Edgar Filing: Education Realty Trust, Inc.

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015



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 001-32417

Education Realty Trust, Inc.

Education Realty Operating Partnership, LP

(Exact Name of Registrant as Specified in Its Charter)



Maryland		20-1352180
Delaware		20-1352332
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)



999 South Shady Grove Road, Suite 600 Memphis, Tennessee		38120
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code (901) 259-2500

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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.

Education Realty Trust, Inc. Yes x No o

Education Realty Operating Partnership, LP 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).

Education Realty Trust, Inc. Yes x No o

Education Realty Operating Partnership, LP 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. (Check one):

Education Realty Trust, Inc.



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

Education Realty Operating Partnership, LP



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 Act).

Education Realty Trust, Inc. Yes o No x

Education Realty Operating Partnership, LP Yes o No x

As of October 29, 2015, Education Realty Trust, Inc. had 48,406,179 shares of common stock outstanding.

EXPLANATORY NOTE

This report combines the reports on Form 10-Q for the quarterly period ended September 30, 2015 of Education Realty Trust, Inc. and Education Realty Operating Partnership, LP. Unless stated otherwise or the context otherwise requires, references to “EdR” mean only Education Realty Trust, Inc., a Maryland corporation, and references to "EROP" mean only Education Realty Operating Partnership, LP, a Delaware limited partnership. References to the "Trust," "we," "us," or "our" mean collectively EdR, EROP and those entities/subsidiaries owned or controlled by EdR and/or EROP. References to the "Operating Partnership" mean collectively EROP and those entities/subsidiaries owned or controlled by EROP. The following chart illustrates our corporate structure:

The general partner of EROP is Education Realty OP GP, Inc. (the “OP GP”), an entity that is indirectly wholly-owned by EdR. As of September 30, 2015, OP GP held an ownership interest in EROP of less than 1%. The limited partners of EROP are Education Realty OP Limited Partner Trust, a wholly-owned subsidiary of EdR, and other limited partners consisting of current and former members of management. The OP GP, as the sole general partner of EROP, has the responsibility and discretion in the management and control of the Operating Partnership, and the limited partners of EROP, in such capacity, have no authority to transact business for, or participate in the management activities of the Operating Partnership. Management operates EdR and the Operating Partnership as one business. The management of EdR consists of the same members as the management of the Operating Partnership.

The Trust is structured as an umbrella partnership real estate investment trust (“UPREIT”) and EdR contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, EdR receives an equal number of partnership units of EROP (the “OP Units”). Contributions of properties to the Trust can be structured as tax-deferred transactions through the issuance of OP Units. Holders of OP Units may tender their OP Units for redemption by the Operating Partnership in exchange for cash equal to the market price of EdR's common stock at the time of redemption or, at EdR's option, for shares of EdR's common stock. Pursuant to the partnership agreement of EROP, the number of shares to be issued upon the redemption of OP Units is equal to the number of OP Units being redeemed. Additionally, for every one share of common stock offered and sold by EdR for cash, EdR must contribute the net proceeds to EROP and, in return, EROP will issue one OP Unit to EdR.

The Trust believes that combining the quarterly reports on Form 10-Q of EdR and the Operating Partnership into this single report provides the following benefits:


•	enhances investors’ understanding of the Trust by enabling investors to view the business of EdR and the Operating Partnership as a whole in the same manner as management views and operates the business;


•	eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both EdR and the Operating Partnership; and


•	creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

EdR consolidates the Operating Partnership for financial reporting purposes, and EdR essentially has no assets or liabilities other than its investment in the Operating Partnership. Therefore, the assets and liabilities of EdR and the Operating Partnership are the same on their respective financial statements. However, the Trust believes it is important to understand the few differences between EdR and the Operating Partnership in the context of how the entities operate as a consolidated company. All of the Trust's property ownership, development and related business operations are conducted through the Operating Partnership. EdR also issues public equity from time to time and guarantees certain debt of EROP. EdR does not have any indebtedness, as all debt is incurred by the Operating Partnership. The Operating Partnership holds all of the assets of the Trust, including the Trust’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 EdR’s equity offerings, which are contributed to the capital of EROP in exchange for OP Units on the basis of one share of common stock for one OP Unit, the Operating Partnership generates all remaining capital required by the Trust's business, including as a result of the incurrence of indebtedness. These sources include, but are not limited to, the Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its credit facilities, proceeds from mortgage indebtedness and debt issuances, and proceeds received from the disposition of certain properties. Noncontrolling interests, stockholders’ equity, and partners’ capital are the main areas of difference between the condensed consolidated financial statements of the Trust 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 Trust's financial statements include the same noncontrolling interests at the Operating Partnership level. The differences between stockholders’ equity and partners’ capital result from differences in the type of equity issued by EdR and the Operating Partnership.

To help investors understand the significant differences between the Trust and the Operating Partnership, this report provides separate condensed consolidated financial statements for the Trust and the Operating Partnership. A single set of consolidated notes to such financial statements is presented that includes separate discussions for the Trust 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.

In order to highlight the differences between the Trust and the Operating Partnership, the separate sections in this report for the Trust and the Operating Partnership specifically refer to the Trust and the Operating Partnership. In the sections that combine disclosure of the Trust and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Trust. 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 Trust is appropriate because the Trust operates its business through the Operating Partnership. The separate discussions of the Trust and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Trust on a consolidated basis and how management operates the Trust.

Education Realty Trust, Inc.

Education Realty Operating Partnership, LP

Form 10-Q

For the Quarter Ended September 30, 2015

Table of Contents



		Page Number
PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements of Education Realty Trust, Inc. and Subsidiaries:
	Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	1
	Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2015 and 2014	2
	Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2015 and 2014	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014	5
Condensed Consolidated Financial Statements of Education Realty Operating Partnership, LP and Subsidiaries:
	Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	7
	Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2015 and 2014	8
	Condensed Consolidated Statements of Changes in Partners' Capital and Noncontrolling Interests for the nine months ended September 30, 2015 and 2014	10
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014	11
Notes to Condensed Consolidated Financial Statements		13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.		37
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		59
Item 4. Controls and Procedures.		60

PART II - OTHER INFORMATION
Item 1. Legal Proceedings.		61
Item 1A. Risk Factors.		61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		61
Item 3. Defaults Upon Senior Securities.		62
Item 4. Mine Safety Disclosures.		62
Item 5. Other Information.		62
Item 6. Exhibits.		62
Signatures.		63

PART I - Financial Information

Item 1. Financial Statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)



	September 30, 2015			December 31, 2014
Assets:
Collegiate housing properties, net	$	1,798,809		$	1,586,009
Assets under development	71,065			120,702
Cash and cash equivalents	14,169			18,385
Restricted cash	10,442			10,342
Other assets	81,870			76,199
Total assets	$	1,976,355		$	1,811,637

Liabilities:
Mortgage and construction loans, net of unamortized premium	$	233,081		$	249,637
Unsecured revolving credit facility	221,000			24,000
Unsecured term loans	187,500			187,500
Senior unsecured notes	250,000			250,000
Accounts payable and accrued expenses	92,088			76,869
Deferred revenue	22,699			17,301
Total liabilities	1,006,368			805,307
Commitments and contingencies (see Note 7)	—			—
Redeemable noncontrolling interests	12,450			14,512

Equity:
Common stock, $0.01 par value per share, 200,000,000 shares authorized, 48,362,091 and 47,999,427 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively	484			480
Preferred shares, $0.01 par value per share, 50,000,000 shares authorized, no shares issued and outstanding	—			—
Additional paid-in capital	996,039			1,034,683
Accumulated deficit	(36,771		)	(41,909		)
Accumulated other comprehensive loss	(7,894		)	(4,465		)
Total Education Realty Trust, Inc. stockholders’ equity	951,858			988,789
Noncontrolling interests	5,679			3,029
Total equity	957,537			991,818
Total liabilities and equity	$	1,976,355		$	1,811,637

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share data)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues:
Collegiate housing leasing revenue	$	54,725		$	47,657		$	168,842		$	144,677
Third-party development consulting services	490			3,705			1,531			5,264
Third-party management services	865			1,052			2,698			2,856
Operating expense reimbursements	2,109			2,290			6,571			6,492
Total revenues	58,189			54,704			179,642			159,289
Operating expenses:
Collegiate housing leasing operations	28,444			26,920			75,452			70,062
Development and management services	3,019			2,337			8,228			6,964
General and administrative	1,434			3,422			6,632			7,520
Depreciation and amortization	17,828			14,688			49,605			42,928
Ground lease expense	2,938			2,329			7,956			6,162
Loss on impairment of collegiate housing properties	—			953			—			12,734
Reimbursable operating expenses	2,109			2,290			6,571			6,492
Total operating expenses	55,772			52,939			154,444			152,862

Operating income	2,417			1,765			25,198			6,427

Nonoperating (income) expenses:
Interest expense	6,223			4,508			17,615			15,076
Amortization of deferred financing costs	520			516			1,527			1,533
Interest income	(39		)	(9,527		)	(144		)	(9,638		)
Gain on insurance settlement	—			(8,133		)	—			(8,133		)
Loss on extinguishment of debt	—			243			—			892
Total nonoperating expenses (income)	6,704			(12,393		)	18,998			(270		)
Income (loss) before equity in losses of unconsolidated entities, income taxes and gain on sale of collegiate housing properties	(4,287		)	14,158			6,200			6,697
Equity in losses of unconsolidated entities	(427		)	(236		)	(823		)	(370		)
Income (loss) before income taxes and gain on sale of collegiate housing properties	(4,714		)	13,922			5,377			6,327
Income tax expense	157			910			325			598
Income (loss) before gain on sale of collegiate housing properties	(4,871		)	13,012			5,052			5,729
Gain on sale of collegiate housing properties	—			8,421			—			19,322
Net income (loss)	(4,871		)	21,433			5,052			25,051
Less: Net income (loss) attributable to the noncontrolling interests	(151		)	33			(86		)	393
Net income (loss) attributable to Education Realty Trust, Inc.	$	(4,720	)	$	21,400		$	5,138		$	24,658

See accompanying notes to the condensed consolidated financial statements.



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015			2014
Comprehensive income (loss):
Net income (loss)	$	(4,871	)	$	21,433	$	5,052		$	25,051
Other comprehensive income (loss):
Gain (loss) on cash flow hedging derivatives	(3,081		)	1,343		(3,429		)	(2,414		)
Comprehensive income (loss)	$	(7,952	)	$	22,776	$	1,623		$	22,637
Less: Comprehensive income (loss) attributable to the noncontrolling interests	(151		)	33		(86		)	393
Comprehensive income (loss) attributable to Education Realty Trust, Inc.	$	(7,801	)	$	22,743	$	1,709		$	22,244

Earnings per share information:
Net income (loss) attributable to Education Realty Trust, Inc. common stockholders per share – basic	$	(0.10	)	$	0.46	$	0.11		$	0.60
Net income (loss) attributable to Education Realty Trust, Inc. common stockholders per share – diluted	$	(0.10	)	$	0.45	$	0.11		$	0.59

Distributions per share of common stock	$	0.37		$	0.36	$	1.09		$	1.02

Weighted average common shares outstanding:
Weighted average common shares outstanding – basic	48,526			46,767		48,406			41,340
Weighted average common shares outstanding – diluted	48,526			47,113		48,726			41,686

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands, except shares)

(Unaudited)



	Common Stock			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
	Shares	Amount		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
Balance, December 31, 2013	38,246,718	$	383	$	814,305		$	(88,964	)	$	—		$	4,245		$	729,969
Proceeds from issuance of common stock, net of offering costs	9,149,099	91		270,855			—			—			—			270,946
Amortization of restricted stock and long-term incentive plan awards	58,364	1		561			—			—			—			562
Common stock issued to officers and directors	13,384	—		420			—			—			—			420
Cash dividends	—	—		(42,050		)	—			—			—			(42,050		)
Return of equity to noncontrolling interests	—	—		—			—			—			(818		)	(818		)
Contributions from noncontrolling interests	—	—		—			—			—			2,205			2,205
Purchase of noncontrolling interests	—	—		(6,507		)	—			—			(2,795		)	(9,302		)
Adjustments to reflect redeemable noncontrolling interests at fair value	—	—		(2,775		)	—			—			—			(2,775		)
Comprehensive income (loss)	—	—		—			24,658			(2,414		)	187			22,431
Balance, September 30, 2014	47,467,565	$	475	$	1,034,809		$	(64,306	)	$	(2,414	)	$	3,024		$	971,588


Balance, December 31, 2014	47,999,427	$	480	$	1,034,683		$	(41,909	)	$	(4,465	)	$	3,029		$	991,818
Common stock issued to officers and directors	12,300	—		408			—			—			—			408
Proceeds from issuance of common stock, net of offering costs	339,557	4		11,699						—			—			11,703
Amortization of restricted stock and long-term incentive plan awards	10,807			1,429						—			—			1,429
Cash dividends	—	—		(52,602		)	—			—			(163		)	(52,765		)
Contributions from noncontrolling interests	—	—		—			—			—			2,913			2,913
Adjustments to reflect redeemable noncontrolling interests at fair value	—	—		422			—			—			—			422
Comprehensive income (loss)	—	—		—			5,138			(3,429		)	(100		)	1,609
Balance, September 30, 2015	48,362,091	$	484	$	996,039		$	(36,771	)	$	(7,894	)	$	5,679		$	957,537

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



	Nine Months Ended September 30,
	2015			2014
Operating activities:
Net income	$	5,052		$	25,051
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	49,605			42,928
Loss on disposal of assets	—			54
Gain on sale of collegiate housing properties	—			(19,322		)
Gain on insurance settlement	—			(8,133		)
Noncash rent expense related to the straight-line adjustment for long-term ground leases	3,596			3,634
Loss on impairment of collegiate housing properties	—			12,734
Loss on extinguishment of debt	—			892
Amortization of deferred financing costs	1,527			1,533
Amortization of unamortized debt premiums	(632		)	(598		)
Distributions of earnings from unconsolidated entities	233			52
Noncash compensation expense related to stock-based incentive awards	2,032			1,775
Equity in losses of unconsolidated entities	823			370
Change in operating assets and liabilities (net of acquisitions)	4,001			10,310
Net cash provided by operating activities	66,237			71,280

Investing activities:
Property acquisitions	(57,876		)	(132,202		)
Purchase of corporate assets	(728		)	(759		)
Restricted cash	(100		)	(1,229		)
Insurance proceeds received on property losses	—			2,129
Investment in collegiate housing properties	(11,517		)	(14,676		)
Proceeds from sale of collegiate housing properties	—			69,000
Notes receivable	(2,069		)	(250		)
Repayment on notes receivable	—			18,000
Earnest money deposits	(335		)	—
Investment in assets under development	(138,165		)	(177,847		)
Distributions from unconsolidated entities	692			—
Investments in unconsolidated entities	(575		)	(8,342		)
Net cash used in investing activities	(210,673		)	(246,176		)

See accompanying notes to the condensed consolidated financial statements.



	Nine Months Ended September 30,
	2015			2014
Financing activities:
Payment of mortgage and construction notes	(67,799		)	(95,720		)
Borrowings under mortgage and construction loans	51,875			9,751
Borrowings on unsecured term loan	—			187,500
Debt issuance costs	(756		)	(2,183		)
Debt extinguishment costs	—			(446		)
Borrowings on line of credit	199,000			344,000
Repayments of line of credit	(2,000		)	(490,900		)
Proceeds from issuance of common stock	10,881			271,461
Payment of offering costs	(221		)	(514		)
Purchase and return of equity to noncontrolling interests	—			(10,138		)
Contributions from noncontrolling interests	2,936			2,205
Dividends and distributions paid to common and restricted stockholders	(52,602		)	(42,050		)
Dividends and distributions paid to noncontrolling interests	(881		)	(800		)
Repurchases of common stock for payments of restricted stock tax withholding	(213		)	(921		)
Net cash provided by financing activities	140,220			171,245
Net decrease in cash and cash equivalents	(4,216		)	(3,651		)
Cash and cash equivalents, beginning of period	18,385			22,073
Cash and cash equivalents, end of period	$	14,169		$	18,422

Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized	$	15,561		$	19,939
Income taxes paid	$	32		$	121

Supplemental disclosure of noncash activities:
Redemption of redeemable noncontrolling interests from unit holder	$	960		$	—
Capital expenditures in accounts payable and accrued expenses related to developments	$	21,371		$	7,670

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except unit data)

(Unaudited)



	September 30, 2015			December 31, 2014
Assets:
Collegiate housing properties, net	$	1,798,809		$	1,586,009
Assets under development	71,065			120,702
Cash and cash equivalents	14,169			18,385
Restricted cash	10,442			10,342
Other assets	81,870			76,199
Total assets	$	1,976,355		$	1,811,637

Liabilities:
Mortgage and construction loans, net of unamortized premium	$	233,081		$	249,637
Unsecured revolving credit facility	221,000			24,000
Unsecured term loans	187,500			187,500
Senior unsecured notes	250,000			250,000
Accounts payable and accrued expenses	92,088			76,869
Deferred revenue	22,699			17,301
Total liabilities	1,006,368			805,307
Commitments and contingencies (see Note 7)	—			—
Redeemable limited partner units	7,850			10,081
Redeemable noncontrolling interests	4,600			4,431

Partners' capital:
General partner - 6,920 units outstanding as of September 30, 2015 and December 31, 2014, respectively	184			191
Limited partners - 48,355,171 and 47,992,507 units issued and outstanding as of September 30, 2015 and December 31, 2014, respectively	959,568			993,063
Accumulated other comprehensive loss	(7,894		)	(4,465		)
Total partners' capital	951,858			988,789
Noncontrolling interests	5,679			3,029
Total partners' capital	957,537			991,818
Total liabilities and partners' capital	$	1,976,355		$	1,811,637

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Amounts in thousands, except per unit data)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues:
Collegiate housing leasing revenue	$	54,725		$	47,657		$	168,842		$	144,677
Third-party development consulting services	490			3,705			1,531			5,264
Third-party management services	865			1,052			2,698			2,856
Operating expense reimbursements	2,109			2,290			6,571			6,492
Total revenues	58,189			54,704			179,642			159,289
Operating expenses:
Collegiate housing leasing operations	28,444			26,920			75,452			70,062
Development and management services	3,019			2,337			8,228			6,964
General and administrative	1,434			3,422			6,632			7,520
Depreciation and amortization	17,828			14,688			49,605			42,928
Ground lease expense	2,938			2,329			7,956			6,162
Loss on impairment of collegiate housing properties	—			953			—			12,734
Reimbursable operating expenses	2,109			2,290			6,571			6,492
Total operating expenses	55,772			52,939			154,444			152,862

Operating income	2,417			1,765			25,198			6,427

Nonoperating (income) expenses:
Interest expense	6,223			4,508			17,615			15,076
Amortization of deferred financing costs	520			516			1,527			1,533
Interest income	(39		)	(9,527		)	(144		)	(9,638		)
Gain on insurance settlement	—			(8,133		)	—			(8,133		)
Loss on extinguishment of debt	—			243			—			892
Total nonoperating expenses (income)	6,704			(12,393		)	18,998			(270		)
Income (loss) before equity in losses of unconsolidated entities, income taxes and gain on sale of collegiate housing properties	(4,287		)	14,158			6,200			6,697
Equity in losses of unconsolidated entities	(427		)	(236		)	(823		)	(370		)
Income (loss) before income taxes and gain on sale of collegiate housing properties	(4,714		)	13,922			5,377			6,327
Income tax expense	157			910			325			598
Income (loss) before gain on sale of collegiate housing properties	(4,871		)	13,012			5,052			5,729
Gain on sale of collegiate housing properties	—			8,421			—			19,322
Net income (loss)	(4,871		)	21,433			5,052			25,051
Less: Net income (loss) attributable to the noncontrolling interests	(133		)	(103		)	(119		)	136
Net income (loss) attributable to Education Realty Operating Partnership	$	(4,738	)	$	21,536		$	5,171		$	24,915

See accompanying notes to the condensed consolidated financial statements.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Comprehensive income (loss):
Net income (loss)	$	(4,871	)	$	21,433		$	5,052		$	25,051
Other comprehensive income (loss):
Gain (loss) on cash flow hedging derivatives	(3,081		)	1,343			(3,429		)	(2,414		)
Comprehensive income (loss)	(7,952		)	22,776			1,623			22,637
Less: Comprehensive income (loss) attributable to the noncontrolling interests	(133		)	(103		)	(119		)	136
Comprehensive income (loss) attributable to unitholders	$	(7,819	)	$	22,879		$	1,742		$	22,501

Earnings per unit information:
Net income (loss) attributable to unitholders – basic and diluted	$	(0.10	)	$	0.46		$	0.11		$	0.60

Weighted average units outstanding:
Weighted average units outstanding – basic	48,775			47,044			48,657			41,617
Weighted average units outstanding – diluted	48,775			47,113			48,726			41,686

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND NONCONTROLLING INTERESTS

(Amounts in thousands, except units)

(Unaudited)



	General Partner				Limited Partners				Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
	Units	Amount			Units	Amount			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
Balance, December 31, 2013	6,920	$	190		38,239,798	$	725,534		$	—		$	4,245		$	729,969
Vesting of restricted stock and restricted stock units	—	—			13,384	420			—			—			420
Issuance of units in exchange for contributions of equity offering proceeds and redemption of units	—	—			9,149,099	270,946			—			—			270,946
Amortization of restricted stock and long-term incentive plan awards	—	—			58,364	562			—			—			562
Distributions	—	(7		)	—	(42,043		)	—			—			(42,050		)
Return of equity to noncontrolling interests	—	—			—	—			—			(818		)	(818		)
Contributions from noncontrolling interests	—	—			—	—			—			2,205			2,205
Purchase of noncontrolling interests	—	—			—	(6,507		)	—			(2,795		)	(9,302		)
Adjustments to reflect redeemable noncontrolling interests at fair value	—	—			—	(2,775		)	—			—			(2,775		)
Comprehensive income (loss)	—	10			—	24,648			(2,414		)	187			22,431
Balance, September 30, 2014	6,920	$	193		47,460,645	$	970,785		$	(2,414	)	$	3,024		$	971,588


Balance, December 31, 2014	6,920	$	191		47,992,507	$	993,063		$	(4,465	)	$	3,029		$	991,818
Vesting of restricted stock and restricted stock units	—	—			12,300	408			—			—			408
Issuance of units in exchange for contributions of equity offering proceeds and redemption of units	—	—			339,557	11,703			—			—			11,703
Amortization of restricted stock and long-term incentive plan awards	—	—			10,807	1,429			—			—			1,429
Distributions	—	(8		)	—	(52,594		)	—			(163		)	(52,765		)
Contributions from noncontrolling interests	—	—			—	—			—			2,913			2,913
Adjustments to reflect redeemable noncontrolling interests at fair value	—	—			—	422			—			—			422
Comprehensive income (loss)	—	1			—	5,137			(3,429		)	(100		)	1,609
Balance, September 30, 2015	6,920	$	184		48,355,171	$	959,568		$	(7,894	)	$	5,679		$	957,537

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



	Nine Months Ended September 30,
	2015			2014
Operating activities:
Net income	$	5,052		$	25,051
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	49,605			42,928
Loss on disposal of assets	—			54
Gain on sale of collegiate housing properties	—			(19,322		)
Gain on insurance settlement	—			(8,133		)
Noncash rent expense related to the straight-line adjustment for long-term ground leases	3,596			3,634
Loss on impairment of collegiate housing properties	—			12,734
Loss on extinguishment of debt	—			892
Amortization of deferred financing costs	1,527			1,533
Amortization of unamortized debt premiums	(632		)	(598		)
Distributions of earnings from unconsolidated entities	233			52
Noncash compensation expense related to stock-based incentive awards	2,032			1,775
Equity in losses of unconsolidated entities	823			370
Change in operating assets and liabilities (net of acquisitions)	4,001			10,310
Net cash provided by operating activities	66,237			71,280

Investing activities:
Property acquisitions	(57,876		)	(132,202		)
Purchase of corporate assets	(728		)	(759		)
Restricted cash	(100		)	(1,229		)
Insurance proceeds received on property losses	—			2,129
Investment in collegiate housing properties	(11,517		)	(14,676		)
Proceeds from sale of collegiate housing properties	—			69,000
Notes receivable	(2,069		)	(250		)
Repayment on notes receivable	—			18,000
Earnest money deposits	(335		)	—
Investment in assets under development	(138,165		)	(177,847		)
Distributions from unconsolidated entities	692			—
Investments in unconsolidated entities	(575		)	(8,342		)
Net cash used in investing activities	(210,673		)	(246,176		)

Financing activities:
Payment of mortgage and construction notes	(67,799		)	(95,720		)
Borrowings under mortgage and construction loans	51,875			9,751
Borrowings on unsecured term loan	—			187,500
Debt issuance costs	(756		)	(2,183		)
Debt extinguishment costs	—			(446		)
Borrowings on line of credit	199,000			344,000

See accompanying notes to the condensed consolidated financial statements.



	Nine Months Ended September 30,
	2015			2014
Repayments of line of credit	(2,000		)	(490,900		)
Proceeds from issuance of common units in exchange for contributions	10,881			271,461
Payment of offering costs	(221		)	(514		)
Purchase and return of equity to noncontrolling interests	—			(10,138		)
Contributions from noncontrolling interests	2,936			2,205
Distributions paid on unvested restricted stock and long-term incentive plan awards	(138		)	(52		)
Distributions paid to unitholders	(52,464		)	(41,998		)
Distributions paid to noncontrolling interests	(881		)	(800		)
Repurchases of units for payments of restricted stock tax withholding	(213		)	(921		)
Net cash provided by financing activities	140,220			171,245
Net decrease in cash and cash equivalents	(4,216		)	(3,651		)
Cash and cash equivalents, beginning of period	18,385			22,073
Cash and cash equivalents, end of period	$	14,169		$	18,422

Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized	$	15,561		$	19,939
Income taxes paid	$	32		$	121

Supplemental disclosure of noncash activities:
Redemption of redeemable noncontrolling interests from unit holder	$	960		$	—
Capital expenditures in accounts payable and accrued expenses related to developments	$	21,371		$	7,670

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES

EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and description of business

Education Realty Trust, Inc. ("EdR" and collectively with its consolidated subsidiaries, the “Trust”) was organized in the state of Maryland on July 12, 2004 and commenced operations effective with the initial public offering that was completed on January 31, 2005. Through the Trust's controlling interest in both the sole general partner and the majority owning limited partner of Education Realty Operating Partnership L.P. ("EROP" and collectively with its consolidated subsidiaries, the "Operating Partnership"), the Trust is one of the largest developers, owners and managers of collegiate housing communities in the United States in terms of beds owned and under management. The Trust is a self-administered and self-managed real estate investment trust ("REIT") that is publicly traded on the New York Stock Exchange under the ticker symbol "EDR." Under the Articles of Incorporation, as amended, the Trust is authorized to issue up to 200 million shares of common stock and 50 million shares of preferred stock, each having a par value of $0.01 per share.

The sole general partner of EROP is Education Realty OP GP, Inc. (“OP GP”), an entity that is indirectly wholly-owned by EdR. As of September 30, 2015, OP GP held an ownership interest in EROP of less than 1%. The limited partners of EROP are Education Realty OP Limited Partner Trust, a wholly-owned subsidiary of EdR, and other limited partners consisting of current and former members of management. OP GP, as the sole general partner of EROP, has the responsibility and discretion in the management and control of EROP, and the limited partners of EROP, in such capacity, have no authority to transact business for, or participate in the management activities of EROP. Management operates the Trust and the Operating Partnership as one business. The management of the Trust consists of the same members as the management of the Operating Partnership. EdR consolidates the Operating Partnership for financial reporting purposes, and EdR does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Trust and the Operating Partnership are the same on their respective financial statements. Unless otherwise indicated, the accompanying Notes to the Condensed Consolidated Financial Statements apply to both the Trust and the Operating Partnership.

The Trust also provides real estate facility management, development and other advisory services through EDR Management Inc. (the “Management Company”), a Delaware corporation performing collegiate housing management activities. The Management Company has been designated as a taxable REIT subsidiary ("TRS"). Through EDR Development LLC (the “Development Company”), a Delaware limited liability company and wholly owned subsidiary of the Management Company, the Trust provides development consulting services for third party collegiate housing communities.

2. Summary of significant accounting policies

Basis of presentation

The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States (“GAAP”). The accompanying condensed consolidated financial statements of the Trust represent the assets and liabilities and operating results of the Trust and its majority owned subsidiaries.

All intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.

Interim financial information

The accompanying unaudited interim financial statements include all adjustments, consisting only of normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the Trust's financial position, results of operations and cash flows for such periods. Because of the seasonal nature of the business, the operating results and cash flows are not necessarily indicative of results that may be expected for any other interim periods or for the full fiscal year. These financial statements should be read in conjunction with the Trust's consolidated financial statements and related notes included in the Trust's Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the "SEC") on February 27, 2015.

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 and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and cash equivalents

All highly-liquid investments with a maturity of three months or less when purchased are considered cash equivalents. Restricted cash is excluded from cash for the purpose of preparing the condensed consolidated statements of cash flows. The Trust maintains cash balances in various banks. At times, the amounts of cash may exceed the amount the Federal Deposit Insurance Corporation (“FDIC”) insures. As of September 30, 2015, the Trust had $11.3 million cash on deposit that was uninsured by the FDIC or in excess of the FDIC limits.

Restricted cash

Restricted cash includes resident security deposits, as required by law in certain states, and escrow accounts held by lenders for the purpose of paying taxes, insurance, principal and interest and funding capital improvements.

Notes receivable

On August 26, 2013, the Trust provided a $0.5 million promissory loan to College Park Apartments, Inc. ("CPA"), the Trust's partner in the unconsolidated joint venture University Village-Greensboro LLC (see Note 5), at an interest rate of 10% per annum and a maturity date of August 1, 2020. Under the loan, CPA can make one draw per calendar quarter. As of September 30, 2015 and December 31, 2014, the outstanding balance was $0.5 million and $0.4 million, respectively. The loan is secured by CPA's interest in the joint venture.

On March 20, 2015, the Trust provided a $1.7 million promissory loan to Concord Eastridge, Inc, the Trust's partner in the joint venture at Roosevelt Point, at an interest rate equal to 2% plus London InterBank Offered Rate ("LIBOR") per annum compounded monthly and a maturity date of March 1, 2017. The loan is secured by Concord Eastridge's interest in the joint venture. As of September 30, 2015, $1.7 million was outstanding.

Collegiate housing properties

Land, land improvements, buildings and improvements, and furniture, fixtures and equipment are recorded at cost. Buildings and improvements are depreciated over 15 to 40 years, land improvements are depreciated over 15 years and furniture, fixtures, and equipment are depreciated over 3 to 7 years. Depreciation is computed using the straight-line method for financial reporting purposes over the estimated useful life.

For assets under development, the Trust capitalizes interest and internal development costs as assets under development. Capitalized interest is determined using the weighted average interest costs of total debt. When the property opens, these costs, along with other direct costs of the development, are transferred into the applicable asset category and depreciation commences.

Acquired collegiate housing communities’ results of operations are included in the Trust’s results of operations from the respective dates of acquisition. Appraisals, estimates of cash flows and other valuation techniques are used to allocate the purchase price of acquired property between land, land improvements, buildings and improvements, furniture, fixtures and equipment and identifiable intangibles such as amounts related to in-place leases. Acquisition costs are expensed as incurred and are included in general and administrative expenses in the accompanying condensed consolidated statements of income and comprehensive income.

Management assesses impairment of long-lived assets to be held and used whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management uses an estimate of future undiscounted cash flows of the related asset based on its intended use to determine whether the carrying value is recoverable. If the Trust determines that the carrying value of an asset is not recoverable, the fair value of the asset is estimated and an impairment loss is recorded to the extent the carrying value exceeds estimated fair value. Management estimates fair value using discounted cash flow models, market appraisals if available, and other market participant data.

During the three and nine months ended September 30, 2014, the Trust recorded a $1.0 million and $12.7 million loss on impairment of collegiate housing properties, respectively. The impairment losses were due to a change in circumstances that indicated the respective carrying value may not be recoverable. The change in circumstances for the property could be attributable to changes in property specific market conditions, changes in anticipated future use and/or leasing results or a combination of these factors.

When a collegiate housing community has met the criteria to be classified as held for sale, the fair value less cost to sell such asset is estimated. If the fair value less cost to sell the asset is less than the carrying amount of the asset, an impairment charge is recorded for the estimated loss. Depreciation expense is no longer recorded once a collegiate housing community has met the held for sale criteria. Only dispositions that represent a strategic shift in the business will qualify for treatment as discontinued operations. The four property dispositions during the nine months ended September 30, 2014 did not qualify for treatment as discontinued operations.

Redeemable noncontrolling interests (the Trust) / redeemable limited partners (EROP)

The Trust follows the guidance issued by the Financial Accounting Standards Board ("FASB") regarding the classification and measurement of redeemable securities. The Trust classifies redeemable noncontrolling interests, which include redeemable interests in consolidated joint ventures and units of limited partnership interest in University Towers Operating Partnership, LP and in the Operating Partnership in the mezzanine section of the accompanying condensed consolidated balance sheets. In the accompanying condensed consolidated balance sheets of the Operating Partnership, the redeemable units of limited partnership in the Operating Partnership are classified as redeemable limited partners. The redeemable noncontrolling interest units / redeemable limited partner units are adjusted to the greater of carrying value or fair market value based on the common share price of EdR at the end of each respective reporting period.

Common stock issuances and offering costs

Specific incremental costs directly attributable to the issuance of EdR common stock are charged against the gross proceeds of the related issuance. Accordingly, underwriting commissions and other stock issuance costs are reflected as a reduction of additional paid-in capital in the accompanying condensed consolidated statement of changes in equity.

The Trust is structured as an umbrella partnership REIT ("UPREIT") and contributes all proceeds from its various equity offerings to EROP. For every one share of common stock offered and sold by EdR for cash, EdR must contribute the net proceeds to EROP and, in return, EROP will issue one OP Unit to EdR.

During October 2014, the Trust entered into agreements to establish an at-the-market equity offering program ("ATM Program") authorized to sell a maximum of $150.0 million in additional shares of EdR common stock. The Trust sold 0.3 million shares under these distribution agreements during the nine months ended September 30, 2015 and received net proceeds of $10.8 million. The Trust used the net proceeds to repay debt, fund its development pipeline and for general corporate purposes.

On November 20, 2014, the Board authorized a 1-for-3 reverse stock split of shares of EdR common stock, effective December 1, 2014. On April 30, 2015, the Operating Partnership entered into a Second Amended and Restated Agreement of Limited Partnership, which reduced the number of units of limited partnership of the Operating Partnership (the "OP Units") outstanding as a result of the 1-for-3 reverse stock split the Trust completed in December 2014. Accordingly, every three issued and outstanding shares of EdR common stock and OP Units prior to the split were reduced to one. All shares and units and related per-share and per-unit information presented in these financial statements for periods prior to the effective date have been retroactively adjusted to reflect the decreased number of shares and OP Units.

Debt premiums

Differences between the estimated fair value of debt and the principal value of debt assumed in connection with collegiate housing property acquisitions are amortized over the term of the related debt as an offset to interest expense using the effective interest method. As of September 30, 2015 and December 31, 2014, net unamortized debt premiums totaled $0.9 million and $1.5 million, respectively. These amounts are included in mortgage and construction loans in the accompanying condensed consolidated balance sheets.

Income taxes

EdR qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). EdR is generally not subject to federal, state and local income taxes on any of its taxable income that it distributes if it distributes at least 90% of its REIT taxable income for each tax year to its stockholders and meets certain other requirements. If EdR fails to qualify as a REIT for any taxable year, EdR will be subject to federal, state and local income taxes (including any applicable alternative minimum tax) on its taxable income.

The Trust has elected to treat certain of its subsidiaries, including the Management Company, as TRSs. A TRS is subject to federal, state and local income taxes. The Management Company provides management services and through the Development Company, provides development services, which if directly provided by the Trust would jeopardize EdR’s REIT status. Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect in the years in which those temporary differences are expected to reverse.

The Trust had no unrecognized tax benefits as of September 30, 2015 and December 31, 2014. The Trust and its subsidiaries file federal and state income tax returns. As of September 30, 2015, open tax years generally included tax years for 2012, 2013 and 2014. The Trust’s policy is to include interest and penalties related to unrecognized tax benefits in general and administrative expenses. As of September 30, 2015 and December 31, 2014, the Trust had no interest or penalties recorded related to unrecognized tax benefits.

Goodwill and other intangible assets

Goodwill is not subject to amortization, but is tested annually for impairment as of December 31, and is tested for impairment more frequently if events and circumstances indicate that the assets might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The accumulated impairment loss recorded as of December 31, 2008 was $0.4 million. No additional impairment has been recorded through September 30, 2015. The carrying value of goodwill was $3.1 million as of September 30, 2015 and December 31, 2014, of which $2.1 million was recorded on the management services segment and $0.9 million was recorded on the development consulting services segment. Other intangible assets generally include in-place leases acquired in connection with acquisitions and are amortized over the estimated life of the lease/contract term. The carrying value of other intangible assets was $0.3 million and $0.4 million as of September 30, 2015 and December 31, 2014, respectively.

Investment in unconsolidated entities

The Trust accounts for its investments in unconsolidated joint ventures using the equity method whereby the costs of an investment are adjusted for the Trust’s share of earnings of the respective investment reduced by distributions received. The earnings and distributions of the unconsolidated joint ventures are allocated based on each owner’s respective ownership interests. These investments are classified as other assets or accrued expenses, depending on whether the distributions exceed the Trust’s contributions and share of earnings in the joint ventures, in the accompanying condensed consolidated balance sheets (see Note 5).

Stock-based compensation

On May 4, 2011, the Trust’s stockholders approved the Education Realty Trust, Inc. 2011 Omnibus Equity Incentive Plan (the “2011 Plan”). The 2011 Plan replaced the Education Realty Trust, Inc. 2004 Incentive Plan (“2004 Plan”) in its entirety. The 2011 Plan is described more fully in Note 9. Compensation costs related to share-based payments are recognized in the accompanying condensed consolidated financial statements in accordance with authoritative guidance.

Earnings per share

Earnings per Share - The Trust

Basic earnings per share is calculated by dividing net earnings available to common stockholders by weighted average shares of common stock outstanding, including outstanding units in the Operating Partnership designated as LTIP Units ("LTIP Units"). Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed exercise of potentially dilutive securities. The Trust follows the authoritative guidance regarding the determination of whether certain instruments are participating securities. All unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are included in the computation of earnings per share under the two-class method. This

results in shares of unvested restricted stock and LTIP Units being included in the computation of basic earnings per share for all periods presented.

Earnings per OP Unit - EROP

Basic earnings per unit is calculated by dividing net earnings available to unitholders by the weighted average number of OP Units and LTIP Units outstanding. Diluted earnings per unit is calculated similarly, except that it includes the dilutive effect of the assumed exercise of potentially dilutive securities. EROP follows the authoritative guidance regarding the determination of whether certain instruments are participating securities.

Fair value measurements

The Trust follows the guidance contained in FASB Accounting Standards Codification 820, Fair Value Measurements and Disclosures ("ASC 820"). Fair value is generally defined as the exit price at which an asset or liability could be exchanged in a current transaction between willing unrelated parties, other than in a forced liquidation or sale. ASC 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data, and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy.

The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions used to value the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:


•	Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.


•	Level 2 - Observable inputs other than those included in Level 1, for example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.


•	Level 3 - Unobservable inputs reflecting management's own assumption about the inputs used in pricing the asset or liability at the measurement date.

Derivative instruments and hedging activities

All derivative financial instruments are recorded on the balance sheet at fair value. Changes in fair value are recognized either in earnings or as other comprehensive income (loss), depending on whether the derivative has been designated as a fair value or cash flow hedge and whether it qualifies as part of a hedging relationship, the nature of the exposure being hedged, and how effective the derivative is at offsetting movements in underlying exposure. Hedge accounting is discontinued when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; the derivative expires or is sold, terminated, or exercised; it is no longer probable that the forecasted transaction will occur; or management determines that designating the derivative as a hedging instrument is no longer appropriate. The Trust uses interest rate swaps to effectively convert a portion of its variable rate debt to fixed rate, thus reducing the impact of changes in interest rates on interest payments (see Notes 6 and 10). These instruments are designated as cash flow hedges and the interest differential to be paid or received is recorded as interest expense.

Recent accounting pronouncements

In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30)" ("ASU 2015-03"). ASU 2015-03 simplifies the presentation of debt issuance costs and requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by the amendments in ASU 2015-03. In August 2015, the FASB issued ASU 2015-15 to supplement the requirements of ASU 2015-03 by allowing an entity to defer and present debt issuance costs related to a line of credit arrangement as an asset and subsequently amortize the deferred cost ratably over the term of the line of credit. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those fiscal years, with retrospective application required. The Trust is currently evaluating the provisions of this guidance.

In February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810)" ("ASU 2015-02"), which amends the consolidation requirements in ASC 810, Consolidation. ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidated analysis of reporting entities that are involved with VIEs,

particularly those that have fee arrangements and related party relationships and (iv) provide a scope exception for certain entities. ASU 2015-02 is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those fiscal years and permits the use of either the retrospective or cumulative effect transition method. The Trust is currently evaluating the provisions of this guidance.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including the guidance on real estate derecognition for most transactions. ASU 2014-09 provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years and permits the use of either the retrospective or cumulative effect transition method. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. The Trust is currently evaluating the provisions of this guidance.

3. Acquisition and development of real estate investments

Acquisition of collegiate housing properties

2015 Acquisitions

During the nine months ended September 30, 2015, the Trust completed the following two collegiate housing property acquisitions:

Acquisition

Contract Price

Name

Primary University Served

Date

# of Beds

# of Units

(in thousands)

The Commons on Bridge

University of Tennessee Knoxville, Tennessee

June 2015

150

9,700

The Province at Boulder

University of Colorado Boulder, Colorado

Sept 2015

317

48,800

Combined acquisition costs for these purchases were $0.2 million and are included in general and administrative expenses in the accompanying condensed statements of income and comprehensive income for the nine months ended September 30, 2015. The Trust funded these acquisitions with proceeds from draws on the Fifth Amended Revolver (as defined in Note 6).

Due to the timing of the completion of the acquisition of The Province at Boulder, work is still ongoing to determine the fair value of the assets and liabilities as of the acquisition date, and as a result, the following amounts are preliminary. Below is the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):



	The Commons on Bridge			The Province at Boulder			Total
Collegiate housing properties	$	9,624		$	48,522		$	58,146
In-place leases	76			278			354
Other assets	5			85			90
Current liabilities	(338		)	(376		)	(714		)
Total net assets acquired	$	9,367		$	48,509		$	57,876

The $0.6 million difference between contracted price of $58.5 million and the net assets above represents working capital and other liabilities that were not part of the contractual purchase price, but were acquired.

In conjunction with the acquisition of the The Province at Boulder, the Trust entered into a reverse Section 1031 like-kind exchange agreement with a third party intermediary, which, for a maximum of 180 days, allows us to defer for tax purposes, gains on the sale of other properties identified and sold within this period. Until the earlier of the termination of the exchange agreements or 180 days after the respective acquisition date, the third party intermediary is the legal owner of the property; however, the Trust controls the activities that most significantly impact the property and retains all of the economic benefits and risks associated with the property. Therefore, at the date of the acquisition, it was determined that the Trust was the primary beneficiary of this VIE and consolidated the property and its operations as of the respective acquisition date. As of September 30, 2015, this VIE had total assets of $49.0 million, no significant liabilities, and no significant cash flows.

The unaudited pro forma information had the acquisition date been January 1, 2014 is as follows (in thousands, except per share and per unit amounts):



	Nine months ended September 30,
	2015		2014
Total revenue	$	182,238	$	160,311
Net income attributable to the Trust	$	6,210	$	24,767
Net income attributable to common shareholders - basic	$	0.13	$	0.60
Net income attributable to common shareholders - diluted	$	0.13	$	0.59

Net income attributable to EROP	$	6,248	$	25,024
Net income attributable to unitholders - basic and diluted	$	0.13	$	0.60

2014 Acquisitions

During the year ended December 31, 2014, the following collegiate housing property acquisitions were completed:



Name	Primary University Served	Acquisition Date	# of Beds	# of Units	Contract Price (in thousands)
109 Tower	Florida International University Miami, Florida	Aug 2014	542	149	$	43,500
District on Apache	Arizona State University Tempe, Arizona	Sept 2014	900	279	$	89,800

Combined acquisition costs for these purchases were $0.9 million. These acquisitions were funded with proceeds from the follow-on equity offering in June 2014, draws on the Fourth Amended Revolver and the Fifth Amended Revolver (see Note 6) and cash on hand.

A summary follows of the fair values of the assets acquired and the liabilities assumed as of the dates of the acquisitions (in thousands):



	109 Tower			District on Apache			Total
Collegiate housing properties	$	43,384		$	89,216		$	132,600
In-place leases	—			643			643
Other assets	200			36			236
Current liabilities	(746		)	(1,341		)	(2,087		)
Total net assets acquired	$	42,838		$	88,554		$	131,392

The contracted purchase price of $133.3 million, reflected in the table above, net of $2.1 million in assumed liabilities, represents a net asset value of $131.2 million. The $0.2 million difference between this amount and the net assets reflected in the second table above represents working capital and other assets that were not part of the contractual purchase price, but were acquired.

During 2014, the Trust also purchased the remaining 30% of its joint venture partner's interest in The Retreat at Oxford and a portion of its joint venture partner's interest in Roosevelt Point (see Note 8).

The unaudited pro forma information had the acquisition date been January 1, 2013 is as follows (in thousands, except per share and per unit amounts):



	Nine months ended September 30, 2014
Total revenue ⁽¹⁾	$	165,458
Net income attributable to the Trust ⁽¹⁾	$	28,383
Net income attributable to common shareholders - basic	$	0.69
Net income attributable to common shareholders - diluted	$	0.68

Net income attributable to EROP ⁽¹⁾	$	28,664
Net income attributable to unitholders - basic and diluted	$	0.69

⁽¹⁾As the 109 Tower opened for 2014/2015 lease year, the supplemental pro forma revenue and net income for the period between January 1, 2014 to September 30, 2014 only includes its operations from the date it opened.

Development of collegiate housing properties

During the nine months ended September 30, 2015, the Trust developed the following communities which opened during the 2015/2016 lease year. The costs incurred to date represent the balance capitalized in collegiate housing properties, net as of September 30, 2015 (dollars in thousands):



Name	Primary University Served	Bed Count	Costs Incurred as of September 30, 2015		Internal Development Costs Capitalized		Interest Costs Capitalized		Internal Development Costs Capitalized		Interest Costs Capitalized
Name	Primary University Served	Bed Count	Costs Incurred as of September 30, 2015		Nine months ended September 30, 2015				Three months ended September 30, 2015
Woodland Glen III, IV & V	University of Kentucky	1,610	$	102,991	$	353	$	2,414	$	163	$	558
The Oaks on the Square - Phase IV	University of Connecticut	391	44,005		301		633		193		228
The Retreat at Louisville ⁽¹⁾	University of Louisville	656	43,923		176		568		60		186
Total - owned communities		2,657	190,919		830		3,615		416		972
Georgia Heights ⁽²⁾	University of Georgia	292	51,227		216		273		89		54
Total joint ventures		292	51,227		216		273		89		54
Total		2,949	$	242,146	$	1,046	$	3,888	$	505	$	1,026

⁽¹⁾ In June 2014, the Trust announced an agreement with a subsidiary of Landmark Property Holdings, LLC ("Landmark") to develop, own and manage cottage-style collegiate housing property adjacent to The University of Louisville. The Trust is the majority owner and managing member of the joint venture.

⁽²⁾ In 2013, the Trust entered into an agreement to develop, own and manage a mixed-use development adjacent to the main entrance of the University of Georgia. The costs above represent total costs incurred for the joint venture development. The Trust holds a 50% interest in the joint venture and manages the community. The Trust does not consolidate the joint venture and its investment in the community of $10.5 million and $10.2 million as of September 30, 2015 and December 31, 2014, respectively, is classified as other assets in the accompanying condensed consolidated balance sheets.

During 2014, the Trust developed the following communities which opened during the 2014/2015 lease year. The costs incurred to date represent the balance capitalized in collegiate housing properties, net as of December 31, 2014 (dollars in thousands):



Name	Primary University Served	Bed Count	Costs Incurred as of December 31, 2014		Internal Development Costs Capitalized		Interest Costs Capitalized		Internal Development Costs Capitalized		Interest Costs Capitalized
Name	Primary University Served	Bed Count	Costs Incurred as of December 31, 2014		Nine months ended September 30, 2014				Three months ended September 30, 2014
The Lotus ⁽¹⁾	University of Colorado	195	$	27,800	$	131	$	254	$	34	$	81
Haggin Hall ⁽²⁾	University of Kentucky	396	23,840		121		319		60		110
Champions Court I ⁽²⁾	University of Kentucky	740	47,368		145