ACC 2014.09.30 10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 30, 2014.   
 
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From ______________________ to _________________________
  
Commission file number 001-32265 (American Campus Communities, Inc.)
Commission file number 333-181102-01 (American Campus Communities Operating Partnership, L.P.)
 
AMERICAN CAMPUS COMMUNITIES, INC.
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
 
 Maryland (American Campus Communities, Inc.)
Maryland (American Campus Communities Operating
Partnership, L.P.)
 
 76-0753089 (American Campus Communities, Inc.)
56-2473181 (American Campus Communities Operating
Partnership, L.P.)
 (State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer Identification No.)
 
12700 Hill Country Blvd., Suite T-200
Austin, TX
(Address of Principal Executive Offices)
 
 
78738
(Zip Code)
 
(512) 732-1000
Registrant’s telephone number, including area code
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
American Campus Communities, Inc.
Yes x  No o
American Campus Communities Operating Partnership, L.P.
Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
American Campus Communities, Inc.
Yes x  No o
American Campus Communities Operating Partnership, L.P.
Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
American Campus Communities, Inc.                                                                                                                                    
Large accelerated filer x  
Accelerated Filer o



Non-accelerated filer   o     (Do not check if a smaller reporting company) 
Smaller reporting company o

American Campus Communities Operating Partnership, L.P.
Large accelerated filer o
Accelerated Filer o
Non-accelerated filer   x     (Do not check if a smaller reporting company) 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
American Campus Communities, Inc.
Yes o  No x
American Campus Communities Operating Partnership, L.P
Yes o  No x
                                                                                           
There were 105,118,236 shares of the American Campus Communities, Inc.’s common stock with a par value of $0.01 per share outstanding as of the close of business on November 3, 2014.
 



EXPLANATORY NOTE
 
This report combines the reports on Form 10-Q for the quarterly period ended September 30, 2014 of American Campus Communities, Inc. and American Campus Communities Operating Partnership, L.P.  Unless stated otherwise or the context otherwise requires, references to “ACC” mean American Campus Communities, Inc., a Maryland real estate investment trust (“REIT”), and references to “ACCOP” mean American Campus Communities Operating Partnership, L.P., a Maryland limited partnership.  References to the “Company,” “we,” “us” or “our” mean collectively ACC, ACCOP and those entities/subsidiaries owned or controlled by ACC and/or ACCOP.  References to the “Operating Partnership” mean collectively ACCOP and those entities/subsidiaries owned or controlled by ACCOP. The following chart illustrates the Company’s and the Operating Partnership’s corporate structure:
 

The general partner of ACCOP is American Campus Communities Holdings, LLC (“ACC Holdings”), an entity that is wholly-owned by ACC. As of September 30, 2014, ACC Holdings held an ownership interest in ACCOP of less than 1%. The limited partners of ACCOP are ACC and other limited partners consisting of current and former members of management and nonaffiliated third parties.  As of September 30, 2014, ACC owned an approximate 98.8% limited partnership interest in ACCOP.  As the sole member of the general partner of ACCOP, ACC has exclusive control of ACCOP’s day-to-day management.  Management operates the Company and the Operating Partnership as one business. The management of ACC consists of the same members as the management of ACCOP. The Company is structured as an umbrella partnership REIT (“UPREIT”) and ACC contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, ACC receives a number of units of the Operating Partnership (“OP Units,” see definition below) equal to the number of common shares it has issued in the equity offering. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units in the Operating Partnership. Based on the terms of ACCOP’s partnership agreement, OP Units can be exchanged for ACC’s common shares on a one-for-one basis. The Company maintains a one-for-one relationship between the OP Units of the Operating Partnership issued to ACC and ACC Holdings and the common shares issued to the public. The Company believes that combining the reports on Form 10-Q of ACC and ACCOP into this single report provides the following benefits:
 
(1)
enhances investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
(2)
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
(3)
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.




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



FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2014
 TABLE OF CONTENTS
 
 
PAGE NO.
 
 
PART I.
 
 
 
 
Item 1.
Consolidated Financial Statements of American Campus Communities, Inc. and Subsidiaries:
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013
 
 
 
 
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013 (all unaudited)
 
 
 
 
Consolidated Statement of Changes in Equity for the nine months ended September 30, 2014 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (all unaudited)
 
 
 
 
Consolidated Financial Statements of American Campus Communities Operating Partnership, L.P. and Subsidiaries:
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013
 
 
 
 
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013 (all unaudited)
 
 
 
 
Consolidated Statement of Changes in Capital for the nine months ended September 30, 2014 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (all unaudited)
 
 
 
 
Notes to Consolidated Financial Statements of American Campus Communities, Inc. and Subsidiaries and American Campus Communities Operating Partnership, L.P. and Subsidiaries (unaudited)
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
PART II.
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
SIGNATURES
 


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)



 
 
September 30, 2014
 
December 31, 2013
 
 
(Unaudited)
 
 
Assets
 
 
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
Wholly-owned properties, net
 
$
5,356,617

 
$
5,199,008

Wholly-owned property held for sale
 

 
14,408

On-campus participating properties, net
 
95,393

 
73,456

Investments in real estate, net
 
5,452,010

 
5,286,872

 
 
 
 
 
Cash and cash equivalents
 
19,412

 
38,751

Restricted cash
 
31,338

 
35,451

Student contracts receivable, net
 
14,660

 
9,238

Other assets
 
236,441

 
227,728

 
 
 
 
 
Total assets
 
$
5,753,861

 
$
5,598,040

 
 
 
 
 
Liabilities and equity
 
 

 
 

 
 
 
 
 
Liabilities:
 
 

 
 

Secured mortgage, construction and bond debt
 
$
1,387,581

 
$
1,507,216

Secured agency facility
 

 
87,750

Unsecured notes
 
798,264

 
398,721

Unsecured term loans
 
600,000

 
600,000

Unsecured revolving credit facility
 
138,500

 
150,700

Accounts payable and accrued expenses
 
73,596

 
65,088

Other liabilities
 
155,386

 
110,036

Total liabilities
 
3,153,327

 
2,919,511

 
 
 
 
 
Commitments and contingencies (Note 14)
 


 


 
 
 
 
 
Redeemable noncontrolling interests
 
50,937

 
47,964

 
 
 
 
 
Equity:
 
 

 
 

American Campus Communities, Inc. stockholders’ equity:
 
 

 
 

Common stock, $.01 par value, 800,000,000 shares authorized, 105,086,236 and 104,782,817 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
 
1,044

 
1,043

Additional paid in capital
 
3,022,686

 
3,017,631

Accumulated earnings and dividends
 
(474,659
)
 
(392,338
)
Accumulated other comprehensive loss
 
(5,114
)
 
(1,435
)
Total American Campus Communities, Inc. stockholders’ equity
 
2,543,957

 
2,624,901

Noncontrolling interests - partially owned properties
 
5,640

 
5,664

Total equity
 
2,549,597

 
2,630,565

 
 
 
 
 
Total liabilities and equity
 
$
5,753,861

 
$
5,598,040

 


See accompanying notes to consolidated financial statements.

1

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands, except share and per share data)


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014

2013
Revenues
 
 
 
 
 
 
 
 
Wholly-owned properties
 
$
171,816

 
$
150,031

 
$
506,822

 
$
447,904

On-campus participating properties
 
5,786

 
5,066

 
18,709

 
17,871

Third-party development services
 
1,856

 
622

 
3,624

 
1,656

Third-party management services
 
1,769

 
1,792

 
5,751

 
5,425

Resident services
 
709

 
883

 
2,190

 
1,912

Total revenues
 
181,936

 
158,394

 
537,096

 
474,768

 
 
 
 
 
 
 
 
 
Operating expenses
 
 

 
 

 
 

 
 

Wholly-owned properties
 
98,232

 
86,838

 
250,074

 
221,817

On-campus participating properties
 
3,003

 
3,021

 
8,265

 
8,454

Third-party development and management services
 
2,881

 
3,058

 
8,387

 
7,786

General and administrative
 
4,807

 
3,934

 
14,159

 
12,366

Depreciation and amortization
 
49,576

 
45,056

 
146,201

 
137,811

Ground/facility leases
 
2,206

 
1,386

 
5,351

 
3,749

Provision for real estate impairment
 
2,377

 

 
2,377

 

Total operating expenses
 
163,082

 
143,293

 
434,814

 
391,983

 
 
 
 
 
 
 
 
 
Operating income
 
18,854

 
15,101

 
102,282

 
82,785

 
 
 
 
 
 
 
 
 
Nonoperating income and (expenses)
 
 

 
 

 
 

 
 

Interest income
 
1,055

 
792

 
3,123

 
2,165

Interest expense
 
(23,794
)
 
(19,584
)
 
(65,873
)
 
(56,364
)
Amortization of deferred financing costs
 
(1,543
)
 
(1,410
)
 
(4,503
)
 
(4,134
)
Loss from disposition of real estate
 
(67
)
 

 
(67
)
 

Other nonoperating income (expense)
 

 
134

 

 
(2,666
)
Total nonoperating expenses
 
(24,349
)
 
(20,068
)
 
(67,320
)
 
(60,999
)
 
 
 
 
 
 
 
 
 
(Loss) income before income taxes and discontinued operations
 
(5,495
)
 
(4,967
)
 
34,962

 
21,786

Income tax provision
 
(290
)
 
(255
)
 
(869
)
 
(765
)
(Loss) income from continuing operations
 
(5,785
)
 
(5,222
)
 
34,093

 
21,021

Discontinued operations:
 
 
 
 
 
 
 
 
Income (loss) attributable to discontinued operations
 

 
223

 
(123
)
 
5,027

Gain from disposition of real estate
 

 
52,831

 
2,843

 
52,831

Total discontinued operations
 

 
53,054

 
2,720

 
57,858

Net (loss) income
 
(5,785
)
 
47,832

 
36,813

 
78,879

Net income attributable to noncontrolling interests
 
 

 
 

 
 

 
 

Redeemable noncontrolling interests
 
19

 
(573
)
 
(567
)
 
(986
)
Partially owned properties
 
(81
)
 
(83
)
 
(257
)
 
(1,078
)
Net income attributable to noncontrolling interests
 
(62
)
 
(656
)
 
(824
)
 
(2,064
)
Net (loss) income attributable to common shareholders
 
$
(5,847
)
 
$
47,176

 
$
35,989

 
$
76,815

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
 

 
 

 
 

 
 

Change in fair value of interest rate swaps
 
2,073

 
(1,163
)
 
(3,797
)
 
4,451

Comprehensive (loss) income
 
$
(3,774
)
 
$
46,013

 
$
32,192

 
$
81,266

 
 
 
 
 
 
 
 
 
(Loss) income per share attributable to common shareholders - basic
 
 

 
 

 
 

 
 

(Loss) income from continuing operations per share
 
$
(0.06
)
 
$
(0.05
)
 
$
0.31

 
$
0.18

Net (loss) income per share
 
$
(0.06
)
 
$
0.45

 
$
0.34

 
$
0.73

 
 
 
 
 
 
 
 
 
(Loss) income per share attributable to common shareholders - diluted
 
 

 
 

 
 

 
 

(Loss) income from continuing operations per share
 
$
(0.06
)
 
$
(0.05
)
 
$
0.31

 
$
0.18

Net (loss) income per share
 
$
(0.06
)
 
$
0.45

 
$
0.33

 
$
0.72

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding
 
 

 
 

 
 

 
 

Basic
 
104,968,616

 
104,781,431

 
104,903,344

 
104,752,982

Diluted
 
104,968,616

 
104,781,431

 
105,605,755

 
105,381,053

 

See accompanying notes to consolidated financial statements.

2

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited, in thousands, except share data)



 
 
Common
Shares
 
Par Value of
Common
Shares
 
Additional Paid
in Capital
 
Accumulated
Earnings and
Dividends
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interests –
Partially Owned
Properties
 
Total
Equity, December 31, 2013
 
104,782,817

 
$
1,043

 
$
3,017,631

 
$
(392,338
)
 
$
(1,435
)
 
$
5,664

 
$
2,630,565

Adjustments to reflect redeemable noncontrolling interests at fair value
 

 

 
(4,136
)
 

 

 

 
(4,136
)
Amortization of restricted stock awards
 

 

 
5,165

 

 

 

 
5,165

Vesting of restricted stock awards and restricted stock units
 
133,910

 

 
(2,072
)
 

 

 

 
(2,072
)
Distributions to common and restricted stockholders
 

 

 

 
(118,310
)
 

 

 
(118,310
)
Distributions to noncontrolling interests - partially owned properties
 

 

 

 

 

 
(281
)
 
(281
)
Conversion of operating partnership units to common stock
 
20,269

 

 
222

 

 

 

 
222

ATM Equity Program (net of offering costs)
 
149,240

 
1

 
5,876

 

 

 

 
5,877

Change in fair value of interest rate swaps
 

 

 

 

 
(3,797
)
 

 
(3,797
)
Amortization of interest rate swap terminations
 

 

 

 

 
118

 

 
118

Net income
 

 

 

 
35,989

 

 
257

 
36,246

Equity, September 30, 2014
 
105,086,236


$
1,044


$
3,022,686


$
(474,659
)

$
(5,114
)

$
5,640


$
2,549,597

 


See accompanying notes to consolidated financial statements.

3

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) 


 
 
Nine Months Ended September 30,
 
 
2014
 
2013
Operating activities
 
 
 
 
Net income
 
$
36,813

 
$
78,879

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Gains and losses from disposition of real estate, net
 
(2,776
)
 
(52,831
)
Impairment of real estate
 
2,377

 

Depreciation and amortization
 
146,248

 
140,059

Amortization of deferred financing costs and debt premiums/discounts
 
(5,067
)
 
(6,397
)
Share-based compensation
 
5,513

 
5,008

Income tax provision
 
869

 
765

Amortization of interest rate swap terminations
 
118

 

Changes in operating assets and liabilities:
 
 

 
 

Restricted cash
 
(4
)
 
1,468

Student contracts receivable, net
 
(5,474
)
 
(3,333
)
Other assets
 
(11,255
)
 
(16,315
)
Accounts payable and accrued expenses
 
4,621

 
3,577

Other liabilities
 
29,063

 
25,919

Net cash provided by operating activities
 
201,046

 
176,799

 
 
 
 
 
Investing activities
 
 

 
 

Proceeds from disposition of properties
 
7,312

 
155,234

Proceeds from disposition of land
 
1,681

 

Cash paid for property acquisitions
 
(9,120
)
 
(92,508
)
Cash paid for land acquisitions
 
(3,513
)
 
(9,920
)
Capital expenditures for wholly-owned properties
 
(63,182
)
 
(52,587
)
Investments in wholly-owned properties under development
 
(194,961
)
 
(219,036
)
Capital expenditures for on-campus participating properties
 
(1,727
)
 
(1,323
)
Investment in on-campus participating property under development
 
(25,007
)
 
(7,045
)
Investment in loans receivable
 

 
(52,038
)
Investment in mezzanine loans
 

 
(8,750
)
Proceeds from loans receivable
 
2,984

 

Decrease (increase) in escrow deposits for investment transactions
 
1,157

 
(2,500
)
Change in restricted cash related to capital reserves
 
2,183

 
(1,156
)
Proceeds from insurance settlement
 

 
636

Purchase of corporate furniture, fixtures and equipment
 
(3,278
)
 
(1,997
)
Net cash used in investing activities
 
(285,471
)
 
(292,990
)
 
 
 
 
 
Financing activities
 
 

 
 

Proceeds from unsecured notes
 
399,444

 
398,636

Proceeds from sale of common stock
 
5,984

 

Offering costs
 
(107
)
 

Pay-off of mortgage loans
 
(125,191
)
 
(61,891
)
Proceeds from revolving credit facilities
 
426,900

 
364,855

Pay downs of revolving credit facilities
 
(526,850
)
 
(456,200
)
Proceeds from construction loan
 
26,261

 
3,917

Scheduled principal payments on debt
 
(12,118
)
 
(11,353
)
Debt issuance and assumption costs
 
(5,019
)
 
(4,239
)
Termination of forward starting interest rate swaps
 
(4,122
)
 

Distributions to common and restricted stockholders
 
(118,310
)
 
(111,525
)
Distributions to noncontrolling partners
 
(1,786
)
 
(2,196
)
Net cash provided by financing activities
 
65,086

 
120,004

 
 
 
 
 
Net change in cash and cash equivalents
 
(19,339
)
 
3,813

Cash and cash equivalents at beginning of period
 
38,751

 
21,454

Cash and cash equivalents at end of period
 
$
19,412

 
$
25,267

 
 
 
 
 

See accompanying notes to consolidated financial statements.

4

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) 


 
 
Nine Months Ended September 30,
 
 
2014
 
2013
Supplemental disclosure of non-cash investing and financing activities
 
 

 
 

Issuance of common units in connection with property acquisitions
 
$

 
$
(3,451
)
Change in fair value of derivative instruments, net
 
$
325

 
$
4,451

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Interest paid
 
$
76,764

 
$
70,226

 

See accompanying notes to consolidated financial statements.

5

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)



 
 
September 30, 2014
 
December 31, 2013
 
 
(Unaudited)
 
 
Assets
 
 
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
Wholly-owned properties, net
 
$
5,356,617

 
$
5,199,008

Wholly-owned property held for sale
 

 
14,408

On-campus participating properties, net
 
95,393

 
73,456

Investments in real estate, net
 
5,452,010

 
5,286,872

 
 
 
 
 
Cash and cash equivalents
 
19,412

 
38,751

Restricted cash
 
31,338

 
35,451

Student contracts receivable, net
 
14,660

 
9,238

Other assets
 
236,441

 
227,728

 
 
 
 
 
Total assets
 
$
5,753,861

 
$
5,598,040

 
 
 
 
 
Liabilities and capital
 
 

 
 

 
 
 
 
 
Liabilities:
 
 

 
 

Secured mortgage, construction and bond debt
 
$
1,387,581

 
$
1,507,216

Secured agency facility
 

 
87,750

Unsecured notes
 
798,264

 
398,721

Unsecured term loans
 
600,000

 
600,000

Unsecured revolving credit facility
 
138,500

 
150,700

Accounts payable and accrued expenses
 
73,596

 
65,088

Other liabilities
 
155,386

 
110,036

Total liabilities
 
3,153,327

 
2,919,511

 
 
 
 
 
Commitments and contingencies (Note 14)
 


 


 
 
 
 
 
Redeemable limited partners
 
50,937

 
47,964

 
 
 
 
 
Capital:
 
 

 
 

Partners’ capital:
 
 

 
 

General partner – 12,222 OP units outstanding at both September 30, 2014 and December 31, 2013
 
101

 
111

Limited partner – 105,074,014 and 104,770,595 OP units outstanding at September 30, 2014 and December 31, 2013, respectively
 
2,548,970

 
2,626,225

Accumulated other comprehensive loss
 
(5,114
)
 
(1,435
)
Total partners’ capital
 
2,543,957

 
2,624,901

Noncontrolling interests - partially owned properties
 
5,640

 
5,664

Total capital
 
2,549,597

 
2,630,565

 
 
 
 
 
Total liabilities and capital
 
$
5,753,861

 
$
5,598,040

 


See accompanying notes to consolidated financial statements.

6

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands, except unit and per unit data)


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Revenues
 
 
 
 
 
 
 
 
Wholly-owned properties
 
$
171,816

 
$
150,031

 
$
506,822

 
$
447,904

On-campus participating properties
 
5,786

 
5,066

 
18,709

 
17,871

Third-party development services
 
1,856

 
622

 
3,624

 
1,656

Third-party management services
 
1,769

 
1,792

 
5,751

 
5,425

Resident services
 
709

 
883

 
2,190

 
1,912

Total revenues
 
181,936

 
158,394

 
537,096

 
474,768

 
 
 
 
 
 
 
 
 
Operating expenses
 
 

 
 

 
 

 
 

Wholly-owned properties
 
98,232

 
86,838

 
250,074

 
221,817

On-campus participating properties
 
3,003

 
3,021

 
8,265

 
8,454

Third-party development and management services
 
2,881

 
3,058

 
8,387

 
7,786

General and administrative
 
4,807

 
3,934

 
14,159

 
12,366

Depreciation and amortization
 
49,576

 
45,056

 
146,201

 
137,811

Ground/facility leases
 
2,206

 
1,386

 
5,351

 
3,749

Provision for real estate impairment
 
2,377

 

 
2,377

 

Total operating expenses
 
163,082

 
143,293

 
434,814

 
391,983

 
 
 
 
 
 
 
 
 
Operating income
 
18,854

 
15,101

 
102,282

 
82,785

 
 
 
 
 
 
 
 
 
Nonoperating income and (expenses)
 
 

 
 

 
 

 
 

Interest income
 
1,055

 
792

 
3,123

 
2,165

Interest expense
 
(23,794
)
 
(19,584
)
 
(65,873
)
 
(56,364
)
Amortization of deferred financing costs
 
(1,543
)
 
(1,410
)
 
(4,503
)
 
(4,134
)
Loss from disposition of real estate
 
(67
)
 

 
(67
)
 

Other nonoperating income (expense)
 

 
134

 

 
(2,666
)
Total nonoperating expenses
 
(24,349
)
 
(20,068
)
 
(67,320
)
 
(60,999
)
(Loss) income before income taxes and discontinued operations
 
(5,495
)
 
(4,967
)
 
34,962

 
21,786

Income tax provision
 
(290
)
 
(255
)
 
(869
)
 
(765
)
(Loss) income from continuing operations
 
(5,785
)
 
(5,222
)
 
34,093

 
21,021

Discontinued operations:
 
 
 
 
 
 
 
 
Income (loss) attributable to discontinued operations
 

 
223

 
(123
)
 
5,027

Gain from disposition of real estate
 

 
52,831

 
2,843

 
52,831

Total discontinued operations
 

 
53,054

 
2,720

 
57,858

Net (loss) income
 
(5,785
)
 
47,832

 
36,813

 
78,879

Net income attributable to noncontrolling interests – partially owned properties
 
(81
)
 
(83
)
 
(257
)
 
(1,078
)
Net (loss) income attributable to American Campus Communities Operating Partnership, L.P.
 
(5,866
)
 
47,749

 
36,556

 
77,801

Series A preferred unit distributions
 
(44
)
 
(46
)
 
(134
)
 
(137
)
Net (loss) income available to common unitholders
 
$
(5,910
)
 
$
47,703

 
$
36,422

 
$
77,664

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
 

 
 

 
 

 
 

Change in fair value of interest rate swaps
 
2,073

 
(1,163
)
 
(3,797
)
 
4,451

Comprehensive (loss) income
 
$
(3,837
)
 
$
46,540

 
$
32,625

 
$
82,115

 
 
 
 
 
 
 
 
 
(Loss) income per unit attributable to common unitholders – basic
 
 

 
 

 
 

 
 

(Loss) income from continuing operations per unit
 
$
(0.06
)
 
$
(0.05
)
 
$
0.31

 
$
0.18

Net (loss) income per unit
 
$
(0.06
)
 
$
0.45

 
$
0.34

 
$
0.73

 
 
 
 
 
 
 
 
 
(Loss) income per unit attributable to common unitholders – diluted
 
 

 
 

 
 

 
 

(Loss) income from continuing operations per unit
 
$
(0.06
)
 
$
(0.05
)
 
$
0.31

 
$
0.18

Net (loss) income per unit
 
$
(0.06
)
 
$
0.45

 
$
0.33

 
$
0.72

 
 
 
 
 
 
 
 
 
Weighted-average common units outstanding
 
 

 
 

 
 

 
 

Basic
 
106,182,465

 
105,919,787

 
106,126,665

 
105,887,837

Diluted
 
106,182,465

 
105,919,787

 
106,829,076

 
106,515,908

 

See accompanying notes to consolidated financial statements.

7

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL
(unaudited, in thousands, except unit data)



 
 
 
 
 
 
 
 
 
 
Accumulated
 
Noncontrolling
 
 
 
 
 
 
 
 
Other
 
Interests -
 
 

 
 
General Partner
 
Limited Partner
 
Comprehensive
 
Partially Owned
 
 

 
 
Units
 
Amount
 
Units
 
Amount
 
Loss
 
Properties
 
Total
Capital, December 31, 2013
 
12,222

 
$
111

 
104,770,595

 
$
2,626,225

 
$
(1,435
)
 
$
5,664

 
$
2,630,565

Adjustments to reflect redeemable limited partners’ interest at fair value
 

 

 

 
(4,136
)
 

 

 
(4,136
)
Amortization of restricted stock awards
 

 

 

 
5,165

 

 

 
5,165

Vesting of restricted stock awards and restricted stock units
 

 

 
133,910

 
(2,072
)
 

 

 
(2,072
)
Distributions
 

 
(14
)
 

 
(118,296
)
 

 

 
(118,310
)
Distributions to joint venture partners
 

 

 

 

 

 
(281
)
 
(281
)
Conversion of operating partnership units to common stock
 

 

 
20,269

 
222

 

 

 
222

ATM Equity Program (net of offering costs)
 

 

 
149,240

 
5,877

 

 

 
5,877

Change in fair value of interest rate swaps
 

 

 

 

 
(3,797
)
 

 
(3,797
)
Amortization of interest rates swap terminations
 

 

 

 

 
118

 

 
118

Net income
 

 
4

 

 
35,985

 

 
257

 
36,246

Capital, September 30, 2014
 
12,222

 
$
101

 
105,074,014

 
$
2,548,970

 
$
(5,114
)
 
$
5,640

 
$
2,549,597

 
 

See accompanying notes to consolidated financial statements.

8

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) 


 
 
Nine Months Ended September 30,
 
 
2014
 
2013
Operating activities
 
 
 
 
Net income
 
$
36,813

 
$
78,879

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Gains and losses from disposition of real estate, net
 
(2,776
)
 
(52,831
)
Impairment of real estate
 
2,377

 

Depreciation and amortization
 
146,248

 
140,059

Amortization of deferred financing costs and debt premiums/discounts
 
(5,067
)
 
(6,397
)
Share-based compensation
 
5,513

 
5,008

Income tax provision
 
869

 
765

Amortization of interest rate swap terminations
 
118

 

Changes in operating assets and liabilities:
 
 

 
 

Restricted cash
 
(4
)
 
1,468

Student contracts receivable, net
 
(5,474
)
 
(3,333
)
Other assets
 
(11,255
)
 
(16,315
)
Accounts payable and accrued expenses
 
4,621

 
3,577

Other liabilities
 
29,063

 
25,919

Net cash provided by operating activities
 
201,046

 
176,799

 
 
 
 
 
Investing activities
 
 

 
 

Proceeds from disposition of properties
 
7,312

 
155,234

Proceeds from disposition of land
 
1,681

 

Cash paid for property acquisitions
 
(9,120
)
 
(92,508
)
Cash paid for land acquisitions
 
(3,513
)
 
(9,920
)
Capital expenditures for wholly-owned properties
 
(63,182
)
 
(52,587
)
Investments in wholly-owned properties under development
 
(194,961
)
 
(219,036
)
Capital expenditures for on-campus participating properties
 
(1,727
)
 
(1,323
)
Investment in on-campus participating property under development
 
(25,007
)
 
(7,045
)
Investment in loans receivable
 

 
(52,038
)
Investment in mezzanine loans
 

 
(8,750
)
Proceeds from loans receivable
 
2,984

 

Decrease (increase) in escrow deposits for investment transactions
 
1,157

 
(2,500
)
Change in restricted cash related to capital reserves
 
2,183

 
(1,156
)
Proceeds from insurance settlement
 

 
636

Purchase of corporate furniture, fixtures and equipment
 
(3,278
)
 
(1,997
)
Net cash used in investing activities
 
(285,471
)
 
(292,990
)
 
 
 
 
 
Financing activities
 
 

 
 

Proceeds from unsecured notes
 
399,444

 
398,636

Proceeds from issuance of common units in exchange for contributions, net
 
5,877

 

Pay-off of mortgage loans
 
(125,191
)
 
(61,891
)
Proceeds from revolving credit facilities
 
426,900

 
364,855

Pay downs of revolving credit facilities
 
(526,850
)
 
(456,200
)
Proceeds from construction loan
 
26,261

 
3,917

Scheduled principal payments on debt
 
(12,118
)
 
(11,353
)
Debt issuance and assumption costs
 
(5,019
)
 
(4,239
)
Termination of forward starting interest rate swaps
 
(4,122
)
 

Distributions paid on unvested restricted stock awards
 
(844
)
 
(710
)
Distributions paid on common units
 
(118,837
)
 
(112,013
)
Distributions paid on preferred units
 
(134
)
 
(137
)
Distributions paid to noncontrolling partners - partially owned properties
 
(281
)
 
(861
)
Net cash provided by financing activities
 
65,086

 
120,004

 
 
 
 
 
Net change in cash and cash equivalents
 
(19,339
)
 
3,813

Cash and cash equivalents at beginning of period
 
38,751

 
21,454

Cash and cash equivalents at end of period
 
$
19,412

 
$
25,267

 
 
 
 
 

See accompanying notes to consolidated financial statements.

9

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) 


 
 
Nine Months Ended September 30,
 
 
2014
 
2013
Supplemental disclosure of non-cash investing and financing activities
 
 

 
 

Issuance of common units in connection with property acquisitions
 
$

 
$
(3,451
)
Change in fair value of derivative instruments, net
 
$
325

 
$
4,451

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Interest paid
 
$
76,764

 
$
70,226

 

See accompanying notes to consolidated financial statements.

10

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1. Organization and Description of Business
 
American Campus Communities, Inc. (“ACC”) is a real estate investment trust (“REIT”) that commenced operations effective with the completion of an initial public offering (“IPO”) on August 17, 2004.  Through ACC’s controlling interest in American Campus Communities Operating Partnership, L.P. (“ACCOP”), ACC is one of the largest owners, managers and developers of high quality student housing properties in the United States in terms of beds owned and under management.  ACC is a fully integrated, self-managed and self-administered equity REIT with expertise in the acquisition, design, financing, development, construction management, leasing and management of student housing properties.  ACC’s common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “ACC.”
 
The general partner of ACCOP is American Campus Communities Holdings, LLC (“ACC Holdings”), an entity that is wholly-owned by ACC.  As of September 30, 2014, ACC Holdings held an ownership interest in ACCOP of less than 1%. The limited partners of ACCOP are ACC and other limited partners consisting of current and former members of management and nonaffiliated third parties.  As of September 30, 2014, ACC owned an approximate 98.8% limited partnership interest in ACCOP.  As the sole member of the general partner of ACCOP, ACC has exclusive control of ACCOP’s day-to-day management.  Management operates ACC and ACCOP as one business.  The management of ACC consists of the same members as the management of ACCOP.  ACC consolidates ACCOP for financial reporting purposes, and ACC does not have significant assets other than its investment in ACCOP.  Therefore, the assets and liabilities of ACC and ACCOP are the same on their respective financial statements.  References to the “Company,” “we,” “us” or “our” mean collectively ACC, ACCOP and those entities/subsidiaries owned or controlled by ACC and/or ACCOP.  References to the “Operating Partnership” mean collectively ACCOP and those entities/subsidiaries owned or controlled by ACCOP.  Unless otherwise indicated, the accompanying Notes to the Consolidated Financial Statements apply to both the Company and the Operating Partnership.
 
As of September 30, 2014, our property portfolio contained 167 properties with approximately 102,200 beds in approximately 33,200 units.  Our property portfolio consisted of 143 owned off-campus student housing properties that are in close proximity to colleges and universities, 18 American Campus Equity (“ACE®”) properties operated under ground/facility leases with eight university systems, five on-campus participating properties operated under ground/facility leases with the related university systems and one property containing a hotel which we plan to redevelop into a new student housing facility.  Of the 167 properties, four were under development as of September 30, 2014, and when completed will consist of a total of approximately 3,200 beds in approximately 800 units.  Our communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
 
Through one of ACC’s taxable REIT subsidiaries (“TRSs”), we also provide construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others.  As of September 30, 2014, also through one of ACC’s TRSs, we provided third-party management and leasing services for 33 properties that represented approximately 26,100 beds in approximately 10,400 units.  Third-party management and leasing services are typically provided pursuant to management contracts that have initial terms that range from one to five years.  As of September 30, 2014, our total owned and third-party managed portfolio included 200 properties with approximately 128,300 beds in approximately 43,600 units.
 
2. Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying consolidated financial statements, presented in U.S. dollars, are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and revenue and expenses during the reporting periods. Our actual results could differ from those estimates and assumptions. All material intercompany transactions among consolidated entities have been eliminated. All dollar amounts in the tables herein, except share, per share, unit and per unit amounts, are stated in thousands unless otherwise indicated. Certain prior period amounts have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09 (“ASU 2014-09”), "Revenue From Contracts With Customers (Topic 606)", ASU 2014-09 outlines a single comprehensive model for

11

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. ASU 2014-09 is effective for the Company at the beginning of its 2017 fiscal year; early adoption is not permitted. We are currently assessing the impact that this standard will have on our consolidated financial statements.

In April 2014, the FASB issued Accounting Standards Update 2014-08 ("ASU 2014-08"), “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 changes the threshold for disclosing discontinued operations and the related disclosure requirements, requiring only disposals representing a strategic shift, such as a major line of business, a major geographical area or a major equity investment, to be presented as a discontinued operation. If the disposal does qualify as a discontinued operation under ASU 2014-08, the Company will be required to provide expanded disclosures. The guidance will be applied prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. ASU 2014-08 is effective for the Company beginning January 1, 2015 with early adoption permitted but only for disposals or classifications as held for sale which have not been reported in financial statements previously issued or available for issuance. While we have elected early adoption for our consolidated financial statements and footnote disclosures and believe future sales of our individual operating properties will no longer qualify as discontinued operations, the sale of Hawks Landing in February 2014 has continued to be presented in discontinued operations as the property was classified as held for sale in our consolidated financial statements for the year ended December 31, 2013.

Interim Financial Statements

The accompanying interim financial statements are unaudited, but have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all disclosures required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements of the Company for these interim periods have been included.  Because of the seasonal nature of the Company’s operations, the results of operations and cash flows for any interim period are not necessarily indicative of results for other interim periods or for the full year.  These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
Investments in Real Estate
 
Investments in real estate are recorded at historical cost.  Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset.  The cost of ordinary repairs and maintenance are charged to expense when incurred.  Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:
Buildings and improvements
 
7-40 years
Leasehold interest - on-campus
   participating properties
 
25-34 years (shorter of useful life or respective lease term)
Furniture, fixtures and equipment
 
3-7 years
 
Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred finance costs, are capitalized as construction in progress.  Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences.  Interest totaling approximately $2.1

12

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


million and $2.8 million was capitalized during the three months ended September 30, 2014 and 2013, respectively, and $7.0 million and $8.6 million was capitalized during the nine months ended September 30, 2014 and 2013, respectively. Amortization of deferred financing costs totaling approximately $700 and $120,000 was capitalized as construction in progress during the three months ended September 30, 2014 and 2013, respectively, and $7,000 and $200,000 was capitalized as construction in progress during the nine months ended September 30, 2014 and 2013, respectively.
 
Management assesses whether there has been an impairment in the value of the Company’s investments in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Impairment is recognized when estimated expected future undiscounted cash flows are less than the carrying value of the property.  The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions.  If such conditions change, then an adjustment to the carrying value of the Company’s long-lived assets could occur in the future period in which the conditions change.  To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings. The Company believes that there were no impairments of the carrying values of its investments in real estate as of September 30, 2014.

The Company also performs a periodic assessment to determine which long-lived assets are likely to be sold prior to the end of their estimated useful lives. For those probable sales, an impairment charge is recorded for any excess of the carrying value of the asset over the expected net proceeds from the disposal. As discussed in more detail in Note 4, prior to the sale of a wholly-owned property in September 2014, the Company reduced the property's carrying amount to its estimated fair value less estimated selling costs which resulted in an impairment charge.
 
The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values.  Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired and existing comparable properties in our portfolio, and other market data.  Information obtained about each property as a result of due diligence, marketing and leasing activities is also considered.  The value allocated to land is generally based on the actual purchase price adjusted to fair value (as necessary) if acquired separately, or market research/comparables if acquired as part of an existing operating property.  The value allocated to building is based on the fair value determined on an “as-if vacant” basis, which is estimated using an income, or discounted cash flow, approach that relies upon internally determined assumptions that we believe are consistent with current market conditions for similar properties. The value allocated to furniture, fixtures, and equipment is based on an estimate of the fair value of the appliances and fixtures inside the units.
 
Loans Receivable
 
Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan purchase discounts, and net of an allowance for loan losses when such loan is deemed to be impaired.  Loan purchase discounts are amortized over the term of the loan.  The Company considers a loan impaired when, based upon current information and events, it is probable that it will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan agreement.  Significant judgments are required in determining whether impairment has occurred.  The Company performs an impairment analysis by comparing either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable current market price or the fair value of the underlying collateral to the net carrying value of the loan, which may result in an allowance and corresponding loan loss charge.  Loans receivable are included in other assets on the accompanying consolidated balance sheets.
 
Intangible Assets
 
A portion of the purchase price of acquired properties is allocated to the value of in-place leases for both student and commercial tenants, which is based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued “as-if” vacant.  As lease terms for student leases are typically one year or less, rates on in-place leases generally approximate market rental rates.  Factors considered in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current market conditions, nature of the tenancy, and costs to execute similar leases.  Carrying costs include estimates of lost rentals at market rates during the expected lease-up period, as well as marketing and other operating expenses.  The value of in-place leases is amortized over the remaining initial term of the respective leases.  The purchase price of property acquisitions is not expected to be allocated to student tenant relationships, considering the terms of the leases and the expected levels of renewals.
 

13

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Amortization expense related to in-place leases was approximately $0.4 million and $2.1 million for the three months ended September 30, 2014 and 2013, respectively and $2.2 million and $13.0 million for the nine months ended September 30, 2014 and 2013, respectively.  Accumulated amortization at September 30, 2014 and December 31, 2013 was approximately $27.7 million and $25.5 million, respectively.  Intangible assets, net of amortization, are included in other assets on the accompanying consolidated balance sheets and the amortization of intangible assets is included in depreciation and amortization expense in the accompanying consolidated statements of comprehensive income.  
 
Mortgage Debt - Premiums and Discounts
 
Mortgage debt premiums and discounts represent fair value adjustments to account for the difference between the stated rates and market rates of mortgage debt assumed in connection with the Company’s property acquisitions.  The mortgage debt premiums and discounts are amortized to interest expense over the term of the related mortgage loans using the effective-interest method.  The amortization of mortgage debt premiums and discounts resulted in a net decrease to interest expense of approximately $3.3 million and $3.4 million for the three months ended September 30, 2014 and 2013, respectively, and $9.7 million and $10.6 million for the nine months ended September 30, 2014 and 2013, respectively.  As of September 30, 2014 and December 31, 2013, net unamortized mortgage debt premiums were approximately $64.0 million and $74.6 million, respectively, and net unamortized mortgage debt discounts were approximately $1.1 million and $2.0 million, respectively.  Mortgage debt premiums and discounts are included in secured mortgage, construction and bond debt on the accompanying consolidated balance sheets and amortization of mortgage debt premiums and discounts is included in interest expense on the accompanying consolidated statements of comprehensive income.
 
Unsecured Notes - Original Issue Discount
 
In April 2013 and again in June 2014, the Company issued $400 million of senior unsecured notes (see Note 8) at 99.659 percent and 99.861 percent of par value, respectively, and recorded an original issue discount of approximately $1.4 million and $0.6 million, respectively. The total unamortized original issue discount was approximately $1.7 million and $1.3 million as of September 30, 2014 and December 31, 2013, respectively, and is included in unsecured notes on the accompanying consolidated balance sheets. Amortization of the original issue discounts of approximately $41,000 and $28,000 for the three months ended September 30, 2014 and 2013, respectively, and $100,000 and $56,000 for the nine months ended September 30, 2014 and 2013, respectively, is included in interest expense on the accompanying consolidated statements of comprehensive income.
 
Pre-development Expenditures
 
Pre-development expenditures such as architectural fees, permits and deposits associated with the pursuit of third-party and owned development projects are expensed as incurred, until such time that management believes it is probable that the contract will be executed and/or construction will commence.  Because the Company frequently incurs these pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained, the Company bears the risk of loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or the Company is unable to successfully obtain the required permits and authorizations.  As such, management evaluates the status of third-party and owned projects that have not yet commenced construction on a periodic basis and expenses any deferred costs related to projects whose current status indicates the commencement of construction is unlikely and/or the costs may not provide future value to the Company in the form of revenues.  Such write-offs are included in third-party development and management services expenses (in the case of third-party development projects) or general and administrative expenses (in the case of owned development projects) on the accompanying consolidated statements of comprehensive income.  As of September 30, 2014, the Company has deferred approximately $7.2 million in pre-development costs related to third-party and owned development projects that have not yet commenced construction.  Such costs are included in other assets on the accompanying consolidated balance sheets.

Earnings per Share – Company
 
Basic earnings per share is computed using net income attributable to common shareholders and the weighted average number of shares of the Company’s common stock outstanding during the period.  Diluted earnings per share reflect common shares issuable from the assumed conversion of OP Units and common share awards granted.  Only those items having a dilutive impact on basic earnings per share are included in diluted earnings per share.
 

14

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The following potentially dilutive securities were outstanding for the three and nine months ended September 30, 2014 and 2013, but were not included in the computation of diluted earnings per share because the effects of their inclusion would be anti-dilutive. 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2014
 
2013
 
2014
 
2013
Common OP Units (Note 10)
 
1,213,849

 
1,138,356

 
1,223,321

 
1,134,855

Preferred OP Units (Note 10)
 
110,359

 
114,014

 
111,589

 
114,090

Unvested Restricted Stock Awards (Note 11)
 
681,223

 
606,024

 

 

Total potentially dilutive securities
 
2,005,431

 
1,858,394

 
1,334,910

 
1,248,945

 
The following is a summary of the elements used in calculating basic and diluted earnings per share:
 
 
Three Months Ended 
 September 30,

Nine Months Ended 
 September 30,
 
 
2014
 
2013
 
2014
 
2013
Numerator – basic and diluted earnings per share:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations
 
$
(5,785
)
 
$
(5,222
)
 
$
34,093

 
$
21,021

Income from continuing operations attributable to noncontrolling interests
 
(62
)
 
(32
)
 
(790
)
 
(1,383
)
(Loss) income from continuing operations attributable to common shareholders
 
(5,847
)
 
(5,254
)
 
33,303

 
19,638

Amount allocated to participating securities
 
(260
)
 
(218
)
 
(844
)
 
(710
)
(Loss) income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
 
(6,107
)
 
(5,472
)
 
32,459

 
18,928

Income from discontinued operations
 

 
53,054

 
2,720

 
57,858

Income from discontinued operations attributable to noncontrolling interests
 

 
(624
)
 
(34
)
 
(681
)
Income from discontinued operations attributable to common shareholders
 

 
52,430

 
2,686

 
57,177

Net (loss) income attributable to common shareholders
 
$
(6,107
)
 
$
46,958

 
$
35,145

 
$
76,105

Denominator:
 
 

 
 

 
 

 
 

Basic weighted average common shares outstanding
 
104,968,616

 
104,781,431

 
104,903,344

 
104,752,982

Unvested Restricted Stock Awards (Note 11)
 

 

 
702,411

 
628,071

Diluted weighted average common shares outstanding
 
104,968,616

 
104,781,431

 
105,605,755

 
105,381,053

 
Earnings per share – basic:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
 
$
(0.06
)
 
$
(0.05
)
 
$
0.31

 
$
0.18

Income from discontinued operations attributable to common shareholders
 
$

 
$
0.50

 
$
0.03

 
$
0.55

Net (loss) income attributable to common shareholders
 
$
(0.06
)
 
$
0.45

 
$
0.34

 
$
0.73

Earnings per share – diluted:
 
 

 
 

 
 

 
 

(Loss) income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
 
$
(0.06
)
 
$
(0.05
)
 
$
0.31

 
$
0.18

Income from discontinued operations attributable to common shareholders
 
$

 
$
0.50

 
$
0.02

 
$
0.54

Net (loss) income attributable to common shareholders
 
$
(0.06
)
 
$
0.45

 
$
0.33

 
$
0.72

Distributions per common share
 
$
0.38

 
$
0.36

 
$
1.12

 
$
1.0575


15

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Earnings per Unit – Operating Partnership
 
Basic earnings per OP Unit is computed using net income attributable to common unitholders and the weighted average number of common units outstanding during the period.  Diluted earnings per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units or resulted in the issuance of OP Units and then shared in the earnings of the Operating Partnership.

The following potentially dilutive securities were outstanding for the three months ended September 30, 2014 and 2013, but were not included in the computation of diluted earnings per unit because the effects of their inclusion would be anti-dilutive.

 
 
Three Months Ended 
 September 30,
 
 
2014
 
2013
Unvested Restricted Stock Awards (Note 11)
 
681,223

 
606,024

Total potentially dilutive securities
 
681,223

 
606,024


The following is a summary of the elements used in calculating basic and diluted earnings per unit: 
 
 
Three Months Ended 
 September 30,

Nine Months Ended 
 September 30,
 
 
2014
 
2013
 
2014
 
2013
Numerator – basic and diluted earnings per unit:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations
 
$
(5,785
)
 
$
(5,222
)
 
$
34,093

 
$
21,021

Income from continuing operations attributable to noncontrolling interests – partially owned properties
 
(81
)
 
(83
)
 
(257
)
 
(1,078
)
(Income) loss from continuing operations attributable to Series A preferred units
 
(44
)
 
11

 
(131
)
 
(75
)
Amount allocated to participating securities
 
(260
)
 
(218
)
 
(844
)
 
(710
)
(Loss) income from continuing operations attributable to common unitholders, net of amount allocated to participating securities
 
(6,170
)
 
(5,512
)
 
32,861

 
19,158

Income from discontinued operations
 

 
53,054

 
2,720

 
57,858

Income from discontinued operations attributable to Series A preferred units
 

 
(57
)
 
(3
)
 
(62
)
Income from discontinued operations attributable to common unitholders
 

 
52,997

 
2,717

 
57,796

Net (loss) income attributable to common unitholders
 
$
(6,170
)
 
$
47,485

 
$
35,578

 
$
76,954

Denominator:
 
 

 
 

 
 

 
 

Basic weighted average common units outstanding
 
106,182,465

 
105,919,787

 
106,126,665

 
105,887,837

Unvested Restricted Stock Awards (Note 11)
 

 

 
702,411

 
628,071

Diluted weighted average common units outstanding
 
106,182,465

 
105,919,787

 
106,829,076

 
106,515,908


16

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Earnings per unit - basic:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations attributable to common unitholders, net of amount allocated to participating securities
 
$
(0.06
)
 
$
(0.05
)
 
$
0.31

 
$
0.18

Income from discontinued operations attributable to common unitholders
 
$

 
$
0.50

 
$
0.03

 
$
0.55

Net (loss) income attributable to common unitholders
 
$
(0.06
)
 
$
0.45

 
$
0.34

 
$
0.73

Earnings per unit - diluted:
 
 

 
 

 
 

 
 

(Loss) income from continuing operations attributable to common unitholders, net of amount allocated to participating securities
 
$
(0.06
)
 
$
(0.05
)
 
$
0.31

 
$
0.18

Income from discontinued operations attributable to common unitholders
 
$

 
$
0.50

 
$
0.02

 
$
0.54

Net (loss) income attributable to common unitholders
 
$
(0.06
)
 
$
0.45

 
$
0.33

 
$
0.72

Distributions per common unit
 
$
0.38

 
$
0.36

 
$
1.12

 
$
1.0575

 
3. Property Acquisitions
   
On January 10, 2014, the Company acquired the Boulder Outlook Hotel property, which is located near the University of Colorado campus, for a purchase price of approximately $9.3 million. The seller will operate the hotel until the fourth quarter 2014, at which point the hotel will be demolished and construction on a new student housing facility will commence.
4. Property Dispositions and Discontinued Operations
 
As discussed in more detail in Note 2, the operations for any properties sold during 2013 along with any properties sold in 2014 that were classified as held for sale as of December 31, 2013, are not subject to the new accounting guidance for discontinued operations and have been presented in discontinued operations in the accompanying consolidated statements of comprehensive income.

Dispositions Subject to New Guidance for Discontinued Operations

In September 2014, the Company sold The Enclave, a 120-unit, 480-bed wholly-owned property located near the campus of Bowling Green State University for a sales price of approximately $6.3 million, resulting in net proceeds of approximately $6.0 million. Prior to the sale of The Enclave, the Company recorded the property at the lower of cost or fair value less estimated selling costs, resulting in an impairment charge of approximately $2.4 million. As discussed in more detail in Note 2, due to a recent change in accounting guidance, The Enclave along with future disposals of individual operating properties will no longer qualify as discontinued operations. As a result, the operations along with the impairment charge and resulting loss on disposition of $67,000 are included within (loss) income from continuing operations on the accompanying consolidated statements of comprehensive income.

Dispositions Not Subject to New Guidance for Discontinued Operations

2014 Dispositions

In February 2014, the Company sold Hawks Landing, a 122-unit, 484-bed owned off-campus property located near the campus of Miami University of Ohio for a sales price of approximately $17.3 million, including the assumption of an existing $15.6 million mortgage loan by the purchaser, resulting in net proceeds of approximately $1.3 million. Because Hawks Landing was classified as held for sale as of December 31, 2013, the resulting gain on disposition of approximately $2.8 million is included in discontinued operations on the accompanying consolidated statements of comprehensive income for the nine months ended September 30, 2014.



17

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


2013 Dispositions

In July 2013, the Company sold four owned off-campus properties containing 3,070 beds for a combined sales price of $157.4 million, resulting in proceeds of approximately $155.2 million. The resulting gain on disposition of approximately $52.8 million is included in discontinued operations on the accompanying consolidated statements of comprehensive income for the three and nine months ended September 30, 2013.

Additionally, two owned off-campus properties were classified as held for sale as of September 30, 2013 and subsequently sold in the fourth quarter 2013. The net income attributable to these properties is included in discontinued operations on the accompanying consolidated statements of comprehensive income for the three and nine months ended September 30, 2013.

The properties discussed above are included in the wholly-owned properties segment (see Note 15).  The following is a summary of income (loss) attributable to discontinued operations for the periods presented: 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Total revenues
 
$

 
$
2,399

 
$
279

 
$
15,293

Total operating expenses
 

 
(1,491
)
 
(239
)
 
(6,736
)
Depreciation and amortization
 

 
(323
)
 

 
(2,248
)
Operating income
 

 
585

 
40

 
6,309

Total nonoperating expenses
 

 
(362
)
 
(163
)
 
(1,282
)
Net income (loss)
 
$

 
$
223

 
$
(123
)
 
$
5,027

 

18

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


5. Investments in Wholly-Owned Properties
 
Wholly-owned properties consisted of the following: 
 
 
September 30, 2014
 
December 31, 2013
Land (1) (2)
 
$
586,594

 
$
575,944

Buildings and improvements (2)
 
5,004,453

 
4,759,879

Furniture, fixtures and equipment (2)
 
291,792

 
267,022

Construction in progress 
 
131,816

 
121,923

 
 
6,014,655

 
5,724,768

Less accumulated depreciation
 
(658,038
)
 
(525,760
)
Wholly-owned properties, net (3)
 
$
5,356,617

 
$
5,199,008

 
(1) 
The land balance above includes undeveloped land parcels with book values of approximately $40.6 million as of both September 30, 2014 and December 31, 2013.  Also includes land totaling approximately $20.9 million and $39.4 million as of September 30, 2014 and December 31, 2013, respectively, related to properties under development.

(2) 
Land, buildings and improvements and furniture, fixtures and equipment as of September 30, 2014 include $4.1 million, $26.0 million and $2.0 million, respectively, related to the University Walk property located in Knoxville, Tennessee that serves students attending the University of Tennessee.  In July 2013, the Company entered into a purchase and contribution agreement with a private developer whereby the Company is obligated to purchase the property as long as the developer meets certain construction completion deadlines and other closing conditions.  The property opened for operations in August 2014 and the company anticipates closing on the purchase of the property in the fourth quarter 2014. The entity is financed with an $8.8 million mezzanine loan from the Company, a $19.0 million construction loan from a third-party lender and a $1.5 million equity contribution from the developer. The Company is responsible for leasing, management, and initial operations of the project while the third-party developer is responsible for the development of the property. The entity that owns University Walk is deemed to be a variable interest entity (“VIE”), and the Company is determined to be the primary beneficiary of the VIE.  As such, the assets and liabilities of the entity owning the property are included in the Company’s and the Operating Partnership’s consolidated financial statements.

(3)
The balance above excludes the net book value of Hawks Landing which was classified as a wholly-owned property held for sale in the accompanying consolidated balance sheet as of December 31, 2013. The property was sold in February 2014.



19

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


6. On-Campus Participating Properties
 
On-campus participating properties are as follows: 
 
 
 
 
 
 
Historical Cost
Lessor/University
 
Lease
Commencement
 
Required Debt
Repayment
 
September 30, 2014
 
December 31, 2013
Texas A&M University System / Prairie View A&M University (1)
 
2/1/1996
 
9/1/2023
 
$
43,043

 
$
42,288

Texas A&M University System / Texas A&M International
 
2/1/1996
 
9/1/2023
 
6,904

 
6,767

Texas A&M University System / Prairie View A&M University (2)
 
10/1/1999
 
8/31/2025
 
26,731

 
26,275

 
 
8/31/2028
 
 
University of Houston System / University of Houston (3)
 
9/27/2000
 
8/31/2035
 
36,505

 
36,126

West Virginia University Project / West Virginia University (4)
 
7/16/2013
 
7/16/2045
 
43,437

 
19,249

 
 
 
 
 
 
156,620

 
130,705

Less accumulated amortization
 
 
 
 
 
(61,227
)
 
(57,249
)
On-campus participating properties, net
 
 
 
$
95,393

 
$
73,456

 
(1) 
Consists of three phases placed in service between 1996 and 1998.

(2) 
Consists of two phases placed in service in 2000 and 2003.

(3) 
Consists of two phases placed in service in 2001 and 2005.

(4) 
This property commenced operations in August 2014. Due to our involvement in the construction of the facility, fees paid to the Company/lessee for development and construction management services during the construction period were deferred and amortized to revenue over the lease term.

7. Investments in Unconsolidated Joint Ventures
 
As of September 30, 2014, the Company owned a noncontrolling interest in one unconsolidated joint venture that is accounted for utilizing the equity method of accounting.  The investment consists of a noncontrolling equity interest in a joint venture with the United States Navy that owns military housing privatization projects located on naval bases in Norfolk and Newport News, Virginia.  In 2010, the Company discontinued applying the equity method in regards to its investment in this joint venture as a result of the Company’s share of losses exceeding its investment in the joint venture.  Because the Company had not guaranteed any obligations of the investee and was not otherwise committed to provide further financial support to the investee, it therefore suspended recording its share of losses once the investment was reduced to zero.  We also earn fees for providing management services to this joint venture, which totaled approximately $0.2 million and $0.4 million for the three month periods ended September 30, 2014 and 2013, respectively and $1.0 million and $1.2 million for the nine months ended September 30, 2014 and 2013, respectively.


20

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


8. Debt
 
A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows: 
 
 
September 30, 2014
 
December 31, 2013
Debt secured by wholly-owned properties:
 
 
 
 
Mortgage loans payable:
 
 
 
 
Unpaid principal balance
 
$
1,150,065

 
$
1,300,371

Unamortized debt premiums
 
63,963

 
74,575

Unamortized debt discounts
 
(1,114
)
 
(2,021
)
 
 
1,212,914

 
1,372,925

Construction loans payable (1)
 
61,998

 
44,638

 
 
1,274,912

 
1,417,563

Debt secured by on-campus participating properties:
 
 

 
 

Mortgage loan payable
 
30,790

 
31,380

Bonds payable
 
39,785

 
42,440

Construction loan payable
 
42,094

 
15,833

 
 
112,669

 
89,653

Secured mortgage, construction and bond debt
 
1,387,581

 
1,507,216

Secured agency facility
 

 
87,750

Unsecured notes, net of unamortized original issue discount
 
798,264

 
398,721

Unsecured revolving credit facility
 
138,500

 
150,700

Unsecured term loans
 
600,000

 
600,000

Total debt
 
$
2,924,345

 
$
2,744,387

 
(1) 
Construction loans payable as of September 30, 2014 includes $17.4 million related to a construction loan that partially financed the development and construction of University Walk, a VIE the Company is including in its consolidated financial statements (see Note 5). The creditor of this construction loan does not have recourse to the assets of the Company.

Unsecured Notes
 
In June 2014, the Operating Partnership issued an additional $400 million in senior unsecured notes under its existing shelf registration.  These 10-year notes were issued at 99.861 percent of par value with a coupon of 4.125 percent and a yield of 4.142 percent, and are fully and unconditionally guaranteed by the Company.  Interest on the notes is payable semi-annually on January 1 and July 1, with the first payment beginning on January 1, 2015. The notes will mature on July 1, 2024.  Net proceeds from the sale of the unsecured notes totaled approximately $395.3 million after deducting the underwriting discount and offering expenses. The underwriting discount and offering expenses were capitalized to deferred financing costs and will be amortized over the term of the unsecured notes.  The Company used $340 million of the offering proceeds to pay down the outstanding balance on its revolving credit facility in full.  The terms of the unsecured notes include certain financial covenants that require the Operating Partnership to limit the amount of total debt and secured debt as a percentage of total asset value, as defined.  In addition, the Operating Partnership must maintain a minimum ratio of unencumbered asset value to unsecured debt, as well as a minimum interest coverage level. As of September 30, 2014, the Company was in compliance with all such covenants.

In connection with the issuance of unsecured notes discussed above, the Company terminated two forward starting interest rate swap contracts with notional amounts totaling $200 million, resulting in payments to both counterparties totaling approximately $4.1 million, which were recorded in accumulated other comprehensive loss and will be amortized to interest expense over the term of the unsecured notes. When including the effect of these interest rate swap terminations, the effective yield on the unsecured notes is 4.269%. Refer to Note 12 for more information on the interest rate swap contracts mentioned above.
  



21

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Unsecured Credit Facility

The Company has an aggregate unsecured credit facility totaling $1.1 billion which is comprised of two unsecured term loans totaling $600 million and a $500 million unsecured revolving credit facility, which may be expanded by up to an additional $500 million upon the satisfaction of certain conditions. The maturity date of the unsecured revolving credit facility is March 1, 2018, and can be extended for an additional 12 months to March 1, 2019, subject to the satisfaction of certain conditions. The maturity date of the $350 million term loan facility ("Term Loan I Facility") is January 10, 2017 and can be extended to January 10, 2019 through the exercise of two 12-month extension options, subject to the satisfaction of certain conditions. The maturity date of the $250 million term loan ("Term Loan II Facility") is March 1, 2019.

Each loan bears interest at a variable rate, at the Company’s option, based upon a base rate or one-, two-, three- or six-month LIBOR, plus, in each case, a spread based upon the Company’s investment grade rating from either Moody’s Investor Services, Inc. or Standard & Poor’s Rating Group. As of September 30, 2014, the Term Loan II Facility bore interest at a variable rate of 1.66% per annum (0.16% + 1.50% spread). The Company has entered into multiple interest rate swap contracts with notional amounts totaling $350 million that effectively fix the interest rate to a weighted average annual rate of 0.88% on the outstanding balance of the Term Loan I Facility. Including the current spread of 1.50%, the all-in weighted average annual rate on the Term Loan I Facility was 2.38% at September 30, 2014. Refer to Note 12 for more information on the interest rate swap contracts mentioned above. Availability under the revolving credit facility is limited to an “aggregate borrowing base amount” equal to 60% of the value of the Company’s unencumbered properties, calculated as set forth in the unsecured credit facility.  Additionally, the Company is required to pay a facility fee of 0.25% per annum on the $500 million revolving credit facility.  As of September 30, 2014, the revolving credit facility bore interest at a weighted average annual rate of 1.71% (0.16% + 1.30% spread + 0.25% facility fee), and availability under the revolving credit facility totaled $361.5 million as of September 30, 2014.
 
The terms of the unsecured credit facility include certain restrictions and covenants, which limit, among other items, the incurrence of additional indebtedness, liens, and the disposition of assets.  The facility contains customary affirmative and negative covenants and also contains financial covenants that, among other things, require the Company to maintain certain minimum ratios of “EBITDA” (earnings before interest, taxes, depreciation and amortization) to fixed charges and total indebtedness.  The Company may not pay distributions that exceed a specified percentage of funds from operations, as adjusted, for any four consecutive quarters.  The financial covenants also include consolidated net worth and leverage ratio tests.  As of September 30, 2014, the Company was in compliance with all such covenants.
 
Secured Agency Facility
 
The Company borrowed funds from its $500 million unsecured revolving credit facility to pay off the outstanding balance on the secured agency facility on the scheduled maturity date of September 1, 2014.
 
9. Stockholders' Equity / Partners' Capital
 
In March 2013, the Company established a new at-the-market share offering program (the “ATM Equity Program”) through which the Company may issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $500 million.  Actual sales under the program will depend on a variety of factors, including, but not limited to, market conditions, the trading price of the Company’s common stock and determinations of the appropriate sources of funding for the Company.  

During the three months ended September 30, 2014, the Company sold 149,240 shares at a weighted average price of $40.10 per share. Net proceeds received under this program during the three months ended September 30, 2014, totaled approximately $5.9 million, after payment of approximately $0.1 million of commissions paid to sales agents. As of September 30, 2014, the Company had approximately $494.0 million available for issuance under its ATM Equity Program.
 

22

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


10. Noncontrolling Interests
 
Operating Partnership
 
Partially-owned properties: As of September 30, 2014, the Operating Partnership consolidates three joint ventures that own and operate University Village at Sweet Home, University Centre and Villas at Chestnut Ridge owned-off campus properties.  The portion of net assets attributable to the third-party partners in these joint ventures is classified as “noncontrolling interests - partially owned properties” within capital on the accompanying consolidated balance sheets of the Operating Partnership.  Accordingly, the third-party partners’ share of the income or loss of the joint ventures is reported on the accompanying consolidated statements of comprehensive income of the Operating Partnership as “net income attributable to noncontrolling interests – partially owned properties.”

As discussed in more detail in Note 5, the Company entered into a purchase and contribution agreement with a private developer whereby the Company is obligated to purchase the property (University Walk) as long as the developer meets certain construction completion deadlines and other closing conditions.  The $1.5 million equity contribution from the developer is reflected as noncontrolling interests - partially owned properties within capital on the accompanying consolidated balance sheets of the Operating Partnership as of September 30, 2014 and December 31, 2013.

OP Units:  For the portion of OP Units that the Operating Partnership is required, either by contract or securities law, to deliver registered common shares of ACC to the exchanging OP unit holder, or for which the Operating Partnership has the intent or history of exchanging such units for cash, we classify the units as “redeemable limited partners” in the mezzanine section of the accompanying consolidated balance sheets of the Operating Partnership.  The units classified as such include Series A preferred units as well as common units that are not held by ACC or ACC Holdings.  The value of redeemable limited partners on the consolidated balance sheets of the Operating Partnership is reported at the greater of fair value or historical cost at the end of each reporting period.  Changes in the value from period to period are charged to limited partner’s capital on the accompanying consolidated statement of changes in capital of the Operating Partnership.  Below is a table summarizing the activity of redeemable limited partners for the nine months ended September 30, 2014
December 31, 2013
$
47,964

Net income
567

Distributions
(1,505
)
Conversion of redeemable limited partner units into shares of ACC common stock
(225
)
Adjustments to reflect redeemable limited partner units at fair value
4,136

September 30, 2014
$
50,937

 
During the nine months ended September 30, 2014, 18,000 common OP units and 2,269 Series A preferred units were converted into an equal number of shares of ACC's common stock and during the year ended December 31, 2013, 1,500 Series A preferred units were converted into an equal number of shares of ACC's common stock. As of September 30, 2014 and December 31, 2013, approximately 1.2% and 1.3%, respectively, of the equity interests of the Operating Partnership were held by owners of common OP Units and Series A preferred units not held by ACC or ACC Holdings.
 
Company
 
The noncontrolling interests of the Company include the third-party equity interests in partially-owned properties, as discussed above, which are presented as a component of equity in the Company’s consolidated balance sheets.  The Company’s noncontrolling interests also include the redeemable limited partners presented in the consolidated balance sheets of the Operating Partnership, which are referred to as “redeemable noncontrolling interests” in the mezzanine section of the Company’s consolidated balance sheets.  Noncontrolling interests on the Company’s consolidated statements of comprehensive income include the income/loss attributable to third-party equity interests in partially-owned properties, as well as the income/loss attributable to redeemable noncontrolling interests (i.e. OP Units not held by ACC or ACC Holdings.)
 

23

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


11. Incentive Award Plan
 
Restricted Stock Units (“RSUs”)
 
Upon reelection to the Board of Directors in May 2014, all members of the Company’s Board of Directors were granted restricted stock units (“RSUs”) in accordance with the American Campus Communities, Inc. 2010 Incentive Award Plan (the “Plan”).  These RSUs were valued at $95,000 for the Chairman of the Board of Directors and at $71,500 for all other members.  The number of RSUs was determined based on the fair market value of the Company’s stock on the date of grant, as defined in the Plan.  All awards vested and settled immediately on the date of grant, and the Company delivered shares of common stock and cash, as determined by the Compensation Committee of the Board of Directors. A compensation charge of approximately $0.6 million was recorded during the nine months ended September 30, 2014 related to these awards.
 
A summary of ACC’s RSUs under the Plan as of September 30, 2014 and activity during the nine months then ended is presented below:
 
Number of RSUs
Outstanding at December 31, 2013

Granted
15,457

Settled in common shares
(9,027
)
Settled in cash
(6,430
)
Outstanding at September 30, 2014


Restricted Stock Awards (“RSAs”)
 
A summary of ACC’s RSAs under the Plan as of September 30, 2014 and activity during the nine months then ended, is presented below:
 
Number of RSAs
Nonvested balance at December 31, 2013
602,191

Granted
292,526

Vested
(124,883
)
Forfeited (1)
(158,589
)
Nonvested balance at September 30, 2014
611,245

             
(1) Includes shares withheld to satisfy tax obligations upon vesting.      

The fair value of RSA’s is calculated based on the closing market value of ACC’s common stock on the date of grant.  The fair value of these awards is amortized to expense over the vesting periods, which amounted to approximately $1.7 million and $1.6 million for three months ended September 30, 2014 and 2013, respectively, and $5.2 million and $4.8 million for the nine months ended September 30, 2014 and 2013, respectively.
 
12. Derivative Instruments and Hedging Activities
 
The Company is exposed to certain risk arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities.  The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
 




24

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Cash Flow Hedges of Interest Rate Risk
 
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.  To accomplish this objective, the Company primarily uses interest rate swaps and forward starting swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  Forward starting swaps are used to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on a forecasted issuance of debt. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in other comprehensive income (outside of earnings) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. Ineffectiveness resulting from the derivative instruments summarized below was immaterial for both three and nine month periods ended September 30, 2014 and 2013.
 
The following table summarizes the Company’s outstanding interest rate swap contracts as of September 30, 2014
Hedged Debt Instrument
 
Effective Date
 
Maturity Date
 
Pay Fixed Rate
 
Receive Floating
Rate Index
 
Current Notional
Amount
 
Fair Value
Cullen Oaks mortgage loan (1)
 
Feb 18, 2014
 
Feb 15, 2021
 
2.275%
 
LIBOR - 1 month
 
$
15,316

 
$
(247
)
Cullen Oaks mortgage loan (1)
 
Feb 18, 2014
 
Feb 15, 2021
 
2.275%
 
LIBOR - 1 month
 
15,474

 
(249
)
Term Loan I Facility
 
Feb 2, 2012
 
Jan 2, 2017
 
0.8695%
 
LIBOR – 1 month
 
125,000

 
(198
)
Term Loan I Facility
 
Feb 2, 2012
 
Jan 2, 2017
 
0.88%
 
LIBOR – 1 month
 
100,000

 
(181
)
Term Loan I Facility
 
Feb 2, 2012
 
Jan 2, 2017
 
0.8875%
 
LIBOR – 1 month
 
62,500

 
(125
)
Term Loan I Facility
 
Feb 2, 2012
 
Jan 2, 2017
 
0.889%
 
LIBOR – 1 month
 
62,500

 
(127
)
Park Point mortgage loan
 
Nov 1, 2013
 
Oct 5, 2018
 
1.545%
 
LIBOR - 1 month
 
70,000

 
(123
)
 
 
 
 
 
 
 
 
Total
 
$
450,790

 
$
(1,250
)

(1) 
In February 2014, the Company renewed the Cullen Oaks Phase I and Phase II mortgage loans and extended the maturity date to February 15, 2021. The renewed loans bear interest at a rate of LIBOR plus 1.75% and require monthly payments of principal and interest. In connection with these loan renewals, the Company terminated the existing interest rate swap contract scheduled to mature on February 15, 2014, and entered into two new interest rate swap contracts described in the table above. Upon termination, the existing interest rate swap had a negative fair value of approximately $0.2 million, which the Company settled by structuring the financing into the terms of new interest rate swaps (commonly referred to as a "blend and extend"). As a result, the two new interest rate swaps had a negative fair value of approximately $0.2 million at inception of the hedging relationship.     

In March 2014, the Company entered into two forward starting interest rate swap contracts with notional amounts totaling $200 million designated to hedge the Company's exposure to increasing interest rates related to interest payments on an anticipated issuance of unsecured notes. As discussed in Note 8, in connection with the issuance of unsecured notes in June 2014, the Company terminated both swap contracts resulting in payments to both counterparties totaling approximately $4.1 million, which were recorded in accumulated other comprehensive loss and will be amortized to interest expense over the term of the unsecured notes. Amortization of the loss totaled approximately $0.1 million for both the three and nine months ended September 30, 2014.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of September 30, 2014 and December 31, 2013:
 
 
Asset Derivatives
 
Liability Derivatives
 
 
 
 
Fair Value as of
 
 
 
Fair Value as of
Description
 
Balance Sheet
Location
 
September 30, 2014
 
December 31, 2013
 
Balance Sheet
Location
 
September 30, 2014
 
December 31, 2013
Interest rate swaps contracts
 
Other assets
 
$

 
$
31

 
Other liabilities
 
$
1,250

 
$
1,466

Total derivatives designated
  as hedging instruments
 
 
 
$

 
$
31

 
 
 
$
1,250

 
$
1,466



25

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


13Fair Value Disclosures

The following table presents information about the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.  In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access.  Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals.  Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
 
In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
 
Disclosures concerning financial instruments measured at fair value are as follows: 
  
 
Fair Value Measurements as of
 
 
September 30, 2014
 
December 31, 2013
 
 
Quoted Prices in
Active Markets for
Identical Assets and
Liabilities (Level 1)
 
Significant
Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets and
Liabilities (Level 1)
 
Significant
Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
 
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments
 
$

 
$

 
$

 
$

 
$

 
$
31

 
$

 
$
31

Liabilities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Derivative financial instruments
 
$

 
$
1,250

 
$

 
$
1,250

 
$

 
$
1,466

 
$

 
$
1,466

Mezzanine:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Redeemable noncontrolling interests (Company)/Redeemable limited partners (Operating Partnership)
 
$

 
$
50,937

 
$

 
$
50,937

 
$

 
$
47,964

 
$

 
$
47,964

 
The Company uses derivative financial instruments, specifically interest rate swaps and forward starting swaps for nontrading purposes.  The Company uses interest rate swaps to manage interest rate risk arising from previously unhedged interest payments associated with variable rate debt and forward starting swaps to reduce exposure to variability in cash flows relating to interest payments on forecasted issuances of debt.  Through September 30, 2014, derivative financial instruments were designated and qualified as cash flow hedges.  Derivative contracts with positive net fair values inclusive of net accrued interest receipts or payments are recorded in other assets.  Derivative contracts with negative net fair values, inclusive of net accrued interest payments or receipts, are recorded in other liabilities.  The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative.  This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.  The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts).  The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

The Company incorporates credit valuation adjustments to appropriately reflect its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.  In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees.
 
Although the Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparty.  However, as of September 30, 2014 and December 31, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall

26

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivative financial instruments.  As a result, the Company has determined each of its derivative valuations in its entirety is classified in Level 2 of the fair value hierarchy.
 
Redeemable noncontrolling interests in the Operating Partnership have a redemption feature and are marked to their redemption value.  The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date.  Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the Operating Partnership are classified in Level 2 of the fair value hierarchy.

Other Fair Value Disclosures
 
Cash and Cash Equivalents, Restricted Cash, Student Contracts Receivable, Mezzanine Loans Receivable, Other Assets, Accounts Payable and Accrued Expenses and Other Liabilities:  The Company estimates that the carrying amount approximates fair value, due to the short maturity of these instruments.
  
Secured Agency Facility, Unsecured Term Loan Facility II, Unsecured Revolving Credit Facility and Construction Loans: The fair value of these instruments approximates carrying values due to the variable interest rate feature of these instruments.
 
Loans Receivable:  The fair value of loans receivable is based on a discounted cash flow analysis consisting of scheduled cash flows and discount rate estimates to approximate those that a willing buyer and seller might use.  These financial instruments utilize Level 3 inputs.
 
Unsecured Notes: In calculating the fair value of unsecured notes, interest rate and spread assumptions reflect current creditworthiness and market conditions available for the issuance of unsecured notes with similar terms and remaining maturities.  These financial instruments utilize Level 2 inputs.
 
Mortgage Loans Payable: The fair value of mortgage loans payable is based on the present value of the cash flows at current market interest rates through maturity.  The Company has concluded the fair value of these financial instruments are Level 2, as the majority of the inputs used to value these instruments fall within Level 2 of the fair value hierarchy.
 
Bonds Payable: The fair value of bonds payable is based on quoted prices in markets that are not active due to the unique characteristics of these financial instruments; as such, the Company has concluded the inputs used to measure fair value fall within Level 2 of the fair value hierarchy.
 
The table below contains the estimated fair value and related carrying amounts for the Company’s financial instruments as of September 30, 2014 and December 31, 2013
 
 
September 30, 2014
 
December 31, 2013
 
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
Assets:
 
 
 
 
 
 
 
 
Loans receivable
 
$
48,269

 
$
53,472

 
$
49,154

 
$
51,192

Liabilities:
 
 
 
 

 
 

 
 

Unsecured notes
 
$
796,101

 
$
798,264

 
$
372,420

 
$
398,721

Mortgage loans
 
1,213,514

 
1,243,704

 
1,382,773

 
1,404,305

Bonds payable
 
44,513

 
39,785

 
44,908

 
42,440

 
14. Commitments and Contingencies
 
Commitments
 
Development-related guarantees: For its third-party development projects, the Company commonly provides alternate housing and project cost guarantees, subject to force majeure.  These guarantees are typically limited, on an aggregate basis, to the amount of the projects’ related development fees or a contractually agreed-upon maximum exposure amount.  Alternate housing guarantees

27

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


typically expire five days after construction is complete and generally require the Company to provide substitute living quarters and transportation for students to and from the university if the project is not complete by an agreed-upon completion date.  Under project cost guarantees, the Company is responsible for the construction cost of a project in excess of an approved budget.   The budget consists primarily of costs included in the general contractors’ guaranteed maximum price contract (“GMP”).  In most cases, the GMP obligates the general contractor, subject to force majeure and approved change orders, to provide completion date guarantees and to cover cost overruns and liquidated damages.  In addition, the GMP is typically secured with payment and performance bonds.  Project cost guarantees expire upon completion of certain developer obligations, which are normally satisfied within one year after completion of the project. The Company’s estimated maximum exposure amount under the above guarantees is approximately $2.7 million as of September 30, 2014.
 
In the normal course of business, the Company enters into various development-related purchase commitments with parties that provide development-related goods and services.  In the event that the Company was to terminate development services prior to the completion of projects under construction, the Company could potentially be committed to satisfy outstanding purchase orders with such parties.  At September 30, 2014, management did not anticipate any material deviations from schedule or budget related to third-party development projects currently in progress. 

In August 2013, the Company entered into an agreement to convey fee interest in a parcel of land, on which one of our student housing properties resides, to Drexel University (the “University”). Concurrent with the land conveyance, the Company as lessee entered into a ground lease agreement with the University as lessor for an initial term of 40 years, with three 10-year extensions, at the Company’s option. As part of the ground lease agreement, the Company committed to spend a minimum of $22.3 million in renovation and capital improvement costs over a five year period to improve the unit finishes, expand and improve amenity space and upgrade the exterior façade and other systems. In addition, the Company also agreed to convey the building and improvements to the University at an undetermined date in the future and to pay real estate transfer taxes not to exceed $2.4 million. The Company paid approximately $0.6 million in real estate transfer taxes upon the conveyance of land to the University, leaving approximately $1.8 million to be paid by the Company upon the transfer of the building and improvements to the University.
 
Contingencies
 
Litigation:  The Company is subject to various claims, lawsuits and legal proceedings, including the matter discussed below as well as other matters that have not been fully resolved and that have arisen in the ordinary course of business.  While it is not possible to ascertain the ultimate outcome of such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations of the Company.  However, the outcome of claims, lawsuits and legal proceedings brought against the Company is subject to significant uncertainty.  Therefore, although management considers the likelihood of such an outcome to be remote, the ultimate results of these matters cannot be predicted with certainty.
 
Letters of Intent:  In the ordinary course of the Company’s business, the Company enters into letters of intent indicating a willingness to negotiate for acquisitions, dispositions, joint ventures, or other investment transactions.  Such letters of intent are non-binding, and neither party to the letter of intent is obligated to pursue negotiations unless and until a definitive contract is entered into by the parties.  Even if definitive contracts are entered into, the letters of intent relating to the acquisition and disposition of real property and resulting contracts generally contemplate that such contracts will provide the acquirer with time to evaluate the property and conduct due diligence, during which periods the acquirer will have the ability to terminate the contracts without penalty or forfeiture of any deposit or earnest money.  There can be no assurance that definitive contracts will be entered into with respect to any matter covered by letters of intent or that the Company will consummate any transaction contemplated by any definitive contract.  Furthermore, due diligence periods for real property are frequently extended as needed.  Once the due diligence period expires, the Company is then at risk under a real property acquisition contract, but only to the extent of any earnest money deposits associated with the contract.
 
Environmental Matters:  The Company is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’s business, assets or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company’s results of operations and cash flows.
 

28

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


15. Segments
 
The Company defines business segments by their distinct customer base and service provided.  The Company has identified four reportable segments: Wholly-Owned Properties, On-Campus Participating Properties, Development Services, and Property Management Services.  Management evaluates each segment’s performance based on operating income before depreciation, amortization, minority interests and allocation of corporate overhead.  Intercompany fees are reflected at the contractually stipulated amounts.

29

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


  
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Wholly-Owned Properties
 
 
 
 
 
 
 
 
Rental revenues and other income
 
$
172,525

 
$
150,914

 
$
509,012

 
$
449,816

Interest income
 
270

 
14

 
821

 
36

Total revenues from external customers
 
172,795

 
150,928

 
509,833

 
449,852

Operating expenses before depreciation, amortization, ground/facility leases and allocation of corporate overhead
 
(98,574
)
 
(88,002
)
 
(251,599
)
 
(224,441
)
Ground/facility leases
 
(1,136
)
 
(759
)
 
(3,004
)
 
(2,063
)
Interest expense
 
(10,568
)
 
(10,827
)
 
(32,689
)
 
(33,237
)
Operating income before depreciation, amortization, and allocation of corporate overhead
 
$
62,517

 
$
51,340

 
$
222,541

 
$
190,111

Depreciation and amortization
 
$
47,481

 
$
43,386

 
$
140,647

 
$
132,903

Capital expenditures
 
$
108,855

 
$
96,770

 
$
258,143

 
$
271,623

Total segment assets at September 30,
 
$
5,524,722

 
$
5,133,137

 
$
5,524,722

 
$
5,133,137

 
 
 
 
 
 
 
 
 
On-Campus Participating Properties
 
 

 
 

 
 

 
 

Rental revenues and other income
 
$
5,786

 
$
5,066

 
$
18,709

 
$
17,871

Interest income
 
(3
)
 
8

 
3

 
12

Total revenues from external customers
 
5,783

 
5,074

 
18,712

 
17,883

Operating expenses before depreciation, amortization, ground/facility leases and allocation of corporate overhead
 
(2,786
)
 
(2,850
)
 
(7,675
)
 
(7,915
)
Ground/facility leases
 
(1,070
)
 
(627
)
 
(2,347
)
 
(1,686
)
Interest expense
 
(1,091
)
 
(1,365
)
 
(3,352
)
 
(4,120
)
Operating income before depreciation, amortization and allocation of corporate overhead
 
$
836

 
$
232

 
$
5,338

 
$
4,162

Depreciation and amortization
 
$
1,548

 
$
1,197

 
$
3,988

 
$
3,553

Capital expenditures
 
$
5,564

 
$
7,660

 
$
26,734

 
$
8,368

Total segment assets at September 30,
 
$
114,516

 
$
77,250

 
$
114,516

 
$
77,250

 
 
 
 
 
 
 
 
 
Development Services
 
 

 
 

 
 

 
 

Development and construction management fees
 
$
1,856

 
$
622

 
$
3,624

 
$
1,656

Operating expenses
 
(3,191
)
 
(3,159
)
 
(8,771
)
 
(8,541
)
Operating loss before depreciation, amortization and allocation of corporate overhead
 
$
(1,335
)
 
$
(2,537
)
 
$
(5,147
)
 
$
(6,885
)
Total segment assets at September 30,
 
$
2,770

 
$
5,113

 
$
2,770

 
$
5,113

 
 
 
 
 
 
 
 
 
Property Management Services
 
 

 
 

 
 

 
 

Property management fees from external customers
 
$
1,769

 
$
1,792

 
$
5,751

 
$
5,425

Intersegment revenues
 
5,693

 
5,293

 
16,896

 
15,879

Total revenues
 
7,462

 
7,085

 
22,647

 
21,304

Operating expenses
 
(3,149
)
 
(2,413
)
 
(9,210
)
 
(7,534
)
Operating income before depreciation, amortization and allocation of corporate overhead
 
$
4,313

 
$
4,672

 
$
13,437

 
$
13,770

Total segment assets at September 30,
 
$
7,536

 
$
6,960

 
$
7,536

 
$
6,960

 
 
 
 
 
 
 
 
 
Reconciliations
 
 

 
 

 
 

 
 

Total segment revenues and other income
 
$
187,896

 
$
163,709

 
$
554,816

 
$
490,695

Unallocated interest income earned on investments and corporate cash
 
788

 
770

 
2,299

 
2,117

Elimination of intersegment revenues
 
(5,693
)
 
(5,293
)
 
(16,896
)
 
(15,879
)
Total consolidated revenues, including interest income
 
$
182,991

 
$
159,186

 
$
540,219

 
$
476,933

Segment operating income before depreciation, amortization and allocation of corporate overhead
 
$
66,331

 
$
53,707

 
$
236,169

 
$
201,158

Depreciation and amortization
 
(51,119
)
 
(46,466
)
 
(150,704
)
 
(141,945
)
Net unallocated expenses relating to corporate interest and overhead
 
(18,263
)
 
(12,342
)
 
(48,059
)
 
(34,761
)
Loss from disposition of real estate
 
(67
)
 

 
(67
)
 

Other nonoperating (expense) income
 
(2,377
)
 
134

 
(2,377
)
 
(2,666
)
Income tax provision
 
(290
)
 
(255
)
 
(869
)
 
(765
)
(Loss) income from continuing operations
 
$
(5,785
)
 
$
(5,222
)
 
$
34,093

 
$
21,021

 
 
 
 
 
 
 
 
 
Total segment assets
 
$
5,649,544

 
$
5,222,460

 
$
5,649,544

 
$
5,222,460

Unallocated corporate assets
 
104,317

 
97,626

 
104,317

 
97,626

Total assets at September 30,
 
$
5,753,861

 
$
5,320,086

 
$
5,753,861

 
$
5,320,086

 

30

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


16. Subsequent Events
 
Distributions:  On October 29, 2014, the Company declared a third quarter 2014 distribution per share of $0.38 which will be paid on November 26, 2014 to all common stockholders of record as of November 13, 2014.  At the same time, the Operating Partnership will pay an equivalent amount per unit to holders of Common Units, as well as the quarterly cumulative preferential distribution to holders of Series A Preferred Units (see Note 10).
 


31


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, 2013.
 
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, 2014, our total owned property portfolio contained 167 properties, consisting of owned off-campus student housing properties that are in close proximity to colleges and universities, American Campus Equity (“ACE®”) 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 hotel which we plan to redevelop into a new student housing facility.  Of the 167 properties, four were under development as of September 30, 2014, and when completed will consist of a total of approximately 3,200 beds in approximately 800 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. 


32


As of September 30, 2014, through ACC’s taxable REIT subsidiary (“TRS”) entities, we provided third-party management and leasing services for 33 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, 2014:
 
Property portfolio:
 
Properties
 
Units
 
Beds
Wholly-owned operating properties:
 
 
 
 
 
 
Off-campus properties (1) (2)
 
141

 
26,303

 
81,094

On-campus ACE
 
17

 
3,970

 
12,847

Subtotal – operating properties
 
158

 
30,273

 
93,941

 
 
 
 
 
 
 
Wholly-owned properties under development:
 
 

 
 

 
 

Off-campus properties
 
3

 
498

 
1,872

On-campus ACE
 
1

 
351

 
1,316

Subtotal – properties under development
 
4

 
849

 
3,188

 
 
 
 
 
 
 
Total wholly-owned properties
 
162

 
31,122

 
97,129

 
 
 
 
 
 
 
On-campus participating properties
 
5

 
2,087

 
5,086

 
 
 
 
 
 
 
Total owned property portfolio
 
167

 
33,209

 
102,215

 
 
 
 
 
 
 
Managed properties
 
33

 
10,361

 
26,040

Total property portfolio
 
200

 
43,570

 
128,255

 
 
 
 
 
 
 
 
(1) 
Includes a hotel we acquired in January 2014 that is being operated by the seller until the fourth quarter 2014, at which time the hotel will be demolished and construction on a new student housing facility will commence. This property currently has no units or beds included in the totals above.

(2) 
Includes University Walk, a 177-unit, 526-bed property we did not own as of September 30, 2014, but were obligated to purchase once construction was complete and certain closing conditions were met.  The property opened for operations in August 2014 and we expect to purchase the property in the fourth quarter 2014.

Owned development activity

Recently completed projects: In June and August 2014, the final stages of construction were completed on three on-campus ACE properties, two owned off-campus properties, one on-campus participating property and one off-campus property subject to a pre-sale agreement. These properties are summarized in the following table:
 
Project
 
 Project Type
 
 
Location
 
Primary University Served
 
 
Units
 
 
Beds
 
Total Project Cost
 
Opened for Occupancy
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Merwick Stanworth Phase I
 
ACE
 
Princeton, NJ
 
Princeton University
 
127

 
214

 
$
31,700

 
June 2014
The Plaza on University
 
Off-campus
 
Orlando, FL
 
University of Central Florida
 
364

 
1,313

 
112,900

 
August 2014
U Club on Frey Phase II
 
Off-campus
 
Kennesaw, GA
 
Kennesaw State University
 
102

 
408

 
24,700

 
August 2014
U Centre at Northgate
 
ACE
 
College Station, TX
 
Texas A&M University
 
196

 
784

 
36,800

 
August 2014
The Suites Phase II
 
ACE
 
Flagstaff, AZ
 
Northern Arizona University
 
164

 
328

 
18,300

 
August 2014
University Walk (1)
 
Pre-sale
 
Knoxville, TN
 
University of Tennessee
 
177

 
526

 
34,500

 
August 2014
College Park (2)
 
On-campus participating
 
Morgantown, WV
 
West Virginia University
 
224

 
567

 
43,800

 
August 2014
TOTAL – 2014 DELIVERIES
 
1,354

 
4,140

 
$
302,700

 
 

(1) 
This project was completed by a third-party developer and we expect to purchase the property in the fourth quarter 2014.

(2) 
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

33


University/lessor and the University will receive 50% of defined net cash flows on an annual basis through the term of the leases.

Projects under construction: At September 30, 2014, we were in the process of constructing three owned off-campus properties and one on-campus ACE property. These properties are summarized in the table below:
 
 
Project
 
 Project Type
 
 
 
Location
 
 
Primary University Served
 
 
Units
 
 
Beds
 
Estimated Project Cost
 
Total Costs Incurred
 
Scheduled to Open for Occupancy
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Summit at University City
 
ACE
 
Philadelphia, PA
 
Drexel University
 
351

 
1,316

 
$
170,700

 
$
75,139

 
September 2015
2125 Franklin
 
Off-campus
 
Eugene, OR
 
University of Oregon
 
192

 
734

 
64,600

 
33,605

 
September 2015
160 Ross
 
Off-campus
 
Auburn, AL
 
Auburn University
 
182

 
642

 
41,300

 
15,855

 
August 2015
U Club on Woodward Phase II
 
Off-campus
 
Tallahassee, FL
 
Florida State University
 
124

 
496

 
37,100

 
16,617

 
August 2015
TOTAL – 2015 DELIVERIES
 
849

 
3,188

 
$
313,700

 
$
141,216

 
 

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, 2014, we acquired one property containing an existing hotel that we plan to redevelop into a student housing community.
 
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 one on-campus participating property during the three months ended September 30, 2014. The development and construction management fees on this project total approximately $2.4 million but are deferred and amortized to income over the term of the ground lease due to our involvement in the construction of this project. We also received a fee of $0.6 million during the three months ended September 30, 2014 for certain predevelopment services provided to a University for a student and academic services facility.

As of September 30, 2014, we were under contract on a total of three third-party development projects that are currently in progress and whose fees range from $1.5 million to $3.2 million.  As of September 30, 2014, fees of approximately $2.0 million remained to be earned by us with respect to these projects, which have scheduled completion dates ranging from the fourth quarter 2014 through August 2015.



34


Results of Operations

Comparison of the Three Months Ended September 30, 2014 and September 30, 2013
 
The following table presents our results of operations for the three months ended September 30, 2014 and 2013, including the amount and percentage change in these results between the two periods.  
 
 
Three Months Ended September 30,
 
 
 
 
 
 
2014
 
2013
 
Change ($)
 
Change (%)
Revenues
 
 
 
 
 
 
 
 
Wholly-owned properties
 
$
171,816

 
$
150,031

 
$
21,785

 
14.5
 %
On-campus participating properties
 
5,786

 
5,066

 
720

 
14.2
 %
Third-party development services
 
1,856

 
622

 
1,234

 
198.4
 %
Third-party management services
 
1,769

 
1,792

 
(23
)
 
(1.3
)%
Resident services
 
709

 
883

 
(174
)
 
(19.7
)%
Total revenues
 
181,936

 
158,394

 
23,542

 
14.9
 %
 
 
 
 
 
 
 
 
 
Operating expenses
 
 

 
 

 
 

 
 

Wholly-owned properties
 
98,232

 
86,838

 
11,394

 
13.1
 %
On-campus participating properties
 
3,003

 
3,021

 
(18
)
 
(0.6
)%
  Third-party development and management services
 
2,881

 
3,058

 
(177
)
 
(5.8
)%
General and administrative
 
4,807

 
3,934

 
873

 
22.2
 %
Depreciation and amortization
 
49,576

 
45,056

 
4,520

 
10.0
 %
Ground/facility leases
 
2,206

 
1,386

 
820

 
59.2
 %
Provision for real estate impairment
 
2,377

 

 
2,377

 
100.0
 %
Total operating expenses
 
163,082

 
143,293

 
19,789

 
13.8
 %
 
 
 
 
 
 
 
 
 
Operating income
 
18,854

 
15,101

 
3,753

 
24.9
 %
 
 
 
 
 
 
 
 
 
Nonoperating income and (expenses)
 
 

 
 

 
 

 
 

Interest income
 
1,055

 
792

 
263

 
33.2
 %
Interest expense
 
(23,794
)
 
(19,584
)
 
(4,210
)
 
21.5
 %
Amortization of deferred financing costs
 
(1,543
)
 
(1,410
)
 
(133
)
 
9.4
 %
Loss from disposition of real estate
 
(67
)
 

 
(67
)
 
100.0
 %
Other nonoperating income
 

 
134

 
(134
)
 
(100.0
)%
Total nonoperating expenses
 
(24,349
)
 
(20,068
)
 
(4,281
)
 
21.3
 %
 
 
 
 
 
 
 
 
 
Loss before income taxes and discontinued operations
 
(5,495
)
 
(4,967
)
 
(528
)
 
10.6
 %
Income tax provision
 
(290
)
 
(255
)
 
(35
)
 
13.7
 %
Loss from continuing operations
 
(5,785
)
 
(5,222
)
 
(563
)
 
10.8
 %
 
 
 
 
 
 
 
 
 
Discontinued operations
 
 

 
 

 
 

 
 

Income attributable to discontinued operations
 

 
223

 
(223
)
 
(100.0
)%
Gain from disposition of real estate
 

 
52,831

 
(52,831
)
 
(100.0
)%
Total discontinued operations
 

 
53,054

 
(53,054
)
 
(100.0
)%
 
 
 
 
 
 
 
 
 
Net (loss) income
 
(5,785
)
 
47,832

 
(53,617
)
 
(112.1
)%
 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
 

 
 

 
 

 
 

Redeemable noncontrolling interests
 
19

 
(573
)
 
592

 
(103.3
)%
Partially owned properties
 
(81
)
 
(83
)
 
2

 
(2.4
)%
Net income attributable to noncontrolling interests
 
(62
)
 
(656
)
 
594

 
(90.5
)%
Net (loss) income attributable to common shareholders
 
$
(5,847
)
 
$
47,176

 
$
(53,023
)
 
(112.4
)%



35


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.
 
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, new property and sold property operations to our consolidated statements of comprehensive income is set forth below: 
 
 
Same Store Properties
 
New Properties (1)
 
Sold Properties (2)
 
Total - All Properties
 
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Number of properties
 
139

 
139

 
19

 
10

 
1

 
1

 
159

 
150

Number of beds 
 
83,025

(3) 
83,057

 
10,884

 
5,587

 
480

 
480

 
94,389

 
89,124

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues (4)
 
$
151,917

 
$
144,842

 
$
20,260

 
$
5,633

 
$
348

 
$
439

 
$
172,525

 
$
150,914

Operating expenses
 
86,615

 
83,024

 
11,296

 
3,406

 
321

 
408

 
98,232

 
86,838

 
(1) 
Does not include properties under construction as of September 30, 2014.  Number of properties and number of beds also excludes properties undergoing redevelopment as of September 30, 2014, although the results of operations of those properties are included in new property revenues and operating expenses prior to commencement of redevelopment activities.

(2) 
Includes The Enclave, a 480-bed wholly-owned property sold in September 2014. Due to a recent change in accounting guidance, The Enclave along with future disposals of individual operating properties will no longer qualify as discontinued operations and will be classified within income from continuing operations on the accompanying consolidated statements of comprehensive income. As a result, the operations of The Enclave are included in the table above in order to reconcile to wholly-owned revenues and wholly-owned operating expenses on the accompanying consolidated statements of comprehensive income. Refer to Note 2 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for a more detailed discussion of the new guidance for discontinued operations.

(3) 
The decrease in the number of beds for the comparable three month periods is due to a fire that damaged 32 beds at one of our wholly-owned properties in July 2014. These beds are currently being rebuilt and are anticipated to be available for occupancy in 2015.

(4) 
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 2014/2015 academic year offset by a slight decrease in average occupancy from 94.2% during the three months ended September 30, 2013 to 94.0% during the three months ended September 30, 2014.  Future revenues will be dependent on our ability to maintain our current leases in effect for the 2014/2015 academic year and our ability to obtain appropriate rental rates and desired occupancy for the 2015/2016 academic year at our various properties.
 
The increase in operating expenses from our same store properties was primarily due to an increase in utility costs, an increase in property taxes caused primarily by the stabilization of development property tax assessments in the second year of operations and an increase in bad debt expense as a result of a lower quality tenant base at certain properties resulting from the slower leasing

36


velocity experienced during the 2013/2014 leasing campaign. These increases were partially offset by a decrease in marketing expense as a result of expense control efforts and improved leasing velocity for the 2014/2015 academic year.
 
New Property Operations.  Our new properties for the three months ended September 30, 2014 consist of the following: (i) 7th Street Station, acquired in July 2013, (ii) 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, (iii) Townhomes at Newtown Crossing, a property previously subject to a pre-sale agreement that we acquired in September 2013, (iv) seven owned development projects that opened for occupancy in August and September 2013, (v) Park Point, acquired in October 2013, (vi) U Centre at Fry Street and Cardinal Towne, both acquired in November 2013, (vii) Boulder Outlook Hotel, acquired in January 2014, (viii) five owned development projects that opened for occupancy in June and August 2014, and (ix) University Walk, a property subject to a pre-sale agreement that we did not own as of September 30, 2014 but is consolidated for financial reporting purposes.

On-Campus Participating Properties (“OCPP”) Operations
 
Same Store OCPP Properties. We had four participating properties containing 4,519 beds which were operating during the three months ended September 30, 2014 and 2013. Revenues from our same store participating properties increased approximately $0.2 million to $5.3 million during three months ended September 30, 2014 from $5.1 million for the three months ended September 30, 2013. This change occurred as a result of an increase in average rental rates for the 2014/2015 academic year and an increase in average occupancy from 69.9% for the three months ended September 30, 2013 to 72.4% for the three months ended September 30, 2014. 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 decreased by approximately $0.2 million, from $3.0 million for the three months ended September 30, 2013 to $2.8 million for the nine months ended September 30, 2014. This decrease was primarily a result of a decrease in utilities expense at two of our participating properties that discontinued resident telephone service in 2014.

New Property Operations. In August 2014, we completed construction on College Park, a 224-unit, 567-bed on-campus participating property serving students attending West Virginia University. This property contributed additional revenue and operating expenses of approximately $0.5 million and $0.2 million, respectively, during the three months ended September 30, 2014.

Third-Party Development Services Revenue
 
Third-party development services revenue increased by approximately $1.2 million, from $0.6 million during the three months ended September 30, 2013 to $1.8 million for the three months ended September 30, 2014.  This increase was primarily due to the closing of bond financing and commencement of construction in July 2014 on a third-party on-campus development project containing 482 beds at Texas A&M University - Corpus Christi, resulting in $0.9 million of revenue recognized during three months ended September 30, 2014. During the three months ended September 30, 2014, we had four projects in progress with an average contractual fee of approximately $1.9 million, as compared to the three months ended September 30, 2013 in which we had three projects in progress with an average contractual fee of approximately $2.7 million.  
 
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 $0.2 million, from $3.1 million during the three months September 30, 2013 to $2.9 million for the three months ended September 30, 2014. This decrease was primarily a result of approximately $0.6 million of transfer taxes paid by us during the three months ended September 30, 2013 in connection with our conversion of a wholly-owned property from off-campus into an on-campus ACE structure via a ground lease with Drexel University. This decrease was partially offset by an increase in payroll and benefits, branding initiatives and general inflation during the three months ended September 30, 2014. We anticipate third-party development and management services expenses will increase in 2014 as compared to 2013 due to the factors discussed above.


37


General and Administrative

General and administrative expenses increased by approximately $0.9 million, from $3.9 million during the three months ended September 30, 2013 to $4.8 million for the three months ended September 30, 2014. This increase was primarily due to additional payroll, health care and benefits expense, public company costs and other general inflationary factors.

Depreciation and Amortization
 
Depreciation and amortization increased by approximately $4.5 million, from $45.1 million during the three months ended September 30, 2013 to $49.6 million for the three months ended September 30, 2014.  This increase was primarily a result of additional depreciation and amortization expense of approximately $2.0 million recorded during the three months ended September 30, 2014 related to properties acquired during 2013 and 2014. In addition, the completion of construction and opening of seven owned development properties in August and September 2013 along with six owned development properties and one on-campus participating property in June and August 2014 contributed an additional $3.5 million of depreciation and amortization expense during the three months ended September 30, 2014. These increases were partially offset by a decrease in the amortization of in-place leases of approximately $2.0 million related to the purchase of 40 properties in 2012. The value assigned to in-place leases upon acquisition of these properties was fully amortized by the end of 2013. We expect depreciation and amortization expense to increase in 2014 as compared to 2013 for the reasons discussed above.
 
Ground/Facility Leases
 
Ground/facility leases expense increased by approximately $0.8 million, from $1.4 million during the three months ended September 30, 2013 to $2.2 million for the three months ended September 30, 2014.  This increase was primarily due to the recently completed on-campus participating property placed into service in August 2014, along with improved operating results at two other on-campus participating properties during the comparable three month periods, which contributed an additional $0.4 million of ground/facility leases expense during the three months ended September 30, 2014. The timing of ACE development projects placed into service during 2013 and 2014 contributed the remaining $0.4 million increase to ground/facility leases expense during the three months ended September 30, 2014. We anticipate ground/facility leases expense to increase in 2014 as compared to 2013 for the reasons discussed above.
Provision for Real Estate Impairment

During the three months ended September 30, 2014, we recorded a loss of approximately $2.4 million related to an impairment recognized prior to the sale of a wholly-owned property in September 2014. Refer to Note 4 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for a detailed discussion of our property dispositions.

Interest Income

Interest income increased by approximately $0.3 million, from $0.8 million during the three months September 30, 2013 to $1.1 million for the three months ended September 30, 2014. This increase was a result of the assumption of a loan receivable in connection with our purchase of Cardinal Towne in November 2013, which contributed an additional $0.3 million of interest income during the three months ended September 30, 2014.
Interest Expense
 
Interest expense increased by approximately $4.2 million, from $19.6 million during the three months ended September 30, 2013 to $23.8 million for the three months ended September 30, 2014. We incurred additional interest expense of approximately $4.2 million during the three months ended September 30, 2014 related to our $400 million offering of senior unsecured notes which closed on June 24, 2014. In December 2013, we borrowed $250 million under a new term loan facility ("Term Loan II Facility") which resulted in approximately $1.0 million of additional interest expense for the three months ended September 30, 2014. We also incurred additional interest expense of approximately $0.9 million during the three months ended September 30, 2014 related to loans assumed in connection with 2013 property acquisitions. Lastly, interest expense increased by approximately $0.8 million as a result of a decrease in capitalized interest due to the timing and volume of construction activities on our owned development projects along with a decrease to our weighted-average cost of capital during the comparable three month periods. These increases were offset by a decrease of approximately $2.0 million during the three months ended September 30, 2014 related to the payoff of mortgage loans during the past 15 months and the payoff of our secured agency facility on September 1, 2014. In addition, interest expense decreased by approximately $0.3 million related to a decrease in borrowings under our unsecured revolving credit facility during the comparable three month periods. Lastly, interest expense decreased by approximately $0.2 million during the three months ended September 30, 2014 as a result of the refinancing of our Cullen Oaks Phase I and Phase II mortgage loans in

38


February 2014. We anticipate interest expense will increase significantly in 2014 as compared to 2013 for the reasons discussed above along with the timing of our $400 million offering of senior unsecured notes in April 2013.

Discontinued Operations
 
Discontinued operations on the accompanying consolidated statements of comprehensive income for the three months ended September 30, 2013 includes the following wholly-owned properties: (i) Hawks Landing, sold in February 2014 for a sales price of $17.3 million, (ii) University Mills, sold in November 2013 for a sales price of $14.5 million, (iii) Campus Ridge, sold in October 2013 for a sales price of $12.3 million, and (iv) State College Park, University Pines, The Village at Blacksburg and Northgate Lakes, wholly-owned properties sold in July 2013 for a combined sales price of $157.4 million. Refer to Note 4 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for a table summarizing the results of operations of the properties classified within discontinued operations.

Noncontrolling Interests

Noncontrolling interests represent holders of common and preferred units in our Operating Partnership not held by ACC or ACC Holdings as well as certain third-party partners in joint ventures consolidated by us for financial reporting purposes. Accordingly, these external partners are allocated their share of income/loss during the respective reporting periods. Refer to Note 10 in the accompanying Notes to Consolidated Financial Statements for a detailed discussion of noncontrolling interests.


39


Comparison of the Nine Months Ended September 30, 2014 and September 30, 2013
 
The following table presents our results of operations for the nine months ended September 30, 2014 and 2013, including the amount and percentage change in these results between the two periods.

 
 
Nine Months Ended September 30,
 
 
 
 
2014
 
2013
 
Change ($)
 
Change (%)
Revenues
 
 
 
 
 
 
 
 
Wholly-owned properties
 
$
506,822

 
$
447,904

 
$
58,918

 
13.2
 %
On-campus participating properties
 
18,709

 
17,871

 
838

 
4.7
 %
Third-party development services
 
3,624

 
1,656

 
1,968

 
118.8
 %
Third-party management services
 
5,751

 
5,425

 
326

 
6.0
 %
Resident services
 
2,190

 
1,912

 
278

 
14.5
 %
Total revenues
 
537,096

 
474,768

 
62,328

 
13.1
 %
 
 
 
 
 
 
 
 
 
Operating expenses
 
 

 
 

 
 

 
 

Wholly-owned properties
 
250,074

 
221,817

 
28,257

 
12.7
 %
On-campus participating properties
 
8,265

 
8,454

 
(189
)
 
(2.2
)%
  Third-party development and management services
 
8,387

 
7,786

 
601

 
7.7
 %
General and administrative
 
14,159

 
12,366

 
1,793

 
14.5
 %
Depreciation and amortization
 
146,201

 
137,811

 
8,390

 
6.1
 %
Ground/facility leases
 
5,351

 
3,749

 
1,602

 
42.7
 %
Provision for real estate impairment
 
2,377

 

 
2,377

 
100.0
 %
Total operating expenses
 
434,814

 
391,983

 
42,831

 
10.9
 %
 
 
 
 
 
 
 
 
 
Operating income
 
102,282

 
82,785

 
19,497

 
23.6
 %
 
 
 
 
 
 
 
 
 
Nonoperating income and (expenses)
 
 

 
 

 
 

 
 

Interest income
 
3,123

 
2,165

 
958

 
44.2
 %
Interest expense
 
(65,873
)
 
(56,364
)
 
(9,509
)
 
16.9
 %
Amortization of deferred financing costs
 
(4,503
)
 
(4,134
)
 
(369
)
 
8.9
 %
Loss from disposition of real estate
 
(67
)
 

 
(67
)
 
100.0
 %
Other nonoperating expense
 

 
(2,666
)
 
2,666

 
(100.0
)%
Total nonoperating expenses
 
(67,320
)
 
(60,999
)
 
(6,321
)
 
10.4
 %
 
 
 
 
 
 
 
 
 
Income before income taxes and discontinued operations
 
34,962

 
21,786

 
13,176

 
60.5
 %
Income tax provision
 
(869
)
 
(765
)
 
(104
)
 
13.6
 %
Income from continuing operations
 
34,093

 
21,021

 
13,072

 
62.2
 %
 
 
 
 
 
 
 
 
 
Discontinued operations
 
 

 
 

 
 

 
 

(Loss) income attributable to discontinued operations
 
(123
)
 
5,027

 
(5,150
)
 
(102.4
)%
Gain from disposition of real estate
 
2,843

 
52,831

 
(49,988
)
 
(94.6
)%
Total discontinued operations
 
2,720

 
57,858

 
(55,138
)
 
(95.3
)%
 
 
 
 
 
 
 
 
 
Net income
 
36,813

 
78,879

 
(42,066
)
 
(53.3
)%
 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
 

 
 

 
 

 
 

Redeemable noncontrolling interests
 
(567
)
 
(986
)
 
419

 
(42.5
)%
Partially owned properties
 
(257
)
 
(1,078
)
 
821

 
(76.2
)%
Net income attributable to noncontrolling interests
 
(824
)
 
(2,064
)
 
1,240

 
(60.1
)%
Net income attributable to common shareholders
 
$
35,989

 
$
76,815

 
$
(40,826
)
 
(53.1
)%


40


Wholly-Owned Properties Operations
 
A reconciliation of our same store, new property and sold property operations to our consolidated statements of comprehensive income is set forth below:
 
 
Same Store Properties
 
New Properties (1)
 
Sold Properties (2)
 
Total - All Properties
 
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Number of properties
 
139

 
139

 
19

 
10

 
1

 
1

 
159

 
150

Number of beds
 
83,025

(3) 
83,057

 
10,884

 
5,587

 
480

 
480

 
94,389

 
89,124

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues (4)
 
$
451,579

 
$
442,419

 
$
56,228

 
$
6,063

 
$
1,205

 
$
1,334

 
$
509,012

 
$
449,816

Operating expenses
 
222,021

 
217,311

 
27,160

 
3,547

 
893

 
959

 
250,074

 
221,817


(1) 
Does not include properties under construction as of September 30, 2014.  Number of properties and number of beds also excludes properties undergoing redevelopment as of September 30, 2014, although the results of operations of those properties are included in new property revenues and operating expenses prior to commencement of redevelopment activities.

(2) 
Includes The Enclave, a 480-bed wholly-owned property sold in September 2014. Due to a recent change in accounting guidance, The Enclave along with future disposals of individual operating properties will no longer qualify as discontinued operations and will be classified within income from continuing operations on the accompanying consolidated statements of comprehensive income. As a result, the operations of The Enclave are included in the table above in order to reconcile to wholly-owned revenues and wholly-owned operating expenses on the accompanying consolidated statements of comprehensive income. Refer to Note 2 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for a more detailed discussion of the new guidance for discontinued operations.

(3) 
The decrease in the number of beds for the comparable nine month periods is due to a fire that damaged 32 beds at one of our wholly-owned properties in July 2014. These beds are currently being rebuilt and are anticipated to be available for occupancy in 2015.

(4) 
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 2013/2014 and 2014/2015 academic years and an increase in average occupancy from 94.4% during the nine months ended September 30, 2013 to 94.7% for the nine months ended September 30, 2014.

The increase in operating expenses from our same store properties was primarily due to an increase in utility costs associated with an unusually cold winter in 2014, an increase in property taxes caused primarily by the stabilization of development property tax assessments in the second year of operations and an increase in bad debt expense as a result of a lower quality tenant base at certain properties resulting from the slower leasing velocity experienced during the 2013/2014 leasing campaign. These increases were partially offset by a decrease in marketing expense as a result of expense control efforts and improved leasing velocity for the 2014/2015 academic year.
New Property Operations.  Our new properties for the nine months ended September 30, 2014 consist of the following: (i) 7th Street Station, acquired in July 2013, (ii) 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, (iii) Townhomes at Newtown Crossing, a property previously subject to a pre-sale agreement that we acquired in September 2013, (iv) seven owned development projects that opened for occupancy in August and September 2013, (v) Park Point, acquired in October 2013, (vi) U Centre at Fry Street and Cardinal Towne, both acquired in November 2013, (vii) Boulder Outlook Hotel, acquired in January 2014, (viii) five owned development projects that opened for occupancy in June and August 2014, and (ix) University Walk, a property subject to a pre-sale agreement that we did not own as of September 30, 2014 but is consolidated for financial reporting purposes.

 



41


On-Campus Participating Properties (“OCPP”) Operations
 
Same Store OCPP Properties. We had four participating properties containing 4,519 beds which were operating during the nine months ended September 30, 2014 and 2013. Revenues from our same store participating properties increased approximately $0.3 million to $18.2 million during nine months ended September 30, 2014 from $17.9 million for the nine months ended September 30, 2013. This change was primarily a result of an increase in average rental rates for the 2013/2014 and 2014/2015 academic years and an increase in average occupancy from 69.1% for the nine months ended September 30, 2013 to 70.0% for the nine months ended September 30, 2014. 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 decreased by approximately $0.3 million, from $8.4 million for the nine months ended September 30, 2013 to $8.1 million for the nine months ended September 30, 2014. This decrease was primarily a result of a decrease in utilities expense at two of our participating properties that discontinued resident telephone service in 2014.
 
New Property Operations. In August 2014, we completed construction on College Park, a 224-unit, 567-bed on-campus participating property serving students attending West Virginia University. This property contributed additional revenue and operating expenses of approximately $0.5 million and $0.1 million, respectively, during the nine months ended September 30, 2014.

Third-Party Development Services Revenue
 
Third-party development services revenue increased by approximately $1.9 million, from $1.7 million during the nine months ended September 30, 2013 to $3.6 million for the nine months ended September 30, 2014.  This increase was primarily due to the closing of bond financing and commencement of construction for the University of Toledo project in June 2014 and the Texas A&M University - Corpus Christi project in July 2014. These two new projects contributed an additional $2.1 million of revenue recognized during the nine months ended September 30, 2014. During the nine months ended September 30, 2014, we had four projects in progress with an average contractual fee of approximately $1.9 million, as compared to the nine months ended September 30, 2013 in which we had three projects in progress with an average contractual fee of approximately $2.7 million.
 
Third-Party Development and Management Services Expenses
 
Third-party development and management services expenses increased by approximately $0.6 million, from $7.8 million during the nine months ended September 30, 2013 to $8.4 million for the nine months ended September 30, 2014.  This increase was primarily a result of payroll and benefits, branding initiatives and general inflation, offset by approximately $0.6 million of transfer taxes paid by us during the nine months ended September 30, 2013 in connection with our conversion of a wholly-owned property from off-campus into an on-campus ACE structure via a ground lease with Drexel University.
 
General and Administrative
 
General and administrative expenses increased by approximately $1.8 million, from $12.4 million during the nine months ended September 30, 2013 to $14.2 million for the nine months ended September 30, 2014.  This increase was primarily due to additional payroll, health care and benefits expense, public company costs and other general inflationary factors.
 
Depreciation and Amortization
 
Depreciation and amortization increased by approximately $8.4 million, from $137.8 million during the nine months ended September 30, 2013 to $146.2 million for the nine months ended September 30, 2014.  This increase was primarily a result of additional depreciation and amortization expense of approximately $7.8 million recorded during the nine months ended September 30, 2014 related to properties acquired during 2013 and 2014. In addition, the completion of construction and opening of seven owned development properties in August and September 2013 along with six owned development properties and one on-campus participating property in June and August 2014 contributed an additional $10.2 million of depreciation and amortization expense during the nine months ended September 30, 2014. These increases were partially offset by a decrease in the amortization of in-place leases of approximately $12.5 million related to the purchase of 40 properties in 2012. The value assigned to in-place leases upon acquisition of these properties was fully amortized by the end of 2013.
 
Ground/Facility Leases
 
Ground/facility leases expense increased by approximately $1.6 million, from $3.7 million during the nine months ended September 30, 2013 to $5.3 million for the nine months ended September 30, 2014.  This increase was primarily due to the timing of ACE

42


development projects placed into service during 2013 and 2014 which contributed an additional $1.0 million of ground/facility leases expense during the nine months ended September 30, 2014. The recently completed on-campus participating property placed into service in August 2014, along with improved operating results at two other on-campus participating properties during the comparable nine month periods contributed the remaining $0.6 million increase to ground/facility leases expense during the nine months ended September 30, 2014.

Provision for Real Estate Impairment

During the nine months ended September 30, 2014, we recorded a loss of approximately $2.4 million related to an impairment recognized prior to the sale of a wholly-owned property in September 2014. Refer to Note 4 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for a detailed discussion of our property dispositions.
Interest Income
 
Interest income increased by approximately $0.9 million, from $2.2 million during the nine months ended September 30, 2013 to $3.1 million during the nine months ended September 30, 2014.  This increase was primarily a result of our purchase of $52.8 million in loans receivable in April 2013 which contributed an additional $1.0 million of interest income during the nine months ended September 30, 2014, as well as the assumption of a loan receivable in connection with our purchase of Cardinal Towne in November 2013 which contributed an additional $0.8 million of interest income during the nine months ended September 30, 2014. These increases were partially offset by an $0.8 million decrease to interest income related to a loan to a noncontrolling partner that was paid off in July 2013.

Interest Expense
 
Interest expense increased by approximately $9.5 million, from $56.4 million during the nine months ended September 30, 2013 to $65.9 million for the nine months ended September 30, 2014.  We incurred additional interest expense of approximately $8.4 million during the nine months ended September 30, 2014 related to the timing of our two recent offerings of senior unsecured notes which closed on April 2, 2013 and June 24, 2014, respectively. In December 2013, we borrowed $250 million under our new Term Loan II Facility which resulted in approximately $3.1 million of additional interest expense for the nine months ended September 30, 2014. We also incurred additional interest expense of approximately $2.7 million during the nine months ended September 30, 2014 related to loans assumed in connection with 2013 property acquisitions. In addition, interest expense increased by approximately $1.9 million as a result of a decrease in capitalized interest due to the timing and volume of construction activities on our owned development projects along with a decrease to our weighted-average cost of capital during the comparable nine month periods. These increases were partially offset by a decrease of approximately $5.1 million during the nine months ended September 30, 2014 related to the payoff of mortgage loans during the past 18 months and the payoff of our secured agency facility on September 1, 2014. Interest expense decreased by approximately $0.6 million during the nine months ended September 30, 2014 in connection with a reduction to the interest rate spread on our existing $350 million Term Loan I Facility in December 2013 and a reduction to the interest rate spread in May 2013 on a construction loan used to finance the development of two on-campus ACE properties. Lastly, interest expense decreased by approximately $0.6 million during the nine months ended September 30, 2014 as a result of our refinancing of the Cullen Oaks Phase I and Phase II mortgage loans in February 2014.
  
Amortization of Deferred Financing Costs
 
Amortization of deferred financing costs increased by approximately $0.4 million, from $4.1 million during the nine months ended September 30, 2013 to $4.5 million for the nine months ended September 30, 2014.  This increase was primarily due to an additional $0.3 million of finance cost amortization during the nine months ended in September 30, 2014 in connection with the December 2013 closing of our new $250 million Term Loan II Facility. We also incurred an additional $0.2 million of finance cost amortization during the nine months ended September 30, 2014 resulting from offering costs paid in connection with our two recent offerings of senior unsecured notes which closed on April 2, 2013 and June 24, 2014, respectively.

Other Nonoperating Expense
 
During the nine months ended September 30, 2013, we recognized litigation settlement costs of $2.8 million related to a lawsuit that was settled and dismissed in April 2013.

Discontinued Operations
 
Discontinued operations on the accompanying consolidated statements of comprehensive income includes the following wholly-owned properties: (i) Hawks Landing, sold in February 2014 for a sales price of $17.3 million, (ii) University Mills, sold in

43


November 2013 for a sales price of $14.5 million, (iii) Campus Ridge, sold in October 2013 for a sales price of $12.3 million, and (iv) State College Park, University Pines, The Village at Blacksburg and Northgate Lakes, wholly-owned properties sold in July 2013 for a combined sales price of $157.4 million. Refer to Note 4 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for a table summarizing the results of operations of the properties classified within discontinued operations.

Liquidity and Capital Resources
 
Cash Balances and Cash Flows
 
As of September 30, 2014, excluding our on-campus participating properties, we had $40.1 million in cash and cash equivalents and restricted cash as compared to $63.2 million in cash and cash equivalents and restricted cash as of December 31, 2013.  Restricted cash primarily consists of escrow accounts held by lenders and resident security deposits, as required by law in certain states, and funds held in escrow in connection with potential acquisition and development opportunities.  The following discussion relates to changes in cash due to operating, investing and financing activities, which are presented in our consolidated statements of cash flows included in Item 1 herein.
 
Operating Activities: For the nine months ended September 30, 2014, net cash provided by operating activities was approximately $201.0 million, as compared to approximately $176.8 million for the nine months ended September 30, 2013, an increase of $24.2 million.  This increase in cash provided by operating activities was primarily due to operating cash flows provided from the timing of the acquisition of five properties and an additional phase at an existing property in 2013 and the completion of construction and opening of seven owned development projects in August and September 2013 and five owned development projects and one on-campus participating project in June and September 2014.
 
Investing Activities:  Investing activities utilized approximately $285.5 million and $293.0 million for the nine months ended September 30, 2014 and 2013, respectively.  The $7.5 million decrease in cash utilized in investing activities was primarily a result of the following: (i) an $89.8 million decrease in cash paid to acquire properties and undeveloped land parcels as we acquired a site containing an existing hotel in Boulder, Colorado and two land parcels during the nine months ended September 30, 2014 compared to three wholly-owned properties and an additional phase at an existing wholly-owned property during the nine months ended September 30, 2013; (ii) a $24.1 million decrease in cash used to fund the construction of our wholly-owned development properties, as 13 wholly-owned properties were under construction during the nine months ended September 30, 2013, of which seven completed construction in August and September 2013, as compared to nine wholly-owned properties that were under construction during the nine months ended September 30, 2014, of which one completed construction in June 2014 and another four completed construction in August 2014; (iii) a decrease to our investment in loans receivable of $52.0 million during the comparable nine month periods; (iv) an $8.8 million decrease in mezzanine financing provided to third-party developers during the comparable nine month periods; (v) the repayment of a $3.0 million loan by a third-party developer during the nine months ended September 30, 2014; and (vi) a decrease in escrow deposits of $3.7 million for potential acquisition or development opportunities. These decreases were primarily offset by (i) a $146.2 million decrease in proceeds received from the disposition of real estate, as two wholly-owned properties containing 964 beds were sold during the nine months ended September 30, 2014 as compared to four wholly-owned properties containing 3,070 beds during the nine months ended September 30, 2013; (ii) an $18.0 million increase in cash used during the nine months ended September 30, 2014 to fund the construction of an on-campus participating property located in Morgantown, West Virginia, which opened for occupancy in August 2014; and (iii) a $10.6 million increase in cash used to fund capital expenditures at our wholly-owned properties, as we began or continued renovations at several properties during the nine months ended September 30, 2014.

Financing Activities: Cash provided by financing activities totaled approximately $65.1 million and $120.0 million for the nine months ended September 30, 2014 and 2013, respectively.  The $54.9 million decrease in cash provided by financing activities was primarily a result of the following: (i) a $63.3 million increase in cash used to pay off maturing mortgage debt during the comparable nine month periods; (ii) an $8.6 million increase in paydowns (net of proceeds) on our revolving credit facilities during the nine months ended September 30, 2014; (iii) a $6.8 million increase in distributions to stockholders during the nine months ended September 30, 2014 as a result of two increases to the quarterly dividend per share of common stock since May 2013; (iv) the termination of two forward starting interest rate swaps in connection with our issuance of unsecured notes in June 2014, resulting in cash payments to counterparties totaling $4.1 million; and (v) an $0.8 million increase in scheduled principal payments on outstanding debt during the comparable nine month periods. These decreases were partially offset by (i) a $22.3 million increase in construction loan proceeds during the comparable nine month periods as the development and construction of an on-campus participating property, which opened for occupancy in August 2014, was financed with a construction loan; and (ii) a $5.9 million increase in net proceeds raised through the issuance of common stock during the comparable nine month periods.




44


Liquidity Needs, Sources and Uses of Capital
 
As of September 30, 2014, our short-term liquidity needs included, but were not limited to, the following: (i) anticipated distribution payments to our common and restricted stockholders totaling approximately $160.7 million based on an assumed annual cash distribution of $1.52 per share based on the number of our shares outstanding as of September 30, 2014, (ii) anticipated distribution payments to our Operating Partnership unitholders totaling approximately $2.0 million based on an assumed annual distribution of $1.52 per common unit and a cumulative preferential per annum cash distribution rate of 5.99% on our Series A preferred units based on the number of units outstanding as of September 30, 2014, (iii) pay-off of approximately $205.1 million of outstanding fixed-rate mortgage debt and $44.6 million of variable rate construction debt scheduled to mature during the next 12 months, (iv) estimated development costs over the next 12 months totaling approximately $193.2 million for our wholly-owned properties currently under construction, (v) funds for other development projects scheduled to commence construction during the next 12 months, and (vi) potential future property acquisitions, including mezzanine financed developments.
 
We expect to meet our short-term liquidity requirements by (i) borrowing under our existing unsecured credit facility discussed below, (ii) issuing securities, including common stock, under our $500 million at-the-market share offering program (“ATM Equity Program”) discussed below, (iii) exercising debt extension options to the extent they are available, (iv) potentially disposing of properties depending on market conditions, and (v) utilizing current cash on hand and net cash provided by operations.
 
We may seek additional funds to undertake initiatives not contemplated by our business plan or obtain additional cushion against possible shortfalls.  We also may pursue additional financing as opportunities arise.  Future financings may include a range of different sizes or types of financing, including the incurrence of additional secured debt and the sale of additional debt or equity securities.  These funds may not be available on favorable terms or at all.  Our ability to obtain additional financing depends on several factors, including future market conditions, our success or lack of success in penetrating our markets, our future creditworthiness, and restrictions contained in agreements with our investors or lenders, including the restrictions contained in the agreements governing our unsecured credit facility and unsecured notes.  These financings could increase our level of indebtedness or result in dilution to our equity holders.

ATM Equity Program
 
As discussed in more detail in Note 9 in the accompanying Notes to Consolidated Financial Statements contained in Item 1, during the nine months ended September 30, 2014, we utilized our ATM Equity Program to sell shares of our common stock into the existing trading market at current market prices.

Senior Unsecured Notes
 
As discussed in more detail in Note 8 in the accompanying Notes to Consolidated Financial Statements contained in Item 1, in June 2014, we issued $400 million of 10-year senior unsecured notes at 99.861 percent of par value with a coupon of 4.125 percent and a yield of 4.142 percent.  Net proceeds from the sale of the unsecured notes totaled approximately $395.3 million after deducting the underwriting discount and offering expenses and we used $340 million of the offering proceeds to pay down the outstanding balance on our revolving credit facility in full.  The terms of the unsecured notes include certain financial covenants that require the Operating Partnership to limit the amount of total debt and secured debt as a percentage of total asset value, as defined.  In addition, the Operating Partnership must maintain a minimum ratio of unencumbered asset value to unsecured debt, as well as a minimum interest coverage level.  As of September 30, 2014, we were in compliance with all such covenants.

Unsecured Credit Facility
 
As discussed in more detail in Note 8 in the accompanying Notes to Consolidated Financial Statements contained in Item 1, we have an aggregate unsecured credit facility totaling $1.1 billion, which is comprised of two unsecured term loans totaling $600 million and a $500 million unsecured revolving credit facility.
 
As of September 30, 2014, the balance outstanding on our revolving credit facility totaled $138.5 million, bearing interest at a weighted average annual rate of 1.71%, and availability under our revolving credit facility totaled $361.5 million.  The terms of the unsecured credit facility include certain restrictions and covenants, as discussed more fully in Note 8 in the accompanying Notes to Consolidated Financial Statements contained in Item 1, including covenants that restrict the amount of distributions that we can pay.  As of September 30, 2014, we were in compliance with all such covenants.

 



45


Secured Agency Facility
 
As discussed in more detail in Note 8 in the accompanying Notes to Consolidated Financial Statements contained in Item 1, we borrowed funds from our $500 million unsecured revolving credit facility to pay off the outstanding balance on our secured agency facility on the scheduled maturity date of September 1, 2014.
 
Distributions
 
We are required to distribute 90% of our REIT taxable income (excluding capital gains) on an annual basis in order to qualify as a REIT for federal income tax purposes.  Distributions to common stockholders are at the discretion of the Board of Directors. We may use borrowings under our unsecured revolving credit facility to fund distributions.  The Board of Directors considers a number of factors when determining distribution levels, including market factors and our Company’s performance in addition to REIT requirements.
 
On October 29, 2014, we declared a third quarter 2014 distribution per share of $0.38, which will be paid on November 26, 2014 to all common stockholders of record as of November 13, 2014.  At the same time, the Operating Partnership will pay an equivalent amount per unit to holders of Common Units, as well as the quarterly cumulative preferential distribution to holders of Series A Preferred Units.

Pre-Development Expenditures
 
Our third-party and owned development activities have historically required us to fund pre-development expenditures such as architectural fees, permits and deposits.  The closing and/or commencement of construction of these development projects is subject to a number of risks such as our inability to obtain financing on favorable terms and delays or refusals in obtaining necessary zoning, land use, building, and other required governmental permits and authorizations  As such, we cannot always predict accurately the liquidity needs of these activities.  We frequently incur these pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained.  Accordingly, we bear the risk of the loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or we are unable to successfully obtain the required permits and authorizations.  Historically, our third-party and owned development projects have been successfully structured and financed; however, these developments have at times been delayed beyond the period initially scheduled, causing revenue to be recognized in later periods.  As of September 30, 2014, we have deferred approximately $7.2 million in pre-development costs related to third-party and owned development projects that have not yet commenced construction.
 
Indebtedness
 
As of September 30, 2014, we had approximately $2,861.5 million of outstanding consolidated indebtedness (excluding net unamortized mortgage debt premiums and debt discounts of approximately $64.0 million and $1.1 million, respectively), comprised of $798.3 million of 10-year unsecured notes (net of original issue discount), a $600.0 million balance on our unsecured term loans, a $138.5 million balance on our unsecured revolving credit facility, $1,212.0 million in mortgage and construction loans secured by our wholly-owned properties, a $30.8 million balance in mortgage loans secured by two phases of an on-campus participating property, $39.8 million in bond issuances secured by three of our on-campus participating properties and a $42.1 million balance on a construction loan used to finance the development of an on-campus participating property which completed construction and opened for occupancy in August 2014.  The weighted average interest rate on our consolidated indebtedness as of September 30, 2014 was 3.99% per annum.  As of September 30, 2014, approximately 15.7% of our total consolidated indebtedness was variable rate debt, comprised of our unsecured revolving credit facility, Term Loan Facility II and two construction loans discussed below.
 
Wholly-Owned Properties
 
Mortgage debt: The weighted average interest rate of the $1,150.0 million of wholly-owned mortgage debt was 5.24% per annum as of September 30, 2014.  Each of the mortgage loans is a non-recourse obligation subject to customary exceptions.  The loans generally may not be prepaid prior to maturity; in certain cases prepayment is allowed, subject to prepayment penalties.
 
Construction loans: The development and construction of two on-campus ACE properties (The Suites and Hilltop Townhomes), were partially financed on a combined basis with a $45.4 million construction loan.  We have the option of choosing the Prime rate or one-, two-, three-, or six-month LIBOR plus 1.45%.  The loan requires payments of interest only during the term of the loan and any accrued interest and outstanding borrowings become due on the maturity date of May 16, 2015.  The term of the loan can be extended through May 2016 by exercising the remaining 12-month extension option available to us.  As of

46


September 30, 2014, the balance outstanding on the construction loan totaled $44.6 million, bearing interest at a rate per annum of 1.61%.

In addition, as discussed in more detail in Note 5 in the accompanying Notes to Consolidated Financial Statements contained in Item 1, we are consolidating one variable interest entity ("VIE") that owns University Walk, a property located in Knoxville, Tennessee, that recently completed construction and opened for occupancy in August 2014. As a result, our construction loans payable balance as of September 30, 2014 includes $17.4 million related to a construction loan that is partially financing the development and construction of this property. The total amount of this construction loan is $19.0 million bearing interest at a rate per annum of 2.9% as of September 30, 2014, and the loan matures in December 2015. As we are not legally a party to this loan, and are only including the loan in our consolidated financial statements to comply with accounting guidance related to VIE's, the creditors of this construction loan do not have recourse to our assets.
 
On-Campus Participating Properties
 
Bonds:  As discussed in Note 8 in the Notes to Consolidated Financial Statements contained in Item 1, three of our on-campus participating properties are 100% financed with project-based taxable bonds.  As of September 30, 2014, the bonds carry a balance of $39.8 million and bear interest at a weighted average rate per annum of 7.56%.  The loans encumbering the leasehold interests are non-recourse, subject to customary exceptions.
 
Mortgage loans:  The Cullen Oaks Phase I and Phase II on-campus participating properties are currently encumbered by mortgage loans with balances as of September 30, 2014 of approximately $15.3 million and $15.5 million, respectively.  The loans mature in February 2021 and bear interest at a rate of LIBOR plus 1.75%.  In connection with these loans, we entered into two interest rate swap contracts effective February 18, 2014 through February 15, 2021, that are designated to hedge our exposure to fluctuations on interest payments attributed to changes in interest rates associated with payments on the loans.  Under the terms of the interest rate swap contracts, we pay a fixed rate of 2.275% per annum and receive a floating rate of 1-month LIBOR.  We have guaranteed payment of a portion of this property’s indebtedness.

Construction loan: The development and construction of an on-campus participating property located in Morgantown, West Virginia, which completed construction and opened for occupancy in August 2014, is financed with a $44.2 million construction loan which had an outstanding balance of $42.1 million as of September 30, 2014. The loan matures in July 2045, bears interest at a rate of 3.85% per annum for the first five years and one-month LIBOR plus 2.5% for the remaining term of the loan. The loan requires payments of interest only during the first two years and principal and interest payments begin in August 2015.

Funds From Operations (“FFO”)
 
The National Association of Real Estate Investment Trusts (“NAREIT”) currently defines FFO as net income or loss attributable to common shares computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains or losses from depreciable operating property sales, impairment charges and real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.  We present FFO because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results.  FFO excludes GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time.  Historically, however, real estate values have risen or fallen with market conditions.  We therefore believe that FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, and interest costs, among other items, providing perspective not immediately apparent from net income.  We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs.
 
We also believe it is meaningful to present a measure we refer to as FFO-Modified, or FFOM, which reflects certain adjustments related to the economic performance of our on-campus participating properties and other nonrecurring items.  Under our participating ground leases, we and the participating university systems each receive 50% of the properties’ net cash available for distribution after payment of operating expenses, debt service (which includes significant amounts towards repayment of principal) and capital expenditures.  A substantial portion of our revenues attributable to these properties is reflective of cash that is required to be used for capital expenditures and for the amortization of applicable property indebtedness. These amounts do not increase our economic interest in these properties or otherwise benefit us since our interest in the properties terminates upon the repayment of the applicable property indebtedness.  Therefore, unlike the ownership of our wholly-owned properties, the unique features of our ownership interest in our on-campus participating properties cause the value of these properties to diminish over time.   For example, since the ground/facility leases under which we operate the participating properties require the reinvestment from

47


operations of specified amounts for capital expenditures and for the repayment of debt while our interest in these properties terminates upon the repayment of the debt, such capital expenditures do not increase the value of the property to us and mortgage debt amortization only increases the equity of the ground lessor. Accordingly, we believe it is meaningful to modify FFO to exclude the operations of our on-campus participating properties and to consider their impact on our performance by including only that portion of our revenues from those properties that are reflective of our share of net cash flow and the management fees that we receive, both of which increase and decrease with the operating performance of the properties.  We also include development and construction management fees received from on-campus participating properties in FFOM similar to other third-party development projects. This narrower measure of performance measures our profitability for these properties in a manner that is similar to the measure of our profitability from our services business where we similarly incur no initial or ongoing capital investment in a property and derive only consequential benefits from capital expenditures and debt amortization. We believe, however, that this narrower measure of performance is inappropriate in traditional real estate ownership structures where debt amortization and capital expenditures enhance the property owner’s long-term profitability from its investment.  When calculating FFOM, we also exclude losses from early extinguishment of debt incurred in connection with property dispositions and other non-cash gains or losses, as appropriate.
 
Our FFOM may have limitations as an analytical tool because it reflects the contractual calculation of net cash flow from our on-campus participating properties, which is unique to us and is different from that of our owned off-campus properties.  Companies that are considered to be in our industry may not have similar ownership structures; and therefore those companies may not calculate FFOM in the same manner that we do, or at all, limiting its usefulness as a comparative measure. We compensate for these limitations by relying primarily on our GAAP and FFO results and using FFOM only supplementally.  Further, FFO and FFOM do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments and uncertainties.  FFO and FFOM should not be considered as alternatives to net income or loss computed in accordance with GAAP as an indicator of our financial performance, or to cash flow from operating activities computed in accordance with GAAP as an indicator of our liquidity, nor are these measures indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.

The following table presents a reconciliation of our net (loss) income attributable to common shareholders to FFO and FFOM:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Net (loss) income attributable to American Campus Communities, Inc. and Subsidiaries
 
$
(5,847
)
 
$
47,176

 
$
35,989

 
$
76,815

Noncontrolling interests (1)
 
62

 
656

 
824

 
1,273

Loss (gain) from disposition of real estate
 
67

 
(52,831
)
 
(2,776
)
 
(52,831
)
Elimination of provision for asset impairment - wholly-owned property (2)
 
2,377

 

 
2,377

 

Real estate related depreciation and amortization
 
49,029

 
44,905

 
144,681

 
138,704

Funds from operations (“FFO”)
 
45,688

 
39,906

 
181,095

 
163,961

 
 
 
 
 
 
 
 
 
Elimination of operations of on-campus participating properties:
 
 

 
 

 
 

 
 

Net loss (income) from on-campus participating properties
 
749

 
1,002

 
(1,242
)
 
(493
)
Amortization of investment in on-campus participating properties
 
(1,548
)
 
(1,197
)
 
(3,988
)
 
(3,553
)
 
 
44,889

 
39,711

 
175,865

 
159,915

Modifications to reflect operational performance of on-campus participating properties:
 
 

 
 

 
 

 
 

    Our share of net cash flow (3)
 
1,070

 
627

 
2,347

 
1,686

Management fees
 
257

 
242

 
841

 
832

On-campus participating properties development fees (4)
 
642

 
950

 
1,070

 
950

Impact of on-campus participating properties
 
1,969

 
1,819

 
4,258

 
3,468

Impact of University Walk (pre-sale arrangement) (5)
 
(323
)
 

 
(323
)
 

Non-cash litigation settlement expense (6)
 

 

 

 
2,800

Funds from operations – modified (“FFOM”)
 
$
46,535

 
$
41,530

 
$
179,800

 
$
166,183

 
 
 
 
 
 
 
 
 
FFO per share – diluted
 
$
0.43

 
$
0.37

 
$
1.69

 
$
1.54

FFOM per share – diluted
 
$
0.44

 
$
0.39

 
$
1.68

 
$
1.56

Weighted average common shares outstanding – diluted
 
106,974,047

 
106,639,825

 
106,940,665

 
106,629,998


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(1) 
For the nine months ended September 30, 2013, excludes $0.8 million of income attributable to the noncontrolling partner in The Varsity, a property purchased in December 2011 from a seller that retained a 20.5% noncontrolling interest in the property. Effective July 1, 2013, the company acquired the noncontrolling partner’s interest and now owns 100% of the property.

(2) 
For the three and nine months ended September 30, 2014, represents an impairment charge recorded for The Enclave, a property that was sold in September 2014. Due to a recent change in accounting guidance, The Enclave along with future disposals of individual operating properties will no longer qualify as discontinued operations. As a result, this impairment charge is included in other nonoperating expense in the consolidated statements of comprehensive income.

(3) 
50% of the properties’ net cash available for distribution after payment of operating expenses, debt service (including repayment of principal) and capital expenditures. Represents amounts accrued for the interim periods, which is included in ground/facility leases expense in the consolidated statements of comprehensive income.

(4) 
Represents development and construction management fees related to the West Virginia University on-campus participating property, which completed construction in August 2014. Although the company is including this project in its consolidated financial statements for accounting purposes, similar to our other on-campus participating properties, we view the economic benefit of such properties as limited to the development/construction management fees, property management fees and the 50% share of net cash flow that we receive. As such, for purposes of calculating FFOM, we are recognizing the fees received for this project similar to other third-party development projects.

(5) 
University Walk is a property subject to a pre-sale arrangement that we did not own as of September 30, 2014 but are obligated to purchase as long as the developer meets certain construction deadlines and closing conditions. The property opened for operations in August 2014 and we anticipate closing on the purchase of the property in the fourth quarter 2014. The property is consolidated for financial reporting purposes but we do not benefit from the net cash flow from operations prior to our purchase. As a result, we have excluded the operations of this property from FFOM.

(6) 
On April 22, 2013, the company acquired a note and subrogation rights from National Public Finance Guarantee Corporation (formerly known as MBIA Insurance Corp. of Illinois) for an aggregate of $52.8 million, which are secured by a lien on, and the cash flows from, two student housing properties in close proximity to the University of Central Florida and currently under a ground lease with the UCF Foundation. The instruments carry an interest rate of 5.123 percent. The acquisition facilitated the settlement of litigation related to a third-party management agreement for the properties with a GMH entity that was acquired by the company’s 2008 merger with GMH. The acquisition resulted in a non-cash settlement charge of $2.8 million to reflect the fair market valuation of the instruments. Management believes it is appropriate to exclude this non-cash charge from FFOM in order to more accurately present the operating results of the company on a comparative basis during the periods presented.

Inflation
 
Our student leases do not typically provide for rent escalations. However, they typically do not have terms that extend beyond 12 months. Accordingly, although on a short term basis we would be required to bear the impact of rising costs resulting from inflation, we have the opportunity to raise rental rates at least annually to offset such rising costs. However, a weak economic environment or declining student enrollment at our principal universities may limit our ability to raise rental rates.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
Market risk is the risk of loss from adverse changes in market prices and interest rates.   Our future earnings and cash flows are dependent upon prevailing market rates.  Accordingly, we manage our market risk by matching projected cash inflows from operating, investing and financing activities with projected cash outflows for debt service, acquisitions, capital expenditures, distributions to stockholders and unitholders, and other cash requirements.  The majority of our outstanding debt has fixed interest rates, which minimizes the risk of fluctuating interest rates.  Our exposure to market risk includes interest rate fluctuations in connection with our revolving credit facilities and variable rate construction loans and our ability to incur more debt without stockholder approval, thereby increasing our debt service obligations, which could adversely affect our cash flows.   No material changes have occurred in relation to market risk since our Annual Report on Form 10-K for the year ended December 31, 2013.
 

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Item 4.  Controls and Procedures
 
American Campus Communities, Inc.
 
(a)
Evaluation of Disclosure Controls and Procedures

As required by SEC Rule 13a-15(b), we have carried out an evaluation, under the supervision of and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures for the quarter covered by this report were effective at the reasonable assurance level.
 
(b)
Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
American Campus Communities Operating Partnership, L.P.
 
(a)
Evaluation of Disclosure Controls and Procedures

As required by SEC Rule 13a-15(b), we have carried out an evaluation, under the supervision of and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures for the quarter covered by this report were effective at the reasonable assurance level.
 
(b)
Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION
 
Item 1.              Legal Proceedings
 
We are subject to various claims, lawsuits and legal proceedings that arise in the ordinary course of business.  While it is not possible to ascertain the ultimate outcome of such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the our consolidated financial position or our results of operations.
 
Item 1A.           Risk Factors
 
There have been no material changes to the risk factors that were discussed in Part 1, Item 1A of the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2013.
 
Item 2.              Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3.              Defaults Upon Senior Securities
 
None.
 
Item 4.              Mine Safety Disclosures
 
Not applicable.
 
Item 5.              Other Information
 
None.


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Item 6.              Exhibits
 
Exhibit Number
 
Description of Document
31.1
 
American Campus Communities, Inc. - Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
American Campus Communities, Inc. - Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.3
 
American Campus Communities Operating Partnership, L.P. - Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.4
 
American Campus Communities Operating Partnership, L.P. - Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
American Campus Communities, Inc. - Certification of Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2
 
American Campus Communities, Inc. - Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.3
 
American Campus Communities Operating Partnership, L.P. - Certification of Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.4
 
American Campus Communities Operating Partnership, L.P. - Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document

 


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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
    
Dated:
November 7, 2014
AMERICAN CAMPUS COMMUNITIES, INC.
 
 
By:
/s/ William C. Bayless, Jr.
 
 
 
William C. Bayless, Jr.
President and Chief Executive Officer
 
 
By:
/s/ Jonathan A. Graf
 
 
 
Jonathan A. Graf
Executive Vice President,
Chief Financial Officer, Treasurer
and Secretary
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
    
Dated:
November 7, 2014

AMERICAN CAMPUS COMMUNITIES
  OPERATING PARTNERSHIP, L.P.
By:  American Campus Communities Holdings,
        LLC, its general partner  
By:  American Campus Communities, Inc.,
its sole member 

By:
/s/ William C. Bayless, Jr.
 
 
 
William C. Bayless, Jr.
President and Chief Executive Officer
 
 
By:
/s/ Jonathan A. Graf
 
 
 
Jonathan A. Graf
Executive Vice President,
Chief Financial Officer, Treasurer
and Secretary
 


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