-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MaDMpIaGQAk2ofUMeqmLzfj6N13aCeYL0v5CSNdexoZGOZBsoP+pRLFZHUQmF8AW Rq2H0vrFbl1q6asP3clqNQ== 0001188112-05-001959.txt : 20051114 0001188112-05-001959.hdr.sgml : 20051111 20051114083615 ACCESSION NUMBER: 0001188112-05-001959 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051114 DATE AS OF CHANGE: 20051114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CAMPUS COMMUNITIES INC CENTRAL INDEX KEY: 0001283630 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 760753089 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32265 FILM NUMBER: 051196619 MAIL ADDRESS: STREET 1: 805 LAS CIMAS PARKWAY STREET 2: STE 400 CITY: AUSTIN STATE: TX ZIP: 78746 10-Q 1 t10q-8203.txt 10-Q - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2005. [ ] 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 (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 805 LAS CIMAS PARKWAY, SUITE 400 78746 AUSTIN, TX (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. There were 17,190,000 shares of American Campus Communities, Inc.'s common stock with a par value of $0.01 per share outstanding as of the close of business on November 4, 2005. AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2005 TABLE OF CONTENTS PAGE NO. --------- PART I. Item 1. Consolidated and Combined Financial Statements Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004. 1 Consolidated and Combined Statements of Operations for the Company for the three months ended September 30, 2005 and for the period from August 17, 2004 through September 30, 2004 and for the Predecessor for the period from July 1, 2004 through August 16, 2004 (all unaudited). 2 Consolidated and Combined Statements of Operations for the Company for the nine months ended September 30, 2005 and for the period from August 17, 2004 through September 30, 2004 and for the Predecessor for the period from January 1, 2004 through August 16, 2004 (all unaudited). 3 Consolidated and Combined Statements of Comprehensive Income for the Company for the nine months ended September 30, 2005 and for the period from August 17, 2004 through September 30, 2004 and for the Predecessor for the period from January 1, 2004 through August 16, 2004 (all unaudited). 4 Consolidated and Combined Statements of Cash Flows for the Company for the nine months ended September 30, 2005 and for the period from August 17, 2004 through September 30, 2004 and for the Predecessor for the period from January 1, 2004 through August 16, 2004 (all unaudited). 5 Notes to Consolidated and Combined Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 3. Quantitative and Qualitative Disclosure about Market Risk 41 Item 4. Controls and Procedures 41 PART II. Item 6. Exhibits 41 SIGNATURES 42
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) SEPTEMBER 30, 2005 DECEMBER 31, 2004 ---------------------- --------------------- (UNAUDITED) ASSETS Investments in real estate: Owned off-campus properties, net $ 409,712 $ 250,100 Owned off-campus property - held for sale - 22,350 On-campus participating properties, net 81,750 68,064 ---------------------- --------------------- Investments in real estate, net 491,462 340,514 Cash and cash equivalents 5,879 4,050 Restricted cash and other investments 8,547 9,816 Investments in commercial paper 31,682 - Student contracts receivable, net 2,284 2,164 Other assets 14,615 11,084 ---------------------- --------------------- TOTAL ASSETS $ 554,469 $ 367,628 ====================== ===================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Secured debt $ 291,762 $ 201,014 Accounts payable and accrued expenses 8,564 5,443 Other liabilities 26,275 20,294 ---------------------- --------------------- Total liabilities 326,601 226,751 Minority interests 2,816 2,648 Commitments and contingencies (Note 11) Stockholders' equity: Common stock, $.01 par value, 800,000,000 shares authorized, 17,190,000 and 12,615,000 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively 172 126 Additional paid in capital 231,253 136,259 Accumulated (deficit) earnings and distributions (6,777) 1,802 Accumulated other comprehensive income 404 42 ---------------------- --------------------- Total stockholders' equity 225,052 138,229 ---------------------- --------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 554,469 $ 367,628 ====================== ===================== See accompanying notes to consolidated and combined financial statements.
1
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) COMPANY PREDECESSOR --------------------------------------------- --------------------- THREE MONTHS PERIOD FROM PERIOD FROM ENDED AUGUST 17, 2004 JULY 1, 2004 SEPTEMBER 30, TO TO 2005 SEPTEMBER 30, 2004 AUGUST 16, 2004 ---------------------- ---------------------- --------------------- REVENUES: Owned off-campus properties $ 15,184 $ 4,799 $ 4,145 On-campus participating properties 3,637 2,483 845 Third party development services 1,979 332 178 Third party development services - on-campus participating properties 38 13 14 Third party management services - affiliates - - 19 Third party management services 783 340 176 Resident services 256 114 - ---------------------- ---------------------- --------------------- TOTAL REVENUES 21,877 8,081 5,377 OPERATING EXPENSES: Owned off-campus properties 8,386 2,307 2,947 On-campus participating properties 2,173 431 1,601 Third party development and management services 1,609 718 612 General and administrative 1,534 2,888 24 Depreciation and amortization 4,269 1,335 1,284 Ground/facility leases 245 100 202 ---------------------- ---------------------- --------------------- TOTAL OPERATING EXPENSES 18,216 7,779 6,670 ---------------------- ---------------------- --------------------- OPERATING INCOME (LOSS) 3,661 302 (1,293) NONOPERATING INCOME AND (EXPENSES): Interest income 396 14 18 Interest expense (4,319) (2,006) (2,672) Amortization of deferred financing costs (318) (610) (81) Other nonoperating income - - 371 ---------------------- ---------------------- --------------------- TOTAL NONOPERATING EXPENSES (4,241) (2,602) (2,364) ---------------------- ---------------------- --------------------- Loss before income taxes, minority interests, and discontinued operations (580) (2,300) (3,657) Income tax (provision) benefit (6) 757 - Minority interests (10) 1 85 ---------------------- ---------------------- --------------------- LOSS FROM CONTINUING OPERATIONS (596) (1,542) (3,572) Discontinued operations: Income (loss) attributable to discontinued operations - 4 (98) ---------------------- ---------------------- --------------------- Total discontinued operations - 4 (98) ---------------------- ---------------------- --------------------- NET LOSS $ (596) $ (1,538) $ (3,670) ====================== ====================== ===================== Loss per share - basic: Loss from continuing operations per share $ (0.04) $ (0.13) ====================== ====================== Net loss per share $ (0.04) $ (0.13) ====================== ====================== Loss per share - diluted: Loss from continuing operations per share $ (0.03) $ (0.12) ====================== ====================== Net loss per share $ (0.03) $ (0.12) ====================== ====================== Weighted average common shares outstanding: Basic 17,005,462 12,290,256 ====================== ====================== Diluted 17,126,462 12,411,256 ====================== ====================== Distributions declared per common share $ 0.3375 ====================== See accompanying notes to consolidated and combined financial statements.
2
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) COMPANY PREDECESSOR --------------------------------------------- --------------------- NINE MONTHS PERIOD FROM PERIOD FROM ENDED AUGUST 17, 2004 JANUARY 1, 2004 SEPTEMBER 30, TO TO 2005 SEPTEMBER 30, 2004 AUGUST 16, 2004 ------------------- ---------------------- --------------------- REVENUES: Owned off-campus properties $ 42,437 $ 4,799 $ 19,860 On-campus participating properties 12,263 2,483 9,340 Third party development services 3,882 332 3,896 Third party development services - on-campus participating properties 112 13 497 Third party management services - affiliates - - 178 Third party management services 2,055 340 789 Resident services 676 114 - ------------------- ---------------------- --------------------- TOTAL REVENUES 61,425 8,081 34,560 OPERATING EXPENSES: Owned off-campus properties 20,395 2,307 10,150 On-campus participating properties 6,034 431 5,442 Third party development and management services 4,646 718 3,403 General and administrative 4,823 2,888 1,032 Depreciation and amortization 12,143 1,335 5,815 Ground/facility leases 697 100 564 ------------------- ---------------------- --------------------- TOTAL OPERATING EXPENSES 48,738 7,779 26,406 ------------------- ---------------------- --------------------- OPERATING INCOME 12,687 302 8,154 NONOPERATING INCOME AND (EXPENSES): Interest income 498 14 43 Interest expense (12,761) (2,006) (11,142) Amortization of deferred financing costs (840) (610) (369) Other nonoperating income 430 - 371 ------------------- ---------------------- --------------------- TOTAL NONOPERATING EXPENSES (12,673) (2,602) (11,097) ------------------- ---------------------- --------------------- Income (loss) before income taxes, minority interests, and discontinued operations 14 (2,300) (2,943) Income tax (provision) benefit (6) 757 - Minority interests (85) 1 129 ------------------- ---------------------- --------------------- LOSS FROM CONTINUING OPERATIONS (77) (1,542) (2,814) Discontinued operations: (Loss) income attributable to discontinued operations (2) 4 (288) Gain (loss) from disposition of real estate 5,883 - (39) ------------------- ---------------------- --------------------- Total discontinued operations 5,881 4 (327) ------------------- ---------------------- --------------------- NET INCOME (LOSS) $ 5,804 $ (1,538) $ (3,141) =================== ====================== ===================== (Loss) income per share - basic: Loss from continuing operations per share $ (0.01) $ (0.13) =================== ====================== Net income (loss) per share $ 0.41 $ (0.13) =================== ====================== (Loss) income per share - diluted: Loss from continuing operations per share $ (0.00) $ (0.12) =================== ====================== Net income (loss) per share $ 0.41 $ (0.12) =================== ====================== Weighted average common shares outstanding: Basic 14,100,631 12,290,256 =================== ====================== Diluted 14,263,981 12,411,256 =================== ====================== Distributions declared per common share $ 1.0125 =================== See accompanying notes to consolidated and combined financial statements.
3
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS) (UNAUDITED) COMPANY PREDECESSOR --------------------------------------------- --------------------- NINE MONTHS PERIOD FROM PERIOD FROM ENDED AUGUST 17, 2004 JANUARY 1, 2004 SEPTEMBER 30, TO TO 2005 SEPTEMBER 30, 2004 AUGUST 16, 2004 ------------------- ---------------------- --------------------- Net income (loss) $ 5,804 $ (1,538) $ (3,141) Other comprehensive income: Change in fair value of interest rate swap 362 40 3 Change in fair value of interest rate cap - 45 - ------------------- ---------------------- --------------------- NET COMPREHENSIVE INCOME (LOSS) $ 6,166 $ (1,453) $ (3,138) =================== ====================== ===================== See accompanying notes to consolidated and combined financial statements.
4
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) COMPANY PREDECESSOR -------------------------------------- ------------------ NINE MONTHS PERIOD FROM PERIOD FROM ENDED AUGUST 17, JANUARY 1, SEPTEMBER 30, TO SEPTEMBER 30, TO AUGUST 16, 2005 2004 2004 ---------------- ------------------- ------------------ OPERATING ACTIVITIES Net income (loss) $ 5,804 $ (1,538) $ (3,141) Adjustments to reconcile net income (loss) to net cash provided by operating activities: (Gain) loss from disposition of real estate (5,883) - 39 Minority interests share of income (loss) 85 (1) (129) Depreciation and amortization 12,143 1,487 5,949 Amortization of deferred financing costs and debt premiums 329 702 421 Compensation expense recognized for award of profit interest units - 2,100 - Compensation expense recognized for awards of restricted stock 323 136 - Income tax provision (benefit) 6 (757) - Changes in operating assets and liabilities: Restricted cash and other investments 1,848 6,816 (5,016) Student contracts receivable, net (120) (563) 860 Other assets (1,767) 558 2,321 Accounts payable and accrued expenses 2,777 (6,497) 2,591 Other liabilities 401 3,014 932 ---------------- ------------------- ------------------ Net cash provided by operating activities 15,946 5,457 4,827 ---------------- ------------------- ------------------ INVESTING ACTIVITIES Net proceeds from disposition of real estate 28,023 - - Cash paid for property acquisitions (72,763) - - Investments in owned off-campus properties (39,032) (3,032) (47,900) Investments in on-campus participating properties (16,280) (550) (565) Purchase of furniture, fixtures and equipment (520) (85) (219) Net purchase of investments with secondary offering proceeds (31,682) - - ---------------- ------------------- ------------------ Net cash used in investing activities (132,254) (3,667) (48,684) ---------------- ------------------- ------------------ FINANCING ACTIVITIES Proceeds from revolving credit facility and line of credit, net of paydowns (11,800) 2,305 1,796 Proceeds from bridge/mortgage loan 38,800 - - Proceeds from construction loans 15,135 - 41,170 Principal payments on debt (3,120) (106,970) (1,403) Change in construction accounts payable 694 (7,322) 2,044 Debt issuance costs (2,082) - (1,653) Proceeds from sale of common stock 102,938 220,763 - Offering costs (6,251) (19,380) (1,348) Distributions to common and restricted stockholders (14,383) - - Contributions from Predecessor owners - - 860 Distributions to Predecessor owners (1,671) (450) (2,212) Redemption of ownership interest of Predecessor owners - (85,853) - Distributions to minority partners (123) - (16) ---------------- ------------------- ------------------ Net cash provided by financing activities 118,137 3,093 39,238 ---------------- ------------------- ------------------ Net change in cash and cash equivalents 1,829 4,883 (4,619) Cash and cash equivalents at beginning of period 4,050 608 5,227 ---------------- ------------------- ------------------ Cash and cash equivalents at end of period $ 5,879 $ 5,491 $ 608 ================ =================== ================== SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Change in fair value of derivative instruments, net $ 362 $ 85 $ 3 ================ =================== ================== Loans assumed in connection with property acquisitions $ (47,169) $ - $ - ================ =================== ================== Contribution of land from minority partner in development joint venture $ - $ 1,220 $ - ================ =================== ================== Distribution of assets of The Village at Riverside and other non-core assets to Predecessor owners, net of liabilities $ - $ (13,968) $ - ================ =================== ================== Distribution of liabilities of The Village at Riverside and other non-core assets to Predecessor owners, net of liabilities $ - $ 11,842 $ - ================ =================== ================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 14,282 $ 5,290 $ 9,960 ================ =================== ================== Taxes paid $ 22 $ 67 $ - ================ =================== ================== See accompanying notes to consolidated and combined financial statements.
5 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 1. ORGANIZATION AND DESCRIPTION OF BUSINESS American Campus Communities, Inc. (the "Company") commenced operations as a fully integrated real estate investment trust ("REIT") effective with the completion of its initial public offering (the "IPO") on August 17, 2004. Through the Company's controlling interest in American Campus Communities Operating Partnership, L.P. (the "Operating Partnership"), of which a wholly owned subsidiary of the Company is the sole general partner, and the subsidiaries of the Operating Partnership, including its Taxable REIT Subsidiary, American Campus Communities Services, Inc. (the "TRS"), the Company is one of the largest private 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. The Company was formed to succeed certain businesses of the American Campus Communities Predecessor (the "Predecessor"), which was not a legal entity but rather a combination of real estate entities under common ownership and voting control collectively doing business as American Campus Communities, L.L.C. and Affiliated Student Housing Properties. The Company's Predecessor entities were engaged in the student housing business since 1993. The Company was incorporated in Maryland on March 9, 2004. Additionally, the Operating Partnership was formed and the TRS was incorporated in Maryland on July 14, 2004 and August 17, 2004, respectively, each in anticipation of the IPO. The IPO was consummated on August 17, 2004, concurrent with the consummation of various formation transactions, and consisted of the sale of 12,100,000 shares of the Company's common stock at a price per share of $17.50, generating gross proceeds of approximately $211.8 million. The aggregate proceeds to the Company, net of the underwriters' discount and offering costs, were approximately $189.4 million. In connection with the exercise of the underwriters' over-allotment option on September 15, 2004, the Company issued an additional 515,000 shares of common stock at the IPO price per share, generating an additional $9.0 million of gross proceeds and $8.4 million in net proceeds after the underwriters' discount and offering costs. Also in connection with the IPO formation transactions, the Company used approximately $85.9 million of IPO proceeds to redeem the ownership interests of the Predecessor owners. During the three and nine months ended September 30, 2005, the Company also distributed approximately $-0- and $1.7 million, respectively, to the Predecessor owners related to savings in the budgeted completion cost of three owned off-campus properties that completed construction in the third quarter 2004 and insurance proceeds related to a fire that occurred at an owned off-campus property in 2003. These payments were accounted for as equity distributions. The Company's operations commenced on August 17, 2004 after completion of the IPO and the formation transactions, and are carried on primarily through the Operating Partnership and its subsidiaries, including the TRS. On July 5, 2005, the Company completed a secondary equity offering, consisting of the sale of 4,575,000 shares of the Company's common stock at a price per share of $22.50, including 575,000 shares issued as a result of the exercise of the underwriters' overallotment option in full at closing. The offering generated gross proceeds of $102.9 million. The aggregate proceeds to the Company, net of the underwriters' discount and offering costs, were approximately $96.6 million. As of September 30, 2005, the Company's property portfolio contained 25 student housing properties with approximately 17,100 beds and 5,600 apartment units, consisting of 21 owned off-campus properties that are in close proximities to public colleges and universities and four on-campus participating properties operated under ground/facility leases with the related university systems. The four on-campus participating properties include an additional phase (Phase II) at Cullen Oaks, consisting of 354 beds and 180 units, which was completed in August 2005. These communities contain modern housing units, offer resort-style amenities and are supported by a classic resident assistant system and other student-oriented programming. Through the TRS, the Company provides construction management and development services for student housing properties owned by colleges and universities, charitable foundations, and others. As of September 30, 2005, the Company also provided third party property management and leasing services for 18 student housing properties (12 of which the Company served as the third party developer and construction manager) that represented approximately 10,600 beds in approximately 4,200 units. Third party management and leasing services are typically provided pursuant to multi-year management contracts that have initial terms that range from two to five years. As of September 30, 2005, the Company's total owned and managed portfolio included 43 properties that represented approximately 27,700 beds in approximately 9,800 units. 6 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND COMBINATION The accompanying consolidated financial statements include all of the accounts of the Company, the Operating Partnership and the subsidiaries of the Operating Partnership. Ownership interests contributed to the Operating Partnership by the Predecessor entities have been accounted for as a reorganization of entities under common control in a manner similar to a pooling-of-interests. Accordingly, the contributed assets and assumed liabilities were recorded at the Predecessor's historical cost basis. This method of accounting also requires the reporting of results of operations for the period in which the reorganization occurred as though the entities had been combined at either the beginning of the period or inception. The reorganization did not require any material adjustments to conform to the accounting policies of the separate entities. The historical financial data prior to August 17, 2004 presented in this report is the historical data for the Predecessor and reflects the combined historical results of operations and financial position of the Predecessor including the operations of The Village at Riverside and certain other non-core assets which were distributed to the Predecessor owners as a part of the formation transactions. As a result, the historical results of operations and financial position prior to the IPO are not indicative of, or in some instances directly comparable to, the Company's results of operations and financial position after the IPO. The Company consolidates entities in which it has an ownership interest and over which it exercises significant control over major operating decisions, such as budgeting, investment and financing decisions. The real estate entities included in the consolidated and combined financial statements have been consolidated or combined only for the periods that such entities were under control by the Company or the Predecessor. All significant intercompany balances and transactions have been eliminated in consolidation or combination. INTERIM FINANCIAL STATEMENTS The accompanying interim financial statements are unaudited, but have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Because of the seasonal nature of the Company's operations, the results of operations and cash flows for any interim period are not necessarily indicative of results for other interim periods or for the full year. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2004. All dollar amounts in the tables herein, except share and per share amounts, are stated in thousands unless otherwise indicated. 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 25-34 years (shorter of useful participating properties life or respective lease term) Furniture, fixtures and equipment 3-7 years 7 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS The cost of buildings and improvements includes the purchase price of the property, including legal fees and acquisition costs. Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred finance costs, are capitalized as construction in progress. Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences. Interest totaling approximately $0.6 million and $0.5 million was capitalized during the three months ended September 30, 2005 and 2004, respectively, and $1.4 million and $1.7 million was capitalized during the nine months ended September 30, 2005 and 2004, respectively. Amortization of deferred financing costs totaling approximately $38,000 and $33,000 was capitalized during the three months ended September 30, 2005 and 2004, respectively, and $0.1 million and $0.2 million was capitalized during the nine months ended September 30, 2005 and 2004, respectively. Management assesses whether there has been an impairment in the value of the Company's investments in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized when estimated expected future cash flows (undiscounted and before interest charges) are less than the carrying value of the property. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions. If such conditions change, then an adjustment to the carrying value of the Company's long-lived assets could occur in the future period in which the conditions change. To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings. The Company believes that there were no impairments of the carrying values of its investments in real estate as of September 30, 2005. The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values in accordance with Statement of Financial Accounting Standard ("SFAS") No. 141, BUSINESS COMBINATIONS. Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. Information obtained about each property as a result of due diligence, marketing and leasing activities is also considered. The value of in-place leases is based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued "as-if" vacant. As lease terms are typically one year or less, rates on in-place leases generally approximate market rental rates. Factors considered in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current market conditions, nature of the tenancy, and costs to execute similar leases. Carrying costs include estimates of lost rentals at market rates during the expected lease-up period, as well as marketing and other operating expenses. The value of in-place leases is amortized over the remaining initial term of the respective leases, generally less than one year. The purchase price of property acquisitions is not expected to be allocated to tenant relationships, considering the terms of the leases and the expected levels of renewals. The Company's allocation of purchase price is contingent upon the final true-up of certain prorations. INVESTMENTS IN COMMERCIAL PAPER The Company accounts for its investments in commercial paper in accordance with SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. The Company has the positive intent and ability to hold the investments to maturity and, accordingly, has classified them as held-to-maturity and reported them at amortized cost on the accompanying consolidated balance sheet. The contractual maturities of these investments in commercial paper range from one week to three months. As of September, 30, 2005, the amortized cost of the Company's investments in commercial paper was approximately $31.7 million. As of September 30, 2005, the estimated fair value of the investments was approximately $31.7 million with an immaterial gross unrealized loss. The Company did not own any held-to-maturity investments as of December 31, 2004. DEBT PREMIUMS Debt premiums represent the excess of the estimated fair value of debt over the principal value of debt assumed in connection with the Company's property acquisitions. The debt premiums are being amortized as an offset to interest expense over the term of the related loans using the effective-interest method. As of September 30, 2005 and December 31, 2004, net unamortized debt premiums were $4.6 million and $-0-, respectively, and are included in secured debt on the accompanying consolidated balance sheets. 8 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS STOCK-BASED COMPENSATION The Company accounts for equity based awards in accordance with SFAS No. 123 (R), SHARE-BASED PAYMENT. Although public companies are not required to adopt this statement until the first annual period beginning after September 15, 2005, the Company chose to adopt this statement in the first quarter of 2005. Accordingly, the Company has recognized compensation expense related to certain restricted stock awards (see Note 9) over the underlying vesting periods. The adoption of this statement did not have a material impact on the Company's consolidated or combined financial position or results of operations and did not require any cumulative adjustments to previously reported results. INCOME TAXES The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its stockholders. As a REIT, the Company will generally not be subject to corporate level federal income tax on taxable income it currently distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for the subsequent four taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local income and excise taxes on its income and property, and to federal income and excise taxes on its undistributed income. The TRS manages the Company's non-REIT activities and is subject to federal, state and local income taxes. OTHER NONOPERATING INCOME Other nonoperating income of approximately $0.4 million for the nine months ended September 30, 2005 represents a gain recognized related to insurance proceeds received for a fire that occurred at one of the Company's owned off-campus properties in 2003. Other nonoperating income of approximately $0.4 million for the nine months ended September 30, 2004 represents a gain recognized related to insurance proceeds received for hail damage that occurred at one of the Company's on-campus participating properties in 2003. INCOME (LOSS) PER SHARE Basic income (loss) per share is computed using net income (loss) and the weighted average number of shares of the Company's common stock outstanding during the period, including restricted stock units ("RSUs") issued to outside directors. Diluted income (loss) per share reflects weighted average common shares issuable from the assumed conversion of restricted stock awards ("RSAs") granted and common units of limited partnership interest in the Operating Partnership (formerly PIUs). See Note 9 for a discussion of RSUs, common units, and RSAs. 9 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS The following is a summary of the elements used in calculating basic and diluted income (loss) per share:
THREE MONTHS NINE MONTHS PERIOD FROM ENDED ENDED AUGUST 17,2004 TO SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2005 2004 -------------------- ----------------- --------------------- Basic net (loss) income per share calculation: Loss from continuing operations $ (596) $ (77) $ (1,542) Discontinued operations - 5,881 4 -------------------- ----------------- --------------------- Net (loss) income $ (596) $ 5,804 $ (1,538) ==================== ================= ===================== Loss from continuing operations - per share $ (0.04) $ (0.01) $ (0.13) ==================== ================= ===================== Income from discontinued operations - per share $ - $ 0.42 $ - ==================== ================= ===================== Net (loss) income - per share $ (0.04) $ 0.41 $ (0.13) ==================== ================= ===================== Basic weighted average common shares outstanding 17,005,462 14,100,631 12,290,256 ==================== ================= ===================== Diluted net (loss) income per share calculation: Loss from continuing operations $ (596) $ (77) $ (1,542) (Loss) income allocated to PIU holders (1) 74 (1) -------------------- ----------------- --------------------- Loss from continuing operations, as adjusted (597) (3) (1,543) Discontinued operations - 5,881 4 -------------------- ----------------- --------------------- Net (loss) income, as adjusted $ (597) $ 5,878 $ (1,539) ==================== ================= ===================== Loss from continuing operations - per share $ (0.03) $ (0.00) $ (0.12) ==================== ================= ===================== Income from discontinued operations - per share $ - $ 0.41 $ - ==================== ================= ===================== Net (loss) income - per share $ (0.03) $ 0.41 $ (0.12) ==================== ================= ===================== Basic weighted average common shares outstanding 17,005,462 14,100,631 12,290,256 Common units/PIUs (1) 121,000 121,000 121,000 Restricted stock awards (2) - 42,350 - -------------------- ----------------- --------------------- Diluted weighted average common shares outstanding 17,126,462 14,263,981 12,411,256 ==================== ================= =====================
(1) In connection with the Company's secondary equity offering in July 2005, all PIUs were converted to common units of limited partnership interest in the Operating Partnership, as contemplated in the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (the "OP Agreement"). (2) Weighted average restricted stock awards issued in February 2005 are excluded from diluted weighted average common shares outstanding for the three months ended September 30, 2005 because they would be anti-dilutive due to the Company's loss position in that period. 3. PROPERTY ACQUISITIONS In March 2005, the Company acquired a 396-unit, 1,044-bed off-campus student housing property (The Estates) located near the University of Florida campus in Gainesville, Florida, for a contract purchase price of $47.5 million, not including anticipated capital expenditures and initial integration expenses necessary to bring the property up to the Company's operating standards. The Company also incurred an additional $0.5 million in closing costs and other external acquisition costs related to this acquisition. In addition, as discussed in Note 8, the Company entered into a bridge loan in the amount of $37.4 million in connection with this acquisition. In March 2005, the Company acquired a 136-unit, 418-bed off-campus student housing property (City Parc at Fry Street) located near the University of North Texas in Denton, Texas, for a contract purchase price of $19.2 million, not including anticipated capital expenditures and initial integration expenses necessary to bring the property up to the Company's operating standards. The Company also incurred an additional $0.1 million in closing costs and other external acquisition costs related to this acquisition. In addition, as discussed in Note 8, the Company assumed fixed rate mortgage debt with an outstanding principal balance of approximately $11.8 million in connection with this acquisition. 10 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS In February 2005, the Company acquired a five-property portfolio (the "Proctor Portfolio") for a contract purchase price of approximately $53.5 million, not including anticipated capital expenditures and initial integration expenses necessary to bring the properties up to the Company's operating standards. Four of the properties are located in Tallahassee, Florida and one property is located in Gainesville, Florida. These five communities total 53 buildings, 446 units, and 1,656 beds. The Company also incurred an additional $0.3 million in closing costs and other external acquisition costs related to this acquisition. In addition, as discussed in Note 8, the Company assumed fixed rate mortgage debt with an outstanding principal balance of approximately $35.4 million in connection with this acquisition. The acquired properties' results of operations have been included in the accompanying consolidated statements of operations since their respective acquisition closing dates. The following pro forma information for the three and nine months ended September 30, 2005 and 2004 presents consolidated and combined information for the Company and the Predecessor, respectively, as if the property acquisitions and IPO discussed above had occurred at the beginning of the earliest period presented. The pro forma information is provided for informational purposes only and is not indicative of results that would have occurred or which may occur in the future:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, --------------------------------- --------------------------------- 2005 2004 2005 2004 -------------- -------------- -------------- -------------- Total revenues $ 21,877 $ 17,498 $ 64,209 $ 54,062 Net (loss) income $ (358) $ (5,202) $ 7,016 $ (5,057) Net (loss) income per share - basic $ (0.09) $ (0.41) $ 0.50 $ (0.40) Net (loss) income per share - diluted $ (0.08) $ (0.41) $ 0.50 $ (0.40)
4. PROPERTY DISPOSITION AND DISCONTINUED OPERATIONS In November 2004, California State University - San Bernardino exercised its option to purchase from the Company the University Village at San Bernardino off-campus student housing property for an aggregate purchase price of approximately $28.3 million. In accordance with the provision of SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, this property is reflected as Owned Off-Campus Property - Held for Sale as of December 31, 2004. This transaction was consummated in January 2005, resulting in net proceeds of approximately $28.1 million. The resulting gain on disposition of approximately $5.9 million is included in discontinued operations in the accompanying consolidated statement of operations for the nine months ended September 30, 2005. Discontinued operations for the three and nine months ended September 30, 2004 includes University Village at San Bernardino, which was sold in January 2005, The Village at Riverside and certain other non-core assets that were distributed to an affiliate of the Company's Predecessor owners in connection with the IPO, and the Company's leasehold interest in Coyote Village, which was transferred to Weatherford College in April 2004, as contemplated in the structuring of the related ground lease agreement. The related net income or loss for the afore-mentioned properties is reflected in the accompanying consolidated and combined statements of operations as discontinued operations for the periods presented in accordance with SFAS No. 144. Below is a summary of the results of operations for the properties sold or distributed through their respective sale or distribution dates:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, --------------------------------- --------------------------------- 2005 2004 2005 2004 -------------- -------------- -------------- -------------- Total revenues $ - $ 513 $ 29 $ 1,833 Total operating expenses - (406) (31) (1,360) -------------- -------------- -------------- -------------- Operating income (loss) - 107 (2) 473 Total nonoperating expenses - (201) - (757) -------------- -------------- -------------- -------------- Net loss $ - $ (94) $ (2) $ (284) ============== ============== ============== ==============
11 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS As of September 30, 2005 and December 31, 2004, assets and liabilities attributable to the properties held for sale consisted of the following:
SEPTEMBER 30, 2005 DECEMBER 31, 2004 ---------------------- --------------------- Cash and cash equivalents $ - $ 176 ====================== ===================== Other assets $ - $ 119 ====================== ===================== Land, buildings and improvements, and furniture, fixtures, and equipment, net of accumulated depreciation $ - $ 22,350 ====================== ===================== Accounts payable and accrued expenses $ - $ 126 ====================== ===================== Other liabilities $ - $ 311 ====================== =====================
5. INVESTMENTS IN OWNED OFF-CAMPUS PROPERTIES As of September 30, 2005, the Company's owned off-campus property portfolio included 21 properties that are in close proximities to public colleges and universities, including two projects currently under development that are scheduled to open for occupancy in Fall 2006 and Fall 2007. Owned off-campus properties consisted of the following:
SEPTEMBER 30, 2005 DECEMBER 31, 2004 ---------------------- --------------------- Owned off-campus properties: Land $ 52,018 $ 33,778 Buildings and improvements 362,551 219,841 Furniture, fixtures and equipment 17,783 10,104 Construction in progress 8,107 9,087 ---------------------- --------------------- 440,459 272,810 Less accumulated depreciation (30,747) (22,710) ---------------------- --------------------- Owned off-campus properties, net $ 409,712 $ 250,100 ====================== =====================
6. ON-CAMPUS PARTICIPATING PROPERTIES The Company is a party to ground/facility lease agreements ("Leases") with certain state university systems and colleges (each, a "Lessor") for the purpose of developing, constructing, and operating student housing facilities on university campuses. Under the terms of the Leases, title to the constructed facilities is held by the applicable Lessor and such Lessor receives a de minimus base rent paid at inception and 50% of defined net cash flows on an annual basis through the term of the lease. The Leases terminate upon the earlier to occur of the final repayment of the related debt, the amortization period of which is contractually stipulated, or the end of the lease term. Pursuant to the Leases, in the event the leasehold estates do not achieve Financial Break Even (defined as revenues less operating expenses, excluding management fees, less debt service), the applicable Lessor would be required to make a rental payment, also known as the Contingent Payment, sufficient to achieve Financial Break Even. The Contingent Payment provision remains in effect until such time as any financing placed on the facilities would receive an investment grade rating without the Contingent Payment provision. In the event that the Lessor is required to make a Contingent Payment, future net cash flow distributions would be first applied to repay such Contingent Payments and then to unpaid management fees prior to normal distributions. Beginning in November 1999 and December 2002, as a result of the debt financing on the facilities achieving investment grade ratings without the Contingent Payment provision, the Texas A&M University System is no longer required to make Contingent Payments under either the Prairie View A&M University Village or University College Leases. In July 2005, Texas A&M International University made a Contingent Payment to achieve Financial Break Even under the Texas A&M International University lease. The Contingent Payment obligation continues to be in effect for the Texas A&M International University and University of Houston leases. In the event the Company seeks to sell its leasehold interest, the Leases provide the applicable Lessor the right of first refusal of a bona fide purchase offer and an option to purchase the lessee's rights under the applicable Lease. In conjunction with the execution of each Lease, the Company has entered into separate five-year agreements to manage the related facilities for 5% of defined gross receipts. The five-year terms of the management agreements are not contingent upon the continuation of the Leases. Upon expiration of the initial five year terms, the agreements continue on a month-to-month basis. 12 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS On-campus participating properties are as follows:
HISTORICAL COST ----------------------------------------- LEASE REQUIRED DEBT LESSOR/UNIVERSITY COMMENCEMENT REPAYMENT (1) SEPTEMBER 30, 2005 DECEMBER 31, 2004 - ------------------------------------------ ------------------ ------------------ -------------------- ------------------- Texas A&M University System/Prairie View A&M University (2) 2/1/96 9/1/23 $ 38,026 $ 37,840 Texas A&M University System/Texas A&M International 2/1/96 9/1/23 5,914 5,909 Texas A&M University System/Prairie View A&M University (3) 10/1/99 8/31/25 / 8/31/28 23,766 23,663 University of Houston System/University of Houston - (4) 9/27/00 8/31/35 35,024 18,958 -------------------- ------------------- 102,730 86,370 Less accumulated amortization (20,980) (18,306) -------------------- ------------------- On-campus participating properties, net $ 81,750 $ 68,064 ==================== ===================
(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. 7. JOINT VENTURES AND MINORITY INTERESTS In August 2004, the Operating Partnership formed a limited liability company, 1772 Sweet Home Road, LLC ("Sweet Home LLC"), with a local landowner to develop and own an off-campus student housing property located in Buffalo, New York. The community consists of nine residential buildings containing 269 units and 828 beds and was completed in August 2005 in connection with the commencement of the 2005/2006 academic year at State University of New York - Buffalo. Upon the formation of Sweet Home LLC, an affiliate of the Operating Partnership (the "Managing Member") caused Sweet Home LLC to admit the local landowner (which was a partner in the selling partnership) as a non-managing member of Sweet Home LLC as partial consideration for the land. In addition, the Managing Member funded all remaining development and construction costs of the project. A subsidiary of the TRS served as developer and construction manager of the project. Each member receives a return on its investment and participates in additional returns, as defined in Sweet Home LLC's operating agreement. This entity is consolidated and the non-managing member's equity interest in and share of the net income of Sweet Home LLC is reflected as a minority interest in the accompanying consolidated balance sheets and statements of operations, respectively. In August 2005, an affiliate of the Operating Partnership executed an amended and restated limited liability company agreement for Village at Newark Urban Renewal LLC ("Newark LLC") with Titan Investments V, LLC ("Titan"), an affiliate of a joint venture partner with whom the Predecessor had previously developed student housing communities. The purpose of Newark LLC is to ground lease, develop and operate an off-campus student housing property located in Newark, New Jersey. The community will consist of two residential buildings containing at least 221 units and 812 beds and is scheduled to open for occupancy in Fall 2007. An affiliate of the Operating Partnership is the managing member of Newark LLC and Titan is the non-managing member. The managing member receives a return on its investment and both members participate in additional returns, as defined in Newark LLC's limited liability company agreement. This entity is consolidated. As of September 30, 2005, Titan has made no capital contributions to the joint venture. Titan's interest in Newark LLC will be reflected as a minority interest in the accompanying consolidated financial statements. In connection with the IPO, a wholly-owned subsidiary of the Company acquired Titan Investments II, which held a minority ownership in three development properties and one operating property, in exchange for approximately $5.7 million in cash. One of these properties was sold in January 2005 (see Note 4). The three remaining properties are now wholly owned by the Operating Partnership. This transaction was accounted for using the purchase method and the purchase price was allocated to the assets and liabilities acquired based on their respective estimated fair values. 13 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Minority interests also include common units held by current and former executive and senior officers in the Operating Partnership. These interests were granted to such employees on the IPO date in the form of Profits Interest Units ("PIUs") (see Note 9). In connection with the Company's secondary equity offering that was consummated on July 5, 2005, the PIUs were converted to common units of limited partnership interest in the Operating Partnership, as contemplated in the OP Agreement. 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. The unitholders' minority interest in the Operating Partnership is reported at an amount equal to their ownership percentage of the net equity of the Operating Partnership at the end of each reporting period (0.7% at September 30, 2005.) 8. DEBT A summary of the Company's outstanding consolidated indebtedness, including unamortized debt premiums, is as follows:
SEPTEMBER 30, 2005 DECEMBER 31, 2004 ------------------------ ----------------------- Debt secured by owned off-campus properties: Mortgage loans $ 196,456 $ 111,974 Debt secured by on-campus participating properties: Mortgage loan payable 16,853 17,045 Construction loan payable 15,675 540 Bonds payable 58,215 59,655 ------------------------ ----------------------- 287,199 189,214 Revolving credit facility - 11,800 Unamortized debt premiums 4,563 - ------------------------ ----------------------- Total debt $ 291,762 $ 201,014 ======================== =======================
LOANS ASSUMED OR ENTERED INTO IN CONJUNCTION WITH PROPERTY ACQUISITIONS In connection with the March 2005 acquisition of The Estates, an off-campus student housing property, the Company entered into a bridge loan in the amount of $37.4 million. The bridge loan bore interest at a fixed rate of 5.1% through the initial maturity date of September 2005. In May 2005, the Company amended the bridge loan. The amended loan is a mortgage facility with a total principal amount of $38.8 million, bearing interest at a fixed rate of 5.2% and maturing in June 2015. In connection with this amendment, the Company received approximately $1.3 million of additional proceeds, after the payment of related financing costs. In connection with the March 2005 acquisition of City Parc at Fry Street, an off-campus student housing property, the Company assumed approximately $11.8 million of fixed-rate mortgage debt. The debt bears interest at 5.96% and matures in 2014. Upon assumption of this debt, the Company recorded a debt premium of approximately $0.6 million to reflect the estimated fair value of the debt assumed. In connection with the February 2005 acquisition of the Proctor Portfolio, the Company assumed approximately $35.4 million of fixed-rate mortgage debt. At the time of assumption, the debt had a weighted average interest rate of 7.4% and an average term to maturity of 6 years. Upon assumption of this debt, the Company recorded debt premiums of approximately $4.5 million to reflect the estimated fair value of the debt assumed. The above mortgage loans are secured by the related properties. REVOLVING CREDIT FACILITY On June 17, 2005, the Operating Partnership amended its $75 million revolving credit facility to increase the size of the facility to $100 million. The amended facility may be expanded by up to an additional $100 million upon the satisfaction of certain conditions. In addition, the facility was converted from a secured facility to an unsecured facility. The maturity date of the facility remains at August 2007 and the Company continues to guarantee the Operating Partnership's obligations under the facility. 14 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Availability under the revolving credit facility is limited to an "aggregate borrowing base amount" equal to the lesser of (i) 65% of the value of certain properties, calculated as set forth in the credit facility, and (ii) the adjusted net operating income from these properties divided by a formula amount. The facility bears interest at a variable rate, at the Company's option, based upon a base rate or one-, two-, three-, or six-month LIBOR plus, in each case, a spread based upon the Company's total leverage. Additionally, the Company is required to pay an unused commitment fee ranging from 0.15% to 0.20% per annum, depending on the aggregate unused balance. In July 2005, the Company paid off the entire balance on the revolving credit facility using proceeds from its secondary equity offering. As of September 30, 2005, the total availability under the facility (subject to certain financial covenants) totaled approximately $89.4 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) for interest expense and fixed charges. Before June 30, 2006, the Company may not pay distributions that exceed 100% of funds from operations for any four consecutive quarters. After June 30, 2006, the Company may not pay distributions that exceed 95% of funds from operations for any four consecutive quarters. The financial covenants also include consolidated net worth and leverage ratio tests. As of September 30, 2005, the Company was in compliance with all such covenants. 9. INCENTIVE AWARD PLAN The Company has adopted the 2004 Incentive Award Plan (the "Plan"). The Plan provides for the grant to selected employees and directors of the Company and the Company's affiliates of stock options, profits interest units ("PIUs") in the Operating Partnership, restricted stock, and other stock-based incentive awards. The Company has reserved a total of 1,210,000 shares of the Company's common stock for issuance pursuant to the Plan, subject to certain adjustments for changes in the Company's capital structure, as defined in the Plan. As of September 30, 2005 and December 31, 2004, the Company has issued or granted the following stock-based incentive awards under the Plan:
SEPTEMBER 30, 2005 DECEMBER 31, 2004 ------------------------ ----------------------- Common Units/PIUs (1) 121,000 121,000 Restricted Stock Units ("RSUs") 14,375 7,145 Restricted Stock Awards ("RSAs") (2) 46,216 - Outperformance bonus plan 367,682 367,682 ------------------------ ----------------------- Total shares issued under the Plan 549,273 495,827 ======================== =======================
(1) In connection with the Company's secondary equity offering in July 2005, all PIUs were converted to common units of limited partnership interest in the Operating Partnership, as contemplated in the OP Agreement. (2) On February 16, 2005, the Company granted RSAs to its executive officers and certain employees that vest in equal annual installments over five years (for executive officers) or three years (for all other employees). Unvested awards are forfeited upon the termination of an individual's employment with the Company. In accordance with SFAS No. 123(R), the Company recognizes the value of these awards as an expense over the vesting periods, which amounted to approximately $0.1 million and $0.2 million during the three and nine months ended September 30, 2005, respectively. Recipients of RSAs receive dividends, as declared by the Company's Board of Directors, on unvested shares, provided that the recipients continue to be employees of the Company. 10. INTEREST RATE HEDGES In connection with the December 2003 extension of a construction note payable for Cullen Oaks, an on-campus participating property, the Predecessor entered into an interest rate swap on November 19, 2003 (effective December 15, 2003 through November 15, 2008) that was designated to hedge its exposure to fluctuations on interest payments attributed to changes in interest rates associated with payments on its advancing construction note payable. Under the terms of the interest rate swap agreement, the Company pays a fixed rate of 5.5% and receives a floating rate of LIBOR plus 1.9%. The interest rate swap had an estimated fair value of approximately $0.4 million and $40,000 at September 30, 2005 and December 31, 2004, respectively, and is reflected in other assets in the accompanying consolidated balance sheets. 15 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS The Company does not expect to reclassify a material amount of net gains on hedge instruments from accumulated other comprehensive income to earnings in 2005. Ineffectiveness resulting from the Company's hedges is not material. 11. COMMITMENTS AND CONTINGENCIES COMMITMENTS DEVELOPMENT-RELATED GUARANTEES: The Company commonly provides alternate housing and project cost guarantees, subject to force majeure. These guarantees are typically limited, on an aggregate basis, to the amount of the projects' related development fees or a contractually agreed-upon maximum exposure amount. Alternate housing guarantees typically expire five days after construction is complete and generally require the Company to provide substitute living quarters and transportation for students to and from the university if the project is not complete by an agreed-upon completion date. Project cost guarantees hold the Company responsible for the cost of a project in excess of an approved budget. The budget consists primarily of costs included in the general contractors' guaranteed maximum price contract ("GMP"). In most cases, the GMP obligates the general contractor, subject to force majeure and approved change orders, to provide completion date guarantees and to cover cost overruns and liquidated damages. In addition, the GMP is typically secured with payment and performance bonds. Project cost guarantees expire upon completion of certain developer obligations, which are normally satisfied within one year after completion of the project. The Company's estimated maximum exposure amount under the above guarantees is approximately $3.5 million. On one completed project, the Company has guaranteed losses up to $3.0 million in excess of the development fee if the loss is due to any failure of the Company to maintain, or cause its professionals to maintain, required insurance for a period of five years after completion of the project (August 2009). At September 30, 2005, all projects were anticipated to complete on schedule and within budget. The Company has estimated the fair value of guarantees entered into or modified after December 31, 2002, the effective date of FASB Interpretation No. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS, to be immaterial. In the normal course of business, the Company enters into various development-related purchase commitments with parties that provide development-related goods and services. In the event that the Company was to terminate development services prior to the completion of projects under construction, the Company could potentially be committed to satisfy outstanding purchase orders with such parties. The Company's most significant and common commitments rest with general contractors and furniture suppliers. DEBT-RELATED GUARANTEES: RAP Student Housing Properties, LLC's ("RAP SHP"), an entity wholly owned by the Operating Partnership, limited guaranty of certain obligations of the borrower in connection with the mortgage loan for The Village at Riverside, a property which was retained by the Predecessor owners in connection with the IPO, continues to be in effect. In December 2004, the property was foreclosed upon by the lender. Pursuant to the guaranty, RAP SHP agreed to indemnify the lender against, among other things, the borrower's fraud or misrepresentation, the borrower's failure to maintain insurance, certain environmental matters, and the borrower's criminal acts. As part of the formation transactions, the Predecessor owners have indemnified the Company and its affiliates from and against all claims, costs, expenses, losses and damages incurred by the Company under or in connection with this guaranty. Even if the Company was required to perform under the guaranty, the Predecessor owners would be obligated to reimburse the Company for the amount of such liability under the indemnity. The Company does not expect to incur material exposure under this guarantee. SEPARATION AGREEMENT: Pursuant to a separation agreement with a former executive officer, the Company is required to make periodic payments totaling approximately $0.4 million through June 2006. This amount was charged to expense in May 2005 in connection with the execution of the separation agreement, and is included in general and administrative expenses in the accompanying consolidated statements of operations for the nine months ended September 30, 2005. The remaining amount owed under this agreement is included in other liabilities in the accompanying consolidated balance sheet as of September 30, 2005. 16 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS CONTINGENCIES LITIGATION: In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. While it is not possible to ascertain the ultimate outcome of such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations of the Company. LETTERS OF INTENT: In the ordinary course of the Company's business, the Company enters into letters of intent indicating a willingness to negotiate for acquisitions, dispositions or joint ventures. Such letters of intent are non-binding, and neither party to the letter of intent is obligated to pursue negotiations unless and until a definitive contract is entered into by the parties. Even if definitive contracts are entered into, the letters of intent relating to the acquisition and disposition of real property and resulting contracts generally contemplate that such contracts will provide the acquirer with time to evaluate the property and conduct due diligence, during which periods the acquiror will have the ability to terminate the contracts without penalty or forfeiture of any deposit or earnest money. There can be no assurance that definitive contracts will be entered into with respect to any matter covered by letters of intent or that the Company will consummate any transaction contemplated by any definitive contract. Furthermore, due diligence periods for real property are frequently extended as needed. An acquisition or disposition of real property becomes probable at the time that the due diligence period expires and the definitive contract has not been terminated. The Company is then at risk under a real property acquisition contract, but only to the extent of any earnest money deposits associated with the contract, and is obligated to sell under a real property sales contract. ENVIRONMENTAL MATTERS: The Company is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company's business, assets or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company's results of operations and cash flows. 12. SEGMENTS The Company defines business segments by their distinct customer base and service provided. The Company has identified four reportable segments: Owned Off-Campus Properties, On-Campus Participating Properties, Development Services, and Property Management Services. Management evaluates each segment's performance based on operating income before depreciation, amortization, minority interests and allocation of corporate overhead. Intercompany fees are reflected at the contractually stipulated amounts. 17
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- ---------------------------------- 2005 2004 2005 2004 --------------- --------------- --------------- --------------- OWNED OFF-CAMPUS PROPERTIES Rental revenues $ 15,440 $ 9,058 $ 43,113 $ 24,773 Interest income 2 8 52 17 --------------- --------------- --------------- --------------- Total revenues from external customers 15,442 9,066 43,165 24,790 Operating expenses before depreciation and amortization 8,291 4,941 20,103 12,370 Interest expense 3,290 3,205 9,008 8,915 Insurance gain - - 430 - --------------- --------------- --------------- --------------- Operating income before depreciation and amortization, minority interests and allocation of corporate overhead $ 3,861 $ 920 $ 14,484 $ 3,505 =============== =============== =============== =============== Depreciation and amortization $ 3,250 $ 1,714 $ 9,177 $ 4,588 =============== =============== =============== =============== Capital expenditures $ 13,711 $ 8,707 $ 39,032 $ 50,932 =============== =============== =============== =============== Total segment assets at September 30, $ 426,471 $ 278,128 $ 426,471 $ 278,128 =============== =============== =============== =============== ON-CAMPUS PARTICIPATING PROPERTIES Rental revenues $ 3,637 $ 3,328 $ 12,263 $ 11,823 Interest income 58 24 110 40 --------------- --------------- --------------- --------------- Total revenues from external customers 3,695 3,352 12,373 11,863 Operating expenses before depreciation, amortization, and ground/facility leases 2,006 1,892 5,510 5,395 Ground/facility leases 245 302 697 664 Interest expense 1,403 1,380 4,103 4,121 Insurance gain - 371 - 371 --------------- --------------- --------------- --------------- Operating income before depreciation and amortization, minority interests and allocation of corporate overhead $ 41 $ 149 $ 2,063 $ 2,054 =============== =============== =============== =============== Depreciation and amortization $ 913 $ 950 $ 2,675 $ 2,660 =============== =============== =============== =============== Capital expenditures $ 5,330 $ 927 $ 16,280 $ 1,115 =============== =============== =============== =============== Total segment assets at September 30, $ 92,484 $ 77,775 $ 92,484 $ 77,775 =============== =============== =============== =============== DEVELOPMENT SERVICES Development and construction management fees from external customers $ 2,017 $ 537 $ 3,994 $ 4,738 Intersegment revenues 15 - 173 - --------------- --------------- --------------- --------------- Total revenues 2,032 537 4,167 4,738 Operating expenses 1,057 861 2,929 2,735 --------------- --------------- --------------- --------------- Operating income (loss) before depreciation and amortization, minority interests and allocation of corporate overhead $ 975 $ (324) $ 1,238 $ 2,003 =============== =============== =============== =============== Total segment assets at September 30, $ 2,272 $ 1,642 $ 2,272 $ 1,642 =============== =============== =============== =============== PROPERTY MANAGEMENT SERVICES Property management fees from external customers $ 783 $ 535 $ 2,055 $ 1,307 Intersegment revenues 614 444 1,866 1,359 --------------- --------------- --------------- --------------- Total revenues 1,397 979 3,921 2,666 Operating expenses 501 358 1,367 1,088 --------------- --------------- --------------- --------------- Operating income before depreciation and amortization, minority interests and allocation of corporate overhead $ 896 $ 621 $ 2,554 $ 1,578 =============== =============== =============== =============== Total segment assets at September 30, $ 1,652 $ 1,253 $ 1,652 $ 1,253 =============== =============== =============== =============== RECONCILIATIONS Total segment revenues $ 22,566 $ 13,934 $ 63,626 $ 44,057 Unallocated interest income earned on corporate cash 336 - 336 - Elimination of intersegment revenues (629) (444) (2,039) (1,359) --------------- --------------- --------------- --------------- Total consolidated revenues $ 22,273 $ 13,490 $ 61,923 $ 42,698 =============== =============== =============== =============== Segment operating income before depreciation, amortization, minority interests and allocation of corporate overhead $ 5,773 $ 1,366 $ 20,339 $ 9,140 Depreciation and amortization, including amortization of deferred financing costs 4,587 3,310 12,983 8,129 Net unallocated expenses relating to corporate overhead 1,766 4,013 7,342 6,254 Income tax (provision) benefit (6) 757 (6) 757 Minority interests (10) 86 (85) 130 --------------- --------------- --------------- --------------- Loss from continuing operations $ (596) $ (5,114) $ (77) $ (4,356) =============== =============== =============== =============== Total segment assets $ 522,879 $ 358,798 $ 522,879 $ 358,798 Unallocated corporate assets 31,590 3,352 31,590 3,352 --------------- --------------- --------------- --------------- Total assets $ 554,469 $ 362,150 $ 554,469 $ 362,150 =============== =============== =============== ===============
18 AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 13. SUBSEQUENT EVENTS DISTRIBUTION: On November 10, 2005, the Company declared a distribution per share of $0.3375 which will be paid on December 1, 2005 to all common stockholders of record as of November 21, 2005. At the same time, the Operating Partnership will pay an equivalent amount per unit to holders of common units (see Note 9). 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on management's beliefs and assumptions made by, and information currently available to, management. When used, the words "anticipate," "believe," "expect," "intend," "may," "might," "plan," "estimate," "project," "should," "will," "result" and similar expressions, which do not relate solely to historical matters, are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they were made, to anticipate future results or trends. Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants' financial condition, and competition from other developers, owners and operators of real estate); risks associated with changes in University admission or housing policies; risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; costs of compliance with the Americans with Disabilities Act and other similar laws; potential liability for uninsured losses and environmental contamination; risks associated with our potential failure to qualify as a REIT under the Internal Revenue Code of 1986 (the "Code"), as amended, and possible adverse changes in tax and environmental laws; and risks associated with our dependence on key personnel whose continued service is not guaranteed. The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. OUR COMPANY AND OUR BUSINESS American Campus Communities, Inc. ("us," "we," "our," or "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. 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 September 30, 2005, our property portfolio contained 25 high-quality student housing properties with approximately 17,100 beds and 5,600 apartment units, consisting of 21 off-campus student housing properties within close proximity to public colleges and universities in ten states, and four on-campus participating properties owned through ground/facility leases with the respective university systems. The four on-campus participating properties include an additional phase (Phase II) at Cullen Oaks, consisting of 354 beds and 180 units that was completed in August 2005. These communities contain modern housing units, offer resort-style amenities and are supported by a classic resident assistant system and other student-oriented programming. We also provide third party management and leasing services for 18 student housing properties that represent approximately 10,600 beds in approximately 4,200 units. We provided development and construction management services for 12 of these properties. Our third party management and leasing services are typically provided pursuant to multi-year management contracts that have an initial term that ranges from two to five years. As of September 30, 2005, our total owned and managed portfolio included 43 properties that represented approximately 27,700 beds in approximately 9,800 units. 20 The net operating income of these student housing communities, which is one of the financial measures that we use to evaluate community performance, is affected by the demand and supply dynamics within our markets, which drives our rental rates and occupancy levels and is affected by our ability to control operating costs. Our overall operating performance is also impacted by the general availability and cost of capital and the performance of our newly developed and acquired student housing communities. We create long-term stockholder value by accessing capital on cost effective terms, deploying that capital to develop, redevelop and acquire student housing communities and selling communities when they no longer meet our long-term investment strategy and when market conditions are favorable. THIRD PARTY DEVELOPMENT SERVICES We also provide third party development and construction management services for student housing properties owned by universities, 501(c) 3 foundations and others. We have developed student housing properties for these clients and, a majority of the time, have been retained to manage these properties following their opening. As of September 30, 2005, development fees of approximately $3.7 million remained to be earned by us with respect to contracted third party development projects. The following table provides certain information with respect to third party properties completed in 2005 and those under construction as of September 30, 2005:
RECENTLY COMPLETED PROJECTS PROJECT LOCATION UNITS BEDS TOTAL FEES COMPLETION DATE - --------------------------------- ------------------- ------------ ------------ -------------- -------------------- Cullen Oaks Phase II (1) Houston, TX 180 354 $ 1,117 Aug 2005 Saint Leo University Phase II Saint Leo, FL 87 320 375 Aug 2005 -------------- $ 1,492 ==============
(1) Cullen Oaks Phase II is an on-campus participating property.
CONTRACTED PROJECTS BALANCE TO BE EARNED AND TOTAL FEES EARNED RECOGNIZED IN CONTRACTUAL AND RECOGNIZED 2005 AND SCHEDULED PROJECT LOCATION FEE AMOUNT TO DATE THEREAFTER COMPLETION - ----------------------------- ------------------ ---------------- ---------------- ------------------ -------------- Vista del Campo Phase II Irvine, CA $ 3,500 $ 1,622 $ 1,878 Aug 2006 West Virginia University - Evansdale (1) Morgantown, WV 725 455 270 Aug 2006 Fenn Tower Renovation Cleveland, OH 1,510 576 934 Aug 2006 Cardinal Village Dining Hall Beaumont, TX 110 88 22 Nov 2005 The Inn at Auraria Denver, CO 300 188 112 Aug 2006 West Virginia University - Potomac State (2) Keyser, WV 700 230 470 Aug 2007 ---------------- ---------------- ------------------ Total $ 6,845 $ 3,159 $ 3,686 ================ ================ ==================
(1) Project consists of pre-development and design services which were completed in the third quarter 2005 and construction administration services which are currently in progress. Contractual fee amount is shown net of approximately $0.9 million of costs anticipated to be incurred to complete the project. (2) Project consists of pre-development and design services which are currently in progress and construction administration services which are scheduled to commence in the third quarter of 2006. Contractual fee amount is shown net of approximately $0.5 million of costs anticipated to be incurred to complete the project. 21 In addition to our contracted projects listed above, we have also been selected to provide development and construction management services for the following projects:
AWARDED PROJECTS PROJECT LOCATION ANTICIPATED COMMENCEMENT ESTIMATED FEES - --------------------------------------------- -------------------- ----------------------------- ----------------- Blinn College Brenham, TX Fourth Quarter 2005 $ 650 West Virginia University - Downtown (1) Morgantown, WV Fourth Quarter 2005 650 University of Hawaii - Manoa Honolulu, HI Second or Third Quarter 2006 2,285 University of New Orleans (2) New Orleans, LA Undetermined 1,550 Hope International University (3) Fullerton, CA Undetermined - ----------------- $ 5,135 =================
(1) Project consists of pre-development, design, and construction administration services. Estimated fees are shown net of approximately $0.6 million of costs anticipated to be incurred to complete the project. (2) Hurricane Katrina has caused a delay in the commencement of construction for the third-party development of the University of New Orleans housing project. The University has expressed their commitment to this project moving forward and we are in the process of establishing a definitive timeline. (3) Currently in the strategic planning phase and in the process of determining project size and scope. We believe that the ownership and operation of student housing communities in close proximity to selected colleges and universities present an attractive long-term investment opportunity for our investors. We intend to continue to execute our strategy of identifying existing differentiated, typically highly amenitized, student housing communities or development opportunities in close proximity to university campuses. In addition, our strategy includes identifying properties with high barriers to entry that are projected to experience substantial increases in enrollment and/or are under-serviced in terms of existing on- and/or off-campus student housing. While fee revenue from our third party development/construction management and property management services allows us to develop strong and key relationships with colleges and universities, this area has over time become a smaller portion of our operations due to the continued focus on and growth of our owned property portfolio. Nevertheless, we believe these services continue to provide synergies with respect to our ability to identify, acquire or develop, and successfully operate student housing properties. ACQUISITIONS In February and March 2005, we acquired seven properties totaling 978 units and 3,118 beds located near the campuses of the University of Florida, Florida State University, Florida A&M University, and the University of North Texas, for a total contract purchase price of approximately $120.2 million. In connection with these acquisitions, we assumed or entered into approximately $84.6 million of bridge and mortgage loan indebtedness. DISPOSITION In November 2004, California State University - San Bernardino exercised its option to purchase the University Village at San Bernardino off-campus student housing property for an aggregate purchase price of approximately $28.3 million. This transaction was consummated in January 2005, resulting in net proceeds of approximately $28.1 million. The resulting gain on disposition of approximately $5.9 million is included in discontinued operations in the accompanying consolidated statement of operations for the nine months ended September 30, 2005. 2005/2006 LEASE-UP During the third quarter 2005, we completed the lease-up process for the 2005/2006 academic year. Our owned off-campus portfolio was leased to 98.8% occupancy as of September 30, 2005 at an average monthly rent per occupied bed of $491. This rental rate includes nine-month leases at The Callaway House, which represent all leases at that property, and 10-month leases at The Village on University, which represent approximately 50% of leases at that property. When the effect of these less than 12-month leases is considered on an annualized basis, the average monthly rent per occupied bed is $473. RECENTLY COMPLETED PROJECTS UNIVERSITY VILLAGE AT SWEET HOME: In August 2005, we completed the final stages of construction on this owned off-campus property, which contains 828 beds in 269 units. Total development costs incurred for the project were approximately $36.1 million. 22 CULLEN OAKS PHASE II: In August 2005, we completed the final stages of construction on this additional phase of the Cullen Oaks on-campus participating property, which contains an additional 354 beds in 180 units. Total development costs incurred for the project were approximately $17.0 million. OWNED DEVELOPMENT ACTIVITIES OVERVIEW: As of September 30, 2005, we were in the process of constructing two owned off-campus properties. We anticipate the total development costs relating to these activities to be approximately $110.4 million. As of September 30, 2005, we have incurred development costs of approximately $12.4 million in connection with these properties, with the remaining development costs estimated at approximately $98.0 million. The activities are described below: VILLAGE AT NEWARK: As of September 30, 2005, our Village at Newark owned off-campus property was under construction with total development costs estimated to be approximately $72.9 million. The project is scheduled to open for occupancy in Fall 2007 in connection with the 2007/2008 academic year. As of September 30, 2005, the project was approximately 1% complete, and we anticipate incurring remaining development costs of approximately $70.3 million. Approximately $27.4 million of the project budget will be funded by the Company and the remaining $45.5 million will be funded with a construction loan. CALLAWAY VILLAS: As of September 30, 2005, our Callaway Villas owned off-campus property was under construction with total development costs estimated to be approximately $37.5 million. The project is scheduled to be completed in August 2006 in connection with the 2006/2007 academic year. As of September 30, 2005, the project was approximately 7% complete, and we anticipate incurring remaining development costs of approximately $27.7 million. Approximately $15.7 million of the project budget will be funded by the Company and the remaining $21.8 million will be funded with a construction loan. OUR RECENT FORMATION AS A REIT We were formed to succeed the business of the American Campus Communities Predecessor (the "Predecessor"), which was not a legal entity but rather a combination of real estate entities under common ownership and voting control collectively doing business as American Campus Communities, L.L.C. and Affiliated Student Housing Properties, entities engaged in the student housing business since 1993. Our Company was incorporated in Maryland on March 9, 2004. Additionally, American Campus Communities Operating Partnership, L.P. (the "Operating Partnership") was formed and our taxable REIT subsidiary ("TRS") was incorporated in Maryland on July 14, 2004 and August 17, 2004, respectively, each in anticipation of our initial public offering of common stock (the "IPO"). The IPO was consummated on August 17, 2004, concurrent with the consummation of various formation transactions, and consisted of the sale of 12,100,000 shares of our common stock at a price per share of $17.50, generating gross proceeds of approximately $211.8 million. The aggregate proceeds to our Company, net of the underwriters' discount and offering costs, were approximately $189.4 million. In connection with the exercise of the underwriters' over-allotment option on September 15, 2004, we issued an additional 515,000 shares of common stock at the IPO price per share, generating an additional $9.0 million of gross proceeds and $8.4 million in net proceeds after the underwriters' discount. Our operations commenced on August 17, 2004 after completion of the IPO and the formation transactions, and are conducted substantially through the Operating Partnership and its wholly owned subsidiaries, including the TRS. In connection with the IPO we completed the following formation transactions: |X| Redeemed 100% of the ownership interests of the Predecessor owner in RAP Student Housing Properties L.L.C. ("RAP SHP") for approximately $80.2 million. |X| Acquired the minority ownership interest of Titan Investments II in certain owned off-campus properties in exchange for approximately $5.7 million. |X| Repaid certain construction and permanent indebtedness totaling approximately $105.5 million. |X| Distributed The Village at Riverside and certain other non-core assets to our Predecessor owner (by RAP SHP). As our Predecessor was not a REIT and provided certain services to residents which are impermissible under IRS REIT regulations, in conjunction with the formation of our Company we restructured our operations relative to the provision of these services. Subsequent to the commencement of our operations as a REIT, these resident services have been provided by our TRS, resulting in lower rental revenue and higher resident services revenue. 23 CRITICAL ACCOUNTING POLICIES ALLOCATION OF FAIR VALUE TO ACQUIRED PROPERTIES: The price that we pay to acquire a property is impacted by many factors, including the condition of the buildings and improvements, the occupancy of the building, favorable or unfavorable financing, and numerous other factors. Accordingly, we are required to make subjective assessments to allocate the purchase price paid to acquire investments in real estate among the assets acquired and liabilities assumed based on our estimate of the fair values of such assets and liabilities. This includes, among other items, determining the value of the buildings and improvements, land, in-place tenant leases, and any debt assumed from the seller. Each of these estimates requires a great deal of judgment and some of the estimates involve complex calculations. Our calculation methodology is summarized in Note 2 to our consolidated and combined financial statements contained in Item 1 herein. These allocation assessments have a direct impact on our results of operations because if we were to allocate more value to land there would be no depreciation with respect to such amount or if we were to allocate more value to the buildings as opposed to allocating to the value of in-place tenant leases, this amount would be recognized as an expense over a much longer period of time, since the amounts allocated to buildings are depreciated over the estimated lives of the buildings whereas amounts allocated to in-place tenant leases are amortized over the terms of the leases (generally less than one year). 24 PROPERTY PORTFOLIO As of September 30, 2005, our property portfolio consisted of the following:
YEAR ACQUIRED / PROPERTY DEVELOPED (1) LOCATION PRIMARY UNIVERSITY SERVED UNITS BEDS - ------------------------------------ ------------------ ------------------ ----------------------------- --------- -------- OWNED OFF-CAMPUS PROPERTIES: Arizona State University 1. Commons On Apache 1999 Tempe, AZ Main Campus 111 444 Virginia Polytechnic Institute and State 2. The Village at Blacksburg 2000 Blacksburg, VA University 288 1,056 Arizona State University 3. The Village on University 1999 Tempe, AZ Main Campus 288 918 The University of Georgia- 4. River Club Apartments 1999 Athens, GA Athens 266 794 The University of Georgia- 5. River Walk Townhomes 1999 Athens, GA Athens 100 340 College Station, 6. The Callaway House 2001 TX Texas A&M University 173 538 The University of Central 7. The Village at Alafaya Club 2000 Orlando, FL Florida 228 840 The University of Central 8. The Village at Science Drive 2001 Orlando, FL Florida 192 732 9. University Village at The University of Colorado Boulder Creek 2002 Boulder, CO at Boulder 82 309 California State 10. University Village at Fresno 2004 Fresno, CA University, Fresno 105 406 11. University Village at TU 2004 Philadelphia, PA Temple University 220 749 12. University Village at Sweet State University of New Home (2) 2005 Amherst, NY York - Buffalo 269 828 13. University Club Tallahassee 2005 Tallahassee, FL Florida State University 152 608 14. The Grove at University Club 2005 Tallahassee, FL Florida State University 64 128 15. College Club Tallahassee 2005 Tallahassee, FL Florida A&M University 96 384 16. The Greens at College Club 2005 Tallahassee, FL Florida A&M University 40 160 17. University Club Gainesville 2005 Gainesville, FL University of Florida 94 376 18. City Parc at Fry Street 2005 Denton, TX University of North Texas 136 418 19. The Estates 2005 Gainesville, FL University of Florida 396 1,044 College Station, 20. Callaway Villas (3) 2006 TX Texas A&M University 236 704 Rutgers University, NJIT, 21. Village at Newark (4) 2006 Newark, NJ Essex CCC 221 812 --------- ------- Total owned off campus properties 3,757 12,588 ON-CAMPUS PARTICIPATING PROPERTIES: 22. University Village--PVAMU 1996 / 97 / 98 Prairie View, TX Prairie View A&M University 612 1,920 23. University College--PVAMU 2000 / 03 Prairie View, TX Prairie View A&M University 756 1,470 Texas A&M International 24. University Village--TAMIU 1997 Laredo, TX University 84 252 25. Cullen Oaks - Phase I and II (5) 2001 / 05 Houston, TX The University of Houston 411 879 --------- ------- Total on campus participating properties 1,863 4,521 --------- ------- TOTAL - ALL PROPERTIES 5,620 17,109 ========= =======
(1) As of September 30, 2005, the average age of our operating properties was approximately 5.7 years. (2) Construction was completed and property commenced operations in August 2005. (3) Currently under development - scheduled to open for occupancy in August 2006. (4) Currently under development - scheduled to open for occupancy in Fall 2007. Pending approval from the City of Newark's Central Planning Board, the project's capacity can be increased to 838 beds without modifying the existing building area. (5) Includes an additional phase consisting of 180 units and 354 beds that was completed in August 2005. 25 RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004 The following table presents our results of operations for the three months ended September 30, 2005 and 2004, including the amount and percentage change in these results between the two periods:
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 2005 2004 CHANGE ($) CHANGE (%) -------------- -------------- -------------- -------------- REVENUES: Owned off-campus properties $ 15,184 $ 8,944 $ 6,240 69.8% On-campus participating properties 3,637 3,328 309 9.3% Third party development and management services 2,800 1,072 1,728 161.2% Resident services 256 114 142 124.6% -------------- -------------- -------------- -------------- TOTAL REVENUES 21,877 13,458 8,419 62.6% OPERATING EXPENSES: Owned off-campus properties 8,386 5,254 3,132 59.6% On-campus participating properties 2,173 2,032 141 6.9% Third party development and management services 1,609 1,330 279 21.0% General and administrative 1,534 2,912 (1,378) (47.3%) Depreciation and amortization 4,269 2,619 1,650 63.0% Ground/facility leases 245 302 (57) (18.9%) -------------- -------------- -------------- -------------- TOTAL OPERATING EXPENSES 18,216 14,449 3,767 26.1% -------------- -------------- -------------- -------------- OPERATING INCOME (LOSS) 3,661 (991) 4,652 (469.4%) NONOPERATING INCOME AND (EXPENSES): Interest income 396 32 364 1,137.5% Interest expense (4,319) (4,678) 359 (7.7%) Amortization of deferred financing costs (318) (691) 373 (54.0%) Other nonoperating income - 371 (371) (100.0%) -------------- -------------- -------------- -------------- TOTAL NONOPERATING EXPENSES (4,241) (4,966) 725 (14.6%) -------------- -------------- -------------- -------------- Loss before income taxes, minority interests, and discontinued operations (580) (5,957) 5,377 (90.3%) Income tax (provision) benefit (6) 757 (763) (100.8%) Minority interests (10) 86 (96) (111.6%) -------------- -------------- -------------- -------------- LOSS FROM CONTINUING OPERATIONS (596) (5,114) 4,518 (88.3%) Discontinued operations: Loss attributable to discontinued operations - (94) 94 (100.0%) -------------- -------------- -------------- -------------- Total discontinued operations - (94) 94 (100.0%) -------------- -------------- -------------- -------------- NET LOSS $ (596) $ (5,208) $ 4,612 (88.6%) ============== ============== ============== ==============
OWNED OFF-CAMPUS PROPERTIES OPERATIONS Revenues and operating expenses from our owned off-campus properties increased by $6.2 million and $3.1 million, respectively, for the three months ended September 30, 2005 compared with the same period in 2004. These increases were primarily due to the acquisition of seven properties during the first quarter of 2005, the completion of construction and opening of two properties in August 2004, the completion of construction and opening of one property in August 2005, and higher occupancy at a majority of the same store properties operated during both periods, as described below. NEW PROPERTY OPERATIONS. We acquired seven properties containing 3,118 beds at various times during the first quarter of 2005, located in Florida (Gainesville and Tallahassee) and Denton, Texas. Additionally, in August of 2004 we completed construction of and opened a 406-bed property serving California State University, Fresno and a 749-bed property serving Temple University. We also completed construction of and opened an 828-bed property serving the State University of New York - Buffalo in August 2005. These new properties contributed $6.3 million of additional revenues and $3.2 million of additional operating expenses during the three months ended September 30, 2005 as compared to the three months ended September 30, 2004. SAME STORE PROPERTY OPERATIONS (EXCLUDING NEW PROPERTY ACTIVITY). We had nine properties containing 5,971 beds which were operating during both the three month periods ended September 30, 2005 and 2004. These properties produced revenues of $8.1 million and $8.0 million during the three month periods ended September 30, 2005 and 2004, respectively, an increase of $0.1 million. While average occupancy increased significantly from 89.0% during the third quarter of 2004 to 93.0% during the third quarter of 2005, this growth was tempered by the introduction of 10-month leases at The Village on University, one of our largest properties, in August 2004. Prior to the introduction of 10-month leases at this property, we 26 experienced an even revenue stream throughout the academic year. The introduction of these 10-month leases resulted in a decrease in revenue upon expiration of the leases in summer 2005. As such, the full effect of these expiring leases on our revenue stream is seen during the quarter ended September 30, 2005. Excluding resident services revenues, which are provided through our TRS subsequent to our IPO, these properties produced revenues of $7.8 million during the three months ended September 30, 2005, as compared to $7.9 million for the same period in 2004. This slight decrease was primarily due to the fact that a full quarter of resident services revenues is reflected for the three months ended September 30, 2005, whereas only approximately 1.5 months of resident services revenues are reflected for the three months ended September 30, 2004. This is due to the fact that resident services revenues were not recorded prior to our IPO and the related formation of our TRS, which occurred on August 17, 2004. Future revenues will be dependent on, among other items, our ability to maintain our current leases in effect for the 2005/2006 academic year and our ability to obtain appropriate rental rates and desired occupancy for the 2006/2007 academic year at our various properties during our leasing period, which typically begins in January and ends in August. At our existing properties, operating expenses remained relatively constant at $4.5 million for both the three month periods ended September 30, 2005 and 2004. We anticipate that operating expenses for the full year 2005 will increase slightly as compared with 2004, primarily as a result of expected increases in utility costs, property taxes and general inflation. ON-CAMPUS PARTICIPATING PROPERTIES ("OCPP") OPERATIONS NEW PROPERTY OPERATIONS. In August 2005, we completed construction of and opened an additional phase at our Cullen Oaks property, consisting of 180 units and 354 beds. This added phase contributed approximately $0.2 million of additional revenues and approximately $0.1 million of additional operating expenses during the three months ended September 30, 2005. SAME STORE OCPP OPERATIONS. We had four participating properties containing 4,167 beds which were operating during both the three month periods ended September 30, 2005 and 2004. Revenues from our same-store on-campus participating properties increased by $0.2 million to $3.5 million for the three months ended September 30, 2005, as compared to $3.3 million for the three months ended September 30, 2004. This increase was largely due to increased rental rates and summer conference business. Operating expenses for our same-store on-campus participating properties also remained relatively constant at $2.1 million for the three months ended September 30, 2005 as compared to $2.0 million for the three months ended September 30, 2004. We anticipate that operating expenses for the full year 2005 will increase slightly as compared with 2004 as a result of expected increases in utility costs and general inflation. THIRD PARTY DEVELOPMENT AND MANAGEMENT SERVICES Third party development and management services revenue increased $1.7 million to $2.8 million for the three months ended September 30, 2005 from $1.1 million for the same period in 2004. Both third party development services and third party management services revenues increased in the third quarter of 2005 as compared to the third quarter of 2004. Third party development and management services operating expenses increased $0.3 million to $1.6 million for the three months ended September 30, 2005 from $1.3 million for the same period in 2004. This increase was primarily due to expenses incurred in the third quarter of 2005 in relation to the West Virginia University projects previously discussed. DEVELOPMENT SERVICES. Third party development services revenue for the three months ended September 30, 2005 represented an increase of $1.5 million compared with the same period in 2004. This increase was primarily due to a combination of more projects in progress and a higher percentage of the contractual fees recognized during the three months ended September 30, 2005 as compared to the same period in 2004. This increase was offset by a slightly lower average contractual fee per project during the third quarter of 2005 as compared to the third quarter of 2004. We had eight projects in progress during the three months ended September 30, 2005 with an average contractual fee of $1.1 million compared to the three months ended September 30, 2004 in which we had six projects in progress with an average contractual fee of $1.2 million. In addition, due to the differences in the percentage of construction completed during the periods, of the total contractual fees of the projects in progress during the respective periods, approximately 23.5% was recognized (on a percentage of completion basis) during the three months ended September 30, 2005 compared with approximately 7.0% for the same period in 2004. Development services revenues are dependent on our ability to successfully be awarded such projects, the amount of the contractual fee related to the project and the timing and completion of the construction of the project. In addition, to the extent projects are completed under budget, the Company may be entitled to a portion of such savings, which are recognized as revenue upon third party verification of the project costs. It is possible that projects for which we have expended 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. 27 MANAGEMENT SERVICES. Third party management revenues increased $0.2 million for the three months ended September 30, 2005 compared with the same period in 2004. The increase was due to a full quarter of revenues earned during the three months ended September 30, 2005 related to new management contracts that commenced in Fall 2004. We expect third party property management revenues to continue to increase throughout the remainder of 2005 as compared with 2004, primarily as a result of a full year of fees on the new contracts that commenced in Fall 2004. RESIDENT SERVICES Concurrent with our commencement of operations and our designation as a REIT, certain services previously provided to residents by our properties are now provided by our TRS. These services generally consist of food service and housekeeping (at Callaway House), and certain resident programming activities. These services are provided to the residents at market rates and, under an agreement between the TRS and the Operating Partnership, payments from residents are collected by the properties on behalf of the TRS in conjunction with their collection of rents. Revenue from resident services increased by $0.1 million for the three months ended September 30, 2005 as compared to the same period in 2004. This increase was due to the three months ended September 30, 2004 reflecting approximately 1.5 months of resident services revenue, which was classified as such beginning with our IPO and concurrent formation of our TRS on August 17, 2004. Accordingly, resident services revenue for the three months ended September 30, 2005 reflects a full quarter of revenue. As a business strategy, our level of services provided to residents by the TRS is only incidental to that which is necessary to maintain or increase occupancy. As a result of the timing of the formation of the TRS in 2004, we expect revenue from resident services in 2005 to be significantly higher than in 2004. GENERAL AND ADMINISTRATIVE General and administrative expenses (relating primarily to corporate operations) decreased $1.4 million for the three months ended September 30, 2005 compared with the same period in 2004. This decrease resulted primarily from a compensation charge of approximately $2.1 million recorded during the three months ended September 30, 2004 in connection with the issuance of profits interest units ("PIUs") to certain of our executive and senior officers in connection with our IPO. This decrease was offset by a full quarter of expenses incurred as a public company during the three months ended September 30, 2005, additional expenses incurred in 2005 related to Sarbanes-Oxley Section 404 compliance costs, and general increases in corporate staffing due to normal inflationary increases in such items as payroll costs, benefits, and other related corporate items. Due to the nature of our operations as a public company, we anticipate our annual 2005 general and administrative expenses will exceed those of our Predecessor. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased $1.7 million for the three months ended September 30, 2005 compared with the same period in 2004 primarily due to the acquisition of seven properties during the first quarter of 2005, as described above, the opening of two owned off-campus properties in August 2004, and the opening of the one owned off-campus property in August 2005. In conjunction with the acquisition of the seven previously mentioned properties, a valuation was assigned to in-place leases which is amortized over the average remaining lease terms of the acquired leases (generally less than one year). This contributed approximately $0.2 million of additional depreciation and amortization expense for the three months ended September 30, 2005. We expect depreciation and amortization for the full year 2005 to increase significantly from 2004 primarily due to a full year's depreciation on the two owned off-campus properties that opened in August 2004, additional depreciation on the owned off-campus property that opened in August 2005, and the $120.2 million of acquisitions closed during the first quarter of 2005. Amortization of deferred financing costs decreased $0.4 million for the three months ended September 30, 2005 compared with the same period in 2004 primarily due to two mortgage loans paid off in connection with our IPO. This decrease was offset by additional finance cost amortization recorded during the three months ended September 30, 2005 related to debt assumed or incurred in connection with the property acquisitions closed during the first quarter of 2005. INTEREST INCOME Interest income increased approximately $0.4 million from $32,000 for the three months ended September 30, 2004 as compared to $0.4 million for the three months ended September 30, 2005. This increase was due to interest earned on remaining proceeds from our secondary equity offering that occurred in July 2005, which are invested in commercial paper. 28 INTEREST EXPENSE Interest expense of $4.3 million for the three months ended September 30, 2005 represented a decrease of $0.4 million from $4.7 million during the same period in 2004. Interest expense decreased primarily due to two mortgage loans that were paid off in connection with our IPO as well as additional capitalized interest recorded during the three months ended September 30, 2005 related to our owned off-campus properties under development during the quarter. These decreases were offset by additional interest on debt assumed or incurred in connection with the acquisition of the seven previously mentioned properties in the first quarter 2005. We anticipate that interest expense for the full year 2005 will increase from 2004 levels primarily due to the debt assumed or incurred in connection with previously mentioned property acquisitions. OTHER NONOPERATING INCOME Other nonoperating income for the three months ended September 30, 2004 represents a gain recognized related to insurance proceeds received for hail damage that occurred at one of our on-campus participating properties in 2003. INCOME TAXES Subsequent to our IPO formation transactions, our TRS manages our non-REIT activities. The TRS is subject to federal, state and local income taxes and is required to recognize the future tax benefits attributable to deductible temporary differences between book and tax basis, to the extent that the asset will be realized. Accordingly, for the three months ended September 30, 2005, the TRS recorded an income tax provision of approximately $6,000, as compared to an initial income tax benefit of $0.8 million recorded in connection with our IPO during the three months ended September 30, 2004. Unlike our Predecessor, we are subject to federal, state and local income taxes as a result of the services provided by our TRS, which include our third party services revenues, resident services revenues and the operations of our on-campus participating properties. As a result, the income earned by our TRS, unlike our Predecessor and our results from our owned off-campus properties, is subject to a new level of taxation. The amount of income taxes to be recognized is dependent on the operating results of the TRS. MINORITY INTERESTS Minority interests for the three months ended September 30, 2005 represent the 0.7% interest in the net equity of our Operating Partnership held by common unitholders as well as a minority partner's interest in the University Village at Sweet Home property, which commenced operations in August 2005. Minority interests for the three months ended September 30, 2004 represent a minority partner's share of the net loss of four owned off-campus properties. We redeemed this minority partner's interest in connection with our IPO. See Note 7 in the accompanying Notes to Consolidated and Combined Financial Statements for a detailed description of minority interests. DISCONTINUED OPERATIONS Statement of Financial Accounting Standards ("SFAS") No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, requires, among other items, that the operating results of real estate properties sold or classified as held for sale be included in discontinued operations in the statements of operations for all periods presented. The properties included in discontinued operations for the three months ended September 30, 2004 include University Village at San Bernardino, which was sold in January 2005, The Village at Riverside and other non-core assets that were distributed to our Predecessor owners as part of the IPO, as well as an on-campus participating property (Coyote Village) whose ground lease was transferred to Weatherford College in April 2004. 29 COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004 The following table presents our results of operations for the nine months ended September 30, 2005 and 2004, including the amount and percentage change in these results between the two periods:
NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- 2005 2004 CHANGE ($) CHANGE (%) -------------- -------------- -------------- -------------- REVENUES: Owned off-campus properties $ 42,437 $ 24,659 $ 17,778 72.1% On-campus participating properties 12,263 11,823 440 3.7% Third party development and management services 6,049 6,045 4 0.1% Resident services 676 114 562 493.0% -------------- -------------- -------------- -------------- TOTAL REVENUES 61,425 42,641 18,784 44.1% OPERATING EXPENSES: Owned off-campus properties 20,395 12,457 7,938 63.7% On-campus participating properties 6,034 5,873 161 2.7% Third party development and management services 4,646 4,121 525 12.7% General and administrative 4,823 3,920 903 23.0% Depreciation and amortization 12,143 7,150 4,993 69.8% Ground/facility leases 697 664 33 5.0% -------------- -------------- -------------- -------------- TOTAL OPERATING EXPENSES 48,738 34,185 14,553 42.6% -------------- -------------- -------------- -------------- OPERATING INCOME 12,687 8,456 4,231 50.0% NONOPERATING INCOME AND (EXPENSES): Interest income 498 57 441 773.7% Interest expense (12,761) (13,148) 387 (3.0%) Amortization of deferred financing costs (840) (979) 139 (14.2%) Other nonoperating income 430 371 59 15.9% -------------- -------------- -------------- -------------- TOTAL NONOPERATING EXPENSES (12,673) (13,699) 1,026 (7.5%) -------------- -------------- -------------- -------------- Income before income taxes, minority interests, and discontinued operations 14 (5,243) 5,257 (100.3%) Income tax (provision) benefit (6) 757 (763) (100.8%) Minority interests (85) 130 (215) (165.4%) -------------- -------------- -------------- -------------- LOSS FROM CONTINUING OPERATIONS (77) (4,356) 4,279 (98.2%) Discontinued operations: Loss attributable to discontinued operations (2) (284) 282 (99.3%) Gain (loss) from disposition of real estate 5,883 (39) 5,922 (15,184.6%) -------------- -------------- -------------- -------------- Total discontinued operations 5,881 (323) 6,204 (1,920.7%) -------------- -------------- -------------- -------------- NET INCOME (LOSS) $ 5,804 $ (4,679) $ 10,483 (224.0%) ============== ============== ============== ==============
OWNED OFF-CAMPUS PROPERTIES OPERATIONS Revenues and operating expenses from our owned off-campus properties increased by $17.8 million and $7.9 million, respectively, for the nine months ended September 30, 2005 compared with the same period in 2004. These increases were primarily due to the acquisition of seven properties during the first quarter of 2005, the completion of construction and opening of two properties in August 2004, the completion of construction and opening of one property in August 2005, and higher year-to-date occupancy at a majority of the same store properties operated during both periods, as described below. University Village at San Bernardino, which also opened in August of 2004, was sold in January 2005 and is therefore not reflected in operating revenues and expenses but is included in discontinued operations. NEW PROPERTY OPERATIONS. We acquired seven properties containing 3,118 beds at various times during the first quarter of 2005, located in Florida (Gainesville and Tallahassee) and Denton, Texas. Additionally, in August 2004 we completed construction of and opened a 406-bed property serving California State University, Fresno and a 749-bed property serving Temple University. We also completed construction of and opened an 828-bed property serving the State University of New York - Buffalo in August 2005. These new properties contributed $16.8 million of additional revenues and $7.9 million of additional operating expenses during the nine months ended September 30, 2005 as compared to the same period in 2004. SAME STORE PROPERTY OPERATIONS (EXCLUDING NEW PROPERTY ACTIVITY). We had nine properties containing 5,971 beds which were operating during both the nine month periods ended September 30, 2005 and 2004. These properties produced revenues of $25.2 million and $23.7 million during the nine month periods ended September 30, 2005 and 2004, respectively, an increase of $1.5 million. Excluding resident services revenues, which are provided through our TRS subsequent to our IPO, these properties produced revenues of $24.5 million during the nine months ended September 30, 2005, as compared to $23.6 million for the same period in 2004, an increase of $0.9 million. These increases were due primarily to the improved lease up 30 for the 2005/2006 academic year, which resulted in average occupancy rates increasing to 93.8% for the nine months ended September 30, 2005 from 87.2% during the same period in 2004. At these existing properties, operating expenses remained relatively constant at $11.8 million for the nine months ended September 30, 2005 compared to $11.7 million for the nine months ended September 30, 2004. ON-CAMPUS PARTICIPATING PROPERTIES ("OCPP") OPERATIONS NEW PROPERTY OPERATIONS. In August 2005, we completed construction of and opened an additional phase of our Cullen Oaks property, consisting of 180 units and 354 beds. This additional phase contributed approximately $0.2 million of additional revenues and approximately $0.1 million of additional operating expenses during the nine months ended September 30, 2005. SAME STORE OCPP OPERATIONS. We had four participating properties containing 4,167 beds which were operating during both the nine month periods ended September 30, 2005 and 2004. Revenues from our same store on-campus participating properties increased to $12.1 million for the nine months ended September 30, 2005 from $11.8 million for the nine months ended September 30, 2004, an increase of $0.3 million. This increase was primarily due to increased rental rates, which were slightly offset by a decrease in average occupancy from 69.0% for the nine months ended September 30, 2004 to 66.7% for the nine months ended September 30, 2005. Occupancy at our on-campus participating properties is typically low in the second and third quarter of each calendar year due to the expiration of the nine month leases at these properties concurrent with the end of the spring semester. THIRD PARTY DEVELOPMENT AND MANAGEMENT SERVICES Third party development and management services revenue remained relatively constant at $6.1 million for both the nine month periods ended September 30, 2005 and 2004. Third party development services decreased in the nine months ended September 30, 2005 as compared to the same period in 2004, while third party management services increased in the nine months ended September 30, 2005 as compared to the same period in 2004. Third party development and management services operating expenses increased approximately $0.5 million, from $4.1 million for the nine months ended September 30, 2004, as compared to $4.6 million for the same period in 2005. This increase was primarily due to expenses incurred in 2005 in relation to the West Virginia University projects previously discussed. DEVELOPMENT SERVICES. Third party development services revenue for the nine months ended September 30, 2005 represented a decrease of $0.7 million compared with the same period in 2004. This decrease was primarily due to a combination of fewer projects in progress and a slightly lower percentage of the contractual fees recognized during the nine months ended September 30, 2005 as compared to the same period in 2004. This decrease was offset by a slightly higher average contractual fee per project during the nine months ended September 30, 2005 as compared to the same period in 2004. We had eight projects in progress during the nine months ended September 30, 2005 with an average contractual fee of $1.1 million compared to the nine months ended September 30, 2004 in which we had ten projects in progress with an average contractual fee of $0.8 million. Also, due to the differences in the percentage of construction completed during the periods, of the total contractual fees of the projects in progress during the respective periods, approximately 46.1% was recognized (on a percentage of completion basis) during the nine months ended September 30, 2005 compared with approximately 47.2% for the same period in 2004. In addition, revenues for the nine months ended September 30, 2004 include approximately $0.4 million of deferred development and construction revenue recognized upon the transfer of one of our on-campus participating properties (Coyote Village) to Weatherford College in April 2004. MANAGEMENT SERVICES. Third party management revenues increased $0.7 million for the nine months ended September 30, 2005 compared with the same period in 2004. The increase was due to a full period of revenues earned during the nine months ended September 30, 2005 related to new management contracts that commenced in Fall 2004. RESIDENT SERVICES Concurrent with our commencement of operations and our designation as a REIT, certain services previously provided to residents by our properties are now provided by our TRS. These services generally consist of food service and housekeeping (at Callaway House), and certain resident programming activities. These services are provided to the residents at market rates and, under an agreement between the TRS and the Operating Partnership, payments from residents are collected by the properties on behalf of the TRS in conjunction with their collection of rents. Revenue from resident services increased by $0.6 million for the nine months ended September 30, 2005 as compared to the same period in 2004. This increase is due to the nine months ended September 30, 2004 reflecting only approximately 1.5 months of resident services revenue, which was classified as such beginning with our IPO and concurrent formation of our TRS on August 17, 2004. Accordingly, resident services revenue for the nine months ended September 30, 2005 reflects a full period of revenue. As a business strategy, our 31 level of services provided to residents by the TRS is only incidental to that which is necessary to maintain or increase occupancy. GENERAL AND ADMINISTRATIVE General and administrative expenses (relating primarily to corporate operations) increased $0.9 million for the nine months ended September 30, 2005 compared with the same period in 2004. This increase resulted primarily from a compensation charge of approximately $0.4 million recorded during the nine months ended September 30, 2005 to reflect a separation agreement entered into with an executive officer in April 2005. In addition, the increase is also due to a full nine months of expenses incurred as a public company during 2005, additional expenses incurred in 2005 related to Sarbanes-Oxley Section 404 compliance costs, and general increases in corporate staffing due to normal inflationary increases in such items as payroll costs, benefits, and other related corporate items. These increases were offset by a compensation charge of approximately $2.1 million recorded during the nine months ended September 30, 2004 in connection with the issuance of profits interest units ("PIUs") to certain of our executive and senior officers in connection with our IPO. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased $5.0 million for the nine months ended September 30, 2005 compared with the same period in 2004 primarily due to the acquisition of seven properties during the first quarter of 2005, the opening of two owned off-campus properties in August 2004, and the opening of the one owned off-campus property in August 2005. In conjunction with the acquisition of the seven previously mentioned properties, a valuation was assigned to in-place leases which is amortized over the average remaining lease terms of the acquired leases (generally less than one year). This contributed approximately $1.1 million of additional depreciation and amortization expense for the nine months ended September 30, 2005. Amortization of deferred financing costs decreased $0.1 million for the nine months ended September 30, 2005 compared with the same period in 2004 primarily due to two mortgage loans paid off in connection with our IPO. These decreases were offset by additional finance cost amortization during the nine months ended September 30, 2005 related to debt assumed or incurred in connection with the property acquisitions closed during the first quarter of 2005 as well as finance costs incurred under our revolving credit facility. INTEREST EXPENSE Interest expense decreased $0.4 million for the nine months ended September 30, 2005 compared with the same period in 2004. This decrease was due to the retirement of two mortgage loans in connection with the IPO, offset by increases in interest related to debt assumed or incurred in relation to the acquisition of the seven previously mentioned properties in the first quarter 2005. These decreases were offset by an increase in interest expense incurred under our revolving credit facility. The nine months ended September 30, 2004 represented only approximately 1.5 months of interest on our revolving credit facility obtained in connection with the IPO, whereas the nine months ended September 30, 2005 represented approximately 6 months of interest on the facility, which was fully paid off in early July 2005. OTHER NONOPERATING INCOME Other nonoperating income of approximately $0.4 million for the nine months ended September 30, 2005 represents a gain recognized related to insurance proceeds received for a fire that occurred at one of the Company's owned off-campus properties in 2003. Other nonoperating income of approximately $0.4 million for the nine months ended September 30, 2004 represents a gain recognized related to insurance proceeds received for hail damage that occurred at one of our on-campus participating properties in 2003. MINORITY INTERESTS Minority interests during the nine months ended September 30, 2004 represent a minority partner's share of the net loss of four owned off-campus properties. We redeemed this minority partner's interest in connection with our IPO. Minority interests for the nine months ended September 30, 2005 represent the 0.7% interest in the net equity of our Operating Partnership held by common unitholders as well as a minority partner's interest in the University Village at Sweet Home property, which commenced operations in August 2005. See Note 7 in the accompanying Notes to Consolidated and Combined Financial Statements for a description of common units and the University Village at Sweet Home joint venture. 32 DISCONTINUED OPERATIONS Statement of Financial Accounting Standards ("SFAS") No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, requires, among other items, that the operating results of real estate properties sold or classified as held for sale be included in discontinued operations in the statements of operations for all periods presented. University Village at San Bernardino, which was sold to Cal State University - San Bernardino in January 2005, is included in discontinued operations for both the nine month periods ended September 30, 2005 and 2004. The properties included in discontinued operations for the nine months ended September 30, 2004 also includes the Village at Riverside and other non-core assets that were distributed to our Predecessor owners as part of the IPO as well as an on-campus participating property (Coyote Village) whose ground lease was transferred to the Weatherford College in April 2004. CASH FLOWS COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004 OPERATING ACTIVITIES Changes in working capital accounts provided approximately $3.1 million for the nine months ended September 30, 2005 while approximately $5.0 million was provided by working capital for the nine months ended September 30, 2004, a decrease of $1.9 million. This decrease was primarily due to an increase in accounts receivable from our third party development business related to the progress of projects currently underway, as well as insurance proceeds received in 2004 related to a fire that occurred at one of our owned off campus properties in 2003, and the subsequent use of those proceeds to rebuild the property. These items were slightly offset by an increase in accounts payable and accrued expenses resulting from the seven properties that we acquired in the first quarter of 2005. INVESTING ACTIVITIES Investing activities utilized $132.3 million and $52.4 million during the nine months ended September 30, 2005 and 2004, respectively. The increase in 2005 relates to the following items: (i) the acquisition of seven properties in the first quarter of 2005, (ii) cash used in 2005 to fund the development of an on-campus participating property, and (iii) the purchase of investments with secondary equity offering proceeds in July 2005. This increase was offset by proceeds received from the sale of University Village at San Bernardino in January 2005 as well as a decrease in cash used to fund owned off-campus development properties. During the nine months ended September 30, 2005, two owned off-campus properties were under development and one owned off-campus property was in pre-development, while three properties were under development during the nine months ended September 30, 2004. For the nine months ended September 30, 2005 and 2004, our cash used in investing activities was comprised of the following:
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------- 2005 2004 ------------------- ------------------- Property acquisitions $ (72,763) $ - Property dispositions 28,023 - Capital expenditures for on-campus participating properties (267) (1,115) Capital expenditures for owned off campus properties (2,980) (3,284) Investments in on-campus participating properties under development (16,013) - Investment in owned off-campus properties under development (36,052) (47,648) Purchase of non-real estate furniture, fixtures, and equipment (520) (304) Purchase of investments with secondary offering proceeds (31,682) - ------------------- ------------------- Total $ (132,254) $ (52,351) =================== ===================
FINANCING ACTIVITIES Cash provided by financing activities totaled $118.1 million and $42.3 million for the nine months ended September 30, 2005 and 2004, respectively. Cash flows provided by financing activities for the nine months ended September 30, 2005 consisted primarily of proceeds received from our secondary equity offering, net of offering costs, of approximately $96.7 million in July 2005. Other significant financing activities occurring during the nine months ended September 30, 2005 included the receipt of proceeds from a bridge loan (subsequently converted to a mortgage loan) in the amount of $38.8 million and draws on a construction loan used to fund the development of an on-campus participating property in the amount of approximately $15.1 million. These proceeds were offset by the use of cash to fund distributions to our common and restricted stockholders in the amount of approximately $14.4 million as well as the use of cash to pay down our revolving credit (net of draws on the 33 facility during the period) in the amount of approximately $11.8 million. Cash flows provided by financing activities for the nine months ended September 30, 2004 consisted primarily of proceeds received from our initial public offering, net of offering costs, of approximately $200.0 million in August 2004. Approximately $105.5 million of these proceeds was used to pay down mortgage and construction loan indebtedness, and an additional $85.9 million was used to redeem the interests of our Predecessor owners. In addition, during the nine months ended September 30, 2004, we received approximately $41.2 million in proceeds from construction loans used to fund the development of three owned off-campus properties. STRUCTURE OF ON-CAMPUS PARTICIPATING PROPERTIES At our on-campus participating properties, the subject universities own both the land and improvements. We then have a leasehold interest under a ground/facility lease. Under the lease, we receive an annual distribution representing 50% of these properties' net cash available for distribution after payment of operating expenses (which includes our management fees), debt service (which includes repayment of principal) and capital expenditures. We also manage these properties under multi-year management agreements and are paid a management fee representing 5% of receipts. We do not have access to the cash flows and working capital of these participating properties except for the annual net cash distribution as described above. Additionally, a substantial portion of these properties' cash flow is dedicated to capital reserves required under the applicable property indebtedness and to the amortization of such indebtedness. These amounts do not increase our economic interest in these properties since our interest, including our right to share in the net cash available for distribution from the properties, terminates upon the amortization of their indebtedness. Our economic interest in these properties is therefore limited to our interest in the net cash flow and management and development fees from these properties, as reflected in our calculation of Funds from Operations modified for the operational performance of on-campus participating properties ("FFOM") contained herein. Accordingly, when considering these properties' contribution to our operations, we focus upon our share of these properties' net cash available for distribution and the management fees that we receive from these properties, rather than upon their contribution to our gross revenues and expenses for financial reporting purposes. The following table reflects the amounts related to our on-campus participating properties included in our consolidated/combined financial statements for the three and nine months ended September 30, 2005 and 2004:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------- -------------------------------- 2005 2004 2005 2004 -------------- -------------- -------------- -------------- Revenues $ 3,637 $ 3,328 $ 12,263 $ 12,135 Direct operating expenses (1) 2,032 1,641 5,635 5,330 Amortization 913 950 2,675 2,660 Amortization of deferred financing costs 63 47 155 193 Ground/facility leases (2) 245 302 697 698 -------------- -------------- -------------- -------------- Net operating income 384 388 3,101 3,254 Interest income 53 23 105 36 Interest expense (3) (1,403) (1,379) (4,103) (4,199) Loss on disposition of property - - - (39) -------------- -------------- -------------- -------------- NET LOSS (4) $ (966) $ (968) $ (897) $ (948) ============== ============== ============== ==============
(1) Excludes property management fees of $0.2 million for both the three month periods ended September 30, 2005 and 2004, and $0.6 million during both the nine month periods ended September 30, 2005 and 2004. This expense and the corresponding fee revenue recognized by us have been eliminated in consolidation/combination. Also excludes allocation of expenses related to corporate management and oversight. (2) Represents the universities' 50% share of the properties' net cash available for distribution after payment of operating expenses, debt service (including payment of principal) and capital expenditures. (3) Interest expense is net of approximately $16,000 and $0.1 million of capitalized interest for the three and nine months ended September 30, 2005, respectively, related to Cullen Oaks Phase II, a recently completed project that was an additional phase of the Cullen Oaks on-campus participating property. (4) Includes the results of Coyote Village, which was transferred to Weatherford College in April 2004. This property is classified as discontinued operations in the accompanying Consolidated and Combined Financial Statements contained in Item 1. Excludes income taxes associated with these properties, which are owned by our TRS subsequent to the IPO. 34 LIQUIDITY AND CAPITAL RESOURCES CASH BALANCES AND LIQUIDITY As of September 30, 2005, excluding our on-campus participating properties, we had $40.3 million in cash and cash equivalents, restricted cash, and investments, as compared to $7.0 million in cash and cash equivalents, restricted cash, and investments as of as of December 31, 2004. This increase was due to the completion of our secondary equity offering in July 2005, which generated net proceeds of approximately $96.6 million. We used $50.2 million of the proceeds to pay off the balance on our revolving credit facility. An additional $14.7 million of the proceeds was used to fund development costs on University Village at Sweet Home, our recently completed owned off-campus property, and the two owned off-campus properties currently under development. As of September 30, 2005, our restricted cash and investments balance included approximately $31.7 million of remaining secondary offering proceeds, which were invested in commercial paper with varying maturities. Restricted cash at our properties primarily consists of escrow accounts held by lenders and resident security deposits, as required by law in certain states. Additionally, restricted cash as of December 31, 2004 included $0.8 million of funds held in escrow that were paid to our Predecessor owners in February 2005 in accordance with the terms of the Contribution Agreement executed in conjunction with the IPO. As of September 30, 2005, our short-term liquidity needs included, but were not limited to, the following: (i) anticipated distribution payments to our stockholders and unitholders totaling approximately $23.4 million based on an anticipated annual distribution of $1.35 per share or unit, including additional common shares issued in connection with our secondary equity offering in July 2005 (as discussed below), and including distribution amounts required to maintain our REIT status and satisfy our current distribution policy, (ii) remaining development costs on our University Village at Sweet Home owned off-campus development project, estimated to be approximately $3.0 million, (iii) remaining development costs on our Callaway Villas owned off-campus development project funded outside of the construction loan, estimated to be approximately $5.9 million, (iv) remaining development costs on our Village at Newark owned off-campus development project funded outside of the construction loan, estimated to be approximately $24.8 million, and (v) funds for other potential future acquisitions or development projects. We expect to meet our short-term liquidity requirements by using proceeds from our recent secondary equity offering, net cash provided by operations, borrowings under our revolving credit facility, and permanent property level debt. We may seek additional funds to undertake initiatives not contemplated by our business plan or obtain additional cushion against possible shortfalls. We may also pursue additional financing as opportunities arise. Future financings may include a range of different sizes or types of financing, including the sale of additional debt or equity securities. While we believe we will be able to obtain such funds, these funds may not be available on favorable terms or at all. Our ability to obtain additional financing depends on several factors, including future market conditions, our success or lack of success in penetrating our markets, our future creditworthiness, and restrictions contained in agreements with our investors or lenders, including the restrictions contained in the agreements governing our revolving credit facility. These financings could increase our level of indebtedness or result in dilution to our equity holders. SECONDARY EQUITY OFFERING On July 5, 2005, we consummated a secondary equity offering, consisting of the sale of 4,575,000 shares of our common stock at a price per share of $22.50, including 575,000 shares issued as a result of the underwriters' exercise of their over-allotment option in full at the closing. The offering generated gross proceeds of $102.9 million. The aggregate proceeds to us, net of the underwriters' discount and offering costs, were approximately $96.6 million. Approximately $50.2 million of these proceeds was used to repay the outstanding balance under our revolving credit facility. REVOLVING CREDIT FACILITY On June 17, 2005, the Company amended its $75 million revolving credit facility to increase the size of the facility to $100 million. The amended facility may be expanded by up to an additional $100 million upon the satisfaction of certain conditions. In addition, the facility was converted from a secured facility to an unsecured facility. The maturity date of the facility remains at August 2007 and the Company continues to guarantee the Operating Partnership's obligations under the facility. Availability under the revolving credit facility is limited to an "aggregate borrowing base amount" equal to the lesser of (i) 65% of the value of certain properties, calculated as set forth in the credit facility, and (ii) the adjusted net operating income from these properties divided by a formula amount. The facility bears interest at a variable rate, at the Company's option, based upon a base rate or one-, two-, three-, or six-month LIBOR plus, in each case, a spread based upon the Company's total leverage. Additionally, the Company is required to pay an unused commitment fee ranging from 0.15% to 0.20% per annum, 35 depending on the aggregate unused balance. In July 2005, the Company paid off the entire balance on the revolving credit facility using proceeds from its secondary equity offering. As of September 30, 2005, the total availability under the facility (subject to certain financial covenants) totaled approximately $89.4 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) for interest expense and fixed charges. Before June 30, 2006, the Company may not pay distributions that exceed 100% of funds from operations for any four consecutive quarters. After June 30, 2006, the Company may not pay distributions that exceed 95% of funds from operations for any four consecutive quarters. The financial covenants also include consolidated net worth and leverage ratio tests. As of September 30, 2005, the Company was in compliance with all such covenants. DISTRIBUTIONS We are required to distribute 90% of our REIT taxable income (excluding capital gains) on an annual basis in order to qualify as a REIT for federal income tax purposes. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly distributions to common stockholders and common unit holders. All such distributions are at the discretion of the Board of Directors. We may be required to use borrowings under the credit facility, if necessary, to meet REIT distribution requirements and maintain our REIT status. The Board of Directors considers market factors and our Company's performance in addition to REIT requirements in determining distribution levels. On November 10, 2005, the Company declared a distribution per share of $0.3375 which will be paid on December 1, 2005 to all common stockholders of record as of November 21, 2005. At the same time, the Operating Partnership will pay an equivalent amount per unit to holders of common units (formerly PIUs - See Note 7 in the accompanying Notes to Consolidated and Combined Financial Statements). DISTRIBUTIONS TO PREDECESSOR OWNERS An entity newly formed by our Predecessor owners was entitled to any savings in the budgeted completion cost of three of our owned off-campus construction properties that completed construction in Fall 2004. Accordingly, in February 2005, we distributed approximately $0.4 million of designated unspent funds to an entity affiliated with our Predecessor owners and accounted for the payment as an equity distribution. The $0.8 million in escrowed funds described above were also released to an entity affiliated with our Predecessor owners. We do not have any ownership interest in such entity and the entity does not have any ownership interest in the Company. In April 2005, our Predecessor owners also received approximately $0.4 million relating to insurance proceeds received by the Company in connection with a fire that occurred at the University Village at Fresno. This payment was also accounted for as an equity distribution. RECURRING CAPITAL EXPENDITURES Our properties require periodic investments of capital for general capital expenditures and improvements. Our policy is to capitalize costs related to the acquisition, development, rehabilitation, construction, and improvement of properties, including interest and certain internal personnel costs related to the communities under rehabilitation and construction. Capital improvements are costs that increase the value and extend the useful life of an asset. Ordinary repair and maintenance costs that do not extend the useful life of the asset are expensed as incurred. Recurring capital expenditures represent non-incremental building improvements required to maintain current revenues and typically include: appliances, carpeting and flooring, HVAC equipment, kitchen/bath cabinets, new roofs, site improvements and various exterior building improvements. Non-recurring capital expenditures include expenditures that were taken into consideration when underwriting the purchase of a property which were considered necessary to bring the property up to "operating standard," and incremental improvements that include, among other items: community centers, new windows, and kitchen/bath apartment upgrades. Additionally, we are required by certain of our lenders to contribute amounts to reserves for capital repairs and improvements at their mortgaged properties. These annual contributions may exceed the amount of capital expenditures actually incurred in such year at such properties. PRE-DEVELOPMENT EXPENDITURES Our third party development activities have historically required us to fund pre-development expenditures such as architectural fees, permits and deposits. Because the closing of a development project's financing is often subject to third 36 party delay, we cannot always predict accurately the liquidity needs of these activities. We frequently incur these pre-development expenditures before a financing commitment has been obtained and, accordingly, bear the risk of the loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms. Historically, the development projects that we have been awarded have been successfully structured and financed; however, their development has at times been delayed beyond the period initially scheduled, causing revenue to be recognized in later periods. INDEBTEDNESS As of September 30, 2005, we had approximately $287.2 million of outstanding consolidated indebtedness (excluding unamortized debt premiums of approximately $4.6 million), comprised of $196.4 million in mortgage loan indebtedness secured by 13 of our owned off-campus properties, $32.6 million in mortgage and construction loans secured by two phases of an on-campus participating property, and $58.2 million in bond issuances secured by three of our on-campus participating properties. The weighted average interest rate on our consolidated indebtedness as of September 30, 2005 was 6.8%. All of our outstanding indebtedness is fixed rate except for our revolving credit facility and the Cullen Oaks Phase II construction loan discussed below. As of September 30, 2005, approximately 5.4% of our total consolidated indebtedness was variable rate debt, comprised of our construction loan utilized to fund the construction of the additional phase at our Cullen Oaks on-campus participating property. OWNED OFF-CAMPUS PROPERTIES The following table contains certain summary information concerning the mortgage loan indebtedness that encumbers our owned off-campus properties, excluding unamortized debt premiums, as of September 30, 2005:
BALANCE AS OF ORIGINAL INTNEREST MATURITY SEPTEMBER 30, ASSET DATE RATE DATE 2005 - ------------------------------------------- ----------------- ---------------- ------------------- ---------------- University Village at Boulder Creek 12/01/2002 5.71% Nov 2012 $ 16,364 River Club Apartments 07/28/2000 8.18% Aug 2010 18,389 River Walk Townhomes 08/31/1999 8.00% Sep 2009 7,616 Village at Alafaya Club 07/11/2000 8.16% Aug 2010 (1) 20,320 Village at Blacksburg 12/15/2000 7.50% Jan 2011 21,167 Commons on Apache 05/14/1999 7.66% Jun 2009 7,588 Callaway House 03/30/2001 7.10% Apr 2011 19,543 University Club Tallahassee 11/01/2002 7.99% Oct 2010 13,478 The Grove at University Club 04/01/2003 5.75% Mar 2013 4,360 College Club Tallahassee 01/01/2003 6.74% Dec 2011 8,834 University Club Gainesville 11/01/1999 7.88% Nov 2009 8,464 City Parc at Fry Street 10/05/2004 5.96% Sep 2014 11,703 The Estates 05/26/2005 5.20% Jun 2015 38,630 ---------------- Total $ 196,456 ================
(1) Represents the Anticipated Repayment Date, as defined in the loan agreement. If the loan is not repaid on the Anticipated Repayment Date, then certain monthly payments including excess cash flow, as defined, become due through the maturity date of August 2030. The weighted average interest rate of such indebtedness was 6.9% as of September 30, 2005. Each of these mortgages is a non-recourse obligation subject to customary exceptions. Each of these mortgages has a 30 year amortization, and none are cross-defaulted or cross-collateralized to any other indebtedness. The loans generally may not be prepaid prior to maturity; in certain cases, prepayment is allowed, subject to prepayment penalties. ON-CAMPUS PARTICIPATING PROPERTIES Three of our on-campus participating properties are 100% financed with project-based taxable bonds, as listed below. 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 REIT, 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. 37 The following table sets forth certain information concerning these bond financings:
BALANCE AS OF ORIGINAL ORIGINAL MATURITY SEPTEMBER 30, ASSET DATE TERM DATE 2005 - ------------------------------------------- ----------------- ---------------- ------------------- ---------------- University Village-PVAMU (1) Sep 1999 24 years Sep 2023 $ 30,070 University College-PVAMU (Phase I) (2) May 2001 22 years Aug 2025 19,410 University College-PVAMU (Phase II) (2) Jul 2003 25 years Aug 2028 4,135 University Village-TAMIU (1) Sep 1999 24 years Sep 2023 4,600 ---------------- Total $ 58,215 ================
(1) Part of combined bond issuance. Separate loan agreements are not cross-collateralized or cross-defaulted. (2) Multiple financings of single facility. Cullen Oaks Phase I is currently encumbered by a mortgage loan originated in September 2000 in the original principal amount of approximately $17.7 million. The loan bears interest at the Prime rate, or LIBOR plus 1.9%, at our election with principal amortizing on a 30 year schedule. We have in place an interest rate swap agreement which effectively caps the interest on the outstanding balance as of September 30, 2005 of approximately $16.9 million at 5.5%. The loan matures in November 2008. Pursuant to the Leases, in the event the leasehold estate does not achieve Financial Break Even (defined as revenues less operating expenses, excluding management fees, less debt service), the applicable Lessor would be required to make a rental payment, also known as the Contingent Payment, sufficient to achieve Financial Break Even. The Contingent Payment provision remains in effect until such time as any financing placed on the facilities would receive an investment grade rating without the Contingent Payment provision. In the event that the Lessor is required to make a Contingent Payment, future net cash flow distributions would be first applied to repay such Contingent Payments and then to unpaid management fees prior to normal distributions Pursuant to the leases, in the event the leasehold estates do not. In turn, we have guaranteed payment of this property's indebtedness. In addition, in December 2004, we obtained a construction loan to finance the Cullen Oaks Phase II on-campus participating property, which was completed in August 2005. For each borrowing, we have the option of choosing the Prime rate or LIBOR plus 2.0%. The balance on this construction loan as of September 30, 2005 was approximately $15.7 million, bearing interest at a weighted average rate of 5.8%. The total availability under this construction loan is $17.0 million and the loan requires payments of interest only through June 2006, at which time we have the option to extend the maturity date to November 2008 and convert the loan to a 30-year amortization basis. The weighted average interest rate of the indebtedness encumbering our on-campus participating properties was 6.7% at September 30, 2005. OFF BALANCE SHEET ITEMS We do not have any off-balance sheet arrangements. FUNDS FROM OPERATIONS As defined by NAREIT, FFO represents income (loss) before allocation to minority interests (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization (excluding amortization of loan origination costs) and after adjustments for unconsolidated partnerships and joint ventures. We present FFO because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs. Further, FFO does not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments and uncertainties. FFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities 38 (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. The following table presents a reconciliation of our FFO to our net (loss) income:
COMPANY PREDECESSOR COMPANY PREDECESSOR ------------------------------ --------------- ----------------------------- -------------- PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM THREE MONTHS AUGUST 17, JULY 1, NINE MONTHS AUGUST 17, JANUARY 1, ENDED 2004 TO 2004 TO ENDED 2004 TO 2004 TO SEPTEMBER 30, SEPTEMBER 30, AUGUST 16, SEPTEMBER 30, SEPTEMBER 30, AUGUST 16, 2005 2004 2004 2005 2004 2004 - ----------------------------------------------- -------------- --------------- -------------- -------------- -------------- Net (loss) income $ (596) $ (1,538) $ (3,670) $ 5,804 $ (1,538) $ (3,141) Minority interests 10 (1) (85) 85 (1) (129) (Gain) loss from disposition of real estate - - - (5,883) - 39 Real estate related depreciation and amortization: Real estate related depreciation and amortization 4,269 1,401 1,218 12,143 1,401 5,749 Discontinued operations depreciation and amortization - - 110 - - 285 Furniture, fixtures, and equipment depreciation (116) (36) (40) (320) (36) (181) -------------- -------------- --------------- -------------- -------------- --------------- FUNDS FROM OPERATIONS ("FFO") $ 3,567 $ (174) $ (2,467) $ 11,829 $ (174) $ 2,622 ============== ============== =============== ============== ============== =============== FFO PER SHARE - BASIC $ 0.21 $ (0.01) $ 0.84 $ (0.01) ============== ============== ============== ============== FFO PER SHARE - DILUTED $ 0.21 $ (0.01) $ 0.83 $ (0.01) ============== ============== ============== ============== Weighted average common shares outstanding: Basic 17,005,462 12,290,256 14,100,631 12,290,256 ============== ============== ============== ============== Diluted 17,174,663 12,411,256 14,263,981 12,411,256 ============== ============== ============== ==============
While our on-campus participating properties contributed $3.6 million and $3.3 million to our revenues for the three months ended September 30, 2005 and 2004, and $12.3 million and $11.8 million to our revenues for the nine months ended September 30, 2005 and 2004, respectively, under our participating ground leases, we and the participating university systems each receive 50% of the properties' net cash available for distribution after payment of operating expenses, debt service (which includes significant amounts towards repayment of principal) and capital expenditures. A substantial portion of our revenues attributable to these properties is reflective of cash that is required to be used for capital expenditures and for the amortization of applicable property indebtedness. These amounts do not increase our economic interest in these properties or otherwise benefit us since our interest in the properties terminates upon the repayment of the applicable property indebtedness. As noted above, FFO excludes GAAP historical cost depreciation and amortization of real estate and related assets because these GAAP items assume that the value of real estate diminishes over time. However, unlike the ownership of our owned off-campus properties, the unique features of our ownership interest in our on-campus participating properties cause the value of these properties to diminish over time. For example, since the ground 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. 39 Funds From Operations--Modified for Operational Performance of On-Campus Participating Properties:
COMPANY PREDECESSOR COMPANY PREDECESSOR ------------------------------ --------------- ----------------------------- -------------- PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM THREE MONTHS AUGUST 17, JULY 1, NINE MONTHS AUGUST 17, JANUARY 1, ENDED 2004 TO 2004 TO ENDED 2004 TO 2004 TO SEPTEMBER 30, SEPTEMBER 30, AUGUST 16, SEPTEMBER 30, SEPTEMBER 30, AUGUST 16, 2005 2004 2004 2005 2004 2004 - ----------------------------------------------- -------------- --------------- -------------- -------------- -------------- Funds from operations $ 3,567 $ (174) $ (2,467) $ 11,829 $ (174) $ 2,622 Elimination of operations of on-campus participating properties: Net loss from on-campus participating properties (1) 966 156 812 897 156 753 Amortization of investment in on-campus participating properties (913) (438) (512) (2,675) (438) (2,222) --------------- -------------- --------------- -------------- -------------- -------------- 3,620 (456) (2,167) 10,051 (456) 1,153 Modifications to reflect operational performance of on-campus participating properties: Our share of net cash flow (2) 245 100 202 697 100 598 Management fees 167 97 61 588 97 489 On-campus participating properties development fees (3) 253 - - 1,068 - - --------------- -------------- --------------- -------------- -------------- -------------- Impact of on-campus participating properties 665 197 263 2,353 197 1,087 --------------- -------------- --------------- -------------- -------------- -------------- FUNDS FROM OPERATIONS - MODIFIED FOR OPERATIONAL PERFORMANCE OF ON-CAMPUS PARTICIPATING PROPERTIES ("FFOM") $ 4,285 $ (259) $ (1,904) $ 12,404 $ (259) $ 2,240 =============== ============== =============== ============== ============== ============== FFOM per share - basic $ 0.25 $ (0.02) $ 0.88 $ (0.02) =============== ============== ============== ============== FFOM per share - diluted $ 0.25 $ (0.02) $ 0.87 $ (0.02) =============== ============== ============== ============== Weighted average common shares outstanding: Basic 17,005,462 12,290,256 14,100,631 12,290,256 =============== ============== ============== ============== Diluted 17,174,663 12,411,256 14,263,981 12,411,256 =============== ============== ============== ==============
(1) Excludes the loss on the sale of an on-campus participating property of $39,000 during the period from January 1, 2004 to August 16, 2004, which has already been reflected in the calculation of FFO above. (2) 50% of the properties' net cash available for distribution after payment of operating expenses, debt service (including repayment of principal) and capital expenditures. Represents amounts accrued for the interim periods. (3) Development and construction management fees related to the Cullen Oaks Phase II on-campus participating property, which was completed in August 2005. This narrower measure of performance measures our profitability for these properties in a manner that is similar to the measure of our profitability from our services business where we similarly incur no initial or ongoing capital investment in a property and derive only consequential benefits from capital expenditures and debt amortization. We believe, however, that this narrower measure of performance is inappropriate in traditional real estate ownership structures where debt amortization and capital expenditures enhance the property owner's long-term profitability from its investment. Our FFOM may have limitations as an analytical tool because it reflects the unique contractual calculation of net cash flow from our on-campus participating properties, which is different from that of our off campus owned properties. Additionally, FFOM reflects features of our ownership interests in our on-campus participating properties that are unique to us. Companies that are considered to be in our industry may not have similar ownership structures; and therefore those companies may not calculate a FFOM in the same manner that we do, or at all, limiting its usefulness as a comparative measure. We compensate for these limitations by relying primarily on our GAAP and FFO results and using our modified FFO only supplementally. INFLATION Our leases do not typically provide for rent escalations. However, they typically do not have terms that extend beyond 12 months. Accordingly, although on a short term basis we would be required to bear the impact of rising costs resulting from inflation, we have the opportunity to raise rental rates at least annually to offset such rising costs. However, a weak economic environment or declining student enrollment at our principal universities may limit our ability to raise rental rates. 40 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings and cash flows are dependent upon prevailing market rates. Accordingly, we manage our market risk by matching projected cash inflows from operating, investing and financing activities with projected cash outflows for debt service, acquisitions, capital expenditures, distributions to stockholders and unitholders, and other cash requirements. The majority of our outstanding debt has fixed interest rates, which minimizes the risk of fluctuating interest rates. Our exposure to market risk includes interest rate fluctuations in connection with our revolving credit facility and variable rate construction loan 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, 2004. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by SEC Rule 13a-15(b), we have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures for the quarter covered by this report were effective at the reasonable assurance level. There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. PART II. OTHER INFORMATION ITEM 6. EXHIBITS EXHIBIT NO. DESCRIPTION - ------------ ---------------------------------------------------------------- 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 41 SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 11, 2005 AMERICAN CAMPUS COMMUNITIES, INC. BY: /s/ WILLIAM C. BAYLESS, JR. ---------------------------------- WILLIAM C. BAYLESS, JR. PRESIDENT AND CHIEF EXECUTIVE OFFICER BY: /s/ BRIAN B. NICKEL ---------------------------------- BRIAN B. NICKEL EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY BY: /s/ JONATHAN A. GRAF ---------------------------------- JONATHAN A. GRAF SENIOR VICE PRESIDENT, CHIEF ACCOUNTING OFFICER AND TREASURER 42 EX-31.1 2 tex31_1-8203.txt EX-31.1 Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, William C. Bayless, Jr, certify that: 1. I have reviewed this quarterly report on Form 10-Q of American Campus Communities, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 11, 2005 By: /s/ William C. Bayless, Jr. ---------------------------------------- William C. Bayless, Jr. President and Chief Executive Officer EX-31.2 3 tex31_2-8203.txt EX-31.2 Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Brian B. Nickel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of American Campus Communities, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 11, 2005 By: /s/ Brian B. Nickel ----------------------------------------- Brian B. Nickel Executive Vice President, Chief Financial Officer and Secretary EX-32.1 4 tex32_1-8203.txt EX-32.1 Exhibit 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 I, William C. Bayless, Jr., Chief Executive Officer of American Campus Communities, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (i) The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2005 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 11, 2005 /s/ William C. Bayless, Jr. -------------------------------- William C. Bayless, Jr. President and Chief Executive Officer EX-32.2 5 tex32_2-8203.txt EX-32.2 Exhibit 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 I, Brian B. Nickel, Chief Financial Officer of American Campus Communities, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (i) The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2005 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 11, 2005 /s/ Brian B. Nickel ---------------------------- Brian B. Nickel Executive Vice President, Chief Financial Officer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----