WASHINGTON, D.C. 20549
For the Transition Period From ______________________ to _________________________
Commission file number 333-181102-01 (American Campus Communities Operating Partnership L.P.)LP)
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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
American Campus Communities, Inc.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
This report combines the reports on Form 10-Q for the quarterly period ended September 30, 20172019 of American Campus Communities, Inc. and American Campus Communities Operating Partnership L.P.LP. Unless stated otherwise or the context otherwise requires, references to “ACC” mean American Campus Communities, Inc., a Maryland corporation that has elected to be treated as a real estate investment trust (“REIT”) under the Internal Revenue Code, and references to “ACCOP” mean American Campus Communities Operating Partnership L.P.,LP, 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, 2017,2019, 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, 2017,2019, ACC owned an approximate 99.2%99.6% 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:
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, the issuance of unsecured notes, 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.
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.LP (“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, 2017,2019, 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, 2017,2019, ACC owned an approximate 99.2%99.6% 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” means 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.
Through one of ACC’s taxable REIT subsidiaries (“TRSs”), the Company also provides construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others. As of September 30, 2017,2019, also through one of ACC’s TRSs, the Company provided third-party management and leasing services for 3837 properties that represented approximately 28,80026,900 beds. Third-party management and leasing services are typically provided pursuant to management contracts that have initial terms that range from one year to five years. As of September 30, 2017,2019, the Company’s total owned and third-party managed portfolio included 204205 properties with approximately 131,300140,300 beds.
The accompanying consolidated financial statements, presented in U.S. dollars, are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires the Company 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. The Company’s 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.
The Company’s consolidated financial statements include its accounts and the accounts of other subsidiaries and joint ventures (including partnerships and limited liability companies) over which it has control. Investments acquired or created are evaluated based on the accounting guidance relating to variable interest entities (“VIEs”), which requires the consolidation of VIEs in which the Company is considered to be the primary beneficiary. If the investment is determined not to be a VIE, then the investment is evaluated for consolidation using the voting interest model.
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, 2016.2018.
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:
Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred financefinancing 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 $3.4$3.0 million and $3.3$2.6 million was capitalized during the three months ended September 30, 20172019 and 2016,2018, respectively, and interest totaling approximately $13.5$9.4 million and $9.0$9.6 million was capitalized during the nine months ended September 30, 20172019 and 2016,2018, 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, or when a property meets the criteria to be classified as held for sale, at which time an impairment charge is recognized for any excess of the carrying value of the property over the expected net proceeds from the disposal. 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 thereIn the case of any impairment, the valuation would be based on Level 3 inputs. There were no impairment indicators0 impairments of the carrying values of itsthe Company's investments in real estate as of September 30, 2017,2019, other than a $15.3$3.2 million impairment charge recorded duringon March 31, 2019 concurrent with the second quarter 2017classification of 1 owned property as held for one property that issale.
Basic earnings per share is computed using net income attributable to common stockholders and the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earnings per share reflects common shares issuable from the assumed conversion of American Campus Communities Operating Partnership Units (“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.
The following potentially dilutive securities were outstanding for the three and nine months ended September 30, 20172019 and 2016,2018, but were not included in the computation of diluted earnings per share because the effects of their inclusion would be anti-dilutive.
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP 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.
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| Numerator – basic and diluted earnings per unit: | | | | | | | | |
| Net income (loss) | | $ | 19,336 |
| | $ | (2,737 | ) | | $ | 60,914 |
| | $ | 69,503 |
|
| Net loss (income) attributable to noncontrolling interests – partially owned properties | | 970 |
| | 413 |
| | (368 | ) | | 665 |
|
| Series A preferred unit distributions | | (14 | ) | | (31 | ) | | (54 | ) | | (93 | ) |
| Amount allocated to participating securities | | (458 | ) | | (408 | ) | | (1,489 | ) | | (1,291 | ) |
| Net income (loss) attributable to common unitholders | | $ | 19,834 |
| | $ | (2,763 | ) | | $ | 59,003 |
| | $ | 68,784 |
|
| | | | | | | | | |
| Denominator: | | |
| | |
| | |
| | |
|
| Basic weighted average common units outstanding | | 137,872,317 |
| | 137,624,276 |
| | 137,811,351 |
| | 137,573,422 |
|
| Unvested restricted stock awards (Note 9) | | 971,685 |
| | — |
| | 998,776 |
| | 918,708 |
|
| Diluted weighted average common units outstanding | | 138,844,002 |
| | 137,624,276 |
| | 138,810,127 |
| | 138,492,130 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Numerator – basic and diluted earnings per unit: | | | | | | | | |
| Net (loss) income | | $ | (1,233 | ) | | $ | 9,845 |
| | $ | 30,563 |
| | $ | 74,819 |
|
| Net income attributable to noncontrolling interests – partially owned properties | | (57 | ) | | (77 | ) | | (259 | ) | | (285 | ) |
| Series A preferred unit distributions | | (31 | ) | | (36 | ) | | (93 | ) | | (115 | ) |
| Amount allocated to participating securities | | (360 | ) | | (329 | ) | | (1,217 | ) | | (1,051 | ) |
| Net (loss) income attributable to common unitholders | | $ | (1,681 | ) | | $ | 9,403 |
| | $ | 28,994 |
| | $ | 73,368 |
|
| | | | | | | | | |
| Denominator: | | |
| | |
| | |
| | |
|
| Basic weighted average common units outstanding | | 137,432,872 |
| | 132,008,227 |
| | 135,731,609 |
| | 129,517,442 |
|
| Unvested restricted stock awards (Note 10) | | — |
| | 781,386 |
| | 877,489 |
| | 795,107 |
|
| Diluted weighted average common units outstanding | | 137,432,872 |
| | 132,789,613 |
| | 136,609,098 |
| | 130,312,549 |
|
|
| | | | | | | | | | | | | | | | |
| Earnings per unit: | | | | | | | | |
| Net income (loss) attributable to common unitholders - basic and diluted | | $ | 0.14 |
| | $ | (0.02 | ) | | $ | 0.43 |
| | $ | 0.50 |
|
|
| | | | | | | | | | | | | | | | |
| Earnings per unit: | | | | | | | | |
| Net (loss) income attributable to common unitholders - basic | | $ | (0.01 | ) | | $ | 0.07 |
| | $ | 0.21 |
| | $ | 0.57 |
|
| Net (loss) income attributable to common unitholders - diluted | | $ | (0.01 | ) | | $ | 0.07 |
| | $ | 0.21 |
| | $ | 0.56 |
|
3. Acquisitions and Joint Venture Investments
Core Transaction Overview: During the third quarter of 2017,Presale Development Projects:
In August 2019, The Flex - Stadium Centre, a 340-bed off-campus development property subject to a presale agreement executed in 2018, was completed and acquired by the Company executed an agreementfor $36.4 million, including $8.5 million related to acquire a portfolio of seven student housing properties from affiliates of Core Spaces and DRW Real Estate Investments (the “Core Transaction”). The transaction included the purchase of 100%the land on which the property is built. As the property was consolidated by the Company from the time of execution of the presale agreement with the developer, the closing of the transaction was accounted for as an increase in ownership interests in two operating properties,of a consolidated subsidiary.
In August 2018, The Edge - Stadium Centre, a 412-bed off-campus development property subject to a presale agreement, was completed and acquired by the Company for $42.6 million, including $10.0 million related to the purchase of partial ownership interests in two operating properties through a joint venture arrangement (with onethe land on which the property being subject to a purchase option that had not been exercised as of September 30, 2017), andis built. As the purchase of partial ownership interests in three in-process development properties through a joint venture arrangement. In total, the Core Transaction properties contain 3,776 beds. The initial investment made at closingproperty was $265.4 million, andconsolidated by the Company expects to investfrom the time of execution of the presale agreement with the developer, the closing of the transaction was accounted for as an increase in ownership of a total of $590.6 million over a two year period including the initial investment.consolidated subsidiary.
Core Transaction Property Acquisitions: Land Acquisition:
In August 2017,2018, the Company purchased 100% of the ownership interests in two propertiesa land parcel for a total purchase price of approximately $146.1$16.6 million. Total cash consideration was approximately $144.3$16.5 million. The difference between the contracted purchase price and the cash consideration is due to other assets and liabilities that were not part of the contractual purchase price, but were acquired in the transactions, as well as transaction costs capitalized as part of the acquisitions. A list of these two properties acquired as part of the Core Transaction is as follows:
|
| | | | | | | | |
Property | | Location | | Primary University Served | | Acquisition Date | | Beds |
Hub Eugene | | Eugene, OR | | University of Oregon | | August 2017 | | 513 |
State | | Fort Collins, CO | | Colorado State University | | August 2017 | | 665 |
| | | | | | | | 1,178 |
Core Transaction Joint Ventures: As mentioned above, during the third quarter of 2017 as part of the Core Transaction, the Company funded initial investments in two joint ventures. The joint venture transactions involved the joint venture partner making a non-cash contribution of properties and the Company making a cash contribution to the joint ventures in exchange for its membership interests. Both joint ventures were determined to be VIEs, with the Company being the primary beneficiary. As such, both joint ventures are included in the Company’s consolidated financial statements contained herein. Additionally, the partners’ ownership interests in each of the joint ventures are accounted for as redeemable noncontrolling interests. For further discussion, refer to Note 9.
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP L.P.LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The first joint venture (the “Core JV I”) holds one property (The James) that completed construction and opened for operations in August 2017. The Company's initial investment was $95.1 million for an approximate 68% interest in the joint venture, part of which was used to pay off the property's $68.7 million construction loan at closing. The transaction also provided the Company with an option to cause the joint venture partner to contribute a second property, Hub U District Seattle, to the joint venture during the fourth quarter 2017. As mentioned in Note 15, the Company exercised this option and the contribution of the property to the joint venture is anticipated to close during the fourth quarter 2017. The Company's initial investment in the property will be approximately $40.6 million. Additionally, the Company has an option to purchase the remaining ownership interests in the joint venture in the fourth quarter of 2019 under a put/call agreement with the joint venture partner for an amount to be determined by the fair market value of the properties at the date of exercise. The value of the remaining ownership interests upon exercise of the option is anticipated to approximate $68.8 million.
The second joint venture (the “Core JV II”) holds three in-process development properties that are currently under construction and are scheduled to complete construction and open for operations in Fall 2018. The Company's initial investment was $24.2 million for an approximate 58% interest in the joint venture. Upon the initial funding, the Company assumed sole operational control, while the partner retained certain limited decision making abilities, including responsibility for the development and delivery of the properties within an agreed-upon budget and completion timeline. The joint venture partner has also provided a payment guarantee for the construction loans that are partially financing the construction of the properties. Subsequent to the successful completion and delivery of the assets, which is expected to occur in September 2018, the Company anticipates increasing its investment in Core JV II by $130.6 million as a result of paying off the construction loans. Additionally, the Company has an option to purchase the remaining ownership interests in the joint venture in the third quarter of 2019 under a put/call agreement with the joint venture partner for an amount to be determined by the fair market value of the properties at the date of exercise. The value of the remaining ownership interests upon exercise of the option is anticipated to approximate $85.2 million.
A list of the properties contributed to joint ventures as part of the Core Transaction are as follows:
|
| | | | | | | | |
Property | | Location | | Primary University Served | | Actual or Targeted Completion Date | | Beds |
Core JV I: | | | | | | | | |
The James | | Madison, WI | | University of Wisconsin - Madison | | August 2017 | | 850 |
Hub U District Seattle(1)
| | Seattle, WA | | University of Washington | | September 2017 | | 248 |
| | | | | | | | 1,098 |
Core JV II: | | | | | | | | |
Hub Ann Arbor | | Ann Arbor, MI | | University of Michigan | | September 2018 | | 310 |
Hub Flagstaff | | Flagstaff, AZ | | Northern Arizona University | | September 2018 | | 591 |
Hub West Lafayette | | West Lafayette, IN | | Purdue University | | September 2018 | | 599 |
| | | | | | | | 1,500 |
| | | | | | | | |
| | | | | | | | 2,598 |
| |
(1)
| Subject to an option that had not been exercised as of September 30, 2017 (see Note 15). |
Other 2017 Property Acquisitions: During the nine months ended September 30, 2017, the Company acquired two additional wholly-owned properties containing 982 beds for approximately $158.5 million. Total cash consideration was approximately $158.0 million. The difference between the contracted purchase price and the cash consideration is due to other assets and liabilities that were not part of the contractual purchase price, but were acquired in the transactions, as well as transaction costs capitalized as part of the acquisitions.
A list of these properties is outlined below:
|
| | | | | | | | |
Property | | Location | | Primary University Served | | Acquisition Date | | Beds |
The Arlie | | Arlington, TX | | University of Texas Arlington | | April 2017 | | 598 |
TWELVE at U District | | Seattle, WA | | University of Washington | | June 2017 | | 384 |
| | | | | | | | 982 |
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2017 Land Acquisitions: During the nine months ended September 30, 2017, the Company purchased five land parcels with a fair value of $12.0 million for total cash consideration of approximately $8.9 million. The difference between the fair value of the land and the cash consideration represents non-cash consideration. In addition, the Company made an initial investment of $9.0 million in a joint venture that holds a land parcel with fair value of $12.0 million.
2016 Acquisition Activity: During the nine months ended September 30, 2016, the Company acquired University Crossings, a wholly-owned property containing 546 beds that is located adjacent to the University of North Carolina in Charlotte, NC for approximately $40.0 million. Also during the nine months ended September 30, 2016, the Company secured three in-process development properties containing 1,593 beds for a combined purchase price of approximately $66.0 million. As part of these transactions, the Company assumed approximately $10.0 million of fixed rate mortgage debt.
4. Property Dispositions
During the nine months ended September 30, 2017,Property Dispositions:
In May 2019, the Company sold the following wholly-ownedCollege Club Townhomes, an owned property located near Florida A&M University in Tallahassee, Florida, containing 544 beds for approximately $25.0$9.5 million, resulting in net proceeds of approximately $24.5$8.9 million. The net loss on this disposition totaled approximately $0.6$0.3 million. Concurrent with the classification of this property as held for sale in December 2016,March 2019, the Company reduced the property’s carrying amount to its estimated fair value less estimated selling costs and recorded an impairment charge of $4.9 million:$3.2 million.
|
| | | | | | |
Property | | Location | | Primary University Served | | Beds |
The Province - Dayton | | Dayton, OH | | Wright State University | | 657 |
During the nine months ended September 30, 2016,In May 2018, the Company sold two wholly-owneda portfolio of 3 owned properties containing 1,3241,338 beds for a total sales price of approximately $73.8$245.0 million, resulting in net proceeds of approximately $72.6$242.3 million. The combined net gain on these dispositionsthe portfolio disposition totaled approximately $17.4$42.3 million. Additionally,
Joint Venture Activity:
In May 2018, the Company hadexecuted an agreement to enter into a joint venture arrangement with Allianz Real Estate (the “ACC / Allianz Joint Venture Transaction”). The transaction included the sale of a partial ownership interest in a portfolio of 19 wholly-owned7 owned properties, classifiedcontaining 4,611 beds, through a joint venture arrangement. The joint venture transaction involved the joint venture partner making a cash contribution of approximately $373.1 million in exchange for a 45% ownership interest. As part of the transaction, the joint venture issued $330 million of secured mortgage debt.
The joint venture was determined to be a VIE. As the Company retained control of the properties after the joint venture transaction, it was deemed the primary beneficiary. As such, the Company’s contribution of the properties to the joint venture was recorded at net book value, and the joint venture is included in the Company’s consolidated financial statements contained herein. The joint venture partner’s ownership interest in the joint venture is accounted for as held for sale as of September 30, 2016.noncontrolling interest.
5. Investments in Wholly-OwnedOwned Properties
Wholly-ownedOwned properties, both wholly-owned and those owned through investments in VIEs, consisted of the following:
|
| | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| Land | | $ | 657,986 |
| | $ | 653,522 |
|
| Buildings and improvements | | 6,843,575 |
| | 6,486,106 |
|
| Furniture, fixtures and equipment | | 392,467 |
| | 371,429 |
|
| Construction in progress | | 272,448 |
| | 302,902 |
|
| | | 8,166,476 |
| | 7,813,959 |
|
| Less accumulated depreciation | | (1,406,609 | ) | | (1,230,562 | ) |
Owned properties, net | | $ | 6,759,867 |
| | $ | 6,583,397 |
|
|
| | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 | |
Land (1) (2) | | $ | 649,597 |
| | $ | 568,266 |
| |
| Buildings and improvements | | 5,986,682 |
| | 5,065,137 |
| |
| Furniture, fixtures and equipment | | 366,581 |
| | 303,240 |
| |
Construction in progress (2) | | 273,367 |
| | 349,498 |
| |
| | | 7,276,227 |
| | 6,286,141 |
| |
| Accumulated depreciation | | (1,014,150 | ) | | (859,127 | ) | |
| Wholly-owned properties, net | | $ | 6,262,077 |
| | $ | 5,427,014 |
| (3) |
| |
(1)
| The land balance above includes undeveloped land parcels with book values of approximately $45.5 million and $38.5 million as of September 30, 2017 and December 31, 2016, respectively. It also includes land totaling approximately $29.9 million and $61.2 million as of September 30, 2017 and December 31, 2016, respectively, related to properties under development. |
| |
(2)
| Land includes $19.3 million as of September 30, 2017 and construction in progress includes $60.0 million and $1.9 million as of September 30, 2017 and December 31, 2016, respectively, related to in-process development properties, held by entities determined to be VIEs. The entities that own the properties are deemed to be VIEs, and the Company is determined to be the primary beneficiary of the VIEs. |
| |
(3)
| Excludes the net book value of one property classified as held for sale in the accompanying consolidated balance sheets at December 31, 2016. |
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP L.P.LP 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, 2017 | | December 31, 2016 |
Texas A&M University System / Prairie View A&M University (1) | | 2/1/1996 | | 9/1/2023 | | $ | 46,446 |
| | $ | 45,310 |
|
| Texas A&M University System / Texas A&M International | | 2/1/1996 | | 9/1/2023 | | 7,271 |
| | 7,215 |
|
Texas A&M University System / Prairie View A&M University (2) | | 10/1/1999 | | 8/31/2025 | | 29,207 |
| | 28,627 |
|
| | | 8/31/2028 | | |
University of Houston System / University of Houston (3) | | 9/27/2000 | | 8/31/2035 | | 38,328 |
| | 37,960 |
|
| West Virginia University System / West Virginia University | | 7/16/2013 | | 7/16/2045 | | 44,597 |
| | 43,817 |
|
| | | | | | | 165,849 |
| | 162,929 |
|
| Accumulated amortization | | | | | | (82,754 | ) | | (77,132 | ) |
| On-campus participating properties, net | | | | $ | 83,095 |
| | $ | 85,797 |
|
| |
(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. |
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. Debt
A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows:
|
| | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| Debt secured by owned properties: | | | | |
| Mortgage loans payable: | | | | |
| Unpaid principal balance | | $ | 695,176 |
| | $ | 727,163 |
|
| Unamortized deferred financing costs | | (1,410 | ) | | (1,757 | ) |
| Unamortized debt premiums | | 7,842 |
| | 11,579 |
|
| Unamortized debt discounts | | (212 | ) | | — |
|
| | | 701,396 |
| | 736,985 |
|
Construction loans payable (1) | | 36,977 |
| | 22,207 |
|
| Unamortized deferred financing costs | | — |
| | (480 | ) |
| | | 738,373 |
| | 758,712 |
|
| Debt secured by on-campus participating properties: | | |
| | |
|
Mortgage loans payable (2) | | 66,445 |
| | 67,867 |
|
Bonds payable (2) | | 23,215 |
| | 27,030 |
|
| Unamortized deferred financing costs | | (445 | ) | | (525 | ) |
| | | 89,215 |
| | 94,372 |
|
| Total secured mortgage, construction and bond debt | | 827,588 |
| | 853,084 |
|
Unsecured notes, net of unamortized OID and deferred financing costs (3) | | 1,984,748 |
| | 1,588,446 |
|
Unsecured term loans, net of unamortized deferred financing costs (4) | | 199,033 |
| | 198,769 |
|
| Unsecured revolving credit facility | | 352,100 |
| | 387,300 |
|
| Total debt, net | | $ | 3,363,469 |
| | $ | 3,027,599 |
|
|
| | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 | |
| Debt secured by wholly-owned properties: | | | | | |
| Mortgage loans payable: | | | | | |
| Unpaid principal balance | | $ | 523,328 |
| | $ | 559,642 |
| |
| Unamortized deferred financing costs | | (2,349 | ) | | (3,040 | ) | |
| Unamortized debt premiums | | 20,697 |
| | 26,830 |
| |
| | | 541,676 |
| | 583,432 |
| |
Construction loans payable (1) | | 22,422 |
| | — |
| |
| Unamortized deferred financing costs | | (1,382 | ) | | — |
| |
| | | 562,716 |
| | 583,432 |
| |
| Debt secured by on-campus participating properties: | | |
| | |
| |
| Mortgage loans payable | | 70,257 |
| | 71,662 |
| |
| Bonds payable | | 30,575 |
| | 33,870 |
| |
| Unamortized deferred financing costs | | (674 | ) | | (769 | ) | |
| | | 100,158 |
| | 104,763 |
| |
| Total secured mortgage, construction and bond debt | | 662,874 |
| | 688,195 |
| |
Unsecured notes, net of unamortized OID and deferred financing costs (2) | | 1,190,296 |
| | 1,188,737 |
| |
Unsecured term loans, net of unamortized deferred financing costs (3) | | 646,675 |
| | 149,065 |
| |
| Unsecured revolving credit facility | | 266,440 |
| | 99,300 |
| |
| Total debt, net | | $ | 2,766,285 |
| | $ | 2,125,297 |
| |
| |
(1) | Construction loans payable relatesrelate to the construction loans partially financing the development of four in-processpresale development properties. Theseprojects. The properties are owned by entitiesan entity determined to be VIEsa VIE for which the Company is the primary beneficiary, including onebeneficiary. The creditor of the joint ventures formed as partconstruction loans does not have recourse to the assets of the Core Transaction discussed in Note 3. Company. |
| |
(2) | The creditors of these constructionmortgage loans payable and bonds payable related to on-campus participating properties do not have recourse to the assets of the Company. |
| |
(2)(3)
| Includes net unamortized original issue discount (“OID”) of $1.7$2.4 million and $1.6 million at September 30, 20172019 and $1.9 million at December 31, 2016,2018, respectively, and net unamortized deferred financing costs of $8.0$12.8 million and $10.0 million at September 30, 20172019 and $9.3 million at December 31, 2016.2018, respectively. |
| |
(3)(4)
| Includes net unamortized deferred financing costs of $3.3$1.0 million and $1.2 million at September 30, 20172019 and $0.9 million at December 31, 2016.2018, respectively. |
Mortgage and Construction Loans Payable
During the nine months ended September 30, 2017,In January 2019, the Company paid off approximately $30.5refinanced $70.0 million of variable rate debt on one wholly-owned property, extending the maturity to January 2024. The Company entered into an interest rate swap contract to hedge the variable rate cash flows associated with interest payments on this LIBOR-based mortgage loan, resulting in a fixed rate mortgage debt secured by one wholly-owned property. In the third quarter of 2017, as part of the Core Transaction discussed in detail in4.00%. Refer to Note 3, Core JV I paid off $68.7 million of construction debt with proceeds from the Company's initial investment in the joint venture. During the nine months ended September 30, 2016, the Company paid off approximately $152.6 million of fixed rate mortgage debt secured by nine wholly-owned properties.10 for information related to derivatives.
In May 2017, the lender of the non-recourse mortgage loan secured by Blanton Common, a wholly-owned property located near Valdosta State University containing 860 beds which was acquiredincluded as part of the GMH student housing transaction in 2008, sent a formal notice of default and initiated foreclosure proceedings. The property generatesgenerated insufficient cash flow to cover the debt service on the mortgage, which had a balance of $27.4 million at September 30, 2017default and a contractual maturity date of August 2017. In May 2017, the lender began receiving the net operating cash flows of the property each month in lieu of scheduled monthly mortgage payments. In June 2017, the Company recorded an impairment charge for this property of $15.3 million. In August 2017, the property transferred to receivership and a third-party manager began managing the property on behalf of the lender. As of September 30, 2017,In July 2019, the Company was cooperating withcompleted the lender to allow for a consensual foreclosure process upon whichtransfer of the property will be surrendered to the lender in satisfactionsettlement of the property's mortgage loan. As discussed in Note 2, in June 2017,loan and recognized a net gain from the Company recorded an impairment charge for this propertyextinguishment of $15.3debt totaling $21.0 million.
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP L.P.LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In August 2019, the company acquired The Flex - Stadium Centre, a property subject to a presale agreement. Approximately $15.1 million of construction debt used to partially finance the development of the presale project was paid off upon acquisition.
During the nine months ended September 30, 2018, the Company paid off approximately $55.9 million of fixed rate mortgage debt secured by 3 owned properties. Additionally, during the nine months ended September 30, 2018, the Company paid $2.7 million in debt defeasance costs associated with the early pay-off of mortgage loans in connection with the sale of 1 owned property and 1 owned property included in the ACC / Allianz Joint Venture Transaction (see Note 4). These costs were partially offset by the net write-off of $1.9 million of premiums and deferred financing costs, resulting in a loss from early extinguishment of debt of $0.8 million.
In the third quarter of 2018, one of the joint ventures that is part of the Core Transaction paid off approximately $71.0 million of construction debt with proceeds from an additional investment made by the Company to the joint venture (see Note 3). Additionally, in August 2018, upon completion of construction, the Company acquired The Edge - Stadium Centre, a property subject to a presale agreement. Approximately $19.3 million of construction debt used to partially finance the development of the presale project was paid off upon acquisition.
In May 2018, as part of the ACC / Allianz Joint Venture Transaction, the joint venture issued $330.0 million of fixed rate secured mortgage debt with a coupon of 4.07% and the full amount of principal due at maturity in June 2028 (see Note 4).
Unsecured Notes
In June 2019, the Operating Partnership closed a $400 million offering of senior unsecured notes under its existing shelf registration. These 7-year notes were issued at 99.704 percent of par value with a coupon of 3.300 percent and a yield of 3.347 percent and are fully and unconditionally guaranteed by the Company. Net proceeds from the notes totaled approximately $394.0 million, after deducting the underwriting discount and offering expenses which will be amortized over the term of the unsecured notes. The net proceeds were used to repay borrowings under the Company’s revolving credit facility.
The Company has issued the following senior unsecured notes:notes issued by the Company are outstanding as of September 30, 2019:
| | | Date Issued | | Amount | | % of Par Value | | Coupon | | Yield | | Original Issue Discount | | Term (Years) | | Amount | | % of Par Value | | Coupon | | Yield | | Original Issue Discount | | Term (Years) |
| April 2013 | | $ | 400,000 |
| | 99.659 | | 3.750 | % | | 3.791 | % | | $ | 1,364 |
| | 10 | | $ | 400,000 |
| | 99.659 | | 3.750 | % | | 3.791 | % | | $ | 1,364 |
| | 10 |
| June 2014 | | 400,000 |
| | 99.861 | | 4.125 | % | | 4.269 | % | (1) | 556 |
| | 10 | | 400,000 |
| | 99.861 | | 4.125 | % | | 4.269 | % | (1) | 556 |
| | 10 |
| September 2015 | | 400,000 |
| | 99.811 | | 3.350 | % | | 3.391 | % | | 756 |
| | 5 | | 400,000 |
| | 99.811 | | 3.350 | % | | 3.391 | % | | 756 |
| | 5 |
| October 2017 | | | 400,000 |
| | 99.912 | | 3.625 | % | | 3.635 | % | | 352 |
| | 10 |
| June 2019 | | | 400,000 |
| | 99.704 | | 3.300 | % | | 3.680 | % | (1) | 1,184 |
| | 7 |
| | | $ | 1,200,000 |
| | | | | | $ | 2,676 |
| | | $ | 2,000,000 |
| | | | | | $ | 4,212 |
| |
| |
(1) | The yield includes the effect of the amortization of interest rate swap terminations (see Note 11)10). |
The notes are fully and unconditionally guaranteed by the Company. Interest on the notes is payable semi-annually. 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, 2017,2019, the Company was in compliance with all such covenants.
Unsecured Revolving Credit Facility
In January 2017,February 2019, the Company entered intoexercised the Fifth Amended and Restated Credit Agreement (the “Agreement”). Pursuantoption under the existing credit agreement to increase the Agreement,capacity of the Company increased the size of its unsecured revolving credit facility from $500$700 million to $700 million, which$1.0 billion. It may be expanded by up to an additional $500$200 million upon the satisfaction of certain conditions. In connection with the Agreement, theThe maturity date of the revolving credit facility was extended from March 2018 tois March 2022.
The unsecured revolving credit facility bears interest at a variable rate, at the Company’s option, based upon a base rate of 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. Additionally, the Company is required to pay a facility fee
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
of 0.20% per annum on the $700 million$1.0 billion revolving credit facility. As of September 30, 2017,2019, the revolving credit facility bore interest at a weighted average annual rate of 2.44% (1.24%3.25% (2.05% + 1.00% spread + 0.20% facility fee), and availability under the revolving credit facility totaled $433.6$647.9 million.
The terms of the unsecured credit facility include certain restrictions and covenants, which limit, among other items, the incurrence of additional indebtedness and liens. The facility contains customary affirmative and negative covenants and also contains financial covenants that, among other things, require the Company to maintain certain maximum leverage ratios and minimum ratios of “EBITDA” (earnings before interest, taxes, depreciation and amortization) to fixed charges. The financial covenants also include a minimum asset value requirement, a maximum secured debt ratio, and a minimum unsecured debt service coverage ratio. As of September 30, 2017,2019, the Company was in compliance with all such covenants.
Unsecured Term Loans
TheIn May 2018, the Company hasrepaid a $300 million unsecured term loan and a $150 million unsecured term loan (“Term Loan I Facility”) which has an accordion feature that allowswere due to mature in September 2018 and March 2021, respectively, using the proceeds from the sale of a partial interest in a portfolio of 7 owned properties and the portfolio sale of 3 owned properties (see Note 4). In connection with the pay-off of these term loan facilities, the Company to expandaccelerated the amount by upamortization of $0.9 million of deferred financing costs.
The Company is currently party to an additional $50 million, subject to the satisfaction of certain conditions. The maturity date of the Term Loan I Facility is March 2021. The weighted average annual rate on the Term Loan I Facility was 2.33% (1.23% + 1.10% spread) at September 30, 2017.
In June 2017, the Company entered into an Unsecured Term Loan Credit Agreement (the “New Term“Term Loan II Facility”) totaling $200 million. The maturity date of the New Term Loan II Facility ismillion which matures in June 2022. The agreement has an accordion feature that allows the Company to expand the amount by up to an additional $100 million, subject to the satisfaction of certain conditions. The weighted average annual rate on the New Term Loan II Facility was 2.34% (1.24% + 1.10% spread), at September 30, 2017.
In September 2017, the Company entered into an Unsecured Term Loan Credit Agreement (“Term Loan III Facility”) totaling $300 million. The maturity date of the Term Loan III Facility is September 2018, and can be extended for two one-year periods at the Company’s option, subject to the satisfaction of certain conditions. The agreement has an accordion feature that allows the
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Company to expand the amount by up to an additional $100 million, subject to the satisfaction of certain conditions. The weighted average annual rate on this term loan was 2.34% (1.24%3.14% (2.04% + 1.10% spread) at September 30, 2017.2019.
The terms of the term loan facilities described aboveTerm Loan Facility include certain restrictions and covenants consistent with those of the unsecured revolving credit facility discussed above. As of September 30, 2017,2019, the Company was in compliance with all such covenants.
8.7. Stockholders’ Equity / Partners’ Capital
Stockholders’ Equity - Company
In June 2015,May 2018, the Company established anrenewed its 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. The shares that may be sold under this program include shares of common stock of the Company with an aggregate offering price of approximately $233.0 million that were not sold under the Company's previous ATM equity program that expired in May 2018. 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.
The following table presentsThere was no activity under the Company’s ATM Equity Program during the three and nine months ended September 30, 20172019 and 2016:
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Total net proceeds | | $ | 1,135 |
| | $ | 62,374 |
| | $ | 188,538 |
| | $ | 62,374 |
|
| Commissions paid to sales agents | | $ | 14 |
| | $ | 790 |
| | $ | 2,374 |
| | $ | 790 |
|
| Weighted average price per share | | $ | 48.09 |
| | $ | 50.98 |
| | $ | 48.34 |
| | $ | 50.98 |
|
| Shares of common stock sold | | 23,900 |
| | 1,239,000 |
| | 3,949,356 |
| | 1,239,000 |
|
2018. As of September 30, 2017,2019, the Company had approximately $233.0$500.0 million available for issuance under its ATM Equity Program.
In February 2016, ACC completed an equity offering, consisting of the sale of 17,940,000 shares of ACC’s common stock at a price of $41.25 per share, including 2,340,000 shares issued as a result of the exercise of the underwriters’ overallotment option in full at closing. The offering generated gross proceeds of approximately $740.0 million. The aggregate proceeds to ACC, net of the underwriting discount and expenses of the offering, were approximately $707.3 million.
In 2015, the Company established a Non-Qualified Deferred Compensation Plan (“Deferred Compensation Plan”) maintained for the benefit of certain employees and members of the Company’s Board of Directors, in which vested share awards (see Note 10)9), salary, and other cash amounts earned may be deposited. Deferred Compensation Plan assets are held in a rabbi trust, which is subject to the claims of the Company’s creditors in the event of bankruptcy or insolvency. The shares held in the Deferred Compensation Plan are classified within stockholders’ equity in a manner similar to the manner in which treasury stock is classified. Subsequent changes in the fair value of the shares are not recognized. During the nine months ended September 30, 2017, 43,5972019, 15,670 and 7,345 shares of ACC’s commonvested stock were deposited into and withdrawn from the Deferred Compensation Plan.Plan, respectively. As of September 30, 2017, 63,7782019, 77,928 shares of ACC’s common stock were held in the Deferred Compensation Plan.
Partners’ Capital – Operating Partnership
In connection with the equity offering and ATM Equity Program discussed above, ACCOP issued a number of American Campus Operating Partnership Common OP Units (“Common OP Units”) to ACC equivalent to the number of common shares issued by ACC.
9. Noncontrolling Interests
Interests in Consolidated Real Estate Joint Ventures and Presale Arrangements
Noncontrolling interests - partially owned properties: As of September 30, 2017, the Operating Partnership consolidates three joint ventures that own and operate three owned off-campus properties. Additionally, in December 2016, the Company entered
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP L.P.LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
into a pre-sale8. Noncontrolling Interests
Interests in Consolidated Real Estate Joint Ventures and Presale Arrangements
Noncontrolling interests - partially owned properties: As of September 30, 2019, the Operating Partnership consolidates 4 joint ventures that own and operate 10 owned off-campus properties. Additionally, the Company is party to 1 presale agreement to purchase The Edge at Stadium Centre.a development property that was completed in Fall 2019. The portion of net assets attributable to the third-party partners in these arrangements is classified as “noncontrolling interests - partially owned properties” within equity and capital on the accompanying consolidated balance sheets of ACC and the Operating Partnership, respectively.
Redeemable noncontrolling interests (ACC) / redeemable limited partners (Operating Partnership): As partIn the third quarter of the Core Transaction discussed in detail in Note 3,2017, the Company entered into two2 joint venture arrangements in the third quarter of 2017.ventures (the “Core Joint Ventures”). The companyCompany is consolidating these joint ventures and the noncontrolling interest holder in each of these consolidated joint ventures has the option to redeem its noncontrolling interest in the entities through the exercise of put options. The options will be exercisable in the third and fourth quarter of 2019, and the redemption price is based on the fair value of the properties at the time of option exercise. As the exercise of the options is outside of the Company’s control, the portion of net assets attributable to the third-party partner in each of the joint venturesCore Joint Ventures is classified as “redeemable noncontrolling interests” and “redeemable limited partners” in the mezzanine section of the accompanying consolidated balance sheets of ACC and the Operating Partnership, respectively. The redeemable noncontrolling interests related to the joint venture partners in the Core Transaction are marked to their redemption value at each balance sheet date. The redemption value is based on the fair value of the underlying properties held by the joint ventures. This analysis incorporates information obtained from a number of sources, including the Company’s analysis of comparable properties in the Company’s portfolio, estimations of net operating results of the properties, capitalization rates, discount rates, and other market data. During the nine months ended September 30, 2017, there were no changes in2019, the redemption value of the redeemable noncontrolling interests that resulted frominterest increased by $11.8 million due to a change in the fair value of the net assets held by consolidatedthe joint ventures. For further discussionventures that are part of the Core Transaction primarily as a result of the completion of the leasing process for the 2019-2020 academic year. The corresponding offset for the adjustment to the redemption value is recorded in additional paid in capital. The Company’s fair value analysis is based on accounting for changesLevel 3 inputs and incorporates information obtained from a number of sources, including the Company’s analysis of comparable properties in the Company’s portfolio, estimations of net operating results of the properties, capitalization rates, discount rates, and other market data. As the change in redemption value referis based on fair value, there is no effect on the Company’s earnings per share. In August 2019, the Company exercised its option to Note 2.purchase the remaining ownership interest in one of the properties held in one of the Core Joint Ventures, which reduced the redeemable noncontrolling interest by $35.3 million.
The third-party partners’ share of the income or loss of the joint ventures described above is calculated based on the partners'partners’ economic interest in the joint ventures, and is included in “net income attributable to noncontrolling interests” on the consolidated statements of comprehensive income of ACC, and is reported as “net income attributable to noncontrolling interests - partially owned properties” on the consolidated statements of comprehensive income of the Operating Partnership.
Operating Partnership Ownership
Also included in redeemable noncontrolling interests (ACC) / redeemable limited partners (Operating Partnership) are OP Units for which 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. The units classified as such include Series A Preferred Units (“Preferred OP Units”) as well as Common OP Units. The value of redeemable noncontrolling interests (ACC) / redeemable limited partners (Operating Partnership) related to OP Units on the accompanying consolidated balance sheets is reported at the greater of fair value, which is based on the closing market value of the Company’s common stock at period end, or historical cost at the end of each reporting period. The OP Unitholders’ share of the income or loss of the Company is included in “net income attributable to noncontrolling interests” on the consolidated statements of comprehensive income of ACC.
As of both September 30, 20172019 and December 31, 2016,2018, approximately 0.8%0.4% and 0.5%, respectively, of the equity interests of the Operating Partnership were held by owners of Common OP Units and Preferred OP Units not held by ACC or ACC Holdings. During the nine months ended September 30, 2017, 22,000 Common2019, 168,584 Preferred OP Units were converted into an equal number of shares of ACC’s common stock. During the year ended December 31, 2016, 280,9152018, 412,343 Common OP Units and 31,846 Preferred OP Units were converted into an equal number of shares of ACC’s common stock.
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Below is a table summarizing the activity of redeemable noncontrolling interests (ACC) / redeemable limited partners (Operating Partnership) for the ninethree months ended March 31, 2019 and 2018, June 30, 2019 and 2018 and September 30, 2017,2019 and 2018, which includes both the redeemable joint venture partners and OP Units discussed above:
|
| | | |
| Balance, December 31, 2018 | $ | 184,446 |
|
| Net income | 259 |
|
| Distributions | (305 | ) |
| Conversion of OP Units into shares of ACC common stock | (252 | ) |
| Adjustments to reflect redeemable noncontrolling interests at fair value | 2,547 |
|
| Balance, March 31, 2019 | $ | 186,695 |
|
| Net income | 163 |
|
| Distributions | (288 | ) |
| Adjustments to reflect redeemable noncontrolling interests at fair value | (660 | ) |
| Balance, June 30, 2019 | $ | 185,910 |
|
| Net income | 150 |
|
| Distributions | (235 | ) |
| Conversion of OP Units into shares of ACC common stock | (5,830 | ) |
| Contributions from noncontrolling interests | 250 |
|
| Change in ownership of consolidated subsidiary | (35,345 | ) |
| Adjustments to reflect redeemable noncontrolling interests at fair value | 12,963 |
|
| Balance, September 30, 2019 | $ | 157,863 |
|
|
| | | |
| December 31, 2016 | $ | 55,078 |
|
| Net income | 322 |
|
| Distributions | (61,019 | ) |
| Conversion of redeemable limited partner units into shares of ACC common stock | (154 | ) |
| Contribution of properties from noncontrolling interest | 123,986 |
|
| Adjustments to reflect redeemable limited partner units at fair value | (5,943 | ) |
| September 30, 2017 | $ | 112,270 |
|
22 |
| | | |
| Balance, December 31, 2017 | $ | 132,169 |
|
| Net income | 210 |
|
| Distributions | (376 | ) |
| Conversion of OP Units into shares of ACC common stock | (478 | ) |
| Adjustments to reflect redeemable noncontrolling interests at fair value | (4,526 | ) |
| Balance, March 31, 2018 | $ | 126,999 |
|
| Net income | 344 |
|
| Distributions | (531 | ) |
| Contributions from noncontrolling interests | 71 |
|
| Adjustments to reflect redeemable noncontrolling interests at fair value | 4,426 |
|
| Balance, June 30, 2018 | $ | 131,309 |
|
| Distributions | (306 | ) |
| Conversion of OP Units into shares of ACC common stock | (12,855 | ) |
| Contributions from noncontrolling interests | 549 |
|
| Adjustments to reflect redeemable noncontrolling interests at fair value | 65,957 |
|
| Balance, September 30, 2018 | $ | 184,654 |
|
9. Incentive Award Plan
In May 2018, the Company’s stockholders approved the American Campus Communities, Inc. 2018 Incentive Award Plan (the “2018 Plan”). The 2018 Plan replaced the Company’s 2010 Incentive Award Plan (the “2010 Plan”). The 2018 Plan provides for the grant of various stock-based incentive awards to selected employees and directors of the Company and the Company’s affiliates. The types of awards that may be granted under the 2018 Plan include incentive stock options, nonqualified stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), profits interest units (“PIUs”) and other stock-based awards. The Company has reserved a total 3.5 million shares of the Company’s common stock for issuance pursuant to the 2018 Plan, subject to certain adjustments for changes in the Company’s capital structure, as defined in the 2018 Plan. Upon approval of the 2018 Plan, all remaining authorized shares that were not granted under the 2010 Plan were forfeited and are no longer available for issuance as new awards.
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP L.P.LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
10. Incentive Award Plan
Restricted Stock Units (“RSUs”)
Upon reelection to the Board of Directors in May 2017,2019, all members of the Company’s Board of Directors were granted RSUs in accordance with the American Campus Communities, Inc. 2010 Incentive Award Plan (the “Plan”).2018 Plan. These RSUs were valued at $150,000$162,500 for the Chairman of the Board of Directors and at $105,000$117,500 for all other members. Additionally, effective July 1, 2017, the Board of Directors’ compensation program was revised to reflect an increase in RSUs of $10,000 for all members of the Board of Directors. 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 2018 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 $0.9$0.8 million was recorded during the nine months ended September 30, 2017 related to these awards and is included in general and administrative expenses onawards.
In July 2019, the Company’s consolidated statementsCompany appointed one new member to the Board of comprehensive income.Directors who was granted RSUs valued at $117,500. A compensation charge of approximately $0.1 million was recorded related to this award.
A summary of ACC’s RSUs under the Plan as of September 30, 20172019 and activity during the nine months then ended is presented below:
|
| | |
| | Number of RSUs |
Outstanding at December 31, 20162018 | — |
|
| Granted | 18,22120,812 |
|
| Settled in common shares | (16,29518,318 | ) |
| Settled in cash | (1,9262,494 | ) |
Outstanding at September 30, 20172019 | — |
|
Restricted Stock Awards (“RSAs”)
A summary of RSAs under the Plan as of September 30, 20172019 and activity during the nine months then ended is presented below:
|
| | |
| | Number of RSAs |
Nonvested balance at December 31, 20162018 | 773,101862,680 |
|
| Granted | 344,688387,341 |
|
Vested (1) | (193,186266,556 | ) |
Forfeited(1) | (110,87514,486 | ) |
Nonvested balance at September 30, 20172019 | 813,728968,979 |
|
(1)Includes shares withheld to satisfy tax obligations upon vesting.
The fair value of RSAs 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 $2.4 million and $2.2 millionperiods. Amortization expense for the three months ended September 30, 20172019 and 2016,2018 amounted to approximately $3.0 million and $2.7 million, respectively, and $10.6$9.7 million and $7.1$8.8 million for the nine months ended September 30, 20172019 and 2016,2018, respectively. The amortization of restricted stock awards for the nine months ended September 30, 2017 includes $2.4 million of contractual executive separation and retirement charges incurred with regard to the retirement of the Company’s former Chief Financial Officer, representing the June 30, 2017 vesting of 46,976 RSAs, net of shares withheld for taxes, related to the retirement.
11.10. Derivative Instruments and Hedging Activities
The Company is exposed to certain risks 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.
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP L.P.LP 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. These agreements containprovisions such that if the Company defaults on any of its indebtedness, regardless of whether the repayment of the indebtedness has been accelerated by the lender or not, then the Company could also be declared in default on its derivative obligations. As of September 30, 2019, the Company was not in default on any of its indebtedness or derivative instruments.
As disclosed in Note 2, the adoption of ASU 2017-12 did not have a material effect on the Company’s consolidated financial statements. The effective portion of changeschange in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in other comprehensive income (“OCI”) (outside of earnings) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of changes inearnings within the fair valuesame income statement line item as the earnings effect of the derivative is recognized directly in earnings. Ineffectiveness resulting from the derivative instruments summarized below was immaterial for both the three and nine month periods ended September 30, 2017 and 2016.hedged transaction.
The following table summarizes the Company’s outstanding interest rate swap contracts which are included in other liabilities on the accompanying consolidated balance sheets as of September 30, 2017: 2019:
|
| | | | | | | | | | | | | | | | |
| Hedged Debt Instrument | | Effective Date | | Maturity Date | | Pay Fixed Rate | | Receive Floating Rate Index | | Current Notional Amount | | Fair Value |
| Cullen Oaks mortgage loan | | Feb 18, 2014 | | Feb 15, 2021 | | 2.2750% | | LIBOR - 1 month | | $ | 12,735 |
| | $ | (120 | ) |
| Cullen Oaks mortgage loan | | Feb 18, 2014 | | Feb 15, 2021 | | 2.2750% | | LIBOR - 1 month | | 12,867 |
| | (121 | ) |
| Park Point mortgage loan | | Feb 1, 2019 | | Jan 16, 2024 | | 2.7475% | | LIBOR - 1 month | | 70,000 |
| | (4,009 | ) |
| | | | | | | | | Total | | $ | 95,602 |
| | $ | (4,250 | ) |
|
| | | | | | | | | | | | | | | | |
| Hedged Debt Instrument | | Effective Date | | Maturity Date | | Pay Fixed Rate | | Receive Floating Rate Index | | Current Notional Amount | | Fair Value |
| Cullen Oaks mortgage loan | | Feb 18, 2014 | | Feb 15, 2021 | | 2.2750% | | LIBOR - 1 month | | $ | 13,830 |
| | $ | (224 | ) |
| Cullen Oaks mortgage loan | | Feb 18, 2014 | | Feb 15, 2021 | | 2.2750% | | LIBOR - 1 month | | 13,973 |
| | (226 | ) |
| Park Point mortgage loan | | Nov 1, 2013 | | Oct 5, 2018 | | 1.5450% | | LIBOR - 1 month | | 70,000 |
| | (60 | ) |
| | | | | | | | | Total | | $ | 97,803 |
| | $ | (510 | ) |
In January 2017,December 2018, the Company entered into 3 forward starting interest rate swapsswap 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. In connection with the Term Loan I Facility expired, andissuance of unsecured notes in June 2019, as discussed in Note 6, the remaining immaterial balanceCompany terminated the swap contracts resulting in payments to counterparties totaling approximately $13.2 million, which were recorded in accumulated other comprehensive income was reclassified into earnings.loss and which will be amortized to interest expense over the term of the swap contracts based on the June 2019 issuance and expected additional issuances.
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, 20172019 and December 31, 2016:2018:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Asset Derivatives | | Liability Derivatives |
| | | | | Fair Value as of | | | | Fair Value as of |
| Description | | Balance Sheet Location | | 9/30/2019 | | 12/31/2018 | | Balance Sheet Location | | 9/30/2019 | | 12/31/2018 |
| | | | | | | | | | | | | |
| Interest rate swap contracts | | Other assets | | $ | — |
| | $ | 101 |
| | Other liabilities | | $ | 4,250 |
| | $ | — |
|
| Forward starting swap contracts | | Other assets | | — |
| | — |
| | Other liabilities | | — |
| | 2,287 |
|
Total derivatives designated
as hedging instruments | | | | $ | — |
| | $ | 101 |
| | | | $ | 4,250 |
| | $ | 2,287 |
|
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
| | | | | | | | | | |
| | | Liability Derivatives |
| | | | | Fair Value as of |
| Description | | Balance Sheet
Location | | September 30, 2017 | | December 31, 2016 |
| Interest rate swaps contracts | | Other liabilities | | $ | 510 |
| | $ | 1,099 |
|
Total derivatives designated as hedging instruments | | | | $ | 510 |
| | $ | 1,099 |
|
The table below presents the effect of the Company’s derivative financial instruments on the accompanying consolidated statements of comprehensive income for the three and nine months ended September 30, 2019 and 2018.
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Description | | 2019 | | 2018 | | 2019 | | 2018 |
| Change in fair value of derivatives and other recognized in OCI | | $ | (578 | ) | | $ | (23 | ) | | $ | (2,074 | ) | | $ | 418 |
|
| Termination of interest rate swap payment recognized in OCI | | — |
| | — |
| | (13,159 | ) | | — |
|
Amortization of interest rate swap terminations (1) | | 433 |
| | 104 |
| | 701 |
| | 308 |
|
| Total change in OCI due to derivative financial instruments | | $ | (145 | ) | | $ | 81 |
| | $ | (14,532 | ) | | $ | 726 |
|
| | | | | | | | | |
| Interest expense presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded | | $ | 28,303 |
| | $ | 25,185 |
| | $ | 82,432 |
| | $ | 72,207 |
|
| |
(1) | Represents amortization from OCI into interest expense. |
12.11. Fair Value Disclosures
There have been no significant changes in the Company’s policies and valuation techniques utilized to determine fair value from what was disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018.
Financial Instruments Carried at Fair Value
The following table presents information about the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 20172019 and December 31, 2016,2018, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. In general,There were no Level 1 measurements for the periods presented, and the Company had no transfers between Levels 1, 2 or 3 during the periods presented. Refer to Note 8 for a discussion of the Level 3 activity during the period related to the redeemable noncontrolling interests in partially owned properties.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements as of |
| | September 30, 2019 | | December 31, 2018 |
| | | Level 2 | | Level 3 | | | | Level 2 | | Level 3 | | |
| | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Total | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Total |
| Assets: | | | | | | | | | | | | |
| Derivative financial instruments | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 101 |
| | $ | — |
| | $ | 101 |
|
| Liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
| Derivative financial instruments | | $ | 4,250 |
| (1) | $ | — |
| | $ | 4,250 |
| | $ | 2,287 |
| (1) | $ | — |
| | $ | 2,287 |
|
| Mezzanine: | | |
| | |
| | |
| | |
| | |
| | |
|
| Redeemable noncontrolling interests (Company)/Redeemable limited partners (Operating Partnership) | | $ | 24,219 |
| (2) | $ | 133,644 |
| (3) | $ | 157,863 |
| | $ | 27,828 |
| (2) | $ | 156,618 |
| (3) | $ | 184,446 |
|
| |
(1) | Valued using discounted cash flow analyses with observable market-based inputs of interest rate curves and option volatility, as well as credit valuation adjustments to reflect nonperformance risk. |
| |
(2) | Represents the OP Unit component of redeemable noncontrolling interests which is based on the fair value of the Company’s common stock at the balance sheet date. Represents a quoted price for a similar asset in an active market. Refer to Note 8. |
| |
(3) | Represents the Core Joint Ventures component of redeemable noncontrolling interests which is valued using primarily unobservable inputs, including the Company’s analysis of comparable properties in the Company’s portfolio, estimations of net operating results of the properties, capitalization rates, discount rates, and other market data. Refer to Note 8. |
Financial Instruments Not Carried at Fair Value
As of September 30, 2019 and December 31, 2018, the carrying values for the following instruments represent fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilitiesdue to 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 levelsshort maturity of the fair value hierarchy, the levelinstruments: Cash and Cash Equivalents, Restricted Cash, Student Contracts Receivable, certain items in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level inputOther Assets (including receivables, deposits, and prepaid expenses), Accounts Payable, Accrued Expenses, and Other Liabilities.
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP L.P.LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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, 2017 | | December 31, 2016 |
| | | 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 |
| Liabilities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Derivative financial instruments | | $ | — |
| | $ | 510 |
| | $ | — |
| | $ | 510 |
| | $ | — |
| | $ | 1,099 |
| | $ | — |
| | $ | 1,099 |
|
| Mezzanine: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Redeemable noncontrolling interests (Company)/Redeemable limited partners (Operating Partnership) | | $ | — |
| | $ | 50,887 |
| | $ | 61,383 |
| | $ | 112,270 |
| | $ | — |
| | $ | 55,078 |
| | $ | — |
| | $ | 55,078 |
|
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, 2017, 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, asAs of September 30, 20172019 and December 31, 2016,2018, the Company has assessedcarrying values for the significancefollowing instruments represent fair values due the variable interest rate feature of the impact of the credit valuation adjustments on the overall 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.
The OP Unit component of redeemable noncontrolling interests has a redemption feature and is marked to its 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, these instruments are classified in Level 2 of the fair value hierarchy.
As discussed in Note 2 and Note 9, the redeemable noncontrolling interests related to the joint venture partners in the Core Transaction are marked to their redemption value at each balance sheet date. The redemption value is based on the fair value of the underlying properties held by the joint ventures. This analysis incorporates information obtained from a number of sources, including the Company’s analysis of comparable properties in the Company’s portfolio, estimations of net operating results of the properties, capitalization rates, discount rates, and other market data. The Company has determined these estimates are primarily based upon unobservable inputs and therefore are considered to be Level 3 inputs within the fair value hierarchy.
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Financial Instruments Not Carried at Fair Value
Cash and Cash Equivalents, Restricted Cash, Student Contracts 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.
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.
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 utilize Level 2 inputs 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.
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.
instruments: Construction Loans Payable, Unsecured Revolving Credit Facility, Mortgage Loans Payable (variable rate), and Unsecured Term Loans: The fair value of these instruments approximates their carrying values due to the variable interest rate feature of these instruments.Loans.
The table below contains the estimated fair value and related carrying amounts for the Company’s other financial instruments as of September 30, 20172019 and December 31, 2016: 2018. There were no Level 1 measurements for the periods presented.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 | |
| | | | | Estimated Fair Value | | | | Estimated Fair Value | |
| | | | | Level 2 | | Level 3 | | | | Level 2 | | Level 3 | |
| | | Carrying Amount | | Significant Other Observable Inputs | | Significant
Unobservable
Inputs | | Carrying
Amount | | Significant Other Observable Inputs | | Significant
Unobservable
Inputs | |
| Assets | | | | | | | | | | | | | |
| Loans receivable | | $ | 49,837 |
| | $ | — |
| | $ | 50,993 |
| (1) | $ | 54,611 |
| | $ | — |
| | $ | 50,993 |
| (1) |
Liabilities (2) | | |
| | | | | | |
| | |
| | |
| |
| Unsecured notes | | $ | 1,984,748 |
| | $ | 2,074,177 |
| (3) | $ | — |
| | $ | 1,588,446 |
| | $ | 1,566,900 |
| (3) | $ | — |
| |
| Mortgage loans payable (fixed rate) | | $ | 726,964 |
| (4) | $ | 732,821 |
| (5) | $ | — |
| | $ | 693,384 |
| (6) | $ | 668,911 |
| (5) | $ | — |
| |
| Bonds payable | | $ | 22,982 |
| | $ | 25,194 |
| (7) | $ | — |
| | $ | 26,741 |
| | $ | 28,805 |
| (7) | $ | — |
| |
|
| | | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | | December 31, 2016 | |
| | | Estimated Fair Value | | Carrying Amount | | | Estimated Fair Value | | Carrying Amount | |
| Assets: | | | | | | | | | | |
| Loans receivable | | $ | 54,396 |
| | $ | 61,052 |
| | | $ | 54,396 |
| | $ | 58,539 |
| |
| Liabilities: | | | | |
| | | |
| | |
| |
| Unsecured notes | | $ | 1,232,338 |
| | $ | 1,190,296 |
| (1) | | $ | 1,211,344 |
| | $ | 1,188,737 |
| (1) |
| Mortgage loans payable | | 603,789 |
| | 611,657 |
| (2) | | 644,617 |
| | 654,794 |
| (2) |
| Bonds payable | | 32,983 |
| | 30,177 |
| | | 37,066 |
| | 33,401 |
| |
| |
(1) | IncludesValued using a discounted cash flow analysis with inputs of scheduled cash flows and discount rates that a willing buyer and seller might use. |
| |
(2) | Carrying amounts disclosed include any applicable net unamortized OID, and net unamortized deferred financing costs, and net unamortized debt premiums and discounts (see Note 7)6). |
| |
(2)(3)
| Includes net unamortized debt premiumsValued using interest rate and discountsspread assumptions that reflect current creditworthiness and net unamortized deferred financing costs (see Note 7).market conditions available for the issuance of unsecured notes with similar terms and remaining maturities. |
| |
(4) | Does not include 1 variable rate mortgage loan with a principal balance of $40.8 million as of September 30, 2019. |
| |
(5) | Valued using the present value of the cash flows at current market interest rates through maturity that primarily fall within the Level 2 category. |
| |
(6) | Does not include 2 variable rate mortgage loans with a combined principal balance of $111.4 million as of December 31, 2018. |
| |
(7) | Valued using quoted prices in markets that are not active due to the unique characteristics of these financial instruments. |
12. Leases
Refer to Note 2 for information on the impact of the adoption of the New Leases Standard.
As Lessee
The Company, as lessee, has entered into 49 ground/facility and office space lease agreements, which qualify as operating leases under the New Leases Standard. These leases include leases entered into under the ACE program with university systems and Walt Disney World® Resort, leases with local and regional land owners for owned off-campus properties, leases for corporate office space, and leases under the on-campus participating properties (“OCPPs”) structure. Leases entered into under the ACE program are transferable and financeable. Under ground/facility leases, the lessors receive annual minimum (base) rent, variable rent based upon the operating performance of the property, or a combination thereof. The leases have initial terms (excluding extension options) ranging from eleven years to 102 years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company records base rent expense under the straight-line method over the term of the lease, and variable rent expense is recorded when the achievement of the target is considered probable. Straight-line rent is capitalized during the construction period and expensed upon the commencement of operations. In the accompanying consolidated statements of comprehensive income, rent expense for ACE properties and OCPPs is included in ground/facility lease expense, and rent expense for owned off-campus properties is included in owned properties operating expenses. Total straight-line rent expense, variable rent expense, and capitalized rent costs for the three months ended September 30, 2019 was $2.5 million, $2.5 million, and $3.2 million, respectively, and $7.4 million, $6.4 million, and $8.3 million for the nine months ended September 30, 2019, respectively.
For purposes of calculating the ROU Asset and lease liability for such leases, extension options are not included in the lease term unless it is reasonably certain that the Company will exercise the option, or the lessor has the sole ability to exercise the option. As most of the Company’s leases do not contain an implicit rate, the Company uses its incremental borrowing rate to determine
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
the present value of the lease payments. This involves determining a secured interest rate for each lease based on the term of the respective lease. The weighted average incremental borrowing rate was 5.35% as of September 30, 2019. The weighted average remaining lease term of leases with a lease liability as of September 30, 2019 is 62.6 years (excluding extension options).
There were no finance lease obligations outstanding as of September 30, 2019. Future minimum commitments over the life of all operating leases, which exclude variable rent payments, are as follows:
|
| | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| 2019 | | $ | 2,669 |
| (1) | $ | 9,463 |
|
| 2020 | | 11,814 |
| | 12,092 |
|
| 2021 | | 16,749 |
| | 16,653 |
|
| 2022 | | 23,664 |
| | 18,999 |
|
| 2023 | | 28,776 |
| | 18,903 |
|
| Thereafter | | 1,691,033 |
| | 1,042,842 |
|
| Total minimum lease payments | | 1,774,705 |
| | $ | 1,118,952 |
|
| Less imputed interest | | (1,305,226 | ) | | |
| Total lease liabilities | | $ | 469,479 |
| | |
(1) Excluding the nine months ended September 30, 2019.
As Lessor
The Company’s primary business involves leasing properties to students under agreements that are classified as operating leases, and which have terms of 12 months or less. These student leases do not provide for variable rent payments. The Company is also a lessor under commercial leases at certain owned properties, some of which provide for variable lease payments based upon tenant performance such as a percentage of sales. The Company recognizes the base lease payments provided for under the leases on a straight-line basis over the lease term, and variable payments are recognized in the period in which the changes in facts and circumstances on which the variable payments are based occur. Lease income under both student and commercial leases is included in owned property revenues in the accompanying consolidated statements of comprehensive income. Lease income under student leases totaled $199.8 million and $189.2 million for the three months ended September 30, 2019 and 2018, respectively; and $615.8 million and $570.3 million for the nine months ended September 30, 2019 and 2018, respectively. Lease income under commercial leases totaled $3.4 million and $3.2 million for the three months ended September 30, 2019 and 2018, respectively; and $10.0 million and $9.7 million for the nine months ended September 30, 2019 and 2018, respectively.
13. Commitments and Contingencies
Commitments
Construction Contracts: As of September 30, 2017, excluding four properties under construction and subject to presale arrangements which are being funded by construction loans,2019, the Company estimates additional costs to complete eight wholly-owned3 owned development projects under construction to be approximately $383.6$522.0 million.
Joint Ventures: As discussed in Note 3, as part of the Core Transaction, the Company entered into two2 joint ventures during the third quarter of 2017. As part of this transaction, the Company is obligated to increase its investment in the joint ventures over a two year period resulting in awhich was extended through January 2020. As of September 30, 2019, the remaining funding commitment was approximately $130.2 million.
Presale Development Projects: The Company was party to one presale development agreement as of approximately $325.2 million, including the Company's $40.6 million initial investment related to Hub U District Seattle anticipated to close during the fourth quarter of 2017.
Pre-sale Arrangements: In December 2016, the Company entered into a pre-sale agreement to purchase The Edge - Stadium Centre, a property which will be completed in August 2018. Total estimated development costs of approximately $42.6 million include
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
the purchase price, elected upgrades, and capitalized transaction costs.September 30, 2019. The Company is obligated to purchase the property for $72.4 million, which includes the contractual purchase price and the cost of elected upgrades, as long as the developer meets certain construction completion deadlines and other closing conditions are met.
conditions. The Company expects to fund the commitments mentioned above through a combinationremaining $48.7 million of proceeds from cash flows generated from operations, anticipated property dispositions, joint venture activity, and a combinationthe purchase price in the fourth quarter of debt and equity transactions, which may include net proceeds from the ATM Equity Program discussed in Note 8, borrowings under the Company’s existing unsecured credit facilities, and accessing the unsecured bond market.2019.
Contingencies
Development-related Guarantees: For certain of 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 generally require the Company to provide substitute living quarters and transportation for students to and from the
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
university if the project is not complete by an agreed-upon completion date. These guarantees typically expire at the later of five days after completion of the project or once the Company has moved all students from the substitute living quarters into the project.
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 typicallyin certain cases 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 $4.0$10.6 million as of September 30, 2017.2019. As of September 30, 2017,2019, management did not anticipate any material deviations from schedule or budget related to third-party development projects currently in progress.
For one of its third-party development projects that is currently under construction, the Company’s obligation to pay alternate housing costs and excess project costs are unlimited in amount. However, if the Company’s payment obligation arises from force majeure or is caused by the owner, the owner agrees to reimburse the Company from future cash flow of the project, with such reimbursement being subordinate to any financing on the property but paid prior to the University receiving any cash flow from the property. If the Company’s obligation is a result of the general contractor and/or design professionals’ negligence, the owner agrees to assign its right to recover from such party to the Company. Additionally, for this project, the Company’s exposure to such costs resulting from owner-caused delays, as defined, is limited to $1.0 million. As of September 30, 2019, management did not anticipate any material deviations from schedule or budget related to this project.
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.
As a part of the development agreement with Walt Disney World® Resort, the Company has guaranteed the completion of construction of a $614.6 million project to be delivered in phases from 2020 to 2023. In addition, the Company is subject to a development guarantee in the event that the substantial completion of a project phase is delayed beyond its respective targeted delivery date, except in circumstances resulting in unavoidable delays. The agreement dictates that the Company shall pay damages of $20 per bed for each day of delay for any Disney College Internship Program participant who was either scheduled to live in the delayed phase as well as any participant who was not able to participate in the program due to the lack of available housing and would have otherwise been housed in the delayed phase. Under the agreement, the maximum exposure related to the Disney project assuming all beds are not delivered on their respective delivery date is approximately $0.2 million per day.
Conveyance to University: In August 2013, the Company entered into an agreement to convey fee interest in a parcel of land, on which one of the Company’s student housing properties resides (University Crossings), 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 three3 10-year extensions, at the Company’s option. 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.
ContingenciesPre-development expenditures: The Company incurs pre-development expenditures such as architectural fees, permits, and deposits associated with the pursuit of third-party and owned development projects. The Company bears the risk of loss of these pre-development expenditures if financing cannot be arranged or the Company is unable to obtain the required permits and authorizations for the project. As such, management periodically evaluates the status of third-party and owned projects that have not yet commenced construction 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. As of September 30, 2019, the Company has deferred approximately $6.0 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.
Other Guarantees: In June 2019, the Company entered into a purchase and sale agreement to buy a land parcel initially scheduled to close on or before June 30, 2021, with potential extensions at the Company’s option to June 1, 2022 or June 1, 2023. In connection with the execution of the agreement, the Company made an earnest money deposit of $2.1 million which is included in restricted
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
cash on the accompanying consolidated balance sheet. As a part of the agreement, within 60 days of certain conditions not being met, the seller of the property can either terminate the agreement or exercise an option to require the Company to purchase the undeveloped land, with the Company retaining all rights to fully own, develop, and utilize the land. If the option is exercised, the Company must pay the agreed upon purchase price of $28.7 million and a commission calculated as a percentage of the sales price, and also reimburse the seller for demolition costs.
Litigation: The Company is subject to various claims, lawsuits and legal proceedings, 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 or joint ventures. Such letters of intent are non-binding (except with regard to exclusivity and confidentiality), 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 material 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
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
the extent of any non-refundable earnest money deposits associated with the contract and subject to normal closing conditions being met.
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.
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP L.P.LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
14. Segments
The Company defines business segments by their distinct customer base and service provided. The Company has identified four4 reportable segments: Wholly-OwnedOwned Properties, On-Campus Participating Properties, Development Services, and Property Management Services. Management evaluates each segment’s performance based on operating income before depreciation, amortization and minority interests and allocation of corporate overhead. Intercompany fees are reflected at the contractually stipulated amounts.interests.
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| Owned Properties | | | | | | | | |
| Rental revenues and other income | | $ | 211,808 |
| | $ | 203,526 |
| | $ | 640,912 |
| | $ | 600,138 |
|
| Interest income | | 117 |
| | 382 |
| | 355 |
| | 1,146 |
|
| Total revenues from external customers | | 211,925 |
| | 203,908 |
| | 641,267 |
| | 601,284 |
|
| Operating expenses before depreciation, amortization, and ground/facility lease expense | | (111,836 | ) | | (107,997 | ) | | (294,768 | ) | | (282,193 | ) |
| Ground/facility lease expense | | (2,862 | ) | | (2,307 | ) | | (7,937 | ) | | (6,294 | ) |
Interest expense, net (1) | | (3,896 | ) | | (5,622 | ) | | (12,673 | ) | | (9,011 | ) |
| Operating income before depreciation and amortization | | $ | 93,331 |
| | $ | 87,982 |
| | $ | 325,889 |
| | $ | 303,786 |
|
| Depreciation and amortization | | $ | 65,506 |
| | $ | 62,908 |
| | $ | 196,638 |
| | $ | 185,171 |
|
| Capital expenditures | | $ | 156,840 |
| | $ | 144,910 |
| | $ | 402,192 |
| | $ | 428,065 |
|
| | | | | | | | | |
| On-Campus Participating Properties | | |
| | |
| | |
| | |
|
| Rental revenues and other income | | $ | 6,944 |
| | $ | 6,980 |
| | $ | 24,788 |
| | $ | 23,605 |
|
| Interest income | | 59 |
| | 43 |
| | 170 |
| | 105 |
|
| Total revenues from external customers | | 7,003 |
| | 7,023 |
| | 24,958 |
| | 23,710 |
|
| Operating expenses before depreciation, amortization, and ground/facility lease expense | | (3,822 | ) | | (3,875 | ) | | (11,585 | ) | | (11,030 | ) |
| Ground/facility lease expense | | (353 | ) | | (644 | ) | | (2,063 | ) | | (2,232 | ) |
Interest expense, net (1) | | (1,255 | ) | | (1,282 | ) | | (3,869 | ) | | (3,804 | ) |
| Operating income before depreciation and amortization | | $ | 1,573 |
| | $ | 1,222 |
| | $ | 7,441 |
| | $ | 6,644 |
|
| Depreciation and amortization | | $ | 2,289 |
| | $ | 1,962 |
| | $ | 6,334 |
| | $ | 5,856 |
|
| Capital expenditures | | $ | 1,750 |
| | $ | 1,394 |
| | $ | 2,517 |
| | $ | 2,918 |
|
| | | | | | | | | |
| Development Services | | |
| | |
| | |
| | |
|
| Development and construction management fees | | $ | 5,611 |
| | $ | 835 |
| | $ | 12,389 |
| | $ | 3,883 |
|
| Operating expenses | | (2,080 | ) | | (2,056 | ) | | (6,365 | ) | | (5,976 | ) |
| Operating income (loss) before depreciation and amortization | | $ | 3,531 |
| | $ | (1,221 | ) | | $ | 6,024 |
| | $ | (2,093 | ) |
| | | | | | | | | |
| Property Management Services | | |
| | |
| | |
| | |
|
| Property management fees from external customers | | $ | 3,342 |
| | $ | 2,128 |
| | $ | 9,118 |
| | $ | 7,311 |
|
| Operating expenses | | (3,350 | ) | | (1,775 | ) | | (7,764 | ) | | (5,597 | ) |
| Operating income before depreciation and amortization | | $ | (8 | ) | | $ | 353 |
| | $ | 1,354 |
| | $ | 1,714 |
|
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Wholly-Owned Properties | | | | | | | | |
| Rental revenues and other income | | $ | 184,282 |
| | $ | 186,504 |
| | $ | 533,866 |
| | $ | 548,403 |
|
| Interest income | | 385 |
| | 345 |
| | 1,161 |
| | 878 |
|
| Total revenues from external customers | | 184,667 |
| | 186,849 |
| | 535,027 |
| | 549,281 |
|
| Operating expenses before depreciation, amortization, ground/facility leases and allocation of corporate overhead | | (97,545 | ) | | (99,820 | ) | | (242,315 | ) | | (254,523 | ) |
| Ground/facility leases | | (1,877 | ) | | (1,614 | ) | | (5,163 | ) | | (4,520 | ) |
Interest expense, net (1) | | (1,540 | ) | | (4,078 | ) | | (1,194 | ) | | (16,215 | ) |
| Operating income before depreciation, amortization, and allocation of corporate overhead | | $ | 83,705 |
| | $ | 81,337 |
| | $ | 286,355 |
| | $ | 274,023 |
|
| Depreciation and amortization | | $ | 58,339 |
| | $ | 49,464 |
| | $ | 161,341 |
| | $ | 151,740 |
|
| Capital expenditures | | $ | 196,910 |
| | $ | 119,589 |
| | $ | 473,638 |
| | $ | 329,932 |
|
| Total segment assets at September 30, | | $ | 6,488,259 |
| | $ | 6,062,852 |
| | $ | 6,488,259 |
| | $ | 6,062,852 |
|
| | | | | | | | | |
| On-Campus Participating Properties | | |
| | |
| | |
| | |
|
| Total revenues and other income | | $ | 6,799 |
| | $ | 6,758 |
| | $ | 23,128 |
| | $ | 23,018 |
|
| Interest income | | 24 |
| | 2 |
| | 47 |
| | 4 |
|
| Total revenues from external customers | | 6,823 |
| | 6,760 |
| | 23,175 |
| | 23,022 |
|
| Operating expenses before depreciation, amortization, ground/facility leases and allocation of corporate overhead | | (3,611 | ) | | (3,507 | ) | | (10,109 | ) | | (9,278 | ) |
| Ground/facility leases | | (452 | ) | | (351 | ) | | (1,988 | ) | | (2,216 | ) |
| Interest expense | | (1,312 | ) | | (1,394 | ) | | (3,987 | ) | | (4,231 | ) |
| Operating income before depreciation, amortization and allocation of corporate overhead | | $ | 1,448 |
| | $ | 1,508 |
| | $ | 7,091 |
| | $ | 7,297 |
|
| Depreciation and amortization | | $ | 1,892 |
| | $ | 1,839 |
| | $ | 5,621 |
| | $ | 5,493 |
|
| Capital expenditures | | $ | 2,039 |
| | $ | 1,446 |
| | $ | 2,909 |
| | $ | 2,510 |
|
| Total segment assets at September 30, | | $ | 101,027 |
| | $ | 105,774 |
| | $ | 101,027 |
| | $ | 105,774 |
|
| | | | | | | | | |
| Development Services | | |
| | |
| | |
| | |
|
| Development and construction management fees | | $ | 3,566 |
| | $ | 773 |
| | $ | 4,697 |
| | $ | 3,929 |
|
| Operating expenses | | (4,185 | ) | | (3,434 | ) | | (11,396 | ) | | (10,414 | ) |
| Operating loss before depreciation, amortization and allocation of corporate overhead | | $ | (619 | ) | | $ | (2,661 | ) | | $ | (6,699 | ) | | $ | (6,485 | ) |
| Total segment assets at September 30, | | $ | 4,918 |
| | $ | 2,279 |
| | $ | 4,918 |
| | $ | 2,279 |
|
| | | | | | | | | |
| Property Management Services | | |
| | |
| | |
| | |
|
| Property management fees from external customers | | $ | 2,291 |
| | $ | 2,376 |
| | $ | 7,193 |
| | $ | 7,039 |
|
| Intersegment revenues | | 5,128 |
| | 5,830 |
| | 14,835 |
| | 17,410 |
|
| Total revenues | | 7,419 |
| | 8,206 |
| | 22,028 |
| | 24,449 |
|
| Operating expenses | | (3,034 | ) | | (2,742 | ) | | (9,719 | ) | | (8,542 | ) |
| Operating income before depreciation, amortization and allocation of corporate overhead | | $ | 4,385 |
| | $ | 5,464 |
| | $ | 12,309 |
| | $ | 15,907 |
|
| Total segment assets at September 30, | | $ | 11,067 |
| | $ | 10,692 |
| | $ | 11,067 |
| | $ | 10,692 |
|
| | | | | | | | | |
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, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | | |
| Reconciliations | | |
| | |
| | |
| | |
|
| Total segment revenues and other income | | $ | 202,475 |
| | $ | 202,588 |
| | $ | 584,927 |
| | $ | 600,681 |
|
| Unallocated interest income earned on investments and corporate cash | | 850 |
| | 925 |
| | 2,515 |
| | 3,144 |
|
| Elimination of intersegment revenues | | (5,128 | ) | | (5,830 | ) | | (14,835 | ) | | (17,410 | ) |
| Total consolidated revenues, including interest income | | $ | 198,197 |
| | $ | 197,683 |
| | $ | 572,607 |
| | $ | 586,415 |
|
| | | | | | | | | |
| Segment operating income before depreciation, amortization and allocation of corporate overhead | | $ | 88,919 |
| | $ | 85,648 |
| | $ | 299,056 |
| | $ | 290,742 |
|
| Depreciation and amortization | | (62,271 | ) | | (53,411 | ) | | (172,588 | ) | | (164,724 | ) |
| Net unallocated expenses relating to corporate interest and overhead | | (27,614 | ) | | (22,047 | ) | | (79,165 | ) | | (67,573 | ) |
| (Loss) gain from disposition of real estate | | — |
| | — |
| | (632 | ) | | 17,409 |
|
| Provision for real estate impairment | | — |
| | — |
| | (15,317 | ) | | — |
|
| Income tax provision | | (267 | ) | | (345 | ) | | (791 | ) | | (1,035 | ) |
| Net income | | $ | (1,233 | ) | | $ | 9,845 |
| | $ | 30,563 |
| | $ | 74,819 |
|
| | | | | | | | | |
| Total segment assets | | $ | 6,605,271 |
| | $ | 6,181,597 |
| | $ | 6,605,271 |
| | $ | 6,181,597 |
|
| Unallocated corporate assets | | 81,620 |
| | 97,778 |
| | 81,620 |
| | 97,778 |
|
| Total assets at September 30, | | $ | 6,686,891 |
| | $ | 6,279,375 |
| | $ | 6,686,891 |
| | $ | 6,279,375 |
|
| | | | | | | | | |
| |
(1)
| Net of capitalized interest and amortization of debt premiums. |
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP L.P.LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| Reconciliations | | |
| | |
| | |
| | |
|
| Total segment revenues and other income | | $ | 227,881 |
| | $ | 213,894 |
| | $ | 687,732 |
| | $ | 636,188 |
|
| Unallocated interest income earned on investments and corporate cash | | 784 |
| | 849 |
| | 2,330 |
| | 2,489 |
|
| Total consolidated revenues, including interest income | | $ | 228,665 |
| | $ | 214,743 |
| | $ | 690,062 |
| | $ | 638,677 |
|
| | | | | | | | | |
| Segment operating income before depreciation and amortization | | $ | 98,427 |
| | $ | 88,336 |
| | $ | 340,708 |
| | $ | 310,051 |
|
| Depreciation and amortization | | (70,245 | ) | | (67,247 | ) | | (210,165 | ) | | (199,191 | ) |
| Net unallocated expenses relating to corporate interest and overhead | | (29,533 | ) | | (24,615 | ) | | (86,155 | ) | | (83,958 | ) |
| (Loss) gain from disposition of real estate | | — |
| | — |
| | (282 | ) | | 42,314 |
|
| Other operating and nonoperating income | | — |
| | 570 |
| | — |
| | 3,218 |
|
| Gain (loss) from extinguishment of debt | | 20,992 |
| | — |
| | 20,992 |
| | (784 | ) |
| Provision for real estate impairment | | — |
| | — |
| | (3,201 | ) | | — |
|
| Income tax (provision) benefit | | (305 | ) | | 219 |
| | (983 | ) | | (2,147 | ) |
| Net income (loss) | | $ | 19,336 |
| | $ | (2,737 | ) | | $ | 60,914 |
| | $ | 69,503 |
|
| | | | | | | | | |
| | | | | | | | | |
| |
(1) | Net of capitalized interest and amortization of debt premiums. |
15. Subsequent Events
Distributions: On November 1, 2017,October 30, 2019, the Board of Directors of the Company declared a distribution per share of $0.44,$0.47, which will be paid on November 27, 201722, 2019 to all common stockholders of record as of November 13, 2017.11, 2019. At the same time, the Operating Partnership will pay an equivalent amount per unit to holders of Common OP Units, as well as the quarterly cumulative preferential distribution to holders of Preferred OP Units (see Note 9)8).
Derivative Agreements: In October 2017 Bond Offering2019, the Company entered into an interest rate swap to convert $37.5 million of a $40.8 million variable rate mortgage loan at 1 of its on-campus participating properties to a fixed rate. Additionally, in October 2019, the Company entered into an interest rate swap to convert $100 million of its unsecured term loan to a fixed rate.
Purchase of Noncontrolling Interests: In October 2017, the Operating Partnership closed a $400 million offering of senior unsecured notes under its existing shelf registration. These 10-year notes were issued at 99.912 percent of par value with a coupon of 3.625 percent and a yield of 3.635 percent, and are fully and unconditionally guaranteed by the Company. Interest on the notes is payable semi-annually on May 15 and November 15, with the first payment beginning on May 15, 2018. The notes will mature on November 15, 2027. Net proceeds from the sale of the senior unsecured notes totaled approximately $395 million, after expenses, and were used to repay the outstanding balance of the Company’s revolving credit facility, with the remaining proceeds available to fund the development pipeline, acquisition activity and for general business purposes.
Property Acquisitions: In October 2017, the Company acquired Bridges @ 11th, a 258-bed wholly-owned property located on university-owned land near the University of Washington campus.
Additionally, in October 2017, as part of the Core Transaction,2019, the Company exercised anits option to causepurchase the joint venture partnerremaining ownership interests in Hub Ann Arbor, a 310-bed off-campus property, and Hub Flagstaff, a 591-bed off-campus property, for a total of $53.0 million. These properties are held in the Core JV I to contribute Hub U District Seattle, a 248-bed property located nearJoint Ventures described in Note 8.
Property Held For Sale: As of October 31, 2019, management determined that all criteria for Held for Sale classification (per Accounting Standards Codification Topic 360, “Property, Plant and Equipment”) have been met for 1 owned property. As of September 30, 2019, the University of Washington campus, to the joint venture. The Company anticipates the closing of the contributionnet book value of the property to Core JV I to occur in the fourth quarter 2017 and the Company's initial investment in the property will be approximately $40.6was $99.2 million.
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,“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, 2016.2018.
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.LP (“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, 2017,2019, our total owned property portfolio contained 166168 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, and on-campus participating properties operated under ground/facility leases with the related university systems. Of the 166168 properties, 12three were under development as of September 30, 2017.2019. Our communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
As of September 30, 2017,2019, through ACC’s taxable REIT subsidiary (“TRS”) entities, we provided third-party management and leasing services for 3837 properties, bringing our total owned and third-party managed portfolio to 204205 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.
Leasing Results
During the third quarter, we finalized our annual leasing process for the 2017/2018 academic year. As of September 30, 2017, occupancy at our 2018 same store properties was 96.6% at a rental rate increase of 2.9% compared to the prior academic year. Our 2018 same store property portfolio consists of properties owned and operating for both of the entire years ended December 31, 2017 and 2018, which are not conducting or planning to conduct substantial development, redevelopment, or repositioning activities, and are not classified as held for sale. Including our 2017 acquisitions and development deliveries, our total wholly-owned portfolio was 95.5% occupied as of September 30, 2017.
Below is a summary of our property portfolio as of September 30, 2017:2019:
| | | Property portfolio: | | Properties | | Beds | | Properties | | Beds |
| Wholly-owned operating properties: | | | | | |
| Owned operating properties: | | | | | |
| Off-campus properties | | 124 |
| | 70,248 |
| | 128 |
| | 71,730 |
|
On-campus ACE (1) | | 25 |
| | 18,847 |
| |
On-campus ACE (1) (2) | | | 31 |
| | 25,131 |
|
| Subtotal – operating properties | | 149 |
| | 89,095 |
| | 159 |
| | 96,861 |
|
| | | | | | | | | |
| Wholly-owned properties under development: | | |
| | |
| |
| Off-campus properties | | 6 |
| | 2,935 |
| |
On-campus ACE | | 6 |
| | 5,371 |
| |
| Owned properties under development: | | | |
| | |
|
On-campus ACE (2) | | | 3 |
| | 11,296 |
|
| Subtotal – properties under development | | 12 |
| | 8,306 |
| | 3 |
| | 11,296 |
|
| | | | | | | | | |
| Total wholly-owned properties | | 161 |
| | 97,401 |
| |
| Total owned properties | | | 162 |
| | 108,157 |
|
| | | | | | | | | |
| On-campus participating properties | | 5 |
| | 5,086 |
| | 6 |
| | 5,230 |
|
| | | | | | | | | |
| Total owned property portfolio | | 166 |
| | 102,487 |
| | 168 |
| | 113,387 |
|
| | | | | | | | | |
| Managed properties | | 38 |
| | 28,770 |
| | 37 |
| | 26,952 |
|
| Total property portfolio | | 204 |
| | 131,257 |
| | 205 |
| | 140,339 |
|
| | | | | | | | | |
| |
(1) | Includes threetwo properties at Prairie View A&M University that we ultimately expect to be refinanced under the existing on-campus participating structure. |
| |
(2) | Includes 33 properties operated under ground/facility leases with 16 university systems and one property operated under a ground/facility lease with Walt Disney World® Resort. |
OwnedLeasing Results
Our financial results for the year ended December 31, 2019 are impacted by the results of our annual leasing process for the 2018/2019 and 2019/2020 academic years. As of September 30, 2018, the beginning of the 2018/2019 academic year, occupancy at our 2019 same store properties was 97.0% with a rental rate increase of 2.0% compared to the prior academic year, and occupancy at our total owned property portfolio was also 97.0%. As of September 30, 2019, the beginning of the 2019/2020 academic year, occupancy at our 2020 same store properties was 97.4% with a rental rate increase of 1.4% compared to the prior academic year, and occupancy at our total owned property portfolio (including 2019 development activitydeliveries) was also 97.4%
Recently completed projects: Development
In the third quarter of 2017,2019, the final stages of construction were completed on threetwo on-campus ACE properties and sevenone owned off-campus properties.property. These properties are summarized in the following table:table.
Owned Development Projects Recently Completed:
|
| | | | | | | | | | | | | | | |
Project | | Project Type | | Location | | Primary University Served | | Beds | | Total Project Cost | | Opened for Occupancy |
| | | | | | | | | | | | | |
| Tooker House | | ACE | | Tempe, AZ | | Arizona State University | | 1,594 |
| | $ | 105,500 |
| | August 2017 |
| Sky View | | ACE | | Flagstaff, AZ | | Northern Arizona University | | 626 |
| | 58,200 |
| | August 2017 |
| University Square | | ACE | | Prairie View, TX | | Prairie View A&M University | | 466 |
| | 25,900 |
| | August 2017 |
| U Centre on Turner | | Off-campus | | Columbia, MO | | University of Missouri | | 718 |
| | 69,600 |
| | August 2017 |
| U Pointe on Speight | | Off-campus | | Waco, TX | | Baylor University | | 700 |
| | 51,800 |
| | August 2017 |
| 21Hundred @ Overton Park | | Off-campus | | Lubbock, TX | | Texas Tech University | | 1,204 |
| | 82,700 |
| | August 2017 |
| Suites at 3rd | | Off-campus | | Champaign, IL | | University of Illinois | | 251 |
| | 25,200 |
| | August 2017 |
| U Club Binghamton Phase II | | Off-campus | | Binghamton, NY | | SUNY Binghamton University | | 562 |
| | 56,900 |
| | August 2017 |
| Callaway House Apartments | | Off-campus | | Norman, OK | | University of Oklahoma | | 915 |
| | 90,700 |
| | August 2017 |
| U Centre on College | | Off-campus | | Clemson, SC | | Clemson University | | 418 |
| | 42,700 |
| | August 2017 |
| TOTAL – 2017 DELIVERIES | | 7,454 |
| | $ | 609,200 |
| | |
|
| | | | | | | | | | | | | | |
Project | |
Location | |
Primary University Served | | Project Type | |
Beds | | Total Project Costs | | Opened for Occupancy |
| | | | | | | | | | | | | |
| 191 College | | Auburn, AL | | Auburn University | | Off-campus | | 495 | | $ | 61,900 |
| | August 2019 |
| LightView | | Boston, MA | | Northeastern University | | ACE | | 825 | | 150,700 |
| | August 2019 |
| University of Arizona Honors College | | Tucson, AZ | | University of Arizona | | ACE | | 1,056 | | 84,500 |
| | August 2019 |
| | | | | | | 2,376 | | $ | 297,100 |
| | |
| | | | | | | | | | | | | |
Projects under construction: At September 30, 2017,2019, we were in the process of constructing six owned off-campus properties and sixthree on-campus ACE properties.properties, including one property at Walt Disney World® Resort housing college students participating in the Disney student internship program (the “Disney College Program”), which will be delivered in multiple phases from 2020 to 2023. These properties are summarized in the table below:
Owned Development Projects Under Construction:
|
| | | | | | | | | | | | | | | | | | | |
Project | | Project Type | |
Location | |
Primary University Served | | Beds | | Estimated Project Cost | | Total Costs Incurred | | Scheduled Completion |
| | | | | | | | | | | | | | | |
| Gladding Residence Center | | ACE | | Richmond, VA | | Virginia Commonwealth Univ. | | 1,524 |
| | $ | 95,700 |
| | $ | 60,215 |
| | August 2018 |
| Irvington House | | ACE | | Indianapolis, IN | | Butler University | | 648 |
| | 38,900 |
| | 16,656 |
| | August 2018 |
| Greek Leadership Village | | ACE | | Tempe, AZ | | Arizona State University | | 957 |
| | 69,600 |
| | 24,032 |
| | August 2018 |
| Bancroft Residence Hall | | ACE | | Berkeley, CA | | University of California, Berkeley | | 781 |
| | 98,700 |
| | 44,570 |
| | August 2018 |
| NAU Honors College | | ACE | | Flagstaff, AZ | | Northern Arizona University | | 636 |
| | 43,400 |
| | 15,037 |
| | August 2018 |
| U Club Townhomes | | Off-campus | | Oxford, MS | | University of Mississippi | | 528 |
| | 44,300 |
| | 16,960 |
| | August 2018 |
The Edge - Stadium Centre (1) | | Off-campus | | Tallahassee, FL | | Florida State University | | 412 |
| | 42,600 |
| | 16,045 |
| | August 2018 |
| | | | | | | | | 5,486 |
| | $ | 433,200 |
| | $ | 193,515 |
| | |
Core Spaces / DRW Portfolio (2) | | | | | | | | | | | | | | |
| Hub Ann Arbor | | Off-campus | | Ann Arbor, MI | | University of Michigan | | | | | | | | September 2018 |
| Hub Flagstaff | | Off-campus | | Flagstaff, AZ | | Northern Arizona University | | | | | | | | September 2018 |
| Hub West Lafayette | | Off-campus | | West Lafayette, IN | | Purdue University | | | | | | | | September 2018 |
| | | | | | | | | 1,500 |
| | $ | 240,000 |
| | $ | 63,957 |
| | |
| SUBTOTAL – 2018 DELIVERIES | | 6,986 |
| | $ | 673,200 |
| | $ | 257,472 |
| | |
| | | | | | | | | | | | | | | |
| Columbus Avenue Student Apts. | | ACE | | Boston, MA | | Northeastern University | | 825 |
| | $ | 153,400 |
| | $ | 30,753 |
| | August 2019 |
| 191 College | | Off-campus | | Auburn, AL | | Auburn University | | 495 |
| | 59,300 |
| | 11,516 |
| | July 2019 |
| SUBTOTAL – 2019 DELIVERIES | | 1,320 |
| | $ | 212,700 |
| | $ | 42,269 |
| | |
| | | | | | | | | | | | | | | |
| TOTAL – ALL PROJECTS | | 8,306 |
| | $ | 885,900 |
| | $ | 299,741 |
| | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
Project | |
Location | |
Primary University Served | | Project Type | | Beds | | Estimated Project Cost | | Total Costs Incurred | | Scheduled Occupancy |
| | | | | | | | | | | | | | | |
| Disney College Program Phases I-II | | Orlando, FL | | Walt Disney World® Resort | | ACE | | 1,627 | | $ | 108,500 |
| | $ | 67,713 |
| | May & Aug 2020 |
| Currie Hall Phase II | | Los Angeles, CA | | Univ. of Southern California | | ACE | | 272 | | 42,000 |
| | 14,976 |
| | August 2020 |
| Holloway Residences | | San Francisco, CA | | San Francisco State Univ. | | ACE | | 584 | | 129,200 |
| | 71,610 |
| | August 2020 |
| | | | | SUBTOTAL - 2020 DELIVERIES | | 2,483 | | $ | 279,700 |
| | $ | 154,299 |
| | |
| | | | | | | | | | | | | | | |
| Disney College Program Phases III-V | | Orlando, FL | | Walt Disney World® Resort | | ACE | | 3,369 | | $ | 190,400 |
| | $ | 75,892 |
| | Jan, May & Aug 2021 |
| | | | | SUBTOTAL - 2021 DELIVERIES | | 3,369 | | $ | 190,400 |
| | $ | 75,892 |
| | |
| | | | | | | | | | | | | | | |
| Disney College Program Phases VI-VIII | | Orlando, FL | | Walt Disney World® Resort | | ACE | | 3,235 | | $ | 193,000 |
| | $ | 21,316 |
| | Jan, May & Aug 2022 |
| SUBTOTAL – 2022 DELIVERIES | | 3,235 | | $ | 193,000 |
| | $ | 21,316 |
| | |
| | | | | | | | | | | | | | | |
| Disney College Program Phases IX-X | | Orlando, FL | | Walt Disney World® Resort | | ACE | | 2,209 | | $ | 122,700 |
| | $ | 12,281 |
| | Jan & May 2023 |
| SUBTOTAL - 2023 DELIVERIES | | 2,209 | | $ | 122,700 |
| | $ | 12,281 |
| | |
| | | | | | | | | | | | | | | |
(1) In December 2016, we entered into
Presale Development Projects:
Under the terms of a pre-sale agreementpresale transaction, the Company is obligated to purchase the property as long as certain construction completion deadlines and other closing conditions are met. The Edge - Stadium Centre, a property whichCompany is scheduled to be completedresponsible for leasing, management, and initial operations of the project while the third-party developer retains development risk during the construction period. In accordance with accounting guidance, the Company includes presale properties in August 2018. The estimated project cost includesits consolidated financial statements upon execution of the purchase price, elected upgrades and transaction costs.presale agreement with the developer.
(2) The company funded an initial investment of $24.2 million through a joint venture with Core Spaces/DRW Real Estate Investments in August 2017. Including the initial investment, the company expects to invest a total of $240 million over a two year period. Refer to Note 3 in the accompanying Notes to the Consolidated Financial Statements contained in Item 1.
Acquisitions and Joint Venture Investments
As discussed in more detail in Notes 3 and 9 in the accompanying Notes to the Consolidated Financial Statements contained in Item 1, duringIn the third quarter of 2017 we executed an agreement to acquire a portfolio2019, the final stages of seven student housing properties from affiliates of Core Spaces and DRW Real Estate Investments (the “Core Transaction”).construction were completed on two presale development projects. In August 2019, the company purchased The transaction included the purchase of 100% of the ownership interests in two operating properties, the purchase of partial ownership interests in two operating properties through a joint venture arrangement (with one property being subject to a purchase option that had not been exercised as of September 30, 2017), and the purchase of partial ownership interests in three in-process development properties through a joint venture arrangement. In total, the Core Transaction properties contain 3,776 beds.Flex at Stadium Centre. The initial investment made at closing was $265.4 million, and the Company expects to invest a totalacquire 959 Franklin and fund the remaining purchase price of $590.6$48.7 million over a two year period includingin the initial investment.
Duringfourth quarter of 2019. These properties are summarized in the nine months ended September 30, 2017, the Company acquired two additional wholly-owned properties containing 982 beds for approximately $158.5 million.following table. Refer to Note 3 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for a more detailed discussion of our recent acquisitionpresale development activity.
DispositionsPresale Development Projects Recently Completed:
During the nine months ended September 30, 2017, the Company sold one wholly-owned property for approximately $25.0 million. Refer to Note 4 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for a more detailed discussion of our recent disposition activity. |
| | | | | | | | | | | | | | |
Project | |
Location | |
Primary University Served | | Project Type | |
Beds | | Purchase Price | | Opened for Occupancy |
| | | | | | | | | | | | | |
| The Flex at Stadium Centre | | Tallahassee, FL | | Florida State University | | Off-campus | | 340 | | $ | 36,400 |
| | August 2019 |
959 Franklin (1) | | Eugene, OR | | University of Oregon | | Off-campus | | 443 | | 72,400 |
| | September 2019 |
| SUBTOTAL – 2019 DELIVERIES | | 783 | | $ | 108,800 |
| | |
| |
| (1) | The Company executed the presale agreement with the developer in March 2018, at which time it provided $15.6 million of mezzanine financing to the project. The Company expects to purchase the remaining ownership from the developer in Q4 2019. |
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. DuringIn the third quarter 2017 weof 2019, the final stages of construction were completed delivered and
commenced management of Momentum Village Phase II, a 560-bed third party development project on the campusproperties summarized in the following table.
|
| | | | | | | | | | | | |
| Project | | Location | | Primary University Served | | Beds | | Total Fees | | Completed |
University of Arizona Honors College (1) | | Tucson, AZ | | University of Arizona | | — | (1) | $ | 2,400 |
| | July 2019 |
| The Academic & Residential Complex | | Chicago, IL | | University of Illinois, Chicago | | 548 | | 5,100 |
| | July 2019 |
| Plaza Verde | | Irvine, CA | | University of California, Irvine | | 1,441 | | 5,900 |
| | August 2019 |
| Tubman Laws Hall | | Dover, DE | | Delaware State University | | 620 | | 2,500 |
| | August 2019 |
Calhoun Hall (2) | | Philadelphia, PA | | Drexel University | | 406 | | 1,750 |
| | Sept 2019 & Apr 2020 |
| | | | | | | 3,015 | | $ | 17,650 |
| | |
| |
| (1) | The University of Arizona Honors College project included the construction of a parking garage, academic center and a student recreation and wellness center as part of the overall development project. These components are owned, managed and funded by the University, and the company earned third-party development fees for its role in providing development services for those components of the project. |
| |
| (2) | Includes the construction of a student residence hall and honors college. The residence hall was delivered in Fall 2019, and the honors college will be delivered in Spring 2020. As of September 30, 2019, the Company recognized $1.7 million in development fees related to the project. |
During the three months ended September 30, 2019, we closed on bond financing and commenced construction on our second project at the University of Texas A&M University Corpus Christi,California, Riverside, which contributed approximately $3.6 million in revenues during the quarter. The project has an anticipated completion of September 2021 and Esperanza Hall, a 382-bed third party development project on the campustotal fees of Texas A&M University San Antonio.$6.7 million. As of September 30, 2017,2019, we were under contract on onethree third-party development projectprojects that isare currently under construction and whose fees total $5.9$14.2 million. As of September 30, 2017,2019, fees of approximately $3.0$5.6 million remained to be earned by the Company with respect to this project,these projects, which has ahave scheduled completion datedates in August 2019.2020 and 2021.
Critical Accounting Policies
With the exception of the adoption of ASC Topic 842, Leases (“ASC 842”), there have been no material changes to the Company’s critical accounting policies disclosed in the Company’s Form 10-K for the year ended December 31, 2018. Refer to Note 2 in the accompanying Notes to Consolidated Financial statements contained in Item 1 for information regarding recently adopted accounting standards, including ASC 842.
Results of Operations
Comparison of the Three Months Ended September 30, 20172019 and September 30, 20162018
The following table presents our results of operations for the three months ended September 30, 20172019 and 2016,2018, including the amount and percentage change in these results between the two periods.
| | | | | Three Months Ended
September 30, | | | | | | Three Months Ended
September 30, | | | | |
| | | 2017 | | 2016 | | Change ($) | | Change (%) | | 2019 | | 2018 | | Change ($) | | Change (%) |
| Revenues | | | | | | | | | |
| Wholly-owned properties | | $ | 183,569 |
| | $ | 185,694 |
| | $ | (2,125 | ) | | (1.1 | )% | |
| Revenues: | | | | | | | | | |
| Owned properties | | | $ | 211,082 |
| | $ | 202,834 |
| | $ | 8,248 |
| | 4.1 | % |
| On-campus participating properties | | 6,799 |
| | 6,758 |
| | 41 |
| | 0.6 | % | | 6,944 |
| | 6,980 |
| | (36 | ) | | (0.5 | )% |
| Third-party development services | | 3,566 |
| | 773 |
| | 2,793 |
| | 361.3 | % | | 5,611 |
| | 835 |
| | 4,776 |
| | 572.0 | % |
| Third-party management services | | 2,291 |
| | 2,376 |
| | (85 | ) | | (3.6 | )% | | 3,342 |
| | 2,128 |
| | 1,214 |
| | 57.0 | % |
| Resident services | | 713 |
| | 810 |
| | (97 | ) | | (12.0 | )% | | 726 |
| | 692 |
| | 34 |
| | 4.9 | % |
| Total revenues | | 196,938 |
| | 196,411 |
| | 527 |
| | 0.3 | % | | 227,705 |
| | 213,469 |
| | 14,236 |
| | 6.7 | % |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | |
| | |
| | |
| | |
| |
| Wholly-owned properties | | 99,423 |
| | 100,602 |
| | (1,179 | ) | | (1.2 | )% | |
| Operating expenses: | | | |
| | |
| | |
| | |
|
| Owned properties | | | 111,836 |
| | 107,997 |
| | 3,839 |
| | 3.6 | % |
| On-campus participating properties | | 3,923 |
| | 3,784 |
| | 139 |
| | 3.7 | % | | 3,822 |
| | 3,875 |
| | (53 | ) | | (1.4 | )% |
| Third-party development and management services | | 3,879 |
| | 3,340 |
| | 539 |
| | 16.1 | % | | 5,430 |
| | 3,831 |
| | 1,599 |
| | 41.7 | % |
| General and administrative | | 8,684 |
| | 5,375 |
| | 3,309 |
| | 61.6 | % | | 7,165 |
| | 7,183 |
| | (18 | ) | | (0.3 | )% |
| Depreciation and amortization | | 61,125 |
| | 52,067 |
| | 9,058 |
| | 17.4 | % | | 68,930 |
| | 66,131 |
| | 2,799 |
| | 4.2 | % |
| Ground/facility leases | | 2,329 |
| | 1,965 |
| | 364 |
| | 18.5 | % | | 3,215 |
| | 2,951 |
| | 264 |
| | 8.9 | % |
| Total operating expenses | | 179,363 |
| | 167,133 |
| | 12,230 |
| | 7.3 | % | | 200,398 |
| | 191,968 |
| | 8,430 |
| | 4.4 | % |
| | | | | | | | | | | | | | | | | |
| Operating income | | 17,575 |
| | 29,278 |
| | (11,703 | ) | | (40.0 | )% | | 27,307 |
| | 21,501 |
| | 5,806 |
| | 27.0 | % |
| | | | | | | | | | | | | | | | | |
| Nonoperating income and (expenses) | | |
| | |
| | |
| | |
| |
| Nonoperating income (expenses): | | | |
| | |
| | |
| | |
|
| Interest income | | 1,259 |
| | 1,272 |
| | (13 | ) | | (1.0 | )% | | 960 |
| | 1,274 |
| | (314 | ) | | (24.6 | )% |
| Interest expense | | (18,654 | ) | | (19,016 | ) | | 362 |
| | (1.9 | )% | | (28,303 | ) | | (25,185 | ) | | (3,118 | ) | | 12.4 | % |
| Amortization of deferred financing costs | | (1,146 | ) | | (1,344 | ) | | 198 |
| | (14.7 | )% | | (1,315 | ) | | (1,116 | ) | | (199 | ) | | 17.8 | % |
| Total nonoperating expense | | (18,541 | ) | | (19,088 | ) | | 547 |
| | (2.9 | )% | |
| Gain from extinguishment of debt | | | 20,992 |
| | — |
| | 20,992 |
| | 100.0 | % |
| Other nonoperating income | | | — |
| | 570 |
| | (570 | ) | | (100.0 | )% |
| Total nonoperating expenses | | | (7,666 | ) | | (24,457 | ) | | 16,791 |
| | (68.7 | )% |
| | | | | | | | | | | | | | | | | |
| (Loss) income before income taxes | | (966 | ) | | 10,190 |
| | (11,156 | ) | | (109.5 | )% | |
| Income tax provision | | (267 | ) | | (345 | ) | | 78 |
| | (22.6 | )% | |
| Income (loss) before income taxes | | | 19,641 |
| | (2,956 | ) | | 22,597 |
| | (764.4 | )% |
| Income tax (provision) benefit | | | (305 | ) | | 219 |
| | (524 | ) | | (239.3 | )% |
| | | | | | | | | | | | | | | | | |
| Net (loss) income | | (1,233 | ) | | 9,845 |
| | (11,078 | ) | | (112.5 | )% | |
| Net income (loss) | | | 19,336 |
| | (2,737 | ) | | 22,073 |
| | (806.5 | )% |
| | | | | | | | | | | | | | | | | |
| Net income attributable to noncontrolling interests | | (79 | ) | | (201 | ) | | 122 |
| | (60.7 | )% | |
Net (loss) income attributable to ACC, Inc. and Subsidiaries common stockholders | | $ | (1,312 | ) | | $ | 9,644 |
| | $ | (10,956 | ) | | (113.6 | )% | |
| Net loss attributable to noncontrolling interests | | | 887 |
| | 392 |
| | 495 |
| | 126.3 | % |
| Net income (loss) attributable to ACC, Inc. and Subsidiaries common stockholders | | | $ | 20,223 |
| | $ | (2,345 | ) | | $ | 22,568 |
| | (962.4 | )% |
Same Store and New Property Operations
We define our same store property portfolio as wholly-ownedowned properties that were owned and operating for both of the full years ended December 31, 20172019 and December 31, 2016,2018, which are not conducting or planning to conduct substantial development, redevelopment, or repositioning activities, and are not classified as held for sale as of September 30, 2017.2019. It also includes the full operating results of properties owned through joint ventures in which the company has a controlling financial interest and which are consolidated for financial reporting purposes.
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, the provision for uncollectible accounts, and income earned by one of our TRS entities 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, and property taxes, and bad debt.taxes. 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/held for saleother property operations to our consolidated statements of comprehensive income is set forth below:
| | | | | Same Store Properties | | New Properties | | Sold/Held for Sale Properties (1) | | Total - All Properties | | Same Store Properties | | New Properties | | Sold Properties/Other (1) | | Total - All Properties | |
| | | Three Months Ended
September 30, | | Three Months Ended
September 30, | | Three Months Ended
September 30, | | Three Months Ended
September 30, | | Three Months Ended
September 30, | | Three Months Ended
September 30, | | Three Months Ended
September 30, | | Three Months Ended
September 30, | |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 (2) | | 2016 (3) | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | |
Number of properties (4) | | 124 |
| | 124 |
| | 24 |
| | 8 |
| | 1 |
| | 22 |
| | 149 |
| | 154 |
| | 144 |
| | 144 |
| | 15 |
| | 10 |
| | 1 |
| (2) | 4 |
| (3) | 160 |
| | 158 |
| |
Number of beds (4) | | 73,871 |
| | 73,871 |
| | 14,364 |
| | 3,737 |
| | 860 |
| | 13,600 |
| | 89,095 |
| | 91,208 |
| | 86,717 |
| | 86,717 |
| | 10,144 |
| | 6,985 |
| | 860 |
| | 1,548 |
| | 97,721 |
| | 95,250 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues (5)(4) | | $ | 162,776 |
| | $ | 160,636 |
| | $ | 20,637 |
| | $ | 4,187 |
| | $ | 869 |
| | $ | 21,681 |
| | $ | 184,282 |
| | $ | 186,504 |
| | $ | 194,005 |
| | $ | 189,791 |
| | $ | 17,799 |
| | $ | 9,337 |
| | $ | 4 |
| | $ | 1,547 |
| | $ | 211,808 |
| | $ | 200,675 |
| (5) |
| Operating expenses | | 87,902 |
| | 85,126 |
| | 11,232 |
| | 2,242 |
| | 289 |
| | 13,234 |
| | 99,423 |
| | 100,602 |
| | 102,805 |
| | 98,929 |
| | 8,886 |
| | 4,831 |
| | 145 |
| | 1,386 |
| | 111,836 |
| | 105,146 |
| (5) |
| |
(1) | Includes recurring professional fees related to the formation and operation of the ACC / Allianz Joint Venture. Does not include the allocation of payroll and other administrative costs related to corporate management and oversight. |
| |
(2) | Includes one property currently in receivership that is in the process of beingwas transferred to the lender in settlement of the property’s $27.4 million mortgage loan that matured in August 2017.July 2019. |
| |
(3) | Includes propertiesthe property described above in note 2, one property consisting of two phases sold in 2016 and 2017,May 2019, and one property that is in the process of being transferredconverted to the lender as discussed above. OCPP structure in January 2019. |
| |
(4) | Does not include properties under construction or undergoing redevelopment. |
| |
(5)
| Includes revenues which are reflected as resident services revenue on the accompanying consolidated statements of comprehensive income. |
| |
(5) | The Company adopted new lease accounting guidance on January 1, 2019 which required the reclassification of the provision for uncollectible accounts from operating expenses to revenue. For purposes of calculating same store and new property results of operations, the reclassification is reflected for all periods presented to ensure comparability between periods. The provision for uncollectible accounts for all owned properties was $3.3 million and $2.9 million for the three months ended September 30, 2019 and 2018, respectively. |
Same Store Properties: The increase in revenue from our same store properties was primarily due to an increase in average rental rates for the 2017/20182018/2019 and 2019/2020 academic year, partially offset by a decreaseyears, as well as an increase in our weighted average occupancy from 92.2%89.9% during the three months ended September 30, 20162018 to 91.9%90.9% during the three months ended September 30, 2017.2019. Future revenues will be dependent on our ability to maintain our current leases in effect for the 2017/20182019/2020 academic year and our ability to obtainachieve appropriate rental rates and desired occupancy levels for the 2018/20192020/2021 academic year at our various properties.
The increase in operating expenses fromfor our same store properties was primarily due to: (i)to an increase in repairs and maintenance expense of approximately $1.9 millionmarketing expenses related to cleanuputilizing both traditional mediums and repairs for water intrusion, roofing,enhanced digital and landscaping atsocial marketing channels in the Company’s communities locatedfinal stages of the 2019/2020 academic year leasing process. This increase was partially offset by a decrease in Florida and Texas, as a result of hurricanes Harvey and Irma; (ii) an increase in property taxes and related consulting feesutilities expense, which was primarily due to increased property tax assessments in various markets;asset management initiatives focused on energy-efficient LED installations as well as renegotiated cable, internet and (iii) other general inflationary factors.utilities agreements. We anticipate that total operating expenses for our same store property portfolio for 20172019 will increase as compared to 2016 as a result of the reasons discussed above.
2018 due to increases in property taxes, payroll, marketing and general inflation.
New Property Operations: Our new properties for the three and nine months ended September 30, 20172019 include development properties that completed construction and opened for operations in Fall 2018 and 2019. These properties are summarized in the table below:
|
| | | | | | | | |
| Property | | Location | | Primary University Served | | Beds | | Acquisition/ Opening Date |
Acquisitions:Gladding Residence Center (ACE) | | Richmond, VA | | Virginia Commonwealth University | | | | |
University Crossings | | Charlotte, NC | | University of North Carolina | | 5461,524 | | August 20162018 |
U Point | | Syracuse, NY | | Syracuse University | | 163 | | October 2016 |
The Arlie | | Arlington, TX | | University of Texas at Arlington | | 598 | | April 2017 |
TWELVE at U District | | Seattle, WA | | University of Washington | | 384 | | June 2017 |
Hub Eugene | | Eugene, OR | | University of Oregon | | 513 | | August 2017 |
State | | Fort Collins, CO | | Colorado State University | | 665 | | August 2017 |
The James (1)
| | Madison, WI | | University of Wisconsin | | 850 | | September 2017 |
| | | | SUBTOTAL - Acquisitions | | 3,719 | | |
Owned Developments: | | | | | | | | |
Currie Hall | | Los Angeles, CA | | University of Southern California | | 456 | | August 2016 |
FairviewIrvington House (ACE) | | Indianapolis, IN | | Butler University | | 633648 | | August 20162018 |
University PointeGreek Leadership Village (ACE) | | Louisville, KYTempe, AZ | | Arizona State University | | 957 | | August 2018 |
| David Blackwell Hall (ACE) | | Berkeley, CA | | University of LouisvilleCalifornia, Berkeley | | 531780 | | August 20162018 |
| NAU Honors College (ACE) | | Flagstaff, AZ | | Northern Arizona University | | 636 | | August 2018 |
U Club on 28thTownhomes at Oxford (ACE) | | Boulder, COOxford, MS | | University of ColoradoMississippi | | 398528 | | August 20162018 |
U Club SunnysideThe Edge - Stadium Centre | | Morgantown, WVTallahassee, FL | | Florida State University | | 413 | | August 2018 |
| Hub Ann Arbor | | Ann Arbor, MI | | University of Michigan | | 310 | | August 2018 |
| Hub Flagstaff | | Flagstaff, AZ | | Northern Arizona University | | 591 | | August 2018 |
| Campus Edge on Pierce | | West VirginiaLafayette, IN | | Purdue University | | 534598 | | August 20162018 |
| LightView | | Boston, MA | | Northeastern University | | 825 | | August 2019 |
| University of Arizona Honors College | | Tucson, AZ | | University of Arizona | | 1,056 | | August 2019 |
| 191 College | | Auburn, AL | | Auburn University | | 495 | | August 2019 |
The CourtFlex at Stadium Centre | | Tallahassee, FL | | Florida State University | | 260340 | | August 20162019 |
Merwick Stanworth Phase II959 Franklin | | Princeton, NJ | | Princeton University | | 379 | | September 2016 |
Tooker House | | Tempe, AZ | | Arizona State University | | 1,594 | | August 2017 |
Sky View | | Flagstaff, AZ | | Northern Arizona University | | 626 | | August 2017 |
University Square | | Prairie View, TX | | Prairie View A&M University | | 466 | | August 2017 |
U Centre on Turner | | Columbia, MOEugene, OR | | University of MissouriOregon | | 718443 | | August 2017 |
U Pointe on Speight | | Waco, TX | | Baylor University | | 700 | | August 2017 |
21Hundred @ Overton Park | | Lubbock, TX | | Texas Tech University | | 1,204 | | August 2017 |
Suites at 3rd | | Champaign, IL | | University of Illinois | | 251 | | August 2017 |
U Club Binghamton Phase II | | Binghamton, NY | | SUNY Binghamton University | | 562 | | August 2017 |
Callaway House Apartments | | Norman, OK | | University of Oklahoma | | 915 | | August 2017 |
U Centre on College | | Clemson, SC | | Clemson University | | 418 | | August 2017September 2019 |
| | | | | SUBTOTAL - Owned Developments | | 10,645 | | |
| | | | Total - New Properties | | 14,36410,144 | | |
| |
(1)
| The James is a property held by a joint venture formed as part of the Core Transaction. Refer to Note 3 in the accompanying Notes to the Consolidated Financial Statements contained in Item 1. |
Third-Party Development Services Revenue
Third-party development services revenue increased by approximately $2.8$4.8 million, from $0.8 million during the three months ended September 30, 20162018, to $3.6$5.6 million for the three months ended September 30, 2017. This2019. The increase was primarily due to the closing of bond financing and commencement of construction of a fourth phaseour second project at the University of California, Irvine during the third quarter 2017. This project contributed approximately $2.9 million in revenueRiverside during the three months ended September 30, 2017.2019, which contributed approximately $3.6 million in revenue for the quarter, in addition to an increase in the number of third-party development projects under construction during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. During the three months ended September 30, 2019, we had eight projects under construction with an average contractual fee of $4.1 million, as compared to four projects under construction during the three months ended September 30, 2018 with an average contractual fee of $4.2 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. We anticipate that third-party development services revenue towill increase in 20172019 as compared to 2016 as a result2018 due to an increase in the volume and timing of third-party development projects anticipated to close and commence construction in 2019.
Third-Party Management Services Revenue
Third-party management services revenue increased by approximately $1.2 million, from $2.1 million during the three months ended September 30, 2018, to $3.3 million for the three months ended September 30, 2019. The increase is primarily due to reimbursed payroll costs from the Disney College Program management contract which began in April 2019. As the project'sfacilities manager, the Company is responsible for the operations and maintenance of the closing and commencementproject. Because of construction of additional anticipated third-party development projects. However, the commencement of such projects is highly dependentcompany’s role in funding payroll costs for on-site personnel at the properties, accounting guidance requires the management fee for this project to be recorded on final determination of feasibility, negotiation, procurement rules and other applicable law, fluctuationsa gross basis in the constructionCompany’s consolidated financial statements. Accordingly, both management services revenue and financing markets,third-party management services expenses for the three months ended September 30, 2019 include approximately $1.1 million in reimbursed payroll costs. We anticipate third-party management services revenue will increase in 2019 as compared to 2018 due to the recognition of reimbursed payroll costs for the Disney College Program management contract, as discussed above, and the availability of project financing.new management contracts obtained in 2019.
Third-Party Development and Management Services Expenses
Third-party development and management services expenses increased by approximately $0.6$1.6 million, from $3.3$3.8 million during the three months ended September 30, 20162018, to $3.9$5.4 million for the three months ended September 30, 2017. This2019. The increase wasis primarily due to an increase in$1.1 million of payroll and other administrative costs related to corporatefrom the Disney College Program management and oversight, an increase in the level of pursuits of potential on-campus development projects, and general inflation.contract described above. We anticipate third-party development and management services expensesthis expense item will increase in 20172019 as compared to 2016 for the reasons discussed above.
General and Administrative
General and administrative expenses increased by approximately $3.3 million, from $5.4 million during the three months ended September 30, 2016 to $8.7 million for the three months ended September 30, 2017. This increase was primarily2018 due to the following: (i) $2.9 millionrecognition of transactionreimbursed payroll costs incurred in connection with our initial investment infor the Core Transaction in August 2017; (ii) increases in travel and related pursuit costs of potential acquisition transactions; (iii) additional expenses incurred in connection with enhancements to our operating systems platform; and (iv) other general inflationary factors. We anticipate general and administrative expenses willDisney College Program management contract, as well as an overall increase in 2017 as compared to 2016pursuit activity for the reasons discussed above.third-party development projects during 2019.
Depreciation and Amortization
Depreciation and amortization increased by approximately $9.0$2.8 million, from $52.1$66.1 million during the three months ended September 30, 20162018, to $61.1$68.9 million for the three months ended September 30, 2017. This2019. The increase was primarily due to the following: (i) a $4.8$4.1 million increase related to the completion of construction and opening of seven owned development properties in August and September of 2016 and ten owned development properties in August 2017; (ii)Fall 2018, and three owned development properties and two presale properties in Fall 2019. The increase was partially offset by a $3.8$1.2 million increase due to property acquisition activity during 2016 and 2017; and (iii) a $2.4 million increasedecrease in depreciation expense at our same store properties due to capital improvement projects at various properties. These increases were partially offset by a $2.0 million decrease in depreciation and amortization expense related to properties sold in 2016 and 2017.assets that became fully amortized or depreciated during the three months ended September 30, 2019. We anticipate depreciation and amortization expense towill increase in 20172019 as compared to 2016 for2018 due to the reasons discussed above.completion of owned development projects in Fall 2018 and Fall 2019, offset by property dispositions completed during 2018 and 2019.
Ground/Facility LeasesInterest Expense
Ground/facility leasesInterest expense increased by approximately $0.3$3.1 million, from $2.0$25.2 million during the three months ended September 30, 20162018, to $2.3$28.3 million for the three months ended September 30, 2017. This2019. The increase was primarily due to ACE development projects$1.1 million of additional interest expense due to the timing of borrowings under our unsecured revolving credit facility during the respective three-month periods and a $3.6 million increase in interest expense related to our $400 million offering of unsecured notes in June 2019. These increases were offset by an $0.8 million decrease in default interest related to a property that completed constructionwas transferred to the lender in settlement of the property’s mortgage loan in July 2019, and opened for operationsa $0.4 million increase in Fall 2016 and 2017.capitalized interest. We anticipate ground/facility leasesinterest expense towill increase for the full year 2017in 2019 as compared to 20162018 due to increased interest rates on a higher average outstanding balance under our revolving credit facility throughout 2019, additional interest incurred from $330 million in mortgage debt as part of the ACC / Allianz Joint Venture Transaction, and additional interest incurred from the issuance of unsecured notes issued in June 2019.
Gain from Extinguishment of Debt
During the three months ended September 30, 2019, we recognized a $21.0 million gain on the extinguishment of debt associated with a property that was transferred to the lender in settlement of the property’s mortgage loan in July 2019. Refer to Note 6 in the accompanying Notes to Consolidated Financial Statements in Item 1 for a detailed discussion of this transaction.
Other Nonoperating Income
During the reasons discussed above.three months ended September 30, 2018, we recognized a $0.6 million gain on an insurance settlement due to hail damage at one of our owned properties. The gain represents insurance proceeds received in excess of the net book value of the assets written off as a result of the damage.
Interest ExpenseIncome Tax Provision
Interest expense decreasedIncome tax provision increased by approximately $0.3$0.5 million, from $19.0a $0.2 million benefit during the three months ended September 30, 20162018 to $18.7a $0.3 million expense for the three months ended September 30, 2017. Interest expense decreased as a result of the following: (i)2019. The increase was primarily due to a decrease of approximately $2.2 millionto an estimated taxable gain recorded in the prior year related to the disposition of properties with outstanding mortgage debt during 2016; (ii) a decrease of approximately $0.9 million due to the pay-off of $200 million of our $350 million term loan facility (“Term Loan I Facility”) in November 2016; (iii) a $0.5 million decrease related to the pay-off of mortgage loans during 2016; and (iv) a $0.2 million decrease related to lower outstanding balances on our mortgage debt due to continued scheduled principal payments. These decreases were partially offset by (i) a $1.7 million increase related to increased borrowings on our revolving credit facility; (ii) an increase of approximately $1.4 million related to the closings of our $300 million term loan facility (“Term Loan III Facility”) in September 2017 and our $200 million term loan (the “New Term Loan II Facility”) in June 2017; and (iii) an increase of $0.4 million in interest related to the property in receivership incurred while working with the lender to finalize the transfer of the property in settlement of the property’s $27.4 million mortgage loan.
We anticipate interest expense will decrease in 2017 as compared to 2016 due to the pay-off of mortgage debt in 2016 and 2017, the disposition of properties with outstanding mortgage debt during 2016, and the 2016 pay-off of $200 million of the Term Loan I Facility. These decreases will be offset by an increase in borrowings under the Company’s revolving credit facility to fund its development pipeline, an increase related to the closings of the New Term Loan II Facility in June 2017, the Term Loan III Facility in September 2017, and additional interest incurredresulting from the $400 million offering of unsecured notes in October 2017.ACC / Allianz Joint Venture Transaction.
Comparison of the Nine Months Ended September 30, 20172019 and September 30, 20162018
The following table presents our results of operations for the nine months ended September 30, 20172019 and 2016,2018, including the amount and percentage change in these results between the two periods.
| | | | | Nine Months Ended
September 30, | | | | Nine Months Ended
September 30, | | |
| | | 2017 | | 2016 | | Change ($) | | Change (%) | | 2019 | | 2018 | | Change ($) | | Change (%) |
| Revenues | | | | | | | | | | | | | | | | |
| Wholly-owned properties | | $ | 531,556 |
| | $ | 546,078 |
| | $ | (14,522 | ) | | (2.7 | )% | |
| Owned properties | | | $ | 638,657 |
| | $ | 597,854 |
| | $ | 40,803 |
| | 6.8 | % |
| On-campus participating properties | | 23,128 |
| | 23,018 |
| | 110 |
| | 0.5 | % | | 24,788 |
| | 23,605 |
| | 1,183 |
| | 5.0 | % |
| Third-party development services | | 4,697 |
| | 3,929 |
| | 768 |
| | 19.5 | % | | 12,389 |
| | 3,883 |
| | 8,506 |
| | 219.1 | % |
| Third-party management services | | 7,193 |
| | 7,039 |
| | 154 |
| | 2.2 | % | | 9,118 |
| | 7,311 |
| | 1,807 |
| | 24.7 | % |
| Resident services | | 2,310 |
| | 2,325 |
| | (15 | ) | | (0.6 | )% | | 2,255 |
| | 2,284 |
| | (29 | ) | | (1.3 | )% |
| Total revenues | | 568,884 |
| | 582,389 |
| | (13,505 | ) | | (2.3 | )% | | 687,207 |
| | 634,937 |
| | 52,270 |
| | 8.2 | % |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | |
| | |
| | |
| | |
| |
| Wholly-owned properties | | 249,552 |
| | 257,175 |
| | (7,623 | ) | | (3.0 | )% | |
| Operating expenses (income) | | | |
| | |
| | |
| | |
|
| Owned properties | | | 294,768 |
| | 282,193 |
| | 12,575 |
| | 4.5 | % |
| On-campus participating properties | | 11,080 |
| | 10,125 |
| | 955 |
| | 9.4 | % | | 11,585 |
| | 11,030 |
| | 555 |
| | 5.0 | % |
| Third-party development and management services | | 11,789 |
| | 10,638 |
| | 1,151 |
| | 10.8 | % | | 14,129 |
| | 11,573 |
| | 2,556 |
| | 22.1 | % |
| General and administrative | | 25,200 |
| | 16,810 |
| | 8,390 |
| | 49.9 | % | | 22,595 |
| | 27,055 |
| | (4,460 | ) | | (16.5 | )% |
| Depreciation and amortization | | 169,391 |
| | 159,486 |
| | 9,905 |
| | 6.2 | % | | 206,500 |
| | 194,447 |
| | 12,053 |
| | 6.2 | % |
| Ground/facility leases | | 7,151 |
| | 6,736 |
| | 415 |
| | 6.2 | % | | 10,000 |
| | 8,526 |
| | 1,474 |
| | 17.3 | % |
| Loss (gain) from disposition of real estate | | | 282 |
| | (42,314 | ) | | 42,596 |
| | (100.7 | )% |
| Provision for real estate impairment | | 15,317 |
| | — |
| | 15,317 |
| | 100.0 | % | | 3,201 |
| | — |
| | 3,201 |
| | 100.0 | % |
| Other operating income | | | — |
| | (2,648 | ) | | 2,648 |
| | (100.0 | )% |
| Total operating expenses | | 489,480 |
| | 460,970 |
| | 28,510 |
| | 6.2 | % | | 563,060 |
| | 489,862 |
| | 73,198 |
| | 14.9 | % |
| | | | | | | | | | | | | | | | | |
| Operating income | | 79,404 |
| | 121,419 |
| | (42,015 | ) | | (34.6 | )% | | 124,147 |
| | 145,075 |
| | (20,928 | ) | | (14.4 | )% |
| | | | | | | | | | | | | | | | | |
| Nonoperating income and (expenses) | | |
| | |
| | |
| | |
| |
| Nonoperating income (expenses) | | | |
| | |
| | |
| | |
|
| Interest income | | 3,723 |
| | 4,026 |
| | (303 | ) | | (7.5 | )% | | 2,855 |
| | 3,740 |
| | (885 | ) | | (23.7 | )% |
| Interest expense | | (47,944 | ) | | (61,762 | ) | | 13,818 |
| | (22.4 | )% | | (82,432 | ) | | (72,207 | ) | | (10,225 | ) | | 14.2 | % |
| Amortization of deferred financing costs | | (3,197 | ) | | (5,238 | ) | | 2,041 |
| | (39.0 | )% | | (3,665 | ) | | (4,744 | ) | | 1,079 |
| | (22.7 | )% |
| (Loss) gain from disposition of real estate | | (632 | ) | | 17,409 |
| | (18,041 | ) | | (103.6 | )% | |
| Total nonoperating expense | | (48,050 | ) | | (45,565 | ) | | (2,485 | ) | | 5.5 | % | |
| Gain (loss) from extinguishment of debt | | | 20,992 |
| | (784 | ) | | 21,776 |
| | (2,777.6 | )% |
| Other nonoperating income | | | — |
| | 570 |
| | (570 | ) | | (100.0 | )% |
| Total nonoperating expenses | | | (62,250 | ) | | (73,425 | ) | | 11,175 |
| | (15.2 | )% |
| | | | | | | | | | | | | | | | | |
| Income before income taxes | | 31,354 |
| | 75,854 |
| | (44,500 | ) | | (58.7 | )% | | 61,897 |
| | 71,650 |
| | (9,753 | ) | | (13.6 | )% |
| Income tax provision | | (791 | ) | | (1,035 | ) | | 244 |
| | (23.6 | )% | | (983 | ) | | (2,147 | ) | | 1,164 |
| | (54.2 | )% |
| Net income | | 30,563 |
| | 74,819 |
| | (44,256 | ) | | (59.2 | )% | | 60,914 |
| | 69,503 |
| | (8,589 | ) | | (12.4 | )% |
| | | | | | | | | | | | | | | | | |
| Net income attributable to noncontrolling interests | | (587 | ) | | (1,150 | ) | | 563 |
| | (49.0 | )% | |
| Net (income) loss attributable to noncontrolling interests | | | (665 | ) | | 88 |
| | (753 | ) | | (855.7 | )% |
Net income attributable to ACC, Inc. and Subsidiaries common stockholders | | $ | 29,976 |
| | $ | 73,669 |
| | $ | (43,693 | ) | | (59.3 | )% | | $ | 60,249 |
| | $ | 69,591 |
| | $ | (9,342 | ) | | (13.4 | )% |
Same Store and New Property Operations
A reconciliation of our same store, new property and sold/held for saleother property operations to our consolidated statements of comprehensive income is set forth below:
| | | | | Same Store Properties | | New Properties | | Sold/Held for Sale Properties (1) | | Total - All Properties | | Same Store Properties | | New Properties | | Sold Properties/Other (1) | | Total - All Properties | |
| | | Nine Months Ended
September 30, | | Nine Months Ended
September 30, | | Nine Months Ended
September 30, | | Nine Months Ended
September 30, | | Nine Months Ended
September 30, | | Nine Months Ended
September 30, | | Nine Months Ended
September 30, | | Nine Months Ended
September 30, | |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 (2) | | 2016 (3) | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | |
Number of properties (4) | | 124 |
| | 124 |
| | 24 |
| | 8 |
| | 2 |
| | 24 |
| | 150 |
| (5) | 156 |
| | 144 |
| | 144 |
| | 15 |
| | 10 |
| | 3 |
| (2) | 7 |
| (3) | 162 |
| | 161 |
| |
Number of beds (4) | | 73,871 |
| | 73,871 |
| | 14,364 |
| | 3,737 |
| | 1,517 |
| | 14,924 |
| | 89,752 |
| | 92,532 |
| | 86,717 |
| | 86,717 |
| | 10,144 |
| | 6,985 |
| | 1,548 |
| | 2,886 |
| | 98,409 |
| | 96,588 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues (6)(4) | | $ | 490,177 |
| | $ | 478,327 |
| | $ | 39,774 |
| | $ | 4,291 |
| | $ | 3,915 |
| | $ | 65,785 |
| | $ | 533,866 |
| | $ | 548,403 |
| | $ | 589,581 |
| | $ | 573,187 |
| | $ | 49,116 |
| | $ | 9,594 |
| | $ | 2,215 |
| | $ | 11,774 |
| | $ | 640,912 |
| | $ | 594,555 |
| (5) |
| Operating expenses | | 227,993 |
| | 220,724 |
| | 19,152 |
| | 2,400 |
| | 2,407 |
| | 34,051 |
| | 249,552 |
| | 257,175 |
| | 271,817 |
| | 265,102 |
| | 20,782 |
| | 5,146 |
| | 2,169 |
| | 6,362 |
| | 294,768 |
| | 276,610 |
| (5) |
| |
(1) | Includes recurring professional fees and transaction costs related to the formation and operation of the ACC / Allianz Joint Venture. Does not include the allocation of payroll and other administrative costs related to corporate management and oversight. |
| |
(2) | Includes one property that was sold in April 2017 and one property currently in receivership that is in the process of being transferred to the lender in settlement of the property’s $27.4 million mortgage loan that matured in August 2017.July 2019, and one property consisting of two phases sold in May 2019. |
| |
(3) | Includes the properties described above in note 2, as well as properties sold in 2016 and 2017,2018 and one property that is in the process of being transferredconverted to the lender as discussed above.OCPP structure in January 2019. |
| |
(4) | Does not include properties under construction or undergoing redevelopment. |
| |
(5)
| Difference from total operating property portfolio represents one property that was sold during the second quarter 2017. |
| |
(6)
| Includes revenues which are reflected as resident services revenue on the accompanying consolidated statements of comprehensive income. |
| |
(5) | The Company adopted new lease accounting guidance on January 1, 2019, which required the reclassification of the provision for uncollectible accounts from operating expenses to revenue. For purposes of calculating same store and new property results of operations, the reclassification is reflected for all periods presented to ensure comparability between periods. The provision for uncollectible accounts for owned properties was $6.1 million and $5.6 million for the nine months ended September 30, 2019 and 2018, respectively. |
Same Store Properties: The increase in revenue from our same store properties was primarily due to an increase in average rental rates for the 2016/20172018/2019 and 2017/20182019/2020 academic years partially offset by a slight decreaseas well as an increase in our weighted average occupancy from 93.8%90.5%during the nine months ended September 30, 20162018, to 93.6%92.8% for the nine months ended September 30, 2017.2019.
The increase in operating expenses from our same store properties was primarily due to the same factors that contributed toanticipated increases in property taxes associated with higher assessed values in certain markets, as well as the increase in operating expenses for the three months ended September 30, 2017, as discussed above, as well the following: (i) an increase in utilities expense as a result of overall rate increases in water and sewage in various markets, which was partially offset by increased utility reimbursements from tenants which are included in same store properties revenues; (ii) increases related to 2015 development deliveries caused primarily by the stabilization of property tax assessments in the second year of operations; and (iii) additional marketing expenses incurred due to our efforts to achieve our leasing targets.previously discussed.
New Property Operations: Our new properties for the nine months ended September 30, 20172019 are summarized in the table of new properties contained in the discussion of our results of operations for the three months ended September 30, 20172019 and 2016.2018.
On-Campus Participating Properties (“OCPP”) Operations
Same Store OCPP Properties: We had five participating properties containing 5,086 beds which were operating during the nine months ended As of September 30, 20172019, we had six OCPPs containing 5,230 beds. In January 2019, one owned property located at Prairie View A&M University was converted to the OCPP structure and 2016. Revenues from these properties increased by $0.1 million, from $23.0 millionis now included in our OCPP portfolio, contributing to the increase in both revenues and expenses for the nine months ended September 30, 20162019 as compared to $23.1the nine months ended September 30, 2018. In addition, the Company adopted new lease accounting guidance on January 1, 2019, which required the reclassification of the provision for uncollectible accounts from operating expenses to revenue. The reclassification is reflected on a prospective basis in the Consolidated Statements of Comprehensive Income contained in Item 1 herein starting in the first quarter 2019. The amount reclassified from operating expenses to revenue was a $0.6 million benefit and a $0.2 million expense for the nine months ended September 30, 2017 as a result of an increase in average rental rates for the 2016/20172019 and 2017/2018, academic years, offset by a decrease in average occupancyrespectively. We anticipate that revenues from 69.5% for the nine months ended September 30, 2016 to 67.6% for the nine months ended September 30, 2017. Operating expenses at these properties increased by $1.0 million, from $10.1 million for the nine months ended September 30, 2016 as compared to $11.1 million for the nine months ended September 30, 2017, primarily2019 will increase due to (i) an increase in payroll costs related to recently filled staff positions; (ii) increased maintenance costs related to the annual turn process; (iii) an increase in utilities expense; and (iv) increases in general and administrative costs. Futurefactors described above. In addition, future revenues will be dependent on our ability to maintain our current leases in effect for the 2017/20182018/2019 academic year and our ability to obtain appropriate rental rates and desired occupancy for the 2018/20192019/2020 academic year. We anticipate that operating expenses for our OCPPthese properties for 20172019 will increase as compared to 2016 for2018 due to the reasons discussed above.conversion of one property to the OCPP structure in January 2019 and general inflation.
Third-Party Development Services Revenue
Third-party development services revenue increased by approximately $0.8$8.5 million, from $3.9 million during the nine months ended September 30, 20162018, to $4.7$12.4 million for the nine months ended September 30, 2017. This2019. The increase was primarily due to the closing of bond financing and commencement of construction of a fourththe Calhoun Hall project at Drexel University in March 2019, the ninth phase at Prairie View A&M University in April 2019, and our second project with the University of California, IrvineRiverside in July 2019, which contributed approximately $2.9$6.9 million in revenue forduring the nine months ended September 30, 2017. These increases were partially offset by2019, as compared to the closing of bond financing and commencement of construction of two development projects with the Texas A&MDelaware State University System at their Corpus Christi and San Antonio campuses,project in May 2018, which contributed approximately $2.0$1.6 million ofin revenue as well as a $0.5 million fee earned for the performance of various predevelopment activities for the University of Kansas during the nine months ended September 30, 2016. During2018. In addition, during the nine months ended September 30, 20172019, we had threealso continued development services for five projects that commenced construction in progress with an average contractual fee2018, for which we earned fees of approximately $3.1$5.4 million, as compared to three projects that commenced construction in 2017, for which we earned fees of approximately $2.1 million during the nine months ended September 30, 2016 in which we had four projects in progress with an average contractual fee of2018.
Third-Party Management Services Revenue
Third-party management services revenue increased by approximately $1.8 million. million, from $7.3 million during the nine months ended September 30, 2018, to $9.1 million for the nine months ended September 30, 2019. The increase was due to the same factors that contributed to the increase in third-party management services revenue for the three months ended September 30, 2019, as discussed above. The increase was partially offset by discontinued third-party management contracts in 2018 and 2019.
Third-Party Development and Management Services Expenses
Third-party development and management services expenses increased by approximately $1.2$2.5 million, from $10.6$11.6 million during the nine months ended September 30, 20162018, to $11.8$14.1 million for the nine months ended September 30, 2017. This2019. The increase was due to the same factors that contributed to the increase in third-party development and management services expenses for the three months ended September 30, 2017,2019, as discussed above.
General and Administrative
General and administrative expenses increaseddecreased by approximately $8.4$4.5 million from $16.8$27.1 million during the nine months ended September 30, 20162018, to $25.2$22.6 million for the nine months ended September 30, 2017.2019. Excluding $5.8 million in transaction costs incurred in connection with the closing of the ACC / Allianz Joint Venture Transaction in May 2018, general and administrative expenses increased by $1.3 million. This increase was primarily due to the same factors that contributedadditional expenses incurred in connection with enhancements to the increase inour operating systems platform, additional payroll expenses, and other general inflationary factors. We anticipate general and administrative expenses for the three months ended September 30, 2017,will decrease in 2019 as discussed above, as well as $4.5 million in contractual executive separation and retirement chargescompared to 2018 due to transaction costs incurred in 2018 related to the first and second quarter 2017 as a resultformation of the retirement of the former Company’s Chief Financial Officer.ACC / Allianz Joint Venture Transaction, offset by an increase in payroll costs and an increase in expenses incurred in connection with enhancements to our operating systems platform.
Depreciation and Amortization
Depreciation and amortization increased by approximately $9.9$12.1 million, from $159.5$194.4 million during the nine months ended September 30, 20162018, to $169.4$206.5 million for the nine months ended September 30, 2017. This2019. The increase was primarily due to the following: (i) a $10.7$15.4 million increase related to the completion of construction and opening of seventen development properties in Fall 2018, and three owned development properties in August and September of 2016 and ten ownedtwo presale development properties in August 2017; (ii)Fall 2019, as well as a $7.0 million increase due to property acquisition activity during 2016 and 2017; (iii) a $4.9$0.5 million increase in depreciation expense at our same storeon-campus participating properties due to capital improvement projects at various properties; and (iv) a $0.2 millionthe conversion of one property to the OCPP structure. This increase in depreciation of corporate assets. These increases werewas partially offset by a $13.0$2.7 million decrease in depreciation and amortization expense related to properties sold in 20162018 and 2017.2019, in addition to a $1.2 million decrease in depreciation and amortization expense at our same store properties due to assets that became fully amortized or depreciated during the nine months ended September 30, 2019.
Ground/Facility Leases
Ground/facility leases expense increased by approximately $0.5$1.5 million, from $6.7$8.5 million during the nine months ended September 30, 20162018, to $7.2$10.0 million for the nine months ended September 30, 2017. This2019. The increase was primarily due to ACE development projects that completed construction and opened for operations in Fall 2018 and Fall 2019 and increased variable payments at various ACE same store properties. We anticipate ground/facility leases expense will increase in 2019 as compared to 2018, primarily as a result of the same factors that contributedtiming of new ACE projects being placed into service, the conversion of one owned property to the increaseOCPP structure in ground/facility lease expenses for the three months ended September 30, 2017, as discussed above.January 2019, and improved performance at various ACE same store properties.
Provision forLoss (Gain) from Disposition of Real Estate Impairment
During the nine months ended September 30, 2017, we recorded an impairment charge of approximately $15.3 million for one wholly-owned property currently in receivership that is in the process of being transferred to the lender in settlement of the property’s $27.4 million mortgage loan that matured in August 2017. Refer to Note 7 in the accompanying Notes to Consolidated Financial Statements in Item 1 for a detailed discussion of this transaction.
Interest Expense
Interest expense decreased by approximately $13.9 million, from $61.8 million during the nine months ended September 30, 2016 to $47.9 million for the nine months ended September 30, 2017. Interest expense decreased as a result of the following: (i) a decrease of approximately $7.4 million related to the disposition of properties with outstanding mortgage debt during 2016; (ii) a $4.6 million increase in capitalized interest due to the timing and volume of construction activities on our owned development projects during the comparable nine month periods; (iii) a $3.5 million decrease related to the pay-off of mortgage loans during 2016; and (iv) a decrease of approximately $3.6 million due to the pay-off of our $250 million term loan facility (“Term Loan II Facility”) in February 2016 and the pay-off of a portion of the Term Loan I Facility in November 2016. These decreases were partially offset by (i) a $3.6 million increase in interest expense related to increased borrowings on our revolving credit facility; and (ii) a $1.4 million increase in interest related to closings of our Term Loan III Facility in September 2017 and our New Term Loan II Facility in June 2017.
Amortization of Deferred Financing Costs
Amortization of deferred financing costs decreased by approximately $2.0 million, from $5.2 million during the nine months ended September 30, 2016 to $3.2 million for the nine months ended September 30, 2017. This decrease was primarily due to $1.1 million of accelerated amortization related to the pay-off of our Term Loan II Facility in February 2016, $0.6 million related to the pay-off of a portion of the Term Loan I Facility in November 2016, and $0.3 million related to properties with mortgage debt sold in 2016. We anticipate amortization of deferred finance costs will decrease in 2017 for the reasons discussed above, offset by increases related to the New Term Loan II and Term Loan III facilities, and the offering of unsecured notes in October 2017.
(Loss) Gain from Disposition of Real Estate
During the nine months ended September 30, 2017,2019, we sold one wholly-ownedowned property containing 657544 beds, resulting in a net loss from disposition of real estate of approximately $0.6$0.3 million. During the nine months ended September 30, 2016,2018, we sold two wholly-owneda portfolio of three owned properties containing 1,3241,338 beds, resulting in a net gain from disposition of real estate of approximately $17.4$42.3 million. Refer to Note 4 in the accompanying Notes to the Consolidated Financial Statements contained in Item 1.
Provision for Real Estate Impairment
During the nine months ended September 30, 2019, we recorded an impairment charge of $3.2 million for one owned property serving students attending Florida A&M University, which was classified as held for sale as of March 31, 2019 and was sold in May 2019.
Other Operating Income
During the nine months ended September 30, 2018, we recorded a $2.6 million gain related to cash proceeds received from a litigation settlement.
Interest Income
Interest income decreased by approximately $0.8 million, from $3.7 million during the nine months ended September 30, 2018, to $2.9 million for the nine months ended September 30, 2019. The decrease was primarily due to the planned forgiveness of loans receivable resulting from the unwinding of a New Market Tax Credit ("NMTC") structure at one of the Company's owned properties in 2018. We anticipate interest income to decrease for the full year 2019 as compared to 2018 due to the 2018 unwinding of the NMTC structure at one of the Company’s owned properties.
Interest Expense
Interest expense increased by approximately $10.2 million, from $72.2 million during the nine months ended September 30, 2018, to $82.4 million for the nine months ended September 30, 2019. The increase was primarily due to $6.8 million of additional interest expense due to the timing of borrowings under our unsecured revolving credit facility during the respective nine month periods, $5.6 million in additional interest expense incurred in the current year related to the issuance of $330 million in mortgage debt as part of the ACC / Allianz Joint Venture Transaction which closed in May 2018, and a $4.1 million increase in interest expense related to our $400 million offering of unsecured notes in June 2019. These increases were offset by a $4.3 million decrease in term loan interest expense due to the pay-off of $450 million of term loans in 2018, a $1.0 million decrease due to the unwinding of an NMTC structure at one of the Company’s owned properties, and a $0.6 million decrease in default interest related to a property that was transferred to the lender in settlement of the property’s mortgage loan in July 2019.
Amortization of Deferred Financing Costs
Amortization of deferred financing costs decreased by approximately $1.0 million, from $4.7 million during the nine months ended September 30, 2018 to $3.7 million for the nine months ended September 30, 2019. The decrease was primarily due to $0.9 million of accelerated amortization recorded in the prior year related to the pay-off of $450 million of term loan debt in May 2018. We anticipate amortization of deferred finance costs will decrease in 2019, as increases related to offerings of unsecured debt in 2019 will be more than offset by the 2018 accelerated amortization related to the pay-off of term loan debt.
Gain (Loss) from Extinguishment of Debt
During the nine months ended September 30, 2019, we recognized a $21.0 million gain on the extinguishment of debt associated with a property that was transferred to the lender in settlement of the property’s mortgage loan in July 2019. During the nine months ended September 30, 2018, we incurred approximately $0.8 million of losses associated with the early pay-off of mortgage loans in connection with the sale of one owned property and one owned property included in the ACC / Allianz Joint Venture Transaction.
Other Nonoperating Income
During the nine months ended September 30, 2018, we recognized a $0.6 million gain on an insurance settlement due to hail damage at one of our owned properties. The gain represents insurance proceeds received in excess of the net book value of the assets written off as a result of the damage.
Income Tax Provision
Income tax provision decreased by approximately $1.1 million from $2.1 million during the nine months ended September 30, 2018, to $1.0 million for the nine months ended September 30, 2019. The decrease was primarily due to estimated state income tax recorded in the prior year related to a taxable gain resulting from the ACC / Allianz Joint Venture Transaction.
Net (Income) Loss Attributable to Noncontrolling Interests
NoncontrollingNet income attributable to noncontrolling interests represent holdersrepresents consolidated joint venture partners’ share of common and preferred units in our Operating Partnership not held by ACC or ACC Holdingsnet income, as well as certain third-party partnersnet income allocable to holders of Operating Partnership units. The increase in joint ventures consolidated by us for financial reporting purposes. Accordingly, these external partners are allocated their sharethis item as compared to the prior year is primarily due to the closing of income/loss during the respective reporting periods. Refer to Note 9ACC / Allianz Joint Venture Transaction in the accompanying Notes to Consolidated Financial Statements in Item 1 for a detailed discussion of noncontrolling interests.May 2018.
Liquidity and Capital Resources
Cash Balances and Cash Flows
As of September 30, 2017, excluding our on-campus participating properties,2019, we had $29.7$85.8 million in cash and cash equivalents and restricted cash as compared to $32.3$106.5 million in cash and cash equivalents and restricted cash as of December 31, 2016.2018. 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.
Operating Activities: For the nine months ended September 30, 2017,2019, net cash provided by operating activities was approximately $245.1$273.7 million, as compared to approximately $242.8$266.9 million for the nine months ended September 30, 2016,2018, an increase of $2.3$6.8 million. This increase in cash flows was due to operating cash flows provided byfrom the completion of construction and opening of ten owned development properties and presale development properties in third quarter of 2017,Fall 2018 and the completion of seven owned development projects in the third quarter of 2016,2019 as well as property acquisitions in 2016 and 2017. Thethe timing of collections of student contracts receivable. This increase was partially offset by the timing of collectionsproperty tax payments for owned properties, the sale of our student accounts receivable as well asproperties in 2018 and 2019, and a decrease$13.2 million interest rate swap termination payment made in operating cash flows related to property dispositions during 2016 and 2017.June 2019.
Investing Activities: Investing activities utilized approximately $770.4$407.1 million and $365.7$216.1 million for the nine months ended September 30, 20172019 and 2016,2018, respectively. The $404.7$191.0 million increase in cash utilized in investing activities was primarily due to a result$233.4 million decrease in proceeds from disposition of the following:a three property portfolio in 2018 as compared to one property in 2019. This decrease in proceeds was offset by (i) a $205.7$22.8 million increase in cash paid for property acquisitions during the nine months ended September 30, 2017, (ii) a $124.4 million increasedecrease in cash used to fund the construction of our wholly-owned development properties, related
to the timing of construction commencement and completion of our owned development pipeline; (iii) a $48.2properties; (ii) an $18.0 million decrease in proceeds fromcash used for the dispositionacquisition of wholly-owned properties, as we sold two properties during the nine months ended September 30, 2016 as compared to the sale of one property during the nine months ended September 30, 2017; (iv)land parcels; and (iii) a $19.3$3.5 million increasedecrease in cash used to fund capital expenditures at our wholly-owned properties;owned and (v) an $8.0 million increase in cash paid to acquire undeveloped land parcels in 2017.on-campus participating properties.
Financing Activities: Cash For the nine months ended September 30, 2019, net cash provided by financing activities totaled approximately $519.4$112.7 million and $138.6as compared to net cash utilized by financing activities of $25.1 million for the nine months ended September 30, 2017 and 2016, respectively.2018. The $380.8$137.8 million increase in cash provided by financing activities was primarily a result of the following: (i) a $750.0$398.8 million net increase in proceeds from the issuance of unsecured notes in June 2019; (ii) a $450.0 million decrease in the pay-off of unsecured term loans; (ii) a $216.0 million increase in net proceeds on our revolving credit facility; (iii) a $53.4$143.6 million decrease in distributions to noncontrolling interests as a result of the closing of the mortgage loans associated with the Allianz Joint Venture in May 2018; and (iv) a $133.8 million decrease in cash used to pay off mortgage and construction debt during the comparable nine month periods; (iv) $11.5 million in contributions from noncontrolling interests during the nine months ended September 30, 2017; and (v) $10.8 million in proceeds from construction loans.including defeasance costs. These increases were partially offset by the following:by: (i) a $581.7$378.7 million decrease in proceeds from noncontrolling interests as a result of the Allianz Joint Venture in May 2018; (ii) a $330.0 million decrease in proceeds from mortgage loans; (iii) a $174.5 million decrease in net proceeds on our revolving credit facility; (iv) a $58.1 million decrease in proceeds from the saleconstruction loans; (v) a $33.6 million increase in funds paid to increase our ownership of common stock, related to our equity offering in February 2016 as compared to the issuance of common stock under our ATM Equity Program in 2017; (ii)consolidated subsidiaries; (vi) a $72.5$6.4 million increase in distributions to common and restricted stockholdersstockholders; and noncontrolling partners due to the distribution of $59.6 million of the Company's initial investment to its joint venture partners; and (iii)(vii) a $6.6$5.8 million increase in payments of debt issuance costs due to the amendment of our credit agreement in January 2017 and our New Term Loan II and Term Loan III facilities in June and September 2017.costs.
Liquidity Needs, Sources and Uses of Capital
As of September 30, 2017,2019, our short-term liquidity needs included, but were not limited to, the following: (i) the pay-off of $300 million related to our Term Loan III Facility due to mature in September 2018; (ii) anticipated distribution payments to our common and restricted stockholders totaling approximately $241.5$260.1 million based on an assumed annual cash distribution of $1.76$1.88 per share and based on the number of our shares outstanding as of September 30, 2017; (iii)2019; (ii) anticipated distribution payments to our Operating Partnership unitholders totaling approximately $1.9$0.9 million based on an assumed annual distribution of $1.76$1.88 per common unit and a cumulative preferential per annum cash distribution rate of 5.99% on our Preferred OP Units based on the number of units outstanding as of September 30, 2017; (iv) the pay-off of approximately $35.5 million of outstanding fixed rate mortgage debt scheduled to mature during the next 12 months; (v)2019; (iii) estimated development costs over the next 12 months totaling approximately $319.8$338.6 million for our wholly-ownedowned properties currently under construction; (vi)(iv) a $42.6$48.7 million obligation to purchase aone property subject to a presale arrangement (see Note 13 in the accompanying Notes to the Consolidated Financial Statements contained in Item 1); (vii)(v) an obligation to increase our investment in two joint ventures, resulting in a funding commitment of approximately $171.2$130.2 million (see Note 3 and Note 13 in the accompanying Notes to the Consolidated Financial Statements contained in Item 1); (viii) funds for other development projects(vi) the pay-off of approximately $34.6 million of outstanding fixed rate mortgage debt scheduled to commence constructionmature during the next 12 months; and (ix)(vii) potential future property or land acquisitions, and commencement of construction of owned development projects, including mezzanine financed developments.
We expect to meet our short-term liquidity requirements by: (i) utilizing current cash on hand and net cash provided by (i)operations; (ii) borrowing under our existing unsecuredrevolving credit facility; (ii)(iii) accessing the unsecured bond market; (iii)(iv) exercising debt extension options to the extent they are available; (iv)(v) issuing securities, including common stock, under our ATM Equity Program discussed more fully in Note 87 in the accompanying Notes to Consolidated Financial Statements contained in Item 1, or otherwise; (v)and (vi) potentially disposing of properties and/or entering into joint venture arrangements, depending on market conditions; and (vi) utilizing current cash on hand and net cash provided by operations.conditions. Our ability to obtain additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to the real estate industry, our credit ratings and credit capacity, as well as the perception of lenders regarding our long or short-term financial prospects.
In January 2017, the Company amended and expanded its senior unsecured revolving credit facility, increasing the facility size to $700 million and extending the maturity date to March 2022. The amended facility has an accordion feature that allows the Company to expand the facility by up to an additional $500 million, subject to the satisfaction of certain conditions. Borrowing rates under the credit facility float at a margin over LIBOR plus an annual facility fee with spreads reflecting current market terms which are more favorable than those contained in the prior facility. Both the margin and the facility fee are priced on a grid that is tied to the Company’s credit rating. Based on the Company’s current Baa2/BBB rating, the annual facility fee is 20 basis points and the LIBOR margin is 100 basis points, a reduction of 10 basis points from the prior facility.
In June 2017, the Company entered into a New Term Loan II Facility totaling $200 million which will mature in June 2022. The agreement has an accordion feature that allows the Company to expand the amount by up to an additional $100 million, subject to the satisfaction of certain conditions. Borrowing rates under this agreement float at a margin over LIBOR and the margin is priced on a grid that is tied to the Company’s credit rating. Based on the Company’s current Baa2/BBB rating, the LIBOR margin is 110 basis points.
In September 2017, the Company entered into a Term Loan III Facility totaling $300 million which will mature in September 2018, and can be extended for two one-year periods at our option, subject to the satisfaction of certain conditions. The agreement has an accordion feature that allows the Company to expand the amount by up to an additional $100 million, subject to the satisfaction of certain conditions. Borrowing rates under this agreement float at a margin over LIBOR and the margin is priced on a grid that is tied to the Company’s credit rating. Based on the Company’s current Baa2/BBB rating, the LIBOR margin is 110 basis points.
As discussed in Note 7 in the accompanying Notes to Consolidated Financial Statements contained in Item 1, in May 2017, the lender of the non-recourse mortgage loan secured by Blanton Common, a wholly-owned property located near Valdosta State University which was acquired as part of the GMH student housing transaction in 2008, sent a formal notice of default and initiated foreclosure proceedings. The property generated insufficient cash flow to cover the debt service on the $27.4 million mortgage loan that matured in August 2017. As of September 30, 2017, the underlying property was in receivership and the Company was cooperating with the lender to allow for a consensual foreclosure process upon which the property will be surrendered to the lender in satisfaction of the mortgage loan.
As discussed in Note 15 in the accompanying Notes to the Consolidated Financial Statements contained in Item 1, in October 2017, we raised $395 million in net proceeds from an unsecured $400 million bond offering. Proceeds from the offering were used to repay the outstanding balance on our revolving credit facility. We intend to use the remaining proceeds for potential repayment of other outstanding debt, to fund our development pipeline, for potential acquisitions of student housing properties and for general corporate purposes.
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.
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 November 1, 2017, weOctober 30, 2019, our Board of Directors declared a distribution per share of $0.44,$0.47, which will be paid on November 27, 201722, 2019 to all common stockholders of record as of November 13, 2017.11, 2019. At the same time, the Operating Partnership will pay an equivalent amount per unit to holders of Common OP Units, as well as the quarterly cumulative preferential distribution to holders of Preferred OP 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, 2017, we have deferred approximately $5.6 million in pre-development costs related to third-party and owned development projects that have not yet commenced construction.
Indebtedness
The amounts below exclude net unamortized debt premiums and discounts related to mortgage loans assumed in connection with property acquisitions, original issue discounts (“OID”s), and deferred financing costs (see Note 76 in the accompanying Notes to the Consolidated Financial Statements contained in Item 1). A summary of our consolidated indebtedness as of September 30, 20172019 is as follows:
| | | | | Amount | | % of Total | | Weighted Average Rates (1) | | Weighted Average Maturities | | Amount | | % of Total | | Weighted Average Rates (1) | | Weighted Average Maturities |
| Secured | | $ | 646,582 |
| | 23.4 | % | | 4.8 | % | | 5.3 Years | | $ | 821,813 |
| | 24.4 | % | | 4.6 | % | | 6.2 Years |
| Unsecured | | 2,116,440 |
| | 76.6 | % | | 3.1 | % | | 4.3 Years | | 2,552,100 |
| | 75.6 | % | | 3.5 | % | | 4.4 Years |
| Total consolidated debt | | $ | 2,763,022 |
| | 100.0 | % | | 3.5 | % | | 4.5 Years | | $ | 3,373,913 |
| | 100.0 | % | | 3.8 | % | | 4.8 Years |
| | | | | | | | | | | | | | | |
| Fixed rate debt | | | | | | | | | | | | | | |
| Secured | | | | | | | | | | | | | | |
| Project-based taxable bonds | | $ | 30,575 |
| | 1.1 | % | | 7.6 | % | | 7.0 Years | | $ | 23,215 |
| | 0.7 | % | | 7.6 | % | | 5.1 Years |
| Mortgage | | 593,585 |
| | 21.4 | % | | 4.7 | % | | 5.4 Years | | 720,779 |
| | 21.4 | % | | 4.5 | % | | 5.4 Years |
| Unsecured | | | | | | | | | | | | | | |
| April 2013 Notes | | 400,000 |
| | 14.5 | % | | 3.8 | % | | 5.5 Years | | 400,000 |
| | 11.9 | % | | 3.8 | % | | 3.5 Years |
| June 2014 Notes | | 400,000 |
| | 14.5 | % | | 4.1 | % | | 6.8 Years | | 400,000 |
| | 11.9 | % | | 4.1 | % | | 4.8 Years |
| September 2015 Notes | | 400,000 |
| | 14.5 | % | | 3.4 | % | | 3.0 Years | | 400,000 |
| | 11.9 | % | | 3.4 | % | | 1.0 Years |
| October 2017 Notes | | | 400,000 |
| | 11.9 | % | | 3.6 | % | | 8.1 Years |
| June 2019 Notes | | | 400,000 |
| | 11.9 | % | | 3.3 | % | | 6.8 Years |
| Total - fixed rate debt | | 1,824,160 |
| | 66.0 | % | | 4.1 | % | | 5.2 Years | | 2,743,994 |
| | 81.6 | % | | 3.9 | % | | 5.0 Years |
| | | | | | | | | | | | | | | |
| Variable rate debt: | | | | | | | | | | | | | | |
| Secured | | | | | | | | | | | | | | |
| Construction | | 22,422 |
| | 0.8 | % | | 4.2 | % | | 2.3 Years | |
| Mortgage and construction | | | 77,819 |
| | 2.3 | % | | 4.9 | % | | 13.5 Years |
| Unsecured | | | | | | | | | | | | | | |
| Term loans | | 650,000 |
| | 23.5 | % | | 2.3 | % | | 2.7 Years | | 200,000 |
| | 5.8 | % | | 3.1 | % | | 2.7 Years |
| Unsecured revolving credit facility | | 266,440 |
| | 9.7 | % | | 2.4 | % | | 4.5 Years | | 352,100 |
| | 10.3 | % | | 3.2 | % | | 2.5 Years |
| Total - variable rate debt | | 938,862 |
| | 34.0 | % | | 2.4 | % | | 4.4 Years | | 629,919 |
| | 18.4 | % | | 3.4 | % | | 3.9 Years |
| Total consolidated debt | | $ | 2,763,022 |
| | 100.0 | % | | 3.5 | % | | 4.5 Years | | $ | 3,373,913 |
| | 100.0 | % | | 3.8 | % | | 4.8 Years |
| | | | | | | | | | | | | | | |
| |
(1) | Represents stated interest rate and does not include the effect of the amortization of deferred financing costs, debt premiums and discounts, OIDs, and interest rate swap terminations. |
In October 2019, the Company entered into an interest rate swap to convert $37.5 million of a $40.8 million variable rate mortgage loan at one of its on-campus participating properties to a fixed rate. Additionally, in October 2019, the Company entered into an interest rate swap to convert $100 million of its unsecured term loan to a fixed rate.
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 1995December 2018 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 the elimination of property acquisitiontransaction costs, contractual executive separation and retirement charges and other non-cash items, as we determine in good faith. 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-ownedowned 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 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. 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 third-party 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.
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.
During the quarter ended September 30, 2019, the Company updated the presentation of the calculation of FFO. Prior period amounts have been updated to conform to the current presentation. There were no changes to the FFO calculated or the underlying financial information used in the calculation.
The following table presents a reconciliation of our net income attributable to common stockholders to FFO and FFOM:
| | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2019 | | 2018 | | 2019 | | 2018 |
Net (loss) income attributable to ACC, Inc. and Subsidiaries common stockholders | | $ | (1,312 | ) | | $ | 9,644 |
| | $ | 29,976 |
| | $ | 73,669 |
| |
| Noncontrolling interests | | 85 |
| | 201 |
| | 593 |
| | 1,150 |
| |
Net income (loss) attributable to ACC, Inc. and Subsidiaries common stockholders | | | $ | 20,223 |
| | $ | (2,345 | ) | | $ | 60,249 |
| | $ | 69,591 |
|
| Noncontrolling interests' share of net (loss) income | | | (887 | ) | | (392 | ) | | 665 |
| | (88 | ) |
| Joint venture partners' share of FFO | | | (1,175 | ) | | (1,563 | ) | | (6,856 | ) | | (2,100 | ) |
| Loss (gain) from disposition of real estate | | — |
| | — |
| | 632 |
| | (17,409 | ) | | — |
| | — |
| | 282 |
| | (42,314 | ) |
Elimination of provision for real estate impairment (1) | | — |
| | — |
| | 15,317 |
| | — |
| |
| Real estate related depreciation and amortization | | 60,202 |
| | 51,301 |
| | 166,931 |
| | 157,232 |
| |
Funds from operations (“FFO”) attributable to common stockholders and OP unitholders | | 58,975 |
| | 61,146 |
| | 213,449 |
| | 214,642 |
| |
| Elimination of provision for real estate impairment | | | — |
| | — |
| | 3,201 |
| | — |
|
| Total depreciation and amortization | | | 68,930 |
| | 66,131 |
| | 206,500 |
| | 194,447 |
|
Corporate depreciation (1) | | | (1,135 | ) | | (1,261 | ) | | (3,528 | ) | | (3,420 | ) |
FFO attributable to common stockholders and OP unitholders | | | 85,956 |
| | 60,570 |
| | 260,513 |
| | 216,116 |
|
| | | | | | | | | | | | | | | | | |
| Elimination of operations of on-campus participating properties: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Net loss (income) from on-campus participating properties | | 479 |
| | 365 |
| | (1,373 | ) | | (1,702 | ) | | 424 |
| | 436 |
| | (2,138 | ) | | (1,715 | ) |
| Amortization of investment in on-campus participating properties | | (1,892 | ) | | (1,839 | ) | | (5,621 | ) | | (5,493 | ) | | (2,289 | ) | | (1,962 | ) | | (6,334 | ) | | (5,856 | ) |
| | | 57,562 |
| | 59,672 |
| | 206,455 |
| | 207,447 |
| | 84,091 |
| | 59,044 |
| | 252,041 |
| | 208,545 |
|
| Modifications to reflect operational performance of on-campus participating properties: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Our share of net cash flow (2) | | 452 |
| | 351 |
| | 1,987 |
| | 2,216 |
| | 353 |
| | 644 |
| | 2,063 |
| | 2,232 |
|
| Management fees | | 306 |
| | 304 |
| | 1,046 |
| | 1,027 |
| |
| Management fees and other | | | 369 |
| | 302 |
| | 1,597 |
| | 1,058 |
|
| Contribution from on-campus participating properties | | 758 |
| | 655 |
| | 3,033 |
| | 3,243 |
| | 722 |
| | 946 |
| | 3,660 |
| | 3,290 |
|
Property acquisition costs (3) | | 2,855 |
| | 114 |
| | 2,855 |
| | 114 |
| |
Contractual executive separation and retirement charges (4) | | — |
| | — |
| | 4,515 |
| | — |
| |
Funds from operations – modified (“FFOM”) attributable to common stockholders and OP unitholders | | $ | 61,175 |
| | $ | 60,441 |
| | $ | 216,858 |
| | $ | 210,804 |
| |
| | | | | | | | | | |
Transaction costs (3) | | | 147 |
| | (232 | ) | | 147 |
| | 7,586 |
|
Elimination of (gain) loss from extinguishment of debt (4) | | | (20,992 | ) | | — |
| | (20,992 | ) | | 784 |
|
Elimination of gain from litigation settlement (5) | | | — |
| | — |
| | — |
| | (2,648 | ) |
Elimination of FFO from property in receivership (6) | | | 104 |
| | 842 |
| | 1,912 |
| | 2,037 |
|
FFOM attributable to common stockholders and OP unitholders | | | $ | 64,072 |
| | $ | 60,600 |
| | $ | 236,768 |
| | $ | 219,594 |
|
| | | | | | | | | | | | | | | | | |
| FFO per share – diluted | | $ | 0.43 |
| | $ | 0.46 |
| | $ | 1.56 |
| | $ | 1.65 |
| | $ | 0.62 |
| | $ | 0.44 |
| | $ | 1.88 |
| | $ | 1.56 |
|
| FFOM per share – diluted | | $ | 0.44 |
| | $ | 0.45 |
| | $ | 1.59 |
| | $ | 1.62 |
| | $ | 0.46 |
| | $ | 0.44 |
| | $ | 1.71 |
| | $ | 1.58 |
|
| Weighted-average common shares outstanding – diluted | | 138,328,932 |
| | 132,877,380 |
| | 136,686,611 |
| | 130,407,761 |
| | 138,879,244 |
| | 138,585,384 |
| | 138,854,970 |
| | 138,569,643 |
|
| |
(1) | Represents an impairment charge recordeddepreciation on corporate assets not added back for a wholly-owned property currently in receivership that is in the processpurposes of being transferred to the lender in settlement of the property’s $27.4 million mortgage loan that matured in August 2017.calculating FFO. |
| |
(2) | 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,expenditures which is included in ground/facility leases expense in the consolidated statements of comprehensive income. |
| |
(3) | The three andmonths ended September 30, 2019 amount represents transaction costs incurred in connection with the closing of one presale transaction in August 2019. The three months ended September 30, 2018 amount represents transaction costs incurred in connection with the closing of a presale transaction in August 2018, net of an adjustment to estimated state income tax related to a tax gain resulting from the ACC / Allianz real estate joint venture transaction in May 2018. The nine months ended September 30, 2017 amounts represent2018 amount includes the costs discussed above in addition to transaction costs related to our initial investmentincurred in twoconnection with the closing of the ACC / Allianz real estate joint ventures. Refer to Notes 3 and 9 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 for a more detailed discussion.venture transaction. |
| |
(4) | Represents contractual executive separationgains and retirement charges incurredlosses associated with the extinguishment of mortgage loans due to real estate disposition transactions, including the sale of partial ownership interests in properties and the first and second quarter 2017 with regardtransfer of an owned property to the retirementlender in satisfaction of the Company’s former Chief Financial Officer.property's mortgage loan. Such costs are excluded from gains from disposition of real estate reported in accordance with GAAP. |
| |
| (5) | Represents a gain related to cash proceeds received from a litigation settlement. |
| |
| (6) | Represents FFO for an owned property that was transferred to the lender in July 2019 in settlement of the property's mortgage loan. |
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, 2016.2018.
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.LP
| |
| (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.
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, 2016.2018.
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.
Item 6. Exhibits
|
| | |
| Exhibit Number | | Description of Document |
| | Amendment to Bylaws of American Campus Communities, Inc. Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on April 21, 2017 |
| | | |
| | American Campus Communities, Inc. - Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| | American Campus Communities, Inc. - Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| | American Campus Communities Operating Partnership L.P.LP - Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| | American Campus Communities Operating Partnership L.P.LP - Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| | 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. |
| | | |
| | 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. |
| | | |
| | American Campus Communities Operating Partnership L.P.LP - 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. |
| | | |
| | American Campus Communities Operating Partnership L.P.LP - 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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 |
| | |
| 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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 3, 20171, 2019 |
|
| |
| AMERICAN CAMPUS COMMUNITIES, INC. |
| | |
| By: | /s/ Daniel B. Perry |
| | |
| | Daniel B. Perry
Executive Vice President,
Chief Financial Officer, Treasurer and Secretary |
| | |
| By: | /s/ Kim K. Voss |
| | |
| | Kim K. Voss
Executive Vice President,
Chief Accounting Officer,
and Assistant 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 3, 20171, 2019 |
|
| | |
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP L.P.LP |
| By: | American Campus Communities Holdings, LLC, its general partner |
| | By: | American Campus Communities, Inc.,
its sole member |
| | | |
| | By: | /s/ Daniel B. Perry |
| | | |
| | | Daniel B. Perry
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary |
| | | |
| | By: | /s/ Kim K. Voss |
| | | |
| | | Kim K. Voss
Executive Vice President,
Chief Accounting Officer, and Assistant Secretary |
