American Campus Communities 10Q 2010 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2010.

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From ______________________ to _________________________.

Commission file number 001-32265

AMERICAN CAMPUS COMMUNITIES, INC.

(Exact name of registrant as specified in its charter)

Maryland		76-0753089
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
805 Las Cimas Parkway, Suite 400 Austin, TX (Address of Principal Executive Offices)		78746 (Zip Code)

(512) 732-1000

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated Filer o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

There were 52,315,528 shares of American Campus Communities, Inc.’s common stock with a par value of $0.01 per share outstanding as of the close of business on May 3, 2010.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2010

TABLE OF CONTENTS

		PAGE NO.

PART I.

Item 1.	Consolidated Financial Statements

	Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009	1

	Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 (all unaudited)	2

	Consolidated Statement of Changes in Equity for the three months ended March 31, 2010 (unaudited)	3

	Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (all unaudited)	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	38

Item 4.	Controls and Procedures	38

PART II.

Item 6.	Exhibits	39

SIGNATURES		40

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	March 31, 2010			December 31, 2009
	(unaudited)
Assets

Investments in real estate:
Wholly-owned properties, net	$	1,977,067		$	2,014,970
Wholly-owned property held for sale		9,100			-
On-campus participating properties, net		64,655			65,690
Investments in real estate, net		2,050,822			2,080,660

Cash and cash equivalents		21,550			66,093
Restricted cash		28,451			29,899
Student contracts receivable, net		4,520			5,381
Other assets		50,212			52,948

Total assets	$	2,155,555		$	2,234,981

Liabilities and equity

Liabilities:
Secured mortgage, construction and bond debt	$	974,539		$	1,029,455
Senior secured term loan		100,000			100,000
Secured agency facility		94,000			94,000
Accounts payable and accrued expenses		22,214			26,543
Other liabilities		46,521			45,487
Total liabilities		1,237,274			1,295,485

Redeemable noncontrolling interests		36,015			36,722

Equity:
American Campus Communities, Inc. stockholders’ equity: Common stock, $.01 par value, 800,000,000 shares authorized, 52,293,300 and 52,203,893 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively		521			521
Additional paid in capital		1,092,301			1,092,030
Accumulated earnings and dividends		(209,201	)		(189,165	)
Accumulated other comprehensive loss		(5,188	)		(4,356	)
Total American Campus Communities, Inc. stockholders’ equity		878,433			899,030
Noncontrolling interests		3,833			3,744
Total equity		882,266			902,774

Total liabilities and equity	$	2,155,555		$	2,234,981

See accompanying notes to consolidated financial statements.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except share and per share data)

	Three Months Ended March 31,
	2010			2009
Revenues:
Wholly-owned properties	$	71,192		$	65,335
On-campus participating properties		7,311			6,874
Third party development services		574			1,052
Third party management services		2,214			2,242
Resident services		252			240
Total revenues		81,543			75,743

Operating expenses:
Wholly-owned properties		31,476			30,490
On-campus participating properties		2,399			2,030
Third party development and management services		3,099			2,977
General and administrative		2,753			2,748
Depreciation and amortization		17,488			19,332
Ground/facility leases		571			552
Total operating expenses		57,786			58,129

Operating income		23,757			17,614

Nonoperating income and (expenses):
Interest income		17			39
Interest expense		(15,301	)		(15,264	)
Amortization of deferred financing costs		(1,042	)		(790	)
Loss from unconsolidated joint ventures		(1,414	)		(554	)
Total nonoperating expenses		(17,740	)		(16,569	)

Income before income taxes and discontinued operations		6,017			1,045
Income tax provision		(143	)		(135	)
Income from continuing operations		5,874			910

Discontinued operations:
Loss attributable to discontinued operations		(4,283	)		(401	)
Loss from disposition of real estate		(3,646	)		-
Total discontinued operations		(7,929	)		(401	)

Net (loss) income		(2,055	)		509
Net income attributable to noncontrolling interests		(134	)		(232	)
Net (loss) income attributable to common shareholders	$	(2,189	)	$	277

Net (loss) income per share attributable to common shareholders-
basic and diluted:
Income from continuing operations per share	$	0.10		$	0.01
Net (loss) income per share	$	(0.05	)	$	0.00

Weighted-average common shares outstanding:
Basic		52,235,644			42,377,638
Diluted		52,805,966			42,820,592

Distributions declared per common share	$	0.3375		$	0.3375

See accompanying notes to consolidated financial statements.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(unaudited, in thousands, except share data)

	Common Shares		Par Value of Common Shares		Additional Paid in Capital			Accumulated Earnings and Distributions			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
Equity, December 31, 2009		52,203,893	$	521	$	1,092,030		$	(189,165	)	$	(4,356	)	$	3,744		$	902,774
Amortization of restricted stock awards		-		-		929			-			-			-			929
Vesting of restricted stock awards		84,631		-		(916	)		-			-			-			(916	)
Distributions to common and restricted stockholders		-		-		-			(17,847	)		-			-			(17,847	)
Distributions to joint venture partners		-		-		-			-			-			(48	)		(48	)
Conversion of common units to common stock		4,776		-		126			-			-			-			126
Reclassification of noncontrolling interests		-		-		132			-			-			-			132
Comprehensive loss:
Change in fair value of interest rate swaps		-		-		-			-			(832	)		-			(832	)
Net loss		-		-		-			(2,189	)		-			137			(2,052	)
Total comprehensive loss		-		-		-			-			-			-			(2,884	)
Equity, March 31, 2010		52,293,300	$	521	$	1,092,301		$	(209,201	)	$	(5,188	)	$	3,833		$	882,266

See accompanying notes to consolidated financial statements

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	Three Months Ended March 31,
	2010			2009
Operating activities
Net (loss) income attributable to common shareholders	$	(2,189	)	$	277
Adjustments to reconcile net (loss) income attributable to common shareholders to net cash provided by operating activities:
Income attributable to noncontrolling interests		134			232
Loss from disposition of real estate		3,646			-
Provision for asset impairment		4,036			-
Depreciation and amortization		17,822			20,102
Amortization of deferred financing costs and debt premiums/discounts		1,109			739
Share-based compensation		929			583
Loss from unconsolidated joint ventures		1,414			554
Income tax provision		143			135
Changes in operating assets and liabilities:
Restricted cash		1,122			2,878
Student contracts receivable, net		991			1,072
Other assets		(95	)		5,755
Accounts payable and accrued expenses		(5,410	)		(9,423	)
Other liabilities		137			(3,001	)
Distributions received from unconsolidated joint ventures		180			-
Net cash provided by operating activities		23,969			19,903
Investing activities
Net proceeds from disposition of real estate		1,098			-
Cash paid for property acquisition		(9,618	)		-
Investments in wholly-owned properties		(4,701	)		(35,813	)
Investments in on-campus participating properties		(43	)		(38	)
Purchase of corporate furniture, fixtures and equipment		(183	)		(146	)
Net cash used in investing activities		(13,447	)		(35,997	)
Financing activities
Secured revolving credit facility, net		-			63,600
Proceeds from construction loans		-			3,028
Pay-off of mortgage loans		(34,536	)		(29,831	)
Principal payments on debt		(2,180	)		(2,603	)
Change in construction accounts payable		-			(2,312	)
Distributions to common and restricted stockholders		(17,854	)		(14,477	)
Distributions to noncontrolling partners		(495	)		(715	)
Net cash (used in) provided by financing activities		(55,065	)		16,690
Net change in cash and cash equivalents		(44,543	)		596
Cash and cash equivalents at beginning of period		66,093			25,600
Cash and cash equivalents at end of period	$	21,550		$	26,196

Supplemental disclosure of non-cash investing and financing activities
Change in fair value of derivative instruments, net	$	(832	)	$	(783	)

Supplemental disclosure of cash flow information
Interest paid	$	15,512		$	17,116

See accompanying notes to consolidated financial statements.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

American Campus Communities, Inc. (the “Company”) is a real estate investment trust (“REIT”) that was incorporated on March 9, 2004 and commenced operations effective with the completion of an initial public offering (“IPO”) on August 17, 2004. Through the Company’s controlling interest in American Campus Communities Operating Partnership LP (the “Operating Partnership”), the Company 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. The Company 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.

As of March 31, 2010, the Company’s property portfolio contained 85 student housing properties with approximately 52,100 beds and approximately 17,000 apartment units. The Company’s property portfolio consisted of 79 owned off-campus properties that are in close proximity to colleges and universities, two American Campus Equity (“ACE®”) properties operated under ground/facility leases with a related university system and four on-campus participating properties operated under ground/facility leases with the related university systems. As of March 31, 2010, the Company also owned a noncontrolling interest in two joint ventures that owned an aggregate of 18 student housing properties with approximately 9,800 beds in approximately 2,900 units. The Company’s communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.

Through the Company’s taxable REIT subsidiaries (“TRS”), it also provides construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others. As of March 31, 2010, the Company provided third-party management and leasing services for 33 properties (five of which the Company served as the third-party developer and construction manager) that represented approximately 24,700 beds in approximately 9,400 units. Third-party management and leasing services are typically provided pursuant to multi-year management contracts that have initial terms that range from one to five years. As of March 31, 2010, the Company’s total owned, joint venture and third-party managed portfolio included 136 properties with approximately 86,600 beds in approximately 29,300 units.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the financial position, results of operations and cash flows of the Company, the Operating Partnership and subsidiaries of the Operating Partnership, including joint ventures in which the Company has a controlling interest. Third-party equity interests in the Operating Partnership and consolidated joint ventures are reflected as noncontrolling interests in the consolidated financial statements. The Company also has a noncontrolling interest in three unconsolidated joint ventures, which are accounted for under the equity method. All intercompany amounts have been eliminated. All dollar amounts in the tables herein, except share and per share amounts, are stated in thousands unless otherwise indicated. Certain prior period amounts have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

On January 1, 2010 the Company adopted new accounting guidance related to variable interest entities (“VIEs”). These new accounting pronouncements amend the existing accounting guidance to: (i) require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE, identifying the primary beneficiary of the VIE, (ii) require an ongoing reassessment of whether an enterprise is the primary beneficiary of a VIE, rather than only when specific events occur, (iii) eliminate the quantitative approach previously required for determining the primary beneficiary of a VIE, (iv) amend certain guidance for determining whether an entity is a VIE, (v) add an additional reconsideration event when changes in facts and circumstances pertinent to a VIE occur, (vi) eliminate the exception for troubled debt restructuring regarding VIE reconsideration, and (vii) require advanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a VIE. Upon the adoption of this new accounting guidance, management reevaluated its potential VIEs and concluded that there is no change from its initial assessment regarding which entities are consolidated by the Company and those that are accounted for under the equity method of accounting.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interim Financial Statements

The accompanying interim financial statements are unaudited, but have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements 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, 2009.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investments in Real Estate

Investments in real estate are recorded at historical cost. Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset. The cost of ordinary repairs and maintenance are charged to expense when incurred. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:

	Buildings and improvements		7-40 years
	Leasehold interest - on-campus participating properties		25-34 years (shorter of useful life or respective lease term)
	Furniture, fixtures and equipment		3-7 years

Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred finance costs, are capitalized as construction in progress. Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences. Interest totaling approximately $-0- and $1.0 million was capitalized during the three months ended March 31, 2010 and 2009, respectively. There was no amortization of deferred financing costs capitalized as construction in progress during the three months ended March 31, 2010 and 2009.

Management assesses whether there has been an impairment in the value of the Company’s investments in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized when estimated expected future undiscounted cash flows are less than the carrying value of the property. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions. If such conditions change, then an adjustment to the carrying value of the Company’s long-lived assets could occur in the future period in which the conditions change. To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings. Other than the impairment of a property discussed in Note 4 herein, the Company believes that there were no impairments of the carrying values of its investments in real estate as of March 31, 2010.

The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values. Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. Information obtained about each property as a result of due diligence, marketing and leasing activities is also considered. The value of in-place leases is based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued “as-if” vacant. As lease terms are typically one year or less, rates on in-place leases generally approximate market rental rates. Factors considered in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current market conditions, nature of the tenancy, and costs to execute similar leases. Carrying costs include estimates of lost rentals at market rates during the expected lease-up period, as well as marketing and other operating expenses. The value of in-place leases is amortized over the remaining initial term of the respective leases, generally less than one year. The purchase price of property acquisitions is not expected to be allocated to tenant relationships, considering the terms of the leases and the expected levels of renewals.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-Lived Assets–Held for Sale

Long-lived assets to be disposed of are classified as held for sale in the period in which all of the following criteria are met:

Management, having the authority to approve the action, commits to a plan to sell the asset.

The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.

An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated.

The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year.

The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value.

Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Concurrent with this classification, the asset is recorded at the lower of cost or fair value, and depreciation ceases.

Owned On-Campus Properties

Under its ACE program, the Company as lessee, entered into two 65-year ground and facility leases with a university system to finance, construct, and manage two student housing facilities. Both leases include the option to extend the lease term for two additional terms of ten years each, and the lessor has title to the land and any improvements placed thereon. The Company’s involvement in construction requires the lessor’s post construction ownership of the improvements to be treated as a sale with a subsequent leaseback by the Company. However, these sale-leaseback transactions do not qualify for sale-leaseback accounting because of the Company’s continuing involvement in the constructed assets. As a result of the Company’s continuing involvement, these leases are accounted for by the deposit method, in which the assets subject to the ground and facility leases are reflected at historical cost, less amortization, and the financing obligations are reflected at the terms of the underlying financing.

On-Campus Participating Properties

The Company entered into ground and facility leases with two university systems and colleges to finance, construct, and manage four on-campus student housing facilities. Under the terms of the leases, the lessor has title to the land and any improvements placed thereon. Each lease terminates upon final repayment of the construction related financing, the amortization period of which is contractually stipulated. The Company’s involvement in construction requires the lessor’s post construction ownership of the improvements to be treated as a sale with a subsequent leaseback by the Company. The sale-leaseback transaction has been accounted for as a financing, and as a result, any fee earned during construction is deferred and recognized over the term of the lease. The resulting financing obligation is reflected at the terms of the underlying financing, i.e., interest is accrued at the contractual rates and principal reduces in accordance with the contractual principal repayment schedules.

The Company reflects these assets subject to ground/facility leases at historical cost, less amortization. Costs are amortized, and deferred fee revenue in excess of the cost of providing the service are recognized, over the lease term.

Intangible Assets

In connection with a property acquisition completed in March 2010 and the acquisition of GMH Communities Trust (��GMH”) in June 2008, the Company capitalized approximately $0.2 million and $18.8 million, respectively, related to management’s estimate of the fair value of the in-place leases assumed. These intangible assets are amortized on a straight-line basis over the average remaining term of the underlying leases. Amortization expense was approximately $0.1 million and $4.1 million for the three months ended March 31, 2010 and 2009, respectively. The Company also capitalized $1.5 million related to management’s estimate of the fair value of third-party management contracts acquired from GMH. These intangible assets are amortized on a straight-line basis over a period of three years. Amortization expense related to these acquired management contracts was approximately $0.1 million for both three month periods ended March 31, 2010 and 2009. The amortization of intangible assets is included in depreciation and amortization expense in the accompanying consolidated statements of operations. See Note 3 herein for a detailed discussion of the property acquisition completed during the three months ended March 31, 2010.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Financing Costs

The Company defers financing costs and amortizes the costs over the terms of the related debt using the effective interest method. Upon repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to earnings. Accumulated amortization at March 31, 2010 and December 31, 2009 approximated $9.9 million and $9.0 million, respectively. Deferred financing costs, net of amortization, are included in other assets on the accompanying consolidated balance sheets.

Joint Ventures

The Company holds interests in both consolidated and unconsolidated joint ventures. The Company consolidates joint ventures when it exhibits financial or operational control, which is determined using accounting standards related to the consolidation of joint ventures and VIE’s. For joint ventures that are defined as VIE’s, the primary beneficiary consolidates the entity. In instances where the Company is not the primary beneficiary, it does not consolidate the joint venture for financial reporting purposes. For joint ventures that are not defined as VIEs, management first considers whether the Company is the general partner or a limited partner (or the equivalent in such investments which are not structured as partnerships). The Company consolidates joint ventures where it is the general partner (or the equivalent) and the limited partners (or the equivalent) in such investments do not have rights which would preclude control and, therefore, consolidation for financial reporting purposes. For joint ventures where the Company is the general partner (or the equivalent), but does not control the joint venture as the other partners (or the equivalent) hold substantive participating rights, the Company uses the equity method of accounting. For joint ventures where the Company is a limited partner (or the equivalent), management considers factors such as ownership interest, voting control, authority to make decisions, and contractual and substantive participating rights of the partners (or the equivalent) to determine if the presumption that the general partner controls the entity is overcome. In instances where these factors indicate the Company controls the joint venture, the Company consolidates the joint venture; otherwise it uses the equity method of accounting.

Debt Premiums and Discounts

Debt premiums and discounts represent fair value adjustments to account for the difference between the stated rates and market rates of debt assumed in connection with the Company’s property acquisitions. The debt premiums and discounts are amortized to interest expense over the term of the related loans using the effective-interest method. As of March 31, 2010 and December 31, 2009, net unamortized debt premiums were approximately $3.4 million and $3.8 million, respectively, and net unamortized debt discounts were approximately $7.9 million and $8.5 million, respectively. Debt premiums and discounts are included in secured mortgage, construction and bond debt on the accompanying consolidated balance sheets.

Third-Party Development Services Revenue and Costs

Development revenues are generally recognized based on a proportionate performance method based on contract deliverables, while construction revenues are recognized using the percentage of completion method, as determined by construction costs incurred relative to total estimated construction costs. Costs associated with such projects are deferred and recognized in relation to the revenues earned on executed contracts. For projects where the Company’s fee is based on a fixed price, any cost overruns incurred during construction, as compared to the original budget, will reduce the net fee generated on those projects. Incentive fees are generally recognized when the project is complete and performance has been agreed upon by all parties, or when performance has been verified by an independent third-party. The Company also evaluates the collectibility of fee income and expense reimbursements generated through the provision of development and construction management services based upon the individual facts and circumstances, including the contractual right to receive such amounts in accordance with the terms of the various projects, and reserves any amounts that are deemed to be uncollectible.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pre-development expenditures such as architectural fees, permits and deposits associated with the pursuit of third-party and owned development projects are expensed as incurred, until such time that management believes it is probable that the contract will be executed and/or construction will commence. Because the Company frequently incurs these pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained, the Company bears the risk of loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or the Company is unable to successfully obtain the required permits and authorizations. As such, management evaluates the status of third-party and owned projects that have not yet commenced construction on a periodic basis and expenses any deferred costs related to projects whose current status indicates the commencement of construction is unlikely and/or the costs may not provide future value to the Company in the form of revenues. Such write-offs are included in third-party development and management services expenses (in the case of third-party development projects) or general and administrative expenses (in the case of owned development projects) on the accompanying consolidated statements of operations. As of March 31, 2010, the Company has deferred approximately $11.2 million in pre-development costs related to third-party and owned development projects that have not yet commenced construction. Such costs are included in other assets on the accompanying consolidated balance sheets.

Derivative Instruments and Hedging Activities

The Company records all derivative financial instruments on the balance sheet at fair value. Changes in fair value are recognized either in earnings or as other comprehensive income, depending on whether the derivative has been designated as a fair value or cash flow hedge and whether it qualifies as part of a hedging relationship, the nature of the exposure being hedged, and how effective the derivative is at offsetting movements in underlying exposure. The Company discontinues hedge accounting when: (i) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised; (iii) it is no longer probable that the forecasted transaction will occur; or (iv) management determines that designating the derivative as a hedging instrument is no longer appropriate. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings. The Company uses interest rate swaps to effectively convert a portion of its floating rate debt to fixed rate, thus reducing the impact of rising interest rates on interest payments. These instruments are designated as cash flow hedges and the interest differential to be paid or received is accrued as interest expense. The Company’s counter-parties are major financial institutions. See Note 11 herein for an expanded discussion on derivative instruments and hedging activities.

Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its stockholders. As a REIT, the Company will generally not be subject to corporate level federal income tax on taxable income it currently distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for the subsequent four taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local income and excise taxes on its income and property, and to federal income and excise taxes on its undistributed income.

The Company owns two TRS entities that manage the Company’s non-REIT activities and each is subject to federal, state and local income taxes.

Earnings per Share

Basic earnings per share is computed using net (loss) income attributable to common shareholders and the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earnings per share reflect common shares issuable from the assumed conversion of common and preferred Operating Partnership 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 months ended March 31, 2010 and 2009, respectively, 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Three Months Ended March 31,
	2010		2009
Common Operating Partnership units (Note 7)		1,188,064		1,096,047
Preferred Operating Partnership units (Note 7)		114,963		114,963
Total potentially dilutive securities		1,303,027		1,211,010

The following is a summary of the elements used in calculating basic and diluted earnings per share:

	Three Months Ended March 31,
	2010			2009
Basic earnings per share calculation:
Income from continuing operations	$	5,874		$	910
Income from continuing operations attributable to noncontrolling interests		(328	)		(245	)
Income from continuing operations attributable to common shareholders		5,546			665
Amount allocated to participating securities		(225	)		(182	)
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities		5,321			483

Loss from discontinued operations		(7,929	)		(401	)
Loss from discontinued operations attributable to noncontrolling interests		194			13
Loss from discontinued operations attributable to common shareholders		(7,735	)		(388	)
Net (loss) income attributable to common shareholders, as adjusted – basic	$	(2,414	)	$	95

Income from continuing operations attributable to common shareholders, as adjusted – per share	$	0.10		$	0.01
Loss from discontinued operations attributable to common shareholders – per share	$	(0.15	)	$	(0.01	)
Net (loss) income attributable to common shareholders, as adjusted – per share	$	(0.05	)	$	0.00

Basic weighted average common shares outstanding		52,235,644			42,377,638

Diluted earnings per share calculation:
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities	$	5,321		$	483
Loss from discontinued operations attributable to common shareholders		(7,735	)		(388	)
Net (loss) income attributable to common shareholders, as adjusted – diluted	$	(2,414	)	$	95

Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities – per share	$	0.10		$	0.01
Loss from discontinued operations attributable to common shareholders – per share	$	(0.15	)	$	(0.01	)
Net (loss) income attributable to common shareholders - per share	$	(0.05	)	$	0.00

Basic weighted average common shares outstanding		52,235,644			42,377,638
Restricted Stock Awards (Note 10)		570,322			442,954
Diluted weighted average common shares outstanding		52,805,966			42,820,592

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Property Acquisitions

In March 2010, one of the Fidelity joint ventures in which the company owns a 10% interest assigned its ownership interest in the University Heights property to the Company for a price of $9.9 million, the value of the mortgage indebtedness. This 528-bed property, serving students attending the University of Alabama at Birmingham, is now 100% wholly-owned by the company.

The acquired property’s results of operations have been included in the accompanying consolidated statements of operations since the acquisition closing date. The following pro forma information for the three months ended March 31, 2010 and 2009, presents consolidated financial information for the Company as if the property acquisition discussed above, had occurred on January 1, 2009. The unaudited pro forma information is provided for informational purposes only and is not indicative of results that would have occurred or which may occur in the future:

	Three Months Ended March 31,
	2010			2009
Total revenues	$	81,898		$	76,151
Net (loss) income attributable to common shareholders	$	(2,191	)	$	83
Net loss per share – basic	$	(0.05	)	$	0.00
Net loss per share – diluted	$	(0.05	)	$	0.00

4. Property Dispositions and Discontinued Operations

In March 2010, the Company classified Campus Walk – Oxford as held for sale and the property was sold on April 30, 2010. See Note 15 herein for an expanded discussion on this property disposition. Concurrent with the held for sale classification, the property was recorded at the lower of cost or fair value resulting in an impairment charge of approximately $4.0 million, which is included in discontinued operations in the accompanying consolidated statement of operations for the three months ended March 31, 2010. Accordingly, net loss for Campus Walk – Oxford is included in discontinued operations for all periods presented.

On March 26, 2010, the Company sold Cambridge at Southern for a purchase price of $19.5 million, including the assumption of the existing $18.4 million mortgage loan, resulting in net proceeds of approximately $0.9 million. The resulting loss on disposition of approximately $3.6 million is included in discontinued operations in the accompanying consolidated statement of operations for the three months ended March 31, 2010. Accordingly, net loss for Cambridge at Southern is included in discontinued operations for all periods presented.

On December 31, 2009, the Company sold Riverside Estates for a purchase price of $18.2 million, including the assumption of the existing $16.2 million mortgage loan, resulting in net proceeds of approximately $1.3 million. Accordingly, net loss for Riverside Estates is included in discontinued operations for all periods presented.

The related net loss for the afore-mentioned properties is reflected in the accompanying consolidated statements of operations as discontinued operations for the periods presented. Below is a summary of the results of operations for Cambridge at Southern and Riverside Estates through their respective disposition dates as well as the results of operations for Campus Walk – Oxford for all periods presented:

	Three Months Ended March 31,
	2010			2009
Total revenues	$	1,163		$	1,997
Total operating expenses		1,036			1,766
Provision for asset impairment		4,036			-
Operating (loss) income		(3,909	)		231
Total nonoperating expenses		(374	)		(632	)
Net loss	$	(4,283	)	$	(401	)

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Investments in Wholly-Owned Properties

Wholly-owned properties consisted of the following:

	March 31, 2010			December 31, 2009
Land (1)	$	247,017		$	250,044
Buildings and improvements		1,807,115			1,825,915
Furniture, fixtures and equipment		110,790			112,831
		2,164,922			2,188,790
Less accumulated depreciation		(187,855	)		(173,820	)
Wholly-owned properties, net (2)	$	1,977,067		$	2,014,970

(1)	The land balance above includes undeveloped land parcels with a total book value of $27.6 million as of both March 31, 2010 and December 31, 2009.

(2)	The balance above excludes Campus Walk – Oxford which is classified as wholly-owned property held for sale in the accompanying consolidated balance sheet as of March 31, 2010.

6. On-Campus Participating Properties

The Company is a party to ground/facility lease agreements (“Leases”) with certain state university systems and colleges (each, a “Lessor”) for the purpose of developing, constructing, and operating student housing facilities on university campuses. Under the terms of the Leases, title to the constructed facilities is held by the applicable Lessor and such Lessor receives a de minimus base rent paid at inception and 50% of defined net cash flows on an annual basis through the term of the lease. The Leases terminate upon the earlier to occur of the final repayment of the related debt, the amortization period of which is contractually stipulated, or the end of the lease term.

Pursuant to the Leases, in the event the leasehold estates do not achieve Financial Break Even (defined as revenues less operating expenses, excluding management fees, less debt service), the applicable Lessor would be required to make a rental payment, also known as the Contingent Payment, sufficient to achieve Financial Break Even. The Contingent Payment provision remains in effect until such time as any financing placed on the facilities would receive an investment grade rating without the Contingent Payment provision. In the event that the Lessor is required to make a Contingent Payment, future net cash flow distributions would be first applied to repay such Contingent Payments and then to unpaid management fees prior to normal distributions. Beginning in November 1999 and December 2002, as a result of the debt financing on the facilities achieving investment grade ratings without the Contingent Payment provision, the Texas A&M University System is no longer required to make Contingent Payments under either the Prairie View A&M University Village or University College Leases. The Contingent Payment obligation continues to be in effect for the Texas A&M International University and University of Houston leases.

In the event the Company seeks to sell its leasehold interest, the Leases provide the applicable Lessor the right of first refusal of a bona fide purchase offer and an option to purchase the lessee’s rights under the applicable Lease.

In conjunction with the execution of each Lease, the Company has entered into separate five-year agreements to manage the related facilities for 5% of defined gross receipts. The five-year terms of the management agreements are not contingent upon the continuation of the Leases. Upon expiration of the initial five year terms, the agreements continue on a month-to-month basis.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On-campus participating properties are as follows:

			Historical Cost
Lessor/University	Lease Commencement	Required Debt Repayment (1)	March 31, 2010			December 31, 2009
Texas A&M University System / Prairie View A&M University (2)	2/1/96	9/1/23	$	38,943		$	38,918
Texas A&M University System / Texas A&M International	2/1/96	9/1/23		6,217			6,216
Texas A&M University System / Prairie View A&M University (3)	10/1/99	8/31/25 / 8/31/28		24,409			24,398
University of Houston System / University of Houston (4)	9/27/00	8/31/35		35,198			35,192
				104,767			104,724
Less accumulated amortization				(40,112	)		(39,034	)
On-campus participating properties, net			$	64,655		$	65,690

(1)	Represents the effective lease termination date. The Leases terminate upon the earlier to occur of the final repayment of the related debt or the end of the contractual lease term.

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

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

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

7. Noncontrolling Interests

Third-party joint venture partners: The Company consolidates four joint ventures that own and operate the Callaway House, University Village at Sweet Home, University Centre and Villas at Chestnut Ridge owned-off campus properties. The portion of net assets attributable to the third-party partners in these joint ventures is classified as “noncontrolling interests” within equity on the accompanying consolidated balance sheets. Accordingly, the third-party partners’ share of the income or loss of the joint ventures is reported on the consolidated statements of operations as “noncontrolling interests share of net income / loss.”

Operating Partnership units: Certain partners in the Operating Partnership hold their ownership through common and preferred units of limited partnership interest, hereinafter referred to as “Common Units” or “Series A Preferred Units.” Common Units and Series A Preferred Units are exchangeable into an equal number of shares of the Company’s common stock, or, at the Company’s election, cash. A Common Unit and a share of the Company’s common stock have essentially the same economic characteristics, as they effectively participate equally in the net income and distributions of the Operating Partnership. Series A Preferred Units have a cumulative preferential per annum cash distribution rate of 5.99%, payable quarterly concurrently with the payment of dividends on the Company’s common stock.

The Company follows accounting guidance stipulating that securities that are redeemable for cash or other assets at a fixed or determinable price on a fixed or determinable date, at the option of the holder, or upon the occurrence of an event that is not solely within the control of the issuer, must be classified outside of permanent equity in the mezzanine section of the consolidated balance sheets. In accordance with such guidance, management evaluates whether the Company controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under share settlement of the contract. Based on this assessment, which includes evaluating terms in the applicable agreements related to redemption provisions, the Company has determined that Common Units and Series A Preferred Units in the Operating Partnership should be classified as “redeemable noncontrolling interests” in the mezzanine section of the consolidated balance sheets. The value of redeemable noncontrolling interests on the consolidated balance sheets is reported at the greater of fair value or historical cost at the end of each reporting period. Accordingly, income or loss allocated to these redeemable noncontrolling interests on the Company’s consolidated statements of operations includes the Series A Preferred Unit distributions as well as the pro rata share of the Operating Partnership’s net income or loss allocated to Common Units.

During the three months ended March 31, 2010 and 2009, 4,776 and 1,000 Common Units, respectively, were converted into shares of the Company’s common stock. As of March 31, 2010 and December 31, 2009, approximately 2% of the equity interests of the Operating Partnership was held by owners of Common Units and Series A Preferred Units.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Investment in Unconsolidated Joint Ventures

Investments in unconsolidated joint ventures are accounted for utilizing the equity method. As discussed in Note 2 herein, the equity method is used when the Company has the ability to exercise significant influence over operating and financial policies of the joint venture but does not have control of the joint venture. Under the equity method, these investments are initially recognized in the balance sheet at cost and are subsequently adjusted to reflect the Company’s proportionate share of net earnings or losses of the joint venture, distributions received, contributions, and certain other adjustments, as appropriate. When circumstances indicate there may have been a loss in value of an equity method investment, the Company evaluates the investment for impairment by estimating the Company’s ability to recover its investment from future expected discounted cash flows. If the Company determines the loss in value is other than temporary, the Company recognizes an impairment charge to reflect the investment at fair value. The Company believes that there were no impairments of the carrying values of its equity method investments as of March 31, 2010.

Fidelity Joint Ventures: The Company owns a 10% interest in two joint ventures with Fidelity that own 18 properties containing approximately 9,800 beds. The Company serves as property manager for all of the joint venture properties. These joint ventures are hereinafter referred to collectively as the “Fidelity Joint Ventures.”

The Fidelity Joint Ventures are funded in part with secured third party debt in the amount of $293.5 million. The Operating Partnership serves as non-recourse, carve-out guarantor of this debt, which means the Operating Partnership is liable to the lender for any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of or in connection with certain non-recourse exceptions in connection with the debt. Pursuant to the respective limited liability company agreements, the Fidelity Joint Ventures agreed to indemnify, defend and hold harmless the Operating Partnership with respect to such obligations, except to the extent such obligations were caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates. Therefore, the Operating Partnership’s exposure under the guarantees for obligations not caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates is not expected to exceed the Company’s 10% proportionate interest in the related mortgage debt.

The Company’s $6.8 million and $8.0 million investment in these two joint ventures at March 31, 2010 and December 31, 2009, respectively, is included in other assets in the accompanying consolidated balance sheets, and the Company’s $0.9 million and $0.3 million share in the loss from these two joint ventures for the three months ended March 31, 2010 and 2009, respectively, is included in loss from unconsolidated joint ventures in the accompanying consolidated statements of operations. For the three months ended March 31, 2010 and 2009, the Company earned approximately $0.5 million and $0.6 million, respectively, in property management fees from these joint ventures. Due to the respective limited liability company agreements not providing for maximum capital commitments from the members, the Company’s maximum exposure to loss stemming from its investment in the Fidelity Joint Ventures could be unlimited.

Hampton Roads Joint Venture: The Company also holds a noncontrolling equity interest in a joint venture that owns a military housing privatization project with the United States Navy to design, develop, construct, renovate, and manage unaccompanied soldier housing located on naval bases in Norfolk and Newport News, Virginia. The project is financed through taxable revenue bonds. The Company’s $-0- and $0.5 million investment in this joint venture at March 31, 2010 and December 31, 2009, respectively, is included in other assets in the accompanying consolidated balance sheets, and the Company’s share in the loss from this joint venture of $0.5 million and $0.3 million for the three months ended March 31, 2010 and 2009, respectively, is included in loss from unconsolidated joint ventures in the accompanying consolidated statements of operations. The Company earned combined development and management fees from this joint venture of approximately $0.3 million for both three month periods ended March 31, 2010 and 2009.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Debt

A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows:

	March 31, 2010			December 31, 2009
Debt secured by wholly-owned properties:
Mortgage loans payable	$	795,023		$	850,046
Construction loan payable		100,000			100,000
		895,023			950,046
Debt secured by on-campus participating properties:
Mortgage loans payable		32,637			32,718
Bonds payable		51,390			51,390
		84,027			84,108
Senior secured term loan		100,000			100,000
Secured agency facility		94,000			94,000
Unamortized debt premiums		3,381			3,765
Unamortized debt discounts		(7,892	)		(8,464	)
Total debt	$	1,168,539		$	1,223,455

Pay-off of Mortgage Debt

During the three months ended March 31, 2010, the Company paid off $34.5 million of fixed-rate mortgage debt secured by two of its wholly-owned properties (Campus Club – Statesboro and University Trails), which was scheduled to mature on March 1, 2010. As of March 31, 2010, the Company has an additional $49.3 million of outstanding fixed-rate mortgage debt scheduled to mature throughout the remainder of 2010, all of which we expect to pay-off on or before their respective maturity dates.

Secured Revolving Credit Facility

The Operating Partnership has a $225 million revolving credit facility that may be expanded by up to an additional $75 million upon the satisfaction of certain conditions. The maturity date of the facility is August 14, 2012 and can be extended 12 months through August 2013. The facility is currently secured by seven of the Company’s wholly-owned properties.

Availability under the revolving credit facility is limited to an “aggregate borrowing base amount” equal to the lesser of (i) 50% to 65% of the value of certain properties, calculated as set forth in the credit facility, and (ii) the adjusted net operating income from these properties divided by a formula amount. The facility bears interest at a variable rate, at the Company’s option, based upon a base rate or one-, two-, or three-month LIBOR, with a LIBOR floor of 2.0%, plus, in each case, a spread based upon the Company’s total leverage. Additionally, the Company is required to pay an unused commitment fee of 0.35% per annum. As of March 31, 2010, there was no balance on the facility and availability under the facility totaled $154.3 million.

The terms of the facility include certain restrictions and covenants, which limit, among other items, the incurrence of additional indebtedness, liens, and the disposition of assets. The facility contains customary affirmative and negative covenants and also contains financial covenants that, among other things, require the Company to maintain certain minimum ratios of “EBITDA” (earnings before interest, taxes, depreciation and amortization) to fixed charges and total indebtedness. The Company may not pay distributions that exceed a specified percentage of funds from operations, as adjusted, for any four consecutive quarters. The financial covenants also include consolidated net worth and leverage ratio tests. As of March 31, 2010, the Company was in compliance with all such covenants.

Secured Agency Facility

The Company has a $125 million secured revolving credit facility with a Freddie Mac lender. The facility has a five-year term and is currently secured by 11 properties referred to as the “Collateral Pool.” The facility bears interest at one- or three-month LIBOR plus a spread that varies based on the debt service ratio of the Collateral Pool. Additionally, the Company is required to pay an unused commitment fee of 1.0% per annum. As of March 31, 2010, the balance outstanding on the secured agency facility totaled $94.0 million, bearing interest at a weighted average rate of 2.2%. The secured agency facility includes certain financial covenants which are the same as are required for the secured revolving credit facility, described above.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Senior Secured Term Loan

The Operating Partnership has a $100 million senior secured term loan that matures on May 23, 2011 and can be extended through May 2012 through the exercise of a 12-month extension option. The secured term loan bears interest at a variable rate, at the Company’s option, based upon a base rate or one-, two-, three-, or six-month LIBOR plus, in each case, a spread based upon the Company’s total leverage. As of March 31, 2010, the balance outstanding on the secured term loan was $100 million. The Company guarantees the Operating Partnership’s obligations under the secured term loan. The secured term loan includes the same restrictions and covenants as the secured revolving credit facility, described above.

On February 23, 2009, the Company entered into two $50.0 million interest rate swap agreements effective March 20, 2009 through February 20, 2012, which are both used to hedge the Company’s exposure to fluctuations in interest payments on its LIBOR-based senior secured term loan. Under the terms of the two interest rate swap agreements, the Company pays an average fixed rate of 1.7925% and receives a one-month LIBOR floating rate. As a result of these two interest rate swaps, the Company effectively fixed the interest rate on its senior secured term loan to 3.55% as of March 31, 2010 (1.7925% + 1.75% spread). In the event that the swaps at any time have a negative fair value below a certain threshold level, the Company is required to post cash into a collateral account pledged to the interest rate swap providers. As of March 31, 2010, the Company had deposited approximately $0.7 million into a collateral account related to one of the interest rate swaps. See Note 11 herein for a more detailed discussion of the Company’s derivative instruments and hedging activities.

10. Incentive Award Plan

The Company has adopted the 2004 Incentive Award Plan (the “Plan”). The 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 Company has reserved a total of 1,210,000 shares of the Company’s common stock for issuance pursuant to the Plan, subject to certain adjustments for changes in the Company’s capital structure, as defined in the Plan. As of March 31, 2010, 211,767 shares were available for issuance under the Plan.

Restricted Stock Units

Upon initial appointment to the Board of Directors and reelection to the Board of Directors at each Annual Meeting of Stockholders, each outside member of the Board of Directors is granted restricted stock units (“RSUs”). Upon the Settlement Date, the Company will deliver to the recipients a number of shares of common stock or cash, as determined by the Compensation Committee of the Board of Directors, equal to the number of RSUs held by the recipients. In addition, recipients of RSUs are entitled to dividend equivalents equal to the cash distributions paid by the Company on one share of common stock for each RSU issued, payable currently or on the Settlement Date, as determined by the Compensation Committee of the Board of Directors. There were no RSU grants or settlements during the three months ended March 31, 2010 and there were 5,376 RSUs that had not yet been settled as of March 31, 2010.

Restricted Stock Awards

The Company awards restricted stock awards (“RSAs”) to its executive officers and certain employees that vest in equal annual installments over a five year period. Unvested awards are forfeited upon the termination of an individual’s employment with the Company under specified circumstances. Recipients of RSAs receive dividends, as declared by the Company’s Board of Directors, on unvested shares, provided that the recipient continues to be employed by the Company. A summary of the Company’s RSAs under the Plan as of March 31, 2010 and changes during the three months ended March 31, 2010, is presented below:

	Number of RSAs
Nonvested balance at December 31, 2009		461,935
Granted		206,711
Vested		(84,631	)
Forfeited		(63,918	)
Nonvested balance at March 31, 2010		520,097

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recognizes the value of these awards as an expense over the vesting periods, which amounted to approximately $0.9 million and $0.6 million for the three months ended March 31, 2010 and 2009, respectively.

Common Units

Upon vesting of awards under the Company’s 2004 Outperformance Bonus Plan in August 2007, the Compensation Committee of the Board of Directors exercised its permitted discretion and granted 132,400 Common Units to selected recipients.

11. Derivatives Instruments and Hedging Activities

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

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 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.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (Loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2010, such derivatives were used to hedge the variable cash flows associated with the Company’s $100 million senior secured term loan and the Cullen Oaks Phase I and Phase II loans.

The following table summarizes the Company’s outstanding interest rate swap contracts as of March 31, 2010:

Date Entered	Effective Date	Maturity Date	Pay Fixed Rate	Receive Floating Rate Index	Notional Amount	Fair Value
Feb. 12, 2007	Feb. 15, 2007	Feb. 15, 2014	6.689%	LIBOR – 1 mo. plus 1.35%	$ 33,156	$ (3,730)
Feb. 23, 2009	March 20, 2009	Feb. 20, 2012	1.785%	LIBOR – 1 month	50,000	(724)
Feb. 23, 2009	March 20, 2009	Feb. 20, 2012	1.800%	LIBOR – 1 month	50,000	(734)

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 March 31, 2010 and December 31, 2009:

	Derivative Liabilities
	As of March 31, 2010			As of December 31, 2009
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest rate swap contracts	Other liabilities	$	5,188	Other Liabilities	$	4,356
Total derivatives designated as hedging instruments		$	5,188		$	4,356

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents the effect of the Company’s derivative financial instruments on other comprehensive income (“OCI”) for the three months ended March 31, 2010 and 2009:


	Amount of Loss Recognized in OCI on Derivative (Effective Portion)
Cash Flow Hedging	Three Months Ended March 31,
Relationships	2010			2009

Interest rate swap contracts	$	(832	)	$	(783	)

Total	$	(832	)	$	(783	)

The Company reported comprehensive loss of $0.3 million for the three months ended March 31, 2009, which includes net income of $0.5 million offset by an unrealized loss of $0.8 million (reflected in the table above).

12. Fair Value Disclosures

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of March 31, 2010, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Disclosures concerning assets and liabilities measured at fair value are as follows:

Fair Value Measurements on a Recurring or Nonrecurring Basis as of March 31, 2010

	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at March 31, 2010
Assets:
Real estate (1)	$	9,100	$	-	$	-	$	9,100
Liabilities:
Derivative financial Instruments (2)	$	-	$	5,188	$	-	$	5,188

(1)	During the three months ended March 31, 2010, we recognized an impairment loss of approximately $4.0 million on a wholly-owned property classified as held for sale as of March 31, 2010. We estimated the fair value based on a contract price less selling costs.

(2)	The Company uses derivative financial instruments, specifically interest rate 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. Through March 31, 2010, 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.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	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 derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustment associated with its derivative utilizes Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparty. However, as of March 31, 2010, the Company has assessed the significance 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 its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Other Fair Value Disclosures

Cash and Cash Equivalents, Restricted Cash, Student Contracts Receivable, Other Assets, Account Payable and Accrued Expenses and Other Liabilities: The Company estimated that the carrying amount approximates fair value, due to the short maturity of these instruments.

Derivative Instruments: These instruments are reported on the balance sheet at fair value, which is based on calculations provided by independent, third-party financial institutions and represent the discounted future cash flows expected, based on the projected future interest rate curves over the life of the instrument.

Senior Secured Term Loan, Secured Credit Facilities and Construction Loans: the fair value of the Company’s secured term loan, secured credit facilities and construction loans approximate carrying values due to the variable interest rate feature of these instruments.

Mortgage Loans: the fair value of mortgage loans is based on the present value of the cash flows at current rates through maturity.

Bonds Payable: the fair value of bonds payable is based on market quotes for bonds outstanding.

The table below contains the estimated fair value and related carrying amounts for the Company’s mortgage loans and bonds payable as of March 31, 2010 and December 31, 2009:

	March 31, 2010				December 31, 2009
	Fair Value		Carrying Amount		Fair Value		Carrying Amount
Mortgage loans	$	861,872	$	823,149	$	912,332	$	878,065
Bonds payable		50,484		51,390		49,865		51,390

13. Commitments and Contingencies

Commitments

Development-related guarantees: For its third-party development projects, the Company commonly provides alternate housing and project cost guarantees, subject to force majeure. These guarantees are typically limited, on an aggregate basis, to the amount of the projects’ related development fees or a contractually agreed-upon maximum exposure amount. Alternate housing guarantees typically expire five days after construction is complete and generally require the Company to provide substitute living quarters and transportation for students to and from the university if the project is not complete by an agreed-upon completion date. Under project cost guarantees, the Company is responsible for the construction cost of a project in excess of an approved budget. The budget consists primarily of costs included in the general contractors’ guaranteed maximum price contract (“GMP”). In most cases, the GMP obligates the general contractor, subject to force majeure and approved change orders, to provide completion date guarantees and to cover cost overruns and liquidated damages. In addition, the GMP is typically secured with payment and performance bonds. Project cost guarantees expire upon completion of certain developer obligations, which are normally satisfied within one year after completion of the project.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the normal course of business, the Company enters into various development-related purchase commitments with parties that provide development-related goods and services. In the event that the Company was to terminate development services prior to the completion of projects under construction, the Company could potentially be committed to satisfy outstanding purchase orders with such parties. At March 31, 2010, management did not anticipate any material deviations from schedule or budget related to third-party development projects currently in progress.

Guaranty of Joint Venture Mortgage Debt: As mentioned in Note 8, the Fidelity Joint Ventures are funded in part with secured third party debt in the amount of $293.5 million. The Operating Partnership serves as non-recourse, carve-out guarantor of this debt, which means the Operating Partnership is liable to the lender for any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of or in connection with certain non-recourse exceptions in connection with the debt. Pursuant to the respective limited liability company agreements, the Fidelity Joint Ventures agreed to indemnify, defend and hold harmless the Operating Partnership with respect to such obligations, except to the extent such obligations were caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates. Therefore, the Operating Partnership’s exposure under the guarantees for obligations not caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates is not expected to exceed the Company’s 10% proportionate interest in the related mortgage debt.

The Company has estimated the fair value of guarantees entered into to be immaterial. The Company’s estimated maximum exposure amount under the above guarantees is approximately $303.1 million.

Contingencies

Litigation: In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. 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.

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, 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 acquiror will have the ability to terminate the contracts without penalty or forfeiture of any deposit or earnest money. There can be no assurance that definitive contracts will be entered into with respect to any matter covered by letters of intent or that the Company will consummate any transaction contemplated by any definitive contract. Furthermore, due diligence periods for real property are frequently extended as needed. Once the due diligence period expires, the Company is then at risk under a real property acquisition contract, but only to the extent of any earnest money deposits associated with the contract.

Environmental Matters: The Company is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’s business, assets or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company’s results of operations and cash flows.

14. Segments

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

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Three Months Ended March 31,
	2010			2009
Wholly-Owned Properties
Rental revenues	$	71,444		$	65,575
Interest and other income		11			11
Total revenues from external customers		71,455			65,586
Operating expenses before depreciation, amortization, ground/facility lease, and allocation of corporate overhead		31,691			30,758
Ground/facility lease		265			260
Interest expense		12,181			13,680
Operating income before depreciation, amortization and allocation of corporate overhead	$	27,318		$	20,888
Depreciation and amortization	$	16,066		$	17,901
Capital expenditures	$	4,701		$	35,813
Total segment assets at March 31,	$	2,032,798		$	2,070,872

On-Campus Participating Properties
Rental revenues	$	7,311		$	6,874
Interest and other income		3			24
Total revenues from external customers		7,314			6,898
Operating expenses before depreciation, amortization, ground/facility lease and allocation of corporate overhead		2,232			1,897
Ground/facility lease		306			292
Interest expense		1,503			1,559
Operating income before depreciation, amortization and allocation of corporate overhead	$	3,273		$	3,150
Depreciation and amortization	$	1,079		$	1,090
Capital expenditures	$	43		$	38
Total segment assets at March 31,	$	79,883		$	82,318

Development Services
Development and construction management fees from external customers	$	574		$	1,052
Operating expenses		2,327			2,267
Operating loss before depreciation, amortization and allocation of corporate overhead	$	(1,753	)	$	(1,215	)
Total segment assets at March 31,	$	5,217		$	6,277

Property Management Services
Property management fees from external customers	$	2,214		$	2,242
Intersegment revenues		2,875			2,696
Total revenues		5,089			4,938
Operating expenses		2,027			1,831
Operating income before depreciation, amortization and allocation of corporate overhead	$	3,062		$	3,107
Total segment assets at March 31,	$	4,412		$	6,209

Reconciliations
Total segment revenues	$	84,432		$	78,474
Unallocated interest income earned on corporate cash		3			4
Elimination of intersegment revenues		(2,875	)		(2,696	)
Total consolidated revenues, including interest income	$	81,560		$	75,782
Segment operating income before depreciation, amortization and allocation of corporate overhead	$	31,900		$	25,930
Depreciation and amortization		(18,530	)		(20,122	)
Net unallocated expenses relating to corporate overhead		(5,939	)		(4,209	)
Loss from unconsolidated joint ventures		(1,414	)		(554	)
Income tax provision		(143	)		(135	)
Income from continuing operations	$	5,874		$	910

Total segment assets	$	2,122,310		$	2,165,676
Unallocated corporate assets		33,245			24,261
Total assets at March 31,	$	2,155,555		$	2,189,937

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Subsequent Events

Pay-off of Mortgage Debt: On April 1, 2010, the Company paid off $17.4 million in fixed-rate mortgage debt secured by one of our wholly-owned properties (River Club Apartments) that was scheduled to mature on August 1, 2010.

Property Disposition: On April 30, 2010, the Company sold Campus Walk – Oxford for a purchase price of $9.2 million, including the assumption of the existing $8.1 million mortgage loan, resulting in net proceeds of approximately $0.8 million.

Distributions: On May 5, 2010, the Company declared a first quarter 2010 distribution per share of $0.3375 which will be paid on May 28, 2010 to all common stockholders of record as of May 18, 2010. At the same time, the Operating Partnership will pay an equivalent amount per unit to holders of Common Units, as well as the quarterly cumulative preferential distribution to holders of Series A Preferred Units (see Note 7).

Adoption of New Incentive Award Plan: On May 6, 2010, the Company’s stockholders, upon the recommendation of the Board of Directors, approved the American Campus Communities, Inc. 2010 Incentive Award Plan (the “2010 Plan”). The 2010 Plan includes an authorization to issue up to 1,683,110 shares of the Company’s common stock (1,500,000 newly authorized shares plus 183,110 shares available for grant under the Company’s 2004 Incentive Award Plan as of March 15, 2010. The 2010 Plan provides for various types of equity awards to directors, executive and other officers and key employees. The types of awards that may be granted under the 2010 Plan include incentive stock options, nonqualified stock options, RSAs, RSUs, profits interest units (“PIUs”) and other stock-based awards.

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

Forward-looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result” and similar expressions, which do not relate solely to historical matters, 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 while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are 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; and 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.

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Our Company and Our Business

American Campus Communities, Inc. (referred to herein as the “Company,” “us,” “we,” and “our”) is a real estate investment trust (“REIT”) that was incorporated on March 9, 2004 and commenced operations effective with the completion of our initial public offering (“IPO”) on August 17, 2004. Through our controlling interest in American Campus Communities Operating Partnership LP (the “Operating Partnership”), we are one of the largest owners, managers and developers of high quality student housing properties in the United States in terms of beds owned, developed, and under management. We are 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.

As of March 31, 2010, our property portfolio contained 85 student housing properties with approximately 52,100 beds and approximately 17,000 apartment units. Our property portfolio consisted of 79 owned off-campus properties that are in close proximity to colleges and universities, two American Campus Equity (“ACE®”) properties operated under ground/facility leases with a related university system and four on-campus participating properties operated under ground/facility leases with the related university systems. As of March 31, 2010, we also owned a noncontrolling interest in two joint ventures that owned an aggregate of 18 student housing properties with approximately 9,800 beds in approximately 2,900 units. Our communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.

Through our taxable REIT subsidiaries (“TRS”), we provide construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others. As of March 31, 2010, we provided third-party management and leasing services for 33 properties (five of which we served as the third-party developer and construction manager) that represented approximately 24,700 beds in approximately 9,400 units. Third-party management and leasing services are typically provided pursuant to multi-year management contracts that have initial terms that range from one to five years. As of March 31, 2010, our total owned, joint venture and third-party managed portfolio was comprised of 136 properties with approximately 86,600 beds in approximately 29,300 units.

Third-Party Development Services

Our third-party development and construction management services as of March 31, 2010 consisted of three projects under contract and currently in progress with fees ranging from $2.5 million to $7.6 million. As of March 31, 2010, fees of approximately $2.2 million remained to be earned by us with respect to these projects, which have scheduled completion dates of July 2010 through August 2011.

While we believe that our third party development/construction management and property management services allow us to develop strong and key relationships with colleges and universities, revenue from this area has over time become a smaller portion of our operations due to the continued focus on and growth of our wholly-owned property portfolio. Nevertheless, we believe these services continue to provide synergies with respect to our ability to identify, acquire or develop, and successfully operate, student housing properties.

American Campus Equity (“ACE®”) Development Activities

An emerging opportunity in the wholly-owned property segment is the equity investment and ownership of on-campus housing via traditional long-term ground leases. Branded and marketed to colleges and universities as the ACE program, the transaction structure provides us with what we believe is a lower-risk opportunity compared to other off-campus projects, as our ACE projects will have premier on-campus locations with marketing and operational assistance from the university. The subject university substantially benefits by increasing its housing capacity with modern, well-amenitized student housing with no or minimal impacts to its own credit ratios, preserving the university’s credit capacity to fund academic and research facilities.

Property Operations

As of March 31, 2010 our property portfolio consisted of the following:

PROPERTY	YR ACQUIRED / DEVELOPED (1)	LOCATION	PRIMARY UNIVERSITY SERVED	UNITS		BEDS
Wholly-Owned properties:
1. Villas on Apache	1999	Tempe, AZ	Arizona State University Main Campus		111		288
2. River Club Apartments	1999	Athens, GA	The University of Georgia – Athens		266		792
3. River Walk Townhomes	1999	Athens, GA	The University of Georgia – Athens		100		336
4. The Village at Blacksburg	2000	Blacksburg, VA	Virginia Polytechnic Inst. & State University		288		1,056
5. The Callaway House	2001	College Station, TX	Texas A&M University		173		538
6. The Village at Alafaya Club	2000	Orlando, FL	The University of Central Florida		228		839
7. The Village at Science Drive	2001	Orlando, FL	The University of Central Florida		192		732
8. University Village at Boulder Creek	2002	Boulder, CO	The University of Colorado at Boulder		82		309
9. University Village at Fresno	2004	Fresno, CA	California State University – Fresno		105		406
10. University Village at TU (2)	2004	Philadelphia, PA	Temple University		220		749
11. University Club Tallahassee	2005	Tallahassee, FL	Florida State University		152		608
12. The Grove at University Club	2005	Tallahassee, FL	Florida State University		64		128
13. College Club Tallahassee	2005	Tallahassee, FL	Florida A&M University		96		384
14. The Greens at College Club	2005	Tallahassee, FL	Florida A&M University		40		160
15. University Club Gainesville	2005	Gainesville, FL	University of Florida		94		376
16. City Parc at Fry Street	2005	Denton, TX	University of North Texas		136		418
17. The Estates	2005	Gainesville, FL	University of Florida		396		1,044
18. University Village at Sweet Home	2005	Amherst, NY	State University of New York – Buffalo		269		828
19. Entrada Real	2006	Tucson, AZ	University of Arizona		98		363
20. Royal Oaks	2006	Tallahassee, FL	Florida State University		82		224
21. Royal Pavilion	2006	Tallahassee, FL	Florida State University		60		204
22. Royal Village Tallahassee	2006	Tallahassee, FL	Florida State University		75		288
23. Royal Village Gainesville	2006	Gainesville, FL	University of Florida		118		448
24. Northgate Lakes	2006	Orlando, FL	The University of Central Florida		194		710
25. Royal Lexington	2006	Lexington, KY	University of Kentucky		94		364
26. The Woods at Greenland	2006	Murfreesboro, TN	Middle Tennessee State University		78		276
27. Raider’s Crossing	2006	Murfreesboro, TN	Middle Tennessee State University		96		276
28. Raider’s Pass	2006	Lubbock, TX	Texas Tech University		264		828
29. Aggie Station	2006	College Station, TX	Texas A&M University		156		450
30. The Outpost San Marcos	2006	San Marcos, TX	Texas State University – San Marcos		162		486
31. The Outpost San Antonio	2006	San Antonio, TX	University of Texas – San Antonio		276		828
32. Callaway Villas	2006	College Station, TX	Texas A&M University		236		704
33. Village on Sixth	2007	Huntington, WV	Marshall University		248		752
34. Newtown Crossing	2007	Lexington, KY	University of Kentucky		356		942
35. Olde Towne University Square	2007	Toledo, OH	University of Toledo		224		550
36. Peninsular Place	2007	Ypsilanti, MI	Eastern Michigan University		183		478
37. University Centre	2007	Newark, NJ	Rutgers University, NJIT, Essex CCC		234		838
38. Sunnyside Commons	2008	Morgantown, WV	West Virginia University		68		161
39. Pirate’s Place	2008	Greenville, NC	East Carolina University		144		528
40. University Highlands	2008	Reno, NV	University of Nevada at Reno		216		732
41. Jacob Heights I	2008	Mankato, MN	Minnesota State University		42		162

PROPERTY	YR ACQUIRED / DEVELOPED (1)	LOCATION	PRIMARY UNIVERSITY SERVED	UNITS		BEDS
42. Jacob Heights III	2008	Mankato, MN	Minnesota State University		24		96
43. The Summit	2008	Mankato, MN	Minnesota State University		192		672
44. GrandMarc – Seven Corners	2008	Minneapolis, MN	University of Minnesota		186		440
45. University Village – Sacramento	2008	Sacramento, CA	California State University – Sacramento		250		394
46. Aztec Corner	2008	San Diego, CA	San Diego State University		180		606
47. University Crossings	2008	Philadelphia, PA	University of Pennsylvania / Drexel		260		1,016
48. Campus Corner	2008	Bloomington, IN	Indiana University		254		796
49. Tower at 3rd	2008	Champaign, IL	University of Illinois		147		295
50. University Mills	2008	Cedar Falls, IA	University of Northern Iowa		121		481
51. Pirates Cove	2008	Greenville, NC	East Carolina University		264		1,056
52. University Manor	2008	Greenville, NC	East Carolina University		168		600
53. Brookstone Village	2008	Wilmington, NC	UNC – Wilmington		124		238
54. Campus Walk – Wilmington	2008	Wilmington, NC	UNC – Wilmington		289		290
55. Campus Club – Statesboro	2008	Statesboro, GA	Georgia Southern University		276		984
56. University Pines	2008	Statesboro, GA	Georgia Southern University		144		552
57. Lakeside	2008	Athens, GA	University of Georgia		244		776
58. The Club	2008	Athens, GA	University of Georgia		120		480
59. The Edge	2008	Orlando, FL	Central Florida		306		930
60. University Place	2008	Charlottesville, VA	University of Virginia		144		528
61. Southview	2008	Harrisonburg, VA	James Madison University		240		960
62. Stonegate	2008	Harrisonburg, VA	James Madison University		168		672
63. The Commons	2008	Harrisonburg, VA	James Madison University		132		528
64. University Gables	2008	Murfreesboro, TN	Middle Tennessee State University		168		648
65. Campus Ridge	2008	Johnson City, TN	East Tennessee State University		132		528
66. The Enclave I	2008	Bowling Green, OH	Bowling Green State University		120		480
67. Hawks Landing	2008	Oxford, OH	Miami University of Ohio		122		484
68. Willow Tree Apartments	2008	Ann Arbor, MI	University of Michigan		310		568
69. Willow Tree Towers	2008	Ann Arbor, MI	University of Michigan		163		283
70. Abbott Place	2008	East Lansing, MI	Michigan State University		222		654
71. University Centre – Kalamazoo	2008	Kalamazoo, MI	Western Michigan University		232		700
72. University Meadows	2008	Mt. Pleasant, MI	Central Michigan University		184		616
73. Campus Way	2008	Tuscaloosa, AL	University of Alabama		196		684
74. Campus Walk – Oxford (3)	2008	Oxford, MS	University of Mississippi		108		432
75. Campus Trails	2008	Starkville, MS	Mississippi State University		156		480
76. University Pointe	2008	Lubbock, TX	Texas Tech University		204		682
77. University Trails	2008	Lubbock, TX	Texas Tech University		240		684
78. Vista del Sol (4)	2008	Tempe, AZ	Arizona State University		613		1,866
79. Villas at Chestnut Ridge	2008	Amherst, NY	State University of New York – Buffalo		196		552
80. Barrett Honors College (4)	2009	Tempe, AZ	Arizona State University		604		1,721
81. University Heights	2010	Birmingham, AL	University of Alabama at Birmingham		176		528
Total wholly-owned properties					15,095		47,563

PROPERTY

YEAR ACQUIRED /
DEVELOPED (1)

LOCATION

PRIMARY UNIVERSITY SERVED

UNITS

BEDS

On-campus participating properties:

82. University Village – PVAMU

1996 / 97 / 98

Prairie View, TX

Prairie View A&M University

612

1,920

83. University College – PVAMU

2000 / 2003

Prairie View, TX

Prairie View A&M University

756

1,470

84. University Village – TAMIU

1997

Laredo, TX

Texas A&M International University

250

85. Cullen Oaks – Phase I and II

2001 / 2006

Houston, TX

The University of Houston

411

879

Total on-campus participating
properties

1,863

4,519

Total – all properties

16,958

52,082

(1)	As of March 31, 2010, the average age of our wholly-owned properties was approximately 10.1 years.

(2)	Subject to a 75-year ground lease with Temple University.

(3)	This property is classified as held for sale as of March 31, 2010 and was sold on April 30, 2010.

(4)	Subject to a 65-year ground/facility lease with Arizona State University.

Results of Operations

Comparison of the Three Months Ended March 31, 2010 and March 31, 2009

The following table presents our results of operations for the three months ended March 31, 2010 and 2009, including the amount and percentage change in these results between the two periods:

	Three Months Ended March 31,
	2010			2009			Change ($)			Change (%)
Revenues:
Wholly-owned properties	$	71,192		$	65,335		$	5,857			9.0	%
On-campus participating properties		7,311			6,874			437			6.4	%
Third party development services		574			1,052			(478	)		(45.4	%)
Third party management services		2,214			2,242			(28	)		(1.2	%)
Resident services		252			240			12			5.0	%
Total revenues		81,543			75,743			5,800			7.7	%

Operating expenses:
Wholly-owned properties		31,476			30,490			986			3.2	%
On-campus participating properties		2,399			2,030			369			18.2	%
Third party development and management services		3,099			2,977			122			4.1	%
General and administrative		2,753			2,748			5			0.2	%
Depreciation and amortization		17,488			19,332			(1,844	)		(9.5	%)
Ground/facility leases		571			552			19			3.4	%
Total operating expenses		57,786			58,129			(343	)		(0.6	%)

Operating income		23,757			17,614			6,143			34.9	%

Nonoperating income and (expenses):
Interest income		17			39			(22	)		(56.4	%)
Interest expense		(15,301	)		(15,264	)		(37	)		0.2	%
Amortization of deferred financing costs		(1,042	)		(790	)		(252	)		31.9	%
Loss from unconsolidated joint ventures		(1,414	)		(554	)		(860	)		155.2	%
Total nonoperating expenses		(17,740	)		(16,569	)		(1,171	)		7.1	%

Income before income taxes and discontinued operations		6,017			1,045			4,972			475.8	%
Income tax provision		(143	)		(135	)		(8	)		5.9	%
Income from continuing operations		5,874			910			4,964			545.5	%

Discontinued operations:
Loss attributable to discontinued operations		(4,283	)		(401	)		(3,882	)		968.1	%
Loss from disposition of real estate		(3,646	)		-			(3,646	)		100.0	%
Total discontinued operations		(7,929	)		(401	)		(7,528	)		1,877.3	%

Net (loss) income		(2,055	)		509			(2,564	)		(503.7	%)
Net income attributable to noncontrolling interests		(134	)		(232	)		98			(42.2	%)
Net (loss) income attributable to common shareholders	$	(2,189	)	$	277		$	(2,466	)		(890.3	%)

Wholly-Owned Properties Operations

Revenues from our wholly-owned properties for the three months ended March 31, 2010 compared to the three months ended March 31, 2009 increased by $5.9 million primarily due to the completion of construction of Barrett Honors College in August 2009 and the improved lease-up for the GMH portfolio for the 2009/2010 academic year. Operating expenses increased approximately $1.0 million for the three months ended March 31, 2010 as compared to the prior year, primarily due to the same factors which affected the increase in revenues.

New Property Operations. In August 2009, we completed construction of and opened Barrett Honors College at Arizona State University. In March 2010, one of the Fidelity joint ventures in which the company owns a 10% interest assigned its ownership interest in the University Heights property to the company. This property, serving students attending the University of Alabama at Birmingham, is now 100% wholly-owned by the company. These two new properties contributed an additional $3.7 million of revenues and an additional $0.8 million of operating expenses during the three months ended March 31, 2010 as compared to the three months ended March 31, 2009.

Same Store Property Operations (Excluding New Property Activity). We had 79 properties containing 45,314 beds which were operating during both of the three month periods ended March 31, 2010 and 2009. These properties produced revenues of $68.2 million and $65.9 million during the three months ended March 31, 2010 and 2009, respectively, an increase of $2.3 million. This increase was primarily due to an increase in average occupancy from 92.8% during the three months ended March 31, 2009 to 96.2% during the three months ended March 31, 2010. Future revenues will be dependent on our ability to maintain our current leases in effect for the 2009/2010 academic year and our ability to obtain appropriate rental rates and desired occupancy for the 2010/2011 academic year at our various properties during our leasing period, which typically begins in January and ends in August.

At these existing same store properties, operating expenses remained relatively flat at $30.8 million for the three months ended March 31, 2009 as compared to $30.9 million for the three months ended March 31, 2010. We anticipate that operating expenses for our same store property portfolio in 2010 will increase slightly as compared with 2009 as a result of expected increases in utility costs, employee benefit costs, property taxes and general inflation.

On-Campus Participating Properties (“OCPP”) Operations

We had four participating properties containing 4,519 beds which were operating during both of the three month periods ended March 31, 2010 and 2009. Revenues from our participating properties increased to $7.3 million during the three months ended March 31, 2010 from $6.9 million for the three months ended March 31, 2009, an increase of $0.4 million. This increase was primarily a result of an increase in average rental rates during the three months ended March 31, 2010 as compared to the prior year, as well as an increase in average occupancy from 92.1% for the three months ended March 31, 2009 to 96.6% for the three months ended March 31, 2010.

At these properties, operating expenses increased from $2.0 million for the three months ended March 31, 2009 to $2.4 million for the three months ended March 31, 2010, an increase of $0.4 million. This increase was primarily due to an increase in bad debt expense and other expected inflationary increases. We anticipate that operating expenses in 2010 will increase slightly as compared with 2009 as a result of expected increases in utility costs, employee benefit costs and general inflation.

Third Party Development Services Revenue

Third party development services revenue decreased by $0.5 million, from $1.1 million during the three months ended March 31, 2009 to $0.6 million for the three months ended March 31, 2010. This decrease was due to three projects in progress during the three months ended March 31, 2010 as compared to four projects in progress during the three months ended March 31, 2009. Closing of third-party development services projects during 2010 will be dependent upon the Company’s university clients obtaining project financing, which has been adversely affected by current capital market conditions.

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

Third Party Development and Management Services Expenses

Third party development and management services expenses increased by $0.1 million, from $3.0 million during the year ended three months ended March 31, 2009 to $3.1 million for the three months ended March 31, 2010. This increase was primarily due to an increase in payroll and related costs as a result of an increase in activity for potential ACE and third party development projects. Third-party development and management services expenses for 2010 will be dependent on the level of awards we pursue, the level of new management contracts obtained, and as previously mentioned, any pre-development costs charged against income for projects which do not close.

Depreciation and Amortization

Depreciation and amortization decreased by $1.8 million, from $19.3 million during the three months ended March 31, 2009 to $17.5 million for the three months ended March 31, 2010. This decrease was due to a decrease in depreciation and amortization expense of approximately $4.1 million related to the value assigned to in-place leases at the properties acquired from GMH, which were fully amortized by the end of 2009. This decrease was offset by the completion of construction and opening of Barrett Honors College in August 2009 and renovation projects completed at several properties acquired from GMH. These two items contributed an additional $0.8 million and $0.7 million, respectively, to depreciation and amortization expense for the three months ended March 31, 2010. We expect depreciation and amortization expense to decrease in 2010 as a result of the value assigned to in-place leases at the time of the GMH acquisition being fully amortized in 2009, which should be slightly offset by increased depreciation on both Barrett Honors College, placed in service during 2009, and renovations during 2009 at several GMH properties.

Amortization of Deferred Financing Costs

Amortization of deferred financing costs increased approximately $0.2 million from $0.8 million during the three months ended March 31, 2009 to $1.0 million for the three months ended March 31, 2010, primarily due to an additional $0.4 million of finance cost amortization incurred during the three months ended March 31, 2010 related to the refinancing of our revolving credit facility in August 2009 and the Freddie Mac revolving credit facility entered into in September 2009. This increase was offset by a decrease in finance cost amortization of $0.2 million as a result of mortgage loans paid off during the year ended December 31, 2009 and the three months ended March 31, 2010. We anticipate that amortization of deferred financing costs will increase in 2010 as compared to 2009 due to the factors discussed above.

Loss from Unconsolidated Joint Ventures

Loss from unconsolidated joint ventures represents our share of the net loss from the Hampton Roads military housing joint venture in which we have a minimal economic interest, as well as our 10% share of the loss from our two joint ventures with Fidelity that own a total of 18 properties as of March 31, 2010. Loss from unconsolidated joint ventures increased approximately $0.8 million from $0.6 million during the three months ended March 31, 2009 to $1.4 million for the three months ended March 31, 2010. This increase was primarily due an impairment charge recorded by one of the Fidelity joint ventures for a property that was placed into receivership in March 2010.

Discontinued Operations

Discontinued operations on the accompanying consolidated statements of operations includes the following properties: (i) Cambridge at Southern, a wholly-owned property that was sold in March 2010 for a sale price of $19.5 million, (ii) Campus Walk – Oxford, a wholly-owned property that is anticipated to be sold during the second quarter 2010, and (iii) Riverside Estates, a wholly-owned property sold in December 2009 for a sale price of $18.2 million. Discontinued operations for the three months ended March 31, 2010 includes a $3.6 million loss from the disposition of Cambridge at Southern, as well as an impairment charge of $4.0 million recorded for the Campus Walk – Oxford property, which is classified as Held for Sale as of March 31, 2010 on the accompanying consolidated balance sheet. Refer to Note 4 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 herein for a table summarizing the results of operations of the properties classified within discontinued operations.

Cash Flows

Comparison of Three Months Ended March 31, 2010 and 2009

Operating Activities

For the three months ended March 31, 2010, net cash provided by operating activities was approximately $24.0 million, as compared to $19.9 million for the three months ended March 31, 2009, an increase of $4.1 million. This increase was primarily due to operating cash flows provided from the timing of the acquisition of the GMH student housing business on June 11, 2008 and the completion of construction and opening of Vista del Sol and Villas at Chestnut Ridge in August 2008 and Barrett Honors College in August 2009.

Investing Activities

Investing activities utilized $13.4 million and $36.0 million for the three months ended March 31, 2010 and 2009, respectively. The $22.6 million decrease in cash utilized in investing activities during the three months ended March 31, 2010 related primarily to a $24.1 million decrease in cash used to fund the construction of our wholly-owned development properties. During the three months ended March 31, 2009, one wholly-owned property was under development, which was completed and opened for occupancy in August 2009, while there were no properties under development during the three months ended March 31, 2010. In addition, there was a $7.0 million decrease in cash used for capital expenditures at our wholly-owned properties as a result of renovations at several GMH properties during the three months ended March 31, 2009. Finally, we received $1.1 million of net proceeds from the disposition of a property in March 2010. These decreases in cash utilized in investing activities were offset by a $9.6 million use of cash to acquire a property from one of the Fidelity Joint Ventures in March 2010. For the three months ended March 31, 2010 and 2009, our cash utilized in investing activities was comprised of the following:

	Three Months Ended March 31,
	2010			2009
Property disposition	$	1,098		$	-
Property acquisition		(9,618	)		-
Capital expenditures for on-campus participating properties		(43	)		(38	)
Capital expenditures for wholly-owned properties		(4,400	)		(11,392	)
Investment in wholly-owned properties under development		(301	)		(24,421	)
Purchase of corporate furniture, fixtures, and equipment		(183	)		(146	)
Total	$	(13,447	)	$	(35,997	)

Financing Activities

Cash used for financing activities totaled $55.1 million for the three months ended March 31, 2010 as compared to $16.7 million in cash provided by financing activities during the three months ended March 31, 2009. The $71.8 million decrease in cash provided by financing activities was primarily a result of a $63.6 million decrease in proceeds (net of paydowns) received from our secured revolving credit facility. During the three months ended March 31, 2009, we borrowed from our secured revolving credit facility to fund the construction of Barrett Honors College, one of our owned ACE development projects, and to pay-off $29.8 million in mortgage loan debt. In addition, we had a $4.7 million increase in cash used to pay-off mortgage loans as we paid off $34.5 million in mortgage loan debt during the three months ended March 31, 2010 as compared to $29.8 million in mortgage loan debt during the three months ended March 31, 2009. Finally, we experienced a $3.4 million increase in distributions to stockholders as a result of the issuance of common stock in connection with our May 2009 equity offering.

Structure of Owned On-Campus Properties

We have entered into two 65-year ground/facility leases (each with two ten-year extensions available) with a university system to finance, construct, and manage two student housing facilities. Under the terms of these ground/facility leases, the university system owns both the land and improvements, and we will make annual minimum rent payments to the university system during the first five years of operation for one property and the first ten years of operation for the other property. In addition, we will pay the university system variable rent payments based upon the operating performance of the properties.

Structure of On-Campus Participating Properties

At our on-campus participating properties, the subject universities own both the land and improvements. We then have a leasehold interest under a ground/facility lease. Under the lease, we receive an annual distribution representing 50% of these properties’ net cash available for distribution after payment of operating expenses (which includes our management fees), debt service (which includes repayment of principal) and capital expenditures. We also manage these properties under multi-year management agreements and are paid a management fee representing 5% of receipts.

We do not have access to the cash flows and working capital of these participating properties except for the annual net cash distribution as described above. Additionally, a substantial portion of these properties’ cash flow is dedicated to capital reserves required under the applicable property indebtedness and to the amortization of such indebtedness. These amounts do not increase our economic interest in these properties since our interest, including our right to share in the net cash available for distribution from the properties, terminates upon the amortization of their indebtedness. Our economic interest in these properties is therefore limited to our interest in the net cash flow and management and development fees from these properties, as reflected in our calculation of Funds from Operations modified (“FFOM”) contained herein. Accordingly, when considering these properties’ contribution to our operations, we focus upon our share of these properties’ net cash available for distribution and the management fees that we receive from these properties, rather than upon their contribution to our gross revenues and expenses for financial reporting purposes.

The following table reflects the amounts included in our consolidated financial statements for the three months ended March 31, 2010 and 2009:

	Three Months Ended March 31,
	2010			2009
Revenues	$	7,311		$	6,874
Direct operating expenses (1)		(2,232	)		(1,897	)
Amortization		(1,079	)		(1,090	)
Amortization of deferred financing costs		(49	)		(46	)
Ground/facility leases (2)		(306	)		(292	)
Net operating income		3,645			3,549
Interest income		3			24
Interest expense		(1,503	)		(1,559	)
Net income	$	2,145		$	2,014

(1)	Excludes property management fees of $0.3 million for both three month periods ended March 31, 2010 and 2009. This expense and the corresponding fee revenue have been eliminated in consolidation. Also excludes allocation of expenses related to corporate management and oversight.

(2)	Represents the universities’ 50% share of the properties’ net cash available for distribution after payment of operating expenses, debt service (including payment of principal) and capital expenditures.

Liquidity and Capital Resources

Cash Balances and Liquidity

As of March 31, 2010, excluding our on-campus participating properties, we had $38.1 million in cash and cash equivalents and restricted cash as compared to $87.5 million in cash and cash equivalents and restricted cash as of December 31, 2009. Restricted cash primarily consists of escrow accounts held by lenders and resident security deposits, as required by law in certain states. The decrease in cash and cash equivalents was primarily due to the use of cash to pay-off $34.5 million of fixed-rate mortgage debt and $9.6 million used to acquire a property from one of the Fidelity Joint ventures in March 2010. Additionally, restricted cash as of March 31, 2010 also included $0.1 million of funds held in escrow in connection with potential development opportunities.

As of March 31, 2010, our short-term liquidity needs included, but were not limited to, the following: (i) anticipated distribution payments to our common and restricted stockholders totaling approximately $71.3 million based on an assumed annual cash distribution of $1.35 per share based on the number of our shares outstanding as of March 31, 2010, (ii) anticipated distribution payments to our Operating Partnership unitholders totaling approximately $1.8 million based on an assumed annual distribution of $1.35 per common unit of limited partnership interest (“Common Unit”) and a cumulative preferential per annum cash distribution rate of 5.99% on our preferred units of limited partnership interest (“Series A Preferred Units”) based on the number of units outstanding as of March 31, 2010, (iii) the pay-off of approximately $98.5 million of fixed-rate mortgage debt scheduled to mature during the next 12 months, and (iv) funds for other potential development projects. As of March 31, 2010, we had $100.0 million of outstanding variable rate construction debt scheduled to mature in December 2010. We expect to extend the maturity date through December 2011 by exercising the remaining 12-month extension option available to us. We have a $225 million revolving credit facility scheduled to mature in August 2012 that is currently secured by seven of our wholly-owned properties. In addition, we have a $125 million secured revolving credit facility with a Freddie Mac lender scheduled to mature in September 2014 that is currently secured by 11 of our wholly-owned properties. We expect to meet our short-term liquidity requirements by (i) borrowing under our existing secured revolving credit facilities discussed above, (ii) potentially disposing of properties depending on market conditions, and (iii) utilizing net cash provided by operations.

We may seek additional funds to undertake initiatives not contemplated by our business plan or obtain additional cushion against possible shortfalls. We also may pursue additional financing as opportunities arise. Future financings may include a range of different sizes or types of financing, including the incurrence of additional secured debt and the sale of additional debt or equity securities. These funds may not be available on favorable terms or at all. Our ability to obtain additional financing depends on several factors, including future market conditions, our success or lack of success in penetrating our markets, our future creditworthiness, and restrictions contained in agreements with our investors or lenders, including the restrictions contained in the agreements governing our revolving credit facilities and term loan. These financings could increase our level of indebtedness or result in dilution to our equity holders.

Secured Revolving Credit Facility

Availability under the revolving credit facility is limited to an “aggregate borrowing base amount” equal to the lesser of (i) 50% to 65% of the value of certain properties, calculated as set forth in the credit facility, and (ii) the adjusted net operating income from these properties divided by a formula amount. The facility bears interest at a variable rate, at our option, based upon a base rate or one-, two-, or three-month LIBOR, with a LIBOR floor of 2.0%, plus, in each case, a spread based upon our total leverage. Additionally, we are required to pay an unused commitment fee of 0.35% per annum. As of March 31, 2010, there was no balance on the facility and availability under the facility totaled $154.3 million.

The terms of the facility include certain restrictions and covenants, which limit, among other items, the incurrence of additional indebtedness, liens, and the disposition of assets. The facility contains customary affirmative and negative covenants and also contains financial covenants that, among other things, require us to maintain certain minimum ratios of “EBITDA” (earnings before interest, taxes, depreciation and amortization) to fixed charges and total indebtedness. We may not pay distributions that exceed a specified percentage of funds from operations, as adjusted, for any four consecutive quarters. The financial covenants also include consolidated net worth and leverage ratio tests. As of March 31, 2010, we were in compliance with all such covenants.

Secured Agency Facility

We have a $125 million secured revolving credit facility with a Freddie Mac lender. The facility has a five-year term and is currently secured by 11 properties referred to as the “Collateral Pool.” The facility bears interest at one- or three-month LIBOR plus a spread that varies based on the debt service ratio of the Collateral Pool. Additionally, we are required to pay an unused commitment fee of 1.0% per annum. As of March 31, 2010, the balance outstanding on the facility totaled $94.0 million, bearing interest at a weighted average rate of 2.2%. The secured agency facility includes certain financial covenants which are the same as are required for the secured revolving credit facility, described above.

Senior Secured Term Loan

On February 23, 2009, we entered into two $50.0 million interest rate swap agreements effective March 20, 2009 through February 20, 2012, which are both used to hedge our exposure to fluctuations in interest payments on its LIBOR-based senior secured term loan. Under the terms of the two interest rate swap agreements, we pay an average fixed rate of 1.7925% and receive one-month LIBOR floating rate. As a result of these two interest rate swaps, we have effectively fixed the interest rate on our senior secured term loan to 3.55% as of March 31, 2010 (1.7925% + 1.75% spread). In the event that the swaps at any time have a negative fair value below a certain threshold level, we could be required to post cash into a collateral account pledged to the interest rate swap providers. As of March 31, 2010, we had deposited approximately $0.7 million into a collateral account related to one of the interest rate swaps. Refer to Note 11 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 herein for a more detailed discussion of our derivative instruments and hedging activities.

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 secured 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 May 5, 2010, we declared a first quarter 2010 distribution per share of $0.3375, which will be paid on May 28, 2010 to all common stockholders of record as of May 18, 2010. At the same time, the Operating Partnership paid an equivalent amount per unit to holders of Common Units, as well as the quarterly cumulative preferential distribution to holders of Series A Preferred Units.

Pre-Development Expenditures

Our third-party and owned development activities have historically required us to fund pre-development expenditures such as architectural fees, permits and deposits. The closing and/or commencement of construction of these development projects is subject to a number of risks such as our inability to obtain financing on favorable terms and delays or refusals in obtaining necessary zoning, land use, building, and other required governmental permits and authorizations As such, we cannot always predict accurately the liquidity needs of these activities. We frequently incur these pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained. Accordingly, we bear the risk of the loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or we are unable to successfully obtain the required permits and authorizations. Historically, our third-party and owned development projects have been successfully structured and financed; however, these developments have at times been delayed beyond the period initially scheduled, causing revenue to be recognized in later periods. As of March 31, 2010, we have deferred approximately $11.2 million in pre-development costs related to third-party and owned development projects that have not yet commenced construction.

Indebtedness

As of March 31, 2010, we had approximately $1,173.0 million of outstanding consolidated indebtedness (excluding net unamortized debt discounts and debt premiums of approximately $7.9 million and $3.4 million, respectively), comprised of a $100.0 million balance on our senior secured term loan, $94.0 million balance on our secured agency facility, $895.0 million in mortgage and construction loans secured by our wholly-owned properties, $32.6 million in mortgage loans secured by two phases of an on-campus participating property, and $51.4 million in bond issuances secured by three of our on-campus participating properties. The weighted average interest rate on our consolidated indebtedness as of March 31, 2010 was 5.07% per annum. As of March 31, 2010, approximately 16.6% of our total consolidated indebtedness was variable rate debt, comprised of our secured agency facility and our Vista del Sol construction loan discussed below.

Wholly-Owned Properties

The weighted average interest rate of the $895.0 million of wholly-owned mortgage and construction debt was 5.34% per annum as of March 31, 2010. Each of the mortgage loans is a non-recourse obligation subject to customary exceptions and none are cross-defaulted or cross-collateralized to any other indebtedness. The loans generally may not be prepaid prior to maturity; in certain cases prepayment is allowed, subject to prepayment penalties.

The development and construction of Vista del Sol, an owned on-campus property, was partially financed with a $100.0 million construction loan. For each borrowing we have the option of choosing the Prime rate or one-, two-, or three-month LIBOR plus 1.20%. The loan requires payments of interest only during the term of the loan and any accrued interest and outstanding borrowings become due on the maturity date of December 27, 2010. We expect to extend the maturity date through December 2011 by exercising the remaining 12-month extension option available to us. As of March 31, 2010, the balance outstanding on the construction loan totaled $100.0 million, bearing interest at a rate of 1.45% per annum.

On-Campus Participating Properties

Three of our on-campus participating properties are 100% financed with $51.4 million of outstanding project-based taxable bonds. Under the terms of these financings, one of our special purpose subsidiaries publicly issued three series of taxable bonds and loaned the proceeds to three special purpose subsidiaries that each hold a separate leasehold interest. Although a default in payment by these special purpose subsidiaries could result in a default under one or more series of bonds, the indebtedness of any of these special purpose subsidiaries is not cross-defaulted or cross-collateralized with indebtedness of the Company, the Operating Partnership or other special purpose subsidiaries. Repayment of principal and interest on these bonds is insured by MBIA, Inc. The loans encumbering the leasehold interests are non-recourse, subject to customary exceptions.

Cullen Oaks Phase I and Phase II are currently encumbered by mortgage loans with balances as of March 31, 2010 of approximately $16.2 million and $16.4 million, respectively. The loans mature in February 2014 and bear interest at a rate of LIBOR plus 1.35%. In connection with these loans, we entered into an interest rate swap agreement effective February 15, 2007 through February 15, 2014, that is designated to hedge our exposure to fluctuations on interest payments attributed to changes in interest rates associated with payments on the loans. Under the terms of the interest rate swap agreement, we pay a fixed rate of 6.69% per annum and receive a floating rate of LIBOR plus 1.35%. Pursuant to the Leases, in the event the leasehold estate does not achieve Financial Break Even (defined as revenues less operating expenses, excluding management fees, less debt service), the applicable Lessor would be required to make a rental payment, also known as the Contingent Payment, sufficient to achieve Financial Break Even. The Contingent Payment provision remains in effect until such time as any financing placed on the facilities would receive an investment grade rating without the Contingent Payment provision. In the event that the Lessor is required to make a Contingent Payment, future net cash flow distributions would be first applied to repay such Contingent Payments and then to unpaid management fees prior to normal distributions. We have guaranteed payment of this property’s indebtedness.

The weighted average interest rate of the indebtedness encumbering our on-campus participating properties was 7.18% at March 31, 2010.

Off Balance Sheet Items

As discussed in Note 8 in the accompanying Notes to Consolidated Financial Statements contained in Item 1 herein, we hold a 10% equity interest in two unconsolidated joint ventures with mortgage debt outstanding of approximately $293.5 million as of March 31, 2010. Our Operating Partnership serves as non-recourse, carve-out guarantor of this debt, which means we are liable to the lender for any loss, damage, cost, expense, liability, claim or other obligation incurred by the lender arising out of or in connection with certain non-recourse exceptions in connection with the debt. Pursuant to the limited liability company agreements of the joint ventures, the joint ventures agreed to indemnify, defend and hold harmless the Operating Partnership with respect to such obligations, except to the extent such obligations were caused by the willful misconduct, gross negligence, fraud or bad faith of the Operating Partnership or its employees, agents or affiliates.

Funds From Operations

As defined by NAREIT, FFO represents income (loss) before allocation to noncontrolling 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, gains 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) income attributable to common shareholders:

	Three Months Ended March 31,
	2010			2009
Net (loss) income attributable to common shareholders	$	(2,189	)	$	277
Noncontrolling interests		134			232
Loss from disposition of real estate		3,646			-
Loss from unconsolidated joint ventures		1,414			554
FFO from unconsolidated joint ventures (1)		(807	)		(39	)
Real estate related depreciation and amortization		17,438			19,732
Funds from operations (“FFO”)	$	19,636		$	20,756

FFO per share – diluted	$	0.36		$	0.47

Weighted average common shares outstanding – diluted		54,108,993			44,031,602

(1)

Represents our share of the FFO from three joint ventures in which we are a noncontrolling partner. Includes the Hampton Roads Military Housing joint venture in which we have a minimal economic interest as well as our 10% noncontrolling interest in two joint ventures formed or assumed as part of the company’s acquisition of GMH.

While our on-campus participating properties contributed $7.3 million and $6.9 million to our revenues for the three months ended March 31, 2010 and 2009, 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 wholly-owned properties, the unique features of our ownership interest in our on-campus participating properties cause the value of these properties to diminish over time. For example, since the ground/facility leases under which we operate the participating properties require the reinvestment from 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 operations 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. We also exclude impairment charges from FFOM, as we believe the inclusion of such charges is inconsistent with the treatment of gains and losses on the disposition of real estate, which are not included in FFO. Additionally, we believe that excluding impairment charges from FFOM more appropriately presents the operating performance of the company’s real estate investments on a comparative basis.

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.

Funds From Operations—Modified (“FFOM”):

	Three Months Ended March 31,
	2010			2009
Funds from operations	$	19,636		$	20,756
Elimination of operations of on-campus participating properties and unconsolidated joint venture:
Net income from on-campus participating properties		(2,145	)		(2,014	)
Amortization of investment in on-campus participating properties		(1,079	)		(1,090	)
FFO from Hampton Roads unconsolidated joint venture (1)		160			236
		16,572			17,888
Modifications to reflect operational performance of on-campus participating properties:
Our share of net cash flow (2)		306			292
Management fees		333			323
Impact of on-campus participating properties		639			615
Elimination of provision for asset impairment – wholly-owned property (3)		4,036			-
Elimination of provision for asset impairment – unconsolidated joint venture (4)		782			-
Funds from operations – modified (“FFOM”)	$	22,029		$	18,503

FFOM per share – diluted	$	0.41		$	0.42

Weighted average common shares outstanding – diluted		54,108,993			44,031,602

(1)	Our share of the FFO from the Hampton Roads Military Housing unconsolidated joint venture is excluded from the calculation of FFOM, as management believes this amount does not accurately reflect the company’s participation in the economics of the transaction.

(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.

(3)

Represents an impairment charge recorded for Campus Walk – Oxford, a property that was sold on April 30, 2010. The impairment charge is included in loss attributable to discontinued operations on the accompanying consolidated statements of operations for the three months ended March 31, 2010. Although impairment charges are included in the calculation of net income (loss) and FFO, the company excludes such charges from FFOM because it believes the inclusion of such charges is inconsistent with the treatment of gains and losses on the disposition of real estate, which are not included in FFO. Additionally, the company believes that excluding impairment charges from FFOM more appropriately presents the operating performance of the company’s real estate investments on a comparative basis.

(4)	Represents our share of an impairment charge recorded during the three months ended March 31, 2010 for a property owned through one of our unconsolidated Fidelity Joint Ventures.

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 wholly-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 modified FFO only supplementally.

Inflation

Our 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 facility 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, 2009.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by SEC Rule 13a-15(b), we have carried out an evaluation, under the supervision 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 quarter 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.

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

PART II. OTHER INFORMATION

Item 6. Exhibits

Exhibit
Number		Description of Document
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		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.

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:

May 7, 2010

	AMERICAN CAMPUS COMMUNITIES, INC.

	By:	/s/ William C. Bayless, Jr.
		William C. Bayless, Jr. President and Chief Executive Officer



	By:	/s/ Jonathan A. Graf
		Jonathan A. Graf Executive Vice President, Chief Financial Officer and Treasurer

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American Campus Communities (ACC) 10-Q2010 Q1 Quarterly report

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