t66080_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended June 30, 2009.
 
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
(IRS Employer Identification No.)
Incorporation or Organization)
 
805 Las Cimas Parkway, Suite 400
78746
Austin, TX
(Zip Code)
(Address of Principal Executive Offices)
 
   
(512) 732-1000
Registrant’s telephone number, including area code
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x
 
Accelerated Filer o
       
 
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
There were 52,190,493 shares of American Campus Communities, Inc.’s common stock with a par value of $0.01 per share outstanding as of the close of business on August 3, 2009.
 
 
 
 
 
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2009
 
TABLE OF CONTENTS
       
     
PAGE
NO.
       
PART I.
     
       
Item 1.
Consolidated Financial Statements
   
       
 
Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008
 
1
       
 
Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008 (all unaudited)
 
2
       
 
Consolidated Statement of Changes in Equity for the six months ended June 30, 2009 (unaudited)
 
3
       
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (all unaudited)
 
4
       
 
Notes to Consolidated Financial Statements
 
5
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
25
       
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
 
43
       
Item 4.
Controls and Procedures
 
44
       
PART II.
   
       
Item 4.
Submissions of Matters to a Vote of Security Holders
 
44
       
Item 6.
Exhibits
 
44
       
SIGNATURES
 
45

 
 

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
             
   
June 30, 2009
   
December 31, 2008
 
   
(Unaudited)
       
Assets
           
             
Investments in real estate:
           
Wholly-owned properties, net
  $ 2,029,470     $ 1,986,833  
On-campus participating properties, net
    67,301       69,302  
Investments in real estate, net
    2,096,771       2,056,135  
                 
Cash and cash equivalents
    57,183       25,600  
Restricted cash
    31,559       32,558  
Student contracts receivable, net
    4,891       5,185  
Other assets
    58,751       64,431  
                 
Total assets
  $ 2,249,155     $ 2,183,909  
                 
Liabilities and equity
               
                 
Liabilities:
               
Secured debt
  $ 1,089,735     $ 1,162,221  
Secured term loan
    100,000       100,000  
Unsecured revolving credit facility
          14,700  
Accounts payable and accrued expenses
    29,165       35,440  
Other liabilities
    47,307       56,052  
Total liabilities
    1,266,207       1,368,413  
                 
Redeemable noncontrolling interests
    30,215       26,286  
                 
Equity:
               
American Campus Communities, Inc. stockholders’ equity:
               
Common stock, $.01 par value, 800,000,000 shares authorized, 52,190,493 and 42,354,283 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively
    521       423  
Additional paid in capital
    1,098,071       901,641  
Accumulated earnings and dividends
    (145,900 )     (111,828 )
Accumulated comprehensive loss
    (3,737 )     (5,117 )
Total American Campus Communities, Inc. stockholders’ equity
    948,955       785,119  
Noncontrolling interests
    3,778       4,091  
Total equity
    952,733       789,210  
                 
Total liabilities and equity
  $ 2,249,155     $ 2,183,909  
 
See accompanying notes to consolidated financial statements.

 
1

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share data)
                         
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Revenues:
                       
Wholly-owned properties
  $ 66,152     $ 37,294     $ 133,484     $ 68,975  
On-campus participating properties
    3,922       3,948       10,796       10,692  
Third party development services
    886       723       1,938       2,379  
Third party management services
    2,105       1,222       4,347       2,144  
Resident services
    205       361       445       799  
Total revenues
    73,270       43,548       151,010       84,989  
                                 
Operating expenses:
                               
Wholly-owned properties
    32,891       16,738       64,377       30,623  
On-campus participating properties
    2,783       2,499       4,813       4,794  
Third party development and management services
    2,810       2,328       5,787       4,436  
General and administrative
    2,829       3,237       5,577       5,371  
Depreciation and amortization
    20,400       11,114       40,502       19,143  
Ground/facility leases
    452       368       1,004       727  
Total operating expenses
    62,165       36,284       122,060       65,094  
                                 
Operating income
    11,105       7,264       28,950       19,895  
                                 
Nonoperating income and (expenses):
                               
Interest income
    40       642       80       804  
Interest expense
    (15,446 )     (8,733 )     (31,332 )     (15,712 )
Amortization of deferred financing costs
    (780 )     (448 )     (1,581 )     (759 )
Loss from unconsolidated joint ventures
    (483 )     (129 )     (1,037 )     (255 )
Other nonoperating income
    402             402        
Total nonoperating expenses
    (16,267 )     (8,668 )     (33,468 )     (15,922 )
                                 
(Loss) income before income taxes, redeemable noncontrolling interests and discontinued operations
    (5,162 )     (1,404 )     (4,518 )     3,973  
Income tax provision
    (135 )     (73 )     (270 )     (133 )
Redeemable noncontrolling interests share of loss (income)
    81       (13 )     27       (319 )
(Loss) income from continuing operations
    (5,216 )     (1,490 )     (4,761 )     3,521  
Income from discontinued operations
          92             92  
Net (loss) income
    (5,216 )     (1,398 )     (4,761 )     3,613  
Net income attributable to noncontrolling interests
    (94 )     (52 )     (272 )     (154 )
Net (loss) income attributable to common shareholders
  $ (5,310 )   $ (1,450 )   $ (5,033 )   $ 3,459  
                                 
(Loss) income per share attributable to common shareholders – basic:
                               
(Loss) income from continuing operations per share
  $ (0.11 )   $ (0.05 )   $ (0.12 )   $ 0.10  
Net (loss) income per share
  $ (0.11 )   $ (0.04 )   $ (0.12 )   $ 0.10  
(Loss) income per share attributable to common shareholders – diluted:
                               
(Loss) income from continuing operations per share
  $ (0.11 )   $ (0.04 )   $ (0.12 )   $ 0.10  
Net (loss) income per share
  $ (0.11 )   $ (0.04 )   $ (0.12 )   $ 0.11  
                                 
Weighted-average common shares outstanding:
                               
Basic
    47,897,196       35,692,653       45,152,665       31,512,271  
Diluted
    49,198,944       37,098,977       46,409,294       33,272,354  
                                 
Distributions declared per common share
  $ 0.3375     $ 0.3375     $ 0.675     $ 0.675  
 
See accompanying notes to consolidated financial statements.

 
2

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited, in thousands, except share data)
                                           
   
Common Shares
   
Par Value of
Common Shares
   
Additional Paid
in Capital
   
Accumulated
Earnings and
Distributions
   
Accumulated Other
Comprehensive
Income (Loss)
   
Noncontrolling
Interests
   
Total
 
Equity, December 31, 2008
    42,354,283     $ 423     $ 901,641     $ (111,828 )   $ (5,117 )   $ 4,091     $ 789,210  
Net proceeds from sale of common stock
    9,775,000       98       198,252                         198,350  
Amortization of restricted stock awards
                1,256                         1,256  
Vesting of restricted stock awards
    50,210             (313 )                       (313 )
Issuance of fully vested restricted stock units
    9,000             55                         55  
Distributions to common and restricted stockholders
                      (29,039 )                 (29,039 )
Distributions to joint venture partners
                                  (585 )     (585 )
Conversion of common units to common stock
    2,000             23                         23  
Reclassification of noncontrolling interests
                (2,843 )                       (2,843 )
Comprehensive loss:
                                                       
Change in fair value of interest rate swaps
                            1,380             1,380  
Net loss
                      (5,033 )           272       (4,761 )
Total comprehensive loss
                                        (3,381 )
Equity, June 30, 2009
    52,190,493     $ 521     $ 1,098,071     $ (145,900 )   $ (3,737 )   $ 3,778     $ 952,733  
 
See accompanying notes to consolidated financial statements.

 
3

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
             
   
Six Months Ended June 30,
 
   
2009
   
2008
 
Operating activities
           
Net (loss) income
  $ (4,761 )   $ 3,613  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
               
Redeemable noncontrolling interests share of (loss) income
    (27 )     319  
Depreciation and amortization
    40,502       19,143  
Amortization of deferred financing costs and debt premiums/discounts
    1,440       77  
Share-based compensation
    1,358       1,057  
Loss from unconsolidated joint ventures
    1,037       258  
Amortization of gain on interest rate swap termination
          (121 )
Income tax provision
    270       120  
Changes in operating assets and liabilities:
               
Restricted cash
    999       (3,381 )
Student contracts receivable, net
    294       1,810  
Other assets
    (4,763 )     (5,732 )
Accounts payable and accrued expenses
    (6,857 )     (2,783 )
Other liabilities
    (5,105 )     (2,785 )
Net cash provided by operating activities
    24,387       11,595  
Investing activities
               
Cash paid for company and property acquisitions
          (287,245 )
Cash paid for land acquisitions
    (2,637 )     (3,017 )
Investments in wholly-owned properties
    (68,356 )     (73,007 )
Investments in unconsolidated joint ventures
          (8,208 )
Investments in on-campus participating properties
    (181 )     (196 )
Purchase of corporate furniture, fixtures and equipment
    (1,181 )     (1,141 )
Distributions received from unconsolidated joint ventures
          15  
Net cash used in investing activities
    (72,355 )     (372,799 )
Financing activities
               
Proceeds from sale of common stock
    207,719       264,500  
Offering costs
    (9,369 )     (12,264 )
Proceeds from sale of preferred stock
          131  
Proceeds from contribution of properties to joint venture
          74,368  
Proceeds from secured term loan
          100,000  
Revolving credit facility, net
    (14,700 )     (9,600 )
Proceeds from construction loans
    5,334       55,051  
Pay-off of mortgage loans
    (72,829 )     (24,225 )
Principal payments on debt
    (4,850 )     (3,318 )
Change in construction accounts payable
    (1,284 )     (3,279 )
Debt issuance and assumption costs
    (15 )     (5,754 )
Distributions to common and restricted stockholders
    (29,001 )     (21,851 )
Distributions to noncontrolling partners
    (1,454 )     (1,158 )
Net cash provided by financing activities
    79,551       412,601  
Net change in cash and cash equivalents
    31,583       51,397  
Cash and cash equivalents at beginning of period
    25,600       12,073  
Cash and cash equivalents at end of period
  $ 57,183     $ 63,470  
Supplemental disclosure of non-cash investing and financing activities
               
Issuance of Common Units in connection with land acquisition
  $ (2,005 )   $  
Issuance of common stock in connection with company acquisition
  $     $ (154,739 )
Issuance of Common Units in connection with company acquisition
  $     $ (199 )
Loans assumed in connection with company and property acquisitions
  $     $ (615,175 )
Change in fair value of derivative instruments, net
  $ 1,380     $ 182  
Supplemental disclosure of cash flow information
               
Interest paid
  $ 31,783     $ 13,295  
 
See accompanying notes to consolidated financial statements.

 
4

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.          Organization and Description of Business
 
American Campus Communities, Inc. (the “Company”) is a real estate investment trust (“REIT”) that was incorporated on March 9, 2004 and commenced operations effective with the completion of an initial public offering (“IPO”) on August 17, 2004. Through the Company’s controlling interest in American Campus Communities Operating Partnership LP (the “Operating Partnership”), the Company is one of the largest owners, managers and developers of high quality student housing properties in the United States in terms of beds owned and under management. The Company is a fully integrated, self-managed and self-administered equity REIT with expertise in the acquisition, design, financing, development, construction management, leasing and management of student housing properties.
 
On May 11, 2009, the Company completed an equity offering, consisting of the sale of 9,775,000 shares of the Company’s common stock at a price of $21.25 per share, including 1,275,000 shares issued as a result of the exercise of the underwriters’ overallotment option in full at closing. The offering generated gross proceeds of $207.7 million. The aggregate proceeds to the Company, net of the underwriting discount and expenses of the offering, were approximately $198.3 million.
 
As of June 30, 2009, the Company’s 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 the Company’s acquisition on June 11, 2008 of the student housing business of GMH Communities Trust (“GMH”), as more fully discussed in Note 3 herein. The Company’s 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 June 30, 2009, the Company also owned a noncontrolling interest in two joint ventures that owned an aggregate of 21 student housing properties with approximately 12,100 beds in approximately 3,600 units. The Company’s communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
 
Through the Company’s taxable REIT subsidiaries (“TRS”), it also provides construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others. As of June 30, 2009, the Company provided third-party management and leasing services for 31 properties (five of which the Company served as the third-party developer and construction manager) that represented approximately 23,400 beds in approximately 8,800 units. Third-party management and leasing services are typically provided pursuant to multi-year management contracts that have initial terms that range from one to five years. As of June 30, 2009, the Company’s total owned, joint venture and third-party managed portfolio included 138 properties with approximately 88,300 beds in approximately 29,600 units.
 
2.          Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the financial position, results of operations and cash flows of the Company, the Operating Partnership and subsidiaries of the Operating Partnership, including joint ventures in which the Company has a controlling interest. Third-party equity interests in the Operating Partnership and consolidated joint ventures are reflected as noncontrolling interests in the consolidated financial statements. The Company also has a noncontrolling interest in three unconsolidated joint ventures, which are accounted for under the equity method. All significant intercompany amounts have been eliminated. All dollar amounts in the tables herein, except share and per share amounts, are stated in thousands unless otherwise indicated. Certain prior period amounts have been reclassified to conform to the current period presentation, including changes resulting from the adoption of SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No. 160”).
 
New Accounting Pronouncements
 
In December 2007, the FASB issued SFAS No. 160 which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary (previously referred to as minority interests). SFAS No. 160 also requires that a retained noncontrolling interest upon the deconsolidation of a subsidiary be initially measured at its fair value. The Company adopted SFAS No. 160 effective January 1, 2009, which required retroactive adoption of the presentation and disclosure requirements for existing minority interests. See Note 6 herein for a more detailed discussion of SFAS No. 160 and its effects on the Company’s consolidated financial statements.

 
5

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS 107-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP FAS 107-1 extends the disclosure requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” to interim financial statements of publicly traded entities as defined in Accounting Principles Board (“APB”) Opinion No. 28, “Interim Financial Reporting”. SFAS No. 107 requires disclosure of the fair value of all financial instruments (recognized or unrecognized), when practicable to do so. These fair values disclosures must be presented together with the related carrying amount of the financial instruments in a manner that clearly distinguishes between assets and liabilities and indicates how the carrying amounts relate to the amounts reported on the balance sheet. FSP FAS 107-1 is effective for interim reporting periods ending after June 15, 2009. The Company adopted FSP FAS 107-1 during the quarter ended June 30, 2009 and the adoption did not have a material impact on the Company’s consolidated financial statements but did increase our disclosures.
 
In May 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS No. 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This disclosure should alert all users of financials statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. SFAS No. 165 is effective for interim or annual periods ending after June 15, 2009. The Company adopted SFAS No. 165 during the quarter ended June 30, 2009 and it did not have a material impact on the Company’s consolidated financial statements. Subsequent events for the quarter ended June 30, 2009 have been evaluated through August 7, 2009, the date on which the Company’s financial statements were issued.
 
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”, to improve financial reporting by enterprises involved with variable interest entities by addressing (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, as a result of the elimination of the qualifying special-purpose entity concept in SFAS No. 166, Accounting for Transfers of Financial Assets, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2009, with earlier adoption prohibited. The Company is currently evaluating what impact, if any, the adoption of SFAS No. 167 will have on its consolidated financial statements.
 
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.” This standard replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”, and establishes only two levels of U.S. GAAP, authoritative and nonauthoritative. The FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. This standard is effective for financial statements issued for fiscal years and interim periods ending after September 15, 2009. The Company does not expect the adoption of SFAS No. 168 to have a material impact on its consolidated financial statements, however, its references to accounting literature within the notes to consolidated financial statements will be revised to conform to the Codification beginning with the quarter ended September 30, 2009.
 
In June 2008, the FASB issued FSP 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” FSP 03-6-1 affects entities which accrue non-returnable cash dividends on share-based payment awards during the awards’ service period. The FASB concluded unvested share-based payment awards which are entitled to non-forfeitable cash dividends, whether paid or unpaid, are participating securities and are participants of undistributed earnings. Because the awards are considered participating securities, the issuer is required to apply the two-class method of computing basic and diluted earnings per share which involves separate computations for common shares and participating securities. As the company does accrue and pay non-forfeitable cash dividends on unvested share-based payment awards, these types of awards are considered participating securities and are included in our earnings per share calculation.

 
6

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Interim Financial Statements
 
The accompanying interim financial statements are unaudited, but have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Because of the seasonal nature of the Company’s operations, the results of operations and cash flows for any interim period are not necessarily indicative of results for other interim periods or for the full year. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December, 31, 2008.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Investments in Real Estate
 
Investments in real estate are recorded at historical cost. Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset. The cost of ordinary repairs and maintenance are charged to expense when incurred. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:
     
 
Buildings and improvements
7-40 years
 
Leasehold interest - on-campus participating properties
25-34 years (shorter of useful life or respective lease term)
 
Furniture, fixtures and equipment
3-7 years
 
The cost of buildings and improvements includes the purchase price of the property, including legal fees and acquisition costs. Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred finance costs, are capitalized as construction in progress. Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences. Interest totaling approximately $1.2 million and $2.0 million was capitalized during the three months ended June 30, 2009 and 2008, respectively, and $2.2 million and $3.7 million was capitalized during the six months ended June 30, 2009 and 2008, respectively. Amortization of deferred financing costs totaling approximately $0.1 million and $0.2 million was capitalized during the three and six months ended June 30, 2008, respectively.
 
Management assesses whether there has been an impairment in the value of the Company’s investments in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized when estimated expected future cash flows (undiscounted and before interest charges) are less than the carrying value of the property. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions. If such conditions change, then an adjustment to the carrying value of the Company’s long-lived assets could occur in the future period in which the conditions change. To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings. The Company believes that there were no impairments of the carrying values of its investments in real estate as of June 30, 2009.
 
The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values in accordance with SFAS No. 141(R). Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. Information obtained about each property as a result of due diligence, marketing and leasing activities is also considered. The value of in-place leases is based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued “as-if” vacant. As lease terms are typically one year or less, rates on in-place leases generally approximate market rental rates. Factors considered in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current market conditions, nature of the tenancy, and costs to execute similar leases. Carrying costs include estimates of lost rentals at market rates during the expected lease-up period, as well as marketing and other operating expenses. The value of in-place leases is amortized over the remaining initial term of the respective leases, generally less than one year. The purchase price of property acquisitions is not expected to be allocated to tenant relationships, considering the terms of the leases and the expected levels of renewals.

 
7

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Long-Lived Assets–Held for Sale
 
Long-lived assets to be disposed of are classified as held for sale in the period in which all of the following criteria are met:
     
 
a.
Management, having the authority to approve the action, commits to a plan to sell the asset.
     
 
b.
The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.
     
 
c.
An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated.
     
 
d.
The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year.
     
 
e.
The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
     
 
f.
Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
 
Concurrent with this classification, the asset is recorded at the lower of cost or fair value, and depreciation ceases.
 
Owned On-Campus Properties
 
The Company, as lessee, entered into two 65-year ground and facility leases with a university system to finance, construct, and manage two student housing facilities. One property was completed in August 2008 and the other property is currently under construction with a scheduled completion date of August 2009. Both leases include the option to extend the lease term for two additional terms of ten years each. Under the terms of the leases, the lessor has title to the land and any improvements placed thereon. Pursuant to EITF No. 97-10: The Effect of Lessee Involvement in Asset Construction, the Company’s involvement in construction requires the lessor’s post construction ownership of the improvements to be treated as a sale with a subsequent leaseback by the Company. However, these sale-leaseback transactions do no qualify for sale-leaseback accounting based on guidance provided in SFAS No. 98, Accounting for Leases, because of the Company’s continuing involvement in the constructed assets. As a result of the Company’s continuing involvement, these leases are accounted for by the deposit method, in which the assets subject to the ground and facility leases are reflected at historical cost, less amortization, and the financing obligations are reflected at the terms of the underlying financing.
 
On-Campus Participating Properties
 
The Company enters into ground and facility leases with university systems and colleges to finance, construct, and manage student housing facilities. Under the terms of the leases, the lessor has title to the land and any improvements placed thereon. Each lease terminates upon final repayment of the construction related financing, the amortization period of which is contractually stipulated. Pursuant to EITF No. 97-10: The Effect of Lessee Involvement in Asset Construction, the Company’s involvement in construction requires the lessor’s post construction ownership of the improvements to be treated as a sale with a subsequent leaseback by the Company. The sale-leaseback transaction has been accounted for as a financing, and as a result, any fee earned during construction is deferred and recognized over the term of the lease. The resulting financing obligation is reflected at the terms of the underlying financing, i.e., interest is accrued at the contractual rates and principal reduces in accordance with the contractual principal repayment schedules.
 
The Company reflects these assets subject to ground/facility leases at historical cost, less amortization. Costs are amortized, and deferred fee revenue in excess of the cost of providing the service are recognized, over the lease term.

 
8

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Intangible Assets
 
In connection with property acquisitions completed during 2008, the Company capitalized approximately $19.0 million, related to management’s estimate of the fair value of the in-place leases assumed. These intangible assets are amortized on a straight-line basis over the average remaining term of the underlying leases. Amortization expense was approximately $4.1 million and $1.3 million for the three months ended June 30, 2009 and 2008, respectively, and approximately $8.2 million and $1.4 million for the six months ended June 30, 2009 and 2008, respectively. The Company also capitalized $1.5 million related to management’s estimate of the fair value of third-party management contracts acquired from GMH in June 2008. These intangible assets are amortized on a straight-line basis over a period of three years. Amortization expense related to these acquired management contracts was approximately $0.1 million and $0.2 million for the three and six months ended June 30, 2009, respectively. The amortization of intangible assets is included in depreciation and amortization expense in the accompanying consolidated statements of operations. See Note 3 herein for a detailed discussion of the property acquisitions completed during 2008.
 
Deferred Financing Costs
 
The Company defers financing costs and amortizes the costs over the terms of the related debt using the effective interest method. Upon repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to earnings.
 
Amortization expense, net of amounts capitalized, was approximately $0.8 million and $0.4 million for the three months ended June 30, 2009 and 2008, respectively, and approximately $1.6 million and $0.8 million for the six months ended June 30, 2009 and 2008, respectively. Accumulated amortization at June 30, 2009 and December 31, 2008 approximated $10.2 million and $8.9 million, respectively. Deferred financing costs, net of amortization, are included in other assets on the accompanying consolidated balance sheets.
 
Joint Ventures
 
The Company holds interests in both consolidated and unconsolidated joint ventures. The Company determines consolidation based on standards set forth in FASB Interpretation No. 46R, Consolidation of Variable Interest Entities (“FIN 46(R)”) and Emerging Issues Task Force (EITF) No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights. For joint ventures that are variable interest entities as defined under FIN 46(R) where the Company is not the primary beneficiary, it does not consolidate the joint venture for financial reporting purposes. Based on the guidance set forth in EITF 04-5, the Company consolidates certain joint venture investments because it exercises significant control over major operating decisions, such as approval of budgets, property management, investment activity and changes in financing. For joint ventures under EITF 04-5, where the Company does not exercise significant control over major operating and management decisions, but where it exercises significant influence, the Company uses the equity method of accounting and does not consolidate the joint venture for financial reporting purposes.
 
Debt Premiums and Discounts
 
Debt premiums and discounts represent fair value adjustments to account for the difference between the stated rates and market rates of debt assumed in connection with the Company’s property acquisitions. The debt premiums and discounts are amortized to interest expense over the term of the related loans using the effective-interest method. As of June 30, 2009 and December 31, 2008, net unamortized debt premiums were $4.6 million and $5.7 million, respectively, and net unamortized debt discounts were $9.4 million and $10.4 million, respectively. Debt premiums and discounts are included in secured debt on the accompanying consolidated balance sheets.
 
Third-Party Development Services Revenue and Costs
 
Development revenues are generally recognized based on a proportionate performance method based on contract deliverables, while construction revenues are recognized using the percentage of completion method, as determined by construction costs incurred relative to total estimated construction costs. Costs associated with such projects are deferred and recognized in relation to the revenues earned on executed contracts. For projects where the Company’s fee is based on a fixed price, any cost overruns incurred during construction, as compared to the original budget, will reduce the net fee generated on those projects. Incentive fees are generally recognized when the project is complete and performance has been agreed upon by all parties, or when performance has been verified by an independent third-party.

 
9

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The Company also evaluates the collectibility of fee income and expense reimbursements generated through the provision of development and construction management services based upon the individual facts and circumstances, including the contractual right to receive such amounts in accordance with the terms of the various projects, and reserves any amounts that are deemed to be uncollectible.
 
Pre-development expenditures such as architectural fees, permits and deposits associated with the pursuit of third-party and owned development projects are expensed as incurred, until such time that management believes it is probable that the contract will be executed and/or construction will commence. Because the Company frequently incurs these pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained, the Company bears the risk of loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or the Company is unable to successfully obtain the required permits and authorizations. As such, management evaluates the status of third-party and owned projects that have not yet commenced construction on a periodic basis and expenses any deferred costs related to projects whose current status indicates the commencement of construction is unlikely and/or the costs may not provide future value to the Company in the form of revenues. Such write-offs are included in third-party development and management services expenses (in the case of third-party development projects) or general and administrative expenses (in the case of owned development projects) on the accompanying consolidated statements of operations. As of June 30, 2009, the Company has deferred approximately $7.0 million in pre-development costs related to third-party and owned development projects that have not yet commenced construction. Such costs are included in other assets on the accompanying consolidated balance sheets.
 
Derivative Instruments and Hedging Activities
 
As required by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS No. 133”), the Company records all derivative financial instruments on the balance sheet at fair value. Changes in fair value are recognized either in earnings or as other comprehensive income, depending on whether the derivative has been designated as a fair value or cash flow hedge and whether it qualifies as part of a hedging relationship, the nature of the exposure being hedged, and how effective the derivative is at offsetting movements in underlying exposure. The Company discontinues hedge accounting when: (i) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised; (iii) it is no longer probable that the forecasted transaction will occur; or (iv) management determines that designating the derivative as a hedging instrument is no longer appropriate. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings. The Company uses interest rate swaps to effectively convert a portion of its floating rate debt to fixed rate, thus reducing the impact of rising interest rates on interest payments. These instruments are designated as cash flow hedges under SFAS No. 133. The interest differential to be paid or received is accrued as interest expense. The Company’s counter-parties are major financial institutions. See Note 10 herein for an expanded discussion on derivative instruments and hedging activities.
 
Income Taxes
 
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its stockholders. As a REIT, the Company will generally not be subject to corporate level federal income tax on taxable income it currently distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for the subsequent four taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local income and excise taxes on its income and property, and to federal income and excise taxes on its undistributed income.
 
The Company owns two TRS entities that manage the Company’s non-REIT activities and each is subject to federal, state and local income taxes.
 
Earnings per Share
 
Basic earnings per share is computed using net income attributable to American Campus Communities, Inc. and Subsidiaries and the weighted average number of shares of the Company’s common stock outstanding during the period, including restricted stock units (“RSUs”) issued to outside directors. RSUs are included in both basic and diluted weighted average common shares outstanding because they were fully vested on the date of grant and all conditions required in order for the recipients to earn the RSUs have been satisfied. Diluted earnings per share reflects weighted average common shares issuable from the vesting or conversion of restricted stock awards (“RSAs”) granted to employees, common units of limited partnership interest in the Operating Partnership (“Common Units”) and preferred units of limited partnership interest in the Operating Partnership (“Series A Preferred Units”). See Note 6 for a discussion of Common Units and Series A Preferred Units and Note 9 for a discussion of RSUs and RSAs.

 
10

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The following is a summary of the elements used in calculating basic and diluted earnings per share:
                         
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Basic earnings per share calculation:
                       
(Loss) income from continuing operations attributable to common shareholders
  $ (5,310 )   $ (1,542 )   $ (5,033 )   $ 3,367  
Amount allocated to participating securities
    (157 )     (96 )     (339 )     (207 )
(Loss) income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
    (5,467 )     (1,638 )     (5,372 )     3,160  
Income from discontinued operations attributable to common shareholders
          92             92  
Net (loss) income attributable to common shareholders, as adjusted – basic
  $ (5,467 )   $ (1,546 )   $ (5,372 )   $ 3,252  
                                 
(Loss) income from continuing operations attributable to common shareholders, as adjusted – per share
  $ (0.11 )   $ (0.05 )   $ (0.12 )   $ 0.10  
Income from discontinued operations attributable to common shareholders – per share
          0.01              
Net (loss) income attributable to common shareholders, as adjusted – per share
  $ (0.11 )   $ (0.04 )   $ (0.12 )   $ 0.10  
                                 
Basic weighted average common shares outstanding
    47,897,196       35,692,653       45,152,665       31,512,271  
                                 
Diluted earnings per share calculation:
                               
(Loss) income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
  $ (5,467 )   $ (1,638 )   $ (5,372 )   $ 3,160  
Income from continuing operations attributable to Series A Preferred Units
    46       46       92       92  
(Loss) income from continuing operations allocated to Common Units
    (127 )     (35 )     (119 )     225  
(Loss) income from continuing operations attributable to common shareholders, as adjusted
    (5,548 )     (1,627 )     (5,399 )     3,477  
Income from discontinued operations attributable to common shareholders
          92             92  
Income from discontinued operations allocated to Common Units
          2             2  
Income from discontinued operations attributable to common shareholders, as adjusted
          94             94  
Net (loss) income attributable to common shareholders, as adjusted
  $ (5,548 )   $ (1,533 )   $ (5,399 )   $ 3,571  
                                 
(Loss) income from continuing operations attributable to common shareholders, as adjusted – per share
  $ (0.11 )   $ (0.04 )   $ (0.12 )   $ 0.10  
Income from discontinued operations attributable to common shareholders, as adjusted – per share
                      0.01  
Net (loss) income attributable to common shareholders, as adjusted – per share
  $ (0.11 )   $ (0.04 )   $ (0.12 )   $ 0.11  
                                 
Basic weighted average common shares outstanding
    47,897,196       35,692,653       45,152,665       31,512,271  
Common Units
    1,186,785       1,291,361       1,141,666       1,369,997  
Series A Preferred Units
    114,963       114,963       114,963       114,963  
RSAs (1)
                      275,123  
Diluted weighted average common shares outstanding
    49,198,944       37,098,977       46,409,294       33,272,354  
 
 
(1)
467,529 and 284,588 weighted average RSAs are excluded from diluted weighted average common shares outstanding for the three months ended June 30, 2009 and 2008, respectively, and 455,310 weighted average RSAs are excluded from diluted weighted average common shares outstanding for the six months ended June 30, 2009, because they would be anti-dilutive due to the Company’s loss position for these periods.

 
11

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
3.          Property Acquisitions
 
On June 11, 2008, the Company completed the acquisition of GMH’s student housing business pursuant to an Agreement and Plan of Merger dated as of February 11, 2008 (the “Merger Agreement”). Concurrent with the closing of the GMH acquisition, the Company formed a joint venture with a wholly-owned subsidiary of Fidelity Real Estate Growth Fund III, LP (“Fidelity”) and contributed 15 GMH student housing properties to the venture with an estimated value of $325.9 million. The Company also assumed GMH’s equity interest in an existing joint venture with Fidelity that owns six properties. 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 wholly-owned properties totaling 1,468 beds were sold during the third quarter of 2008.
 
The total consideration paid for the GMH student housing portfolio (exclusive of 15 properties contributed to the Fidelity joint venture) was approximately $1,018.7 million, inclusive of transaction costs. Under the terms of the Merger Agreement, each GMH common share and each unit in GMH Communities, LP (the “GMH Operating Partnership”) issued and outstanding as of the date of closing, received cash consideration of $3.36 and 0.07642 of a share of the Company’s common stock, or at the election of the GMH Operating Partnership unitholder, 0.07642 of a unit in the Operating Partnership. The value of the Company’s common stock and Common Units issued was based on the closing price of the Company’s common stock on February 11, 2008. The Company issued 5.4 million shares of common stock and 7,004 Common Units, each valued at $28.43 per share or unit.
 
In February 2008, the Company 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. As part of the transaction, the Company assumed approximately $7.0 million in fixed-rate mortgage debt with an annual interest rate of 7.15% and remaining term to maturity of 14.9 years.
 
In February 2008, the Company 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. The Company did not assume any debt as part of this transaction.
 
The acquired properties’  results of operations have been included in the accompanying consolidated statements of operations since their respective acquisition closing dates. The following pro forma information for the three and six months ended June 30, 2008, presents consolidated financial information for the Company as if the property acquisitions discussed above, the $100 million secured term loan borrowing, and the April 2008 equity offering and subsequent paydown of the revolving credit facility had occurred at the beginning of the earliest period presented. The unaudited pro forma information is provided for informational purposes only and is not indicative of results that would have occurred or which may occur in the future:
             
   
Three Months Ended
June 30, 2008
   
Six Months Ended
June 30, 2008
 
Total revenues
  $ 67,610     $ 140,845  
Net loss
  $ (4,826 )   $ (1,663 )
Net loss per share – basic
  $ (0.12 )   $ (0.04 )
Net loss per share – diluted
  $ (0.11 )   $ (0.04 )

 
12

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
4.          Investments in Wholly-Owned Properties
 
Wholly-owned properties consisted of the following:
             
   
June 30, 2009
   
December 31, 2008
 
Land (1)
  $ 247,295     $ 242,653  
Buildings and improvements
    1,715,913       1,706,184  
Furniture, fixtures and equipment
    100,126       87,633  
Construction in progress
    108,874       63,715  
      2,172,208       2,100,185  
Less accumulated depreciation
    (142,738 )     (113,352 )
Wholly-owned properties, net
  $ 2,029,470     $ 1,986,833  
 
 
 (1)
The land balance above includes undeveloped land parcels valued at $22.8 million and $18.2 million as of June 30, 2009 and December 31, 2008, respectively.
 
5.          On-Campus Participating Properties
 
The Company is a party to ground/facility lease agreements (“Leases”) with certain state university systems and colleges (each, a “Lessor”) for the purpose of developing, constructing, and operating student housing facilities on university campuses. Under the terms of the Leases, title to the constructed facilities is held by the applicable Lessor and such Lessor receives a de minimus base rent paid at inception and 50% of defined net cash flows on an annual basis through the term of the lease. The Leases terminate upon the earlier to occur of the final repayment of the related debt, the amortization period of which is contractually stipulated, or the end of the lease term.
 
Pursuant to the Leases, in the event the leasehold estates do not achieve Financial Break Even (defined as revenues less operating expenses, excluding management fees, less debt service), the applicable Lessor would be required to make a rental payment, also known as the Contingent Payment, sufficient to achieve Financial Break Even. The Contingent Payment provision remains in effect until such time as any financing placed on the facilities would receive an investment grade rating without the Contingent Payment provision. In the event that the Lessor is required to make a Contingent Payment, future net cash flow distributions would be first applied to repay such Contingent Payments and then to unpaid management fees prior to normal distributions. Beginning in November 1999 and December 2002, as a result of the debt financing on the facilities achieving investment grade ratings without the Contingent Payment provision, the Texas A&M University System is no longer required to make Contingent Payments under either the Prairie View A&M University Village or University College Leases. The Contingent Payment obligation continues to be in effect for the Texas A&M International University and University of Houston leases.
 
In the event the Company seeks to sell its leasehold interest, the Leases provide the applicable Lessor the right of first refusal of a bona fide purchase offer and an option to purchase the lessee’s rights under the applicable Lease.
 
In conjunction with the execution of each Lease, the Company has entered into separate five-year agreements to manage the related facilities for 5% of defined gross receipts. The five-year terms of the management agreements are not contingent upon the continuation of the Leases. Upon expiration of the initial five year terms, the agreements continue on a month-to-month basis.

 
13

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
On-campus participating properties are as follows:
                     
   
Lease
Commencement
 
Required Debt Repayment (1)
 
Historical Cost
 
Lessor/University
     
June 30, 2009
   
December 31, 2008
 
Texas A&M University System /
Prairie View A&M University (2)
 
 2/1/96
 
 9/1/23
  $ 38,836     $ 38,732  
Texas A&M University System /
Texas A&M International
 
2/1/96
 
9/1/23
    6,169       6,163  
Texas A&M University System /
Prairie View A&M University (3)
 
10/1/99
 
8/31/25 / 8/31/28
    24,215       24,191  
University of Houston System /
University of Houston (4)
 
9/27/00
 
8/31/35
    34,946       34,899  
              104,166       103,985  
Less accumulated amortization
            (36,865 )     (34,683 )
On-campus participating properties, net
          $ 67,301     $ 69,302  
 
(1)
Represents the effective lease termination date. The Leases terminate upon the earlier to occur of the final repayment of the related debt or the end of the contractual lease term.
   
(2)
Consists of three phases placed in service between 1996 and 1998.
   
(3)
Consists of two phases placed in service in 2000 and 2003.
   
(4)
Consists of two phases placed in service in 2001 and 2005.
   
6.
Noncontrolling Interests
 
Noncontrolling interests per SFAS No. 160: In December 2007, the FASB issued SFAS No. 160, effective for fiscal years beginning on or after December 15, 2008. The Company has adopted SFAS No. 160 effective January 1, 2009. Per SFAS No. 160, the portions of equity (net assets) in subsidiaries that are held by owners other than the parent are referred to as noncontrolling interests (formerly minority interests). Under SFAS No. 160, such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. Additionally, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported on the consolidated statements of operations at the consolidated amounts, including both the amounts attributable to the Company and to noncontrolling interests.
 
The Company has determined that the minority equity interests of unaffiliated joint venture partners in four joint ventures meet the definition of noncontrolling interests per SFAS No. 160. These joint ventures own and operate the Company’s Callaway House, University Village at Sweet Home, University Centre and Villas at Chestnut Ridge owned-off campus properties. The Company has therefore reclassified the portion of net assets attributable to these joint venture partners to equity (referred to as “noncontrolling interests”) on the accompanying consolidated balance sheets. Accordingly, these partners’ share of the income or loss of the joint ventures is reported on the consolidated statements of operations as “noncontrolling interests share of net income / loss.”
 
Redeemable noncontrolling interests per FASB Emerging Issues Task Force Topic No. D-98, “Classification and Measurement of Redeemable Securities” (“EITF D-98”): In addition to SFAS No. 160, the Company consults the guidance in EITF D-98. Under EITF D-98, securities that are redeemable for cash or other assets at a fixed or determinable price on a fixed or determinable date, at the option of the holder, or upon the occurrence of an event that is not solely within the control of the issuer, must be classified outside of permanent equity in the mezzanine section of the consolidated balance sheets. Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the contract by delivery of its own shares, the Company considered the guidance in EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” to evaluate whether the Company controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under share settlement of the contract.

 
14

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The Company has determined that Common Units and Series A Preferred Units in the Operating Partnership meet the requirements under EITF D-98 to be classified outside of permanent equity in the mezzanine section on the consolidated balance sheets (referred to as “redeemable noncontrolling interests”). Common Units and Series A Preferred Units are exchangeable into an equal number of shares of the Company’s common stock, or, at the Company’s election, cash. A Common Unit and a share of the Company’s common stock have essentially the same economic characteristics, as they effectively participate equally in the net income and distributions of the Operating Partnership. Series A Preferred Units have a cumulative preferential per annum cash distribution rate of 5.99%, payable quarterly concurrently with the payment of dividends on the Company’s common stock. The Company made this determination based on terms in applicable agreements, specifically in relation to redemption provisions. The value of redeemable noncontrolling interests on the consolidated balance sheets is reported at the greater of fair value or historical cost at the end of each reporting period. Accordingly, income or loss allocated to these redeemable noncontrolling interests on the Company’s consolidated statements of operations includes the Series A Preferred Unit distributions as well as the pro rata share of the Operating Partnership’s net income or loss allocated to Common Units.
 
During the six months ended June 30, 2009 and 2008, 2,000 and 329,532 Common Units, respectively, were converted into shares of the Company’s common stock. As of June 30, 2009 and December 31, 2008, approximately 2% and 3%, respectively, of the equity interests of the Operating Partnership was held by owners of Common Units and Series A Preferred Units.
   
7.
Investment in Unconsolidated Joint Ventures
 
As of June 30, 2009, the Company’s investments in unconsolidated joint ventures accounted for utilizing the equity method consisted of three joint ventures. The Company’s TRS entities provide property management services to the joint ventures and also provide development management services for one of the joint ventures owning a property currently under development. As discussed in Note 2 herein, investments in joint ventures are evaluated based on FIN 46(R) to determine whether or not the investment qualifies as a variable interest entity (“VIE”). If the investment is determined to fall under the scope of FIN 46(R), management then determines whether the Company is the primary beneficiary of the VIE by performing a combination of qualitative and quantitative measures, as appropriate, including evaluating factors such as the voting rights and decision-making abilities of each variable interest holder. If the investment is determined not to fall under the scope for FIN 46(R), the Company evaluates the investment in accordance with other guidance such as EITF 04-5.
 
Fidelity Joint Ventures: Concurrent with the closing of the GMH acquisition, a wholly-owned subsidiary of the Company formed a joint venture with a subsidiary of Fidelity and transferred 15 GMH student housing properties to the venture with an estimated value of $325.9 million. The Company also assumed GMH’s equity interest in an existing joint venture with Fidelity that owns six properties. The Company serves as property manager for all of the joint venture properties and owns a 10% equity interest in these joint ventures (hereinafter referred to collectively as the “Fidelity Joint Ventures”).
 
The Fidelity Joint Ventures are funded in part with secured third party debt in the amount of $342.3 million. The Operating Partnership serves as non-recourse, carve-out guarantor of this debt, which means the Operating Partnership is liable to the lender for any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of or in connection with certain non-recourse exceptions in connection with the debt. Pursuant to the respective limited liability company agreements, the Fidelity Joint Ventures agreed to indemnify, defend and hold harmless the Operating Partnership with respect to such obligations, except to the extent such obligations were caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates. Therefore, the Operating Partnership’s exposure under the guarantees for obligations not caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates is not expected to exceed the Company’s 10% proportionate interest in the related mortgage debt.
 
Management has determined that the Fidelity Joint Ventures meet the criteria to be classified as VIEs, although the Company is not the primary beneficiary. The Company’s $8.8 million and $9.4 million investment in these two joint ventures at June 30, 2009 and December 31, 2008, respectively, is included in other assets in the accompanying consolidated balance sheets, and the Company’s $0.3 million and $0.6 million share in the loss from these two joint ventures for the three and six months ended June 30, 2009, respectively, is included in loss from unconsolidated joint ventures in the accompanying consolidated statements of operations. For the three and six months ended June 30, 2009, the Company earned $0.6 million and $1.2 million, respectively, in property management fees from these joint ventures. Due to the respective limited liability company agreements not providing for maximum capital commitments from the members, the Company’s maximum exposure to loss stemming from its investment in the Fidelity Joint Ventures could be unlimited.

 
15

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Hampton Roads Joint Venture: The Company also holds a noncontrolling equity interest in a joint venture that owns a military housing privatization project with the United States Navy to design, develop, construct, renovate, and manage unaccompanied soldier housing located on naval bases in Norfolk and Newport News, Virginia. The project is financed through taxable revenue bonds. Management has determined that the Company’s investment in this joint venture does not fall under the scope of FIN 46(R) and therefore accounts for its investment using the equity method in accordance with other guidance, including EITF 04-5. The Company’s $0.5 million and $1.0 million investment in this joint venture at June 30, 2009 and December 31, 2008, respectively, is included in other assets in the accompanying consolidated balance sheets, and the Company’s share in the loss from this joint venture of $0.2 million and $0.1 million for the three months ended June 30, 2009 and 2008, respectively, and $0.5 million and $0.2 million for the six months ended June 30, 2009 and 2008, respectively, is included in loss from unconsolidated joint ventures in the accompanying consolidated statements of operations. The Company earned combined development and management fees from this joint venture of $0.3 million and $0.2 million for the three months ended June 30, 2009 and 2008, respectively, and $0.6 million and $0.4 million for the six months ended June 30, 2009 and 2008, respectively.
   
8.
Debt
 
A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows:
             
   
June 30, 2009
   
December 31, 2008
 
Debt secured by wholly-owned properties:
           
Mortgage loans payable
  $ 878,260     $ 955,847  
Construction loans payable
    130,198       124,819  
      1,008,458       1,080,666  
Debt secured by on-campus participating properties:
               
Mortgage loan payable
    32,854       32,991  
Bonds payable
    53,275       53,275  
      86,129       86,266  
Secured term loan
    100,000       100,000  
Revolving credit facility
          14,700  
Unamortized debt premiums
    4,603       5,682  
Unamortized debt discounts
    (9,455 )     (10,393 )
Total debt
  $ 1,189,735     $ 1,276,921  
 
Pay-off of Mortgage Debt
 
During the six months ended June 30, 2009, the Company borrowed from the revolving credit facility and used equity offering proceeds (see Note 1) to pay off $72.8 million of fixed-rate mortgage debt, secured by 10 of its wholly-owned properties. As of June 30, 2009, the Company had an additional $8.0 million of outstanding fixed-rate mortgage debt scheduled to mature in November 2009, which the Company expects to pay-off on or before the maturity date.
 
Loans Assumed or Entered Into in Conjunction with Property Acquisitions
 
In connection with the June 11, 2008 acquisition of GMH’s student housing business (see Note 3), the Company assumed approximately $608.2 million of fixed-rate mortgage debt. At the time of assumption, the debt had a weighted average annual interest rate of 5.43% and an average term to maturity of 6.2 years. Upon assumption of this debt, the Company recorded debt discounts and debt premiums of approximately $11.8 million and $2.3 million, respectively, to reflect the estimated fair value of the debt assumed. These mortgage loans are secured by liens on the related properties.
 
In connection with the February 2008 acquisition of Pirate’s Place (see Note 3), a wholly-owned property, the Company assumed approximately $7.0 million of fixed-rate mortgage debt with an annual interest rate of 7.15% and January 2023 maturity date. Upon assumption of this debt, the Company recorded a debt premium of approximately $0.3 million, to reflect the estimated fair value of the debt assumed. This mortgage loan is secured by a lien on the related property.
 
Revolving Credit Facility
 
In May 2008, the Operating Partnership amended its $115 million revolving credit facility to increase the size of the facility to $160 million, which may be expanded by up to an additional $65 million upon the satisfaction of certain conditions. The maturity date of the facility is August 17, 2009 and can be extended 12 months through August 2010. The Company expects to renew the facility before the August 17, 2009 maturity date, which among other things will extend the maturity date through August 2012. The Company guarantees the Operating Partnership’s obligations under the facility.

 
16

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Availability under the revolving credit facility is limited to an “aggregate borrowing base amount” equal to the lesser of (i) 65% of the value of certain properties, calculated as set forth in the credit facility, and (ii) the adjusted net operating income from these properties divided by a formula amount. The facility bears interest at a variable rate, at the Company’s option, based upon a base rate or one-, two-, three-, or six-month LIBOR plus, in each case, a spread based upon the Company’s total leverage. Additionally, the Company is required to pay an unused commitment fee ranging from 0.15% to 0.20% per annum, depending on the aggregate unused balance. In May 2009, the Company paid off the entire balance on the revolving credit facility using proceeds from its equity offering (see Note 1). As of June 30, 2009, the total availability under the facility (subject to the satisfaction of certain financial covenants) totaled approximately $153.5 million.
 
The terms of the facility include certain restrictions and covenants, which limit, among other items, the incurrence of additional indebtedness, liens, and the disposition of assets. The facility contains customary affirmative and negative covenants and also contains financial covenants that, among other things, require the Company to maintain certain minimum ratios of “EBITDA” (earnings before interest, taxes, depreciation and amortization) to fixed charges. The Company may not pay distributions that exceed a specified percentage of funds from operations, as adjusted, for any four consecutive quarters. The financial covenants also include consolidated net worth and leverage ratio tests. As of June 30, 2009, the Company was in compliance with all such covenants.
 
Senior Secured Term Loan
 
On May 23, 2008, the Operating Partnership obtained a $100 million senior secured term loan. The secured term loan has an initial term of 36 months and can be extended through May 2012 through the exercise of a 12-month extension period. The secured term loan bears interest at a variable rate, at the Company’s option, based upon a base rate or one-, two-, three-, or six-month LIBOR plus, in each case, a spread based upon the Company’s total leverage. On June 11, 2008, the Operating Partnership borrowed in full from the secured term loan and used the proceeds to fund a portion of the total cash consideration for the GMH acquisition. As of June 30, 2009, the balance outstanding on the secured term loan was $100 million. The Company guarantees the Operating Partnership’s obligations under the secured term loan. The secured term loan includes the same restrictions and covenants as the revolving credit facility, described above.
 
On February 23, 2009, the Company entered into two $50.0 million interest rate swap agreements effective March 20, 2009 through February 20, 2012, which are both used to hedge the Company’s exposure to fluctuations in interest payments on its LIBOR-based senior secured term loan. Under the terms of the two interest rate swap agreements, the Company pays an average fixed rate of 1.7925% and receives a one-month LIBOR floating rate. As a result of these two interest rate swaps, the Company effectively fixed the interest rate on its senior secured term loan to 3.79% as of June 30, 2009 (1.7925% + 2.0% spread). In the event that the swaps at any time have a negative fair value below a certain threshold level, the Company could be required to post cash into a collateral account pledged to the interest rate swap providers. See Note 10 herein for a more detailed discussion of the Company’s derivative instruments and hedging activities.
   
9.
Incentive Award Plan
 
The Company has adopted the 2004 Incentive Award Plan (the “Plan”). The Plan provides for the grant to selected employees and directors of the Company and the Company’s affiliates of stock options, RSUs, RSAs, Common Units, profits interest units (“PIUs”), and other stock-based incentive awards. The Company has reserved a total of 1,210,000 shares of the Company’s common stock for issuance pursuant to the Plan, subject to certain adjustments for changes in the Company’s capital structure, as defined in the Plan. As of June 30, 2009, 349,534 shares were available for issuance under the Plan.
 
Restricted Stock Units
 
Upon initial appointment to the Board of Directors and reelection to the Board of Directors at each Annual Meeting of Stockholders, each outside member of the Board of Directors is granted RSUs. For all 2006 and 2007 RSU grants, no shares of stock were issued at the time of the RSU awards, and the Company was not required to set aside a fund for the payment of any such award; however, the stock was deemed to be awarded on the date of grant. Upon the Settlement Date, which is three years from the date of grant, the Company will deliver to the recipients a number of shares of common stock or cash, as determined by the Compensation Committee of the Board of Directors, equal to the number of RSUs held by the recipients. In addition, recipients of RSUs are entitled to dividend equivalents equal to the cash distributions paid by the Company on one share of common stock for each RSU issued, payable currently or on the Settlement Date, as determined by the Compensation Committee of the Board of Directors.

 
17

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Upon reelection to the Board of Directors in May 2009, the Chairman of the Board of Directors was granted RSUs valued at $51,500 and the remaining outside members were each granted RSUs valued at $41,500. The number of RSUs was determined based on the fair market value of the Company’s stock on the date of grant, as defined in the Plan. All awards vested and settled immediately on the date of grant, and the Company delivered shares of common stock and cash, as determined by the Compensation Committee of the Board of Directors. A compensation charge of approximately $0.3 million was recorded during the three months ended June 30, 2009 related to these awards. A summary of the Company’s RSUs under the Plan as of June 30, 2009 and changes during the six months ended June 30, 2009, is presented below:
         
   
Number of
RSUs
 
Outstanding at December 31, 2008
   
11,556
 
Granted
   
11,870
 
Settled in common shares
   
(8,594
)
Settled in cash
   
(9,456
)
Outstanding at June 30, 2009
   
5,376
 
 
Restricted Stock Awards
 
The Company awards RSAs to its executive officers and certain employees that vest in equal annual installments over a three to five year period. Unvested awards are forfeited upon the termination of an individual’s employment with the Company. Recipients of RSAs receive dividends, as declared by the Company’s Board of Directors, on unvested shares, provided that the recipient continues to be employed by the Company. A summary of the Company’s RSAs under the Plan as of June 30, 2009 and changes during the six months ended June 30, 2009, is presented below:
         
   
Number of
RSAs
 
Nonvested balance at December 31, 2008
   
282,408
 
Granted
   
256,650
 
Vested
   
(50,210
)
Forfeited
   
(21,887
)
Nonvested balance at June 30, 2009
   
466,961
 
 
In accordance with SFAS No. 123(R), the Company recognizes the value of these awards as an expense over the vesting periods, which amounted to approximately $0.7 million and $0.5 million for the three months ended June 30, 2009 and 2008, respectively, and $1.3 million and $0.9 million for the six months ended June 30, 2009 and 2008, respectively.
 
Common Units
 
PIUs were issued to certain executive and senior officers upon consummation of the IPO. In connection with the Company’s equity offering in July 2005, all 121,000 PIUs were converted to Common Units, as contemplated in the Operating Partnership’s operating agreement.
 
The Outperformance Bonus Plan was adopted upon consummation of the Company’s IPO in August 2004, and consisted of awards to key employees equal to the value of 367,682 shares of the Company’s common stock. Such awards vested on the third anniversary of the IPO (August 2007), upon the Company’s achievement of specified performance measures. Upon vesting, the Compensation Committee of the Board of Directors exercised its permitted discretion and granted 132,400 of the awards to selected recipients in the form of PIUs, with the remainder of the awards paid in cash. As a result of the October 2007 equity offering, a book-up event occurred for tax purposes, resulting in the 132,400 PIUs being converted to Common Units.
 
Each common unit is deemed equivalent to one share of the Company’s common stock. Common units receive the same quarterly per unit distribution as the per share distributions on the Company’s common stock.
   
10.
Derivatives Instruments and Hedging Activities
 
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

 
18

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Cash Flow Hedges of Interest Rate Risk
 
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
 
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (Loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the six months ended June 30, 2009, such derivatives were used to hedge the variable cash flows associated with the Company’s $100 million senior secured term loan and the Cullen Oaks Phase I and Phase II loans.
 
The following table summarizes the Company’s outstanding interest rate swap contracts as of June 30, 2009:
                                             
 
Date Entered
   
Effective Date
   
Maturity
Date
   
Pay Fixed Rate
   
Receive Floating
Rate Index
   
Notional
Amount
   
Fair Value
 
 
Feb. 12, 2007
   
Feb. 15, 2007
   
Feb. 15, 2014
   
6.689%
   
LIBOR – 1 mo. plus 1.35%
   
$
33,156
   
$
(3,614
)
 
Feb. 23, 2009
   
March 20, 2009
   
Feb. 20, 2012
   
1.785%
   
LIBOR – 1 month
     
50,000
     
(51
)
 
Feb. 23, 2009
   
March 20, 2009
   
Feb. 20, 2012
   
1.800%
   
LIBOR – 1 month
     
50,000
     
(72
)
 
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of June 30, 2009 and December 31, 2008:
 
Fair Values of Derivative Instruments
                           
   
Derivative Liabilities
 
   
As of June 30, 2009
 
As of December 31, 2008
 
   
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
 
                           
Interest rate swap contracts
   
Other liabilities
 
$
3,737
   
Other Liabilities
 
$
5,117
 
Total derivatives designated as hedging instruments under SFAS No. 133
       
$
3,737
       
$
5,117
 
 
The table below presents the effect of the Company’s derivative financial instruments on other comprehensive income (“OCI”) and the consolidated statements of operations for the six months ended June 30, 2009 and 2008:
                                 
   
Amount of Income Recognized
in OCI on Derivative
(Effective Portion)
     
Amount of Gain Reclassified from
Accumulated OCI Into Income
(Effective Portion)
 
     
Location of Gain
Reclassified from
Accumulated
OCI Into Income
   
Derivatives in SFAS No. 133
Cash Flow Hedging
Relationships
       
 
Six Months ended June 30,
   
Six Months ended June 30,
 
 
2009
 
2008
   
2009
 
2008
 
                                 
Interest rate swap contracts
 
$
1,380
 
$
182
   
Interest expense
 
$
 
$
121
 
                                 
Total
 
$
1,380
 
$
182
       
$
 
$
121
 
 
The Company reported comprehensive income of $3.6 million for the six months ended June 30, 2008, which includes net income attributable to American Campus Communities, Inc. and Subsidiaries of $3.4 million as well as an unrealized gain of $0.2 million (reflected in the table above).

 
19

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
11. Fair Value Disclosures
 
On January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value and also expands disclosures about fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. The following table presents information about the Company’s liabilities measured at fair value on a recurring basis as of June 30, 2009, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.
 
In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Disclosures concerning assets and liabilities measured at fair value are as follows:
 
Liabilities Measured at Fair Value on a Recurring Basis
                         
 
 
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable
Inputs (Level 3)
     
Balance at
June 30, 2009
 
Derivative financial instruments
  $     $ 3,737     $     $ 3,737  
 
The Company uses derivative financial instruments, specifically interest rate swaps, for nontrading purposes. The Company uses interest rate swaps to manage interest rate risk arising from previously unhedged interest payments associated with variable rate debt. Through June 30, 2009, derivative financial instruments were designated and qualified as cash flow hedges. Derivative contracts with positive net fair values inclusive of net accrued interest receipts or payments, are recorded in other assets. Derivative contracts with negative net fair values, inclusive of net accrued interest payments or receipts, are recorded in other liabilities. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
 
To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation adjustments to appropriately reflect its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees.
 
Although the Company has determined the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustment associated with its derivative utilizes Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparty. However, as of June 30, 2009, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivative financial instruments. As a result, the Company has determined its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

 
20

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Other Fair Value Disclosures
 
Cash and Cash Equivalents, Restricted Cash, Student Contracts Receivable, Other Assets, Account Payable and Accrued Expenses and Other Liabilities: As of June 30, 2009 and December 31, 2008, the Company estimated the carrying amount approximates fair value, due to the short maturity of these instruments.
 
Derivative Instruments: As of June 30, 2009 and December 31, 2008, these instruments are reported on the balance sheet at fair value, which is based on calculations provided by independent, third-party financial institutions and represent the discounted future cash flows expected, based on the projected future interest rate curves over the life of the instrument.
 
Construction Loans: the fair value of the Company’s construction loans approximates carrying value due to the variable interest rate feature of these instruments.
 
Mortgage Loans: the fair value of mortgage loans is based on the present value of the cash flows at current rates through maturity.
 
Bonds Payable: the fair value of bonds payable is based on market quotes for bonds outstanding.
 
The table below contains the estimated fair value and related carrying amounts for the Company’s mortgage loans and bonds payable as of June 30, 2009 and December 31, 2008:
 
   
June 30, 2009
   
December 31, 2008
 
   
Fair Value
   
Carrying Amount
   
Fair Value
   
Carrying Amount
 
Mortgage loans
  $ 944.0     $ 906.3     $ 1,000.1     $ 984.1  
Bonds payable
    52.8       53.3       52.8       53.3  
 
12. Commitments and Contingencies
 
Commitments
 
Development-related guarantees: The Company commonly provides alternate housing and project cost guarantees, subject to force majeure. These guarantees are typically limited, on an aggregate basis, to the amount of the projects’ related development fees or a contractually agreed-upon maximum exposure amount. Alternate housing guarantees typically expire five days after construction is complete and generally require the Company to provide substitute living quarters and transportation for students to and from the university if the project is not complete by an agreed-upon completion date. Under project cost guarantees, the Company is responsible for the construction cost of a project in excess of an approved budget. The budget consists primarily of costs included in the general contractors’ guaranteed maximum price contract (“GMP”). In most cases, the GMP obligates the general contractor, subject to force majeure and approved change orders, to provide completion date guarantees and to cover cost overruns and liquidated damages. In addition, the GMP is typically secured with payment and performance bonds. Project cost guarantees expire upon completion of certain developer obligations, which are normally satisfied within one year after completion of the project.
 
On one completed project, the Company has guaranteed losses up to $3.0 million in excess of the development fee if the loss is due to any failure of the Company to maintain, or cause its professionals to maintain, required insurance for a period of five years after completion of the project (August 2009).
 
In the normal course of business, the Company enters into various development-related purchase commitments with parties that provide development-related goods and services. In the event that the Company was to terminate development services prior to the completion of projects under construction, the Company could potentially be committed to satisfy outstanding purchase orders with such parties. At June 30, 2009, management did not anticipate any material deviations from schedule or budget related to third-party development projects currently in progress.

 
21

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Guaranty of Joint Venture Mortgage Debt: As mentioned in Note 7, the Fidelity Joint Ventures are funded in part with secured third party debt in the amount of $342.3 million. The Operating Partnership serves as non-recourse, carve-out guarantor of this debt, which means the Operating Partnership is liable to the lender for any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of or in connection with certain non-recourse exceptions in connection with the debt. Pursuant to the respective limited liability company agreements, the Fidelity Joint Ventures agreed to indemnify, defend and hold harmless the Operating Partnership with respect to such obligations, except to the extent such obligations were caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates. Therefore, the Operating Partnership’s exposure under the guarantees for obligations not caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates is not expected to exceed the Company’s 10% proportionate interest in the related mortgage debt.
 
The Company has estimated the fair value of guarantees entered into or modified after December 31, 2002, the effective date of FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, to be immaterial. The Company’s estimated maximum exposure amount under the above guarantees is approximately $358.0 million.
 
Contingencies
 
Litigation: In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. While it is not possible to ascertain the ultimate outcome of such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations of the Company.
 
Letters of Intent: In the ordinary course of the Company’s business, the Company enters into letters of intent indicating a willingness to negotiate for acquisitions, dispositions or joint ventures. Such letters of intent are non-binding, and neither party to the letter of intent is obligated to pursue negotiations unless and until a definitive contract is entered into by the parties. Even if definitive contracts are entered into, the letters of intent relating to the acquisition and disposition of real property and resulting contracts generally contemplate that such contracts will provide the acquirer with time to evaluate the property and conduct due diligence, during which periods the acquiror will have the ability to terminate the contracts without penalty or forfeiture of any deposit or earnest money. There can be no assurance that definitive contracts will be entered into with respect to any matter covered by letters of intent or that the Company will consummate any transaction contemplated by any definitive contract. Furthermore, due diligence periods for real property are frequently extended as needed. An acquisition or disposition of real property becomes probable at the time that the due diligence period expires and the definitive contract has not been terminated. The Company is then at risk under a real property acquisition contract, but only to the extent of any earnest money deposits associated with the contract, and is obligated to sell under a real property sales contract.
 
Environmental Matters: The Company is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’s business, assets or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company’s results of operations and cash flows.
 
13. Segments
 
The Company defines business segments by their distinct customer base and service provided. The Company has identified four reportable segments: Wholly-Owned Properties, On-Campus Participating Properties, Development Services, and Property Management Services. Management evaluates each segment’s performance based on operating income before depreciation, amortization, noncontrolling interests and allocation of corporate overhead. Intercompany fees are reflected at the contractually stipulated amounts.

 
22

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Wholly-Owned Properties
                       
Rental revenues
  $ 66,357     $ 37,655     $ 133,929     $ 69,774  
Interest and other income
    10       8       22       73  
Total revenues from external customers
    66,367       37,663       133,951       69,847  
Operating expenses before depreciation, amortization, ground/facility lease, and allocation of corporate overhead
    33,131       16,533       64,885       30,207  
Ground/facility leases
    252             512        
Interest expense
    13,926       7,880       28,228       13,948  
Other nonoperating income
    402             402        
Operating income before depreciation, amortization, noncontrolling interests and allocation of corporate overhead
  $ 19,460     $ 13,250     $ 40,728     $ 25,692  
Depreciation and amortization
  $ 18,949     $ 9,894     $ 37,631     $ 16,695  
Capital expenditures
  $ 32,543     $ 31,670     $ 68,356     $ 69,990  
Total segment assets at June 30,
  $ 2,100,190     $ 1,915,732     $ 2,100,190     $ 1,915,732  
                                 
On-Campus Participating Properties
                               
Rental revenues
  $ 3,922     $ 3,948     $ 10,796     $ 10,692  
Interest and other income
    9       53       33       132  
Total revenues from external customers
    3,931       4,001       10,829       10,824  
Operating expenses before depreciation, amortization, ground/facility lease, and allocation of corporate overhead
    2,644       2,337       4,541       4,442  
Ground/facility lease
    200       368       492       727  
Interest expense
    1,556       1,531       3,115       3,093  
Operating (loss) income before depreciation, amortization, noncontrolling interests and allocation of corporate overhead
  $ (469 )   $ (235 )   $ 2,681     $ 2,562  
Depreciation and amortization
  $ 1,092     $ 1,074     $ 2,182     $ 2,143  
Capital expenditures
  $ 143     $ 144     $ 181     $ 196  
Total segment assets at June 30,
  $ 79,981     $ 84,472     $ 79,981     $ 84,472  
                                 
Development Services
                               
Development and construction management fees from external customers
  $ 886     $ 723     $ 1,938     $ 2,379  
Operating expenses
    2,108       2,297       4,375       4,445  
Operating loss before depreciation, amortization, noncontrolling interests and allocation of corporate overhead
  $ (1,222 )   $ (1,574 )   $ (2,437 )   $ (2,066 )
Total segment assets at June 30,
  $ 6,281     $ 8,898     $ 6,281     $ 8,898  
                                 
Property Management Services
                               
Property management fees from external customers
  $ 2,105     $ 1,222     $ 4,347     $ 2,144  
Intersegment revenues
    2,551       1,360       5,247       2,585  
Total revenues
    4,656       2,582       9,594       4,729  
Operating expenses
    1,936       1,106       3,767       2,021