t64673_10k.htm


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

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

For the fiscal year ended December 31, 2008.   
 
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)
 
Securities registered pursuant to Section 12(b) of the Act:

(Title of Each Class)
 
(Name of Each Exchange on Which Registered)
     
 Common Stock, $.01 par value
 
 New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o  No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K  is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o   
  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 
Large accelerated filer x  Accelerated filer o  Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No x

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was $1,053,304,685 based on the last sale price of the common equity on June 30, 2008 which is the last business day of the Company’s most recently completed second quarter.
 
There were 42,355,283 shares of the Company’s common stock with a par value of $0.01 per share outstanding as of the close of business on February 25, 2009.
 
DOCUMENTS INCORPORATED BY REFERENCE

Part III of this report incorporates information by reference from the definitive Proxy Statement for the 2009 Annual Meeting of Stockholders.
 

 
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2008
 

TABLE OF CONTENTS

     
PAGE NO.
HPART I.
   
 
Item 1.
Business
1
 
Item 1A.
Risk Factors
7
 
Item 1B.
Unresolved Staff Comments
17
 
Item 2.
Properties
18
 
Item 3.
Legal Proceedings
23
 
Item 4.
Submission of Matters to a Vote of Security Holders
23
       
 HPART II.
   
 
Item 5.
Market for Registrant’s Common Equity and Related Stockholder Matters
24
 
Item 6.
Selected Financial Data
26
 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
47
 
Item 8.
Financial Statements and Supplementary Data
47
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
48
 
Item 9A.
Controls and Procedures
48
 
 
   
PART III.
   
 
Item 10.
Directors, Executive Officers and Corporate Governance
49
 
Item 11.
Executive Compensation
49
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
49
 
Item 13.
Certain Relationships, Related Transactions and Director Independence
49
 
Item 14.
Principal Accounting Fees and Services
49
       
PART IV.
   
 
Item 15.
Exhibits and Financial Statement Schedules
50
       
SIGNATURES
 
54
 


PART I

Item 1.  Business

Overview

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 December 31, 2008, our property portfolio contained 86 student housing properties with approximately 52,800 beds and approximately 17,200 apartment units, including 40 properties containing approximately 23,500 beds and approximately 7,500 units added as a result of our acquisition of the student housing business of GMH Communities Trust (“GMH”) on June 11, 2008.  Our property portfolio consisted of 80 owned off-campus properties that are in close proximity to colleges and universities, two American Campus Equity (“ACETM”) properties operated under ground/facility leases with a related university system and four on-campus participating properties operated under ground/facility leases with the related university systems.  As of December 31, 2008, we also owned a minority interest in two joint ventures that owned an aggregate of 21 student housing properties with approximately 12,100 beds in approximately 3,600 units.  Our communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.

Through 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 December 31, 2008, we provided third-party management and leasing services for 34 properties (five of which we served as the third-party developer and construction manager) that represented approximately 24,300 beds in approximately 8,900 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 December 31, 2008, our total owned, joint venture and third-party managed portfolio was comprised of 141 properties with approximately 89,200 beds in approximately 29,700 units.

Business Objectives, Investment Strategies, and Operating Segments

Business Objectives

Our primary business objectives are to create long-term stockholder value by deploying capital to develop, redevelop, acquire and operate student housing communities, and to sell communities when they no longer meet our long-term investment strategy and when market conditions are favorable.  We believe we can achieve these objectives by continuing to implement our investment strategies and successfully manage our operating segments, which are described in more detail below.

Investment Strategies

We seek to own high quality, well designed and well located student housing properties. We seek to acquire or develop properties in markets that have stable or increasing student populations, are in submarkets with barriers to entry and provide opportunities for economic growth as a result of their product position and/or differentiated design and close proximity to campuses, or through our superior operational capabilities. We believe that our reputation and established relationships with universities give us an advantage in sourcing acquisitions and developments and obtaining municipal approvals and community support for our development projects.

Acquisitions:   On June 11, 2008, we completed the acquisition of GMH’s student housing business.  At the time of closing, the GMH student housing portfolio consisted of 42 wholly-owned properties containing 24,939 beds located in various markets throughout the country.  Two of the acquired properties totaling 1,468 beds were sold in the third quarter of 2008.  The total consideration paid for GMH was approximately $1,018.7 million, inclusive of transaction costs.
 
In February 2008, we acquired a 144-unit, 528-bed property (Pirate’s Place) located near the campus of East Carolina University in Greenville, North Carolina, for a purchase price of $10.6 million, which excludes $0.8 million of transaction costs, initial integration expenses and capital expenditures.
 
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In February 2008, we also acquired a 68-unit, 161-bed property (Sunnyside Commons) located near the campus of West Virginia University in Morgantown, West Virginia, for a purchase price of $7.5 million, which excludes $0.6 million of transaction costs, initial integration expenses and capital expenditures.  We believe our relationship with university systems and individual educational institutions, our knowledge of the student housing market and our prominence as the first publicly-traded REIT focused exclusively on student housing in the United States will afford us a competitive advantage in acquiring additional student housing properties.

Development:    Since 1996, we have developed 13 of our owned properties, consisting of nine wholly-owned properties and four on-campus participating properties.  This includes two wholly-owned properties that opened for occupancy in August 2008 and one that opened for occupancy in August 2007.  In addition, as of December 31, 2008, we had one wholly-owned property under development with a development budget of approximately $126.5 million, which is scheduled to open for occupancy in August 2009.

Our experienced development staff intends to continue to identify and acquire land parcels in close proximity to colleges and universities that offer location advantages or that allow for the development of unique products that offer a competitive advantage.  We expect to continue to benefit from opportunities derived from our extensive network with colleges and universities as well as our relationship with certain developers with whom we have previously developed off-campus student housing properties.

Operating Segments

We define business segments by their distinct customer base and service provided.  We have identified four reportable segments: Wholly-Owned Properties, On-Campus Participating Properties, Development Services and Property Management Services.  For a detailed financial analysis of our segments’ results of operations and financial position, please refer to Note 18 in the accompanying Notes to Consolidated Financial Statements contained in Item 8.

Property Operations

Unique Leasing Characteristics:  Student housing properties are typically leased by the bed on an individual lease liability basis, unlike multifamily housing where leasing is by the unit.  Individual lease liability limits each resident’s liability to his or her own rent without liability for a roommate’s rent.  A parent or guardian is required to execute each lease as a guarantor unless the resident provides adequate proof of income or financial aid.  The number of lease contracts that we administer is therefore equivalent to the number of beds occupied and not the number of units.  Unlike traditional multifamily housing, most of our leases commence and terminate on the same dates and typically have terms of 9 or 12 months.  (Please refer to the property table contained in Item 2 – Properties for a listing of the typical lease terms at our properties.)  As an example, in the case of our typical 12-month leases, the commencement date coincides with the commencement of the respective university’s Fall academic term and the termination date is the date of the last subsequent summer school session.  As such, we must re-lease each property in its entirety each year.

Management Philosophy:  Our management philosophy is based upon meeting the following objectives:

 
Satisfying the specialized needs of residents by providing the highest levels of customer service;
     
 
Developing and maintaining an academically oriented environment via a premier residence life/student development program;
     
 
Maintaining each project’s physical plant in top condition;
     
 
Maximizing revenue through the development and implementation of a strategic annual marketing plan and leasing administration program; and
     
 
Maximizing cash flow through maximizing revenue coupled with prudent control of expenses.

Wholly-Owned Properties:  As of December 31, 2008, our Wholly-Owned Properties segment consisted of 80 owned off-campus properties within close proximity to 63 colleges and universities in 24 states and two ACE owned on-campus properties operated under ground/facility leases with a related university system.  Off-campus properties are generally located in close proximity to the school campus, generally with pedestrian, bicycle, or University shuttle access.  Off-campus housing tends to offer more relaxed rules and regulations than on-campus housing, resulting in off-campus housing being generally more appealing to upper-classmen.  We believe that the support of colleges and universities can be beneficial to the success of our wholly-owned properties.  We actively seek to have these institutions recommend our facilities to their students or to provide us with mailing lists so that we may directly market to students and parents.  In some cases, the institutions actually promote our off-campus facilities in their recruiting and admissions literature.  In cases where the educational institutions do not provide mailing lists or recommendations for off-campus housing, most provide comprehensive lists of suitable properties to their students, and we continually work to ensure that our properties are on these lists in each of the markets that we serve.
 
2

 
Off-campus housing is subject to competition for tenants with on-campus housing owned by colleges and universities, and vice versa.  Colleges and universities can generally avoid real estate taxes and borrow funds at lower interest rates than us (and other private sector operators), thereby decreasing their operating costs.  Residence halls owned and operated by the primary colleges and universities in the markets of our off-campus properties may charge lower rental rates, but typically offer fewer amenities than those offered by our properties.  Additionally, most universities are only able to house a small percentage of their overall enrollment, and are therefore highly dependant upon the off-campus market to provide housing for their students.  High-quality, well run off-campus student housing can be a critical component to an institution’s ability to attract and retain students.  Therefore, developing and maintaining good relationships with educational institutions can result in a privately owned off-campus facility becoming, in effect, an extension of the institution’s housing program, with the institution providing highly valued references and recommendations to students and parents.

This segment also competes with national and regional owner-operators of off-campus student housing in a number of markets as well as with smaller local owner-operators.  Therefore, the performance of this segment could be affected by the construction of new on-campus or off-campus residences, increases or decreases in the general levels of rents for housing in competing communities, increases or decreases in the number of students enrolled at one or more of the colleges or universities in the market of a property, and other general economic conditions.

American Campus Equity (ACE):  An emerging opportunity in the wholly-owned property segment is the equity investment and ownership of on-campus housing via traditional long-term ground leases.  Branded and marketed to colleges and universities as the ACE program, the transaction structure provides us with what we believe is a lower-risk opportunity compared to other off-campus projects, as our ACE projects will have premier on-campus locations with marketing and operational assistance from the university.  The subject university substantially benefits by increasing its housing capacity with modern, well-amenitized student housing with no or minimal impacts to its own credit ratios, preserving the university’s credit capacity to fund academic and research facilities.

On-Campus Participating Properties:  Our On-Campus Participating Properties segment includes on-campus properties owned by one of our TRSs that are operated under ground/facility leases with the related university systems. We participate with two university systems in the operations and cash flows of four on-campus participating properties under long-term ground/facility leases.  The subject universities hold title to both the land and improvements on these properties.

Under our ground/facility leases, we receive an annual distribution representing 50% of these properties’ net cash available for distribution after payment of operating expenses (which includes our management fees), debt service (which includes repayment of principal) and capital expenditures.  We also manage these properties under multi-year management agreements and are paid a management fee representing 5% of receipts.  We have developed each of our on-campus participating properties.  For purposes of our consolidated financial statements contained in Item 8, the development fee earned by our TRS during the construction period is deferred and recognized in revenue over the term of the underlying ground leases.  However, for purposes of our calculation of Funds from Operations – Modified for Operational Performance of On-Campus Participating Properties (“FFOM”) contained in Item 7, we reflect such development fees as earned over the construction period based on the percentage-of-completion method.

While the terms of each specific ground/facility lease agreement tend to vary in certain respects, the following terms are generally common to all: (i) a term of 30-40 years, subject to early termination upon repayment of the related financing, which generally has a 25-year amortization; (ii) ground/facility lease rent of a nominal amount (e.g., $100 per annum over the lease term) plus 50% of net cash flow; (iii)  the right of first refusal by the institution to purchase our leasehold interest in the event we propose to sell it to any third-party; (iv) an obligation by the educational institution to promote the project, include information relative to the project in brochures and mailings and to permit us to advertise the project; (v) the requirement to receive the educational institution’s consent to increase rental rates by a percentage greater than the percentage increase in our property operating expenses plus the amount of any increases in debt service, and (vi) the option of the institution to purchase our interest in and assume management of the facility, with the purchase price calculated at the discounted present cash value of our leasehold interest.
 
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We do not have access to the cash flows and working capital of these on-campus participating properties except for the annual net cash distribution.  Additionally, a substantial portion of these properties’ cash flow is dedicated to capital reserves required under the applicable property indebtedness and to the amortization of such indebtedness.  These amounts do not increase our economic interest in these properties since our interest, including our right to share in the net cash available for distribution from the properties, terminates upon the amortization of their indebtedness.  Our economic interest in these properties is therefore limited to our interest in the net cash flow, management fees, and development fees from these properties.  Accordingly, when considering these properties’ contribution to our operations, we focus upon our share of these properties’ net cash available for distribution and the management/development fees that we receive from these properties rather than upon their contribution to our gross revenues and expenses for financial reporting purposes.

Our on-campus participating properties are susceptible to some of the same risks as our wholly-owned properties, including: (i) seasonality in rents; (ii) annual re-leasing that is highly dependent on marketing and university admission policies; and (iii) competition for tenants from other on-campus housing operated by educational institutions or other off-campus properties.

Third-Party Services

Our third-party services consist of development services and management services and are typically provided to university and college clients.  The majority of our third-party management services are provided to clients for whom we also provide development services.  While management evaluates the operational performance of our third-party services based on the distinct segments identified below, at times we also evaluate these segments on a combined basis.

Development Services:  Our Development Services segment consists of development and construction management services that we provide through one of our TRSs for third-party owners.  These services range from short-term consulting projects to long-term full-scale development and construction projects.  Development revenues are generally recognized based on a proportionate performance method based on contract deliverables and construction revenues are generally recognized based on the percentage-of-completion method.  We typically provide these services to colleges and universities seeking to modernize their on-campus student housing properties.  They look to us to bring our student housing experience and expertise to ensure they develop marketable, functional, and financially sustainable facilities.  Educational institutions usually seek to build housing that will enhance their recruitment and retention of students while facilitating their academic objectives.  Most of these development service contracts are awarded via a competitive request for proposal (“RFP”) process that qualifies developers based on their overall capability to provide specialized student housing design, development, construction management, financial structuring, and property management services.  Our development services typically include pre-development, design and financial structuring services.  Our pre-development services typically include feasibility studies for third-party owners and design services.  Feasibility studies include an initial feasibility analysis, review of conceptual design, and assistance with master planning.  Some of the documents produced in this process include the conceptual design documents, preliminary development and operating budgets, cash flow projections and a preliminary market assessment.  Our design services include coordination with the architect and other members of the design team, review of construction plans and assistance with project due diligence and project budgets.

Construction management services typically consist of hiring of project professionals and a general contractor, coordinating and supervising the construction, equipping and furnishing process on behalf of the project owner, including site visits, hiring of a general contractor and project professionals, and full coordination and administration of all activities necessary for project completion in accordance with plans and specifications and with verification of adequate insurance.

Our development services activities benefit our primary goal of owning and operating student housing properties in a number of ways.  By providing these services to others, we are able to expand and refine our unit plan and community design, the operational efficiency of our material specifications and our ability to determine market acceptance of unit and community amenities.  Our development and construction management personnel enable us to establish relationships with general contractors, architects and project professionals throughout the nation.  Through these services, we gain experience and expertise in residential and commercial construction methodologies under various labor conditions, including right-to-work labor markets, markets subject to prevailing wage requirements and fully unionized environments.  This segment is subject to competition from other specialized student housing development companies as well as from national real estate development companies.

Property Management Services:  Our Property Management Services segment, conducted by our TRSs, includes revenues generated from third-party management contracts in which we are typically responsible for all aspects of operations, including marketing, leasing administration, facilities maintenance, business administration, accounts payable, accounts receivable, financial reporting, capital projects, and residence life student development.  As of December 31, 2008, we provided third-party management and leasing services for 34 properties that represented approximately 24,300 beds in approximately 8,900 units, five of which we developed.  We provide these services pursuant to multi-year management agreements (generally ranging between one to five years).
 
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There are several housing options that compete with our third-party managed properties including, but not limited to, multifamily housing, for-rent single family dwellings, other off-campus specialized student housing and the aforementioned on-campus participating properties.
 
Americans with Disabilities Act and Federal Fair Housing Act

Many laws and governmental regulations are applicable to our properties and changes in the laws and regulations, or their interpretation by agencies and the courts, occur frequently.  Our properties must comply with Title III of the Americans with Disabilities Act, or ADA, to the extent that such properties are “public accommodations” as defined by the ADA.  The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable.  We believe that the existing properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA.  However, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants.  The obligation to make readily achievable accommodations is an ongoing one, and we intend to continue to assess our properties and to make alterations as appropriate in this respect.

Under the federal and state fair housing laws, discrimination on the basis of certain protected classes is prohibited.  Violation of these laws can result in significant damage awards to victims.

Environmental Matters

Under various laws and regulations relating to the protection of the environment, an owner of real estate may be held liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in its property.  These laws often impose liability without regard to whether the owner was responsible for, or even knew of, the presence of such substances.  The presence of such substances may adversely affect the owner’s ability to rent or sell the property or use the property as collateral.  Independent environmental consultants conducted Phase I environmental site assessments (which involve visual inspection but not soil or groundwater analysis) on all of the wholly-owned properties and on-campus participating properties in our existing portfolio.  Phase I environmental site assessments did not reveal any environmental liabilities that would have a material adverse effect on us.  In addition, we are not aware of any environmental liabilities that management believes would have a material adverse effect on the Company.  There is no assurance that Phase I environmental site assessments would reveal all environmental liabilities or that environmental conditions not known to us may exist now or in the future which would result in liability to the Company for remediation or fines, either under existing laws and regulations or future changes to such requirements.

From time to time, the United States Environmental Protection Agency, or EPA, designates certain sites affected by hazardous substances as “Superfund” sites pursuant to CERCLA.  Superfund sites can cover large areas, affecting many different parcels of land.  Although CERCLA imposes joint and several liability for contamination on property owners and operators regardless of fault, the EPA may choose to pursue potentially responsible parties (“PRPs”) based on their actual contribution to the contamination.  PRPs are liable for the costs of responding to the hazardous substances.  Each of Villas on Apache, The Village on University (disposed of in December 2006) and University Village at San Bernardino (disposed of in January 2005) are located within federal Superfund sites.  The EPA designated these areas as Superfund sites because groundwater underneath these areas is contaminated.  We have not been named, and do not expect to be named, as a PRP with respect to these sites.  However, there can be no assurance regarding potential future developments concerning such sites.

Insurance

We carry comprehensive liability and property insurance on our properties, which we believe is of the type and amount customarily obtained on real property assets.  We intend to obtain similar coverage for properties we acquire in the future.  However, there are certain types of losses, generally of a catastrophic nature, such as losses from floods or earthquakes, which may be subject to limitations in certain areas.  When not otherwise contractually stipulated, we exercise our judgment in determining amounts, coverage limits, and deductibles, in an effort to maintain appropriate levels of insurance on our investments.  If we suffer a substantial loss, our insurance coverage may not be sufficient due to market conditions at the time or other unforeseen factors.  Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed.
 
5

 
Employees

As of December 31, 2008, we had approximately 2,301 employees, consisting of:

 
approximately 1,039 on-site employees in our wholly-owned properties segment, including 443 Resident Assistants;
     
 
approximately 108 on-site employees in our on-campus participating properties segment, including 51 Resident Assistants;
     
 
approximately 1,034 employees in our property management services segment, including 957 on-site employees and 77 corporate office employees;
     
 
approximately 37 corporate office employees in our development services segment; and
     
 
approximately 83 executive, corporate administration and financial personnel.

Our employees are not currently represented by a labor union.

Offices and Website

Our principal executive offices are located at 805 Las Cimas Parkway, Suite 400, Austin, Texas 78746. Our telephone number at that location is (512) 732-1000.

We file our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other reports required by Sections 13(a) and 15(d) of the Securities Exchange Act of 1934.  You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.  The address of that site is www.sec.gov.

Our website is located at www.americancampuscommunities.com or www.studenthousing.com. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.  Our website also contains copies of our Corporate Governance Guidelines and Code of Business Ethics as well as the charters of our Nominating and Corporate Governance, Audit, and Compensation committees.  The information on our website is not part of this filing.

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; 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; and the other factors discussed in the “Risk Factors” contained in Item 1A of this report.
 
6


Item 1A.  Risk Factors

The following risk factors may contain defined terms that are different from those used in other sections of this report.  Unless otherwise indicated, when used in this section, the terms “we” and “us” refer to American Campus Communities, Inc. and its subsidiaries, including American Campus Communities Operating Partnership LP, our Operating Partnership, and the term “securities” refers to shares of common stock of American Campus Communities, Inc. and units of limited partnership interest in our Operating Partnership.

The factors described below represent the Company’s principal risks. Other factors may exist that the Company does not consider to be significant based on information that is currently available or that the Company is not currently able to anticipate.

Risks Related to Our Properties, Our Markets and Our Business

Volatility in capital and credit markets could adversely impact us.

The capital and credit markets have been experiencing extreme volatility and disruption, which has made it more difficult to borrow money.  If current levels of market disruption and volatility continue or worsen, we may not be able to obtain new debt financing or refinance our existing debt on favorable terms or at all.  This market turmoil and tightening of credit have led to an increased lack of consumer confidence and widespread reduction of business activity generally, which may adversely impact us, including our ability to acquire and dispose of assets and continue our development pipeline.

Our results of operations are subject to an annual leasing cycle, short lease-up period, seasonal cash flows, changing university admission and housing policies and other risks inherent in the student housing industry.

We generally lease our owned properties under 12-month leases, and in certain cases, under nine-month or shorter-term semester leases.  As a result, we may experience significantly reduced cash flows during the summer months at properties leased under leases having terms shorter than 12 months.  Furthermore, all of our properties must be entirely re-leased each year, exposing us to increased leasing risk.  In addition, we are subject to increased leasing risk on our properties under construction and future acquired properties based on our lack of experience leasing those properties and unfamiliarity with their leasing cycles.  Student housing properties are also typically leased during a limited leasing season that usually begins in January and ends in August of each year.  We are therefore highly dependent on the effectiveness of our marketing and leasing efforts and personnel during this season.

Changes in university admission policies could adversely affect us.  For example, if a university reduces the number of student admissions or requires that a certain class of students, such as freshman, live in a university owned facility, the demand for beds at our properties may be reduced and our occupancy rates may decline.  While we may engage in marketing efforts to compensate for such change in admission policy, we may not be able to effect such marketing efforts prior to the commencement of the annual lease-up period or our additional marketing efforts may not be successful.

We rely on our relationships with colleges and universities for referrals of prospective student-tenants or for mailing lists of prospective student-tenants and their parents.  Many of these colleges and universities own and operate their own competing on-campus facilities.  Any failure to maintain good relationships with these colleges and universities could therefore have a material adverse effect on us.  If colleges and universities refuse to make their lists of prospective student-tenants and their parents available to us or increase the costs of these lists, there could be a material adverse effect on us.

Federal and state laws require colleges to publish and distribute reports of on-campus crime statistics, which may result in negative publicity and media coverage associated with crimes occurring on or in the vicinity of our on-campus properties.  Reports of crime or other negative publicity regarding the safety of the students residing on, or near, our properties may have an adverse effect on both our on-campus and off-campus business.
 
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We face significant competition from university-owned on-campus student housing, from other off-campus student housing properties and from traditional multifamily housing located within close proximity to universities.

On-campus student housing has certain inherent advantages over off-campus student housing in terms of physical proximity to the university campus and integration of on-campus facilities into the academic community.  Colleges and universities can generally avoid real estate taxes and borrow funds at lower interest rates than us and other private sector operators.  We also compete with national and regional owner-operators of off-campus student housing in a number of markets as well as with smaller local owner-operators.

Currently, the industry is fragmented with no participant holding a significant market share.  There are a number of student housing complexes that are located near or in the same general vicinity of many of our owned properties and that compete directly with us.  Such competing student housing complexes may be newer than our properties, located closer to campus, charge less rent, possess more attractive amenities or offer more services or shorter term or more flexible leases.

Rental income at a particular property could also be affected by a number of other factors, including the construction of new on-campus and off-campus residences, increases or decreases in the general levels of rents for housing in competing communities, increases or decreases in the number of students enrolled at one or more of the colleges or universities in the market of the property and other general economic conditions.

We believe that a number of other large national companies with substantial financial and marketing resources may be potential entrants in the student housing business.  The entry of one or more of these companies could increase competition for students and for the acquisition, development and management of other student housing properties.

We may be unable to successfully complete and operate our properties or our third-party developed properties.

We intend to continue to develop and construct student housing in accordance with our growth strategies.  These activities may also include any of the following risks:

 
we may be unable to obtain financing on favorable terms or at all;
     
 
we may not complete development projects on schedule, within budgeted amounts or in conformity with building plans and specifications;
     
 
we may encounter delays or refusals in obtaining all necessary zoning, land use, building, occupancy and other required governmental permits and authorizations;
     
 
occupancy and rental rates at newly developed or renovated properties may fluctuate depending on a number of factors, including market and economic conditions, and may reduce or eliminate our return on investment;
     
 
we may become liable for injuries and accidents occurring during the construction process and for environmental liabilities, including off-site disposal of construction materials;
     
 
we may decide to abandon our development efforts if we determine that continuing the project would not be in our best interests; and
     
 
we may encounter strikes, weather, government regulations and other conditions beyond our control.

Our newly developed properties will be subject to risks associated with managing new properties, including lease-up and integration risks.  In addition, new development activities, regardless of whether or not they are ultimately successful, typically will require a substantial portion of the time and attention of our development and management personnel.  Newly developed properties may not perform as expected.

We anticipate that we will, from time to time, elect not to proceed with ongoing development projects.  If we elect not to proceed with a development project, the development costs associated therewith will ordinarily be charged against income for the then-current period.  Any such charge could have a material adverse effect on our results of operations in the period in which the charge is taken.
 
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We may in the future develop properties nationally, internationally or in geographic regions other than those in which we currently operate.  We do not possess the same level of familiarity with development in these new markets, which could adversely affect our ability to develop such properties successfully or at all or to achieve expected performance.  Future development opportunities may not be available to us on terms that meet our investment criteria or we may be unsuccessful in capitalizing on such opportunities.  Our ability to capitalize on such opportunities will be largely dependent upon external sources of capital that may not be available to us on favorable terms or at all.

We typically provide guarantees of timely completion of projects that we develop for third parties.  In certain cases, our contingent liability under these guarantees may exceed our development fee from the project.  Although we seek to mitigate this risk by, among other things, obtaining similar guarantees from the project contractor, we could sustain significant losses if development of a project were to be delayed or stopped and we were unable to cover our guarantee exposure with the guarantee received from the project contractor.

We may be unable to successfully acquire properties on favorable terms.

Our future growth will be dependent upon our ability to successfully acquire new properties on favorable terms.  With respect to recently acquired properties, and as we acquire additional properties, we will continue to be subject to risks associated with managing new properties, including lease-up and integration risks.  Newly developed and recently acquired properties may not perform as expected and may have characteristics or deficiencies unknown to us at the time of acquisition.  Future acquisition opportunities may not be available to us on terms that meet our investment criteria or we may be unsuccessful in capitalizing on such opportunities.  Our ability to capitalize on such opportunities will be largely dependent upon external sources of capital that may not be available to us on favorable terms or at all, especially under the current credit environment.

Our ability to acquire properties on favorable terms and successfully operate them involves the following significant risks:

 
our potential inability to acquire a desired property may be caused by competition from other real estate investors;
     
 
competition from other potential acquirers may significantly increase the purchase price and decrease expected yields;
     
 
we may be unable to finance an acquisition on favorable terms or at all;
     
 
we may have to incur significant unexpected capital expenditures to improve or renovate acquired properties;
     
 
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations;
     
 
market conditions may result in higher than expected costs and vacancy rates and lower than expected rental rates; and
     
 
we may acquire properties subject to liabilities but without any recourse, or with only limited recourse, to the sellers, or with liabilities that are unknown to us, such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of our properties and claims for indemnification by members, directors, officers and others indemnified by the former owners of our properties.

Our failure to finance property acquisitions on favorable terms, or operate acquired properties to meet our financial expectations, could adversely affect us.

Difficulties of selling real estate could limit our flexibility.

We intend to evaluate the potential disposition of assets that may no longer help us meet our objectives.  When we decide to sell an asset, we may encounter difficulty in finding buyers in a timely manner as real estate investments generally cannot be disposed of quickly, especially when market conditions are poor.  These difficulties have been exacerbated in the current credit environment because buyers have experienced difficulty in obtaining the necessary financing.  This may limit our ability to vary our portfolio promptly in response to changes in economic or other conditions.  In addition, in order to maintain our status as a REIT, the Internal Revenue Code imposes restrictions on our ability to sell properties held fewer than four years, which may cause us to incur losses thereby reducing our cash flows and adversely impacting distributions to shareholders.
 
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Our debt level reduces cash available for distribution and could have other important adverse consequences.

As of December 31, 2008, our total consolidated indebtedness was approximately $1,281.6 million (excluding unamortized debt premiums and discounts).  Our debt service obligations expose us to the risk of default and reduce or eliminate cash resources that are available to operate our business or pay distributions that are necessary to maintain our qualification as a REIT.  There is no limit on the amount of indebtedness that we may incur except as provided by the covenants in our revolving credit facility.  We expect to incur additional indebtedness to fund future property development, acquisitions and other working capital needs, which may include the payment of distributions to our security holders.  The amount available to us and our ability to borrow from time to time under our revolving credit facility is subject to certain conditions and the satisfaction of specified financial covenants.  Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

 
We may be unable to borrow additional funds as needed or on favorable terms.
     
 
We may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness.
     
 
We may be forced to dispose of one or more of our properties, possibly on disadvantageous terms.
     
 
We may default on our scheduled principal payments or other obligations as a result of insufficient cash flow or otherwise, and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases.
     
 
Foreclosures could create taxable income without accompanying cash proceeds, a circumstance that could hinder our ability to meet the REIT distribution requirements imposed by the Internal Revenue Code.
     
 
Compliance with the provisions of our debt agreements, including the financial and other covenants, such as the maintenance of specified financial ratios, could limit our flexibility and a default in these requirements, if uncured, could result in a requirement that we repay indebtedness, which could severely affect our liquidity and increase our financing costs.

We may be unable to renew, repay or refinance our outstanding debt.

We are subject to the risk that our indebtedness will not be able to be renewed, repaid or refinanced when due or that the terms of any renewal or refinancing will not be as favorable as the existing terms of such indebtedness.  If we were unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of our properties on disadvantageous terms, which might result in losses to us.  Such losses could have a material adverse effect on us and our ability to make distributions to our stockholders and pay amounts due on our debt.

Variable rate debt is subject to interest rate risk.

We have construction loans and a senior secured term loan with varying interest rates dependent upon the market index.  In addition, we have a revolving credit facility bearing interest at a variable rate on all amounts drawn on the facility.  We may incur additional variable rate debt in the future.  Increases in interest rates on variable rate debt would increase our interest expense, unless we make arrangements that hedge the risk of rising interest rates, which would adversely affect net income and cash available for payment of our debt obligations and distributions to stockholders.

We may incur losses on interest rate swap and hedging arrangements.

We may periodically enter into agreements to reduce the risks associated with increases in interest rates.  Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to us if interest rates decline.  If an arrangement is not indexed to the same rate as the indebtedness that is hedged, we may be exposed to losses to the extent which the rate governing the indebtedness and the rate governing the hedging arrangement change independently of each other.  Finally, nonperformance by the other party to the arrangement may subject us to increased credit risks.
 
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We face risks associated with land holdings.

We hold land for future development and may in the future acquire additional land holdings.  The risks inherent in owning or purchasing and developing land increase as demand for student housing, or rental rates, decrease.  As a result, we hold certain land and may in the future acquire additional land in our development pipeline at a cost we may not be able to recover fully or on which we cannot build and develop into a profitable student housing project.  Also, real estate markets are highly uncertain and, as a result, the value of undeveloped land has fluctuated significantly and may continue to fluctuate as a result of changing market conditions.  In addition, carrying costs can be significant and can result in losses or reduced margins in a poorly performing project.  Under current market conditions, we may have impairments of our land held for development.

We may not be able to recover pre-development costs for third-party university developments.

University systems and educational institutions typically award us development services contracts on the basis of a competitive award process, but such contracts are typically executed following the formal approval of the transaction by the institution's governing body.  In the intervening period, we may incur significant pre-development and other costs in the expectation that the development services contract will be executed.  If an institution's governing body does not ultimately approve our selection and the terms of the pending development contract, we may not be able to recoup these costs from the institution and the resulting losses could be material.

Our awarded projects may not be successfully structured or financed and may delay our recognition of revenues.

The recognition and timing of revenues from our awarded development services projects will, among other things, be contingent upon successfully structuring and closing project financing as well as the timing of construction.  The development projects that we have been awarded have at times been delayed beyond the originally scheduled construction commencement date.  If such delays were to occur with our current awarded projects, our recognition of expected revenues and receipt of expected fees from these projects would be delayed.

We may encounter delays in completion or experience cost overruns with respect to our properties that are under construction.

As of December 31, 2008, we were in the process of constructing one wholly-owned property.  This property is subject to the various risks relating to properties that are under construction referred to elsewhere in these risk factors, including the risks that we may encounter delays in completion and that this project may experience cost overruns.  This property may not be completed on time.  Additionally, if we do not complete the construction of certain of our properties on schedule, we may be required to provide alternative housing to the students with whom we have signed leases.  We generally do not make any arrangements for such alternative housing for these properties and we would likely incur significant expenses in the event we provide such housing.  If construction is not completed on schedule, students may attempt to break their leases and our occupancy at such properties for that academic year may suffer.

Our guarantees could result in liabilities in excess of our development fees.

In third-party developments, we typically provide guarantees of the obligations of the developer, including development budgets and timely project completion.  These guarantees include, among other things, the cost of providing alternate housing for students in the event we do not timely complete a development project.  These guarantees typically exclude delays resulting from force majeure and also, in third-party transactions, are typically limited in amount to the amount of our development fees from the project.  In certain cases, however, our contingent liability under these guarantees has exceeded our development fee from the project and we may agree to such arrangements in the future.  Our obligations under alternative housing guarantees typically expire five days after construction is complete.  Project cost guarantees are normally satisfied within one year after completion of the project.

Universities have the right to terminate our participating ground leases.

The ground leases through which we own our on-campus participating properties provide that the university lessor may purchase our interest in and assume the management of the facility, with the purchase price calculated at the discounted present value of cash flows from our leasehold interest.  The exercise of any such buyout would result in a reduction in our portfolio.
 
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Changes in laws and litigation risks could affect our business.

We are generally not able to pass through to our residents under existing leases real estate taxes, income taxes or other taxes.  Consequently, any such tax increases may adversely affect our financial condition and limit our ability to satisfy our financial obligations and make distributions to security holders.  Changes that increase our potential liability under environmental laws or our expenditures on environmental compliance could have the same impact.

As a publicly traded owner of properties, we may become involved in legal proceedings, including consumer, employment, tort or commercial litigation, that if decided adversely to or settled by us, and not adequately covered by insurance, could result in liability that is material to our financial condition or results of operations.

Risks Related to the Real Estate Industry

Our performance and value are subject to risks associated with real estate assets and with the real estate industry.

Our ability to satisfy our financial obligations and make expected distributions to our security holders depends on our ability to generate cash revenues in excess of expenses and capital expenditure requirements.  Events and conditions generally applicable to owners and operators of real property that are beyond our control may decrease cash available for distribution and the value of our properties.  These events include:

 
general economic conditions;
     
 
rising level of interest rates;
     
 
local oversupply, increased competition or reduction in demand for student housing;
     
 
inability to collect rent from tenants;
     
 
vacancies or our inability to rent units on favorable terms;
     
 
inability to finance property development and acquisitions on favorable terms;
     
 
increased operating costs, including insurance premiums, utilities, and real estate taxes;
     
 
costs of complying with changes in governmental regulations;
     
 
the relative illiquidity of real estate investments;
     
 
decreases in student enrollment at particular colleges and universities;
     
 
changes in university policies related to admissions and housing; and
     
 
changing student demographics.

In addition, periods of economic slowdown or recession, such as are being currently experienced, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases, which would adversely affect us.

Potential losses may not be covered by insurance.

We carry fire, earthquake, terrorism, business interruption, vandalism, malicious mischief, boiler and machinery, commercial general liability and workers’ compensation insurance covering all of the properties in our portfolio under various policies.  We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice.  There are, however, certain types of losses, such as property damage from generally unsecured losses such as riots, wars, punitive damage awards or acts of God that may be either uninsurable or not economically insurable.  Some of our properties are insured subject to limitations involving large deductibles and policy limits that may not be sufficient to cover losses.  In addition, we may discontinue earthquake, terrorism or other insurance on some or all of our properties in the future if the cost of premiums from any of these policies exceeds, in our judgment, the value of the coverage discounted for the risk of loss.
 
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If we experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties.  In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged and require substantial expenditures to rebuild or repair.  In the event of a significant loss at one or more of our properties, the remaining insurance under our policies, if any, could be insufficient to adequately insure our other properties.  In such event, securing additional insurance, if possible, could be significantly more expensive than our current policies.

Unionization or work stoppages could have an adverse effect on us.

We are at times required to use unionized construction workers or to pay the prevailing wage in a jurisdiction to such workers.  Due to the highly labor intensive and price competitive nature of the construction business, the cost of unionization and/or prevailing wage requirements for new developments could be substantial.  Unionization and prevailing wage requirements could adversely affect a new development's profitability.  Union activity or a union workforce could increase the risk of a strike, which would adversely affect our ability to meet our construction timetables.

We could incur significant costs related to government regulation and private litigation over environmental matters.

Under various environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), a current or previous owner or operator of real property may be liable for contamination resulting from the release or threatened release of hazardous or toxic substances or petroleum at that property, and an entity that arranges for the disposal or treatment of a hazardous or toxic substance or petroleum at another property may be held jointly and severally liable for the cost to investigate and clean up such property or other affected property.  Such parties are known as potentially responsible parties ("PRPs").  Such environmental laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and the costs of any required investigation or cleanup of these substances can be substantial.  PRPs are liable to the government as well as to other PRPs who may have claims for contribution.  The liability is generally not limited under such laws and could exceed the property's value and the aggregate assets of the liable party.  The presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for personal injury or property damage, or adversely affect our ability to sell, lease or develop the real property or to borrow using the real property as collateral.

Environmental laws also impose ongoing compliance requirements on owners and operators of real property.  Environmental laws potentially affecting us address a wide variety of matters, including, but not limited to, asbestos-containing building materials ("ACBM"), storage tanks, storm water and wastewater discharges, lead-based paint, wetlands, and hazardous wastes.  Failure to comply with these laws could result in fines and penalties or expose us to third-party liability.  Some of our properties may have conditions that are subject to these requirements and we could be liable for such fines or penalties or liable to third parties.

Existing conditions at some of our properties may expose us to liability related to environmental matters.

Some of the properties in our portfolio may contain asbestos-containing building materials, or ACBMs.  Environmental laws require that ACBMs be properly managed and maintained, and may impose fines and penalties on building owners or operators for failure to comply with these requirements.  Also, some of the properties in our portfolio contain, or may have contained, or are adjacent to or near other properties that have contained or currently contain storage tanks for the storage of petroleum products or other hazardous or toxic substances.  These operations create a potential for the release of petroleum products or other hazardous or toxic substances.  Third parties may be permitted by law to seek recovery from owners or operators for personal injury associated with exposure to contaminants, including, but not limited to, petroleum products, hazardous or toxic substances, and asbestos fibers.  Also, some of the properties may contain regulated wetlands that can delay or impede development or require costs to be incurred to mitigate the impact of any disturbance.  Absent appropriate permits, we can be held responsible for restoring wetlands and be required to pay fines and penalties.

Over the past several years, there have been an increasing number of lawsuits against owners and managers of residential properties, although not against us, alleging personal injury and property damage caused by the presence of mold in residential real estate.  Some of these lawsuits have resulted in substantial monetary judgments or settlements.  Insurance carriers have reacted to these liability awards by excluding mold related programs designed to minimize the existence of mold in any of our properties as well as guidelines for promptly addressing and resolving reports of mold to minimize any impact mold might have on residents or the property.
 
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We do not carry environmental insurance on all of our properties.  Environmental liability at any of our properties may have a material adverse effect on our financial condition, results of operations, cash flow, the trading price of our stock or our ability to satisfy our debt service obligations and pay dividends or distributions to our security holders.

We may incur significant costs complying with the Americans with Disabilities Act and similar laws.

Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons.  Additional federal, state and local laws also may require modifications to our properties, or restrict our ability to renovate our properties.  For example, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped.  We have not conducted an audit or investigation of all of our properties to determine our compliance with present requirements.  Noncompliance with the ADA or FHAA could result in the imposition of fines or an award or damages to private litigants and also could result in an order to correct any non-complying feature.  Also, discrimination on the basis of certain protected classes can result in significant awards to victims.  We cannot predict the ultimate amount of the cost of compliance with the ADA, FHAA or other legislation.  If we incur substantial costs to comply with the ADA, FHAA or any other legislation, we could be materially and adversely affected.

We may incur significant costs complying with other regulations.

The properties in our portfolio are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements.  If we fail to comply with these various requirements, we might incur governmental fines or private damage awards.  Furthermore, existing requirements could change and require us to make significant unanticipated expenditures that would materially and adversely affect us.

Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers' financial condition and disputes between our co-venturers and us.

We have co-invested, and anticipate that we will continue in the future to co-invest, with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other entity.  In connection with joint venture investments, we do not have sole decision-making control regarding the property, partnership, joint venture or other entity.  Investments in partnerships, joint ventures or other entities may, under certain circumstances, involve risks not present were a third-party not involved, including the possibility that our partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions.  Our partners or co-venturers also may have economic or other business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our preferences, policies or objectives.  Such investments also will have the potential risk of impasses on decisions, such as a sale, because neither we nor our partners or co-venturers would have full control over the partnership or joint venture.  Disputes between us and our partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort exclusively on our business.  Consequently, actions by or disputes with our partners or co-venturers might result in subjecting properties owned by the partnership, joint venture or other entity to additional risk.  In addition, we may in certain circumstances be liable for the actions of our partners or co-venturers.

Risks Related to Our Organization and Structure

Our stock price will fluctuate.

Stock markets in general and our common stock have experienced significant price volatility over the past year.  The market price and volume of our common stock may continue to be subject to significant fluctuations due not only to general stock market conditions but also to the risk factors discussed above and below and the following:

 
operating results that vary from the expectations of securities analysts and investors;
     
 
investor interest in our property portfolio;
     
 
the reputation and performance of REITs;
 
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the attractiveness of REITs as compared to other investment vehicles;
     
 
the results of our financial condition and operations;
     
 
the perception of our growth and earnings potential;
     
 
dividend payment rates and the form of the payment;
     
 
increases in market rates, which may lead purchasers of our common stock to demand a higher yield; and
     
 
changes in financial markets and national economic and general market conditions.

To qualify as a REIT, we may be forced to limit the activities of a TRS.

To qualify as a REIT, no more than 20% of the value of our total assets may consist of the securities of one or more taxable REIT subsidiaries, or TRS.  Certain of our activities, such as our third-party development, management and leasing services, must be conducted through a TRS for us to qualify as a REIT.  In addition, certain non-customary services must be provided by a TRS or an independent contractor.  If the revenues from such activities create a risk that the value of our TRS entities, based on revenues or otherwise, approaches the 20% threshold, we will be forced to curtail such activities or take other steps to remain under the 20% threshold.  Since the 20% threshold is based on value, it is possible that the IRS could successfully contend that the value of our TRS entities exceeds the 20% threshold even if the TRS accounts for less than 20% of our consolidated revenues, income or cash flow.  Our on-campus participating properties and our third-party services are held by a TRS.  Consequently, income earned from our on-campus participating properties and our third-party services will be subject to regular federal income taxation and state and local income taxation where applicable, thus reducing the amount of cash available for distribution to our security holders.

A TRS is not permitted to directly or indirectly operate or manage a "hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis."  We believe that our method of operating our TRS entities will not be considered to constitute such an activity.  Future Treasury Regulations or other guidance interpreting the applicable provisions might adopt a different approach, or the IRS might disagree with our conclusion.  In such event we might be forced to change our method of operating our TRS entities, which could adversely affect us, or of one of our TRS entities could fail to qualify as a taxable REIT subsidiary, which would likely cause us to fail to qualify as a REIT.

Failure to qualify as a REIT would have significant adverse consequences to us and the value of our securities.

We intend to operate in a manner that will allow us to qualify as a REIT for federal income tax purposes under the Internal Revenue Code.  If we lose our REIT status, we will face serious tax consequences that would substantially reduce or eliminate the funds available for investment and for distribution to security holders for each of the years involved, because:

 
we would not be allowed a deduction for dividends to security holders in computing our taxable income and such amounts would be subject to federal income tax at regular corporate rates;
     
 
we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and
     
 
unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.

In addition, if we fail to qualify as a REIT, we will not be required to pay dividends to stockholders, and all dividends to stockholders will be subject to tax as ordinary income to the extent of our current and accumulated earnings and profits.  As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and would adversely affect the value of our common stock.

Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations.  The complexity of these provisions and of the applicable Treasury Regulations that have been promulgated under the Internal Revenue Code is greater in the case of a REIT that, like us, holds its assets through a partnership or a limited liability company.  The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT.  In order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the composition of our assets and "two gross income tests": (a) at least 75% of our gross income in any year must be derived from qualified sources, such as "rents from real property," mortgage interest, dividends from other REITs and gains from sale of such assets, and (b) at least 95% of our gross income must be derived from sources meeting the 75% income test above, and other passive investment sources, such as other interest and dividends and gains from sale of securities.  Also, we must pay dividends to stockholders aggregating annually at least 90% of our REIT taxable income, excluding any net capital gains.  In addition, legislation, new regulations, administrative interpretations or court decisions may adversely affect our investors, our ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.
 
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Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer or if a TRS enters into agreements with us or our tenants on a basis that is determined to be other than an arm's length basis.

To qualify as a REIT, we may be forced to borrow funds on a short-term basis during unfavorable market conditions.

In order to qualify as a REIT, we are required under the Internal Revenue Code to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain.  A TRS may, in its discretion, retain any income it generates net of any tax liability it incurs on that income without affecting the 90% distribution requirements to which we are subject as a REIT.  Net income of our TRS entities is included in REIT taxable income and increases the amount required to be distributed, only if such amounts are paid out as a dividend by a TRS.  If a TRS distributes any of its after-tax income to us, that distribution will be included in our REIT taxable income.  In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income, including any net capital gains.  Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow.  Consequently, we will be compelled to rely on third-party sources to fund our capital needs.  We may not be able to obtain this financing on favorable terms or at all.  Any additional indebtedness that we incur will increase our leverage.  Our access to third-party sources of capital depends, in part, on:

 
general market conditions;
     
 
our current debt levels and the number of properties subject to encumbrances;
     
 
our current performance and the market's perception of our growth potential;
     
 
our cash flow and cash dividends; and
     
 
the market price per share of our stock.

If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, satisfy our debt service obligations or make the cash distributions to our security holders, including those necessary to qualify as a REIT.

Our charter contains restrictions on the ownership and transfer of our stock.

Our charter provides that, subject to certain exceptions, no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than 9.8% (by value or by number of shares, whichever is more restrictive) of the outstanding shares of our common stock or more than 9.8% by value of all our outstanding shares, including both common and preferred stock.  We refer to this restriction as the "ownership limit."  A person or entity that becomes subject to the ownership limit by virtue of a violative transfer that results in a transfer to a trust is referred to as a "purported beneficial transferee" if, had the violative transfer been effective, the person or entity would have been a record owner and beneficial owner or solely a beneficial owner of our stock, or is referred to as a "purported record transferee" if, had the violative transfer been effective, the person or entity would have been solely a record owner of our stock.

The constructive ownership rules under the Internal Revenue Code are complex and may cause stock owned actually or constructively by a group of related individuals and/or entities to be owned constructively by one individual or entity.  As a result, the acquisition of less than 9.8% of our stock (or the acquisition of an interest in an entity that owns, actually or constructively, our stock) by an individual or entity, could, nevertheless cause that individual or entity, or another individual or entity, to own constructively in excess of 9.8% of our outstanding stock and thereby subject the stock to the ownership limit.  Our charter, however, requires exceptions to be made to this limitation if our board of directors determines that such exceptions will not jeopardize our tax status as a REIT.  This ownership limit could delay, defer or prevent a change of control or other transaction that might involve a premium price for our common stock or otherwise be in the best interest of our security holders.
 
16

 
Certain tax and anti-takeover provisions of our charter and bylaws may inhibit a change of our control.

Certain provisions contained in our charter and bylaws and the Maryland General Corporation Law may discourage a third-party from making a tender offer or acquisition proposal to us.  If this were to happen, it could delay, deter or prevent a change in control or the removal of existing management.  These provisions also may delay or prevent the security holders from receiving a premium for their securities over then-prevailing market prices.  These provisions include:

 
the REIT ownership limit described above;
     
 
authorization of the issuance of our preferred shares with powers, preferences or rights to be determined by our board of directors;
     
 
the right of our board of directors, without a stockholder vote, to increase our authorized shares and classify or reclassify unissued shares;
     
 
advance-notice requirements for stockholder nomination of directors and for other proposals to be presented to stockholder meetings; and
     
 
the requirement that a majority vote of the holders of common stock is needed to remove a member of our board of directors for "cause."

The Maryland business statutes also impose potential restrictions on a change of control of our company.

Various Maryland laws may have the effect of discouraging offers to acquire us, even if the acquisition would be advantageous to security holders.  Our bylaws exempt us from some of those laws, such as the control share acquisition provisions, but our board of directors can change our bylaws at any time to make these provisions applicable to us.

Our rights and the rights of our security holders to take action against our directors and officers are limited.

Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believe to be in our best interests and with the care that an ordinary prudent person in a like position would use under similar circumstances.  In addition, our charter eliminates our directors' and officers' liability to us and our stockholders for money damages except for liability resulting from actual receipt of an improper benefit in money, property or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action.  Our bylaws require us to indemnify directors and officers for liability resulting from actions taken by them in those capacitates to the maximum extent permitted by Maryland law.  As a result, we and our security holders may have more limited rights against our directors and officers than might otherwise exist under common law.  In addition, we may be obligated to fund the defense costs incurred by our directors and officers.

Item 1B.  Unresolved Staff Comments

There were no unresolved comments from the staff of the SEC at December 31, 2008.
 
17

 
Item 2.   Properties

The following table presents certain summary information about our properties. Our properties generally are modern facilities, and amenities at most of our properties include a swimming pool, basketball courts and a large community center featuring a fitness center, computer center, tanning beds, study areas, and a recreation room with billiards and other games. Some properties also have a jacuzzi/hot tub, volleyball courts, tennis courts and in-unit washers and dryers.  Callaway House also has a food service facility.  Two wholly-owned properties completed construction and opened in Fall 2008 and one wholly-owned property is currently under construction with a scheduled completion date of August 2009.  Lease terms are generally 12 months at wholly-owned properties and 9 months at our on-campus participating properties.  These properties are included in the Wholly-Owned Properties and On-Campus Participating Properties segments discussed in Item 1 and the accompanying Notes to Consolidated Financial Statements contained in Item 8.  All dollar amounts in this table and others herein, except share and per share amounts, are stated in thousands unless otherwise indicated.

We own fee title to all of these properties except for:

 
University Village at TU, which is subject to a 75-year ground lease with Temple University (with four additional six-year extensions);
     
 
University Centre, which is subject to a 95-year ground lease;
     
 
Vista del Sol, which is subject to a 65-year ground/facility lease with Arizona State University (with two additional ten-year extensions);
     
 
Barrett Honors College, which is subject to a 65-year ground/facility lease with Arizona State University (with two additional ten-year extensions); and
     
 
Four on-campus participating properties held under ground/facility leases with two university systems.
 
18

 
Property
 
Year
Built
 
Date Acquired/ Developed
 
Primary University Served
 
Typical Lease
Term
(Mos)
   
Year Ended December 31, 2008 Revenue
   
Average Monthly Revenue/ Bed (1)
   
2008 Average Occupancy (1)
   
Occupancy as of 12/31/08
   
# of Buildings
   
# of Units
   
# of Beds
 
                                                             
WHOLLY-OWNED PROPERTIES
                                                   
                                                             
Villas on Apache
 
1987
 
May-99
 
Arizona State University Main Campus
    12     $ 1,990     $ 558       98.9 %     97.2 %     6       111       288  
                                                                             
The Village at Blacksburg
 
1990/
1998
 
Dec-00
 
Virginia Polytechnic Institute and State University
    12       4,719       364       99.1 %     99.1 %     26       288       1,056  
                                                                               
River Club Apartments
1996
 
Aug-99
 
The University of Georgia - Athens
    12       3,379       378       92.5 %     87.8 %     18       266       792  
                                                                               
River Walk Townhomes
 
1998
 
Aug-99
 
The University of Georgia - Athens
    12       1,438       371       94.9 %     90.5 %     20       100       336  
                                                                               
The Callaway House (2)
 
1999
 
Mar-01
 
Texas A&M University
    9       6,764 (3)     n/a (3)     103.5 %     103.5 %     1       173       538  
                                                                               
The Village at Alafaya Club
 
1999
 
Jul-00
 
The University of Central Florida
    12       6,037       566       98.9 %     99.2 %     20       228       839  
                                                                               
The Village at Science Drive
 
2000
 
Nov-01
 
The University of Central Florida
    12       5,346       573       99.5 %     99.3 %     17       192       732  
                                                                               
University Village at Boulder Creek
 
2002
 
Aug-02
 
The University of Colorado at Boulder
    12       2,594       668       98.1 %     98.7 %     4       82       309  
                                                                               
University Village at Fresno
 
2004
 
Aug-04
 
California State University - Fresno
    12       2,573       538       88.9 %     97.8 %     9       105       406  
                                                                               
University Village at TU (4)
 
2004
 
Aug-04
 
Temple University
    12       6,369       647       98.8 %     98.9 %     3       220       749  
                                                                               
University Village at Sweet Home
 
2005
 
Aug-05
 
State University of New York – Buffalo
    12       6,004       625       94.9 %     89.0 %     11       269       828  
                                                                               
University Club Tallahassee (5)
 
2000
 
Feb-05
 
Florida State University
    12       4,170       425       99.0 %     98.8 %     19       152       608  
                                                                               
The Grove at University Club (5)
 
2002
 
Feb-05
 
Florida State University
    12       878       429       98.0 %     98.4 %     8       64       128  
                                                                               
College Club Tallahassee (5)
 
2001
 
Feb-05
 
Florida A&M University
    12       2,283       395       89.8 %     87.0 %     12       96       384  
                                                                               
The Greens at College Club (5)
 
2004
 
Feb-05
 
Florida A&M University
    12       951       380       93.2 %     92.5 %     5       40       160  
                                                                               
University Club Gainesville
 
1999
 
Feb-05
 
University of Florida
    12       2,212       410       98.7 %     98.4 %     9       94       376  
                                                                               
The Estates
 
2002
 
Mar-05
 
University of Florida
    12       7,285       577       96.9 %     94.0 %     20       396       1,044  
                                                                               
City Parc at Fry Street
2004
 
Mar-05
 
University of North Texas
    12       2,829       542       99.0 %     98.8 %     8       136       418  
                                                                               
Entrada Real
 
2000
 
Mar-06
 
University of Arizona
    12       2,268       502       98.0 %     98.1 %     8       98       363  
                                                                               
Royal Oaks (5)
 
1990
 
Mar-06
 
Florida State University
    12       1,190       424       98.2 %     97.3 %     4       82       224  
                                                                               
Royal Pavilion (5)
 
1991
 
Mar-06
 
Florida State University
    12       1,084       423       98.5 %     98.5 %     4       60       204  
                                                                               
Royal Village Tallahassee (5)
 
1992
 
Mar-06
 
Florida State University
    12       1,531       426       97.8 %     97.9 %     4       75       288  
                                                                               
Royal Village Gainesville
 
1996
 
Mar-06
 
University of Florida
    12       2,734       486       97.5 %     97.1 %     8       118       448  
                                                                               
Northgate Lakes
 
1997/98
 
Mar-06
 
The University of Central Florida
    12       4,677       525       98.9 %     98.9 %     13       194       710  
                                                                               
Royal Lexington
 
1994
 
Mar-06
 
The University of Kentucky
    12       1,808       389       96.8 %     100.0 %     4       94       364  
                                                                               
The Woods at Greenland
 
2001
 
Mar-06
 
Middle Tennessee State University
    12       1,322       389       97.9 %     98.2 %     3       78       276  
                                                                               
Raider’s Crossing
 
2002
 
Mar-06
 
Middle Tennessee State University
    12       1,394       408       98.7 %     98.6 %     4       96       276  
             
 
                                                               
Raider’s Pass
 
2002/03
 
Mar-06
 
Texas Tech University
    12       4,416       427       99.1 %     99.3 %     12       264       828  
                                                                               
Aggie Station
 
2003
 
Mar-06
 
Texas A&M University
    12       2,605       469       99.6 %     99.6 %     5       156       450  
                                                                               
The Outpost San Marcos
 
2003/04
 
Mar-06
 
Texas State University – San Marcos
    12       2,706       445       98.8 %     99.0 %     5       162       486  
                                                                               
The Outpost San Antonio
 
2005
 
Mar-06
 
University of Texas – San Antonio
    12       5,244       495       99.3 %     99.3 %     10       276       828  
 
19

 
Property
 
Year Built
 
Date Acquired/ Developed
 
Primary University Served
 
Typical Lease Term (Mos)
   
Year Ended December 31, 2008 Revenue
   
Average Monthly Revenue/ Bed (1)
   
2008 Average Occupancy (1)
   
Occupancy as of 12/31/08
   
# of Buildings
   
# of Units
   
# of Beds
 
                                                             
Callaway Villas
 
2006
 
Aug-06
 
Texas A&M University
    12       5,352       608       99.1 %     98.4 %     20       236       704  
                                                           
Subtotal – Same Store Wholly-Owned Properties (6)
      106,152       494       97.7 %     97.1 %     320       5,001       16,440  
                                                                             
Village on Sixth
 
2000/
2006
 
Jan-07
 
Marshall University
    12       3,441       432       85.9 %     94.5 %     14       248       752  
                                                                               
Newtown Crossing
 
2005/
2007
 
Feb-07
 
University of Kentucky
    12       5,792       529       89.0 %     87.4 %     7       356       942  
                                                                               
Olde Town University Square
 
2005
 
Feb-07
 
University of  Toledo
    12       3,650       526       98.8 %     98.7 %     4       224       550  
                                                                               
Peninsular Place
 
2005
 
Feb-07
 
Eastern Michigan University
    12       2,882       491       90.6 %     90.2 %     2       183       478  
                                                                               
University Centre
 
2007
 
Aug-07
 
Rutgers University, NJIT, Essex CCC
    9/12       6,308       776       77.0 %     91.8 %     2       234       838  
                                                                               
Sunnyside Commons (7)
1925-
2001
 
Feb-08
 
West Virginia University
    12       662       384       98.6 %     99.4 %     9       68       161  
                                                                               
Pirate’s Place (7)
 
1996
 
Feb-08
 
East Carolina University
    12       1,268       265       81.2 %     91.5 %     12       144       528  
                                                                               
University Highlands (7)
2004
 
June-08
 
University of Nevada at Reno
    12       1,437       559       57.4 %     67.3 %     17       216       732  
                                                                               
Jacob Heights I (5) (7)
 
2004
 
June-08
 
Minnesota State University
    12       450       519       76.3 %     74.1 %     11       42       162  
                                                                               
Jacob Heights III (5) (7)
 
2006
 
June-08
 
Minnesota State University
    12       267       443       89.4 %     86.5 %     14       24       96  
                                                                               
The Summit (5) (7)
 
2003
 
June-08
 
Minnesota State University
    12       1,867       416       94.9 %     95.4 %     9       192       672  
                                                                               
GrandMarc – Seven Corners (7)
 
2000
 
June-08
 
University of Minnesota
    12       2,112       712       83.6 %     89.1 %     1       186       440  
                                                                               
University Village – Sacramento (7)
 
1979
 
June-08
 
California State University –Sacramento
    12       1,437       585       91.0 %     91.9 %     41       250       394  
                                                                               
Aztec Corner (7)
 
1995
 
June-08
 
San Diego State University
    12       2,522       608       99.3 %     99.3 %     3       180       606  
                                                                               
University Crossings (7)
1926/
2003
 
June-08
 
University of Pennsylvania / Drexel
    12       3,845       471       97.0 %     99.5 %     1       260       1,016  
                                                                               
Campus Corner (7)
 
1997
 
June-08
 
Indiana University
    12       1,460       350       67.3 %     77.9 %     23       254       796  
                                                                               
Tower at 3rd  (7)
 
1973
 
June-08
 
University of Illinois
    12       1,624       629       95.4 %     95.9 %     1       147       295  
                                                                               
University Mills (7)
 
2002
 
June-08
 
University of Northern Iowa
    12       1,136       422       89.1 %     99.0 %     11       121       481  
                                                                               
Pirates Cove (7)
 
2000
 
June-08
 
East Carolina University
    12       1,746       317       70.7 %     70.3 %     26       264       1,056  
                                                                               
University Manor (7)
 
2002
 
June-08
 
East Carolina University
    12       1,321       468       77.9 %     87.7 %     18       168       600  
                                                                               
Brookstone Village (7)
 
1993
 
June-08
 
UNC – Wilmington
    12       663       406       95.5 %     95.8 %     12       124       238  
                                                                               
Campus Walk – Wilmington  (7)
 
1989
 
June-08
 
UNC – Wilmington
    12       1,066       527       95.8 %     97.2 %     12       289       290  
                                                                               
Riverside Estates (7)
 
1994
 
June-08
 
University of South Carolina
    12       1,834       544       84.3 %     96.4 %     18       205       700  
                                                                               
Cambridge at Southern (7)
2006
 
June-08
 
Georgia Southern University
    12       1,685       668       78.7 %     89.4 %     13       228       564  
                                                                               
Campus Club – Statesboro (7)
 
2003
 
June-08
 
Georgia Southern University
    12       2,449       393       89.7 %     90.5 %     26       276       984  
                                                                               
University Pines (7)
 
2001
 
June-08
 
Georgia Southern University
    12       1,371       524       85.4 %     96.6 %     13       144