Exhibit 99.1
AT THE COMPANY: | AT THE FINANCIAL RELATIONS BOARD: |
FOR IMMEDIATE RELEASE
WEDNESDAY, NOVEMBER 10, 2004
AMERICAN CAMPUS COMMUNITIES, INC. REPORTS THIRD QUARTER FINANCIAL RESULTS
Austin, TX -- November 10, 2004: American Campus Communities, Inc. (NYSE:ACC) (the "company") today reported operating results for the third quarter ended September 30, 2004.
Highlights
Third Quarter Operating Results
Quarterly information discussed herein reflects the combination of the company's operations since its commencement on August 17, 2004 concurrent with the consummation of the IPO, and the company's Predecessor operations for the period prior to August 17, 2004. The company's Predecessor operations include among other items, higher debt and interest expense levels, and the operations of certain non-core assets that were distributed to the Predecessor owners as part of the formation transactions that are reflected as discontinued operations in the Predecessor statement of operations. Additionally, the post-IPO results in the third quarter of 2004 were impacted by a series of charges totaling approximately $2.6 million related to the company's recent IPO and related formation transactions. The primary components of the charges include: (i) profits interest unit grants of approximately $2.1 million; (ii) restricted stock unit grants of $0.1 million; and (iii) write-off of loan origination c osts and exit fees associated with the repayment of indebtedness of approximately $1.2 million. These items were partially offset by the recognition of a deferred tax asset associated with a step up in the tax basis of on-campus participating properties owned by our TRS, resulting in an income tax benefit of $0.8 million. As a result, the historic results of operations prior to the IPO and the related combined results of operations for the quarter discussed herein are not indicative, or in some instances directly comparable, to the results of operations after the IPO.
For the three months ended September 30, 2004, the company had total revenues of $13.7 million compared to $13.3 million for the three months ended September 30, 2003, an increase of $0.4 million. The net loss, for the three months ended September 30, 2004, was $5.2 million, compared to a net loss of $1.5 million for the third quarter in 2003. Funds from Operations ("FFO") for the three months ended September 30, 2004 and 2003 were ($2.6 million) and $0.7 million, respectively. Funds from operations -- modified for operational performance of on-campus participating properties ("FFOM") for the three months ended September 30, 2004 and 2003 were ($2.2 million) and $1.3 million, respectively. Excluding the charges specifically related to the IPO and formation transactions as described in the preceding paragraph, net loss, FFO and FFOM for the three month period ended September 30, 2004 would have been $2.6 million, $0.0 million and $0.4 million, respectively. As anticipated in our Prospectus dated August 11, 2004, the decline in our 2004 third quarter operating results is primarily the result of the decline in the third party development services revenues. A reconciliation of FFO and FFOM to net loss, the most directly comparable GAAP measure, is included in a schedule accompanying this press release.
Bill Bayless, Chief Executive Officer of American Campus Communities, stated, "The successful completion of our initial public offering during the quarter demonstrates the market's confidence in our strategy and proven track record. We are pleased that in tandem with our public offering, we were able to secure a $75 million credit facility, deliver nine development properties for either our own account or third party clients, and lease our owned portfolio to a level in excess of 95 percent for the upcoming academic year. Our third quarter reflects the seasonality of our operations, as our business activities coincide with the beginning of the academic year at the nation's colleges and universities."
Portfolio/Business Update
The company opened six third party on-campus development projects representing in excess of $218 million in development, and consisting of more than 1,500 units and 4,000 beds. Four of the respective institutions have contracted the company to provide on-going property management services. In addition, during the quarter the company secured two additional third party management contracts. At the end of the quarter, the company owned 17 properties containing more than 4,000 units and 12,000 beds, an increase of 2,000 beds and 20% over the third quarter 2003 and, including the owned properties, the company managed 35 properties representing more than 8,700 units and 24,000 beds, an increase of 4,700 beds, or a 24% increase, over the third quarter 2003.
Growth Activity
As previously announced, the company commenced development on a $35.8 million owned off-campus development near the State University of New York at Buffalo. The 271-unit, 828-bed development is expected to open for occupancy in the third quarter of 2005. The company also entered into an agreement to acquire five student-housing properties in Florida. The properties total 446 units and 1,656 beds with occupancy of approximately 95 percent, and currently generate average monthly revenue per bed of $445. The acquisition is expected to close in the fourth quarter of 2004.
With regard to these transactions, Mr. Bayless commented, "We are excited about the opportunities afforded us by the Buffalo development and the Florida acquisitions. Both transactions fit well into our growth strategy, which focuses on owning high quality assets, located in close proximity to colleges and universities, that offer product differentiation, which provides a competitive advantage in the marketplace. Our strategy to maximize shareholder return is disciplined -- we will not grow for the sake of growth, but will build value by staying true to the market and investment criteria that has made us the premiere company in the student housing industry."
Third Quarter Distribution
As previously announced the Board of Directors approved a quarterly dividend distribution of $0.1651 per share, which will be paid on November 29, 2004 to all common shareholders of record as of November 22, 2004.
2004 Outlook
The company believes that the financial results for the fourth quarter of 2004 will be affected by national and regional economic trends and events, the acquisition of properties, the amount of income recognized by the taxable REIT subsidiary, and any corresponding income tax expense and other factors. Based upon these assumptions management anticipates that the fourth quarter 2004 FFO will be in the range of $0.44 to $0.47 per diluted share and that FFOM will be in the range of $0.35 to $0.38 per diluted share. All guidance is based on the current expectations and judgment of the company's management team.
A reconciliation of the range provided for projected net income to projected FFO and FFOM for the fourth quarter of 2004, and assumptions utilized is included in the tables herein.
2005 Outlook
The company believes that the financial results for the fiscal year ended December 31, 2005 will be affected by national and regional economic trends and events, the acquisition of properties, the ability of the company to be awarded development projects and the timing of such awards, the amount of income recognized by the taxable REIT subsidiary, and any corresponding income tax expense and other factors. Based upon these assumptions management anticipates that the fiscal year 2005 FFO will be in the range of $1.54 to $1.67 per diluted share and that FFOM will be in the range of $1.32 to $1.47 per diluted share. All guidance is based on the current expectations and judgment of the company's management team.
A reconciliation of the range provided for projected net income to projected FFO and FFOM for the fiscal year ended December 31, 2005, and assumptions utilized is included in the tables herein.
Earnings Call
The company will host a conference call to discuss third quarter results and provide a company update onThursday, November 11, 2004 at 11:00 a.m. Eastern, 10:00 a.m. Central, 9:00 a.m. Mountain, 8:00 a.m. Pacific.
To participate by telephoneplease dial 800-475-2151 or 973-582-2749atleast 5 minutes before start time. You may also participate in the call by webcast on the Company website at www.americancampuscommunities.com or atwww.fulldisclosure.com.
To listen to a live broadcast, go to this site at least 15 minutes prior to the scheduled start time in order to register, download, and install any necessary audio software. In addition, informational slides to accompany the conference call will be available at www.americancampuscommunities.com in the Investor Relations section, or at www.fulldisclosure.com at the beginning of the call.
About the Company
American Campus Communities, Inc. is the only publicly traded REIT solely focused on student housing in the United States. American Campus Communities is a fully integrated, self-managed and self-administered equity REIT with expertise in the acquisition, design, finance, development, construction management, leasing and management of student housing properties. The company owns 17 high-quality student housing properties, containing more than 4,100 apartment units and 12,600 beds. In conjunction with the properties owned, the company manages 35 student housing properties, representing more than 24,000 beds. For more information please go to the company website at www.americancampuscommunities.com.
Forward-Looking Statements
This press release contains forward-looking statements, which express the current beliefs and expectations of management. Except for historical information, the matters discussed in this press release are forward-looking statements and can be identified by the use of the words "anticipate," "believe," "expect," "intend," "may," "might," "plan," "estimate," "project," "should," "will," "result" and similar expressions. Such statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause our future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including risks and uncertainties inherent in the national economy, the real estate industry in general, and in our specific markets; the effect of terrorism or the threat of terrorism; legislative or regulatory changes including changes to laws governing REITS; our dependence on key personnel whose continued service is not guaranteed; availability of qualified acquisition and development targets; availability of capital and financing; rising interest rates; rising insurance rates; impact of ad volarem and income taxation; changes in generally accepted accounting principals; and our continued ability to successfully lease and operate our properties. While we believe these forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. These forward-looking statements are made as of the date o f this press release, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES AND AMERICAN CAMPUS PREDECESSOR
CONSOLIDATED AND COMBINED BALANCE SHEETS
(In thousands except share and per share data)
Company | Predecessor | ||
September 30, 2004 | December 31, 2003 | ||
(Unaudited) | |||
Assets | |||
Investments in real estate: | |||
Student housing facilities subject to leases, net | $ 68,168 | $ 69,713 | |
Student housing facility subject to lease-held for sale | - | 7,976 | |
Student housing properties, net | 268,137 | 222,907 | |
Investments in real estate, net | 336,305 | 300,596 | |
Cash and cash equivalents | 5,491 | 5,227 | |
Restricted cash and short-term investments | 7,385 | 9,503 | |
Student contracts receivable, net | 2,000 | 2,355 | |
Other assets | 10,969 | 12,885 | |
Total assets | $ 362,150 | $ 330,566 | |
Liabilities and stockholders' and Predecessor owners' equity | |||
Liabilities: | |||
Mortgage loans, bonds payable, and lines of credit | $ 193,028 | $ 267,518 | |
Note payable secured by leasehold held for sale | - | 8,080 | |
Accounts payable and accrued expenses | 6,856 | 3,847 | |
Other liabilities | 21,636 | 23,211 | |
Total liabilities | 221,520 | 302,656 | |
Minority interests | 2,545 | 252 | |
Stockholders' and Predecessor owners' equity: | |||
Common stock, $.01 par value, 800,000,000 shares authorized, 12,615,000 shares issued and outstanding | 126 | - | |
Additional paid in capital | 139,606 | - | |
Accumulated deficit | (1,538) | - | |
Accumulated other comprehensive loss | (109) | (197) | |
Predecessor owners' equity | - | 27,855 | |
Total stockholders' and Predecessor owners' equity | 138,085 | 27,658 | |
Total liabilities and stockholders' and Predecessor owners' equity | $ 362,150 | $ 330,566 |
AMERICAN CAMPUS COMMUNITIES, INC. AND AMERICAN CAMPUS PREDECESSOR
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Company | Predecessor | ||||||
Period from August 17, 2004 to September 30, 2004 | Period from July 1, 2004 to August 16, 2004 | Three Months Ended September 30, 2003 | |||||
Revenues: | |||||||
Student housing rental revenue | $ 5,045 | $ 4,146 | $ 7,500 | ||||
Student housing facilities subject to leases revenue | 2,483 | 845 | 2,893 | ||||
Third party development services | 332 | 178 | 2,679 | ||||
Third party development services -- student housing facilities subject to leases | 13 | 14 | 30 | ||||
Third party facility management services - affiliates | - | 19 | 58 | ||||
Third party management services | 340 | 176 | 178 | ||||
Resident services | 114 | - | - | ||||
Total revenues | 8,327 | 5,378 | 13,338 | ||||
Operating expenses: | |||||||
Student housing | 2,391 | 2,942 | 4,265 | ||||
Student housing facilities subject to leases | 431 | 1,601 | 2,170 | ||||
Third party development and management services | 718 | 612 | 1,401 | ||||
General and administrative | 2,888 | 24 | 345 | ||||
Depreciation and amortization | 1,401 | 1,284 | 2,209 | ||||
Ground lease | 100 | 202 | 43 | ||||
Total operating expenses | 7,929 | 6,665 | 10,433 | ||||
Operating income (loss) | 398 | (1,287) | 2,905 | ||||
Nonoperating income and (expenses): | |||||||
Interest income | 14 | 18 | 20 | ||||
Interest expense | (2,006) | (2,575) | (4,235) | ||||
Amortization of deferred financing costs | (702) | (81) | (140) | ||||
Other nonoperating income | - | 274 | - | ||||
Total nonoperating expenses | (2,694) | (2,364) | (4,355) | ||||
Loss before income tax benefit, minority interests, and discontinued operations | (2,296) | (3,651) | (1,450) | ||||
Income tax benefit | 757 | - | - | ||||
Minority interests | 1 | 85 | (4) | ||||
Loss from continuing operations | (1,538) | (3,566) | (1,454) | ||||
Loss attributable to discontinued operations | - | (104) | (90) | ||||
Net loss | $ (1,538) | $ (3,670) | $ (1,544) | ||||
Loss per share -- basic: | |||||||
Loss from continuing operations per share | $ ( 0.13) | ||||||
Net loss per share | $ (0.13) | ||||||
Loss per share -- diluted: | |||||||
Loss from continuing operations per share | $ ( 0.13) | ||||||
Net loss per share | $ (0.13) | ||||||
Weighted-average common shares outstanding: | |||||||
Basic | 12,290,256 | ||||||
Diluted | 12,290,256 | ||||||
AMERICAN CAMPUS COMMUNITIES, INC. AND AMERICAN CAMPUS PREDECESSOR
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Company | Predecessor | ||||||
Period from August 17, 2004 to September 30, 2004 | Period from January 1, 2004 to August 16, 2004 | Nine Months Ended September 30, 2003 | |||||
Revenues: | |||||||
Student housing rental revenue | $ 5,045 | $ 19,861 | $ 23,815 | ||||
Student housing facilities subject to leases revenue | 2,483 | 9,340 | 10,904 | ||||
Third party development services | 332 | 3,896 | 6,253 | ||||
Third party development services -- student housing facilities subject to leases | 13 | 497 | 86 | ||||
Third party facility management services - affiliates | - | 178 | 246 | ||||
Third party management services | 340 | 789 | 572 | ||||
Resident services | 114 | - | - | ||||
Other income | - | - | 12 | ||||
Total revenues | 8,327 | 34,561 | 41,888 | ||||
Operating expenses: | |||||||
Student housing | 2,391 | 10,120 | 11,544 | ||||
Student housing facilities subject to leases | 431 | 5,354 | 5,719 | ||||
Third party development and management services | 718 | 3,403 | 3,941 | ||||
General and administrative | 2,888 | 1,032 | 1,188 | ||||
Depreciation and Amortization | 1,401 | 5,815 | 6,631 | ||||
Ground lease | 100 | 598 | 302 | ||||
Total operating expenses | 7,929 | 26,322 | 29,325 | ||||
Operating income | 398 | 8,239 | 12,563 | ||||
Nonoperating income and (expenses): | |||||||
Interest income | 14 | 43 | 56 | ||||
Interest expense | (2,006) | (11,142) | (12,641) | ||||
Amortization of deferred financing costs | (702) | (369) | (418) | ||||
Other nonoperating income | - | 274 | - | ||||
Total nonoperating expenses | (2,694) | (11,194) | (13,003) | ||||
Loss before income tax benefit, minority interests, and discontinued operations | (2,296) | (2,955) | (440) | ||||
Income tax benefit | 757 | - | - | ||||
Minority interests | 1 | 129 | (25) | ||||
Loss from continuing operations | (1,538) | (2,826) | (465) | ||||
Discontinued operations: | |||||||
Loss attributable to discontinued operations | - | (373) | (102) | ||||
Gain from disposition of real estate | - | 58 | - | ||||
Total discontinued operations | - | (315) | (102) | ||||
Net loss | $ (1,538) | $ (3,141) | $ (567) | ||||
Loss per share -- basic: | |||||||
Loss from continuing operations per share | $ ( 0.13) | ||||||
Net loss per share | $ (0.13) | ||||||
Loss per share -- diluted: | |||||||
Loss from continuing operations per share | $ ( 0.13) | ||||||
Net loss per share | $ (0.13) | ||||||
Weighted-average common shares outstanding: | |||||||
Basic | 12,290,256 | ||||||
Diluted | 12,290,256 | ||||||
AMERICAN CAMPUS COMMUNITIES, INC.
As of September 30, 2004, our property portfolio consisted of the following:
PROPERTY |
LOCATION | PRIMARY UNIVERSITY SERVED |
UNITS |
BEDS | ||||
Owned off campus properties: | ||||||||
Commons On Apache | Tempe, AZ | Arizona State University Main Campus | 111 | 444 | ||||
The Village at Blacksburg | Blacksburg, VA | Virginia Polytechnic Institute and State University | 288 | 1,056 | ||||
The Village on University | Tempe, AZ | Arizona State University Main Campus | 288 | 918 | ||||
River Club Apartments | Athens, GA | The University of Georgia--Athens | 266 | 794 | ||||
River Walk Townhomes | Athens, GA | The University of Georgia--Athens | 100 | 340 | ||||
The Callaway House | College Station, TX | Texas A&M University | 173 | 538 | ||||
The Village at Alafaya Club | Orlando, FL | The University of Central Florida | 228 | 840 | ||||
The Village at Science Drive | Orlando, FL | The University of Central Florida | 192 | 732 | ||||
University Village at Boulder Creek | Boulder, CO | The University of Colorado at Boulder | 82 | 309 | ||||
University Village at Fresno | Fresno, CA | California State University, Fresno | 105 | 406 | ||||
University Village at San Bernardino | San Bernardino, CA | California State University, San Bernardino | 132 | 480 | ||||
University Village at TU | Philadelphia, PA | Temple University | 220 | 749 | ||||
University Village at Sweet Home * | Buffalo, NY | State University of New York - Buffalo | 271 | 828 | ||||
Total owned off campus properties | 2,456 | 8,434 | ||||||
On campus participating properties: | ||||||||
University Village--PVAMU | Prairie View, TX | Prairie View A&M University | 612 | 1,920 | ||||
University College--PVAMU | Prairie View, TX | Prairie View A&M University | 756 | 1,470 | ||||
University Village--TAMIU | Laredo, TX | Texas A&M International University | 84 | 252 | ||||
Cullen Oaks | Houston, TX | The University of Houston | 231 | 525 | ||||
Total on campus participating properties | 1,683 | 4,167 | ||||||
Total owned properties | 4,139 | 12,601 |
* Under construction -- scheduled opening in August 2005.
NET OPERATING INCOME
Same store and new store net operating income for owned off campus properties and on campus participating properties for the three months ended September 30, 2004 and 2003 is as follows:
Three Months Ended September 30, 2004 | Three Months Ended September 30, 2003 | Change ($) | Change (%) | ||||
Property Revenues | |||||||
Owned Off Campus Properties | |||||||
Same Store Properties | $ 7,869 | $ 7,500 | $ 369 | 4.9% | |||
New Properties | 1,322 | - | 1,322 | 100.0% | |||
Total Owned Off Campus Properties | 9,191 | 7,500 | 1,691 | 22.5% | |||
On Campus Participating Properties | |||||||
Same Store Properties | 3,205 | 2,766 | 439 | 15.9% | |||
New Properties | 123 | 127 | (4) | -3.1% | |||
Total On Campus Participating Properties | 3,328 | 2,893 | 435 | 15.0% | |||
Total Property Revenues | $ 12,519 | $ 10,393 | $ 2,126 | 20.5% | |||
Property Operating Expenses | |||||||
Owned Off Campus Properties | |||||||
Same Store Properties | $ 4,645 | $ 4,265 | $ 380 | 8.9% | |||
New Properties | 688 | - | 688 | 100.0% | |||
Total Owned Off Campus Properties | 5,333 | 4,265 | 1,068 | 25.0% | |||
On Campus Participating Properties | |||||||
Same Store Properties | 1,938 | 2,103 | (165) | -7.8% | |||
New Properties | 94 | 67 | 27 | 40.3% | |||
Total On Campus Participating Properties | 2,032 | 2,170 | (138) | -6.4% | |||
Total Property Operating Expenses | $ 7,365 | $ 6,435 | $ 930 | 14.5% | |||
Property Net Operating Income | |||||||
Owned Off Campus Properties | |||||||
Same Store Properties | $ 3,224 | $ 3,235 | $ (11) | -0.3% | |||
New Properties | 634 | - | 634 | 100.0% | |||
Total Owned Off Campus Properties | 3,858 | 3,235 | 623 | 19.3% | |||
On Campus Participating Properties | |||||||
Same Store Properties | 1,267 | 663 | 604 | 91.1% | |||
New Properties | 29 | 60 | (31) | -51.7% | |||
Total On Campus Participating Properties | 1,296 | 723 | 573 | 79.3% | |||
Total Property Net Operating Income | $ 5,154 | $ 3,958 | $ 1,196 | 30.2% |
Same store and new store net operating income for owned off campus properties and on campus participating properties for the nine months ended September 30, 2004 and 2003 is as follows:
Nine Months Ended September 30, 2004 | Nine Months Ended September 30, 2003 | Change ($) | Change (%) | ||||
Property Revenues | |||||||
Owned Off Campus Properties | |||||||
Same Store Properties | $ 23,584 | $ 23,815 | $ (231) | -1.0% | |||
New Properties | 1,322 | - | 1,322 | 100.0% | |||
Total Owned Off Campus Properties | 24,906 | 23,815 | 1,091 | 4.6% | |||
On Campus Participating Properties | |||||||
Same Store Properties | 11,269 | 10,777 | 492 | 4.6% | |||
New Properties | 554 | 127 | 427 | 336.2% | |||
Total On Campus Participating Properties | 11,823 | 10,904 | 919 | 8.4% | |||
Total Property Revenues | $ 36,729 | $ 34,719 | $ 2,010 | 5.8% | |||
Property Operating Expenses | |||||||
Owned Off Campus Properties | |||||||
Same Store Properties | $ 11,823 | $ 11,544 | $ 279 | 2.4% | |||
New Properties | 688 | - | 688 | 100.0% | |||
Total Owned Off Campus Properties | 12,511 | 11,544 | 967 | 8.4% | |||
On Campus Participating Properties | |||||||
Same Store Properties | 5,513 | 5,652 | (139) | -2.5% | |||
New Properties | 272 | 67 | 205 | 306.0% | |||
Total On Campus Participating Properties | 5,785 | 5,719 | 66 | 1.2% | |||
Total Property Operating Expenses | $ 18,296 | $ 17,263 | $ 1,033 | 6.0% | |||
Property Net Operating Income | |||||||
Owned Off Campus Properties | |||||||
Same Store Properties | $ 11,761 | $ 12,271 | $ (510) | -4.2% | |||
New Properties | 634 | - | 634 | 100.0% | |||
Total Owned Off Campus Properties | 12,395 | 12,271 | 124 | 1.0% | |||
On Campus Participating Properties | |||||||
Same Store Properties | 5,756 | 5,125 | 631 | 12.3% | |||
New Properties | 282 | 60 | 222 | 370.0% | |||
Total On Campus Participating Properties | 6,038 | 5,185 | 853 | 16.5% | |||
Total Property Net Operating Income | $ 18,433 | $ 17,456 | $ 977 | 5.6% |
FUNDS FROM OPERATIONS
As defined by NAREIT, FFO represents income (loss) before allocation to minority interests (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization (excluding amortization of loan origination costs) 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 is intended to exclude 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. Because FFO excludes depreciation and amortization unique to real estate, ga ins and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income.
We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs. Further, FFO does 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 should not be considered as an alternative to net income (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 is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.
The following table presents a reconciliation of our FFO to our net loss for the three months and nine months ended September 30, 2004 and 2003:
Period from August 17,2004 (Inception) to September 30, 2004 | Three Months Ended September 30, 2004 | Three Months Ended September 30, 2003 | Nine Months Ended September 30, 2004 | Nine Months Ended September 30, 2003 | |||||
Net Loss | $ (1,538) | $ (5,208) | $ (1,544) | $ (4,679) | $ (567) | ||||
Minority Interest In Income (Losses) | (1) | (86) | 4 | (130) | 25 | ||||
Gain from disposition of real estate | - | - | - | (58) | - | ||||
Real Estate Related Depreciation and Amortization: | |||||||||
Total depreciation and amortization | 1,401 | 2,685 | 2,209 | 7,216 | 6,631 | ||||
Discontinued operations depreciation and amortization | - | 44 | 90 | 219 | 259 | ||||
Furniture, fixtures, and equipment depreciation | (36) | (76) | (69) | (217) | (215) | ||||
Funds From Operations | $ (174) | $ (2,641) | $ 690 | $ 2,351 | $ 6,133 | ||||
Funds From Operations per share -- basic | $ (0.01) | ||||||||
Funds From Operations per share -- diluted | $ (0.01) | ||||||||
Weighted Average Common Shares Outstanding: | |||||||||
Basic | 12,290,256 | ||||||||
Diluted | 12,290,256 |
Our FFO for the period from August 17, 2004 to September 30, 2004 was impacted by a series of charges totaling approximately $2.6 million related to our recent IPO and related formation transactions. The primary components of the charges include: (i) PIU grants of approximately $2.1 million, (ii) restricted stock grants of $0.1 million, and (iii) write-off of loan origination costs and exit fees associated with the repayment of indebtedness of approximately $1.2 million. These items were partially offset by the recognition of a deferred tax asset associated with a step up in the tax basis of participating properties owned by our TRS, resulting in an income tax benefit of $0.8 million.
While our on-campus participating properties contributed $11.8 million and $10.9 million to our revenues for the nine months ended September 30, 2004 and 2003, respectively, and $3.3 million and $2.9 million to our revenues for the three months ended September 30, 2004 and 2003, respectively, 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.
As noted above, FFO excludes GAAP historical cost depreciation and amortization of real estate and related assets because these GAAP items assume that the value of real estate diminishes over time. However, unlike the ownership of our owned off-campus 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 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, when considering our FFO, we believe it is also a meaningful measure of our performance to modify FFO to exclude the op erations of our on-campus participating properties and to consider their impact on 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 measure of the properties, a measure referred to herein as FFOM.
Funds From Operations--Modified for Operational Performance of On-Campus Participating Properties:
Period from August 17,2004 (Inception) to September 30, 2004 | Three Months Ended September 30, 2004 | Three Months Ended September 30, 2003 | Period from July 1, 2004 to August 16, 2004 | Nine Months Ended September 30, 2003 | ||||||||||||||
Funds From Operations | $ (174) | $ (2,641) | $ 690 | $ 2,351 | $ 6,133 | |||||||||||||
Elimination of operations of on-campus participating properties: | ||||||||||||||||||
Net Loss from on-campus participating properties | 156 | 968 | 1,273 | 948 | 1,032 | |||||||||||||
Amortization of investment in on-campus participating properties | (438) | (950) | (821) | (2,660) | (2,420) | |||||||||||||
Modifications to reflect operational performance of on-campus participating properties: | ||||||||||||||||||
Our Share of Net Cash Flow (*) | 115 | 302 | 43 | 698 | 302 | |||||||||||||
Management Fees | 97 | 158 | 141 | 586 | 525 | |||||||||||||
Impact of On-Campus Participating Properties | 212 | 460 | 184 | 1,284 | 827 | |||||||||||||
Funds from Operations -- Modified for Operational Performance of On-Campus Participating Properties (FFOM) | $ (244) | $ (2,163) | $ 1,326 | $ 1,923 | $ 5,572 | |||||||||||||
FFOM per share -- basic | $ (0.02) | |||||||||||||||||
FFOM per share -- diluted | $ (0.02) | |||||||||||||||||
Weighted-average common shares outstanding: | ||||||||||||||||||
Basic | 12,290,256 | |||||||||||||||||
Diluted | 12,290,256 | |||||||||||||||||
(*) 50% of the properties' net cash available for distribution after payment of operating expenses, debt service (including repayment of principal) and capital expenditures. Schedule reflects amounts accrued for the 50% lessor distribution for all periods
This narrower measure of performance measures our profitability for these properties in a manner that is similar to the measure of our profitability from our services business where we similarly incur no initial or ongoing capital investment in a property and derive only consequential benefits from capital expenditures and debt amortization. We believe, however, that this narrower measure of performance is inappropriate in traditional real estate ownership structures where debt amortization and capital expenditures enhance the property owner's long-term profitability from its investment.
Our FFOM may have limitations as an analytical tool because it reflects the unique contractual calculation of net cash flow from our on-campus participating properties which is different from that of our off campus owned properties. Additionally, FFOM reflects features of our ownership interests in our on-campus participating properties that are unique to us. Companies that are considered to be in our industry may not have similar ownership structures; and therefore those companies may not calculate a 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 our FFOM only supplementally.
2004 AND 2005 OUTLOOK
2004 Outlook
A reconciliation of the range provided for projected net income to projected FFO and FFOM for the fourth quarter of 2004 is as follows (in thousands, except per share data):
Low | High | |||
Net income | $ 2,700 | $ 2,975 | ||
Minority Interests | (10) | (5) | ||
Depreciation and Amortization | 2,900 | 3,000 | ||
Funds From Operations | $ 5,590 | $ 5,970 | ||
Funds From Operations | $ 5,590 | $ 5,970 | ||
Elimination of operations of on-campus | ||||
participating properties: | ||||
Net income from on-campus participating | ||||
properties | (1,100) | (1,050) | ||
Amortization of investment in on-campus | ||||
participating properties | (850) | (850) | ||
Modifications to reflect operational performance | ||||
of on-campus participating properties: | ||||
Our Share of Net Cash Flow | 550 | 575 | ||
Management Fees | 250 | 250 | ||
Impact of On-Campus Participating Properties | 800 | 825 | ||
Funds from Operations - Modified for | ||||
Operational Performance of On-Campus | ||||
Participating Properties (FFOM) | $ 4,440 | $ 4,895 | ||
Weighted average common shares outstanding | ||||
assuming dilution | 12,744 | 12,744 | ||
Net income per average common share | $ 0.21 | $ 0.23 | ||
FFO per average common share | $ 0.44 | $ 0.47 | ||
FFOM per average common share | $ 0.35 | $ 0.38 | ||
The fourth quarter of 2004 guidance assumes, among other things that: (i) the purchase of the Florida properties is completed by mid-December 2004, including the assumption of $35.5 million of debt with the balance of the purchase price financed under the credit facility; (ii) awarded projects will commence as expected; (iii) the company will record a gain of approximately $0.6 million from a partial insurance settlement related to a 2003 fire at our Fresno property; and (iv) the LIBOR and prime rate of interest will remain relatively constant during the period.
2005 Outlook
A reconciliation of the range provided for projected net income to projected FFO and FFOM for the fiscal year ended December 31, 2005 is as follows (in thousands, except per share data):
Low | High | |||
Net income | $ 5,300 | $ 6,500 | ||
Minority Interests | (50) | (25) | ||
Depreciation and Amortization | 14,400 | 14,800 | ||
Funds From Operations | $ 19,650 | $ 21,275 | ||
Funds From Operations | $ 19,650 | $ 21,275 | ||
Elimination of operations of on-campus | ||||
participating properties: | ||||
Net income from on-campus participating | ||||
properties | (600) | (400) | ||
Amortization of investment in on-campus | ||||
participating properties | (3,400) | (3,400) | ||
Modifications to reflect operational performance | ||||
of on-campus participating properties: | ||||
Our Share of Net Cash Flow | 400 | 500 | ||
Management Fees | 800 | 800 | ||
Impact of On-Campus Participating Properties | 1,200 | 1,300 | ||
Funds from Operations - Modified for | ||||
Operational Performance of On-Campus | ||||
Participating Properties (FFOM) | $ 16,850 | $ 18,775 | ||
Weighted average common shares outstanding | ||||
assuming dilution | 12,744 | 12,744 | ||
Net income per average common share | $ 0.42 | $ 0.51 | ||
FFO per average common share | $ 1.54 | $ 1.67 | ||
FFOM per average common share | $ 1.32 | $ 1.47 | ||
The fiscal year ended December 31, 2005 guidance assumes, among other things that: (i) the purchase of the Florida properties is completed by mid-December 2004, includes the assumption of $35.5 million of debt recognized at fair value with the balance of the purchase price financed under the credit facility; (ii) the company will enter into additional property acquisition(s) by mid year at favorable terms; (iii) the owned off-campus property in Buffalo will open on time, will be completed on budget, and that 50% of the project will be permanently financed upon completion; (iv) the company will continue to operate the University Village at San Bernardino property, which is presently under a purchase option, throughout 2005; (v) the company will be able to enter into third-party development and construction projects contracts that will generate revenues consistent with our historic levels; (vi) the company's 2005/2006 academic year lease up will be at similar rates and occupanc y as compared to those currently experienced by the company; (vii) benefit costs will remain relatively constant; (viii) the company's cost to comply with Sarbanes Oxley Section 404 by the end of next year will be approximately $0.5 million and (ix) the LIBOR and prime rate of interest will remain relatively constant during the period.
