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ACC > SEC Filings for ACC > Form 10-Q on 8-Nov-2013All Recent SEC Filings

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Form 10-Q for AMERICAN CAMPUS COMMUNITIES INC


8-Nov-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 our Form 10-K for the year ended December 31, 2012.

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, 2013, our total owned property portfolio contained 165 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 165 properties, eight were under development as of September 30, 2013, and when completed will consist of a total of approximately 5,500 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 September 30, 2013, through ACC's taxable REIT subsidiary ("TRS") entities, we provided third-party management and leasing services for 35 properties, bringing our total owned and third-party managed portfolio to 200 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, 2013:

Property portfolio:                          Properties     Units      Beds
Wholly-owned operating properties:
Off-campus properties (1)                           139    25,695     79,096
On-campus ACE                                        14     3,483     11,521
Subtotal - operating properties                     153    29,178     90,617

Wholly-owned properties under development:
Off-campus properties (2)                             3       643      2,247
On-campus ACE                                         4       838      2,642
Subtotal - properties under development               7     1,481      4,889

Total wholly-owned properties                       160    30,659     95,506

On-campus participating properties
Operating properties                                  4     1,863      4,519
Properties under development                          1       224        567
Total on-campus participating properties              5     2,087      5,086

Total owned property portfolio                      165    32,746    100,592

Managed properties                                   35    10,494     25,903
Total property portfolio                            200    43,240    126,495

(1) Includes two properties classified as Held for Sale as of September 30, 2013.

(2) Includes University Walk, a 177-unit, 526-bed property we did not own as of September 30, 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 2014.

Wholly-owned Development Activity

Recently Completed Projects: In August and September 2013, the final stages of construction were completed on five owned off-campus properties, three on-campus ACE properties and an additional phase at an existing off-campus property. These properties are summarized in the table below:


                                                      Primary                                             Opened
                                                    University                         Total Project        for
   Project        Project Type       Location         Served       Units     Beds           Cost         Occupancy
Manzanita Hall        ACE        Tempe, AZ          Arizona         241       816     $       48,500      August
                                                    State                                                  2013
                                                    University
The Callaway      Off-campus     Austin, TX         The             219       753             62,500      August
House                                               University                                             2013
                                                    of Texas at
                                                    Austin
Chestnut              ACE        Philadelphia, PA   Drexel          220       861            100,700     September
Square                                              University                                             2013
U Club on         Off-campus     Tallahassee, FL    Florida         112       448             28,800      August
Woodward                                            State                                                  2013
                                                    University
Townhomes at      Off-campus     Lubbock, TX        Texas Tech      112       448             29,800      August
Overton Park                                        University                                             2013
601 Copeland      Off-campus     Tallahassee, FL    Florida          81       283             26,800      August
                                                    State                                                  2013
                                                    University
University            ACE        Prairie View, TX   Prairie          96       336             14,800      August
View (PVAMU                                         View A&M                                               2013
Phase VII)                                          University
Townhomes at      Off-campus     Lexington, KY      University      152       608             38,750      August
Newtown                                             of Kentucky                                            2013
Crossing (1)
The Lodges of     Off-Campus     East Lansing, MI   Michigan        144       366             32,300      August
East Lansing                                        State                                                  2013
Phase II (2)                                        University
                                                                  1,377     4,919     $      382,950

(1) This project was completed by a third-party developer and purchased by us in September 2013. Refer to Note 3 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for additional details.

(2) This project was completed by a third-party developer and purchased by us in July 2013. Refer to Note 3 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for additional details.

Projects Under Construction: At September 30, 2013, we were in the process of constructing four on-campus ACE properties, two owned off-campus properties and one on-campus participating property. In addition, a third-party developer was in the process of constructing an off-campus property located in Knoxville, Tennessee (University Walk) that we did not own as of September 30, 2013, but are obligated to purchase as long as the developer meets certain construction completion deadlines and other closing conditions. These properties are summarized in the table below:

                                                                                                                      Scheduled
                                                   Primary                                                             to Open
                                                 University                           Estimated        Total Costs       for
   Project        Project Type     Location        Served       Units     Beds       Project Cost       Incurred      Occupancy
The Plaza on      Off-campus     Orlando, FL     University      364     1,313     $      112,300     $    58,441       August
University                                       of Central                                                              2014
                                                 Florida
Stanworth             ACE        Princeton, NJ   Princeton       127       214             35,800          13,470     July 2014
Commons Phase                                    University
I
U Club on Frey    Off-campus     Kennesaw, GA    Kennesaw        102       408             25,300          10,075       August
Phase II                                         State                                                                   2014
                                                 University
U Centre at           ACE        College         Texas A&M       196       784             37,500           7,701       August
Northgate                        Station, TX     University                                                              2014
The Suites            ACE        Flagstaff, AZ   Northern        164       328             19,300             465       August
Phase II                                         Arizona                                                                 2014
                                                 University
University        Off-campus     Knoxville, TN   University      177       526             32,300           2,275       August
Walk                                             of                                                                      2014
                                                 Tennessee
West Virginia      On-campus     Morgantown,     West            224       567             44,200           7,173       August
University       participating   WV              Virgina                                                                 2014
Project (1)                                      University


SUBTOTAL - 2014 DELIVERIES 1,354 4,140 $ 306,700 $ 99,600

Lancaster ACE Philadelphia, Drexel 351 1,316 170,700 9,544 September Project PA University 2015
SUBTOTAL - 2015 DELIVERIES 351 1,316 $ 170,700 $ 9,544

TOTAL - ALL PROJECTS 1,705 5,456 $ 477,400 $ 109,144

(1) In July 2013, we entered into long-term ground and facility leases with the University to finance, construct and manage this on-campus participating property. Under the terms of the leases, title to the constructed facility will be held by the University/lessor and the University will receive 50% of defined net cash flows on an annual basis through the term of the leases.


Acquisitions

As discussed in more detail in Note 3 in the accompanying Notes to Consolidated Financial Statements contained in Item 1, during the nine months ended September 30, 2013, we acquired three properties and an additional phase at an existing property containing 1,642 beds for a combined purchase price of $108.0 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 two third-party development projects during the three months ended September 30, 2013. These two projects had third-party development fees totaling $4.9 million, of which approximately $1.2 million were earned during the nine months ended September 30, 2013. As of September 30, 2013, we were under contract on one third-party development project that is currently in progress with a fee of $3.2 million. As of September 30, 2013, fees of approximately $1.4 million remained to be earned by us with respect to this project, which has a scheduled completion date of August 2014.


Results of Operations

Comparison of the Three Months Ended September 30, 2013 and September 30, 2012

The following table presents our results of operations for the three months
ended September 30, 2013 and 2012, including the amount and percentage change in
these results between the two periods.

                                  Three Months Ended September 30,
                                      2013                 2012            Change ($)        Change (%)
Revenues
Wholly-owned properties        $       150,668       $       104,062     $      46,606            44.8  %
On-campus participating
properties                               5,066                 5,087               (21 )          (0.4 )%
Third-party development
services                                   622                 1,467              (845 )         (57.6 )%
Third-party management
services                                 1,792                 1,687               105             6.2  %
Resident services                          883                   454               429            94.5  %
Total revenues                         159,031               112,757            46,274            41.0  %

Operating expenses
Wholly-owned properties                 87,189                57,941            29,248            50.5  %
On-campus participating
properties                               3,021                 3,010                11             0.4  %
 Third-party development and
management services                      3,058                 2,602               456            17.5  %
General and administrative               3,934                 7,582            (3,648 )         (48.1 )%
Depreciation and
amortization                            45,248                27,165            18,083            66.6  %
Ground/facility leases                   1,386                 1,093               293            26.8  %
Total operating expenses               143,836                99,393            44,443            44.7  %

Operating income                        15,195                13,364             1,831            13.7  %

Nonoperating income and
(expenses)
Interest income                            792                   428               364            85.0  %
Interest expense                       (19,819 )             (13,530 )          (6,289 )          46.5  %
Amortization of deferred
financing costs                         (1,413 )              (1,060 )            (353 )          33.3  %
Other nonoperating income                  134                   136                (2 )          (1.5 )%
Total nonoperating expenses            (20,306 )             (14,026 )          (6,280 )          44.8  %
Loss before income taxes and
discontinued operations                 (5,111 )                (662 )          (4,449 )         672.1  %
Income tax provision                      (255 )                (181 )             (74 )          40.9  %
Loss from continuing
operations                              (5,366 )                (843 )          (4,523 )         536.5  %

Discontinued operations
Income attributable to
discontinued operations                    367                 1,865            (1,498 )         (80.3 )%
Gain from disposition of
real estate                             52,831                     -            52,831           100.0  %
Total discontinued
operations                              53,198                 1,865            51,333         2,752.4  %

Net income                              47,832                 1,022            46,810         4,580.2  %
Net income attributable to
noncontrolling interests
Redeemable noncontrolling
interests                                 (573 )                 (66 )            (507 )         768.2  %
Partially owned properties                 (83 )                (329 )             246           (74.8 )%
Net income attributable to
noncontrolling interests                  (656 )                (395 )            (261 )          66.1  %
Net income attributable to
common shareholders            $        47,176       $           627     $      46,549         7,424.1  %


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 (1)             New Properties (2)            Total - All Properties (1)
                                                           Three Months Ended September
                       Three Months Ended September 30,                30,                 Three Months Ended September 30,
                             2013              2012            2013             2012             2013              2012
Number of properties                93             93                58             28                 151            121
Number of beds                  56,102         56,102            33,506         15,628              89,608         71,730

Revenues (3)           $        94,699     $   93,007     $      56,852     $   11,509     $       151,551     $  104,516
Operating expenses              53,809         52,407            33,380          5,534              87,189         57,941

(1) Excludes two properties classified as Held for Sale as of September 30, 2013 that are included in discontinued operations on the accompanying consolidated statements of comprehensive income.

(2) Does not include properties under construction as of September 30, 2013. Number of properties and number of beds also excludes properties undergoing redevelopment as of September 30, 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 due to an increase in average rental rates for the 2013/2014 academic year, offset by a slight decrease in average occupancy from 95.4% during the three months ended September 30, 2012 to 95.3% during the three months ended September 30, 2013. Future revenues will be dependent on our ability to maintain our current leases in effect for the 2013/2014 academic year and our ability to obtain appropriate rental rates and desired occupancy for the 2014/2015 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 an increase in marketing costs incurred to stimulate leasing velocity for the 2013/2014 academic year. We anticipate that operating expenses for our same store property portfolio for the full year ended December 31, 2013 will increase as compared with the full year ended December 31, 2012 primarily for the reason discussed above.

New Property Operations. Our new properties for the three months ended September 30, 2013 consist of the following: (i) The Block, acquired in August 2012, (ii) The Retreat, acquired in September 2012, (iii) 11 owned development projects that opened for occupancy in August and September 2012 (iv) a 15-property student housing portfolio acquired in September 2012, (v) a 19-property student housing portfolio acquired in November 2012, (vi) University Edge, a property previously subject to a pre-sale agreement that we acquired in December 2012,
(vii) 7th Street Station, acquired in July 2013, (viii) The Lodges of East Lansing


Phase II, an additional phase at an existing property previously subject to a pre-sale agreement that we acquired in July 2013, (ix) The Plaza Apartments, acquired in August 2013, (x) Townhomes at Newtown Crossing, a property previously subject to a pre-sale agreement that we acquired in September 2013, and (xi) seven owned development projects that opened for occupancy in August and September 2013.

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, 2013 and 2012 (one on-campus participating property was under construction as of September 30, 2013). Revenues from our participating properties remained constant at $5.1 million for both three month periods ended September 30, 2013 and 2012. This occurred as a result of an increase in average rental rates for 2013/2014 academic year, offset by a decrease in average occupancy from 72.2% for the three months ended September 30, 2012 to 69.9% for the three months ended September 30, 2013. 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.

At these properties, operating expenses remained constant at $3.0 million for both three month periods ended September 30, 2013 and 2012. We anticipate that operating expenses for the full year ended December 31, 2013 will increase slightly as compared with the full year ended December 31, 2012 as a result of general inflation.

Third-Party Development Services Revenue

Third-party development services revenue decreased by approximately $0.8 million, from $1.5 million during the three months ended September 30, 2012 to $0.6 million for the three months ended September 30, 2013. During the three months ended September 30, 2013, we had three projects in progress with an average contractual fee of approximately $2.7 million, as compared to the three months ended September 30, 2012 in which we had seven projects in progress with an average contractual fee of approximately $2.4 million. We anticipate that third-party development services revenue for the full year ended December 31, 2013 will decrease significantly as compared to the full year ended December 31, 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 . . .

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