t70532_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2011.   
 
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From ______________________ to _________________________.
  
 
Commission file number 001-32265
 
AMERICAN CAMPUS COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
 
 Maryland
 
 76-0753089
 (State or Other Jurisdiction of
Incorporation or Organization)
 
 (IRS Employer Identification No.)
12700 Hill Country Blvd., Suite T-200
Austin, TX
(Address of Principal Executive Offices)
 
78738
(Zip Code)
 
(512) 732-1000
Registrant’s telephone number, including area code
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
   Large accelerated filer         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 68,149,146 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 April 29, 2011.
 


 
 

 

FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2011
 
TABLE OF CONTENTS
 
   
PAGE
 NO.
     
PART I.
   
       
Item 1.
Consolidated Financial Statements
   
       
   
1
       
   
2
       
   
3
       
   
4
       
   
5
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
24
       
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
 
41
       
Item 4.
Controls and Procedures
 
41
     
PART II.    
   
       
Item 6.
Exhibits
 
42
     
SIGNATURES
 
43
 
 
 

 

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
   
March 31, 2011
   
December 31, 2010
 
   
(unaudited)
       
Assets
           
             
Investments in real estate:
           
  Wholly-owned properties, net
  $ 2,417,104     $ 2,433,844  
  Wholly-owned properties held for sale
    33,190       -  
  On-campus participating properties, net
    61,666       62,486  
Investments in real estate, net
    2,511,960       2,496,330  
                 
Cash and cash equivalents
    31,922       113,507  
Restricted cash
    27,546       26,764  
Student contracts receivable, net
    4,139       5,736  
Other assets
    53,785       51,147  
                 
Total assets
  $ 2,629,352     $ 2,693,484  
                 
Liabilities and equity
               
                 
Liabilities:
               
  Secured mortgage, construction and bond debt
  $ 1,085,925     $ 1,144,103  
  Senior secured term loan
    100,000       100,000  
  Secured agency facility
    101,000       101,000  
  Accounts payable and accrued expenses
    25,786       34,771  
  Other liabilities
    61,229       61,011  
Total liabilities
    1,373,940       1,440,885  
                 
Commitments and contingencies (Note 14)
               
                 
Redeemable noncontrolling interests
    33,712       34,704  
                 
Equity:
               
  American Campus Communities, Inc. stockholders’ equity:                 
     Common stock, $.01 par value, 800,000,000 shares authorized,
       67,398,007 and 66,875,663 shares issued and outstanding at
       March 31, 2011 and December 31, 2010, respectively
         672           667  
     Additional paid in capital
    1,476,907       1,468,179  
     Accumulated earnings and dividends
    (254,788 )     (249,381 )
     Accumulated other comprehensive loss
    (4,758 )     (5,503 )
     Total American Campus Communities, Inc. stockholders’ equity
    1,218,033       1,213,962  
  Noncontrolling interests
    3,667       3,933  
Total equity
    1,221,700       1,217,895  
                 
Total liabilities and equity
  $ 2,629,352     $ 2,693,484  
 
See accompanying notes to consolidated financial statements.
 
 
1

 

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
 
   
Three Months Ended March 31,
 
   
2011
   
2010
 
Revenues:
           
  Wholly-owned properties
  $ 87,999     $ 69,619  
  On-campus participating properties
    7,647       7,311  
  Third party development services
    3,824       574  
  Third party management services
    1,830       2,214  
  Resident services
    341       252  
Total revenues
    101,641       79,970  
                 
Operating expenses:
               
  Wholly-owned properties
    38,721       30,703  
  On-campus participating properties
    1,744       2,399  
  Third party development and management services
    2,682       3,099  
  General and administrative
    2,773       2,753  
  Depreciation and amortization
    21,900       17,121  
  Ground/facility leases
    1,156       571  
Total operating expenses
    68,976       56,646  
                 
Operating income
    32,665       23,324  
                 
Nonoperating income and (expenses):
               
  Interest income
    50       17  
  Interest expense
    (14,013 )     (14,945 )
  Amortization of deferred financing costs
    (1,230 )     (1,028 )
  Loss from unconsolidated joint ventures
    (12 )     (1,414 )
Total nonoperating expenses
    (15,205 )     (17,370 )
                 
Income before income taxes and discontinued operations
    17,460       5,954  
Income tax provision
    (143 )     (143 )
Income from continuing operations
    17,317       5,811  
                 
Discontinued operations:
               
 Income (loss) attributable to discontinued operations
    563       (4,220 )
 Loss from disposition of real estate
    -       (3,646 )
  Total discontinued operations
    563       (7,866 )
                 
Net  income (loss)
    17,880       (2,055 )
Net income attributable to noncontrolling interests
    (467 )     (134 )
Net income (loss) attributable to common shareholders
  $ 17,413     $ (2,189 )
                 
Income (loss) per share attributable to common shareholders –
  basic:
               
    Income from continuing operations per share
  $ 0.25     $ 0.10  
    Net income (loss) per share
  $ 0.26     $ (0.05 )
                 
Income (loss) per share attributable to common shareholders –
  diluted:
               
    Income from continuing operations per share
  $ 0.24     $ 0.10  
    Net income (loss) per share
  $ 0.25     $ (0.05 )
                 
Weighted-average common shares outstanding:
               
  Basic
    66,956,764       52,235,644  
  Diluted
    67,554,918       52,805,966  
                 
Distributions declared per common share
  $ 0.3375     $ 0.3375  
 
See accompanying notes to consolidated financial statements.
 
 
2

 

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited, in thousands, except share data)
 
   
 
Common Shares
   
Par Value of
Common Shares
   
Additional Paid
in Capital
   
Accumulated
Earnings and
 Distributions
   
Accumulated Other
Comprehensive Loss
   
Noncontrolling
Interests
   
Total
 
Equity, December 31, 2010
    66,875,663     $ 667     $ 1,468,179     $ (249,381 )   $ (5,503 )   $ 3,933     $ 1,217,895  
Net proceeds from sale of common stock
    358,500       4       11,181       -       -       -       11,185  
Adjustments to reflect redeemable noncontrolling interests at fair value
    -       -       (343 )     -       -       -       (343 )
Amortization of restricted stock awards
    -       -       987       -       -       -       987  
Vesting of restricted stock awards
    99,243       -       (1,384 )     -       -       -       (1,384 )
Distributions to common and restricted stockholders
    -       -       -       (22,820 )     -       -       (22,820 )
Distributions to joint venture partners
    -       -       -       -       -       (110 )     (110 )
Conversion of common units to common stock
    64,601       1       1,101       -       -       -       1,102  
Increase in ownership of consolidated subsidiary
    -       -       (2,814 )     -       -       (336 )     (3,150 )
Comprehensive income:
                                                       
Change in fair value of interest rate swaps
    -       -       -       -       745       -       745  
Net income
    -       -       -       17,413       -       180       17,593  
Total comprehensive income
                                                    18,338  
Equity, March 31, 2011
    67,398,007     $ 672     $ 1,476,907     $ (254,788 )   $ (4,758 )   $ 3,667     $ 1,221,700  
 
See accompanying notes to consolidated financial statements.
 
 
3

 

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
   
Three Months Ended March 31,
 
   
2011
   
2010
 
Operating activities
           
Net income (loss)
  $ 17,880     $ (2,055 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
    Loss from disposition of real estate
    -       3,646  
    Provision for asset impairment
    -       4,036  
    Depreciation and amortization
    22,272       17,822  
    Amortization of deferred financing costs and debt premiums/discounts
    (307 )     1,109  
    Share-based compensation
    987       929  
    Loss from unconsolidated joint ventures
    12       1,414  
    Distributions received from unconsolidated joint ventures
    -       180  
    Income tax provision
    143       143  
    Changes in operating assets and liabilities:
               
              Restricted cash
    (2,124 )     2,405  
              Student contracts receivable, net
    1,597       991  
              Other assets
    (6,000 )     (95 )
              Accounts payable and accrued expenses
    (10,419 )     (5,410 )
              Other liabilities
    453       137  
Net cash provided by operating activities
    24,494       25,252  
                 
Investing activities
               
     Cash paid for increased ownership in consolidated subsidiary
    (3,150 )     -  
     Net proceeds from disposition of real estate
    -       1,098  
     Cash paid for land and property acquisitions
    (458 )     (9,618 )
     Investments in wholly-owned properties
    (34,694 )     (4,701 )
     Investments in on-campus participating properties
    (278 )     (43 )
     Change in restricted cash related to capital reserves
    613       92  
     Proceeds from insurance settlement
    526       -  
     Purchase of corporate furniture, fixtures and equipment
    (119 )     (183 )
Net cash used in investing activities
    (37,560 )     (13,355 )
                 
Financing activities
               
     Proceeds from sale of common stock
    11,391       -  
     Offering costs
    (179 )     -  
     Pay-off of mortgage loans
    (54,527 )     (34,536 )
     Principal payments on debt
    (1,911 )     (3,555 )
     Distributions to common and restricted stockholders
    (22,820 )     (17,854 )
     Distributions to noncontrolling partners
    (473 )     (495 )
 Net cash used in financing activities
    (68,519 )     (56,440 )
                 
Net change in cash and cash equivalents
    (81,585 )     (44,543 )
Cash and cash equivalents at beginning of period
    113,507       66,093  
Cash and cash equivalents at end of period
  $ 31,922     $ 21,550  
                 
Supplemental disclosure of non-cash investing and financing activities
               
     Change in fair value of derivative instruments, net
  $ 745     $ (832 )
                 
Supplemental disclosure of cash flow information
               
     Interest paid
  $ 16,496     $ 15,512  
 
See accompanying notes to consolidated financial statements.
 
 
4

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

1. Organization and Description of Business
 
American Campus Communities, Inc. (the “Company”) is a real estate investment trust (“REIT”) that was incorporated on March 9, 2004 and commenced operations effective with the completion of an initial public offering (“IPO”) on August 17, 2004.  Through the Company’s controlling interest in American Campus Communities Operating Partnership LP (the “Operating Partnership”), the Company is one of the largest owners, managers and developers of high quality student housing properties in the United States in terms of beds owned and under management.  The Company is a fully integrated, self-managed and self-administered equity REIT with expertise in the acquisition, design, financing, development, construction management, leasing and management of student housing properties.
 
As of March 31, 2011, the Company’s property portfolio contained 104 student housing properties with approximately 64,900 beds in approximately 20,800 apartment units.  The Company’s property portfolio consisted of 96 owned off-campus properties that are in close proximity to colleges and universities, four American Campus Equity (“ACE®”) properties operated under ground/facility leases with three university systems and four on-campus participating properties operated under ground/facility leases with the related university systems.  The Company’s communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
 
Through the Company’s taxable REIT subsidiaries (“TRS”), it also provides construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others.  As of March 31, 2011, the Company provided third-party management and leasing services for 34 properties (nine of which the Company served as the third-party developer and construction manager) that represented approximately 24,100 beds in approximately 9,500 units, and one joint venture property in which we own a noncontrolling interest with approximately 600 beds in approximately 200 units.  Third-party management and leasing services are typically provided pursuant to management contracts that have initial terms that range from one to five years.  As of March 31, 2011, the Company’s total owned, joint venture and third-party managed portfolio included 139 properties with approximately 89,600 beds in approximately 30,500 units.
 
2.   Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the financial position, results of operations and cash flows of the Company, the Operating Partnership and subsidiaries of the Operating Partnership, including joint ventures in which the Company has a controlling interest.  Third-party equity interests in the Operating Partnership and consolidated joint ventures are reflected as noncontrolling interests in the consolidated financial statements.  The Company also has a noncontrolling interest in two unconsolidated joint ventures, which are accounted for under the equity method.  All intercompany amounts have been eliminated.  All dollar amounts in the tables herein, except share and per share amounts, are stated in thousands unless otherwise indicated.  Certain prior period amounts have been reclassified to conform to the current period presentation.
 
Interim Financial Statements
 
The accompanying interim financial statements are unaudited, but have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all disclosures required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included.  Because of the seasonal nature of the Company’s operations, the results of operations and cash flows for any interim period are not necessarily indicative of results for other interim periods or for the full year.  These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
 
5

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Investments in Real Estate
 
Investments in real estate are recorded at historical cost.  Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset.  The cost of ordinary repairs and maintenance are charged to expense when incurred.  Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:
 
Buildings and improvements
 
7-40 years
Leasehold interest - on-campus
   participating properties
 
25-34 years (shorter of useful life or respective lease term)
Furniture, fixtures and equipment
 
3-7 years
 
Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred finance costs, are capitalized as construction in progress.  Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences.  Interest totaling approximately $1.0 million and $-0- was capitalized during the three months ended March 31, 2011 and 2010, respectively.  Amortization of deferred financing costs totaling approximately $42,000 and $-0- was capitalized as construction in progress during the three months ended March 31, 2011 and 2010, respectively.
 
Management assesses whether there has been an impairment in the value of the Company’s investments in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Impairment is recognized when estimated expected future undiscounted cash flows are less than the carrying value of the property.  The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions.  If such conditions change, then an adjustment to the carrying value of the Company’s long-lived assets could occur in the future period in which the conditions change.  To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings. The Company believes that there were no impairments of the carrying values of its investments in real estate as of March 31, 2011.
 
The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values.  Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data.  Information obtained about each property as a result of due diligence, marketing and leasing activities is also considered.  The value of in-place leases is based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued “as-if” vacant.  As lease terms are typically one year or less, rates on in-place leases generally approximate market rental rates.  Factors considered in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current market conditions, nature of the tenancy, and costs to execute similar leases.  Carrying costs include estimates of lost rentals at market rates during the expected lease-up period, as well as marketing and other operating expenses.  The value of in-place leases is amortized over the remaining initial term of the respective leases, generally less than one year.  The purchase price of property acquisitions is not expected to be allocated to tenant relationships, considering the terms of the leases and the expected levels of renewals.
 
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.
 
 
6

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
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 less cost to sell, and depreciation ceases.
 
Owned On-Campus Properties
 
Under its ACE program, the Company as lessee has entered into four ground/facility lease agreements with three university systems to finance, construct, and manage four student housing properties.  Two properties were under construction as of March 31, 2011 with one scheduled to open for occupancy in August 2011 and the other in August 2012.  The terms of the leases, including extension options, range from 65 to 85 years, and the lessor retains title to the land.  The Company’s involvement in construction requires the lessor’s post construction ownership of the improvements to be treated as a sale with a subsequent leaseback by the Company.  However, these sale-leaseback transactions do not qualify for sale-leaseback accounting because of the Company’s continuing involvement in the constructed assets.  As a result of the Company’s continuing involvement, these leases are accounted for by the deposit method, in which the assets subject to the ground/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 has entered into ground and facility leases with two university systems and colleges to finance, construct, and manage four on-campus student housing facilities.  Under the terms of the leases, the lessor has title to the land and any improvements placed thereon.  Each lease terminates upon final repayment of the construction related financing, the amortization period of which is contractually stipulated.  The Company’s involvement in construction requires the lessor’s post construction ownership of the improvements to be treated as a sale with a subsequent leaseback by the Company.  The sale-leaseback transaction has been accounted for as a financing, and as a result, any fee earned during construction is deferred and recognized over the term of the lease.  The resulting financing obligation is reflected at the terms of the underlying financing, i.e., interest is accrued at the contractual rates and principal reduces in accordance with the contractual principal repayment schedules.
 
The Company reflects these assets subject to ground/facility leases at historical cost, less amortization.  Costs are amortized, and deferred fee revenue in excess of the cost of providing the service are recognized, over the lease term.
 
Intangible Assets
 
In connection with property acquisitions completed in 2010, the Company capitalized approximately $5.5 million related to management’s estimate of the fair value of the in-place leases assumed.  These intangible assets are amortized on a straight-line basis over the average remaining term of the underlying leases.  Amortization expense was approximately $1.5 million and $0.1 million for the three months ended March 31, 2011 and 2010, respectively.  In 2008, the Company also capitalized $1.5 million related to management’s estimate of the fair value of third-party management contracts acquired from GMH.  These intangible assets are amortized on a straight-line basis over a period of three years.  Amortization expense related to these acquired management contracts was approximately $0.1 million for both three month periods ended March 31, 2011 and 2010.  Accumulated amortization at March 31, 2011 and December 31, 2010 was approximately $6.3 million and $4.7 million, respectively.  Intangible assets, net of amortization, are included in other assets on the accompanying consolidated balance sheets and amortization of intangible assets is included in depreciation and amortization expense in the accompanying consolidated statements of operations.  See Note 3 herein for a detailed discussion of the property acquisitions completed during 2010.
 
Deferred Financing Costs
 
The Company defers financing costs and amortizes the costs over the terms of the related debt using the effective interest method.  Upon repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to earnings.  Accumulated amortization at March 31, 2011 and December 31, 2010 was approximately $12.9 million and $11.8 million, respectively.  Deferred financing costs, net of amortization, are included in other assets on the accompanying consolidated balance sheets.
 
 
7

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Joint Ventures
 
The Company holds interests in both consolidated and unconsolidated joint ventures.  The Company consolidates joint ventures when it exhibits financial or operational control, which is determined using accounting standards related to the consolidation of joint ventures and VIEs.  For joint ventures that are defined as VIEs, the primary beneficiary consolidates the entity.  The Company considers itself to be the primary beneficiary of a VIE when it has the power to direct the activities that most significantly impact the performance of the VIE, such as management of day-to-day operations, preparing and approving operating and capital budgets, and encumbering or selling the related properties.  In instances where the Company is not the primary beneficiary, it does not consolidate the joint venture for financial reporting purposes.
 
For joint ventures that are not defined as VIEs, management first considers whether the Company is the general partner or a limited partner (or the equivalent in such investments which are not structured as partnerships).  The Company consolidates joint ventures where it is the general partner and the limited partners in such investments do not have rights which would preclude control and, therefore, consolidation for financial reporting purposes.  For joint ventures where the Company is the general partner, but does not control the joint venture as the other partners hold substantive participating rights, the Company uses the equity method of accounting.  For joint ventures where the Company is a limited partner, management considers factors such as ownership interest, voting control, authority to make decisions, and contractual and substantive participating rights of the partners to determine if the presumption that the general partner controls the entity is overcome.  In instances where these factors indicate the Company controls the joint venture, the Company consolidates the joint venture; otherwise it uses the equity method of accounting.
 
Debt Premiums and Discounts
 
Debt premiums and discounts represent fair value adjustments to account for the difference between the stated rates and market rates of debt assumed in connection with the Company’s property acquisitions.  The debt premiums and discounts are amortized to interest expense over the term of the related loans using the effective-interest method.  As of March 31, 2011 and December 31, 2010, net unamortized debt premiums were approximately $14.7 million and $16.6 million, respectively, and net unamortized debt discounts were approximately $6.3 million and $6.6 million, respectively.  Debt premiums and discounts are included in secured mortgage, construction and bond debt on the accompanying consolidated balance sheets.
 
Third-Party Development Services Revenue and Costs
 
Development revenues are generally recognized based on a proportionate performance method based on contract deliverables, while construction revenues are recognized using the percentage of completion method, as determined by construction costs incurred relative to total estimated construction costs.  Costs associated with such projects are deferred and recognized in relation to the revenues earned on executed contracts.  For projects where the Company’s fee is based on a fixed price, any cost overruns incurred during construction, as compared to the original budget, will reduce the net fee generated on those projects.  Incentive fees are generally recognized when the project is complete and performance has been agreed upon by all parties, or when performance has been verified by an independent third-party.  The Company also evaluates the collectability 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 March 31, 2011, the Company has deferred approximately $9.7 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.
 
 
8

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Derivative Instruments and Hedging Activities
 
The Company records all derivative financial instruments on the balance sheet at fair value.  Changes in fair value are recognized either in earnings or as other comprehensive income, depending on whether the derivative has been designated as a fair value or cash flow hedge and whether it qualifies as part of a hedging relationship, the nature of the exposure being hedged, and how effective the derivative is at offsetting movements in underlying exposure.  The Company discontinues hedge accounting when: (i) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised; (iii) it is no longer probable that the forecasted transaction will occur; or (iv) management determines that designating the derivative as a hedging instrument is no longer appropriate.  In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings.  The Company uses interest rate swaps to effectively convert a portion of its floating rate debt to fixed rate, thus reducing the impact of rising interest rates on interest payments.  These instruments are designated as cash flow hedges and the interest differential to be paid or received is accrued as interest expense. The Company’s counter-parties are major financial institutions.  See Note 12 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 (loss) attributable to common shareholders and the weighted average number of shares of the Company’s common stock outstanding during the period.  Diluted earnings per share reflect common shares issuable from the assumed conversion of common and preferred Operating Partnership units and common share awards granted.  Only those items having a dilutive impact on basic earnings per share are included in diluted earnings per share.
 
The following potentially dilutive securities were outstanding for the three months ended March 31, 2011 and 2010, respectively, but were not included in the computation of diluted earnings per share because the effects of their inclusion would be anti-dilutive.
 
   
Three Months Ended March 31,
 
   
2011
   
2010
 
  Common Operating Partnership units (Note 7)
    941,388       1,188,064  
  Preferred Operating Partnership units (Note 7)
    114,676       114,963  
  Total potentially dilutive securities
    1,056,064       1,303,027  
 
 
9

 
 
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 March 31,
 
   
2011
   
2010
 
Basic earnings per share calculation:
           
Income from continuing operations
  $ 17,317     $ 5,811  
Income from continuing operations attributable to noncontrolling interests
    (458 )     (325 )
Income from continuing operations attributable to common shareholders
    16,859        5,486  
Amount allocated to participating securities
    (236 )     (225 )
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
       16,623       5,261  
                 
Income (loss) from discontinued operations
    563       (7,866 )
Income (loss) from discontinued operations attributable to noncontrolling interests
    (9 )     191  
Income (loss) from discontinued operations attributable to common shareholders
     554       (7,675 )
Net income (loss) attributable to common shareholders, as adjusted – basic
  $ 17,177     $ (2,414 )
                 
Income from continuing operations attributable to common shareholders, as adjusted – per share
  $ 0.25     $ 0.10  
Income (loss) from discontinued operations attributable to common shareholders – per share
  $ 0.01     $ (0.15 )
Net income  (loss) attributable to common shareholders, as adjusted – per share
  $ 0.26     $ (0.05 )
                 
Basic weighted average common shares outstanding
    66,956,764       52,235,644  
                 
Diluted earnings per share calculation:
               
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
  $ 16,623     $ 5,261  
Income (loss) from discontinued operations attributable to common shareholders
    554       (7,675 )
Net income (loss) attributable to common shareholders, as adjusted – diluted
  $ 17,177     $ (2,414 )
                 
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities – per share
  $ 0.24     $ 0.10  
Income (loss) from discontinued operations attributable to common shareholders – per share
  $ 0.01     $ (0.15 )
Net income (loss) attributable to common shareholders - per share
  $ 0.25     $ (0.05 )
                 
Basic weighted average common shares outstanding
    66,956,764       52,235,644  
Restricted Stock Awards (Note 11)
    598,154       570,322  
Diluted weighted average common shares outstanding
    67,554,918       52,805,966  
 
 
10

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
3.  Property Acquisitions
 
In September and November 2010, the Company acquired the remaining 90% interest in 14 student housing properties previously owned in two joint ventures with Fidelity (hereinafter referred to as the “Fidelity Joint Ventures”) in which the Company previously held a 10% interest.  The purchase price for the 90% interest acquired was approximately $340.4 million.  Subsequent to the acquisition, the Company now consolidates the 14 properties acquired.
 
Also during 2010, the Company acquired three additional properties containing 1,883 beds in three separate transactions for a combined purchase price of approximately $65.2 million.
 
The acquired property’s results of operations have been included in the accompanying consolidated statements of operations since the respective acquisition closing dates.  The following pro forma information for the three months ended March 31, 2011 and 2010 presents consolidated financial information for the Company as if the property acquisitions discussed above had occurred on January 1, 2010.  The unaudited pro forma information is provided for informational purposes only and is not indicative of results that would have occurred or which may occur in the future:
 
   
Three Months Ended March 31,
 
   
2011
   
2010
 
Total revenues
  $ 101,641     $ 94,097  
Net income (loss) attributable to common shareholders
  $ 18,864     $ (912 )
Net income (loss) per share – basic
  $ 0.28     $ (0.02 )
Net income (loss) per share – diluted
  $ 0.28     $ (0.02 )
 
 4.  Property Dispositions and Discontinued Operations
 
As of March 31, 2011, three owned off-campus properties were classified as Held for Sale on the company’s consolidated balance sheet.  These three properties - Villas on Apache, River Club Apartments and River Walk Townhomes - were sold in April 2011 (see Note 16).  The net income attributable to these three properties is included in discontinued operations on the accompanying consolidated statements of operations for all periods presented.  Discontinued operations for the three months ended March 31, 2010 also includes the Cambridge at Southern and Campus Walk – Oxford owned off campus properties, which were sold in March and April 2010, respectively.  Discontinued operations for the three months ended March 31, 2010, also includes an impairment charge of approximately $4.0 million recorded to reflect Campus Walk - Oxford at the lower of its historical cost or fair value.
 
Below is a summary of the results of operations for Cambridge at Southern through its disposition date, Campus Walk – Oxford for the three months ended March 31, 2010 and Villas on Apache, River Club Apartments and River Walk Townhomes for all periods presented:
 
   
Three Months Ended
March 31,
 
   
2011
   
2010
 
Total revenues
  $ 1,674     $ 2,736  
Total operating expenses
    (739 )     (1,475 )
Depreciation and amortization
    (372 )     (701 )
Provision for asset impairment
    -       (4,036 )
Operating income (loss)
    563       (3,476 )
Total nonoperating expenses
    -       (744 )
Net income (loss)
  $ 563     $ (4,220 )
 
 
11

 

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
5.  Investments in Wholly-Owned Properties
 
Wholly-owned properties consisted of the following:
 
   
March 31, 2011
   
December 31, 2010
 
Land (1)
  $ 307,028     $ 313,005  
Buildings and improvements
    2,141,432       2,177,780  
Furniture, fixtures and equipment
    126,345       129,175  
Construction in progress
    86,493       54,244  
      2,661,298       2,674,204  
Less accumulated depreciation
    (244,194 )     (240,360 )
Wholly-owned properties, net (2)
  $ 2,417,104     $ 2,433,844  
 
(1)  
The land balance above includes undeveloped land parcels with book values of $36.5 million and $36.0 million as of March 31, 2011 and December 31, 2010, respectively.
 
(2)  
The balance above excludes Villas on Apache, River Club Apartments and River Walk Townhomes which are classified as wholly-owned properties held for sale in the accompanying consolidated balance sheet as of March 31, 2011.
 
6.  On-Campus Participating Properties
 
The Company is a party to ground/facility lease agreements (“Leases”) with certain state university systems and colleges (each, a “Lessor”) for the purpose of developing, constructing, and operating student housing facilities on university campuses. Under the terms of the Leases, title to the constructed facilities is held by the applicable Lessor and such Lessor receives a de minimus base rent paid at inception and 50% of defined net cash flows on an annual basis through the term of the lease.  The Leases terminate upon the earlier to occur of the final repayment of the related debt, the amortization period of which is contractually stipulated, or the end of the lease term.
 
Pursuant to the Leases, in the event the leasehold estates do not achieve Financial Break Even (defined as revenues less operating expenses, excluding management fees, less debt service), the applicable Lessor would be required to make a rental payment, also known as the Contingent Payment, sufficient to achieve Financial Break Even.  The Contingent Payment provision remains in effect until such time as any financing placed on the facilities would receive an investment grade rating without the Contingent Payment provision.  In the event that the Lessor is required to make a Contingent Payment, future net cash flow distributions would be first applied to repay such Contingent Payments and then to unpaid management fees prior to normal distributions.  Beginning in November 1999 and December 2002, as a result of the debt financing on the facilities achieving investment grade ratings without the Contingent Payment provision, the Texas A&M University System is no longer required to make Contingent Payments under either the Prairie View A&M University Village or University College Leases.  The Contingent Payment obligation continues to be in effect for the Texas A&M International University and University of Houston leases.
 
In the event the Company seeks to sell its leasehold interest, the Leases provide the applicable Lessor the right of first refusal of a bona fide purchase offer and an option to purchase the lessee’s rights under the applicable Lease.
 
In conjunction with the execution of each Lease, the Company has entered into separate five-year agreements to manage the related facilities for 5% of defined gross receipts. The five-year terms of the management agreements are not contingent upon the continuation of the Leases. Upon expiration of the initial five year terms, the agreements continue on a month-to-month basis.
 
 
12

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
On-campus participating properties are as follows:
 
           
Historical Cost
 
Lessor/University
 
Lease
Commencement
 
Required Debt
Repayment (1)
 
March 31, 2011
   
December 31, 2010
 
Texas A&M University System /
Prairie View A&M University (2)
 
2/1/96
 
9/1/23
  $ 39,541     $ 39,393  
                         
Texas A&M University System /
Texas A&M International
 
2/1/96
 
9/1/23
    6,378       6,317  
                         
Texas A&M University System /
Prairie View A&M University (3)
 
10/1/99
 
8/31/25/
8/31/28
    24,801       24,762  
                         
University of Houston System /
University of Houston (4)
 
9/27/00
 
8/31/35
    35,423       35,393  
              106,143       105,865  
                         
Less accumulated amortization
            (44,477 )     (43,379 )
On-campus participating properties, net
          $ 61,666     $ 62,486  
 
(1)  
Represents the effective lease termination date.  The Leases terminate upon the earlier to occur of the final repayment of the related debt or the end of the contractual lease term.
 
(2)  
Consists of three phases placed in service between 1996 and 1998.
 
(3)  
Consists of two phases placed in service in 2000 and 2003.
 
(4)  
Consists of two phases placed in service in 2001 and 2005.
 
7.   Noncontrolling Interests
 
Third-party joint venture partners:  As of March 31, 2011, the Company consolidates three joint ventures that own and operate University Village at Sweet Home, University Centre and Villas at Chestnut Ridge owned-off campus properties.  The portion of net assets attributable to the third-party partners in these joint ventures is classified as “noncontrolling interests” within equity on the accompanying consolidated balance sheets.  Accordingly, the third-party partners’ share of the income or loss of the joint ventures is reported on the consolidated statements of operations as “noncontrolling interests share of net income / loss.”
 
During the three months ended March 31, 2011, the Company acquired the remaining noncontrolling interest from the third-party partner in the joint venture that owns and operates the Callaway House owned off-campus property.  The Company paid approximately $3.2 million in cash consideration for the remaining noncontrolling interest and recognized the $2.8 million excess of consideration paid over the carrying amount of the noncontrolling interest acquired as an adjustment to additional paid in capital in the accompanying consolidated statement of changes in equity.
 
Operating Partnership units:  Certain partners in the Operating Partnership hold their ownership through common and preferred units of limited partnership interest, hereinafter referred to as “Common Units” or “Series A Preferred Units.”  Common Units and Series A Preferred Units are exchangeable into an equal number of shares of the Company’s common stock, or, at the Company’s election, cash.  A Common Unit and a share of the Company’s common stock have essentially the same economic characteristics, as they effectively participate equally in the net income and distributions of the Operating Partnership.  Series A Preferred Units have a cumulative preferential per annum cash distribution rate of 5.99%, payable quarterly concurrently with the payment of dividends on the Company’s common stock.
 
 
13

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The Company follows accounting guidance stipulating that securities that are redeemable for cash or other assets at a fixed or determinable price on a fixed or determinable date, at the option of the holder, or upon the occurrence of an event that is not solely within the control of the issuer, must be classified outside of permanent equity in the mezzanine section of the consolidated balance sheets.  In accordance with such guidance, management evaluates whether the Company controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under share settlement of the contract.  Based on this assessment, which includes evaluating terms in the applicable agreements related to redemption provisions, the Company has determined that Common Units and Series A Preferred Units in the Operating Partnership should be classified as “redeemable noncontrolling interests” in the mezzanine section of the consolidated balance sheets.  The value of redeemable noncontrolling interests on the consolidated balance sheets is reported at the greater of fair value or historical cost at the end of each reporting period.  Changes in the value from period to period are charged to additional paid in capital on the accompanying consolidated statement of changes in equity.  Accordingly, income or loss allocated to these redeemable noncontrolling interests on the Company’s consolidated statements of operations includes the Series A Preferred Unit distributions as well as the pro rata share of the Operating Partnership’s net income or loss allocated to Common Units.  Below is a table summarizing the activity of redeemable noncontrolling interests for the three months ended March 31, 2011:

 
Balance, December 31, 2010
  $ 34,704  
Net income
    287  
Distributions
    (363 )
Conversions of Common Units into common shares
    (1,103 )
Partnership units retained in connection with property acquisition
    (156 )
Adjustments to reflect Common Units at fair value
    343  
Balance, March 31, 2011
  $ 33,712  
 
During the three months ended March 31, 2011 and 2010, 64,601 and 4,776 Common Units, respectively, were converted into shares of the Company’s common stock.  As of March 31, 2011 and December 31, 2010, approximately 1% and 2%, respectively, of the equity interests of the Operating Partnership was held by owners of Common Units and Series A Preferred Units.
 
8.   Investment in Unconsolidated Joint Ventures
 
Investments in unconsolidated joint ventures are accounted for utilizing the equity method.  As discussed in Note 2, the equity method is used when the Company has the ability to exercise significant influence over operating and financial policies of the joint venture but does not have control of the joint venture.  Under the equity method, these investments are initially recognized on the balance sheet at cost and are subsequently adjusted to reflect the Company’s proportionate share of net earnings or losses of the joint venture, distributions received, contributions, and certain other adjustments, as appropriate.   When circumstances indicate there may have been a loss in value of an equity method investment, the Company evaluates the investment for impairment by estimating the Company’s ability to recover its investment from future expected discounted cash flows.  If the Company determines the loss in value is other than temporary, the Company recognizes an impairment charge to reflect the investment at fair value. The Company believes that there were no impairments of the carrying values of its equity method investments as of March 31, 2011.  The company’s investments in its unconsolidated joint ventures are included in other assets on the accompanying consolidated balance sheets and its share of the income or loss from such joint ventures is included in loss from unconsolidated joint ventures on the accompanying consolidated statements of operations.
 
Fidelity Joint Ventures:  As of March 31, 2011, the Company owns a 10% noncontrolling interest in a joint venture with Fidelity (“Fund II”), which owns one property containing 636 beds.  The Company’s equity method investment in Fund II totaled approximately $0.3 million as of both March 31, 2011 and December 31, 2010.  For the three months ended March 31, 2011 and 2010, the Company’s share of loss from Fund II was $12,000 and $69,000, respectively.  Fund II is funded in part with secured third party debt in the amount of approximately $18.2 million.  As more fully discussed in Note 14, the Operating Partnership serves as non-recourse, carve-out guarantor of this debt.  Additionally, due to Fund II’s governing documents not providing for maximum capital commitments from the members, the Company’s maximum exposure to loss stemming from its investment in Fund II could be unlimited.
 
In September 2010, the Company purchased all of the 11 properties owned by another joint venture with Fidelity (“Fund III”).  For the three months ended March 31, 2010, the Company’s share of loss from Fund III was approximately $0.9 million.  For the three months ended March 31, 2011 and 2010, the Company earned approximately $31,000 and $0.5 million, respectively, in property management fees from Fund II and Fund III.
 
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, and the construction of the final phase of the project was completed in July 2010.  During 2010, the Company discontinued applying the equity method in regards to its investment in this joint venture as a result of the Company’s share of losses exceeding its investment in the joint venture.  Because the company has not guaranteed any obligations of the investee and is not otherwise committed to provide further financial support to the investee, it therefore suspended recording its share of losses once the investment was reduced to zero.  The Company’s share in the loss from this joint venture was approximately $0.5 million for the three months ended March 31, 2010.  The Company earned combined development and management fees from this joint venture of approximately $0.4 million and $0.3 million for the three months ended March 31, 2011 and 2010, respectively.
 
 
14

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
9.   Debt
 
A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows:
 
   
March 31, 2011
   
December 31, 2010
 
Debt secured by wholly-owned properties:
           
Mortgage loans payable
  $ 895,821     $ 952,374  
Construction loan payable
    100,000       100,000  
      995,821       1,052,374  
Debt secured by on-campus participating properties:
               
Mortgage loans payable
    32,333       32,421  
Bonds payable
    49,375       49,375  
      81,708       81,796  
                 
Senior secured term loan
    100,000       100,000  
Secured agency facility
    101,000       101,000  
Unamortized debt premiums
    14,661       16,567  
Unamortized debt discounts
    (6,265 )     (6,634 )
Total debt
  $ 1,286,925     $ 1,345,103  
 
Pay-off of Mortgage Debt
 
During the three months ended March 31, 2011, the Company paid off approximately $54.5 million of fixed-rate mortgage debt secured by three of its wholly-owned properties (The Edge-Orlando, The Callaway House and University Greens), which were scheduled to mature on January 1, 2011, April 1, 2011 and May 1, 2011, respectively.  As of March 31, 2011, the Company had an additional $198.7 million of outstanding fixed-rate mortgage and construction debt scheduled to mature throughout the remainder of 2011, all of which we expect to pay-off on or before their respective maturity dates.  Refer to Note 16 herein for disclosure of mortgage loans paid off by the Company subsequent to March 31, 2011.
 
Secured Revolving Credit Facility
 
The Operating Partnership has a $225 million revolving credit facility that may be expanded by up to an additional $75 million upon the satisfaction of certain conditions.  The maturity date of the facility is August 14, 2012 and can be extended 12 months through August 2013.  As of March 31, 2011, the facility was secured by 10 of the Company’s wholly-owned properties.
 
Availability under the revolving credit facility is limited to an “aggregate borrowing base amount” equal to the lesser of (i) 50% to 65% of the value of certain properties, calculated as set forth in the credit facility, and (ii) the adjusted net operating income from these properties divided by a formula amount.  The facility bears interest at a variable rate, at the Company’s option, based upon a base rate or one-, two-, or three-month LIBOR, with a LIBOR floor of 2.0%, plus, in each case, a spread based upon the Company’s total leverage.  Additionally, the Company is required to pay an unused commitment fee of 0.35% per annum.  As of March 31, 2011, there was no balance on the facility and availability under the facility totaled approximately $214.5 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 and total indebtedness.  The Company may not pay distributions that exceed a specified percentage of funds from operations, as adjusted, for any four consecutive quarters.  The financial covenants also include consolidated net worth and leverage ratio tests.  As of March 31, 2011, the Company was in compliance with all such covenants.
 
 
15

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Secured Agency Facility
 
The Company has a $125 million secured revolving credit facility with a Freddie Mac lender.  The facility has a five-year term and is currently secured by 11 properties referred to as the “Collateral Pool.”  The facility bears interest at one- or three-month LIBOR plus a spread that varies based on the debt service ratio of the Collateral Pool.  Additionally, the Company is required to pay an unused commitment fee of 1.0% per annum.  As of March 31, 2011, the balance outstanding on the secured agency facility totaled $101.0 million, bearing interest at a weighted average annual rate of 2.29%.  The secured agency facility includes some, but not all, of the same financial covenants as the secured revolving credit facility, described above.
 
Senior Secured Term Loan
 
The Operating Partnership has a $100 million senior secured term loan that matures on May 23, 2011 and can be extended through May 2012 through the exercise of a 12-month extension option.  The secured term loan bears interest at a variable rate, at the Company’s option, based upon a base rate or one-, two-, three-, or six-month LIBOR plus, in each case, a spread based upon the Company’s total leverage.  As of March 31, 2011, the balance outstanding on the secured term loan was $100.0 million.  The Company guarantees the Operating Partnership’s obligations under the secured term loan.  The secured term loan is secured by 19 of the Company’s wholly-owned properties and includes the same restrictions and covenants as the secured revolving credit facility, described above.
 
On February 23, 2009, the Company entered into two $50.0 million interest rate swap agreements effective March 20, 2009 through February 20, 2012, which are both used to hedge the Company’s exposure to fluctuations in interest payments on its LIBOR-based senior secured term loan.  Under the terms of the two interest rate swap agreements, the Company pays an average fixed rate of 1.7925% and receives a one-month LIBOR floating rate.  As a result of these two interest rate swaps, the Company effectively fixed the interest rate on its senior secured term loan to 3.3% as of March 31, 2011 (1.8% + 1.5% spread).  In the event that the swaps at any time have a negative fair value below a certain threshold level, the Company is required to post cash into a collateral account pledged to the interest rate swap providers.  As of March 31, 2011, the Company had deposited approximately $0.9 million into a collateral account related to one of the interest rate swaps.  See Note 12 herein for a more detailed discussion of the Company’s derivative instruments and hedging activities.
 
10.  Stockholders’ Equity
 
In May 2010, the Company announced the establishment of an at-the-market share offering program (the “ATM Equity Program”) through which the Company may issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $150 million.  Actual sales under the program will depend on a variety of factors, including, but not limited to, market conditions, the trading price of the Company’s common stock and determinations of the appropriate sources of funding for the Company.  During the three months ended March 31, 2011, the Company sold approximately 0.4 million shares at weighted average price of $31.77 per share for net proceeds of approximately $11.2 million after payment of approximately $0.2 million of commissions to the sales agents.  The Company may continue to sell shares of common stock under this program from time to time based on market conditions, although the Company is not under an obligation to sell any shares.  As of March 31, 2011, the Company had approximately $122.3 million available for issuance under this program.
 
11.  Incentive Award Plan
 
In May 2010, the Company’s stockholders approved the American Campus Communities, Inc. 2010 Incentive Award Plan (the “2010 Plan”).  The 2010 Plan provides for the grant of various stock-based incentive awards to selected employees and directors of the Company and the Company’s affiliates.  The types of awards that may be granted under the 2010 Plan include incentive stock options, nonqualified stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), profits interest units (“PIUs”) and other stock-based awards.  The Company has reserved a total of 1.7 million shares of the Company’s common stock for issuance pursuant to the 2010 Plan, subject to certain adjustments for changes in the Company’s capital structure, as defined in the 2010 Plan.  As of March 31, 2011, 1,574,200 shares were available for issuance under the 2010 Plan.
 
 
16

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Restricted Stock Awards
 
The Company awards restricted stock awards (“RSAs”) to its executive officers and certain employees that vest in equal annual installments over a five year period.  Unvested awards are forfeited upon the termination of an individual’s employment with the Company under specified circumstances.  Recipients of RSAs receive dividends, as declared by the Company’s Board of Directors, on unvested shares, provided that the recipient continues to be employed by the Company.  A summary of the Company’s RSAs under the Plan as of March 31, 2011 and changes during the three months ended March 31, 2011, is presented below:
 
   
Number of
RSAs
 
Nonvested balance at December 31, 2010
    508,381  
Granted
    193,978  
Vested
    (99,243 )
Forfeited
    (45,213 )
Nonvested balance at March 31, 2011
    557,903  
 
The fair value of RSA's is calculated based on the closing market value of the Company's common stock on the date of the grant.
The fair value of these awards is amortized to expense over the vesting periods, which amounted to approximately $1.0 million and $0.9 million for the three months ended March 31, 2011 and 2010, respectively.
 
12.   Derivatives Instruments and Hedging Activities
 
The Company is exposed to certain risk arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities.  The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
 
Cash Flow Hedges of Interest Rate Risk
 
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.  To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 
 
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (Loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  During the three months ended March 31, 2011, such derivatives were used to hedge the variable cash flows associated with the Company’s $100 million senior secured term loan and the Cullen Oaks Phase I and Phase II loans.
 
The following table summarizes the Company’s outstanding interest rate swap contracts as of March 31, 2011:
 
 
  Date Entered
 
 
Effective Date
 
Maturity
Date
   
Pay Fixed Rate
   
Receive Floating
 Rate Index
 
Notional
Amount
   
Fair Value
 
  Feb. 12, 2007
 
Feb. 15, 2007
 
Feb. 15, 2014
    6.689%    
LIBOR – 1 mo. plus 1.35%
  $ 33,156     $ (3,481 )   
  Feb. 23, 2009
 
March 20, 2009
 
Feb. 20, 2012
    1.785%    
LIBOR – 1 month
    50,000       (635 )
  Feb. 23, 2009
 
March 20, 2009
 
Feb. 20, 2012
    1.800%    
LIBOR – 1 month
    50,000       (642 )
 
 
17

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2011 and December 31, 2010:
 
 
Derivative Liabilities
 
 
As of March 31, 2011
 
As of December 31, 2010
 
 
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
 
 
Interest rate swap contracts
 
Other liabilities
  $ 4,758  
 
Other Liabilities
  $ 5,503  
                     
Total derivatives designated as hedging instruments
    $ 4,758       $ 5,503  
 
The table below presents the effect of the Company’s derivative financial instruments on other comprehensive income (“OCI”) for the three months ended March 31, 2011 and 2010:
 
   
Amount of Income (Loss)
Recognized
in OCI on Derivative
(Effective Portion)
 
Cash Flow Hedging
Relationships
 
Three Months Ended
March 31,
 
 
2011
   
2010
 
                 
Interest rate swap contracts
  $ 745     $ (832 )
                 
Total
  $ 745     $ (832 )
 
The Company reported a comprehensive loss of approximately $2.9 million for the three months ended March 31, 2010, which includes a net loss of approximately $2.1 million and an unrealized loss of approximately $0.8 million (reflected in the table above).
 
13.  Fair Value Disclosures
 
The following table presents information about the Company’s liabilities measured at fair value on a recurring basis as of March 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.  In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access.  Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals.  Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
 
In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
 
Disclosures concerning assets and liabilities measured at fair value are as follows:
 
Fair Value Measurements on a Recurring or Nonrecurring Basis as of March 31, 2011
 
   
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
   
 
Significant Other
Observable Inputs
(Level 2)
   
 
Significant
Unobservable
Inputs (Level 3)
   
 
 
Balance at
March 31, 2011
 
Liabilities:
                       
Derivative financial instruments
  $ -     $ 4,758     $ -     $ 4,758  
 
 
18

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The Company uses derivative financial instruments, specifically interest rate swaps, for nontrading purposes.  The Company uses interest rate swaps to manage interest rate risk arising from previously unhedged interest payments associated with variable rate debt.  Through March 31, 2011, derivative financial instruments were designated and qualified as cash flow hedges.  Derivative contracts with positive net fair values inclusive of net accrued interest receipts or payments, are recorded in other assets.  Derivative contracts with negative net fair values, inclusive of net accrued interest payments or receipts, are recorded in other liabilities.  The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative.  This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.  The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
 
The Company incorporates credit valuation adjustments to appropriately reflect its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.  In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees.
 
Although the Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparty.  However, as of March 31, 2011, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivative financial instruments.  As a result, the Company has determined each of its derivative valuations in its entirety is classified in Level 2 of the fair value hierarchy.
 
Other Fair Value Disclosures
 
Cash and Cash Equivalents, Restricted Cash, Student Contracts Receivable, Other Assets, Account Payable and Accrued Expenses and Other Liabilities:  The Company estimates that the carrying amount approximates fair value, due to the short maturity of these instruments.
 
Derivative Instruments: These instruments are reported on the balance sheet at fair value, which is based on calculations provided by independent, third-party financial institutions and represent the discounted future cash flows expected, based on the projected future interest rate curves over the life of the instrument.
 
Senior Secured Term Loan, Secured Credit Facilities and Construction Loans: the fair value of the Company’s secured term loan, secured credit facilities and construction loans approximate carrying values due to the variable interest rate feature of these instruments.
 
Mortgage Loans: the fair value of mortgage loans is based on the present value of the cash flows at current rates through maturity.
 
Bonds Payable: the fair value of bonds payable is based on market quotes for bonds outstanding.
 
The table below contains the estimated fair value and related carrying amounts for the Company’s mortgage loans and bonds payable as of March 31, 2011 and December 31, 2010:
 
   
March 31, 2011
   
December 31, 2010
 
   
Fair Value
   
Carrying Amount
   
Fair Value
   
Carrying Amount
 
Mortgage loans
  $ 967,056     $ 936,550     $ 1,032,742     $ 994,728  
Bonds payable
    49,756       49,375       49,489       49,375  
 
 
19

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

14.  Commitments and Contingencies
 
Commitments
 
Development-related guarantees: For its third-party development projects, the Company commonly provides alternate housing and project cost guarantees, subject to force majeure.  These guarantees are typically limited, on an aggregate basis, to the amount of the projects’ related development fees or a contractually agreed-upon maximum exposure amount.  Alternate housing guarantees typically expire five days after construction is complete and generally require the Company to provide substitute living quarters and transportation for students to and from the university if the project is not complete by an agreed-upon completion date.  Under project cost guarantees, the Company is responsible for the construction cost of a project in excess of an approved budget.   The budget consists primarily of costs included in the general contractors’ guaranteed maximum price contract (“GMP”).  In most cases, the GMP obligates the general contractor, subject to force majeure and approved change orders, to provide completion date guarantees and to cover cost overruns and liquidated damages.  In addition, the GMP is typically secured with payment and performance bonds.  Project cost guarantees expire upon completion of certain developer obligations, which are normally satisfied within one year after completion of the project.
 
In the normal course of business, the Company enters into various development-related purchase commitments with parties that provide development-related goods and services.  In the event that the Company was to terminate development services prior to the completion of projects under construction, the Company could potentially be committed to satisfy outstanding purchase orders with such parties.  At March 31, 2011, management did not anticipate any material deviations from schedule or budget related to third-party development projects currently in progress. 
 
Guaranty of Joint Venture Mortgage Debt: As mentioned in Note 8, Fund II is funded in part with secured third party debt in the amount of $18.2 million.  The Operating Partnership serves as non-recourse, carve-out guarantor of this debt, which means the Operating Partnership is liable to the lender for any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of or in connection with certain non-recourse exceptions in connection with the debt.  Pursuant to the limited liability company agreement, Fund II 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 guarantee for obligations not caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates is not expected to exceed the Company’s 10% proportionate interest in the related mortgage debt.
 
The Company has estimated the fair value of guarantees entered into to be immaterial.  The Company’s estimated maximum exposure amount under the above guarantees is approximately $30.0 million.
 
Contingencies
 
Litigation:  In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings.  While it is not possible to ascertain the ultimate outcome of such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations of the Company.
 
Letters of Intent:  In the ordinary course of the Company’s business, the Company enters into letters of intent indicating a willingness to negotiate for acquisitions, dispositions or joint ventures.  Such letters of intent are non-binding, and neither party to the letter of intent is obligated to pursue negotiations unless and until a definitive contract is entered into by the parties.  Even if definitive contracts are entered into, the letters of intent relating to the acquisition and disposition of real property and resulting contracts generally contemplate that such contracts will provide the acquirer with time to evaluate the property and conduct due diligence, during which periods the acquiror will have the ability to terminate the contracts without penalty or forfeiture of any deposit or earnest money.  There can be no assurance that definitive contracts will be entered into with respect to any matter covered by letters of intent or that the Company will consummate any transaction contemplated by any definitive contract.  Furthermore, due diligence periods for real property are frequently extended as needed.  Once the due diligence period expires, the Company is then at risk under a real property acquisition contract, but only to the extent of any earnest money deposits associated with the contract.
 
 
20

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Environmental Matters:  The Company is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’s business, assets or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company’s results of operations and cash flows.
 
15.  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.
 
 
21

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
Three Months Ended March 31,
 
   
2011
   
2010
 
Wholly-Owned Properties
           
Rental revenues
  $ 88,340     $ 69,871  
Interest and other income
    10       11  
Total revenues from external customers
    88,350       69,882  
Operating expenses before depreciation, amortization, ground/facility lease, and allocation of corporate overhead
    (39,005 )     (30,918 )
Ground/facility lease
    (315 )     (265 )
Interest expense
    (10,897 )     (11,825 )
Operating income before depreciation, amortization and allocation of corporate overhead
  $ 38,133     $ 26,874  
Depreciation and amortization
  $ 20,477     $ 15,699  
Capital expenditures
  $ 34,694     $ 4,701  
Total segment assets at March 31,
  $ 2,502,172     $ 2,032,798  
                 
On-Campus Participating Properties
               
Rental revenues
  $ 7,647     $ 7,311  
Interest and other income
    7       3  
Total revenues from external customers
    7,654       7,314  
Operating expenses before depreciation, amortization, ground/facility lease and allocation of corporate overhead
    (1,562 )     (2,232 )
Ground/facility lease
    (841 )     (306 )
Interest expense
    (1,469 )     (1,503 )
Operating income  before depreciation, amortization and allocation of corporate overhead
  $ 3,782     $ 3,273  
Depreciation and amortization
  $ 1,098     $ 1,079  
Capital expenditures
  $ 278     $ 43  
Total segment assets at March 31,
  $ 77,388     $ 79,883  
                 
Development Services
               
Development and construction management fees from external customers
  $ 3,824     $ 574  
Operating expenses
    (2,341 )     (2,327 )
Operating income (loss) before depreciation, amortization and allocation of corporate overhead
  $ 1,483     $ (1,753 )
Total segment assets at March 31,
  $ 8,455     $ 5,217  
                 
Property Management Services
               
Property management fees from external customers
  $ 1,830     $ 2,214  
Intersegment revenues
    3,548       2,875  
Total revenues
    5,378       5,089  
Operating expenses
    (2,253 )     (2,027 )
Operating income before depreciation, amortization and allocation of corporate overhead
  $ 3,125     $ 3,062  
Total segment assets at March 31,
  $ 3,681     $ 4,412  
                 
Reconciliations
               
Total segment revenues
  $ 105,206     $ 82,859  
Unallocated interest income earned on corporate cash
    33       3  
Elimination of intersegment revenues
    (3,548 )     (2,875 )
Total consolidated revenues, including interest income
  $ 101,691     $ 79,987  
Segment operating income before depreciation, amortization and allocation of corporate overhead
  $ 46,523     $ 31,456  
Depreciation and amortization
    (23,130 )     (18,149 )
Net unallocated expenses relating to corporate overhead
    (5,921 )     (5,939 )
Loss from unconsolidated joint ventures
    (12 )     (1,414 )
Income tax provision
    (143 )     (143 )
Income from continuing operations
  $ 17,317     $ 5,811  
                 
Total segment assets
  $ 2,591,696     $ 2,122,310  
Unallocated corporate assets
    37,656       33,245  
Total assets at March 31,
  $ 2,629,352     $ 2,155,555  
 
 
22

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16.  Subsequent Events
 
Pay-off of Mortgage Debt:  On April 1, 2011, the Company paid off $71.0 million in fixed-rate mortgage debt secured by three of our wholly-owned properties located in State College, Pennsylvania (Lions Crossing, Nittany Crossing and State College Park).  This mortgage debt was paid off prior to the scheduled maturity date of June 30, 2011 and had an interest rate per annum of 6.46%.
 
Property Dispositions:  In April 2011, the Company sold three unencumbered wholly-owned properties (Villas on Apache, River Club Apartments and River Walk Townhomes) containing 1,416 beds for a combined sales price of approximately $47.5 million.  
 
Distributions:  On May 4, 2011, the Company declared a first quarter 2011 distribution per share of $0.3375 which will be paid on May 27, 2011 to all common stockholders of record as of May 17, 2011.  At the same time, the Operating Partnership will pay an equivalent amount per unit to holders of Common Units, as well as the quarterly cumulative preferential distribution to holders of Series A Preferred Units (see Note 7).
 
ATM Equity Program:  Subsequent to March 31, 2011, the Company sold approximately 0.8 million shares under the ATM Equity Program for net proceeds of approximately $24.2 million after payment of approximately $0.4 million of commissions to the sales agents.
 
 
23

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Forward-looking Statements
 
This report contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result” and similar expressions, which do not relate solely to historical matters, are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they were made, to anticipate future results or trends.
 
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: general risks affecting the real estate industry; risks associated with changes in university admission or housing policies; risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; risks and uncertainties affecting property development and construction; risks associated with downturns in the national and local economies, volatility in capital and credit markets, increases in interest rates, and volatility in the securities markets; costs of compliance with the Americans with Disabilities Act and other similar laws; potential liability for uninsured losses and environmental contamination; and risks associated with our Company’s potential failure to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”), as amended, and possible adverse changes in tax and environmental laws.
 
The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
 
Our Company and Our Business
 
American Campus Communities, Inc. (referred to herein as the “Company,” “us,” “we,” and “our”) is a real estate investment trust (“REIT”) that was incorporated on March 9, 2004 and commenced operations effective with the completion of our initial public offering (“IPO”) on August 17, 2004.  Through our controlling interest in American Campus Communities Operating Partnership LP (the “Operating Partnership”), we are one of the largest owners, managers and developers of high quality student housing properties in the United States in terms of beds owned, developed, and under management.  We are a fully integrated, self-managed and self-administered equity REIT with expertise in the acquisition, design, financing, development, construction management, leasing and management of student housing properties.
 
As of March 31, 2011, our property portfolio contained 104 student housing properties with approximately 64,900 beds in approximately 20,800 apartment units.  Our property portfolio consisted of 96 owned off-campus properties that are in close proximity to colleges and universities, four American Campus Equity (“ACE®”) properties operated under ground/facility leases with three university systems and four on-campus participating properties operated under ground/facility leases with the related university systems.  Our communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
 
Through our taxable REIT subsidiaries (“TRS”), we provide construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others.  As of March 31, 2011, we provided third-party management and leasing services for 34 properties (nine of which we served as the third-party developer and construction manager) that represented approximately 24,100 beds in approximately 9,500 units, and one joint venture property in which we own a noncontrolling interest with approximately 600 beds in approximately 200 units.  Third-party management and leasing services are typically provided pursuant to multi-year management contracts that have initial terms that range from one to five years.  As of March 31, 2011, our total owned, joint venture and third-party managed portfolio was comprised of 139 properties with approximately 89,600 beds in approximately 30,500 units.
 
 
24

 
 
Third-Party Development Services
 
Our third-party development and construction management services as of March 31, 2011 consisted of four projects under contract and currently in progress with fees ranging from $2.2 million to $4.6 million.  As of March 31, 2011, fees of approximately $4.6 million remained to be earned by us with respect to these projects, which have scheduled completion dates of August 2011 through August 2012.
 
While we believe that our third party development/construction management and property management services allow us to develop strong and key relationships with colleges and universities, revenue from this area has over time become a smaller portion of our operations due to the continued focus on and growth of our wholly-owned property portfolio.  Nevertheless, we believe these services continue to provide synergies with respect to our ability to identify, acquire or develop, and successfully operate, student housing properties.
 
American Campus Equity (“ACE®”) Development Activities
 
Branded and marketed to colleges and universities as the ACE program, our equity investment and ownership of on-campus housing via traditional long-term ground leases provides us with what we believe is a lower-risk opportunity compared to other off-campus projects, as our ACE projects have premier on-campus locations with marketing and operational assistance from the universities.  The subject university substantially benefits by increasing its housing capacity with modern, well-amenitized student housing with no or minimal impacts to its own credit ratios, preserving the university’s credit capacity to fund academic and research facilities.
 
Owned Development Activities
 
Overview:  As of March 31, 2011, we were in the process of constructing two owned off-campus properties and two ACE properties that will be operated under ground/facility leases with related university systems.  We estimate the total development costs relating to these activities will be approximately $190.4 million.  As of March 31, 2011, we have incurred development costs of approximately $95.6 million in connection with these properties, including land costs of approximately $7.6 million.  Remaining development costs are estimated to be approximately $94.8 million.  The activities are described below:
 
Villas at Babcock: As of March 31, 2011, our Villas at Babcock owned off-campus property was under construction with total development costs estimated to be approximately $35.4 million.  The project is scheduled to complete construction and open for occupancy in August 2011 and will serve students attending the University of Texas – San Antonio.  As of March 31, 2011, the project was approximately 89% complete, and we estimate that remaining development costs will be approximately $6.4 million.  As of March 31, 2011, we have funded 100% of the project’s development costs and plan to fund the remaining development costs internally.
 
Lobo Village: As of March 31, 2011, our Lobo Village ACE property was under construction with total development costs estimated to be approximately $39.2 million.  The project is scheduled to complete construction and open for occupancy in August 2011 and will serve students attending the University of New Mexico.  As of March 31, 2011, the project was approximately 70% complete, and we estimate that remaining development costs will be approximately $9.7 million.  As of March 31, 2011, we have funded 100% of the project’s development costs and plan to fund the remaining development costs internally.
 
Villas on Sycamore: As of March 31, 2011, our Villas on Sycamore owned off-campus property was under construction with total development costs estimated to be approximately $28.0 million.  The project is scheduled to complete construction and open for occupancy in August 2011 and will serve students attending Sam Houston State University.  As of March 31, 2011, the project was approximately 85% complete, and we estimate that remaining development costs will be approximately $6.4 million.  As of March 31, 2011, we have funded 100% of the project’s development costs and plan to fund the remaining development costs internally.
 
 
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College Station: As of March 31, 2011, our College Station ACE property was under construction with total development costs estimated to be approximately $87.8 million.  The project is scheduled to complete construction and open for occupancy in August 2012 and will serve students attending Portland State University.  As of March 31, 2011, the project was approximately 13% complete, and we estimate that remaining development costs will be approximately $72.3 million.  We expect to fund approximately $30.3 million of total development costs internally with the remaining $57.5 to be funded with a third-party construction loan.
 
ATM Equity Program
 
In May 2010, we announced the establishment of an at-the-market share offering program (the “ATM Equity Program”) through which we may issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $150 million.  Actual sales under the program will depend on a variety of factors, including, but not limited to, market conditions, the trading price of our common stock and determinations of the appropriate sources of funding for the Company.  During the three months ended March 31, 2011, we sold approximately 0.4 million shares at weighted average price of $31.77 per share for net proceeds of approximately $11.2 million after payment of approximately $0.2 million of commissions to the sales agents.  We may continue to sell shares of common stock under this program from time to time based on market conditions, although we are not under an obligation to sell any shares.  As of March 31, 2011, we had approximately $122.3 million available for issuance under this program.
 
 
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Property Operations
 
As of March 31, 2011 our property portfolio consisted of the following:
                                 
PROPERTY
   
YR ACQUIRED /
DEVELOPED (1)
   
LOCATION
   
PRIMARY UNIVERSITY SERVED
   
UNITS
   
BEDS
 
                                 
Wholly-Owned properties:
                               
                                     
1. Villas on Apache (2)
   
1999
   
Tempe, AZ
   
Arizona State University Main Campus
      111       288  
                                     
2. River Club Apartments (2)
   
1999
   
Athens, GA
   
The University of Georgia – Athens
      266       792  
                                     
3. River Walk Townhomes (2)
   
1999
   
Athens, GA
   
The University of Georgia – Athens
      100       336  
                                     
4. The Village at Blacksburg
   
2000
   
Blacksburg, VA
   
Virginia Polytechnic Inst. & State University
      288       1,056  
                                     
5. The Callaway House
   
2001
   
College Station, TX
   
Texas A&M University
      173       538  
                                     
6. The Village at Alafaya Club
   
2000
   
Orlando, FL
   
The University of Central Florida
      228       839  
                                     
7. The Village at Science Drive
   
2001
   
Orlando, FL
   
The University of Central Florida
      192       732  
                                     
8. The Village at Boulder Creek
   
2002
   
Boulder, CO
   
The University of Colorado at Boulder
      82       309  
                                     
9. University Village - Fresno
   
2004
   
Fresno, CA
   
California State University – Fresno
      105       406  
                                     
10. University Village - Temple (3)
   
2004
   
Philadelphia, PA
   
Temple University
      220       749  
                                     
11. University Club Tallahassee
   
2005
   
Tallahassee, FL
   
Florida State University
      152       608  
                                     
12. The Grove at University Club
   
2005
   
Tallahassee, FL
   
Florida State University
      64       128  
                                     
13. College Club Tallahassee
   
2005
   
Tallahassee, FL
   
Florida A&M University
      96       384  
                                     
14. The Greens at College Club
   
2005
   
Tallahassee, FL
   
Florida A&M University
      40       160  
                                     
15. University Club Gainesville
   
2005
   
Gainesville, FL
   
University of Florida
      94       376  
                                     
16. CityParc at Fry Street
   
2005
   
Denton, TX
   
University of North Texas
      136       418  
                                     
17. The Estates
   
2005
   
Gainesville, FL
   
University of Florida
      396       1,044  
                                     
18. University Village - Sweet Home
   
2005
   
Amherst, NY
   
State University of New York – Buffalo
      269       828  
                                     
19. Entrada Real
   
2006
   
Tucson, AZ
   
University of Arizona
      98       363  
                                     
20. Royal Oaks
   
2006
   
Tallahassee, FL
   
Florida State University
      82       224  
                                     
21. Royal Pavilion
   
2006
   
Tallahassee, FL
   
Florida State University
      60       204  
                                     
22. Royal Village Tallahassee
   
2006
   
Tallahassee, FL
   
Florida State University
      75       288  
                                     
23. Royal Village Gainesville
   
2006
   
Gainesville, FL
   
Florida State University
      118       448  
                                     
24. Northgate Lakes
   
2006
   
Orlando, FL
   
The University of Central Florida
      194       710  
                                     
25. Royal Lexington
   
2006
   
Lexington, KY
   
University of Kentucky
      94       364  
                                     
26. The Woods at Greenland
   
2006
   
Murfreesboro, TN
   
Middle Tennessee State University
      78       276  
                                     
27. Raiders Crossing
   
2006
   
Murfreesboro, TN
   
Middle Tennessee State University
      96       276  
                                     
28. Raiders Pass
   
2006
   
Lubbock, TX
   
Texas Tech University
      264       828  
                                     
29. Aggie Station
   
2006
   
College Station, TX
   
Texas A&M University
      156       450  
                                     
30. The Outpost- San Marcos
   
2006
   
San Marcos, TX
   
Texas State University – San Marcos
      162       486  
                                     
31. The Outpost- San Antonio
   
2006
   
San Antonio, TX
   
University of Texas – San Antonio
      276       828  
                                     
32. Callaway Villas
   
2006
   
College Station, TX
   
Texas A&M University
      236       704  
                                     
33. The Village on Sixth
   
2007
   
Huntington, WV
   
Marshall University
      248       752  
                                     
34. Newtown Crossing
   
2007
   
Lexington, KY
   
University of Kentucky
      356       942  
                                     
35. Olde Towne University Square
   
2007
   
Toledo, OH
   
University of Toledo
      224       550  
                                     
36. Peninsular Place
   
2007
   
Ypsilanti, MI
   
Eastern Michigan University
      183       478  
                                     
37. University Centre
   
2007
   
Newark, NJ
   
Rutgers University, NJIT, Essex CCC
      234       838  
                                     
38. Sunnyside Commons