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ACC > SEC Filings for ACC > Form 10-Q on 9-May-2013All Recent SEC Filings

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Form 10-Q for AMERICAN CAMPUS COMMUNITIES INC


9-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on management's beliefs and assumptions made by, and information currently available to, management. When used, the words "anticipate," "believe," "expect," "intend," "may," "might," "plan," "estimate," "project," "should," "will," "result" and similar expressions, 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 March 31, 2013, our total owned property portfolio contained 160 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 and 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.


As of March 31, 2013, through ACC's taxable REIT subsidiary ("TRS") entities, we provided third-party management and leasing services for 30 properties, bringing our total owned and third-party managed portfolio to 190 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 March 31, 2013:

Property portfolio:                           Properties       Units         Beds
Wholly-owned operating properties:
 Off-campus properties (1)                            137       25,586        79,608
 On-campus ACE                                         10        2,666         8,492
Subtotal - operating properties                       147       28,252        88,100

Wholly-owned properties under development:
 Off-campus properties (2) (3)                          6        1,184         4,219
 On-campus ACE                                          3          557         2,013
Subtotal - properties under development                 9        1,741         6,232

Total wholly-owned properties                         156       29,993        94,332

On-campus participating properties                      4        1,863         4,519

Total owned property portfolio                        160       31,856        98,851

Managed properties                                     30        9,419        23,719

Total property portfolio                              190       41,275       122,570

(1) Includes four properties classified as held for sale as of March 31, 2013.

(2) Includes Townhomes at Newton Crossing, a 152-unit, 608-bed property we did not own as of March 31, 2013, but are obligated to purchase 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.

(3) Includes The Lodges of East Lansing Phase II, a 144-unit, 366-bed additional phase at an existing property we did not own as of March 31, 2013, but are obligated to purchase 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 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. At March 31, 2013, we were in the process of constructing six owned off-campus properties, three ACE on-campus properties and an additional phase at an existing off-campus property. These properties are summarized in the table below:

                                                                                                                                Scheduled
                                                           Primary                                 Estimated                     to Open
                                                          University                                Project       Total Costs      for
     Project         Project Type       Location            Served         Units       Beds          Cost          Incurred     Occupancy
Manzanita Hall       ACE            Tempe, AZ          Arizona                241         816     $    50,300     $    28,438    August
                                                       State University                                                           2013

The Callaway         Off-campus     Austin, TX         The University         219         753          61,600          41,276    August
House                                                  of Texas at                                                                2013
                                                       Austin

Chestnut Square      ACE            Philadelphia, PA   Drexel                 220         861          97,600          67,842   September
                                                       University                                                                 2013

U Club on            Off-campus     Tallahassee, FL    Florida                112         448          29,000          23,974    August
Woodward                                               State University                                                           2013

Townhomes at         Off-campus     Lubbock, TX        Texas                  112         448          29,200          24,364    August
Overton Park                                           Tech University                                                            2013

601 Copeland         Off-campus     Tallahassee, FL    Florida State           81         283          21,200           9,641    August
                                                       University                                                                 2013

University View      ACE            Prairie View,      Prairie View            96         336          15,600           7,930    August
(PVAMU Phase VII)                    TX                A&M University                                                             2013

Townhomes at         Off-campus     Lexington, KY      University of          152         608          38,750          23,111    August
Newtown Crossing                                       Kentucky                                                                   2013
(1)

The Lodges of        Off-campus     East Lansing, MI   Michigan State         144         366          32,300          15,316    August
East Lansing                                           University                                                                 2013
Phase II (2)
                                             SUBTOTAL - 2013 DELIVERIES     1,377       4,919     $   375,550     $   241,892

The Plaza on         Off-campus     Orlando, FL        University of                                                             August
University                                             Central Florida        364       1,313         112,300          37,028     2014
                                             SUBTOTAL - 2014 DELIVERIES       364       1,313     $   112,300     $    37,028
                                                   TOTAL - ALL PROJECTS     1,741       6,232     $   487,850     $   278,920

(1) We did not own this property as of March 31, 2013 but are obligated to purchase the property as long as the developer meets certain construction completion deadlines and other closing conditions.

(2) We did not own this additional phase at an existing property as of March 31, 2013 but are obligated to purchase the additional phase as long as the developer meets certain construction completion deadlines and other closing conditions.

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. As of March 31, 2013, we were under contract on a total of three third-party development projects that are currently in progress and whose fees range from $2.3 million to $3.2 million. As of March 31, 2013, fees of approximately $3.1 million remained to be earned by us with respect to these projects, which have scheduled completion dates of August 2013 through August 2014.


                             Results of Operations

Comparison of the Three Months Ended March 31, 2013 and March 31, 2012

The following table presents our results of operations for the three months
ended March 31, 2013 and 2012, including the amount and percentage change in
these results between the two periods.

                                              Three Months Ended March 31,
                                                2013                 2012           Change ($)       Change (%)
Revenues:
Wholly-owned properties                    $      154,756       $       94,819     $     59,937             63.2 %
On-campus participating properties                  8,102                7,967              135              1.7 %
Third-party development services                      479                2,094           (1,615 )          (77.1 %)
Third-party management services                     1,709                1,758              (49 )           (2.8 %)
Resident services                                     597                  343              254             74.1 %
Total revenues                                    165,643              106,981           58,662             54.8 %

Operating expenses:
Wholly-owned properties                            67,143               42,058           25,085             59.6 %
On-campus participating properties                  2,504                2,495                9              0.4 %
Third-party development and
management services                                 2,306                2,785             (479 )          (17.2 %)
General and administrative                          3,806                3,540              266              7.5 %
Depreciation and amortization                      46,143               23,399           22,744             97.2 %
Ground/facility leases                              1,203                  964              239             24.8 %
Total operating expenses                          123,105               75,241           47,864             63.6 %

Operating income                                   42,538               31,740           10,798             34.0 %

Nonoperating income and (expenses):
Interest income                                       427                  516              (89 )          (17.2 %)
Interest expense                                  (17,641 )            (12,845 )         (4,796 )           37.3 %
Amortization of deferred financing costs           (1,314 )               (986 )           (328 )           33.3 %
Income from unconsolidated joint
ventures                                                -                  444             (444 )         (100.0 %)
Other nonoperating expense                         (2,800 )               (122 )         (2,678 )        2,195.1 %
Total nonoperating expenses                       (21,328 )            (12,993 )         (8,335 )           64.1 %

Income before income taxes and
discontinued operations                            21,210               18,747            2,463             13.1 %
Income tax provision                                 (255 )               (156 )            (99 )           63.5 %
Income from continuing operations                  20,955               18,591            2,364             12.7 %
Income attributable to discontinued
operations                                          1,426                2,214             (788 )          (35.6 %)
Net income                                         22,381               20,805            1,576              7.6 %
Net income attributable to
noncontrolling interests                             (791 )               (779 )            (12 )            1.5 %
Net income attributable to common
shareholders                               $       21,590       $       20,026     $      1,564              7.8 %

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.

                            Same Store Properties (1)            New Properties (2)             Total - All Properties (1)
                               Three Months Ended                Three Months Ended                 Three Months Ended
                                    March 31,                         March 31,                         March 31,
                            2013                2012             2013           2012             2013                2012
Number of properties               96                  96              51             1                147                  97
Number of beds                 58,311              58,311          29,789           636             88,100              58,947

Revenues (3)            $      95,805       $      93,769     $    59,548     $   1,393     $      155,353       $      95,162
Operating expenses             41,199              40,991          25,944         1,067             67,143              42,058

(1) Excludes four properties classified as Held for Sale as of March 31, 2013 that are included in discontinued operations on the accompanying consolidated statements of comprehensive income.

(2) Does not include properties under construction as of March 31, 2013. Number of properties and number of beds also excludes properties undergoing redevelopment as of March 31, 2013, although the results of operations of those properties are included in revenues and operating expenses prior to commencement of redevelopment activities.

(3) 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 97.9% during the three months ended March 31, 2012 to 97.6% during the three months ended March 31, 2013. 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 2013 will increase slightly as compared with 2012 as a result of general inflation.

New Property Operations. Our new properties for the three months ended March 31, 2013 consist of the following: (i) University Heights- Knoxville, acquired from Fund II in January 2012, (ii) Avalon Heights, acquired in May 2012, (iii) University Commons, acquired in June 2012, (iv) The Block, acquired in August 2012, (v) The Retreat, acquired in September 2012, (vi) 11 owned development projects that opened for occupancy in August and September 2012 (vii) a 15-property student housing portfolio acquired in September 2012, (viii) a 19-property student housing portfolio acquired in November 2012, and (ix) University Edge, a property previously subject to a pre-sale agreement that we acquired in December 2012.

On-Campus Participating Properties ("OCPP") Operations

We had four participating properties containing 4,519 beds which were operating during the three months ended March 31, 2013 and 2012. Revenues from our participating properties increased $0.1 million to $8.1 million during the three months ended March 31, 2013 from $8.0 million for the three months ended March 31, 2012. This change was primarily a result of an increase in average rental rates for 2012/2013 academic year, offset by a decrease in average occupancy from 97.3% for the three months ended March 31, 2012 to 95.9% for the three months March 31, 2013.

At these properties, operating expenses remained constant at $2.5 million for both three month periods ended March 31, 2012 and 2013. We anticipate that operating expenses in 2013 will increase slightly as compared with 2012 as a result of general inflation.


Third-Party Development Services Revenue

Third-party development services revenue decreased by approximately $1.6 million, from $2.1 million during the three months ended March 31, 2012 to $0.5 million for the three months ended March 31, 2013. This decrease was primarily due to the closing of bond financing and commencement of construction for the College of Staten Island project during the three months ended March 31, 2012, resulting in $1.3 million of revenue recognized during that period. During the three months ended March 31, 2013, we had three projects in progress with an average contractual fee of approximately $2.7 million, as compared to the three months ended March 31, 2012 in which we had five projects in progress with an average contractual fee of approximately $2.3 million. We anticipate that third-party development services revenue in 2013 will decrease significantly as compared to 2012 as a result of fewer currently outstanding awarded projects in this business segment.

Development services revenues are dependent on our ability to successfully be awarded such projects, the amount of the contractual fee related to the project and the timing and completion of the development and construction of the project. In addition, to the extent projects are completed under budget, we may be entitled to a portion of such savings, which are recognized as revenue when performance has been agreed upon by all parties, or when performance has been verified by an independent third-party. It is possible that projects for which we have deferred pre-development costs will not close and that we will not be reimbursed for such costs. The pre-development costs associated therewith will ordinarily be charged against income for the then-current period.

Third-Party Development and Management Services Expenses

Third party development and management services expenses decreased by approximately $0.5 million, from $2.8 million during the three months ended March 31, 2012 to $2.3 million for the three months ended March 31, 2013. This decrease was primarily a result of the growth in our wholly-owned property portfolio, as well as a lower number of newly awarded contracts in this business segment during 2012 as compared to the prior year. We anticipate that third-party development and management services expenses will continue to decrease in 2013 for these same reasons.

General and Administrative

General and administrative expenses increased by approximately $0.3 million, from $3.5 million during the three months ended March 31, 2012 to $3.8 million for the three months ended March 31, 2013. This increase was primarily a result of additional salary and benefits expense, public company costs and other general inflationary factors during the three months ended March 31, 2013. We anticipate that general and administrative expenses will decrease in 2013 as compared to 2012, primarily due to acquisition costs incurred in 2012 that are not expected to be incurred in 2013.

Depreciation and Amortization

Depreciation and amortization increased by approximately $22.7 million, from $23.4 million during the three months ended March 31, 2012 to $46.1 million for the three months ended March 31, 2013. This increase was primarily a result of additional depreciation and amortization expense of approximately $18.7 million recorded during the three months ended March 31, 2013 related to properties acquired during 2012 and the completion of construction and opening of 11 owned development properties in August and September 2012, which contributed an additional $4.3 million of depreciation expense during the three months ended March 31, 2013. We expect depreciation and amortization expense to increase significantly in 2013 as a result of properties acquired during 2012, the completion of 11 owned development projects in August and September 2012 and the anticipated completion of eight owned development projects and an additional phase at an existing property in August and September 2013.

Ground/Facility Leases

Ground/facility leases expense increased by approximately $0.2 million, from $1.0 million during the three months ended March 31, 2012 to $1.2 million for the three months ended March 31, 2013. This increase was primarily due to the completion of construction and commencement of operations of six ACE development projects during 2012. We anticipate ground/facility leases expense to increase in 2013 as compared to 2012 due to the planned completion of construction on three ACE development projects in August and September 2013 and the timing of ACE development projects placed into service during 2012.


Interest Expense

Interest expense increased by approximately $4.8 million, from $12.8 million during the three months ended March 31, 2012 to $17.6 million for the three months ended March 31, 2013. We incurred additional interest expense of approximately $5.3 million during the three months ended March 31, 2013 related to loans assumed in connection with 2012 property acquisitions. We also experienced an increase in interest expense of approximately $0.4 million on our corporate-level debt related to increased borrowings under our revolving credit facility. Lastly, we incurred additional interest expense of approximately $0.3 million during the three months ended March 31, 2013 from construction loans used to partially finance the construction of two owned development projects which opened for occupancy in August 2012. These increases were offset by a . . .

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