XNYS:ACC American Campus Communities Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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 March 31, 2012.
 
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From ______________________  to _________________________
  
Commission file number 001-32265 (American Campus Communities, Inc.)
Commission file number 333-181102-01 (American Campus Communities Operating Partnership, L.P.)
 
AMERICAN CAMPUS COMMUNITIES, INC.
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
 
 Maryland (American Campus Communities, Inc.)
Maryland (American Campus Communities Operating
Partnership, L.P.)
 
 76-0753089 (American Campus Communities, Inc.)
56-2473181 (American Campus Communities Operating
Partnership, L.P.)
 (State or Other Jurisdiction of
Incorporation or Organization)
 
 (IRS Employer Identification No.)
     
12700 Hill Country Blvd., Suite T-200
Austin, TX
(Address of Principal Executive Offices)
 
78738
(Zip Code)
 
(512) 732-1000
Registrant’s telephone number, including area code
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
American Campus Communities, Inc.                                                                            Yes x No o
American Campus Communities Operating Partnership, L.P.                                    Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
American Campus Communities, Inc.                                                                            Yes x No o
American Campus Communities Operating Partnership, L.P.                                    Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
American Campus Communities, Inc.
Large accelerated filer x
Accelerated Filer o
                Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o
 
American Campus Communities Operating Partnership, L.P.
Large accelerated filer o
Accelerated Filer o
Non-accelerated filer x (Do not check if a smaller reporting company)
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
American Campus Communities, Inc.                                                                            Yes o No x
American Campus Communities Operating Partnership, L.P                                     Yes o No x
 
There were 74,700,197 shares of the American Campus Communities, Inc.’s common stock with a par value of $0.01 per share outstanding as of the close of business on April 27, 2012.
 


 
 

 

EXPLANATORY NOTE
 
 
This report combines the reports on Form 10-Q for the quarterly period ended March 31, 2012 of American Campus Communities, Inc. and American Campus Communities Operating Partnership, L.P..  Unless stated otherwise or the context otherwise requires, references to “ACC” mean American Campus Communities, Inc. a Maryland real estate investment trust (“REIT”), and references to “ACCOP” mean American Campus Communities Operating Partnership, L.P., a Maryland limited partnership.  References to the “Company,” “we,” “us” or “our” mean collectively ACC, ACCOP and those entities/subsidiaries owned or controlled by ACC and/or ACCOP.  References to the “Operating Partnership” mean collectively ACCOP and those entities/subsidiaries owned or controlled by ACCOP. The following chart illustrates the Company’s and the Operating Partnership’s corporate structure:
 
(FLOW CHART)
 
The general partner of ACCOP is American Campus Communities Holdings, LLC (“ACC Holdings”), an entity that is wholly-owned by ACC. As of March 31, 2012, ACC Holdings held an ownership interest in ACCOP of less than 1%. The limited partners of ACCOP are ACC and other limited partners consisting of current and former members of management and nonaffiliated third parties.  As of March 31, 2012, ACC owned an approximate 98.7% limited partnership interest in ACCOP.  As the sole member of the general partner of ACCOP, ACC has exclusive control of ACCOP’s day-to-day management.  Management operates the Company and the Operating Partnership as one business. The management of ACC consists of the same members as the management of ACCOP. The Company is structured as an umbrella partnership REIT (“UPREIT”) and ACC contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, ACC receives a number of units of the Operating Partnership (“OP Units,” see definition below) equal to the number of common shares it has issued in the equity offering. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units in the Operating Partnership. Based on the terms of ACCOP’s partnership agreement, OP Units can be exchanged for ACC’s common shares on a one-for-one basis. The Company maintains a one-for-one relationship between the OP Units of the Operating Partnership issued to ACC and ACC Holdings and the common shares issued to the public. The Company believes that combining the reports on Form 10-Q of ACC and ACCOP into this single report provides the following benefits:
 
 
enhances investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
 
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
 
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
 
 
 

 
 
ACC consolidates ACCOP for financial reporting purposes, and ACC essentially has no assets or liabilities other than its investment in ACCOP. Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements. However, the Company believes it is important to understand the few differences between the Company and the Operating Partnership in the context of how the entities operate as a consolidated company. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership. ACC also issues public equity from time to time and guarantees certain debt of ACCOP, as disclosed in this report. ACC does not have any indebtedness, as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.  Except for the net proceeds from ACC’s equity offerings, which are contributed to the capital of ACCOP in exchange for OP Units on a one-for-one common share per OP Unit basis, the Operating Partnership generates all remaining capital required by the Company’s business. These sources include, but are not limited to, the Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its credit facility, and proceeds received from the disposition of certain properties.  Noncontrolling interests, stockholders’ equity, and partners’ capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The noncontrolling interests in the Operating Partnership’s financial statements consist of the interests of unaffiliated partners in various consolidated joint ventures. The noncontrolling interests in the Company’s financial statements include the same noncontrolling interests at the Operating Partnership level and OP Unit holders of the Operating Partnership. The differences between stockholders’ equity and partners’ capital result from differences in the equity issued at the Company and Operating Partnership levels.
 
To help investors understand the significant differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership. A single set of consolidated notes to such financial statements is presented that includes separate discussions for the Company and the Operating Partnership when applicable (for example, noncontrolling interests, stockholders’ equity or partners’ capital, earnings per share or unit, etc.).  A combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents discrete information related to each entity, as applicable. This report also includes separate Part I, Item 4 Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
 
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company operates its business through the Operating Partnership. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.

 
 

 

FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2012
 
TABLE OF CONTENTS
 
   
PAGE NO.
     
PART I.    
   
       
   
       
   
1
       
   
2
       
   
3
       
   
4
       
     
       
   
5
       
   
6
       
   
7
       
   
8
       
   
9
       
 
27
       
 
40
       
 
40
     
   
       
 
41
     
 
42
     
 
 
 

 

(in thousands, except share data)
 
   
March 31, 2012
   
December 31, 2011
 
   
(Unaudited)
       
Assets
           
             
Investments in real estate:
           
  Wholly-owned properties, net
  $ 2,862,462     $ 2,761,757  
  Wholly-owned property held for sale
    27,310       27,300  
  On-campus participating properties, net
    58,839       59,850  
Investments in real estate, net
    2,948,611       2,848,907  
                 
Cash and cash equivalents
    32,592       22,399  
Restricted cash
    21,165       22,956  
Student contracts receivable, net
    3,145       5,324  
Other assets
    110,468       108,996  
                 
Total assets
  $ 3,115,981     $ 3,008,582  
                 
Liabilities and equity
               
                 
Liabilities:
               
  Secured mortgage, construction and bond debt
  $ 871,208     $ 858,530  
  Unsecured term loan
    350,000       200,000  
  Unsecured revolving credit facility
    150,000       273,000  
  Secured agency facility
    116,000       116,000  
  Accounts payable and accrued expenses
    29,633       36,884  
  Other liabilities
    82,064       77,840  
Total liabilities
    1,598,905       1,562,254  
                 
Commitments and contingencies (Note 14)
               
                 
Redeemable noncontrolling interests
    45,327       42,529  
                 
Equity:
               
  American Campus Communities, Inc. stockholders’ equity:
    Common stock, $.01 par value, 800,000,000 shares authorized, 74,675,197 and 72,759,546 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively
    743       725  
    Additional paid in capital
    1,734,337       1,664,416  
    Accumulated earnings and dividends
    (291,962 )     (286,565 )
    Accumulated other comprehensive income (loss)
    44       (3,360 )
    Total American Campus Communities, Inc. stockholders’ equity
    1,443,162       1,375,216  
  Noncontrolling interests - partially owned properties
    28,587       28,583  
Total equity
    1,471,749       1,403,799  
                 
Total liabilities and equity
  $ 3,115,981     $ 3,008,582  
 
See accompanying notes to consolidated financial statements.
 
 
1

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
(unaudited, in thousands, except share and per share data)
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
Revenues
           
  Wholly-owned properties
  $ 99,590     $ 85,625  
  On-campus participating properties
    7,967       7,647  
  Third-party development services
    2,094       3,824  
  Third-party management services
    1,758       1,830  
  Resident services
    343       341  
Total revenues
    111,752       99,267  
                 
Operating expenses
               
  Wholly-owned properties
    43,723       37,594  
  On-campus participating properties
    2,495       1,744  
  Third-party development and management services
    2,785       2,682  
  General and administrative
    3,540       2,773  
  Depreciation and amortization
    24,399       21,237  
  Ground/facility leases
    964       1,156  
Total operating expenses
    77,906       67,186  
                 
Operating income
    33,846       32,081  
                 
Nonoperating income and (expenses)
               
  Interest income
    516       50  
  Interest expense
    (13,282 )     (14,013 )
  Amortization of deferred financing costs
    (1,001 )     (1,230 )
  Income (loss) from unconsolidated joint ventures
    444       (12 )
  Other nonoperating loss
    (122 )     -  
Total nonoperating expenses
    (13,445 )     (15,205 )
                 
Income before income taxes and discontinued operations
    20,401       16,876  
Income tax provision
    (156 )     (143 )
Income from continuing operations
    20,245       16,733  
                 
Income attributable to discontinued operations
    560       1,147  
                 
Net income
    20,805       17,880  
Net income attributable to noncontrolling interests
               
  Redeemable noncontrolling interests
    (287 )     (287 )
  Partially owned properties
    (492 )     (180 )
Net income attributable to noncontrolling interests
    (779 )     (467 )
Net income attributable to common shareholders
  $ 20,026     $ 17,413  
                 
Other comprehensive income
               
  Change in fair value of interest rate swaps
    3,404       745  
Comprehensive income
  $ 23,430     $ 18,158  
Income per share attributable to common shareholders - basic
               
    Income from continuing operations per share
  $ 0.26     $ 0.24  
    Net income per share
  $ 0.27     $ 0.26  
Income per share attributable to common shareholders - diluted
               
    Income from continuing operations per share
  $ 0.25     $ 0.24  
    Net income per share
  $ 0.26     $ 0.25  
Weighted-average common shares outstanding
               
  Basic
    74,216,854       66,956,764  
  Diluted
    74,864,447       67,554,918  
                 
Distributions declared per common share
  $ 0.3375     $ 0.3375  
 
See accompanying notes to consolidated financial statements.
 
 
2

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
(unaudited, in thousands, except share data)
 
   
Common
Shares
   
Par Value of
Common
Shares
   
Additional Paid
in Capital
   
Accumulated
Earnings and
Dividends
   
Accumulated
Other
Comprehensive
(Loss) Income
   
Noncontrolling
Interests
   
Total
 
Equity, December 31, 2011
    72,759,546     $ 725     $ 1,664,416     $ (286,565 )   $ (3,360 )   $ 28,583     $ 1,403,799  
Net proceeds from sale of common stock
    1,802,306       18       73,640       -       -       -       73,658  
Adjustments to reflect redeemable noncontrolling interests at fair value
    -       -       (2,860 )     -       -       -       (2,860 )
Amortization of restricted stock awards
    -       -       1,297       -       -       -       1,297  
Vesting of restricted stock awards
    113,345       -       (2,156 )     -       -       -       (2,156 )
Distributions to common and restricted stockholders
    -       -       -       (25,423 )     -       -       (25,423 )
Distributions to joint venture partners
    -       -       -       -       -       (488 )     (488 )
Change in fair value of interest rate swaps
    -       -       -       -       3,404       -       3,404  
Net income
    -       -       -       20,026       -       492       20,518  
Equity, March 31, 2012
    74,675,197     $ 743     $ 1,734,337     $ (291,962 )   $ 44     $ 28,587     $ 1,471,749  
 
See accompanying notes to consolidated financial statements.
 
 
3

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
(unaudited, in thousands)
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
Operating activities
           
Net income
  $ 20,805     $ 17,880  
Adjustments to reconcile net income to net cash provided by operating activities:
               
     Loss on remeasurement of equity method investment
    122       -  
     Depreciation and amortization
    24,399       22,272  
     Amortization of deferred financing costs and debt premiums/discounts
    706       (307 )
     Share-based compensation
    1,297       987  
     (Income) loss from unconsolidated joint ventures
    (444 )     12  
     Income tax provision
    156       143  
     Changes in operating assets and liabilities:
               
              Restricted cash
    3,298       (1,778 )
              Student contracts receivable, net
    2,250       1,597  
              Other assets
    5,979       (3,254 )
              Accounts payable and accrued expenses
    (9,800 )     (10,419 )
               Other liabilities
    788       453  
Net cash provided by operating activities
    49,556       27,586  
                 
Investing activities
               
     Cash paid for property acquisitions
    (14,319 )     -  
     Cash paid for land acquisitions
    (7,770 )     (458 )
     Capital expenditures for wholly-owned properties
    (2,977 )     (3,001 )
     Investments in wholly-owned properties under development
    (93,217 )     (34,439 )
     Capital expenditures for on-campus participating properties
    (145 )     (278 )
     Cash paid for increased ownership in consolidated subsidiaries
    -       (3,150 )
     Investment loan receivable
    (7,211 )     -  
     Repayment of mezzanine loan
    4,000       -  
     Change in restricted cash related to capital reserves
    (931 )     267  
     Proceeds from insurance settlement
    -       526  
     Purchase of corporate furniture, fixtures and equipment
    (579 )     (119 )
Net cash used in investing activities
    (123,149 )     (40,652 )
                 
Financing activities
               
     Proceeds from sale of common stock
    75,000       11,391  
     Offering costs
    (1,196 )     (179 )
     Pay-off of mortgage loans
    (16,180 )     (54,527 )
     Proceeds from unsecured term loan
    150,000       -  
     Proceeds from credit facilities
    64,000       -  
     Paydowns of credit facilities
    (187,000 )     -  
     Proceeds from construction loans
    31,243       -  
     Principal payments on debt
    (2,666 )     (1,911 )
     Change in construction accounts payable
    14       -  
     Debt issuance and assumption costs
    (3,169 )     -  
     Distributions to common and restricted stockholders
    (25,423 )     (22,820 )
     Distributions to noncontrolling partners
    (837 )     (473 )
Net cash provided by (used in) financing activities
    83,786       (68,519 )
                 
Net change in cash and cash equivalents
    10,193       (81,585 )
Cash and cash equivalents at beginning of period
    22,399       113,507  
Cash and cash equivalents at end of period
  $ 32,592     $ 31,922  
                 
Supplemental disclosure of non-cash investing and financing activities
               
  Change in fair value of derivative instruments, net
  $ 3,404     $ 745  
                 
Supplemental disclosure of cash flow information
               
  Interest paid
  $ 16,226     $ 16,496  
 
See accompanying notes to consolidated financial statements.
 
 
4

 
 
(in thousands, except unit data)
 
   
March 31, 2012
   
December 31, 2011
 
   
(Unaudited)
       
Assets
           
             
Investments in real estate:
           
  Wholly-owned properties, net
  $ 2,862,462     $ 2,761,757  
  Wholly-owned property held for sale
    27,310       27,300  
  On-campus participating properties, net
    58,839       59,850  
Investments in real estate, net
    2,948,611       2,848,907  
                 
Cash and cash equivalents
    32,592       22,399  
Restricted cash
    21,165       22,956  
Student contracts receivable, net
    3,145       5,324  
Other assets
    110,468       108,996  
                 
Total assets
  $ 3,115,981     $ 3,008,582  
                 
Liabilities and capital
               
                 
Liabilities:
               
  Secured mortgage, construction and bond debt
  $ 871,208     $ 858,530  
  Unsecured term loan
    350,000       200,000  
  Unsecured revolving credit facility
    150,000       273,000  
  Secured agency facility
    116,000       116,000  
  Accounts payable and accrued expenses
    29,633       36,884  
  Other liabilities
    82,064       77,840  
Total liabilities
    1,598,905       1,562,254  
                 
Commitments and contingencies (Note 14)
               
                 
Redeemable limited partners
    45,327       42,529  
                 
Capital:
               
  Partners’ capital:
    General partner – 12,222 OP units outstanding at both March 31, 2012 and December 31, 2011
    124       125  
    Limited partner - 74,662,975 and 72,747,324 OP units outstanding at March 31, 2012 and December 31, 2011, respectively
    1,442,994       1,378,451  
  Accumulated other comprehensive income (loss)
    44       (3,360 )
  Total partners’ capital
    1,443,162       1,375,216  
  Noncontrolling interests - partially owned properties
    28,587       28,583  
Total capital
    1,471,749       1,403,799  
                 
Total liabilities and capital
  $ 3,115,981     $ 3,008,582  
 
See accompanying notes to consolidated financial statements.
 
 
5

 
 
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
 
(unaudited, in thousands, except unit and per unit data)
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
Revenues
           
  Wholly-owned properties
  $ 99,590     $ 85,625  
  On-campus participating properties
    7,967       7,647  
  Third-party development services
    2,094       3,824  
  Third-party management services
    1,758       1,830  
  Resident services
    343       341  
Total revenues
    111,752        99,267  
                 
Operating expenses
               
  Wholly-owned properties
    43,723       37,594  
  On-campus participating properties
    2,495       1,744  
  Third-party development and management services
    2,785       2,682  
  General and administrative
    3,540       2,773  
  Depreciation and amortization
    24,399       21,237  
  Ground/facility leases
    964       1,156  
Total operating expenses
    77,906       67,186  
                 
Operating income
    33,846       32,081  
                 
Nonoperating income and (expenses)
               
  Interest income
    516       50  
  Interest expense
    (13,282 )     (14,013 )
  Amortization of deferred financing costs
    (1,001 )     (1,230 )
  Income (loss) from unconsolidated joint ventures
    444       (12 )
  Other nonoperating loss
    (122 )     -  
Total nonoperating expenses
    (13,445 )     (15,205 )
                 
Income before income taxes and discontinued operations
    20,401       16,876  
Income tax provision
    (156 )     (143 )
Income from continuing operations
    20,245       16,733  
Income attributable to discontinued operations
    560       1,147  
Net income
    20,805       17,880  
Net income attributable to noncontrolling interests – partially owned properties
    (492 )     (180 )
Net income attributable to American Campus Communities Operating Partnership, L.P.
    20,313       17,700  
Series A preferred unit distributions
    (46 )     (46 )
Net income available to common unitholders
  $ 20,267     $ 17,654  
                 
Other comprehensive income
               
  Change in fair value of interest rate swaps
    3,404       745  
Comprehensive income
  $ 23,671     $ 18,399  
                 
Income per unit attributable to common unitholders –  basic
               
    Income from continuing operations per unit
  $ 0.26     $ 0.24  
    Net income per unit
  $ 0.27     $ 0.26  
                 
Income per unit attributable to common unitholders – diluted
               
    Income from continuing operations per unit
  $ 0.25     $ 0.24  
    Net income per unit
  $ 0.26     $ 0.25  
                 
Weighted-average common units outstanding
               
  Basic
    75,116,289       67,898,152  
  Diluted
    75,763,882       68,496,306  
                 
Distributions declared per common unit
  $ 0.3375     $ 0.3375  
 
See accompanying notes to consolidated financial statements.
 
 
6

 

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
 
(unaudited, in thousands, except unit data)
 
   


General Partner
   
Limited Partner
    Accumulated
Other
Comprehensive
(Loss) Income
    Noncontrolling Interests - Partially
Owned
Properties
       
   
 
Units
   
Amount
   
Units
   
Amount
           
Total
 
Balance as of December 31, 2011
    12,222     $ 125       72,747,324     $ 1,378,451     $ (3,360 )   $ 28,583     $ 1,403,799  
Issuance of units in exchange for contributions of equity offering proceeds
    -       -       1,802,306       73,658       -       -       73,658  
Adjustments to reflect redeemable limited partners’ interest at fair value
    -       -       -       (2,860 )     -       -       (2,860 )
Amortization of restricted stock awards
    -       -       -       1,297       -       -       1,297  
Vesting of restricted stock awards
    -       -       113,345       (2,156 )     -       -       (2,156 )
Distributions
    -       (4 )     -       (25,419 )     -       -       (25,423 )
Distributions to joint venture partners
    -       -       -       -       -       (488 )     (488 )
Change in fair value of interest rate swaps
    -       -       -       -       3,404       -       3,404  
Net income
    -       3       -       20,023       -       492       20,518  
Balance as of March 31, 2012
    12,222     $ 124       74,662,975     $ 1,442,994     $ 44     $ 28,587     $ 1,471,749  
 
See accompanying notes to consolidated financial statements.
 
 
7

 
 
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
 
(unaudited, in thousands)
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
Operating activities
           
Net income
  $ 20,805     $ 17,880  
Adjustments to reconcile net income to net cash provided by operating activities:
               
     Loss on remeasurement of equity method investment
    122       -  
     Depreciation and amortization
    24,399       22,272  
     Amortization of deferred financing costs and debt premiums/discounts
    706       (307 )
     Share-based compensation
    1,297       987  
     (Income) loss from unconsolidated joint ventures
    (444 )     12  
     Income tax provision
    156       143  
     Changes in operating assets and liabilities:
               
              Restricted cash
    3,298       (1,778 )
              Student contracts receivable, net
    2,250       1,597  
              Other assets
    5,979       (3,254 )
              Accounts payable and accrued expenses
    (9,800 )     (10,419 )
              Other liabilities
    788       453  
Net cash provided by operating activities
    49,556       27,586  
                 
Investing activities
               
     Cash paid for property acquisitions
    (14,319 )     -  
     Cash paid for land acquisitions
    (7,770 )     (458 )
     Capital expenditures for wholly-owned properties
    (2,977 )     (3,001 )
     Investments in wholly-owned properties under development
    (93,217 )     (34,439 )
     Capital expenditures for on-campus participating properties
    (145 )     (278 )
     Cash paid for increased ownership in consolidated subsidiaries
    -       (3,150 )
     Investment loan receivable
    (7,211 )     -  
     Repayment of mezzanine loan
    4,000       -  
     Change in restricted cash related to capital reserves
    (931 )     267  
     Proceeds from insurance settlement
    -       526  
     Purchase of corporate furniture, fixtures and equipment
    (579 )     (119 )
Net cash used in investing activities
    (123,149 )     (40,652 )
                 
Financing activities
               
     Proceeds from issuance of common units in exchange for contributions, net
    73,804       11,212  
     Pay-off of mortgage loans
    (16,180 )     (54,527 )
     Proceeds from unsecured term loan
    150,000       -  
     Proceeds from credit facilities
    64,000       -  
     Paydowns of credit facilities
    (187,000 )     -  
     Proceeds from construction loans
    31,243       -  
     Principal payments on debt
    (2,666 )     (1,911 )
     Change in construction accounts payable
    14       -  
     Debt issuance and assumption costs
    (3,169 )     -  
     Distributions paid on unvested restricted stock awards
    (258 )     (236 )
     Distribution paid on common units
    (25,468 )     (22,901 )
     Distributions paid on preferred units
    (46 )     (46 )
     Distributions paid to noncontrolling partners - partially owned properties
    (488 )     (110 )
Net cash provided by (used in) financing activities
    83,786       (68,519 )
                 
Net change in cash and cash equivalents
    10,193       (81,585 )
Cash and cash equivalents at beginning of period
    22,399       113,507  
Cash and cash equivalents at end of period
  $ 32,592     $ 31,922  
                 
Supplemental disclosure of non-cash investing and financing activities
               
  Change in fair value of derivative instruments, net
  $ 3,404     $ 745  
                 
Supplemental disclosure of cash flow information
               
  Interest paid
  $ 16,226     $ 16,496  
 
See accompanying notes to consolidated financial statements.
 
 
8

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
(unaudited)
 
1.
Organization and Description of Business
 
American Campus Communities, Inc. (“ACC”) is a real estate investment trust (“REIT”) that commenced operations effective with the completion of an initial public offering (“IPO”) on August 17, 2004. Through ACC’s controlling interest in American Campus Communities Operating Partnership L.P. (“ACCOP”), ACC 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. ACC 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. ACC’s common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “ACC.”
 
The general partner of ACCOP is American Campus Communities Holdings, LLC (“ACC Holdings”), an entity that is wholly-owned by ACC. As of March 31, 2012, ACC Holdings held an ownership interest in ACCOP of less than 1%. The limited partners of ACCOP are ACC and other limited partners consisting of current and former members of management and nonaffiliated third parties.  As of March 31, 2012, ACC owned an approximate 98.7% limited partnership interest in ACCOP.  As the sole member of the general partner of ACCOP, ACC has exclusive control of ACCOP’s day-to-day management.  Management operates ACC and ACCOP as one business.  The management of ACC consists of the same members as the management of ACCOP.  ACC consolidates ACCOP for financial reporting purposes, and ACC does not have significant assets other than its investment in ACCOP.  Therefore, the assets and liabilities of ACC and ACCOP are the same on their respective financial statements. References to the “Company,” “we,” “us” or “our” mean collectively ACC, ACCOP and those entities/subsidiaries owned or controlled by ACC and/or ACCOP.  References to the “Operating Partnership” mean collectively ACCOP and those entities/subsidiaries owned or controlled by ACCOP.  Unless otherwise indicated, the accompanying Notes to the Consolidated Financial Statements apply to both the Company and the Operating Partnership.
 
As of March 31, 2012, our property portfolio contained 120 properties with approximately 74,900 beds in approximately 23,800 apartment units.  Our property portfolio consisted of 103 owned off-campus student housing properties that are in close proximity to colleges and universities, 12 American Campus Equity (“ACE®”) properties operated under ground/facility leases with six university systems, four on-campus participating properties operated under ground/facility leases with the related university systems, and one property containing a retail shopping center which we plan to develop into a mixed-use community including both student housing and retail.  Of the 120 properties, 14 were under development as of March 31, 2012, and when completed will consist of a total of approximately 9,100 beds in approximately 2,600 units.  Our communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
 
Through ACC’s taxable REIT subsidiaries (“TRS”), we also provide construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others.  As of March 31, 2012, also through ACC’s TRS entities, we provided third-party management and leasing services for 27 properties that represented approximately 22,900 beds in approximately 9,100 units.  Third-party management and leasing services are typically provided pursuant to management contracts that have initial terms that range from one to five years.  As of March 31, 2012, our total owned and third-party managed portfolio included 147 properties with approximately 97,800 beds in approximately 32,900 units.
 
2.     Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying consolidated financial statements, presented in U.S. dollars, are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and revenue and expenses during the reporting periods. Our actual results could differ from those estimates and assumptions. All material intercompany transactions among consolidated entities have been eliminated. All dollar amounts in the tables herein, except share, per share, unit and per unit amounts, are stated in thousands unless otherwise indicated. Certain prior period amounts have been reclassified to conform to the current period presentation.
 
 
9

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Interim Financial Statements
 
The accompanying interim financial statements are unaudited, but have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all disclosures required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements of the Company 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, 2011 and the Operating Partnership’s Current Report on Form 8-K for the year ended December 31, 2011.
 
Recent Accounting Pronouncements
 
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011-05 (“ASU 2011-05”), “Presentation of Comprehensive Income.”  ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and requires all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The Company adopted ASU 2011-05 on January 1, 2012, and as a result, the Company presents a single continuous statement of comprehensive income.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Investments in Real Estate
 
Investments in real estate are recorded at historical cost. Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset. The cost of ordinary repairs and maintenance are charged to expense when incurred. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:
 
Buildings and improvements
 
7-40 years
Leasehold interest - on-campus participating properties
 
25-34 years (shorter of useful life or respective lease term)
Furniture, fixtures and equipment
 
3-7 years
 
Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred finance costs, are capitalized as construction in progress.  Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences.  Interest totaling approximately $2.5 million and $1.0 million was capitalized during the three months ended March 31, 2012 and 2011, respectively.  Amortization of deferred financing costs totaling approximately $0.1 million and $42,000 was capitalized as construction in progress during the three months ended March 31, 2012 and 2011, 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 undiscounted cash flows are less than the carrying value of the property. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions. If such conditions change, then an adjustment to the carrying value of the Company’s long-lived assets could occur in the future period in which the conditions change. To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings. The Company believes that there were no impairments of the carrying values of its investments in real estate as of March 31, 2012.
 
 
10

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values. Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. Information obtained about each property as a result of due diligence, marketing and leasing activities is also considered. The value of in-place leases is based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued “as-if” vacant.  As lease terms are typically one year or less, rates on in-place leases generally approximate market rental rates. Factors considered in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current market conditions, nature of the tenancy, and costs to execute similar leases. Carrying costs include estimates of lost rentals at market rates during the expected lease-up period, as well as marketing and other operating expenses. The value of in-place leases is amortized over the remaining initial term of the respective leases, generally less than one year. The purchase price of property acquisitions is not expected to be allocated to tenant relationships, considering the terms of the leases and the expected levels of renewals.
 
Long-Lived Assets–Held for Sale
 
Long-lived assets to be disposed of are classified as held for sale in the period in which all of the following criteria are met:
 
 
a.
Management, having the authority to approve the action, commits to a plan to sell the asset.
 
b.
The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.
 
c.
An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated.
 
d.
The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year.
 
e.
The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
 
f.
Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
 
Concurrent with this classification, the asset is recorded at the lower of cost or fair value less estimated selling costs, and depreciation ceases.
 
Intangible Assets
 
In connection with property acquisitions completed in 2012 and 2011, the Company capitalized approximately $0.1 million and $2.6 million, respectively, related to management’s estimate of the fair value of the in-place leases assumed.  These intangible assets are amortized on a straight-line basis over the average remaining term of the underlying leases.  Amortization expense was approximately $0.9 million and $1.5 million for the three months ended March 31, 2012 and 2011, respectively.  Accumulated amortization at March 31, 2012 and December 31, 2011 was approximately $7.1 million and $8.0 million, respectively.  Intangible assets, net of amortization, are included in other assets on the accompanying consolidated balance sheets and the amortization of intangible assets is included in depreciation and amortization expense in the accompanying consolidated statements of operations.  See Note 3 herein for a detailed discussion of the property acquisitions completed during the three months ended March 31, 2012 and 2011.
 
Third-Party Development Services Revenue and Costs
 
Pre-development expenditures such as architectural fees, permits and deposits associated with the pursuit of third-party and owned development projects are expensed as incurred, until such time that management believes it is probable that the contract will be executed and/or construction will commence. Because the Company frequently incurs these pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained, the Company bears the risk of loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or the Company is unable to successfully obtain the required permits and authorizations. As such, management evaluates the status of third-party and owned projects that have not yet commenced construction on a periodic basis and expenses any deferred costs related to projects whose current status indicates the commencement of construction is unlikely and/or the costs may not provide future value to the Company in the form of revenues. Such write-offs are included in third-party development and management services expenses (in the case of third-party development projects) or general and administrative expenses (in the case of owned development projects) on the accompanying consolidated statements of operations. As of March 31, 2012, the Company has deferred approximately $12.8 million in pre-development costs related to third-party and owned development projects that have not yet commenced construction. Such costs are included in other assets on the accompanying consolidated balance sheets.
 
 
11

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Earnings per Share –Company
 
Basic earnings per share is computed using net income (loss) attributable to common shareholders and the weighted average number of shares of the Company’s common stock outstanding during the period.  Diluted earnings per share reflect common shares issuable from the assumed conversion of common and preferred Operating Partnership units (“OP Units”) and common share awards granted.  Only those items having a dilutive impact on basic earnings per share are included in diluted earnings per share.
 
The following potentially dilutive securities were outstanding for the three months ended March 31, 2012 and 2011, but were not included in the computation of diluted earnings per share because the effects of their inclusion would be anti-dilutive.
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
  Common OP Units (Note 10)
    899,435       941,388  
  Preferred OP Units (Note 10)
    114,128       114,676  
  Total potentially dilutive securities
    1,013,563       1,056,064  
 
The following is a summary of the elements used in calculating basic earnings per share:
  
   
Three Months Ended March 31,
 
   
2012
   
2011
 
Basic earnings per share calculation:
           
  Income from continuing operations
  $ 20,245     $ 16,733  
  Income from continuing operations attributable to noncontrolling interests
    (772 )     (449 )
  Income from continuing operations attributable to common shareholders
    19,473       16,284  
  Amount allocated to participating securities
    (258 )     (236 )
  Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
    19,215       16,048  
                 
  Income from discontinued operations
    560       1,147  
  Income from discontinued operations attributable to noncontrolling interests
    (7 )     (18 )
  Income from discontinued operations attributable to common shareholders
    553       1,129  
  Net income attributable to common shareholders, as adjusted – basic
  $ 19,768     $ 17,177  
                 
  Income from continuing operations attributable to common shareholders, as adjusted – per share
  $ 0.26     $ 0.24  
  Income from discontinued operations attributable to common shareholders – per share
  $ 0.01     $ 0.02  
  Net income attributable to common shareholders, as adjusted – per share
  $ 0.27     $ 0.26  
                 
Basic weighted average common shares outstanding
    74,216,854       66,956,764  
 
 
12

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
Diluted earnings per share calculation:
           
  Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
  $ 19,215     $ 16,048  
  Income from discontinued operations attributable to common shareholders
    553       1,129  
  Net income attributable to common shareholders, as adjusted – diluted
  $ 19,768     $ 17,177  
 
               
  Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities – per share
  $ 0.25     $ 0.24  
  Income from discontinued operations attributable to common shareholders – per share
  $ 0.01     $ 0.01  
  Net income attributable to common shareholders-per share
  $ 0.26     $ 0.25  
                 
  Basic weighted average common shares outstanding
    74,216,854       66,956,764  
  Restricted Stock Awards (Note 11)
    647,593       598,154  
Diluted weighted average common shares outstanding
    74,864,447       67,554,918  
 
Earnings per Unit – Operating Partnership

Basic earnings per OP Unit is computed using net income (loss) attributable to common unitholders by the weighted average number of common units outstanding during the period.  Diluted earnings per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units or resulted in the issuance of OP Units and then shared in the earnings of the Operating Partnership.

The following is a summary of the elements used in calculating basic earnings per unit:
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
Basic earnings per unit calculation:
           
  Income from continuing operations
  $ 20,245     $ 16,733  
  Income from continuing operations attributable to noncontrolling interests – partially owned properties
    (492 )     (180 )
  Income from continuing operations attributable to Series A preferred units
    (45 )     (44 )
  Amount allocated to participating securities
    (258 )     (236 )
  Income from continuing operations attributable to common unitholders, net of amount allocated to participating securities
    19,450       16,273  
                 
  Income from discontinued operations
    560       1,147  
  Income from discontinued operations attributable to Series A preferred unit distributions
    (1 )     (2 )
  Income from discontinued operations attributable to common unitholders
    559       1,145  
  Net income attributable to common unitholders, as adjusted – basic
  $ 20,009     $ 17,418  
 
 
13

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  
   
Three Months Ended March 31,
 
   
2012
   
2011
 
  Income from continuing operations attributable to common unitholders, as adjusted – per unit
  $ 0.26     $ 0.24  
  Income from discontinued operations attributable to common unitholders – per unit
  $ 0.01     $ 0.02  
  Net income attributable to common unitholders, as adjusted – per unit
  $ 0.27     $ 0.26  
                 
Basic weighted average common units outstanding
    75,116,289       67,898,152  

Diluted earnings per unit calculation:
           
  Income from continuing operations attributable to common unitholders, net of amount allocated to participating securities
  $ 19,450     $ 16,273  
  Income from discontinued operations attributable to common unitholders
    559       1,145  
  Net income attributable to common unitholders, as adjusted
  $ 20,009     $ 17,418  
 
               
  Income from continuing operations attributable to common unitholders, net of amount allocated to participating securities – per unit
  $ 0.25     $ 0.24  
  Income from discontinued operations attributable to common unitholders – per unit
  $ 0.01     $ 0.01  
  Net income attributable to common unitholders- per unit
  $ 0.26     $ 0.25  
                 
  Basic weighted average common units outstanding
    75,116,289       67,898,152  
  Restricted Stock Awards (Note 11)
    647,593       598,154  
 Diluted weighted average common units outstanding
    75,763,882       68,496,306  

3.  Property Acquisitions

In January 2012, we acquired the remaining 90% interest in University Heights, a 204-unit, 636-bed property located near the campus of the University of Tennessee, for a purchase price of $14.5 million.  The purchase price excludes approximately $2.3 million of anticipated capital expenditures necessary to bring this property up to the Company’s operating standards.  This property was acquired from one of our joint ventures with Fidelity in which we previously held a 10% interest (“Fund II”, see Note 7).  Immediately prior to the acquisition, Fund II paid off the property’s mortgage loan at a discounted amount in accordance with a Settlement Agreement negotiated with the lender.  As a result, Fund II recorded a gain on debt restructuring of approximately $4.2 million, of which, our 10% share is included in income from unconsolidated joint ventures on the accompanying consolidated statements of operations for the three months ended March 31, 2012.
 
In 2011, the Company acquired four properties containing 3,403 beds and a retail center for future development for a combined purchase price of approximately $237.0 million.  The Company did not assume any property-level debt as part of these transactions.
 
 
14

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
The acquired property’s 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 months ended March 31, 2012 and 2011, presents consolidated financial information for the Company as if the property acquisitions discussed above had occurred at the beginning of the earliest period presented.  The unaudited pro forma information is provided for informational purposes only and is not indicative of results that would have occurred or which may occur in the future:

   
Three Months Ended March 31,
 
   
2012
   
2011
 
Total revenues
  $ 111,858     $ 103,878  
Net income attributable to common shareholders
  $ 20,534     $ 18,160  
Net income per share attributable to common shareholders, as adjusted - basic
  $ 0.27     $ 0.27  
Net income per share attributable to common shareholders, as adjusted - diluted
  $ 0.27     $ 0.27  

4.  Property Dispositions and Discontinued Operations

As of both March 31, 2012 and December 31, 2011, one owned off-campus property (Pirates Cove) was classified as Held for Sale on the Company’s consolidated balance sheet.  Concurrent with this classification, the property is recorded at the lower of cost or fair value less estimated selling costs.  Accordingly, net income attributable to Pirates Cove is included in discontinued operations for all periods presented.

In April and May 2011, the Company sold four unencumbered owned off-campus properties (Campus Club – Statesboro, River Club Apartments, River Walk Townhomes and Villas on Apache) for a total sales price of approximately $82.0 million resulting in combined net proceeds of approximately $80.0 million.  The net income attributable to these four properties is included in discontinued operations on the accompanying consolidated statement of operations for the three months ended March 31, 2011.

The properties discussed above are included in the wholly-owned properties segment (see Note 15).  Below is a summary of the results of operations for the properties discussed above:

   
Three Months Ended March 31,
 
   
2012
   
2011
 
Total revenues
  $ 1,153     $ 4,048  
Total operating expenses
    (593 )     (1,866 )
Depreciation and amortization
    -       (1,035 )
   Operating income
    560       1,147  
Total nonoperating expenses
    -       -  
   Net income
  $ 560     $ 1,147  

5.  Investments in Wholly-Owned Properties

Wholly-owned properties consisted of the following:

   
March 31, 2012
   
December 31, 2011
 
Land (1) (2)
  $ 389,470     $ 380,074  
Buildings and improvements
    2,394,892       2,380,582  
Furniture, fixtures and equipment
    141,120       139,249  
Construction in progress (2)
    254,926       157,900  
 
    3,180,408       3,057,805  
Less accumulated depreciation
    (317,946 )     (296,048 )
Wholly-owned properties, net (3)
  $ 2,862,462     $ 2,761,757  

(1)
The land balance above includes undeveloped land parcels with book values of approximately $23.6 million and $15.8 million as of March 31, 2012 and December 31, 2011, respectively.  Also includes land totaling approximately $28.2 million as of both March 31, 2012 and December 31, 2011, related to properties under development.
 
 
15

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
(2)
Land, furniture, fixtures and equipment, and construction in progress as of March 31, 2012 include $4.8 million, $0.4 million and $8.9 million, respectively, related to the University Edge property located in Kent, Ohio, that will serve students attending Kent State University.  In July 2011, the Company entered into a Purchase and Contribution agreement with a private developer whereby the Company is obligated to purchase the property as long as the developer meets certain construction completion deadlines.  The development of the property is anticipated to be completed in August 2012.  The entity is financed with a $4.5 million mezzanine loan from the Company and a $24.8 million construction loan from a third-party lender.  The Company is responsible for leasing, management, and initial operations of the project while the third-party developer is responsible for the development of the property.  The entity that owns the University Edge property is deemed to be a variable interest entity (“VIE”), and the Company is determined to be the primary beneficiary of the VIE.  As such, the assets and liabilities of the entity owning the property are included in the Company’s and the Operating Partnership’s consolidated financial statements.

(3)
The balance above excludes Pirates Cove which is classified as wholly-owned property held for sale in the accompanying consolidated balance sheets as of March 31, 2012 and December 31, 2011.

6.  On-Campus Participating Properties

On-campus participating properties are as follows:

           
Historical Cost
 
Lessor/University
   
Lease
Commencement
   
Required Debt
Repayment (1)
   
March 31, 2012
     
December 31, 2011
 
Texas A&M University System /
  Prairie View A&M University (2)
 
2/1/96
 
9/1/23
  $ 40,339     $ 40,255  
                         
Texas A&M University System /
  Texas A&M International
 
2/1/96
 
9/1/23
    6,572       6,567  
                         
Texas A&M University System /
  Prairie View A&M University (3)
 
10/1/99
 
8/31/25/
8/31/28
    25,172       25,142  
                         
University of Houston System /
  University of Houston (4)
 
9/27/00
 
8/31/35
    35,760       35,734  
 
     
 
    107,843       107,698  
Less accumulated amortization
            (49,004 )     (47,848 )
On-campus participating properties, net
          $ 58,839     $ 59,850  

(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.  Investments in Unconsolidated Joint Ventures

As of March 31, 2012, the Company owned a noncontrolling interest in one unconsolidated joint venture that is accounted for utilizing the equity method of accounting.  The investment consists of a noncontrolling equity interest in a joint venture with the United States Navy that owns military housing privatization projects located on naval bases in Norfolk and Newport News, Virginia. In 2010, the Company discontinued applying the equity method in regards to its investment in this joint venture as a result of the Company’s share of losses exceeding its investment in the joint venture.  Because the Company has not guaranteed any obligations of the investee and is not otherwise committed to provide further financial support to the investee, it therefore suspended recording its share of losses once the investment was reduced to zero.  We also earn fees for providing management services to this joint venture, which totaled approximately $0.4 million for each of the three month periods ended March 31, 2012 and 2011.
 
 
16

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
As discussed more fully in Note 3, in January 2012 we acquired full ownership interest in University Heights, a property previously owned by Fund II, a joint venture with Fidelity in which we previously held a 10% interest.  The acquisition of the property was accounted for as a business combination achieved in stages and as a result, the Company was required to remeasure its equity method investment in University Heights to its acquisition-date fair value and recognize the resulting loss in earnings.  The Company recorded a loss of approximately $0.1 million which is included in other nonoperating loss on the accompanying consolidated statements of operations for the three months ended March 31, 2012.  As University Heights represented the only property owned by Fund II, subsequent to the acquisition we no longer have an equity method investment Fund II.

8.   Debt

A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows:

   
March 31, 2012
   
December 31, 2011
 
Debt secured by wholly-owned properties:
           
  Mortgage loans payable
  $ 726,540     $ 744,724  
  Construction loans payable (1)
    60,593       29,350  
      787,133       774,074  
Debt secured by on-campus participating properties:
               
  Mortgage loan payable
    32,010       32,097  
  Bonds payable
    47,220       47,220  
      79,230       79,317  
                 
Unsecured revolving credit facility
    150,000       273,000  
Unsecured term loan
    350,000       200,000  
Secured agency facility
    116,000       116,000  
Unamortized debt premiums
    9,629       10,298  
Unamortized debt discounts
    (4,784 )     (5,159 )
Total debt
  $ 1,487,208     $ 1,447,530  

(1)
Construction loans payable includes $8.3 million and $4.9 million as of March 31, 2012 and December 31, 2011, respectively, related to a construction loan for the University Edge development property, a VIE that the Company is including in its consolidated financial statements (see Note 5).  The creditor of this construction loan does not have recourse to the assets of the Company.

Pay off of Mortgage Debt

During the three months ended March 31, 2012, the Company paid off approximately $16.2 million of fixed rate mortgage debt secured by a wholly-owned property (Chapel Ridge) which was scheduled to mature on March 1, 2012.  As of March 31, 2012, the Company had an additional $62.9 million of outstanding fixed rate mortgage debt scheduled to mature throughout the remainder of 2012, all of which we expect to pay off on or before their respective maturity dates.    

Unsecured Credit Facility

In January 2012, the Company entered into a First Amendment to Third Amended and Restated Credit Agreement (the “First Amendment”).  Pursuant to the First Amendment, the Company’s $200 million unsecured term loan was increased in size to $350 million, such that, when combined with the Company’s $450 million unsecured revolving credit facility, the Company has an aggregate Credit Facility of $800 million, which may be expanded by up to an additional $100 million upon the satisfaction of certain conditions.  The Company used the proceeds from the expanded term loan to repay outstanding amounts on the revolving credit facility.
 
 
17

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
In addition, the maturity date of the term loan was extended from May 20, 2015 to January 10, 2017 and the maturity date of the revolving credit facility was extended to January 10, 2016, and can be extended for an additional 12 months to January 10, 2017, subject to the satisfaction of certain conditions.  The First Amendment provides for the interest rate on each loan 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 investment grade rating from either Moody’s Investor Services, Inc. or Standard & Poor’s Rating Group.  The Company has entered into multiple interest rate swap contracts with notional amounts totaling $350 million that effectively fix the interest rate to 2.54% (0.89% + 1.65% spread) on the outstanding balance of the unsecured term loan (see Note 12 for more details).

Availability under the revolving credit facility is limited to an “aggregate borrowing base amount” equal to 60% of the value of the Company’s unencumbered properties, calculated as set forth in the Credit Facility.  Additionally, the Company is required to pay a facility fee of 0.30% per annum on the $450 million revolving credit facility.  As of March 31, 2012, the balance outstanding on the revolving credit facility totaled $150.0 million, bearing interest at a weighted average annual rate of 2.00% (inclusive of the facility fee discussed above), and availability under the revolving credit facility totaled $300.0 million.

The terms of the Credit Facility include certain restrictions and covenants, which limit, among other items, the incurrence of additional indebtedness, liens, and the disposition of assets.  The facility contains customary affirmative and negative covenants and also contains financial covenants that, among other things, require the Company to maintain certain minimum ratios of “EBITDA” (earnings before interest, taxes, depreciation and amortization) to fixed charges and total indebtedness.  The Company may not pay distributions that exceed a specified percentage of funds from operations, as adjusted, for any four consecutive quarters.  The financial covenants also include consolidated net worth and leverage ratio tests.  As of March 31, 2012, the Company was in compliance with all such covenants.

Secured Agency Facility

The Company has a $125 million secured revolving credit facility with a Freddie Mac lender.  The facility has a five-year term and is currently secured by 10 properties referred to as the “Collateral Pool.”  The facility bears interest at one- or three-month LIBOR plus a spread that varies based on the debt service ratio of the Collateral Pool.  Additionally, the Company is required to pay an unused commitment fee of 1.0% per annum.  As of March 31, 2012, the balance outstanding on the secured agency facility totaled $116.0 million, bearing interest at a weighted average annual rate of 2.44%.  The secured agency facility includes some, but not all, of the same financial covenants as the unsecured credit facility, described above.  As of March 31, 2012, the Company was in compliance with all such covenants.

9.  Stockholders’ Equity / Partners’ Capital

Stockholders’ Equity – Company

During the three months ended March 31, 2012, ACC sold approximately 1.8 million shares at a weighted average price of $41.61 per share under its 2011 at-the-market share offering program (the “ATM Equity Program”).  Net proceeds received under this program during the three months ended March 31, 2012, totaled approximately $73.9 million, after payment of approximately $1.1 million of commissions paid to sales agents.  As of March 31, 2012, ACC had approximately $149.7 million available for issuance under its ATM Equity Program.
 
Partners’ Capital – Operating Partnership

In connection with the activity under ACC’s ATM Equity Program discussed above, ACCOP issued a number of common OP Units to ACC equivalent to the number of shares issued by ACC under the ATM Equity Program.
 
 
18

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
10.   Noncontrolling Interests

Operating Partnership

Partially-owned properties:  As of March 31, 2012, the Operating Partnership consolidates four joint ventures that own and operate The Varsity, University Village at Sweet Home, University Centre and Villas at Chestnut Ridge owned-off campus properties.  The portion of net assets attributable to the third-party partners in these joint ventures is classified as “noncontrolling interests - partially owned properties” within capital on the accompanying consolidated balance sheets of the Operating Partnership.  Accordingly, the third-party partners’ share of the income or loss of the joint ventures is reported on the consolidated statements of operations of the Operating Partnership as “net income attributable to noncontrolling interests – partially owned properties.”

OP Units:  For the portion of OP Units that the Operating Partnership is required, either by contract or securities law, to deliver registered common shares of ACC to the exchanging OP unit holder, or for which the Operating Partnership has the intent or history of exchanging such units for cash, we classify the units as “redeemable limited partners” in the mezzanine section of the consolidated balance sheets of the Operating Partnership.  The units classified as such include Series A preferred units as well as common units that are not held by ACC or ACC Holdings.  The value of redeemable limited partners on the consolidated balance sheets is reported at the greater of fair value or historical cost at the end of each reporting period.  Changes in the value from period to period are charged to limited partner’s capital on the accompanying consolidated statement of changes in capital.  Below is a table summarizing the activity of redeemable limited partners for the three months ended March 31, 2012:
 
 
Balance, December 31, 2011
  $ 42,529  
Net income
    287  
Distributions
    (349 )
Adjustments to reflect redeemable limited partner units at fair value
    2,860  
Balance, March 31, 2012
  $  45,327  

During the year ended December 31, 2011, 64,601 common OP Units were converted into an equal number of shares of ACC’s common stock and none were converted during the three months ended March 31, 2012.  As of March 31, 2012 and December 31, 2011, approximately 1.3% and 1.4%, respectively, of the equity interests of the Operating Partnership was held by owners of common OP Units and Series A preferred units not held by ACC or ACC holdings.

Company

The noncontrolling interests of the Company include the third-party equity interests in partially-owned properties, as discussed above, which are presented as a component of equity in the Company’s consolidated balance sheets.  The Company’s noncontrolling interests also include the redeemable limited partners presented in the consolidated balance sheets of the Operating Partnership, which are referred to as “redeemable noncontrolling interests” in the mezzanine section of the Company’s consolidated balance sheets.  Noncontrolling interests on the Company’s consolidated statements of operations include the income/loss attributable to third-party equity interests in partially-owned properties, as well as the income/loss attributable to redeemable noncontrolling interests (i.e. OP Units not held by ACC or ACC Holdings.)
 
 
19

 

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
11.  Incentive Award Plan

Restricted Stock Awards (“RSAs”)

A summary of ACC’s RSAs under ACC’s 2010 Incentive Award Plan as of March 31, 2012 and activity during the three months then ended, is presented below:

   
Number of
RSAs
 
Nonvested balance at December 31, 2011
    549,300  
Granted
    215,851  
Vested
    (113,345 )
Forfeited
    (61,808 )
Nonvested balance at March 31, 2012
    589,998  
    
The fair value of RSA’s is calculated based on the closing market value of ACC’s common stock on the date of grant.  The fair value of these awards is amortized to expense over the vesting periods, which amounted to approximately $1.3 million, and $1.0 million for the three months ended March 31, 2012 and 2011, respectively.

12.   Derivatives Instruments and Hedging Activities

The Company is exposed to certain risk arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities.  The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.  To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (Loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

As discussed in Note 8, the Company increased the $200 million unsecured term by $150 million in January 2012.  In connection with this transaction, the Company entered into four interest rate swap contracts with notional amounts totaling $350 million to hedge the variable cash flows associated with interest payments on the LIBOR-based unsecured term loan.  As of March 31, 2012, the Company also had a $33.2 million interest rate swap contract that was used to hedge the variable cash flows associated with the Cullen Oaks Phase I and Phase II loans.
 
 
20

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The following table summarizes the Company’s outstanding interest rate swap contracts as of March 31, 2012:
 
 
Date Entered
 
Effective Date
Maturity
Date
 
Pay Fixed Rate
 
Receive Floating
Rate Index
 
Notional
Amount
   
Fair Value
 
Feb. 12, 2007
Feb. 15, 2007
Feb. 15, 2014
    6.689 %  
LIBOR – 1 mo. plus 1.35%
  $ 33,156     $ (2,879 )
Feb. 2, 2012
Feb. 2, 2012
Jan. 2, 2017
    0.8695 %
LIBOR – 1 month
    125,000       1,161  
Feb. 2, 2012
Feb. 2, 2012
Jan. 2, 2017
    0.88 %
LIBOR – 1 month
    100,000       875  
Feb. 2, 2012
Feb. 2, 2012
Jan. 2, 2017
    0.8875 %
LIBOR – 1 month
    62,500       422  
Feb. 2, 2012
Feb. 2, 2012
Jan. 2, 2017
    0.889 %
LIBOR – 1 month
    62,500       465  

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2012 and December 31, 2011:

   
Fair Values of Derivative Financial Instruments
 
   
Asset Derivatives
 
Liability Derivatives
 
   
March 31, 2012
 
December 31, 2011
 
March 31, 2012
 
December 31, 2011
 
 
Description
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location