t67969_10q.htm


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, 2010.   
 
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From ______________________ to _________________________.
  
Commission file number 001-32265
 
AMERICAN CAMPUS COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
 
 Maryland
 
 76-0753089
 (State or Other Jurisdiction of
Incorporation or Organization)
 
 (IRS Employer Identification No.)
805 Las Cimas Parkway, Suite 400
Austin, TX
(Address of Principal Executive Offices)
 
78746
(Zip Code)
 
(512) 732-1000
Registrant’s telephone number, including area code
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o    No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x                          Accelerated Filer o
 
Non-accelerated filer o       (Do not check if a smaller reporting company)                                                                                Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes o    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 52,315,528 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 May 3, 2010.
 



 
 
 

FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2010
 
TABLE OF CONTENTS
 
 
PAGE NO.
   
PART I.
 
     
Item 1.
Consolidated Financial Statements
 
     
 
1
     
 
2
     
 
3
     
 
4
     
 
5
     
23
     
38
     
38
   
 
     
39
   
40
   
 
 
 

 

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
   
March 31, 2010
   
December 31, 2009
 
   
(unaudited)
       
Assets
           
             
Investments in real estate:
           
Wholly-owned properties, net
  $ 1,977,067     $ 2,014,970  
Wholly-owned property held for sale
    9,100       -  
On-campus participating properties, net
    64,655       65,690  
Investments in real estate, net
    2,050,822       2,080,660  
                 
Cash and cash equivalents
    21,550       66,093  
Restricted cash
    28,451       29,899  
Student contracts receivable, net
    4,520       5,381  
Other assets
    50,212       52,948  
                 
Total assets
  $ 2,155,555     $ 2,234,981  
                 
Liabilities and equity
               
                 
Liabilities:
               
Secured mortgage, construction and bond debt
  $ 974,539     $ 1,029,455  
Senior secured term loan
    100,000       100,000  
Secured agency facility
    94,000       94,000  
Accounts payable and accrued expenses
    22,214       26,543  
Other liabilities
    46,521       45,487  
Total liabilities
    1,237,274       1,295,485  
                 
Redeemable noncontrolling interests
    36,015       36,722  
                 
Equity:
               
American Campus Communities, Inc. stockholders’ equity:
Common stock, $.01 par value, 800,000,000 shares authorized,
52,293,300 and 52,203,893 shares issued and outstanding at
March 31, 2010 and December 31, 2009, respectively
         521           521  
Additional paid in capital
    1,092,301       1,092,030  
Accumulated earnings and dividends
    (209,201 )     (189,165 )
Accumulated other comprehensive loss
    (5,188 )     (4,356 )
Total American Campus Communities, Inc. stockholders’ equity
    878,433       899,030  
Noncontrolling interests
    3,833       3,744  
Total equity
    882,266       902,774  
                 
Total liabilities and equity
  $ 2,155,555     $ 2,234,981  
 
See accompanying notes to consolidated financial statements.
 
 
1

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
 
   
Three Months Ended March 31,
 
   
2010
   
2009
 
Revenues:
           
Wholly-owned properties
  $ 71,192     $ 65,335  
On-campus participating properties
    7,311       6,874  
Third party development services
    574       1,052  
Third party management services
    2,214       2,242  
Resident services
    252       240  
Total revenues
    81,543       75,743  
                 
Operating expenses:
               
Wholly-owned properties
    31,476       30,490  
On-campus participating properties
    2,399       2,030  
Third party development and management services
    3,099       2,977  
General and administrative
    2,753       2,748  
Depreciation and amortization
    17,488       19,332  
Ground/facility leases
    571       552  
Total operating expenses
    57,786       58,129  
                 
Operating income
    23,757       17,614  
                 
Nonoperating income and (expenses):
               
Interest income
    17       39  
Interest expense
    (15,301 )     (15,264 )
Amortization of deferred financing costs
    (1,042 )     (790 )
Loss from unconsolidated joint ventures
    (1,414 )     (554 )
Total nonoperating expenses
    (17,740 )     (16,569 )
                 
Income before income taxes and discontinued operations
    6,017       1,045  
Income tax provision
    (143 )     (135 )
Income from continuing operations
    5,874       910  
                 
Discontinued operations:
               
 Loss attributable to discontinued operations
    (4,283 )     (401 )
 Loss from disposition of real estate
    (3,646 )     -  
  Total discontinued operations
    (7,929 )     (401 )
                 
Net (loss) income
    (2,055 )     509  
Net income attributable to noncontrolling interests
    (134 )     (232 )
Net (loss) income attributable to common shareholders
  $ (2,189 )   $ 277  
                 
Net (loss) income per share attributable to common shareholders-
               
basic and diluted:
               
Income from continuing operations per share
  $ 0.10     $ 0.01  
Net (loss) income per share
  $ (0.05 )   $ 0.00  
                 
Weighted-average common shares outstanding:
               
Basic
    52,235,644       42,377,638  
Diluted
    52,805,966       42,820,592  
                 
Distributions declared per common share
  $ 0.3375     $ 0.3375  
 
See accompanying notes to consolidated financial statements.
 
 
2

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited, in thousands, except share data)
 
   
 
Common Shares
   
Par Value of
Common Shares
   
Additional Paid
in Capital
   
Accumulated
Earnings and
Distributions
   
Accumulated Other
Comprehensive Loss
   
Noncontrolling
Interests
   
Total
 
Equity, December 31, 2009
    52,203,893     $ 521     $ 1,092,030     $ (189,165 )   $ (4,356 )   $ 3,744     $ 902,774  
Amortization of restricted stock awards
    -       -       929       -       -       -       929  
Vesting of restricted stock awards
    84,631       -       (916 )     -       -       -       (916 )
Distributions to common and restricted stockholders
    -       -       -       (17,847 )     -       -       (17,847 )
Distributions to joint venture partners
    -       -       -       -       -       (48 )     (48 )
Conversion of common units to common stock
    4,776       -       126       -       -       -       126  
Reclassification of noncontrolling interests
    -       -       132       -       -       -       132  
Comprehensive loss:
                                                       
Change in fair value of interest rate swaps
    -       -       -       -       (832 )     -       (832 )
Net loss
    -       -       -       (2,189 )     -       137       (2,052 )
Total comprehensive loss
    -       -       -       -       -       -       (2,884 )
Equity, March 31, 2010
    52,293,300     $ 521     $ 1,092,301     $ (209,201 )   $ (5,188 )   $ 3,833     $ 882,266  
 
See accompanying notes to consolidated financial statements
 
 
3

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
   
Three Months Ended March 31,
 
   
2010
   
2009
 
Operating activities
           
Net (loss) income attributable to common shareholders
  $ (2,189 )   $ 277  
Adjustments to reconcile net (loss) income attributable to common shareholders to net cash provided by operating activities:
               
     Income attributable to noncontrolling interests
    134       232  
     Loss from disposition of real estate
    3,646       -  
     Provision for asset impairment
    4,036       -  
     Depreciation and amortization
    17,822       20,102  
     Amortization of deferred financing costs and debt premiums/discounts
    1,109       739  
Share-based compensation
    929       583  
     Loss from unconsolidated joint ventures
    1,414       554  
     Income tax provision
    143       135  
     Changes in operating assets and liabilities:
               
Restricted cash
    1,122       2,878  
Student contracts receivable, net
    991       1,072  
Other assets
    (95 )     5,755  
Accounts payable and accrued expenses
    (5,410 )     (9,423 )
Other liabilities
    137       (3,001 )
Distributions received from unconsolidated joint ventures
    180       -  
     Net cash provided by operating activities
    23,969       19,903  
 
Investing activities
               
     Net proceeds from disposition of real estate
    1,098       -  
     Cash paid for property acquisition
    (9,618 )     -  
     Investments in wholly-owned properties
    (4,701 )     (35,813 )
     Investments in on-campus participating properties
    (43 )     (38 )
     Purchase of corporate furniture, fixtures and equipment
    (183 )     (146 )
     Net cash used in investing activities
    (13,447 )     (35,997 )
 
Financing activities
               
     Secured revolving credit facility, net
    -       63,600  
     Proceeds from construction loans
    -       3,028  
     Pay-off of mortgage loans
    (34,536 )     (29,831 )
     Principal payments on debt
    (2,180 )     (2,603 )
     Change in construction accounts payable
    -       (2,312 )
      Distributions to common and restricted stockholders
    (17,854 )     (14,477 )
     Distributions to noncontrolling partners
    (495 )     (715 )
     Net cash (used in) provided by financing activities
    (55,065 )     16,690  
 
Net change in cash and cash equivalents
    (44,543 )     596  
Cash and cash equivalents at beginning of period
    66,093       25,600  
Cash and cash equivalents at end of period
  $ 21,550     $ 26,196  
                 
Supplemental disclosure of non-cash investing and financing activities
               
     Change in fair value of derivative instruments, net
  $ (832 )   $ (783 )
                 
Supplemental disclosure of cash flow information
               
     Interest paid
  $ 15,512     $ 17,116  
 
See accompanying notes to consolidated financial statements.
 
 
4

 

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.     Organization and Description of Business 
 
American Campus Communities, Inc. (the “Company”) is a real estate investment trust (“REIT”) that was incorporated on March 9, 2004 and commenced operations effective with the completion of an initial public offering (“IPO”) on August 17, 2004.  Through the Company’s controlling interest in American Campus Communities Operating Partnership LP (the “Operating Partnership”), the Company is one of the largest owners, managers and developers of high quality student housing properties in the United States in terms of beds owned and under management.  The Company is a fully integrated, self-managed and self-administered equity REIT with expertise in the acquisition, design, financing, development, construction management, leasing and management of student housing properties.
 
As of March 31, 2010, the Company’s property portfolio contained 85 student housing properties with approximately 52,100 beds and approximately 17,000 apartment units.  The Company’s property portfolio consisted of 79 owned off-campus properties that are in close proximity to colleges and universities, two American Campus Equity (“ACE®”) properties operated under ground/facility leases with a related university system and four on-campus participating properties operated under ground/facility leases with the related university systems.  As of March 31, 2010, the Company also owned a noncontrolling interest in two joint ventures that owned an aggregate of 18 student housing properties with approximately 9,800 beds in approximately 2,900 units.  The Company’s communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
 
Through the Company’s taxable REIT subsidiaries (“TRS”), it also provides construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others.  As of March 31, 2010, the Company provided third-party management and leasing services for 33 properties (five of which the Company served as the third-party developer and construction manager) that represented approximately 24,700 beds in approximately 9,400 units.  Third-party management and leasing services are typically provided pursuant to multi-year management contracts that have initial terms that range from one to five years.  As of March 31, 2010, the Company’s total owned, joint venture and third-party managed portfolio included 136 properties with approximately 86,600 beds in approximately 29,300 units.

2.   Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the financial position, results of operations and cash flows of the Company, the Operating Partnership and subsidiaries of the Operating Partnership, including joint ventures in which the Company has a controlling interest.  Third-party equity interests in the Operating Partnership and consolidated joint ventures are reflected as noncontrolling interests in the consolidated financial statements.  The Company also has a noncontrolling interest in three unconsolidated joint ventures, which are accounted for under the equity method.  All intercompany amounts have been eliminated.  All dollar amounts in the tables herein, except share and per share amounts, are stated in thousands unless otherwise indicated.  Certain prior period amounts have been reclassified to conform to the current period presentation.
 
Recent Accounting Pronouncements
 
On January 1, 2010 the Company adopted new accounting guidance related to variable interest entities (“VIEs”).  These new accounting pronouncements amend the existing accounting guidance to: (i) require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE, identifying the primary beneficiary of the VIE, (ii) require an ongoing reassessment of whether an enterprise is the primary beneficiary of a VIE, rather than only when specific events occur, (iii) eliminate the quantitative approach previously required for determining the primary beneficiary of a VIE, (iv) amend certain guidance for determining whether an entity is a VIE, (v)  add an additional reconsideration event when changes in facts and circumstances pertinent to a VIE occur, (vi) eliminate the exception for troubled debt restructuring regarding VIE reconsideration, and (vii) require advanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a VIE.  Upon the adoption of this new accounting guidance, management reevaluated its potential VIEs and concluded that there is no change from its initial assessment regarding which entities are consolidated by the Company and those that are accounted for under the equity method of accounting.
 
 
5

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Interim Financial Statements
 
The accompanying interim financial statements are unaudited, but have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all disclosures required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included.  Because of the seasonal nature of the Company’s operations, the results of operations and cash flows for any interim period are not necessarily indicative of results for other interim periods or for the full year.  These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
Investments in Real Estate
 
Investments in real estate are recorded at historical cost.  Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset.  The cost of ordinary repairs and maintenance are charged to expense when incurred.  Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:
 
 
Buildings and improvements
 
7-40 years
 
Leasehold interest - on-campus
   participating properties
 
25-34 years (shorter of useful life or respective lease term)
 
Furniture, fixtures and equipment
 
 
3-7 years
Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred finance costs, are capitalized as construction in progress.  Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences.  Interest totaling approximately $-0- and $1.0 million was capitalized during the three months ended March 31, 2010 and 2009, respectively.  There was no amortization of deferred financing costs capitalized as construction in progress during the three months ended March 31, 2010 and 2009.
 
Management assesses whether there has been an impairment in the value of the Company’s investments in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Impairment is recognized when estimated expected future undiscounted cash flows are less than the carrying value of the property.  The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions.  If such conditions change, then an adjustment to the carrying value of the Company’s long-lived assets could occur in the future period in which the conditions change.  To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings.  Other than the impairment of a property discussed in Note 4 herein, the Company believes that there were no impairments of the carrying values of its investments in real estate as of March 31, 2010.
 
The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values.  Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data.  Information obtained about each property as a result of due diligence, marketing and leasing activities is also considered.  The value of in-place leases is based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued “as-if” vacant.  As lease terms are typically one year or less, rates on in-place leases generally approximate market rental rates.  Factors considered in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current market conditions, nature of the tenancy, and costs to execute similar leases.  Carrying costs include estimates of lost rentals at market rates during the expected lease-up period, as well as marketing and other operating expenses.  The value of in-place leases is amortized over the remaining initial term of the respective leases, generally less than one year.  The purchase price of property acquisitions is not expected to be allocated to tenant relationships, considering the terms of the leases and the expected levels of renewals.
 
 
6

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Long-Lived Assets–Held for Sale
 
Long-lived assets to be disposed of are classified as held for sale in the period in which all of the following criteria are met:
 
 
a.
Management, having the authority to approve the action, commits to a plan to sell the asset.
 
 
b.
The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.
 
 
c.
An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated.
 
 
d.
The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year.
 
 
e.
The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
 
 
f.
Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
 
Concurrent with this classification, the asset is recorded at the lower of cost or fair value, and depreciation ceases.
 
Owned On-Campus Properties
 
Under its ACE program, the Company as lessee, entered into two 65-year ground and facility leases with a university system to finance, construct, and manage two student housing facilities.  Both leases include the option to extend the lease term for two additional terms of ten years each, and the lessor has title to the land and any improvements placed thereon.  The Company’s involvement in construction requires the lessor’s post construction ownership of the improvements to be treated as a sale with a subsequent leaseback by the Company.  However, these sale-leaseback transactions do not qualify for sale-leaseback accounting because of the Company’s continuing involvement in the constructed assets.  As a result of the Company’s continuing involvement, these leases are accounted for by the deposit method, in which the assets subject to the ground and facility leases are reflected at historical cost, less amortization, and the financing obligations are reflected at the terms of the underlying financing.
 
On-Campus Participating Properties
 
The Company entered into ground and facility leases with two university systems and colleges to finance, construct, and manage four on-campus student housing facilities.  Under the terms of the leases, the lessor has title to the land and any improvements placed thereon.  Each lease terminates upon final repayment of the construction related financing, the amortization period of which is contractually stipulated.  The Company’s involvement in construction requires the lessor’s post construction ownership of the improvements to be treated as a sale with a subsequent leaseback by the Company.  The sale-leaseback transaction has been accounted for as a financing, and as a result, any fee earned during construction is deferred and recognized over the term of the lease.  The resulting financing obligation is reflected at the terms of the underlying financing, i.e., interest is accrued at the contractual rates and principal reduces in accordance with the contractual principal repayment schedules.
 
The Company reflects these assets subject to ground/facility leases at historical cost, less amortization.  Costs are amortized, and deferred fee revenue in excess of the cost of providing the service are recognized, over the lease term.
 
Intangible Assets
 
In connection with a property acquisition completed in March 2010 and the acquisition of GMH Communities Trust (“GMH”) in June 2008, the Company capitalized approximately $0.2 million and $18.8 million, respectively, related to management’s estimate of the fair value of the in-place leases assumed.  These intangible assets are amortized on a straight-line basis over the average remaining term of the underlying leases.  Amortization expense was approximately $0.1 million and $4.1 million for the three months ended March 31, 2010 and 2009, respectively.  The Company also capitalized $1.5 million related to management’s estimate of the fair value of third-party management contracts acquired from GMH.  These intangible assets are amortized on a straight-line basis over a period of three years.  Amortization expense related to these acquired management contracts was approximately $0.1 million for both three month periods ended March 31, 2010 and 2009.  The amortization of intangible assets is included in depreciation and amortization expense in the accompanying consolidated statements of operations.  See Note 3 herein for a detailed discussion of the property acquisition completed during the three months ended March 31, 2010.
 
 
7

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Deferred Financing Costs
 
The Company defers financing costs and amortizes the costs over the terms of the related debt using the effective interest method.  Upon repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to earnings.  Accumulated amortization at March 31, 2010 and December 31, 2009 approximated $9.9 million and $9.0 million, respectively.  Deferred financing costs, net of amortization, are included in other assets on the accompanying consolidated balance sheets.
 
Joint Ventures
 
The Company holds interests in both consolidated and unconsolidated joint ventures.  The Company consolidates joint ventures when it exhibits financial or operational control, which is determined using accounting standards related to the consolidation of joint ventures and VIE’s.  For joint ventures that are defined as VIE’s, the primary beneficiary consolidates the entity.  In instances where the Company is not the primary beneficiary, it does not consolidate the joint venture for financial reporting purposes. For joint ventures that are not defined as VIEs, management first considers whether the Company is the general partner or a limited partner (or the equivalent in such investments which are not structured as partnerships).  The Company consolidates joint ventures where it is the general partner (or the equivalent) and the limited partners (or the equivalent) in such investments do not have rights which would preclude control and, therefore, consolidation for financial reporting purposes.  For joint ventures where the Company is the general partner (or the equivalent), but does not control the joint venture as the other partners (or the equivalent) hold substantive participating rights, the Company uses the equity method of accounting.  For joint ventures where the Company is a limited partner (or the equivalent), management considers factors such as ownership interest, voting control, authority to make decisions, and contractual and substantive participating rights of the partners (or the equivalent) to determine if the presumption that the general partner controls the entity is overcome.  In instances where these factors indicate the Company controls the joint venture, the Company consolidates the joint venture; otherwise it uses the equity method of accounting.
 
Debt Premiums and Discounts
 
Debt premiums and discounts represent fair value adjustments to account for the difference between the stated rates and market rates of debt assumed in connection with the Company’s property acquisitions.  The debt premiums and discounts are amortized to interest expense over the term of the related loans using the effective-interest method.  As of March 31, 2010 and December 31, 2009, net unamortized debt premiums were approximately $3.4 million and $3.8 million, respectively, and net unamortized debt discounts were approximately $7.9 million and $8.5 million, respectively.  Debt premiums and discounts are included in secured mortgage, construction and bond debt on the accompanying consolidated balance sheets.
 
Third-Party Development Services Revenue and Costs
 
Development revenues are generally recognized based on a proportionate performance method based on contract deliverables, while construction revenues are recognized using the percentage of completion method, as determined by construction costs incurred relative to total estimated construction costs.  Costs associated with such projects are deferred and recognized in relation to the revenues earned on executed contracts.  For projects where the Company’s fee is based on a fixed price, any cost overruns incurred during construction, as compared to the original budget, will reduce the net fee generated on those projects.  Incentive fees are generally recognized when the project is complete and performance has been agreed upon by all parties, or when performance has been verified by an independent third-party.  The Company also evaluates the collectibility of fee income and expense reimbursements generated through the provision of development and construction management services based upon the individual facts and circumstances, including the contractual right to receive such amounts in accordance with the terms of the various projects, and reserves any amounts that are deemed to be uncollectible.
 
 
8

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Pre-development expenditures such as architectural fees, permits and deposits associated with the pursuit of third-party and owned development projects are expensed as incurred, until such time that management believes it is probable that the contract will be executed and/or construction will commence.  Because the Company frequently incurs these pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained, the Company bears the risk of loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or the Company is unable to successfully obtain the required permits and authorizations.  As such, management evaluates the status of third-party and owned projects that have not yet commenced construction on a periodic basis and expenses any deferred costs related to projects whose current status indicates the commencement of construction is unlikely and/or the costs may not provide future value to the Company in the form of revenues.  Such write-offs are included in third-party development and management services expenses (in the case of third-party development projects) or general and administrative expenses (in the case of owned development projects) on the accompanying consolidated statements of operations.  As of March 31, 2010, the Company has deferred approximately $11.2 million in pre-development costs related to third-party and owned development projects that have not yet commenced construction.   Such costs are included in other assets on the accompanying consolidated balance sheets.
 
Derivative Instruments and Hedging Activities
 
The Company records all derivative financial instruments on the balance sheet at fair value.  Changes in fair value are recognized either in earnings or as other comprehensive income, depending on whether the derivative has been designated as a fair value or cash flow hedge and whether it qualifies as part of a hedging relationship, the nature of the exposure being hedged, and how effective the derivative is at offsetting movements in underlying exposure.  The Company discontinues hedge accounting when: (i) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised; (iii) it is no longer probable that the forecasted transaction will occur; or (iv) management determines that designating the derivative as a hedging instrument is no longer appropriate.  In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings.  The Company uses interest rate swaps to effectively convert a portion of its floating rate debt to fixed rate, thus reducing the impact of rising interest rates on interest payments.  These instruments are designated as cash flow hedges and the interest differential to be paid or received is accrued as interest expense. The Company’s counter-parties are major financial institutions.  See Note 11 herein for an expanded discussion on derivative instruments and hedging activities.
 
Income Taxes
 
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).  To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its stockholders.  As a REIT, the Company will generally not be subject to corporate level federal income tax on taxable income it currently distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for the subsequent four taxable years.  Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local income and excise taxes on its income and property, and to federal income and excise taxes on its undistributed income.
 
The Company owns two TRS entities that manage the Company’s non-REIT activities and each is subject to federal, state and local income taxes.
 
Earnings per Share
 
Basic earnings per share is computed using net (loss) income attributable to common shareholders and the weighted average number of shares of the Company’s common stock outstanding during the period.  Diluted earnings per share reflect common shares issuable from the assumed conversion of common and preferred Operating Partnership units and common share awards granted.  Only those items having a dilutive impact on basic earnings per share are included in diluted earnings per share.
 
The following potentially dilutive securities were outstanding for the three months ended March 31, 2010 and 2009, respectively, but were not included in the computation of diluted earnings per share because the effects of their inclusion would be anti-dilutive.
 
 
9

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
Three Months Ended March 31,
 
   
2010
   
2009
 
Common Operating Partnership units (Note 7)
    1,188,064       1,096,047  
Preferred Operating Partnership units (Note 7)
    114,963       114,963  
Total potentially dilutive securities
    1,303,027       1,211,010  
 
The following is a summary of the elements used in calculating basic and diluted earnings per share:
 
   
Three Months Ended March 31,
 
   
2010
   
2009
 
Basic earnings per share calculation:
           
  Income from continuing operations
  $ 5,874     $ 910  
  Income from continuing operations attributable to noncontrolling interests
    (328 )     (245 )
  Income from continuing operations attributable to common shareholders
     5,546        665  
  Amount allocated to participating securities
    (225 )     (182 )
  Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
       5,321          483  
                 
  Loss from discontinued operations
    (7,929 )     (401 )
  Loss from discontinued operations attributable to noncontrolling interests
     194        13  
  Loss from discontinued operations attributable to common shareholders
    (7,735 )     (388 )
  Net (loss) income attributable to common shareholders, as adjusted – basic
  $ (2,414 )   $ 95  
                 
  Income from continuing operations attributable to common shareholders, as adjusted – per share
  $ 0.10     $ 0.01  
  Loss from discontinued operations attributable to common shareholders – per share
  $ (0.15 )   $ (0.01 )
  Net (loss) income attributable to common shareholders, as adjusted – per share
  $ (0.05 )   $ 0.00  
                 
Basic weighted average common shares outstanding
    52,235,644       42,377,638  
                 
Diluted earnings per share calculation:
               
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
  $  5,321     $  483  
Loss from discontinued operations attributable to common shareholders
    (7,735 )     (388 )
Net (loss) income attributable to common shareholders, as adjusted – diluted
  $ (2,414 )   $  95  
                 
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities – per share
  $ 0.10     $ 0.01  
Loss from discontinued operations attributable to common shareholders – per share
  $ (0.15 )   $ (0.01 )
Net (loss) income attributable to common shareholders - per share
  $ (0.05 )   $ 0.00  
                 
Basic weighted average common shares outstanding
    52,235,644       42,377,638  
Restricted Stock Awards (Note 10)
    570,322       442,954  
Diluted weighted average common shares outstanding
    52,805,966       42,820,592  
 
 
10

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
3.  Property Acquisitions
 
In March 2010, one of the Fidelity joint ventures in which the company owns a 10% interest assigned its ownership interest in the University Heights property to the Company for a price of $9.9 million, the value of the mortgage indebtedness.  This 528-bed property, serving students attending the University of Alabama at Birmingham, is now 100% wholly-owned by the company.
 
The acquired property’s results of operations have been included in the accompanying consolidated statements of operations since the acquisition closing date.  The following pro forma information for the three months ended March 31, 2010 and 2009, presents consolidated financial information for the Company as if the property acquisition discussed above, had occurred on January 1, 2009.  The unaudited pro forma information is provided for informational purposes only and is not indicative of results that would have occurred or which may occur in the future:
 
     
Three Months Ended March 31,
   
     
2010
   
2009
   
 
Total revenues
  $ 81,898     $ 76,151    
 
Net (loss) income attributable to common shareholders
  $ (2,191 )   $ 83    
 
Net loss per share – basic
  $ (0.05 )   $ 0.00    
 
Net loss per share – diluted
  $ (0.05 )   $ 0.00    
 
 4.  Property Dispositions and Discontinued Operations
 
In March 2010, the Company classified Campus Walk – Oxford as held for sale and the property was sold on April 30, 2010.  See Note 15 herein for an expanded discussion on this property disposition.  Concurrent with the held for sale classification, the property was recorded at the lower of cost or fair value resulting in an impairment charge of approximately $4.0 million, which is included in discontinued operations in the accompanying consolidated statement of operations for the three months ended March 31, 2010.  Accordingly, net loss for Campus Walk – Oxford is included in discontinued operations for all periods presented.
 
On March 26, 2010, the Company sold Cambridge at Southern for a purchase price of $19.5 million, including the assumption of the existing $18.4 million mortgage loan, resulting in net proceeds of approximately $0.9 million.  The resulting loss on disposition of approximately $3.6 million is included in discontinued operations in the accompanying consolidated statement of operations for the three months ended March 31, 2010.  Accordingly, net loss for Cambridge at Southern is included in discontinued operations for all periods presented.
 
On December 31, 2009, the Company sold Riverside Estates for a purchase price of $18.2 million, including the assumption of the existing $16.2 million mortgage loan, resulting in net proceeds of approximately $1.3 million.   Accordingly, net loss for Riverside Estates is included in discontinued operations for all periods presented.
 
The related net loss for the afore-mentioned properties is reflected in the accompanying consolidated statements of operations as discontinued operations for the periods presented.  Below is a summary of the results of operations for Cambridge at Southern and Riverside Estates through their respective disposition dates as well as the results of operations for Campus Walk – Oxford for all periods presented:
 
   
Three Months Ended
March 31,
 
   
2010
   
2009
 
Total revenues
  $ 1,163     $ 1,997  
Total operating expenses
    1,036       1,766  
Provision for asset impairment
    4,036       -  
   Operating (loss) income
    (3,909 )     231  
Total nonoperating expenses
    (374 )     (632 )
   Net loss
  $ (4,283 )   $ (401 )
 
 
11

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
5.  Investments in Wholly-Owned Properties
 
Wholly-owned properties consisted of the following:
 
   
March 31, 2010
   
December 31, 2009
 
Land (1)
  $ 247,017     $ 250,044  
Buildings and improvements
    1,807,115       1,825,915  
Furniture, fixtures and equipment
    110,790       112,831  
      2,164,922       2,188,790  
Less accumulated depreciation
    (187,855 )     (173,820 )
Wholly-owned properties, net (2)
  $ 1,977,067     $ 2,014,970  
 
(1) The land balance above includes undeveloped land parcels with a total book value of $27.6 million as of both March 31,
2010 and December 31, 2009.
   
(2)
The balance above excludes Campus Walk – Oxford which is classified as wholly-owned property held for sale in the accompanying consolidated balance sheet as of March 31, 2010.
 
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.  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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
On-campus participating properties are as follows:
 
           
Historical Cost
 
Lessor/University
 
Lease
Commencement
 
Required Debt
Repayment (1)
 
March 31, 2010
   
December 31, 2009
 
Texas A&M University System / Prairie View A&M University (2)
 
2/1/96
 
9/1/23
  $ 38,943     $ 38,918  
Texas A&M University System / Texas A&M International
 
2/1/96
 
9/1/23
    6,217       6,216  
Texas A&M University System / Prairie View A&M University (3)
 
10/1/99
 
8/31/25  /  8/31/28
    24,409       24,398  
University of Houston System / University of Houston (4)
 
9/27/00
 
8/31/35
    35,198       35,192  
              104,767       104,724  
Less accumulated amortization
            (40,112 )     (39,034 )
On-campus participating properties, net
          $ 64,655     $ 65,690  
 
(1)  
Represents the effective lease termination date.  The Leases terminate upon the earlier to occur of the final repayment of the related debt or the end of the contractual lease term.
 
(2)  
Consists of three phases placed in service between 1996 and 1998.
 
(3)  
Consists of two phases placed in service in 2000 and 2003.
 
(4)  
Consists of two phases placed in service in 2001 and 2005.
 
7.   Noncontrolling Interests
 
Third-party joint venture partners:  The Company consolidates four joint ventures that own and operate the Callaway House, University Village at Sweet Home, University Centre and Villas at Chestnut Ridge owned-off campus properties.  The portion of net assets attributable to the third-party partners in these joint ventures is classified as “noncontrolling interests” within equity on the accompanying consolidated balance sheets.  Accordingly, the third-party partners’ share of the income or loss of the joint ventures is reported on the consolidated statements of operations as “noncontrolling interests share of net income / loss.”
 
Operating Partnership units:  Certain partners in the Operating Partnership hold their ownership through common and preferred units of limited partnership interest, hereinafter referred to as “Common Units” or “Series A Preferred Units.”  Common Units and Series A Preferred Units are exchangeable into an equal number of shares of the Company’s common stock, or, at the Company’s election, cash.  A Common Unit and a share of the Company’s common stock have essentially the same economic characteristics, as they effectively participate equally in the net income and distributions of the Operating Partnership.  Series A Preferred Units have a cumulative preferential per annum cash distribution rate of 5.99%, payable quarterly concurrently with the payment of dividends on the Company’s common stock.
 
The Company follows accounting guidance stipulating that securities that are redeemable for cash or other assets at a fixed or determinable price on a fixed or determinable date, at the option of the holder, or upon the occurrence of an event that is not solely within the control of the issuer, must be classified outside of permanent equity in the mezzanine section of the consolidated balance sheets.  In accordance with such guidance, management evaluates whether the Company controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under share settlement of the contract.  Based on this assessment, which includes evaluating terms in the applicable agreements related to redemption provisions, the Company has determined that Common Units and Series A Preferred Units in the Operating Partnership should be classified as “redeemable noncontrolling interests” in the mezzanine section of the consolidated balance sheets.  The value of redeemable noncontrolling interests on the consolidated balance sheets is reported at the greater of fair value or historical cost at the end of each reporting period.  Accordingly, income or loss allocated to these redeemable noncontrolling interests on the Company’s consolidated statements of operations includes the Series A Preferred Unit distributions as well as the pro rata share of the Operating Partnership’s net income or loss allocated to Common Units.
 
During the three months ended March 31, 2010 and 2009, 4,776 and 1,000 Common Units, respectively, were converted into shares of the Company’s common stock.  As of March 31, 2010 and December 31, 2009, approximately 2% of the equity interests of the Operating Partnership was held by owners of Common Units and Series A Preferred Units.
 
 
13

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
8.   Investment in Unconsolidated Joint Ventures
 
Investments in unconsolidated joint ventures are accounted for utilizing the equity method.  As discussed in Note 2 herein, the equity method is used when the Company has the ability to exercise significant influence over operating and financial policies of the joint venture but does not have control of the joint venture.  Under the equity method, these investments are initially recognized in the balance sheet at cost and are subsequently adjusted to reflect the Company’s proportionate share of net earnings or losses of the joint venture, distributions received, contributions, and certain other adjustments, as appropriate.   When circumstances indicate there may have been a loss in value of an equity method investment, the Company evaluates the investment for impairment by estimating the Company’s ability to recover its investment from future expected discounted cash flows.  If the Company determines the loss in value is other than temporary, the Company recognizes an impairment charge to reflect the investment at fair value. The Company believes that there were no impairments of the carrying values of its equity method investments as of March 31, 2010.
 
Fidelity Joint Ventures:  The Company owns a 10% interest in two joint ventures with Fidelity that own 18 properties containing approximately 9,800 beds.  The Company serves as property manager for all of the joint venture properties.  These joint ventures are hereinafter referred to collectively as the “Fidelity Joint Ventures.”
 
The Fidelity Joint Ventures are funded in part with secured third party debt in the amount of $293.5 million.  The Operating Partnership serves as non-recourse, carve-out guarantor of this debt, which means the Operating Partnership is liable to the lender for any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of or in connection with certain non-recourse exceptions in connection with the debt.  Pursuant to the respective limited liability company agreements, the Fidelity Joint Ventures agreed to indemnify, defend and hold harmless the Operating Partnership with respect to such obligations, except to the extent such obligations were caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates.  Therefore, the Operating Partnership’s exposure under the guarantees for obligations not caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates is not expected to exceed the Company’s 10% proportionate interest in the related mortgage debt.
 
The Company’s $6.8 million and $8.0 million investment in these two joint ventures at March 31, 2010 and December 31, 2009, respectively, is included in other assets in the accompanying consolidated balance sheets, and the Company’s $0.9 million and $0.3 million share in the loss from these two joint ventures for the three months ended March 31, 2010 and 2009, respectively, is included in loss from unconsolidated joint ventures in the accompanying consolidated statements of operations.  For the three months ended March 31, 2010 and 2009, the Company earned approximately $0.5 million and $0.6 million, respectively, in property management fees from these joint ventures.  Due to the respective limited liability company agreements not providing for maximum capital commitments from the members, the Company’s maximum exposure to loss stemming from its investment in the Fidelity Joint Ventures could be unlimited.
 
Hampton Roads Joint Venture:  The Company also holds a noncontrolling equity interest in a joint venture that owns a military housing privatization project with the United States Navy to design, develop, construct, renovate, and manage unaccompanied soldier housing located on naval bases in Norfolk and Newport News, Virginia.  The project is financed through taxable revenue bonds.  The Company’s $-0- and $0.5 million investment in this joint venture at March 31, 2010 and December 31, 2009, respectively, is included in other assets in the accompanying consolidated balance sheets, and the Company’s share in the loss from this joint venture of $0.5 million and $0.3 million for the three months ended March 31, 2010 and 2009, respectively, is included in loss from unconsolidated joint ventures in the accompanying consolidated statements of operations.  The Company earned combined development and management fees from this joint venture of approximately $0.3 million for both three month periods ended March 31, 2010 and 2009.
 
 
14

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9.   Debt
 
A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows:
 
   
March 31, 2010
   
December 31, 2009
 
Debt secured by wholly-owned properties:
           
  Mortgage loans payable
  $ 795,023     $ 850,046  
  Construction loan payable
    100,000             100,000  
      895,023       950,046  
Debt secured by on-campus participating properties:
               
  Mortgage loans payable
    32,637       32,718  
  Bonds payable
    51,390       51,390  
      84,027       84,108  
Senior secured term loan
    100,000       100,000  
Secured agency facility
    94,000       94,000  
Unamortized debt premiums
    3,381       3,765  
Unamortized debt discounts
    (7,892 )     (8,464 )
Total debt
  $ 1,168,539     $ 1,223,455  
 
Pay-off of Mortgage Debt
 
During the three months ended March 31, 2010, the Company paid off $34.5 million of fixed-rate mortgage debt secured by two of its wholly-owned properties (Campus Club – Statesboro and University Trails), which was scheduled to mature on March 1, 2010.  As of March 31, 2010, the Company has an additional $49.3 million of outstanding fixed-rate mortgage debt scheduled to mature throughout the remainder of 2010, all of which we expect to pay-off on or before their respective maturity dates.
 
Secured Revolving Credit Facility
 
The Operating Partnership has a $225 million revolving credit facility that may be expanded by up to an additional $75 million upon the satisfaction of certain conditions.  The maturity date of the facility is August 14, 2012 and can be extended 12 months through August 2013.  The facility is currently secured by seven of the Company’s wholly-owned properties.
 
Availability under the revolving credit facility is limited to an “aggregate borrowing base amount” equal to the lesser of (i) 50% to 65% of the value of certain properties, calculated as set forth in the credit facility, and (ii) the adjusted net operating income from these properties divided by a formula amount.  The facility bears interest at a variable rate, at the Company’s option, based upon a base rate or one-, two-, or three-month LIBOR, with a LIBOR floor of 2.0%, plus, in each case, a spread based upon the Company’s total leverage.  Additionally, the Company is required to pay an unused commitment fee of 0.35% per annum.  As of March 31, 2010, there was no balance on the facility and availability under the facility totaled $154.3 million.
 
The terms of the facility include certain restrictions and covenants, which limit, among other items, the incurrence of additional indebtedness, liens, and the disposition of assets. The facility contains customary affirmative and negative covenants and also contains financial covenants that, among other things, require the Company to maintain certain minimum ratios of “EBITDA” (earnings before interest, taxes, depreciation and amortization) to fixed charges and total indebtedness.  The Company may not pay distributions that exceed a specified percentage of funds from operations, as adjusted, for any four consecutive quarters.  The financial covenants also include consolidated net worth and leverage ratio tests.  As of March 31, 2010, 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 11 properties referred to as the “Collateral Pool.”  The facility bears interest at one- or three-month LIBOR plus a spread that varies based on the debt service ratio of the Collateral Pool.  Additionally, the Company is required to pay an unused commitment fee of 1.0% per annum.  As of March 31, 2010, the balance outstanding on the secured agency facility totaled $94.0 million, bearing interest at a weighted average rate of 2.2%.  The secured agency facility includes certain financial covenants which are the same as are required for the secured revolving credit facility, described above.
 
 
15

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Senior Secured Term Loan
 
The Operating Partnership has a $100 million senior secured term loan that matures on May 23, 2011 and can be extended through May 2012 through the exercise of a 12-month extension option.  The secured term loan bears interest at a variable rate, at the Company’s option, based upon a base rate or one-, two-, three-, or six-month LIBOR plus, in each case, a spread based upon the Company’s total leverage.  As of March 31, 2010, the balance outstanding on the secured term loan was $100 million.  The Company guarantees the Operating Partnership’s obligations under the secured term loan.  The secured term loan includes the same restrictions and covenants as the secured revolving credit facility, described above.
 
On February 23, 2009, the Company entered into two $50.0 million interest rate swap agreements effective March 20, 2009 through February 20, 2012, which are both used to hedge the Company’s exposure to fluctuations in interest payments on its LIBOR-based senior secured term loan.  Under the terms of the two interest rate swap agreements, the Company pays an average fixed rate of 1.7925% and receives a one-month LIBOR floating rate.  As a result of these two interest rate swaps, the Company effectively fixed the interest rate on its senior secured term loan to 3.55% as of March 31, 2010 (1.7925% + 1.75% spread).  In the event that the swaps at any time have a negative fair value below a certain threshold level, the Company is required to post cash into a collateral account pledged to the interest rate swap providers.  As of March 31, 2010, the Company had deposited approximately $0.7 million into a collateral account related to one of the interest rate swaps.  See Note 11 herein for a more detailed discussion of the Company’s derivative instruments and hedging activities.
 
10.  Incentive Award Plan
 
The Company has adopted the 2004 Incentive Award Plan (the “Plan”).  The Plan provides for the grant of various stock-based incentive awards to selected employees and directors of the Company and the Company’s affiliates.  The 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 March 31, 2010, 211,767 shares were available for issuance under the Plan.
 
Restricted Stock Units
 
Upon initial appointment to the Board of Directors and reelection to the Board of Directors at each Annual Meeting of Stockholders, each outside member of the Board of Directors is granted restricted stock units (“RSUs”).  Upon the Settlement Date, the Company will deliver to the recipients a number of shares of common stock or cash, as determined by the Compensation Committee of the Board of Directors, equal to the number of RSUs held by the recipients.  In addition, recipients of RSUs are entitled to dividend equivalents equal to the cash distributions paid by the Company on one share of common stock for each RSU issued, payable currently or on the Settlement Date, as determined by the Compensation Committee of the Board of Directors.  There were no RSU grants or settlements during the three months ended March 31, 2010 and there were 5,376 RSUs that had not yet been settled as of March 31, 2010.
 
Restricted Stock Awards
 
The Company awards restricted stock awards (“RSAs”) to its executive officers and certain employees that vest in equal annual installments over a five year period.  Unvested awards are forfeited upon the termination of an individual’s employment with the Company under specified circumstances.  Recipients of RSAs receive dividends, as declared by the Company’s Board of Directors, on unvested shares, provided that the recipient continues to be employed by the Company.  A summary of the Company’s RSAs under the Plan as of March 31, 2010 and changes during the three months ended March 31, 2010, is presented below:
 
   
Number of
RSAs
 
Nonvested balance at December 31, 2009
    461,935  
Granted
    206,711  
Vested
    (84,631 )
Forfeited
    (63,918 )
Nonvested balance at March 31, 2010
    520,097  
 
 
16

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The Company recognizes the value of these awards as an expense over the vesting periods, which amounted to approximately $0.9 million and $0.6 million for the three months ended March 31, 2010 and 2009, respectively.
 
Common Units
 
Upon vesting of awards under the Company’s 2004 Outperformance Bonus Plan in August 2007, the Compensation Committee of the Board of Directors exercised its permitted discretion and granted 132,400 Common Units to selected recipients.
 
11.   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.  During the three months ended March 31, 2010, such derivatives were used to hedge the variable cash flows associated with the Company’s $100 million senior secured term loan and the Cullen Oaks Phase I and Phase II loans.
 
The following table summarizes the Company’s outstanding interest rate swap contracts as of March 31, 2010:
 
   Date Entered
 
   Effective Date
Maturity
Date
Pay Fixed Rate
Receive Floating
 Rate Index
Notional
Amount
 
Fair Value
   Feb. 12, 2007
   Feb. 15, 2007
Feb. 15, 2014
6.689%
LIBOR – 1 mo. plus 1.35%
 $         33,156
 $      (3,730)
   Feb. 23, 2009
   March 20, 2009
Feb. 20, 2012
1.785%
LIBOR – 1 month
            50,000
            (724)
   Feb. 23, 2009
   March 20, 2009
Feb. 20, 2012
1.800%
LIBOR – 1 month
            50,000
            (734)
 
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, 2010 and December 31, 2009:
 
 
Derivative Liabilities
 
   As of March 31, 2010      As of December 31, 2009  
 
Balance Sheet
Location
 
Fair Value
   
Balance Sheet
Location
 
Fair Value
 
 
Interest rate swap contracts
 
Other liabilities
  $ 5,188    
Other Liabilities
  $ 4,356  
Total derivatives designated as hedging
   instruments
    $ 5,188         $ 4,356  
 
 
17

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The table below presents the effect of the Company’s derivative financial instruments on other comprehensive income (“OCI”) for the three months ended March 31, 2010 and 2009:
                 
   
Amount of Loss Recognized
in OCI on Derivative
(Effective Portion)
 
 Cash Flow Hedging  
Three Months Ended
March 31,
 
 Relationships   2010     2009  
                 
Interest rate swap contracts
  $ (832 )   $ (783 )
                 
Total
  $ (832 )   $ (783 )
 
The Company reported comprehensive loss of $0.3 million for the three months ended March 31, 2009, which includes net income of $0.5 million offset by an unrealized loss of $0.8 million (reflected in the table above).
 
12.   Fair Value Disclosures
 
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of March 31, 2010, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.  In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access.  Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals.  Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
 
In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.  Disclosures concerning assets and liabilities measured at fair value are as follows:
 
Fair Value Measurements on a Recurring or Nonrecurring Basis as of March 31, 2010
 
   
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
   
 
Significant Other
Observable Inputs
(Level 2)
   
 
Significant
Unobservable
Inputs (Level 3)
   
 
 
Balance at
March 31, 2010
 
Assets:
                       
  Real estate (1)
  $ 9,100     $ -     $ -     $ 9,100  
Liabilities:
                               
  Derivative financial
    Instruments (2)
  $ -     $ 5,188     $ -     $ 5,188  
 
(1)
During the three months ended March 31, 2010, we recognized an impairment loss of approximately $4.0 million on a wholly-owned property classified as held for sale as of March 31, 2010. We estimated the fair value based on a contract price less selling costs.
   
(2)
The Company uses derivative financial instruments, specifically interest rate swaps, for nontrading purposes. The Company uses interest rate swaps to manage interest rate risk arising from previously unhedged interest payments associated with variable rate debt. Through March 31, 2010, derivative financial instruments were designated and qualified as cash flow hedges. Derivative contracts with positive net fair values inclusive of net accrued interest receipts or payments, are recorded in other assets. Derivative contracts with negative net fair values, inclusive of net accrued interest payments or receipts, are recorded in other liabilities. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
 
 
18

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
The Company incorporates credit valuation adjustments to appropriately reflect its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees.
   
 
Although the Company has determined the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustment associated with its derivative utilizes Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparty. However, as of March 31, 2010, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivative financial instruments. As a result, the Company has determined its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
 
Other Fair Value Disclosures

Cash and Cash Equivalents, Restricted Cash, Student Contracts Receivable, Other Assets, Account Payable and Accrued Expenses and Other Liabilities:  The Company estimated that the carrying amount approximates fair value, due to the short maturity of these instruments.

Derivative Instruments: These instruments are reported on the balance sheet at fair value, which is based on calculations provided by independent, third-party financial institutions and represent the discounted future cash flows expected, based on the projected future interest rate curves over the life of the instrument.

Senior Secured Term Loan, Secured Credit Facilities and Construction Loans: the fair value of the Company’s secured term loan, secured credit facilities and construction loans approximate carrying values due to the variable interest rate feature of these instruments.

Mortgage Loans: the fair value of mortgage loans is based on the present value of the cash flows at current rates through maturity.

Bonds Payable: the fair value of bonds payable is based on market quotes for bonds outstanding.

The table below contains the estimated fair value and related carrying amounts for the Company’s mortgage loans and bonds payable as of March 31, 2010 and December 31, 2009:

     
March 31, 2010
   
December 31, 2009
 
     
Fair Value
   
Carrying Amount
   
Fair Value
   
Carrying Amount
 
 
Mortgage loans
  $ 861,872     $ 823,149     $ 912,332     $ 878,065  
 
Bonds payable
    50,484       51,390       49,865       51,390  

13.  Commitments and Contingencies
Commitments

Development-related guarantees: For its third-party development projects, the Company commonly provides alternate housing and project cost guarantees, subject to force majeure.  These guarantees are typically limited, on an aggregate basis, to the amount of the projects’ related development fees or a contractually agreed-upon maximum exposure amount.  Alternate housing guarantees typically expire five days after construction is complete and generally require the Company to provide substitute living quarters and transportation for students to and from the university if the project is not complete by an agreed-upon completion date.  Under project cost guarantees, the Company is responsible for the construction cost of a project in excess of an approved budget.   The budget consists primarily of costs included in the general contractors’ guaranteed maximum price contract (“GMP”).  In most cases, the GMP obligates the general contractor, subject to force majeure and approved change orders, to provide completion date guarantees and to cover cost overruns and liquidated damages.  In addition, the GMP is typically secured with payment and performance bonds.  Project cost guarantees expire upon completion of certain developer obligations, which are normally satisfied within one year after completion of the project.
 
 
19

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
In the normal course of business, the Company enters into various development-related purchase commitments with parties that provide development-related goods and services.  In the event that the Company was to terminate development services prior to the completion of projects under construction, the Company could potentially be committed to satisfy outstanding purchase orders with such parties.  At March 31, 2010, management did not anticipate any material deviations from schedule or budget related to third-party development projects currently in progress. 

Guaranty of Joint Venture Mortgage Debt: As mentioned in Note 8, the Fidelity Joint Ventures are funded in part with secured third party debt in the amount of $293.5 million.  The Operating Partnership serves as non-recourse, carve-out guarantor of this debt, which means the Operating Partnership is liable to the lender for any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of or in connection with certain non-recourse exceptions in connection with the debt.  Pursuant to the respective limited liability company agreements, the Fidelity Joint Ventures agreed to indemnify, defend and hold harmless the Operating Partnership with respect to such obligations, except to the extent such obligations were caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates.  Therefore, the Operating Partnerships exposure under the guarantees for obligations not caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates is not expected to exceed the Company’s 10% proportionate interest in the related mortgage debt.

The Company has estimated the fair value of guarantees entered into to be immaterial.  The Company’s estimated maximum exposure amount under the above guarantees is approximately $303.1 million.

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.  Once the due diligence period expires, the Company is then at risk under a real property acquisition contract, but only to the extent of any earnest money deposits associated with the contract.
 
Environmental Matters:  The Company is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’s business, assets or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company’s results of operations and cash flows.

14.   Segments

The Company defines business segments by their distinct customer base and service provided.  The Company has identified four reportable segments: Wholly-Owned Properties, On-Campus Participating Properties, Development Services, and Property Management Services.  Management evaluates each segment’s performance based on operating income before depreciation, amortization, noncontrolling interests and allocation of corporate overhead.  Intercompany fees are reflected at the contractually stipulated amounts.

 
20

 

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
Three Months Ended March 31,
 
   
2010
   
2009
 
Wholly-Owned Properties
           
Rental revenues
  $ 71,444     $ 65,575  
Interest and other income
    11       11  
Total revenues from external customers
    71,455       65,586  
Operating expenses before depreciation, amortization, ground/facility lease, and allocation of corporate overhead
    31,691       30,758  
Ground/facility lease
    265       260  
Interest expense
    12,181       13,680  
Operating income before depreciation, amortization and allocation of corporate overhead
  $ 27,318     $ 20,888  
Depreciation and amortization
  $ 16,066     $ 17,901  
Capital expenditures
  $ 4,701     $ 35,813  
Total segment assets at March 31,
  $ 2,032,798     $ 2,070,872  
                 
On-Campus Participating Properties
               
Rental revenues
  $ 7,311     $ 6,874  
Interest and other income
    3       24  
Total revenues from external customers
    7,314       6,898  
Operating expenses before depreciation, amortization, ground/facility lease and allocation of corporate overhead
    2,232       1,897  
Ground/facility lease
    306       292  
Interest expense
    1,503       1,559  
Operating income  before depreciation, amortization and allocation of corporate overhead
  $ 3,273     $ 3,150  
Depreciation and amortization
  $ 1,079     $ 1,090  
Capital expenditures
  $ 43     $ 38  
Total segment assets at March 31,
  $ 79,883     $ 82,318  
                 
Development Services
               
Development and construction management fees from external customers
  $ 574     $ 1,052  
Operating expenses
    2,327       2,267  
Operating loss before depreciation, amortization and allocation of corporate overhead
  $ (1,753 )   $ (1,215 )
Total segment assets at  March 31,
  $ 5,217     $ 6,277  
                 
Property Management Services
               
Property management fees from external customers
  $ 2,214     $ 2,242  
Intersegment revenues
    2,875       2,696  
Total revenues
    5,089       4,938  
Operating expenses
    2,027       1,831  
Operating income before depreciation, amortization and allocation of corporate overhead
  $ 3,062     $ 3,107  
Total segment assets at March 31,
  $ 4,412     $ 6,209  
                 
Reconciliations
               
Total segment revenues
  $ 84,432     $ 78,474  
Unallocated interest income earned on corporate cash
    3       4  
Elimination of intersegment revenues
    (2,875 )     (2,696 )
Total consolidated revenues, including interest income
  $ 81,560     $ 75,782  
Segment operating income before depreciation, amortization and allocation of corporate overhead
  $ 31,900     $ 25,930  
Depreciation and amortization
    (18,530 )     (20,122 )
Net unallocated expenses relating to corporate overhead
    (5,939 )     (4,209 )
Loss from unconsolidated joint ventures
    (1,414 )     (554 )
Income tax provision
    (143 )     (135 )
Income from continuing operations
  $ 5,874     $ 910  
                 
Total segment assets
  $ 2,122,310     $ 2,165,676  
Unallocated corporate assets
    33,245       24,261  
Total assets at March 31,
  $ 2,155,555     $ 2,189,937  
 
 
21

 

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
15.  Subsequent Events

Pay-off of Mortgage Debt:  On April 1, 2010, the Company paid off $17.4 million in fixed-rate mortgage debt secured by one of our wholly-owned properties (River Club Apartments) that was scheduled to mature on August 1, 2010.

Property Disposition: On April 30, 2010, the Company sold Campus Walk – Oxford for a purchase price of $9.2 million, including the assumption of the existing $8.1 million mortgage loan, resulting in net proceeds of approximately $0.8 million.

Distributions:  On May 5, 2010, the Company declared a first quarter 2010 distribution per share of $0.3375 which will be paid on May 28, 2010 to all common stockholders of record as of May 18, 2010.  At the same time, the Operating Partnership will pay an equivalent amount per unit to holders of Common Units, as well as the quarterly cumulative preferential distribution to holders of Series A Preferred Units (see Note 7).
 
Adoption of New Incentive Award Plan:  On May 6, 2010, the Company’s stockholders, upon the recommendation of the Board of Directors, approved the American Campus Communities, Inc. 2010 Incentive Award Plan (the “2010 Plan”).  The 2010 Plan includes an authorization to issue up to 1,683,110 shares of the Company’s common stock (1,500,000 newly authorized shares plus 183,110 shares available for grant under the Company’s 2004 Incentive Award Plan as of March 15, 2010.  The 2010 Plan provides for various types of equity awards to directors, executive and other officers and key employees. The types of awards that may be granted under the 2010 Plan include incentive stock options, nonqualified stock options, RSAs, RSUs, profits interest units (“PIUs”) and other stock-based awards.
 
 
22

 
 
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; risks associated with changes in university admission or housing policies; risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; risks and uncertainties affecting property development and construction; risks associated with downturns in the national and local economies, volatility in capital and credit markets, increases in interest rates, and volatility in the securities markets; costs of compliance with the Americans with Disabilities Act and other similar laws; potential liability for uninsured losses and environmental contamination; and risks associated with our Company’s potential failure to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”), as amended, and possible adverse changes in tax and environmental laws.
 
The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
 
Our Company and Our Business
 
American Campus Communities, Inc. (referred to herein as the “Company,” “us,” “we,” and “our”) is a real estate investment trust (“REIT”) that was incorporated on March 9, 2004 and commenced operations effective with the completion of our initial public offering (“IPO”) on August 17, 2004.  Through our controlling interest in American Campus Communities Operating Partnership LP (the “Operating Partnership”), we are one of the largest owners, managers and developers of high quality student housing properties in the United States in terms of beds owned, developed, and under management.  We are a fully integrated, self-managed and self-administered equity REIT with expertise in the acquisition, design, financing, development, construction management, leasing and management of student housing properties.
 
As of March 31, 2010, our property portfolio contained 85 student housing properties with approximately 52,100 beds and approximately 17,000 apartment units.  Our property portfolio consisted of 79 owned off-campus properties that are in close proximity to colleges and universities, two American Campus Equity (“ACE®”) properties operated under ground/facility leases with a related university system and four on-campus participating properties operated under ground/facility leases with the related university systems.  As of March 31, 2010, we also owned a noncontrolling interest in two joint ventures that owned an aggregate of 18 student housing properties with approximately 9,800 beds in approximately 2,900 units.  Our communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
 
 
23

 
 
Through our taxable REIT subsidiaries (“TRS”), we provide construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others.  As of March 31, 2010, we provided third-party management and leasing services for 33 properties (five of which we served as the third-party developer and construction manager) that represented approximately 24,700 beds in approximately 9,400 units.  Third-party management and leasing services are typically provided pursuant to multi-year management contracts that have initial terms that range from one to five years.  As of March 31, 2010, our total owned, joint venture and third-party managed portfolio was comprised of 136 properties with approximately 86,600 beds in approximately 29,300 units.
 
Third-Party Development Services
 
Our third-party development and construction management services as of March 31, 2010 consisted of three projects under contract and currently in progress with fees ranging from $2.5 million to $7.6 million.  As of March 31, 2010, fees of approximately $2.2 million remained to be earned by us with respect to these projects, which have scheduled completion dates of July 2010 through August 2011.
 
While we believe that our third party development/construction management and property management services allow us to develop strong and key relationships with colleges and universities, revenue from this area has over time become a smaller portion of our operations due to the continued focus on and growth of our wholly-owned property portfolio.  Nevertheless, we believe these services continue to provide synergies with respect to our ability to identify, acquire or develop, and successfully operate, student housing properties.
 
American Campus Equity (“ACE®”) Development Activities
 
An emerging opportunity in the wholly-owned property segment is the equity investment and ownership of on-campus housing via traditional long-term ground leases.  Branded and marketed to colleges and universities as the ACE program, the transaction structure provides us with what we believe is a lower-risk opportunity compared to other off-campus projects, as our ACE projects will have premier on-campus locations with marketing and operational assistance from the university.  The subject university substantially benefits by increasing its housing capacity with modern, well-amenitized student housing with no or minimal impacts to its own credit ratios, preserving the university’s credit capacity to fund academic and research facilities.
 
 
24

 

          Property Operations
 
As of March 31, 2010 our property portfolio consisted of the following:
 
PROPERTY
 
YR ACQUIRED /
DEVELOPED (1)
 
LOCATION
 
PRIMARY UNIVERSITY SERVED
 
UNITS
   
BEDS
 
Wholly-Owned properties:
                       
1. Villas on Apache
 
1999
 
Tempe, AZ
 
Arizona State University Main Campus
    111       288  
2. River Club Apartments
 
1999
 
Athens, GA
 
The University of Georgia – Athens
    266       792  
3. River Walk Townhomes
 
1999
 
Athens, GA
 
The University of Georgia – Athens
    100       336  
4. The Village at Blacksburg
 
2000
 
Blacksburg, VA
 
Virginia Polytechnic Inst. & State University
    288       1,056  
5. The Callaway House
 
2001
 
College Station, TX
 
Texas A&M University
    173       538  
6. The Village at Alafaya Club
 
2000
 
Orlando, FL
 
The University of Central Florida
    228       839  
7. The Village at Science Drive
 
2001
 
Orlando, FL
 
The University of Central Florida
    192       732  
8. University Village at Boulder Creek
 
2002
 
Boulder, CO
 
The University of Colorado at Boulder
    82       309  
9. University Village at Fresno
 
2004
 
Fresno, CA
 
California State University – Fresno
    105       406  
10. University Village at TU (2)
 
2004
 
Philadelphia, PA
 
Temple University
    220       749  
11. University Club Tallahassee
 
2005
 
Tallahassee, FL
 
Florida State University
    152       608  
12. The Grove at University Club
 
2005
 
Tallahassee, FL
 
Florida State University
    64       128  
13. College Club Tallahassee
 
2005
 
Tallahassee, FL
 
Florida A&M University
    96       384  
14. The Greens at College Club
 
2005
 
Tallahassee, FL
 
Florida A&M University
    40       160  
15. University Club Gainesville
 
2005
 
Gainesville, FL
 
University of Florida
    94       376  
16. City Parc at Fry Street
 
2005
 
Denton, TX
 
University of North Texas
    136       418  
17. The Estates
 
2005
 
Gainesville, FL
 
University of Florida
    396       1,044  
18. University Village at Sweet Home
 
2005
 
Amherst, NY
 
State University of New York – Buffalo
    269       828  
19. Entrada Real
 
2006
 
Tucson, AZ
 
University of Arizona
    98       363  
20. Royal Oaks
 
2006
 
Tallahassee, FL
 
Florida State University
    82       224  
21. Royal Pavilion
 
2006
 
Tallahassee, FL
 
Florida State University
    60       204  
22. Royal Village Tallahassee
 
2006
 
Tallahassee, FL
 
Florida State University
    75       288  
23. Royal Village Gainesville
 
2006
 
Gainesville, FL
 
University of Florida
    118       448  
24. Northgate Lakes
 
2006
 
Orlando, FL
 
The University of Central Florida
    194       710  
25. Royal Lexington
 
2006
 
Lexington, KY
 
University of Kentucky
    94       364  
26. The Woods at Greenland
 
2006
 
Murfreesboro, TN
 
Middle Tennessee State University
    78       276  
27. Raider’s Crossing
 
2006
 
Murfreesboro, TN
 
Middle Tennessee State University
    96       276  
28. Raider’s Pass
 
2006
 
Lubbock, TX
 
Texas Tech University
    264       828  
29. Aggie Station
 
2006
 
College Station, TX
 
Texas A&M University
    156       450  
30. The Outpost San Marcos
 
2006
 
San Marcos, TX
 
Texas State University – San Marcos
    162       486  
31. The Outpost San Antonio
 
2006
 
San Antonio, TX
 
University of Texas – San Antonio
    276       828  
32. Callaway Villas
 
2006
 
College Station, TX
 
Texas A&M University
    236       704  
33. Village on Sixth
 
2007
 
Huntington, WV
 
Marshall University
    248       752  
34. Newtown Crossing
 
2007
 
Lexington, KY
 
University of Kentucky
    356       942  
35. Olde Towne University Square
 
2007
 
Toledo, OH
 
University of Toledo
    224       550  
36. Peninsular Place
 
2007
 
Ypsilanti, MI
 
Eastern Michigan University
    183       478  
37. University Centre
 
2007
 
Newark, NJ
 
Rutgers University, NJIT, Essex CCC
    234       838  
38. Sunnyside Commons
 
2008
 
Morgantown, WV
 
West Virginia University
    68       161  
39. Pirate’s Place
 
2008
 
Greenville, NC
 
East Carolina University
    144       528  
40. University Highlands
 
2008
 
Reno, NV
 
University of Nevada at Reno
    216       732  
41. Jacob Heights I
 
2008
 
Mankato, MN
 
Minnesota State University
    42       162  
 
 
25

 
 
PROPERTY
 
YR ACQUIRED /
DEVELOPED (1)
 
 
 
LOCATION
 
 
PRIMARY UNIVERSITY SERVED
 
UNITS
   
BEDS
 
42. Jacob Heights III
 
2008
 
Mankato, MN
 
Minnesota State University
    24       96  
43. The Summit
 
2008
 
Mankato, MN
 
Minnesota State University
    192       672  
44. GrandMarc – Seven Corners
 
2008
 
Minneapolis, MN
 
University of Minnesota
    186       440  
45. University Village – Sacramento
 
2008
 
Sacramento, CA
 
California State University – Sacramento
    250       394  
46. Aztec Corner
 
2008
 
San Diego, CA
 
San Diego State University
    180       606  
47. University Crossings
 
2008
 
Philadelphia, PA
 
University of Pennsylvania / Drexel
    260       1,016  
48. Campus Corner
 
2008
 
Bloomington, IN
 
Indiana University
    254       796  
49. Tower at 3rd
 
2008
 
Champaign, IL
 
University of Illinois
    147       295  
50. University Mills
 
2008
 
Cedar Falls, IA
 
University of Northern Iowa
    121       481  
51. Pirates Cove
 
2008
 
Greenville, NC
 
East Carolina University
    264       1,056  
52. University Manor
 
2008
 
Greenville, NC
 
East Carolina University
    168       600  
53. Brookstone Village
 
2008
 
Wilmington, NC
 
UNC – Wilmington
    124       238  
54. Campus Walk – Wilmington
 
2008
 
Wilmington, NC
 
UNC – Wilmington
    289       290  
55. Campus Club – Statesboro
 
2008
 
Statesboro, GA
 
Georgia Southern University
    276       984  
56. University Pines
 
2008
 
Statesboro, GA
 
Georgia Southern University
    144       552  
57. Lakeside
 
2008
 
Athens, GA
 
University of Georgia
    244       776  
58. The Club
 
2008
 
Athens, GA
 
University of Georgia
    120       480  
59. The Edge
  2008  
Orlando, FL
 
Central Florida
    306       930  
60. University Place
  2008  
Charlottesville, VA
 
University of Virginia
    144       528  
61. Southview
  2008  
Harrisonburg, VA
 
James Madison University
    240       960  
62. Stonegate
  2008  
Harrisonburg, VA
 
James Madison University
    168       672  
63. The Commons
  2008  
Harrisonburg, VA
 
James Madison University
    132       528  
64. University Gables
  2008  
Murfreesboro, TN
 
Middle Tennessee State University
    168