Exhibit 99.1
Campus Crest Communities, Inc. Reports Third Quarter 2011 Results
– Grew Same-Store Net Operating Income by 6.8% –
– Increased Occupancy at Existing 21 Wholly-Owned Operating Properties by 270
Basis Points and Average Rental Rate by 2.8% –
Charlotte, NC– November 1, 2011 – Campus Crest Communities, Inc. (NYSE:CCG) (the “Company”), a leading developer, builder, owner and manager of high-quality, purpose-built student housing, today announced results for the three months ended September 30, 2011.
Highlights
| | • | | Funds from Operations (“FFO”) of $0.19 per diluted share |
| | • | | Increased quarterly same-store Net Operating Income (“NOI”) by 6.8% and grew NOI margin by 190 basis points |
| | • | | Existing 21 wholly-owned operating properties were 91.2% leased as of September 30, 2011, up 270 basis points versus a year ago |
| | • | | Increased average rental rate by 2.8% for the academic year 2011/2012 on existing 21 wholly-owned properties |
| | • | | Delivered six new development properties (four wholly-owned and two joint venture) |
| | • | | Continued progress on six new developments for 2012/2013 delivery, including three wholly-owned and three to be developed by a newly formed joint venture |
| | • | | Expanded revolving credit facility and converted it from secured to unsecured |
| | • | | Completed $48.5 million in Freddie Mac financings on three properties at an average rate of 4.8% and term of 7 years |
Financial Results for the Three Months Ended September 30, 2011
For the three months ended September 30, 2011 and 2010, FFO and Funds from Operations Adjusted (“FFOA”) were as follows:
FFO/FFOA
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | |
($mm, except per share) | | 2011
Company | | | Per share -
diluted | | | 2010
Predecessor | | | Per share -
diluted | |
FFO | | $ | 5.9 | | | $ | 0.19 | | | ($ | 1.8 | ) | | | n/a | |
FFOA | | $ | 5.9 | | | $ | 0.19 | | | ($ | 3.3 | ) | | | n/a | |
A reconciliation of net income (loss) to FFO and FFOA can be found at the end of this release.
“Our focus on continual improvement in our leasing programs and expense management drove strong NOI growth in the third quarter,” commented Ted Rollins, Co-Chairman and Chief Executive Officer of Campus Crest. “With the commencement of the 2011/2012 academic year, we increased both rate and occupancy in our operating portfolio and delivered six new properties on budget. We are energized by the pipeline of projects set for 2012/2013 delivery and are pleased with the continuation of our relationship with Harrison Street Real Estate. Furthermore, we increased our financial flexibility with our first Freddie Mac financings and an expansion of our now unsecured line of credit. The supply/demand dynamics for student housing remain attractive, and we are well-positioned to fill that growing need. As we mark the one-year anniversary of being a public company, we continue to enhance our internal processes, invest in our people and grow our asset base in order to drive shareholder returns.”
Operating Results
For the three months ended September 30, 2011 and 2010, NOI for same store wholly-owned properties was as follows:
Same Store NOI
| | | | | | | | |
| | | Three Months Ended September 30, | |
($mm) | | 2011 | | | 2010 | |
NOI | | $ | 6.6 | | | $ | 6.1 | |
The improvement in same store NOI was driven by higher occupancy, increased service revenue and improved expense management. A reconciliation of net income (loss) to NOI can be found at the end of this release. In addition, details regarding same store NOI and calculations thereof may be found in the supplemental earnings schedule.
As of September 30, 2011, the Company owned interests in 33 properties, as outlined in the table below:
Portfolio
| | | | | | | | | | | | | | | | |
| | | Number of
Properties | | | Ownership | | | Units | | | Beds | |
Wholly-Owned Properties | | | | | | | | | | | | | | | | |
Existing | | | 21 | | | | 100.0 | % | | | 3,920 | | | | 10,528 | |
2011 Deliveries | | | 4 | | | | 100.0 | % | | | 844 | | | | 2,316 | |
| | | | | | | | | | | | | | | | |
Total - Wholly-Owned | | | 25 | | | | | | | | 4,764 | | | | 12,844 | |
| | | | | | | | | | | | | | | | |
Joint Venture Properties | | | | | | | | | | | | | | | | |
Existing | | | 6 | | | | 49.9 | % | | | 1,128 | | | | 3,052 | |
2011 Deliveries | | | 2 | | | | 20.0 | % | | | 432 | | | | 1,168 | |
| | | | | | | | | | | | | | | | |
Total - Joint Venture | | | 8 | | | | | | | | 1,560 | | | | 4,220 | |
| | | | | | | | | | | | | | | | |
Total Portfolio | | | 33 | | | | | | | | 6,324 | | | | 17,064 | |
| | | | | | | | | | | | | | | | |
2
All properties were built by the Company or its Predecessor and are, on average, within 0.7 miles from campus with an average age of 2.7 years as of September 30, 2011.
Leasing Update
As of September 30, 2011 and 2010, the Company’s portfolio leasing status was as follows:
Leasing
| | | | | | | | | | | | | | | | |
| | | | | | September 30, | | | | |
| | | Number of
Properties | | | 2011 | | | 2010 | | | Rental Rate %
Increase | |
Wholly-Owned Properties | | | | | | | | | | | | | | | | |
Existing | | | 21 | | | | 91.2 | % | | | 88.5 | % | | | 2.8 | % |
| | | | |
Joint Venture Properties | | | | | | | | | | | | | | | | |
Existing | | | 6 | | | | 91.1 | % | | | 89.1 | % | | | 4.9 | % |
| | | | | | | | | | | | | | | | |
Total - Existing Operating Properties | | | 27 | | | | 91.2 | % | | | 88.6 | % | | | 3.2 | % |
| | | | | | | | | | | | | | | | |
2011 Deliveries | | | | | | | | | | | | | | | | |
Wholly-Owned | | | 4 | | | | 76.0 | % | | | n/a | | | | n/a | |
Joint Venture | | | 2 | | | | 86.4 | % | | | n/a | | | | n/a | |
| | | | | | | | | | | | | | | | |
Total - 2011 Deliveries | | | 6 | | | | 79.5 | % | | | n/a | | | | n/a | |
| | | | | | | | | | | | | | | | |
Total Portfolio | | | 33 | | | | 88.8 | % | | | 88.6 | % | | | 3.2 | % |
| | | | | | | | | | | | | | | | |
Development Activity
Wholly-owned
The Company is scheduled to deliver three new wholly-owned communities for the 2012/2013 academic year with total expected construction costs of $84.7 million. With the completion of these projects, the Company will add 620 units and 1,804 beds to its wholly-owned portfolio, and these projects are an average of 0.3 miles from the campuses they serve.
Joint Venture
The Company expects to deliver three joint-venture communities for the 2012/2013 academic year with total expected construction costs of $72.1 million. Together with the Company’s joint venture partner, HSRE, the Company will build two new communities, and close on its first value-add acquisition and renovation project that will be renovated, expanded and re-branded The Grove®. “Regeneration and reuse of existing assets in strong markets with great locations is an additional avenue through which our Company can grow its footprint,” said Ted W. Rollins. The Company will own a 10% interest in these joint ventures. With the completion of these projects, the Company will add 662 units and 1,856 beds to its joint venture portfolio, and these projects are an average of 0.5 miles from the campuses they serve. Total gross fees to the Company for the joint venture projects are approximately $6.7 million, which the Company expects to begin earning in the fourth quarter.
3
Balance Sheet and Financing Activity
The Company had approximately $192.7 million of debt outstanding at September 30, 2011. Of the total debt outstanding, approximately $125.3 million was fixed rate debt with a weighted average effective interest rate of 5.4% and weighted average of 5.9 years to maturity. In August, the Company amended its variable rate revolving credit facility, which changed from secured to unsecured, reduced the interest spread by 100 bps, was extended by one year with the option for an additional one year extension, and was increased from $125.0 million to $150.0 million, with an accordion feature that can increase the size of the facility by $175.0 million to $325.0 million. The credit facility had a balance of $41.0 million as of September 30, 2011, an interest rate of 1.97% and 2.9 years to maturity. The Company has no other maturities until the fourth quarter 2016 outside of routine construction loan maturities. Additionally, as of September 30, 2011, the Company had construction loan balances totaling $39.8 million, which have partially funded four wholly-owned properties that were delivered for the 2011/2012 academic year.
The Company funds its joint venture projects with individual construction loans, and currently has $85.5 million of joint venture debt outstanding, of which the Company is a 49.9% owner, and $25.3 million of joint venture debt outstanding of which the Company is a 20% owner. The Company guarantees certain portions of the joint venture debt.
In June and July 2011, the Company closed on $31.5 million of construction financing to partially fund the construction projects in Auburn, Alabama and Orono, Maine scheduled to deliver for the 2012/2013 academic year. The remainder of the Company’s development plans is fully funded from existing capital sources at this time.
In addition, the Company completed three Freddie Mac financings on three previously unencumbered properties for total proceeds of $48.5 million. Each financing is for a term of seven years and the average effective interest rate is 4.8%
Dividend
On September 14, 2011, the Company declared a third quarter dividend of $0.16 per common share and operating partnership unit, equating to $0.64 per common share and operating partnership unit on an annualized basis. The dividend was paid on October 12, 2011 to shareholders of record as of September 28, 2011.
4
2011 Outlook
Based upon year-to-date results and management’s current estimates, the Company is narrowing its guidance range for full year 2011 FFO per fully diluted share to $0.72 to $0.74.
Conference Call Details
The Company will host a conference call on November 2, 2011, at 9:00 a.m. (Eastern Time) to discuss the financial results.
The call can be accessed live by telephone by dialing (877) 407-3982, or for international callers, (201) 493-6780. A replay will be available shortly after the call and can be accessed by dialing 877-870-5176, or for international callers, 858-384-5517. The passcode for the replay is 380059. The replay will be available until November 9, 2011.
Interested parties may also listen to a simultaneous webcast of the conference call by logging onto the Company’s website athttp://investors.campuscrest.com/. The on-line replay will be available for a limited time beginning immediately following the call.
Supplemental Schedules
The Company has published supplemental earnings schedules in order to provide additional disclosure and financial information for the benefit of the Company’s stakeholders. These can be found under the “Earnings Center” tab in the Investor Relations section of the Company’s web site athttp://investors.campuscrest.com/.
About Campus Crest Communities, Inc.
Campus Crest Communities, Inc. (NYSE: CCG) is a leading developer, builder, owner and manager of high-quality, purpose-built student housing properties located in targeted U.S. markets. The Company is a self-managed, self-administered and vertically-integrated real estate investment trust which operates all of its properties under The Grove® brand. Campus Crest Communities owns interests in 33 student housing properties containing approximately 6,324 apartment units and 17,064 beds. Since its inception, the Company has focused on customer service, privacy, on-site amenities and other lifestyle considerations to provide college students with a higher standard of living. Additional information can be found on the Company’s website athttp://www.campuscrest.com.
Forward-Looking Statements
This press release, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
5
amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Forward-looking statements in this press release include, among others, statements about outlook for FFO, growth and development opportunities, leasing activities, demographic and economic conditions, the supply/demand for student housing and long term value creation. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond the Company’s control that may cause actual results to differ significantly from those expressed in any forward-looking statement. All forward-looking statements reflect the Company’s good faith beliefs, assumptions and expectations, but they are not guarantees of future performance. Furthermore, except as otherwise required by federal securities laws, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company’s future results to differ materially from any forward-looking statements, see the risk factors discussed in the Company’s most recent Annual Report on Form 10-K, as updated in the Company’s Quarterly Reports on Form 10-Q.
Contact:
Investor Relations
(704) 496-2581
Investor.Relations@CampusCrest.com
6
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in $000s)
| | | | | | | | |
| | | September 30,
2011 | | | December 31,
2010 | |
Assets | | | | | | | | |
Investment in real estate, net: | | | | | | | | |
Student housing properties | | $ | 461,333 | | | $ | 372,746 | |
Accumulated depreciation | | | (71,417 | ) | | | (57,463 | ) |
Development in process | | | 32,808 | | | | 24,232 | |
| | | | | | | | |
Investment in real estate, net | | $ | 422,724 | | | $ | 339,515 | |
Investment in unconsolidated entities | | | 16,751 | | | | 13,751 | |
Cash and cash equivalents | | | 9,457 | | | | 2,327 | |
Restricted cash and investments | | | 2,352 | | | | 3,305 | |
Student receivables, net | | | 1,578 | | | | 954 | |
Cost and earnings in excess of construction billings | | | 3,530 | | | | 1,827 | |
Other assets | | | 10,452 | | | | 9,578 | |
| | | | | | | | |
Total assets | | $ | 466,844 | | | $ | 371,257 | |
| | | | | | | | |
Liabilities and equity | | | | | | | | |
Liabilities: | | | | | | | | |
Mortgage and construction loans | | $ | 149,178 | | | $ | 60,840 | |
Lines of credit and other debt | | | 43,552 | | | | 42,500 | |
Accounts payable and accrued expenses | | | 31,575 | | | | 14,597 | |
Other liabilities | | | 11,056 | | | | 6,530 | |
| | | | | | | | |
Total liabilities | | $ | 235,361 | | | $ | 124,467 | |
| | | | | | | | |
Equity: | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Common stock | | $ | 307 | | | $ | 307 | |
Additional paid-in capital | | | 248,640 | | | | 248,515 | |
Accumulated deficit and distributions | | | (20,929 | ) | | | (5,491 | ) |
Accumulated other comprehensive loss | | | (425 | ) | | | (172 | ) |
| | | | | | | | |
Total Campus Crest Communities, Inc. stockholders’ equity | | $ | 227,593 | | | $ | 243,159 | |
Noncontrolling interests | | | 3,890 | | | | 3,631 | |
| | | | | | | | |
Total equity | | $ | 231,483 | | | $ | 246,790 | |
| | | | | | | | |
Total liabilities and equity | | $ | 466,844 | | | $ | 371,257 | |
| | | | | | | | |
7
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (unaudited)
(in $000s, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2011
Company | | | 2010
Predecessor1 | | | $ Change | | | 2011
Company | | | 2010
Predecessor1 | | | $ Change | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Student housing rental | | $ | 14,883 | | | $ | 12,247 | | | $ | 2,636 | | | $ | 41,054 | | | $ | 36,690 | | | $ | 4,364 | |
Student housing services | | | 686 | | | | 376 | | | | 310 | | | | 1,662 | | | | 1,521 | | | | 141 | |
Development, construction and management services | | | 4,827 | | | | 4,256 | | | | 571 | | | | 26,444 | | | | 35,121 | | | | (8,677 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 20,396 | | | $ | 16,879 | | | $ | 3,517 | | | $ | 69,160 | | | $ | 73,332 | | | ($ | 4,172 | ) |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Student housing operations | | $ | 7,262 | | | $ | 6,485 | | | ($ | 777 | ) | | $ | 20,086 | | | $ | 19,786 | | | ($ | 300 | ) |
Development, construction and management services | | | 4,393 | | | | 4,378 | | | | (15 | ) | | | 24,229 | | | | 33,022 | | | | 8,793 | |
General and administrative | | | 1,253 | | | | 1,174 | | | | (79 | ) | | | 4,923 | | | | 3,792 | | | | (1,131 | ) |
Ground leases | | | 52 | | | | 59 | | | | 7 | | | | 156 | | | | 153 | | | | (3 | ) |
Depreciation and amortization | | | 4,873 | | | | 4,507 | | | | (366 | ) | | | 15,239 | | | | 13,935 | | | | (1,304 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | $ | 17,833 | | | $ | 16,603 | | | ($ | 1,230 | ) | | $ | 64,633 | | | $ | 70,688 | | | $ | 6,055 | |
| | | | | | |
Equity in loss of unconsolidated entities | | | (309 | ) | | | (49 | ) | | | (260 | ) | | | (944 | ) | | | (243 | ) | | | (701 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | $ | 2,254 | | | $ | 227 | | | $ | 2,027 | | | $ | 3,583 | | | $ | 2,401 | | | $ | 1,182 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Nonoperating income (expense): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (1,922 | ) | | | (6,708 | ) | | | 4,786 | | | | (4,657 | ) | | | (17,395 | ) | | | 12,738 | |
Change in fair value of interest rate derivatives | | | (22 | ) | | | 178 | | | | (200 | ) | | | 315 | | | | 356 | | | | (41 | ) |
Other income | | | 118 | | | | 1 | | | | 117 | | | | 272 | | | | 45 | | | | 227 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total nonoperating expenses, net | | ($ | 1,826 | ) | | ($ | 6,529 | ) | | $ | 4,703 | | | ($ | 4,070 | ) | | ($ | 16,994 | ) | | $ | 12,924 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | $ | 428 | | | ($ | 6,302 | ) | | $ | 6,730 | | | ($ | 487 | ) | | ($ | 14,593 | ) | | $ | 14,106 | |
Income tax expense | | | (14 | ) | | | — | | | | (14 | ) | | | (214 | ) | | | — | | | | (214 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 414 | | | ($ | 6,302 | ) | | $ | 6,716 | | | ($ | 701 | ) | | ($ | 14,593 | ) | | $ | 13,892 | |
Net income (loss) attributable to noncontrolling interests | | | 6 | | | | (2,264 | ) | | | 2,270 | | | | 1 | | | | (7,290 | ) | | | 7,291 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to Campus Crest Communities, Inc./Predecessor | | $ | 408 | | | ($ | 4,038 | ) | | $ | 4,446 | | | ($ | 702 | ) | | ($ | 7,303 | ) | | $ | 6,601 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) per share attributable to Campus Crest Communities, Inc. - basic | | $ | 0.01 | | | | | | | | | | | ($ | 0.02 | ) | | | | | | | | |
| | | | | | |
Weighted average common shares outstanding - basic | | | 30,724 | | | | | | | | | | | | 30,717 | | | | | | | | | |
| | | | | | |
Net income (loss) per share attributable to Campus Crest Communities, Inc. - diluted | | $ | 0.01 | | | | | | | | | | | ($ | 0.02 | ) | | | | | | | | |
| | | | | | |
Weighted average common shares outstanding - diluted | | | 31,160 | | | | | | | | | | | | 30,717 | | | | | | | | | |
| 1 | Student housing operations of the Predecessor exclude the operations of The Grove at San Marcos, which was included in equity in loss of unconsolidated entities prior to October 2010. |
8
RECONCILIATION OF NET INCOME (LOSS) TO FUNDS FROM OPERATIONS (“FFO”) (unaudited)
(in $000s, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2011
Company | | | 2010
Predecessor1 | | | $ Change | | | 2011
Company | | | 2010
Predecessor1 | | | $ Change | |
Net income (loss) | | $ | 414 | | | ($ | 6,302 | ) | | $ | 6,716 | | | ($ | 701 | ) | | ($ | 14,593 | ) | | $ | 13,892 | |
Real estate related depreciation and amortization | | | 4,809 | | | | 4,442 | | | | 367 | | | | 15,054 | | | | 13,722 | | | | 1,332 | |
Real estate related depreciation and amortization - unconsolidated entities | | | 627 | | | | 107 | | | | 520 | | | | 1,786 | | | | 264 | | | | 1,522 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
FFO available to common shares and OP units | | $ | 5,850 | | | ($ | 1,753 | ) | | $ | 7,603 | | | $ | 16,139 | | | ($ | 607 | ) | | $ | 16,746 | |
| | | | | | |
Elimination of change in fair value of interest rate derivatives | | | — | | | | (1,545 | ) | | | 1,545 | | | | (337 | ) | | | (4,437 | ) | | | 4,100 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Funds from operations adjusted (FFOA) available to common shares and OP units | | $ | 5,850 | | | ($ | 3,298 | ) | | $ | 9,148 | | | $ | 15,802 | | | ($ | 5,044 | ) | | $ | 20,846 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
FFO per share - diluted | | $ | 0.19 | | | | | | | | | | | $ | 0.52 | | | | | | | | | |
FFOA per share - diluted | | $ | 0.19 | | | | | | | | | | | $ | 0.51 | | | | | | | | | |
Weighted average common shares and OP units outstanding - diluted | | | 31,160 | | | | | | | | | | | | 31,152 | | | | | | | | | |
| 1 | Student housing operations of the Predecessor exclude the operations of The Grove at San Marcos, which was included in equity in loss of unconsolidated entities prior to October 2010. |
RECONCILIATION OF NET INCOME (LOSS) TO NET OPERATING INCOME (“NOI”) (unaudited)
(in $000s)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2011
Company | | | 2010
Predecessor | | | 2011
Company | | | 2010
Predecessor | |
Net income (loss) | | $ | 414 | | | ($ | 6,302 | ) | | ($ | 701 | ) | | ($ | 14,593 | ) |
| | | | |
Income tax expense | | | 14 | | | | — | | | | 214 | | | | — | |
Other income | | | (118 | ) | | | (1 | ) | | | (272 | ) | | | (45 | ) |
Change in fair value of interest rate derivatives | | | 22 | | | | (178 | ) | | | (315 | ) | | | (356 | ) |
Interest expense | | | 1,922 | | | | 6,708 | | | | 4,657 | | | | 17,395 | |
Equity in loss of unconsolidated entities | | | 309 | | | | 49 | | | | 944 | | | | 243 | |
Depreciation and amortization | | | 4,873 | | | | 4,507 | | | | 15,239 | | | | 13,935 | |
Ground lease expense | | | 52 | | | | 59 | | | | 156 | | | | 153 | |
General and administrative expense | | | 1,253 | | | | 1,174 | | | | 4,923 | | | | 3,792 | |
Development, construction and management services expenses | | | 4,393 | | | | 4,378 | | | | 24,229 | | | | 33,022 | |
Development, construction and management services revenues | | | (4,827 | ) | | | (4,256 | ) | | | (26,444 | ) | | | (35,121 | ) |
| | | | | | | | | | | | | | | | |
Net operating income (“NOI”) | | $ | 8,307 | | | $ | 6,138 | | | $ | 22,630 | | | $ | 18,425 | |
| | | | | | | | | | | | | | | | |
9
Non-GAAP Financial Measures
FFO and FFOA
FFO is a non-GAAP financial measure. We calculate FFO in accordance with the definition that was adopted by the Board of Governors of NAREIT. FFO, as defined by NAREIT, represents net income (loss) determined in accordance with U.S. GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
We use FFO as a supplemental performance measure because, in excluding real estate-related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating expenses. We also believe that, as a widely recognized measure of the performance of equity REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially and adversely impact our results of operations, the utility of FFO as a measure of our performance is limited.
While FFO is a relevant and widely used measure of operating performance of equity REITs, other equity REITs may use different methodologies for calculating FFO and, accordingly, FFO as disclosed by such other REITs may not be comparable to FFO published herein. Therefore, we believe that in order to facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income (loss) (computed in accordance with U.S. GAAP) as presented in the consolidated financial statements included elsewhere in this document. FFO should not be considered as an alternative to net income (loss) (computed in accordance with U.S. GAAP) as an indicator of our properties’ financial performance or to cash flow from operating activities (computed in accordance with U.S. 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.
FFOA is a non-GAAP financial measure. In addition to FFO, we believe it is also a meaningful measure of our performance to adjust FFO to exclude the change in fair value of interest rate derivatives. Excluding the change in fair value of interest rate derivatives adjusts FFO to be more reflective of operating results prior to capital replacement or expansion, debt service obligations or other commitments and contingencies.
10
NOI
NOI is a non-GAAP financial measure. We calculate NOI by adding back to net income (loss) the following expenses or charges: income tax expense, interest expense, equity in loss of unconsolidated entities, depreciation and amortization, ground lease expense, general and administrative expense and development, construction and management services expense. The following income or gains are then deducted from net income (loss), adjusted for add backs of expenses or charges: other income, change in fair value of interest rate derivatives and development, construction and management services revenue. We believe these adjustments help provide a performance measure, when compared year over year, that illustrates the operating results of our wholly-owned properties and captures trends in student housing rental and services income and student housing operating expenses.
NOI excludes multiple components of net loss (computed in accordance with U.S. GAAP) and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially and adversely impact our results of operations. Therefore, the utility of NOI as a measure of our performance is limited. Additionally, other companies, including other equity REITs, may use different methodologies for calculating NOI and, accordingly, NOI as disclosed by such other companies may not be comparable to NOI published herein. Therefore, we believe that in order to facilitate a clear understanding of our historical operating results, NOI should be examined in conjunction with net loss (computed in accordance with U.S. GAAP) as presented in the consolidated financial statements included elsewhere in this document. NOI should not be considered as an alternative to net income (loss) (computed in accordance with U.S. GAAP) as an indicator of our properties’ financial performance or to cash flow from operating activities (computed in accordance with U.S. 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.
11
