As filed with the Securities and Exchange Commission on September 13, 2010

Registration Statement No. 333-166834

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

Amendment No. 5

to

Form S-11

FOR REGISTRATION

UNDER

THE SECURITIES ACT OF 1933

OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES

 

 

CAMPUS CREST COMMUNITIES, INC.

(Exact Name of Registrant as Specified in Governing Instruments)

 

 

2100 Rexford Road, Suite 414
Charlotte, NC 28211
(704) 496-2500
(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Ted W. Rollins
Chief Executive Officer
2100 Rexford Road, Suite 414
Charlotte, NC 28211
(704) 496-2500
(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  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. (Check one):

 

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

Subject to Completion dated September 13, 2010

 

PROSPECTUS

 

        Shares

 

 

Campus Crest Communities, Inc.

 

Common Stock

 

 

Campus Crest Communities, Inc. is a self-managed, self-administered and vertically-integrated developer, builder, owner and manager of high-quality, purpose-built student housing. Prior to this offering, our business was conducted through Campus Crest Group, LLC, which is wholly-owned and controlled by Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, and certain members of their families. Upon completion of this offering and our formation transactions, we will own interests in 27 student housing properties containing approximately 13,580 beds.

 

This is our initial public offering. We are offering        shares of our common stock, $0.01 par value per share. We expect the initial public offering price of our common stock to be between $        and $        per share. Currently, no public market exists for our common stock. We have applied to have our common stock listed on the New York Stock Exchange under the symbol ‘‘CCG.”

 

We are organized as a Maryland corporation and intend to elect and qualify to be taxed as a real estate investment trust for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2010. Subject to certain exceptions described in this prospectus, upon completion of this offering, our charter will provide that no person may own, or be deemed to own, more than 9.8% by vote or value, whichever is more restrictive, of either our outstanding common stock or our outstanding capital stock in the aggregate.

 

Investing in our common stock involves significant risks. You should read the section entitled “Risk Factors” beginning on page 25 of this prospectus for a discussion of the risks that you should consider before investing in our common stock.

 

 

 

 

The underwriters may purchase up to an additional        shares of our common stock from us at the initial public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments, if any.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The underwriters expect to deliver the common stock on or before          , 2010.

 

 

 

 

Joint Book-Running Managers

 

 

 

 

 

Co-Manager

 

BAIRD

 

The date of this prospectus is          , 2010

 

TABLE OF CONTENTS

 

 

 

 

 

You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by us. We have not, and the underwriters have not, authorized anyone to provide you with any additional or different information. If anyone provides you with additional or different information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus or such other date as specified herein. Our business, financial condition, liquidity, funds from operations, or “FFO,” results of operations and prospects may have changed since such dates.

 

Unless the context otherwise requires, references to “company,” “we,” “us” and “our” refer to (i) Campus Crest Communities, Inc., a Maryland corporation, and its consolidated subsidiaries, including Campus Crest Communities Operating Partnership, LP, a Delaware limited partnership, through which we will conduct substantially all of our business, which we refer to as “our operating partnership,” except where it is clear from the context that the term means only the

issuer of the common stock offered hereby, Campus Crest Communities, Inc., and (ii) with respect to the period prior to the completion of this offering, the business of our predecessor entities through which Campus Crest Group, LLC, a North Carolina limited liability company, or “Campus Crest Group,” carried out the development, construction, ownership and management of the properties that we will own interests in upon completion of this offering and our formation transactions; references to “predecessor entities” refer to one or more of the joint venture arrangements that owned our properties and the entities through which Campus Crest Group carried out our business; references to “MXT Capital” refer to MXT Capital, LLC, a Delaware limited liability company, which is wholly-owned and controlled by Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, and certain members of their families, and is the sole owner of Campus Crest Group; references to the “Ricker Group” refer to Carl H. Ricker, Jr. and the vehicles through which Mr. Ricker or an affiliated party held interests in our predecessor entities; references to “HSRE” refer to Harrison Street Real Estate Capital and its affiliates that held interests in our predecessor entities; references to “Encore” refer to Encore Interests, Inc., a Delaware corporation; references to “CC-Encore” refer to CC-Encore, LLC, a Delaware limited liability company; references to “common stock” refer to shares of common stock, $0.01 par value per share, in Campus Crest Communities, Inc.; and references to “OP units” refer to limited partnership units in our operating partnership that are exchangeable, subsequent to the one-year anniversary of the completion of this offering, for cash or, at our option, common stock on a one-for-one basis. Unless otherwise indicated, the information contained in this prospectus assumes that (a) the common stock to be sold in this offering is sold at $        per share, the mid-point of the price range set forth on the cover page of this prospectus, and (b) the underwriters’ overallotment option is not exercised.

 

 

Industry and Market Data

 

We use market data, industry forecasts and projections throughout this prospectus. We have obtained portions of this information from a market study prepared for us by Michael Gallis & Associates, or “MGA,” a North Carolina-based strategic planning and design firm, in connection with this offering. The forecasts and projections are based on MGA’s experience and data published by the U.S. Department of Education and other sources, and there is no assurance that any of the projections will be accurate. We believe that the study is reliable, but we have not independently verified the information in the study nor have we ascertained any underlying assumptions relied upon therein. While we are not aware of any misstatements regarding the industry data presented herein, estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”

 

PROSPECTUS SUMMARY

	•	3,920 apartment units; and
	•	10,528 beds.

	•	1,128 apartment units; and
	•	3,052 beds.

	•	average occupancy of approximately 89%; and
	•	average monthly rental revenue per occupied bed of approximately $468.

	•	Developing properties will expose us to additional risks beyond those associated with owning and operating student housing properties, and could materially and adversely affect us.
	•	Adverse economic conditions and dislocation in the credit markets have had a material and adverse effect on us and may continue to materially and adversely affect us.

	•	We rely on our relationships with the colleges and universities from which our properties draw student-tenants and the policies and reputations of these schools; any deterioration in our relationships with such schools or changes in the schools’ admissions or residency policies or reputations could materially and adversely affect us.
	•	Our results of operations are subject to risks inherent in the student housing industry, such as an annual leasing cycle and limited leasing period, which could materially and adversely affect us.
	•	Competition from other student housing properties, including on-campus housing and traditional multi-family housing located in close proximity to the colleges and universities from which we draw student-tenants, may reduce the demand for our properties, which could materially and adversely affect us.
	•	Our success depends on key personnel whose continued service is not guaranteed, and their departure could materially and adversely affect us.
	•	The current economic environment could reduce enrollment and limit the demand for our properties, which could materially and adversely affect us.
	•	In each of the past five fiscal years, we have experienced significant net losses; if this trend continues, we could be materially and adversely affected.
	•	If we are unable to acquire properties on favorable terms, our future growth could be materially and adversely affected.
	•	Our strategy of investing in properties located in medium-sized college and university markets may not be successful, which could materially and adversely affect us.
	•	Our indebtedness exposes us to a risk of default and will reduce our free cash flow, which could materially and adversely affect us.
	•	Joint venture investments could be materially and adversely affected by our lack of sole decision-making authority, our reliance on our co-venturers’ financial condition and disputes between our co-venturers and us.
	•	Our management team has not previously operated a REIT, and this inexperience could materially and adversely affect us.
	•	Our performance and the value of our properties are subject to risks associated with real estate and with the real estate industry, which could materially and adversely affect us.
	•	Provisions of our charter allow our board of directors to authorize the issuance of additional securities, which may limit the ability of a third party to acquire control of us through a transaction that our stockholders believe to be in their best interest.
	•	Provisions of Maryland law may limit the ability of a third party to acquire control of us, which, in turn, may negatively affect our stockholders’ ability to realize a premium over the market price of our common stock.
	•	The ownership limitations in our charter may restrict or prevent you from engaging in certain transfers of our common stock, which may delay or prevent a change in control of us that our stockholders believe to be in their best interest.

	•	We may not be able to make our initial distributions or maintain our initial, or any subsequent, distribution rate.
	•	A public market for our common stock may never develop and your ability to sell your shares of our common stock may be limited.
	•	Common stock eligible for future sale may adversely affect the market price of our common stock.
	•	Future offerings of debt or equity securities ranking senior to our common stock may limit our operating and financial flexibility and may adversely affect the market price of our common stock.
	•	We have not obtained appraisals of our properties in connection with this offering and the price we pay to our existing investors for their interests in our predecessor entities may exceed our properties’ market value.
	•	Our failure to qualify or remain qualified as a REIT could have a material and adverse effect on us and the market price of our common stock.
	•	To qualify and remain qualified as a REIT, we will likely rely on the availability of equity and debt capital to fund our business.
	•	Complying with REIT requirements may cause us to forgo otherwise attractive investment opportunities, which could materially and adversely affect us.

																										Occupancy				Average Monthly
										Fall 2009				Distance to				Number				Number				as of				Rental Revenue
						Year				Overall				Campus				of				of				September 10,				Per Occupied
		City		State		Opened		Primary University Served		Enrollment				(miles)				Units				Beds				2010 (1)				Bed
		Wholly-Owned Properties
1		Asheville		NC		2005		University of NC - Asheville			3,695				0.1				154				448				87	%		$	489
2		Carrollton		GA		2006		University of West Georgia			11,500				0.1				168				492				92	%		$	436
3		Las Cruces		NM		2006		New Mexico State University			18,497				0.4				168				492				82	%		$	440
4		Milledgeville		GA		2006		Georgia College & State University			6,633				0.1				168				492				99	%		$	524
5		Abilene		TX		2007		Abilene Christian University			4,838				0.5				192				504				84	%		$	438
6		Ellensburg		WA		2007		Central Washington University			10,187				0.5				192				504				96	% (2)		$	483	(2)
7		Greeley		CO		2007		University of Northern Colorado			12,711				1.0				192				504				98	%		$	463
8		Jacksonville		AL		2007		Jacksonville State University			9,351				0.2				192				504				80	%		$	429
9		Mobile—Phase I (3)		AL		2007		University of South Alabama			14,522				On- Campus				192				504				100	%		$	466
10		Mobile—Phase II (3)		AL		2008		University of South Alabama			14,522				On- Campus				192				504				100	%		$	466
11		Nacogdoches		TX		2007		Stephen F. Austin State University			12,845				0.4				196				522				100	%		$	508
12		Cheney		WA		2008		Eastern Washington University			11,302				0.5				192				512				68	% (2)		$	449	(2)
13		Jonesboro		AR		2008		Arkansas State University			12,156				0.2				192				504				99	%		$	440
14		Lubbock		TX		2008		Texas Tech University			30,049				2.1				192				504				92	%		$	473
15		Stephenville		TX		2008		Tarleton State University			8,598				0.8				192				504				75	%		$	470
16		Troy		AL		2008		Troy University			6,679				0.4				192				514				98	%		$	472
17		Waco		TX		2008		Baylor University			14,614				0.8				192				504				83	%		$	535
18		Wichita		KS		2008		Wichita State University			14,823				1.1				192				504				75	%		$	453
19		Wichita Falls		TX		2008		Midwestern State University			6,341				1.2				192				504				67	%		$	456
20		Murfreesboro		TN		2009		Middle Tennessee State University			25,188				0.8				186				504				98	%		$	442
21		San Marcos		TX		2009		Texas State University			30,816				1.7				192				504				100	%		$	554
Sub Total of Wholly-Owned Properties											13,327	(4)			0.6	(4)			3,920				10,528				89	% (5)		$	472	(5)

																										Occupancy				Average Monthly
										Fall 2009				Distance to												as of				Rental Revenue
						Year				Overall				Campus				Number				Number				September 10,				Per Occupied
		City		State		Opened		Primary University Served		Enrollment				(miles)				of Units				of Beds				2010 (1)				Bed
		Joint Venture Properties — 49.9% Ownership Interest
22		Lawrence		KS		2009		University of Kansas			29,242				1.6				172				500				75	%		$	458
23		Moscow (3)		ID		2009		University of Idaho			11,957				0.5				192				504				89	%		$	455
24		San Angelo		TX		2009		Angelo State University			6,387				0.3				192				504				84	%		$	470
25		Conway		AR		2010		University of Central Arkansas			11,781				0.4				180				504				93	%		$	440
26		Huntsville		TX		2010		Sam Houston State University			16,772				0.2				192				504				100	%		$	448
27		Statesboro		GA		2010		Georgia Southern University			19,086				0.7				200				536				100	%		$	447
Sub Total of Joint Venture Properties											15,871	(4)			0.6	(4)			1,128				3,052				90	% (5)		$	452	(5)
Total Properties											13,892	(4)			0.6	(4)			5,048				13,580				89	% (5)		$	468	(5)

(1)		Represents executed leases in hand for the 2010-2011 academic year.
(2)		The 2010-2011 academic year commences on September 22, 2010 at the primary university served by this property; accordingly, pre-academic year leasing is still ongoing at this property.
(3)		Property subject to a ground lease with an unaffiliated third-party.
(4)		Average.

(5)		Weighted average by number of leased beds as of September 10, 2010.

										Primary				Fall 2009				Distance to												Estimated
						Targeted				University				Overall				Campus				Number				Number				Cost(1)
City		State				Completion				Served				Enrollment				(miles)				of Units				of Beds				($ in thousands)
Fort Wayne			IN				August 2011				Indiana University/ Purdue University				13,675				1.1				204				540			$	19,926
Clarksville			TN				August 2011				Austin Peay State University				10,188				1.3				208				560				21,202
Ames			IA				August 2011				Iowa State University				27,945				0.3				216				584				21,411
Fort Collins			CO				August 2011				Colorado State University				25,413				On-Campus				224				624				25,380
Total Expected 2011 Consolidated Developments															19,305	(2)			0.7	(2)			852				2,308			$	87,919

(1)		Actual costs may vary significantly from estimated costs.

(2)		Average.

										Primary				Fall 2009				Distance to												Estimated
						Targeted				University				Overall				Campus				Number				Number				Cost(1)
City		State				Completion				Served				Enrollment				(miles)				of Units				of Beds				($ in thousands)
Denton			TX				August 2011				University of North Texas				36,123				0.8				216				584			$	24,873
Orono			ME				August 2011				University of Maine				11,867				0.5				188				620				24,278
Valdosta			GA				August 2011				Valdosta State University				12,391				1.9				216				584				21,150
Total Expected 2011 Joint Venture Developments															20,127	(2)			1.1	(2)			620				1,788			$	70,301

(1)		Actual costs may vary significantly from estimated costs. Under certain circumstances, we expect that we will be responsible for funding the amount by which actual development costs for a project pursued by the venture exceed the budgeted development costs of such project (without any increase in our interest in the project).

(2)		Average.

	•	consolidate the ownership of our properties and the student housing business of Campus Crest Group into our operating partnership and its wholly-owned subsidiaries;
	•	facilitate this offering; and
	•	enable us to qualify as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2010.

	•	Pursuant to the terms of a contribution agreement, MXT Capital will contribute to our operating partnership its student housing business and interests in the predecessor

		entities in exchange for approximately $4.5 million (which will immediately be used to make capital contributions to certain entities, which will in turn immediately use such capital contributions solely to repay indebtedness) and 973,333 OP units, representing a       % limited partnership interest in our operating partnership.

	•	Campus Crest Group will distribute to MXT Capital its interests in two parcels of land consisting of 20.2 acres, with associated indebtedness of approximately $1.9 million, on which we have decided not to build student housing properties; MXT Capital has agreed not to build student housing properties on these parcels in the future.
	•	Campus Crest Group will distribute to MXT Capital its interest in an entity that will own a minority interest in a 1999 Pilatus PC-12 single-engine turboprop airplane. Upon completion of this offering, we will lease this aircraft on payment terms structured to equal our pro rata carrying and operating costs of the aircraft based on our actual usage.
	•	Pursuant to the terms of a contribution agreement, the Ricker Group will contribute to our operating partnership its interests in the predecessor entities and the entire ownership interest in the entities that own fee interests in certain properties that were subject to ground leases with the Ricker Group prior to the completion of our formation transactions in exchange for approximately $26.7 million and 66,667 OP units, representing a       % limited partnership interest in our operating partnership.

	•	Pursuant to the terms of contribution agreements and purchase and sale agreements, certain third-party investors will contribute to our operating partnership all of their interests in the predecessor entities in exchange for approximately $10.7 million and 53,000 OP units, representing a       % limited partnership interest in our operating partnership. Under the terms of these agreements, these third-party investors will also provide us with certain limited representations and warranties with respect to their ownership interests being contributed to our operating partnership, including the

		authority to enter into the agreement, the absence of claims or litigation involving the contributed interest and the obtaining of any necessary consents to the contribution of the interests. The third-party investors also provide covenants under the agreements, including not to transfer or dispose of any of their contributed interests, and will indemnify us for any losses resulting from breaches of their representations, warranties and covenants.

	•	In exchange for approximately $29.1 million, HSRE will sell to our operating partnership (i) all of its interests in each of The Grove at Milledgeville and The Grove at San Marcos, with the result that we will own a 100% interest in each of these properties and (ii) a 49.8% interest in a joint venture that will own 100% of each of The Grove at Conway, The Grove at Huntsville, The Grove at Lawrence, The Grove at Moscow, The Grove at San Angelo and The Grove at Statesboro, with the result that we will own a 49.9% interest in these properties and HSRE will own a 50.1% interest in these properties. In addition, we will make a preferred investment in an aggregate amount of approximately $4.8 million in special-purpose subsidiaries of this joint venture that own The Grove at Moscow and The Grove at San Angelo, for which we will be entitled to a cumulative return of 9% compounded annually.

	•	We will purchase the preferred membership interest in our CC-Encore joint venture for approximately $3.9 million and terminate CC-Encore.

	•	we will own approximately       % of the outstanding OP units, MXT Capital will own approximately       % of the outstanding OP units, the Ricker Group will own approximately       % of the outstanding OP units and certain third-party investors will own, in the aggregate, approximately       % of the outstanding OP units;
	•	our operating partnership will own 100% interests in 21 of our properties;
	•	our operating partnership will own an indirect 49.9% interest in The Grove at Conway, The Grove at Huntsville, The Grove at Lawrence, The Grove at Moscow, The Grove at San Angelo and The Grove at Statesboro; and

	•	we will own each of the entities through which Campus Crest Group conducted its student housing business.

(1)		Includes an aggregate of 114,308 shares of restricted common stock to be granted to our independent directors, certain of our executive officers and certain members of our management team.

(2)		Represents a limited partnership interest in our operating partnership.
(3)		Represents 150,000 restricted OP units to be granted to Mr. Hartnett pursuant to his employment agreement upon completion of this offering. This award will vest ratably on each of the first, second and third anniversaries of the completion of this offering.

	•	Our operating partnership will issue to MXT Capital 973,333 OP units in exchange for MXT Capital’s contribution to our operating partnership of the interests owned by MXT Capital in the predecessor entities and its student housing business.

	•	MXT Capital will enter into a tax protection agreement with us. Pursuant to the tax protection agreement, we will agree not to sell, exchange or otherwise dispose of 9 of our properties for a period of ten years, or the “ten-year tax protection period,” in a transaction that would cause the members of MXT Capital to realize taxable gain that was built-in, or the “built-in gain,” to such properties at the time of their contribution to our operating partnership. If we sell one or more of these 9 properties during the ten-year tax protection period, we will be required to pay to MXT Capital an amount equal to the federal, state and local taxes imposed on the built-in gain allocated to its members, with the amount of such taxes being computed based on the highest applicable federal, state and local marginal tax rates, as well as any “grossed up” taxes imposed on such payments. The amount otherwise payable in connection with such a transaction under the tax protection agreement will be reduced by twenty percent commencing on the fifth anniversary date of the closing date of this offering and an additional twenty percent on each successive anniversary date until the amount payable is reduced to zero on the tenth anniversary of the closing date. Consequently, our ability to sell or dispose of these 9 properties will be substantially restricted by this obligation to make payments to MXT Capital during the ten-year tax protection period if we sell such a property. This requirement will also restrict our ability to arrange financing for our operations as well as our ability to manage our capital structure.

	•	We will enter into a registration rights agreement with MXT Capital pursuant to which we will agree, among other things, to register the resale of any common stock that may be exchanged for the OP units issued in our formation transactions. This agreement requires

		us to seek to register all common stock that may be exchanged for OP units effective as of that date which is 12 months following completion of this offering on a shelf registration statement under the Securities Act of 1933, as amended, or the “Securities Act.”

	•	MXT Capital will receive Campus Crest Group’s interests in two parcels of land consisting of 20.2 acres, with associated indebtedness of approximately $1.9 million, on which we have decided not to build student housing properties.
	•	We will pay the Ricker Group approximately $26.7 million of the net proceeds from this offering and our operating partnership will issue to the Ricker Group 66,667 OP units in exchange for the Ricker Group’s contribution to our operating partnership of the interests owned by the Ricker Group in the predecessor entities and in the entities that have entered into ground leases with us relating to eight of our properties. As a result of our acquisition of the entities that previously had entered into ground leases with us relating to eight of our properties, we will have fee simple title to the real estate that is the subject of such leases.
	•	Approximately $6.0 million of the net proceeds from this offering will be used to repay indebtedness owed by us to RHR, LLC, an entity owned by MXT Capital and the Ricker Group; RHR, LLC will, in turn, immediately repay an equal amount of indebtedness owed by it to an unaffiliated third party on substantially the same terms and conditions as the loan from RHR, LLC to us.
	•	Approximately $4.0 million of the net proceeds from this offering will be used to repay our indebtedness to Capital Bank, an entity in which the Ricker Group has an ownership interest and of which Carl H. Ricker, Jr. is a director.

	•	Each of Ted W. Rollins, Michael S. Hartnett and Carl H. Ricker, Jr. will be released from certain personal guarantees with respect to mortgage and construction indebtedness with an aggregate principal amount of approximately $243.3 million in the case of each of Messrs. Rollins and Hartnett and approximately $205.9 million in the case of Mr. Ricker, and from personal guarantees with respect to the RHR, LLC and Capital Bank indebtedness described above, and the MXT Capital indebtedness described below. Each of Messrs. Rollins and Hartnett will be released from certain personal guarantees with respect to the preferred membership interest in CC-Encore.

	•	Indebtedness incurred by two entities through which MXT Capital conducts aspects of its business will be repaid by MXT Capital. MXT Capital will receive $4.5 million of the net proceeds from this offering, which it will immediately use to make capital contributions to these entities. These entities will, in turn, immediately use the capital contributions received from MXT Capital solely to repay indebtedness.
	•	Our executive officers, directors and certain members of our management team will receive material benefits, including:

	•	a grant of 114,308 shares of restricted common stock pursuant to the Campus Crest Communities, Inc. 2010 Incentive Award Plan, or the “2010 Incentive Award Plan” (including an aggregate grant of 80,973 shares of restricted common stock to certain of our executive officers and certain members of our management team and an aggregate grant of 33,335 shares of restricted common stock to our independent directors);

	•	an aggregate of 512,361 shares of restricted common stock reserved under the 2010 Incentive Award Plan for issuance (i) one year after the termination of Campus Crest Group’s deferred compensation plan, or “DCP,” in satisfaction of vested interests in

		awards that were outstanding under the DCP; and (ii) in 2012 and 2013 pursuant to employment agreements to be entered into with our executive officers;

	•	employment agreements providing for salary, bonus and other benefits, including severance upon a termination of employment under certain circumstances, and, in the case of Mr. Hartnett, a grant of 150,000 restricted OP units upon completion of this offering that will vest ratably on each of the first, second and third anniversaries of the completion of this offering, as described under “Management—Employment Agreements”;
	•	indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against them as officers; and

	•	upon completion of this offering we have agreed to pay to Donald L. Bobbitt, Jr., an executive vice president and our chief financial officer, Earl C. Howell, our president and chief operating officer, and Howard J. Weissman, a senior vice president and our corporate controller, cash bonuses of $300,000, $200,000 and $150,000, respectively.

	•	Each of our non-employee directors will receive material benefits, including:

	•	annual and per-meeting fees described under “Management—Director Compensation”; and
	•	indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against him as a director.

		Pro Forma Campus								Historical Campus Crest Communities
		Crest Communities, Inc.								Predecessor
		Six Months				Year Ended				Six Months Ended
		Ended				December 31,				June 30,								Year Ended December 31,
		June 30, 2010				2009				2010				2009				2009				2008				2007
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
		(in thousands)
Revenues:
Student housing leasing		$	25,986			$	45,021			$	24,443			$	21,219			$	43,708			$	30,813			$	15,598
Student housing services			1,486				2,289				1,426				1,011				2,265				798				110
Development, construction and management services			17,311				24,540				30,738				37,258				60,711				2,505				—
Total revenues			44,783				71,850				56,607				59,488				106,684				34,116				15,708
Operating expenses:
Student housing operations			13,922				23,055				13,455				11,416				23,155				14,890				7,470
Development, construction and management services			16,140				24,847				28,644				35,693				60,200				2,147				—
General and administrative			3,518				6,606				2,618				2,454				5,617				5,422				3,467
Ground leases			94				264				94				96				264				224				40
Write-off of pre-development costs			—				1,211				—				—				1,211				203				—
Depreciation and amortization			9,792				18,598				9,429				9,115				18,371				13,573				5,765
Total operating expenses			43,466				74,581				54,240				58,774				108,818				36,459				16,742
Equity in loss of uncombined entities			(1,041	)			(506	)			(194	)			—				(59	)			—				—
Operating income (loss)			276				(3,237	)			2,173				714				(2,193	)			(2,343	)			(1,034	)
Nonoperating income (expenses):
Interest expense			(1,891	)			(3,764	)			(10,686	)			(7,369	)			(15,871	)			(14,946	)			(6,583	)
Change in fair value of interest rate derivatives			279				90				178				2,680				797				(8,758	)			(2,115	)
Income taxes			(128	)			(73	)			—				—				—				—				—
Other income (expense)			153				134				45				(19	)			44				(50	)			100
Total nonoperating expenses			(1,587	)			(3,613	)			(10,463	)			(4,708	)			(15,030	)			(23,754	)			(8,598	)
Net loss			(1,311	)			(6,850	)			(8,290	)			(3,994	)			(17,223	)			(26,097	)			(9,632	)
Net loss attributable to noncontrolling interest			(49	)			(254	)			(5,025	)			(2,060	)			(10,486	)			(870	)			(2,083	)
Net loss attributable to Campus Crest Communities, Inc./Predecessor		$	(1,262	)		$	(6,596	)		$	(3,265	)		$	(1,934	)		$	(6,737	)		$	(25,227	)		$	(7,549	)

		Pro Forma
		Campus Crest				Historical Campus Crest
		Communities, Inc.				Communities Predecessor
		As of				As of June 30,				As of December 31,
		June 30, 2010				2010				2009				2008
		(unaudited)				(unaudited)
		(in thousands)
Assets:
Student housing properties		$	370,400			$	348,466			$	347,157			$	326,217
Accumulated depreciation			(48,403	)			(48,403	)			(38,999	)			(20,794	)
Development in process			7,090				3,641				3,300				15,742
Investment in real estate, net			329,087				303,704				311,458				321,165
Investment in uncombined entity			21,472				3,257				2,980				776
Other assets			33,052				21,412				17,358				20,214
Total assets		$	383,611			$	328,373			$	331,796			$	342,155
Liabilities:
Mortgage and construction loans		$	60,840			$	329,374			$	329,102			$	322,426
Lines of credit and other debt			—				17,689				14,070				9,237
Other liabilities			29,950				34,756				31,340				32,606
Total liabilities			90,790				381,819				374,512				364,269
Equity:
Owners’ equity (deficit)			349,996				(54,245	)			(50,090	)			(42,502	)
Noncontrolling interest			(57,175	)			799				7,374				20,388
Total equity			292,821				(53,446	)			(42,716	)			(22,114	)
Total liabilities and equity		$	383,611			$	328,373			$	331,796			$	342,155

		Pro Forma
		Campus Crest
		Communities, Inc.
		Six Months				Year Ended
		Ended				December 31,
		June 30, 2010				2009
		(unaudited)
						(unaudited)
Funds from operations (“FFO”) (1):
Net loss		$	(1,311	)		$	(6,850	)
Real estate related depreciation and amortization			9,643				18,432
Real estate related depreciation and amortization — unconsolidated joint ventures			691				355
FFO		$	9,023			$	11,937

		Historical Campus Crest Communities Predecessor
		Six Months Ended
		June 30,								Year Ended December 31,
		2010				2009				2009				2008				2007
		(unaudited)
		(in thousands)
Cash flow information:
Net cash provided by (used in) operations		$	2,739			$	2,068			$	4,353			$	1,264			$	(1,209	)
Net cash used in investing			(2,662	)			(12,830	)			(23,552	)			(148,385	)			(113,043	)
Net cash provided by financing			75				5,523				11,060				144,781				126,061

		As of June 30,				As of December 31,
		2010				2009				2008				2007
Operating Properties			24				24				19				10
Units			4,476				4,476				3,542				1,814
Beds			12,036				12,036				9,520				4,966
Occupancy			89	%			84	%			78	%			91	%

(1)		FFO is used by industry analysts and investors as a supplemental operating performance measure for REITs. We calculate FFO in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or “NAREIT.” FFO, as defined by NAREIT, represents net income (loss) determined in accordance with accounting principles generally accepted in the United States of America, or “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 from 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) as presented in the combined financial statements and the other financial statements included elsewhere in this prospectus. FFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of the properties’ 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.

Common stock offered by us		shares(1)
Common stock to be outstanding after this offering		shares(1)(2)
Common stock and OP units to be outstanding after this offering		shares/units(1)(2)(3)

Use of proceeds		We estimate that the net proceeds from this offering, after deducting the underwriting discount, structuring fee and other estimated fees and expenses payable by us, will be approximately $        million ($        million if the underwriters exercise their overallotment option in full). We will contribute the net proceeds from this offering to our operating partnership, which will use the proceeds as follows:

		•  approximately $287.1 million to reduce outstanding mortgage and construction loan indebtedness and pay associated costs;

		•  approximately $4.8 million to fund preferred investments in special-purpose subsidiaries of our joint venture with HSRE that own The Grove at Moscow and The Grove at San Angelo;

		•  approximately $4.0 million to repay unsecured indebtedness to Capital Bank;
		•  approximately $6.0 million to repay unsecured indebtedness to RHR, LLC; RHR, LLC will, in turn, immediately repay an equal amount of indebtedness owed by it to an unaffiliated third party on substantially the same terms and conditions as the loan from RHR, LLC to us;

		•  approximately $4.5 million to MXT Capital, which will immediately use such amount to make capital contributions to certain entities that will, in turn, immediately use the capital contributions solely to repay indebtedness;

		•  approximately $29.1 million to acquire interests in our properties from HSRE and satisfy associated obligations to HSRE(4);
		•  approximately $26.7 million to acquire interests in our properties from the Ricker Group;
		•  approximately $10.7 million to acquire interests in our properties from certain third-party investors;

		•  approximately $3.4 million to acquire land on which we expect to commence building four properties following the completion of this offering;

		•  approximately $3.9 million to acquire the preferred membership interest in CC-Encore; and

		•  approximately $        million for working capital and general corporate purposes, which may include funding a portion of our expected development activity and other growth strategies and distributions to our stockholders.

Ownership and transfer restrictions		Our charter, subject to certain exceptions, prohibits any person from directly or indirectly owning more than 9.8% by vote or value, whichever is more restrictive, of either our outstanding common stock or our outstanding capital stock in the aggregate. See “Description of Capital Stock—Restrictions on Ownership and Transfer.”
Risk factors		Investing in our common stock involves significant risks. You should carefully read and consider the information set forth under “Risk Factors” and all other information in this prospectus before investing in our common stock.
Proposed New York Stock Exchange symbol		“CCG”

(1)		Excludes        shares of common stock issuable upon exercise of the underwriters’ overallotment option.

(2)		Includes an aggregate grant of 80,973 shares of restricted common stock to certain of our executive officers and certain members of our management team and an aggregate grant of 33,335 shares of restricted common stock to our independent directors, each of which is subject to a vesting schedule. Excludes 512,361 shares of common stock reserved under the 2010 Incentive Award Plan for issuance (i) one year after the termination of the DCP in satisfaction of vested interests in awards that were outstanding under the DCP; and (ii) in 2012 and 2013 pursuant to employment agreements to be entered into with our executive officers.

(3)		Includes the issuance of an aggregate of 1,093,000 OP units to MXT Capital, the Ricker Group and certain third-party investors in connection with our formation transactions and a grant of 150,000 restricted OP units to Mr. Hartnett pursuant to his employment agreement, which will vest ratably on each of the first, second and third anniversaries of the completion of this offering.
(4)		The amount of net proceeds to be paid to HSRE will increase to $31.0 million in the event that the lender consents relating to indebtedness secured by The Grove at Carrollton are received and our joint venture with HSRE acquires a 100% interest in The Grove at Carrollton.

 

Investment in our common stock involves significant risks. You should therefore carefully consider the material risks of an investment in our common stock that are discussed in this section, as well as the other information contained in this prospectus, before making an investment decision. The occurrence of any of the following risks could materially and adversely affect our financial condition, results of operations, cash flow, per share trading price and ability to satisfy our debt service obligations and pay dividends or distributions to you and could cause you to lose all or a significant part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

 

Risks Related to Our Business and Properties

 

Developing properties will expose us to additional risks beyond those associated with owning and operating student housing properties, and could materially and adversely affect us.

 

Our future growth will depend, in part, upon our ability to successfully complete the seven properties that we expect to commence building upon completion of this offering and to successfully identify and plan additional development opportunities. Our development activities, particularly those relating to the seven properties that we expect to develop with completion targeted for the 2011-2012 academic year, may be adversely affected by:

 

 

The construction activities at our student housing properties expose us to liabilities and risks beyond those associated with the ownership and operation of student housing properties.

 

The construction of our student housing properties, including the seven properties that we expect to develop with completion targeted for the 2011-2012 academic year, involves risks associated with construction activities, including liability for workplace safety, such as injuries and accidents to persons and property occurring during the construction process. Construction activities also subject us to obligations relating to environmental compliance, such as management of storm water discharge and run-off, material handling, on-site storage of construction materials and off-site disposal of construction materials. These risks are in addition to those associated with owning or operating student housing properties, and the realization of any of these risks could materially and adversely affect us.

Our development activities are subject to delays and cost overruns, which could materially and adversely affect us.

 

Our development activities, including those related to the seven properties targeted to be completed for the 2011-2012 academic year, may be adversely affected by circumstances beyond our control, including: work stoppages; labor disputes; shortages of qualified trades people, such as carpenters, roofers, electricians and plumbers; changes in laws or other governmental regulations, such as those relating to union organizing activity; lack of adequate utility infrastructure and services; our reliance on local subcontractors, who may not be adequately capitalized or insured; inclement weather; and shortages, delay in availability, or fluctuations in prices of building materials. Any of these circumstances could give rise to delays in the start or completion of, or could increase the cost of, developing one or more of our properties. If we are unable to recover these increased costs by raising our lease rates, our financial performance and liquidity could be materially and adversely affected.

 

We may not realize a return on our development activities in a timely manner, which could materially and adversely affect us.

 

Due to the amount of time required for planning, constructing and leasing of development properties, we may not realize a significant cash return for several years. Therefore, if any of our development activities are subject to delays or cost overruns, our growth may be hindered and our results of operations and cash flows may be adversely affected. In addition, new development activities, regardless of whether or not they are ultimately successful, typically require substantial time and attention from management. Furthermore, maintaining our development capabilities involves significant expense, including compensation expense for our development personnel and related overhead. To the extent we cease or limit our development activity, this expense will not be offset by revenues from our development activity. Therefore, if we do not realize a return on our development activities in a timely manner in order to offset these costs and expenses, we could be materially and adversely affected.

 

Adverse economic conditions and dislocation in the credit markets have had a material and adverse effect on us and may continue to materially and adversely affect us.

 

We have recently experienced unprecedented levels of volatility in the capital markets, a reduction in the availability of credit and intense recessionary pressures, which have had an adverse effect on our results of operations and our ability to borrow funds. For example, lenders are generally imposing more stringent lending standards and applying more conservative valuations to properties. This has limited the amount of indebtedness we have been able to obtain, and has impeded our ability to develop new properties and to replace construction financing with permanent financing. If these conditions continue, our business and our growth strategy, including our ability to develop the seven properties that we contemplate completing for the 2011-2012 academic year, may be materially and adversely affected. Although our business strategy contemplates access to debt financing (including our revolving credit facility and construction debt) to finance the construction of the seven properties we expect to commence building upon completion of this offering and to fund future development and working capital requirements, there can be no assurance that we will be able to obtain such financing on favorable terms or at all.

 

The challenging economic environment may continue to adversely affect us by, among other things, limiting or eliminating our access to financing, which would adversely affect our ability to develop and refinance properties and pursue acquisition opportunities. Significantly more stringent lending standards and higher interest rates may reduce our returns on investment and increase our interest expense, which could adversely affect our financial performance and liquidity. Additionally, the limited amount of financing currently available may reduce the value of our properties, limit our

ability to borrow against such properties and, should we choose to sell a property, impair our ability to dispose of such property at an attractive price or at all, which could materially and adversely affect us.

 

Certain of our properties are subject to liens and claims, which could materially and adversely affect us.

 

Twelve of our properties are subject to liens or claims for materials or labor relating to disputes with subcontractors or other parties that were involved in the development and construction process. We have recorded a liability of approximately $2.3 million related to these liens and claims as of June 30, 2010. There can be no assurance that we will not be required to pay amounts greater than our currently recorded liability in order to obtain the release of the liens or settle these claims. Further, we may not be able to obtain new financing for these properties until the liens are released.

 

Developing properties in new markets may materially and adversely affect us.

 

We may develop properties in markets within the United States in which we do not currently operate, including the seven markets in which we currently contemplate developing properties with completion targeted for the 2011-2012 academic year. To the extent we choose to develop properties in new markets, we will not possess the same level of familiarity with development in these markets, as we do in our current markets, which could adversely affect our ability to develop such properties successfully or at all or to achieve expected performance, which could materially and adversely affect us.

 

We rely on our relationships with the colleges and universities from which our properties draw student-tenants and the policies and reputations of these schools; any deterioration in our relationships with such schools or changes in the schools’ admissions or residency policies or reputations could materially and adversely affect us.

 

We rely on our relationships with colleges and universities for referrals of prospective student-tenants or for mailing lists of prospective student-tenants and their parents. Many of these schools own and operate on-campus student housing which compete with our properties for student-tenants. The failure to maintain good relationships with these schools could therefore have a material adverse effect on us. If schools refuse to provide us with referrals or to make lists of prospective student-tenants and their parents available to us or increase the cost of these lists, the lack of such referrals, lists or increased cost could have a material adverse effect on us.

 

Changes in admission and housing policies could adversely affect us. For example, if a school reduces the number of student admissions or requires that a certain class of students (e.g., freshman) live in on-campus housing, the demand for beds at our properties may be reduced and our occupancy rates may decline. While we may engage in marketing efforts to compensate for any such policy changes, we may not be able to effect such marketing efforts prior to the commencement of the annual lease-up period, or our additional marketing efforts may not be successful, which could reduce the demand for our properties and materially and adversely affect us.

 

It is also important that the schools from which our properties draw student-tenants maintain good reputations and are able to attract the desired number of incoming students. Any degradation in a school’s reputation could inhibit its ability to attract students and reduce the demand for our properties.

Our results of operations are subject to risks inherent in the student housing industry, such as an annual leasing cycle and limited leasing period; which could materially and adversely affect us.

 

We generally lease our properties for 11.5-month terms, and the related leases provide for 12 equal monthly payments of rent. Therefore, our properties must be entirely re-leased each year, exposing us to more leasing risk than property lessors that lease their properties for longer terms. Student housing properties are also typically leased during a limited leasing period that generally begins in January and ends in August of each year. We are therefore highly dependent on the effectiveness of our marketing and leasing efforts and personnel during this leasing period. We will be subject to heightened leasing risk at properties under development and at properties we may acquire in the future due to our lack of experience leasing such properties. Any significant difficulty in leasing our properties would adversely affect our results of operations, financial condition and ability to pay distributions on our common stock and would likely have a negative impact on the trading price of our common stock.

 

Additionally, student-tenants may be more likely to default on their lease obligations during the summer months, which could further reduce our revenues during this period. Although we typically require a student-tenant’s lease obligations to be guaranteed by a parent, we may have to spend considerable effort and expense in pursuing payment upon a defaulted lease, and our efforts may not be successful.

 

Competition from other student housing properties, including on-campus housing and traditional multi-family housing located in close proximity to the colleges and universities from which we draw student-tenants may reduce the demand for our properties, which could materially and adversely affect us.

 

Our properties compete with properties owned by universities, colleges, national and regional student housing businesses and local real estate concerns. On-campus student housing has inherent advantages over off-campus student housing (such as the majority of our properties), due to its physical location on the campus and integration into the academic community, which may cause student-tenants to prefer on-campus housing to off-campus housing. Additionally, colleges and universities may have financial advantages that allow them to provide student housing on more attractive terms than we are able to. For example, colleges and universities can generally avoid real estate taxes and borrow funds at lower interest rates than private, for-profit real estate concerns, such as us.

 

There are a number of student housing properties that are located near or in the same general vicinity of many of our properties and that compete directly with our properties. Such competing student housing properties may be newer, located closer to campus, charge less rent, possess more attractive amenities, offer more services or offer shorter lease terms or more flexible lease terms than our properties. Competing properties could reduce demand for our properties and materially and adversely affect us.

 

Revenue at a particular property could also be adversely affected by a number of other factors, including the construction of new on-campus and off-campus housing, decreases in the general levels of rents for housing at competing properties, decreases in the number of students enrolled at one or more of the colleges or universities from which the property draws student-tenants and other general economic conditions.

 

Although we believe no participant in the student housing industry holds a dominant market share, we will compete with larger national companies, colleges and universities that have greater resources and superior access to capital. Furthermore, we believe that a number of other large

national companies with substantial financial and marketing resources may be potential entrants in the student housing business. The activities of any of these companies, colleges or universities could cause an increase in competition for student-tenants and for the acquisition, development and management of other student housing properties, which could reduce the demand for our properties.

 

Our success depends on key personnel whose continued service is not guaranteed, and their departure could materially and adversely affect us.

 

We are dependent upon the efforts of our key personnel, particularly those of Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer. These individuals have extensive experience in our business, including sourcing attractive investment opportunities, development activities, financing activities, university relations and leasing. Messrs. Rollins and Hartnett have directed the operations of our predecessor entities and each has over 25 years of experience in providing service-enriched housing and approximately seven years of student housing experience. The loss of the services of either Mr. Rollins or Mr. Hartnett could materially and adversely affect us.

 

The current economic environment could reduce enrollment and limit the demand for our properties, which could materially and adversely affect us.

 

A continuation of ongoing economic conditions that adversely affect household disposable income, such as high unemployment levels, weak business conditions, reduced access to credit, increasing tax rates and high fuel and energy costs, could reduce overall student leasing or cause student-tenants to shift their leasing practices as students may determine to forego college or live at home and commute to college.

 

In addition, as a result of general economic weakness, many students may be unable to obtain student loans on favorable terms. If student loans are not available or their costs are prohibitively high, enrollment numbers for schools from which we draw student-tenants may decrease, resulting in a decrease in the demand for, and consequently the occupancy rates at and rental revenue from, our properties. Accordingly, the continuation or deterioration of current economic conditions could materially and adversely affect us.

 

In each of the past five fiscal years, we have experienced significant net losses; if this trend continues, we could be materially and adversely affected.

 

We have incurred significant net losses in each of the past five fiscal years. These results have had a negative impact on our financial condition. Although we anticipate that upon completion of this offering and our formation transactions we will be adequately capitalized and be able to resume our historical levels of development activity, there can be no assurance that our business will become profitable in the future and additional losses will not be incurred. If this trend continues in the future, our financial performance, liquidity and our ability to operate our business as a going concern could be materially and adversely affected.

 

If we are unable to acquire properties on favorable terms, our future growth could be materially and adversely affected.

 

Our future growth will depend, in part, upon our ability to acquire new properties on favorable terms. Acquisition opportunities may not be available to us on terms that we deem acceptable, and we may be unsuccessful in consummating acquisition opportunities. Our ability

to acquire properties on favorable terms and successfully operate them may be adversely affected by:

 

 

Our failure to identify and consummate property acquisitions on attractive terms or the failure of any acquired properties to meet our expectations could materially and adversely affect our future growth.

 

Our strategy of investing in properties located in medium-sized college and university markets may not be successful, which could materially and adversely affect us.

 

Our business strategy involves investing in properties located in medium-sized college and university markets, which are smaller than larger educational markets. Larger educational markets, such as Boston, Massachusetts or Washington, D.C., often have multiple colleges and universities that have larger enrollments than schools located in medium-sized college and university markets and attract students nationally and internationally. The colleges and universities that our properties draw student-tenants from typically have smaller enrollments than schools in larger educational markets and tend to attract students from within the region in which the school is located. If the schools in our markets experience reduced enrollment, for example due to adverse economic conditions, or are unable to attract sufficient students to achieve a desired class size, the pool of prospective student-tenants for our properties will be reduced. This could have the result of reducing our occupancy and lowering the revenue from our properties, which could materially and adversely affect our financial performance and liquidity.

 

Our indebtedness exposes us to a risk of default and will reduce our free cash flow, which could materially and adversely affect us.

 

Upon completion of this offering and the application of the net proceeds therefrom, our total consolidated indebtedness will be approximately $60.8 million, but does not include any indebtedness we may incur in connection with any future distributions. We also expect to incur significant additional indebtedness in connection with the development activities that we expect to undertake upon completion of this offering. Our debt service obligations will expose us to the risk of default and reduce cash available to invest in our business or pay distributions that are

necessary to qualify and remain qualified as a REIT. Although we intend to limit the sum of the outstanding principal amount of our consolidated indebtedness to not more than 50% of our total market capitalization, our board of directors may modify or eliminate this limitation at any time without the approval of our stockholders. Furthermore, our charter does not contain any limitation on the amount of indebtedness that we may incur. In the future we may incur substantial indebtedness in connection with the development or acquisition of additional properties and for other working capital needs, or to fund the payment of distributions to our stockholders.

 

In addition, the tax protection agreement will require us to maintain a minimum level of indebtedness of $56.0 million throughout the ten-year tax protection period in order to allow a sufficient amount of debt to be allocable to MXT Capital to avoid certain adverse tax consequences. If we fail to maintain such minimum indebtedness throughout the ten-year tax protection period, and as a consequence the members of MXT Capital incur federal, state or local tax liabilities, we would be required to make indemnifying payments to them, which would inhibit our ability to reduce our indebtedness below the amount required to be maintained. This requirement will also restrict our ability to arrange financing for our operations as well as our ability to manage our capital structure.

 

Our indebtedness and the limitations imposed on us by our indebtedness could have significant adverse consequences, including the following:

 

 

Compliance with the provisions of our debt agreements, including the financial and other covenants, such as the maintenance of specified financial ratios, could limit our flexibility, and a default under these agreements could result in a requirement that we repay indebtedness, which could severely affect our liquidity and increase our financing costs, which could materially and adversely affect us. We are currently not in compliance with certain covenants under the loan documentation relating to various lending arrangements to which we are party. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Consents or Waivers Under our Loan Documents.” We have obtained waivers for these covenant violations and intend to repay a substantial portion of our outstanding indebtedness with a portion of the net proceeds from this offering; upon completion of this offering and the application of the net proceeds therefrom, we expect to be in compliance with all applicable debt covenants.

However, if we do not complete this offering, we would need to access alternative capital resources to meet our cash requirements, and there is no assurance that we would be successful in doing so. An inability to refinance maturing indebtedness or obtain alternative financing would have a material adverse affect on our business and financial condition.

 

Our secured credit facility will restrict our ability to engage in some business activities.

 

We anticipate that our revolving credit facility will contain customary negative covenants and other financial and operating covenants that, among other things will:

 

 

These limitations will restrict our ability to engage in some business activities, which could adversely affect our financial condition, results of operations, cash flow and the per share trading price of our common stock. In addition, failure to comply with any of these covenants, including the financial coverage ratios, could cause an event of default under and/or accelerate some or all of our indebtedness, which would have a material adverse effect on us. Furthermore, our secured credit facility will contain certain cross-default provisions with respect to specified other indebtedness, giving the lenders the right to declare a default if we are in default under other loans in some circumstances.

 

Joint venture investments could be materially and adversely affected by our lack of sole decision-making authority, our reliance on our co-venturers’ financial condition and disputes between our co-venturers and us.

 

Our properties located in Lawrence, Kansas, Moscow, Idaho, San Angelo and Huntsville, Texas, Conway, Arkansas and Statesboro, Georgia, comprising approximately 22.5% of our beds, will be held in a joint venture with HSRE, in which we will own a 49.9% interest upon completion of this offering. Additionally, we anticipate that we will enter into a new joint venture with HSRE, in which we will own a 20% interest and through which we expect to develop three properties with completion targeted for the 2011-2012 academic year. We anticipate that we may enter into other joint ventures with other parties in the future. We may not have a controlling interest in a joint venture and may share responsibility with our co-venturer for managing the property held by the joint venture. Under such circumstances, we may not have sole decision-making authority regarding the joint venture’s property. Investments in joint ventures, under certain circumstances, involve risks not present when we invest in a property without the involvement of a third party. For example, our co-venturer may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our preferences, policies or objectives. Additionally, it is possible that our co-venturer might become bankrupt, fail to fund its share of required capital contributions or block or delay decisions that we believe are necessary. Such investments may also have the potential risk of impasses on decisions, such as sales, because neither we nor our co-venturers may have full control over the joint venture. Disputes between us and our co-venturer may result in litigation or arbitration that would increase our expenses and divert the attention of our officers and directors from other aspects of our business. Consequently, actions by or disputes with our co-venturers might result in subjecting properties owned by the joint

venture vehicle to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party co-venturers. Any of foregoing factors could materially and adversely affect our joint-venture investments.

 

No assurance can be given that we will be successful in establishing a new joint venture with HSRE or that any projects pursued by such a venture will be successful.

 

Although we have entered into a non-binding letter of intent with HSRE relating to a potential new joint venture in which we expect to own a 20% interest, no assurance can be given that we will reach a definitive agreement with HSRE regarding this joint venture or that the terms of any such agreement will not be materially different from those currently contemplated by the letter of intent. We expect to develop three new student housing properties through this joint venture with completion targeted for the 2011-2012 academic year; however, no assurance can be given that we will be successful in developing any of these three or other student housing properties developed through this joint venture. No assurance can be given that these developments will be undertaken as currently expected or, if undertaken, that they will be completed in accordance with our current expectations, including those with respect to targeted completion and estimated cost. In addition, under certain circumstances, we expect that we will be responsible for funding the amount by which actual development costs for a project pursued by the venture exceed the budgeted development costs of such project (without any increase in our interest in the project), which could materially and adversely affect the fee income realized from any such project. Finally, there can be no assurance that any properties developed through this joint venture will be successful in achieving attractive occupancy levels or rental rates.

 

Our management team has not previously operated either a REIT or a public company, and this inexperience could materially and adversely affect us.

 

Our management team has not operated a business that has sought to qualify for taxation as a REIT or in compliance with the numerous technical restrictions and limitations set forth in the Internal Revenue Code applicable to REITs. Managing a portfolio of assets under the REIT requirements of the Internal Revenue Code may limit the types of investments we are able to make or the activities that we may undertake. Furthermore, our management team has not previously operated a public company. The various regulatory requirements applicable to public companies will involve a significant investment of management time, since these requirements were not previously applicable to us as a closely held private company. Both federal laws and regulations and the New York Stock Exchange, or “NYSE,” rules impose numerous requirements relating to a public company’s corporate governance and disclosure obligations. We may be required to spend additional time addressing governance and disclosure obligations due to our inexperience, and we will be subject to fines and other penalties if we fail to comply in a timely manner with these obligations. Additionally, we may need to replace or supplement our existing management or staff in order to maintain operations as a public company, which may increase our costs of operations or delay implementation of our business strategies. We may not be able to operate a REIT or a public company as successfully or as efficiently as a more experienced management team.

 

Our investment in properties subject to ground leases with unaffiliated third parties exposes us to the potential loss of such properties upon the expiration or termination of the ground leases, and the realization of such loss could materially and adversely affect us. Our properties at the University of South Alabama are also subject to a right of first refusal that may inhibit our ability to sell them.

 

Our properties located on the campus of the University of South Alabama are subject to ground leases with affiliates of the university. We have another property located in Moscow,

Idaho which is also subject to a ground lease with an unaffiliated third party. In addition, we may invest in additional properties that are subject to ground leases with unaffiliated third parties. As the lessee under a ground lease with an unaffiliated third party, we are exposed to the possibility of losing our leasehold interest in the land on which our buildings are located. A ground lease may not be renewed upon the expiration of its current term or terminated by the lessor pursuant to the terms of the lease if we do not meet our obligations thereunder.

 

In the event of an uncured default under any of our existing ground leases, the lessor may terminate our leasehold interest in the land on which our buildings are located. Any termination of our existing ground leases with unaffiliated third parties, unless in conjunction with the exercise of a purchase option, would also result in termination of our management agreement relating to the property. If we lose the leasehold interest in any of our properties, we could be materially and adversely affected.

 

Our properties located at the University of South Alabama are also subject to a right of first refusal pursuant to which the ground lessor entity related to the university has a right to purchase our leasehold interest in the relevant property in the event we decide to accept an offer to sell either property to a third party. This may inhibit our ability to sell these properties. Further, our right to transfer one of the on-campus properties is subject to the consent of the ground lessor, which consent may not be unreasonably withheld.

 

We may face risks associated with purchasing undeveloped land, and the occurrence of any of these risks could materially and adversely affect us.

 

We typically do not hold land for future development. We do, however, enter into purchase and sale agreements for undeveloped land from time to time in anticipation of obtaining construction financing and commencing development activities. A delay in obtaining construction financing may result in a delay in closing the acquisition of undeveloped land pursuant to a purchase and sale agreement. This may require us to pay to the seller of the land additional money in the form of an earnest money deposit, which may not be refundable or applicable against the purchase price.

 

It is possible that we will purchase property for development based on an erroneous estimate of the demand for student housing in the relevant market. This could result in us paying a purchase price for a property that ultimately proves to be in excess of such property’s value. As a result, we may acquire land for development at a cost that we may not be able to recover fully or on which we cannot build and develop a profitable student housing property. Real estate markets are highly uncertain and the value of such undeveloped land may fluctuate as a result of changing market conditions. Carrying costs can be significant and can result in losses or reduced margins. As a result, we may incur impairments on any land we acquire.

 

We may incur losses on interest rate swap and hedging arrangements, which could materially and adversely affect us.

 

We may in the future enter into agreements to reduce the risks associated with increases in interest rates. Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to us if interest rates decline. If an arrangement is not indexed to the same rate as the indebtedness that is hedged, we may be exposed to losses to the extent the rate governing the indebtedness and the rate governing the hedging arrangement change independently of each other. Finally, nonperformance by the other party to the arrangement may subject us to increased credit risks. The occurrence of any of the foregoing could materially and adversely affect us.

Our inability to pass-through increases in taxes or other real estate costs to our student-tenants could materially and adversely affect our financial performance and liquidity.

 

We generally are not able to pass through to our student-tenants under existing leases increases in taxes, including real estate and income taxes, or other real estate related costs, such as insurance or maintenance. Consequently, unless we are able to off-set any such increases with sufficient revenues, our financial performance and liquidity may be materially and adversely affected by any such increases.

 

The prior performance of our predecessor entities may not be indicative of our future performance.

 

All of our properties have been acquired or developed by our predecessor entities within the past six years and have limited operating histories. Consequently, the historical operating results of our properties and the financial data set forth in this prospectus may not be indicative of our future performance. The operating performance of the properties may decline and we could be materially and adversely affected.

 

As a result of operating as a public company, we will incur significant increased costs and our management will be required to devote substantial time to new compliance requirements, which could materially and adversely affect us.

 

We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses, as well as expend significant management time, relating to various requirements applicable to public companies that were not applicable to our Predecessor as a closely held private company. The Securities Exchange Act of 1934, as amended, or the “Exchange Act,” the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” and the NYSE rules impose numerous requirements relating to a public company’s corporate governance and disclosure obligations. Compliance with these requirements will require us to hire additional employees, adopt new policies, procedures and controls, and cause us to incur significant costs. For example, we will be required to have specified board committees, adopt internal controls over financial reporting and disclosure controls and procedures, and file annual, quarterly and other reports and information with the Securities and Exchange Commission, or the “SEC.” If our prior history of incurring significant net losses continues following this offering, we will be unable to expend the funds necessary to hire additional employees and otherwise comply with our increased disclosure and reporting obligations. Our lack of prior experience in the operation of a public company may reduce the likelihood that we will be able to identify compliance and disclosure issues on a timely basis and our failure to address these issues could materially and adversely affect us due to fines and penalties associated with compliance failure, an inability to utilize certain SEC forms and offering methods to access the public equity and debt markets quickly and the inability to otherwise enjoy the benefits associated with our status as a public company. If we identify any issues in complying with requirements applicable to public companies, we would likely incur additional costs remediating those issues and such costs could be significant, and the existence of those issues could materially and adversely affect us, our reputation or investor perception of us. Failure to remediate compliance issues, whether due to cost or otherwise, may result in negative action against us, including fines, civil and criminal penalties or delisting from the NYSE. Identification of these types of compliance issues could also make it more difficult and expensive for us to obtain director and officer liability insurance, and we could be required to accept reduced policy limits and insurance coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it could become more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Any of the foregoing costs or factors could materially and adversely affect us.

We will be subject to the requirements of Section 302 and 404 of the Sarbanes-Oxley Act, which will be costly and challenging.

 

Our management will be required to deliver a report that assesses the effectiveness of our internal control over financial reporting, pursuant to Section 302 of the Sarbanes-Oxley Act, as of December 31 subsequent to the year in which the registration statement of which this prospectus forms a part becomes effective. Internal controls are intended to allow management or employees in the normal course of performing their functions to prevent or detect misstatements on a timely basis. A deficiency in internal controls exists when their design or operation does not permit such prevention or detection on a timely basis. Section 404 of the Sarbanes-Oxley Act requires our independent registered public accounting firm to deliver an attestation report on the operating effectiveness of our internal controls over financial reporting in conjunction with their opinion on our audited financial statements as of the same date.

 

Substantial work on our part is required to implement appropriate processes, document the system of internal control over key processes, assess their design, remediate any deficiencies identified and test their operation. This process is expected to be both costly and challenging. Our Predecessor had not previously prepared consolidated financial statements. Additionally, the financial statements of some of the entities that are included in our Predecessor’s financial statements were not individually audited. Consequently, it was necessary to consolidate numerous financial statements, some of which were unaudited, in anticipation of the audit of our Predecessor’s financial statements. In the course of such audit, it became necessary to prepare and record a number of adjustments to correct the initial combined financial statements. It was determined that these adjustments arose from weaknesses within our internal control over financial reporting, specifically our lack of policies, procedures and review controls with respect to consolidation and the financial reporting process and our lack of processes and procedures with respect to the application of GAAP to certain transactions.

 

As a closely held private company, our Predecessor has not been required to operate in compliance with the foregoing requirements of the Sarbanes-Oxley Act. We will be required to design, implement and effectively execute and monitor additional controls in order to comply with these requirements and remediate any identified deficiencies. We have implemented measures to address weaknesses in our internal control over financial reporting and intend to bring our operations into compliance with Section 404 of the Sarbanes-Oxley Act within one year following the completion of this offering as required, and comply with the other mandates of the Sarbanes-Oxley Act, but there can be no assurance that such compliance will be achieved or maintained. If we are unable to implement and monitor effective controls, we may be unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act within the required time period.

 

We cannot give any assurances that we will successfully remediate any material weaknesses identified in connection with our compliance with the provisions of Sections 302 and 404 of the Sarbanes-Oxley Act. The existence of any material weakness would preclude a conclusion by management and our registered independent public accounting firm that we maintained effective internal control over financial reporting. Our management may be required to devote significant time and incur significant expense to remediate any material weaknesses that may be discovered and may not be able to remediate any material weaknesses in a timely manner. The existence of a material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our reported financial information, any of which could materially and adversely affect us.

Reporting of on-campus crime statistics required of colleges and universities may negatively impact our properties.

 

Federal and state laws require colleges and universities to publish and distribute reports of on-campus crime statistics, which may result in negative publicity and media coverage associated with crimes occurring in the vicinity of, or on the premises of, our on-campus properties. Reports of crime or other negative publicity regarding the safety of the students residing on, or near, our properties may have an adverse effect on both our on-campus and off-campus properties.

 

We may be subject to liabilities from litigation which could materially and adversely affect us.

 

We may become involved in legal proceedings, including consumer, employment, tort or commercial litigation that, if decided adversely to or settled by us and not adequately covered by insurance, could result in liabilities that could materially and adversely affect us.

 

Risks Related to the Real Estate Industry

 

Our performance and the value of our properties are subject to risks associated with real estate and with the real estate industry, which could materially and adversely affect us.

 

Our ability to make distributions to our stockholders depends on our ability to generate cash revenues in excess of our expenses, including expenses associated with our development activities, indebtedness and capital expenditure requirements. The occurrence of certain events and conditions that are generally applicable to owners and operators of real estate, many of which are beyond our control, could materially and adversely affect us. These events and conditions include:

 

 

In addition, periods of economic slowdown or recession, such as the one the global economy is currently experiencing, rising interest rates or declining demand for real estate, or the public

perception that any of these events may occur, could result in a general decline in occupancy rates and rental revenue or an increased incidence of defaults under our existing leases, which could impair the value of our properties or reduce our cash flow.

 

Illiquidity of real estate investments could significantly impede our ability to sell our properties or otherwise respond to adverse changes in the performance of our properties, which could materially and adversely affect us.

 

From time to time, we may determine that it is in our best interest to sell one or more of our properties. However, because real estate investments are relatively illiquid, we may encounter difficulty in finding a buyer in a timely manner should we desire to sell one of our properties, especially if market conditions are poor at such time. Selling real estate has been difficult recently, since the availability of credit has become more limited, as lending standards have become more stringent. As a result, potential buyers have experienced difficulty in obtaining financing necessary to purchase a property. In addition, our properties are specifically designed for use as student housing, which could limit their marketability or affect their values for alternative uses. Consequently, should we desire to sell one or more of our properties, our ability to do so promptly or on terms that we deem to be acceptable may be limited, which could materially and adversely affect us.

 

We also may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct any such defects or to make any such improvements. In connection with any future property acquisitions, we may agree to provisions that materially restrict our ability to sell the property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be secured by or repaid with respect to such property.

 

In addition, in order to qualify for taxation as a REIT and to maintain such qualification, the Internal Revenue Code limits our ability to sell properties held for less than two years, which may cause us to incur losses thereby reducing our cash flows. These factors and any others that would impede our ability to respond to adverse changes in the performance of any of our properties or a need for liquidity could materially and adversely affect us.

 

Finally, MXT Capital will enter into a tax protection agreement with us that will significantly restrict our ability to sell 9 of our properties. Pursuant to the tax protection agreement, we will agree not to sell, exchange or otherwise dispose of any of these 9 properties for a ten-year tax protection period in a transaction that would cause the members of MXT Capital to realize built-in gain related to such properties at the time of their contribution to our operating partnership. If we sell one or more of these 9 properties during the ten-year tax protection period, we will be required to pay to MXT Capital an amount equal to the federal, state and local taxes imposed on the built-in gain allocated to its members, with the amount of such taxes being computed based on the highest applicable federal, state and local marginal tax rates, as well as any “grossed up” taxes imposed on such payments. The amount otherwise payable in connection with such a transaction under the tax protection agreement will be reduced by twenty percent commencing on the fifth anniversary date of the closing date of this offering and an additional twenty percent on each successive anniversary date until the amount payable is reduced to zero on the tenth anniversary of the closing date. This requirement will also restrict our ability to arrange financing for our operations as well as our ability to manage our capital structure.

 

Increases in property taxes would increase our operating costs, which could materially and adversely affect our financial performance and liquidity.

 

Each of our properties will be subject to real and personal property taxes. These taxes may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities.

If property taxes increase, our operating costs will increase, and therefore our financial performance and liquidity could be materially and adversely affected.

 

We could incur significant costs related to government regulation and private litigation over environmental matters, which could materially and adversely affect us.

 

Under various environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act, or “CERCLA,” a current or previous owner or operator of real estate may be liable for contamination resulting from the release or threatened release of hazardous or toxic substances or petroleum at that property. Additionally, an entity that arranges for the disposal or treatment of a hazardous or toxic substance or petroleum at another property may be held jointly and severally liable for the cost of investigating and cleaning up such property or other affected property. Such parties are known as potentially responsible parties, or PRPs. These environmental laws often impose liability regardless of whether the PRP knew of, or was responsible for, the presence of the contaminants, and the costs of any required investigation or cleanup of these substances can be substantial. PRPs may also be liable to parties who have claims for contribution in connection with any such contamination, such as other PRPs or state and federal governmental agencies. The liability is generally not limited under such laws and therefore could easily exceed the property’s value and the assets of the liable party.

 

The presence of contamination, hazardous materials or environmental issues, or the failure to remediate such conditions, at a property may expose us to third-party liability for personal injury or property damage, remediation costs or adversely affect our ability to sell, lease or develop the property or to borrow using the property as collateral, which could materially and adversely affect us.

 

Environmental laws also impose ongoing compliance requirements on owners and operators of real estate. Environmental laws potentially affecting us address a wide variety of matters, including, but not limited to, asbestos-containing building materials, or “ACBMs,” storage tanks, storm water and wastewater discharges, lead-based paint, radon, wetlands and hazardous wastes. Failure to comply with these laws could result in fines and penalties or expose us to third-party liability, which could materially and adversely affect us. Some of our properties may have conditions that are subject to these requirements and we could be liable for such fines or penalties or liable to third parties, as described below in “Business and Properties—Regulation—Environmental Matters.”

 

The conditions at some of our properties may expose us to liability and remediation costs related to environmental matters, which could materially and adversely affect us.

 

Certain of our properties may contain, or may have contained, ACBMs. Environmental laws require that ACBMs be properly managed and maintained, and may impose fines and penalties on building owners and operators for failure to comply with these requirements. Also, some of our properties may contain, or may have contained, or are adjacent to or near other properties that may contain or may have contained storage tanks for the storage of petroleum products or other hazardous or toxic substances. Any of these conditions create the potential for the release of these contaminants. Third parties may be permitted by law to seek recovery from owners or operators for personal injury or property damage arising from such tanks. Additionally, third parties may be permitted by law to seek recovery from owners or operators for personal injury or property damage associated with exposure to these or other contaminants that may be present on, at or under the properties. Furthermore, some of our properties include regulated wetlands on undeveloped portions of such properties and mitigated wetlands on or near our properties, the existence of which can delay or impede development or require costs to be incurred to mitigate the impact of any disturbance. Absent appropriate permits, we can be held responsible for restoring wetlands and be required to pay fines and penalties, which could materially and adversely affect us.

Over the past several years there have been an increasing number of lawsuits against owners and operators of properties alleging personal injury and property damage caused by the presence of mold in real estate. Mold growth can occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Concern about indoor exposure to mold has been increasing as some molds have been shown to produce airborne toxins and irritants and exposure to these and other types of molds may lead to adverse health effects and symptoms, including allergic or other reactions. Some of our properties may contain microbial matter such as mold and mildew. The presence of significant mold at any of our properties could require us to undertake a costly remediation program to contain or remove the mold from the affected property and could expose us to liability from student-tenants, employees and others if property damage or health concerns arise, which could materially and adversely affect us.

 

If any of our properties are not properly connected to a water or sewer system, or if the integrity of such systems are breached, microbial matter or other contamination can develop. If this were to occur, we could incur significant remedial costs and we could also be subject to private damage claims and awards, which could be material. If we become subject to claims in this regard, it could materially and adversely affect us and our insurability for such matters in the future.

 

Independent environmental consultants have conducted Phase I environmental site assessments on all of our properties. These Phase I environmental site assessments are intended to evaluate information regarding the environmental condition of the surveyed property and surrounding properties based generally on visual observations, interviews and the review of publicly available information. These assessments do not typically take into account all environmental issues including, but not limited to, testing of soil or groundwater, a comprehensive asbestos survey or an invasive inspection for the presence of lead-based paint, radon or mold contamination. As a result, these assessments may have failed to reveal all environmental conditions, liabilities, or other compliance issues affecting our properties. Material environmental conditions, liabilities, or compliance issues may have arisen after the assessments were conducted or may arise in the future.

 

In addition, future laws, ordinances or regulations may impose material additional environmental liabilities. We cannot assure you that the cost of future environmental compliance or remedial measures will not affect our ability to make distributions to our stockholders or that such costs or other remedial measures will not be material to us.

 

In the event we decided to sell one of our properties, the presence of hazardous substances on such property may limit our ability to sell it on favorable terms or at all, and we may incur substantial remediation costs.

 

The discovery of material environmental liabilities at one or more of our properties could subject us to unanticipated significant costs, which could materially and adversely affect us.

 

We may incur significant costs complying with the Americans with Disabilities Act, the Fair Housing Act and similar laws, which could materially and adversely affect us.

 

Under the Americans with Disabilities Act of 1990, or the “ADA,” all public accommodations must meet various federal requirements related to access and use by disabled persons. Compliance with the ADA’s requirements may require modifications to our properties, such as the removal of access barriers or restrict our ability to renovate or develop our properties in the manner we desire. In addition, in June 2008, the Department of Justice proposed a substantial number of changes to the accessibility guidelines under the ADA. In January of 2009, President

Obama suspended final publication and implementation of these regulations, pending comprehensive review by his administration. If implemented as proposed, the new guidelines could cause some of our properties to incur costly measures to become fully compliant.

 

Additional federal, state and local laws may also require us to make similar modifications or impose similar restrictions on us. For example, the Fair Housing Act, or “FHA,” requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped.

 

We have not conducted an audit or investigation of all of our properties to determine our compliance with present requirements of the ADA, FHA or any similar laws. Noncompliance with any of these laws could result in us incurring significant costs to make substantial modifications to our properties or in the imposition of fines or an award or damages to private litigants. We cannot predict the ultimate amount of the cost of compliance with the ADA, FHA or other legislation. If we incur substantial costs to comply with the ADA, FHA or any other legislation, we could be materially and adversely affected.

 

We may incur significant costs complying with other regulatory requirements, which could materially and adversely affect us.

 

Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we might incur governmental fines or private damage awards. Furthermore, existing requirements could change and require us to make significant unanticipated expenditures, which could materially and adversely affect us.

 

Uninsured losses or losses in excess of insured limits could materially and adversely affect us.

 

We carry comprehensive liability, fire, extended coverage, terrorism and rental loss insurance covering all of our properties. Our insurance includes coverage for earthquake damage to properties located in seismically active areas, windstorm damage to properties exposed to hurricanes, and terrorism insurance on all of our properties. In each case, we believe the coverage limits and applicable deductibles are commercially reasonable. All insurance policies are subject to coverage extensions that are typical for our business. We do not carry insurance for generally uninsured losses such as loss from riots or acts of God.

 

In the event we experience a loss which is uninsured or which exceeds our policy limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from such property. In addition, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a property after it has been damaged or destroyed. Under such circumstances, the insurance proceeds we receive might be inadequate to restore our economic position with respect to the damaged or destroyed property. Furthermore, in the event of a substantial loss at one or more of our properties that is covered by one or more policies, the remaining insurance under these policies, if any, could be insufficient to adequately insure our other properties. In such event, securing additional insurance policies, if possible, could be significantly more expensive than our current policies. Any loss of these types may materially and adversely affect us.

Future terrorist attacks in the U.S. or an increase in incidents of violence on college campuses could reduce the demand for, and the value of, our properties, which could materially and adversely affect us.

 

Future terrorist attacks in the U.S., such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and acts of war, or threats of the same, could reduce the demand for, and the value of, our properties. Any such event in any of the markets in which our properties are located would make it difficult for us to maintain the affected property’s occupancy or to re-lease the property at rates equal to or above historical rates, which could materially and adversely affect us.

 

Incidents of violence on college campuses could pose similar problems, with respect to the potential for a reduction of demand for our properties if such an incident were to occur on a college campus in one of our markets. Such an event in any of our markets could not only adversely affect our occupancy rates, but would also likely lead to increased operating expenses for such properties due to increased security costs, which would likely be necessary to reassure our student-tenants in the wake of such an incident. Any such increase in operating expenses may have a material adverse effect on the results of operations of the affected property.

 

In addition, terrorist attacks or violent incidents could directly impact the value of our properties through damage, destruction or loss and the availability of insurance for such acts may be limited or prohibitively expensive. If we receive casualty proceeds, we may not be able to reinvest such proceeds profitably or at all, and we may be forced to recognize taxable gain on the affected property, which could materially and adversely affect us.

 

Risks Related to Our Company and Structure

 

Provisions of our charter allow our board of directors to authorize the issuance of additional securities, which may limit the ability of a third party to acquire control of us through a transaction that our stockholders believe to be in their best interest.

 

Upon completion of this offering, our charter will authorize our board of directors to issue up to 90,000,000 shares of common stock and up to 10,000,000 shares of preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of our shares or the number of shares of any class or series that we have the authority to issue and to classify or reclassify any unissued common stock or preferred stock and to set the preferences, rights and other terms of the classified or reclassified stock. As a result, our board of directors may authorize the issuance of additional stock or establish a series of common or preferred stock that may have the effect of delaying, deferring or preventing a change in control of us, including through a transaction at a premium over the market price of our common stock, even if our stockholders believe that a change in control through such a transaction is in their best interest.

 

Provisions of Maryland law may limit the ability of a third party to acquire control of us, which, in turn, may negatively affect our stockholders’ ability to realize a premium over the market price of our common stock.

 

Certain provisions of the Maryland General Corporation Law, or the “MGCL,” may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change in

control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the market price of our common stock, including:

 

 

By resolution of our board of directors, we have opted out of the business combination provisions of the MGCL and provided that any business combination between us and any other person is exempt from the business combination provisions of the MGCL, provided that the business combination is first approved by our board of directors (including a majority of directors who are not affiliates or associates of such persons). Pursuant to a provision in our bylaws, we have opted out of the control share provisions of the MGCL. However, our board of directors may by resolution elect to opt in to the business combination provisions of the MGCL and we may, by amendment to our bylaws, opt in to the control share provisions of the MGCL in the future.

 

Additionally, Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, such as a classified board, some of which we do not yet have. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us that otherwise could provide our stockholders with the opportunity to realize a premium over the market price of our common stock.

 

The ownership limitations in our charter may restrict or prevent you from engaging in certain transfers of our common stock, which may delay or prevent a change in control of us that our stockholders believe to be in their best interest.

 

In order for us to qualify as a REIT for each taxable year after 2010, no more than 50% in value of the outstanding shares of our common stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the federal income tax laws to include various kinds of entities) during the last half of any taxable year. Attribution rules in the Internal Revenue Code determine if any individual or entity actually or constructively owns our common stock under this requirement. Additionally, at least 100 persons must beneficially own shares of our common stock during at least 335 days of a taxable year for each taxable year after 2010. To assist us in qualifying as a REIT, our charter contains a stock ownership limit which provides that, subject to certain exceptions, no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than 9.8% by vote or value, whichever is more restrictive, of either our outstanding common stock or our outstanding capital stock in the aggregate. Generally, any of our shares of common stock owned by affiliated owners will be added together for purposes of the stock ownership limit.

If anyone transfers shares of our stock in a way that would violate the stock ownership limit or prevent us from qualifying as a REIT under the federal income tax laws, those shares instead will be transferred to a trust for the benefit of a charitable beneficiary and will be either redeemed by us or sold to a person whose ownership of the shares will not violate the stock ownership limit or we will consider the transfer to be null and void from the outset, and the intended transferee of those shares will be deemed never to have owned the shares. Anyone who acquires shares of our common stock in violation of the stock ownership limit or the other restrictions on transfer in our charter bears the risk of suffering a financial loss when the shares are redeemed or sold if their market price falls between the date of purchase and the date of redemption or sale.

 

The constructive ownership rules under the Internal Revenue Code are complex and may cause stock owned actually or constructively by a group of related individuals or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% of our stock (or the acquisition of an interest in an entity that owns, actually or constructively, our stock) by an individual or entity, could, nevertheless cause that individual or entity, or another individual or entity, to own constructively in excess of 9.8% of our outstanding stock and therefore they would be subject to the stock ownership limit. Our charter, however, allows exceptions to be made to this limitation if our board of directors determines that such exceptions will not jeopardize our tax status as a REIT.

 

In addition, the stock ownership limit and the other restrictions on transfer in our charter may have the effect of delaying, deferring or preventing a third party from acquiring control of us, whether such a transaction involved a premium price for our common stock or otherwise was in the best interest of our stockholders.

 

Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit the recourse available in the event actions are taken that are not in the best interest of our stockholders.

 

Maryland law provides that a director has no liability in connection with the director’s management of the business and affairs of a corporation if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter exculpates our directors and officers from liability to us and our stockholders for money damages except for liability resulting from actual receipt of an improper benefit in money, property or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action. Our charter authorizes us to indemnify our directors and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each director or officer, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. In addition, we may be obligated to fund the defense costs incurred by our directors and officers. As a result, we and our stockholders may have more limited rights against our directors and officers, which could limit the recourse available in the event actions are taken that are not in our stockholders’ best interest.

 

Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management that our stockholders believe to be in their best interest.

 

Our charter provides that a director may be removed only for cause (as defined in our charter) and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors. Our charter also provides that vacancies on our board of

directors may be filled only by a majority of the remaining directors in office, even if less than a quorum. These requirements prevent stockholders from removing directors except for cause and with a substantial affirmative vote and from replacing directors with their own nominees. As a result, a change in our management that our stockholders believe is in their best interest may be delayed, deferred or prevented.

 

Our board of directors has approved very broad investment guidelines for us and will not review or approve each investment decision made by our management team.

 

Our management team is authorized to follow broad investment guidelines and, therefore, has great latitude in determining which are the proper investments for us, as well as the individual investment decisions. Our management team may make investments with lower rates of return than those anticipated under current market conditions and/or may make investments with greater risks to achieve those anticipated returns.

 

The ability of our board of directors to change some of our policies without the consent of our stockholders may lead to the adoption of policies that are not in the best interest of our stockholders.

 

Our major policies, including our policies with respect to investments, leverage, financing, growth, debt and capitalization, will be determined by our board of directors or those committees or officers to whom our board of directors may delegate such authority. Our board of directors will also establish the amount of any dividends or distributions that we may pay to our stockholders. Our board of directors or the committees or officers to which such decisions may be delegated will have the ability to amend or revise these and our other policies at any time without stockholder vote. Accordingly, our stockholders may not have control over changes in our policies, and we may adopt policies that may not prove to be in the best interests of our stockholders.

 

As a result of our formation transactions, which were not negotiated on an arm’s length basis, our existing investors will receive substantial economic benefits from this offering.

 

MXT Capital will receive 973,333 OP units for the contribution of its interests in the predecessor entities and its student housing business and $4.5 million of the net proceeds from this offering, which will be used for the repayment of certain indebtedness. Ted W. Rollins, our co-chairman and chief executive officer, and Michael S. Hartnett, our co-chairman and chief investment officer, by virtue of their indirect ownership in MXT Capital, and therefore the various entities that own interests in the predecessor entities, will be entitled to receive a significant portion of the benefits of this offering received by MXT Capital. MXT Capital, through Campus Crest Group, and the Ricker Group were the principal prior owners of our predecessor entities and MXT Capital played a significant role in structuring our formation. In the course of structuring our formation, MXT Capital had the ability to influence the type and level of benefits that it and our executive officers would receive from us. It also had the ability to influence the other terms of our formation transactions, including, without limitation, the representations and warranties that it made to us in our formation transactions and the indemnities that it provided to us for breaches of such representations and warranties. In addition, as a result of this offering and the application of the net proceeds therefrom, Mr. Rollins and Mr. Hartnett will each be released from certain personal guarantees with respect to mortgage and construction indebtedness with, in each case, an aggregate principal amount of approximately $243.3 million, and from personal guarantees with respect to the RHR, LLC and Capital Bank indebtedness described below, and the MXT Capital indebtedness described above. Each of Messrs. Rollins and Hartnett will be released from certain personal guarantees with respect to the preferred membership interest in CC-Encore. MXT Capital will also receive Campus Crest Group’s interests in two parcels of land consisting of

20.2 acres, with associated indebtedness of approximately $1.9 million, on which we have decided not to build student housing properties. In addition, we will enter into a registration rights agreement with MXT Capital pursuant to which we will agree, among other things, to register the resale of any common stock that may be exchanged for the OP units issued in our formation transactions.

 

The Ricker Group will receive approximately $26.7 million from the net proceeds from this offering and 66,667 OP units for the contribution of its interests in the predecessor entities and its interest in the entities that own fee interests in certain properties that were subject to ground leases such that our operating partnership will have, following the completion of this offering and our formation transactions, fee simple title to the real estate that is the subject of the leases. Following this transfer, none of the predecessor entities other than Campus Crest at Mobile, LLC and Campus Crest at Mobile Phase II, LLC (which own The Grove at Mobile in Mobile, AL) and Campus Crest at Moscow, LLC (which owns The Grove at Moscow in Moscow, ID) shall be subject to any ground lease with an unaffiliated third party. In addition, as a result of this offering and the use of the net proceeds therefrom, Mr. Ricker will be released from certain personal guarantees with respect to mortgage and construction indebtedness in an aggregate amount of approximately $205.9 million, and from personal guarantees with respect to the RHR, LLC and Capital Bank indebtedness described below, and the MXT Capital indebtedness described above.

 

Certain third-party investors will receive in aggregate approximately $10.7 million from the net proceeds from this offering and approximately 53,000 OP units for the contribution of their interests in the predecessor entities.

 

We will use approximately $4.0 million of the net proceeds from this offering to repay our indebtedness to Capital Bank, an entity in which the Ricker Group has an ownership interest and of which Carl H. Ricker, Jr. is a director.

 

We will use approximately $6.0 million of the net proceeds from this offering to repay indebtedness owed by us to RHR, LLC, an entity owned by MXT Capital and the Ricker Group. RHR, LLC will, in turn, immediately repay an equal amount of indebtedness owed by it to an unaffiliated third party on substantially the same terms and conditions as the loan from RHR, LLC to us.

 

Since we did not conduct arm’s length negotiations with our existing investors with respect to the terms of our formation transactions, the terms of the agreements we reached with these investors may not be as favorable to us as if they were so negotiated.

 

Members of our management and board of directors will be holders of OP units, and their interests may differ from those of our stockholders.

 

After the consummation of this offering, members of our management and board of directors will also be direct or indirect holders of OP units. As holders of OP units, they may have conflicting interests with our stockholders. For example, they may have different tax positions from our stockholders, which could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new indebtedness or refinance existing indebtedness and how to structure future transactions. As a result, our management and board of directors may implement policies or make decisions that are not in the best interest of our stockholders.

 

Members of our management will be beneficiaries of a tax protection agreement that will significantly restrict our ability to sell 9 of our properties and may require us to maintain indebtedness that we otherwise would not.

 

MXT Capital will enter into a tax protection agreement with us. Pursuant to the tax protection agreement, we will agree not to sell, exchange or otherwise dispose of 9 of our properties during a ten-year tax protection period in a transaction that would cause the members of MXT Capital to realize built-in gain. If we sell one or more of these 9 properties during the ten-year tax protection period, we will be required to pay to MXT Capital an amount equal to the federal, state and local taxes imposed on the built-in gain allocated to its members, with the amount of such taxes being computed based on the highest applicable federal, state and local marginal tax rates, as well as any “grossed up” taxes imposed on such payments. The amount otherwise payable in connection with such a transaction under the tax protection agreement will be reduced by twenty percent commencing on the fifth anniversary date of the closing date of this offering and an additional twenty percent on each successive anniversary date until the amount payable is reduced to zero on the tenth anniversary of the closing date. Consequently, our ability to sell or dispose of these 9 properties will be substantially restricted by this obligation to make payments to MXT Capital during the ten-year tax protection period if we sell such a property. This requirement will also restrict our ability to arrange financing for our operations as well as our ability to manage our capital structure.

 

The tax protection agreement will also require us to maintain a minimum level of indebtedness of $56.0 million throughout the ten-year tax protection period in order to allow a sufficient amount of debt to be allocable to MXT Capital to avoid certain adverse tax consequences. If we fail to maintain such minimum indebtedness throughout the ten-year tax protection period, and as a consequence the members of MXT Capital incur federal, state or local tax liabilities, we will be required to make indemnifying payments to them, computed in the manner described in the preceding paragraph.

 

We will enter into employment agreements with certain of our executive officers that will require us to make payments in the event such officer’s employment is terminated by us without cause or by such officer for good reason. This may make it difficult for us to effect changes to our management or limit the ability of a third party to acquire control of us that would otherwise be in the best interest of our stockholders.

 

The employment agreements that we will enter into with certain of our executive officers upon completion of this offering provide benefits under certain circumstances that could make it more difficult for us to terminate these officers. Therefore, even if we sought to replace these officers, it may not be economically viable for us to do so. Furthermore, because an acquiring company would likely seek to replace these officers with their own personnel, these employment agreements could have the effect of delaying, deterring or preventing a change in control of us that would otherwise be in the best interest of our stockholders.

 

After the consummation of this offering and our formation transactions, our primary assets will be our general partner interest in our operating partnership and OP units and, as a result, we will depend on distributions from our operating partnership to pay dividends and expenses.

 

After the consummation of this offering and our formation transactions, we will be a holding company and will have no material assets other than our general partner interest and OP units. We intend to cause our operating partnership to make distributions to its limited partners, including us, in an amount sufficient to allow us to qualify as a REIT for federal income tax purposes and to pay all our expenses. To the extent we need funds and our operating partnership

is restricted from making distributions under applicable law, agreement or otherwise, or if our operating partnership is otherwise unable to provide such funds, the failure to make such distributions could adversely affect our liquidity and financial condition and our ability to make distributions to our stockholders.

 

We operate through a partnership structure, which could materially and adversely affect us.

 

Our primary property-owning vehicle is our operating partnership, of which we are the sole general partner. Our acquisition of properties through our operating partnership in exchange, in part, for OP units may permit certain tax deferral advantages to the sellers of those properties. Since the properties contributed to our operating partnership may have unrealized gain attributable to the difference between the fair market value and adjusted tax basis in such properties prior to contribution, the sale of such properties could cause material and adverse tax consequences to the limited partners who contributed such properties. Although we, as the sole general partner of our operating partnership, generally have no obligation to consider the tax consequences of our actions to any limited partner, we have agreed to indemnify MXT Capital for certain tax consequences related to our properties and there can be no assurance that our operating partnership will not acquire properties in the future subject to material restrictions designed to minimize the adverse tax consequences to the limited partners who contribute such properties. Such restrictions could result in significantly reduced flexibility to manage our properties, which could materially and adversely affect us.

 

We have fiduciary duties as sole general partner of our operating partnership which may result in conflicts of interest in representing your interests as our stockholders.