October 26, 2004
Mail Stop 0409
Paul O. Bower
President and Chief Executive Officer
Education Realty Trust, Inc.
530 Oak Court Drive, Suite 300
Memphis, Tennessee 38117
Re: Education Realty Trust, Inc.
Registration Statement on Form S-11
Filed on September 24, 2004
Registration No. 333-119264
Dear Mr. Bower:
We have reviewed your filing and have the following comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. We note the inclusion of red herring language in the cover
page.
Supplementally advise the staff whether you have circulated the
prospectus.
2. Please provide supplementally copies of any graphics, maps,
photographs, and related captions or other artwork including logos
that you intend to use in the prospectus. Such graphics and
pictorial representations should not be included in any
preliminary
prospectus distributed to prospective investors prior to the
staff`s
review of those items.
3. We note that you cite data from the Education Testing Service,
National Center for Education Statistics, Center for the Study of
Education Policy, Common Fund for Nonprofit Organizations and
other
research groups or associations throughout the prospectus. Please
provide us with supporting evidence, such as a copy of the
published
report or study, for this information and specifically highlight
the
precise information that you relied upon for the disclosure.
Also,
please tell us whether any other reports or studies, other than
the
Peterson`s report you licensed were prepared specifically for you.
If so, please file appropriate consents pursuant to Rule 436.
4. Please revise generally to minimize the puffery and marketing
language used to describe your business plan and management
throughout the prospectus, as your repeated use of such language
is
inappropriate in the prospectus. For example purposes only,
please
minimize the use of phrases such as:
* Robust marketing practices;
* Proven track record; and
* Unmatched in the industry.
Please revise accordingly.
5. Please provide supplemental support for qualitative statements
about your business and your competitive position. For example,
* Your statements conveying that "Allen & O`Hara is the most
experienced owner, manager and developer of student housing" on
the
cover page and pages 2, 3, 68 and 69.
* Your statement that, "We believe that upon completion of the
offering we will be one of the largest private-sector owners and
operators of off-campus student housing in the United States" on
page
2.
* Your statement that, "We believe that a number of other large
national companies may be potential entrants in the student
housing
business" on page 23.
* Your statement that you introduced the "student hotel" concept
on
pages 69-70.
* Your statement that "economic circumstances create a substantial
opportunity for privatization of ownership" on page 67.
Please review the entire prospectus with this comment in
mind.
Prospectus Cover Page
6. We note your description in the first paragraph that you are
continuing the business of Allen & O`Hara, Inc. the most
experienced
student housing company in the United States. Since the majority
of
the assets in your portfolio will be comprised of properties you
are
acquiring from JPI, this disclosure appears inappropriate. Please
revise to make this clear.
7. The cover page risk factors should concisely highlight the most
significant adverse effects related to the offering and should be
quantified to the extent possible. At a minimum the cover page
should include a discussion of these additional risks:
* that you may make distributions that include a return of capital
and may need to borrow to make these distributions;
* that there are limitations on ownership and transferability of
your
shares;
* that you will be barred from disposing properties of properties
as
long as initial contributors hold 25% of the OP or the University
Towers OP.
Prospectus Summary, page 1
8. The Summary section as written is lengthy and does not provide
investors with a clear, concise and coherent "snapshot"
description
of the most significant aspects of the offering. Please revise to
provide a brief overview of only the most salient aspects of the
transaction deleting any duplicative disclosure. For example,
much
of your disclosure under the headings, "Our competitive strengths"
and "Our business and growth strategy" is repeated in other
locations
of the summary section. For guidance, refer to Item 503(a) of
Regulation S-K and part IV.C. of Securities Act Release No. 33-
7497.
Our Company, page 2
9. Please disclose when the company was formed.
10. In the last sentence of the first paragraph you disclose four
third party management service clients. Please describe how you
chose those clients as representative of your client pool for
third
party management services and whether they are your top revenue
generators for this segment.
11. Please revise your disclosure to clarify the relatively small
size of your third party management and advisory services compared
to
the student communities` leases, in terms of revenues.
12. In bullet point 2 and on page 68 you refer to the fact that
the
average age of your communities is less than 5 years. Contrary to
this statement, it appears that the properties in the JPI
portfolio
average 5 years and the properties in the Allen & O`Hara portfolio
average 9 years in age. Please revise to state these individual
portfolio average ages or adjust the total average to what you
have
disclosed on page 7, an average age of 6 years.
13. We note that the website address you include on page 2 is not
operational. Please advise us as to whether you anticipate that
the
website will be operational prior to the distribution of your
preliminary prospectuses.
Our Competitive Strengths, page 3
14. In your third bullet point to this section, you refer to
identifying and pursuing attractive investment yields. In your
business section, there appears to be no description of how you
determine attractive business yields. Revise your disclosure
where
appropriate to include a description of these yields and how
management will calculate or determine these yields.
Our business and growth strategy, page 4
15. We note your disclosure that, with respect to acquisitions,
you
have developed a "network of industry contacts and relationships"
and
that you maintain relationships with universities to provide
"favored
referrals." If you choose to retain this disclosure, please
revise
to more specifically discuss the precise nature of these
relationships. What is the basis of each relationship? Are they
formal relationships? What precise benefits has your predecessor
received or do you anticipate receiving from such relationships?
Summary Risk Factors, pages 5-6
16. Please revise the fifth bullet point to quantify your debt
service obligations.
Our owned and managed student housing communities
Our initial properties, page 6
17. Revise to clarify how many properties JPI will manage for the
90
day interim period, whether it could include all JPI properties
and
what JPI will charge to manage these properties.
18. Please provide support for your statement that you believe
that
you will be able to "substantially improve revenue and cash flow
from
the JPI portfolio utilizing our management experience and proven
operating systems." We note, for example, that occupancy rates of
the JPI properties are substantially the same as occupancy rates
for
the Allen & O`Hara properties. In addition, excluding the
University
Towers property, which provides food services, the average monthly
revenue per available bed is significantly higher for the JPI
properties than the Allen & O`Hara properties. Please revise or
advise.
Third-party development consulting services, page 8
19. Please clarify what is included in the "aggregate development
costs" as disclosed on page 8 and clarify whether these are costs
that you have borne.
20. Please disclose if the consulting services are provided
directly
from your development and consulting company or through your
various
joint venture arrangements, and clarify if the disclosure relates
to
the development and consulting company, your various joint
ventures,
or both.
Structure and Formation of our Company, pages 8-9
21. Please quantify what percentage of revenues you expect to come
from your management company/taxable REIT subsidiary, or, if that
is
not practicable, please supplementally tell us why. Also, please
provide a brief description of the term "taxable REIT subsidiary"
the
first time it is used on page 9, including disclosure of the
limitations imposed on TRSs by the REIT rules.
Our operating structure, pages 8-9
22. Please revise to move that portion of the second paragraph on
page 9 to the summary risk factor section to highlight the
potential
tax indemnification should a property be sold and the required
amounts of debt that must be held so that the contributors avoid
triggering capital gain. Similarly, briefly highlight any debt
maintenance restrictions imposed on you by your creditors, primary
mortgage holders or revolving credit facility banker.
Formation transactions, page 9
23. Revise your formation transactions disclosure here and on page
123 to clearly explain the role of your sponsor, who the sponsor
is
and the role of the SPEs and who owns the SPEs. For example, your
disclosure on page 121 includes entities and persons such as the
four
Jefferson entities directly transferring properties to you, the
AOD/Raleigh Residence Hall, LLC, Allen & O`Hara Educational
Services,
LLC and Martin Valentine. It is unclear whether there is a
sponsor.
Please revise.
24. Include the date JPI and the registrant executed the
acquisition
agreements.
25. In connection with your description of the gross contract
price,
please clarify whether other costs or fees are being charged in
these
transactions and, if so, who is receiving any fees.
26. Please revise your disclosure here and throughout to identify
the
actual special purpose entities, the owners of these entities, and
owners holding any other remaining interests in the Allen & O`Hara
Portfolio.
27. We note from your disclosure on page 5 that you have not
obtained
recent appraisals for these initial properties. Please revise to
fully disclose how the consideration given in the Formation
Transactions was determined, the bases for these prices and who
negotiated these acquisitions.
28. Please revise the organization chart on page 12 to reflect the
ownership % of each entity on both an economic and voting basis,
if
they differ.
29. Supplementally, please provide us with an organization chart
showing the ownership of these 21 properties prior to the merger
and
consummation of the offering. Include the special purpose
entities
and owners of these entities.
This offering, page 13
30. Revise to clarify that this is a firm commitment underwritten
offering.
31. Please revise to briefly describe the directed share program
and
the underwriting discounts.
Use of Proceeds, page 13
32. Please modify your disclosure here and on page 38 to quantify
your estimated use of proceeds and define general corporate
purposes.
We note your pro forma balance sheet contains an estimated use of
proceeds section. Further, please include the $4.1 million in
total
fees and costs including $2.1 million in advisory fees
specifically
to Morgan Keegan & Co. in connection with completing the JPI
property
portfolio. Refer to Item 504 of Regulation S-K.
Distribution Policy, page 14
33. Please confirm that you are not registering DRiP shares on
this
registration statement.
Other Data, pages 18 and 46
34. Please advise us, and disclose, if you have combined the
operating data, such as units, beds, occupancy, and revenue per
available bed for the consolidated properties with that of the
unconsolidated properties. We do not object to the separate
presentation of data for your consolidated properties and for your
unconsolidated properties, but we do object to a combined
presentation, as you do not control the unconsolidated entities.
Please revise your presentation in the next amendment, as
appropriate.
Risk Factors, page 20
We may not be able to successfully integrate the student housing
communities we acquire from JPI, which would preclude us from
achieving the occupancy and operating results we expect from this
acquisition, page 20
35. Please disclose the portion of your assets going forward
represented by the JPI communities that you intend to acquire.
Our results of operations are subject to an annual leasing cycle .
..
.. page 20
36. Please revise the caption to list the other inherent risks.
Use of Proceeds, page 38
37. Please provide the term of the revolving line of credit and
state
whether you will assume the indebtedness currently held by JPI and
your predecessor. We note from the disclosure that from the
offering
proceeds you expect to repay approximately $105 million of your
mortgage debt secured by some of your properties, but it is
unclear
what amount you are assuming or refinancing. Please revise your
disclosure, if applicable, to include the information required by
Instruction 4 to Item 504 of Regulation S-K.
Distribution Policy, page 41
38. Revise the distribution table on page 42 to fill in the blanks
for all information available at this time.
39. We refer to the final sentence in the second paragraph on page
41
that states that certain expenditures for improvements of your
properties may be delayed if you would otherwise be unable to fund
your estimated distribution amounts during the following twelve
months. Please disclose that if you do this, the delays could
have a
significant impact on your ability to maintain your distribution
rate
following the expiration of the twelve-month period covered by the
table.
40. Change your table`s top line item or anchor from income to pro
forma net income. Income can be construed as operating income and
is
inappropriate for this disclosure.
41. As your pro forma net income for 2004 is negative, it appears
that you may have to borrow to make some portion of these
distributions. Please revise to include the availability of cash
under your proposed revolving credit facility and terms,
limitations
and conditions of this facility. In addition, please tell us
supplementally whether you expect to receive a commitment letter
for
this facility prior to the distribution of red herrings or the
effectiveness of the registration statement. If not, please
disclose
what sources of cash you would have available to fund any
shortfalls.
42. Please revise to disclose the estimated portion of your
initial
distributions that will constitute return of capital.
43. Revise to include disclosure concerning your assumptions about
occupancy. We note the occupancy level for the Allen & O`Hara and
JPI portfolios averages between 80-90% and all leases are 12
months
or less, with a significant portion of these leases totaling 9
months.
Include your discussion of assumptions, how you have adjusted for
the
leases that are less than 12 months, when you are projecting
distributions for the rolling 12 month period.
44. We refer to footnote (2) to the distribution table. Please
provide disclosure regarding how you determined the amount of
capital
expenditures that will be paid during the next twelve months. If
this is based on historical expenditures, please disclose the
amounts
paid during the most recent years in order to support the amount
estimated. In addition, if additional expenditures will need to
be
made in connection with the JPI portfolio during the following
twelve
months, these additional expenditures should be included.
Finally,
we note from your disclosure on page 60 that you are required to
contribute certain amounts annually to reserves to cover capital
repairs and improvements and that such contributions may exceed
the
historical amounts of capital expenditures. Please disclose
whether
you have included these required contributions and, if not, why
you
do not believe they should be included.
45. We refer to footnote (3) to the table. Please expand your
footnote disclosure to indicate the nature of the loans included
under this heading.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 48
Leasing student housing communities, pages 48-49
46. To the extent practical quantify the percentage of the "most"
of
your leases that commence in mid August as disclosed on page 49.
Third party management services, page 49
Third party development consulting services, page 49
47. Revise both sections to disclose the percentages of revenue
generated from these third party services per your 2004 pro forma
financial statements.
48. Please provide more detail on the fees charged for these
services, including the nature of the obligations by the
registrant
and third parties, i.e. contractors, the range of the fee
percentages
and the timing of the payments over the life of the project.
Moreover, explain whether the registrant will employ architects,
construct student communities itself or serve as general
contractor.
49. Please expand your disclosure and provide a more forward-
looking
discussion on your third party development consulting services
segment. We note that the majority of your development consulting
services are performed through joint venture arrangements, which
are
not consolidated in your operations. What involvement do you have
with the consulting services performed by these joint ventures?
Do
you consider the income generated from these joint ventures when
managing this segment?
Trends and outlook
Rents and Occupancy, page 49
50. Based on your disclosure in the property section, it appears
that
15 of 20 properties (excluding one property with no 2002 occupancy
rate) or 75% of your intended portfolio has suffered declining
occupancy rates from December 31, 2002 to December 31, 2003. We
further note that five of the seven Allen & O`Hara properties
suffered a decline in occupancy during the same period. Please
revise this section to include management`s insight into this
overall
decline and the business reasons for this overall decrease.
51. We refer to your statement that your familiarity with the
markets
in which the JPI properties are located will allow you to increase
the occupancy and rental rates for these properties. We note,
however, that the majority of the JPI properties are located in
markets in which you have no presence. Please revise or advise.
Integration costs related to the acquisition of the JPI portfolio,
page 50
52. Please provide a discussion of the additional marketing costs
you
will bear in connection with the leasing of JPI properties that
are
located in areas where you do not currently have a presence.
53. Tell us your basis for estimating the incremental operating
cost
of integrating the JPI portfolio to approximately $0.6 million.
We
note that you experienced an increase in corporate personnel costs
of
approximately $0.5 million during 2003 due to the addition of four
management contract properties in the Fall of 2003. Refer also to
page 55.
Student housing property acquisitions, page 51
54. You indicate the use of independent appraisals in connection
with
your acquisitions. Please advise us of, and disclose, the
acquisitions or contributions for which you obtained an
independent
appraisal.
Results of Operations, page 52
General
55. Revise for each period to include a comparison of net income
per
segment explaining the components and primary sources of any
change
between comparable periods.
56. Further, revise to include a separate caption for each period
discussing your joint venture activity.
57. Please revise your operating expense reimbursements to
describe
the types of expenses being reimbursed. For example, for the six
months ended June 30, 2004, describe the expenses from the
addition
of a new contract. Are you referring to the pre-set up and pre-
consultation costs before the university approves the contract
such
as those listed on page 61? or other types of non-development
management oriented expenses? Similarly, please provide greater
detail into the operating expenses incurred by opening a
management
contract versus starting a development contract on page 55.
58. In connection with your Nonoperating expenses subcaption,
please
briefly clarify whether the weighted average interest rate
calculation covers all outstanding indebtedness for each
comparable
time period.
Liquidity and capital resources, page 58
Financing activities, page 58
59. Please clarify to us, and disclose, if both contributions and
distributions approximated $1.0 million for the six-month periods
ending June 30, 2004 and 2003.
Investing activities, page 58
60. Please advise us, and disclose, why you consider the
collection
of deferred development consulting service fees as an increase in
investing activities rather than an increase in operating
activities.
Liquidity Outlook and Capital Requirements, page 59
61. Please discuss in more detail your commitments for capital
expenditures during the next 12 months. Include any plans or
commitments related to renovation of student housing properties,
third party development plans and commitments under any
agreements.
62. Please revise the first full paragraph on page 60 to clarify
that
you do not currently have a credit facility and, to the extent you
are unable to secure a facility, you will be dependent upon
tapping
the capital markets in order to meet your long-term liquidity
needs.
63. Disclose the interest rate for the $6 million loan and how JPI
Multifamily Investments, L.P. is affiliated with JPI Investment
company which appears to be contributing the communities.
Recurring capital expenditures, page 60
64. It is not clear why much of this table has been left blank
considering it depicts expenditures made during historical
periods.
Please revise to fill in the blanks or advise us as to why it is
impossible or impracticable to do so.
Pre-development expenditures, page 61
65. If material to your development segment operations, revise to
disclose the specific delays beyond the period initially scheduled
and the outcome of the adverse event.
Commitments, page 61
66. Please revise your footnote disclosure to clarify the nature
of
the indebtedness represented by footnote (2).
67. It does not appear that you have included your obligation to
fund
annual contributions to your capital reserve account in the table
of
your contractual obligations. Since your lenders require you to
fund
these annual contributions, it would appear that those obligations
would be included in the table. Please advise, or revise the
table.
Off-balance sheet arrangements, page 62
68. Please expand your discussion to include any direct or
indirect
guarantees related to development consulting services engaged
through
your joint ventures.
Industry Trends and Outlook, page 65
69. Please specify the date and title of the Educational Testing
Service, National Center for Education Statistics, US Census
Bureau
and any other similar materials you reference in the prospectus.
70. We refer to your statement that 20 of your 21 properties,
following completion of this offering, will be located in states
that
have increasing enrollment levels. Please clarify that less than
half of your properties will be located in states identified in
the
previous sentence that are poised to experience the largest levels
of
growth.
71. Please confirm the ETS chart on page 66 represent growth in
thousands. If so, it is unclear how college enrollment will
increase
from current levels by 75 million students in each of seven
states.
If this represents an aggregate measure, please revise to clarify
this chart and the measure by which each state is being compared
for
20 years.
72. Please provide support for your statement that college
students
are staying in college longer prior to graduation than in previous
years, and that such trend is expected to continue.
Higher education housing market, page 66
73. Since traditionally all students on college campuses do not
seek
on-campus dormitory style facilities, it appears that a comparison
of
total students to available on-campus housing may be unbalanced.
If
practical, please provide balancing disclosure concerning the
number
or portion of students who seek on-campus housing and are denied.
Our Business and Properties
Acquisition Strategy, page 71
74. Please disclose whether you intend to expand geographically
into
new markets or whether you intend to expand within the markets in
which you already have a presence.
Our Properties, page 73
75. Please provide the occupancy rate for each of the properties
for
each of the last five years rather than last two years. See Item
15(a) of Form S-11. Similarly, please revise to include all
material
disclosure required by Items 15(e), (g) and (h) of Form S-11.
Alternatively, please point the staff to where you have provided
this
disclosure in the prospectus.
Third-party services
Third-party management services, page 98
76. Supplementally, please confirm that none of these properties
are
owned or partially owned by management or affiliates.
77. Revise to include a discussion of your food operations. For
example, discuss your food operations in Pebble Beach and for the
University Towers.
Third-party development consulting services, page 99
78. Please revise this section to include a table showing the
properties for which your predecessor has provided development-
consulting services or you are currently providing these services.
Further, please explain the relevance of the $226 million and $43
million in aggregate development costs regarding your prior and
current fees for consulting services.
Insurance Coverage, page 104
79. We note your disclosure that management believes your
insurance
limits are appropriate, but that you do not carry insurance for
riots
or acts of God. Similarly, please revise to include all carved
out
areas for which you do not carry insurance, such as for
environmental
risk of loss. For guidance, refer to Instruction 3 to Item 14 of
Form S-11.
Management, page 106
80. Please revise to include a summary of business backgrounds for
Messrs. Randall Churchey and Monte Barrow from July 2003 until the
present and from August 2002 until the present, respectively.
Executive Compensation, page 110
81. Revise to include the summary compensation table information
on
page 110 and information regarding the terms of the employment
agreements on pages 112-114. We note your officers have entered
into
their employment agreements.
Profit Interests Units, page 112
82. We note that you plan to issue profit interest units. Please
revise your disclosure to clarify whether they are or will be
exchangeable for shares of your common stock and whether you have
any
plans to issue these units upon the consummation of the offering.
Policies with Respect to Certain Activities
Investment Policies
Investments in securities or interest in entities primarily
engaged
in real estate . . ., page 115
83. We note you may engage in trading, underwriting, agency
distribution of sales of securities of other issuers in the
future.
Please revise to disclose whether you intend to register as a
broker-
dealer to conduct these activities. Refer to Item 12(e) of Form
S-
11. Similarly, please revise to include turnover disclosure
pursuant
to Item 12(f)
Certain Relationships and Related Party Transactions
Benefits received by our executive officers and directors in our
formation transactions, page 120
84. Rather than generally describing Paul Bower, certain others
and
the LP agreements, please revise to identify each individual party
and the specific relationship with such party. Similarly, please
delete the cross-reference and provide specific disclosure such as
the benefits conveyed to related parties as disclosed on pages
129-
130.
85. It is not clear why you are unable to provide disclosure
regarding the amounts paid to Allen & O`Hara`s hotel operations
during the years 2001-2003 or the monthly amounts payable under
the
lease agreement that has been executed. Please revise to disclose
this information or explain why it is impossible or impracticable
to
do so.
86. Please tell us whether your shared services agreement includes
your related party disclosure on page F-35 relating to a housing
development project manager. If not, please revise to include
this
disclosure or tell us why you do not believe it is material.
Structure and Formation of Our Company
JPI Portfolio acquisition agreements, page 122
87. Please revise to describe the services provided by Morgan
Keegan.
Formation transactions, page 123
88. So that the material terms of the formation transactions are
transparent to readers, please provide here, and elsewhere in the
filing, a summary table that identifies each initial property, the
historic carrying vale of the property, and the total
consideration
to be issued in exchange for the property including cash,
partnership
units, and assumption of debt.
89. Please revise to clearly describe the persons involved in the
sale of the one Allen & O`Hara portfolio property, the Management
Company and the Development Company, which may not reflect fair
market value.
90. Please expand your disclosure on page 127 to discuss the
purpose
of the two scenarios describing the sale-leaseback transaction
between University Towers Building and University Towers Raleigh.
Principal Stockholders, page 131
91. As soon as practicable, revise the table to include the number
of
shares beneficially owned by each party.
The Operating Partnership Agreement, page 145
The University Towers Partnership Agreement, page 149
92. Please revise the introductory paragraphs to each section to
clarify that you summarized the material terms of the agreements
and
remove the statement that the summary is not complete.
93. Supplementally, please confirm there are no contractual
obligations to make distributions to the University Tower
unitholders.
Federal income tax consequences, page 154
94. Please revise to make clear that counsel has opined that you
are
organized in conformity with the requirements for qualification
and
taxation as a REIT and that your proposed method of operation will
enable you to meet the requirements for qualification and taxation
as
a REIT for the year ended December 31, 2005 and thereafter.
Underwriting, page 179
95. Refer to the first paragraph under the table under this
heading.
Supplementally, please detail all "conditions precedent" that
could
release the underwriters from their obligations to purchase the
shares in the offering.
96. We refer to your statement that "If the underwriters sell more
shares than the total number shown in the table" on page 179, they
have the option to purchase additional shares from the company.
Please revise to make clear that the shares referenced here are to
cover overallotments.
97. We note from page 180 that one or more of your underwriters
may
make an electronic version of your prospectus available on their
website. Please identify the underwriters and securities dealers
who
will be engaged in the electronic distribution of prospectuses and
describe their procedures to us supplementally. Alternatively,
please confirm that the staff has previously approved of those
procedures and that the procedures have not changed since the
staff
approved them. If you become aware of any additional members of
the
underwriting syndicate that may engage in electronic offers, sales
or
distributions after you respond to this comment, promptly
supplement
your response to identify those members and provide us with a
description of their procedures.
98. Supplementally, please tell us whether you or the underwriters
have any arrangements with a third party to host or access your
preliminary prospectus on the Internet. If so, identify the party
and the website, describe the material terms of your agreement,
and
provide us with a copy of any written agreement. Prior to
effectiveness, provide us with copies of all offering information
concerning your company or prospectus that will appear on and such
third party`s web site. Again, if you subsequently enter into any
such arrangements, promptly supplement your response.
99. In the first paragraph on page 181, you state the your
executive
officers and directors have agreed to not offer, sell, offer to
sell,
contract to sell or otherwise dispose of any shares of common
stock
except in "limited circumstances." Please confirm that the only
circumstance would be the issuance of shares in connection with an
acquisition provided that the recipient of the shares agrees to be
bound by the these lock-up agreements. If there are additional
circumstances, so state. Further, describe the conditions, if
any,
under which JP Morgan and UBS Securities would consent to early
termination of the lock-up agreements.
100. Please revise to include separate subcaptions to discuss your
(1) lock-up agreements and any other contractual restrictions on
the
resale of securities and your (2) 5% directed share plan.
101. Supplementally, please provide copies of the materials that
you
or the underwriters will distribute in connection with the
directed
share program.
102. In your discussion of your directed share program, revise to:
* clarify that potential participants are under no obligation to
purchase shares until after effectiveness of the registration
statement and pricing and
* generally describe who is eligible to participate in the
directed
share program and please explain how you will determine the
prospective recipients of reserved shares.
103. Please supplementally describe the mechanics of how and when
these directed or reserved shares are offered and sold to
investors
in the directed share program. For example, tell us how the
prospective recipients and number or percentage of reserved shares
are determined. Tell us how and when you and the underwriters
have
notified or will notify the directed share investors, including
the
types of communications used or to be used. Discuss the
procedures
these investors must follow in order to purchase the offered
securities. Are directed share purchasers required to establish
accounts before the effective time, and, if so, what if any funds
are
put in newly established brokerage accounts before the effective
date? How do the procedures for the directed share program differ
from the procedures for the general offering to the public? In
addition, if any of the recipients of the shares or their
associates,
employees or affiliates are broker-dealers registered with the
NASD,
please tell us how you will comply with the NASD`s rules relating
to
"hot" IPOs, if applicable. Please also supplementally provide us
with copies of all materials to be used in connection with the
directed share program.
Pricing of the Offering, page 181
104. Since there is currently no established trading market for
your
shares, please revise to clarify whether any peer group of public
REITs, REIT indexes or competitors were analyzed in the process of
determining the offering price range and if so, disclose these
factors. Further, disclose whether any multiples or ratios of a
company`s or industry`s performance were used in determining your
price. Refer to Item 505(a) of Regulation S-K.
Where you can find more information, page 183
105. Please delete the second sentence of the second paragraph of
this section that qualifies any references to contracts or other
documents in the prospectus as not complete. Rule 411(a) permits
this type of qualification or incorporation by reference only
where a
summary of a document is required to be included in the
prospectus.
Financial Statements
Unaudited Pro Forma Combined Balance Sheet, page F-4
Unaudited Pro Forma Combined Statement of Operations, pages F-5
and
F-6
106. Since Education Realty Trust, Inc. is the registrant, please
revise to present their financial information in the first column
of
the Pro Forma Combined Financial Statements.
107. Please revise the pro forma financial statements to present
separate columns for the adjustments related to the offering
transaction, the adjustments related to the acquired property
transactions and the adjustments related to the debt transactions.
Also, please present a separate column for each acquisition, and
label each column according to the property acquired, or provide
detailed, transparent disclosure for each acquired property (e.g.,
in
a combining table) in the applicable note that then ties to the
aggregated adjustment in the financial statements. Disclose the
owners for each property prior to the acquisitions, the percentage
interests each owned and the percentage interests that are being
acquired.
108. Please revise the pro forma combined statement of operations
to
reflect the income (loss) attributable to the minority unit
holders
in your Operating Partnership and University Towers Partnership.
Notes to Unaudited Pro Forma Combined Financial Statements, page
F-7
Note 1. Adjustments to the unaudited pro forma combined balance
sheet as of June 30, 2004, page F-7
Note 1.(C), Contribution of ownership interests, page F-7
109. Please advise us of, and disclose, the Sponsor`s identity.
Also, please provide detailed support to us on how you determined
the
Sponsor. In your response and revised disclosure, please include
each interest or property being contributed, the percentage of the
interest or property being contributed, the contributing parties
for
each interest, the percentage interest each is contributing, and
the
consideration exchanged for each contributors` interest. Please
advise us why you concluded that the contributed interests should
be
aggregated and accounted for as though they were a single
contribution by a single Sponsor. Indicate how you will account
for
each contribution by each entity. Cite relevant accounting
literature to support your assertions.
110. If you assert common control as your basis to account for any
of
the formation and structuring transactions using historical cost,
please provide detailed support for your assertion for each
transaction. With respect to each combining entity, partnership,
and
property, please summarize for us its ownership interests, explain
the rights of each owner, identify the controlling person, and
explain the basis for his control.
111. Please advise us, and disclose, if all the entities included
in
the predecessor financial statements will be contributed to
Education
Realty Trust in the formation transaction.
112. You disclose that "These transactions will result in the
acquisition of real estate assets...." Please advise us of, and
disclose in the next amendment, if the transactions you reference
that result in adjustments to the predecessor financial statements
relate solely to the acquisition of the minority interest, or if
they
also relate to the interests contributed by the Sponsor. Also,
the
column header related to these adjustments is titled, "Contributed
assets." Please revise the title for clarity and in response to
this
comment.
113. Please advise us of, and disclose:
a) The ownership interest held by the Sponsor and minority holder
for
each of the contributed or acquired entities;
b) Allocation of both cash and non-cash consideration paid to both
the Sponsor and minority holders for each interest contributed or
acquired;
c) Assets and liabilities of each business contributed or
acquired.
114. Please advise us, and disclose, why the acquisition of the
minority interests results in approximately $3 million of
goodwill.
Notes 1.(E) - 1.(J), Acquisitions, pages F-7 to F-8
115. Please advise us, and disclose, the method you will use to
account for each of the acquisitions disclosed in the
aforementioned
notes. Disclose the method used to account for interests owned by
unaffiliated third parties and those owned by affiliates, and
disclose how you determined the value you will record upon
acquisition. Include support for your method.
116. Please advise us, and disclose, whether the mortgage
indebtedness assumed is presented at the carrying value or at fair
value.
Notes 2.(M), 2.(N), 3.(CC) and 3.(DD), Additional expenses, pages
F-9
and F-10
117. Please advise us of, and disclose, the basis for your
adjustments related to assignment of leases, sublease rental
income,
and additional management fee expense. Include support for your
assertions. Please refer to Article 11 of Regulation S-X.
Notes 2.(O) and 3.(EE), Costs associated with operating as public
company, pages F-9 and F-10
118. Since it is does not appear that you have a factually
supportable basis for the adjustments related to the increased
costs
associated with your operating as a public company, please remove
these adjustments from the pro forma financial statements. Refer
to
Article 11 of Regulation S-X.
119. Please advise us if you considered the impact of the leasing
activities associated with University Towers Raleigh, LLC on the
pro
forma combined statement of operations, the accounting treatment,
if
so, and the basis for any adjustments.
Notes 2.(P) - 2.(T) and 3.(FF) - 3.(JJ), Additional depreciation
and
amortization expense, pages F-9 to F-11
120. It appears that you are presenting total depreciation and
amortization expense associated with the JPI portfolio rather than
the "additional" depreciation and amortization expense that would
be
recognized from the step-up in basis due to recording the assets,
etc. at fair value in accordance with purchase accounting. Please
advise us, and revise your statements or disclosure, as
appropriate.
121. Please advise us of, and disclose, the factors considered in
estimating the additional depreciation and amortization expense,
and
the estimated useful life for each asset purchased.
Notes 2.(U) and 3.(KK), Interest expense, pages F-9 and F-11
122. Please advise us of, and disclose, if you are using current
interest rates, or interest rates for which you have a commitment.
If actual interest rates in the transaction can vary from those
depicted, disclose the effect on income of a 1/8 percent variance
in
interest rates. Also, please advise us, and disclose, if
management
has determined that the interest rate used is reasonable.
Notes 2.(V) and 3.(LL), Amortization of deferred financing costs,
pages F-9 and F-11
123. Please advise us of, and disclose, the period over which you
are
amortizing the additional deferred financing costs.
Notes 2.(Y) and 3.(OO), Tax expense, pages F-10 and F-11
124. Please advise us, and disclose, if you calculated the tax
expense adjustment using the statutory rate in effect during the
periods for which the pro forma statements of operations are
presented, and if your adjustment included any unusual effects of
loss carry forwards, etc. Include support for your adjustment.
Notes 2.(Z) and 3.(PP), JPI portfolio, pages F-10 and F-11
125. Please clarify that the adjustments related to the
acquisition
of the JPI portfolio are solely related to certain revenues and
expenses, and refer the reader to the statements of the JPI
portfolio
included elsewhere in the filing.
Report of Independent Registered Public Accounting Firm, pages F-
12,
F-16, F-38, F-44, and F-52
126. In the next amendment, please include a signed copy of each
Report of Independent Registered Public Accounting Firm. Refer to
Article 2 of Regulation S-X.
Financial Statement Schedules
127. In the next amendment, please file the schedules required by
Rule 5-04 of Regulation S-X, or disclose why this information has
been omitted.
Education Realty Trust Predecessor, pages F-17 to F-37
Combined Statements of Cash Flows, page F-20
128. In a supplement response, please advise us why you present
distributions from unconsolidated joint ventures as cash provided
by
investing activities. Do these distributions represent a return
of
capital rather than a return on capital?
Notes to Combined Financial Statements, pages F-21 to F-37
Note 1, Organization and ownership of the predecessor, page F21
129. Please advise us, and disclose, the percentage interest in
Allen
& O`Hara Education Services and the percentage interest in Allen &
O`Hara Educational Properties owned by Allen & O`Hara (directly
and
indirectly) and the percentage interest owned by unaffiliated
third
parties.
130. Your disclosure suggests that the predecessor entities have
common ownership. Please clarify how all of the predecessor
entities
have common ownership and common management?
131. You indicate that University Towers Raleigh, LLC was formed
to
own and manage the University Towers property. You also indicate
that University Towers Raleigh, LLC is managed by AOES. Please
clarify who manages the University Towers Property and your basis
for
including this property in the combined financial statements.
Note 2, Summary of significant accounting policies, pages F-23 to
F-
28
Basis of Presentation, page F-23
132. Please advise us of, and disclose, your principles of
consolidation. Refer to Rule 3A-03 of Regulation S-X.
Revenue recognition, pages F-25 and F-26
Student housing rental revenue, page F-25
133. We note from your disclosure that you recognize lease
revenue,
incentives and non-refundable application and service fees on a
straight-line basis over the term of the lease contract. Please
describe the type of lease incentives that you may offer. In
addition, tell us your basis for recording the nonrefundable
application and service fees on a straight-line basis over the
term
of the lease? Over what period are the related services
performed.
Tell us how this is in compliance with SAB 104.
Development consulting revenue, page F-26
134. Please describe the nature of costs you incur in connection
with
your development consulting services and over what period these
costs
are typically incurred. In addition, tell us your basis for
measuring job progress based on construction costs incurred
relative
to the total estimated construction costs rather than the actual
management effort expended. Refer to SOP 81-1.
135. Please advise us, and disclose, where in the Combined
Statements
of Operations you report expense reimbursements in connection with
development consulting services. Support your policy.
136. It appears from the disclosure on page 61 that you incur
predevelopment expenditures related to your third-party
development
consulting activities. Please advise us of, and disclose, the
method
used to account for these predevelopment expenditures. Support
your
policy and cite relevant literature.
Note 11, Commitments and contingencies, page F-36
137. Please advise us, and disclose, if the initial public
offering
and the formation and acquisition transactions contemplated in
this
filing qualify as a "major capital event" under the predecessor
operating agreements. If so, disclose the impact of the
guaranteed
return, and advise us how you have treated the guarantee in the
pro
forma financial statements.
JPI Portfolio, pages F-39 to F-43
138. Please revise the statements of certain revenues and expenses
for the JPI Portfolio for the comments noted above, as
appropriate.
Notes to combined statements of certain revenues and certain
expenses, pages F-40 to F-43
Note 1, Basis of presentation, page F-40
139. Please advise us of, and disclose, your basis for determining
that the JPI Portfolio was commonly owned and managed.
Note 2, Summary of significant accounting policies, page F-41
Revenue recognition, page F-41
140. Please disclose the future minimum rental income to be
received
for leases held as of December 31, 2003 and June 30, 2004.
141. Please advise us of, and disclose, the method used to account
for revenue related to leasing activities.
National Development/Allen & O`Hara CUPA, LLC, pages F-45 to F-51
Notes to financial statements, pages F-49 to F-51
Note 2, Summary of significant accounting policies, page F-50
142. We note that you record revenue using the percentage of
completion method in proportion to the contract costs incurred by
the
owner over the course of the construction projects. Please expand
your disclosure and describe the types of costs you incur and over
what period these costs are reflected in the statement of
operations.
Part II
Item 33. Recent Sales of Unregistered Securities, page II-1
143. Please revise to include the underlying facts for this
section
that you believe afford you an exemption from registration,
including
the dates of the transactions and the number of purchasers.
Exhibits
144. Please file all remaining required exhibits as promptly as
possible. We will review all exhibits prior to granting
effectiveness and may have further comments based on our review.
Exhibit 5.1
145. Revise to eliminate the assumption listed in paragraph 5 on
page
2 stating that you will assume the Charter will be filed. We note
that a copy of the certified charter is one of the documents that
counsel notes it has examined for purposes of issuing its opinion.
* * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Joshua S. Forgione (202) 824-5464 or Deborah
A.
Wilson, Senior Accountant, at (202) 942-2956 if you have questions
regarding comments on the financial statements and related
matters.
Please contact Neil Miller at (202) 942-1851 or the undersigned at
(202) 942-1971 with any other questions.
Sincerely,
Owen J. Pinkerton
Senior Counsel
cc: Rosemarie A. Thurston, Esq. (via facsimile)
John A. Earles, Esq.
Morris, Manning & Martin LLP
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Education Realty Trust, Inc.
October 26, 2004
Page 1