t76423_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, 2013.   
 
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.)
Commission file number 333-181102-01 (American Campus Communities Operating Partnership, L.P.)
 
AMERICAN CAMPUS COMMUNITIES, INC.
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
 
 Maryland (American Campus Communities, Inc.)
Maryland (American Campus Communities Operating
Partnership, L.P.)
 
 76-0753089 (American Campus Communities, Inc.)
56-2473181 (American Campus Communities Operating
Partnership, L.P.)
 (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.
 
American Campus Communities, Inc.
Yes x No o
 
American Campus Communities Operating Partnership, L.P.
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).
 
American Campus Communities, Inc.
Yes x No o
 
American Campus Communities Operating Partnership, L.P.
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.
 
American Campus Communities, Inc.
  Large accelerated filer x Accelerated Filer o
  Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company o
 
American Campus Communities Operating Partnership, L.P.
  Large accelerated filer o Accelerated Filer o
  Non-accelerated filer (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)
 
American Campus Communities, Inc.
Yes o No x
 
American Campus Communities Operating Partnership, L.P.
Yes o No x
 
There were 104,776,745 shares of the American Campus Communities, Inc.’s common stock with a par value of $0.01 per share outstanding as of the close of business on May 3, 2013.
 
 
 

 
 
EXPLANATORY NOTE
 
This report combines the reports on Form 10-Q for the quarterly period ended March 31, 2013 of American Campus Communities, Inc. and American Campus Communities Operating Partnership, L.P..  Unless stated otherwise or the context otherwise requires, references to “ACC” mean American Campus Communities, Inc. a Maryland real estate investment trust (“REIT”), and references to “ACCOP” mean American Campus Communities Operating Partnership, L.P., a Maryland limited partnership.  References to the “Company,” “we,” “us” or “our” mean collectively ACC, ACCOP and those entities/subsidiaries owned or controlled by ACC and/or ACCOP.  References to the “Operating Partnership” mean collectively ACCOP and those entities/subsidiaries owned or controlled by ACCOP. The following chart illustrates the Company’s and the Operating Partnership’s corporate structure:
 
 
GRAPHIC
 
The general partner of ACCOP is American Campus Communities Holdings, LLC (“ACC Holdings”), an entity that is wholly-owned by ACC. As of March 31, 2013, ACC Holdings held an ownership interest in ACCOP of less than 1%. The limited partners of ACCOP are ACC and other limited partners consisting of current and former members of management and nonaffiliated third parties.  As of March 31, 2013, ACC owned an approximate 98.8% limited partnership interest in ACCOP.  As the sole member of the general partner of ACCOP, ACC has exclusive control of ACCOP’s day-to-day management.  Management operates the Company and the Operating Partnership as one business. The management of ACC consists of the same members as the management of ACCOP. The Company is structured as an umbrella partnership REIT (“UPREIT”) and ACC contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, ACC receives a number of units of the Operating Partnership (“OP Units,” see definition below) equal to the number of common shares it has issued in the equity offering. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units in the Operating Partnership. Based on the terms of ACCOP’s partnership agreement, OP Units can be exchanged for ACC’s common shares on a one-for-one basis. The Company maintains a one-for-one relationship between the OP Units of the Operating Partnership issued to ACC and ACC Holdings and the common shares issued to the public. The Company believes that combining the reports on Form 10-Q of ACC and ACCOP into this single report provides the following benefits:
 
 
(1)
enhances investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
 
(2)
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
 
(3)
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
 
 
 

 
 
ACC consolidates ACCOP for financial reporting purposes, and ACC essentially has no assets or liabilities other than its investment in ACCOP. Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements. However, the Company believes it is important to understand the few differences between the Company and the Operating Partnership in the context of how the entities operate as a consolidated company. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership. ACC also issues public equity from time to time and guarantees certain debt of ACCOP, as disclosed in this report. ACC does not have any indebtedness, as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.  Except for the net proceeds from ACC’s equity offerings, which are contributed to the capital of ACCOP in exchange for OP Units on a one-for-one common share per OP Unit basis, the Operating Partnership generates all remaining capital required by the Company’s business. These sources include, but are not limited to, the Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its credit facility, and proceeds received from the disposition of certain properties.  Noncontrolling interests, stockholders’ equity, and partners’ capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The noncontrolling interests in the Operating Partnership’s financial statements consist of the interests of unaffiliated partners in various consolidated joint ventures. The noncontrolling interests in the Company’s financial statements include the same noncontrolling interests at the Operating Partnership level and OP Unit holders of the Operating Partnership. The differences between stockholders’ equity and partners’ capital result from differences in the equity issued at the Company and Operating Partnership levels.
 
To help investors understand the significant differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership. A single set of consolidated notes to such financial statements is presented that includes separate discussions for the Company and the Operating Partnership when applicable (for example, noncontrolling interests, stockholders’ equity or partners’ capital, earnings per share or unit, etc.).  A combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents discrete information related to each entity, as applicable. This report also includes separate Part I, Item 4 Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
 
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company operates its business through the Operating Partnership. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
 
 
 

 
 
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2013
 
TABLE OF CONTENTS
       
     
PAGE NO.
       
PART I.
     
       
Item 1.
Consolidated Financial Statements of American Campus Communities, Inc. and Subsidiaries:
   
       
   
1
       
    2
       
   
3
       
    4
       
 
Consolidated Financial Statements of American Campus Communities Operating Partnership, L.P. and Subsidiaries:
   
       
   
5
       
    6
       
   
7
       
   
8
       
   
9
       
 
27
       
 
39
       
 
40
       
   
       
Item 1.   41
       
Item 1A.   41 
       
Unregistered Sales of Equity Securities and Use of Proceeds   41
       
Item 3. Defaults Upon Senior Securities   41
       
Item 4. Mine Safety Disclosures   41
       
Item 5. Other Information   41
       
 
42
       
 
43
 
 
 

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
   
March 31, 2013
   
December 31, 2012
 
   
(Unaudited)
       
Assets
           
             
Investments in real estate:
           
Wholly-owned properties, net
  $ 4,840,091     $ 4,871,376  
Wholly-owned properties held for sale
    87,304       -  
On-campus participating properties, net
    56,508       57,346  
Investments in real estate, net
    4,983,903       4,928,722  
                 
Cash and cash equivalents
    15,033       21,454  
Restricted cash
    38,817       36,790  
Student contracts receivable, net
    6,475       14,122  
Other assets
    115,913       117,874  
                 
Total assets
  $ 5,160,141     $ 5,118,962  
                 
Liabilities and equity
               
                 
Liabilities:
               
Secured mortgage, construction and bond debt
  $ 1,516,407     $ 1,509,105  
Unsecured term loan
    350,000       350,000  
Unsecured revolving credit facility
    321,000       258,000  
Secured agency facility
    104,000       104,000  
Accounts payable and accrued expenses
    44,690       56,046  
Other liabilities
    104,294       107,223  
Total liabilities
    2,440,391       2,384,374  
                 
Commitments and contingencies (Note 13)
               
                 
Redeemable noncontrolling interests
    56,736       57,534  
                 
Equity:
               
American Campus Communities, Inc. stockholders’ equity:
               
Common stock, $.01 par value, 800,000,000 shares authorized, 104,776,745 and 104,665,212 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively
    1,043       1,043  
Additional paid in capital
    3,000,617       3,001,520  
Accumulated earnings and distributions
    (361,575 )     (347,521 )
Accumulated other comprehensive loss
    (5,848 )     (6,661 )
Total American Campus Communities, Inc. stockholders’ equity
    2,634,237       2,648,381  
Noncontrolling interests - partially owned properties
    28,777       28,673  
Total equity
    2,663,014       2,677,054  
                 
Total liabilities and equity
  $ 5,160,141     $ 5,118,962  
 
See accompanying notes to consolidated financial statements.
 
 
1

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands, except share and per share data)
 
   
Three Months Ended March 31,
 
   
2013
   
2012
 
Revenues
           
Wholly-owned properties
  $ 154,756     $ 94,819  
On-campus participating properties
    8,102       7,967  
Third-party development services
    479       2,094  
Third-party management services
    1,709       1,758  
Resident services
    597       343  
Total revenues
    165,643       106,981  
                 
Operating expenses
               
Wholly-owned properties
    67,143       42,058  
On-campus participating properties
    2,504       2,495  
Third-party development and management services
    2,306       2,785  
General and administrative
    3,806       3,540  
Depreciation and amortization
    46,143       23,399  
Ground/facility leases
    1,203       964  
Total operating expenses
    123,105       75,241  
                 
Operating income
    42,538       31,740  
                 
Nonoperating income and (expenses)
               
Interest income
    427       516  
Interest expense
    (17,641 )     (12,845 )
Amortization of deferred financing costs
    (1,314 )     (986 )
Income from unconsolidated joint ventures
    -       444  
Other nonoperating expense
    (2,800 )     (122 )
Total nonoperating expenses
    (21,328 )     (12,993 )
                 
Income before income taxes and discontinued operations
    21,210       18,747  
Income tax provision
    (255 )     (156 )
Income from continuing operations
    20,955       18,591  
Income attributable to discontinued operations
    1,426       2,214  
Net income
    22,381       20,805  
Net income attributable to noncontrolling interests
               
Redeemable noncontrolling interests
    (279 )     (287 )
Partially owned properties
    (512 )     (492 )
Net income attributable to noncontrolling interests
    (791 )     (779 )
Net income attributable to common shareholders
  $ 21,590     $ 20,026  
                 
Other comprehensive income
               
Change in fair value of interest rate swaps
    813       3,404  
Comprehensive income
  $ 22,403     $ 23,430  
                 
Income per share attributable to common shareholders - basic
               
Income from continuing operations per share
  $ 0.19     $ 0.24  
Net income per share
  $ 0.20     $ 0.27  
                 
Income per share attributable to common shareholders - diluted
               
Income from continuing operations per share
  $ 0.19     $ 0.23  
Net income per share
  $ 0.20     $ 0.26  
Weighted-average common shares outstanding
               
Basic
    104,697,433       74,216,854  
Diluted
    105,364,769       74,864,447  
                 
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 –
partially owned
properties
   
Total
 
Equity, December 31, 2012
    104,665,212     $ 1,043     $ 3,001,520     $ (347,521 )   $ (6,661 )   $ 28,673     $ 2,677,054  
Adjustments to reflect redeemable noncontrolling interests at fair value
    -       -       649       -       -       -       649  
Amortization of restricted stock awards
    -       -       1,578       -       -       -       1,578  
Vesting of restricted stock awards
    111,533       -       (3,130 )     -       -       -       (3,130 )
Distributions to common and restricted stockholders
    -       -       -       (35,644 )     -       -       (35,644 )
Distributions to noncontrolling joint venture partners
    -       -       -       -       -       (408 )     (408 )
Change in fair value of interest rate swaps
    -       -       -       -       813       -       813  
Net income
    -       -       -       21,590       -       512       22,102  
Equity, March 31, 2013
    104,776,745     $ 1,043     $ 3,000,617     $ (361,575 )   $ (5,848 )   $ 28,777     $ 2,663,014  
 
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,
 
   
2013
   
2012
 
Operating activities
           
Net income
  $ 22,381     $ 20,805  
Adjustments to reconcile net income to net cash provided by operating activities:
               
     Non-cash litigation settlement expense
    2,800       -  
     Loss on remeasurement of equity method investment
    -       122  
     Depreciation and amortization
    46,971       24,399  
     Amortization of deferred financing costs and debt premiums/discounts
    (2,284 )     706  
     Share-based compensation
    1,578       1,297  
     Income from unconsolidated joint ventures
    -       (444 )
     Income tax provision
    255       156  
     Changes in operating assets and liabilities:
               
Restricted cash
    (922 )     3,298  
Student contracts receivable, net
    7,647       2,250  
Other assets
    (1,661 )     5,979  
Accounts payable and accrued expenses
    (17,541 )     (9,800 )
Other liabilities
    (2,064 )     788  
Net cash provided by operating activities
    57,160       49,556  
                 
Investing activities
               
Cash paid for property acquisitions
    (263 )     (14,319 )
Cash paid for land acquisitions
    (138 )     (7,770 )
Capital expenditures for wholly-owned properties
    (12,348 )     (2,977 )
Investments in wholly-owned properties under development
    (87,226 )     (93,217 )
Capital expenditures for on-campus participating properties
    (335 )     (145 )
Investment in loan receivable
    -       (7,211 )
Repayment of mezzanine loan
    -       4,000  
Increase in escrow deposits
    -       (850 )
Change in restricted cash related to capital reserves
    (486 )     (81 )
Purchase of corporate furniture, fixtures and equipment
    (743 )     (579 )
Net cash used in investing activities
    (101,539 )     (123,149 )
                 
Financing activities
               
Proceeds from sale of common stock
    -       75,000  
Offering costs
    -       (1,196 )
Pay-off of mortgage loans
    -       (16,180 )
Proceeds from unsecured term loan
    -       150,000  
Proceeds from credit facilities
    63,000       64,000  
Pay downs of credit facilities
    -       (187,000 )
Proceeds from construction loans
    14,544       31,243  
Principal payments on debt
    (4,252 )     (2,666 )
Change in construction accounts payable
    2,142       14  
Debt issuance and assumption costs
    (996 )     (3,169 )
Distributions to common and restricted stockholders
    (35,644 )     (25,423 )
Distributions to noncontrolling partners
    (836 )     (837 )
Net cash provided by financing activities
    37,958       83,786  
                 
Net change in cash and cash equivalents
    (6,421 )     10,193  
Cash and cash equivalents at beginning of period
    21,454       22,399  
Cash and cash equivalents at end of period
  $ 15,033     $ 32,592  
                 
Supplemental disclosure of non-cash investing and financing activities
               
Change in fair value of derivative instruments, net
  $ 813     $ 3,404  
                 
Supplemental disclosure of cash flow information
               
Interest paid
  $ 24,497     $ 16,226  
 
See accompanying notes to consolidated financial statements.
 
 
4

 
 
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
 
   
March 31, 2013
   
December 31, 2012
 
   
(Unaudited)
       
Assets
           
             
Investments in real estate:
           
Wholly-owned properties, net
  $ 4,840,091     $ 4,871,376  
Wholly-owned properties held for sale
    87,304       -  
On-campus participating properties, net
    56,508       57,346  
Investments in real estate, net
    4,983,903       4,928,722  
                 
Cash and cash equivalents
    15,033       21,454  
Restricted cash
    38,817       36,790  
Student contracts receivable, net
    6,475       14,122  
Other assets
    115,913       117,874  
                 
Total assets
  $ 5,160,141     $ 5,118,962  
                 
Liabilities and capital
               
                 
Liabilities:
               
Secured mortgage, construction and bond debt
  $ 1,516,407     $ 1,509,105  
Unsecured term loan
    350,000       350,000  
Unsecured revolving credit facility
    321,000       258,000  
Secured agency facility
    104,000       104,000  
Accounts payable and accrued expenses
    44,690       56,046  
Other liabilities
    104,294       107,223  
Total liabilities
    2,440,391       2,384,374  
                 
Commitments and contingencies (Note 13)
               
                 
Redeemable limited partners
    56,736       57,534  
                 
Capital:
               
Partners’ capital:
               
General partner – 12,222 OP units outstanding at both March 31, 2013 and December 31, 2012
    114       116  
Limited partner – 104,764,523 and 104,652,990 OP units outstanding at March 31, 2013 and December 31, 2012, respectively
    2,639,971       2,654,926  
Accumulated other comprehensive loss
    (5,848 )     (6,661 )
Total partners’ capital
    2,634,237       2,648,381  
Noncontrolling interests - partially owned properties
    28,777       28,673  
Total capital
    2,663,014       2,677,054  
                 
Total liabilities and capital
  $ 5,160,141     $ 5,118,962  
 
See accompanying notes to consolidated financial statements.
 
 
5

 
 
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands, except unit and per unit data)
 
   
Three Months Ended March 31,
 
   
2013
   
2012
 
Revenues
           
Wholly-owned properties
  $ 154,756     $ 94,819  
On-campus participating properties
    8,102       7,967  
Third-party development services
    479       2,094  
Third-party management services
    1,709       1,758  
Resident services
    597       343  
Total revenues
    165,643       106,981  
                 
Operating expenses
               
Wholly-owned properties
    67,143       42,058  
On-campus participating properties
    2,504       2,495  
Third-party development and management services
    2,306       2,785  
General and administrative
    3,806       3,540  
Depreciation and amortization
    46,143       23,399  
Ground/facility leases
    1,203       964  
Total operating expenses
    123,105       75,241  
                 
Operating income
    42,538       31,740  
                 
Nonoperating income and (expenses)
               
Interest income
    427       516  
Interest expense
    (17,641 )     (12,845 )
Amortization of deferred financing costs
    (1,314 )     (986 )
Income from unconsolidated joint ventures
    -       444  
Other nonoperating expense
    (2,800 )     (122 )
Total nonoperating expenses
    (21,328 )     (12,993 )
                 
Income before income taxes and discontinued operations
    21,210       18,747  
Income tax provision
    (255 )     (156 )
Income from continuing operations
    20,955       18,591  
Income attributable to discontinued operations
    1,426       2,214  
Net income
    22,381       20,805  
Net income attributable to noncontrolling interests – partially owned properties
    (512 )     (492 )
Net income attributable to American Campus Communities Operating Partnership, L.P.
    21,869       20,313  
Series A preferred unit distributions
    (46 )     (46 )
Net income available to common unitholders
  $ 21,823     $ 20,267  
                 
Other comprehensive income
               
Change in fair value of interest rate swaps
    813       3,404  
Comprehensive income
  $ 22,636     $ 23,671  
                 
Income per unit attributable to common unitholders –  basic
               
Income from continuing operations per unit
  $ 0.19     $ 0.24  
Net income per unit
  $ 0.20     $ 0.27  
                 
Income per unit attributable to common unitholders –  diluted
               
    Income from continuing operations per unit
  $ 0.19     $ 0.23  
    Net income per unit
  $ 0.20     $ 0.26  
Weighted-average common units outstanding
               
Basic
    105,830,509       75,116,289  
Diluted
    106,497,845       75,763,882  
Distributions declared per common unit
  $ 0.3375     $ 0.3375  
 
See accompanying notes to consolidated financial statements.
 
 
6

 

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL
(unaudited, in thousands, except unit data)
 
                                    Accumulated       Noncontrolling            
      General Partner       Limited Partner     Other       Interests -           
                Comprehensive       Partially Owned            
     
Units
     
Amount
      Units      
Amount
    Loss     Properties     Total  
Capital as of December 31, 2012
    12,222     $ 116       104,652,990     $ 2,654,926     $ (6,661 )   $ 28,673     $ 2,677,054  
Adjustments to reflect redeemable limited partners’ interest at fair value
    -       -       -       649       -       -       649  
Amortization of restricted stock awards
    -       -       -       1,578       -       -       1,578  
Vesting of restricted stock awards
    -       -       111,533       (3,130 )     -       -       (3,130 )
Distributions
    -       (4 )     -       (35,640 )     -       -       (35,644 )
Distributions to noncontrolling joint venture partners
    -       -       -       -       -       (408 )     (408 )
Change in fair value of interest rate swaps
    -       -       -       -       813       -       813  
Net income
    -       2       -       21,588       -       512       22,102  
Capital as of March 31, 2013
    12,222     $ 114       104,764,523     $ 2,639,971     $ (5,848 )   $ 28,777     $ 2,663,014  
 
See accompanying notes to consolidated financial statements.
 
 
7

 

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
   
Three Months Ended March 31,
 
   
2013
   
2012
 
Operating activities
           
Net income
  $ 22,381     $ 20,805  
Adjustments to reconcile net income to net cash provided by operating activities:
               
     Non-cash litigation settlement expense
    2,800       -  
     Loss on remeasurement of equity method investment
    -       122  
     Depreciation and amortization
    46,971       24,399  
     Amortization of deferred financing costs and debt premiums/discounts
    (2,284 )     706  
     Share-based compensation
    1,578       1,297  
     Income from unconsolidated joint ventures
    -       (444 )
     Income tax provision
    255       156  
     Changes in operating assets and liabilities:
               
              Restricted cash
    (922 )     3,298  
              Student contracts receivable, net
    7,647       2,250  
              Other assets
    (1,661 )     5,979  
              Accounts payable and accrued expenses
    (17,541 )     (9,800 )
              Other liabilities
    (2,064 )     788  
Net cash provided by operating activities
    57,160       49,556  
                 
Investing activities
               
     Cash paid for property acquisitions
    (263 )     (14,319 )
     Cash paid for land acquisitions
    (138 )     (7,770 )
     Capital expenditures for wholly-owned properties
    (12,348 )     (2,977 )
     Investments in wholly-owned properties under development
    (87,226 )     (93,217 )
     Capital expenditures for on-campus participating properties
    (335 )     (145 )
     Investment in loan receivable
    -       (7,211 )
     Repayment of mezzanine loan
    -       4,000  
     Increase in escrow deposits
    -       (850 )
     Change in restricted cash related to capital reserves
    (486 )     (81 )
     Purchase of corporate furniture, fixtures and equipment
    (743 )     (579 )
Net cash used in investing activities
    (101,539 )     (123,149 )
                 
Financing activities
               
     Proceeds from issuance of common units in exchange for contributions, net
    -       73,804  
     Pay-off of mortgage loans
    -       (16,180 )
     Proceeds from unsecured term loan
    -       150,000  
     Proceeds from credit facilities
    63,000       64,000  
     Paydowns of credit facilities
    -       (187,000 )
     Proceeds from construction loans
    14,544       31,243  
     Principal payments on debt
    (4,252 )     (2,666 )
     Change in construction accounts payable
    2,142       14  
     Debt issuance and assumption costs
    (996 )     (3,169 )
     Distributions paid on unvested restricted stock awards
    (272 )     (258 )
     Distributions paid on common units
    (35,754 )     (25,468 )
     Distributions paid on preferred units
    (46 )     (46 )
     Distributions paid to noncontrolling partners - partially owned properties
    (408 )     (488 )
Net cash provided by financing activities
    37,958       83,786  
                 
Net change in cash and cash equivalents
    (6,421 )     10,193  
Cash and cash equivalents at beginning of period
    21,454       22,399  
Cash and cash equivalents at end of period
  $ 15,033     $ 32,592  
                 
Supplemental disclosure of non-cash investing and financing activities
               
Change in fair value of derivative instruments, net
  $ 813     $ 3,404  
                 
Supplemental disclosure of cash flow information
               
Interest paid
  $ 24,497     $ 16,226  
 
See accompanying notes to consolidated financial statements.
 
 
8

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1.
Organization and Description of Business
 
American Campus Communities, Inc. (“ACC”) is a real estate investment trust (“REIT”) that commenced operations effective with the completion of an initial public offering (“IPO”) on August 17, 2004. Through ACC’s controlling interest in American Campus Communities Operating Partnership, L.P. (“ACCOP”), ACC 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. ACC 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. ACC’s common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “ACC.”
 
The general partner of ACCOP is American Campus Communities Holdings, LLC (“ACC Holdings”), an entity that is wholly-owned by ACC.  As of March 31, 2013, ACC Holdings held an ownership interest in ACCOP of less than 1%. The limited partners of ACCOP are ACC and other limited partners consisting of current and former members of management and nonaffiliated third parties.  As of March 31, 2013, ACC owned an approximate 98.8% limited partnership interest in ACCOP.  As the sole member of the general partner of ACCOP, ACC has exclusive control of ACCOP’s day-to-day management.  Management operates ACC and ACCOP as one business.  The management of ACC consists of the same members as the management of ACCOP.  ACC consolidates ACCOP for financial reporting purposes, and ACC does not have significant assets other than its investment in ACCOP.  Therefore, the assets and liabilities of ACC and ACCOP are the same on their respective financial statements.  References to the “Company,” “we,” “us” or “our” mean collectively ACC, ACCOP and those entities/subsidiaries owned or controlled by ACC and/or ACCOP.  References to the “Operating Partnership” mean collectively ACCOP and those entities/subsidiaries owned or controlled by ACCOP.  Unless otherwise indicated, the accompanying Notes to the Consolidated Financial Statements apply to both the Company and the Operating Partnership.
 
As of March 31, 2013, our property portfolio contained 160 properties with approximately 98,900 beds in approximately 31,900 apartment units.  Our property portfolio consisted of 143 owned off-campus student housing properties that are in close proximity to colleges and universities, 13 American Campus Equity (“ACE®”) properties operated under ground/facility leases with six university systems and four on-campus participating properties operated under ground/facility leases with the related university systems.  Of the 160 properties, nine were under development as well as an additional phase under development at an existing property as of March 31, 2013, and when completed will consist of a total of approximately 6,200 beds in approximately 1,700 units.  Our communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
 
Through one of ACC’s taxable REIT subsidiaries (“TRSs”), we also provide construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others.  As of March 31, 2013, also through one of ACC’s TRSs, we provided third-party management and leasing services for 30 properties that represented approximately 23,700 beds in approximately 9,400 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, 2013, our total owned and third-party managed portfolio included 190 properties with approximately 122,600 beds in approximately 41,300 units.
 
2.       Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying consolidated financial statements, presented in U.S. dollars, are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and revenue and expenses during the reporting periods. Our actual results could differ from those estimates and assumptions. All material intercompany transactions among consolidated entities have been eliminated. All dollar amounts in the tables herein, except share, per share, unit and per unit amounts, are stated in thousands unless otherwise indicated. Certain prior period amounts have been reclassified to conform to the current period presentation.
 
 
9

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
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 of the Company 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, 2012.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
Investments in Real Estate
 
Investments in real estate are recorded at historical cost.  Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset.  The cost of ordinary repairs and maintenance are charged to expense when incurred.  Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:
 
Buildings and improvements
 
7-40 years
Leasehold interest - on-campus
   participating properties
 
25-34 years (shorter of useful life or respective lease term)
Furniture, fixtures and equipment
 
3-7 years
 
Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred finance costs, are capitalized as construction in progress.  Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences.  Interest totaling approximately $2.3 million and $2.5 million was capitalized during the three months ended March 31, 2013 and March 31, 2012, respectively.  Amortization of deferred financing costs totaling approximately $0.1 million was capitalized as construction in progress during both three month periods ended March 31, 2013 and March 31, 2012, 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, 2013.
 
 
10

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
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, our own analysis of recently acquired and existing comparable properties in our portfolio, and other market data.  Information obtained about each property as a result of due diligence, marketing and leasing activities is also considered.  The value allocated to land is generally based on the actual purchase price adjusted to fair value (as necessary) if acquired separately, or market research / comparables if acquired as part of an existing operating property.  The value allocated to building is based on the fair value determined on an “as-if vacant” basis, which is estimated using an income, or discounted cash flow, approach that relies upon internally determined assumptions that we believe are consistent with current market conditions for similar properties. The value allocated to furniture, fixtures, and equipment is based on an estimate of the fair value of the appliances and fixtures inside the units.
 
Long-Lived Assets–Held for Sale
 
Long-lived assets to be disposed of are classified as held for sale in the period in which all of the following criteria are met:
 
 
a.
Management, having the authority to approve the action, commits to a plan to sell the asset.
 
 
b.
The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.
 
 
c.
An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated.
 
 
d.
The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year.
 
 
e.
The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
 
 
f.
Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
 
Concurrent with this classification, the asset is recorded at the lower of cost or fair value less estimated selling costs, and depreciation ceases.
 
Intangible Assets
 
A portion of the purchase price of acquired properties is allocated to the value of in-place leases for both student and commercial tenants, which 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 for student leases 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.  The purchase price of property acquisitions is not expected to be allocated to student tenant relationships, considering the terms of the leases and the expected levels of renewals.
 
Amortization expense related to in-place leases was approximately $5.5 million and $0.9 million for the three months ended March 31, 2013 and 2012, respectively.  Accumulated amortization at March 31, 2013 and December 31, 2012 was approximately $17.6 million and $12.4 million, respectively.  Intangible assets, net of amortization, are included in other assets on the accompanying consolidated balance sheets and the amortization of intangible assets is included in depreciation and amortization expense in the accompanying consolidated statements of comprehensive income.  
 
 
11

 

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
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.  The amortization of debt premiums and discounts resulted in a net decrease to interest expense of approximately $3.6 million and $0.3 million for the three months ended March 31, 2013 and 2012, respectively.  As of March 31, 2013 and December 31, 2012, net unamortized debt premiums were approximately $86.1 million and $90.1 million, respectively, and net unamortized debt discounts were approximately $3.1 million and $3.5 million, respectively.  Debt premiums and discounts are included in secured mortgage, construction and bond debt on the accompanying consolidated balance sheets and amortization of debt premiums and discounts is included in interest expense on the accompanying consolidated statements of comprehensive income.
 
Redeemable Noncontrolling Interests – Operating Partnership / Redeemable Limited Partners
 
The Company classifies Redeemable Noncontrolling Interests – Operating Partnership / Redeemable Limited Partners in the mezzanine section of the accompanying consolidated balance sheets for the portion of common and preferred Operating Partnership units (“OP Units”) that the Operating Partnership is required, either by contract or securities law, to deliver registered common shares of ACC to the exchanging OP unit holder.  The redeemable noncontrolling interest units / redeemable limited partner units are adjusted to the greater of carrying value or fair market value based on the common share price of ACC at the end of each respective reporting period.
 
Third-Party Development Services Revenue and Costs
 
Pre-development expenditures such as architectural fees, permits and deposits associated with the pursuit of third-party and owned development projects are expensed as incurred, until such time that management believes it is probable that the contract will be executed and/or construction will commence.  Because the Company frequently incurs these pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained, the Company bears the risk of loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or the Company is unable to successfully obtain the required permits and authorizations.  As such, management evaluates the status of third-party and owned projects that have not yet commenced construction on a periodic basis and expenses any deferred costs related to projects whose current status indicates the commencement of construction is unlikely and/or the costs may not provide future value to the Company in the form of revenues.  Such write-offs are included in third-party development and management services expenses (in the case of third-party development projects) or general and administrative expenses (in the case of owned development projects) on the accompanying consolidated statements of comprehensive income.  As of March 31, 2013, the Company has deferred approximately $3.3 million in pre-development costs related to third-party and owned development projects that have not yet commenced construction.  Such costs are included in other assets on the accompanying consolidated balance sheets.
 
Earnings per Share – Company
 
Basic earnings per share is computed using net income 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 OP 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.
 
 
12

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
The following potentially dilutive securities were outstanding for the three months ended March 31, 2013 and 2012, 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,
 
   
2013
   
2012
 
  Common OP Units (Note 9)
    1,133,076       899,435  
  Preferred OP Units (Note 9)
    114,128       114,128  
  Total potentially dilutive securities
    1,247,204       1,013,563  
 
The following is a summary of the elements used in calculating basic earnings per share:
 
   
Three Months Ended March 31,
 
   
2013
   
2012
 
Basic earnings per share calculation:
           
Income from continuing operations
  $ 20,955     $ 18,591  
Income from continuing operations attributable to noncontrolling interests
    (775 )     (749 )
Income from continuing operations attributable to common shareholders
    20,180       17,842  
Amount allocated to participating securities
    (272 )     (258 )
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
    19,908       17,584  
                 
Income from discontinued operations
    1,426       2,214  
Income from discontinued operations attributable to noncontrolling interests
    (16 )     (30 )
Income from discontinued operations attributable to common shareholders
    1,410       2,184  
Net income attributable to common shareholders, as adjusted – basic
  $ 21,318     $ 19,768  
                 
Income from continuing operations attributable to common shareholders, as adjusted – per share
  $ 0.19     $ 0.24  
Income from discontinued operations attributable to common shareholders – per share
  $ 0.01     $ 0.03  
Net income attributable to common shareholders, as adjusted – per share
  $ 0.20     $ 0.27  
                 
Basic weighted average common shares outstanding
    104,697,433       74,216,854  
             
Diluted earnings per share calculation:
           
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
  $ 19,908     $ 17,584  
Income from discontinued operations attributable to common shareholders
    1,410       2,184  
Net income attributable to common shareholders, as adjusted – diluted
  $ 21,318     $ 19,768  
                 
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities – per share
  $ 0.19     $ 0.23  
Income from discontinued operations attributable to common shareholders – per share
  $ 0.01     $ 0.03  
 
 
13

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
   
Three Months Ended March 31,
 
   
2013
   
2012
 
Net income attributable to common shareholders-per share
  $ 0.20     $ 0.26  
                 
Basic weighted average common shares outstanding
    104,697,433       74,216,854  
Restricted Stock Awards (Note 10)
    667,336       647,593  
Diluted weighted average common shares outstanding
    105,364,769       74,864,447  
 
Earnings per Unit – Operating Partnership
 
Basic earnings per OP Unit is computed using net income attributable to common unitholders and the weighted average number of common units outstanding during the period.  Diluted earnings per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units or resulted in the issuance of OP Units and then shared in the earnings of the Operating Partnership.
 
The following is a summary of the elements used in calculating basic earnings per unit:
 
   
Three Months Ended March 31,
 
   
2013
   
2012
 
Basic earnings per unit calculation:
           
Income from continuing operations
  $ 20,955     $ 18,591  
Income from continuing operations attributable to noncontrolling interests – partially owned properties
    (512 )     (492 )
Income from continuing operations attributable to Series A preferred units
    (45 )     (43 )
Amount allocated to participating securities
    (272 )     (258 )
Income from continuing operations attributable to common unitholders, net of amount allocated to participating securities
    20,126       17,798  
Income from discontinued operations
    1,426       2,214  
Income from discontinued operations attributable to Series A preferred unit distributions
    (1 )     (3 )
Income from discontinued operations attributable to common unitholders
    1,425       2,211  
Net income attributable to common unitholders, as adjusted – basic
  $ 21,551     $ 20,009  
                 
Income from continuing operations attributable to common unitholders, as adjusted – per unit
  $ 0.19     $ 0.24  
Income from discontinued operations attributable to common unitholders – per unit
  $ 0.01     $ 0.03  
Net income attributable to common unitholders, as adjusted – per unit
  $ 0.20     $ 0.27  
                 
Basic weighted average common units outstanding
    105,830,509       75,116,289  
 
 
14

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
   
Three Months Ended March 31,
 
   
2013
   
2012
 
Diluted earnings per unit calculation:
           
Income from continuing operations attributable to common unitholders, net of amount allocated to participating securities
  $ 20,126     $ 17,798  
Income from discontinued operations attributable to common unitholders
    1,425       2,211  
Net income attributable to common unitholders, as adjusted
  $ 21,551     $ 20,009  
                 
Income from continuing operations attributable to common unitholders, net of amount allocated to participating securities – per unit
  $ 0.19     $ 0.23  
Income from discontinued operations attributable to common unitholders – per unit
  $ 0.01     $ 0.03  
Net income attributable to common unitholders- per unit
  $ 0.20     $ 0.26  
                 
Basic weighted average common units outstanding
    105,830,509       75,116,289  
Restricted Stock Awards (Note 10)
    667,336       647,593  
Diluted weighted average common units outstanding
    106,497,845       75,763,882  
 
3.  Property Dispositions and Discontinued Operations
 
As of March 31, 2013, four owned off-campus properties were classified as Held for Sale on the accompanying consolidated balance sheet.  These four properties are The Village at Blacksburg, State College Park, University Mills and University Pines.  Concurrent with this classification, these properties were recorded at the lower of cost or fair value less estimated selling costs.  The net income attributable to these properties is included in discontinued operations on the accompanying consolidated statements of comprehensive income for all periods presented.
 
In 2012, the Company sold three owned off-campus properties, located in Wilmington, North Carolina (Brookstone Village and Campus Walk) and Greenville, North Carolina (Pirates Cove) containing 1,584 beds for a combined sales price of approximately $54.1 million.  The net income attributable to these properties is included in discontinued operations on the accompanying consolidated statements of comprehensive income for the three months ended March 31, 2012.
 
The properties discussed above are included in the wholly-owned properties segment (see Note 14).  Below is a summary of the results of operations for the properties discussed above:
 
   
Three Months Ended March 31,
 
   
2013
   
2012
 
Total revenues
  $ 3,959     $ 5,924  
Total operating expenses
    (1,425 )     (2,258 )
Depreciation and amortization
    (828 )     (1,000 )
Operating income
    1,706       2,666  
Total nonoperating expenses
    (280 )     (452 )
Net income
  $ 1,426     $ 2,214  
 
 
15

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
4.  Investments in Wholly-Owned Properties
 
Wholly-owned properties consisted of the following:
 
   
March 31, 2013
   
December 31, 2012
 
Land (1) (2) (3)
  $ 539,713     $ 550,274  
Buildings and improvements
    4,268,527       4,351,239  
Furniture, fixtures and equipment (2)
    225,638       227,409  
Construction in progress (2) (3)
    222,716       138,923  
      5,256,594       5,267,845  
Less accumulated depreciation
    (416,503 )     (396,469 )
Wholly-owned properties, net (4)
  $ 4,840,091     $ 4,871,376  
 
(1)
The land balance above includes undeveloped land parcels with book values of approximately $30.7 million as of both March 31, 2013 and December 31, 2012.  Also includes land totaling approximately $41.6 million as of both March 31, 2013 and December 31, 2012, related to properties under development.
 
(2)
Land, furniture, fixtures and equipment and construction in progress as of March 31, 2013 include $7.7 million, $0.6 million and $14.8 million, respectively, related to the Townhomes at Newtown Crossing property located in Lexington, Kentucky, that will serve students attending the University of Kentucky.  In July 2012, the Company entered into a purchase and contribution agreement with a private developer whereby the Company is obligated to purchase the property as long as the developer meets certain construction completion deadlines and other closing conditions.  The development of the property is anticipated to be completed in August 2013.  The entity that owns Townhomes at Newtown Crossing is deemed to be a variable interest entity (“VIE”), and the Company is determined to be the primary beneficiary of the VIE.  As such, the assets and liabilities of the entity owning the property are included in the Company’s and the Operating Partnership’s consolidated financial statements.
 
(3)
Land and construction in progress as of March 31, 2013 include $3.3 million and $12.0 million, respectively, related to an additional phase currently under development at The Lodges of East Lansing located in East Lansing, Michigan that will serve students attending Michigan State University.  Concurrent with the purchase of the Kayne Anderson Portfolio on November 30, 2012, the Company entered into a purchase and sale agreement whereby the Company is obligated to purchase this additional phase as long as the developer meets certain construction completion deadlines and other closing conditions.  The development of the additional phase is anticipated to be completed in September 2013.  The entity that owns The Lodges of East Lansing Phase II is deemed to be a variable interest entity (“VIE”), and the Company is determined to be the primary beneficiary of the VIE.  As such, the assets and liabilities of the entity owning the property are included in the Company’s and the Operating Partnership’s consolidated financial statements.
 
(4)
The balances above exclude the net book value of four properties, The Village at Blacksburg, State College Park, University Mills and University Pines which were classified as wholly-owned properties held for sale in the accompanying consolidated balance sheet as of March 31, 2013.
 
 
16

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
5.  On-Campus Participating Properties
 
On-campus participating properties are as follows:
 
           
Historical Cost
 
Lessor/University
 
Lease
Commencement
 
Required Debt
Repayment (1)
 
March 31, 2013
   
December 31, 2012
 
Texas A&M University System /
Prairie View A&M University (2)
 
2/1/96
 
9/1/23
  $ 41,587     $ 41,485  
                         
Texas A&M University System /
Texas A&M International
 
2/1/96
 
9/1/23
    6,663       6,651  
                         
Texas A&M University System /
Prairie View A&M University (3)
 
10/1/99
 
8/31/25/
8/31/28
    25,937       25,766  
                         
University of Houston System /
University of Houston (4)
 
9/27/00
 
8/31/35
    35,986       35,936  
              110,173       109,838  
Less accumulated amortization
            (53,665 )     (52,492 )
On-campus participating properties, net
          $ 56,508     $ 57,346  
 
(1)
Represents the effective lease termination date.  The Leases terminate upon the earlier to occur of the final repayment of the related debt or the end of the contractual lease term.
 
(2)
Consists of three phases placed in service between 1996 and 1998.
 
(3)
Consists of two phases placed in service in 2000 and 2003.
 
(4)
Consists of two phases placed in service in 2001 and 2005.
 
6.   Investments in Unconsolidated Joint Ventures
 
As of March 31, 2013, the Company owned a noncontrolling interest in one unconsolidated joint venture that is accounted for utilizing the equity method of accounting.  The investment consists of a noncontrolling equity interest in a joint venture with the United States Navy that owns military housing privatization projects located on naval bases in Norfolk and Newport News, Virginia.  In 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.  We also earn fees for providing management services to this joint venture, which totaled approximately $0.4 million for each of the three month periods ended March 31, 2013 and 2012.
 
 
17

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
7.   Debt
 
A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows:
 
   
March 31, 2013
   
December 31, 2012
 
Debt secured by wholly-owned properties:
           
Mortgage loans payable
  $ 1,284,965     $ 1,288,482  
Construction loans payable (1)
    71,899       57,355  
      1,356,864       1,345,837  
Debt secured by on-campus participating properties:
               
Mortgage loan payable
    31,652       31,768  
Bonds payable
    44,915       44,915  
      76,567       76,683  
                 
Unsecured revolving credit facility
    321,000       258,000  
Unsecured term loan
    350,000       350,000  
Secured agency facility
    104,000       104,000  
Unamortized debt premiums
    86,118       90,091  
Unamortized debt discounts
    (3,142 )     (3,506 )
Total debt
  $ 2,291,407     $ 2,221,105  
 
(1)
Construction loans payable as of March 31, 2013 and December 31, 2012 includes $27.3 million and $12.7 million, respectively, related to two constructions loans that are financing the development and construction of Townhomes at Newtown Crossing and The Lodges of East Lansing Phase II, both VIEs the Company is including in its consolidated financial statements (see Note 4). The creditors of these construction loans do not have recourse to the assets of the Company.
 
Unsecured Credit Facility
 
The Company has an aggregate Credit Facility of $800 million, which is composed of a $350 million unsecured term loan and a $450 million unsecured revolving credit facility, and may be expanded by up to an additional $100 million upon the satisfaction of certain conditions.  The maturity dates of the unsecured term loan and unsecured revolving credit facility are January 10, 2017 and January 10, 2016, respectively.  The maturity date of the unsecured revolving credit facility can be extended for an additional 12 months to January 10, 2017, subject to the satisfaction of certain conditions.
 
Each 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 investment grade rating from either Moody’s Investor Services, Inc. or Standard & Poor’s Rating Group.  The Company has entered into multiple interest rate swaps with notional amounts totaling $350 million that effectively fix the interest rate to 2.54% (0.89% + 1.65% spread) on the outstanding balance of the unsecured term loan (see Note 11 for more details).
 
Availability under the revolving credit facility is limited to an "aggregate borrowing base amount" equal to 60% of the value of the Company’s unencumbered properties, calculated as set forth in the Credit Facility.  Additionally, the Company is required to pay a facility fee of 0.30% per annum on the $450 million revolving credit facility.  As of March 31, 2013, the revolving credit facility bore interest at a weighted average annual rate of 1.96% (inclusive of the facility fee discussed above), and availability under the revolving credit facility totaled $129.0 million.
 
The terms of the Credit Facility include certain restrictions and covenants, which limit, among other items, the incurrence of additional indebtedness, liens, and the disposition of assets.  The facility contains customary affirmative and negative covenants and also contains financial covenants that, among other things, require the Company to maintain certain minimum ratios of "EBITDA" (earnings before interest, taxes, depreciation and amortization) to fixed charges and total indebtedness.  The Company may not pay distributions that exceed a specified percentage of funds from operations, as adjusted, for any four consecutive quarters.  The financial covenants also include consolidated net worth and leverage ratio tests.  As of March 31, 2013, the Company was in compliance with all such covenants.
 
 
18

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Secured Agency Facility
 
The Company has a $125 million secured revolving credit facility with a Freddie Mac lender.  The facility has a five-year term and is currently secured by 10 properties referred to as the “Collateral Pool.”  The facility bears interest at one- or three-month LIBOR plus a spread that varies based on the debt service ratio of the Collateral Pool.  Additionally, the Company is required to pay an unused commitment fee of 1.0% per annum.  As of March 31, 2013, the secured agency facility bore interest at a weighted average annual rate of 2.25%.  The secured agency facility includes some, but not all, of the same financial covenants as the unsecured credit facility, described above.  As of March 31, 2013, the Company was in compliance with all such covenants.
 
8.  Stockholders’ Equity / Partners’ Capital
 
In March 2013, the Company established a new 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 $500 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.  The Company has not sold any shares under the ATM Equity Program and has $500.0 million available for issuance under this program as of March 31, 2013.
 
9.   Noncontrolling Interests
 
Operating Partnership
 
Partially-owned properties: As of March 31, 2013, the Operating Partnership consolidates four joint ventures that own and operate The Varsity, 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 - partially owned properties” within capital on the accompanying consolidated balance sheets of the Operating Partnership.  Accordingly, the third-party partners’ share of the income or loss of the joint ventures is reported on the consolidated statements of comprehensive income of the Operating Partnership as “net income attributable to noncontrolling interests – partially owned properties.”
 
OP Units:  For the portion of OP Units that the Operating Partnership is required, either by contract or securities law, to deliver registered common shares of ACC to the exchanging OP unit holder, or for which the Operating Partnership has the intent or history of exchanging such units for cash, we classify the units as “redeemable limited partners” in the mezzanine section of the consolidated balance sheets of the Operating Partnership and “redeemable noncontrolling interests” in the mezzanine section of the consolidated balance sheets of ACC.  The units classified as such include Series A preferred units as well as common units that are not held by ACC or ACC Holdings.  The value of redeemable limited partners/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 limited partner’s capital on the consolidated statement of changes in capital of the Operating Partnership and to additional paid in capital on the consolidated statement of changes in equity of ACC.  Below is a table summarizing the activity of redeemable limited partners/redeemable noncontrolling interests for the three months ended March 31, 2013:
 
Balance, December 31, 2012
  $ 57,534  
Net income
    279  
Distributions
    (428 )
Adjustments to reflect redeemable limited partner units at fair value
    (649 )
Balance, March 31, 2013
  $ 56,736  
 
 
19

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
During the year ended December 31, 2012, 88,457 common OP units were converted into an equal number of shares of ACC’s common stock and none were converted during the three months ended March 31, 2013.  As of March 31, 2013 and December 31, 2012, approximately 1.2% of the equity interests of the Operating Partnership were held by owners of common OP Units and Series A preferred units not held by ACC or ACC Holdings.
 
Company
 
The noncontrolling interests of the Company include the third-party equity interests in partially-owned properties, as discussed above, which are presented as a component of equity in the Company’s consolidated balance sheets.  The Company’s noncontrolling interests also include the redeemable limited partners presented in the consolidated balance sheets of the Operating Partnership, which are referred to as “redeemable noncontrolling interests” in the mezzanine section of the Company’s consolidated balance sheets.  Noncontrolling interests on the Company’s consolidated statements of comprehensive income include the income/loss attributable to third-party equity interests in partially-owned properties, as well as the income/loss attributable to redeemable noncontrolling interests (i.e. OP Units not held by ACC or ACC Holdings.)
 
10. Incentive Award Plan
 
Restricted Stock Awards (“RSAs”)
 
A summary of ACC’s RSAs under the Plan as of March 31, 2013 and activity during the three months then ended, is presented below:
 
   
Number of
RSAs
 
Nonvested balance at December 31, 2012
    575,668  
Granted
    230,800  
Vested
    (111,533 )
Forfeited
    (75,581 )
Nonvested balance at March 31, 2013
    619,354  
 
The fair value of RSA’s is calculated based on the closing market value of ACC’s common stock on the date of grant.  The fair value of these awards is amortized to expense over the vesting periods, which amounted to approximately $1.6 million and $1.3 million for the three months ended March 31, 2013 and 2012, respectively.
 
11. Derivative 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 Loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  No portion of designated hedges was ineffective during the three months ended March 31, 2013 and 2012.
 
 
20

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  
As discussed in Note 7, the Company has four interest rate swap contracts with notional amounts totaling $350 million to hedge the variable cash flows associated with interest payments on the LIBOR-based unsecured term loan.  In addition, the Company has an interest rate swap contract with a notional amount of $31.7 million used to hedge the variable cash flows associated with the Cullen Oaks Phase I and Phase II loans.
 
The following table summarizes the Company’s outstanding interest rate swap contracts as of March 31, 2013:
 
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%
  $ 31,652     $ (1,418 )
Feb. 2, 2012
 
Feb. 2, 2012
 
Jan. 2, 2017
    0.8695%  
LIBOR – 1 month
    125,000       (1,531 )
Feb. 2, 2012
 
Feb. 2, 2012
 
Jan. 2, 2017
    0.88%  
LIBOR – 1 month
    100,000       (1,267 )
Feb. 2, 2012
 
Feb. 2, 2012
 
Jan. 2, 2017
    0.8875%  
LIBOR – 1 month
    62,500       (817 )
Feb. 2, 2012
 
Feb. 2, 2012
 
Jan. 2, 2017
    0.889%  
LIBOR – 1 month
    62,500       (815 )
                 
Total
  $ 381,652     $ (5,848 )
 
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, 2013 and December 31, 2012:
 
   
Derivative Liabilities as of
 
   
March 31, 2013
 
December 31, 2012
 
 
 
Description
 
 
Balance Sheet
Location
 
 
Fair Value
 
 
Balance Sheet
Location
 
 
Fair Value
 
Interest rate swaps contracts
 
Other liabilities
  $ 5,848  
Other liabilities
  $ 6,661  
Total derivatives designated as
  hedging instruments
      $ 5,848       $ 6,661  
 
12.   Fair Value Disclosures
 
The following table presents information about the Company’s financial instruments measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012, 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.
 
 
21

 
 
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Disclosures concerning financial instruments measured at fair value are as follows:
 
   
Fair Value Measurements as of
 
   
March 31, 2013
   
December 31, 2012
 
   
Quoted Prices in
Active Markets for
Identical Assets and
Liabilities (Level 1)
   
Significant
Other
Observable
Inputs (Level 2)
   
Significant Unobservable Inputs
(Level 3)
   
Total
   
Quoted Prices in
Active Markets for
Identical Assets and
Liabilities (Level 1)
   
Significant
Other
Observable
Inputs (Level 2)
   
Significant Unobservable Inputs
(Level 3)
   
 
 
Total
 
Liabilities:
                                               
Derivative financial instruments
  $ -     $ 5,848     $ -     $ 5,848     $ -     $ 6,661     $ -     $ 6,661  
Mezzanine: