|
(4,403 |
) |
|
|
(118.1 |
%) |
Income
tax provision
|
|
|
(756 |
) |
|
|
(28 |
) |
|
|
(728 |
) |
|
|
2600.0 |
% |
Minority
interests
|
|
|
(255 |
) |
|
|
(2,038 |
) |
|
|
1,783 |
|
|
|
(87.5 |
%) |
(Loss)
income from continuing operations
|
|
|
(1,686 |
) |
|
|
1,662 |
|
|
|
(3,348 |
) |
|
|
(201.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
attributable to discontinued operations
|
|
|
- |
|
|
|
2,287 |
|
|
|
(2,287 |
) |
|
|
(100.0 |
%) |
Gain
from disposition of real estate
|
|
|
- |
|
|
|
18,648 |
|
|
|
(18,648 |
) |
|
|
(100.0 |
%) |
Total
discontinued operations
|
|
|
- |
|
|
|
20,935 |
|
|
|
(20,935 |
) |
|
|
(100.0 |
%) |
Net
(loss) income
|
|
$ |
(1,686 |
) |
|
$ |
22,597 |
|
|
$ |
(24,283 |
) |
|
|
(107.5 |
%) |
Owned
Off-Campus Properties Operations
Revenues
and operating expenses from our owned off-campus properties increased by $27.0
million and $12.5 million, respectively, in 2007 as compared to
2006. These increases were primarily due to the acquisition of four
properties during the first quarter of 2007, the acquisition of a 13-property
portfolio (the “Royal Portfolio”) in March 2006, and the completion of
construction and opening of Callaway Villas in August 2006 and University Centre
in August 2007. 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. In January 2007 we acquired Village on Sixth and
in February and August 2007 we acquired the Edwards Portfolio. In
March 2006, we also acquired the 13-property Royal Portfolio, consisting of
5,745 beds. Finally, in August 2006, we completed construction of and
opened Callaway Villas and in August 2007 we completed construction of and
opened University Centre. These new properties contributed $24.7
million of additional revenues and $11.8 million of additional operating
expenses in 2007 as compared to 2006.
Same Store Property Operations
(Excluding New Property Activity). We had 18 properties
containing 9,991 beds which were operating during both 2007 and
2006. These properties produced revenues of $66.4 million and $64.0
million during 2007 and 2006, respectively, an increase of $2.4
million. Excluding resident services revenues, which are provided
through our TRS subsequent to our IPO, these properties produced revenues of
$65.1 million during 2007, as compared to $62.7 million in 2006, an increase of
$2.4 million. This increase was primarily due to an increase in
average rental rates and other income during 2007 as compared to 2006, which was
offset by a slight decrease in average occupancy rates from 97.3% in 2006 to
97.0% in 2007. Revenues in 2008 will be dependent on our ability to
maintain our current leases in effect for the 2007/2008 academic year and our
ability to obtain appropriate rental rates and desired occupancy for the
2008/2009 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 increased by $0.7 million, to $29.7
million in 2007 as compared to $29.0 million in 2006. This increase
was primarily the result of an increase in maintenance costs, payroll and bad
debt expense, offset by utility savings and marketing cost savings related to
our early lease-up for the 2007/2008 academic year. We anticipate
that operating expenses in 2008 will increase slightly as compared with 2007 as
a result of expected increases in utility costs, insurance costs, property taxes
and general inflation.
On-Campus
Participating Properties (“OCPP”) Operations
Same Store OCPP
Operations. We had four on-campus participating properties
containing 4,519 beds which were operating during both 2007 and
2006. Revenues from our same store on-campus participating properties
increased to $21.0 million in 2007 from $20.0 million in 2006, an increase of
$1.0 million. This increase was primarily due to an increase in
average occupancy from 73.1% in 2006 to 78.2% in 2007, as well as an increase in
average rental rates.
At these
existing properties, operating expenses increased to $9.4 million in 2007 from
$9.0 million in 2006, an increase of $0.4 million. This increase was
primarily the result of an increase in maintenance costs incurred at one of our
on-campus participating properties and an increase in bad debt expense at
another one of our on-campus participating properties. We anticipate
that operating expenses in 2008 will increase slightly as compared with 2007 as
a result of expected increases in utility costs, insurance costs and general
inflation.
Third-Party
Development Services Revenue
Third-party
development services revenue decreased by $0.3 million from $5.8 million in 2006
to $5.5 million in 2007. This decrease was primarily due to fewer
projects in progress during 2007 as compared to 2006. We had seven
projects in progress during 2007 with an average contractual fee of
approximately $1.7 million, as compared to 2006 in which we had nine projects in
progress with an average contractual fee of approximately $1.6
million. We anticipate third-party development services revenue to
increase in 2008 due to awards in 2007 that are expected to commence during
2008. 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 increased by $0.3 million from $2.5 million in 2006
to $2.8 million in 2007. This increase was primarily the result of
the commencement of four management contracts in August 2006 and four management
contracts in the fourth quarter of 2007, which was offset by the discontinuation
of the Texas State University System management contracts in July
2006. We anticipate that third-party management services revenues in
2008 will increase as compared with 2007, primarily as a result of the
previously mentioned contracts obtained during the fourth quarter of
2007.
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 $0.2
million from $1.4 million in 2006 to $1.6 million in 2007. This
increase was primarily due to additional revenue earned during 2007 from the
acquired properties discussed above and the completion of construction and
opening of Callaway Villas in August 2006 and University Centre in August
2007. 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 2008 as compared to 2007 as additional revenues are generated
from the timing of acquisitions and development properties placed into
service.
General
and Administrative
General
and administrative expenses increased approximately $11.4 million, from $6.3
million in 2006, to $17.7 million in 2007. This increase was
primarily due to a compensation charge of $10.4 million recorded in 2007 related
to the Company’s 2004 Outperformance Bonus Plan, which is more fully discussed
in Note 12 in the accompanying Notes to Consolidated Financial Statements
contained in Item 8 herein. In addition, we experienced an increase
in payroll and other related costs as a result of overall increases in corporate
staffing levels due to the recent growth in our owned property portfolio from
the property acquisitions and owned developments completed in 2007 and
2006. We anticipate general and administrative expenses to decrease
in 2008 as a result of the $10.4 million compensation charge recorded in 2007,
offset by anticipated increases in payroll and other related costs in 2008 as a
result of the previously mentioned increases in corporate staffing levels
experienced as a result of the recent growth of our owned portfolio and the
expected closing of the Mergers.
Depreciation
and Amortization
Depreciation
and amortization increased approximately $5.5 million from $24.9 million in 2006
to $30.4 million in 2007. This increase was due to the acquisition of
four properties during the first quarter of 2007, the acquisition of the
13-property Royal Portfolio in March 2006, the completion of construction and
opening of an owned development project in August 2006 and the completion of
construction and opening of another owned development project in August
2007. In conjunction with the acquisition of the four properties
during the first quarter of 2007 and the 13-property Royal Portfolio on March 1,
2006, 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 $1.2 million and $2.3 million of additional
depreciation and amortization expense in 2007 and 2006, respectively, a decrease
of $1.1 million. We expect depreciation and amortization in 2008 to
increase from 2007 primarily due to a full year’s depreciation on properties
acquired and placed in service during 2007, the $18.1 million of recently
completed 2008 acquisitions and the addition of the GMH properties to our
portfolio.
Amortization
of deferred financing costs remained relatively constant at $1.3 million for
both 2007 and 2006. We expect amortization of deferred financing
costs in 2008 to increase due to properties acquired in 2007, the recently
completed 2008 acquisitions and the addition of the GMH properties to our
portfolio.
Ground
Lease Expense
Ground
lease expense increased by $0.8 million, from $0.8 million in 2006 to $1.6
million in 2007. This increase was primarily the result of the
refinancing of the Cullen Oaks loans in February 2007, which reduced debt
service expense and therefore increased the amount of cash flow available for
distribution. In addition, we experienced a significant decrease in
vacancies at one of our other on-campus participating properties which increased
the amount of cash flow available for distribution.
Interest
Income
Interest
income increased by approximately $0.3 million, from $1.2 million in 2006 to
$1.5 million in 2007. This increase was primarily due to interest
earned during 2007 on the remaining proceeds from our September 2006 equity
offering and net proceeds from the disposition of an owned off-campus property
in December 2006.
Interest
Expense
Interest
expense increased approximately $2.0 million, from $25.9 million in 2006 to
$27.9 million in 2007. This increase was primarily due to $5.4
million of additional interest incurred in 2007 associated with debt assumed or
incurred in connection with the previously mentioned 2007 and 2006 property
acquisitions, net of the amortization of debt premiums and discounts recorded to
reflect the market value of debt assumed. This increase was offset by
a $2.0 million decrease in interest expense on our revolving credit facility as
a result of a decrease in the weighted average balance from $41.1 million to
$8.4 million for the years ended December 31, 2006 and 2007,
respectively. In addition, capitalized interest increased by $1.2
million as a result of more owned properties being under development during 2007
as compared to 2006. We anticipate that interest expense in 2008 will
increase from 2007 levels due to interest expense assumed or incurred in
connection with property acquisitions and the Mergers.
Loss
from unconsolidated joint venture
We own an
equity interest in a joint venture that owns a military housing privatization
project with the United States Navy, as discussed in Note 10 in the accompanying
Notes to Consolidated Financial Statements contained in Item 8
herein. In December 2007, the joint venture closed and obtained
financing through taxable revenue bonds and our share of the loss from the joint
venture is reflected under loss from unconsolidated joint venture in the
consolidated statement of operations for the year ended December 31,
2007.
Income
Taxes
The
income tax provision of $0.8 million in 2007 is primarily the result of the
write-off of the Company’s deferred tax asset. In August 2007, in
connection with the vesting of the Company’s Outperformance Bonus Plan discussed
in Note 12 in the accompanying Notes to Consolidated Financial Statements
contained in Item 8 herein, a portion of the compensation expense associated
with the awards was recorded by the TRS. As a result, it was
determined that it was more likely than not that we would not realize the
benefit of the deferred tax asset and increased the valuation allowance by a
discrete item of $0.5 million. In addition, the Texas Governor signed
into law a Texas margin tax which restructured the state business tax by
replacing the taxable capital components of the franchise tax with a "taxable
margin" component. The Texas margin tax became effective in 2007, and
as a result, we incurred tax expense of approximately $0.2 million for the year
ended December 31, 2007.
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
The
variance in minority interests is primarily due to the Company’s net loss
position for 2007 as compared to the Company’s net income position for
2006. Minority interests represent external partners in our Operating
Partnership as well as certain third-party partners in joint ventures
consolidated by us for financial reporting purposes. Accordingly,
these external partners are allocated their share of income/loss during the
respective reporting periods
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 $18.6 million is included in discontinued operations for the year
ended December 31, 2006. The net operating income attributable to
this property is included in discontinued operations for the year ended December
31, 2006.
Please
refer to Note 6 in the accompanying Notes to Consolidated Financial Statements
contained in Item 8 herein for a table summarizing the results of operations of
the properties sold during the years ended December 31, 2006 and
2005.
Comparison
of the Years Ended December 31, 2006 and December 31, 2005
The
following table presents our results of operations for the years ended December
31, 2006 and 2005, including the amount and percentage change in these results
between the two periods.
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change($)
|
|
|
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, 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.
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.
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.
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.
Resident
Services
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.
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.
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.
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.
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.
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.
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
Financial Statements contained in Item 8 herein for a detailed description of
minority interests.
Discontinued
Operations
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 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.
Cash
Flows
Comparison
of Years Ended December 31, 2007 and December 31, 2006
Operating
Activities
For the
year ended December 31, 2007, net cash provided by operating activities before
changes in working capital accounts provided $34.5 million, as compared to $32.3
million for the year ended December 31, 2006, an increase of $2.2 million.
Changes in working capital accounts utilized $5.5 million for the year ended
December 31, 2007 while working capital accounts provided $2.9 million for the
year ended December 31, 2006, a decrease of $8.4 million. This
decrease was primarily due to the partial payment in 2007 of secured promissory
notes and cash retained by us related to the acquisition of the Royal Portfolio
in March 2006. In addition, we experienced an increase in accounts
receivable from our third-party development services due to a significant
increase in projects awarded during 2007 that are expected to commence during
2008.
Investing
Activities
Investing
activities utilized $187.6 million and $102.7 million for the years ended
December 31, 2007 and 2006, respectively. The increase in cash
utilized in investing activities during the year ended December 31, 2007 is
partly due to a $50.7 million increase in cash used to fund the construction of
our owned development properties. During the year ended December 31,
2007, four owned properties were under development, of which one was completed
and opened for occupancy in August 2007. During the year ended
December 31, 2006, three owned properties were under development, of which one
was completed and opened for occupancy in August 2006. The increase
in cash utilized in investing activities is also related to proceeds received
from the sale of our owned off-campus property, The Village on University, in
December 2006. These increases were offset by a $16.5 million
decrease in the use of cash to acquire properties. We acquired the
13-property Royal Portfolio in 2006 as compared to four properties acquired in
2007. For the years ended December 31, 2007, 2006 and 2005, our cash
utilized in investing activities was comprised of the
following:
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Property
disposition
|
|
$ |
- |
|
|
$ |
50,045 |
|
|
$ |
28,023 |
|
Property
and land acquisitions
|
|
|
(53,205 |
) |
|
|
(69,697 |
) |
|
|
(72,763 |
) |
Capital
expenditures for on-campus participating properties
|
|
|
(480 |
) |
|
|
(483 |
) |
|
|
(489 |
) |
Capital
expenditures for owned properties
|
|
|
(8,097 |
) |
|
|
(6,887 |
) |
|
|
(3,639 |
) |
Investments
in on-campus participating properties under development
|
|
|
- |
|
|
|
- |
|
|
|
(15,398 |
) |
Renovation
expenditures for owned off-campus property
|
|
|
- |
|
|
|
(1,662 |
) |
|
|
- |
|
Investments
in owned properties under development
|
|
|
(123,723 |
) |
|
|
(73,048 |
) |
|
|
(47,398 |
) |
Purchase
of corporate furniture, fixtures, and equipment
|
|
|
(486 |
) |
|
|
(986 |
) |
|
|
(742 |
) |
Investment
in unconsolidated joint venture
|
|
|
(1,600 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of option to acquire interest in student housing property
|
|
|
- |
|
|
|
- |
|
|
|
651 |
|
Total
|
|
$ |
(187,591 |
) |
|
$ |
(102,718 |
) |
|
$ |
(111,755 |
) |
Financing
Activities
Cash
provided by financing activities totaled $91.5 million and $121.9 million for
the years ended December 31, 2007 and 2006, respectively. The
decrease in cash provided by financing activities was partly the result of our
equity offering in September 2006 which raised $133.2 million, net of offering
costs, as compared to the $98.8 million, net of offering costs, raised in our
October 2007 equity offering. In addition, there was an $8.4 million
increase in distributions to common and restricted stockholders and minority
partners as a result of the September 2006 and October 2007 equity offerings and
the issuance of common and preferred units in the Operating Partnership as
partial consideration for the purchase of the Royal Portfolio. These
decreases were offset by a $9.6 million increase in proceeds received from our
revolving credit facility, net of paydowns. In addition, there was an
$2.9 million increase in the change of our construction accounts payable balance
as a result of an increase in owned development activity financed with
construction loans in 2007 as compared to 2006.
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 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.
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.
Structure
of Owned On-campus Properties
We have
entered into two 65-year ground/facility leases (each with two ten-year
extensions available) with a university system to finance, construct, and manage
two student housing facilities, which are currently under construction with
scheduled completion dates of August 2008 and August 2009. Under the
terms of these ground/facility leases, the university system owns both the land
and improvements, and we will make annual minimum rent payments to the
university system during the first five years of operation for one property and
the first ten years of operation for the other property. In addition,
we will pay the university system variable rent payments based upon the
operating performance of the properties.
Structure
of On-campus Participating Properties
At our
on-campus participating properties, the subject universities own both the land
and improvements. We then have a leasehold interest under a
ground/facility lease. Under the lease, we receive an annual
distribution representing 50% of these properties’ net cash available for
distribution after payment of operating expenses (which includes our management
fees), debt service (which includes repayment of principal) and capital
expenditures. We also manage these properties under multi-year
management agreements and are paid a management fee representing 5% of
receipts.
We do not
have access to the cash flows and working capital of these participating
properties except for the annual net cash distribution as described
above. Additionally, a substantial portion of these properties’ cash
flow is dedicated to capital reserves required under the applicable property
indebtedness and to the amortization of such indebtedness. These
amounts do not increase our economic interest in these properties since our
interest, including our right to share in the net cash available for
distribution from the properties, terminates upon the amortization of their
indebtedness. Our economic interest in these properties is therefore
limited to our interest in the net cash flow and management and development fees
from these properties, as reflected in our calculation of Funds from Operations
modified for the operational performance of on-campus participating properties
(“FFOM”) contained herein. Accordingly, when considering these
properties’ contribution to our operations, we focus upon our share of these
properties’ net cash available for distribution and the management fees that we
receive from these properties, rather than upon their contribution to our gross
revenues and expenses for financial reporting purposes.
The
following table reflects the amounts related to our on-campus participating
properties included in our consolidated financial statements for the years ended
December 31, 2007, 2006, and 2005:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Revenues
|
|
$ |
20,966 |
|
|
$ |
19,960 |
|
|
$ |
18,470 |
|
Direct
operating expenses (1)
|
|
|
(8,701 |
) |
|
|
(8,382 |
) |
|
|
(7,738 |
) |
Amortization
|
|
|
(4,263 |
) |
|
|
(4,131 |
) |
|
|
(3,661 |
) |
Amortization
of deferred financing costs
|
|
|
(189 |
) |
|
|
(241 |
) |
|
|
(234 |
) |
Ground/facility
lease (2)
|
|
|
(1,622 |
) |
|
|
(857 |
) |
|
|
(873 |
) |
Net
operating income
|
|
|
6,191 |
|
|
|
6,349 |
|
|
|
5,964 |
|
Interest
income
|
|
|
359 |
|
|
|
330 |
|
|
|
178 |
|
Interest
expense (3) (4)
|
|
|
(6,225 |
) |
|
|
(6,447 |
) |
|
|
(5,718 |
) |
Net
income
|
|
$ |
325 |
|
|
$ |
232 |
|
|
$ |
424 |
|
(1)
|
Excludes
property management fees of $1.0 million for the year ended December 31,
2007 and $0.9 million for both the years ended December 31, 2006 and
2005. This expense and the corresponding fee revenue recognized
by us have been eliminated in consolidation. Also excludes allocation of
expenses related to corporate management and oversight.
|
|
|
(2)
|
Represents
the universities’ 50% share of the properties’ net cash available for
distribution after payment of operating expenses, debt service (including
payment of principal) and capital expenditures.
|
|
|
(3)
|
Interest
expense is net of approximately $0.2 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 $8.4 million, $8.7
million and $7.8 million for the years ended December 31, 2007, 2006 and
2005, respectively.
|
Liquidity
and Capital Resources
Cash
Balances and Liquidity
As of
December 31, 2007, excluding our on-campus participating properties, we had
$18.4 million in cash and cash equivalents and restricted cash as compared to
$83.5 million in cash and cash equivalents and restricted cash as of December
31, 2006. This decrease was primarily due to the use of the remaining
proceeds from our September 2006 equity offering and December 2006 disposition
of an owned off-campus property, The Village on University, to fund our 2007
property acquisitions and the construction of our owned development
projects. In October 2007, we completed an equity offering which
generated net proceeds of approximately $98.7. We used $47.9 million
of the equity offering proceeds to pay off the balance on our revolving credit
facility and $43.9 million to pay off the University Centre construction
loan. 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, 2007 also
included $0.4 million of funds held in escrow in connection with potential
property acquisitions and development opportunities.
As of
December 31, 2007, 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 $37.1 million based on an
anticipated annual distribution of $1.35 per share based on the number of our
shares outstanding as of December 31, 2007, 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 $2.2 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 outstanding as of December 31, 2007, (iii) funds for potential
future acquisitions including approximately $10.9 million used toward the
purchase of two properties in February 2008, (iv) remaining development costs on
Barrett Honors College (formerly component II of the Arizona State University
project), estimated to be approximately $59.5 million, and (v) funds for other
potential future development projects. We expect to meet our
short-term liquidity requirements generally through 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 $261 million of
debt securities, preferred stock, common stock and securities
warrants.
We may
seek additional funds to undertake the Mergers and other initiatives 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.
2007
Equity Offering
On
October 10, 2007, we completed an equity offering, consisting of the sale of
3,500,000 shares of our common stock at a price of $28.29 per share, resulting
in gross proceeds of approximately $99.0 million. We received
approximately $98.7 million in net proceeds after deducting offering costs of
approximately $0.3 million. We used $47.9 million of these proceeds
to repay the outstanding balance on our revolving credit facility and $43.9
million of the proceeds were used to pay off the construction loan for
University Centre, our recently completed owned off-campus
property.
Vista
del Sol Financing
In
December 2006, we obtained a construction loan in the amount of $100.0 million
to fund a portion of the development and construction of Vista del Sol, an owned
on-campus property scheduled to open for occupancy in August 2008. We
began making draws under the loan in September 2007. The loan has an
initial term of 36 months and for each borrowing we have the option of choosing
the Prime rate or one-, two-, or three-month LIBOR plus 1.45%. The
interest rate may be reduced to LIBOR plus 1.20% once construction of the
property is complete and certain operations hurdles are met. 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 December
27, 2009. The term of the loan can be extended through December 2011
through the exercise of two 12-month extension periods. As of
December 31, 2007, the balance outstanding on the construction loan totaled
$29.8 million, bearing interest at a weighted average rate of
6.48%.
Villas
at Chestnut Ridge Financing
In June
2007, we obtained a construction loan in the amount of $31.6 million to fund a
portion of the development and construction of Villas at Chestnut Ridge, an
owned off-campus property scheduled to open for occupancy in August
2008. We began making draws under the loan in July
2007. The loan has an initial term of 24 months and for each
borrowing we have the option of choosing the Prime rate or one-, two-, three-,
or six-month LIBOR plus 1.25%. 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 June 4, 2009. The term
of the loan can be extended through June 2010 through the exercise of a 12-month
extension period. As of December 31, 2007, the balance outstanding on
the construction loan totaled $13.8 million, bearing interest at a weighted
average rate of 6.4%.
Revolving
Credit Facility
The
Operating Partnership has a $115 million revolving credit facility, which may be
expanded by up to an additional $110 million upon the satisfaction of certain
conditions. We anticipate increasing the size of the facility to $160
million in 2008. The maturity date of the facility is August 17, 2009
and we 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, we are required to pay an unused commitment
fee ranging from 0.15% to 0.20% per annum, depending on the aggregate unused
balance. As of December 31, 2007, the balance outstanding on the
revolving credit facility totaled $9.6 million, bearing interest at a weighted
average rate of 6.97%, with remaining availability under the facility (subject
to the satisfaction of certain financial covenants) totaling approximately
$103.8 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, as adjusted, for any four consecutive quarters. The
financial covenants also include consolidated net worth and leverage ratio
tests. As of December 31, 2007, 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 30, 2008, we declared a fourth quarter 2007 distribution per share of
$0.3375 which was paid on February 29, 2008, to all common stockholders of
record as of February 15, 2008. 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 properties are set forth
below:
|
|
As
of and for the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Average
beds
|
|
|
19,125 |
|
|
|
15,995 |
|
|
|
9,941 |
|
Total
recurring capital expenditures
|
|
$ |
3,390 |
|
|
$ |
2,758 |
|
|
$ |
1,828 |
|
Average
per bed
|
|
$ |
177 |
|
|
$ |
172 |
|
|
$ |
184 |
|
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, 2007, we have deferred approximately $3.6
million in pre-development costs related to third-party and owned development
projects that have not yet commenced construction.
Indebtedness
As of
December 31, 2007, we had approximately $538.7 million of outstanding
consolidated indebtedness (excluding net unamortized debt premiums/discounts of
approximately $4.3 million), comprised of a $9.6 million balance on our
unsecured revolving credit facility, $440.9 million in mortgage and construction
loans secured by 32 of our wholly owned properties, $33.2 million in mortgage
loans secured by two phases of an on-campus participating property, and $55.0
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, 2007 was 6.49%. As of December 31,
2007, approximately 9.8% of our total consolidated indebtedness was variable
rate debt, comprised of our revolving credit facility and our Vista del Sol and
Villas at Chestnut Ridge construction loans discussed below.
Wholly
Owned Properties
The
weighted average interest rate of the $440.9 million of wholly owned property
mortgage and construction debt was 6.35% as of December 31,
2007. Each of the mortgage loans 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 October 2007 equity offering, we paid off the entire $43.9
million balance of the construction loan for University Centre, an owned
off-campus property which completed construction and opened for occupancy in
August 2007.
The
development and construction of Vista del Sol, an owned on-campus property
scheduled to complete construction and open for occupancy in August 2008, is
partially financed with a $100.0 million construction loan. For each
borrowing we have the option of choosing the Prime rate or one-, two-, or
three-month LIBOR plus 1.45%. The interest rate may be reduced to
LIBOR plus 1.20% once construction of the property is complete and certain
operations hurdles are met. 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 December 27, 2009. The
term of the loan can be extended through December 2011 through the exercise of
two 12-month extension periods. As of December 31, 2007, the balance
outstanding on the construction loan totaled $29.8 million, bearing interest at
a weighted average rate of 6.48%.
The
development and construction of Villas at Chestnut Ridge, an owned off-campus
property scheduled to complete construction and open for occupancy in August
2008, is partially financed with a $31.6 million construction
loan. For each borrowing we have the option of choosing the Prime
rate or one-, two-, three-, or six-month LIBOR plus 1.25%. 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 June 4,
2009. The term of the loan can be extended through June 2010 through
the exercise of a 12-month extension period. As of December 31, 2007,
the balance outstanding on the construction loan totaled $13.8 million, bearing
interest at a weighted average rate of 6.4%.
On-Campus
Participating Properties
Three of
our on-campus participating properties are 100% financed with $55.0 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 and Phase II loans are currently encumbered by mortgage loans with
balances as of December 31, 2007 of approximately $16.5 million and $16.7
million, respectively. In February 2007, we extended the maturity
date of these loans to February 2014. The 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 on the Cullen Oaks Phase I
loan and entered into a new interest rate swap agreement 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%. 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. We have guaranteed payment of this property’s
indebtedness.
The
weighted average interest rate of the indebtedness encumbering our on-campus
participating properties was 7.17% at December 31, 2007.
We do not
have any off-balance sheet arrangements.
Contractual
Obligations
The
following table summarizes our contractual obligations as of December 31,
2007:
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
Long-term
debt (1)
|
|
$ |
706,727 |
|
|
$ |
40,154 |
|
|
$ |
141,988 |
|
|
$ |
82,423 |
|
|
$ |
72,607 |
|
|
$ |
85,533 |
|
|
$ |
284,022 |
|
Operating
leases
(2)
|
|
|
47,431 |
|
|
|
1,383 |
|
|
|
1,624 |
|
|
|
1,626 |
|
|
|
1,261 |
|
|
|
1,293 |
|
|
|
40,244 |
|
Capital
leases
|
|
|
3,200 |
|
|
|
974 |
|
|
|
842 |
|
|
|
663 |
|
|
|
526 |
|
|
|
195 |
|
|
|
- |
|
Owned
development project (3)
|
|
|
117,882 |
|
|
|
59,499 |
|
|
|
58,383 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
875,240 |
|
|
$ |
102,010 |
|
|
$ |
202,837 |
|
|
$ |
84,712 |
|
|
$ |
74,394 |
|
|
$ |
87,021 |
|
|
$ |
324,266 |
|
|
(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, 2007 was assumed to remain
constant over all periods presented.
|
|
|
|
|
(2)
|
Includes
minimum annual lease payments under the ground/facility leases for
University Village at TU, University Centre (formerly Village at Newark),
Vista del Sol and Barrett Honors College.
|
|
|
|
|
(3)
|
Consists
of the completion costs related to Barrett Honors College, which will be
funded entirely by us through our ACE program and is scheduled to be
completed in August 2009. 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 (loss)
income:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net
(loss) income
|
|
$ |
(1,686 |
) |
|
$ |
22,597 |
|
|
$ |
9,662 |
|
Minority
interests
|
|
|
255 |
|
|
|
2,038 |
|
|
|
164 |
|
Gain
from disposition of real estate
|
|
|
- |
|
|
|
(18,648 |
) |
|
|
(5,883 |
) |
Loss
from unconsolidated joint venture (1)
|
|
|
108 |
|
|
|
- |
|
|
|
- |
|
FFO
from unconsolidated joint venture (1)
|
|
|
(108 |
) |
|
|
- |
|
|
|
- |
|
Real
estate related depreciation
and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
depreciation and amortization
|
|
|
30,444 |
|
|
|
25,499 |
|
|
|
16,471 |
|
Corporate
furniture, fixtures, and equipment Depreciation
|
|
|
(620 |
) |
|
|
(543 |
) |
|
|
(439 |
) |
Funds
from operations (“FFO”) (2)
|
|
$ |
28,393 |
|
|
$ |
30,943 |
|
|
$ |
19,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
per share – diluted (2)
|
|
$ |
1.08 |
|
|
$ |
1.48 |
|
|
$ |
1.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - diluted
|
|
|
26,266,836 |
|
|
|
20,967,946 |
|
|
|
15,047,202 |
|
|
(1)
|
Represents
an unconsolidated joint venture which closed in December
2007. Our share of the FFO from this unconsolidated joint
venture is included for purposes of calculating FFO but is excluded for
purposes of calculating FFOM, as management believes this amount does not
accurately reflect our participation in the economics of the
transaction. For the year ended December 31, 2007, our share of
the venture’s FFO equals our share of the net loss, as there was no
depreciation expense incurred during the period.
|
|
|
|
|
(2)
|
During
the year ended December 31, 2007, we recorded a compensation charge and
related tax impact of approximately $10.9 million, or $0.42 per fully
diluted share, related to the 2004 Outperformance Bonus
Plan. Excluding this compensation charge and related tax
impact, FFO for the year ended December 31, 2007 would have been $39.3
million, or $1.50 per fully diluted share. For a detailed
discussion of the 2004 Outperformance Bonus Plan, refer to Note 12 in the
accompanying Notes to Consolidated Financial Statements contained in Item
8 herein.
|
While our
on-campus participating properties contributed $21.0 million, $20.0 million and
$18.5 million to our revenues for the years ended December 31, 2007, 2006, and
2005, respectively, under our participating ground leases, we and the
participating university systems each receive 50% of the properties’ net cash
available for distribution after payment of operating expenses, debt service
(which includes significant amounts towards repayment of principal) and capital
expenditures. A substantial portion of our revenues attributable to these
properties is reflective of cash that is required to be used for capital
expenditures and for the amortization of applicable property indebtedness. These
amounts do not increase our economic interest in these properties or otherwise
benefit us since our interest in the properties terminates upon the repayment of
the applicable property indebtedness.
As noted
above, FFO excludes GAAP historical cost depreciation and amortization of real
estate and related assets because these GAAP items assume that the value of real
estate diminishes over time. However, unlike the ownership of our owned
off-campus properties, the unique features of our ownership interest in our
on-campus participating properties cause the value of these properties to
diminish over time. For example, since the ground/facility leases under which we
operate the participating properties require the reinvestment from operations of
specified amounts for capital expenditures and for the repayment of debt while
our interest in these properties terminates upon the repayment of the debt, such
capital expenditures do not increase the value of the property to us and
mortgage debt amortization only increases the equity of the ground lessor.
Accordingly, when considering our FFO, we believe it is also a meaningful
measure of our performance to modify FFO to exclude the operations of our
on-campus participating properties and to consider their impact on performance
by including only that portion of our revenues from those properties that are
reflective of our share of net cash flow and the management fees that we
receive, both of which increase and decrease with the operating measure of the
properties, a measure referred to herein as FFOM.
Funds
From Operations—Modified for Operational Performance of On-Campus Participating
Properties (“FFOM”):
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Funds
from operations
|
|
$ |
28,393 |
|
|
$ |
30,943 |
|
|
$ |
19,975 |
|
Elimination
of operations of on-campus participating
properties and unconsolidated joint
venture:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from on-campus participating properties
|
|
|
(325 |
) |
|
|
(232 |
) |
|
|
(424 |
) |
Amortization
of investment in on-campus participating properties
|
|
|
(4,263 |
) |
|
|
(4,131 |
) |
|
|
(3,661 |
) |
FFO
from unconsolidated joint venture (1)
|
|
|
108 |
|
|
|
- |
|
|
|
- |
|
|
|
|
23,913 |
|
|
|
26,580 |
|
|
|
15,890 |
|
Modifications
to reflect operational performance of on-campus participating
properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
share of net cash flow (2)
|
|
|
1,398 |
|
|
|
861 |
|
|
|
842 |
|
Management
fees
|
|
|
973 |
|
|
|
920 |
|
|
|
878 |
|
On-campus
participating properties development fees (3)
|
|
|
- |
|
|
|
279 |
|
|
|
1,275 |
|
Impact
of on-campus participating properties
|
|
|
2,371 |
|
|
|
2,060 |
|
|
|
2,995 |
|
Funds
from operations – modified for operational performance of
on-campus participating properties “FFOM”) (4)
|
|
$ |
26,284 |
|
|
$ |
28,640 |
|
|
$ |
18,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFOM per share –
diluted (4)
|
|
$ |
1.00 |
|
|
$ |
1.37 |
|
|
$ |
1.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - diluted
|
|
|
26,266,836 |
|
|
|
20,967,946 |
|
|
|
15,047,202 |
|
|
(1)
|
Represents
an unconsolidated joint venture which closed in December
2007. Our share of the FFO from this unconsolidated joint
venture is included for purposes of calculating FFO but is excluded for
purposes of calculating FFOM, as management believes this amount does not
accurately reflect our participation in the economics of the
transaction. For the year ended December 31, 2007, our share of
the venture’s FFO equals our share of the net loss, as there was no
depreciation expense incurred during the period.
|
|
|
|
|
(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.
|
|
|
|
|
(4)
|
During
the year ended December 31, 2007, we recorded a compensation charge and
related tax impact of approximately $10.9 million, or $0.42 per fully
diluted share, related to the 2004 Outperformance Bonus
Plan. Excluding this compensation charge and related tax
impact, FFOM for the year ended December 31, 2007 would have been $37.2
million, or $1.42 per fully diluted share. For a detailed
discussion of the 2004 Outperformance Bonus Plan, refer to Note 12 in the
accompanying Notes to Consolidated Financial Statements contained in Item
8 herein.
|
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, 2007 and 2006 we had fixed rate debt of $430.4 million and $331.6
million, respectively. Holding other variables constant (such as debt
levels), a one percentage point increase in interest rates (100 basis points)
would cause a $16.8 million and $13.6 million decline in the fair value of our
fixed rate debt as of December 31, 2007 and 2006,
respectively. Conversely, a one percentage point decrease in interest
rates would cause a $17.8 million and $14.3 million increase in the fair value
of our fixed rate debt as of December 31, 2007 and 2006,
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, 2007 or
2006.
All of
our outstanding indebtedness is fixed rate except for our revolving credit
facility and our Vista del Sol and Villas at Chestnut Ridge construction
loans. Our revolving credit facility had an outstanding balance of
$9.6 million at December 31, 2007 and bears interest at the lender’s Prime rate
or LIBOR plus, in each case, a spread based on our total
leverage. The Vista del Sol construction loan had an outstanding
balance of $29.8 million at December 31, 2007 and bears interest at the lender’s
Prime rate or LIBOR plus 1.45%, at our election. The Villas at
Chestnut Ridge construction loan had an outstanding balance of $13.8 million at
December 31, 2007 and bears interest at the lender’s Prime rate or LIBOR plus
1.25%, 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 and Phase II mortgage
loans at 6.69% through maturity in 2014. 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.
Item
9A. Controls and Procedures
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, 2007. Based upon
this assessment, our management believes that our internal control over
financial reporting is effective as of December 31, 2007.
PART
III
The
information required by Part III is incorporated by reference from our
definitive proxy statement for our 2008 Annual Meeting of
Stockholders.
Item
10. Directors, Executive Officers and Corporate
Governance
The
information contained in the sections captioned “Board of Directors – Board
Composition”, “Executive and Senior Officers”, “Board of Directors – Board
Committees”, “Governance of the Company – Guidelines on Governance and Codes of
Ethics” and “Section 16(a) Beneficial Ownership Reporting Compliance” of the
definitive proxy statement is incorporated herein by reference.
Item
11. Executive Compensation
The
information contained in the section captioned “Executive Compensation – Summary
Compensation Table”, “Executive Compensation – Grant of Plan Based Awards”,
“Executive Compensation - Employment Contracts”, “Executive Compensation -
Outstanding Equity Awards at Fiscal Year-End”, “Executive Compensation - Awards
Vested”, “Executive Compensation - Potential Payments Upon Termination or Change
in Control”, “Executive Compensation - Compensation Committee Interlocks and
Insider Participation” and “Compensation of Directors” 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 “Audit Committee Information –
Independent Auditor Fees” of the definitive proxy statement is incorporated
herein by reference.
PART
IV
Item
15. Exhibits and Financial Statement Schedules
(a) Financial
Statements
The
following consolidated 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, 2007 and December 31,
2006
|
F-3
|
Consolidated
Statements of Operations for the years ended December 31, 2007, 2006 and
2005
|
F-4
|
Consolidated
Statements of Changes in Stockholders’ Equity for the years ended December
31, 2007, 2006 and 2005
|
F-5
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2007, 2006 and
2005
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-7
|
(b)
Exhibits
Exhibit
|
|
Number
|
Description of
Document
|
2.1
|
Agreement
and Plan of Merger, dated as of February 11, 2008, among GMH Communities
Trust, GMH Communities, Inc., GMH Communities, LP, American Campus
Communities, Inc., American Campus Communities Operating Partnership LP,
American Campus Communities Acquisition LLC and American Campus
Communities Acquisition Limited Partnership. 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 14,
2008.
|
|
|
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*
|
Amendment
No. 1 to American Campus Communities, Inc. 2004 Incentive Award
Plan. 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 November 5, 2007.
|
|
|
10.5*
|
Amendment
No. 2 to American Campus Communities, Inc. 2004 Incentive Award
Plan. 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 11, 2008.
|
10.6
|
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.
|
|
|
10.7
|
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.
|
|
|
10.8
|
Form
of PIU Grant Notice (including Registration Rights), dated as of August
20, 2007. Incorporated by reference to Exhibit 99.1 to o
Current Report on Form 8-K of American Campus Communities, Inc. (File No.
001-32265) filed on August 23, 2007.
|
|
|
10.9
|
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.
|
|
|
10.10
|
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.
|
|
|
10.11
|
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.
|
|
|
10.12
|
Amendment
No. 2 to Employment Agreement, dated as of November 1, 2007, between
American Campus Communities, Inc. and William C. Bayless,
Jr. 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 November 5, 2007.
|
|
|
10.13
|
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.
|
|
|
10.14
|
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.
|
|
|
10.15
|
Amendment
No. 2 to Employment Agreement, dated as of November 1, 2007, between
American Campus Communities, Inc. and Brian B.
Nickel. 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 November 5, 2007.
|
|
|
10.16
|
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.
|
|
|
10.17
|
Amendment
No. 1 to Employment Agreement, dated as of November 1, 2007, between
American Campus Communities, Inc. and James C.
Hopke. 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 November 5, 2007.
|
|
|
10.18
|
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.
|
|
|
10.19
|
Amendment
No. 1 to Employment Agreement, dated as of November 1, 2007, between
American Campus Communities, Inc. and Greg A.
Dowell. 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 November 5,
2007.
|
10.20
|
Employment
Agreement, dated as of November 1, 2007, between American Campus
Communities, Inc. and Jonathan A. Graf. 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 November 5,
2007.
|
|
|
10.21
|
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.
|
|
|
10.22
|
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.
|
|
|
10.23
|
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.
|
|
|
10.24
|
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.
|
|
|
10.25
|
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.
|
|
|
10.26
|
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.
|
|
|
10.27
|
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.
|
10.28
|
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.
|
|
|
10.29
|
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.
|
|
|
10.30
|
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.
|
|
|
21.1
|
List
of Subsidiaries of the Registrant.
|
|
|
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
17, 2008
|
AMERICAN
CAMPUS COMMUNITIES, INC.
|
|
|
|
|
|
|
|
|
|
|
By:
|
U/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.
UNameU
|
|
UTitleU
|
|
UDateU
|
|
|
|
|
|
U/s/ William C. Bayless,
Jr.
|
|
President,
Chief Executive Officer and Director
|
|
March
17, 2008
|
William
C. Bayless, Jr.
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
U/s/ Brian B. Nickel
|
|
Senior
Executive Vice President, Chief Investment
|
|
March
17, 2008
|
Brian
B. Nickel
|
|
Officer,
Secretary and Director |
|
|
|
|
|
|
|
U/s/ Jonathan A. Graf
|
|
Executive
Vice President, Chief Financial Officer and
|
|
March
17, 2008
|
Jonathan
A. Graf
|
|
Treasurer
(Principal
Financial Officer) |
|
|
|
|
|
|
|
U/s/ R.D. BurckU
|
|
Chairman
of the Board of Directors
|
|
March
17, 2008
|
R.D.
Burck
|
|
|
|
|
|
|
|
|
|
U/s/ G. Steven Dawson
|
|
Director
|
|
March
17, 2008
|
G.
Steven Dawson
|
|
|
|
|
|
|
|
|
|
U/s/ Cydney DonnellU
|
|
Director
|
|
March
17, 2008
|
Cydney
Donnell
|
|
|
|
|
|
|
|
|
|
U/s/ Edward Lowenthal
|
|
Director
|
|
March
17, 2008
|
Edward
Lowenthal
|
|
|
|
|
|
|
|
|
|
U/s/ Scott H. Rechler
|
|
Director
|
|
March
17, 2008
|
Scott
H. Rechler
|
|
|
|
|
|
|
|
|
|
U/s/ Winston W. Walker
|
|
Director
|
|
March
17, 2008
|
Winston
W. Walker
|
|
|
|
|
The Board
of Directors and Shareholders of
American
Campus Communities, Inc.
We have
audited American Campus Communities, Inc.’s internal control over financial
reporting as of December 31, 2007, 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 included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on 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, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, 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, American Campus Communities, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31,
2007, 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, 2007 and 2006,
and the related consolidated statements of operations and comprehensive loss,
stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2007 of American Campus Communities, Inc. and
Subsidiaries and our report dated March 12, 2008 expressed an unqualified
opinion thereon.
Austin,
Texas
March 12,
2008
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 (the Company) as of December 31, 2007
and 2006, and the related consolidated statements of operations, stockholders’
equity and cash flows for each of the three years in the period ended
December 31, 2007. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American Campus
Communities, Inc. and Subsidiaries at December 31, 2007 and 2006 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2007, 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 Company’s internal control over financial
reporting as of December 31, 2007, 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 12, 2008
expressed an unqualified opinion thereon.
Austin,
Texas
March 12,
2008
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except share and per share data)
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in real estate:
|
|
|
|
|
|
|
Wholly
owned properties, net
|
|
$ |
947,062 |
|
|
$ |
694,197 |
|
On-campus
participating properties, net
|
|
|
72,905 |
|
|
|
76,688 |
|
Investments
in real estate, net
|
|
|
1,019,967 |
|
|
|
770,885 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
12,073 |
|
|
|
79,107 |
|
Restricted
cash
|
|
|
13,855 |
|
|
|
11,260 |
|
Student
contracts receivable, net
|
|
|
3,657 |
|
|
|
3,129 |
|
Other
assets
|
|
|
26,744 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,076,296 |
|
|
$ |
884,381 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Secured
debt
|
|
$ |
533,430 |
|
|
$ |
432,294 |
|
Unsecured
revolving credit facility
|
|
|
9,600 |
|
|
|
- |
|
Accounts
payable and accrued expenses
|
|
|
14,360 |
|
|
|
13,616 |
|
Other
liabilities
|
|
|
43,278 |
|
|
|
29,436 |
|
Total
liabilities
|
|
|
600,668 |
|
|
|
475,346 |
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
31,251 |
|
|
|
39,561 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Common
shares, $.01 par value, 800,000,000 shares authorized, 27,275,491 and
22,903,073 shares issued and outstanding at December 31, 2007 and 2006,
respectively
|
|
|
273 |
|
|
|
229 |
|
Additional
paid in capital
|
|
|
494,160 |
|
|
|
382,367 |
|
Accumulated
earnings and distributions
|
|
|
(48,181 |
) |
|
|
(13,533 |
) |
Accumulated
other comprehensive (loss) income
|
|
|
(1,875 |
) |
|
|
411 |
|
Total
stockholders’ equity
|
|
|
444,377 |
|
|
|
369,474 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
1,076,296 |
|
|
$ |
884,381 |
|
See
accompanying notes to consolidated financial statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except share and per share data)
|
|
Year Ended December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
$ |
116,286 |
|
|
$ |
89,264 |
|
|
$ |
54,287 |
|
On-campus
participating properties
|
|
|
20,966 |
|
|
|
19,960 |
|
|
|
18,470 |
|
Third-party
development services
|
|
|
5,346 |
|
|
|
5,634 |
|
|
|
5,717 |
|
Third-party
development services – on-campus participating properties
|
|
|
144 |
|
|
|
144 |
|
|
|
137 |
|
Third-party
management services
|
|
|
2,821 |
|
|
|
2,532 |
|
|
|
2,786 |
|
Resident
services
|
|
|
1,572 |
|
|
|
1,419 |
|
|
|
1,125 |
|
Total
revenues
|
|
|
147,135 |
|
|
|
118,953 |
|
|
|
82,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
off-campus properties
|
|
|
55,155 |
|
|
|
42,620 |
|
|
|
25,653 |
|
On-campus
participating properties
|
|
|
9,379 |
|
|
|
8,970 |
|
|
|
8,325 |
|
Third-party
development and management services
|
|
|
5,708 |
|
|
|
5,564 |
|
|
|
6,969 |
|
General
and administrative
|
|
|
17,660 |
|
|
|
6,278 |
|
|
|
6,714 |
|
Depreciation
and amortization
|
|
|
30,444 |
|
|
|
24,864 |
|
|
|
15,447 |
|
Ground/facility
lease
|
|
|
1,622 |
|
|
|
857 |
|
|
|
873 |
|
Total
operating expenses
|
|
|
119,968 |
|
|
|
89,153 |
|
|
|
63,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
27,167 |
|
|
|
29,800 |
|
|
|
18,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,477 |
|
|
|
1,230 |
|
|
|
825 |
|
Interest
expense
|
|
|
(27,871 |
) |
|
|
(25,937 |
) |
|
|
(17,368 |
) |
Amortization
of deferred financing costs
|
|
|
(1,340 |
) |
|
|
(1,365 |
) |
|
|
(1,176 |
) |
Loss
from unconsolidated joint venture
|
|
|
(108 |
) |
|
|
- |
|
|
|
- |
|
Other
nonoperating income
|
|
|
- |
|
|
|
- |
|
|
|
1,279 |
|
Total
nonoperating expenses
|
|
|
(27,842 |
) |
|
|
(26,072 |
) |
|
|
(16,440 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes, minority interests, and discontinued
operations
|
|
|
(675 |
) |
|
|
3,728 |
|
|
|
2,101 |
|
Income
tax provision
|
|
|
(756 |
) |
|
|
(28 |
) |
|
|
(186 |
) |
Minority
interests
|
|
|
(255 |
) |
|
|
(2,038 |
) |
|
|
(164 |
) |
(Loss)
income from continuing operations
|
|
|
(1,686 |
) |
|
|
1,662 |
|
|
|
1,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
attributable to discontinued operations
|
|
|
- |
|
|
|
2,287 |
|
|
|
2,028 |
|
Gain
from disposition of real estate
|
|
|
- |
|
|
|
18,648 |
|
|
|
5,883 |
|
Total
discontinued operations
|
|
|
- |
|
|
|
20,935 |
|
|
|
7,911 |
|
Net
(loss) income
|
|
$ |
(1,686 |
) |
|
$ |
22,597 |
|
|
$ |
9,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income per share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations per share
|
|
$ |
(0.07 |
) |
|
$ |
0.09 |
|
|
$ |
0.12 |
|
Net
(loss) income per share
|
|
$ |
(0.07 |
) |
|
$ |
1.20 |
|
|
$ |
0.65 |
|
(Loss)
income per share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations per share
|
|
$ |
(0.07 |
) |
|
$ |
0.08 |
|
|
$ |
0.12 |
|
Net
(loss) income per share
|
|
$ |
(0.07 |
) |
|
$ |
1.17 |
|
|
$ |
0.65 |
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,186,213 |
|
|
|
18,907,061 |
|
|
|
14,882,944 |
|
Diluted
|
|
|
26,099,140 |
|
|
|
20,967,946 |
|
|
|
15,047,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
declared per common share
|
|
$ |
1.35 |
|
|
$ |
1.35 |
|
|
$ |
1.35 |
|
See
accompanying notes to consolidated financial statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in
thousands, except share data)
|
|
Common
Shares
|
|
|
Par
Value of
Common
Shares
|
|
|
Additional
Paid
in
Capital
|
|
|
Accumulated
Earnings and Distributions
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
Total
|
|
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 |
|
Net
proceeds from sale of common stock
|
|
|
3,500,000 |
|
|
|
35 |
|
|
|
98,593 |
|
|
|
- |
|
|
|
- |
|
|
|
98,628 |
|
Issuance
of fully vested restricted stock units
|
|
|
- |
|
|
|
- |
|
|
|
160 |
|
|
|
- |
|
|
|
- |
|
|
|
160 |
|
Record
minority interests for common units
|
|
|
- |
|
|
|
- |
|
|
|
(6,477 |
) |
|
|
- |
|
|
|
- |
|
|
|
(6,477 |
) |
Amortization
of restricted stock awards
|
|
|
- |
|
|
|
- |
|
|
|
1,095 |
|
|
|
- |
|
|
|
- |
|
|
|
1,095 |
|
Vesting
of restricted stock awards
|
|
|
22,102 |
|
|
|
- |
|
|
|
(262 |
) |
|
|
- |
|
|
|
- |
|
|
|
(262 |
) |
Distributions
to common and restricted stockholders
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(32,962 |
) |
|
|
- |
|
|
|
(32,962 |
) |
Conversion
of common units to common stock
|
|
|
850,316 |
|
|
|
9 |
|
|
|
18,684 |
|
|
|
- |
|
|
|
- |
|
|
|
18,693 |
|
Amortization
of gain on swap termination to earnings
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(211 |
) |
|
|
(211 |
) |
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swaps
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,075 |
) |
|
|
(2,075 |
) |
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,686 |
) |
|
|
- |
|
|
|
(1,686 |
) |
Total
comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,761 |
) |
Stockholders’
equity, December 31, 2007
|
|
|
27,275,491 |
|
|
$ |
273 |
|
|
$ |
494,160 |
|
|
$ |
(48,181 |
) |
|
$ |
(1,875 |
) |
|
$ |
444,377 |
|
See
accompanying notes to consolidated financial statement
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
Year Ended December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(1,686 |
) |
|
$ |
22,597 |
|
|
$ |
9,662 |
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from disposition of real estate
|
|
|
- |
|
|
|
(18,648 |
) |
|
|
(5,883 |
) |
Gain
on sale of option to acquire interest in student housing
property
|
|
|
- |
|
|
|
- |
|
|
|
(849 |
) |
Minority
interests share of income
|
|
|
255 |
|
|
|
2,038 |
|
|
|
164 |
|
Depreciation
and amortization
|
|
|
30,444 |
|
|
|
25,499 |
|
|
|
16,471 |
|
Amortization
of deferred financing costs and debt premiums
|
|
|
(127 |
) |
|
|
26 |
|
|
|
463 |
|
Share-based
compensation
|
|
|
4,962 |
|
|
|
710 |
|
|
|
369 |
|
Equity
in earnings of unconsolidated joint venture
|
|
|
108 |
|
|
|
- |
|
|
|
- |
|
Amortization
of gain on interest rate swap termination
|
|
|
(211 |
) |
|
|
- |
|
|
|
- |
|
Income
tax provision
|
|
|
756 |
|
|
|
28 |
|
|
|
186 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
(1,946 |
) |
|
|
138 |
|
|
|
308 |
|
Student
contracts receivable, net
|
|
|
(478 |
) |
|
|
(550 |
) |
|
|
(446 |
) |
Other
assets
|
|
|
(5,386 |
) |
|
|
(2,402 |
) |
|
|
(4,082 |
) |
Accounts
payable and accrued expenses
|
|
|
(222 |
) |
|
|
4,245 |
|
|
|
2,254 |
|
Other
liabilities
|
|
|
2,578 |
|
|
|
1,556 |
|
|
|
1,812 |
|
Net
cash provided by operating activities
|
|
|
29,047 |
|
|
|
35,237 |
|
|
|
20,429 |
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from disposition of real estate
|
|
|
- |
|
|
|
50,045 |
|
|
|
28,023 |
|
Cash
paid for property acquisitions
|
|
|
(42,760 |
) |
|
|
(69,697 |
) |
|
|
(72,763 |
) |
Cash
paid for land purchase
|
|
|
(10,445 |
) |
|
|
- |
|
|
|
- |
|
Investments
in owned properties
|
|
|
(131,820 |
) |
|
|
(81,597 |
) |
|
|
(51,037 |
) |
Investments
in on-campus participating properties
|
|
|
(480 |
) |
|
|
(483 |
) |
|
|
(15,887 |
) |
Investments
in unconsolidated joint ventures
|
|
|
(1,600 |
) |
|
|
- |
|
|
|
- |
|
Purchase
of corporate furniture, fixtures and equipment
|
|
|
(486 |
) |
|
|
(986 |
) |
|
|
(742 |
) |
Net
proceeds from sale of option to acquire interest in student housing
property
|
|
|
- |
|
|
|
- |
|
|
|
651 |
|
Net
cash used in investing activities
|
|
|
(187,591 |
) |
|
|
(102,718 |
) |
|
|
(111,755 |
) |
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(paydown of) proceeds from revolving credit facility
|
|
|
9,600 |
|
|
|
- |
|
|
|
(11,800 |
) |
Proceeds
from construction loans
|
|
|
66,128 |
|
|
|
42,146 |
|
|
|
15,871 |
|
Pay
off of construction loan
|
|
|
(43,862 |
) |
|
|
(20,224 |
) |
|
|
- |
|
Proceeds
from bridge/mortgage loan
|
|
|
- |
|
|
|
- |
|
|
|
38,800 |
|
Principal
payments on debt
|
|
|
(7,792 |
) |
|
|
(6,527 |
) |
|
|
(3,772 |
) |
Change
in construction accounts payable
|
|
|
6,077 |
|
|
|
3,203 |
|
|
|
(404 |
) |
Debt
issuance and assumption costs
|
|
|
(1,638 |
) |
|
|
(2,418 |
) |
|
|
(1,689 |
) |
Proceeds
from sale of common stock
|
|
|
99,015 |
|
|
|
140,036 |
|
|
|
102,938 |
|
Offering
costs
|
|
|
(243 |
) |
|
|
(6,854 |
) |
|
|
(6,598 |
) |
Distributions
to common and restricted stockholders
|
|
|
(32,985 |
) |
|
|
(25,287 |
) |
|
|
(20,180 |
) |
Distributions
to Predecessor owners
|
|
|
- |
|
|
|
- |
|
|
|
(1,671 |
) |
Distributions
to minority partners
|
|
|
(2,790 |
) |
|
|
(2,128 |
) |
|
|
(163 |
) |
Net
cash provided by financing activities
|
|
|
91,510 |
|
|
|
121,947 |
|
|
|
111,332 |
|
Net
change in cash and cash equivalents
|
|
|
(67,034 |
) |
|
|
54,466 |
|
|
|
20,006 |
|
Cash
and cash equivalents at beginning of period
|
|
|
79,107 |
|
|
|
24,641 |
|
|
|
4,635 |
|
Cash
and cash equivalents at end of period
|
|
$ |
12,073 |
|
|
$ |
79,107 |
|
|
$ |
24,641 |
|
Supplemental
disclosure of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
assumed in connection with property acquisitions
|
|
$ |
(88,307 |
) |
|
$ |
(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
|
|
$ |
1,491 |
|
|
$ |
1,518 |
|
|
$ |
388 |
|
Change
in fair value of derivative instruments, net
|
|
$ |
(2,075 |
) |
|
$ |
(73 |
) |
|
$ |
442 |
|
Contribution
of land from minority partner in development joint venture
|
|
$ |
2,756 |
|
|
$ |
- |
|
|
$ |
- |
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
29,287 |
|
|
$ |
27,034 |
|
|
$ |
18,030 |
|
Income
taxes paid
|
|
$ |
64 |
|
|
$ |
9 |
|
|
$ |
6 |
|
See
accompanying notes to consolidated financial statements
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED 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.
As of
December 31, 2007, the Company’s property portfolio contained 44 student housing
properties with approximately 28,600 beds and approximately 9,500 apartment
units, consisting of 38 owned off-campus properties that are in close proximity
to colleges and universities, two American Campus Equity (“ACE”) owned on-campus
properties currently under development that will be operated under
ground/facility leases with a related university system 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, primarily for student housing properties owned by colleges and
universities, charitable foundations, and others. As of December 31,
2007, the Company provided third-party management and leasing services for 19
properties (seven of which the Company served as the third-party developer and
construction manager) that represented approximately 15,200 beds in
approximately 6,000 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, 2007, the Company’s total owned and managed portfolio included 63 properties
with approximately 43,800 beds in approximately 15,500 units.
2. Summary of Significant Accounting
Policies
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (“GAAP”) and
include the financial position, results of operations and cash flows of the
Company, the Operating Partnership and subsidiaries of the Operating
Partnership, including joint ventures in which the Company has a controlling
interest. Third-party equity interests in the Operating Partnership
and consolidated joint ventures are reflected as minority interests in the
consolidated financial statements. The Company also has a
non-controlling interest in an unconsolidated joint venture, which is accounted
for under the equity method. All significant intercompany amounts
have been eliminated. All dollar amounts in the tables herein, except
share and per share amounts, are stated in thousands unless otherwise
indicated.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements."
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value in GAAP and expands disclosures about fair value measurements. The
statement does not require new fair value measurements, but is applied to the
extent other accounting pronouncements require or permit fair value
measurements. The statement emphasizes fair value as a market-based
measurement which should be determined based on assumptions market participants
would use in pricing an asset or liability. We will be required to disclose the
extent to which fair value is used to measure assets and liabilities, the inputs
used to develop the measurements, and the effect of certain of the measurements
on earnings (or changes in net assets) for the period. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007. In February 2008
the FASB deferred the effective date of SFAS No. 157 for all nonfinancial assets
and nonfinancial liabilities except for those that are recognized or disclosed
at fair value in the financial statements on a recurring basis. We have adopted
SFAS No. 157 effective January 1, 2008 for financial assets and financial
liabilities and do not expect this adoption to have a material effect on our
consolidated results of operations or financial position but will enhance the
level of disclosures for assets and liabilities recorded at fair
value.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial
Assets and Financial Liabilities," which gives entities the option to
measure eligible financial assets, financial liabilities and firm commitments at
fair value on an instrument-by-instrument basis (i.e., the fair value option),
which are otherwise not permitted to be accounted for at fair value under other
accounting standards. The election to use the fair value option is available
when an entity first recognizes a financial asset or financial liability or upon
entering into a firm commitment. Subsequent changes in fair value must be
recorded in earnings. Additionally, SFAS No. 159 allows for a one-time election
for existing positions upon adoption, with the transition adjustment recorded to
beginning retained earnings. This statement is effective for fiscal years
beginning after November 15, 2007. We have adopted this standard effective
January 1, 2008 and have elected not to measure any of our current eligible
financial asset or liabilities at fair value upon adoption; however, we do
reserve the right to elect to measure future eligible financial assets or
liabilities at fair value.
In
September 2007, the FASB ratified Emerging Issues Task Force ("EITF") Issue
07-6, "Accounting for the Sale
of Real Estate Subject to the Requirements of FASB Statement No. 66 When the
Agreement Includes a Buy-Sell Clause," which clarifies that a buysell
clause, in and of itself, does not constitute a prohibited form of continuing
involvement that would preclude partial sale treatment under Statement 66. EITF
07-6 applies prospectively to new arrangements entered into in fiscal years
beginning after December 15, 2007.
In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations,"
which replaces SFAS No. 141, " Business Combinations,"
which, among other things, establishes principles and requirements for
how an acquirer entity recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed (including intangibles)
and any noncontrolling interests in the acquired entity. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. We are currently evaluating what impact our adoption of SFAS
No. 141(R) will have on our financial statements.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51." SFAS No.
160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also amends certain of ARB 51’s consolidation procedures for
consistency with the requirements of SFAS No. 141(R). SFAS No. 160 is effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. We are currently evaluating what impact our adoption of
SFAS No. 160 will have on our 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:
|
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
$5.4 million, $3.2 million and $1.7 million was capitalized during the years
ended December 31, 2007, 2006 and 2005, respectively. Amortization of
deferred financing costs totaling approximately $0.4 million, $0.2 million, and
$0.1 million was capitalized during the years ended December 31, 2007, 2006 and
2005, respectively.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2007.
The
Company allocates the purchase price of acquired properties to net tangible and
identified intangible assets based on relative fair values in accordance with
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
|
|
|
|
|
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.
Owned
On-campus Properties
The
Company (“Lessee”) entered into two 65-year ground and facility leases
(“Leases”) with a university system (“Lessor”) to finance, construct, and manage
two student housing facilities. Both properties are currently under
construction with scheduled completion dates of August 2008 and August
2009. Both leases include the option to extend the lease term for two
additional terms of ten years each. Under the terms of the Leases,
the Lessor has title to the land and any improvements placed
thereon. 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. However, these
sale-leaseback transactions do no qualify for sale-leaseback accounting based on
guidance provided in SFAS No. 98, Accounting for Leases,
because of the Company’s continuing involvement in the constructed
assets. As a result of the Company’s continuing involvement, these
Leases are accounted for by the deposit method, in which the assets subject to
the ground and facility leases are reflected at historical cost, less
amortization and the financing obligations are reflected at the terms of the
underlying financing.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 2007 and 2006, as discussed
in Note 5, the Company capitalized approximately $1.2 million and $2.3 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, 2007 and 2006, respectively, and the
amortization is included in depreciation expense in the accompanying
consolidated statements of operations for the years ended December 31, 2007 and
2006.
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.
Amortization
expense, net of amounts capitalized, approximated $1.3 million, $1.4 million and
$1.2 million for the years ended December 31, 2007, 2006 and 2005,
respectively. Accumulated amortization at December 31, 2007 and 2006
approximated $6.2 million and $4.5 million, respectively. Deferred
financing costs, net of amortization, are included in other assets on the
accompanying consolidated balance sheets.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Investments
in Consolidated and Unconsolidated Joint Ventures
The
Company holds interests in both consolidated and unconsolidated joint ventures.
The Company determines consolidation based on standards set forth in FASB
Interpretation No. 46R,
Consolidation of Variable Interest Entities (“FIN 46”) or EITF
04-5, Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have
Certain
Rights. In accordance with this accounting literature, the
Company will consolidate joint ventures determined to be variable interest
entities (“VIE’s”) for which the Company is the primary
beneficiary. The Company will also consolidate joint
ventures that are not determined to be VIE’s but where the Company exercises
significant control over major operating decisions, such as approval of budgets,
selection of property managers, asset management, investment activity and
changes in financing. Any entities that do not meet the criteria for
consolidation, but where the Company exercises significant influence, are
accounted for under the equity method.
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,
2007 and December 31, 2006, net unamortized debt premiums were $5.0 million and
$6.4 million, respectively, and net unamortized debt discounts were $0.7 million
and $0.4 million, 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 receivables are established when management determines that collection of
such 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, 2005
|
|
$ |
852 |
|
|
$ |
808 |
|
|
$ |
(501 |
) |
|
$ |
1,159 |
|
Year
ended December 31, 2006
|
|
$ |
1,159 |
|
|
$ |
1,409 |
|
|
$ |
(410 |
) |
|
$ |
2,158 |
|
Year
ended December 31, 2007
|
|
$ |
2,158 |
|
|
$ |
1,919 |
|
|
$ |
(1,077 |
) |
|
$ |
3,000 |
|
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.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 statements of
operations. As of December 31, 2007, the Company has deferred
approximately $3.6 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.
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 $2.6
million, $2.0 million, and $1.6 million in 2007, 2006 and 2005,
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 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 Issuances and 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.
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.
On
October 10, 2007, the Company completed an equity offering, consisting of the
sale of 3,500,000 shares of the Company’s common stock at a price of $28.29 per
share, resulting in gross proceeds of approximately $99.0
million. The company received approximately $98.7 million in net
proceeds after deducting estimated expenses of approximately $0.3
million.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 statements of changes in stockholders’ equity, and
accumulated other comprehensive (loss) income 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 12) over the underlying vesting periods, which amounted
to approximately $1.3 million, $0.7 million, and $0.4 million for the years
ended December 31, 2007, 2006 and 2005, respectively.
The
Company’s Outperformance Bonus Plan vested on August 17, 2007 and the
Compensation Committee of the Board of Directors elected to pay a portion of the
awards to selected recipients in the form of PIUs, which are discussed in more
detail in Note 12. Approximately $3.7 million of the compensation
charge recorded during the year ended December 31, 2007 reflects the settlement
of the Outperformance Bonus Plan through the issuance of PIUs.
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 was recognized for the year ended December
31, 2005. 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 in 2005, related to insurance proceeds received for a
fire that occurred at one of the Company’s owned off-campus 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, 2007, the Company
estimated the fair value of its fixed-rate mortgage loans to be approximately
$432.1 million.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2007, the Company estimated the fair value of its bonds payable
to be approximately $59.5 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.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
3. Earnings
per Share
Basic
earnings per share is computed using net (loss) income and the weighted average
number of shares of the Company’s common stock outstanding during the period,
including 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 earnings per
share reflects weighted average common shares issuable from the assumed
conversion of RSAs granted to employees, Common Units and preferred units of
limited partnership interest in the Operating Partnership (“Series A Preferred
Units”). See Note 9 for a discussion of PIUs, 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
earnings per share:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Basic
earnings per share calculation:
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$ |
(1,686 |
) |
|
$ |
1,662 |
|
|
$ |
1,751 |
|
Discontinued
operations
|
|
|
- |
|
|
|
20,935 |
|
|
|
7,911 |
|
Net
income
|
|
$ |
(1,686 |
) |
|
$ |
22,597 |
|
|
$ |
9,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations – per share
|
|
$ |
(0.07 |
) |
|
$ |
0.09 |
|
|
$ |
0.12 |
|
Income
from discontinued operations – per share
|
|
$ |
- |
|
|
$ |
1.11 |
|
|
$ |
0.53 |
|
Net
(loss) income – per share
|
|
$ |
(0.07 |
) |
|
$ |
1.20 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
24,186,213 |
|
|
|
18,907,061 |
|
|
|
14,882,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$ |
(1,686 |
) |
|
$ |
1,662 |
|
|
$ |
1,751 |
|
Series
A Preferred Unit distributions
|
|
|
184 |
|
|
|
154 |
|
|
|
- |
|
(Loss)
income from continuing operations allocated to Common
Units
|
|
|
(233 |
) |
|
|
(61 |
) |
|
|
30 |
|
(Loss)
income from continuing operations, as adjusted
|
|
|
(1,735 |
) |
|
|
1,755 |
|
|
|
1,781 |
|
Discontinued
operations
|
|
|
- |
|
|
|
20,935 |
|
|
|
7,911 |
|
Income
from discontinued operations allocated to Common
Units
|
|
|
- |
|
|
|
1,802 |
|
|
|
75 |
|
Income
from discontinued operations, as adjusted
|
|
|
- |
|
|
|
22,737 |
|
|
|
7,986 |
|
Net
(loss) income, as adjusted
|
|
$ |
(1,735 |
) |
|
$ |
24,492 |
|
|
$ |
9,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations – per share
|
|
$ |
(0.07 |
) |
|
$ |
0.08 |
|
|
$ |
0.12 |
|
Income
from discontinued operations – per share
|
|
$ |
- |
|
|
$ |
1.09 |
|
|
$ |
0.53 |
|
Net
(loss) income – per share
|
|
$ |
(0.07 |
) |
|
$ |
1.17 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
24,186,213 |
|
|
|
18,907,061 |
|
|
|
14,882,944 |
|
Common
Units
|
|
|
1,797,964 |
|
|
|
1,866,183 |
|
|
|
121,000 |
|
Series
A Preferred Units
|
|
|
114,963 |
|
|
|
96,380 |
|
|
|
- |
|
Restricted
Stock Awards (1)
|
|
|
- |
|
|
|
98,322 |
|
|
|
43,258 |
|
Diluted
weighted average common shares outstanding
|
|
|
26,099,140 |
|
|
|
20,967,946 |
|
|
|
15,047,202 |
|
|
(1)
|
167,696
weighted average restricted stock awards are excluded from diluted
weighted average common shares outstanding for the year ended December 31,
2007 because they would be anti-dilutive due to the Company’s loss
position for the period.
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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,
|
|
|
|
2007
|
|
|
2006
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Fixed
and intangible assets
|
|
$ |
8,999 |
|
|
$ |
9,416 |
|
Net
operating loss carryforwards
|
|
|
2,251 |
|
|
|
1,027 |
|
Prepaid
and deferred rent
|
|
|
1,134 |
|
|
|
922 |
|
Bad
debt reserves
|
|
|
284 |
|
|
|
223 |
|
Accrued
expenses and other
|
|
|
91 |
|
|
|
101 |
|
Stock
compensation
|
|
|
233 |
|
|
|
141 |
|
Total
deferred tax assets
|
|
|
12,992 |
|
|
|
11,830 |
|
Valuation
allowance for deferred tax assets
|
|
|
(12,405 |
) |
|
|
(10,662 |
) |
Deferred
tax assets, net of valuation allowance
|
|
|
587 |
|
|
|
1,168 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liability:
|
|
|
|
|
|
|
|
|
Deferred
financing costs
|
|
|
587 |
|
|
|
652 |
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$ |
- |
|
|
$ |
516 |
|
Significant
components of the income tax provision are as follows:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
- |
|
|
$ |
(1 |
) |
|
$ |
- |
|
State
|
|
|
(18 |
) |
|
|
(1 |
) |
|
|
- |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(493 |
) |
|
|
6 |
|
|
|
(163 |
) |
State
|
|
|
(23 |
) |
|
|
(32 |
) |
|
|
(23 |
) |
Total
provision -- continuing operations
|
|
$ |
(534 |
) |
|
$ |
(28 |
) |
|
$ |
(186 |
) |
TRS
earnings subject to tax consisted of an approximate $4.0 million, $1.0 million
and $1.9 million loss for the years ended December 31, 2007, 2006, and 2005,
respectively. The reconciliation of income tax attributable to
continuing operations computed at the U.S. statutory rate to income tax
provision is as follows:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Tax
benefit at U.S. statutory rates on TRS income subject to
tax
|
|
$ |
1,361 |
|
|
$ |
228 |
|
|
$ |
655 |
|
State
income tax, net of federal income tax benefit
|
|
|
(144 |
) |
|
|
8 |
|
|
|
65 |
|
Change
in the state statutory rate
|
|
|
- |
|
|
|
(683 |
) |
|
|
- |
|
Effect
of permanent differences and other
|
|
|
(8 |
) |
|
|
(25 |
) |
|
|
(29 |
) |
Decrease
(increase) in valuation allowance
|
|
|
(1,743 |
) |
|
|
444 |
|
|
|
(877 |
) |
Income
tax provision
|
|
$ |
(534 |
) |
|
$ |
(28 |
) |
|
$ |
(186 |
) |
Upon
formation, the TRS became subject to federal and state income taxation and,
accordingly, established deferred tax assets and liabilities. The
valuation allowance increased by approximately $1.7 million during the year
ended December 31, 2007 and decreased by approximately $0.4 million during the
year ended December 31, 2006.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
At
December 31, 2007, the Company had net operating loss carryforwards
(“NOLs”) of approximately $6.2 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.
In May
2006, the Texas Governor signed into law a Texas margin tax which restructures
the state business tax by replacing the taxable capital components of the
current franchise tax with a “taxable margin” component. The Texas
margin tax became effective in 2007. The TRS’s portion of the 2007
tax liability is $18,000 and is reflected in current state tax in the above
schedule. The non-TRS portion of the Texas margin tax is $222,000,
and is included in the Operating Partnership.
The
Company adopted FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income
Taxes”, on January 1, 2007. As a result of the adoption of FIN
48, the Company recognized no changes related to deferred taxes.
5. Property
Acquisitions
2007
Acquisitions
In
January 2007, the Company acquired a 248-unit, 752-bed property (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
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 a 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 $3.7 million
of 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. In
August 2007, construction was completed on an additional phase at one of these
properties. As contemplated in the original transaction, concurrent
with the completion of construction in August 2007, the Company purchased this
additional phase consisting of 24 units and 84 beds, for approximately $4.6
million.
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. Including the purchase of the additional phase discussed
above, these three properties contain 764 units and 1,971 beds.
2006
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 11); and (iii) the remainder in cash and
promissory notes. The Company also 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 in order
to satisfy indemnification obligations during a one-year survival
period. Subsequent to the expiration of such one-year survival period
on March 1, 2007, the Company has released approximately $6.3 million of the
contribution value to the contributors. As of December 31, 2007, the
Company is holding $0.6 million of the retained amount which is composed
primarily of secured promissory notes and accrued interest.
The Royal
Portfolio consists of five properties in Florida, four properties in Texas, two
properties in Tennessee, and one property each in Arizona and
Kentucky. The 13 properties contain approximately 1,800 units and
approximately 5,700 beds.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2005
Acquisitions
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 11, the Company assumed fixed rate mortgage debt with an
outstanding principal balance of approximately $35.4 million in connection with
this acquisition.
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 11, 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 11, the Company assumed fixed rate mortgage debt with an
outstanding principal balance of approximately $11.8 million in connection with
this acquisition.
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, 2007, 2006 and 2005, present consolidated financial
information for the Company as if the property acquisitions discussed above, and
the October 2007, September 2006 and July 2005 equity offerings had occurred at
the beginning of the earliest period presented. The unaudited pro
forma information is provided for informational purposes only and is not
indicative of results that would have occurred or which may occur in the
future:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Total
revenues
|
|
$ |
149,373 |
|
|
$ |
138,705 |
|
|
$ |
119,508 |
|
Net
(loss) income
|
|
$ |
(384 |
) |
|
$ |
24,895 |
|
|
$ |
4,926 |
|
Net
(loss) income per share – basic
|
|
$ |
(0.01 |
) |
|
$ |
0.94 |
|
|
$ |
0.19 |
|
Net
(loss) income per share – diluted
|
|
$ |
(0.01 |
) |
|
$ |
0.94 |
|
|
$ |
0.19 |
|
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 the years ended December
31, 2006 and 2005.
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 year ended
December 31, 2005.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
related net income for the afore-mentioned properties is reflected in the
accompanying consolidated 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 through their
respective disposition dates:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Total
revenues
|
|
$ |
- |
|
|
$ |
4,692 |
|
|
$ |
4,981 |
|
Total
operating expenses
|
|
|
- |
|
|
|
2,412 |
|
|
|
2,953 |
|
Operating
income
|
|
|
- |
|
|
|
2,280 |
|
|
|
2,028 |
|
Total
nonoperating income (expenses)
|
|
|
- |
|
|
|
7 |
|
|
|
- |
|
Net
income
|
|
$ |
- |
|
|
$ |
2,287 |
|
|
$ |
2,028 |
|
7. Investments
in Wholly Owned Properties
Wholly
owned properties consisted of the following:
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Land
|
|
$ |
102,109 |
|
|
$ |
75,263 |
|
Buildings
and improvements
|
|
|
768,551 |
|
|
|
579,906 |
|
Furniture,
fixtures and equipment
|
|
|
42,225 |
|
|
|
28,111 |
|
Construction
in progress
|
|
|
104,540 |
|
|
|
56,958 |
|
|
|
|
1,017,425 |
|
|
|
740,238 |
|
Less
accumulated depreciation
|
|
|
(70,363 |
) |
|
|
(46,041 |
) |
Wholly
owned properties, net
|
|
$ |
947,062 |
|
|
$ |
694,197 |
|
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. The Contingent Payment obligation
continues to be in effect for the Texas A&M International University and
University of Houston leases.
In the
event the Company seeks to sell its leasehold interest, the Leases provide the
applicable Lessor the right of first refusal of a bona fide purchase offer and
an option to purchase the lessee’s rights under the applicable
Lease.
In
conjunction with the execution of each Lease, the Company has entered into
separate five-year agreements to manage the related facilities for 5% of defined
gross receipts. The five-year terms of the management agreements are not
contingent upon the continuation of the Leases. Upon expiration of the initial
five year terms, the agreements continue on a month-to-month basis.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On-campus
participating properties are as follows:
|
|
|
|
|
|
Historical
Cost – December 31,
|
|
Lessor/University
|
|
Lease
Commencement
|
|
Required
Debt
Repayment
(1)
|
|
2007
|
|
|
2006
|
|
Texas
A&M University System /
Prairie
View A&M University (2)
|
|
2/1/96
|
|
9/1/23
|
|
$ |
38,499 |
|
|
$ |
38,277 |
|
Texas
A&M University System /
Texas
A&M International
|
|
2/1/96
|
|
9/1/23
|
|
|
6,039 |
|
|
|
6,009 |
|
Texas
A&M University System /
Prairie
View A&M University (3)
|
|
10/1/99
|
|
8/31/25 / 8/31/28
|
|
|
24,037 |
|
|
|
23,872 |
|
University
of Houston System /
University
of Houston – (4)
|
|
9/27/00
|
|
8/31/35
|
|
|
34,691 |
|
|
|
34,628 |
|
|
|
|
|
|
|
|
103,266 |
|
|
|
102,786 |
|
Less
accumulated amortization
|
|
|
|
|
|
|
(30,361 |
) |
|
|
(26,098 |
) |
On-campus
participating properties, net
|
|
|
|
|
|
$ |
72,905 |
|
|
$ |
76,688 |
|
|
(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. Common Units and
Series A Preferred Units are exchangeable 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. Common Units and Series A Preferred Units issued in
connection with the 2006 acquisition of the Royal Portfolio became exchangeable
into an equal number of shares of the Company’s common stock on March 1,
2007. Subsequent to such date, 846,316 Common Units were converted
into shares of the Company’s common stock during the year ended December 31,
2007. Additionally, as partial consideration for the vesting of the
Outperformance Bonus Plan, which occurred on August 17, 2007, 132,400 PIUs were
issued to certain employees (see Note 12). As a result of the October
2007 equity offering, a book-up event occurred for tax purposes resulting in the
132,400 PIUs being converted to Common Units. As of December 31, 2007
and December 31, 2006, approximately 6% and 9%, respectively, 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.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Minority
interests also include the equity interests of unaffiliated joint venture
partners in four joint ventures. Three of the joint ventures own and
operate the Company’s Callaway House, University Village at Sweet Home and
University Centre owned-off campus properties. The other joint
venture was formed to develop, own, and operate the Company’s Villas at Chestnut
Ridge owned off-campus property, which is scheduled to open for occupancy in
August 2008.
10.
Investment in Unconsolidated Joint Venture
The
Company holds an equity interest in a joint venture that owns a military housing
privatization project with the United States Navy to design, develop, construct,
renovate, and manage unaccompanied soldier housing located on naval bases in
Norfolk and Newport News, Virginia. In December 2007, the joint
venture closed and obtained financing through taxable revenue bonds, at which
time definitive legal agreements were executed. The Company has
evaluated its investment in this joint venture and has concluded that the
underlying entity is a VIE as defined in FIN 46. Because the Company
is not the primary beneficiary of the VIE, the Company has accounted for its
investment in accordance with the equity method of accounting. The
Company made an initial investment in this joint venture of $1.6 million and is
not obligated to make further capital contributions. The Company’s
return is limited to an 8.0% annual return on its initial investment in the form
of periodic cash distributions. The Company’s investment in this
joint venture is included in Other Assets in the accompanying consolidated
balance sheet as of December 31, 2007, and the Company’s share of the loss from
this joint venture is reflected as Loss from Unconsolidated Joint Venture in the
accompanying consolidated statement of operations for the year ended December
31, 2007.
11. Debt
A summary
of the Company’s outstanding consolidated indebtedness, including unamortized
debt premiums and discounts, is as follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Debt
secured by wholly owned properties:
|
|
|
|
|
|
|
Mortgage
loans payable
|
|
$ |
397,270 |
|
|
$ |
315,044 |
|
Construction
loans payable
|
|
|
43,652 |
|
|
|
21,386 |
|
|
|
|
440,922 |
|
|
|
336,430 |
|
Debt
secured by on-campus participating properties:
|
|
|
|
|
|
|
|
|
Mortgage
loan payable
|
|
|
33,156 |
|
|
|
16,513 |
|
Construction
loan payable
|
|
|
- |
|
|
|
16,710 |
|
Bonds
payable
|
|
|
55,030 |
|
|
|
56,675 |
|
|
|
|
88,186 |
|
|
|
89,898 |
|
Revolving
credit facility
|
|
|
9,600 |
|
|
|
- |
|
Unamortized
debt premiums/discounts
|
|
|
4,322 |
|
|
|
5,966 |
|
Total
debt
|
|
$ |
543,030 |
|
|
$ |
432,294 |
|
During
the twelve months ended December 31, 2007, the following transactions
occurred:
|
|
Year
Ended
December
31, 2007
|
|
Balance,
beginning of period
|
|
$ |
432,294 |
|
Additions:
|
|
|
|
|
Draws
on revolving credit facility
|
|
|
57,500 |
|
Draws
under advancing construction loans
|
|
|
66,128 |
|
Assumption
of debt upon acquisition of properties (including a debt discount, net of
premiums of approximately $0.2 million)
|
|
|
88,130 |
|
Deductions:
|
|
|
|
|
Pay
down of revolving credit facility
|
|
|
(47,900 |
) |
Pay
off of construction loan
|
|
|
(43,862 |
) |
Scheduled
repayments of principal
|
|
|
(7,792 |
) |
Amortization
of debt premiums and discounts
|
|
|
(1,468 |
) |
|
|
$ |
543,030 |
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Loans
Assumed or Entered Into in Conjunction with Property Acquisitions
In
connection with the January 2007 acquisition of Village on Sixth (see Note 5),
an owned off-campus property, the Company assumed approximately $17.6 million of
fixed-rate mortgage debt, which is comprised of one $16.2 million mortgage loan
with an annual interest rate of 5.5% and May 2014 maturity date, and a second
mortgage loan for $1.4 million with an annual interest rate of 6.6% and October
2016 maturity date. Upon assumption of this debt, the Company
recorded a debt discount of approximately $0.3 million on the $16.2 million
mortgage loan and a debt premium of approximately $0.1 million on the $1.4
million mortgage loan, in each case to reflect the estimated fair value of the
debt assumed. These mortgage loans are secured by liens on the
related properties.
In
connection with the February 2007 acquisition of the Edwards Portfolio (see Note
5), the Company assumed approximately $70.7 million in fixed-rate mortgage
debt. At the time of assumption, the debt had a weighted average
interest rate of 5.7% and an average remaining term to maturity of 8.3
years. Upon assumption of these three loans, the Company recorded
debt premiums of approximately $0.1 million to reflect the estimated fair value
of the debt assumed. These three mortgage loans are secured by liens
on the related properties.
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.
In
connection with the February 2005 acquisition of the Proctor Portfolio (see Note
5), 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.
In
connection with the March 2005 acquisition of The Estates (see Note 5), 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 (see Note
5), 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.
Revolving
Credit Facility
The
Operating Partnership has a $115 million revolving credit facility, which may be
expanded by up to an additional $110 million upon the satisfaction of certain
conditions. The maturity date of the facility is August 17, 2009 and
the Company guarantees 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. As of December 31, 2007, the balance outstanding on
the revolving credit facility totaled $9.6 million, bearing interest at a
weighted average rate of 6.97%, with remaining availability under the facility
(subject to the satisfaction of certain financial covenants) totaling
approximately $103.8 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, as adjusted, for any four consecutive
quarters. The financial covenants also include consolidated net worth
and leverage ratio tests. As of December 31, 2007, the Company was in
compliance with all such covenants.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Construction
Loans and Mortgage Notes Payable
Construction
loans and mortgage notes payable at December 31, 2007, excluding debt premiums
and discounts, consisted of 36 loans secured by wholly owned properties and
on-campus participating properties consisting of:
Property
|
|
Principal
Outstanding
(1)
|
|
|
|
Interest
Rate at
December
31, 2007
|
|
|
|
Maturity
Date
|
|
|
Amortization
|
Cullen
Oaks – Phase I (2)
|
|
$ |
16,493 |
|
|
|
6.69%
|
(3) |
|
|
February
2014
|
|
|
30
years
|
Cullen
Oaks – Phase II (2)
|
|
|
16,663 |
|
|
|
6.69%
|
(3)
|
|
|
February
2014
|
|
|
30
years
|
University
Village at Boulder Creek
|
|
|
15,795 |
|
|
|
5.71%
|
|
|
|
November
2012
|
|
|
30
years
|
River
Club Apartments
|
|
|
17,912 |
|
|
|
8.18%
|
|
|
|
August
2010
|
|
|
30
years
|
River
Walk Townhomes
|
|
|
7,393 |
|
|
|
8.00%
|
|
|
|
September
2009
|
|
|
30
years
|
The
Village at Alafaya Club
|
|
|
19,791 |
|
|
|
8.16%
|
|
|
|
August
2010
|
(4) |
|
30
years
|
Northgate
Lakes
|
|
|
10,774 |
|
|
|
7.00%
|
|
|
|
July
2009
|
|
|
30
years
|
University
Club Tallahassee
|
|
|
13,181 |
|
|
|
7.99%
|
|
|
|
October
2010
|
|
|
30
years
|
The
Grove at University Club Tallahassee
|
|
|
4,214 |
|
|
|
5.75%
|
|
|
|
March
2013
|
|
|
30
years
|
College
Club Tallahassee
|
|
|
8,584 |
|
|
|
6.74%
|
|
|
|
December
2011
|
|
|
30
years
|
Royal
Oaks Tallahassee
|
|
|
2,887 |
|
|
|
7.13%
|
|
|
|
July
2009
|
|
|
30
years
|
Royal
Pavilion Tallahassee
|
|
|
2,410 |
|
|
|
6.92%
|
|
|
|
July
2009
|
|
|
30
years
|
Royal
Village Tallahassee
|
|
|
3,241 |
|
|
|
6.83%
|
|
|
|
July
2009
|
|
|
30
years
|
University
Club Gainesville
|
|
|
8,179 |
|
|
|
7.88%
|
|
|
|
November
2009
|
|
|
30
years
|
The
Estates
|
|
|
37,394 |
|
|
|
5.20%
|
|
|
|
June
2015
|
|
|
30
years
|
Royal
Village Gainesville
|
|
|
5,903 |
|
|
|
6.87%
|
|
|
|
July
2009
|
|
|
30
years
|
The
Village at Blacksburg
|
|
|
20,559 |
|
|
|
7.50%
|
|
|
|
January
2011
|
|
|
30
years
|
Royal
Lexington
|
|
|
4,625 |
|
|
|
6.86%
|
|
|
|
July
2009
|
|
|
30
years
|
The
Woods at Greenland
|
|
|
6,038 |
|
|
|
5.69%
|
|
|
|
October
2012
|
|
|
30
years
|
Raiders
Crossing
|
|
|
6,462 |
|
|
|
6.18%
|
|
|
|
December
2012
|
|
|
30
years
|
Villas
on Apache
|
|
|
7,345 |
|
|
|
7.66%
|
|
|
|
June
2009
|
|
|
30
years
|
Entrada
Real
|
|
|
9,491 |
|
|
|
5.61%
|
|
|
|
November
2012
|
|
|
30
years
|
The
Outpost San Marcos
|
|
|
13,414 |
|
|
|
5.74%
|
|
|
|
October
2013
|
|
|
30
years
|
The
Outpost San Antonio
|
|
|
23,701 |
|
|
|
4.99%
|
|
|
|
October
2014
|
|
|
30
years
|
City
Parc at Fry Street
|
|
|
11,326 |
|
|
|
5.96%
|
|
|
|
September
2014
|
|
|
30
years
|
Raiders
Pass - Phase I
|
|
|
15,375 |
|
|
|
5.91%
|
|
|
|
October
2012
|
|
|
30
years
|
Raiders
Pass – Phase II
|
|
|
3,776 |
|
|
|
5.66%
|
|
|
|
October
2012
|
|
|
30
years
|
The
Callaway House
|
|
|
18,951 |
|
|
|
7.10%
|
|
|
|
April
2011
|
|
|
30
years
|
Aggie
Station
|
|
|
11,354 |
|
|
|
5.96%
|
|
|
|
October
2012
|
|
|
30
years
|
Village
on Sixth – Phase I
|
|
|
15,978 |
|
(5) |
|
5.48%
|
|
|
|
May
2014
|
|
|
30
years
|
Village
on Sixth – Annex
|
|
|
1,407 |
|
(5) |
|
6.63%
|
|
|
|
October
2016
|
|
|
30
years
|
Newtown
Crossing
|
|
|
32,033 |
|
(5) |
|
5.65%
|
|
|
|
June
2015
|
|
|
30
years
|
Olde
Town Crossing
|
|
|
20,738 |
|
(5) |
|
5.65%
|
|
|
|
June
2015
|
|
|
30
years
|
Peninsular
Place
|
|
|
17,039 |
|
(5) |
|
5.65%
|
|
|
|
June
2015
|
|
|
30
years
|
Vista
del Sol
|
|
|
29,844 |
|
(6) |
|
6.48%
|
|
|
|
December
2009
|
|
|
n/a
|
Villas
at Chestnut Ridge
|
|
|
13,808 |
|
(7) |
|
6.40%
|
|
|
|
June
2009
|
|
|
n/a
|
Total
|
|
$ |
474,078 |
|
Wtd
Avg Rate
|
6.37%
|
|
|
|
|
|
|
|
|
(1)
|
For
federal income tax purposes, the aggregate cost of the loans is equal to
the carrying amount.
|
|
|
|
|
(2)
|
In
February 2007, the Company extended the maturity date of the Cullen Oaks
Phase I and Phase II loans to February 15, 2014, in which the terms of the
loans were modified to require payments of interest only through May 2008
and monthly payments of principal and interest from May 2008 through the
maturity date. Both loans bear interest at a rate of LIBOR plus
1.35%.
|
|
|
|
|
(3)
|
The
floating rate on both loans was swapped to a fixed rate of
6.69%. This interest rate swap terminates in February 2014, at
which time the interest rate will revert back to a variable
rate. The TRS has guaranteed payment of the indebtedness of the
Phase I loan and the indebtedness of the Phase II loan, 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 loan is paid in
full.
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(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.
|
|
|
|
|
(5)
|
These
mortgage loans were assumed or obtained in conjunction with property
acquisitions in the first quarter of 2007.
|
|
|
|
|
(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
1.45%. The loan has an initial term of 36 months and can be
extended through December 2011 through the exercise of two 12-month
extension periods.
|
|
|
|
|
(7)
|
For
each borrowing on the construction loan, the Company has the option of
choosing Prime rate or one-, two-, three-, or six-month LIBOR plus
1.25%. The loan has an initial term of 24 months and can be
extended through June 2010 through the exercise of a 12-month extension
period.
|
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, 2007 consisted
of the following:
|
|
|
|
|
|
|
Principal
|
|
|
Weighted
|
|
|
|
Required
|
|
Series
|
|
Mortgaged
Facilities
Subject
to Leases
|
|
Original
|
|
|
December
31,
2007
|
|
|
Average
Rate
|
|
Maturity
Through
|
|
Monthly
Debt
Service
|
|
1999
|
|
University
Village-PVAMU/TAMIU
|
|
$ |
39,270 |
|
|
$ |
32,660 |
|
|
|
7.68 |
% |
September
2023
|
|
$ |
302 |
|
2001
|
|
University
College–PVAMU
|
|
|
20,995 |
|
|
|
18,430 |
|
|
|
7.39 |
% |
August
2025
|
|
|
158 |
|
2003
|
|
University
College–PVAMU
|
|
|
4,325 |
|
|
|
3,940 |
|
|
|
5.89 |
% |
August
2028
|
|
|
28 |
|
|
|
Total/weighted
average rate
|
|
$ |
64,590 |
|
|
$ |
55,030 |
|
|
|
7.45 |
% |
|
|
$ |
488 |
|
Schedule
of Debt Maturities
Scheduled
debt maturities (reflecting automatic extensions where applicable) for each of
the five years subsequent to December 31, 2007 and thereafter, are as
follows:
|
|
Scheduled
Principal
|
|
|
Due
at
Maturity
|
|
|
Total
|
|
2008
|
|
$ |
8,425 |
|
|
$ |
- |
|
|
$ |
8,425 |
|
2009
|
|
|
8,426 |
|
|
|
104,039 |
|
|
|
112,465 |
|
2010
|
|
|
7,961 |
|
|
|
49,040 |
|
|
|
57,001 |
|
2011
|
|
|
7,257 |
|
|
|
45,558 |
|
|
|
52,815 |
|
2012
|
|
|
7,099 |
|
|
|
62,109 |
|
|
|
69,208 |
|
Thereafter
|
|
|
52,522 |
|
|
|
186,272 |
|
|
|
238,794 |
|
|
|
$ |
91,690 |
|
|
$ |
447,018 |
|
|
$ |
538,708 |
|
Payment
of principal and interest were current at December 31, 2007. Mortgage
notes and bonds payable are subject to prepayment penalties.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
12. Incentive
Award Plan
The
Company has adopted the 2004 Incentive Award Plan (the “Plan”). The
Plan provides for the grant to selected employees and directors of the Company
and the Company’s affiliates of stock options, RSUs, RSAs, common units of
limited partnership interest in the Operating Partnership, PIUs, and other
stock-based incentive awards. The Company has reserved a total of
1,210,000 shares of the Company’s common stock for issuance pursuant to the
Plan, subject to certain adjustments for changes in the Company’s capital
structure, as defined in the Plan. As of December 31, 2007, 727,218
shares were available for issuance under the Plan.
Restricted
Stock Units
Upon
initial appointment to the Board of Directors and reelection to the Board of
Directors at each Annual Meeting of Stockholders, each outside member of the
Board of Directors is granted RSUs. For all RSU grants to date, no
shares of stock were issued at the time of the RSU awards, and the Company was
not required to set aside a fund for the payment of any such award; however, the
stock was 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 or cash, as
determined by the Compensation Committee of the Board of Directors, 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. A summary of the Company’s RSUs under the Plan for
the three years ended December 31, 2007 and changes during the two years ended
December 31, 2007, are presented below:
|
|
Number
of
RSUs
|
|
|
Weighted-Average
Grant
Date Fair Value
Per
RSU
|
|
Outstanding
at December 31, 2005
|
|
|
14,375 |
|
|
$ |
19.14 |
|
Granted
|
|
|
6,180 |
|
|
|
24.28 |
|
Outstanding
at December 31, 2006
|
|
|
20,555 |
|
|
|
20.69 |
|
Granted
|
|
|
5,376 |
|
|
|
29.77 |
|
Settled
in common shares
|
|
|
(4,029 |
) |
|
|
17.50 |
|
Settled
in cash
|
|
|
(3,116 |
) |
|
|
17.50 |
|
Outstanding
at December 31, 2007
|
|
|
18,786 |
|
|
$ |
24.50 |
|
The RSUs
are fully vested on the date of grant. Accordingly, the Company
recognized expense of approximately $0.2 million for each of the years ended
December 31, 2007, 2006, and 2005, respectively, reflecting the fair value of
the RSUs issued on the date of grant. The weighted-average grant-date
fair value for each RSU granted during the year ended December 31, 2005 was
$20.76.
On August
17, 2004, in conjunction with the IPO, 7,145 RSUs were granted to certain
outside members of the Board of Directors, and on the Settlement Date of August
17, 2007, 4,029 RSUs were settled through the delivery of shares of common stock
and 3,116 RSUs were settled in cash, as determined by the Compensation Committee
of the Board of Directors.
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. A summary of the Company’s
RSAs under the Plan for the three years ended December 31, 2007 and changes
during the two years ended December 31, 2007, are presented below:
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Number
of
RSAs
|
|
|
Weighted-Average
Grant
Date Fair Value
Per
RSA
|
|
Nonvested
balance at December 31, 2005
|
|
|
45,868 |
|
|
$ |
21.54 |
|
Granted
|
|
|
69,966 |
|
|
|
24.80 |
|
Vested
|
|
|
(9,573 |
) |
|
|
21.54 |
|
Forfeited
|
|
|
(6,214 |
) |
|
|
23.12 |
|
Nonvested
balance at December 31, 2006
|
|
|
100,047 |
|
|
|
23.72 |
|
Granted
|
|
|
110,890 |
|
|
|
30.21 |
|
Vested
|
|
|
(18,073 |
) |
|
|
23.27 |
|
Forfeited
|
|
|
(13,943 |
) |
|
|
25.68 |
|
Nonvested
balance at December 31, 2007
|
|
|
178,921 |
|
|
|
27.64 |
|
The
weighted-average grant date fair value for each RSA granted and forfeited during
the year ended December 31, 2005 was $21.54. There were no RSAs that
vested in 2005. 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 $1.1 million, $0.6 million and $0.2 million for
the years ended December 31, 2007, 2006 and 2005, respectively.
The total
fair value of RSAs vested during the year ended December 31, 2007, was
approximately $0.5 million. Additionally, as of December 31, 2007,
the Company had approximately $3.9 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.
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.
The
Outperformance Bonus Plan was adopted upon consummation of the Company’s IPO in
August 2004, and consisted of awards to key employees equal to the value of
367,682 shares of the Company’s common stock. Such awards vested on
the third anniversary of the IPO (August 2007), upon the Company’s achievement
of specified performance measures. Upon vesting, the Compensation
Committee of the Board of Directors exercised its permitted discretion and
granted 132,400 of the awards to selected recipients in the form of PIUs, with
the remainder of the awards paid in cash in the amount of $6.7
million. During the year ended December 31, 2007, the Company
recorded a compensation charge of approximately $10.4 million to reflect the
value of such awards. As a result of the October 2007 equity offering
discussed in Note 2, a book-up event occurred for tax purposes, resulting in the
132,400 PIUs being converted to Common Units of the Operating
Partnership.
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.
13. Interest Rate
Hedges
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 and received a termination
payment from the lender of approximately $0.4 million. In accordance
with SFAS No. 133, the $0.4 million gain will be amortized from accumulated
other comprehensive income to earnings over the remaining term of the terminated
interest rate swap agreement (through November 2008). As of December
31, 2007, approximately $0.2 million of the $0.4 million gain was amortized from
accumulated other comprehensive income to earnings.
In
addition, the Company entered into an interest rate swap agreement effective
February 15, 2007 through February 15, 2014, that is designated to hedge its
exposure to fluctuations in 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%. The interest rate swap had an estimated negative fair value of
approximately $2.1 million at December 31, 2007 and is reflected in other
liabilities in the accompanying consolidated balance
sheets. Ineffectiveness resulting from the Company’s hedges is not
material.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
14. Related
Party Transactions
Subsequent
to the IPO, the Company paid its Predecessor owners approximately $1.7 million
for the year ended December 31, 2005, related to a guarantee fee and the
distribution of insurance proceeds from a fire that occurred at an off-campus
student housing property.
15. 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 2007 and 2006.
The
Company entered into a 95-year ground lease agreement on August 3, 2005 for the
purpose of constructing University Centre, a student housing facility near the
campuses of Rutgers University and the New Jersey Institute of Technology in
Newark, New Jersey. The agreement terminates July 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 were capitalized
during the construction period and expensed upon the commencement of operations
in August 2007. Rent expense under the ground lease agreement was
approximately $0.1 million for the year ended December 31, 2007.
The
Company entered into a 65-year ground/facility lease agreement on December 22,
2006 for the purpose of constructing Vista del Sol, 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. Straight-lined rental amounts are capitalized during the
construction period and will be expensed once the property commences
operations. This project has an anticipated completion date of August
2008.
The
Company entered into a 65-year ground/facility lease agreement on October 30,
2007 for the purpose of constructing Barrett Honors College, 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 2074) and has two ten year
extensions available. During the first ten years, under the terms of
the ground lease, the lessor will receive annual minimum rents of approximately
$0.3 million. For the remaining years of the lease, the lessor will
receive variable rent 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. This project has an anticipated completion date of August
2009.
The
Company also has various operating and capital leases for furniture, office and
technology equipment, which expire through 2013. Rental expense under
the operating lease agreements approximated $0.8 million, $0.6 million, and $0.6
million for the years ended December 31, 2007, 2006 and 2005,
respectively.
Wholly
owned properties, net at December 31, 2007 included approximately $2.8 million
related to capital leases of furniture, net of approximately $0.6 million of
accumulated amortization. On-campus participating properties, net at
December 31, 2007 included approximately $0.4 million related to capital leases
of technology equipment, net of approximately $0.3 million of accumulated
amortization. Other assets at December 31, 2007 included
approximately $0.4 million related to corporate assets under capital leases, net
of approximately $0.2 million of accumulated amortization.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Future
minimum commitments over the life of all leases subsequent to December 31,
2007, are as follows:
|
|
Operating
|
|
|
Capital
|
|
2008
|
|
$ |
1,383 |
|
|
$ |
974 |
|
2009
|
|
|
1,624 |
|
|
|
842 |
|
2010
|
|
|
1,626 |
|
|
|
663 |
|
2011
|
|
|
1,261 |
|
|
|
526 |
|
2012
|
|
|
1,293 |
|
|
|
195 |
|
Thereafter
|
|
|
40,244 |
|
|
|
- |
|
Total
minimum lease payments
|
|
|
47,431 |
|
|
|
3,200 |
|
Amount
representing interest
|
|
|
- |
|
|
|
(402 |
) |
Balance
of minimum lease payments
|
|
$ |
47,431 |
|
|
$ |
2,798 |
|
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 $0.6
million for the year ended December 31, 2007 and $0.5 million for the years
ended December 31, 2006 and 2005.
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. Under project cost
guarantees, the Company is responsible for the construction 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 $10.2 million
At
December 31, 2007, 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.
Contingencies
Litigation: The
Company is subject to various 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.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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: Wholly
Owned Properties, On-Campus Participating Properties, Development Services, and
Property Management Services. Management evaluates each segment’s
performance based on operating income before depreciation, amortization,
minority interests and allocation of corporate overhead. Intercompany
fees are reflected at the contractually stipulated amounts.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Wholly
Owned Properties
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$ |
117,858 |
|
|
$ |
90,683 |
|
|
$ |
55,412 |
|
Interest
and other income
|
|
|
324 |
|
|
|
203 |
|
|
|
19 |
|
Total
revenues from external customers
|
|
|
118,182 |
|
|
|
90,886 |
|
|
|
55,431 |
|
Operating
expenses before depreciation and amortization
|
|
|
54,411 |
|
|
|
42,341 |
|
|
|
25,181 |
|
Interest
expense
|
|
|
24,226 |
|
|
|
18,744 |
|
|
|
12,283 |
|
Insurance
gain
|
|
|
- |
|
|
|
- |
|
|
|
430 |
|
Operating
income before depreciation, amortization, minority interests
and allocation of corporate overhead
|
|
$ |
39,545 |
|
|
$ |
29,801 |
|
|
$ |
18,397 |
|
Depreciation
and amortization
|
|
$ |
25,648 |
|
|
$ |
20,216 |
|
|
$ |
11,352 |
|
Capital
expenditures
|
|
$ |
142,265 |
|
|
$ |
81,597 |
|
|
$ |
51,037 |
|
Total
segment assets at December 31,
|
|
$ |
978,275 |
|
|
$ |
718,428 |
|
|
$ |
400,971 |
|
On-Campus
Participating Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$ |
20,966 |
|
|
$ |
19,960 |
|
|
$ |
18,470 |
|
Interest
and other income
|
|
|
359 |
|
|
|
330 |
|
|
|
182 |
|
Total
revenues from external customers
|
|
|
21,325 |
|
|
|
20,290 |
|
|
|
18,652 |
|
Operating
expenses before depreciation, amortization, ground/facility
lease, and allocation of corporate overhead
|
|
|
8,701 |
|
|
|
8,382 |
|
|
|
7,594 |
|
Ground/facility
lease
|
|
|
1,622 |
|
|
|
857 |
|
|
|
873 |
|
Interest
expense
|
|
|
6,226 |
|
|
|
6,447 |
|
|
|
5,717 |
|
Operating
income before depreciation, amortization, minority interests
and allocation of corporate overhead
|
|
$ |
4,776 |
|
|
$ |
4,604 |
|
|
$ |
4,468 |
|
Depreciation
and amortization
|
|
$ |
4,263 |
|
|
$ |
4,131 |
|
|
$ |
3,662 |
|
Capital
expenditures
|
|
$ |
480 |
|
|
$ |
483 |
|
|
$ |
15,887 |
|
Total
segment assets at December 31,
|
|
$ |
85,708 |
|
|
$ |
88,814 |
|
|
$ |
92,522 |
|
Development
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
and construction management fees from external
customers
|
|
$ |
5,490 |
|
|
$ |
5,778 |
|
|
$ |
5,854 |
|
Intersegment
revenues
|
|
|
- |
|
|
|
- |
|
|
|
2,651 |
|
Total
revenues
|
|
|
5,490 |
|
|
|
5,778 |
|
|
|
8,505 |
|
Operating
expenses
|
|
|
5,588 |
|
|
|
4,566 |
|
|
|
4,626 |
|
Operating
income before depreciation, amortization, minority
interests and allocation of corporate overhead
|
|
$ |
(98 |
) |
|
$ |
1,212 |
|
|
$ |
3,879 |
|
Total
segment assets at December 31,
|
|
$ |
7,624 |
|
|
$ |
2,513 |
|
|
$ |
3,438 |
|
Property
Management Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
management fees from external customers
|
|
$ |
2,821 |
|
|
$ |
2,532 |
|
|
$ |
2,786 |
|
Intersegment
revenues
|
|
|
4,289 |
|
|
|
3,627 |
|
|
|
2,650 |
|
Total
revenues
|
|
|
7,110 |
|
|
|
6,159 |
|
|
|
5,436 |
|
Operating
expenses
|
|
|
3,102 |
|
|
|
2,501 |
|
|
|
2,110 |
|
Operating
income before depreciation, amortization, minority interests
and allocation of corporate overhead
|
|
$ |
4,008 |
|
|
$ |
3,658 |
|
|
$ |
3,326 |
|
Total
segment assets at December 31,
|
|
$ |
2,220 |
|
|
$ |
1,639 |
|
|
$ |
1,459 |
|
Reconciliations
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment revenues
|
|
$ |
152,107 |
|
|
$ |
123,113 |
|
|
$ |
88,024 |
|
Unallocated
interest income earned on corporate cash
|
|
|
794 |
|
|
|
697 |
|
|
|
624 |
|
Elimination
of intersegment revenues
|
|
|
(4,289 |
) |
|
|
(3,627 |
) |
|
|
(5,301 |
) |
Total
consolidated revenues, including interest income
|
|
$ |
148,612 |
|
|
$ |
120,183 |
|
|
$ |
83,347 |
|
Segment
operating income before depreciation, amortization, minority
interests and allocation of corporate overhead
|
|
$ |
48,231 |
|
|
$ |
39,275 |
|
|
$ |
30,070 |
|
Depreciation
and amortization
|
|
|
(31,784 |
) |
|
|
(26,229 |
) |
|
|
(16,623 |
) |
Net
unallocated expenses relating to corporate overhead
|
|
|
(17,014 |
) |
|
|
(9,318 |
) |
|
|
(11,346 |
) |
Loss
from unconsolidated joint venture
|
|
|
(108 |
) |
|
|
- |
|
|
|
- |
|
Income
tax provision
|
|
|
(756 |
) |
|
|
(28 |
) |
|
|
(186 |
) |
Minority
interests
|
|
|
(255 |
) |
|
|
(2,038 |
) |
|
|
(164 |
) |
(Loss)
income from continuing operations
|
|
$ |
(1,686 |
) |
|
$ |
1,662 |
|
|
$ |
1,751 |
|
Total
segment assets
|
|
$ |
1,073,827 |
|
|
$ |
811,394 |
|
|
$ |
498,390 |
|
Unallocated
corporate assets and assets held for sale
|
|
|
2,469 |
|
|
|
72,987 |
|
|
|
52,472 |
|
Total
assets
|
|
$ |
1,076,296 |
|
|
$ |
884,381 |
|
|
$ |
550,862 |
|
18. Quarterly
Financial Information (Unaudited)
The
information presented below represents the consolidated financial results of the
Company for the years ended December 31, 2007 and 2006.
|
|
2007
|
|
|
|
1PstP Quarter
|
|
|
2PndP Quarter
|
|
|
3PrdP Quarter
|
|
|
4PthP Quarter
|
|
|
Total
|
|
Total
revenues
|
|
$ |
34,950 |
|
|
$ |
33,366 |
|
|
$ |
36,518 |
|
|
$ |
42,301 |
|
|
$ |
147,135 |
|
Net
(loss) income
|
|
$ |
(4,678 |
) |
|
$ |
(785 |
) |
|
$ |
(2,369 |
) |
|
$ |
6,146 |
|
|
$ |
(1,686 |
) |
Net
(loss) income per share-basic
|
|
$ |
(0.20 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.10 |
) |
|
$ |
0.23 |
|
|
$ |
(0.07 |
) |
Net
(loss) income per share-Diluted
|
|
$ |
(0.20 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.10 |
) |
|
$ |
0.23 |
|
|
$ |
(0.07 |
) |
|
|
2006
|
|
|
|
1PstP Quarter
|
|
|
2PndP Quarter
|
|
|
3PrdP Quarter
|
|
|
4PthP 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 |
|
|
(1)
|
Includes
revenues from discontinued operations of $4.7 million for the year ended
December 31, 2006.
|
19. Subsequent
Events
Pending Acquisition of GMH
Communities Trust: The Company has entered into an Agreement
and Plan of Merger, dated as of February 11, 2008 (the “Merger Agreement”), with
GMH Communities Trust, a Maryland real estate investment trust (“GMH”), GMH
Communities, Inc., a Delaware corporation and a wholly owned subsidiary of GMH
(the “Delaware Company”), GMH Communities, LP, a Delaware limited partnership
(the “GMH Operating Partnership”), the Operating Partnership, American Campus
Communities Acquisition LLC, a Delaware limited liability company and a wholly
owned subsidiary of the Operating Partnership (“REIT Merger Sub”), and American
Campus Communities Acquisition Limited Partnership LP, a Delaware limited
partnership (“Partnership Merger Sub”). Pursuant to the Merger
Agreement, REIT Merger Sub will be merged with and into GMH (the “REIT Merger”),
GMH will be merged with and into the Delaware Company (the “Reincorporation
Merger”) and the Partnership Merger Sub will be merged with and into the GMH
Operating Partnership (the “Partnership Merger” and, together with the REIT
Merger and the Reincorporation Merger, the “Mergers”). Each common
share of GMH and each unit in the GMH Operating Partnership will be entitled to
receive at the closing of the Mergers (i) 0.07642 of a share of the Company’s
common stock (the “Share Consideration”) and (ii) $3.36 in cash, except, subject
to certain conditions, in lieu of the Share Consideration, the holders of units
in the GMH Operating Partnership may elect to receive 0.07642 of a unit in the
Operating Partnership.
The
Company and GMH have made customary representations, warranties and covenants in
the Merger Agreement, including, among others, GMH’s covenant not to, nor to
permit any subsidiary of GMH to, solicit alternative transactions or, subject to
certain limited exceptions, participate in discussions relating to an
alternative transaction or furnish non-public information relating to an
alternative transaction. Pending the closing of the Mergers, GMH is
permitted to pay its regular quarterly dividend for the quarter ending March 31,
2008 but will not be permitted under the Merger Agreement to make any other
distributions other than the distributions described therein.
The
Merger Agreement contains certain termination rights for the Company and GMH,
including, without limitation, the ability of GMH to terminate the Merger
Agreement if it receives a takeover proposal that the GMH board determines in
good faith constitutes a superior proposal, GMH is not in breach of the
non-solicitation provisions of the Merger Agreement in any material respects,
and GMH provides the Company three business days to make any adjustments to the
terms and conditions of the Merger Agreement. In connection with the
termination of the Merger Agreement for such reason and under other specified
circumstances, GMH will be required to pay a termination fee of $16.0 million to
the Company and reimburse up to $7.5 million of the Company’s out-of-pocket
expenses. In addition, under specified circumstances, the Company may
be required to reimburse GMH for its out-of-pocket costs and expenses up to $7.5
million.
The
Mergers, which are expected to close during the second quarter of 2008, are
subject to certain closing conditions, including, among other things, (a) the
sale by GMH of its military housing division, (b) obtaining regulatory
approvals, if any, (c) the effectiveness of a registration statement on Form S-4
to be filed by the Company with the SEC pursuant to which the shares of common
stock of the Company will be issued, (d) the approval of the REIT Merger by at
least two-thirds of all the votes entitled to be cast on the matter by the
holders of all outstanding GMH common shares, (e) obtaining certain lender
consents, (f) accuracy of the other parties’ representations and warranties and
compliance with covenants, subject in each case to materiality standards, and
(g) delivery of tax opinions. The Company is unaware of any material
federal, state or foreign regulatory requirements or approvals that are required
for the execution of the Merger Agreement or the closing of the
Mergers.
Property
Acquisitions: In February 2008, the Company acquired a
144-unit, 528-bed property (Pirate’s Place) located near the campus of East
Carolina University in Greenville, North Carolina, for a purchase price of $10.6
million, which excludes $0.8 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 $7.0 million in fixed-rate mortgage debt with an annual
interest rate of 7.2% and remaining term to maturity of 14.9 years.
In
February 2008, the Company also acquired a 68-unit, 161-bed property (Sunnyside
Commons) located near the campus of West Virginia University in Morgantown, West
Virginia, for a purchase price of $7.5 million, which excludes $0.6 million of
anticipated transaction costs, initial integration expenses and capital
expenditures necessary to bring this property up to the Company’s operating
standards. The Company did not assume any debt as part of this
transaction.
Distributions: On
January 30, 2008, the Company declared a fourth quarter 2007 distribution per
share of $0.3375 which was paid on February 29, 2008 to all common stockholders
of record as of February 15, 2008. 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
NOTES
TO CONSOLIDATED 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
|
|
Wholly
Owned Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Villas
on Apache
|
|
|
111 |
|
|
|
288 |
|
|
$ |
1,465 |
|
|
$ |
8,071 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,044 |
|
|
$ |
1,465 |
|
|
$ |
11,115 |
|
|
$ |
12,580 |
|
|
$ |
3,357 |
|
|
$ |
7,345 |
|
|
1987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Village at
Blacksburg
|
|
|
288 |
|
|
|
1,056 |
|
|
|
3,826 |
|
|
|
22,155 |
|
|
|
- |
|
|
|
- |
|
|
|
2,633 |
|
|
|
3,826 |
|
|
|
24,788 |
|
|
|
28,614 |
|
|
|
5,419 |
|
|
|
20,559 |
|
|
1990/
1998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
River
Club
Apartments
|
|
|
266 |
|
|
|
792 |
|
|
|
3,478 |
|
|
|
19,655 |
|
|
|
- |
|
|
|
- |
|
|
|
1,207 |
|
|
|
3,478 |
|
|
|
20,862 |
|
|
|
24,340 |
|
|
|
5,109 |
|
|
|
17,912 |
|
|
1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
River
Walk
Townhomes
|
|
|
100 |
|
|
|
336 |
|
|
|
1,442 |
|
|
|
8,194 |
|
|
|
- |
|
|
|
- |
|
|
|
506 |
|
|
|
1,442 |
|
|
|
8,700 |
|
|
|
10,142 |
|
|
|
2,121 |
|
|
|
7,393 |
|
|
1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Callaway
House
|
|
|
173 |
|
|
|
538 |
|
|
|
5,080 |
|
|
|
20,500 |
|
|
|
- |
|
|
|
- |
|
|
|
1,045 |
|
|
|
5,080 |
|
|
|
21,545 |
|
|
|
26,625 |
|
|
|
4,961 |
|
|
|
18,951 |
|
|
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Village at
Alafaya
Club
|
|
|
228 |
|
|
|
839 |
|
|
|
3,788 |
|
|
|
21,851 |
|
|
|
- |
|
|
|
- |
|
|
|
1,146 |
|
|
|
3,788 |
|
|
|
22,997 |
|
|
|
26,785 |
|
|
|
4,960 |
|
|
|
19,791 |
|
|
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Village at
Science
Drive
|
|
|
192 |
|
|
|
732 |
|
|
|
4,673 |
|
|
|
19,021 |
|
|
|
- |
|
|
|
- |
|
|
|
642 |
|
|
|
4,673 |
|
|
|
19,663 |
|
|
|
24,336 |
|
|
|
3,382 |
|
|
|
- |
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at Boulder Creek
|
|
|
82 |
|
|
|
309 |
|
|
|
939 |
|
|
|
14,887 |
|
|
|
96 |
|
|
|
1,506 |
|
|
|
705 |
|
|
|
1,035 |
|
|
|
17,098 |
|
|
|
18,133 |
|
|
|
2,921 |
|
|
|
15,795 |
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at Fresno
|
|
|
105 |
|
|
|
406 |
|
|
|
900 |
|
|
|
15,070 |
|
|
|
29 |
|
|
|
483 |
|
|
|
131 |
|
|
|
929 |
|
|
|
15,684 |
|
|
|
16,613 |
|
|
|
1,805 |
|
|
|
- |
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at TU
|
|
|
220 |
|
|
|
749 |
|
|
|
- |
|
|
|
38,739 |
|
|
|
- |
|
|
|
2,380 |
|
|
|
322 |
|
|
|
- |
|
|
|
41,441 |
|
|
|
41,441 |
|
|
|
4,241 |
|
|
|
- |
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village at Sweet Home
|
|
|
269 |
|
|
|
828 |
|
|
|
2,473 |
|
|
|
34,626 |
|
|
|
- |
|
|
|
- |
|
|
|
105 |
|
|
|
2,473 |
|
|
|
34,731 |
|
|
|
37,204 |
|
|
|
2,762 |
|
|
|
- |
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Club Tallahassee (4)
|
|
|
152 |
|
|
|
608 |
|
|
|
4,065 |
|
|
|
17,368 |
|
|
|
- |
|
|
|
- |
|
|
|
2,062 |
|
|
|
4,065 |
|
|
|
19,430 |
|
|
|
23,495 |
|
|
|
2,491 |
|
|
|
13,181 |
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Grove at University Club (4)
|
|
|
64 |
|
|
|
128 |
|
|
|
600 |
|
|
|
5,735 |
|
|
|
- |
|
|
|
- |
|
|
|
398 |
|
|
|
600 |
|
|
|
6,133 |
|
|
|
6,733 |
|
|
|
565 |
|
|
|
4,214 |
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
College
Club Tallahassee (5)
|
|
|
96 |
|
|
|
384 |
|
|
|
1,498 |
|
|
|
11,156 |
|
|
|
- |
|
|
|
- |
|
|
|
1,061 |
|
|
|
1,498 |
|
|
|
12,217 |
|
|
|
13,715 |
|
|
|
1,414 |
|
|
|
8,584 |
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Greens at College Club (5)
|
|
|
40 |
|
|
|
160 |
|
|
|
601 |
|
|
|
4,893 |
|
|
|
- |
|
|
|
- |
|
|
|
442 |
|
|
|
601 |
|
|
|
5,335 |
|
|
|
5,936 |
|
|
|
564 |
|
|
|
- |
|
|
2004
|
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED 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 |
|
|
|
- |
|
|
|
- |
|
|
|
380 |
|
|
|
1,416 |
|
|
|
12,228 |
|
|
|
13,644 |
|
|
|
1,163 |
|
|
|
8,179 |
|
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Estates
|
|
|
396 |
|
|
|
1,044 |
|
|
|
4,254 |
|
|
|
43,164 |
|
|
|
- |
|
|
|
- |
|
|
|
1,026 |
|
|
|
4,254 |
|
|
|
44,190 |
|
|
|
48,444 |
|
|
|
3,613 |
|
|
|
37,394 |
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City
Parc at Fry Street
|
|
|
136 |
|
|
|
418 |
|
|
|
1,902 |
|
|
|
17,678 |
|
|
|
- |
|
|
|
- |
|
|
|
573 |
|
|
|
1,902 |
|
|
|
18,251 |
|
|
|
20,153 |
|
|
|
1,646 |
|
|
|
11,326 |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Callaway
Villas
|
|
|
236 |
|
|
|
704 |
|
|
|
3,903 |
|
|
|
32,287 |
|
|
|
- |
|
|
|
- |
|
|
|
97 |
|
|
|
3,903 |
|
|
|
32,384 |
|
|
|
36,287 |
|
|
|
1,497 |
|
|
|
- |
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northgate
Lakes
|
|
|
194 |
|
|
|
710 |
|
|
|
4,807 |
|
|
|
27,284 |
|
|
|
- |
|
|
|
- |
|
|
|
692 |
|
|
|
4,807 |
|
|
|
27,976 |
|
|
|
32,783 |
|
|
|
1,568 |
|
|
|
10,774 |
|
1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Oaks (6)
|
|
|
82 |
|
|
|
224 |
|
|
|
1,346 |
|
|
|
8,153 |
|
|
|
- |
|
|
|
- |
|
|
|
293 |
|
|
|
1,346 |
|
|
|
8,446 |
|
|
|
9,792 |
|
|
|
456 |
|
|
|
2,887 |
|
1990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Pavilion (6)
|
|
|
60 |
|
|
|
204 |
|
|
|
1,212 |
|
|
|
7,304 |
|
|
|
- |
|
|
|
- |
|
|
|
266 |
|
|
|
1,212 |
|
|
|
7,570 |
|
|
|
8,782 |
|
|
|
415 |
|
|
|
2,410 |
|
1991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Village Tallahassee (6)
|
|
|
75 |
|
|
|
288 |
|
|
|
1,764 |
|
|
|
10,768 |
|
|
|
- |
|
|
|
- |
|
|
|
376 |
|
|
|
1,764 |
|
|
|
11,144 |
|
|
|
12,908 |
|
|
|
586 |
|
|
|
3,241 |
|
1992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Village Gainesville
|
|
|
118 |
|
|
|
448 |
|
|
|
2,484 |
|
|
|
15,153 |
|
|
|
- |
|
|
|
- |
|
|
|
592 |
|
|
|
2,484 |
|
|
|
15,745 |
|
|
|
18,229 |
|
|
|
920 |
|
|
|
5,903 |
|
1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal
Lexington
|
|
|
94 |
|
|
|
364 |
|
|
|
2,848 |
|
|
|
12,783 |
|
|
|
- |
|
|
|
- |
|
|
|
512 |
|
|
|
2,848 |
|
|
|
13,295 |
|
|
|
16,143 |
|
|
|
769 |
|
|
|
4,625 |
|
1994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Woods at Greenland
|
|
|
78 |
|
|
|
276 |
|
|
|
1,050 |
|
|
|
7,286 |
|
|
|
- |
|
|
|
- |
|
|
|
386 |
|
|
|
1,050 |
|
|
|
7,672 |
|
|
|
8,722 |
|
|
|
441 |
|
|
|
6,038 |
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raider’s
Crossing
|
|
|
96 |
|
|
|
276 |
|
|
|
1,089 |
|
|
|
8,404 |
|
|
|
- |
|
|
|
- |
|
|
|
411 |
|
|
|
1,089 |
|
|
|
8,815 |
|
|
|
9,904 |
|
|
|
492 |
|
|
|
6,462 |
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entrada
Real
|
|
|
98 |
|
|
|
363 |
|
|
|
1,475 |
|
|
|
15,859 |
|
|
|
- |
|
|
|
- |
|
|
|
381 |
|
|
|
1,475 |
|
|
|
16,240 |
|
|
|
17,715 |
|
|
|
865 |
|
|
|
9,491 |
|
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Outpost San Marcos
|
|
|
162 |
|
|
|
486 |
|
|
|
1,987 |
|
|
|
18,973 |
|
|
|
- |
|
|
|
- |
|
|
|
259 |
|
|
|
1,987 |
|
|
|
19,232 |
|
|
|
21,219 |
|
|
|
1,002 |
|
|
|
13,414 |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Outpost San Antonio
|
|
|
276 |
|
|
|
828 |
|
|
|
3,262 |
|
|
|
36,252 |
|
|
|
- |
|
|
|
- |
|
|
|
262 |
|
|
|
3,262 |
|
|
|
36,514 |
|
|
|
39,776 |
|
|
|
1,886 |
|
|
|
23,701 |
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raider’s
Pass
|
|
|
264 |
|
|
|
828 |
|
|
|
3,877 |
|
|
|
32,445 |
|
|
|
- |
|
|
|
- |
|
|
|
924 |
|
|
|
3,877 |
|
|
|
33,369 |
|
|
|
37,246 |
|
|
|
1,822 |
|
|
|
19,151 |
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggie
Station
|
|
|
156 |
|
|
|
450 |
|
|
|
1,634 |
|
|
|
18,821 |
|
|
|
- |
|
|
|
- |
|
|
|
366 |
|
|
|
1,634 |
|
|
|
19,187 |
|
|
|
20,821 |
|
|
|
1,013 |
|
|
|
11,354 |
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Centre
|
|
|
234 |
|
|
|
838 |
|
|
|
- |
|
|
|
77,378 |
|
|
|
- |
|
|
|
- |
|
|
|
33 |
|
|
|
- |
|
|
|
77,411 |
|
|
|
77,411 |
|
|
|
810 |
|
|
|
- |
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village
on Sixth
|
|
|
248 |
|
|
|
752 |
|
|
|
2,763 |
|
|
|
22,480 |
|
|
|
- |
|
|
|
- |
|
|
|
1,473 |
|
|
|
2,763 |
|
|
|
23,953 |
|
|
|
26,716 |
|
|
|
643 |
|
|
|
17,385 |
|
2005/2006
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED 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
|
|
Newtown
Crossing
|
|
|
356 |
|
|
|
942 |
|
|
|
6,763 |
|
|
|
53,597 |
|
|
|
- |
|
|
|
- |
|
|
|
374 |
|
|
|
6,763 |
|
|
|
53,971 |
|
|
|
60,734 |
|
|
|
1,429 |
|
|
|
32,033 |
|
|
2005/
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olde
Town University Square
|
|
|
224 |
|
|
|
550 |
|
|
|
2,277 |
|
|
|
24,614 |
|
|
|
- |
|
|
|
- |
|
|
|
170 |
|
|
|
2,277 |
|
|
|
24,784 |
|
|
|
27,061 |
|
|
|
729 |
|
|
|
20,738 |
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peninsular
Place
|
|
|
183 |
|
|
|
478 |
|
|
|
2,265 |
|
|
|
16,559 |
|
|
|
- |
|
|
|
- |
|
|
|
101 |
|
|
|
2,265 |
|
|
|
16,660 |
|
|
|
18,925 |
|
|
|
526 |
|
|
|
17,039 |
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vista
del Sol (7)
|
|
|
613 |
|
|
|
1,866 |
|
|
|
- |
|
|
|
75,336 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
75,336 |
|
|
|
75,336 |
|
|
|
- |
|
|
|
29,844 |
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Villas
at Chestnut Ridge (8)
|
|
|
196 |
|
|
|
552 |
|
|
|
2,756 |
|
|
|
20,545 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,756 |
|
|
|
20,545 |
|
|
|
23,301 |
|
|
|
- |
|
|
|
13,808 |
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrett
Honors College (9)
|
|
|
601 |
|
|
|
1,720 |
|
|
|
- |
|
|
|
8,659 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,659 |
|
|
|
8,659 |
|
|
|
- |
|
|
|
- |
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
7,656 |
|
|
|
24,138 |
|
|
$ |
91,962 |
|
|
$ |
885,551 |
|
|
$ |
125 |
|
|
$ |
4,369 |
|
|
$ |
25,396 |
|
|
$ |
92,087 |
|
|
$ |
915,316 |
|
|
$ |
1,007,403 |
|
|
$ |
70,363 |
|
|
$ |
440,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Campus
Participating Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village
– PVAMU
|
|
|
612 |
|
|
|
1,920 |
|
|
$ |
- |
|
|
$ |
36,506 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,993 |
|
|
$ |
- |
|
|
$ |
38,499 |
|
|
$ |
38,499 |
|
|
$ |
15,484 |
|
|
$ |
28,327 |
|
|
1996/
97/98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University College
–PVAMU
|
|
|
756 |
|
|
|
1,470 |
|
|
|
- |
|
|
|
22,650 |
|
|
|
- |
|
|
|
- |
|
|
|
1,387 |
|
|
|
- |
|
|
|
24,037 |
|
|
|
24,037 |
|
|
|
6,930 |
|
|
|
22,370 |
|
|
2000/
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University
Village
– TAMIU
|
|
|
84 |
|
|
|
250 |
|
|
|
- |
|
|
|
5,844 |
|
|
|
- |
|
|
|
- |
|
|
|
195 |
|
|
|
- |
|
|
|
6,039 |
|
|
|
6,039 |
|
|
|
2,414 |
|
|
|
4,333 |
|
|
1997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cullen
Oaks
Phase
I and II
|
|
|
411 |
|
|
|
879 |
|
|
|
- |
|
|
|
33,910 |
|
|
|
- |
|
|
|
- |
|
|
|
781 |
|
|
|
- |
|
|
|
34,691 |
|
|
|
34,691 |
|
|
|
5,533 |
|
|
|
33,156 |
|
|
2001/
2005
|
|
Subtotal
|
|
|
1,863 |
|
|
|
4,519 |
|
|
|
- |
|
|
|
98,910 |
|
|
|
- |
|
|
|
- |
|
|
|
4,356 |
|
|
|
- |
|
|
|
103,266 |
|
|
|
103,266 |
|
|
|
30,361 |
|
|
|
88,186 |
|
|
|
|
Total-all
properties
|
|
|
9,519 |
|
|
|
28,657 |
|
|
$ |
91,962 |
|
|
$ |
984,461 |
|
|
$ |
125 |
|
|
$ |
4,369 |
|
|
$ |
29,752 |
|
|
$ |
92,087 |
|
|
$ |
1,018,582 |
|
|
$ |
1,110,669 |
|
|
$ |
100,724 |
|
|
$ |
529,108 |
|
|
|
|
|
(1)
|
Total
aggregate costs for Federal income tax purposes is $1,142.8
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 $5.0 million and net
unamortized debt discounts of $0.7 million as of December 31,
2007.
|
|
(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)
|
Vista
del Sol (formerly 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.
|
|
(8)
|
Villas
at Chestnut Ridge commenced construction in March 2007. Initial
costs represent construction costs associated with the development of this
property. Year built represents the scheduled completion
date.
|
|
(9) |
Barrett
Honors College commenced construction in November 2007. 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
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
changes in the Company’s investments in real estate and related accumulated
depreciation for each of the years ended December 31, 2007, 2006, and 2005 are
as follows:
|
|
For
the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Wholly
Owned
(1)
|
|
|
On-Campus
(2)
|
|
|
Wholly
Owned
(1)
|
|
|
On-Campus
(2)
|
|
|
Wholly
Owned
(1)
|
|
|
On-Campus
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
740,238 |
|
|
$ |
102,786 |
|
|
$ |
451,033 |
|
|
$ |
102,337 |
|
|
$ |
295,313 |
|
|
$ |
86,370 |
|
Acquisition
of land for development
|
|
|
10,022 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,903 |
|
|
|
- |
|
Acquisition
of properties
|
|
|
131,319 |
|
|
|
- |
|
|
|
248,321 |
|
|
|
- |
|
|
|
126,176 |
|
|
|
- |
|
Improvements
and development expenditures
|
|
|
133,090 |
|
|
|
480 |
|
|
|
79,100 |
|
|
|
449 |
|
|
|
48,214 |
|
|
|
15,967 |
|
Contribution
of land from minority partner in
development joint venture
|
|
|
2,756 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Disposition
of properties
|
|
|
- |
|
|
|
- |
|
|
|
(38,216 |
) |
|
|
- |
|
|
|
(22,573 |
) |
|
|
- |
|
Balance,
end of year
|
|
$ |
1,017,425 |
|
|
$ |
103,266 |
|
|
$ |
740,238 |
|
|
$ |
102,786 |
|
|
$ |
451,033 |
|
|
$ |
102,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
(46,041 |
) |
|
$ |
(26,098 |
) |
|
$ |
(33,935 |
) |
|
$ |
(21,967 |
) |
|
$ |
(22,863 |
) |
|
$ |
(18,306 |
) |
Depreciation
for the year
|
|
|
(24,322 |
) |
|
|
(4,263 |
) |
|
|
(18,462 |
) |
|
|
(4,131 |
) |
|
|
(11,241 |
) |
|
|
(3,661 |
) |
Disposition
of properties
|
|
|
- |
|
|
|
- |
|
|
|
6,356 |
|
|
|
- |
|
|
|
169 |
|
|
|
- |
|
Balance,
end of year
|
|
$ |
(70,363 |
) |
|
$ |
(30,361 |
) |
|
$ |
(46,041 |
) |
|
$ |
(26,098 |
) |
|
$ |
(33,935 |
) |
|
$ |
(21,967 |
) |
|
(1)
|
Owned
off-campus properties and owned on-campus
properties
|
|
(2)
|
On-campus
participating properties
|
F-36