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| ACC > SEC Filings for ACC > Form 10-Q on 8-Nov-2012 | All Recent SEC Filings |
8-Nov-2012
Quarterly Report
Forward-looking Statements
This report contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on management's beliefs and assumptions made by, and information currently available to, management. When used, the words "anticipate," "believe," "expect," "intend," "may," "might," "plan," "estimate," "project," "should," "will," "result" and similar expressions, do not relate solely to historical matters and are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that forward-looking statements are not guarantees of future performance and will be impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they were made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: general risks affecting the real estate industry; risks associated with changes in University admission or housing policies; risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; risks and uncertainties affecting property development and construction; risks associated with downturns in the national and local economies, volatility in capital and credit markets, increases in interest rates, and volatility in the securities markets; costs of compliance with the Americans with Disabilities Act and other similar laws; potential liability for uninsured losses and environmental contamination; risks associated with our Company's potential failure to qualify as a REIT under the Internal Revenue Code of 1986 (the "Code"), as amended, and possible adverse changes in tax and environmental laws; and the other factors discussed in the "Risk Factors" contained in Item 1A of this report.
Our Company and Our Business
Overview
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." 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 discussion applies to both the Company and the Operating Partnership.
Property Portfolio
As of September 30, 2012, our total owned property portfolio contained 142 properties, consisting of owned off-campus student housing properties that are in close proximity to colleges and universities, American Campus Equity ("ACEŽ") properties operated under ground/facility leases with university systems, on-campus participating properties operated under ground/facility leases with the related university systems, and one property containing a retail shopping center which we plan to develop into a mixed-use community including both student housing and retail. Of the 142 properties, seven were under development as of September 30, 2012. 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.
As of September 30, 2012, through ACC's taxable REIT subsidiary ("TRS") entities, we provided third-party management and leasing services for 28 properties, bringing our total owned and third-party managed portfolio to 170 properties. Third-party management and leasing services are typically provided pursuant to management contracts that have initial terms that range from one to five years. Below is a summary of our property portfolio as of September 30, 2012:
Property portfolio: Properties Units Beds
Wholly-owned operating properties:
Off-campus properties (1) (2) (3) 121 21,917 68,442
On-campus ACE 10 2,666 8,492
Subtotal - operating properties 131 24,583 76,934
Wholly-owned properties under development:
Off-campus properties (4) 5 676 2,540
On-campus ACE 2 461 1,677
Subtotal - properties under development 7 1,137 4,217
Total wholly-owned properties 138 25,720 81,151
On-campus participating properties 4 1,863 4,519
Total owned property portfolio 142 27,583 85,670
Managed properties 28 9,234 22,862
Total property portfolio 170 36,817 108,532
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(1) Includes two properties classified as Held for Sale as of September 30, 2012 that were sold in October 2012.
(2) Includes one property which contains a retail shopping center that we plan to redevelop into a mixed use community including both student housing and retail.
(3) Includes University Edge, a 201-unit, 608-bed property we did not own as of September 30, 2012 but were obligated to purchase once construction was complete and certain closing conditions were met. The property opened for operations in August 2012 and we expect to purchase the property in the fourth quarter 2012.
(4) Includes Townhomes at Newtown Crossing, a 152-unit, 608-bed property we did not own as of September 30, 2012 but are obligated to purchase as long as the developer meets certain construction completion deadlines. The development of the property is anticipated to be completed in August 2013.
Wholly-owned development activity
Our wholly-owned properties consist of owned off-campus properties that are in close proximity to colleges and universities and on-campus ACE properties operated under ground/facility leases with related university systems. Branded and marketed to colleges and universities as the ACE program, our equity investment and ownership of on-campus housing via traditional long-term ground leases provides us with what we believe is a lower-risk opportunity compared to other off-campus projects, as our ACE projects have premier on-campus locations with marketing and operational assistance from the universities. The subject university substantially benefits by increasing its housing capacity with modern, well-amenitized student housing with no or minimal impacts to its own credit ratios, preserving the university's credit capacity to fund academic and research facilities.
Recently Completed Projects: In August and September 2012, we completed the final stages of construction on five owned off-campus properties and six on-campus ACE properties. These properties are summarized in the table below:
Primary University Opened for
Project Project Type Location Served Units Beds Total Costs Incurred Occupancy
University ACE Portland, OR Portland State 282 978 $ 87,000 September
Pointe at University 2012
College
Station
Casas del Rio ACE Albuquerque, NM University of New 283 1,028 40,600 August 2012
Mexico
The Suites ACE Flagstaff, AZ Northern Arizona 275 550 27,500 August 2012
University
Hilltop ACE Flagstaff, AZ Northern Arizona 144 576 31,700 August 2012
Townhomes University
U Club on Frey Off-campus Kennesaw, GA Kennesaw State 114 456 22,200 August 2012
University
Campus Edge on Off-campus Arlington, TX Univ. of Texas at 128 488 24,900 August 2012
UTA Arlington
Boulevard
U Club Off-campus College Station, Texas A&M 160 640 34,100 August 2012
Townhomes on TX University
Marion Pugh
Villas on Off-campus Amherst, NY University at 153 610 44,800 August 2012
Rensch Buffalo
The Village at Off-campus Lubbock, TX Texas Tech 163 612 35,500 August 2012
Overton University
Park
Casa de Oro ACE Glendale, AZ Arizona State 109 365 12,300 August 2012
University
The Villas at ACE Tempe, AZ Arizona State 104 400 20,800 August 2012
Vista del University
Sol
1,915 6,703 $ 381,400
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Projects Under Construction: At September 30, 2012, we were in the process of constructing five owned off-campus properties and two on-campus ACE properties. These properties are summarized in the table below:
Scheduled to
Primary University Estimated Total Costs Open for
Project Project Type Location Served Units Beds Project Cost Incurred Occupancy
Manzanita Arizona State
Hall ACE Tempe, AZ University 241 816 $ 50,300 $ 11,396 August 2013
The Callaway The University of
House Off-campus Austin, TX Texas at Austin 219 753 60,100 16,802 August 2013
Chestnut
Square ACE Philadelphia, PA Drexel University 220 861 97,600 29,845 September 2013
U Club
Townhomes on Florida State
Woodward Off-campus Tallahassee, FL University 112 448 29,000 10,302 August 2013
Townhomes at Texas Tech
Overton Park Off-campus Lubbock, TX University 112 448 29,200 12,126 August 2013
Florida
601 Copeland Off-campus Tallahassee, FL State University 81 283 21,200 3,809 August 2013
Townhomes at
Newtown
Crossing (1) Off-campus Lexington, KY University of Kentucky 152 608 38,750 11,576 August 2013
1,137 4,217 $ 326,150 $ 95,856
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(1) We did not own this property as of September 30, 2012 but are obligated to purchase the property as long as the developer meets certain construction completion deadlines.
Acquisitions
As discussed in more detail in Note 3 in the Notes to Consolidated Financial Statements contained in Item 8 herein, during the nine months ended September 30, 2012, we acquired 20 properties containing 10,784 beds for a combined purchase price of $919.5 million.
Third-Party Development Services
Through ACC's TRS entities, we provide development and construction management services for student housing properties owned by colleges and universities, charitable foundations and others. We completed construction on four third-party development projects. These four projects had third-party development fees totaling $8.7 million of which approximately $2.9 million were earned during the nine months ended September 30, 2012. During the nine months ended September 30, 2012, we commenced construction on three third-party development projects. The first project will serve graduate students attending Princeton University and has total third-party development fees of $3.2 million, with $1.4 million earned during the nine months ended September 30, 2012. The second project is located in Ashland, Oregon, will serve students attending Southern Oregon University and has total third-party development fees of $2.3 million, with $1.4 million of those fees earned during the nine months ended September 30, 2012. The third project is located on the College of Staten Island campus in the City University of New York system and has total third-party development fees of $2.6 million, with $1.5 million of those fees earned during the nine months ended September 30, 2012. As of September 30, 2012, fees of approximately $3.8 million remained to be earned by us with respect to these three projects, which have scheduled completion dates of August 2013 through August 2014.
July 2012 Equity Offering
On July 16, 2012, ACC completed an equity offering, consisting of the sale of 17,250,000 shares of ACC's common stock at a price of $44.25 per share, including 2,250,000 shares issued as a result of the exercise of the underwriters' overallotment option in full at closing. The offering generated gross proceeds of approximately $763.3 million. The aggregate proceeds to ACC, net of the underwriting discount and expenses of the offering, were approximately $731.9 million.
ATM Equity Program
During the nine months ended September 30, 2012, ACC sold approximately 1.8 million shares at a weighted average price of $41.61 per share under its 2011 at-the-market share offering program (the "ATM Equity Program"). Net proceeds received under this program during the nine months ended September 30, 2012 totaled approximately $73.9 million, after payment of approximately $1.1 million of commissions paid to sales agents.
Results of Operations
Comparison of the Three Months Ended September 30, 2012 and September 30, 2011
The following table presents our results of operations for the three months
ended September 30, 2012 and 2011, including the amount and percentage change in
these results between the two periods.
Three Months Ended September 30,
2012 2011 Change ($) Change (%)
Revenues
Wholly-owned properties $ 110,112 $ 86,420 $ 23,692 27.4 %
On-campus participating properties 5,087 5,011 76 1.5 %
Third-party development services 1,467 1,568 (101 ) (6.4 %)
Third-party management services 1,687 1,794 (107 ) (6.0 %)
Resident services 454 407 47 11.5 %
Total revenues 118,807 95,200 23,607 24.8 %
Operating expenses
Wholly-owned properties 60,682 48,612 12,070 24.8 %
On-campus participating properties 3,010 2,870 140 4.9 %
Third-party development and
management services 2,602 2,488 114 4.6 %
General and administrative 7,582 2,880 4,702 163.3 %
Depreciation and amortization 28,336 21,701 6,635 30.6 %
Ground/facility leases 1,093 810 283 34.9 %
Total operating expenses 103,305 79,361 23,944 30.2 %
Operating income 15,502 15,839 (337 ) (2.1 %)
Nonoperating income and (expenses)
Interest income 429 167 262 156.9 %
Interest expense (13,812 ) (13,046 ) (766 ) 5.9 %
Amortization of deferred financing
costs (1,072 ) (1,223 ) 151 (12.3 %)
Loss from unconsolidated joint
ventures - (42 ) 42 (100.0 %)
Other nonoperating income 136 - 136 100.0 %
Total nonoperating expenses (14,319 ) (14,144 ) (175 ) 1.2 %
Income before income taxes and
discontinued operations 1,183 1,695 (512 ) (30.2 %)
Income tax provision (181 ) (88 ) (93 ) 105.7 %
Income from continuing operations 1,002 1,607 (605 ) (37.6 %)
Discontinued operations
Income attributable to discontinued
operations 20 185 (165 ) (89.2 %)
Total discontinued operations 20 185 (165 ) (89.2 %)
Net income 1,022 1,792 (770 ) (43.0 %)
Net income attributable to
noncontrolling interests
Redeemable noncontrolling interests (66 ) (67 ) 1 (1.5 %)
Partially owned properties (329 ) (84 ) (245 ) 291.7 %
Net income attributable to
noncontrolling interests (395 ) (151 ) (244 ) 161.6 %
Net income attributable to
common shareholders $ 627 $ 1,641 $ (1,014 ) (61.8 %)
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Same Store and New Property Operations
We define our same store property portfolio as wholly-owned properties that were owned and/or operating for both of the entire periods being compared, and which are not conducting or planning to conduct substantial development or redevelopment activities or are classified as Held for Sale in accordance with generally accepted accounting principles.
Same store revenues are defined as revenues generated from our same store portfolio and consist of rental revenue earned from student leases as well as other income items such as utility income, damages, parking income, summer conference rent, application and administration fees, income from retail tenants, and income earned by one of our taxable REIT subsidiaries ("TRS") from ancillary activities such as the provision of food services.
Same store operating expenses are defined as operating expenses generated from our same store portfolio and include usual and customary expenses incurred to operate a property such as payroll, maintenance, utilities, marketing, general and administrative costs, insurance, property taxes, and bad debt. Same store operating expenses also include an allocation of payroll and other administrative costs related to corporate management and oversight.
A reconciliation of our same store and new property operations to our consolidated statements of comprehensive income is set forth below:
Same Store Properties New Properties (1) Total - All Properties (1)
Three Months Ended Three Months Ended Three Months Ended
September 30, September 30, September 30,
2012 2011 2012 2011 2012 2011
Number of properties 88 88 41 7 129 95
Number of beds 52,632 52,632 23,850 3,752 76,482 56,384
Revenues (2) $ 86,309 $ 83,977 $ 24,257 $ 2,850 $ 110,566 $ 86,827
Operating expenses 47,087 46,349 13,595 2,263 60,682 48,612
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(1) Does not include properties currently under construction and scheduled to open for occupancy in 2013, with the exception of U Club Townhomes on Woodward, a property purchased in November 2011. The redevelopment of this property commenced in June 2012 and will include 448 beds upon its scheduled completion in August 2013.
(2) Includes revenues which are reflected as resident services revenue on the accompanying consolidated statements of comprehensive income.
Same Store Properties. The increase in revenue from our same store properties was primarily due to an increase in average rental rates for the 2012/2013 academic year, offset by a slight decrease in average occupancy from 96.3% during the three months ended September 30, 2011 to 95.3% during the three months ended September 30, 2012. Future revenues will be dependent on our ability to maintain our current leases in effect for the 2012/2013 academic year and our ability to obtain appropriate rental rates and desired occupancy for the 2013/2014 academic year at our various properties during our leasing period, which typically begins in January and ends in August.
The increase in operating expenses for our same store properties was primarily due to inflationary increases in payroll and maintenance costs offset by a decrease in property taxes. We anticipate that operating expenses for our same store property portfolio for the full year ended December 31, 2012 will increase slightly as compared with 2011 as a result of general inflation.
New Property Operations. Our new properties consist of the following: (i) Campus Trails, a property that experienced significant property damage in April 2010 as a result of a fire in which 72 beds were destroyed and reopened for occupancy in August 2011; (ii) four owned development projects that opened for occupancy in August 2011; (iii) University Shoppes - Orlando, acquired in July 2011; (iv) Eagles Trail, acquired in September 2011, (v) U Club Townhomes on Woodard (formally referred to as Studio Green), acquired in November 2011 and currently being redeveloped into a 448-bed townhome community scheduled to open for occupancy in August 2013; (vi) 26 West and The Varsity, both acquired in December 2011, (vii) University Heights- Knoxville, acquired from Fund II in January 2012, (viii) Avalon Heights, acquired in May 2012, (ix) University Commons, acquired in June 2012, (x) The Block, acquired in August 2012, (xi) The Retreat, acquired in September 2012, (xii) a 15-property student housing portfolio acquired in September 2012, and (xiii) 11 owned development projects that opened for occupancy in August and September 2012. These new properties contributed an additional $21.4 million of revenues and an additional $11.3 million of operating expenses during the three months ended September 30, 2012 as compared to the three months ended September 30, 2011.
On-Campus Participating Properties ("OCPP") Operations
We had four participating properties containing 4,519 beds which were operating during the three months ended September 30, 2012 and 2011. Revenues from our participating properties increased to $5.1 million during the three months ended September 30, 2012 from $5.0 million for the three months ended September 30, 2011, an increase of $0.1 million. This increase was primarily a result of an increase in average rental rates for the 2012/2013 academic year, offset by a slight decrease in average occupancy from 73.1% for the three months ended September 30, 2011 to 72.2% for the three months ended September 30, 2012. Occupancy at our on-campus participating properties is low during the summer months due to the expiration of the 9-month leases concurrent with the end of the spring semester. We anticipate that revenues from our on-campus participating properties for the full year 2012 will increase slightly as a result of an increase in average rental rates.
At these properties, operating expenses increased from $2.9 million for the three months ended September 30, 2011 to $3.0 million for the three months ended September 30, 2012, an increase of $0.1 million. We anticipate that operating expenses in 2012 will increase slightly as compared with 2011 as a result of general inflation.
Third-Party Development Services Revenue
Third-party development services revenue decreased by approximately $0.1 . . .
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