American Campus Communities, Inc. Reports Fourth Quarter and Year End 2013 Financial Results

Achieves double-digit quarterly and full year per share FFOM growth, reports Fall 2014 preleasing 640 basis points ahead of last year

AUSTIN, Texas--(BUSINESS WIRE)--February 12, 2014--American Campus Communities, Inc. (NYSE:ACC) today announced the following financial results for the quarter and year ended December 31, 2013.

Revenue for the 2013 fourth quarter totaled $182.7 million, up 22.4 percent from $149.3 million in the fourth quarter 2012 and operating income for the quarter increased $10.8 million or 28.4 percent over the prior year fourth quarter. The increase in revenues and operating income was primarily due to growth resulting from property acquisitions, recently completed development properties, and increased rental rates for the 2013-2014 academic year. Net income for the 2013 fourth quarter totaled $27.8 million, or $0.26 per fully diluted share, compared with net income of $23.7 million, or $0.23 per fully diluted share, for the same quarter in 2012. The increase to net income as compared to the prior year quarter is primarily due to the increases in operating income discussed above, offset by an increase in interest expense related to loans assumed in connection with 2012 and 2013 property acquisitions and the $400 million senior unsecured notes offering in April 2013. FFO for the 2013 fourth quarter totaled $72.8 million, or $0.68 per fully diluted share, as compared to $58.5 million, or $0.57 per fully diluted share for the same quarter in 2012. FFOM for the 2013 fourth quarter was $70.7 million, or $0.66 per fully diluted share as compared to $57.1 million, or $0.56 per fully diluted share for the same quarter in 2012. Excluding acquisition-related costs, FFO for the 2013 fourth quarter totaled $74.9 million or $0.70 per fully diluted share and FFOM for the 2013 fourth quarter totaled $72.8 million or $0.68 per fully diluted share. A reconciliation of FFO and FFOM to net income is shown in Table 3.

NOI for same store wholly-owned properties was $74.8 million in the quarter, up 0.8 percent from $74.2 million in the 2012 fourth quarter. Same store wholly-owned property revenues increased by 0.9 percent over the 2012 fourth quarter due to an increase in average rental rates for the 2013-2014 academic year. Same store wholly-owned property operating expenses increased by 1.0 percent over the prior year quarter. NOI for the total wholly-owned portfolio increased 22.2 percent to $96.7 million for the quarter from $79.1 million in the comparable period of 2012.

"Despite the complex integrations that occurred during 2013, we delivered double digit quarterly and full year per share growth in FFOM," said Bill Bayless, American Campus CEO. “Going forward, we are pleased with our robust preleasing activity on both our same store and new development properties, and look to continue this positive momentum to maximize rental revenue growth in the upcoming academic year. Additionally, as part of our goal of returning to more normalized operating expense levels, our 2014 operating budget targets a $5 million reduction of the prior year overages in the areas of marketing, repairs and maintenance, corporate travel, and acquisition integration expenses. These efforts along with prudent asset management initiatives should lead to improving operating margins moving into 2015 and beyond.”

As of February 10, 2014, the company’s same store wholly-owned portfolio was 57.7 percent applied for and 50.9 percent leased for the upcoming academic year compared to 49.5 percent applied for and 44.5 percent leased for the same date prior year, with a 2.1 percent current rental rate increase projected over the in-place rent.

“It is important to note that our preleasing activity is not only well ahead of last year’s pace but is also 450 basis points ahead in leases when compared to our Fall 2012 lease up two years ago,” said Bayless. “In fact, with our same store portfolio being 50.9 percent preleased, we have surpassed the level we achieved in any of the last 5 years. We hope this will dispel concerns that 2013’s slower leasing velocity was a result of weakening industry fundamentals. We continue to believe that our sector is in the early stages of modernization and offers opportunities for consistent long-term value creation not seen in more mature sectors.”

The company is progressing on the construction of its seven owned-development projects with expected deliveries in Fall 2014 and 2015. The developments total approximately $465.5 million, are all core Class A assets located on or pedestrian to campus in their respective markets and average less than 0.1 miles to campus.

The company commenced construction on a 734-bed core mixed-use development located across the street from the University of Oregon campus in Eugene. The $64.6 million community will feature state-of-the-art outdoor amenities including a two-tiered courtyard with a heated pool, spa and outdoor kitchen with a fire pit, as well as indoor amenities, which include a large fitness center, social and study spaces, and ample indoor bicycle parking. The development is scheduled for occupancy in Fall 2015.

Subsequent to year end, the company acquired the Boulder Outlook Hotel property, which is located pedestrian to the campus of the University of Colorado–Boulder, for $9.3 million. The property is fully-entitled for a 400-bed student housing community and the existing hotel operations will be run by a third-party manager. We are currently anticipating demolition and construction related activities to commence during the fourth quarter of 2014 or early 2015, with an anticipated delivery of Fall 2016.

As previously announced, the company acquired Park Point at Rochester Institute of Technology, a fully occupied 924-bed community for $100.3 million. The core pedestrian property is adjacent to campus and located in a market that poses significant hurdles for future development due to federally and state protected wetlands throughout the immediate area. The proforma stabilized cap rate for the project is 6.1 percent nominal and 5.8 percent economic.

In November, the company closed on the $59.2 million pipeline acquisition of Cardinal Towne, a 545-bed community located pedestrian to the academic core of the University of Louisville. The community, which was built in 2011 - 2012 was 100 percent leased for this academic year. In addition to its superior location, the property features approximately 33,000 square feet of student oriented retail, which is currently 100 percent leased, a community center with fitness center, theater room, game room, swimming pool and garage parking. The company is targeting a proforma cap rate of 6.0 percent nominal and 5.6 percent economic.

Also in November, finalizing the remaining pipeline acquisitions, the company acquired U Centre at Fry Street for $51.3 million. The community, which opened in 2012, is fully occupied for the current academic year and is located across the street from the core campus of the University of North Texas in Denton. The pedestrian property features a clubhouse with two-story fitness center, business center, game room, resort-style swimming pool and 11,000 square feet of student-oriented retail, and offers spacious floor plans with bed/bath parity. The company is targeting a proforma year one cap rate of 5.8 percent nominal and 5.5 percent economic.

In November, the company sold University Mills, a non-core 481-bed community serving students attending the University of Northern Iowa, for a total sales price of $14.5 million. Concurrent with closing the company retired $8.1 million in outstanding debt. The property was sold at a cap rate of 5.7 percent economic based on in-place rental revenue and trailing-12 operating expenses.

Subsequent to quarter end, the company sold Hawks Landing, a 484-bed community serving students attending Miami University of Ohio, for a total sales price of $17.3 million including $15.6 million in outstanding debt. The property, originally constructed in 1994, was acquired as part of the GMH Communities Trust transaction in 2008 and is located approximately one mile from campus. The property was sold at a cap rate of 6.4 percent economic based on in-place rental revenue and trailing-12 operating expenses.

Subsequent to year end, the company executed an interim services agreement for a third-party on-campus development project at Texas A&M University-Corpus Christi. The company expects to commence construction during the second quarter of 2014 although the full scope, fees and construction period have not been finalized.

In December, the company amended and expanded its combined revolver and term loan unsecured credit facility. The amendment included expanding the revolver by $50 million to $500 million and extending the revolver maturity date to March 1, 2018, which may be extended by 12 months at the company’s option. In addition, the company entered into a new $250 million term loan facility II, which matures March 1, 2019. The term loan facility I remains $350 million with maturity in January 2017 and may be extended at American Campus’ option for two 12-month periods. The amended facility has an accordion feature that allows American Campus to expand the new $1.1 billion facility by up to an additional $500 million. The optional extensions and accordion feature are subject to the satisfaction of certain conditions in the facility. Each loan bears interest at a variable rate with spreads reflecting current market terms, which are more favorable than those contained in the prior facility. These borrowing rates float at a margin over LIBOR based on a grid tied to the company’s credit rating. Based on American Campus’ current Baa3/BBB- rating, the all-in LIBOR margin at closing was 155 basis points on the revolving credit facility and 150 basis points on the term loan facilities.

The company did not sell any shares under the ATM Share Offering Program during the fourth quarter.

The company believes that the financial results for the fiscal year ending December 31, 2014 may be affected by, among other factors:

Based upon these factors, management anticipates that fiscal year 2014 FFO will be in the range of $2.31 to $2.39 per fully diluted share and FFOM will be in the range of $2.27 to $2.35 per fully diluted share. For additional details regarding the company’s 2014 outlook, please see pages 22-23 of the Supplemental Analyst Package 4Q 2013. All guidance is based on the current expectations and judgment of the company’s management team.

A reconciliation of the range provided for projected net income to projected FFO and FFOM for the fiscal year ending December 31, 2014 is included in Table 4.

Supplemental financial and operating information, as well as this release, are available in the investor relations section of the American Campus Communities website, www.americancampus.com. In addition, the company will host a conference call to discuss fourth quarter and year end results and the 2014 outlook on Thursday, February 13, 2014 at 11 a.m. EST (10:00 a.m. CST). Participants from within the U.S. may dial 888-317-6003 passcode 6087011, and participants outside the U.S. may dial 412-317-6061 passcode 6087011 at least 10 minutes prior to the call.

To listen to the live broadcast, go to www.americancampus.com at least 15 minutes prior to the call so that required audio software can be downloaded. Informational slides in the form of the supplemental analyst package can be accessed via the website. A replay of the conference call will be available beginning one hour after the end of the call until February 21, 2014 by dialing 877-344-7529 (domestic) or 412-317-0088 (international) conference number 10039054. The replay also will be available for one year at www.americancampus.com. The call will also be available as a podcast on www.REITcafe.com and on the company’s website shortly after the call.

The National Association of Real Estate Investment Trusts ("NAREIT") currently defines Funds from Operations ("FFO") as net income or loss attributable to common shares computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses from depreciable operating property sales, impairment charges and real estate depreciation and amortization, 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. We also believe it is meaningful to present a measure we refer to as FFO-Modified, or FFOM, which reflects certain adjustments related to the economic performance of our on-campus participating properties and excludes other non-cash charges. FFO and FFOM should not be considered as alternatives to net income or 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 are these measures indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.

The company defines property NOI as property revenues less direct property operating expenses, excluding depreciation, but including allocated corporate general and administrative expenses.

American Campus Communities, Inc. is the largest owner and manager of high-quality student housing communities in the United States. The company is a fully integrated, self-managed and self-administered equity real estate investment trust (REIT) with expertise in the design, finance, development, construction management, and operational management of student housing properties. American Campus Communities owns 166 student housing properties containing approximately 101,900 beds. Including its owned and third-party managed properties, ACC’s total managed portfolio consists of 202 properties with approximately 128,000 beds. Visit www.americancampus.com or www.studenthousing.com.

In addition to historical information, this press release contains forward-looking statements under the federal securities law. These statements are based on current expectations, estimates and projections about the industry and markets in which American Campus operates management's beliefs, and assumptions made by management. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.


Table 1
American Campus Communities, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)

	December 31, 2013			December 31, 2012
Assets	(unaudited)

Investments in real estate:
Wholly-owned properties, net	$	5,199,008		$	4,871,376
Wholly-owned property held for sale		14,408			-
On-campus participating properties, net		73,456			57,346
Investments in real estate, net		5,286,872			4,928,722

Cash and cash equivalents		38,751			21,454
Restricted cash		35,451			36,790
Student contracts receivable, net		9,238			14,122
Other assets		227,728			117,874

Total assets	$	5,598,040		$	5,118,962

Liabilities and equity
Liabilities:
Secured mortgage, construction and bond debt	$	1,507,216		$	1,509,105
Secured agency facility		87,750			104,000
Unsecured notes		398,721			-
Unsecured term loans		600,000			350,000
Unsecured revolving credit facility		150,700			258,000
Accounts payable and accrued expenses		65,088			56,046
Other liabilities		110,036			107,223
Total liabilities		2,919,511			2,384,374

Redeemable noncontrolling interests		47,964			57,534

Equity:
American Campus Communities, Inc. and Subsidiaries stockholders’ equity:
Common stock		1,043			1,043
Additional paid in capital		3,017,631			3,001,520
Accumulated earnings and dividends		(392,338	)		(347,521	)
Accumulated other comprehensive loss		(1,435	)		(6,661	)
Total American Campus Communities, Inc. and Subsidiaries stockholders’ equity		2,624,901			2,648,381
Noncontrolling interests – partially owned properties		5,664			28,673
Total equity		2,630,565			2,677,054

Total liabilities and equity	$	5,598,040		$	5,118,962


Table 2
American Campus Communities, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(dollars in thousands, except share and per share data)

	Three Months Ended December 31,							Year Ended December 31,
		2013			2012				2013			2012
Revenues	(unaudited)							(unaudited)
Wholly-owned properties	$	170,599		$	137,303			$	618,503		$	422,417
On-campus participating properties		8,477			8,400				26,348			26,166
Third-party development services		827			1,147				2,483			8,574
Third-party management services		2,089			1,810				7,514			6,893
Resident services		702			623				2,614			1,605
Total revenues		182,694			149,283				657,462			465,655
Operating expenses
Wholly-owned properties¹		74,977			59,230				296,794			200,126
On-campus participating properties		2,595			2,767				11,049			11,073
Third-party development and management services		3,024			2,885				10,810			10,898
General and administrative		4,300			7,205		²		16,666			22,965		²
Depreciation and amortization		47,178			37,682				184,988			110,499
Ground/facility leases		1,653			1,387				5,402			4,248
Total operating expenses		133,727			111,156				525,709			359,809
Operating income		48,967			38,127				131,753			105,846
Nonoperating income and (expenses)
Interest income		840			400				3,005			1,756
Interest expense		(21,664	)		(16,478	)	³		(78,028	)		(54,518	)	³
Amortization of deferred financing costs		(1,474	)		(1,420	)			(5,608	)		(4,425	)
Income from unconsolidated joint ventures		-			-				-			444
Other nonoperating income (expense)		-			397				(2,666	)		411
Total nonoperating expenses		(22,298	)		(17,101	)			(83,297	)		(56,332	)
Income before income taxes and discontinued operations		26,669			21,026				48,456			49,514
Income tax provision		(255	)		(232	)			(1,020	)		(725	)
Income from continuing operations		26,414			20,794				47,436			48,789
Discontinued operations
(Loss) income attributable to discontinued operations		(202	)		1,972				4,824			8,728
Loss from early extinguishment of debt		(332	)		(1,591	)			(332	)		(1,591	)
Gain from disposition of real estate		2,432			4,229				55,263			4,312
Total discontinued operations		1,898			4,610				59,755			11,449
Net income		28,312			25,404				107,191			60,238
Net income attributable to noncontrolling interests		(483	)		(1,749	)			(2,547	)		(3,602	)
Net income attributable to American Campus Communities, Inc. and Subsidiaries	$	27,829		$	23,655			$	104,644		$	56,636
Other comprehensive income (loss)
Change in fair value of interest rate swaps		775			890				5,226			(3,301	)
Comprehensive income	$	28,604		$	24,545			$	109,870		$	53,335
Net income per share attributable to American Campus Communities, Inc. and Subsidiaries common stockholders
Basic	$	0.26		$	0.23			$	0.99		$	0.66
Diluted	$	0.26		$	0.23			$	0.98		$	0.65
Weighted-average common shares outstanding
Basic		104,782,817			100,517,983				104,760,502			84,711,584
Diluted		105,386,079			102,248,249				105,382,320			85,309,451

^1.		Wholly-owned properties operating expenses for the three months and year ended December 31, 2013 include $2.1 million and $2.4 million, respectively, of acquisition-related costs such as broker fees, due diligence costs and legal and accounting fees. Wholly-owned properties operating expenses for the three months and year ended December 31, 2012 include $0.3 million and $1.8 million, respectively, of acquisition-related costs.
^2.		General and administrative expenses for the three months and year ended December 31, 2012 include $2.8 million and $7.5 million, respectively, of acquisition-related costs such as due diligence costs and legal and accounting fees related to portfolio acquisitions in September 2012 and November 2012.
^3.		Interest expense for the three months and year ended December 31, 2012 include $0.2 million and $0.4 million, respectively, of acquisition-related costs associated with bridge loan commitments obtained in connection with our portfolio acquisitions in September 2012 and November 2012.


Table 3
American Campus Communities, Inc. and Subsidiaries
Consolidated Statements of Funds From Operations
(unaudited, dollars in thousands, except share and per share data)

	Three Months Ended December 31,						Year Ended December 31,
		2013			2012			2013			2012
Net income attributable to American Campus Communities, Inc. and Subsidiaries	$	27,829		$	23,655		$	104,644		$	56,636
Noncontrolling interests¹		483			407			1,756			1,205
Gain from disposition of real estate		(2,432	)		(4,229	)		(55,263	)		(4,312	)
Income from unconsolidated joint ventures		-			-			-			(444	)
FFO from unconsolidated joint ventures²		-			-			-			429
Real estate related depreciation and amortization		46,936			38,640			185,640			114,841
Funds from operations (“FFO”)		72,816			58,473			236,777			168,355
Elimination of operations of on-campus participating properties
Net income from on-campus participating properties		(2,729	)		(2,703	)		(3,222	)		(3,238	)
Amortization of investment in on-campus participating properties		(1,203	)		(1,163	)		(4,756	)		(4,644	)
		68,884			54,607			228,799			160,473
Modifications to reflect operational performance of on-campus participating properties
Our share of net cash flow³		760			498			2,207			2,065
Management fees		369			374			1,201			1,188
On-campus participating properties development fees⁴		354			-			1,304			-
Impact of on-campus participating properties		1,483			872			4,712			3,253
Non-cash litigation settlement expense⁵		-			-			2,800			-
Elimination of loss from early extinguishment of debt⁶		332			1,591			332			1,591
Elimination of gain on debt restructuring -
unconsolidated joint venture⁷		-			-			-			(424	)
Loss on remeasurement of equity method investment⁸		-			-			-			122
Funds from operations-modified ("FFOM”)	$	70,699		$	57,070		$	236,643		$	165,015
FFO per share – diluted	$	0.68		$	0.57		$	2.22		$	1.95
FFOM per share – diluted	$	0.66		$	0.56		$	2.22		$	1.91
Weighted average common shares outstanding– diluted		106,728,926			102,362,377			106,654,933			86,375,470
Acquisition–related costs	$	2,102		$	3,327		$	2,447		$	9,647
FFOM (excluding acquisition-related costs)	$	72,801		$	60,397		$	239,090		$	174,662
FFOM per share (excluding acquisition-related costs)	$	0.68		$	0.59		$	2.24		$	2.02

^1.		Excludes $0 and $0.8 million for the three months and year ended December 31, 2013, respectively, and $0.4 million and $1.4 million for the three months and year ended December 31, 2012, respectively, of income attributable to the noncontrolling partner in The Varsity, a property purchased in December 2011 from a seller that retained a 20.5% noncontrolling interest in the property. Effective July 1, 2013, the company acquired the noncontrolling partner’s interest and now owns 100% of the property. Also excludes $1.0 million for both the three months and year ended December 31, 2012, of income attributable to the seller of University Edge, a property subject to a pre-sale arrangement that was consolidated for financial reporting purposes prior to our purchase of the property in December 2012.
^2.		Represents our 10% share of FFO from a joint venture with Fidelity (“Fund II”) in which we were a noncontrolling partner. In January 2012, we purchased the full ownership interest in the one remaining property owned by Fund II (University Heights). Subsequent to the acquisition, the property is now wholly-owned and is consolidated by the company.
^3.		50% of the properties’ net cash available for distribution after payment of operating expenses, debt service (including repayment of principal) and capital expenditures. Represents actual cash received for the year-to-date periods and amounts accrued for the interim periods.
^4.		Represents development and construction management fees related to the West Virginia University on-campus participating property, which is currently under construction and scheduled for completion in August 2014. Although the company is including this project in its consolidated financial statements for accounting purposes, similar to our other on-campus participating properties, we view the economic benefit of such properties as limited to the development/construction management fees, property management fees and the 50% share of net cash flow that we receive. As such, for purposes of calculating FFOM, we are recognizing the fees received for this project similar to other third-party development projects.
^5.		On April 22, 2013, the company acquired a note and subrogation rights from National Public Finance Guarantee Corporation (formerly known as MBIA Insurance Corp. of Illinois) for an aggregate of $52.8 million, which are secured by a lien on, and the cash flows from, two student housing properties in close proximity to the University of Central Florida and currently under a ground lease with the UCF Foundation. The instruments carry an interest rate of 5.123 percent. The acquisition facilitated the settlement of litigation related to a third-party management agreement for the properties with a GMH entity that was acquired by the company’s 2008 merger with GMH. The acquisition resulted in a non-cash settlement charge of $2.8 million to reflect the fair market valuation of the instruments. Management believes it is appropriate to exclude this non-cash charge from FFOM in order to more accurately present the operating results of the company on a comparative basis during the periods presented.
^6.		Represents losses associated with the early pay-off of mortgage loans for University Mills in connection with the sale of the property in November 2013 and Brookstone Village and Campus Walk in connection with the sale of those properties in October 2012. Such costs are excluded from gains from disposition of real estate reported in accordance with GAAP. However, we view the losses from early extinguishment of debt associated with the sales of real estate as an incremental cost of the sale transactions because we extinguished the debt in connection with the consummation of the sale transactions and we had no intent to extinguish the debt absent such transactions. We believe that adjusting FFO to exclude these losses more appropriately reflects the results of our operations exclusive of the impact of our disposition transactions.
^7.		In connection with our purchase of University Heights from Fund II (see Note 2), Fund II negotiated a Settlement Agreement with the lender of the property’s mortgage loan whereby the lender agreed to accept a discounted amount that was less than the original principal amount of the loan as payment in full. Accordingly, Fund II recorded a gain on debt restructuring to reflect the discounted payoff. Our 10% share of such gain is reflected above as an adjustment to FFOM.
^8.		Represents a non-cash loss recorded to remeasure our equity method investment in Fund II to fair value as a result of our purchase of the full ownership interest in University Heights from Fund II in January 2012.


Table 4
American Campus Communities, Inc. and Subsidiaries
2014 Outlook
(dollars in thousands, except share and per share data)

	Low			High
Net income	$	51,500		$	59,800
Noncontrolling interests		625			725
Depreciation and amortization		195,300			195,300
Funds from operations (“FFO”)		247,425			255,825

Elimination of operations from on-campus participating properties		(9,400	)		(9,600	)
Modifications to reflect operational performance of on-campus participating properties		4,500			4,900
Funds from operations – modified (“FFOM”)	$	242,525		$	251,125

Net income per share – diluted	$	0.48		$	0.56

FFO per share – diluted	$	2.31		$	2.39

FFOM per share – diluted	$	2.27		$	2.35

Weighted-average common shares outstanding - diluted		107,050,000			107,050,000