UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Education Realty Trust, Inc.

(Exact name of registrant as specified in its charter)

Maryland		20-1352180
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
530 Oak Court Drive, Suite 300, Memphis, Tennessee		38117
(Address of principal executive offices)		(Zip 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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Accelerated filer o      Non-accelerated filer þ

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

As of August 9, 2006, the latest practicable date, the Registrant had outstanding 26,514,099 shares of common stock, $.01 par value per share.

 

 

EDUCATION REALTY TRUST, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2006
TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements			2
Condensed Consolidated Balance Sheets of Education Realty Trust, Inc. and Subsidiaries as of June 30, 2006 and December 31, 2005			2
Condensed Consolidated and Combined Statements of Operations of Education Realty Trust, Inc. and Subsidiaries for the six months ended June 30, 2006 and 2005 and for Education Realty Trust Predecessor for the period January 1, 2005 to January 30, 2005			3
Condensed Consolidated Statements of Operations of Education Realty Trust, Inc. and Subsidiaries for the three months ended June 30, 2006 and 2005			4
Condensed Consolidated and Combined Statements of Cash Flows of Education Realty Trust, Inc. and Subsidiaries for the six months ended June 30, 2006 and 2005 and for Education Realty Trust Predecessor for the period January 1, 2005 to January 30, 2005			5
Notes to Condensed Consolidated and Combined Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4. Controls and Procedures			30
PART II — OTHER INFORMATION			30
Item 1. Legal Proceedings			30
Item 1A. Risk Factors			30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			30
Item 3. Defaults Upon Senior Securities			31
Item 4. Submission of Matters to a Vote of Security Holders			31
Item 5. Other Information			31
Item 6. Exhibits			31
Signatures			32
EX-31.1 SECTION 302 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
EX-31.2 SECTION 302 CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
EX-32.1 SECTION 906 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
EX-32.2 SECTION 906 CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

Part I Financial Information

Item 1. Financial Statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES

(Amounts in thousands, except share and per share data)

		June 30, 2006				December 31, 2005
		(Unaudited)
Assets
Student housing properties, net		$	819,121			$	620,305
Corporate office furniture, net			876				991
Cash and cash equivalents			5,247				61,662
Restricted cash			9,525				6,738
Student contracts receivable, net			378				470
Receivable from affiliate			98				—
Management fee receivable from third party			399				552
Goodwill and other intangibles, net			3,793				3,546
Other assets			8,331				9,785
Total assets		$	847,768			$	704,049
Liabilities and stockholders’ equity
Liabilities:
Mortgage loans, net of unamortized premium/discount		$	425,959			$	328,335
Other long term debt			50,000				—
Line of credit and other short term debt			15,400				—
Accounts payable and accrued expenses			10,308				9,370
Accounts payable affiliate			—				225
Deferred revenue			6,655				7,660
Total liabilities			508,322				345,590
Minority interest			20,368				27,926
Commitments and contingencies			—				—
Stockholders’ equity:
Common stock, $.01 par value, 200,000,000 shares authorized, 26,384,939 and 26,263,889 shares issued and outstanding as of June 30, 2006 and December 31, 2005, respectively			264				263
Preferred shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding			—				—
Additional paid-in capital			337,506				351,664
Loan to unitholder			—				(5,996	)
Warrants			375				375
Accumulated deficit			(19,067	)			(15,773	)
Total stockholders’ equity			319,078				330,533
Total liabilities and stockholders’ equity		$	847,768			$	704,049

See accompanying notes to the condensed consolidated and combined financial statements.

EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR

(Amounts in thousands, except share and per share data)

										EDR
		Education Realty Trust, Inc.								Predecessor
		Consolidated								Combined
		Six months				Six months				January 1
		ended				ended				through
		June 30,				June 30,				January 30,
		2006				2005				2005
		(Unaudited)				(Unaudited)
Revenues:
Student housing leasing revenue		$	43,901			$	31,184			$	1,503
Student housing food service revenue			1,775				1,441				269
Other leasing revenue			6,868				—				—
Third-party development services			1,427				182				—
Third-party management services			1,398				644				103
Operating expense reimbursements			3,745				2,064				671
Total revenues			59,114				35,515				2,546
Operating expenses:
Student housing leasing operations			18,737				13,212				524
Student housing food service operations			1,583				1,316				255
General and administrative			6,165				7,577				367
Depreciation and amortization			18,240				15,151				260
Reimbursable operating expenses			3,745				2,064				671
Total operating expenses			48,470				39,320				2,077
Operating income (loss)			10,644				(3,805	)			469
Nonoperating expenses:
Interest expense			14,131				6,805				479
Exit fees on early repayment of mortgages			—				1,084				—
Amortization of deferred financing costs			553				330				—
Interest income			(338	)			(484	)			—
Total nonoperating expenses			14,346				7,735				479
Loss before equity in earnings of unconsolidated entities, income taxes and minority interest			(3,702	)			(11,540	)			(10	)
Equity in earnings of unconsolidated entities			425				228				27
Income (loss) before income taxes and minority interest			(3,277	)			(11,312	)			17
Income tax expense (benefit)			82				(170	)			—
Net income (loss) before minority interest			(3,359	)			(11,142	)			17
Minority interest			(65	)			(767	)			—
Net income (loss)		$	(3,294	)		$	(10,375	)		$	17
Earnings per share information:
Loss per share — basic and diluted		$	(0.13	)		$	(0.47	)
Weighted average common shares outstanding- basic and diluted			26,309,154				21,859,108
Distributions per common share		$	.5950			$	.19

See accompanying notes to the condensed consolidated and combined financial statements.

EDUCATION REALTY TRUST, INC. AND

(Amounts in thousands, except share and per share data)

Unaudited

		Three months				Three months
		ended				ended
		June 30,				June 30,
		2006				2005
Revenues:
Student housing leasing revenue		$	21,367			$	19,096
Student housing food service revenue			807				853
Other leasing revenue			3,434				—
Third-party development services			872				173
Third-party management services			699				355
Operating expense reimbursements			1,950				1,378
Total revenues			29,129				21,855
Operating expenses:
Student housing leasing operations			9,448				8,308
Student housing food service operations			724				796
General and administrative			3,185				2,401
Depreciation and amortization			9,087				9,392
Reimbursable operating expenses			1,950				1,378
Total operating expenses			24,394				22,275
Operating income (loss)			4,735				(420	)
Nonoperating expenses:
Interest expense			7,261				4,228
Exit fees on early repayment of mortgages			—				—
Amortization of deferred financing costs			279				214
Interest income			(129	)			(205	)
Total nonoperating expenses			7,411				4,237
Loss before equity in earnings of unconsolidated entities, income taxes and minority interest			(2,676	)			(4,657	)
Equity in earnings of unconsolidated entities			142				157
Income (loss) before income taxes and minority interest			(2,534	)			(4,500	)
Income tax expense (benefit)			186				(104	)
Net income (loss) before minority interest			(2,720	)			(4,396	)
Minority interest			(206	)			(336	)
Net income (loss)		$	(2,514	)		$	(4,060	)
Earnings per share information:
Loss per share — basic and diluted		$	(0.10	)		$	(0.19	)
Weighted average common shares outstanding- basic and diluted			26,349,426				21,862,719
Distributions per common share		$	.2975			$	.19

See accompanying notes to the condensed consolidated and combined financial statements.

EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR

(Amounts in thousands)

		Education Realty Trust, Inc.								EDR Predecessor
		Consolidated								Combined
		Six months				Six months
		ended				ended				January 1 through
		June 30,				June 30,				January 30,
		2006				2005				2005
		(Unaudited)				(Unaudited)
Operating activities:
Net income (loss)		$	(3,294	)		$	(10,375	)		$	17
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			18,240				15,151				246
Deferred tax (benefit) expense			(34	)			—				—
Gain on disposal of assets			(21	)			—				—
Amortization of deferred financing costs			553				330				14
Amortization of unamortized debt premiums/discounts			(266	)			(63	)			—
Distributions from unconsolidated entities			112				564				—
Noncash compensation expense related to PIUs and restricted stock			528				4,374				—
Equity in earnings of unconsolidated entities			(425	)			(228	)			(27	)
Minority interest			(65	)			(767	)			—
Change in operating assets and liabilities (net of acquisitions)			(1,820	)			(1,313	)			(92	)
Net cash provided by operating activities			13,508				7,673				158
Investing activities:
Property acquisitions, net of cash acquired			(113,236	)			(174,951	)			(25	)
Deferred acquisition costs and earnest money deposits			(100	)			(202	)			—
Purchase of corporate furniture and fixtures			(39	)			(904	)			—
Restricted cash			(411	)			(1,769	)			(2,348	)
Insurance proceeds on property loss			135				—				—
Investment in student housing properties			(1,712	)			(767	)			—
Investment in joint venture			(1	)			—				—
Net cash used in investing activities			(115,364	)			(178,593	)			(2,373	)
Financing activities:
Payment of mortgage notes			(770	)			(115,102	)			(98	)
Borrowings of long-term debt			50,000				—				—
Debt issuance costs			(1,340	)			(3,050	)			—
Borrowing (repayment) of line of credit, net			14,500				(502	)			—
Loan to unitholder			—				(5,996	)			—
Proceeds from Offering			—				349,600				—
Payment of offering costs			(125	)			(26,963	)			—
Dividends and distributions paid			(16,816	)			(4,544	)			—
Repayment of notes payable affiliate			—				(485	)			—
Redemption of minority interest			(8	)			—				—
Net cash provided by (used in) financing activities			45,441				192,958				(98	)
Net increase (decrease) in cash and cash equivalents			(56,415	)			22,038				(2,313	)
Cash and cash equivalents, beginning of period			61,662				1				2,883
Cash and cash equivalents, end of period		$	5,247			$	22,039			$	570
Supplemental disclosure of cash flow information:
Interest paid		$	14,302			$	7,001			$	471
Income taxes paid		$	718			$	—			$	—
Supplemental disclosure of noncash activities:
Prepaid offering costs charged against equity		$	—			$	2,218			$	—
Prepaid acquisition costs			4,718				—				—
Units issued in connection with acquisitions			—				26,340				—
Warrants issued			—				375				—
Debt assumed in property acquisitions net of premium			—				444,955				—
Redemption of minority interest to satisfy loan to unitholder			6,116				—				—

See accompanying notes to the condensed consolidated and combined financial statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES AND
EDUCATION REALTY TRUST PREDECESSOR

(Amounts in thousands, except share and per share data)

(Unaudited)

1. Organization and description of business

     Education Realty Trust, Inc. (the “Trust”) was organized in the state of Maryland on July 12, 2004 and commenced operations as a real estate investment trust (“REIT”) effective with the initial public offering (the “Offering”) that was completed on January 31, 2005. Under the Trust’s Articles of Incorporation, as amended, the Trust is authorized to issue up to 200 million shares of common stock and 50 million shares of preferred stock, each having a par value of $0.01 per share.

     The Trust was formed to succeed to the business of a group of entities collectively referred to herein as the Education Realty Trust Predecessor (the “EDR Predecessor”). The EDR Predecessor was not a legal entity, but rather a combination of certain real estate entities under common management. The EDR Predecessor consisted of the following limited liability companies and limited partnerships:

	•		Allen & O’Hara Education Services, LLC (“AOES”), a Tennessee limited liability company performing student housing management activities.
	•		Allen & O’Hara Development Company, LLC (“AODC”), a limited liability company and formerly a wholly owned subsidiary of AOES, providing development consulting services for third party student housing properties.
	•		Allen & O’Hara Educational Properties LLC, a limited liability company, previously holding the ownership interests in the student housing property referred to as The Gables Apartments (“The Gables”).
	•		Education Properties Trust, LLC (“EPT”), a Delaware limited liability company, owned and managed the following four garden-style student housing properties through four separate wholly-owned limited liability companies:

	•		Players Club Apartments, Tallahassee, Florida
	•		The Reserve at Athens, Athens, Georgia
	•		The Reserve at Clemson, Clemson, South Carolina
	•		NorthPointe Apartments, Tucson, Arizona

	•		C Station, LLC, a Tennessee limited liability company, owned and operated one garden-style student housing property referred to as College Station.
	•		University Towers Raleigh, LLC, a North Carolina limited liability company, owned a student housing property referred to as University Towers.

     Paul O. Bower (the “Promoter”) formed the Trust with the intent to effect the Offering of the common stock of the Trust. Concurrent with the Offering, the Trust contributed the net proceeds from the offering for 100% of the general partnership interests and a majority of the limited partnership interests in a newly formed majority-owned Delaware limited partnership, Education Realty Operating Partnership, LP (the “Operating Partnership”). The Operating Partnership together with Allen & O’Hara Education Services, Inc. (the “taxable REIT subsidiary” or “TRS”), and the partners and members of the affiliated partnerships and limited liability companies of the EDR Predecessor, engaged in the formation transactions described in Note 2.

     The Operating Partnership owns, directly or indirectly, interests in student housing communities located near major universities in the United States. The Trust also provides real estate facility management, development and other advisory services through subsidiaries of the Operating Partnership to third parties and to joint ventures in which the Trust is invested.

     The Trust is subject to the risks involved with the ownership and operations of residential real estate near major universities throughout the United States. These include, among others, the risks normally associated with changes in the demand for housing by students at the related universities, competition for tenants, creditworthiness of tenants, changes in tax laws, interest rate levels, the availability of financing, and potential liability under environmental and other laws.

2. The offering, the formation transactions and the private placement

     The Trust completed the offering of its common stock on January 31, 2005. The Trust sold 21,850,000 shares of common stock, including 2,850,000 shares related to the full exercise of the over-allotment option by the underwriters of the Offering, at a price of $16.00 per share. The Offering raised net proceeds of approximately $320.4 million, after underwriting discounts and offering expenses of approximately $29.2 million. The Trust contributed the net proceeds of the Offering for 100% of the general partnership interests and a majority of the limited partnership interests in the Operating Partnership.

     Concurrent with the Offering the Operating Partnership acquired directly or indirectly the EDR Predecessor entities for $36.5 million in cash, the issuance of $18.3 million in Operating Partnership units and the assumption of $81.5 million of debt. The Operating Partnership also acquired 14 properties referred to as the JPI portfolio simultaneous with the Offering. The purchase price approximated $401,975. The Operating Partnership assumed total first mortgage debt of $311,500, and repaid $93,360 with the use of the net proceeds of the Offering. Additionally the Operating Partnership issued warrants approximating $375 in value and Operating Partnership units approximating $7,995 in estimated value. The acquisition of the EDR Predecessor and the JPI portfolio is referred to herein as the Formation Transactions.

     On September 30, 2005, the Trust completed a private placement of 4,375,000 shares of its common stock at a price of $16.00 per share (the “Private Placement”). The Private Placement raised net proceeds of approximately $67 million, after offering expenses of approximately $3 million. These shares were registered with the Securities and Exchange Commission on January 25, 2006. The proceeds were used to acquire the 13 student housing properties from Place Properties, L.P. (“Place Portfolio”) on January 6, 2006 discussed in Note 8.

3. Summary of significant accounting policies

Basis of presentation and principles of consolidation and combination

     The accompanying consolidated and combined financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States (“GAAP”). The accompanying consolidated financial statements of the Trust represent the assets and liabilities and operating results of the Trust and its majority owned subsidiaries. The Trust did not have material operating activity during the period prior to the Offering and therefore the operating results for the period January 1 through January 30, 2005 are not presented.

     The Trust, as the sole general partner of the Operating Partnership, has the responsibility and discretion in the management and control of the Operating Partnership, and the limited partners of the Operating Partnership, in such capacity, have no authority to transact business for, or participate in the management activities of the Operating Partnership. Accordingly, the Trust accounts for the Operating Partnership using the consolidation method.

     The accompanying combined financial statements of the EDR Predecessor for the period January 1, 2005 through January 30, 2005 represent operating results of the entities comprising the EDR Predecessor. The historical combined financial statements of the EDR Predecessor are presented as the Promoter, either directly or indirectly through his previous ownership in AOES, managed the EDR Predecessor prior to the Trust acquiring those interests in connection with the Formation Transactions.

     All intercompany balances and transactions have been eliminated in the accompanying consolidated and combined financial statements.

Reclassifications

     Certain prior period amounts have been reclassified to conform to the current period presentation. Certain overhead costs were previously included in student housing leasing operations expense in the statement of operations in the prior year interim financial statements. These costs were reclassified to general and administrative expense to conform to the way the business is managed. The costs totaled $719 and $1,126 for the three and six months ended June 30, 2005, respectively.

Interim financial information

     The accompanying unaudited interim financial statements include all adjustments, consisting only of normal recurring adjustments, that in the opinion of management are necessary for a fair presentation of the Trust’s and EDR Predecessor’s financial position, results of operations and cash flows for such periods. Because of the seasonal nature of the business, the operating results and cash flows are not necessarily indicative of results that may be expected for any other interim periods or for the full fiscal year. These financial statements should be read in conjunction with the Trust’s consolidated financial statements and related notes, together with the Trust’s annual report on Form 10-K for the year ended December 31, 2005, filed with the Securities and Exchange Commission.

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 and 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. Significant estimates and assumptions are used by management in determining the useful lives of student housing assets, the valuation of goodwill, the initial valuations and underlying allocations of purchase price in connection with student property acquisitions, and in the recording of the allowance for doubtful accounts. Actual results could differ from those estimates.

Cash and cash equivalents

     All highly liquid investments with a maturity of three months or less when purchased are considered cash equivalents. Restricted cash is excluded from cash for the purpose of preparing the consolidated and combined statements of cash flows. The Trust maintains cash balances in various banks. At times the amounts of cash may exceed the $100,000 amount the FDIC insures. The Trust does not believe it is exposed to any significant credit risk on cash and cash equivalents.

Restricted cash

     Restricted cash includes escrow accounts held by lenders for the purpose of paying taxes, insurance, principal and interest, and to fund capital improvements.

Distributions

     The Trust pays regular quarterly cash distributions to shareholders. These distributions are determined quarterly by the Board based on the operating results, economic conditions, capital expenditure requirements, the Internal Revenue Code’s REIT annual distribution requirements, leverage covenants imposed by our revolving credit facility and other debt documents, and any other matters the Board deems relevant.

Student housing properties

     Land, land improvements, buildings and improvements, and furniture, fixtures and equipment are recorded at cost. Buildings and improvements are depreciated over 30 to 40 years, land improvements are depreciated over 15 years and furniture, fixtures, and equipment are depreciated over estimated useful lives ranging from 3 to 7 years. Depreciation is computed using the straight-line method for financial reporting purposes.

     Acquisitions of student housing properties are accounted for utilizing the purchase method in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, and accordingly, the results of operations are included in the results of operations from the respective dates of acquisition. Pre-acquisition costs, which include legal and professional fees and other third party costs related directly to the acquisition of the property, are accounted for as part of the purchase price. Independent appraisals, estimates of cash flows, and valuation techniques are used to allocate the purchase price of acquired property between land, land improvements, buildings and improvements, furniture, fixtures and equipment and other identifiable intangibles such as amounts related to in-place leases.

     Management assesses impairment of long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment and Disposal of Long-lived Assets. SFAS No. 144 requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In accordance with SFAS No. 144, management uses an estimate of future undiscounted cash flows of the related asset over the remaining life in measuring whether the assets are recoverable. As of June 30, 2006, management determined that no indicators of impairment existed.

Investment in unconsolidated joint ventures and limited liability companies

     The Operating Partnership accounts for its investments in unconsolidated joint ventures and limited liability companies using the equity method whereby the cost of an investment is adjusted for the share of equity in earnings of the respective investment reduced by distributions received. The earnings and distributions of the unconsolidated joint ventures and limited liability companies are allocated based on each owner’s respective ownership interests.

Deferred financing costs

     Deferred financing costs represent costs incurred in connection with acquiring debt facilities. These costs are amortized over the terms of the related debt using a method that approximates the effective interest method.

Offering and Private Placement costs

     Specific incremental costs directly attributable to the Offering and the Private Placement were deferred and charged against the gross proceeds. Accordingly, underwriting commissions and other stock issuance costs are reflected as a reduction of additional paid-in capital.

Debt premiums/discounts

     Differences between the estimated fair value of debt and the principal value of debt assumed in connection with student housing property acquisitions are amortized over the term of the related debt as an offset to interest using the effective interest method.

Income taxes

     The Trust has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Trust is generally not subject to federal income tax to the extent that it distributes at least 90% of its taxable income for each tax year to its shareholders. REITs are subject to a number of organizational and operational requirements. If the Trust fails to qualify as a REIT in any taxable year, the Trust will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income and property and to federal income and excise taxes on its undistributed income.

     The Trust has elected to treat its management company, AOES, as a taxable REIT subsidiary (“TRS”). The TRS is subject to federal, state and local income taxes. AOES manages the Trust’s non-REIT activities.

Earnings per share

     The Trust calculates earnings per share in accordance with SFAS No. 128, Earnings Per Share. Basic earnings per share is calculated by dividing net earnings available to common shares by weighted average common shares outstanding. Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed exercise of potentially dilutive securities. At June 30, 2006, the following potentially dilutive securities were outstanding, but were not included in the computation of diluted earnings per share because the effects of their inclusion would be anti-dilutive:

Operating Partnership units			914
University Towers Operating Partnership units			270
Restricted Stock (unvested shares)			129
Profits Interest Units			255
Total potentially dilutive securities			1,568

     A reconciliation of the numerators and denominators for the basic and diluted earnings per share computations is not required due to the fact the effect of the inclusion of all potentially dilutive securities would be anti-dilutive when computing diluted earnings per share; thus, the computation for both basic and diluted earnings per share is the same.

Goodwill and other intangible assets

     The Trust accounts for its goodwill and other intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets”. Goodwill is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.

Minority interests

     Minority interests in the Operating Partnership represent limited partnership interests in the form of operating partnership units and profits interest units. Income is allocated to minority interests based on weighted average percentage ownership each fiscal quarter.

Revenue recognition

     The Trust recognizes revenue related to leasing activities at the student housing properties owned by the Trust, management fees related to managing third party student housing properties, development consulting fees related to the general oversight of third party student housing development and operating expense reimbursements for payroll and related expenses incurred by third party student housing properties managed by the Trust.

     Student housing leasing revenue — Student housing leasing revenue is comprised of all revenue related to the leasing activities at the student housing properties and includes revenues from the leasing of space, from parking lot rentals, and from providing certain ancillary services. This revenue is reflected in student housing leasing revenue in the accompanying consolidated and combined statements of

operations. Students are required to execute lease contracts with payment schedules that vary from single to monthly payments. Generally, the Trust requires each executed leasing contract to be accompanied by a nonrefundable application fee and a signed parental guarantee. Receivables are recorded when billed, revenues and related lease incentives and nonrefundable application fees are recognized on a straight-line basis over the term of the contracts. The Trust has no contingent rental contracts except as noted below related to other leasing revenue. At certain student housing facilities the Trust and EDR Predecessor offer parking lot rentals to the tenants. The related revenues are recognized on a straight-line basis over the term of the related agreement.

     Student housing food service revenue — The Trust provides food service to an unaffiliated secondary boarding school through a contract covering a nine-month period. The contract requires a flat weekly fee and the related revenues are recognized on a straight-line basis over the contract period. Additionally, the Trust maintains a dining facility at University Towers, which offers meal plans to the tenants as well as dining to other third party customers. The meal plans typically require upfront payment by the tenant covering the school semester and the related revenue is recognized on a straight-line basis over the corresponding semester.

     Other leasing revenue — Other leasing revenue relates to our leasing of the 13 properties we acquired from Place Properties (“Place”) discussed in Note 8. Simultaneous with the acquisition of the 13 properties, the Trust leased the assets to Place and receives base monthly rent of $1,145 and has the right to receive “Additional Rent” annually if the properties exceed certain criteria defined in the lease agreement. Base rent is recognized on a straight-line basis over the lease term and Additional Rent is recognized only upon satisfaction of the defined criteria.

     Third-party development consulting services revenue — The Trust provides development consulting services in an agency capacity with third parties whereby the fee is determined based upon the total construction costs. Total fees vary from 3-5% of the total estimated costs and we typically receive a portion of the fees up front. These fees, including the upfront fee, are recognized using the percentage of completion method in proportion to the contract costs incurred by the owner over the course of the construction phases of the respective projects.

     Third-party management revenue — The Trust enters into management contracts to manage third party student housing facilities. Management revenues are recognized when earned in accordance with each management contract. Incentive management fees are recognized when the incentive criteria have been met.

     Operating expense reimbursement revenue — The Trust pays certain payroll and related costs related to the operations of third party student housing properties that are managed by the Trust. Under the terms of the related management agreements, the third party property owners reimburse these costs. The amounts billed to the third party owners are recognized as revenue in accordance with Emerging Issues Task Force No. 01-14, Income Statement Characterization of Reimbursements Received for “Out of Pocket” Expenses Incurred.

Recent accounting pronouncements

     In December 2004, SFAS No. 153, Exchange of Nonmonetary Assets, was issued. SFAS No. 153 amends APB Opinion No. 29, Accounting for Nonmonetary Transactions to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. That exception required that some nonmonetary exchanges be recorded on a carryover basis versus SFAS No. 153, which requires an entity record a nonmonetary exchange at fair value and recognize any gain or loss if the transaction has commercial substance. The standard specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective the fiscal year beginning January 1, 2006. The adoption of SFAS No. 153 had no material impact on the Trust’s consolidated financial condition or results of operations.

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123 (revised December 2004), Share-Based Payment (“Statement 123(R)”). Statement 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employee. Statement 123(R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost is measured based on the grant-date fair value of the equity instruments issued. Compensation cost is recognized over the period that an employee provides service in exchange for the award. Statement 123(R) is effective as of the beginning of the first annual reporting period that begins after June 15, 2005. The adoption of Statement 123(R) as of January 1, 2006 had no material impact on the Trust’s consolidated financial condition or results of operations. See Note 9 for further discussion of share based compensation plans.

     In June 2005, the FASB ratified EITF 04-5: Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (“EITF 04-5”). EITF 04-5 provides a framework for determining whether a general partner is required to consolidate limited partners. The new framework is significantly different than the guidance in SOP 78-9 and would make it more difficult for a general partner to overcome the presumption that it controls the limited partnership, requiring the limited partner to have substantive “kick-out” or “participating” rights. Kick-out rights are the right to dissolve or liquidate the partnership or to otherwise remove the general partner without cause and participating rights are the right to effectively

participate in significant decisions made in the ordinary course of the partnership’s business. EITF 04-5 became effective immediately for all newly formed limited partnerships and existing limited partnerships which are modified. The guidance will become effective for existing limited partnerships which are not modified the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The adoption of EITF 04-5 had no material impact on the Trust’s consolidated financial condition or results of operations.

     In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations-an interpretation of FASB Statement No. 143 (“Interpretation 47”). Interpretation 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, (“Statement 143”) refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Interpretation 47 is effective no later than the end of fiscal years ending after December 15, 2005, (December 31, 2005, for calendar-year enterprises). The adoption of Interpretation 47 had no material impact on the Trust’s consolidated financial condition or results of operations.

     In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation also provides guidance on description, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 becomes effective on January 1, 2007. The adoption of Interpretation 48 is expected to have no material impact on the Trust’s consolidated financial condition or results of operations.

4. Investments in unconsolidated entities

     As of December 31, 2005 and June 30, 2006, the Trust had investments, directly or indirectly, in the following unconsolidated joint ventures and limited liability companies that are accounted for under the equity method:

	•		Salisbury Student Apartment Developers Joint Venture, 33% owned by AOES
	•		Salisbury Student Apartment Developers LLC, a Maryland limited liability company, 33% owned by the Promoter
	•		University of Louisville Apartment Developers LLC, a Kentucky limited liability company, 50% owned by the Promoter
	•		Hines/AOES LLC, an Alabama limited liability company, 50% owned by AOES
	•		National Development/Allen & O’Hara CUPA, LLC, a Pennsylvania limited liability company, 50% owned by Allen & O’Hara Development Company, LLC (“AODC”)
	•		National Development/Allen & O’Hara Lock Haven, LLC, a Pennsylvania limited liability company, 50% owned by AODC
	•		National Development/Allen & O’Hara Clarion, LLC, a Pennsylvania limited liability company, 50% owned by AODC
	•		Allen & O’Hara National Development Bloomsburg LLC, a Pennsylvania limited liability company, 50% owned by AODC
	•		Allen & O’Hara / Academic Privatization LLC, a Tennessee limited liability company, 50% owned by AODC

     On May 1, 2006, the Trust invested in the following unconsolidated joint ventures and limited liability companies which are accounted for under the equity method:

	•		University Village-Greensboro LLC, a Delaware limited liability company, 25% owned by EDR Greensboro
	•		AODC/CPA, LLC, a Delaware limited liability company, 50% owned by AODC

     These entities primarily provide development consulting services to third party student housing owners in an agency capacity. The following is a summary of financial information for the unconsolidated joint ventures and limited liability companies for the six months ended June 30, 2006 and 2005:

		2006				2005
Results of Operations:
Revenues		$	936			$	474
Net income			849				466
Equity in earnings of unconsolidated entities		$	425			$	255

     On June 23, 2006 the Operating Partnership entered an earnest money escrow agreement related to the potential purchase of a student housing property located in Riverside, California and deposited $1,000 with the escrow agent. If completed, the acquisition is expected to be consummated through a joint venture. As part of the anticipated joint venture arrangement the Operating Partnership received $900 from the potential joint venture partner in exchange for a promissory note payable. The escrow deposit is reflected in other assets in the accompanying balance sheet at June 30, 2006. On August 4, 2006 the joint venture was formed and concurrently the promissory note was offset against the corresponding amount in escrow.

5. Debt

Notes payable and credit facility

     At December 31, 2004, the Operating Partnership had a Business Loan Agreement (the “Agreement”) with a financial institution with an outstanding balance of $497. All outstanding amounts under the Agreement were paid off on January 31, 2005 with proceeds of the Offering.

     The EDR Predecessor also had a demand note payable to the Promoter that allowed it to borrow up to $600. The note had an outstanding balance of $485 at December 31, 2004, and was paid in full on January 31, 2005 as part of the Formation Transactions.

     The Operating Partnership obtained a revolving credit facility on January 31, 2005 from JPMorgan Chase Bank, N.A. and UBS Loan Finance LLC as co-lead managers. Those entities are affiliates of J.P. Morgan Securities Inc. and UBS Securities LLC, which were underwriters of the Offering. The revolving credit facility originally had availability in the amount of $75 million and was subsequently increased to $100 million on April 4, 2005.

     On March 30, 2006 the Operating Partnership amended and restated the revolving credit facility (the “Amended Revolver”) dated January 31, 2005 and entered into a senior unsecured term loan facility (the “Term Loan”) in the amount of $50 million. The Trust will serve as the guarantor for any funds borrowed by the Operating Partnership under the Amended Revolver and the Term Loan. Additionally, the Amended Revolver is secured in a manner consistent with the original agreement whereby such security generally consists of a cross collateralized, first mortgage lien on all unmortgaged properties. The Term Loan is not directly secured by a lien but has the benefit of a negative pledge on the equity interest in the mortgaged properties. The Amended Revolver and the Term Loan have a term of three years and mature on March 31, 2009, provided that the Operating Partnership may extend the maturity date for one year subject to certain conditions. At June 30, 2006, there was $14.5 million outstanding under the Amended Revolver and $50 million outstanding under the Term Loan. The Term Loan requires interest only payments through maturity.

     Availability under the Operating Partnership’s Amended Revolver is limited to a “borrowing base availability” consistent with the original agreement. The borrowing base availability is equal to the lesser of (i) 65% of the property asset value (as defined in the amended credit agreement) of the properties securing the facility and (ii) the loan amount which would produce a debt service coverage ratio of no less than 1.30, with debt service based on the greater of two different sets of conditions specified in the amended credit agreement.

     The Operating Partnership’s Amended Revolver and Term Loan contain customary affirmative and negative covenants and do contain financial covenants that, among other things, require the Trust and it’s subsidiaries to maintain certain minimum ratios of “EBITDA” (earnings before payment or charges of interest, taxes, depreciation, amortization or extraordinary items) as compared to interest expense and total fixed charges. The financial covenants also include consolidated net worth and leverage ratio tests.

     The Trust is prohibited from making distributions that exceed $1.20 per share unless prior to and after giving effect to such action the total leverage ratio is less than or equal to 60%. The amount of restricted payments permitted may be increased as long as either of the following conditions is met: (a) after giving effect to the increased restricted payment, the total leverage ratio shall remain less than or equal to 60%; or (b) the increased restricted payment, when considered along with all other restricted payments for the last 3 quarters, does not exceed (i) 100% of funds from operations for the applicable period through and including December 31, 2006, and (ii) 95% of funds from operations for the applicable period thereafter.

     The interest rate per annum applicable to the Amended Revolver is, at the Operating Partnership’s option, equal to a base rate or LIBOR plus an applicable margin based upon our leverage. The interest rate per annum applicable to the Term Loan is, at the Operating Partnership’s option, equal to a base rate plus 1.25% or LIBOR plus 2.75%.

Mortgage debt

     In conjunction with the Formation Transactions, the Operating Partnership assumed total fixed rate mortgage debt of $392,998 with an average interest rate of approximately 5.5%. Concurrent with the closing of the Formation Transactions, the Operating Partnership paid off $115,221 of the assumed debt. In connection with management’s decision to prepay certain debt obligations, the Trust recognized a charge of $1,084 in February 2005.

     In connection with the 2005, acquisitions the Operating Partnership assumed an additional $48,726 of fixed rate mortgage debt with a weighted average interest rate of 6.49%. In January 2006, the Operating Partnership assumed $98.7 million of mortgage debt with a fixed interest rate of 6.439% in connection with the acquisition of the Place Portfolio.

     At June 30, 2006, the Operating Partnership had outstanding mortgage indebtedness of $425,959 (net of unamortized debt premium of $2,601). The scheduled maturities of outstanding mortgage indebtedness at June 30, 2006 are as follows:

Fiscal Year Ending

2006 (6 months ended December 31, 2006)		$	1,962
2007			61,222
2008			27,606
2009			282,631
2010			888
2011			947
Thereafter			48,102
Total			423,358
Unamortized debt premium			2,601
Outstanding at June 30, 2006, net of unamortized premium		$	425,959

     At June 30, 2006, the outstanding mortgage debt had a weighted average interest rate of 5.85% and carried an average term to maturity of 3.2 years.

6. Segments

     Business segments are defined by their distinct customer base and service provided. Three reportable segments have been identified: student housing leasing, third-party development consulting services and third-party management services. Management evaluates each segment’s performance based on net operating income, which is defined as income before depreciation, amortization, interest expense and equity in earnings of unconsolidated entities. Intercompany fees are reflected at the contractually stipulated amounts. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The following table represents segment information for the six months ended June 30, 2006 and the combined results of operations for Education Realty Trust, Inc. (post Offering) and the EDR Predecessor (pre Offering) for the six months ended June 30, 2005:

		Six Months Ended June 30, 2006																				Six Months Ended June 30, 2005(1)
						Third-Party																				Third-Party
		Student				Development				Third-Party												Student				Development				Third-Party
		Housing				Consulting				Management												Housing				Consulting				Management
		Leasing				Services				Services				Adjustments				Total				Leasing				Services				Services				Adjustments				Total
Revenues:
Student housing leasing revenue		$	43,901			$	—			$	—			$	—			$	43,901			$	32,687			$	—			$	—			$	—			$	32,687
Student housing food service revenue			1,775				—				—				—				1,775				1,710				—				—				—				1,710
Other leasing revenue			6,868				—				—				—				6,868				—				—				—				—				—
Third-party development consulting services			—				1,427				—				—				1,427				—				182				—				—				182
Third-party management revenue			—				—				1,398				—				1,398				—				—				747				—				747

		Six Months Ended June 30, 2006																				Six Months Ended June 30, 2005(1)
						Third-Party																				Third-Party
		Student				Development				Third-Party												Student				Development				Third-Party
		Housing				Consulting				Management												Housing				Consulting				Management
		Leasing				Services				Services				Adjustments				Total				Leasing				Services				Services				Adjustments				Total
Intersegment revenues			—				—				1,783				(1,783	)			—				—				—				1,053				(1,053	)			—
Operating expense reimbursements			—				—				—				3,745				3,745				—				—				—				2,735				2,375
Total revenues			52,544				1,427				3,181				1,962				59,114				34,397				182				1,800				1,682				38,061
Operating Expenses:
Student housing leasing operations			18,737				—				—				—				18,737				13,736				—				—				—				13,736
Student housing food service operations			1,583				—				—				—				1,583				1,571				—				—				—				1,571
General and administrative			—				985				2,271				—				3,256				—				720				1,482				—				2,202
Intersegment expenses			1,783				—				—				(1,783	)			—				1,053				—				—				(1,053	)			—
Reimbursable operating expenses			—				—				—				3,745				3,745				—				—				—				2,735				2,735
Total operating expenses			22,103				985				2,271				1,962				27,321				16,360				720				1,482				1,682				20,244
Net operating income (loss)			30,441				442				910				—				31,793				18,037				(538	)			318				—				17,817
Nonoperating expenses(2)			32,172				—				—				—				32,172				23,673				—				—				—				23,673
Income (loss) before equity in earnings of unconsolidated entities, income taxes and minority interest			(1,731	)			442				910				—				(379	)			(5,636	)			(538	)			318				—				(5,856	)
Equity in earnings of unconsolidated entities			—				425				—				—				425				—				255				—				—				255
Income (loss) before taxes and minority interest(4)		$	(1,731	)		$	867			$	910			$	—			$	46			$	(5,636	)		$	(283	)		$	318			$	—			$	(5,601	)
Total segment assets (3)		$	836,094			$	1,665			$	8,660			$	—			$	846,419			$	639,159			$	2,360			$	5,714			$	—			$	647,233

		2006				2005
Net income (loss) before taxes and minority interest for reportable segments		$	46			$	(5,601	)
Unallocated corporate amounts:
Noncash compensation charge for PIU’s and restricted stock			(528	)			(4,375	)
Other corporate expenses			(2,795	)			(1,336	)
Net loss before income taxes and minority interest		$	(3,277	)		$	(11,312	)

     The following table represents segment information for the three months ended June 30, 2006 and 2005:

		Three Months Ended June 30, 2006																				Three Months Ended June 30, 2005
						Third-Party																				Third-Party
		Student				Development				Third-Party												Student				Development				Third-Party
		Housing				Consulting				Management												Housing				Consulting				Management
		Leasing				Services				Services				Adjustments				Total				Leasing				Services				Services				Adjustments				Total
Revenues:
Student housing leasing revenue		$	21,367			$	—			$	—			$	—			$	21,367			$	19,096			$	—			$	—			$	—			$	19,096
Student housing food service revenue			807				—				—				—				807				853				—				—				—				853
Other leasing revenue			3,434				—				—				—				3,434				—				—				—				—				—
Third-party development consulting services			—				872				—				—				872				—				173				—				—				173
Third-party management revenue			—				—				699				—				699				—				—				355				—				355
Intersegment revenues			—				—				865				(865	)			—				—				—				574				(574	)			—
Operating expense reimbursements			—				—				—				1,950				1,950				—				—				—				1,378				1,378
Total revenues			25,608				872				1,564				1,085				29,129				19,949				173				929				804				21,855
Operating Expenses:
Student housing leasing operations			9,448				—				—				—				9,448				8,308				—				—				—				8,308
Student housing food service operations			724				—				—				—				724				796				—				—				—				796
General and administrative			—				508				1,176				—				1,684				—				439				770				—				1,209
Intersegment expenses			865				—				—				(865	)			—				574				—				—				(574	)			—
Reimbursable operating expenses			—				—				—				1,950				1,950				—				—				—				1,378				1,378
Total operating expenses			11,037				508				1,176				1,085				13,806				9,678				439				770				804				11,691
Net operating income (loss)			14,571				364				388				—				15,323				10,271				(266	)			159				—				10,164

		Three Months Ended June 30, 2006																				Three Months Ended June 30, 2005
						Third-Party																				Third-Party
		Student				Development				Third-Party												Student				Development				Third-Party
		Housing				Consulting				Management												Housing				Consulting				Management
		Leasing				Services				Services				Adjustments				Total				Leasing				Services				Services				Adjustments				Total
Nonoperating expenses(1)			16,201				—				—				—				16,201				13,524				—				—				—				13,524
Income (loss) before equity in earnings of unconsolidated entities, income taxes and minority interest			(1,630	)			364				388				—				(878	)			(3,253	)			(266	)			159				—				(3,360	)
Equity in earnings of unconsolidated entities			—				142				—				—				142				—				157				—				—				157
Income (loss) before taxes and minority interest(2)		$	(1,630	)		$	506			$	388			$	—			$	(736	)		$	(3,253	)		$	(109	)		$	159			$	—			$	(3,203	)

		2006				2005
Net income (loss) before taxes and minority interest for reportable segments		$	(736	)		$	(3,203	)
Unallocated corporate amounts:
Noncash compensation charge for PIU’s and restricted stock			(208	)			(220	)
Other corporate expenses			(1,590	)			(1,077	)
Net loss before income taxes and minority interest		$	(2,534	)		$	(4,500	)