t71195_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 June 30, 2011.   
 
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.)
12700 Hill Country Blvd., Suite T-200
Austin, TX
(Address of Principal Executive Offices)
 
78738
(Zip Code)
 
(512) 732-1000
Registrant’s telephone number, including area code
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x   Accelerated Filer o
     
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
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 69,533,144 shares of American Campus Communities, Inc.s common stock with a par value of $0.01 per share outstanding as of the close of business on July 29, 2011.
 


 
 

 

FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2011
 
TABLE OF CONTENTS
 
 
PAGE
NO.
     
PART I.
   
       
Item 1.
Consolidated Financial Statements
   
       
 
1
 
       
 
2
 
       
 
3
 
       
 
4
 
       
 
5
 
       
19
 
       
35
 
       
35
 
     
   
       
36
 
     
37
 
 
 
 

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
   
June 30, 2011
   
December 31, 2010
 
   
(unaudited)
       
Assets
           
             
Investments in real estate:
           
  Wholly-owned properties, net
  $ 2,418,995     $ 2,433,844  
  On-campus participating properties, net
    61,186       62,486  
Investments in real estate, net
    2,480,181       2,496,330  
                 
Cash and cash equivalents
    48,263       113,507  
Restricted cash
    26,798       26,764  
Student contracts receivable, net
    3,616       5,736  
Other assets
    62,232       51,147  
                 
Total assets
  $ 2,621,090     $ 2,693,484  
                 
Liabilities and equity
               
                 
Liabilities:
               
  Secured mortgage, construction and bond debt
  $ 911,508     $ 1,144,103  
  Unsecured term loan
    200,000       -  
  Senior secured term loan
    -       100,000  
  Secured agency facility
    96,000       101,000  
  Accounts payable and accrued expenses
    30,369       34,771  
  Other liabilities
    57,167       61,011  
Total liabilities
    1,295,044       1,440,885  
                 
Commitments and contingencies (Note 14)
               
                 
Redeemable noncontrolling interests
    36,280       34,704  
                 
Equity:
               
  American Campus Communities, Inc. stockholders’ equity:
    Common stock, $.01 par value, 800,000,000 shares authorized,
      69,533,144 and 66,875,663 shares issued and outstanding at June
      30, 2011 and December 31, 2010, respectively
         693           667  
    Additional paid in capital
    1,546,320       1,468,179  
    Accumulated earnings and dividends
    (256,308 )     (249,381 )
    Accumulated other comprehensive loss
    (4,576 )     (5,503 )
    Total American Campus Communities, Inc. stockholders’ equity
    1,286,129       1,213,962  
  Noncontrolling interests
    3,637       3,933  
Total equity
    1,289,766       1,217,895  
                 
Total liabilities and equity
  $ 2,621,090     $ 2,693,484  
 
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 June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues:
                       
  Wholly-owned properties
  $ 82,927     $ 65,775     $ 169,681     $ 134,175  
  On-campus participating properties
    4,457       4,142       12,104       11,453  
  Third party development services
    758       1,628       4,582       2,202  
  Third party management services
    1,803       2,121       3,633       4,335  
  Resident services
    274       242       615       494  
Total revenues
    90,219       73,908       190,615       152,659  
                                 
Operating expenses:
                               
  Wholly-owned properties
    37,961       30,901       76,157       61,083  
  On-campus participating properties
    2,881       2,620       4,625       5,019  
  Third party development and management services
    2,631       2,796       5,313       5,895  
  General and administrative
    3,278       2,616       6,051       5,369  
  Depreciation and amortization
    21,791       17,082       43,342       33,858  
  Ground/facility leases
    658       753       1,814       1,324  
Total operating expenses
    69,200       56,768       137,302       112,548  
                                 
Operating income
    21,019       17,140       53,313       40,111  
                                 
Nonoperating income and (expenses):
                               
  Interest income
    159       16       209       33  
  Interest expense
    (12,178 )     (14,961 )     (26,191 )     (29,751 )
  Amortization of deferred financing costs
    (1,329 )     (997 )     (2,559 )     (2,008 )
  Loss from unconsolidated joint ventures
    (13 )     (711 )     (25 )     (2,125 )
Total nonoperating expenses
    (13,361 )     (16,653 )     (28,566 )     (33,851 )
                                 
Income before income taxes and discontinued operations
    7,658       487       24,747       6,260  
Income tax provision
    (142 )     (142 )     (285 )     (285 )
Income from continuing operations
    7,516       345       24,462       5,975  
                                 
Discontinued operations:
                               
Income (loss) attributable to discontinued operations
    91       651       1,025       (3,388 )
Gain (loss) from disposition of real estate
    14,574       (59 )     14,574       (3,705 )
Total discontinued operations
    14,665       592       15,599       (7,093 )
                                 
Net income (loss)
    22,181       937       40,061       (1,118 )
Net income attributable to noncontrolling interests
    (441 )     (169 )     (908 )     (303 )
Net income (loss) attributable to common shareholders
  $ 21,740     $ 768     $ 39,153     $ (1,421 )
                                 
Net income (loss) per share attributable to common shareholders- basic and diluted:
                               
Income from continuing operations per share
  $ 0.10     $ 0.00     $ 0.34     $ 0.10  
Net income (loss) per share
  $ 0.31     $ 0.01     $ 0.57     $ (0.03 )
                                 
Weighted-average common shares outstanding:
                               
Basic
    68,655,732       52,335,642       67,810,944       52,285,919  
Diluted
    69,211,856       52,853,003       68,387,966       52,829,613  
                                 
Distributions declared per common share
  $ 0.3375     $ 0.3375     $ 0.675     $ 0.675  
 
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, 2010
    66,875,663     $ 667     $ 1,468,179     $ (249,381 )   $ (5,503 )   $ 3,933     $ 1,217,895  
     Net proceeds from sale of common stock
    2,490,358       25       82,100       -       -       -       82,125  
     Adjustments to reflect redeemable noncontrolling interests at fair value
    -       -       (2,928 )     -       -       -       (2,928 )
     Amortization of restricted stock awards
    -       -       2,076       -       -       -       2,076  
     Vesting of restricted stock awards
    102,522       -       (1,269 )     -       -       -       (1,269 )
     Distributions to common and restricted stockholders
    -       -       -       (46,080 )     -       -       (46,080 )
     Distributions to joint venture partners
    -       -       -       -       -       (247 )     (247 )
     Conversion of common units to common stock
    64,601       1       1,101       -       -       -       1,102  
     Increase in ownership of consolidated subsidiaries
    -       -       (2,939 )     -       -       (336 )     (3,275 )
     Comprehensive income:
                                                       
       Change in fair value of interest rate swaps
    -       -       -       -       927       -       927  
       Net income
    -       -       -       39,153       -       287       39,440  
       Total comprehensive income
                                                    40,367  
Equity, June 30, 2011
    69,533,144     $ 693     $ 1,546,320     $ (256,308 )   $ (4,576 )   $ 3,637     $ 1,289,766  
 
See accompanying notes to consolidated financial statements.
 
 
3

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
   
Six Months Ended June 30,
 
   
2011
   
2010
 
Operating activities
           
Net income (loss)
  $ 40,061     $ (1,118 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
    (Gain) loss from disposition of real estate
    (14,574 )     3,705  
    Provision for asset impairment
    -       4,036  
    Depreciation and amortization
    44,376       35,617  
    Amortization of deferred financing costs and debt premiums/discounts
    (419 )     2,120  
    Share-based compensation
    2,191       1,948  
    Loss from unconsolidated joint ventures
    25       2,125  
    Distributions received from unconsolidated joint ventures
    -       180  
    Income tax provision
    285       285  
    Changes in operating assets and liabilities:
               
              Restricted cash
    (1,880 )     2,744  
              Student contracts receivable, net
    2,120       1,262  
              Other assets
    (10,592 )     (3,261 )
              Accounts payable and accrued expenses
    (5,704 )     (772 )
              Other liabilities
    (4,284 )     (2,958 )
Net cash provided by operating activities
    51,605       45,913  
Investing activities
               
     Cash paid for increased ownership in consolidated subsidiaries
    (3,275 )     -  
     Net proceeds from disposition of real estate
    80,883       2,115  
     Cash paid for land and property acquisitions
    (7,970 )     (17,213 )
     Investments in wholly-owned properties
    (80,600 )     (15,023 )
     Investments in on-campus participating properties
    (907 )     (224 )
     Change in restricted cash related to capital reserves
    635       (2,330 )
     Proceeds from insurance settlement
    1,546       -  
     Purchase of corporate furniture, fixtures and equipment
    (727 )     (436 )
Net cash used in investing activities
    (10,415 )     (33,111 )
Financing activities
               
     Proceeds from sale of common stock
    83,727       7,663  
     Offering costs
    (1,418 )     (130 )
     Proceeds from unsecured term loan
    200,000       -  
     Pay-off of secured term loan
    (100,000 )     -  
     Proceeds from secured revolving credit facility
    60,000       30,100  
     Paydown of secured revolving credit facility
    (60,000 )     -  
     Paydown of secured agency facility
    (5,000 )     -  
     Pay-off of mortgage and construction loans
    (225,528 )     (51,892 )
     Principal payments on debt
    (4,424 )     (6,846 )
     Debt issuance costs
    (6,750 )     (31 )
     Distributions to common and restricted stockholders
    (46,080 )     (35,833 )
     Distributions to noncontrolling partners
    (961 )     (994 )
 Net cash used in financing activities
    (106,434 )     (57,963 )
                 
Net change in cash and cash equivalents
    (65,244 )     (45,161 )
Cash and cash equivalents at beginning of period
    113,507       66,093  
Cash and cash equivalents at end of period
  $ 48,263     $ 20,932  
                 
Supplemental disclosure of non-cash investing and financing activities
               
     Change in fair value of derivative instruments, net
  $ 927     $ (1,703 )
Supplemental disclosure of cash flow information
               
     Interest paid
  $ 29,393     $ 29,204  
 
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 June 30, 2011, the Company’s property portfolio contained 107 student housing properties with approximately 66,400 beds in approximately 21,200 apartment units.  The Company’s property portfolio consisted of 95 owned off-campus properties that are in close proximity to colleges and universities, eight American Campus Equity (“ACE®”) properties operated under ground/facility leases with five university systems and four on-campus participating properties operated under ground/facility leases with the related university systems.  Of the 107 student housing properties, 11 were under development as of June 30, 2011, and when completed will consist of a total of approximately 7,200 beds in approximately 2,000 units.  The Company’s communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
 
Through the Company’s taxable REIT subsidiaries (“TRS”), it also provides construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others.  As of June 30, 2011, the Company provided third-party management and leasing services for 34 properties (nine of which the Company served as the third-party developer and construction manager) that represented approximately 24,700 beds in approximately 9,700 units, and one joint venture property in which we own a noncontrolling interest with approximately 600 beds in approximately 200 units.  Third-party management and leasing services are typically provided pursuant to management contracts that have initial terms that range from one to five years.  As of June 30, 2011, the Company’s total owned, joint venture and third-party managed portfolio included 142 properties with approximately 91,700 beds in approximately 31,100 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 two 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

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011-05 (“ASU 2011-05”), “Presentation of Comprehensive Income.”  ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and requires all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  Additionally, ASU 2011-05 requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income.  ASU 2011-05 is effective for the Company beginning January 1, 2012 and its adoption will change where the Company presents other comprehensive income components within our 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, 2010.
 
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.
 
 
5

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Investments in Real Estate
 
Investments in real estate are recorded at historical cost.  Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset.  The cost of ordinary repairs and maintenance are charged to expense when incurred.  Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:
 
Buildings and improvements
 
7-40 years
Leasehold interest - on-campus
   participating properties
 
25-34 years (shorter of useful life or respective lease term)
Furniture, fixtures and equipment
 
3-7 years
 
Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred finance costs, are capitalized as construction in progress.  Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences.  Interest totaling approximately $2.1 million and $0.2 million was capitalized during the three months ended June 30, 2011 and 2010, respectively, and $3.1 million and $0.2 million was capitalized during the six months ended June 30, 2011 and 2010, respectively.  Amortization of deferred financing costs totaling approximately $54,000 and $-0- was capitalized as construction in progress during the three months ended June 30, 2011 and 2010, respectively, and $0.1 million and $-0- was capitalized as construction in progress during the six months ended June 30, 2011 and 2010, respectively.
 
Management assesses whether there has been an impairment in the value of the Company’s investments in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Impairment is recognized when estimated expected future undiscounted cash flows are less than the carrying value of the property.  The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions.  If such conditions change, then an adjustment to the carrying value of the Company’s long-lived assets could occur in the future period in which the conditions change.  To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings. The Company believes that there were no impairments of the carrying values of its investments in real estate as of June 30, 2011.
 
Intangible Assets

In connection with property acquisitions completed in 2010 and the acquisition of GMH Communities Trust (“GMH”) in June 2008, the Company capitalized approximately $7.3 million 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 $1.4 million and $0.1 million for the three months ended June 30, 2011 and 2010, respectively, and approximately $2.9 million and $0.2 million for the six months ended June 30, 2011 and 2010, respectively.

In 2008, the Company also capitalized $1.5 million related to management’s estimate of the fair value of third-party management contracts acquired from GMH.  These intangible assets are amortized on a straight-line basis over a period of three years.  Amortization expense related to these acquired management contracts was approximately $0.1 million for both three month periods ended June 30, 2011 and 2010 and approximately $0.2 million for both six month periods ended June 30, 2011 and 2010.

Accumulated amortization at June 30, 2011 and December 31, 2010 was approximately $7.9 million and $4.7 million, respectively.  Intangible assets, net of amortization, are included in other assets on the accompanying consolidated balance sheets and amortization of intangible assets is included in depreciation and amortization expense in the accompanying consolidated statements of operations.  See Note 3 herein for a detailed discussion of the property acquisitions completed during 2010.
 
Third-Party Development Services Revenue and Costs
 
Pre-development expenditures such as architectural fees, permits and deposits associated with the pursuit of third-party and owned development projects are expensed as incurred, until such time that management believes it is probable that the contract will be executed and/or construction will commence.  Because the Company frequently incurs these pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained, the Company bears the risk of loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or the Company is unable to successfully obtain the required permits and authorizations.  As such, management evaluates the status of third-party and owned projects that have not yet commenced construction on a periodic basis and expenses any deferred costs related to projects whose current status indicates the commencement of construction is unlikely and/or the costs may not provide future value to the Company in the form of revenues.  Such write-offs are included in third-party development and management services expenses (in the case of third-party development projects) or general and administrative expenses (in the case of owned development projects) on the accompanying consolidated statements of operations.  As of June 30, 2011, the Company has deferred approximately $9.5 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.
 
Earnings per Share
 
Basic earnings per share is computed using net income (loss) attributable to common shareholders and the weighted average number of shares of the Company’s common stock outstanding during the period.  Diluted earnings per share reflect common shares issuable from the assumed conversion of common and preferred Operating Partnership units and common share awards granted.  Only those items having a dilutive impact on basic earnings per share are included in diluted earnings per share.
 
 
6

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The following potentially dilutive securities were outstanding for the three and six months ended June 30, 2011 and 2010, respectively, but were not included in the computation of diluted earnings per share because the effects of their inclusion would be anti-dilutive.
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Common Operating Partnership units (Note 7)
    907,435       1,171,085       924,317       1,179,528  
Preferred Operating Partnership units (Note 7)
    114,128       114,963       114,401       114,963  
Total potentially dilutive securities
    1,021,563       1,286,048       1,038,718       1,294,491  
                                 
Basic earnings per share calculation:
                               
Income from continuing operations
  $ 7,516     $ 345     $ 24,462     $ 5,975  
Income from continuing operations attributable to noncontrolling interests
    (225 )     (155 )     (677 )     (475 )
Income from continuing operations attributable to common shareholders
    7,291       190       23,785       5,500  
Amount allocated to participating securities
    (188 )     (175 )     (424 )     (400 )
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
    7,103       15       23,361       5,100  
                                 
Income (loss) from discontinued operations
    14,665       592       15,599       (7,093 )
Income (loss) from discontinued operations attributable to noncontrolling interests
    (216 )     (14 )     (231 )     172  
Income (loss) from discontinued operations attributable to common shareholders
    14,449       578       15,368       (6,921 )
Net income (loss) attributable to common shareholders, as adjusted - basic
  $ 21,552     $ 593     $ 38,729     $ (1,821 )
                                 
Income from continuing operations attributable to common shareholders, as adjusted – per share
  $ 0.10     $ 0.00     $ 0.34     $ 0.10  
Income (loss) from discontinued operations attributable to common shareholders – per share
  $ 0.21     $ 0.01     $ 0.23     $ (0.13 )
Net income (loss) attributable to common shareholders, as adjusted – per share
  $ 0.31     $ 0.01     $ 0.57     $ (0.03 )
                                 
Basic weighted average common shares outstanding
    68,655,732       52,335,642       67,810,944       52,285,919  
                                 
Diluted earnings per share calculation:
                               
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
  $ 7,103     $ 15     $ 23,361     $ 5,100  
Income (loss) from discontinued operations attributable to common shareholders
    14,449       578       15,368       (6,921 )
Net income (loss) attributable to common shareholders, as adjusted - diluted
  $ 21,552     $ 593     $ 38,729     $ (1,821 )
                                 
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities – per share
  $ 0.10     $ 0.00     $ 0.34     $ 0.10  
Income (loss) from discontinued operations attributable to common shareholders – per share
  $ 0.21     $ 0.01     $ 0.23     $ (0.13 )
Net income (loss) attributable to common shareholders – per share
  $ 0.31     $ 0.01     $ 0.57     $ (0.03 )
 
 
7

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Basic weighted average common shares outstanding
    68,655,732       52,335,642       67,810,944       52,285,919  
Restricted Stock Awards (Note 11)
    556,124       517,361       577,022       543,694  
Diluted weighted average common shares outstanding
    69,211,856       52,853,003       68,387,966       52,829,613  
 
3.  Property Acquisitions
 
In September and November 2010, the Company acquired the remaining 90% interest in 14 student housing properties previously owned in two joint ventures with Fidelity (hereinafter referred to as the “Fidelity Joint Ventures”) in which the Company previously held a 10% interest.  The purchase price for the 90% interest acquired was approximately $340.4 million.  Subsequent to the acquisition, the Company now consolidates the 14 properties acquired.
 
Also during 2010, the Company acquired three additional properties containing 1,883 beds in three separate transactions for a combined purchase price of approximately $65.2 million.
 
The acquired property’s results of operations have been included in the accompanying consolidated statements of operations since the respective acquisition closing dates.  The following pro forma information for the three and six months ended June 30, 2011 and 2010 presents consolidated financial information for the Company as if the property acquisitions discussed above and the August 2010 equity offering had occurred on January 1, 2010.  The unaudited pro forma information is provided for informational purposes only and is not indicative of results that would have occurred or which may occur in the future:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Total revenues
  $ 90,219     $ 87,651     $ 190,615     $ 180,527  
Net income attributable to common shareholders
  $ 23,191     $ 2,736     $ 42,055     $ 1,662  
Net income per share – basic
  $ 0.34     $ 0.04     $ 0.61     $ 0.02  
Net income per share – diluted
  $ 0.33     $ 0.04     $ 0.61     $ 0.02  
 
 4.  Property Dispositions and Discontinued Operations
 
On April 5, 2011, the Company sold Villas on Apache, an unencumbered owned off-campus property, for a sales price of approximately $14.8 million resulting in net proceeds of approximately $14.4 million.  The resulting gain on disposition of approximately $6.9 million is included in discontinued operations on the accompanying consolidated statements of operations for the three and six months ended June 30, 2011.
 
On April 25, 2011, the Company sold two unencumbered owned off-campus properties, River Club Apartments and River Walk Townhomes, for a total sales price of approximately $32.7 million resulting in combined net proceeds of approximately $32.0 million.  The resulting gain on disposition of approximately $6.7 million is included in discontinued operations on the accompanying consolidated statements of operations for the three and six months ended June 30, 2011.
 
On May 26, 2011, the Company sold Campus Club – Statesboro, an unencumbered owned off-campus property, for a sales price of approximately $34.5 million resulting in net proceeds of approximately $34.1 million.  The resulting gain on disposition of approximately $1.0 million is included in discontinued operations on the accompanying consolidated statements of operations for the three and six months ended June 30, 2011.
 
Discontinued operations for the three and six months ended June 30, 2010 also includes the Cambridge at Southern and Campus Walk – Oxford owned off campus properties, which were sold in March and April 2010, respectively.  Discontinued operations for the six months ended June 30, 2010 also includes an impairment charge of approximately $4.0 million recorded to reflect Campus Walk - Oxford at the lower of its historical cost or fair value less estimated selling costs.
 
 
8

 
 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Below is a summary of the results of operations for the properties discussed above through their respective disposition dates for all periods presented:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Total revenues
  $ 1,122     $ 2,921     $ 4,041     $ 6,876  
Total operating expenses
    (718 )     (1,504 )     (1,982 )     (3,500 )
Depreciation and amortization
    (313 )     (713 )     (1,034 )     (1,759 )
Provision for asset impairment
    -       -       -       (4,036 )
   Operating income (loss)
    91       704       1,025       (2,419 )
Total nonoperating expenses
    -       (53 )     -       (969 )
   Net income (loss)
  $ 91     $ 651     $ 1,025     $ (3,388 )
 
5.  Investments in Wholly-Owned Properties
 
Wholly-owned properties consisted of the following:
 
   
June 30, 2011
   
December 31, 2010
 
Land (1)
  $ 311,466     $ 313,005  
Buildings and improvements
    2,113,885       2,177,780  
Furniture, fixtures and equipment
    125,823       129,175  
    Construction in progress
    127,180       54,244  
      2,678,354       2,674,204  
Less accumulated depreciation
    (259,359 )     (240,360 )
Wholly-owned properties, net
  $ 2,418,995     $ 2,433,844  
 
(1)
The land balance above includes undeveloped land parcels with book values of approximately $31.3 million and $36.0 million as of June 30, 2011 and December 31, 2010, respectively.  Also includes land totaling approximately $20.3 million and $7.6 million as of June 30, 2011 and December 31, 2010, respectively, related to properties under development.
 
6.  On-Campus Participating Properties
 
On-campus participating properties are as follows:
 
           
Historical Cost
 
Lessor/University
 
Lease
Commencement
 
Required Debt
Repayment (1)
 
June 30, 2011
   
December 31, 2010
 
Texas A&M University System /
   Prairie View A&M University (2)
 
2/1/96
 
9/1/23
  $ 39,807     $ 39,393  
                         
Texas A&M University System /
   Texas A&M International
 
2/1/96
 
9/1/23
    6,549       6,317  
                         
Texas A&M University System /
   Prairie View A&M University (3)
 
10/1/99
 
8/31/25/
8/31/28
    24,929       24,762  
                         
University of Houston System /
   University of Houston (4)
 
9/27/00
 
8/31/35
    35,487       35,393  
              106,772       105,865  
Less accumulated amortization
            (45,586 )     (43,379 )
On-campus participating properties, net
          $ 61,186     $ 62,486  
 
(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.
 
 
9

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(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:  As of June 30, 2011, the Company consolidates three joint ventures that own and operate 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 included in net income attributable to noncontrolling interests on the consolidated statements of operations.
 
During the six months ended June 30, 2011, the Company acquired the remaining noncontrolling interest from the third-party partner in the joint venture that owns and operates the Callaway House owned off-campus property.  The Company paid approximately $3.2 million in cash consideration for the remaining noncontrolling interest and recognized the $2.8 million excess of consideration paid over the carrying amount of the noncontrolling interest acquired as an adjustment to additional paid in capital in the accompanying consolidated statement of changes in equity.
 
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.  Changes in the value from period to period are charged to additional paid in capital on the accompanying consolidated statement of changes in equity.  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.  Below is a table summarizing the activity of redeemable noncontrolling interests for the six months ended June 30, 2011:
 
Balance, December 31, 2010
  $ 34,704  
Net income
    621  
Distributions
    (714 )
Conversions of Common Units into common shares
    (1,103 )
Partnership units retained in connection with property acquisition
    (156 )
Adjustments to reflect Common Units at fair value
    2,928  
Balance, June 30, 2011
  $ 36,280  
 
During the six months ended June 30, 2011 and 2010, 64,601 and 37,004 Common Units, respectively, were converted into shares of the Company’s common stock.  As of June 30, 2011 and December 31, 2010, approximately 1% and 2%, respectively, of the equity interests of the Operating Partnership was held by owners of Common Units and Series A Preferred Units.
 
8.   Investment in Unconsolidated Joint Ventures
 
As of June 30, 2011, the Company owned noncontrolling interests in two unconsolidated joint ventures that are accounted for utilizing the equity method of accounting.  The first investment consists of a 10% noncontrolling interest in a joint venture with Fidelity which owns one property containing 636 beds.  The second investment consists of a noncontrolling equity interest in a joint venture with the United States Navy that owns military housing privatization projects located on naval bases in Norfolk and Newport News, Virginia.  The Company’s investments in these joint ventures, included in other assets on the accompanying consolidated balance sheets, totaled approximately $0.3 million as of both June 30, 2011 and December 31, 2010.
 
 
10

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The Company also earns fees for providing management and development services to these joint ventures.  For the three and six months ended June 30, 2011, the Company earned management fees of approximately $0.4 million and $0.9 million, respectively, from these joint ventures.  For the three and six months ended June 30, 2010, the Company earned combined development and management fees of approximately $0.9 million and $1.7 million, respectively, from these joint ventures.  The management fees earned in 2010 also include fees earned from another unconsolidated joint venture with Fidelity that owned 11 properties that became wholly-owned by the Company in September 2010.
 
9.   Debt
 
A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows:
 
   
June 30, 2011
   
December 31, 2010
 
Debt secured by wholly-owned properties:
           
  Mortgage loans payable
  $ 822,920     $ 952,374  
  Construction loan payable
    -       100,000  
      822,920       1,052,374  
Debt secured by on-campus participating properties:
               
  Mortgage loans payable
    32,258       32,421  
  Bonds payable
    49,375       49,375  
      81,633       81,796  
                 
Unsecured term loan
    200,000       -  
Senior secured term loan
    -       100,000  
Secured agency facility
    96,000       101,000  
Unamortized debt premiums
    12,851       16,567  
Unamortized debt discounts
    (5,896 )     (6,634 )
Total debt
  $ 1,207,508     $ 1,345,103  
 
Pay-off of Mortgage and Construction Debt
 
During the six months ended June 30, 2011, the Company paid off approximately $125.5 million of fixed-rate mortgage debt secured by six of its wholly-owned properties (The Edge-Orlando, The Callaway House, University Greens, Lions Crossing, Nittany Crossing and State College Park).  In addition, the Company used the proceeds from its new unsecured term loan discussed below to pay off $100.0 million of variable-rate construction debt secured by an owned on-campus ACE property (Vista del Sol).  As of June 30, 2011, the Company had an additional $27.6 million of outstanding fixed-rate mortgage debt scheduled to mature throughout the remainder of 2011, all of which it expects to pay off on or before the respective maturity dates.
 
Unsecured Credit Facility
 
In May 2011, the Company entered into a Third Amended and Restated Credit Agreement (the “Credit Facility”).  Pursuant to the new Credit Facility, the Company’s $225 million senior secured revolving credit facility was increased in size to a $450 million unsecured facility, which may be expanded by up to an additional $150 million upon the satisfaction of certain conditions.  In addition, the maturity date of the amended facility was extended to May 20, 2014, and can be extended for an additional 12 months to May 20, 2015, subject to the satisfaction of certain conditions.  Also in connection with the execution of the new Credit Facility, the Company’s $100 million senior secured term loan was repaid in its entirety and replaced with a new $200 million unsecured term loan with a maturity date of May 20, 2015, which may be extended at the Companys option to May 20, 2016 subject to the satisfaction of certain conditions.
 
Each loan bears interest at a variable rate, at the Companys option, based upon a base rate or one-, two-, three- or six-month LIBOR, plus, in each case, a spread based upon the Companys total leverage.  The Company has entered into interest rate swaps that effectively fix the interest rate to 3.8% (1.8% + 2.0% spread) on $100 million of the $200 million outstanding balance of the new unsecured term loan (see Note 12 for more details).  The remaining $100 million balance of the unsecured term loan continues to bear interest at a variable rate (2.2% as of June 30, 2011).  Availability under the revolving credit facility is limited to an aggregate borrowing base amount equal to 60% of the value of the Company’s unencumbered properties, calculated as set forth in the Credit Facility.  Additionally, the Company is required to pay an unused commitment fee ranging from 0.25% to 0.35% per annum, based on the outstanding balance under the revolving credit facility.  As of June 30, 2011, there was no outstanding balance on the revolving credit facility and availability under the combined Credit Facility totaled approximately $444.5 million.
 
 
11

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The terms of the Credit Facility include certain restrictions and covenants, which limit, among other items, the incurrence of additional indebtedness, liens, and the disposition of assets.  The facility contains customary affirmative and negative covenants and also contains financial covenants that, among other things, require the Company to maintain certain minimum ratios of EBITDA (earnings before interest, taxes, depreciation and amortization) to fixed charges and total indebtedness.  The Company may not pay distributions that exceed a specified percentage of funds from operations, as adjusted, for any four consecutive quarters.  The financial covenants also include consolidated net worth and leverage ratio tests.  As of June 30, 2011, the Company was in compliance with all such covenants.
 
Secured Agency Facility

The Company has a $125 million secured revolving credit facility with a Freddie Mac lender.  The facility has a five-year term and is currently secured by 10 properties referred to as the “Collateral Pool.”  The facility bears interest at one- or three-month LIBOR plus a spread that varies based on the debt service ratio of the Collateral Pool.  Additionally, the Company is required to pay an unused commitment fee of 1.0% per annum.  During the three months ended June 30, 2011 we paid down $5.0 million of the balance on this facility, and as of June 30, 2011, the balance outstanding on this facility totaled $96.0 million, bearing interest at a weighted average annual rate of 2.2%.  The secured agency facility includes some, but not all, of the same financial covenants as the secured revolving credit facility, described above.
 
10.  Stockholders’ Equity
 
During the three months ended June 30, 2011, the Company sold approximately 2.1 million shares at a weighted average price of $33.93 per share under its at-the-market share offering program (the “ATM Equity Program”).  Net proceeds received under this program during the three and six months ended June 30, 2011 totaled approximately $71.2 million and $82.5 million, respectively, after payment of approximately $1.1 million and $1.3 million, respectively, of commissions to the sales agents.  As of June 30, 2011, the Company had approximately $50.0 million available for issuance under this program.
 
11.  Incentive Award Plan
 
Restricted Stock Units
 
Upon reelection to the Board of Directors in May 2011, all members of the Company’s Board of Directors were granted restricted stock units (“RSUs”) in accordance with the American Campus Communities, Inc. 2010 Incentive Award Plan (the “Plan”).  These RSUs were valued at $75,000 for the Chairman of the Board of Directors and at $51,500 for all other members.  The number of RSUs was determined based on the fair market value of the Company’s stock on the date of grant, as defined in the Plan.  All awards vested and settled immediately on the date of grant, and the Company delivered shares of common stock and cash, as determined by the Compensation Committee of the Board of Directors.  A compensation charge of approximately $0.3 million was recorded during the three months ended June 30, 2011 related to these awards.
 
A summary of the Company’s RSUs under the Plan as of June 30, 2011 and changes during the six months then ended is presented below:
 
   
Number of
RSUs
 
Outstanding at December 31, 2010
    -  
Granted
    9,497  
Settled in common shares
    (3,279 )
Settled in cash
    (6,218 )
Outstanding at June 30, 2011
    -  
 
Restricted Stock Awards
 
A summary of the Company’s restricted stock awards (“RSAs”) under the Plan as of June 30, 2011 and activity during the six months then ended is presented below:
 
   
Number of
RSAs
 
Nonvested balance at December 31, 2010
    508,381  
Granted
    193,978  
Vested
    (99,243 )
Forfeited
    (49,275 )
Nonvested balance at June 30, 2011
    553,841  
  
 
12

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The fair value of RSA’s is calculated based on the closing market value of the Company’s common stock on the date of grant.  The fair value of these awards is amortized to expense over the vesting periods, which amounted to approximately $1.1 million and $0.9 million for the three months ended June 30, 2011 and 2010, respectively, and $2.1 million and $1.8 million for the six months ended June 30, 2011 and 2010, respectively.
 
12.   Derivatives Instruments and Hedging Activities
 
The Company is exposed to certain risk arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities.  The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
 
Cash Flow Hedges of Interest Rate Risk
 
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.  To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (Loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
 
As discussed in Note 9, in connection with the closing of the Company’s new Credit Facility in May 2011, the Company’s $100 million senior secured term loan was repaid and replaced with a new $200 million variable-rate unsecured term loan.  In connection with this transaction, the Company’s two existing $50 million interest rate swaps that were previously hedging the variable cash flows associated with the $100 million senior secured term loan were applied to the new $200 million unsecured term loan.  There was no ineffectiveness resulting from the application of these interest rate swaps to a portion of the new $200 million unsecured term loan, as the critical terms (reset dates, underlying index, business day convention, etc) of the new $200 million unsecured term loan match the terms of the previous $100 million senior secured term loan and the existing interest rate swap contracts.  As of June 30, 2011, the Company also had a $33.2 million interest rate swap contract that was used to hedge the variable cash flows associated with the Cullen Oaks Phase I and Phase II loans.
 
The following table summarizes the Company’s outstanding interest rate swap contracts as of June 30, 2011:
 
 
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     $ (3,591 )
Feb. 23, 2009
March 20, 2009
Feb. 20, 2012
    1.785 %
LIBOR – 1 month
    50,000       (490 )
Feb. 23, 2009
March 20, 2009
Feb. 20, 2012
    1.800 %
LIBOR – 1 month
    50,000       (495 )
 
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of June 30, 2011 and December 31, 2010:
 
 
Derivative Liabilities
 
 
As of June 30, 2011
   
As of December 31, 2010
 
 
Balance Sheet
Location
 
Fair Value
   
Balance Sheet
Location
 
Fair Value
 
 
Interest rate swap contracts
 
Other liabilities
  $ 4,576    
 
Other Liabilities
  $ 5,503  
Total derivatives designated as hedging instruments
    $ 4,576         $ 5,503  
 
 
13

 
 
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 six months ended June 30, 2011 and 2010:
 
   
Amount of Income (Loss)
Recognized in OCI on
Derivative (Effective Portion)
 
Cash Flow Hedging  
Six Months Ended
June 30,
 
Relationships
  2011    
2010
 
 
Interest rate swap contracts
  $ 927     $ (1,703 )
 
Total
  $ 927     $ (1,703 )
 
The Company reported a comprehensive loss of approximately $2.9 million for the six months ended June 30, 2010, which includes a net loss of approximately $1.2 million and an unrealized loss of approximately $1.7 million (reflected in the table above).
 
13.  Fair Value Disclosures
 
The following table presents information about the Company’s liabilities measured at fair value on a recurring basis as of June 30, 2011, and indicates 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 June 30, 2011
 
 
   
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
   
 
Significant Other
Observable Inputs
(Level 2)
   
 
Significant
Unobservable
Inputs (Level 3)
   
 
 
Balance at
June 30, 2011
 
Liabilities:
                       
  Derivative financial instruments
  $ -     $ 4,576     $ -     $ 4,576  
 
The Company uses derivative financial instruments, specifically interest rate swaps, for nontrading purposes.  The Company uses interest rate swaps to manage interest rate risk arising from previously unhedged interest payments associated with variable rate debt.  Through June 30, 2011, 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.
 
 
14

 
 
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 derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparty.  However, as of June 30, 2011, 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 each of its derivative valuations in its entirety is 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 estimates 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.
 
Unsecured Term Loan, Secured Agency Facility and Construction Loans: the fair value of the Company’s unsecured term loan, secured agency facility and construction loans approximate carrying values due to the variable interest rate feature of these instruments.
 
Mortgage Loans: the fair value of mortgage loans is based on the present value of the cash flows at current rates through maturity.
 
Bonds Payable: the fair value of bonds payable is based on market quotes for bonds outstanding.
 
The table below contains the estimated fair value and related carrying amounts for the Company’s mortgage loans and bonds payable as of June 30, 2011 and December 31, 2010:
 
   
June 30, 2011
   
December 31, 2010
 
   
Fair Value
   
Carrying Amount
   
Fair Value
   
Carrying Amount
 
Mortgage loans
  $ 906,097     $ 862,133     $ 1,032,742     $ 994,728  
Bonds payable
    50,750       49,375       49,489       49,375  
 
14.  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.
 
 
15

 
 
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 June 30, 2011, 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: The Company’s joint venture with Fidelity (see Note 8) is funded in part with secured third party debt in the amount of $18.2 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 limited liability company agreement, the joint venture 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 guarantee 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 $35.0 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 Companys 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 Companys results of operations and cash flows.
 
15.  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.
 
 
16

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Wholly-Owned Properties
                       
Rental revenues
  $ 83,201     $ 66,017     $ 170,296     $ 134,669  
Interest and other income
    19       9       29       20  
Total revenues from external customers
    83,220       66,026       170,325       134,689  
Operating expenses before depreciation, amortization, ground/facility lease and allocation of corporate overhead
    (38,288 )     (31,188 )     (76,768 )     (61,585 )
Ground/facility leases
    (225 )     (267 )     (540 )     (532 )
Interest expense
    (8,480 )     (11,475 )     (19,377 )     (23,145 )
Operating income before depreciation, amortization, and allocation of corporate overhead
  $ 36,227     $ 23,096     $ 73,640     $ 49,427  
Depreciation and amortization
  $ 20,364     $ 15,658     $ 40,492     $ 31,012  
Capital expenditures
  $ 45,905     $ 10,322     $ 80,599     $ 15,023  
Total segment assets at June 30,
  $ 2,483,068     $ 2,031,569     $ 2,483,068     $ 2,031,569  
                                 
On-Campus Participating Properties
                               
Rental revenues
  $ 4,457     $ 4,142     $ 12,104     $ 11,453  
Interest and other income
    -       5       7       8  
Total revenues from external customers
    4,457       4,147       12,111       11,461  
Operating expenses before depreciation, amortization, ground/facility lease and allocation of corporate overhead
    (2,700 )     (2,458 )     (4,262 )     (4,690 )
Ground/facility lease
    (433 )     (486 )     (1,274 )     (792 )
Interest expense
    (1,469 )     (1,513 )     (2,938 )     (3,016 )
Operating (loss) income before depreciation, amortization and allocation of corporate overhead
  $ (145 )   $ (310 )   $ 3,637     $ 2,963  
Depreciation and amortization
  $ 1,109     $ 1,080     $ 2,207     $ 2,159  
Capital expenditures
  $ 629     $ 181     $ 907     $ 224  
Total segment assets at June 30,
  $ 75,424     $ 77,320     $ 75,424     $ 77,320  
                                 
Development Services
                               
Development and construction management fees from external customers
  $ 758     $ 1,628     $ 4,582     $ 2,202  
Operating expenses before allocation of corporate overhead
    (2,261 )     (2,005 )     (4,602 )     (4,332 )
Operating loss before depreciation, amortization and allocation of corporate overhead
  $ (1,503 )   $ (377 )   $ (20 )   $ (2,130 )
Total segment assets at June 30,
  $ 8,807     $ 4,012     $ 8,807     $ 4,012  
                                 
Property Management Services
                               
Property management fees from external customers
  $ 1,803     $ 2,121     $ 3,633     $ 4,335  
Intersegment revenues
    3,350       2,711       6,898       5,586  
Total revenues
    5,153       4,832       10,531       9,921  
Operating expenses before allocation of corporate overhead
    (2,079 )     (1,787 )     (4,332 )     (3,814 )
Operating income before depreciation, amortization and allocation of corporate overhead
  $ 3,074     $ 3,045     $ 6,199     $ 6,107  
Total segment assets at June 30,
  $ 4,215     $ 3,931     $ 4,215     $ 3,931  
                                 
Reconciliations
                               
Total segment revenues
  $ 93,588     $ 76,633     $ 197,549     $ 158,273  
Unallocated interest income earned on corporate cash
    140       2       173       5  
Elimination of intersegment revenues
    (3,350 )     (2,711 )     (6,898 )     (5,586 )
Total consolidated revenues, including interest income
  $ 90,378     $ 73,924     $ 190,824     $ 152,692  
Segment operating income before depreciation, amortization and allocation of corporate overhead
  $ 37,653     $ 25,454     $ 83,456     $ 56,367  
Depreciation and amortization
    (23,120 )     (18,079 )     (45,901 )     (35,866 )
Net unallocated expenses relating to corporate overhead
    (6,862 )     (6,177 )     (12,783 )     (12,116 )
Loss from unconsolidated joint ventures
    (13 )     (711 )     (25 )     (2,125 )
Income tax provision
    (142 )     (142 )     (285 )     (285 )
Income from continuing operations
  $ 7,516     $ 345     $ 24,462     $ 5,975  
                                 
Total segment assets
  $ 2,571,514     $ 2,116,832     $ 2,571,514     $ 2,116,832  
Unallocated corporate assets
    49,576       34,068       49,576       34,068  
Total assets at June 30,
  $ 2,621,090     $ 2,150,900     $ 2,621,090     $ 2,150,900  
 
 
17

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
16.  Subsequent Events
 
Distributions: On August 3, 2011, the Company declared a second quarter 2011 distribution per share of $0.3375 which will be paid on August 29, 2011 to all common stockholders of record as of August 15, 2011.  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).
 
 
18

 
 

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 June 30, 2011, our property portfolio contained 107 student housing properties with approximately 66,400 beds in approximately 21,200 apartment units.  Our property portfolio consisted of 95 owned off-campus properties that are in close proximity to colleges and universities, eight American Campus Equity (“ACE®”) properties operated under ground/facility leases with five university systems and four on-campus participating properties operated under ground/facility leases with the related university systems.  Of the 107 student housing properties, 11 were under development as of June 30, 2011, and when completed will consist of a total of approximately 7,200 beds in approximately 2,000 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.
 
 
19

 
 
Through our taxable REIT subsidiaries (“TRS”), we provide construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others.  As of June 30, 2011, we provided third-party management and leasing services for 34 properties (nine of which we served as the third-party developer and construction manager) that represented approximately 24,700 beds in approximately 9,700 units, and one joint venture property in which we own a noncontrolling interest with approximately 600 beds in approximately 200 units.  Third-party management and leasing services are typically provided pursuant to multi-year management contracts that have initial terms that range from one to five years.  As of June 30, 2011, our total owned, joint venture and third-party managed portfolio was comprised of 142 properties with approximately 91,700 beds in approximately 31,100 units.

Third-Party Development Services

Our third-party development and construction management services as of June 30, 2011 consisted of four projects under construction and currently in progress with fees ranging from $2.2 million to $4.6 million.  As of June 30, 2011, fees of approximately $3.9 million remained to be earned by us with respect to these projects, which have scheduled completion dates of August 2011 through August 2012.

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

Branded and marketed to colleges and universities as the ACE program, our equity investment and ownership of on-campus housing via traditional long-term ground leases provides us with what we believe is a lower-risk opportunity compared to other off-campus projects, as our ACE projects have premier on-campus locations with marketing and operational assistance from the universities.  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.

Owned Development Activities

At June 30, 2011, we were in the process of constructing five owned off-campus properties and six on-campus ACE properties that will be operated under ground/facility leases with related university systems.  These properties are summarized in the table below:
Property
 
Location
 
Primary University Served
 
Units
   
Beds
   
Estimated
Project
Cost
   
Costs Incurred
as of 6/30/11 (1)
 
Scheduled
to Open for
Occupancy
Lobo Village – ACE
 
Albuquerque, NM
 
University of New Mexico
    216       864     $ 39,200     $ 38,930  
August 2011
                                           
Villas at Babcock
 
San Antonio, TX
 
Univ. of Texas – San Antonio
    204       792       35,400       33,121  
August 2011
                                           
Villas on Sycamore
 
Huntsville, TX
 
Sam Houston State University
    170       680       28,000       25,256  
August 2011
                                           
University Village
  Northwest - ACE
 
Prairie View, TX
 
Prairie View A&M Univ.
    36       144       5,100       3,217  
August 2011
                                           
University Pointe at
  College Station - ACE
 
Portland, OR
 
Portland State University
    282       978       87,800       23,313  
August 2012
                                           
The Suites – ACE
 
Flagstaff, AZ
 
Northern Arizona University
    275       550       28,100       2,248  
August 2012
                                           
Hilltop Townhomes – ACE
 
Flagstaff, AZ
 
Northern Arizona University
    144       576       32,500       2,440  
August 2012
                                           
University of New Mexico
   Phase II – ACE
 
Albuquerque, NM
 
University of New Mexico
    282       1,027       39,400       3,341  
August 2012
                                           
U Club on Frey
 
Kennesaw, GA
 
Kennesaw State University
    114       456       22,500       4,404  
August 2012
                                           
U Club Townhomes on
   Marion Pugh
 
College Station, TX
 
Texas A&M University
    160       640       34,100       9,091  
August 2012
                                           
Campus Edge on UTA
   Boulevard
 
Arlington, TX
</