ACC 2014.03.31 10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2014.   
 
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From ______________________ to _________________________
  
Commission file number 001-32265 (American Campus Communities, Inc.)
Commission file number 333-181102-01 (American Campus Communities Operating Partnership, L.P.)
 
AMERICAN CAMPUS COMMUNITIES, INC.
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
 
 Maryland (American Campus Communities, Inc.)
Maryland (American Campus Communities Operating
Partnership, L.P.)
 
 76-0753089 (American Campus Communities, Inc.)
56-2473181 (American Campus Communities Operating
Partnership, L.P.)
 (State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer Identification No.)
 
12700 Hill Country Blvd., Suite T-200
Austin, TX
(Address of Principal Executive Offices)
 
 
78738
(Zip Code)
 
(512) 732-1000
Registrant’s telephone number, including area code
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
American Campus Communities, Inc.
Yes x  No o
American Campus Communities Operating Partnership, L.P.
Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
American Campus Communities, Inc.
Yes x  No o
American Campus Communities Operating Partnership, L.P.
Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
American Campus Communities, Inc.                                                                                                                                    
Large accelerated filer x  
Accelerated Filer o



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

American Campus Communities Operating Partnership, L.P.
Large accelerated filer o
Accelerated Filer o
Non-accelerated filer   x     (Do not check if a smaller reporting company) 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
American Campus Communities, Inc.
Yes o  No x
American Campus Communities Operating Partnership, L.P
Yes o  No x
                                                                                           
There were 104,907,700 shares of the American Campus Communities, Inc.’s common stock with a par value of $0.01 per share outstanding as of the close of business on May 3, 2014.
 



EXPLANATORY NOTE
 
This report combines the reports on Form 10-Q for the quarterly period ended March 31, 2014 of American Campus Communities, Inc. and American Campus Communities Operating Partnership, L.P.  Unless stated otherwise or the context otherwise requires, references to “ACC” mean American Campus Communities, Inc., a Maryland real estate investment trust (“REIT”), and references to “ACCOP” mean American Campus Communities Operating Partnership, L.P., a Maryland limited partnership.  References to the “Company,” “we,” “us” or “our” mean collectively ACC, ACCOP and those entities/subsidiaries owned or controlled by ACC and/or ACCOP.  References to the “Operating Partnership” mean collectively ACCOP and those entities/subsidiaries owned or controlled by ACCOP. The following chart illustrates the Company’s and the Operating Partnership’s corporate structure:
 

The general partner of ACCOP is American Campus Communities Holdings, LLC (“ACC Holdings”), an entity that is wholly-owned by ACC. As of March 31, 2014, ACC Holdings held an ownership interest in ACCOP of less than 1%. The limited partners of ACCOP are ACC and other limited partners consisting of current and former members of management and nonaffiliated third parties.  As of March 31, 2014, ACC owned an approximate 98.7% limited partnership interest in ACCOP.  As the sole member of the general partner of ACCOP, ACC has exclusive control of ACCOP’s day-to-day management.  Management operates the Company and the Operating Partnership as one business. The management of ACC consists of the same members as the management of ACCOP. The Company is structured as an umbrella partnership REIT (“UPREIT”) and ACC contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, ACC receives a number of units of the Operating Partnership (“OP Units,” see definition below) equal to the number of common shares it has issued in the equity offering. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units in the Operating Partnership. Based on the terms of ACCOP’s partnership agreement, OP Units can be exchanged for ACC’s common shares on a one-for-one basis. The Company maintains a one-for-one relationship between the OP Units of the Operating Partnership issued to ACC and ACC Holdings and the common shares issued to the public. The Company believes that combining the reports on Form 10-Q of ACC and ACCOP into this single report provides the following benefits:
 
(1)
enhances investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
(2)
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
(3)
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.




ACC consolidates ACCOP for financial reporting purposes, and ACC essentially has no assets or liabilities other than its investment in ACCOP. Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements. However, the Company believes it is important to understand the few differences between the Company and the Operating Partnership in the context of how the entities operate as a consolidated company. All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership. ACC also issues public equity from time to time and guarantees certain debt of ACCOP, as disclosed in this report. ACC does not have any indebtedness, as all debt is incurred by the Operating Partnership. The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.  Except for the net proceeds from ACC’s equity offerings, which are contributed to the capital of ACCOP in exchange for OP Units on a one-for-one common share per OP Unit basis, the Operating Partnership generates all remaining capital required by the Company’s business. These sources include, but are not limited to, the Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its credit facility, and proceeds received from the disposition of certain properties.  Noncontrolling interests, stockholders’ equity, and partners’ capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The noncontrolling interests in the Operating Partnership’s financial statements consist of the interests of unaffiliated partners in various consolidated joint ventures. The noncontrolling interests in the Company’s financial statements include the same noncontrolling interests at the Operating Partnership level and OP Unit holders of the Operating Partnership. The differences between stockholders’ equity and partners’ capital result from differences in the equity issued at the Company and Operating Partnership levels.
 
To help investors understand the significant differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership. A single set of consolidated notes to such financial statements is presented that includes separate discussions for the Company and the Operating Partnership when applicable (for example, noncontrolling interests, stockholders’ equity or partners’ capital, earnings per share or unit, etc.).  A combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents discrete information related to each entity, as applicable. This report also includes separate Part I, Item 4 Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
 
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company operates its business through the Operating Partnership. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
 



FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2014
 TABLE OF CONTENTS
 
 
PAGE NO.
 
 
PART I.
 
 
 
 
Item 1.
Consolidated Financial Statements of American Campus Communities, Inc. and Subsidiaries:
 
 
 
 
 
Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013
 
 
 
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013 (all unaudited)
 
 
 
 
Consolidated Statement of Changes in Equity for the three months ended March 31, 2014 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (all unaudited)
 
 
 
 
Consolidated Financial Statements of American Campus Communities Operating Partnership, L.P. and Subsidiaries:
 
 
 
 
 
Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013
 
 
 
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013 (all unaudited)
 
 
 
 
Consolidated Statement of Changes in Capital for the three months ended March 31, 2014 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (all unaudited)
 
 
 
 
Notes to Consolidated Financial Statements of American Campus Communities, Inc. and Subsidiaries and American Campus Communities Operating Partnership, L.P. and Subsidiaries (unaudited)
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
PART II.
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
SIGNATURES
 


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)



 
 
March 31, 2014
 
December 31, 2013
 
 
(Unaudited)
 
 
Assets
 
 
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
Wholly-owned properties, net
 
$
5,240,032

 
$
5,199,008

Wholly-owned property held for sale
 

 
14,408

On-campus participating properties, net
 
83,710

 
73,456

Investments in real estate, net
 
5,323,742

 
5,286,872

 
 
 
 
 
Cash and cash equivalents
 
31,211

 
38,751

Restricted cash
 
36,163

 
35,451

Student contracts receivable, net
 
8,004

 
9,238

Other assets
 
221,595

 
227,728

 
 
 
 
 
Total assets
 
$
5,620,715

 
$
5,598,040

 
 
 
 
 
Liabilities and equity
 
 

 
 

 
 
 
 
 
Liabilities:
 
 

 
 

Secured mortgage, construction and bond debt
 
$
1,432,387

 
$
1,507,216

Secured agency facility
 
87,750

 
87,750

Unsecured notes
 
398,750

 
398,721

Unsecured term loans
 
600,000

 
600,000

Unsecured revolving credit facility
 
271,700

 
150,700

Accounts payable and accrued expenses
 
49,861

 
65,088

Other liabilities
 
113,176

 
110,036

Total liabilities
 
2,953,624

 
2,919,511

 
 
 
 
 
Commitments and contingencies (Note 14)
 


 


 
 
 
 
 
Redeemable noncontrolling interests
 
52,813

 
47,964

 
 
 
 
 
Equity:
 
 

 
 

American Campus Communities, Inc. stockholders’ equity:
 
 

 
 

Common stock, $.01 par value, 800,000,000 shares authorized, 104,907,700 and 104,782,817 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively
 
1,043

 
1,043

Additional paid in capital
 
3,011,951

 
3,017,631

Accumulated earnings and dividends
 
(401,983
)
 
(392,338
)
Accumulated other comprehensive loss
 
(2,428
)
 
(1,435
)
Total American Campus Communities, Inc. stockholders’ equity
 
2,608,583

 
2,624,901

Noncontrolling interests - partially owned properties
 
5,695

 
5,664

Total equity
 
2,614,278

 
2,630,565

 
 
 
 
 
Total liabilities and equity
 
$
5,620,715

 
$
5,598,040

 


See accompanying notes to consolidated financial statements.

1

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands, except share and per share data)



 
 
Three Months Ended March 31,
 
 
2014
 
2013
Revenues
 
 
 
 
Wholly-owned properties
 
$
171,950

 
$
152,275

On-campus participating properties
 
8,188

 
8,102

Third-party development services
 
187

 
479

Third-party management services
 
1,985

 
1,709

Resident services
 
873

 
597

Total revenues
 
183,183

 
163,162

 
 
 
 
 
Operating expenses
 
 

 
 

Wholly-owned properties
 
75,808

 
66,057

On-campus participating properties
 
2,482

 
2,504

Third-party development and management services
 
2,786

 
2,306

General and administrative
 
4,374

 
3,806

Depreciation and amortization
 
48,175

 
45,602

Ground/facility leases
 
1,563

 
1,203

Total operating expenses
 
135,188

 
121,478

 
 
 
 
 
Operating income
 
47,995

 
41,684

 
 
 
 
 
Nonoperating income and (expenses)
 
 

 
 

Interest income
 
1,031

 
426

Interest expense
 
(21,090
)
 
(17,411
)
Amortization of deferred financing costs
 
(1,499
)
 
(1,311
)
Other nonoperating expense
 

 
(2,800
)
Total nonoperating expenses
 
(21,558
)
 
(21,096
)
 
 
 
 
 
Income before income taxes and discontinued operations
 
26,437

 
20,588

Income tax provision
 
(290
)
 
(255
)
Income from continuing operations
 
26,147

 
20,333

Discontinued operations:
 
 
 
 
(Loss) income attributable to discontinued operations
 
(123
)
 
2,048

Gain from disposition of real estate
 
2,843

 

Total discontinued operations
 
2,720

 
2,048

Net income
 
28,867

 
22,381

Net income attributable to noncontrolling interests
 
 

 
 

Redeemable noncontrolling interests
 
(381
)
 
(279
)
Partially owned properties
 
(88
)
 
(512
)
Net income attributable to noncontrolling interests
 
(469
)
 
(791
)
Net income attributable to common shareholders
 
$
28,398

 
$
21,590

 
 
 
 
 
Other comprehensive (loss) income
 
 

 
 

Change in fair value of interest rate swaps
 
(993
)
 
813

Comprehensive income
 
$
27,405

 
$
22,403

 
 
 
 
 
Income per share attributable to common shareholders - basic and diluted
 
 

 
 

Income from continuing operations per share
 
$
0.24

 
$
0.18

Net income per share
 
$
0.27

 
$
0.20

 
 
 
 
 
Weighted-average common shares outstanding
 
 

 
 

Basic
 
104,821,669

 
104,697,433

Diluted
 
105,556,833

 
105,364,769

 

See accompanying notes to consolidated financial statements.

2

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited, in thousands, except share data)



 
 
Common
Shares
 
Par Value of
Common
Shares
 
Additional Paid
in Capital
 
Accumulated
Earnings and
Dividends
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interests –
Partially Owned
Properties
 
Total
Equity, December 31, 2013
 
104,782,817

 
$
1,043

 
$
3,017,631

 
$
(392,338
)
 
$
(1,435
)
 
$
5,664

 
$
2,630,565

Adjustments to reflect redeemable noncontrolling interests at fair value
 

 

 
(4,955
)
 

 

 

 
(4,955
)
Amortization of restricted stock awards
 

 

 
1,864

 

 

 

 
1,864

Vesting of restricted stock awards and restricted stock units
 
124,883

 

 
(2,589
)
 

 

 

 
(2,589
)
Distributions to common and restricted stockholders
 

 

 

 
(38,043
)
 

 

 
(38,043
)
Distributions to noncontrolling interests - partially owned properties
 

 

 

 

 

 
(57
)
 
(57
)
Change in fair value of interest rate swaps
 

 

 

 

 
(993
)
 

 
(993
)
Net income
 

 

 

 
28,398

 

 
88

 
28,486

Equity, March 31, 2014
 
104,907,700

 
$
1,043

 
$
3,011,951

 
$
(401,983
)
 
$
(2,428
)
 
$
5,695

 
$
2,614,278

 


See accompanying notes to consolidated financial statements.

3

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) 



 
 
Three Months Ended March 31,
 
 
2014
 
2013
Operating activities
 
 
 
 
Net income
 
$
28,867

 
$
22,381

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Gain from disposition of real estate
 
(2,843
)
 

Non-cash litigation settlement expense
 

 
2,800

Depreciation and amortization
 
48,222

 
46,971

Amortization of deferred financing costs and debt premiums/discounts
 
(1,666
)
 
(2,284
)
Share-based compensation
 
1,864

 
1,578

Income tax provision
 
290

 
255

Changes in operating assets and liabilities:
 
 

 
 

Restricted cash
 
(2,911
)
 
(922
)
Student contracts receivable, net
 
1,211

 
7,647

Other assets
 
4,585

 
(1,962
)
Accounts payable and accrued expenses
 
(19,990
)
 
(17,395
)
Other liabilities
 
3,437

 
(2,080
)
Net cash provided by operating activities
 
61,066

 
56,989

 
 
 
 
 
Investing activities
 
 

 
 

Proceeds from disposition of properties
 
1,327

 

Cash paid for property acquisitions
 
(9,117
)
 
(263
)
Cash paid for land acquisitions
 
(2,952
)
 

Capital expenditures for wholly-owned properties
 
(8,815
)
 
(11,830
)
Investments in wholly-owned properties under development
 
(59,990
)
 
(71,025
)
Capital expenditures for on-campus participating properties
 
(333
)
 
(335
)
Investment in on-campus participating properties under development
 
(11,959
)
 

Decrease in escrow deposits
 
520

 

Change in restricted cash related to capital reserves
 
2,208

 
(486
)
Purchase of corporate furniture, fixtures and equipment
 
(878
)
 
(743
)
Net cash used in investing activities
 
(89,989
)
 
(84,682
)
 
 
 
 
 
Financing activities
 
 

 
 

Pay-off of mortgage loans
 
(68,574
)
 

Proceeds from revolving credit facilities
 
143,400

 
63,000

Pay downs of revolving credit facilities
 
(22,400
)
 

Proceeds from construction loans
 
12,162

 

Principal payments on debt
 
(4,221
)
 
(4,252
)
Debt issuance and assumption costs
 
(396
)
 
(996
)
Distributions to common and restricted stockholders
 
(38,043
)
 
(35,644
)
Distributions to noncontrolling partners
 
(545
)
 
(836
)
Net cash provided by financing activities
 
21,383

 
21,272

 
 
 
 
 
Net change in cash and cash equivalents
 
(7,540
)
 
(6,421
)
Cash and cash equivalents at beginning of period
 
38,751

 
21,454

Cash and cash equivalents at end of period
 
$
31,211

 
$
15,033

 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 

 
 

Change in fair value of derivative instruments, net
 
$
(993
)
 
$
813

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Interest paid
 
$
24,300

 
$
24,497

 

See accompanying notes to consolidated financial statements.

4

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)



 
 
March 31, 2014
 
December 31, 2013
 
 
(Unaudited)
 
 
Assets
 
 
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
Wholly-owned properties, net
 
$
5,240,032

 
$
5,199,008

Wholly-owned property held for sale
 

 
14,408

On-campus participating properties, net
 
83,710

 
73,456

Investments in real estate, net
 
5,323,742

 
5,286,872

 
 
 
 
 
Cash and cash equivalents
 
31,211

 
38,751

Restricted cash
 
36,163

 
35,451

Student contracts receivable, net
 
8,004

 
9,238

Other assets
 
221,595

 
227,728

 
 
 
 
 
Total assets
 
$
5,620,715

 
$
5,598,040

 
 
 
 
 
Liabilities and capital
 
 

 
 

 
 
 
 
 
Liabilities:
 
 

 
 

Secured mortgage, construction and bond debt
 
$
1,432,387

 
$
1,507,216

Secured agency facility
 
87,750

 
87,750

Unsecured notes
 
398,750

 
398,721

Unsecured term loans
 
600,000

 
600,000

Unsecured revolving credit facility
 
271,700

 
150,700

Accounts payable and accrued expenses
 
49,861

 
65,088

Other liabilities
 
113,176

 
110,036

Total liabilities
 
2,953,624

 
2,919,511

 
 
 
 
 
Commitments and contingencies (Note 14)
 


 


 
 
 
 
 
Redeemable limited partners
 
52,813

 
47,964

 
 
 
 
 
Capital:
 
 

 
 

Partners’ capital:
 
 

 
 

General partner – 12,222 OP units outstanding at both March 31, 2014 and December 31, 2013
 
110

 
111

Limited partner – 104,895,478 and 104,770,595 OP units outstanding at March 31, 2014 and December 31, 2013, respectively
 
2,610,901

 
2,626,225

Accumulated other comprehensive loss
 
(2,428
)
 
(1,435
)
Total partners’ capital
 
2,608,583

 
2,624,901

Noncontrolling interests - partially owned properties
 
5,695

 
5,664

Total capital
 
2,614,278

 
2,630,565

 
 
 
 
 
Total liabilities and capital
 
$
5,620,715

 
$
5,598,040

 


See accompanying notes to consolidated financial statements.

5

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands, except unit and per unit data)



 
 
Three Months Ended March 31,
 
 
2014
 
2013
Revenues
 
 
 
 
Wholly-owned properties
 
$
171,950

 
$
152,275

On-campus participating properties
 
8,188

 
8,102

Third-party development services
 
187

 
479

Third-party management services
 
1,985

 
1,709

Resident services
 
873

 
597

Total revenues
 
183,183

 
163,162

 
 
 
 
 
Operating expenses
 
 

 
 

Wholly-owned properties
 
75,808

 
66,057

On-campus participating properties
 
2,482

 
2,504

Third-party development and management services
 
2,786

 
2,306

General and administrative
 
4,374

 
3,806

Depreciation and amortization
 
48,175

 
45,602

Ground/facility leases
 
1,563

 
1,203

Total operating expenses
 
135,188

 
121,478

 
 
 
 
 
Operating income
 
47,995

 
41,684

 
 
 
 
 
Nonoperating income and (expenses)
 
 

 
 

Interest income
 
1,031

 
426

Interest expense
 
(21,090
)
 
(17,411
)
Amortization of deferred financing costs
 
(1,499
)
 
(1,311
)
Other nonoperating expense
 

 
(2,800
)
Total nonoperating expenses
 
(21,558
)
 
(21,096
)
 
 
 
 
 
Income before income taxes and discontinued operations
 
26,437

 
20,588

Income tax provision
 
(290
)
 
(255
)
Income from continuing operations
 
26,147

 
20,333

Discontinued operations:
 
 
 
 
(Loss) income attributable to discontinued operations
 
(123
)
 
2,048

Gain from disposition of real estate
 
2,843

 

Total discontinued operations
 
2,720

 
2,048

Net income
 
28,867

 
22,381

Net income attributable to noncontrolling interests – partially owned properties
 
(88
)
 
(512
)
Net income attributable to American Campus Communities Operating Partnership, L.P.
 
28,779

 
21,869

Series A preferred unit distributions
 
(45
)
 
(46
)
Net income available to common unitholders
 
$
28,734

 
$
21,823

 
 
 
 
 
Other comprehensive (loss) income
 
 

 
 

Change in fair value of interest rate swaps
 
(993
)
 
813

Comprehensive income
 
$
27,741

 
$
22,636

 
 
 
 
 
Income per unit attributable to common unitholders – basic and diluted
 
 

 
 

Income from continuing operations per unit
 
$
0.24

 
$
0.18

Net income per unit
 
$
0.27

 
$
0.20

 
 
 
 
 
Weighted-average common units outstanding
 
 

 
 

Basic
 
106,051,888

 
105,830,509

Diluted
 
106,787,052

 
106,497,845

 

See accompanying notes to consolidated financial statements.

6

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL
(unaudited, in thousands, except unit data)



 
 
 
 
 
 
 
 
 
 
Accumulated
 
Noncontrolling
 
 
 
 
 
 
 
 
Other
 
Interests -
 
 

 
 
General Partner
 
Limited Partner
 
Comprehensive
 
Partially Owned
 
 

 
 
Units
 
Amount
 
Units
 
Amount
 
Loss
 
Properties
 
Total
Capital, December 31, 2013
 
12,222

 
$
111

 
104,770,595

 
$
2,626,225

 
$
(1,435
)
 
$
5,664

 
$
2,630,565

Adjustments to reflect redeemable limited partners’ interest at fair value
 

 

 

 
(4,955
)
 

 

 
(4,955
)
Amortization of restricted stock awards
 

 

 

 
1,864

 

 

 
1,864

Vesting of restricted stock awards and restricted stock units
 

 

 
124,883

 
(2,589
)
 

 

 
(2,589
)
Distributions
 

 
(4
)
 

 
(38,039
)
 

 

 
(38,043
)
Distributions to joint venture partners
 

 

 

 

 

 
(57
)
 
(57
)
Change in fair value of interest rate swaps
 

 

 

 

 
(993
)
 

 
(993
)
Net income
 

 
3

 

 
28,395

 

 
88

 
28,486

Capital, March 31, 2014
 
12,222

 
$
110

 
104,895,478

 
$
2,610,901

 
$
(2,428
)
 
$
5,695

 
$
2,614,278

 
 

See accompanying notes to consolidated financial statements.

7

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) 



 
 
Three Months Ended March 31,
 
 
2014
 
2013
Operating activities
 
 
 
 
Net income
 
$
28,867

 
$
22,381

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Gain from disposition of real estate
 
(2,843
)
 

Non-cash litigation settlement expense
 

 
2,800

Depreciation and amortization
 
48,222

 
46,971

Amortization of deferred financing costs and debt premiums/discounts
 
(1,666
)
 
(2,284
)
Share-based compensation
 
1,864

 
1,578

Income tax provision
 
290

 
255

Changes in operating assets and liabilities:
 
 

 
 

Restricted cash
 
(2,911
)
 
(922
)
Student contracts receivable, net
 
1,211

 
7,647

Other assets
 
4,585

 
(1,962
)
Accounts payable and accrued expenses
 
(19,990
)
 
(17,395
)
Other liabilities
 
3,437

 
(2,080
)
Net cash provided by operating activities
 
61,066

 
56,989

 
 
 
 
 
Investing activities
 
 

 
 

Proceeds from disposition of properties
 
1,327

 

Cash paid for property acquisitions
 
(9,117
)
 
(263
)
Cash paid for land acquisitions
 
(2,952
)
 

Capital expenditures for wholly-owned properties
 
(8,815
)
 
(11,830
)
Investments in wholly-owned properties under development
 
(59,990
)
 
(71,025
)
Capital expenditures for on-campus participating properties
 
(333
)
 
(335
)
Investment in on-campus participating properties under development
 
(11,959
)
 

Decrease in escrow deposits
 
520

 

Change in restricted cash related to capital reserves
 
2,208

 
(486
)
Purchase of corporate furniture, fixtures and equipment
 
(878
)
 
(743
)
Net cash used in investing activities
 
(89,989
)
 
(84,682
)
 
 
 
 
 
Financing activities
 
 

 
 

Pay-off of mortgage loans
 
(68,574
)
 

Proceeds from revolving credit facilities
 
143,400

 
63,000

Pay downs of revolving credit facilities
 
(22,400
)
 

Proceeds from construction loans
 
12,162

 

Principal payments on debt
 
(4,221
)
 
(4,252
)
Debt issuance and assumption costs
 
(396
)
 
(996
)
Distributions paid on unvested restricted stock awards
 
(321
)
 
(272
)
Distributions paid on common units
 
(38,165
)
 
(35,754
)
Distributions paid on preferred units
 
(45
)
 
(46
)
Distributions paid to noncontrolling partners - partially owned properties
 
(57
)
 
(408
)
Net cash provided by financing activities
 
21,383

 
21,272

 
 
 
 
 
Net change in cash and cash equivalents
 
(7,540
)
 
(6,421
)
Cash and cash equivalents at beginning of period
 
38,751

 
21,454

Cash and cash equivalents at end of period
 
$
31,211

 
$
15,033

 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 

 
 

Change in fair value of derivative instruments, net
 
$
(993
)
 
$
813

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Interest paid
 
$
24,300

 
$
24,497

 

See accompanying notes to consolidated financial statements.

8

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1. Organization and Description of Business
 
American Campus Communities, Inc. (“ACC”) is a real estate investment trust (“REIT”) that commenced operations effective with the completion of an initial public offering (“IPO”) on August 17, 2004.  Through ACC’s controlling interest in American Campus Communities Operating Partnership, L.P. (“ACCOP”), ACC is one of the largest owners, managers and developers of high quality student housing properties in the United States in terms of beds owned and under management.  ACC is a fully integrated, self-managed and self-administered equity REIT with expertise in the acquisition, design, financing, development, construction management, leasing and management of student housing properties.  ACC’s common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “ACC.”
 
The general partner of ACCOP is American Campus Communities Holdings, LLC (“ACC Holdings”), an entity that is wholly-owned by ACC.  As of March 31, 2014, ACC Holdings held an ownership interest in ACCOP of less than 1%. The limited partners of ACCOP are ACC and other limited partners consisting of current and former members of management and nonaffiliated third parties.  As of March 31, 2014, ACC owned an approximate 98.7% limited partnership interest in ACCOP.  As the sole member of the general partner of ACCOP, ACC has exclusive control of ACCOP’s day-to-day management.  Management operates ACC and ACCOP as one business.  The management of ACC consists of the same members as the management of ACCOP.  ACC consolidates ACCOP for financial reporting purposes, and ACC does not have significant assets other than its investment in ACCOP.  Therefore, the assets and liabilities of ACC and ACCOP are the same on their respective financial statements.  References to the “Company,” “we,” “us” or “our” mean collectively ACC, ACCOP and those entities/subsidiaries owned or controlled by ACC and/or ACCOP.  References to the “Operating Partnership” mean collectively ACCOP and those entities/subsidiaries owned or controlled by ACCOP.  Unless otherwise indicated, the accompanying Notes to the Consolidated Financial Statements apply to both the Company and the Operating Partnership.
 
As of March 31, 2014, our property portfolio contained 168 properties with approximately 102,600 beds in approximately 33,500 apartment units.  Our property portfolio consisted of 144 owned off-campus student housing properties that are in close proximity to colleges and universities, 18 American Campus Equity (“ACE®”) properties operated under ground/facility leases with eight university systems, five on-campus participating properties operated under ground/facility leases with the related university systems and one property containing a hotel which we plan to redevelop into a new student housing facility.  Of the 168 properties, ten were under development as of March 31, 2014, and when completed will consist of a total of approximately 6,800 beds in approximately 2,100 units.  Our communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
 
Through one of ACC’s taxable REIT subsidiaries (“TRSs”), we also provide construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others.  As of March 31, 2014, also through one of ACC’s TRSs, we provided third-party management and leasing services for 33 properties that represented approximately 25,400 beds in approximately 10,200 units.  Third-party management and leasing services are typically provided pursuant to management contracts that have initial terms that range from one to five years.  As of March 31, 2014, our total owned and third-party managed portfolio included 201 properties with approximately 128,000 beds in approximately 43,700 units.
 
2. Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying consolidated financial statements, presented in U.S. dollars, are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and revenue and expenses during the reporting periods. Our actual results could differ from those estimates and assumptions. All material intercompany transactions among consolidated entities have been eliminated. All dollar amounts in the tables herein, except share, per share, unit and per unit amounts, are stated in thousands unless otherwise indicated. Certain prior period amounts have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-08 ("ASU 2014-08"), “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) - Reporting Discontinued

9

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 changes the threshold for disclosing discontinued operations and the related disclosure requirements, requiring only disposals representing a strategic shift, such as a major line of business, a major geographical area or a major equity investment, to be presented as a discontinued operation. If the disposal does qualify as a discontinued operation under ASU 2014-08, the Company will be required to provide expanded disclosures. The guidance will be applied prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. ASU 2014-08 is effective for the Company beginning January 1, 2015 with early adoption permitted but only for disposals or classifications as held for sale which have not been reported in financial statements previously issued or available for issuance. While we have elected early adoption for our consolidated financial statements and footnote disclosures and believe future sales of our individual operating properties will no longer qualify as discontinued operations, the sale of Hawks Landing in February 2014 has continued to be presented in discontinued operations as the property was classified as held for sale in our consolidated financial statements for the year ended December 31, 2013.

Interim Financial Statements

The accompanying interim financial statements are unaudited, but have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all disclosures required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements of the Company for these interim periods have been included.  Because of the seasonal nature of the Company’s operations, the results of operations and cash flows for any interim period are not necessarily indicative of results for other interim periods or for the full year.  These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
Investments in Real Estate
 
Investments in real estate are recorded at historical cost.  Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset.  The cost of ordinary repairs and maintenance are charged to expense when incurred.  Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:
Buildings and improvements
 
7-40 years
Leasehold interest - on-campus
   participating properties
 
25-34 years (shorter of useful life or respective lease term)
Furniture, fixtures and equipment
 
3-7 years
 
Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred finance costs, are capitalized as construction in progress.  Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences.  Interest totaling approximately $2.2 million and $2.3 million was capitalized during the three months ended March 31, 2014 and 2013, respectively.  Amortization of deferred financing costs totaling approximately $5,000 and $0.1 million was capitalized as construction in progress during the three months ended March 31, 2014 and 2013, respectively.
 
Management assesses whether there has been an impairment in the value of the Company’s investments in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Impairment is recognized when estimated expected future undiscounted cash flows are less than the carrying value of the property.  The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions.  If such conditions change, then an adjustment to the carrying value of the Company’s long-lived assets could occur in the future period in which the conditions change.  To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings. The Company believes that there were no impairments of the carrying values of its investments in real estate as of March 31, 2014.

10

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


 
The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on relative fair values.  Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired and existing comparable properties in our portfolio, and other market data.  Information obtained about each property as a result of due diligence, marketing and leasing activities is also considered.  The value allocated to land is generally based on the actual purchase price adjusted to fair value (as necessary) if acquired separately, or market research / comparables if acquired as part of an existing operating property.  The value allocated to building is based on the fair value determined on an “as-if vacant” basis, which is estimated using an income, or discounted cash flow, approach that relies upon internally determined assumptions that we believe are consistent with current market conditions for similar properties. The value allocated to furniture, fixtures, and equipment is based on an estimate of the fair value of the appliances and fixtures inside the units.
 
Long-Lived Assets–Held for Sale
 
Long-lived assets to be disposed of are classified as Held for Sale in the period in which all of the following criteria are met:

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

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

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

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

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

f.
Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
 
Concurrent with this classification, the asset is recorded at the lower of cost or fair value less estimated selling costs, and depreciation ceases.
 
Loans Receivable
 
Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan purchase discounts, and net of an allowance for loan losses when such loan is deemed to be impaired.  Loan purchase discounts are amortized over the term of the loan.  The Company considers a loan impaired when, based upon current information and events, it is probable that it will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan agreement.  Significant judgments are required in determining whether impairment has occurred.  The Company performs an impairment analysis by comparing either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable current market price or the fair value of the underlying collateral to the net carrying value of the loan, which may result in an allowance and corresponding loan loss charge.  Loans receivable are included in other assets on the accompanying consolidated balance sheets.
 
Intangible Assets
 
A portion of the purchase price of acquired properties is allocated to the value of in-place leases for both student and commercial tenants, which is based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued “as-if” vacant.  As lease terms for student leases are typically one year or less, rates on in-place leases generally approximate market rental rates.  Factors considered in the valuation of in-place leases include an estimate of the carrying costs during the expected lease-up period considering current market conditions, nature of the tenancy, and costs to execute similar leases.  Carrying costs include estimates of lost rentals at market rates during the expected lease-up period, as well as marketing and other operating expenses.  The value of in-place leases is amortized over the remaining initial term of the respective

11

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


leases.  The purchase price of property acquisitions is not expected to be allocated to student tenant relationships, considering the terms of the leases and the expected levels of renewals.
 
Amortization expense related to in-place leases was approximately $0.9 million and $5.5 million for the three months ended March 31, 2014 and 2013, respectively.  Accumulated amortization at March 31, 2014 and December 31, 2013 was approximately $26.4 million and $25.5 million, respectively.  Intangible assets, net of amortization, are included in other assets on the accompanying consolidated balance sheets and the amortization of intangible assets is included in depreciation and amortization expense in the accompanying consolidated statements of comprehensive income.  
 
Mortgage Debt - Premiums and Discounts
 
Mortgage debt premiums and discounts represent fair value adjustments to account for the difference between the stated rates and market rates of mortgage debt assumed in connection with the Company’s property acquisitions.  The mortgage debt premiums and discounts are amortized to interest expense over the term of the related mortgage loans using the effective-interest method.  The amortization of mortgage debt premiums and discounts resulted in a net decrease to interest expense of approximately $3.2 million and $3.6 million for the three months ended March 31, 2014 and 2013, respectively.  As of March 31, 2014 and December 31, 2013, net unamortized mortgage debt premiums were approximately $71.0 million and $74.6 million, respectively, and net unamortized mortgage debt discounts were approximately $1.7 million and $2.0 million, respectively.  Mortgage debt premiums and discounts are included in secured mortgage, construction and bond debt on the accompanying consolidated balance sheets and amortization of mortgage debt premiums and discounts is included in interest expense on the accompanying consolidated statements of comprehensive income.
 
Unsecured Notes - Original Issue Discount
 
In April 2013, the Company issued $400 million of senior unsecured notes at 99.659 percent of par value (see Note 8) and recorded an original issue discount of approximately $1.4 million.  The original issue discount is amortized to interest expense over the term of the unsecured notes using the effective-interest method.  The unamortized original issue discount was approximately $1.3 million as of March 31, 2014 and is included in unsecured notes on the accompanying consolidated balance sheets and amortization of the original issue discount of $29,000 is included in interest expense on the accompanying consolidated statements of comprehensive income for the three months ended March 31, 2014.
 
Pre-development Expenditures
 
Pre-development expenditures such as architectural fees, permits and deposits associated with the pursuit of third-party and owned development projects are expensed as incurred, until such time that management believes it is probable that the contract will be executed and/or construction will commence.  Because the Company frequently incurs these pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained, the Company bears the risk of loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or the Company is unable to successfully obtain the required permits and authorizations.  As such, management evaluates the status of third-party and owned projects that have not yet commenced construction on a periodic basis and expenses any deferred costs related to projects whose current status indicates the commencement of construction is unlikely and/or the costs may not provide future value to the Company in the form of revenues.  Such write-offs are included in third-party development and management services expenses (in the case of third-party development projects) or general and administrative expenses (in the case of owned development projects) on the accompanying consolidated statements of comprehensive income.  As of March 31, 2014, the Company has deferred approximately $3.5 million in pre-development costs related to third-party and owned development projects that have not yet commenced construction.  Such costs are included in other assets on the accompanying consolidated balance sheets.

Earnings per Share – Company
 
Basic earnings per share is computed using net income attributable to common shareholders and the weighted average number of shares of the Company’s common stock outstanding during the period.  Diluted earnings per share reflect common shares issuable from the assumed conversion of OP Units and common share awards granted.  Only those items having a dilutive impact on basic earnings per share are included in diluted earnings per share.
 

12

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The following potentially dilutive securities were outstanding for the three months ended March 31, 2014 and 2013, but were not included in the computation of diluted earnings per share because the effects of their inclusion would be anti-dilutive. 
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Common OP Units (Note 10)
 
1,230,219

 
1,133,076

Preferred OP Units (Note 10)
 
112,628

 
114,128

Total potentially dilutive securities
 
1,342,847

 
1,247,204

 
The following is a summary of the elements used in calculating basic and diluted earnings per share:
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Numerator – basic and diluted earnings per share:
 
 
 
 
Income from continuing operations
 
$
26,147

 
$
20,333

Income from continuing operations attributable to noncontrolling interests
 
(435
)
 
(767
)
Income from continuing operations attributable to common shareholders
 
25,712

 
19,566

Amount allocated to participating securities
 
(321
)
 
(272
)
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
 
25,391

 
19,294

Income from discontinued operations
 
2,720

 
2,048

Income from discontinued operations attributable to noncontrolling interests
 
(34
)
 
(24
)
Income from discontinued operations attributable to common shareholders
 
2,686

 
2,024

Net income attributable to common shareholders
 
$
28,077

 
$
21,318

Denominator:
 
 

 
 

Basic weighted average common shares outstanding
 
104,821,669

 
104,697,433

Unvested Restricted Stock Awards (Note 11)
 
735,164

 
667,336

Diluted weighted average common shares outstanding
 
105,556,833

 
105,364,769

 
Earnings per share – basic and diluted:
 
 
 
 
Income from continuing operations attributable to common shareholders, net of amount allocated to participating securities
 
$
0.24

 
$
0.18

Income from discontinued operations attributable to common shareholders
 
$
0.03

 
$
0.02

Net income attributable to common shareholders
 
$
0.27

 
$
0.20

Distributions declared per common share
 
$
0.36

 
$
0.3375

 
Earnings per Unit – Operating Partnership
 
Basic earnings per OP Unit is computed using net income attributable to common unitholders and the weighted average number of common units outstanding during the period.  Diluted earnings per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units or resulted in the issuance of OP Units and then shared in the earnings of the Operating Partnership.





13

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The following is a summary of the elements used in calculating basic and diluted earnings per unit: 
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Numerator – basic and diluted earnings per unit:
 
 
 
 
Income from continuing operations
 
$
26,147

 
$
20,333

Income from continuing operations attributable to noncontrolling interests – partially owned properties
 
(88
)
 
(512
)
Income from continuing operations attributable to Series A preferred units
 
(42
)
 
(44
)
Amount allocated to participating securities
 
(321
)
 
(272
)
Income from continuing operations attributable to common unitholders, net of amount allocated to participating securities
 
25,696

 
19,505

Income from discontinued operations
 
2,720

 
2,048

Income from discontinued operations attributable to Series A preferred units
 
(3
)
 
(2
)
Income from discontinued operations attributable to common unitholders
 
2,717

 
2,046

Net income attributable to common unitholders
 
$
28,413

 
$
21,551

Denominator:
 
 

 
 

Basic weighted average common units outstanding
 
106,051,888

 
105,830,509

Unvested Restricted Stock Awards (Note 11)
 
735,164

 
667,336

Diluted weighted average common units outstanding
 
106,787,052

 
106,497,845

 
Earnings per unit - basic and diluted:
 
 
 
 
Income from continuing operations attributable to common unitholders, net of amount allocated to participating securities
 
$
0.24

 
$
0.18

Income from discontinued operations attributable to common unitholders
 
$
0.03

 
$
0.02

Net income attributable to common unitholders
 
$
0.27

 
$
0.20

Distributions declared per common unit
 
$
0.36

 
$
0.3375

 
3. Property Acquisitions
   
On January 10, 2014, the Company acquired the Boulder Outlook Hotel property, which is located near the University of Colorado campus, for a purchase price of approximately $9.3 million. The seller will operate the hotel until the fourth quarter 2014 or first quarter 2015, at which point the hotel will be demolished and construction on a new student housing facility will commence.
4. Property Dispositions and Discontinued Operations
 
2014 Dispositions

In February 2014, the Company sold Hawks Landing, a 122-unit, 484-bed owned off-campus property located near the campus of Miami University of Ohio for a sales price of approximately $17.3 million, including the assumption of an existing $15.6 million mortgage loan by the purchaser, resulting in net proceeds of approximately $1.3 million. The resulting gain on disposition of approximately $2.8 million is included in discontinued operations on the accompanying consolidated statements of comprehensive income for the three months ended March 31, 2014.





14

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


2013 Dispositions

In 2013, the Company sold six owned off-campus properties containing 4,079 beds for a combined sales price of approximately $184.2 million resulting in total proceeds of approximately $180.5 million. The net income attributable to these properties is included in discontinued operations on the accompanying consolidated statements of comprehensive income for the three months ended March 31, 2013.

The properties discussed above are included in the wholly-owned properties segment (see Note 15).  Below is a summary of the results of operations for the properties discussed above: 
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Total revenues
 
$
279

 
$
6,440

Total operating expenses
 
(239
)
 
(2,511
)
Depreciation and amortization
 

 
(1,369
)
Operating income
 
40

 
2,560

Total nonoperating expenses
 
(163
)
 
(512
)
Net (loss) income
 
$
(123
)
 
$
2,048

 
5. Investments in Wholly-Owned Properties
 
Wholly-owned properties consisted of the following: 
 
 
March 31, 2014
 
December 31, 2013
Land (1) (2)
 
$
587,691

 
$
575,944

Buildings and improvements
 
4,762,874

 
4,759,879

Furniture, fixtures and equipment (2)
 
268,601

 
267,022

Construction in progress (2)
 
190,901

 
121,923

 
 
5,810,067

 
5,724,768

Less accumulated depreciation
 
(570,035
)
 
(525,760
)
Wholly-owned properties, net (3)
 
$
5,240,032

 
$
5,199,008

 
(1) 
The land balance above includes undeveloped land parcels with book values of approximately $40.6 million as of both March 31, 2014 and December 31, 2013.  Also includes land totaling approximately $42.3 million and $39.4 million as of March 31, 2014 and December 31, 2013, respectively, related to properties under development.

(2) 
Land, furniture, fixtures and equipment and construction in progress as of March 31, 2014 include $3.6 million, $0.5 million and $12.7 million, respectively, related to the University Walk property located in Knoxville, Tennessee that will serve students attending the University of Tennessee.  In July 2013, the Company entered into a purchase and contribution agreement with a private developer whereby the Company is obligated to purchase the property as long as the developer meets certain construction completion deadlines and other closing conditions.  The development of the property is anticipated to be completed in August 2014.  The entity is financed with an $8.8 million mezzanine loan from the Company, a $19.0 million construction loan from a third-party lender and a $1.5 million equity contribution from the developer. The Company is responsible for leasing, management, and initial operations of the project while the third-party developer is responsible for the development of the property. The entity that owns University Walk is deemed to be a variable interest entity (“VIE”), and the Company is determined to be the primary beneficiary of the VIE.  As such, the assets and liabilities of the entity owning the property are included in the Company’s and the Operating Partnership’s consolidated financial statements.

(3)
The balance above excludes the net book value of Hawks Landing which was classified as a wholly-owned property held for sale in the accompanying consolidated balance sheet as of December 31, 2013. The property was sold in February 2014.


15

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



6. On-Campus Participating Properties
 
On-campus participating properties are as follows: 
 
 
 
 
 
 
Historical Cost
Lessor/University
 
Lease
Commencement
 
Required Debt
Repayment
 
March 31, 2014
 
December 31, 2013
Texas A&M University System / Prairie View A&M University (1)
 
2/1/1996
 
9/1/2023
 
$
42,563

 
$
42,288

Texas A&M University System / Texas A&M International
 
2/1/1996
 
9/1/2023
 
6,776

 
6,767

Texas A&M University System / Prairie View A&M University (2)
 
10/1/1999
 
8/31/2025
 
26,304

 
26,275

 
 
8/31/2028
 
 
University of Houston System / University of Houston (3)
 
9/27/2000
 
8/31/2035
 
36,146

 
36,126

West Virginia University Project / West Virginia University (4)
 
7/16/2013
 
7/16/2045
 
30,382

 
19,249

 
 
 
 
 
 
142,171

 
130,705

Less accumulated amortization
 
 
 
 
 
(58,461
)
 
(57,249
)
On-campus participating properties, net
 
 
 
$
83,710

 
$
73,456

 
(1) 
Consists of three phases placed in service between 1996 and 1998.

(2) 
Consists of two phases placed in service in 2000 and 2003.

(3) 
Consists of two phases placed in service in 2001 and 2005.

(4) 
In July 2013, construction commenced on this facility which is scheduled to be placed in service in August 2014. Due to our involvement in the construction of the facility, any fees paid to the Company/lessee for development and construction management services during the construction period are deferred and amortized to revenue over the lease term.

7. Investments in Unconsolidated Joint Ventures
 
As of March 31, 2014, the Company owned a noncontrolling interest in one unconsolidated joint venture that is accounted for utilizing the equity method of accounting.  The investment consists of a noncontrolling equity interest in a joint venture with the United States Navy that owns military housing privatization projects located on naval bases in Norfolk and Newport News, Virginia.  In 2010, the Company discontinued applying the equity method in regards to its investment in this joint venture as a result of the Company’s share of losses exceeding its investment in the joint venture.  Because the Company had not guaranteed any obligations of the investee and was not otherwise committed to provide further financial support to the investee, it therefore suspended recording its share of losses once the investment was reduced to zero.  We also earn fees for providing management services to this joint venture, which totaled approximately $0.4 million for each of the three month periods ended March 31, 2014 and 2013.


16

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


8. Debt
 
A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows: 
 
 
March 31, 2014
 
December 31, 2013
Debt secured by wholly-owned properties:
 
 
 
 
Mortgage loans payable:
 
 
 
 
Unpaid principal balance
 
$
1,212,765

 
$
1,300,371

Unamortized debt premiums
 
70,991

 
74,575

Unamortized debt discounts
 
(1,665
)
 
(2,021
)
 
 
1,282,091

 
1,372,925

Construction loans payable (1)
 
48,606

 
44,638

 
 
1,330,697

 
1,417,563

Debt secured by on-campus participating properties:
 
 

 
 

Mortgage loan payable
 
31,255

 
31,380

Bonds payable
 
42,440

 
42,440

Construction loan payable
 
27,995

 
15,833

 
 
101,690

 
89,653

Secured mortgage, construction and bond debt
 
1,432,387

 
1,507,216

Secured agency facility
 
87,750

 
87,750

Unsecured notes, net of unamortized original issue discount
 
398,750

 
398,721

Unsecured revolving credit facility
 
271,700

 
150,700

Unsecured term loans
 
600,000

 
600,000

Total debt
 
$
2,790,587

 
$
2,744,387

 
(1) 
Construction loans payable as of March 31, 2014 includes $4.0 million related to a construction loan that is partially financing the development and construction of University Walk, a VIE the Company is including in its consolidated financial statements (see Note 5). The creditor of this construction loan does not have recourse to the assets of the Company.

Unsecured Notes
 
In April 2013, the Operating Partnership issued $400 million in senior unsecured notes under its existing shelf registration.  These 10-year notes were issued at 99.659 percent of par value with a coupon of 3.750 percent and a yield of 3.791 percent, and are fully and unconditionally guaranteed by the Company.  Interest on the notes is payable semi-annually on April 15 and October 15 and the notes will mature on April 15, 2023.  Net proceeds from the sale of the unsecured notes totaled approximately $394.4 million after deducting the underwriting discount and offering expenses.  The Company used $321.0 million of the offering proceeds to pay down the outstanding balance on its revolving credit facility in full.  The terms of the unsecured notes include certain financial covenants that require the Operating Partnership to limit the amount of total debt and secured debt as a percentage of total asset value, as defined.  In addition, the Operating Partnership must maintain a minimum ratio of unencumbered asset value to unsecured debt, as well as a minimum interest coverage level.  As of March 31, 2014, the Company was in compliance with all such covenants.
 
Unsecured Credit Facility

The Company has an aggregate unsecured credit facility totaling $1.1 billion which is composed of two unsecured term loans totaling $600 million and a $500 million unsecured revolving credit facility, which may be expanded by up to an additional $500 million upon the satisfaction of certain conditions. The maturity date of the unsecured revolving credit facility is March 1, 2018, and can be extended for an additional 12 months to March 1, 2019, subject to the satisfaction of certain conditions. The maturity date of the $350 million term loan facility ("Term Loan I Facility") is January 10, 2017 and can be extended to January 10, 2019 through the exercise of two 12-month extension options, subject to the satisfaction of certain conditions. The maturity date of the $250 million term loan ("Term Loan II Facility") is March 1, 2019.


17

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Each loan bears interest at a variable rate, at the Company’s option, based upon a base rate or one-, two-, three- or six-month LIBOR, plus, in each case, a spread based upon the Company’s investment grade rating from either Moody’s Investor Services, Inc. or Standard & Poor’s Rating Group. As of March 31, 2014, the Term Loan II Facility bore interest at a variable rate of 1.66% per annum (0.16% + 1.50% spread). The Company has entered into multiple interest rate swap contracts with notional amounts totaling $350 million that effectively fix the interest rate to a weighted average annual rate of 0.88% on the outstanding balance of the Term Loan I Facility. Including the current spread of 1.50%, the all-in weighted average annual rate on the Term Loan I Facility was 2.38% at March 31, 2014. Refer to Note 12 for more information on the interest rate swap contracts mentioned above.
Availability under the revolving credit facility is limited to an “aggregate borrowing base amount” equal to 60% of the value of the Company’s unencumbered properties, calculated as set forth in the unsecured credit facility.  Additionally, the Company is required to pay a facility fee of 0.25% per annum on the $500 million revolving credit facility.  As of March 31, 2014, the revolving credit facility bore interest at a weighted average annual rate of 1.71% (0.16% + 1.30% spread + 0.25% facility fee), and availability under the revolving credit facility totaled $228.3 million.
 
The terms of the unsecured credit facility include certain restrictions and covenants, which limit, among other items, the incurrence of additional indebtedness, liens, and the disposition of assets.  The facility contains customary affirmative and negative covenants and also contains financial covenants that, among other things, require the Company to maintain certain minimum ratios of “EBITDA” (earnings before interest, taxes, depreciation and amortization) to fixed charges and total indebtedness.  The Company may not pay distributions that exceed a specified percentage of funds from operations, as adjusted, for any four consecutive quarters.  The financial covenants also include consolidated net worth and leverage ratio tests.  As of March 31, 2014, the Company was in compliance with all such covenants.
 
Secured Agency Facility
 
The Company has a $125 million secured revolving credit facility with a Freddie Mac lender which is scheduled to mature on September 1, 2014 and is currently secured by 8 properties referred to as the “Collateral Pool.”  The facility bears interest at one- or three-month LIBOR plus a spread that varies based on the debt service ratio of the Collateral Pool.  Additionally, the Company is required to pay an unused commitment fee of 1.0% per annum.  As of March 31, 2014, the secured agency facility bore interest at a weighted average annual rate of 2.19%.  The secured agency facility includes some, but not all, of the same financial covenants as the unsecured credit facility, described above.  As of March 31, 2014, the Company was in compliance with all such covenants.
 
9. Stockholders' Equity / Partners' Capital
 
In March 2013, the Company established a new at-the-market share offering program (the “ATM Equity Program”) through which the Company may issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $500 million.  Actual sales under the program will depend on a variety of factors, including, but not limited to, market conditions, the trading price of the Company’s common stock and determinations of the appropriate sources of funding for the Company.  The Company has not sold any shares under the ATM Equity Program and has $500 million available for issuance as of March 31, 2014.
 
10. Noncontrolling Interests
 
Operating Partnership
 
Partially-owned properties: As of March 31, 2014, the Operating Partnership consolidates three joint ventures that own and operate University Village at Sweet Home, University Centre and Villas at Chestnut Ridge owned-off campus properties.  The portion of net assets attributable to the third-party partners in these joint ventures is classified as “noncontrolling interests - partially owned properties” within capital on the accompanying consolidated balance sheets of the Operating Partnership.  Accordingly, the third-party partners’ share of the income or loss of the joint ventures is reported on the consolidated statements of comprehensive income of the Operating Partnership as “net income attributable to noncontrolling interests – partially owned properties.”

As discussed in more detail in Note 5, the Company entered into a purchase and contribution agreement with a private developer whereby the Company is obligated to purchase the property (University Walk) as long as the developer meets certain construction completion deadlines and other closing conditions.  The $1.5 million equity contribution from the developer is reflected as noncontrolling interests - partially owned properties within capital on the accompanying consolidated balance sheet of the Operating Partnership as of March 31, 2014.


18

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


OP Units:  For the portion of OP Units that the Operating Partnership is required, either by contract or securities law, to deliver registered common shares of ACC to the exchanging OP unit holder, or for which the Operating Partnership has the intent or history of exchanging such units for cash, we classify the units as “redeemable limited partners” in the mezzanine section of the consolidated balance sheets of the Operating Partnership.  The units classified as such include Series A preferred units as well as common units that are not held by ACC or ACC Holdings.  The value of redeemable limited partners on the consolidated balance sheets of the Operating Partnership is reported at the greater of fair value or historical cost at the end of each reporting period.  Changes in the value from period to period are charged to limited partner’s capital on the consolidated statement of changes in capital of the Operating Partnership.  Below is a table summarizing the activity of redeemable limited partners for the three months ended March 31, 2014
December 31, 2013
$
47,964

Net income
381

Distributions
(487
)
Adjustments to reflect redeemable limited partner units at fair value
4,955

March 31, 2014
$
52,813

 
During the year ended December 31, 2013, 1,500 Series A preferred units were converted into an equal number of shares of ACC's common stock and none were converted during three months ended March 31, 2014. As of March 31, 2014 and December 31, 2013, approximately 1.3% of the equity interests of the Operating Partnership were held by owners of common OP Units and Series A preferred units not held by ACC or ACC Holdings.
 
Company
 
The noncontrolling interests of the Company include the third-party equity interests in partially-owned properties, as discussed above, which are presented as a component of equity in the Company’s consolidated balance sheets.  The Company’s noncontrolling interests also include the redeemable limited partners presented in the consolidated balance sheets of the Operating Partnership, which are referred to as “redeemable noncontrolling interests” in the mezzanine section of the Company’s consolidated balance sheets.  Noncontrolling interests on the Company’s consolidated statements of comprehensive income include the income/loss attributable to third-party equity interests in partially-owned properties, as well as the income/loss attributable to redeemable noncontrolling interests (i.e. OP Units not held by ACC or ACC Holdings.)
 
11. Incentive Award Plan
 
Restricted Stock Awards (“RSAs”)
 
A summary of ACC’s RSAs under the Plan as of March 31, 2014 and activity during the three months then ended, is presented below:
 
Number of RSAs
Nonvested balance at December 31, 2013
602,191

Granted
292,526

Vested
(124,883
)
Forfeited (1)
(75,907
)
Nonvested balance at March 31, 2014
693,927

             
(1) Includes shares withheld to satisfy tax obligations upon vesting.      

The fair value of RSA’s is calculated based on the closing market value of ACC’s common stock on the date of grant.  The fair value of these awards is amortized to expense over the vesting periods, which amounted to approximately $1.9 million and $1.6 million for the three months ended March 31, 2014 and 2013, respectively.
 

19

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


12. Derivative Instruments and Hedging Activities
 
The Company is exposed to certain risk arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities.  The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
 
Cash Flow Hedges of Interest Rate Risk
 
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.  To accomplish this objective, the Company primarily uses interest rate swaps and forward starting swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  Forward starting swaps are used to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on a forecasted issuance of debt. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in other comprehensive income (outside of earnings) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. Ineffectiveness resulting from the derivative instruments summarized below was immaterial for both three month periods ended March 31, 2014 and 2013.
 
The following table summarizes the Company’s outstanding interest rate swap and forward starting swap contracts as of March 31, 2014
Hedged Debt Instrument
 
Effective Date
 
Maturity Date
 
Pay Fixed Rate
 
Receive Floating
Rate Index
 
Notional
Amount
 
Fair Value
Cullen Oaks mortgage loan (1)
 
Feb 18, 2014
 
Feb 15, 2021
 
2.275%
 
LIBOR - 1 month
 
$
15,548

 
$
(178
)
Cullen Oaks mortgage loan (1)
 
Feb 18, 2014
 
Feb 15, 2021
 
2.275%
 
LIBOR - 1 month
 
15,708

 
(180
)
Term Loan I Facility
 
Feb 2, 2012
 
Jan 2, 2017
 
0.8695%
 
LIBOR – 1 month
 
125,000

 
(423
)
Term Loan I Facility
 
Feb 2, 2012
 
Jan 2, 2017
 
0.88%
 
LIBOR – 1 month
 
100,000

 
(367
)
Term Loan I Facility
 
Feb 2, 2012
 
Jan 2, 2017
 
0.8875%
 
LIBOR – 1 month
 
62,500

 
(244
)
Term Loan I Facility
 
Feb 2, 2012
 
Jan 2, 2017
 
0.889%
 
LIBOR – 1 month
 
62,500

 
(245
)
Park Point mortgage loan
 
Nov 1, 2013
 
Oct 5, 2018
 
1.545%
 
LIBOR - 1 month
 
70,000

 
(91
)
Forward starting swap (2)
 
Jun 3, 2014
 
Jun 3, 2024
 
2.942%
 
LIBOR - 3 month
 
100,000

 
(428
)
Forward starting swap (2)
 
Jun 3, 2014
 
Jun 3, 2024
 
2.942%
 
LIBOR - 3 month
 
100,000

 
(425
)
 
 
 
 
 
 
 
 
Total
 
$
651,256

 
$
(2,581
)

(1) 
In February 2014, the Company renewed the Cullen Oaks Phase I and Phase II mortgage loans and extended the maturity date to February 15, 2021. The renewed loans bear interest at a rate of LIBOR plus 1.75% and require monthly payments of principal and interest. In connection with these loan renewals, the Company terminated the existing interest rate swap contract scheduled to mature on February 15, 2014, and entered into two new interest rate swap contracts described in the table above. Upon termination, the existing interest rate swap had a negative fair value of approximately $0.2 million, which the Company settled by structuring the financing into the terms of new interest rate swaps (commonly referred to as a "blend and extend"). As a result, the two new interest rate swaps had a negative fair value of approximately $0.2 million at inception of the hedging relationship.     

(2) 
In March 2014, the Company entered into two forward starting swap contracts designated to hedge the Company's exposure to increasing interest rates related to interest payments on an anticipated issuance of unsecured notes in 2014.


20

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2014 and December 31, 2013:
 
 
Asset Derivatives
 
Liability Derivatives
 
 
 
 
Fair Value as of
 
 
 
Fair Value as of
Description
 
Balance Sheet
Location
 
March 31, 2014
 
December 31, 2013
 
Balance Sheet
Location
 
March 31, 2014
December 31, 2013
Interest rate swaps contracts
 
Other assets
 
$

 
$
31

 
Other liabilities
 
$
1,728

$
1,466

Forward starting swap contracts
 
Other assets
 

 

 
Other liabilities
 
853


Total derivatives designated
  as hedging instruments
 
 
 
$

 
$
31

 
 
 
$
2,581

$
1,466

 
13Fair Value Disclosures
 
The following table presents information about the Company’s financial instruments measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.  In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access.  Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals.  Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
 
In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
 
Disclosures concerning financial instruments measured at fair value are as follows: 
  
 
Fair Value Measurements as of
 
 
March 31, 2014
 
December 31, 2013
 
 
Quoted Prices in
Active Markets for
Identical Assets and
Liabilities (Level 1)
 
Significant
Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets and
Liabilities (Level 1)
 
Significant
Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
 
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments
 
$

 
$

 
$

 
$

 
$

 
$
31

 
$

 
$
31

Liabilities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Derivative financial instruments
 
$

 
$
2,581

 
$

 
$
2,581

 
$

 
$
1,466

 
$

 
$
1,466

Mezzanine:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Redeemable noncontrolling interests (Company)/Redeemable limited partners (Operating Partnership)
 
$

 
$
52,813

 
$

 
$
52,813

 
$

 
$
47,964

 
$

 
$
47,964

 
The Company uses derivative financial instruments, specifically interest rate swaps and forward starting swaps for nontrading purposes.  The Company uses interest rate swaps to manage interest rate risk arising from previously unhedged interest payments associated with variable rate debt and forward starting swaps to reduce exposure to variability in cash flows relating to interest payments on forecasted issuances of debt.  Through March 31, 2014, derivative financial instruments were designated and qualified as cash flow hedges.  Derivative contracts with positive net fair values inclusive of net accrued interest receipts or payments are recorded in other assets.  Derivative contracts with negative net fair values, inclusive of net accrued interest payments or receipts, are recorded in other liabilities.  The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative.  This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.  The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed

21

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


cash receipts (or payments) and the discounted expected variable cash payments (or receipts).  The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

The Company incorporates credit valuation adjustments to appropriately reflect its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.  In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees.
 
Although the Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparty.  However, as of March 31, 2014 and December 31, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivative financial instruments.  As a result, the Company has determined each of its derivative valuations in its entirety is classified in Level 2 of the fair value hierarchy.
 
Redeemable noncontrolling interests in the Operating Partnership have a redemption feature and are marked to their redemption value.  The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date.  Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the Operating Partnership are classified in Level 2 of the fair value hierarchy.
 
Other Fair Value Disclosures
 
Cash and Cash Equivalents, Restricted Cash, Student Contracts Receivable, Mezzanine Loans Receivable, Other Assets, Accounts Payable and Accrued Expenses and Other Liabilities:  The Company estimates that the carrying amount approximates fair value, due to the short maturity of these instruments.
  
Secured Agency Facility, Unsecured Term Loan Facility II, Unsecured Revolving Credit Facility and Construction Loans: The fair value of these instruments approximates carrying values du