t68624_10q.htm
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x Quarterly Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
quarterly period ended June 30, 2010
o Transition Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
Transition Period From ______________________ to
_________________________.
Commission
file number 001-32265
AMERICAN
CAMPUS COMMUNITIES, INC.
(Exact
name of registrant as specified in its charter)
Maryland
|
|
76-0753089
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(IRS
Employer Identification No.)
|
805
Las Cimas Parkway, Suite 400
Austin,
TX
(Address
of Principal Executive Offices)
|
|
78746
(Zip
Code)
|
(512)
732-1000
Registrant’s
telephone number, including area code
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x
No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
Yes x No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated
filer x
|
|
|
|
Accelerated Filer
o |
|
|
|
|
|
|
|
Non-accelerated
filer o |
|
(Do not check if a
smaller reporting company) |
|
Smaller reporting
company o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
There
were 52,787,389 shares of American Campus Communities, Inc.’s common stock
with a par value of $0.01 per share outstanding as of the close of business on
July 30, 2010.
FOR
THE QUARTER ENDED JUNE 30, 2010
TABLE
OF CONTENTS
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PART
I.
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PAGE
NO.
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Item
1.
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Consolidated
Financial Statements
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1
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2
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3
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4
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5
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25
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45
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45
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46
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47
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
(in
thousands, except share and per share data)
|
|
June
30, 2010
|
|
December
31, 2009
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in real estate:
|
|
|
|
|
|
|
Wholly-owned
properties, net
|
|
$ |
1,977,475 |
|
|
$ |
2,014,970 |
|
On-campus
participating properties, net
|
|
|
63,755 |
|
|
|
65,690 |
|
Investments
in real estate, net
|
|
|
2,041,230 |
|
|
|
2,080,660 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
20,932 |
|
|
|
66,093 |
|
Restricted
cash
|
|
|
31,615 |
|
|
|
29,899 |
|
Student
contracts receivable, net
|
|
|
4,249 |
|
|
|
5,381 |
|
Other
assets
|
|
|
52,874 |
|
|
|
52,948 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,150,900 |
|
|
$ |
2,234,981 |
|
|
|
|
|
|
|
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Liabilities
and equity
|
|
|
|
|
|
|
|
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|
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|
Liabilities:
|
|
|
|
|
|
|
|
|
Secured
mortgage, construction and bond debt
|
|
$ |
947,041 |
|
|
$ |
1,029,455 |
|
Senior
secured term loan
|
|
|
100,000 |
|
|
|
100,000 |
|
Secured
agency facility
|
|
|
94,000 |
|
|
|
94,000 |
|
Secured
revolving credit facility
|
|
|
30,100 |
|
|
|
- |
|
Accounts
payable and accrued expenses
|
|
|
26,963 |
|
|
|
26,543 |
|
Other
liabilities
|
|
|
44,380 |
|
|
|
45,487 |
|
Total
liabilities
|
|
|
1,242,484 |
|
|
|
1,295,485 |
|
|
|
|
|
|
|
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Redeemable
noncontrolling interests
|
|
|
34,654 |
|
|
|
36,722 |
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
American
Campus Communities, Inc. stockholders’ equity:
Common
stock, $.01 par value, 800,000,000 shares authorized,
52,599,622
and 52,203,893 shares issued and outstanding at
June
30, 2010 and December 31, 2009, respectively
|
|
|
524 |
|
|
|
521 |
|
Additional
paid in capital
|
|
|
1,101,686 |
|
|
|
1,092,030 |
|
Accumulated
earnings and dividends
|
|
|
(226,266 |
) |
|
|
(189,165 |
) |
Accumulated
other comprehensive loss
|
|
|
(6,059 |
) |
|
|
(4,356 |
) |
Total
American Campus Communities, Inc. stockholders’ equity
|
|
|
869,885 |
|
|
|
899,030 |
|
Noncontrolling
interests
|
|
|
3,877 |
|
|
|
3,744 |
|
Total
equity
|
|
|
873,762 |
|
|
|
902,774 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$ |
2,150,900 |
|
|
$ |
2,234,981 |
|
See
accompanying notes to consolidated financial statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
(unaudited,
in thousands, except share and per share data)
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-owned
properties
|
|
$ |
68,549 |
|
|
$ |
64,153 |
|
|
$ |
139,741 |
|
|
$ |
129,488 |
|
On-campus
participating properties
|
|
|
4,142 |
|
|
|
3,922 |
|
|
|
11,453 |
|
|
|
10,796 |
|
Third
party development services
|
|
|
1,628 |
|
|
|
886 |
|
|
|
2,202 |
|
|
|
1,938 |
|
Third
party management services
|
|
|
2,121 |
|
|
|
2,105 |
|
|
|
4,335 |
|
|
|
4,347 |
|
Resident
services
|
|
|
242 |
|
|
|
205 |
|
|
|
494 |
|
|
|
445 |
|
Total
revenues
|
|
|
76,682 |
|
|
|
71,271 |
|
|
|
158,225 |
|
|
|
147,014 |
|
|
|
|
|
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|
|
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Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-owned
properties
|
|
|
32,288 |
|
|
|
31,794 |
|
|
|
63,764 |
|
|
|
62,284 |
|
On-campus
participating properties
|
|
|
2,620 |
|
|
|
2,783 |
|
|
|
5,019 |
|
|
|
4,813 |
|
Third
party development and management services
|
|
|
2,796 |
|
|
|
2,810 |
|
|
|
5,895 |
|
|
|
5,787 |
|
General
and administrative
|
|
|
2,616 |
|
|
|
2,829 |
|
|
|
5,369 |
|
|
|
5,577 |
|
Depreciation
and amortization
|
|
|
17,795 |
|
|
|
19,591 |
|
|
|
35,283 |
|
|
|
38,923 |
|
Ground/facility
leases
|
|
|
753 |
|
|
|
452 |
|
|
|
1,324 |
|
|
|
1,004 |
|
Total
operating expenses
|
|
|
58,868 |
|
|
|
60,259 |
|
|
|
116,654 |
|
|
|
118,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
17,814 |
|
|
|
11,012 |
|
|
|
41,571 |
|
|
|
28,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
16 |
|
|
|
40 |
|
|
|
33 |
|
|
|
79 |
|
Interest
expense
|
|
|
(14,961 |
) |
|
|
(14,817 |
) |
|
|
(30,262 |
) |
|
|
(30,081 |
) |
Amortization
of deferred financing costs
|
|
|
(1,015 |
) |
|
|
(769 |
) |
|
|
(2,057 |
) |
|
|
(1,559 |
) |
Loss
from unconsolidated joint ventures
|
|
|
(711 |
) |
|
|
(483 |
) |
|
|
(2,125 |
) |
|
|
(1,037 |
) |
Other
nonoperating income
|
|
|
- |
|
|
|
402 |
|
|
|
- |
|
|
|
402 |
|
Total
nonoperating expenses
|
|
|
(16,671 |
) |
|
|
(15,627 |
) |
|
|
(34,411 |
) |
|
|
(32,196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes and discontinued operations
|
|
|
1,143 |
|
|
|
(4,615 |
) |
|
|
7,160 |
|
|
|
(3,570 |
) |
Income
tax provision
|
|
|
(142 |
) |
|
|
(135 |
) |
|
|
(285 |
) |
|
|
(270 |
) |
Income
(loss) from continuing operations
|
|
|
1,001 |
|
|
|
(4,750 |
) |
|
|
6,875 |
|
|
|
(3,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
attributable to discontinued operations
|
|
|
(5 |
) |
|
|
(547 |
) |
|
|
(4,288 |
) |
|
|
(948 |
) |
Loss
from disposition of real estate
|
|
|
(59 |
) |
|
|
- |
|
|
|
(3,705 |
) |
|
|
- |
|
Total
discontinued operations
|
|
|
(64 |
) |
|
|
(547 |
) |
|
|
(7,993 |
) |
|
|
(948 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
937 |
|
|
|
(5,297 |
) |
|
|
(1,118 |
) |
|
|
(4,788 |
) |
Net
income attributable to noncontrolling interests
|
|
|
(169 |
) |
|
|
(13 |
) |
|
|
(303 |
) |
|
|
(245 |
) |
Net
income (loss) attributable to common shareholders
|
|
$ |
768 |
|
|
$ |
(5,310 |
) |
|
$ |
(1,421 |
) |
|
$ |
(5,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share attributable to common
shareholders- basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations per share
|
|
$ |
0.01 |
|
|
$ |
(0.10 |
) |
|
$ |
0.12 |
|
|
$ |
(0.10 |
) |
Net
income (loss) per share
|
|
$ |
0.01 |
|
|
$ |
(0.11 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,335,642 |
|
|
|
47,897,196 |
|
|
|
52,285,919 |
|
|
|
45,152,665 |
|
Diluted
|
|
|
52,853,003 |
|
|
|
47,897,196 |
|
|
|
52,829,613 |
|
|
|
45,152,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
declared per common share
|
|
$ |
0.3375 |
|
|
$ |
0.3375 |
|
|
$ |
0.675 |
|
|
$ |
0.675 |
|
See
accompanying notes to consolidated financial statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
(unaudited,
in thousands, except share data)
|
|
Common Shares
|
|
Par
Value of
Common
Shares
|
|
Additional
Paid
in
Capital
|
|
Accumulated
Earnings and Dividends
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Noncontrolling
Interests
|
|
Total
|
|
Equity,
December 31, 2009
|
|
|
52,203,893 |
|
|
$ |
521 |
|
|
$ |
1,092,030 |
|
|
$ |
(189,165 |
) |
|
$ |
(4,356 |
) |
|
$ |
3,744 |
|
|
$ |
902,774 |
|
Net
proceeds from sale of common stock
|
|
|
268,200 |
|
|
|
3 |
|
|
|
7,514 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,517 |
|
Amortization
of restricted stock awards
|
|
|
- |
|
|
|
- |
|
|
|
1,815 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,815 |
|
Vesting
of restricted stock awards
|
|
|
90,525 |
|
|
|
- |
|
|
|
(917 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(917 |
) |
Distributions
to common and restricted stockholders
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(35,680 |
) |
|
|
- |
|
|
|
- |
|
|
|
(35,680 |
) |
Distributions
to joint venture partners
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(108 |
) |
|
|
(108 |
) |
Conversion
of common units to common stock
|
|
|
37,004 |
|
|
|
- |
|
|
|
919 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
919 |
|
Reclassification
of noncontrolling interests
|
|
|
- |
|
|
|
- |
|
|
|
325 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
325 |
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swaps
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,703 |
) |
|
|
- |
|
|
|
(1,703 |
) |
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,421 |
) |
|
|
- |
|
|
|
241 |
|
|
|
(1,180 |
) |
Total
comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,883 |
) |
Equity,
June 30, 2010
|
|
|
52,599,622 |
|
|
$ |
524 |
|
|
$ |
1,101,686 |
|
|
$ |
(226,266 |
) |
|
$ |
(6,059 |
) |
|
$ |
3,877 |
|
|
$ |
873,762 |
|
See
accompanying notes to consolidated financial statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
(unaudited,
in thousands)
|
|
Six
Months Ended June 30,
|
|
|
2010
|
|
2009
|
Operating
activities
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$ |
(1,421 |
) |
|
$ |
(5,033 |
) |
Adjustments
to reconcile net loss attributable to common shareholders to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Income
attributable to noncontrolling interests
|
|
|
303 |
|
|
|
245 |
|
Loss
from disposition of real estate
|
|
|
3,705 |
|
|
|
- |
|
Provision
for asset impairment
|
|
|
4,036 |
|
|
|
- |
|
Depreciation
and amortization
|
|
|
35,617 |
|
|
|
40,502 |
|
Amortization
of deferred financing costs and debt premiums/discounts
|
|
|
2,120 |
|
|
|
1,440 |
|
Share-based
compensation
|
|
|
1,948 |
|
|
|
1,358 |
|
Loss
from unconsolidated joint ventures
|
|
|
2,125 |
|
|
|
1,037 |
|
Income
tax provision
|
|
|
285 |
|
|
|
270 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
(2,118 |
) |
|
|
999 |
|
Student
contracts receivable, net
|
|
|
1,262 |
|
|
|
294 |
|
Other
assets
|
|
|
(3,261 |
) |
|
|
(4,763 |
) |
Accounts
payable and accrued expenses
|
|
|
(772 |
) |
|
|
(6,857 |
) |
Other
liabilities
|
|
|
(2,958 |
) |
|
|
(5,105 |
) |
Distributions
received from unconsolidated joint ventures
|
|
|
180 |
|
|
|
- |
|
Net
cash provided by operating activities
|
|
|
41,051 |
|
|
|
24,387 |
|
Investing
activities
|
|
|
|
|
|
|
|
|
Net
proceeds from disposition of real estate
|
|
|
2,115 |
|
|
|
- |
|
Cash
paid for property acquisition
|
|
|
(9,618 |
) |
|
|
- |
|
Cash
paid for land acquisitions
|
|
|
(7,595 |
) |
|
|
(2,637 |
) |
Investments
in wholly-owned properties
|
|
|
(15,023 |
) |
|
|
(68,356 |
) |
Investments
in on-campus participating properties
|
|
|
(224 |
) |
|
|
(181 |
) |
Purchase
of corporate furniture, fixtures and equipment
|
|
|
(436 |
) |
|
|
(1,181 |
) |
Net
cash used in investing activities
|
|
|
(30,781 |
) |
|
|
(72,355 |
) |
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
7,663 |
|
|
|
207,719 |
|
Offering
costs
|
|
|
(130 |
) |
|
|
(9,369 |
) |
Secured
revolving credit facility, net
|
|
|
30,100 |
|
|
|
(14,700 |
) |
Proceeds
from construction loans
|
|
|
- |
|
|
|
5,334 |
|
Pay-off
of mortgage loans
|
|
|
(51,892 |
) |
|
|
(72,829 |
) |
Principal
payments on debt
|
|
|
(4,314 |
) |
|
|
(4,850 |
) |
Change
in construction accounts payable
|
|
|
- |
|
|
|
(1,284 |
) |
Debt
issuance and assumption costs
|
|
|
(31 |
) |
|
|
(15 |
) |
Distributions
to common and restricted stockholders
|
|
|
(35,833 |
) |
|
|
(29,001 |
) |
Distributions
to noncontrolling partners
|
|
|
(994 |
) |
|
|
(1,454 |
) |
Net
cash (used in) provided by financing activities
|
|
|
(55,431 |
) |
|
|
79,551 |
|
Net
change in cash and cash equivalents
|
|
|
(45,161 |
) |
|
|
31,583 |
|
Cash
and cash equivalents at beginning of period
|
|
|
66,093 |
|
|
|
25,600 |
|
Cash
and cash equivalents at end of period
|
|
$ |
20,932 |
|
|
$ |
57,183 |
|
Supplemental
disclosure of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Issuance
of Common Units in connection with land acquisition
|
|
$ |
- |
|
|
$ |
(2,005 |
) |
Change
in fair value of derivative instruments, net
|
|
$ |
(1,703 |
) |
|
$ |
1,380 |
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
29,204 |
|
|
$ |
31,783 |
|
See
accompanying notes to consolidated financial statements.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
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”), 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
June 30, 2010, the Company’s property portfolio contained 86 student housing
properties with approximately 53,300 beds in approximately 17,300 apartment
units. The Company’s property portfolio consisted of 79 owned
off-campus properties that are in close proximity to colleges and universities,
three American Campus Equity (“ACE®”)
properties operated under ground/facility leases with two university systems and
four on-campus participating properties operated under ground/facility leases
with the related university systems. As of June 30, 2010, the Company
also owned a noncontrolling interest in two joint ventures that owned an
aggregate of 18 student housing properties with approximately 9,800 beds in
approximately 2,900 units. The Company’s communities contain modern
housing units and are supported by a resident assistant system and other
student-oriented programming, with many offering resort-style
amenities.
Through
the Company’s taxable REIT subsidiaries (“TRS”), it also provides construction
management and development services, primarily for student housing properties
owned by colleges and universities, charitable foundations, and
others. As of June 30, 2010, the Company provided third-party
management and leasing services for 33 properties (five of which the Company
served as the third-party developer and construction manager) that represented
approximately 24,700 beds in approximately 9,400 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 June 30, 2010, the Company’s total owned, joint venture
and third-party managed portfolio included 137 properties with approximately
87,800 beds in approximately 29,600 units.
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 noncontrolling interests in the
consolidated financial statements. The Company also has a
noncontrolling interest in three unconsolidated joint ventures, which are
accounted for under the equity method. All 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. Certain prior period amounts have been reclassified to
conform to the current period presentation.
Recent
Accounting Pronouncements
On
January 1, 2010 the Company adopted new accounting guidance related to variable
interest entities (“VIEs”). These new accounting pronouncements amend
the existing accounting guidance to: (i) require an enterprise to perform an
analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a VIE, identifying the primary
beneficiary of the VIE, (ii) require an ongoing reassessment of whether an
enterprise is the primary beneficiary of a VIE, rather than only when specific
events occur, (iii) eliminate the quantitative approach previously required for
determining the primary beneficiary of a VIE, (iv) amend certain guidance for
determining whether an entity is a VIE, (v) add an additional
reconsideration event when changes in facts and circumstances pertinent to a VIE
occur, (vi) eliminate the exception for troubled debt restructuring regarding
VIE reconsideration, and (vii) require advanced disclosures that will provide
users of financial statements with more transparent information about an
enterprise’s involvement in a VIE. Upon the adoption of this new
accounting guidance, management reevaluated its potential VIEs and concluded
that there is no change from its initial assessment regarding which entities are
consolidated by the Company and those that are accounted for under the equity
method of accounting.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Interim
Financial Statements
The
accompanying interim financial statements are unaudited, but have been prepared
in accordance with GAAP for interim financial information and in conjunction
with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all disclosures required
by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting solely of normal recurring matters)
necessary for a fair presentation of the financial statements for these interim
periods have been included. Because of the seasonal nature of the
Company’s operations, the results of operations and cash flows for any interim
period are not necessarily indicative of results for other interim periods or
for the full year. These financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2009.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Investments
in Real Estate
Investments
in real estate are recorded at historical cost. Major improvements
that extend the life of an asset are capitalized and depreciated over the
remaining useful life of the asset. The cost of ordinary repairs and
maintenance 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
|
Project
costs directly associated with the development and construction of an owned real
estate project, which include interest, property taxes, and amortization of
deferred finance costs, are capitalized as construction in
progress. Upon completion of the project, costs are transferred into
the applicable asset category and depreciation commences. Interest
totaling approximately $0.2 million and $1.2 million was capitalized during the
three months ended June 30, 2010 and 2009, respectively, and $0.2 million and
$2.2 million was capitalized during the six months ended June 30, 2010 and 2009,
respectively. There was no amortization of deferred financing costs
capitalized as construction in progress during the three or six months ended
June 30, 2010 and 2009.
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
undiscounted cash flows 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 June 30, 2010.
The
Company allocates the purchase price of acquired properties to net tangible and
identified intangible assets based on relative fair values. 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.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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
Under its
ACE program, the Company as lessee has entered into three ground/facility lease
agreements with two university systems to finance, construct, and manage three
student housing properties. One property was under construction as of June
30, 2010 and is scheduled to open for occupancy in August 2011. The terms
of the leases, including extension options, range from 65 to 85 years, and the
lessor has title to the land and any improvements placed thereon. 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
not qualify for sale-leaseback accounting 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/facility leases are reflected at
historical cost, less amortization, and the financing obligations are reflected
at the terms of the underlying financing.
On-Campus
Participating Properties
The
Company entered into ground and facility leases with two university systems and
colleges to finance, construct, and manage four on-campus student housing
facilities. Under the terms of the leases, the lessor has title to
the land and any improvements placed thereon. Each lease terminates
upon final repayment of the construction related financing, the amortization
period of which is contractually stipulated. 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.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible
Assets
In
connection with a property acquisition completed in March 2010 and the
acquisition of GMH Communities Trust (“GMH”) in June 2008, the Company
capitalized approximately $0.2 million and $18.8 million, respectively, related
to management’s estimate of the fair value of the in-place leases
assumed. These intangible assets are amortized on a straight-line
basis over the average remaining term of the underlying
leases. Amortization expense was approximately $0.1 million and $4.1
million for the three months ended June 30, 2010 and 2009, respectively, and
approximately $0.2 million and $8.2 million for the six months ended June 30,
2010 and 2009, respectively. The Company also capitalized $1.5
million related to management’s estimate of the fair value of third-party
management contracts acquired from GMH. These intangible assets are
amortized on a straight-line basis over a period of three
years. Amortization expense related to these acquired management
contracts was approximately $0.1 million for both three month periods ended June
30, 2010 and 2009, respectively, and $0.2 million for both six month periods
ended June 30, 2010 and 2009, respectively. The amortization of
intangible assets is included in depreciation and amortization expense in the
accompanying consolidated statements of operations. See Note 3 herein
for a detailed discussion of the property acquisition completed during the six
months ended June 30, 2010.
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. Accumulated
amortization at June 30, 2010 and December 31, 2009 approximated $9.2 million
and $9.0 million, respectively. Deferred financing costs, net of
amortization, are included in other assets on the accompanying consolidated
balance sheets.
Joint
Ventures
The
Company holds interests in both consolidated and unconsolidated joint
ventures. The Company consolidates joint ventures when it exhibits
financial or operational control, which is determined using accounting standards
related to the consolidation of joint ventures and VIE’s. For joint
ventures that are defined as VIE’s, the primary beneficiary consolidates the
entity. In instances where the Company is not the primary
beneficiary, it does not consolidate the joint venture for financial reporting
purposes. For joint ventures that are not defined as VIEs, management first
considers whether the Company is the general partner or a limited partner (or
the equivalent in such investments which are not structured as
partnerships). The Company consolidates joint ventures where it is
the general partner (or the equivalent) and the limited partners (or the
equivalent) in such investments do not have rights which would preclude control
and, therefore, consolidation for financial reporting purposes. For
joint ventures where the Company is the general partner (or the equivalent), but
does not control the joint venture as the other partners (or the equivalent)
hold substantive participating rights, the Company uses the equity method of
accounting. For joint ventures where the Company is a limited partner
(or the equivalent), management considers factors such as ownership interest,
voting control, authority to make decisions, and contractual and substantive
participating rights of the partners (or the equivalent) to determine if the
presumption that the general partner controls the entity is
overcome. In instances where these factors indicate the Company
controls the joint venture, the Company consolidates the joint venture;
otherwise it uses the equity method of accounting.
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 June 30,
2010 and December 31, 2009, net unamortized debt premiums were approximately
$3.0 million and $3.8 million, respectively, and net unamortized debt discounts
were approximately $7.4 million and $8.5 million, respectively. Debt
premiums and discounts are included in secured mortgage, construction and bond
debt on the accompanying consolidated balance sheets.
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
collectability 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 June 30, 2010, the Company has deferred
approximately $9.4 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.
Derivative
Instruments and Hedging Activities
The
Company records all derivative financial instruments on the balance sheet at
fair value. Changes in fair value are recognized either in earnings
or as other comprehensive income, depending on whether the derivative has been
designated as a fair value or cash flow hedge and whether it qualifies as part
of a hedging relationship, the nature of the exposure being hedged, and how
effective the derivative is at offsetting movements in underlying
exposure. The Company discontinues hedge accounting when: (i) it
determines that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of a hedged item; (ii) the derivative expires or is
sold, terminated, or exercised; (iii) it is no longer probable that the
forecasted transaction will occur; or (iv) management determines that
designating the derivative as a hedging instrument is no longer
appropriate. In all situations in which hedge accounting is
discontinued and the derivative remains outstanding, the Company will carry the
derivative at its fair value on the balance sheet, recognizing changes in the
fair value in current-period earnings. The Company uses interest rate
swaps to effectively convert a portion of its floating rate debt to fixed rate,
thus reducing the impact of rising interest rates on interest
payments. These instruments are designated as cash flow hedges and
the interest differential to be paid or received is accrued as interest expense.
The Company’s counter-parties are major financial institutions. See
Note 12 herein for an expanded discussion on derivative instruments and hedging
activities.
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
Company owns two TRS entities that manage the Company’s non-REIT activities and
each is subject to federal, state and local income taxes.
Basic
earnings per share is computed using net income (loss) attributable to common
shareholders and the weighted average number of shares of the Company’s common
stock outstanding during the period. Diluted earnings per share
reflect common shares issuable from the assumed conversion of common and
preferred Operating Partnership units and common share awards
granted. Only those items having a dilutive impact on basic earnings
per share are included in diluted earnings per share.
The
following potentially dilutive securities were outstanding for the three and six
months ended June 30, 2010 and 2009, but were not included in the computation of
diluted earnings per share because the effects of their inclusion would be
anti-dilutive.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Restricted
stock awards (Note 11)
|
|
|
- |
|
|
|
467,529 |
|
|
|
- |
|
|
|
455,310 |
|
Common
Operating Partnership units (Note 7)
|
|
|
1,171,085 |
|
|
|
1,186,785 |
|
|
|
1,179,528 |
|
|
|
1,141,666 |
|
Preferred
Operating Partnership units (Note 7)
|
|
|
114,963 |
|
|
|
114,963 |
|
|
|
114,963 |
|
|
|
114,963 |
|
Total
potentially dilutive securities
|
|
|
1,286,048 |
|
|
|
1,769,277 |
|
|
|
1,294,491 |
|
|
|
1,711,939 |
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following is a summary of the elements used in calculating basic and diluted
earnings per share:
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Basic
earnings per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
1,001 |
|
|
$ |
(4,750 |
) |
|
$ |
6,875 |
|
|
$ |
(3,840 |
) |
Income
from continuing operations attributable
to
noncontrolling interests
|
|
|
(170 |
) |
|
|
(30 |
) |
|
|
(498 |
) |
|
|
(275 |
) |
Income
(loss) from continuing operations
attributable
to common shareholders
|
|
|
831 |
|
|
|
(4,780 |
) |
|
|
6,377 |
|
|
|
(4,115 |
) |
Amount
allocated to participating securities
|
|
|
(175 |
) |
|
|
(157 |
) |
|
|
(400 |
) |
|
|
(339 |
) |
Income
(loss) from continuing operations
attributable
to common shareholders, net of
amount
allocated to participating securities
|
|
|
656 |
|
|
|
(4,937 |
) |
|
|
5,977 |
|
|
|
(4,454 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
(64 |
) |
|
|
(547 |
) |
|
|
(7,993 |
) |
|
|
(948 |
) |
Loss
from discontinued operations attributable to
noncontrolling
interests
|
|
|
1 |
|
|
|
17 |
|
|
|
195 |
|
|
|
30 |
|
Loss
from discontinued operations attributable to
common
shareholders
|
|
|
(63 |
) |
|
|
(530 |
) |
|
|
(7,798 |
) |
|
|
(918 |
) |
Net
income (loss) attributable to common
shareholders,
as adjusted – basic
|
|
$ |
593 |
|
|
$ |
(5,467 |
) |
|
$ |
(1,821 |
) |
|
$ |
(5,372 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
attributable
to common shareholders, as
adjusted
– per share
|
|
$ |
0.01 |
|
|
$ |
(0.10 |
) |
|
$ |
0.12 |
|
|
$ |
(0.10 |
) |
Loss
from discontinued operations attributable to
common
shareholders – per share
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.02 |
) |
Net
income (loss) attributable to common
shareholders,
as adjusted – per share
|
|
$ |
0.01 |
|
|
$ |
(0.11 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares
outstanding
|
|
|
52,335,642 |
|
|
|
47,897,196 |
|
|
|
52,285,919 |
|
|
|
45,152,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations attributable to
common
shareholders, net of amount allocated
to
participating securities
|
|
$ |
656 |
|
|
$ |
(4,937 |
) |
|
$ |
5,977 |
|
|
$ |
(4,454 |
) |
Loss
from discontinued operations attributable to
common
shareholders
|
|
|
(63 |
) |
|
|
(530 |
) |
|
|
(7,798 |
) |
|
|
(918 |
) |
Net
income (loss) attributable to common
shareholders,
as adjusted – diluted
|
|
$ |
593 |
|
|
$ |
(5,467 |
) |
|
$ |
(1,821 |
) |
|
$ |
(5,372 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations attributable to
common
shareholders, net of amount allocated
to
participating securities – per share
|
|
$ |
0.01 |
|
|
$ |
(0.10 |
) |
|
$ |
0.12 |
|
|
$ |
(0.10 |
) |
Loss
from discontinued operations attributable to
common
shareholders – per share
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.02 |
) |
Net
income (loss) attributable to common
shareholders
- per share
|
|
$ |
0.01 |
|
|
$ |
(0.11 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares
outstanding
|
|
|
52,335,642 |
|
|
|
47,897,196 |
|
|
|
52,285,919 |
|
|
|
45,152,665 |
|
Restricted
Stock Awards (Note 11)
|
|
|
517,361 |
|
|
|
- |
|
|
|
543,694 |
|
|
|
- |
|
Diluted
weighted average common shares
outstanding
|
|
|
52,853,003 |
|
|
|
47,897,196 |
|
|
|
52,829,613 |
|
|
|
45,152,665 |
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In March
2010, one of the Fidelity joint ventures in which the Company owns a 10%
interest assigned its ownership interest in the University Heights property to
the Operating Partnership for a price of $9.9 million, the value of the mortgage
indebtedness. This 528-bed property, serving students attending the
University of Alabama at Birmingham, is now 100% wholly-owned by the Operating
Partnership.
The
acquired property’s results of operations have been included in the accompanying
consolidated statements of operations since the acquisition closing
date. The following pro forma information for the three and six
months ended June 30, 2010 and 2009 presents consolidated financial information
for the Company as if the property acquisition discussed above had occurred on
January 1, 2009. The unaudited pro forma information is provided for
informational purposes only and is not indicative of results that would have
occurred or which may occur in the future:
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Total
revenues
|
|
$ |
76,682 |
|
|
$ |
71,723 |
|
|
$ |
158,580 |
|
|
$ |
147,874 |
|
Net
income (loss) attributable to common shareholders
|
|
$ |
914 |
|
|
$ |
(5,504 |
) |
|
$ |
(1,273 |
) |
|
$ |
(5,420 |
) |
Net
income (loss) per share – basic
|
|
$ |
0.01 |
|
|
$ |
(0.12 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.13 |
) |
Net
income (loss) per share – diluted
|
|
$ |
0.01 |
|
|
$ |
(0.12 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.13 |
) |
On April
30, 2010, the Company sold Campus Walk - Oxford for a purchase price of $9.2
million, including the assumption of the existing $8.1 million mortgage loan,
resulting in net proceeds of approximately $1.0 million. The
resulting loss on disposition of approximately $55,000 is included in
discontinued operations in the accompanying consolidated statements of
operations for the three and six months ended June 30, 2010. In March
2010, the Company classified Campus Walk – Oxford as held for sale and
concurrent with the held for sale classification, the property was recorded at
the lower of cost or fair value resulting in an impairment charge of
approximately $4.0 million, which is included in discontinued operations in the
accompanying consolidated statements of operations for the six months ended June
30, 2010.
On March
26, 2010, the Company sold Cambridge at Southern for a purchase price of $19.5
million, including the assumption of the existing $18.4 million mortgage loan,
resulting in net proceeds of approximately $0.9 million. The
resulting loss on disposition of approximately $3.6 million is included in
discontinued operations in the accompanying consolidated statements of
operations for the six months ended June 30, 2010.
On
December 31, 2009, the Company sold Riverside Estates for a purchase price of
$18.2 million, including the assumption of the existing $16.2 million mortgage
loan, resulting in net proceeds of approximately $1.3 million.
The
related net loss for the afore-mentioned properties is reflected in the
accompanying consolidated statements of operations as discontinued operations
for all periods presented. Below is a summary of the results of
operations for Campus Walk – Oxford, Cambridge at Southern and Riverside Estates
through their respective disposition dates for all periods
presented:
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Total
revenues
|
|
$ |
147 |
|
|
$ |
1,999 |
|
|
$ |
1,310 |
|
|
$ |
3,996 |
|
Total
operating expenses
|
|
|
117 |
|
|
|
1,906 |
|
|
|
1,153 |
|
|
|
3,672 |
|
Provision
for asset impairment
|
|
|
- |
|
|
|
- |
|
|
|
4,036 |
|
|
|
- |
|
Operating
income (loss)
|
|
|
30 |
|
|
|
93 |
|
|
|
(3,879 |
) |
|
|
324 |
|
Total
nonoperating expenses
|
|
|
(35 |
) |
|
|
(640 |
) |
|
|
(409 |
) |
|
|
(1,272 |
) |
Net
loss
|
|
$ |
(5 |
) |
|
$ |
(547 |
) |
|
$ |
(4,288 |
) |
|
$ |
(948 |
) |
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Wholly-owned
properties consisted of the following:
|
|
June
30, 2010
|
|
December
31, 2009
|
Land (1)
|
|
$ |
254,611 |
|
|
$ |
250,044 |
|
Buildings
and improvements
|
|
|
1,808,467 |
|
|
|
1,825,915 |
|
Furniture,
fixtures and equipment
|
|
|
112,576 |
|
|
|
112,831 |
|
Construction
in progress
|
|
|
5,367 |
|
|
|
- |
|
|
|
|
2,181,021 |
|
|
|
2,188,790 |
|
Less
accumulated depreciation
|
|
|
(203,546 |
) |
|
|
(173,820 |
) |
Wholly-owned
properties, net
|
|
$ |
1,977,475 |
|
|
$ |
2,014,970 |
|
(1)
|
The
land balance above includes undeveloped land parcels with a total book
value of $30.5 million and $27.6 million as of June 30, 2010 and December
31, 2009, respectively.
|
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
|
Lessor/University
|
|
Lease
Commencement
|
|
Required Debt
Repayment
(1)
|
|
June
30, 2010
|
|
December
31, 2009
|
Texas
A&M University System /
Prairie
View A&M University (2)
|
|
2/1/96
|
|
9/1/23
|
|
$ |
39,039 |
|
|
$ |
38,918 |
|
Texas
A&M University System /
Texas
A&M International
|
|
2/1/96
|
|
9/1/23
|
|
|
6,224 |
|
|
|
6,216 |
|
Texas
A&M University System /
Prairie
View A&M University (3)
|
|
10/1/99
|
|
8/31/25 / 8/31/28
|
|
|
24,471 |
|
|
|
24,398 |
|
University
of Houston System /
University
of Houston
(4)
|
|
9/27/00
|
|
8/31/35
|
|
|
35,214 |
|
|
|
35,192 |
|
|
|
|
|
|
|
|
104,948 |
|
|
|
104,724 |
|
Less
accumulated amortization
|
|
|
|
|
|
|
(41,193 |
) |
|
|
(39,034 |
) |
On-campus
participating properties, net
|
|
|
|
|
|
$ |
63,755 |
|
|
$ |
65,690 |
|
(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.
|
Third-party
joint venture partners: The Company consolidates four joint
ventures that own and operate the Callaway House, University Village at Sweet
Home, University Centre and Villas at Chestnut Ridge owned-off campus
properties. The portion of net assets attributable to the third-party
partners in these joint ventures is classified as “noncontrolling interests”
within equity on the accompanying consolidated balance
sheets. Accordingly, the third-party partners’ share of the income or
loss of the joint ventures is reported on the consolidated statements of
operations as “noncontrolling interests share of net income /
loss.”
Operating
Partnership units: Certain partners in the Operating
Partnership hold their ownership through common and preferred units of limited
partnership interest, hereinafter referred to as “Common Units” or “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.
The
Company follows accounting guidance stipulating that securities that are
redeemable for cash or other assets at a fixed or determinable price on a fixed
or determinable date, at the option of the holder, or upon the occurrence of an
event that is not solely within the control of the issuer, must be classified
outside of permanent equity in the mezzanine section of the consolidated balance
sheets. In accordance with such guidance, management evaluates
whether the Company controls the actions or events necessary to issue the
maximum number of shares that could be required to be delivered under share
settlement of the contract. Based on this assessment, which includes
evaluating terms in the applicable agreements related to redemption provisions,
the Company has determined that Common Units and Series A Preferred Units in the
Operating Partnership should be classified as “redeemable noncontrolling
interests” in the mezzanine section of the consolidated balance
sheets. The value of redeemable noncontrolling interests on the
consolidated balance sheets is reported at the greater of fair value or
historical cost at the end of each reporting period. Accordingly,
income or loss allocated to these redeemable noncontrolling 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.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
During
the six months ended June 30, 2010 and 2009, 37,004 and 2,000 Common Units,
respectively, were converted into shares of the Company’s common
stock. As of June 30, 2010 and December 31, 2009, approximately 2% of
the equity interests of the Operating Partnership was held by owners of Common
Units and Series A Preferred Units.
Investments
in unconsolidated joint ventures are accounted for utilizing the equity
method. As discussed in Note 2 herein, the equity method is used when
the Company has the ability to exercise significant influence over operating and
financial policies of the joint venture but does not have control of the joint
venture. Under the equity method, these investments are initially
recognized in the balance sheet at cost and are subsequently adjusted to reflect
the Company’s proportionate share of net earnings or losses of the joint
venture, distributions received, contributions, and certain other adjustments,
as appropriate. When circumstances indicate there may have been
a loss in value of an equity method investment, the Company evaluates the
investment for impairment by estimating the Company’s ability to recover its
investment from future expected discounted cash flows. If the Company
determines the loss in value is other than temporary, the Company recognizes an
impairment charge to reflect the investment at fair value. The Company believes
that there were no impairments of the carrying values of its equity method
investments as of June 30, 2010.
Fidelity
Joint Ventures: The Company owns a 10% interest in two joint
ventures with Fidelity that own 18 properties containing approximately 9,800
beds. The Company serves as property manager for all of the joint
venture properties. These joint ventures are hereinafter referred to
collectively as the “Fidelity Joint Ventures.”
The
Fidelity Joint Ventures are funded in part with secured third party debt in the
amount of $293.5 million. The Operating Partnership serves as
non-recourse, carve-out guarantor of this debt, which means the Operating
Partnership is liable to the lender for any loss, damage, cost, expense,
liability, claim or other obligation incurred by the lender arising out of or in
connection with certain non-recourse exceptions in connection with the
debt. Pursuant to the respective limited liability company
agreements, the Fidelity Joint Ventures agreed to indemnify, defend and hold
harmless the Operating Partnership with respect to such obligations, except to
the extent such obligations were caused by the willful misconduct, gross
negligence, fraud or bad faith of the Operating Partnership or its employees,
agents or affiliates. Therefore, the Operating Partnership’s exposure
under the guarantees for obligations not caused by the willful misconduct, gross
negligence, fraud or bad faith of the Operating Partnership or its employees,
agents or affiliates is not expected to exceed the Company’s 10% proportionate
interest in the related mortgage debt.
The
Company’s $6.1 million and $8.0 million investment in these two joint ventures
at June 30, 2010 and December 31, 2009, respectively, is included in other
assets in the accompanying consolidated balance sheets, and the Company’s $0.7
million and $0.3 million share in the loss from these two joint ventures for the
three months ended June 30, 2010 and 2009, respectively, and $1.6 million and
$0.6 million for the six months ended June 30, 2010 and 2009, respectively, is
included in loss from unconsolidated joint ventures in the accompanying
consolidated statements of operations. For the three months ended
June 30, 2010 and 2009, the Company earned approximately $0.5 million and $0.6
million, respectively, in property management fees from these joint ventures,
and for the six months ended June 30, 2010 and 2009, the Company earned
approximately $1.0 million and $1.2 million, respectively, in property
management fees from these joint ventures. Due to the respective
limited liability company agreements not providing for maximum capital
commitments from the members, the Company’s maximum exposure to loss stemming
from its investment in the Fidelity Joint Ventures could be
unlimited.
Hampton
Roads Joint Venture: The Company also holds a noncontrolling
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. The project is financed through taxable
revenue bonds. The Company’s $-0- and $0.5 million investment in this
joint venture at June 30, 2010 and December 31, 2009, respectively, is included
in other assets in the accompanying consolidated balance sheets, and the
Company’s share in the loss from this joint venture of $-0- and $0.2 million for
the three months ended June 30, 2010 and 2009, respectively, and $0.5 million
for both six month periods ended June 30, 2010 and 2009, respectively, is
included in loss from unconsolidated joint ventures in the accompanying
consolidated statements of operations. The Company earned combined
development and management fees from this joint venture of approximately $0.4
million and $0.3 million for the three months ended June 30, 2010 and 2009,
respectively, and $0.7 million and $0.6 million for the six months ended June
30, 2010 and 2009, respectively.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A summary
of the Company’s outstanding consolidated indebtedness, including unamortized
debt premiums and discounts, is as follows:
|
|
June
30, 2010
|
|
December
31, 2009
|
Debt
secured by wholly-owned properties:
|
|
|
|
|
|
|
Mortgage
loans payable
|
|
$ |
767,468 |
|
|
$ |
850,046 |
|
Construction
loan payable
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
867,468 |
|
|
|
950,046 |
|
Debt
secured by on-campus participating properties:
|
|
|
|
|
|
|
|
|
Mortgage
loans payable
|
|
|
32,569 |
|
|
|
32,718 |
|
Bonds
payable
|
|
|
51,390 |
|
|
|
51,390 |
|
|
|
|
83,959 |
|
|
|
84,108 |
|
Senior
secured term loan
|
|
|
100,000 |
|
|
|
100,000 |
|
Secured
revolving credit facility
|
|
|
30,100 |
|
|
|
- |
|
Secured
agency facility
|
|
|
94,000 |
|
|
|
94,000 |
|
Unamortized
debt premiums
|
|
|
2,999 |
|
|
|
3,765 |
|
Unamortized
debt discounts
|
|
|
(7,385 |
) |
|
|
(8,464 |
) |
Total
debt
|
|
$ |
1,171,141 |
|
|
$ |
1,223,455 |
|
Pay-off
of Mortgage Debt
During
the six months ended June 30, 2010, the Company paid off $51.9 million of
fixed-rate mortgage debt secured by three of its wholly-owned properties, Campus
Club – Statesboro, University Trails and River Club Apartments. The
mortgage debt secured by Campus Club – Statesboro and University Trails was paid
off on their respective scheduled maturity dates of March 1,
2010. The mortgage debt secured by River Club Apartments was paid off
on April 1, 2010, four months before the scheduled maturity date of August 1,
2010. As of June 30, 2010, the Company has an additional $31.9
million of outstanding fixed-rate mortgage debt scheduled to mature throughout
the remainder of 2010, all of which the Company expects to pay-off on or before
the respective maturity dates.
Secured
Revolving Credit Facility
The
Operating Partnership has a $225 million revolving credit facility that may be
expanded by up to an additional $75 million upon the satisfaction of certain
conditions. The maturity date of the facility is August 14, 2012 and
can be extended 12 months through August 2013. As of June 30, 2010,
the facility was secured by seven of the Company’s wholly-owned
properties.
Availability
under the revolving credit facility is limited to an “aggregate borrowing base
amount” equal to the lesser of (i) 50% to 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-, or three-month LIBOR,
with a LIBOR floor of 2.0%, plus, in each case, a spread based upon the
Company’s total leverage. Additionally, the Company is required to
pay an unused commitment fee of 0.35% per annum. As of June 30, 2010,
the balance outstanding on the facility totaled $30.1 million, bearing interest
at a weighted average annual rate of 5.00%, with remaining availability under
the facility totaling $122.3 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 and
total indebtedness. The Company may not pay distributions that exceed
a specified percentage 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 June 30, 2010,
the Company was in compliance with all such covenants.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Secured
Agency Facility
The
Company has a $125 million secured revolving credit facility with a Freddie Mac
lender. The facility has a five-year term and is currently secured by
11 properties referred to as the “Collateral Pool.” The facility
bears interest at one- or three-month LIBOR plus a spread that varies based on
the debt service ratio of the Collateral Pool. Additionally, the
Company is required to pay an unused commitment fee of 1.0% per
annum. As of June 30, 2010, the balance outstanding on the secured
agency facility totaled $94.0 million, bearing interest at a weighted average
annual rate of 2.50%. The secured agency facility includes some, but
not all, of the same financial covenants as the secured revolving credit
facility, described above.
Senior
Secured Term Loan
The
Operating Partnership has a $100 million senior secured term loan that matures
on May 23, 2011 and can be extended through May 2012 through the exercise of a
12-month extension option. The secured term loan 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. As of June 30, 2010, the balance outstanding on the
secured term loan was $100 million. The Company guarantees the
Operating Partnership’s obligations under the secured term loan. The
secured term loan includes the same restrictions and covenants as the secured
revolving credit facility, described above.
On
February 23, 2009, the Company entered into two $50.0 million interest rate swap
agreements effective March 20, 2009 through February 20, 2012, which are both
used to hedge the Company’s exposure to fluctuations in interest payments on its
LIBOR-based senior secured term loan. Under the terms of the two interest
rate swap agreements, the Company pays an average fixed rate of 1.7925% and
receives a one-month LIBOR floating rate. As a result of these two
interest rate swaps, the Company effectively fixed the interest rate on its
senior secured term loan to 3.55% as of June 30, 2010 (1.7925% + 1.75%
spread). In the event that the swaps at any time have a negative fair
value below a certain threshold level, the Company is required to post cash into
a collateral account pledged to the interest rate swap providers. As
of June 30, 2010, the Company had deposited approximately $0.9 million into a
collateral account related to one of the interest rate swaps. See
Note 12 herein for a more detailed discussion of the Company’s derivative
instruments and hedging activities.
In May
2010, the Company announced the establishment of an at-the-market share offering
program (the “ATM Equity Program”) through which the Company may issue and sell,
from time to time, shares of common stock having an aggregate offering price of
up to $150 million. Actual sales under the program will depend on a
variety of factors, including, but not limited to, market conditions, the
trading price of the Company’s common stock and determinations of the
appropriate sources of funding for the Company. From inception of the
ATM Equity Program through June 30, 2010, the Company sold approximately
0.3 million shares at weighted average price of $28.57 per share for net
proceeds of approximately $7.5 million after payment of approximately $0.1
million of commissions to the sales agents. The Company may continue
to sell shares of common stock under this program from time to time based on
market conditions, although the Company is not under an obligation to sell any
shares. As of June 30, 2010, the Company had approximately
$142.3 million available for issuance under this program.
In May
2010, the Company’s stockholders approved the American Campus Communities, Inc.
2010 Incentive Award Plan (the “2010 Plan”). The 2010 Plan provides for
the grant of various stock-based incentive awards to selected employees and
directors of the Company and the Company’s affiliates. The types of
awards that may be granted under the 2010 Plan include incentive stock options,
nonqualified stock options, restricted stock awards (“RSAs”), restricted stock
units (“RSUs”), profits interest units (“PIUs”) and other stock-based
awards. The Company has reserved a total of 1.7 million shares of the
Company’s common stock for issuance pursuant to the 2010 Plan, subject to
certain adjustments for changes in the Company’s capital structure, as defined
in the 2010 Plan. As of June 30, 2010, 1,715,563 shares were
available for issuance under the 2010 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. On the Settlement Date, 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.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Upon
reelection to the Board of Directors in May 2010, the Chairman of the Board of
Directors was granted RSUs valued at $51,500 and the remaining outside members
were each granted RSUs valued at $41,500. The number of RSUs was
determined based on the fair market value of the Company’s stock on the date of
grant, as defined in the Plan. All awards vested and settled
immediately on the date of grant, and the Company delivered shares of common
stock and cash, as determined by the Compensation Committee of the Board of
Directors. A compensation charge of approximately $0.3 million was
recorded during the three months ended June 30, 2010 related to these
awards. A summary of the Company’s RSUs under the Plan as of June 30,
2010 and changes during the six months ended June 30, 2010, is presented
below:
|
|
Number
of
RSUs
|
Outstanding
at December 31, 2009
|
|
|
5,376 |
|
Granted
|
|
|
9,674 |
|
Settled
in common shares
|
|
|
(5,894 |
) |
Settled
in cash
|
|
|
(9,156 |
) |
Outstanding
at June 30, 2010
|
|
|
- |
|
Restricted
Stock Awards
The
Company awards RSAs to its executive officers and certain employees that vest in
equal annual installments over a five year period. Unvested awards
are forfeited upon the termination of an individual’s employment with the
Company under specified circumstances. Recipients of RSAs receive
dividends, as declared by the Company’s Board of Directors, on unvested shares,
provided that the recipient continues to be employed by the
Company. A summary of the Company’s RSAs under the Plan as of June
30, 2010 and changes during the six months ended June 30, 2010, is presented
below:
|
|
Number
of
RSAs
|
Nonvested
balance at December 31, 2009
|
|
|
461,935 |
|
Granted
|
|
|
206,711 |
|
Vested
|
|
|
(84,631 |
) |
Forfeited
|
|
|
(68,232 |
) |
Nonvested
balance at June 30, 2010
|
|
|
515,783 |
|
The
Company recognizes the value of these awards as an expense over the vesting
periods, which amounted to approximately $0.9 million and $0.7 million for the
three months ended June 30, 2010 and 2009, respectively, and $1.8 million and
$1.3 million for the six months ended June 30, 2010 and 2009,
respectively.
The
Company is exposed to certain risk arising from both its business operations and
economic conditions. The Company principally manages its exposures to
a wide variety of business and operational risks through management of its core
business activities. The Company manages economic risks, including
interest rate, liquidity, and credit risk primarily by managing the amount,
sources, and duration of its debt funding and the use of derivative financial
instruments. Specifically, the Company enters into derivative
financial instruments to manage exposures that arise from business activities
that result in the receipt or payment of future known and uncertain cash
amounts, the value of which are determined by interest rates. The
Company’s derivative financial instruments are used to manage differences in the
amount, timing, and duration of the Company’s known or expected cash receipts
and its known or expected cash payments principally related to the Company’s
investments and borrowings.
Cash
Flow Hedges of Interest Rate Risk
The
Company’s objectives in using interest rate derivatives are to add stability to
interest expense and to manage its exposure to interest rate
movements. To accomplish this objective, the Company primarily uses
interest rate swaps as part of its interest rate risk management
strategy. Interest rate swaps designated as cash flow hedges involve
the receipt of variable-rate amounts from a counterparty in exchange for the
Company making fixed-rate payments over the life of the agreements without
exchange of the underlying notional amount.
The
effective portion of changes in the fair value of derivatives designated and
that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive
Income (Loss) and is subsequently reclassified into earnings in the period that
the hedged forecasted transaction affects earnings. During the six
months ended June 30, 2010, such derivatives were used to hedge the variable
cash flows associated with the Company’s $100 million senior secured term loan
and the Cullen Oaks Phase I and Phase II loans.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table summarizes the Company’s outstanding interest rate swap
contracts as of June 30, 2010:
Date
Entered
|
Effective
Date
|
Maturity
Date
|
|
Pay
Fixed Rate
|
|
Receive
Floating
Rate
Index
|
|
Notional
Amount
|
|
|
Fair
Value
|
|
Feb.
12, 2007
|
Feb.
15, 2007
|
Feb.
15, 2014
|
|
6.689% |
|
LIBOR
– 1 mo. plus 1.35%
|
|
$ |
33,156 |
|
|
$ |
(4,273 |
) |
Feb.
23, 2009
|
March
20, 2009
|
Feb.
20, 2012
|
|
1.785% |
|
LIBOR
– 1 month
|
|
|
50,000 |
|
|
|
(889 |
) |
Feb.
23, 2009
|
March
20, 2009
|
Feb.
20, 2012
|
|
1.800% |
|
LIBOR
– 1 month
|
|
|
50,000 |
|
|
|
(897 |
) |
The table
below presents the fair value of the Company’s derivative financial instruments
as well as their classification on the consolidated balance sheets as of June
30, 2010 and December 31, 2009:
|
|
Derivative
Liabilities
|
|
|
|
As
of June 30, 2010
|
|
|
As
of December 31, 2009
|
|
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap contracts
|
|
Other
liabilities
|
|
$ |
6,059 |
|
|
Other
Liabilities
|
|
$ |
4,356 |
|
Total
derivatives designated as hedging instruments
|
|
|
|
$ |
6,059 |
|
|
|
|
$ |
4,356 |
|
The table
below presents the effect of the Company’s derivative financial instruments on
other comprehensive income (“OCI”) for the six months ended June 30, 2010 and
2009:
|
|
|
|
|
|
|
|
|
Cash
Flow Hedging
Relationships
|
|
|
Amount
of (Loss) Income
Recognized
in OCI on
Derivative
(Effective Portion)
|
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap contracts
|
|
$ |
(1,703 |
) |
|
$ |
1,380 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(1,703 |
) |
|
$ |
1,380 |
|
The
Company reported a comprehensive loss of $3.4 million for the six months ended
June 30, 2009, which includes a net loss of $4.8 million offset by an unrealized
gain of $1.4 million (reflected in the table above).
The
following table presents information about the Company’s assets and liabilities
measured at fair value on a recurring and nonrecurring basis as of June 30,
2010, and indicate the fair value hierarchy of the valuation techniques utilized
by the Company to determine such fair value. In general, fair values
determined by Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities the Company has the ability to
access. Fair values determined by Level 2 inputs utilize inputs other
than quoted prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 2 inputs include
quoted prices for similar assets and liabilities in active markets and inputs
other than quoted prices observable for the asset or liability, such as interest
rates and yield curves observable at commonly quoted intervals. Level
3 inputs are unobservable inputs for the asset or liability, and include
situations where there is little, if any, market activity for the asset or
liability.
In
instances in which the inputs used to measure fair value may fall into different
levels of the fair value hierarchy, the level in the fair value hierarchy within
which the fair value measurement in its entirety has been determined is based on
the lowest level input significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a
particular input to the fair value measurement in its entirety requires
judgment, and considers factors specific to the asset or
liability. Disclosures concerning assets and liabilities measured at
fair value are as follows:
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Fair
Value Measurements on a Recurring or Nonrecurring Basis as of June 30,
2010
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
and
Liabilities
(Level
1)
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
Significant
Unobservable Inputs (Level 3)
|
|
Balance
at
June
30, 2010
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
- |
|
|
$ |
6,059 |
|
|
$ |
- |
|
|
$ |
6,059 |
|
The
Company uses derivative financial instruments, specifically interest rate swaps,
for nontrading purposes. The Company uses interest rate swaps to
manage interest rate risk arising from previously unhedged interest payments
associated with variable rate debt. Through June 30, 2010, derivative
financial instruments were designated and qualified as cash flow
hedges. Derivative contracts with positive net fair values inclusive
of net accrued interest receipts or payments, are recorded in other
assets. Derivative contracts with negative net fair values, inclusive
of net accrued interest payments or receipts, are recorded in other
liabilities. The valuation of these instruments is determined using
widely accepted valuation techniques including discounted cash flow analysis on
the expected cash flows of each derivative. This analysis reflects
the contractual terms of the derivatives, including the period to maturity, and
uses observable market-based inputs, including interest rate
curves. The fair values of interest rate swaps are determined using
the market standard methodology of netting the discounted future fixed cash
receipts (or payments) and the discounted expected variable cash payments (or
receipts). The variable cash payments (or receipts) are based on an expectation
of future interest rates (forward curves) derived from observable market
interest rate curves.
The
Company incorporates credit valuation adjustments to appropriately reflect its
own nonperformance risk and the respective counterparty’s nonperformance risk in
the fair value measurements. In adjusting the fair value of its
derivative contracts for the effect of nonperformance risk, the Company has
considered the impact of netting and any applicable credit enhancements, such as
collateral postings, thresholds and guarantees.
Although
the Company has determined the majority of the inputs used to value its
derivative fall within Level 2 of the fair value hierarchy, the credit valuation
adjustment associated with its derivative utilizes Level 3 inputs, such as
estimates of current credit spreads to evaluate the likelihood of default by the
Company and its counterparty. However, as of June 30, 2010, the
Company has assessed the significance of the impact of the credit valuation
adjustments on the overall valuation of its derivative positions and has
determined that the credit valuation adjustments are not significant to the
overall valuation of the Company’s derivative financial
instruments. As a result, the Company has determined its derivative
valuations in their entirety are classified in Level 2 of the fair value
hierarchy.
Other
Fair Value Disclosures
Cash
and Cash Equivalents, Restricted Cash, Student Contracts Receivable, Other
Assets, Account Payable and Accrued Expenses and Other
Liabilities: The Company estimated that the carrying amount
approximates fair value, due to the short maturity of these
instruments.
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.
Senior
Secured Term Loan, Secured Credit Facilities and Construction Loans: the
fair value of the Company’s secured term loan, secured credit facilities and
construction loans approximate carrying values due to the variable interest rate
feature 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.
Bonds
Payable: the fair value of bonds payable is based on market quotes for
bonds outstanding.
The table
below contains the estimated fair value and related carrying amounts for the
Company’s mortgage loans and bonds payable as of June 30, 2010 and December 31,
2009:
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
June
30, 2010
|
|
December
31, 2009
|
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
Mortgage
loans
|
|
$ |
856,777 |
|
|
$ |
795,651 |
|
|
$ |
912,332 |
|
|
$ |
878,065 |
|
Bonds
payable
|
|
|
52,201 |
|
|
|
51,390 |
|
|
|
49,865 |
|
|
|
51,390 |
|
Commitments
Development-related
guarantees: For
its third-party development projects, 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.
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. At June 30, 2010, management did not anticipate any material
deviations from schedule or budget related to third-party development projects
currently in progress.
Guaranty
of Joint Venture Mortgage Debt: As mentioned in Note 8, the Fidelity
Joint Ventures are funded in part with secured third party debt in the amount of
$293.5 million. The Operating Partnership serves as non-recourse,
carve-out guarantor of this debt, which means the Operating Partnership is
liable to the lender for any loss, damage, cost, expense, liability, claim or
other obligation incurred by the lender arising out of or in connection with
certain non-recourse exceptions in connection with the debt. Pursuant
to the respective limited liability company agreements, the Fidelity Joint
Ventures agreed to indemnify, defend and hold harmless the Operating Partnership
with respect to such obligations, except to the extent such obligations were
caused by the willful misconduct, gross negligence, fraud or bad faith of the
Operating Partnership or its employees, agents or affiliates. Therefore,
the Operating Partnership’s exposure under the guarantees for obligations not
caused by the willful misconduct, gross negligence, fraud or bad faith of the
Operating Partnership or its employees, agents or affiliates is not expected to
exceed the Company’s 10% proportionate interest in the related mortgage
debt.
The
Company has estimated the fair value of guarantees entered into to be
immaterial. The Company’s estimated maximum exposure amount under the
above guarantees is approximately $305.3 million.
Contingencies
Gain
on Insurance Settlement: In April 2010, the Company’s Campus
Trails property located in Starkville, Mississippi had 72 beds destroyed by a
fire, which are currently in the process of being rebuilt. This fire
caused substantial business interruption and property damage, both of which are
covered under the Company’s existing insurance policies. Management
anticipates that the ultimate proceeds received from insurance will exceed the
book value of the property destroyed, and accordingly a gain on insurance
settlement will be recorded in a future period. Management anticipates
that the gain will be recorded during the third or fourth quarter 2010, once all
contingencies have been resolved and the amount of the gain is
determinable.
Litigation: In
the normal course of business, the Company is subject to claims, lawsuits, and
legal proceedings. While it is not possible to ascertain the ultimate
outcome of such matters, management believes that the aggregate amount of such
liabilities, if any, in excess of amounts provided or covered by insurance, will
not have a material adverse effect on the consolidated financial position or
results of operations of the Company.
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. Once the due diligence period expires,
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.
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.
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, noncontrolling interests and allocation of corporate
overhead. Intercompany fees are reflected at the contractually
stipulated amounts.
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Wholly-Owned
Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$ |
68,791 |
|
|
$ |
64,358 |
|
|
$ |
140,235 |
|
|
$ |
129,933 |
|
Interest
and other income
|
|
|
9 |
|
|
|
10 |
|
|
|
20 |
|
|
|
21 |
|
Total
revenues from external customers
|
|
|
68,800 |
|
|
|
64,368 |
|
|
|
140,255 |
|
|
|
129,954 |
|
Operating
expenses before depreciation, amortization,
ground/facility
lease and allocation of corporate overhead
|
|
|
32,575 |
|
|
|
32,034 |
|
|
|
64,266 |
|
|
|
62,792 |
|
Ground/facility
leases
|
|
|
267 |
|
|
|
252 |
|
|
|
532 |
|
|
|
512 |
|
Interest
expense
|
|
|
11,475 |
|
|
|
13,297 |
|
|
|
23,656 |
|
|
|
26,977 |
|
Other
nonoperating income
|
|
|
- |
|
|
|
402 |
|
|
|
- |
|
|
|
402 |
|
Operating
income before depreciation, amortization,
and
allocation of corporate overhead
|
|
$ |
24,483 |
|
|
$ |
19,187 |
|
|
$ |
51,801 |
|
|
$ |
40,075 |
|
Depreciation
and amortization
|
|
$ |
16,371 |
|
|
$ |
18,140 |
|
|
$ |
32,437 |
|
|
$ |
36,052 |
|
Capital
expenditures
|
|
$ |
10,322 |
|
|
$ |
32,543 |
|
|
$ |
15,023 |
|
|
$ |
68,356 |
|
Total
segment assets at June 30,
|
|
$ |
2,031,569 |
|
|
$ |
2,100,190 |
|
|
$ |
2,031,569 |
|
|
$ |
2,100,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Campus
Participating Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$ |
4,142 |
|
|
$ |
3,922 |
|
|
$ |
11,453 |
|
|
$ |
10,796 |
|
Interest
and other income
|
|
|
5 |
|
|
|
9 |
|
|
|
8 |
|
|
|
33 |
|
Total
revenues from external customers
|
|
|
4,147 |
|
|
|
3,931 |
|
|
|
11,461 |
|
|
|
10,829 |
|
Operating
expenses before depreciation, amortization,
ground/facility
lease and allocation of corporate overhead
|
|
|
2,458 |
|
|
|
2,644 |
|
|
|
4,690 |
|
|
|
4,541 |
|
Ground/facility
lease
|
|
|
486 |
|
|
|
200 |
|
|
|
792 |
|
|
|
492 |
|
Interest
expense
|
|
|
1,513 |
|
|
|
1,556 |
|
|
|
3,016 |
|
|
|
3,115 |
|
Operating
(loss) income before depreciation, amortization
and
allocation of corporate overhead
|
|
$ |
(310 |
) |
|
$ |
(469 |
) |
|
$ |
2,963 |
|
|
$ |
2,681 |
|
Depreciation
and amortization
|
|
$ |
1,080 |
|
|
$ |
1,092 |
|
|
$ |
2,159 |
|
|
$ |
2,182 |
|
Capital
expenditures
|
|
$ |
181 |
|
|
$ |
143 |
|
|
$ |
224 |
|
|
$ |
181 |
|
Total
segment assets at June 30,
|
|
$ |
77,320 |
|
|
$ |
79,981 |
|
|
$ |
77,320 |
|
|
$ |
79,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
and construction management fees from
external
customers
|
|
$ |
1,628 |
|
|
$ |
886 |
|
|
$ |
2,202 |
|
|
$ |
1,938 |
|
Operating
expenses before allocation of corporate overhead
|
|
|
2,005 |
|
|
|
2,108 |
|
|
|
4,332 |
|
|
|
4,375 |
|
Operating
loss before depreciation, amortization
and
allocation of corporate overhead
|
|
$ |
(377 |
) |
|
$ |
(1,222 |
) |
|
$ |
(2,130 |
) |
|
$ |
(2,437 |
) |
Total
segment assets at June 30,
|
|
$ |
4,012 |
|
|
$ |
6,281 |
|
|
$ |
4,012 |
|
|
$ |
6,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
Management Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
management fees from external customers
|
|
$ |
2,121 |
|
|
$ |
2,105 |
|
|
$ |
4,335 |
|
|
$ |
4,347 |
|
Intersegment
revenues
|
|
|
2,711 |
|
|
|
2,551 |
|
|
|
5,586 |
|
|
|
5,247 |
|
Total
revenues
|
|
|
4,832 |
|
|
|
4,656 |
|
|
|
9,921 |
|
|
|
9,594 |
|
Operating
expenses before allocation of corporate overhead
|
|
|
1,787 |
|
|
|
1,936 |
|
|
|
3,814 |
|
|
|
3,767 |
|
Operating
income before depreciation, amortization
and
allocation of corporate overhead
|
|
$ |
3,045 |
|
|
$ |
2,720 |
|
|
$ |
6,107 |
|
|
$ |
5,827 |
|
Total
segment assets at June 30,
|
|
$ |
3,931 |
|
|
$ |
5,565 |
|
|
$ |
3,931 |
|
|
$ |
5,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment revenues
|
|
$ |
79,407 |
|
|
$ |
73,841 |
|
|
$ |
163,839 |
|
|
$ |
152,315 |
|
Unallocated
interest income earned on corporate cash
|
|
|
2 |
|
|
|
21 |
|
|
|
5 |
|
|
|
25 |
|
Elimination
of intersegment revenues
|
|
|
(2,711 |
) |
|
|
(2,551 |
) |
|
|
(5,586 |
) |
|
|
(5,247 |
) |
Total
consolidated revenues, including interest income
|
|
$ |
76,698 |
|
|
$ |
71,311 |
|
|
$ |
158,258 |
|
|
$ |
147,093 |
|
Segment
operating income before depreciation, amortization
and
allocation of corporate overhead
|
|
$ |
26,841 |
|
|
$ |
20,216 |
|
|
$ |
58,741 |
|
|
$ |
46,146 |
|
Depreciation
and amortization
|
|
|
(18,810 |
) |
|
|
(20,360 |
) |
|
|
(37,340 |
) |
|
|
(40,482 |
) |
Net
unallocated expenses relating to corporate overhead
|
|
|
(6,177 |
) |
|
|
(3,988 |
) |
|
|
(12,116 |
) |
|
|
(8,197 |
) |
Loss
from unconsolidated joint ventures
|
|
|
(711 |
) |
|
|
(483 |
) |
|
|
(2,125 |
) |
|
|
(1,037 |
) |
Income
tax provision
|
|
|
(142 |
) |
|
|
(135 |
) |
|
|
(285 |
) |
|
|
(270 |
) |
Income
(loss) from continuing operation
|
|
$ |
1,001 |
|
|
$ |
(4,750 |
) |
|
$ |
6,875 |
|
|
$ |
(3,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment assets
|
|
$ |
2,116,832 |
|
|
$ |
2,192,017 |
|
|
$ |
2,116,832 |
|
|
$ |
2,192,017 |
|
Unallocated
corporate assets
|
|
|
34,068 |
|
|
|
57,138 |
|
|
|
34,068 |
|
|
|
57,138 |
|
Total
assets at June 30,
|
|
$ |
2,150,900 |
|
|
$ |
2,249,155 |
|
|
$ |
2,150,900 |
|
|
$ |
2,249,155 |
|
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Property
Acquisition: On July 8, 2010, the Company acquired a 201-unit, 487-bed
wholly-owned property (Sanctuary Lofts) located near the campus of Texas State
University in San Marcos, Texas, for a purchase price of $21.4 million, which
excludes approximately $1.8 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.
Pay-off
of Mortgage Debt: The Company paid off $19.1 million in
fixed-rate mortgage debt secured by one of its wholly-owned properties (The
Village at Alafaya Club), on the scheduled maturity date of August 2,
2010.
ATM
Equity Program: Subsequent to June 30, 2010, the Company sold
approximately 0.2 million shares under the ATM Equity Program for net
proceeds of approximately $4.4 million after payment of approximately
$67,000 of commissions to the sales agents.
Forward-looking
Statements
This
report contains forward-looking statements within the meaning of the federal
securities laws. We caution investors that any forward-looking statements
presented in this report, or which management may make orally or in writing from
time to time, are based on management’s beliefs and assumptions made by, and
information currently available to, management. When used, the words
“anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,”
“project,” “should,” “will,” “result” and similar expressions, which do not
relate solely to historical matters, are intended to identify forward-looking
statements. Such statements are subject to risks, uncertainties and assumptions
and may be affected by known and unknown risks, trends, uncertainties and
factors that are beyond our control. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. We caution you that while forward-looking statements reflect our good
faith beliefs when we make them, they are not guarantees of future performance
and are impacted by actual events when they occur after we make such statements.
We expressly disclaim any responsibility to update forward-looking statements,
whether as a result of new information, future events or otherwise. Accordingly,
investors should use caution in relying on past forward-looking statements,
which are based on results and trends at the time they were made, to anticipate
future results or trends.
Some of
the risks and uncertainties that may cause our actual results, performance or
achievements to differ materially from those expressed or implied by
forward-looking statements include, among others, the following: general risks
affecting the real estate industry; risks associated with changes in university
admission or housing policies; risks associated with the availability and terms
of financing and the use of debt to fund acquisitions and developments; failure
to manage effectively our growth and expansion into new markets or to integrate
acquisitions successfully; risks and uncertainties affecting property
development and construction; risks associated with downturns in the national
and local economies, volatility in capital and credit markets, 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; and 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.
The risks
included here are not exhaustive, and additional factors could adversely affect
our business and financial performance, including factors and risks included in
other sections of this report. Moreover, we operate in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and it
is not possible for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
Our
Company and Our Business
American
Campus Communities, Inc. (referred to herein as the “Company,” “us,” “we,” and
“our”) is a real estate investment trust (“REIT”) that was incorporated on March
9, 2004 and commenced operations effective with the completion of our initial
public offering (“IPO”) on August 17, 2004. Through our controlling
interest in American Campus Communities Operating Partnership LP (the “Operating
Partnership”), 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,
developed, 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.
As of
June 30, 2010, our property portfolio contained 86 student housing properties
with approximately 53,300 beds and approximately 17,300 apartment
units. Our property portfolio consisted of 79 owned off-campus
properties that are in close proximity to colleges and universities, three
American Campus Equity (“ACE®”)
properties operated under ground/facility leases with two university systems and
four on-campus participating properties operated under ground/facility leases
with the related university systems. As of June 30, 2010, we also
owned a noncontrolling interest in two joint ventures that owned an aggregate of
18 student housing properties with approximately 9,800 beds in approximately
2,900 units. Our communities contain modern housing units and are
supported by a resident assistant system and other student-oriented programming,
with many offering resort-style amenities.
Through
our taxable REIT subsidiaries (“TRS”), we provide construction management and
development services, primarily for student housing properties owned by colleges
and universities, charitable foundations, and others. As of June 30,
2010, we provided third-party management and leasing services for 33 properties
(five of which we served as the third-party developer and construction manager)
that represented approximately 24,700 beds in approximately 9,400
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 June 30, 2010, our total
owned, joint venture and third-party managed portfolio was comprised of 137
properties with approximately 87,800 beds in approximately 29,600
units.
Third-Party
Development Services
Our
third-party development and construction management services as of June 30, 2010
consisted of four projects under contract and currently in progress with fees
ranging from $2.2 million to $7.6 million. As of June 30, 2010, fees
of approximately $2.8 million remained to be earned by us with respect to these
projects, which have scheduled completion dates of July 2010 through August
2011.
While we
believe that our third party development/construction management and property
management services allow us to develop strong and key relationships with
colleges and universities, revenue from this area has over time become a smaller
portion of our operations due to the continued focus on and growth of our
wholly-owned property portfolio. Nevertheless, we believe these
services continue to provide synergies with respect to our ability to identify,
acquire or develop, and successfully operate, student housing
properties.
American
Campus Equity (“ACE®”)
Development Activities
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 us with what we believe is a
lower-risk opportunity compared to other off-campus projects, as our ACE
projects will have premier on-campus locations with marketing and operational
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.
Acquisitions
In June
2010, we entered into an agreement to purchase the full ownership interests in
14 student housing properties containing 8,534 beds owned in two joint ventures
in which we currently have a 10 percent interest. The Company will acquire the
controlling members’ 90 percent interest in the 14 properties based on a total
estimated value of approximately $348.9 million, which includes $252.2 million
in mortgage loan debt at a weighted average interest rate of 5.85
percent. Two of the joint venture properties are not included in the
acquisition and will remain in the existing joint venture. Management
anticipates that this transaction will close in the third quarter of 2010,
subject to various closing conditions, including lender approvals.
On July
8, 2010, we acquired a 201-unit, 487-bed wholly-owned property (Sanctuary Lofts)
located near the campus of Texas State University in San Marcos, Texas, for a
purchase price of $21.4 million, which excludes approximately $1.8 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.
Owned
Development Activities
Overview: As
of June 30, 2010, we were in the process of constructing one owned off-campus
property and one ACE property that will be operated under a ground/facility
lease with a related university system. We estimate that the total
development costs relating to these activities will be approximately $74.6
million. As of June 30, 2010, we have incurred development costs of
approximately $10.3 million in connection with these properties, including land
costs of approximately $4.6 million. Remaining development costs are
estimated to be approximately $64.3 million. The activities are
described below:
Villas
at Babcock: As of June 30, 2010, our Villas at Babcock owned off-campus
property was under construction with total development costs estimated to be
approximately $35.4 million. The project is scheduled to complete
construction and open for occupancy in August 2011 and will serve students
attending the University of Texas – San Antonio. As of June 30, 2010,
the project was approximately 5% complete, and we estimate that remaining
development costs will be approximately $27.9 million. As of June 30,
2010, we have funded 100% of the project’s development costs and plan to fund
the remaining development costs internally.
University
of New Mexico Phase I: As of June 30, 2010, our University of New Mexico
Phase I ACE property was under construction with total development costs
estimated to be approximately $39.2 million. The project is scheduled
to complete construction and open for occupancy in August 2011 and will serve
students attending the University of New Mexico. As of June 30, 2010,
the project was approximately 1% complete, and we estimate that remaining
development costs will be approximately $36.4 million. As of June 30,
2010, we have funded 100% of the project’s development costs and plan to fund
the remaining development costs internally.
ATM
Equity Program
In May
2010, we announced the establishment of an at-the-market share offering program
(the “ATM Equity Program”) through which we may issue and sell, from time to
time, shares of common stock having an aggregate offering price of up to $150
million. Actual sales under the program will depend on a variety of
factors, including, but not limited to, market conditions, the trading price of
the Company’s common stock and determinations of the appropriate sources of
funding for the Company. From inception of the ATM Equity Program through June
30, 2010, we issued approximately 0.3 million shares at weighted average
price of $28.57 per share for net proceeds of approximately $7.5 million,
after payment of approximately $0.1 million of commissions to the sales
agents. We may continue to sell shares of common stock under this
program from time to time based on market conditions, although we are not under
an obligation to sell any shares. As of June 30, 2010, we had approximately
$142.3 million available for issuance under this program. Subsequent to
June 30, 2010, we sold approximately 0.2 million shares under the ATM Equity
Program for net proceeds of approximately $4.4 million, after payment of
approximately $67,000 of commissions to the sales agents.
Property
Operations
As of
June 30, 2010 our property portfolio consisted of the
following:
PROPERTY
|
|
YR
ACQUIRED / DEVELOPED
(1)
|
|
LOCATION
|
|
PRIMARY
UNIVERSITY SERVED
|
|
UNITS
|
|
BEDS
|
Wholly-Owned
properties:
|
|
|
|
|
|
|
|
|
|
|
1.
Villas on Apache
|
|
1999
|
|
Tempe,
AZ
|
|
Arizona
State University Main Campus
|
|
111
|
|
288
|
2.
River Club Apartments
|
|
1999
|
|
Athens,
GA
|
|
The
University of Georgia – Athens
|
|
266
|
|
792
|
3.
River Walk Townhomes
|
|
1999
|
|
Athens,
GA
|
|
The
University of Georgia – Athens
|
|
100
|
|
336
|
4.
The Village at Blacksburg
|
|
2000
|
|
Blacksburg,
VA
|
|
Virginia
Polytechnic Inst. & State University
|
|
288
|
|
1,056
|
5.
The Callaway House
|
|
2001
|
|
College
Station, TX
|
|
Texas
A&M University
|
|
173
|
|
538
|
6.
The Village at Alafaya Club
|
|
2000
|
|
Orlando,
FL
|
|
The
University of Central Florida
|
|
228
|
|
839
|
7.
The Village at Science Drive
|
|
2001
|
|
Orlando,
FL
|
|
The
University of Central Florida
|
|
192
|
|
732
|
8.
University Village at Boulder Creek
|
|
2002
|
|
Boulder,
CO
|
|
The
University of Colorado at Boulder
|
|
82
|
|
309
|
9.
University Village at Fresno
|
|
2004
|
|
Fresno,
CA
|
|
California
State University – Fresno
|
|
105
|
|
406
|
10.
University Village at TU
(2)
|
|
2004
|
|
Philadelphia,
PA
|
|
Temple
University
|
|
220
|
|
749
|
11.
University Club Tallahassee
|
|
2005
|
|
Tallahassee,
FL
|
|
Florida
State University
|
|
152
|
|
608
|
12.
The Grove at University Club
|
|
2005
|
|
Tallahassee,
FL
|
|
Florida
State University
|
|
64
|
|
128
|
13.
College Club Tallahassee
|
|
2005
|
|
Tallahassee,
FL
|
|
Florida
A&M University
|
|
96
|
|
384
|
14.
The Greens at College Club
|
|
2005
|
|
Tallahassee,
FL
|
|
Florida
A&M University
|
|
40
|
|
160
|
15.
University Club Gainesville
|
|
2005
|
|
Gainesville,
FL
|
|
University
of Florida
|
|
94
|
|
376
|
16.
City Parc at Fry Street
|
|
2005
|
|
Denton,
TX
|
|
University
of North Texas
|
|
136
|
|
418
|
17.
The Estates
|
|
2005
|
|
Gainesville,
FL
|
|
University
of Florida
|
|
396
|
|
1,044
|
18.
University Village at Sweet Home
|
|
2005
|
|
Amherst,
NY
|
|
State
University of New York – Buffalo
|
|
269
|
|
828
|
19.
Entrada Real
|
|
2006
|
|
Tucson,
AZ
|
|
University
of Arizona
|
|
98
|
|
363
|
20.
Royal Oaks
|
|
2006
|
|
Tallahassee,
FL
|
|
Florida
State University
|
|
82
|
|
224
|
21.
Royal Pavilion
|
|
2006
|
|
Tallahassee,
FL
|
|
Florida
State University
|
|
60
|
|
204
|
22.
Royal Village Tallahassee
|
|
2006
|
|
Tallahassee,
FL
|
|
Florida
State University
|
|
75
|
|
288
|
23.
Royal Village Gainesville
|
|
2006
|
|
Gainesville,
FL
|
|
University
of Florida
|
|
118
|
|
448
|
24.
Northgate Lakes
|
|
2006
|
|
Orlando,
FL
|
|
The
University of Central Florida
|
|
194
|
|
710
|
25.
Royal Lexington
|
|
2006
|
|
Lexington,
KY
|
|
University
of Kentucky
|
|
94
|
|
364
|
26.
The Woods at Greenland
|
|
2006
|
|
Murfreesboro,
TN
|
|
Middle
Tennessee State University
|
|
78
|
|
276
|
27.
Raider’s Crossing
|
|
2006
|
|
Murfreesboro,
TN
|
|
Middle
Tennessee State University
|
|
96
|
|
276
|
28.
Raider’s Pass
|
|
2006
|
|
Lubbock,
TX
|
|
Texas
Tech University
|
|
264
|
|
828
|
29.
Aggie Station
|
|
2006
|
|
College
Station, TX
|
|
Texas
A&M University
|
|
156
|
|
450
|
30.
The Outpost San Marcos
|
|
2006
|
|
San
Marcos, TX
|
|
Texas
State University – San Marcos
|
|
162
|
|
486
|
31.
The Outpost San Antonio
|
|
2006
|
|
San
Antonio, TX
|
|
University
of Texas – San Antonio
|
|
276
|
|
828
|
32.
Callaway Villas
|
|
2006
|
|
College
Station, TX
|
|
Texas
A&M University
|
|
236
|
|
704
|
33.
Village on Sixth
|
|
2007
|
|
Huntington,
WV
|
|
Marshall
University
|
|
248
|
|
752
|
34.
Newtown Crossing
|
|
2007
|
|
Lexington,
KY
|
|
University
of Kentucky
|
|
356
|
|
942
|
35.
Olde Towne University Square
|
|
2007
|
|
Toledo,
OH
|
|
University
of Toledo
|
|
224
|
|
550
|
36.
Peninsular Place
|
|
2007
|
|
Ypsilanti,
MI
|
|
Eastern
Michigan University
|
|
183
|
|
478
|
37.
University Centre
|
|
2007
|
|
Newark,
NJ
|
|
Rutgers
University, NJIT, Essex CCC
|
|
234
|
|
838
|
38.
Sunnyside Commons
|
|
2008
|
|
Morgantown,
WV
|
|
West
Virginia University
|
|
68
|
|
161
|
39.
Pirate’s Place
|
|
2008
|
|
Greenville,
NC
|
|
East
Carolina University
|
|
144
|
|
528
|
40.
University Highlands
|
|
2008
|
|
Reno,
NV
|
|
University
of Nevada at Reno
|
|
216
|
|
732
|
41.
Jacob Heights I
|
|
2008
|
|
Mankato,
MN
|
|
Minnesota
State University
|
|
42
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
|
|
YR
ACQUIRED / DEVELOPED
(1)
|
|
LOCATION
|
|
PRIMARY
UNIVERSITY SERVED
|
|
UNITS
|
|
BEDS
|
42.
Jacob Heights III
|
|
2008
|
|
Mankato,
MN
|
|
Minnesota
State University
|
|
24
|
|
96
|
43.
The Summit
|
|
2008
|
|
Mankato,
MN
|
|
Minnesota
State University
|
|
192
|
|
672
|
44.
GrandMarc – Seven Corners
|
|
2008
|
|
Minneapolis,
MN
|
|
University
of Minnesota
|
|
186
|
|
440
|
45.
University Village – Sacramento
|
|
2008
|
|
Sacramento,
CA
|
|
California
State University – Sacramento
|
|
250
|
|
394
|
46.
Aztec Corner
|
|
2008
|
|
San
Diego, CA
|
|
San
Diego State University
|
|
180
|
|
606
|
47.
University Crossings
|
|
2008
|
|
Philadelphia,
PA
|
|
University
of Pennsylvania / Drexel
|
|
260
|
|
1,016
|
48.
Campus Corner
|
|
2008
|
|
Bloomington,
IN
|
|
Indiana
University
|
|
254
|
|
796
|
49.
Tower at 3rd
|
|
2008
|
|
Champaign,
IL
|
|
University
of Illinois
|
|
147
|
|
295
|
50.
University Mills
|
|
2008
|
|
Cedar
Falls, IA
|
|
University
of Northern Iowa
|
|
121
|
|
481
|
51.
Pirates Cove
|
|
2008
|
|
Greenville,
NC
|
|
East
Carolina University
|
|
264
|
|
1,056
|
52.
University Manor
|
|
2008
|
|
Greenville,
NC
|
|
East
Carolina University
|
|
168
|
|
600
|
53.
Brookstone Village
|
|
2008
|
|
Wilmington,
NC
|
|
UNC
– Wilmington
|
|
124
|
|
238
|
54.
Campus Walk – Wilmington
|
|
2008
|
|
Wilmington,
NC
|
|
UNC
– Wilmington
|
|
289
|
|
290
|
55.
Campus Club – Statesboro
|
|
2008
|
|
Statesboro,
GA
|
|
Georgia
Southern University
|
|
276
|
|
984
|
56.
University Pines
|
|
2008
|
|
Statesboro,
GA
|
|
Georgia
Southern University
|
|
144
|
|
552
|
57.
Lakeside
|
|
2008
|
|
Athens,
GA
|
|
University
of Georgia
|
|
244
|
|
776
|
58.
The Club
|
|
2008
|
|
Athens,
GA
|
|
University
of Georgia
|
|
120
|
|
480
|
59.
The Edge
|
|
2008
|
|
Orlando,
FL
|
|
Central
Florida
|
|
306
|
|
930
|
60.
University Place
|
|
2008
|
|
Charlottesville,
VA
|
|
University
of Virginia
|
|
144
|
|
528
|
61.
Southview
|
|
2008
|
|
Harrisonburg,
VA
|
|
James
Madison University
|
|
240
|
|
960
|
62.
Stonegate
|
|
2008
|
|
Harrisonburg,
VA
|
|
James
Madison University
|
|
168
|
|
672
|
63.
The Commons
|
|
2008
|
|
Harrisonburg,
VA
|
|
James
Madison University
|
|
132
|
|
528
|
64.
University Gables
|
|
2008
|
|
Murfreesboro,
TN
|
|
Middle
Tennessee State University
|
|
168
|
|
648
|
65.
Campus Ridge
|
|
2008
|
|
Johnson
City, TN
|
|
East
Tennessee State University
|
|
132
|
|
528
|
66.
The Enclave I
|
|
2008
|
|
Bowling
Green, OH
|
|
Bowling
Green State University
|
|
120
|
|
480
|
67.
Hawks Landing
|
|
2008
|
|
Oxford,
OH
|
|
Miami
University of Ohio
|
|
122
|
|
484
|
68.
Willow Tree Apartments
|
|
2008
|
|
Ann
Arbor, MI
|
|
University
of Michigan
|
|
310
|
|
568
|
69.
Willow Tree Towers
|
|
2008
|
|
Ann
Arbor, MI
|
|
University
of Michigan
|
|
163
|
|
283
|
70.
Abbott Place
|
|
2008
|
|
East
Lansing, MI
|
|
Michigan
State University
|
|
222
|
|
654
|
71.
University Centre – Kalamazoo
|
|
2008
|
|
Kalamazoo,
MI
|
|
Western
Michigan University
|
|
232
|
|
700
|
72.
University Meadows
|
|
2008
|
|
Mt.
Pleasant, MI
|
|
Central
Michigan University
|
|
184
|
|
616
|
73.
Campus Way
|
|
2008
|
|
Tuscaloosa,
AL
|
|
University
of Alabama
|
|
194
|
|
680
|
74.
Campus Trails
|
|
2008
|
|
Starkville,
MS
|
|
Mississippi
State University
|
|
156
|
|
480
|
75.
University Pointe
|
|
2008
|
|
Lubbock,
TX
|
|
Texas
Tech University
|
|
204
|
|
682
|
76.
University Trails
|
|
2008
|
|
Lubbock,
TX
|
|
Texas
Tech University
|
|
240
|
|
684
|
77.
Vista del Sol - ACE (3)
|
|
2008
|
|
Tempe,
AZ
|
|
Arizona
State University
|
|
613
|
|
1,866
|
78.
Villas at Chestnut Ridge
|
|
2008
|
|
Amherst,
NY
|
|
State
University of New York – Buffalo
|
|
196
|
|
552
|
79.
Barrett Honors College - ACE (3)
|
|
2009
|
|
Tempe,
AZ
|
|
Arizona
State University
|
|
604
|
|
1,721
|
80.
University Heights
|
|
2010
|
|
Birmingham,
AL
|
|
University
of Alabama at Birmingham
|
|
176
|
|
528
|
81.
Villas at Babcock
(4)
|
|
2011
|
|
San
Antonio, TX
|
|
University
of Texas-San Antonio
|
|
204
|
|
792
|
82.
University of New Mexico –ACE (5)
|
|
2011
|
|
Albuquerque,
NM
|
|
University
of New Mexico
|
|
216
|
|
864
|
Total
wholly-owned properties
|
|
|
|
|
|
|
|
15,405
|
|
48,783
|
PROPERTY
|
|
YEAR ACQUIRED /
DEVELOPED (1)
|
|
LOCATION
|
|
PRIMARY
UNIVERSITY SERVED
|
|
UNITS
|
|
BEDS
|
On-campus
participating properties:
|
|
|
|
|
|
|
|
|
|
|
83.
University Village – PVAMU
|
|
1996
/ 97 / 98
|
|
Prairie
View, TX
|
|
Prairie
View A&M University
|
|
612
|
|
1,920
|
84.
University College – PVAMU
|
|
2000
/ 2003
|
|
Prairie
View, TX
|
|
Prairie
View A&M University
|
|
756
|
|
1,470
|
85.
University Village – TAMIU
|
|
1997
|
|
Laredo,
TX
|
|
Texas
A&M International University
|
|
84
|
|
250
|
86.
Cullen Oaks – Phase I and II
|
|
2001
/ 2006
|
|
Houston,
TX
|
|
The
University of Houston
|
|
411
|
|
879
|
Total
on-campus participating properties
|
|
1,863
|
|
4,519
|
|
|
|
|
|
|
|
|
|
|
|
Total
– all
properties
|
|
|
|
|
|
|
|
17,268
|
|
53,302
|
|
(1)
|
As
of June 30, 2010, the average age of our wholly-owned properties was
approximately 10.4 years.
|
|
(2)
|
Subject
to a 75-year ground lease with Temple
University.
|
|
(3)
|
Subject
to a 65-year ground/facility lease with Arizona State
University.
|
|
(4)
|
Currently
under development with a scheduled completion date of August
2011.
|
|
(5)
|
Currently
under development with a scheduled completion date of August
2011. Subject to a 40-year ground/facility lease with the
University of New Mexico.
|
Results
of Operations
Comparison
of the Three Months Ended June 30, 2010 and June 30, 2009
The
following table presents our results of operations for the three months ended
June 30, 2010 and 2009, including the amount and percentage change in these
results between the two periods:
|
|
Three
Months Ended June 30,
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Change
($)
|
|
Change
(%)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-owned
properties
|
|
$ |
68,549 |
|
|
$ |
64,153 |
|
|
$ |
4,396 |
|
|
|
6.9 |
% |
On-campus
participating properties
|
|
|
4,142 |
|
|
|
3,922 |
|
|
|
220 |
|
|
|
5.6 |
% |
Third
party development services
|
|
|
1,628 |
|
|
|
886 |
|
|
|
742 |
|
|
|
83.7 |
% |
Third
party management services
|
|
|
2,121 |
|
|
|
2,105 |
|
|
|
16 |
|
|
|
0.8 |
% |
Resident
services
|
|
|
242 |
|
|
|
205 |
|
|
|
37 |
|
|
|
18.0 |
% |
Total
revenues
|
|
|
76,682 |
|
|
|
71,271 |
|
|
|
5,411 |
|
|
|
7.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-owned
properties
|
|
|
32,288 |
|
|
|
31,794 |
|
|
|
494 |
|
|
|
1.6 |
% |
On-campus
participating properties
|
|
|
2,620 |
|
|
|
2,783 |
|
|
|
(163 |
) |
|
|
(5.9 |
%) |
Third
party development and management services
|
|
|
2,796 |
|
|
|
2,810 |
|
|
|
(14 |
) |
|
|
(0.5 |
%) |
General
and administrative
|
|
|
2,616 |
|
|
|
2,829 |
|
|
|
(213 |
) |
|
|
(7.5 |
%) |
Depreciation
and amortization
|
|
|
17,795 |
|
|
|
19,591 |
|
|
|
(1,796 |
) |
|
|
(9.2 |
%) |
Ground/facility
leases
|
|
|
753 |
|
|
|
452 |
|
|
|
301 |
|
|
|
66.6 |
% |
Total
operating expenses
|
|
|
58,868 |
|
|
|
60,259 |
|
|
|
(1,391 |
) |
|
|
(2.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
17,814 |
|
|
|
11,012 |
|
|
|
6,802 |
|
|
|
61.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
16 |
|
|
|
40 |
|
|
|
(24 |
) |
|
|
(60.0 |
%) |
Interest
expense
|
|
|
(14,961 |
) |
|
|
(14,817 |
) |
|
|
(144 |
) |
|
|
1.0 |
% |
Amortization
of deferred financing costs
|
|
|
(1,015 |
) |
|
|
(769 |
) |
|
|
(246 |
) |
|
|
32.0 |
% |
Loss
from unconsolidated joint ventures
|
|
|
(711 |
) |
|
|
(483 |
) |
|
|
(228 |
) |
|
|
47.2 |
% |
Other
nonoperating income
|
|
|
- |
|
|
|
402 |
|
|
|
(402 |
) |
|
|
(100.0 |
%) |
Total
nonoperating expenses
|
|
|
(16,671 |
) |
|
|
(15,627 |
) |
|
|
(1,044 |
) |
|
|
6.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes and discontinued operations
|
|
|
1,143 |
|
|
|
(4,615 |
) |
|
|
5,758 |
|
|
|
(124.8 |
%) |
Income
tax provision
|
|
|
(142 |
) |
|
|
(135 |
) |
|
|
(7 |
) |
|
|
5.2 |
% |
Income
(loss) from continuing operations
|
|
|
1,001 |
|
|
|
(4,750 |
) |
|
|
5,751 |
|
|
|
(121.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
attributable to discontinued operations
|
|
|
(5 |
) |
|
|
(547 |
) |
|
|
542 |
|
|
|
(99.1 |
%) |
Loss
from disposition of real estate
|
|
|
(59 |
) |
|
|
- |
|
|
|
(59 |
) |
|
|
100.0 |
% |
Total
discontinued operations
|
|
|
(64 |
) |
|
|
(547 |
) |
|
|
483 |
|
|
|
(88.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
937 |
|
|
|
(5,297 |
) |
|
|
6,234 |
|
|
|
(117.7 |
%) |
Net
income attributable to noncontrolling interests
|
|
|
(169 |
) |
|
|
(13 |
) |
|
|
(156 |
) |
|
|
1,200.0 |
% |
Net
income (loss) attributable to common shareholders
|
|
$ |
768 |
|
|
$ |
(5,310 |
) |
|
$ |
6,078 |
|
|
|
(114.5 |
%) |
Wholly-Owned
Properties Operations
Revenues
from our wholly-owned properties for the three months ended June 30, 2010
compared to the three months ended June 30, 2009 increased by $4.4 million
primarily due to the completion of construction of Barrett Honors College in
August 2009 and the improved lease-up for the GMH portfolio for the 2009/2010
academic year. Operating expenses increased approximately $0.5
million for the three months ended June 30, 2010 as compared to the prior year,
primarily due to the same factors which affected the increase in
revenues.
New
Property Operations. In August 2009, we completed construction
of and opened Barrett Honors College at Arizona State University. In
March 2010, one of the Fidelity joint ventures in which the Company owns a 10%
interest assigned its ownership interest in the University Heights property to
the Operating Partnership. This property, serving students attending
the University of Alabama at Birmingham, is now 100% wholly-owned by the
Operating Partnership. In addition, the Campus Trails property
experienced significant property damage in April 2010 as a result of a fire in
which 72 beds were destroyed and are currently in the process of being
rebuilt. We are therefore classifying this property as a new property
due to the business interruption incurred at the property, and the property will
be classified as such until future comparable periods contain the same number of
beds in operation. These three new properties contributed an
additional $2.5 million of revenues and an additional $1.3 million of operating
expenses during the three months ended June 30, 2010 as compared to the three
months ended June 30, 2009.
Same
Store Property Operations (Excluding New Property
Activity). We had 77 properties containing 44,402 beds which
were operating during both of the three month periods ended June 30, 2010 and
2009. These properties produced revenues of $65.8 million and $63.9
million during the three months ended June 30, 2010 and 2009, respectively, an
increase of $1.9 million. This increase was primarily due to an
increase in average occupancy from 90.9% during the three months ended June 30,
2009 to 94.5% during the three months ended June 30,
2010. Future revenues will be dependent on our ability to
maintain our current leases in effect for the 2009/2010 academic year and our
ability to obtain appropriate rental rates and desired occupancy for the
2010/2011 academic year at our various properties during our leasing period,
which typically begins in January and ends in August.
At these
existing same store properties, operating expenses decreased by $0.7 million,
from $31.5 million for the three months ended June 30, 2009 to $30.8 million for
the three months ended June 30, 2010. This decrease was a result of
more marketing costs being incurred during the prior year in order to stimulate
leasing velocity for the 2009/2010 academic year. We anticipate that
operating expenses for our same store property portfolio in 2010 will increase
slightly as compared with 2009 as a result of expected increases in utility
costs, employee benefit costs, property taxes and general
inflation.
On-Campus
Participating Properties (“OCPP”) Operations
We had
four participating properties containing 4,519 beds which were operating during
both of the three month periods ended June 30, 2010 and
2009. Revenues from our participating properties increased to $4.1
million during the three months ended June 30, 2010 from $3.9 million for the
three months ended June 30, 2009, an increase of $0.2 million. This
increase was primarily a result of an increase in average rental rates during
the three months ended June 30, 2010 as compared to the prior year, as well as
an increase in average occupancy from 39.9% for the three months ended June 30,
2009 to 42.6% for the three months ended June 30, 2010. Occupancy at
our on-campus participating properties is low during the summer months due to
the expiration of the 9-month leases concurrent with the end of the spring
semester. We anticipate that revenues from our on-campus
participating properties for the full year 2010 will increase slightly from
anticipated increases in both average rental rates and occupancy.
At these
properties, operating expenses decreased from $2.8 million for the three months
ended June 30, 2009 to $2.6 million for the three months ended June 30, 2010, a
decrease of $0.2 million. This decrease was primarily due to a
decrease in bad debt expense. We anticipate that operating expenses
in 2010 will increase slightly as compared with 2009 as a result of expected
increases in utility costs, employee benefit costs and general
inflation.
Third
Party Development Services Revenue
Third
party development services revenue increased by $0.7 million, from $0.9 million
during the three months ended June 30, 2009 to $1.6 million for the three months
ended June 30, 2010. This increase was primarily due to the closing
of financing and commencement of construction on our Edinboro Phase II project
in June 2010, which provided an additional $1.1 million of revenue as compared
to the prior year. We had four projects in progress during the three
months ended June 30, 2010 at an average contractual fee of $4.0 million, as
compared to four projects in progress during the three months ended June 30,
2009 at an average contractual fee of $3.6 million. Closing of
third-party development services projects during 2010 will be dependent upon the
Company’s university clients obtaining project financing, which has been
adversely affected by current capital market conditions.
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 revenue remained constant at $2.1 million during the
three months ended June 30, 2010 and 2009. Management fees for the
second quarter of 2010 included $0.5 million from the 14 joint venture
properties being acquired. After the closing of the acquisition of
these joint venture properties, this management fee revenue will discontinue as
these assets will be wholly owned by the Company.
General
and Administrative
General
and administrative expenses decreased by $0.2 million, from $2.8 million during
the three months ended June 30, 2009 to $2.6 million for the three months ended
June 30, 2010. This decrease was primarily a result of efforts to
manage overall corporate general and administrative expenses during the
period. We anticipate general and administrative expenses for the
full year 2010 to increase as a result of an increase in employee benefit costs
and general inflation.
Depreciation
and Amortization
Depreciation
and amortization decreased by $1.8 million, from $19.6 million during the three
months ended June 30, 2009 to $17.8 million for the three months ended June 30,
2010. This decrease was due to a decrease in depreciation and
amortization expense of approximately $3.8 million related to the value assigned
to in-place leases at the properties acquired from GMH, which were fully
amortized by the end of 2009. This decrease was offset by the
completion of construction and opening of Barrett Honors College in August 2009,
the acquisition of University Heights in March 2010, and renovation projects
completed at several properties acquired from GMH. These items
contributed an additional $1.8 million to depreciation and amortization expense
for the three months ended June 30, 2010. We expect depreciation and
amortization expense to decrease in 2010 as a result of the value assigned to
in-place leases at the time of the GMH acquisition being fully amortized in
2009, which should be slightly offset by increased depreciation on Barrett
Honors College and University Heights, as well as renovations during 2009 at
several GMH properties.
Ground/Facility
Leases
Ground/facility
leases expense increased by $0.3 million, from $0.5 million during the three
months ended June 30, 2009 to $0.8 million for the three months ended June 30,
2010. This increase was primarily due to improved operating results
at our on-campus participating properties, which increased our share of the cash
flow available for distribution. We anticipate ground/facility leases
expense to increase slightly in 2010 as a result of improved operations at our
on-campus participating properties.
Interest
Expense
Interest
expense increased by $0.2 million, from $14.8 million during the three months
ended June 30, 2009 to $15.0 million for the three months ended June 30,
2010. This increase was due to additional interest of approximately
$0.6 million incurred during the three months ended June 30, 2010 related to the
Freddie Mac revolving credit facility entered into in September
2009. In addition, interest expense increased as a result of a
decrease in capitalized interest of $1.0 million during the three months ended
June 30, 2010 as compared to the three months ended June 30, 2009 due to our
Barrett Honors College project being under construction during the prior
year. These increases were offset by a decrease to interest expense
of $1.5 million related to mortgage loans paid off during 2009 and the first
half of 2010.
Amortization
of Deferred Financing Costs
Amortization
of deferred financing costs increased approximately $0.2 million, from $0.8
million during the three months ended June 30, 2009 to $1.0 million for the
three months ended June 30, 2010, primarily due to an additional $0.4 million of
finance cost amortization incurred during the three months ended June 30, 2010
related to the refinancing of our revolving credit facility in August 2009 and
the Freddie Mac revolving credit facility entered into in September
2009. This increase was offset by a decrease in finance cost
amortization of $0.2 million as a result of mortgage loans paid off during 2009
and the first half of 2010. We anticipate that amortization of
deferred financing costs will increase in 2010 as compared to 2009 due to the
factors discussed above.
Loss
from Unconsolidated Joint Ventures
Loss from
unconsolidated joint ventures represents our share of the net loss from the
Hampton Roads military housing joint venture in which we have a minimal economic
interest, as well as our 10% share of the loss from our two joint ventures with
Fidelity that own a total of 18 properties as of June 30, 2010. Loss
from unconsolidated joint ventures increased approximately $0.2 million from
$0.5 million during the three months ended June 30, 2009 to $0.7 million for the
three months ended June 30, 2010. This increase was primarily due to
our 10% share of impairment charges of $0.6 million recorded during the three
months ended June 30, 2010 for two properties owned through one of our Fidelity
joint ventures. These
impairment charges were offset by a decrease in depreciation and amortization
expense at one of the Fidelity joint ventures as a result of the value assigned
to in-place leases upon formation of the joint venture in 2008 being fully
amortized by the end of 2009.
Other
Nonoperating Income
Other
nonoperating income of $0.4 million for the three months ended June 30, 2009
represents tax incentive amounts received in cash during the period related to a
property we acquired in February 2007 located in Ypsilanti,
Michigan. Upon acquisition of this property, any future potential
benefit of such tax incentive was assumed from the seller.
Discontinued
Operations
Discontinued
operations includes the following properties: (i) Riverside Estates,
a wholly-owned property sold in December 2009 for a sale price of $18.2 million,
(ii) Cambridge at Southern, a wholly-owned property sold in March 2010 for a
sale price of $19.5 million, and (ii) Campus Walk – Oxford, a wholly-owned
property sold in April 2010 for a sale price of $9.2 million. Refer
to Note 4 in the accompanying Notes to Consolidated Financial Statements
contained in Item 1 herein for a table summarizing the results of operations of
the properties classified within discontinued operations.
Comparison
of the Six Months Ended June 30, 2010 and June 30, 2009
The
following table presents our results of operations for the six months ended June
30, 2010 and 2009, including the amount and percentage change in these results
between the two periods:
|
|
Six
Months Ended June 30,
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Change
($)
|
|
Change
(%)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-owned
properties
|
|
$ |
139,741 |
|
|
$ |
129,488 |
|
|
$ |
10,253 |
|
|
|
7.9 |
% |
On-campus
participating properties
|
|
|
11,453 |
|
|
|
10,796 |
|
|
|
657 |
|
|
|
6.1 |
% |
Third
party development services
|
|
|
2,202 |
|
|
|
1,938 |
|
|
|
264 |
|
|
|
13.6 |
% |
Third
party management services
|
|
|
4,335 |
|
|
|
4,347 |
|
|
|
(12 |
) |
|
|
(0.3 |
%) |
Resident
services
|
|
|
494 |
|
|
|
445 |
|
|
|
49 |
|
|
|
11.0 |
% |
Total
revenues
|
|
|
158,225 |
|
|
|
147,014 |
|
|
|
11,211 |
|
|
|
7.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-owned
properties
|
|
|
63,764 |
|
|
|
62,284 |
|
|
|
1,480 |
|
|
|
2.4 |
% |
On-campus
participating properties
|
|
|
5,019 |
|
|
|
4,813 |
|
|
|
206 |
|
|
|
4.3 |
% |
Third
party development and management services
|
|
|
5,895 |
|
|
|
5,787 |
|
|
|
108 |
|
|
|
1.9 |
% |
General
and administrative
|
|
|
5,369 |
|
|
|
5,577 |
|
|
|
(208 |
) |
|
|
(3.7 |
%) |
Depreciation
and amortization
|
|
|
35,283 |
|
|
|
38,923 |
|
|
|
(3,640 |
) |
|
|
(9.4 |
%) |
Ground/facility
leases
|
|
|
1,324 |
|
|
|
1,004 |
|
|
|
320 |
|
|
|
31.9 |
% |
Total
operating expenses
|
|
|
116,654 |
|
|
|
118,388 |
|
|
|
(1,734 |
) |
|
|
(1.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
41,571 |
|
|
|
28,626 |
|
|
|
12,945 |
|
|
|
45.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
33 |
|
|
|
79 |
|
|
|
(46 |
) |
|
|
(58.2 |
%) |
Interest
expense
|
|
|
(30,262 |
) |
|
|
(30,081 |
) |
|
|
(181 |
) |
|
|
0.6 |
% |
Amortization
of deferred financing costs
|
|
|
(2,057 |
) |
|
|
(1,559 |
) |
|
|
(498 |
) |
|
|
31.9 |
% |
Loss
from unconsolidated joint ventures
|
|
|
(2,125 |
) |
|
|
(1,037 |
) |
|
|
(1,088 |
) |
|
|
104.9 |
% |
Other
nonoperating income
|
|
|
- |
|
|
|
402 |
|
|
|
(402 |
) |
|
|
(100.0 |
%) |
Total
nonoperating expenses
|
|
|
(34,411 |
) |
|
|
(32,196 |
) |
|
|
(2,215 |
) |
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes and discontinued operations
|
|
|
7,160 |
|
|
|
(3,570 |
) |
|
|
10,730 |
|
|
|
(300.6 |
%) |
Income
tax provision
|
|
|
(285 |
) |
|
|
(270 |
) |
|
|
(15 |
) |
|
|
5.6 |
% |
Income
(loss) from continuing operations
|
|
|
6,875 |
|
|
|
(3,840 |
) |
|
|
10,715 |
|
|
|
(279.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
attributable to discontinued operations
|
|
|
(4,288 |
) |
|
|
(948 |
) |
|
|
(3,340 |
) |
|
|
352.3 |
% |
Loss
from disposition of real estate
|
|
|
(3,705 |
) |
|
|
- |
|
|
|
(3,705 |
) |
|
|
100.0 |
% |
Total
discontinued operations
|
|
|
(7,993 |
) |
|
|
(948 |
) |
|
|
(7,045 |
) |
|
|
743.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(1,118 |
) |
|
|
(4,788 |
) |
|
|
3,670 |
|
|
|
(76.6 |
%) |
Net
income attributable to noncontrolling interests
|
|
|
(303 |
) |
|
|
(245 |
) |
|
|
(58 |
) |
|
|
23.7 |
% |
Net
loss attributable to common shareholders
|
|
$ |
(1,421 |
) |
|
$ |
(5,033 |
) |
|
$ |
3,612 |
|
|
|
(71.8 |
%) |
Wholly-Owned
Properties Operations
Revenues
from our wholly-owned properties for the six months ended June 30, 2010 compared
to the six months ended June 30, 2009 increased by $10.3 million primarily due
to the completion of construction of Barrett Honors College in August 2009 and
the improved lease-up for the GMH portfolio for the 2009/2010 academic
year. Operating expenses increased approximately $1.5 million for the
six months ended June 30, 2010 as compared to the prior year, primarily due to
the same factors which affected the increase in revenues.
New
Property Operations. In August 2009, we completed construction
of and opened Barrett Honors College and in March 2010, one of the Fidelity
joint ventures in which the Company owns a 10% interest assigned its ownership
interest in the University Heights property to the Operating
Partnership. In addition, the Campus Trails property experienced
significant property damage in April 2010 as a result of a fire, as previously
discussed. These three new properties contributed an additional $6.3
million of revenues and an additional $2.0 million of operating expenses during
the six months ended June 30, 2010 as compared to the six months ended June 30,
2009.
Same
Store Property Operations (Excluding New Property
Activity). We had 77 properties containing 44,402 beds which
were operating during both of the six month periods ended June 30, 2010 and
2009. These properties produced revenues of $132.9 million and $128.9
million during the six months ended June 30, 2010 and 2009, respectively, an
increase of $4.0 million. This increase was primarily due to an
increase in average occupancy from 92.0% during the six months ended June 30,
2009 to 95.4% during the six months ended June 30,
2010.
At these
existing same store properties, operating expenses decreased by $0.6 million,
from $61.7 million for the six months ended June 30, 2009 to $61.1 million for
the six months ended June 30, 2010. This decrease was a result of
more marketing costs being incurred during the prior year in order to stimulate
leasing velocity for the 2009/2010 academic year.
On-Campus
Participating Properties (“OCPP”) Operations
We had
four participating properties containing 4,519 beds which were operating during
both of the six month periods ended June 30, 2010 and 2009. Revenues
from our participating properties increased to $11.5 million during the six
months ended June 30, 2010 from $10.8 million for the six months ended June 30,
2009, an increase of $0.7 million. This increase was primarily a
result of an increase in average rental rates during the six months ended June
30, 2010 as compared to the prior year, as well as an increase in average
occupancy from 66.0% for the six months ended June 30, 2009 to 69.6% for the six
months ended June 30, 2010. Occupancy at our on-campus participating
properties is low during the summer months due to the expiration of the 9-month
leases concurrent with the end of the spring semester.
At these
properties, operating expenses increased from $4.8 million for the six months
ended June 30, 2009 to $5.0 million for the six months ended June 30, 2010, an
increase of $0.2 million. This increase was primarily due to an
increase in bad debt expense.
Third
Party Development Services Revenue
Third
party development services revenue increased by $0.3 million, from $1.9 million
during the six months ended June 30, 2009 to $2.2 million for the six months
ended June 30, 2010. This increase was due to the closing of
financing and commencement of construction on our Edinboro Phase II project in
June 2010, which provided an additional $1.1 million of revenue as compared to
the prior year. This increase was offset by lower fees recognized
during the three months ended June 30, 2010 as compared to the three months
ended June 30, 2009 for our University of California, Irvine Phase III project,
which is anticipated to complete construction and open for occupancy in August
2010. We had four projects in progress during the six months ended
June 30, 2010 at an average contractual fee of $4.0 million, as compared to four
projects in progress during the six months ended June 30, 2009 at an average
contractual fee of $3.6 million.
General
and Administrative
General
and administrative expenses decreased by $0.2 million, from $5.6 million during
the six months ended June 30, 2009 to $5.4 million for the six months ended June
30, 2010. This decrease was primarily a result of efforts to manage
overall corporate general and administrative expenses during the
quarter.
Depreciation
and Amortization
Depreciation
and amortization decreased by $3.6 million, from $38.9 million during the six
months ended June 30, 2009 to $35.3 million for the six months ended June 30,
2010. This decrease was due to a decrease in depreciation and
amortization expense of approximately $7.6 million related to the value assigned
to in-place leases at the properties acquired from GMH, which were fully
amortized by the end of 2009. This decrease was offset by the
completion of construction and opening of Barrett Honors College in August 2009,
the acquisition of University Heights in March 2010, and renovation projects
completed at several properties acquired from GMH. These items
contributed an additional $4.0 million to depreciation and amortization expense
for the six months ended June 30, 2010.
Ground/Facility
Leases
Ground/facility
leases expense increased by $0.3 million, from $1.0 million during the six
months ended June 30, 2009 to $1.3 million for the six months ended June 30,
2010. This increase was primarily due to improved operating results
at our on-campus participating properties, which increased our share of the cash
flow available for distribution.
Interest
Expense
Interest
expense increased by $0.2 million, from $30.1 million during the six months
ended June 30, 2009 to $30.3 million for the six months ended June 30,
2010. This increase was due to additional interest of approximately
$1.2 million incurred during the six months ended June 30, 2010 related to the
Freddie Mac revolving credit facility entered into in September
2009. In addition, interest expense increased as a result of a
decrease in capitalized interest of $2.0 million during the six months ended
June 30, 2010 as compared to the six months ended June 30, 2009 due to our
Barrett Honors College project being under construction during the prior
year. These increases were offset by a decrease to interest expense
of $2.7 million related to mortgage loans paid off during 2009 and the first
half of 2010.
Amortization
of Deferred Financing Costs
Amortization
of deferred financing costs increased approximately $0.5 million, from $1.6
million during the six months ended June 30, 2009 to $2.1 million for the six
months ended June 30, 2010, primarily due to an additional $0.8 million of
finance cost amortization incurred during the six months ended June 30, 2010
related to the refinancing of our revolving credit facility in August 2009 and
the Freddie Mac revolving credit facility entered into in September
2009. This increase was offset by a decrease in finance cost
amortization of $0.3 million as a result of mortgage loans paid off during 2009
and the first half of 2010.
Loss
from Unconsolidated Joint Ventures
Loss from
unconsolidated joint ventures represents our share of the net loss from the
Hampton Roads military housing joint venture, as well as our 10% share of the
loss from our two joint ventures with Fidelity. Loss from
unconsolidated joint ventures increased approximately $1.1 million from $1.0
million during the six months ended June 30, 2009 to $2.1 million for the six
months ended June 30, 2010. This increase was primarily due to our
10% share of impairment charges of $1.4 million recorded during the six months
ended June 30, 2010 for three properties owned through one of our Fidelity joint
ventures.
Other
Nonoperating Income
Other
nonoperating income of $0.4 million for the six months ended June 30, 2009
represents tax incentive amounts received in cash during the period related to a
property we acquired in February 2007 located in Ypsilanti,
Michigan. Upon acquisition of this property, any future potential
benefit of such tax incentive was assumed from the seller.
Discontinued
Operations
Discontinued
operations includes the following properties: (i) Riverside Estates,
a wholly-owned property sold in December 2009 for a sale price of $18.2 million,
(ii) Cambridge at Southern, a wholly-owned property sold in March 2010 for a
sale price of $19.5 million, and (ii) Campus Walk – Oxford, a wholly-owned
property sold in April 2010 for a sale price of $9.2 million. Refer
to Note 4 in the accompanying Notes to Consolidated Financial Statements
contained in Item 1 herein for a table summarizing the results of operations of
the properties classified within discontinued operations.
Cash
Flows
Comparison
of Six Months Ended June 30, 2010 and 2009
Operating
Activities
For the
six months ended June 30, 2010, net cash provided by operating activities was
approximately $41.1 million, as compared to $24.4 million for the six months
ended June 30, 2009, an increase of $16.7 million. This increase was
primarily due to operating cash flows provided from the improved operations of
the GMH portfolio and the completion of construction and opening of Vista del
Sol and Villas at Chestnut Ridge in August 2008 and Barrett Honors College in
August 2009.
Investing
Activities
Investing
activities utilized $30.8 million and $72.4 million for the six months ended
June 30, 2010 and 2009, respectively. The $41.6 million decrease in
cash utilized in investing activities during the six months ended June 30, 2010
related primarily to a $40.6 million decrease in cash used to fund the
construction of our wholly-owned development properties. During the
six months ended June 30, 2009, one wholly-owned property was under development,
which was completed and opened for occupancy in August 2009, while two
wholly-owned properties were in the early stages of development during the six
months ended June 30, 2010, both with scheduled completion dates of August
2011. In addition, there was a $12.7 million decrease in cash used
for capital expenditures at our wholly-owned properties as a result of
renovations at several GMH properties during the six months ended June 30,
2009. Finally, we received $2.1 million of net proceeds from the
disposition of two wholly-owned properties during the six months ended June 30,
2010. These decreases in cash utilized in investing activities were
offset by a $9.6 million use of cash to acquire a property from one of the
Fidelity Joint Ventures in March 2010 and a $5.0 million increase in cash used
to acquire undeveloped land. For the six months ended June 30, 2010
and 2009, our cash utilized in investing activities was comprised of the
following:
|
|
Six
Months Ended June 30,
|
|
|
2010
|
|
2009
|
Property
dispositions
|
|
$ |
2,115 |
|
|
$ |
- |
|
Property
acquisition
|
|
|
(9,618 |
) |
|
|
- |
|
Land
acquisitions
|
|
|
(7,595 |
) |
|
|
(2,637 |
) |
Capital
expenditures for on-campus participating properties
|
|
|
(224 |
) |
|
|
(181 |
) |
Capital
expenditures for wholly-owned properties
|
|
|
(10,254 |
) |
|
|
(22,972 |
) |
Investment
in wholly-owned properties under development
|
|
|
(4,769 |
) |
|
|
(45,384 |
) |
Purchase
of corporate furniture, fixtures, and equipment
|
|
|
(436 |
) |
|
|
(1,181 |
) |
Total
|
|
$ |
(30,781 |
) |
|
$ |
(72,355 |
) |
Financing
Activities
Cash used
for financing activities totaled $55.4 million for the six months ended June 30,
2010 as compared to $79.6 million in cash provided by financing activities
during the six months ended June 30, 2009. The $135.0 million
decrease in cash provided by financing activities was primarily a result of the
May 2009 equity offering, in which we raised $198.3 million, net of offering
costs, as compared to $7.5 million, net of offering costs, raised under the ATM
Equity Program during the six months ended June 30, 2010. In
addition, we experienced a $6.8 million increase in distributions to
stockholders during the six months ended June 30, 2010, as a result of the
issuance of common stock in connection with our May 2009 equity
offering. These decreases in cash provided by financing activities
were offset by a $44.8 million increase in proceeds (net of paydowns) from our
secured revolving credit facility, as we borrowed from our facility to pay-off
maturing mortgage debt and to partially fund distributions to our
stockholders. Additionally, we experienced a $20.9 million decrease
in cash used to pay-off mortgage loans as we paid off $51.9 million in mortgage
loan debt during the six months ended June 30, 2010 as compared to $72.8 million
in mortgage loan debt during the six months ended June 30, 2009.
Structure
of Owned On-Campus Properties
Under its
ACE program, the Company as lessee has entered into three ground/facility lease
agreements with two university systems to finance, construct, and manage three
student housing properties. One property was under construction as of June
30, 2010 and is scheduled to open for occupancy in August 2011. The terms
of the leases, including extension options, range from 65 to 85 years, and the
lessor has title to the land and any improvements placed thereon. The
leases require annual minimum rent payments to the university systems as well as
variable rent payments that depend on 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 (“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 included in our consolidated financial
statements for the three and six months ended June 30, 2010 and
2009:
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Revenues
|
|
$ |
4,142 |
|
|
$ |
3,922 |
|
|
$ |
11,453 |
|
|
$ |
10,796 |
|
Direct operating
expenses (1)
|
|
|
(2,458 |
) |
|
|
(2,644 |
) |
|
|
(4,690 |
) |
|
|
(4,541 |
) |
Amortization
|
|
|
(1,080 |
) |
|
|
(1,092 |
) |
|
|
(2,159 |
) |
|
|
(2,182 |
) |
Amortization
of deferred financing costs
|
|
|
(45 |
) |
|
|
(44 |
) |
|
|
(94 |
) |
|
|
(90 |
) |
Ground/facility
leases (2)
|
|
|
(486 |
) |
|
|
(200 |
) |
|
|
(792 |
) |
|
|
(492 |
) |
Net
operating income (loss)
|
|
|
73 |
|
|
|
(58 |
) |
|
|
3,718 |
|
|
|
3,491 |
|
Interest
income
|
|
|
5 |
|
|
|
9 |
|
|
|
8 |
|
|
|
33 |
|
Interest
expense
|
|
|
(1,513 |
) |
|
|
(1,556 |
) |
|
|
(3,016 |
) |
|
|
(3,115 |
) |
Net
(loss) income
|
|
$ |
(1,435 |
) |
|
$ |
(1,605 |
) |
|
$ |
710 |
|
|
$ |
409 |
|
|
(1)
|
Excludes
property management fees of $0.2 million for both three month periods
ended June 30, 2010 and 2009, and $0.5 million for both six month periods
ended June 30, 2010 and 2009. This expense and the
corresponding fee revenue 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.
|
Liquidity
and Capital Resources
Cash
Balances and Liquidity
As of
June 30, 2010, excluding our on-campus participating properties, we had $41.9
million in cash and cash equivalents and restricted cash as compared to $87.5
million in cash and cash equivalents and restricted cash as of December 31,
2009. Restricted cash primarily consists of escrow accounts held by
lenders and resident security deposits, as required by law in certain
states. The decrease in cash and cash equivalents was primarily due
to the use of cash to pay-off $51.9 million of fixed-rate mortgage debt and $9.6
million used to acquire a property from one of the Fidelity Joint Ventures in
March 2010. Additionally, restricted cash as of June 30, 2010 also
included $3.8 million of funds held in escrow in connection with potential
development and acquisition opportunities.
As of
June 30, 2010, 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 $71.7 million based on an assumed
annual cash distribution of $1.35 per share based on the number of our shares
outstanding as of June 30, 2010, (ii) anticipated distribution payments to our
Operating Partnership unitholders totaling approximately $1.7 million based on
an assumed annual distribution of $1.35 per common unit of limited partnership
interest (“Common Unit”) and a cumulative preferential per annum cash
distribution rate of 5.99% on our preferred units of limited partnership
interest (“Series A Preferred Units”) based on the number of units outstanding
as of June 30, 2010, (iii) the pay-off of approximately $99.2 million of
fixed-rate mortgage debt scheduled to mature during the next 12 months, (iv)
approximately $89.1 million to acquire full ownership interest in 14 student
housing properties owned in two joint ventures in which we currently have a 10%
ownership interest, (v) approximately $20.6 million to acquire a 487-bed
wholly-owned property located in San Marcos, Texas, (vi) development costs over
the next 12 months totaling approximately $60.6 million for two wholly-owned
properties currently under construction, and (vii) funds for other potential
development projects.
As of
June 30, 2010, we had $100 million of outstanding variable rate construction
debt scheduled to mature in December 2010. We expect to extend the
maturity date through December 2011 by exercising the remaining 12-month
extension option available to us. We also have a $100 million senior
secured term loan scheduled to mature in May 2011. We expect to
extend the maturity date through May 2012 by exercising the remaining 12-month
extension option available to us. In addition, we have a $225 million
revolving credit facility scheduled to mature in August 2012 that was secured by
seven of our wholly-owned properties as of June 30, 2010 and a $125 million
secured revolving credit facility with a Freddie Mac lender scheduled to mature
in September 2014 that is currently secured by 11 of our wholly-owned
properties. We expect to meet our short-term liquidity requirements
by (i) borrowing under our existing secured revolving credit facilities
discussed above, (ii) potentially disposing of properties depending on market
conditions, (iii) issuing securities, including common stock, under our $150
million ATM Equity Program, and (iv) utilizing net cash provided by
operations.
We may
seek additional funds to undertake initiatives not contemplated by our business
plan or obtain additional cushion against possible shortfalls. We
also may pursue additional financing as opportunities arise. Future
financings may include a range of different sizes or types of financing,
including the incurrence of additional secured debt and the sale of additional
debt or equity securities. 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
facilities and term loan. These financings could increase our level
of indebtedness or result in dilution to our equity holders.
Secured
Revolving Credit Facility
The
Operating Partnership has a $225 million revolving credit facility that may be
expanded by up to an additional $75 million upon the satisfaction of certain
conditions. The maturity date of the facility is August 14, 2012 and
can be extended 12 months through August 2013. As of June 30, 2010, the facility
was secured by seven of our wholly-owned properties.
Availability
under the revolving credit facility is limited to an “aggregate borrowing base
amount” equal to the lesser of (i) 50% to 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 our
option, based upon a base rate or one-, two-, or three-month LIBOR, with a LIBOR
floor of 2.0%, plus, in each case, a spread based upon our total
leverage. Additionally, we are required to pay an unused commitment
fee of 0.35% per annum. As of June 30, 2010, the balance outstanding
on the revolving credit facility totaled $30.1 million, bearing interest at a
weighted average annual rate of 5.00%, with remaining availability under the
facility totaling approximately $122.3 million. Subsequent to June
30, 2010, we added three properties to the group of properties that secures the
revolving credit facility, increasing the availability under the facility by
approximately $62.5 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 and total
indebtedness. We may not pay distributions that exceed a specified
percentage 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 June 30, 2010, we were in compliance
with all such covenants.
We have a
$125 million secured revolving credit facility with a Freddie Mac
lender. The facility has a five-year term and is currently secured by
11 properties referred to as the “Collateral Pool.” The facility
bears interest at one- or three-month LIBOR plus a spread that varies based on
the debt service ratio of the Collateral Pool. Additionally, we are
required to pay an unused commitment fee of 1.0% per annum. As of
June 30, 2010, the balance outstanding on the facility totaled $94.0 million,
bearing interest at a weighted average annual rate of 2.50%. The
secured agency facility includes some, but not all, of the same financial
covenants as the secured revolving credit facility, described
above.
The
Operating Partnership has a $100 million senior secured term loan that matures
on May 23, 2011 and can be extended through May 2012 through the exercise of a
12-month extension option. The secured term loan bears interest at a
variable rate, at our option, based upon a base rate or one-, two-, three-, or
six-month LIBOR plus, in each case, a spread based upon our total
leverage. As of June 30, 2010, the balance outstanding on the secured
term loan was $100 million.
On
February 23, 2009, we entered into two $50.0 million interest rate swap
agreements effective March 20, 2009 through February 20, 2012, which are both
used to hedge our exposure to fluctuations in interest payments on its
LIBOR-based senior secured term loan. Under the terms of the two interest
rate swap agreements, we pay an average fixed rate of 1.7925% and receive
one-month LIBOR floating rate. As a result of these two interest rate
swaps, we have effectively fixed the interest rate on our senior secured term
loan to 3.55% as of June 30, 2010 (1.7925% + 1.75% spread). In the
event that the swaps at any time have a negative fair value below a certain
threshold level, we could be required to post cash into a collateral account
pledged to the interest rate swap providers. As of June 30, 2010, we
had deposited approximately $0.9 million into a collateral account related to
one of the interest rate swaps. Refer to Note 12 in the accompanying
Notes to Consolidated Financial Statements contained in Item 1 herein for a more
detailed discussion of our derivative instruments and hedging
activities.
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. Distributions to common stockholders are at the discretion
of the Board of Directors. We may use borrowings under our secured revolving
credit facility to fund distributions. The Board of Directors
considers a number of factors when determining distribution levels, including
market factors and our Company’s performance in addition to REIT
requirements.
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 June 30, 2010, we have deferred approximately $9.4
million in pre-development costs related to third-party and owned development
projects that have not yet commenced construction.
Indebtedness
As of
June 30, 2010, we had approximately $1,175.5 million of outstanding consolidated
indebtedness (excluding net unamortized debt discounts and debt premiums of
approximately $7.4 million and $3.0 million, respectively), comprised of a
$100.0 million balance on our senior secured term loan, $94.0 million balance on
our secured agency facility, $30.1 million balance on our secured revolving
credit facility, $867.4 million in mortgage and construction loans secured by
our wholly-owned properties, $32.6 million in mortgage loans secured by two
phases of an on-campus participating property, and $51.4 million in bond
issuances secured by three of our on-campus participating
properties. The weighted average interest rate on our consolidated
indebtedness as of June 30, 2010 was 5.06% per annum. As of June 30,
2010, approximately 19.1% of our total consolidated indebtedness was variable
rate debt, comprised of our secured agency facility, secured revolving credit
facility and our Vista del Sol construction loan discussed below.
Wholly-Owned
Properties
The
weighted average interest rate of the $867.4 million of wholly-owned mortgage
and construction debt was 5.30% per annum as of June 30, 2010. Each
of the mortgage loans is a non-recourse obligation subject to customary
exceptions 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.
The
development and construction for Vista del Sol, an owned on-campus property, was
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 1.20%. 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, 2010. We
expect to extend the maturity date through December 2011 by exercising the
remaining 12-month extension option available to us. As of June 30,
2010, the balance outstanding on the construction loan totaled $100.0 million,
bearing interest at a rate of 1.58% per annum.
On-Campus Participating
Properties
Three of
our on-campus participating properties are 100% financed with $51.4 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 are currently encumbered by mortgage loans with
balances as of June 30, 2010 of approximately $16.2 million and $16.4 million,
respectively. The loans mature in February 2014 and bear interest at
a rate of LIBOR plus 1.35%. In connection with these loans, we
entered into an 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 loans. Under the terms of the interest rate swap
agreement, we pay a fixed rate of 6.69% per annum 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 7.18% per annum at June 30, 2010.
Off
Balance Sheet Items
As
discussed in Note 8 in the accompanying Notes to Consolidated Financial
Statements contained in Item 1 herein, we hold a 10% equity interest in two
unconsolidated joint ventures with mortgage debt outstanding of approximately
$293.5 million as of June 30, 2010. Our Operating Partnership
serves as non-recourse, carve-out guarantor of this debt, which means we
are liable to the lender for any loss, damage, cost, expense, liability, claim
or other obligation incurred by the lender arising out of or in connection with
certain non-recourse exceptions in connection with the debt. Pursuant
to the limited liability Company agreements of the joint ventures, the
joint ventures agreed to indemnify, defend and hold harmless the Operating
Partnership with respect to such obligations, except to the extent such
obligations were caused by the willful misconduct, gross negligence, fraud or
bad faith of the Operating Partnership or its employees, agents or
affiliates.
Funds
From Operations
As
defined by NAREIT, FFO represents income (loss) before allocation to
noncontrolling interests (computed in accordance with GAAP), excluding gains (or
losses) from sales of property, plus real estate related depreciation and
amortization (excluding amortization of loan origination costs) and after
adjustments for unconsolidated partnerships and joint ventures. We present FFO
because we consider it an important supplemental measure of our operating
performance and believe it is frequently used by securities analysts, investors
and other interested parties in the evaluation of REITs, many of which present
FFO when reporting their results. FFO is intended to exclude GAAP historical
cost depreciation and amortization of real estate and related assets, which
assumes that the value of real estate diminishes ratably over time.
Historically, however, real estate values have risen or fallen with market
conditions. Because FFO excludes depreciation and amortization unique to real
estate, gains and losses from property dispositions and extraordinary items, it
provides a performance measure that, when compared year over year, reflects the
impact to operations from trends in occupancy rates, rental rates, operating
costs, development activities and interest costs, providing perspective not
immediately apparent from net income.
We
compute FFO in accordance with standards established by the Board of Governors
of NAREIT in its March 1995 White Paper (as amended in November 1999 and April
2002), which may differ from the methodology for calculating FFO utilized by
other equity REITs and, accordingly, may not be comparable to such other REITs.
Further, FFO does not represent amounts available for management’s discretionary
use because of needed capital replacement or expansion, debt service obligations
or other commitments and uncertainties. FFO should not be considered as an
alternative to net income (loss) (computed in accordance with GAAP) as an
indicator of our financial performance or to cash flow from operating activities
(computed in accordance with GAAP) as an indicator of our liquidity, nor is it
indicative of funds available to fund our cash needs, including our ability to
pay dividends or make distributions.
The
following table presents a reconciliation of our FFO to our net income (loss)
attributable to common shareholders:
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Net
income (loss) attributable to common shareholders
|
|
$ |
768 |
|
|
$ |
(5,310 |
) |
|
$ |
(1,421 |
) |
|
$ |
(5,033 |
) |
Noncontrolling
interests
|
|
|
169 |
|
|
|
13 |
|
|
|
303 |
|
|
|
245 |
|
Loss
from disposition of real estate
|
|
|
59 |
|
|
|
- |
|
|
|
3,705 |
|
|
|
- |
|
Loss
from unconsolidated joint ventures
|
|
|
711 |
|
|
|
483 |
|
|
|
2,125 |
|
|
|
1,037 |
|
FFO from
unconsolidated joint ventures (1)
|
|
|
(437 |
) |
|
|
192 |
|
|
|
(1,244 |
) |
|
|
153 |
|
Real
estate related depreciation and amortization
|
|
|
17,410 |
|
|
|
20,000 |
|
|
|
34,848 |
|
|
|
39,732 |
|
Funds
from operations (“FFO”)
|
|
$ |
18,680 |
|
|
$ |
15,378 |
|
|
$ |
38,316 |
|
|
$ |
36,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
per share – diluted
|
|
$ |
0.35 |
|
|
$ |
0.31 |
|
|
$ |
0.71 |
|
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – diluted
|
|
|
54,139,051 |
|
|
|
49,666,473 |
|
|
|
54,124,104 |
|
|
|
46,864,604 |
|
|
(1) |
Represents
our share of the FFO from three joint ventures in which we are a
noncontrolling partner. Includes the Hampton Roads Military
Housing joint venture in which we have a minimal economic interest as well
as our 10% noncontrolling interest in two joint ventures formed or assumed
as part of the Company’s acquisition of
GMH.
|
While our
on-campus participating properties contributed $4.1 million and $3.9 million to
our revenues for the three months ended June 30, 2010 and 2009, respectively,
and $11.5 million and $10.8 million to our revenues for the six months ended
June 30, 2010 and 2009, 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
wholly-owned 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. We also exclude
impairment charges from FFOM, as we believe the inclusion of such charges is
inconsistent with the treatment of gains and losses on the disposition of real
estate, which are not included in FFO. Additionally, we believe that excluding
impairment charges from FFOM more appropriately presents the operating
performance of the Company’s real estate investments on a comparative
basis.
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.
Funds
From Operations—Modified (“FFOM”):
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Funds
from operations
|
|
$ |
18,680 |
|
|
$ |
15,378 |
|
|
$ |
38,316 |
|
|
$ |
36,134 |
|
Elimination
of operations of on-campus participating properties and unconsolidated
joint venture:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss (income) from on-campus
participating properties
|
|
|
1,435 |
|
|
|
1,605 |
|
|
|
(710 |
) |
|
|
(409 |
) |
Amortization
of investment in on-campus participating properties
|
|
|
(1,080 |
) |
|
|
(1,092 |
) |
|
|
(2,159 |
) |
|
|
(2,182 |
) |
FFO
from Hampton Roads unconsolidated joint venture (1)
|
|
|
- |
|
|
|
(56 |
) |
|
|
160 |
|
|
|
180 |
|
|
|
|
19,035 |
|
|
|
15,835 |
|
|
|
35,607 |
|
|
|
33,723 |
|
Modifications
to reflect operational performance of on-campus participating
properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
share of net cash flow (2)
|
|
|
486 |
|
|
|
200 |
|
|
|
792 |
|
|
|
492 |
|
Management
fees
|
|
|
188 |
|
|
|
176 |
|
|
|
521 |
|
|
|
499 |
|
Impact
of on-campus participating properties
|
|
|
674 |
|
|
|
376 |
|
|
|
1,313 |
|
|
|
991 |
|
Elimination of
provision for asset impairment-wholly-owned property
(3)
|
|
|
- |
|
|
|
- |
|
|
|
4,036 |
|
|
|
- |
|
Elimination of
provision for asset impairments-unconsolidated joint ventures (4)
|
|
|
632 |
|
|
|
- |
|
|
|
1,414 |
|
|
|
- |
|
Funds
from operations – modified (“FFOM”)
|
|
$ |
20,341 |
|
|
$ |
16,211 |
|
|
$ |
42,370 |
|
|
$ |
34,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFOM
per share – diluted
|
|
$ |
0.38 |
|
|
$ |
0.33 |
|
|
$ |
0.78 |
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – diluted
|
|
|
54,139,051 |
|
|
|
49,666,473 |
|
|
|
54,124,104 |
|
|
|
46,864,604 |
|
|
(1) |
Our
share of the FFO from the Hampton Roads Military Housing unconsolidated
joint venture is excluded from the calculation of FFOM, as management
believes this amount does not accurately reflect the Company’s
participation in the economics of the
transaction.
|
|
|
|
|
(2) |
50%
of the properties’ net cash available for distribution after payment of
operating expenses, debt service (including repayment of principal) and
capital expenditures. Represents amounts accrued for the interim
periods.
|
|
|
|
|
(3)
|
Represents
an impairment charge recorded during the three months ended March 31, 2010
for Campus Walk – Oxford, a property that was sold in April
2010. The impairment charge is included in loss attributable to
discontinued operations on the accompanying consolidated statements of
operations for the six months ended June 30, 2010. Although
impairment charges are included in the calculation of net income (loss)
and FFO, the Company excludes such charges from FFOM because it believes
the inclusion of such charges is inconsistent with the treatment of gains
and losses on the disposition of real estate, which are not included in
FFO. Additionally, the Company believes that excluding
impairment charges from FFOM more appropriately presents the operating
performance of the Company’s real estate investments on a comparative
basis.
|
|
|
|
|
(4)
|
Represents
our share of impairment charges recorded during the three and six months
ended June 30, 2010 for three properties owned through our unconsolidated
Fidelity Joint Ventures.
|
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 wholly-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.
Market risk is the risk of
loss from adverse changes in market prices and interest
rates. Our future earnings and cash flows are dependent upon
prevailing market rates. Accordingly, we manage our market risk by
matching projected cash inflows from operating, investing and financing
activities with projected cash outflows for debt service, acquisitions, capital
expenditures, distributions to stockholders and unitholders, and other cash
requirements. The majority of our outstanding debt has fixed interest
rates, which minimizes the risk of fluctuating interest rates. Our
exposure to market risk includes interest rate fluctuations in connection with
our revolving credit facilities and variable rate construction loans and our
ability to incur more debt without stockholder approval, thereby increasing our
debt service obligations, which could adversely affect our cash
flows. No material changes have occurred in relation to market
risk since our Annual Report on Form 10-K for the year ended December 31,
2009.
Evaluation
of Disclosure Controls and Procedures
As
required by SEC Rule 13a-15(b), we have carried out an evaluation, under
the supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the quarter covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures for the quarter covered by this report were effective at the
reasonable assurance level.
There has been no change
in our internal controls over financial reporting during our most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.
Exhibit
Number
|
|
Description of
Document |
|
31.1 |
|
Certification of
Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
31.2 |
|
Certification of
Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
101 |
|
The
following materials from the Quarterly Report on Form 10-Q of American
Campus Communities, Inc. for the period ended June 30, 2010 formatted in
XBRL (eXtensible Business Reporting Language): (i) the Consolidated
Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the
Consolidated Statement of Changes in Equity, (iv) the Consolidated
Statements of Cash Flows, and (v) related notes to these financial
statements, tagged as blocks of
text.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
AMERICAN
CAMPUS COMMUNITIES, INC.
|
|
|
|
|
By:
|
/s/
William C. Bayless, Jr.
|
|
|
|
|
|
William C. Bayless,
Jr. |
|
|
President
and Chief Executive Officer
|
|
|
|
|
By:
|
/s/
Jonathan A. Graf
|
|
|
|
|
|
Jonathan
A. Graf
Executive
Vice President,
Chief
Financial Officer
and Treasurer
|
47