Form 10-Q
 


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2007.   

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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated Filer x
Non-accelerated filer 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 23,537,970 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 August 3, 2007.



FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2007

TABLE OF CONTENTS
 
 
 
 
PAGE NO.
   
PART I.    
 
     
 
     
 
1
 
 
 
 
2
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
18
     
36
     
36
 
 
PART II.    
 
 
 
 
37
     
37
 
 
38
 
 
 
 


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

 
 
June 30, 2007 
 
 
December 31, 2006
 
   
(Unaudited)
   
 
 
Assets
             
               
Investments in real estate:
             
Owned properties, net
 
$
862,580
 
$
694,197
 
On-campus participating properties, net
   
74,790
   
76,688
 
Investments in real estate, net
   
937,370
   
770,885
 
               
Cash and cash equivalents
   
8,960
   
79,107
 
Restricted cash
   
15,718
   
11,260
 
Student contracts receivable, net
   
2,360
   
3,129
 
Other assets
   
24,776
   
20,000
 
               
Total assets
 
$
989,184
 
$
884,381
 
               
Liabilities and stockholders’ equity
             
               
Liabilities:
             
Secured debt
 
$
533,956
 
$
432,294
 
Unsecured revolving credit facility
   
9,100
   
-
 
Accounts payable and accrued expenses
   
21,883
   
13,616
 
Other liabilities
   
34,923
   
29,436
 
Total liabilities
   
599,862
   
475,346
 
               
Minority interests
   
32,672
   
39,561
 
               
Commitments and contingencies (Note 11)
             
               
Stockholders’ equity:
             
Common shares, $.01 par value, 800,000,000 shares authorized, 23,429,505 and 22,903,073 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively
   
234
   
229
 
Additional paid in capital
   
390,670
   
382,367
 
Accumulated earnings and distributions
   
(34,678
)
 
(13,533
)
Accumulated other comprehensive income
   
424
   
411
 
Total stockholders’ equity
   
356,650
   
369,474
 
               
Total liabilities and stockholders’ equity
 
$
989,184
 
$
884,381
 

 

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, 
 
     
2007
 
 
2006
 
 
2007
 
 
2006
 
Revenues:
                         
Owned off-campus properties
 
$
28,007
 
$
22,221
 
$
55,152
 
$
40,347
 
On-campus participating properties
   
3,740
   
3,497
   
10,077
   
9,479
 
Third party development services
   
609
   
1,060
   
978
   
2,662
 
Third party development services - on-campus
participating properties
   
37
   
36
   
73
   
72
 
Third party management services
   
650
   
691
   
1,372
   
1,353
 
Resident services
   
323
   
345
   
664
   
665
 
Total revenues
   
33,366
   
27,850
   
68,316
   
54,578
 
                           
Operating expenses:
                         
Owned off-campus properties
   
13,046
   
10,765
   
24,908
   
18,532
 
On-campus participating properties
   
2,499
   
2,255
   
4,525
   
4,205
 
Third party development and management services
   
1,147
   
1,426
   
2,441
   
3,064
 
General and administrative
   
2,190
   
1,824
   
13,518
   
3,411
 
Depreciation and amortization
   
7,768
   
6,920
   
14,738
   
11,937
 
Ground/facility leases
   
495
   
246
   
790
   
438
 
Total operating expenses
   
27,145
   
23,436
   
60,920
   
41,587
 
                           
Operating income
   
6,221
   
4,414
   
7,396
   
12,991
 
                           
Nonoperating income and (expenses):
                         
Interest income
   
314
   
144
   
1,021
   
329
 
Interest expense
   
(6,920
)
 
(7,066
)
 
(13,380
)
 
(12,402
)
Amortization of deferred financing costs
   
(314
)
 
(389
)
 
(612
)
 
(744
)
Total nonoperating expenses
   
(6,920
)
 
(7,311
)
 
(12,971
)
 
(12,817
)
                           
(Loss) income before income taxes, minority interests, and discontinued operations
   
(699
)
 
(2,897
)
 
(5,575
)
 
174
 
Income tax provision
   
(60
)
 
-
   
(120
)
 
-
 
Minority interests
   
(26
)
 
181
   
232
   
53
 
(Loss) income from continuing operations
   
(785
)
 
(2,716
)
 
(5,463
)
 
227
 
                           
Discontinued operations:
                         
Income attributable to discontinued operations
   
-
   
649
   
-
   
1,370
 
Net (loss) income
 
$
(785
)
$
(2,067
)
$
(5,463
)
$
1,597
 
                           
(Loss) income per share - basic:
                         
(Loss) income from continuing operations per share
 
$
(0.03
)
$
(0.16
)
$
(0.24
)
$
0.01
 
Net (loss) income per share
 
$
(0.03
)
$
(0.12
)
$
(0.24
)
$
0.09
 
(Loss) income per share - diluted:
                         
(Loss) income from continuing operations per share
 
$
(0.03
)
$
(0.15
)
$
(0.23
)
$
0.00
 
Net (loss) income per share
 
$
(0.03
)
$
(0.12
)
$
(0.23
)
$
0.08
 
                           
Weighted average common shares outstanding:
                         
Basic
   
23,271,223
   
17,221,896
   
23,107,888
   
17,215,870
 
Diluted
   
25,259,335
   
19,542,559
   
25,250,312
   
18,914,672
 
                           
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 STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)


   
 Six Months Ended June 30,  
 
     
2007
 
 
2006
 
Net (loss) income
 
$
(5,463
)
$
1,597
 
 
             
Other comprehensive income:
             
Change in fair value of interest rate swaps
   
104
   
187
 
Net comprehensive (loss) income
 
$
(5,359
)
$
1,784
 


 






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,  
 
     
2007
 
 
2006
 
Operating activities
             
Net (loss) income
 
$
(5,463
)
$
1,597
 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
             
Minority interests share of loss
   
(232
)
 
(53
)
Depreciation and amortization
   
14,738
   
12,453
 
Amortization of deferred financing costs and debt premiums/discounts
   
(122
)
 
128
 
Share-based compensation
   
663
   
420
 
Amortization of gain on interest rate swap termination
   
(91
)
 
-
 
Income tax provision
   
120
   
-
 
Changes in operating assets and liabilities:
           
Restricted cash
   
(3,809
)
 
(1,938
)
Student contracts receivable, net
   
819
   
902
 
Other assets
   
(2,586
)
 
(5,147
)
Accounts payable and accrued expenses
   
7,511
   
4,191
 
Other liabilities
   
(1,979
)
 
(1,158
)
Net cash provided by operating activities
   
9,569
   
11,395
 
Investing activities
             
Cash paid for property acquisitions
   
(38,161
)
 
(69,241
)
Investments in owned properties
   
(43,960
)
 
(39,949
)
Investments in on-campus participating properties
   
(227
)
 
(120
)
Purchase of corporate furniture, fixtures and equipment
   
(516
)
 
(363
)
Net cash used in investing activities
   
(82,864
)
 
(109,673
)
Financing activities
             
Proceeds from revolving credit facility, net of paydowns
   
9,100
   
81,200
 
Proceeds from construction loans
   
17,370
   
14,492
 
Principal payments on debt
   
(3,103
)
 
(2,321
)
Change in construction accounts payable
   
(1,360
)
 
3,140
 
Debt issuance and assumption costs
   
(1,638
)
 
(1,227
)
Distributions to common and restricted stockholders
   
(15,666
)
 
(11,682
)
Distributions to minority partners
   
(1,555
)
 
(483
)
Net cash provided by financing activities
   
3,148
   
83,119
 
Net change in cash and cash equivalents
   
(70,147
)
 
(15,159
)
Cash and cash equivalents at beginning of period
   
79,107
   
24,641
 
Cash and cash equivalents at end of period
 
$
8,960
 
$
9,482
 
Supplemental disclosure of non-cash investing and financing activities
             
Loans assumed in connection with property acquisitions
 
$
(88,307
)
$
(123,649
)
Contribution of land from minority partner in development joint venture
 
$
2,756
 
$
-
 
Issuance of Common Units in connection with property acquisitions
 
$
-
 
$
(49,096
)
Issuance of Preferred Units in connection with property acquisitions
 
$
-
 
$
(3,075
)
Change in fair value of derivative instruments, net
 
$
104
 
$
187
 
Supplemental disclosure of cash flow information
             
Interest paid
 
$
13,945
 
$
12,364
 

 
 
 



See accompanying notes to consolidated financial statements.

 
4


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.

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”) and American Campus Communities Services, Inc., (the Company’s taxable REIT subsidiary or “TRS”), 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, 2007, the Company’s property portfolio contained 43 student housing properties with approximately 26,900 beds and approximately 8,900 apartment units, consisting of 39 owned properties that are in close proximities to colleges and universities and four on-campus participating properties operated under ground/facility leases with the related university systems. These communities contain modern housing units, offer resort-style amenities and are supported by a classic resident assistant system and other student-oriented programming.

Through the TRS, the Company also provides construction management and development services for student housing properties owned by colleges and universities, charitable foundations, and others. As of June 30, 2007, the Company provided third party management and leasing services for 13 student housing properties (nine of which the Company served as the third party developer and construction manager) that represented approximately 8,700 beds in approximately 3,100 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, 2007, the Company’s total owned and managed portfolio included 56 properties with approximately 35,600 beds in approximately 12,000 units.

2.
Summary of Significant Accounting Policies

Principles of Consolidation and Combination

The accompanying consolidated financial statements include all of the accounts of the Company, the Operating Partnership and the subsidiaries of the Operating Partnership. The Company consolidates entities in which it has an ownership interest and over which it exercises significant control over major operating decisions, such as budgeting, investment and financing decisions. The real estate entities included in the consolidated financial statements have been consolidated only for the periods that such entities were under control by the Company. All significant intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in the tables herein, except share and per share amounts, are stated in thousands unless otherwise indicated.

Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 became effective on January 1, 2007. The Company, or its subsidiaries, files income tax returns in the U.S. Federal jurisdiction and various states’ jurisdictions. Open tax years for federal income tax purposes generally include tax years 2004-2006 as of the date of adoption. The Company adopted the provisions of FIN 48 on January 1, 2007. The Company does not have any material unrecognized tax benefits; therefore, the adoption of FIN 48 did not have a material impact on the Company’s consolidated financial statements.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company does not expect its adoption to have a material impact on the Company’s consolidated financial statements.
 
5


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”), which gives entities the option to measure eligible financial assets, financial liabilities and firm commitments at fair value on an instrument-by-instrument basis (i.e., the fair value option), which are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes in fair value must be recorded in earnings. Additionally, SFAS No. 159 allows for a one-time election for existing positions upon adoption, with the transition adjustment recorded to beginning retained earnings. This statement is effective for fiscal years beginning after November 15, 2007. The Company does not expect its adoption to have a material impact on the Company’s consolidated financial statements.
 
Interim Financial Statements

The accompanying interim financial statements are unaudited, but have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Because of the seasonal nature of the Company’s operations, the results of operations and cash flows for any interim period are not necessarily indicative of results for other interim periods or for the full year. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December, 31, 2006.

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 is 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

The cost of buildings and improvements includes the purchase price of the property, including legal fees and acquisition costs. Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred finance costs, are capitalized as construction in progress. Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences. Interest totaling approximately $1.5 million and $0.8 million was capitalized during the three months ended June 30, 2007 and 2006, respectively, and $2.6 million and $1.3 million was capitalized during the six months ended June 30, 2007 and 2006, respectively. Amortization of deferred financing costs totaling approximately $0.1 million and $31,000 was capitalized during the three months ended June 30, 2007 and 2006, respectively, and approximately $0.2 million and $0.1 million was capitalized during the six months ended June 30, 2007 and 2006, respectively.

Management assesses whether there has been an impairment in the value of the Company’s investments in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized when estimated expected future cash flows (undiscounted and before interest charges) are less than the carrying value of the property. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions. If such conditions change, then an adjustment to the carrying value of the Company’s long-lived assets could occur in the future period in which the conditions change. To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings. The Company believes that there were no impairments of the carrying values of its investments in real estate as of June 30, 2007.
 
6


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 141, Business Combinations. Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. Information obtained about each property as a result of due diligence, marketing and leasing activities is also considered. The value of in-place leases is based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued “as-if” vacant. As lease terms are typically one year or less, rates on in-place leases generally approximate market rental rates. Factors considered in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current market conditions, nature of the tenancy, and costs to execute similar leases. Carrying costs include estimates of lost rentals at market rates during the expected lease-up period, as well as marketing and other operating expenses. The value of in-place leases is amortized over the remaining initial term of the respective leases, generally less than one year. The purchase price of property acquisitions is not expected to be allocated to tenant relationships, considering the terms of the leases and the expected levels of renewals. The Company’s allocation of purchase price is contingent upon the final true-up of certain prorations.
 
Intangible Assets

In connection with property acquisitions completed during the six months ended June 30, 2007 and 2006, the Company capitalized approximately $1.2 million and $2.3 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 a term of approximately six months, which represents the average remaining term of the underlying leases. The amortization is included in depreciation expense in the accompanying consolidated statements of operations. See Note 3 for a detailed discussion of the property acquisitions completed during the six months ended June 30, 2007.

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 June 30, 2007 and December 31, 2006, unamortized debt premiums were $5.8 million and $6.4 million, respectively, and unamortized debt discounts were $0.7 million and $0.4 million, respectively. Debt premiums and discounts are included in secured 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.

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, 2007, we have deferred approximately $4.6 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.
 
7


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Stock-Based Compensation

The Company accounts for equity based awards in accordance with SFAS No. 123 (R), Share-Based Payment. Accordingly, the Company has recognized compensation expense related to certain restricted stock awards (see Note 9) over the underlying vesting periods, which amounted to approximately $0.5 million and $0.3 million during the three months ended June 30, 2007 and 2006, respectively, and $0.7 million and $0.4 million during the six months ended June 30, 2007 and 2006, respectively.

Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its stockholders. As a REIT, the Company will generally not be subject to corporate level federal income tax on taxable income it currently distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for the subsequent four taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local income and excise taxes on its income and property, and to federal income and excise taxes on its undistributed income.

The TRS manages the Company’s non-REIT activities and is subject to federal, state and local income taxes.

Earnings Per Share

Basic earnings per share is computed using net income (loss) and the weighted average number of shares of the Company’s common stock outstanding during the period, including restricted stock units (“RSUs”) issued to outside directors. RSUs are included in both basic and diluted weighted average common shares outstanding because they were fully vested on the date of grant and all conditions required in order for the recipients to earn the RSUs have been satisfied. Diluted earnings per share reflects weighted average common shares issuable from the assumed conversion of restricted stock awards (“RSAs”) granted to employees and common and preferred units of limited partnership interest in the Operating Partnership (“Common Units” and “Series A Preferred Units,” respectively). See Note 7 for a discussion of Common Units and Series A Preferred Units.

8


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The following is a summary of the elements used in calculating basic and diluted earnings per share:

   
 Three Months Ended June 30,  
 
 Six Months Ended June 30, 
 
     
2007
 
 
2006
 
 
2007
 
 
2006
 
Basic earnings per share calculation:
                         
(Loss) income from continuing operations
 
$
(785
)
$
(2,716
)
$
(5,463
)
$
227
 
Discontinued operations
   
-
   
649
   
-
   
1,370
 
Net (loss) income
 
$
(785
)
$
(2,067
)
$
(5,463
)
$
1,597
 
                           
(Loss) income from continuing operations - per share
 
$
(0.03
)
$
(0.16
)
$
(0.24
)
$
0.01
 
Income from discontinued operations - per share
 
$
-
 
$
0.04
   
-
 
$
0.08
 
Net (loss) income - per share
 
$
(0.03
)
$
(0.12
)
$
(0.24
)
$
0.09
 
                           
Basic weighted average common shares outstanding
   
23,271,223
   
17,221,896
   
23,107,888
   
17,215,870
 
                           
Diluted earnings per share calculation:
                         
(Loss) income from continuing operations
 
$
(785
)
$
(2,716
)
$
(5,463
)
$
227
 
Series A Preferred Unit distributions
   
46
   
46
   
92
   
61
 
Loss from continuing operations allocated to
Common Units
   
(55
)
 
(339
)
 
(417
)
 
(292
)
Loss from continuing operations, as adjusted
   
(794
)
 
(3,009
)
 
(5,788
)
 
(4
)
Discontinued operations
   
-
   
649
   
-
   
1,370
 
Income from discontinued operations allocated to
Common Units
   
-
   
73
   
-
   
103
 
Income from discontinued operations, as adjusted
   
-
   
722
   
-
   
1,473
 
Net (loss) income, as adjusted
 
$
(794
)
 
(2,287
)
$
(5,788
)
$
1,469
 
                           
 (Loss) income from continuing operations - per share
 
$
(0.03
)
$
(0.15
)
$
(0.23
)
$
0.00
 
Income from discontinued operations - per share
 
$
-
 
$
0.03
 
$
-
 
$
0.08
 
Net (loss) income - per share
 
$
(0.03
)
$
(0.12
)
$
(0.23
)
$
0.08
 
                           
Basic weighted average common shares outstanding
   
23,271,223
   
17,221,896
   
23,107,888
   
17,215,870
 
Common Units
   
1,873,149
   
2,205,700
   
2,027,461
   
1,525,930
 
Series A Preferred Units
   
114,963
   
114,963
   
114,963
   
77,490
 
Restricted stock awards (1)
   
-
   
-
   
-
   
95,382
 
Diluted weighted average common shares outstanding
   
25,259,335
   
19,542,559
   
25,250,312
   
18,914,672
 

(1)
164,151 and 102,728 weighted average restricted stock awards are excluded from diluted weighted average common shares outstanding for the three months ended June 30, 2007 and 2006, respectively, and 158,788 weighted average restricted stock awards are excluded from diluted weighted average common shares outstanding for the six months ended June 30, 2007, because they would be anti-dilutive due to the Company’s loss position for these periods.  

3.
Property Acquisitions

In January 2007, the Company acquired a 248-unit, 752-bed property (Village on Sixth) located near the campus of Marshall University in Huntington, West Virginia, for a purchase price of $25.6 million, which excludes $1.7 million of anticipated transaction costs, initial integration expenses and capital expenditures necessary to bring this property up to the Company’s operating standards. As part of the transaction, the Company assumed two fixed-rate mortgage loans, which includes one for $16.2 million with an annual interest rate of 5.5% and remaining term to maturity of 7.5 years and a second loan for $1.4 million with an annual interest rate of 6.6% and remaining term to maturity of 9.9 years.

In February 2007, the Company acquired a three property portfolio (the “Edwards Portfolio”) for a purchase price of $102.0 million, which excludes $3.7 million of anticipated transaction costs, initial integration expenses and capital expenditures necessary to bring these properties up to the Company’s operating standards. As part of the transaction, the Company assumed $70.7 million in fixed-rate mortgage debt with a weighted average annual interest rate of 5.7% and an average remaining term to maturity of 8.5 years. In August 2007, construction was completed on an additional phase at one of these properties. As contemplated in the original transaction, concurrent with the completion of construction, the Company purchased this additional phase consisting of 24 units and 84 beds, for approximately $4.6 million.
 
9

 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The Edwards Portfolio consists of one property in Lexington, Kentucky located near the campus of the University of Kentucky, one property in Toledo, Ohio located near the campus of the University of Toledo and one property in Ypsilanti, Michigan located near the campus of Eastern Michigan University. Including the purchase of the additional phase discussed above, these three properties contain 764 units and 1,971 beds.

The acquired properties’ results of operations have been included in the accompanying consolidated statements of operations since their respective acquisition closing dates. The following pro forma information for the three and six months ended June 30, 2007 and 2006 presents consolidated financial information for the Company as if the property acquisitions discussed above, the Company’s 2006 acquisitions and the Company’s September 2006 equity offering had occurred at the beginning of the earliest period presented. The unaudited pro forma information is provided for informational purposes only and is not indicative of results that would have occurred or which may occur in the future:
 
   
 Three Months Ended June 30,
 
 Six Months Ended June 30, 
 
     
2007
 
 
2006
 
 
2007
 
 
2006
 
Total revenues
 
$
33,366
 
$
34,224
 
$
70,554
 
$
69,743
 
Net (loss) income
 
$
(215
)
$
(898
)
$
(4,298
)
$
2,024
 
Net (loss) income per share - basic
 
$
(0.01
)
$
(0.04
)
$
(0.19
)
$
0.09
 
Net (loss) income per share - diluted
 
$
(0.01
)
$
(0.04
)
$
(0.18
)
$
0.09
 

4.
Property Disposition and Discontinued Operations

The Village on University, an owned off-campus property, was sold in December 2006 for approximately $51.0 million, resulting in net cash proceeds of approximately $50.0 million. As such, the net income attributable to this property is reflected in the accompanying consolidated statements of operations as discontinued operations in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Below is a summary of the results of operations of the aforementioned property for all periods presented:

   
 Three Months Ended June 30, 
 
 Six Months Ended June 30, 
 
 
 
 
2007
 
 
2006
 
 
2007
 
 
2006
 
Total revenues
 
$
-
 
$
1,387
 
$
-
 
$
2,748
 
Total operating expenses
   
-
   
(738
)
 
-
   
(1,378
)
 Net Income
 
$
-
 
$
649
 
$
-
 
$
1,370
 

5.
Investments in Owned Properties

Owned properties consisted of the following:
 
   
June 30, 2007
 
 
December 31, 2006
 
Land
 
$
91,664
 
$
75,263
 
Buildings and improvements
   
687,306
   
579,906
 
Furniture, fixtures and equipment
   
35,821
   
28,111
 
Construction in progress
   
105,212
   
56,958
 
 
   
920,003
   
740,238
 
Less accumulated depreciation
   
(57,423
)
 
(46,041
)
Owned properties, net
 
$
862,580
 
$
694,197
 

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.
 
10


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

On-campus participating properties are as follows:

             
Historical Cost 
Lessor/University
 
 
Lease Commencement
 
 
Required Debt Repayment(1)
 
 
June 30, 2007
 
 
December 31, 2006
 
Texas A&M University System /
Prairie View A&M University (2)
   
2/1/96
   
9/1/23
 
$
38,378
 
$
38,277
 
Texas A&M University System /
Texas A&M International
   
2/1/96
   
9/1/23
   
6,024
   
6,009
 
Texas A&M University System /
Prairie View A&M University (3)
   
10/1/99
   
8/31/25 / 8/31/28
   
23,945
   
23,872
 
University of Houston System /
University of Houston (4)
   
9/27/00
   
8/31/35
   
34,666
   
34,628
 
 
             
103,013
   
102,786
 
Less accumulated amortization
               
(28,223
)
 
(26,098
)
On-campus participating properties, net
             
$
74,790
 
$
76,688
 

(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.



11


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
7.
Minority Interests

The Company consolidates the accounts of the Operating Partnership and its subsidiaries into its consolidated financial statements. However, the Company does not own 100% of the Operating Partnership and certain consolidated real estate joint ventures. The amounts reported as minority interests on the Company’s consolidated balance sheet reflect the portion of these consolidated entities’ equity that the Company does not own. Accordingly, the amounts reported as minority interest on the Company’s consolidated statements of operations reflect the portion of these consolidated entities’ net income or loss not allocated to the Company.

Equity interests in the Operating Partnership not owned by the Company are held in the form of Common Units and Series A Preferred Units. Such 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.

Income or loss allocated to minority 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. The Common Unitholders’ minority interest in the Operating Partnership is reported at an amount equal to their ownership percentage of the net equity of the Operating Partnership at the end of each reporting period. Common Units and Series A Preferred Units issued in connection with the 2006 acquisition of the Royal Portfolio became exchangeable into an equal number of shares of the Company’s common stock on March 1, 2007. As a result, 288,446 and 508,359 Common Units were converted into shares of the Company’s common stock during the three and six months ended June 30, 2007, respectively. As of June 30, 2007 and December 31, 2006, approximately 7% and 9%, respectively, of the equity interests of the Operating Partnership was held by persons affiliated with Royal Properties and certain current and former members of management in the form of Common Units and Series A Preferred Units.

Minority interests also include the equity interests of unaffiliated joint venture partners in four joint ventures. Two of the joint ventures own and operate the Company’s Callaway House and University Village at Sweet Home owned-off campus properties, which are located near the campuses of Texas A&M University and the State University of New York - Buffalo, respectively. The other two joint ventures own properties that are currently under development. One joint venture was formed to develop, own, and operate the Company’s University Centre owned off-campus property, which is scheduled to open for occupancy in Fall 2007 and is located near the campuses of Rutgers University, New Jersey Institute of Technology and Essex County Community College. The other joint venture was formed to develop, own, and operate the Company’s Villas at Chestnut Ridge owned off-campus property, which is scheduled to open for occupancy in Fall 2008 and is located near the campus of the State University of New York - Buffalo.

8.
Debt

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

   
June 30, 2007 
 
 
December 31, 2006
 
Debt secured by owned off-campus properties:
             
Mortgage loans payable
 
$
400,314
 
$
315,044
 
Construction loan payable
   
38,756
   
21,386
 
     
439,070
   
336,430
 
Debt secured by on-campus participating properties:
             
Mortgage loans payable
   
33,156
   
16,513
 
Construction loan payable
   
-
   
16,710
 
Bonds payable
   
56,675
   
56,675
 
     
89,831
   
89,898
 
Revolving credit facility
   
9,100
   
-
 
Unamortized debt premiums/discounts
   
5,055
   
5,966
 
Total debt
 
$
543,056
 
$
432,294
 


12


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Loans Assumed or Entered Into in Conjunction with Property Acquisitions

In connection with the January 2007 acquisition of Village on Sixth (see Note 3), an owned off-campus property, the Company assumed approximately $17.6 million of fixed-rate mortgage debt, which is comprised of one $16.2 million mortgage loan with an annual interest rate of 5.5% and May 2014 maturity date, and a second mortgage loan for $1.4 million with an annual interest rate of 6.6% and October 2016 maturity date. Upon assumption of this debt, the Company recorded a debt discount of approximately $0.3 million on the $16.2 million mortgage loan and a debt premium of approximately $0.1 million on the $1.4 million mortgage loan, in each case to reflect the estimated fair value of the debt assumed. These mortgage loans are secured by liens on the related properties.
 
In connection with the February 2007 acquisition of the Edwards Portfolio (see Note 3), the Company assumed approximately $70.7 million in fixed-rate mortgage debt. At the time of assumption, the debt had a weighted average interest rate of 5.7% and an average remaining term to maturity of 8.3 years. Upon assumption of these three loans, the Company recorded debt premiums of approximately $0.1 million, to reflect the estimated fair value of the debt assumed. These three mortgage loans are secured by liens on the related properties.

Cullen Oaks Loans

In addition, in February 2007, the Company extended the maturity date of the Cullen Oaks Phase I and Phase II loans to February 2014. The extended loans bear interest at a rate of LIBOR plus 1.35% and require payments of interest only through May 2008 and monthly payments of principal and interest from May 2008 through the maturity date. In connection with these loan extensions, the Company terminated an existing interest rate swap agreement and entered into a new interest rate swap agreement (see Note 10).

Revolving Credit Facility

The Operating Partnership has a $115 million revolving credit facility, which may be expanded by up to an additional $110 million upon the satisfaction of certain conditions. The maturity date of the facility is August 17, 2009 and the Company guarantees the Operating Partnership’s obligations under the facility.
 
Availability under the revolving credit facility is limited to an "aggregate borrowing base amount" equal to the lesser of (i) 65% of the value of certain properties, calculated as set forth in the credit facility, and (ii) the adjusted net operating income from these properties divided by a formula amount. The facility bears interest at a variable rate, at the Company’s option, based upon a base rate or one-, two-, three-, or six-month LIBOR plus, in each case, a spread based upon the Company’s total leverage. Additionally, the Company is required to pay an unused commitment fee ranging from 0.15% to 0.20% per annum, depending on the aggregate unused balance. As of June 30, 2007, the balance outstanding on the revolving credit facility totaled $9.1 million, bearing interest at a weighted average rate of 6.71%, with remaining availability under the facility (subject to the satisfaction of certain financial covenants) totaling approximately $101.3 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. The Company may not pay distributions that exceed 100% of funds from operations for any four consecutive quarters. The financial covenants also include consolidated net worth and leverage ratio tests. As of June 30, 2007, the Company was in compliance with all such covenants.

9.
Incentive Award Plan

The Company has adopted the 2004 Incentive Award Plan (the “Plan”). The Plan provides for the grant to selected employees and directors of the Company and the Company’s affiliates of stock options, RSUs, RSAs, and other stock-based incentive awards. The Company has reserved a total of 1,210,000 shares of the Company’s common stock for issuance pursuant to the Plan, subject to certain adjustments for changes in the Company’s capital structure, as defined in the Plan. As of June 30, 2007, the Company has issued 706,299 awards under the Plan which includes 367,682 common stock awards in the form of an outperformance bonus plan discussed in more detail below. A summary of the Company’s stock-based incentive awards under the Plan as of June 30, 2007 and changes during the six months ended June 30, 2007, is presented below:
 
13


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
Common
Units
 
 
Restricted Stock Units (RSUs)
 
 
Restricted Stock Awards (RSAs)
 
 
Outperformance Bonus Plan(1)
 
 
Total
 
Outstanding at December 31, 2006
   
110,000
   
20,555
   
100,047
   
367,682
   
598,284
 
Granted (2) (3)
   
-
   
5,376
   
91,607
   
-
   
96,983
 
Vested
   
-
   
-
   
(18,073
)
 
-
   
(18,073
)
Forfeited
   
-
   
-
   
(9,541
)
 
-
   
(9,541
)
Outstanding at June 30, 2007
   
110,000
   
25,931
   
164,040
   
367,682
   
667,653
 
Vested at June 30, 2007
   
110,000
   
25,931
   
27,646
   
-
   
163,577
 

(1)  
The achievement of certain performance measures was considered probable as of June 30, 2007 and the Company recorded a compensation charge of approximately $0.3 million and $9.9 million during the three and six months ended June 30, 2007, respectively.

(2)  
In May 2007, one outside member of the Board of Directors was granted RSU’s valued at $35,000 and the remaining outside members were each granted RSU’s valued at $25,000, with the number of RSU’s 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 immediately on the date of grant; accordingly, a compensation charge of approximately $0.2 million was recorded during the three months ended June 30, 2007 related to these awards.

(3)  
On January 29, 2007, the Company granted 91,607 RSAs to its executive officers and certain employees that vest in equal annual installments over five years. Unvested awards are forfeited upon the termination of an individual’s employment with the Company. Recipients of RSAs receive dividends, as declared by the Company’s Board of Directors, on unvested shares provided that the respective recipient continues to be an employee of the Company.

Outperformance Bonus Plan

The outperformance bonus plan was adopted at the consummation of the Company’s IPO in August 2004 and contains performance hurdles that must be achieved by the third anniversary of the IPO in order for the awards granted under the Plan to vest. As of June 30, 2007, management has determined the achievement of these performance measures is probable and, therefore, the Company has recognized a prorated compensation charge for the three-year service period, which began on the Company’s IPO date and ends in August 2007. This compensation charge amounted to $0.3 million and $9.9 million for the three and six months ended June 30, 2007, respectively. Additional compensation charges may be recorded in the third quarter, to the extent the Company achieves the performance measures and the awards vest. Upon the achievement of these performance measures, the awards under the outperformance bonus plan will be paid to the recipients in either stock or cash, at the discretion of the Compensation Committee of the Board of Directors.

10.
Interest Rate Hedges

In February 2007, the Company extended the maturity date of the Cullen Oaks Phase I and Phase II loans to February 2014. The extended loans bear interest at a rate of LIBOR plus 1.35% and require payments of interest only through May 2008 and monthly payments of principal and interest from May 2008 through the maturity date. In connection with these loan extensions, the Company terminated the existing interest rate swap agreement and received a termination payment from the lender of approximately $0.4 million. In accordance with SFAS No. 133, the $0.4 million gain will be amortized from accumulated other comprehensive income to earnings over the remaining term of the terminated interest rate swap agreement (through November 2008).

In addition, the Company entered into an interest rate swap agreement effective February 15, 2007 through February 15, 2014, that is designated to hedge its exposure to fluctuations in interest payments attributed to changes in interest rates associated with payments on the Cullen Oaks Phase I and Phase II loans. Under the terms of the interest rate swap agreement, the Company pays a fixed rate of 6.69% and receives a floating rate of LIBOR plus 1.35%. The interest rate swap had an estimated fair value of approximately $0.1 million at June 30, 2007 and is reflected in other assets in the accompanying consolidated balance sheets. Ineffectiveness resulting from the Company’s hedges is not material.


14


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
11.
Commitments and Contingencies

Commitments

Development-related guarantees: The Company commonly provides alternate housing and project cost guarantees, subject to force majeure. These guarantees are typically limited, on an aggregate basis, to the amount of the projects’ related development fees or a contractually agreed-upon maximum exposure amount. Alternate housing guarantees typically expire five days after construction is complete and generally require the Company to provide substitute living quarters and transportation for students to and from the university if the project is not complete by an agreed-upon completion date. 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.

On one completed project, the Company has guaranteed losses up to $3.0 million in excess of the development fee if the loss is due to any failure of the Company to maintain, or cause its professionals to maintain, required insurance for a period of five years after completion of the project (August 2009).

The Company’s estimated maximum exposure amount under the above guarantees is approximately $10.4 million

At June 30, 2007, management does not anticipate any material deviations from schedule or budget related to third-party development projects currently in progress.  The Company has estimated the fair value of guarantees entered into or modified after December 31, 2002, the effective date of FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, to be immaterial.

In the normal course of business, the Company enters into various development-related purchase commitments with parties that provide development-related goods and services.  In the event that the Company was to terminate development services prior to the completion of projects under construction, the Company could potentially be committed to satisfy outstanding purchase orders with such parties. 

Contingencies

Litigation: The Company is subject to various claims, lawsuits, and legal proceedings.  While it is not possible to ascertain the ultimate outcome of such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations of the Company.

Letters of Intent: In the ordinary course of the Company’s business, the Company enters into letters of intent indicating a willingness to negotiate for acquisitions, dispositions or joint ventures. Such letters of intent are non-binding, and neither party to the letter of intent is obligated to pursue negotiations unless and until a definitive contract is entered into by the parties. Even if definitive contracts are entered into, the letters of intent relating to the acquisition and disposition of real property and resulting contracts generally contemplate that such contracts will provide the acquirer with time to evaluate the property and conduct due diligence, during which periods the acquiror will have the ability to terminate the contracts without penalty or forfeiture of any deposit or earnest money. There can be no assurance that definitive contracts will be entered into with respect to any matter covered by letters of intent or that the Company will consummate any transaction contemplated by any definitive contract. Furthermore, due diligence periods for real property are frequently extended as needed. An acquisition or disposition of real property becomes probable at the time that the due diligence period expires and the definitive contract has not been terminated. The Company is then at risk under a real property acquisition contract, but only to the extent of any earnest money deposits associated with the contract, and is obligated to sell under a real property sales contract.
 
Environmental Matters: The Company is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company's business, assets or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company's results of operations and cash flows.
 
15


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
12.
Segments

The Company defines business segments by their distinct customer base and service provided. The Company has identified four reportable segments: Owned Off-Campus Properties, On-Campus Participating Properties, Development Services, and Property Management Services. Management evaluates each segment’s performance based on operating income before depreciation, amortization, minority interests and allocation of corporate overhead. Intercompany fees are reflected at the contractually stipulated amounts.
 
16


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
 Three Months Ended June 30,   
 
 Six Months Ended June 30, 
 
 
 
 
2007
 
 
2006
 
 
2007
 
 
2006
 
Owned Off-Campus Properties
                         
Rental revenues
 
$
28,330
 
$
22,566
 
$
55,816
 
$
41,012
 
Interest income
   
100
   
32
   
171
   
48
 
Total revenues from external customers
   
28,430
   
22,598
   
55,987
   
41,060
 
Operating expenses before depreciation and amortization
   
12,951
   
10,665
   
24,717
   
18,297
 
Interest expense
   
6,092
   
4,900
   
11,556
   
8,675
 
Operating income before depreciation and amortization, minority
interests and allocation of corporate overhead
 
$
9,387
 
$
7,033
 
$
19,714
 
$
14,088
 
Depreciation and amortization
 
$
6,549
 
$
5,772
 
$
12,386
 
$
9,638
 
Capital expenditures
 
$
26,847
 
$
25,265
 
$
43,960
 
$
39,949
 
Total segment assets at June 30,
 
$
892,365
 
$
687,463
 
$
892,365
 
$
687,463
 
                           
On-Campus Participating Properties
                         
Rental revenues
 
$
3,740
 
$
3,497
 
$
10,077
 
$
9,479
 
Interest income
   
91
   
90
   
169
   
153
 
Total revenues from external customers
   
3,831
   
3,587
   
10,246
   
9,632
 
Operating expenses before depreciation, amortization, and
ground/facility leases
   
2,343
   
2,111
   
4,209
   
3,912
 
Ground/facility leases
   
495
   
246
   
790
   
438
 
Interest expense
   
1,562
   
1,613
   
3,135
   
3,200
 
Operating (loss) income before depreciation and amortization, minority interests and allocation of corporate overhead
 
$
(569
)
$
(383
)
$
2,112
 
$
2,082
 
Depreciation and amortization
 
$
1,065
 
$
1,014
 
$
2,126
 
$
2,046
 
Capital expenditures
 
$
162
 
$
71
 
$
227
 
$
120
 
Total segment assets at June 30,
 
$
87,730
 
$
91,324
 
$
87,730
 
$
91,324
 
                           
Development Services
                         
Development and construction management fees from
external customers
 
$
646
 
$
1,096
 
$
1,051
 
$
2,734
 
Intersegment revenues
   
-
   
-
   
-
   
-
 
Total revenues
   
646
   
1,096
   
1,051
   
2,734
 
Operating expenses
   
1,222
   
1,158
   
2,435
   
2,468
 
Operating (loss) income before depreciation and amortization,
minority interests and allocation of corporate overhead
 
$
(576
)
$
(62
)
$
(1,384
)
$
266
 
Total segment assets at June 30,
 
$
1,793
 
$
5,406
 
$
1,793
 
$
5,406
 
                           
Property Management Services
                         
Property management fees from external customers
 
$
650
 
$
691
 
$
1,372
 
$
1,353
 
Intersegment revenues
   
983
   
840
   
2,041
   
1,673
 
Total revenues
   
1,633
   
1,531
   
3,413
   
3,026
 
Operating expenses
   
676
   
648
   
1,370
   
1,288
 
Operating income before depreciation and amortization, minority
interests and allocation of corporate overhead
 
$
957
 
$
883
 
$
2,043
 
$
1,738
 
Total segment assets at June 30,
 
$
1,574
 
$
1,278
 
$
1,574
 
$
1,278
 
                           
Reconciliations
                         
Total segment revenues
 
$
34,540
 
$
28,812
 
$
70,697
 
$
56,452
 
Unallocated interest income earned on corporate cash
   
123
   
22
   
681
   
128
 
Elimination of intersegment revenues
   
(983
)
 
(840
)
 
(2,041
)
 
(1,673
)
Total consolidated revenues, including interest income
 
$
33,680
 
$
27,994
 
$
69,337
 
$
54,907
 
Segment operating income before depreciation, amortization,
minority interests and allocation of corporate overhead
 
$
9,199
 
$
7,471
 
$
22,485
 
$
18,174
 
Depreciation and amortization, including amortization of deferred
financing costs
   
(8,082
)
 
(7,309
)
 
(15,350
)
 
(12,681
)
Net unallocated expenses relating to corporate overhead
   
(1,816
)
 
(3,059
)
 
(12,710
)
 
(5,319
)
Income tax provision
   
(60
)
 
-
   
(120
)
 
-
 
Minority interests
   
(26
)
 
181
   
232
   
53
 
(Loss) income from continuing operations
 
$
(785
)
$
(2,716
)
$
(5,463
)
$
227
 
Total segment assets at June 30,
 
$
983,462
 
$
785,471
 
$
983,462
 
$
785,471
 
Unallocated corporate assets and assets held for sale
   
5,722
   
37,066
   
5,722
   
37,066
 
Total assets at June 30,
 
$
989,184
 
$
822,537
 
$
989,184
 
$
822,537
 

17


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result” and similar expressions, which do not relate solely to historical matters, are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they were made, to anticipate future results or trends.

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); risks associated with changes in University admission or housing policies; risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; costs of compliance with the Americans with Disabilities Act and other similar laws; potential liability for uninsured losses and environmental contamination; risks associated with our potential failure to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”), as amended, and possible adverse changes in tax and environmental laws; and risks associated with our dependence on key personnel whose continued service is not guaranteed.

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Our Company and Our Business

American Campus Communities, Inc. (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”) and American Campus Communities Services, Inc., (our taxable REIT subsidiary or “TRS”), 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 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, 2007, our property portfolio contained 43 student housing properties with approximately 26,900 beds and approximately 8,900 apartment units, consisting of 39 owned properties that are in close proximities to colleges and universities and four on-campus participating properties operated under ground/facility leases with the related university systems. These communities contain modern housing units, offer resort-style amenities and are supported by a resident assistant system and other student-oriented programming.

18


Through the TRS, we also provide construction management and development services for student housing properties owned by colleges and universities, charitable foundations, and others. As of June 30, 2007, we provided third party management and leasing services for 13 student housing properties (nine of which we served as the third party developer and construction manager) that represented approximately 8,700 beds in approximately 3,100 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, 2007, our total owned and managed portfolio included 56 properties with approximately 35,600 beds in approximately 12,000 units.

Third-Party Development Services

Our third-party development and construction management services as of June 30, 2007 consisted of four projects under contract and currently in progress with fees ranging from $0.4 million to $3.1 million. As of June 30, 2007, fees of approximately $1.9 million remained to be earned by us with respect to these projects, which have scheduled completion dates of August 2007 through July 2008.

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 owned property portfolio. Nevertheless, we believe these services continue to provide synergies with respect to our ability to identify, acquire or develop, and successfully operate, student housing properties.
 
Acquisitions

In January 2007, we acquired a 248-unit, 752-bed property (Village on Sixth) located near the campus of Marshall University in Huntington, West Virginia, for a purchase price of $25.6 million, which excludes $1.7 million of anticipated transaction costs, initial integration expenses and capital expenditures necessary to bring this property up to our operating standards. As part of the transaction, we assumed two fixed-rate mortgage loans, which includes one for $16.2 million with an annual interest rate of 5.5% and remaining term to maturity of 7.5 years and a second loan for $1.4 million with an annual interest rate of 6.6% and remaining term to maturity of 9.9 years.

In February 2007, we acquired a three property portfolio (the “Edwards Portfolio”) for a purchase price of $102.0 million, which excludes $3.7 million of anticipated transaction costs, initial integration expenses and capital expenditures necessary to bring these properties up to our operating standards. As part of the transaction, we assumed $70.7 million in fixed-rate mortgage debt with a weighted average annual interest rate of 5.7% and an average remaining term to maturity of 8.5 years. In August 2007, construction was completed on an additional phase at one of these properties. As contemplated in the original transaction, concurrent with the completion of construction, we purchased this additional phase consisting of 24 units and 84 beds, for approximately $4.6 million.

The Edwards Portfolio consists of one property in Lexington, Kentucky located near the campus of the University of Kentucky, one property in Toledo, Ohio located near the campus of the University of Toledo and one property in Ypsilanti, Michigan located near the campus of Eastern Michigan University. Including the purchase of the additional phase discussed above, these three properties contain 764 units and 1,971 beds.
 
Owned Development Activities

Overview: As of June 30, 2007, we were in the process of constructing two owned off-campus properties and one owned on-campus property. We estimate that the total development costs relating to these activities will be approximately $246.7 million. As of June 30, 2007, we have incurred development costs of approximately $103.7 million in connection with these properties, with the remaining development costs estimated at approximately $143.0 million. The activities are described below:

University Centre: As of June 30, 2007, our University Centre owned off-campus property was under construction with total development costs estimated to be approximately $74.4 million. The project is scheduled to complete construction and open for occupancy in August/September 2007, in connection with the commencement of the 2007/2008 academic year. As of June 30, 2007, the project was approximately 98% complete, and we estimate that remaining development costs will be approximately $5.2 million. As of June 30, 2007, we have funded $30.4 million of the project’s development costs internally, with the remaining development costs to be funded through a construction loan.

19


Vista del Sol: As of June 30, 2007, our Vista del Sol (formerly Arizona State University - South Campus Residential Community) owned on-campus property was under construction with total development costs estimated to be approximately $137.5 million. The project is scheduled to complete construction and open for occupancy in August 2008, in connection with the commencement of the 2008/2009 academic year. As of June 30, 2007, the project was approximately 21% complete, and we estimate that remaining development costs will be approximately $109.5 million. We expect that we will fund approximately $37.5 million of the project budget internally and the remaining $100.0 million will be funded with a construction loan.

Villas at Chestnut Ridge: As of June 30, 2007, our Villas at Chestnut Ridge owned off-campus property was under construction with total development costs estimated to be approximately $34.8 million. The project is scheduled to complete construction and open for occupancy in August 2008, in connection with the commencement of the 2008/2009 academic year. As of June 30, 2007, the project was approximately 18% complete, and we estimate that remaining development costs will be approximately $28.3 million. We expect that we will fund approximately $3.2 million of the project budget internally and the remaining $31.6 million will be funded with a construction loan.

20



Property Operations
As of June 30, 2007, our property portfolio consisted of the following:
 
PROPERTY
 
YEAR ACQUIRED / DEVELOPED (1)
 
 
 
LOCATION
 
 
PRIMARY UNIVERSITY SERVED
 
 
 
UNITS
 
 
 
BEDS
Owned properties:
                   
 
1. Villas on Apache
 
 
1999
 
 
Tempe, AZ
 
 
Arizona State University Main Campus
 
 
111
 
 
288
 
2. The Village at Blacksburg
 
 
2000
 
 
Blacksburg, VA
 
Virginia Polytechnic Institute and
State University
 
 
288
 
 
1,056
 
3. River Club Apartments
 
 
1999
 
 
Athens, GA
 
 
The University of Georgia-Athens
 
 
266
 
 
792
 
4. River Walk Townhomes
 
 
1999
 
 
Athens, GA
 
 
The University of Georgia-Athens
 
 
100
 
 
336
 
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
 
 
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. Raiders Crossing
 
 
2006
 
 
Murfreesboro, TN
 
 
Middle Tennessee State University
 
 
96
 
 
276
 
28. Raiders 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 (2)
 
 
2006
 
 
College Station, TX
 
 
Texas A&M University
 
 
236
 
 
704
 
33. Village on Sixth
 
 
2007
 
 
Huntington, WV
 
 
Marshall University
 
 
248
 
 
752
 
34. Newtown Crossing (3)
 
 
2007
 
 
Lexington, KY
 
 
University of Kentucky
 
 
332
 
 
858
 
35. Olde Towne University Square
 
 
2007
 
 
Toledo, OH
 
 
University of Toledo
 
 
224
 
 
550
 
36. Peninsular Place
 
 
2007
 
 
Ypsilanti, MI
 
 
Eastern Michigan University
 
 
184
 
 
479
 
37. University Centre (4)
 
 
2007
 
 
Newark, NJ
 
 
Rutgers University, NJIT, Essex CCC
 
 
234
 
 
838
 
38. Vista del Sol (5)
 
 
2008
 
 
Tempe, AZ
 
 
Arizona State University
 
 
613
 
 
1,866
 
39. Villas at Chestnut Ridge (6)
 
 
2008
 
 
Amherst, NY
 
 
State University of New York - Buffalo
 
 
196
 
 
552
 
Total owned properties
             
 
7,032
 
 
22,335
 
21


PROPERTY
 
YEAR ACQUIRED / DEVELOPED (1)
 
LOCATION
 
PRIMARY UNIVERSITY SERVED
 
UNITS
 
BEDS
                     
On-campus participating properties:
                   
 
40. University Village—PVAMU
 
 
1996 / 97 / 98
 
 
Prairie View, TX
 
 
Prairie View A&M University
 
 
612
 
 
1,920
 
41. University College—PVAMU
 
 
2000 / 2003
 
 
Prairie View, TX
 
 
Prairie View A&M University
 
 
756
 
 
1,470
 
42. University Village—TAMIU
 
 
1997
 
 
Laredo, TX
 
 
Texas A&M International University
 
 
84
 
 
250
 
43. Cullen Oaks - Phase I and II
 
 
2001 / 2006
 
 
Houston, TX
 
 
The University of Houston
 
 
411
 
 
879
 
Total on-campus participating properties
 
 
1,863
 
 
4,519
                     
Total - all properties
             
8,895
 
26,854

(1)  
As of June 30, 2007, the average age of our operating properties was approximately 6.3 years.
 
(2)  
Construction was completed and property commenced operations in August 2006.
 
(3)  
In August 2007, construction was completed on an additional phase at this property. As contemplated in the original transaction, concurrent with the completion of construction, we purchased this additional phase consisting of 24 units and