Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the fiscal year ended December 31, 2008
or
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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.
(Exact Name of Registrant as Specified in Its Charter)
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Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
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20-1352180
(IRS Employer
Identification No.) |
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530 Oak Court Drive, Suite 300
Memphis Tennessee
(Address of Principal Executive Offices)
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38117
(Zip Code) |
Registrants Telephone Number, Including Area Code (901) 259-2500
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name Of Each Exchange On Which Registered |
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Common Stock, $.01 par value per share
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act. Yes o No þ
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. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§
229.405) is not contained herein, and will not be contained, to the best of registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. 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):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
As of June 30, 2008, the last business day of the registrants most recently completed second
quarter, the aggregate market value of the registrants common stock held by non-affiliates of the
registrant was approximately $330 million, based on the closing sales price of $11.65 per share as
reported on the New York Stock Exchange. (For purposes of this calculation all of the registrants
directors and executive officers are deemed affiliates of the registrant.)
As of March 13, 2009, the registrant had 28,518,966 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant incorporates by reference portions of its Definitive Proxy Statement for the 2009
Annual Meeting of Stockholders to be filed subsequently with the Securities and Exchange Commission
into Part III of this Form 10-K to the extent stated herein.
FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this document and in the documents that are or will be incorporated
by reference into this document contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements provide our current expectations or forecasts of
future events and are not statements of historical fact. These forward-looking statements include
information about possible or assumed future events, including, among other things, discussion and
analysis of the financial condition of Education Realty Trust, Inc., our strategic plans and
objectives, anticipated capital expenditures required to complete projects, amounts of anticipated
cash distributions to our stockholders in the future and other matters. Words such as
anticipates, expects, intends, plans, believes, seeks, estimates and variations of
these words and similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks, uncertainties and
other factors, some of which are beyond our control, are difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in the forward-looking
statements.
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or
false. You are cautioned to not place undue reliance on forward-looking statements, which reflect
our managements view only as of the date of this Annual Report. We undertake no obligation to
update or revise forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results. Our actual results could differ
materially from those anticipated in these forward-looking statements as a result of various
factors, including risks and uncertainties related to the national economy, the real estate
industry in general, and in our specific markets; legislative or regulatory changes including
changes to laws governing REITS; our dependence on key personnel whose continued service is not
guaranteed; availability of qualified acquisition and development targets; availability of capital
and financing; rising interest rates; rising insurance rates; impact of ad valorem and income
taxation; changes in generally accepted accounting principles; construction costs that may exceed
estimates; construction delays; lease-up risks; inability to obtain new tenants upon the expiration
of existing leases; and the potential need to fund tenant improvements or other capital
expenditures out of operating cash flow. The forward-looking statements should be read in light of
these factors and the factors identified in Item 1A. Risk Factors below.
2
EDUCATION REALTY TRUST, INC. FISCAL 2008 FORM 10-K
3
PART I
Item 1. Business.
(Dollars in thousands, except selected property information and share data)
Our Company
Education Realty Trust, Inc., which we refer to as EDR or the Trust, is a self-managed and
self-advised real estate investment trust, or REIT, organized in July 2004 to develop, acquire, own
and manage high quality student housing communities located near university campuses. We were
formed to continue and expand upon the student housing business of Allen & OHara, Inc., a company
with over 40 years of experience as an owner, manager and developer of student housing. As of
December 31, 2008, we owned 40 student housing communities located in 18 states containing 24,991
beds in 7,598 apartment units located near 34 universities. As of December 31, 2008, we provide
third-party management services for 20 student housing communities located in 9 states containing
10,656 beds in 3,350 apartment units at 16 universities. We also provide third-party development
consulting services on student housing development projects mostly for universities but also for
our own ownership and other third parties.
All of our assets are held by, and we have conducted substantially all of our activities through
Education Realty Operating Partnership, LP, our Operating Partnership, and its wholly owned
subsidiaries, Allen & OHara Education Services, Inc., which we refer to as our Management Company
or AOES and Allen & OHara Development Company, LLC, which we refer to as our Development Company
or AODC. The majority of our operating expenses are borne by our Operating Partnership, our
Management Company or our Development Company, as the case may be.
We are the sole general partner of our Operating Partnership. As a result, our board of directors
effectively directs all of our Operating Partnerships affairs. We own 96.0% of the outstanding
partnership units of our Operating Partnership, and 3.1% of the partnership units are held by the
former owners of our initial properties and assets, including members of our management team. Some
of our officers and employees also own an indirect interest in our Operating Partnership, which we
refer to as profits interest units, which is held through ownership of units in Education Realty
Limited Partner, LLC, a Delaware limited liability company controlled by us and that holds 0.9% of
the aggregate interests in our Operating Partnership.
University Towers Operating Partnership, LP, or the University Towers Partnership, which is our
affiliate, holds, owns and operates our University Towers property located in Raleigh, North
Carolina. We own 72.7% of the units in the University Towers Partnership, and 27.3% of the
University Towers Partnership is held by the former owners of our initial properties and assets
including members of our management team.
REIT Status and Taxable REIT Subsidiary
We have elected to be taxed as a real estate investment trust, or REIT, for federal income tax
purposes. With the exception of income from our taxable REIT subsidiary or TRS, income earned
under the REIT is not subject to income taxes. In order to qualify as a REIT, a specified
percentage of our gross income must be derived from real property sources, which would generally
exclude our income from providing development and management services to third parties as well as
our income from certain services afforded to our student-tenants. In order to avoid realizing such
income in a manner that would adversely affect our ability to qualify as a REIT, we provide some
services through our Management Company and our Development Company, with our Management Company
being treated as our TRS. Our Management Company is wholly owned and controlled by our Operating
Partnership, and our Management Company wholly owns our Development Company. Our Development
Company is a disregarded entity for federal income tax purposes and all assets owned and income
earned by our Development Company are deemed to be owned and earned by our Management Company.
Business and Growth Strategy
Our primary business objectives are to maximize cash flow available for distribution to our
stockholders, and to achieve sustainable long-term growth in cash flow per share in order to
maximize long-term stockholder value. We intend to achieve these objectives by (i) acquiring
student housing communities nationwide that meet our focused investment criteria, (ii) maximizing
net operating income from the operation of our owned properties through proactive and goal-oriented
property
management strategies, (iii) building our third-party business of management services and
development consulting services and (iv) selectively developing properties for our own account. For
a discussion of profit and loss by segment see, Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations.
4
Acquisition and Development Strategy
We seek to acquire high quality, well-designed and well-located properties, with a focus on
off-campus garden-style communities with modern floor plans and amenities. Our ideal acquisition
targets generally are located in markets that have stable or increasing student populations and an
insufficient supply of student housing. We also seek to acquire investments in student housing
communities that possess sound market fundamentals but are under-performing and would benefit from
re-positioning, renovation and/or improved property management. We consider the following property
and market factors to identify potential property acquisitions:
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university and campus reputation; |
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competitive admissions criteria; |
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limited number of on-campus beds and limited plans for expansion; |
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distance of property from campus; |
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property unit mix; |
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competition; |
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significant out-of-state enrollment; |
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past operating performance; |
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potential for improved management; |
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ownership and capital structure; |
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presence of desired amenities; |
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maintenance and condition of the property; |
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access to a university-sponsored or public transportation line; and |
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parking availability. |
Utilizing joint venture agreements, we hold a minority ownership interest in properties and earn a
fee for the management of the properties. This strategy enables us to accretively diversify our
portfolio by expanding into geographic markets where we are not currently present with lower
capital requirements than if we acquired the properties on our own. We expect to continue pursuing
joint venture arrangements in the future. In 2007, the development and construction of University
Village in Greensboro, North Carolina was completed under a joint venture arrangement.
Also in 2007, we acquired land in Carbondale, Illinois and began construction on a student housing
community near Southern Illinois University. This represents the first community EDR is developing
and building for its own ownership since becoming a public company. In 2008, we completed the
development of the first phase of the property and it opened in August of 2008. We also began
development on the second phase which is scheduled to open in August of 2009.
In 2008, we also began development of a wholly owned student housing community located on the
campus of Syracuse University in Syracuse, New York. The Trust will own and manage the community
under a long-term ground lease from Syracuse University.
Operating Strategy
We seek to maximize funds from the operations of the student housing communities that we own and
manage through the following operational strategies.
Maximize property profitability. We seek to maximize property-level profitability through the use
of cost control systems and our focused on-site management personnel. Some of our specific cost
control initiatives include:
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establishing internal controls and procedures for cost control
consistently throughout our communities; |
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operating with flat property-level management structures, minimizing
multiple layers of management; and |
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negotiating service-level pricing arrangements with national and
regional vendors and requiring corporate-level approval of service
agreements for each community. |
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Proactive marketing practices. We have developed and
implemented proactive marketing practices to enhance the visibility of our student housing
communities and to optimize our occupancy rates. We study our competitors, our residents and
university policies affecting enrollment and housing. Based on our findings at each property, we
formulate a marketing and sales plan for each academic leasing period. This plan is closely
monitored and adjusted, if need be, throughout the leasing period. We intend to continue to market
our properties to students, parents and universities by emphasizing student-oriented living areas,
state-of-the-art technology infrastructure, a wide variety of amenities and services and close
proximity to the campus.
Develop and retain personnel. We staff each student housing community that we own or manage with a
full-service on-site property management team. Each of our property management teams includes
Community Assistants who plan activities and interact with students, enhancing their college
experiences. We have developed policies and procedures to train each team of on-site employees and
to provide them with corporate-based support for each essential operating function. To retain
employees, we have developed an incentive-based compensation structure that is available to all of
our on-site personnel.
Maintain and develop strategic relationships. We believe that establishing and maintaining
relationships with universities is important to the ongoing success of our business. We believe
that these relationships will continue to provide us with referrals that enhance our leasing
efforts, opportunities for additional acquisitions of student housing communities and contracts for
third-party services.
Third-Party Services
In addition to managing our owned student housing communities and developing communities for our
ownership, we also provide management and development consulting services for third-parties.
Universities and other third-party owners look to the private sector for assistance in developing
and managing their student housing properties. We perform third-party services in order to enhance
our reputation with universities and to benefit our primary goal of owning high quality student
housing communities. We perform third-party services for student housing communities serving some
of the nations most prominent systems of higher education, including the University of North
Carolina, the California State University System, the Pennsylvania State System of Higher Education
and the University of Alabama System.
In order to comply with the rules applicable to our status as a REIT, we provide our third-party
services through our Management Company and our Development Company. Unlike the income earned from
our properties under the REIT, the income earned by our Management Company and our Development
Company is subject to regular federal income tax and state and local income taxes where applicable.
Third-party management services
We provide third-party management services for student housing communities owned by educational
institutions, charitable foundations and others. Our management services typically cover all
aspects of operations, including residence life and student development, marketing, leasing
administration, strategic relationships, information systems and accounting services. These
services are comparable to the services that we provide for our owned properties. We typically
provide these services pursuant to multi-year management contracts that have an initial term
between three and ten years. We believe that providing these services allows us to increase cash
flow with little incremental cost by leveraging our existing management expertise and
infrastructure. For the year ended December 31, 2008, our fees from third-party management
services, excluding operating expense reimbursements represented 2.8% of our revenues.
6
The following table presents certain summary information regarding the student housing communities
that we managed for other owners as of December 31, 2008:
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Property |
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# of Beds |
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# of Units |
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On-campus properties |
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University Park Calhoun Street Apartments |
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University of Cincinnati |
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747 |
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288 |
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Reinhard Villages |
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Clarion University of Pennsylvania |
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656 |
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180 |
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University Park |
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Salisbury University (Maryland) |
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578 |
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145 |
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University Park Phase II |
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Salisbury University (Maryland) |
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312 |
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108 |
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Bettie Johnson Hall |
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University of Louisville |
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490 |
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224 |
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Herman & Heddy Kurz Hall |
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University of Louisville |
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402 |
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224 |
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Billy Minardi Hall |
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University of Louisville |
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38 |
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20 |
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Community Park |
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University of Louisville |
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358 |
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101 |
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University Village |
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California State University San Marcos |
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620 |
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126 |
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Arlington Park Apartments |
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University of Northern Colorado |
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394 |
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179 |
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Blazer Hall |
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University of Alabama Birmingham |
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753 |
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190 |
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Total on-campus |
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5,348 |
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1,785 |
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Off-campus properties |
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Granville Towers |
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University of North Carolina at Chapel Hill |
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1,321 |
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363 |
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Honeysuckle Apartments |
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Bloomsburg University of Pennsylvania |
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407 |
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104 |
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Evergreen Commons |
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Lock Haven University of Pennsylvania |
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408 |
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108 |
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Campus Village |
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University of Colorado Denver |
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685 |
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210 |
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The College Inn |
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North Carolina State University |
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440 |
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121 |
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Upper Eastside Lofts |
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Sacramento State University |
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382 |
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140 |
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The Courtyards (2) |
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University of Michigan |
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895 |
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320 |
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Vulcan Village I |
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California University of Pennsylvania |
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432 |
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108 |
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Vulcan Village II |
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California University of Pennsylvania |
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338 |
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91 |
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University Village (1) |
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University of North Carolina Greensboro |
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600 |
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203 |
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University Village Towers (1) |
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University of California Riverside |
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548 |
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149 |
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The Reserve on Stinson (1) |
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University of Oklahoma |
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612 |
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204 |
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Fontainebleu (1) |
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University of California Santa Barbara |
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435 |
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99 |
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Total off-campus |
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7,503 |
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2,220 |
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Totals (for both on- and off-campus) |
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12,851 |
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4,005 |
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EDR holds a minority interest in the
community pursuant to its joint venture
arrangements. |
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In April of 2009, an additional 613 beds and
217 units are scheduled to open and are included
in the total number of beds and units above. |
Third-party development consulting services
We provide third-party development consulting services primarily to universities seeking to
modernize their on-campus student housing communities but also to other third-party investors. Our
development consulting services typically include the following:
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market analysis and evaluation of housing needs and options; |
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cooperation with university in architectural design; |
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negotiation of ground lease, development agreement, construction
contract, architectural contract and bond documents; |
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oversight of architectural design process; |
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coordination of governmental and university plan approvals; |
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oversight of construction process; |
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design, purchase and installation of furniture; |
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pre-opening marketing to students; and |
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obtaining final approvals of construction. |
By providing these services, we are able to observe emerging trends in student housing development
and market acceptance of unit and community amenities. Our development consulting services also
provide us with opportunities to obtain additional third-party property management contracts. Of
the 25 student housing communities we have provided development-consulting services to since 2000,
the property owners have awarded us third-party management services contracts for 15 with 10
universities electing to manage the communities in house under their existing infrastructure. In
2008, our fees from third-party development consulting services, excluding operating expense
reimbursements, represented 6.4% of our revenues.
7
Since 2000, we have provided third-party development
consulting services to clients for projects totaling over $1.3 billion in value. We are currently
providing third-party development services pursuant to signed definitive contracts with projects
under construction at Indiana University of Pennsylvania, West Chester University of Pennsylvania,
Colorado State University Pueblo and to third parties near the University of Michigan, Ann Arbor
and the University of California Santa Barbara. The aggregate project cost of these five
projects is approximately $246,750. Additionally, we are providing pre-construction development
consulting services on new projects and additional projects pursuant to signed pre-closing
development contracts at East Stroudsburg University of Pennsylvania, State University of New York
College of Environmental Services and Forestry, Indiana University of Pennsylvania and Colorado
State University Pueblo. In aggregate, these total approximately$155,000 in project costs. We
typically are notified that we have been awarded development consulting services projects on the
basis of a competitive award process and thereafter begin to work on the project. In the case of
tax exempt bond financed projects, definitive contracts are not executed until bond closing.
Our Operations
We staff each of our owned and managed student housing communities with a full-service property
management team. We typically staff each property with one Community Manager, a marketing/leasing
manager, a student accounts manager, a resident services director, a maintenance supervisor, one
on-site resident Community Assistant for each 50-85 students and general office staff. Each
property management team markets, leases and manages the community with a focus on maximizing its
profitability. In addition, each property management team is trained to provide social and
developmental opportunities for students, enhancing the students college experiences as well as
the desirability of our communities.
We have developed policies and procedures to carefully select and develop each team of on-site
employees and to provide each team with corporate-based support for each essential operating area,
including lease administration, sales/marketing, community and university relations, student life
administration, maintenance and loss prevention, accounting, human resources/benefits
administration and information systems. The corporate level personnel responsible for each of these
areas support each Community Managers leadership role, and are available as a resource to the
Community Managers around the clock.
Residence Life and Student Development
Our corporate director of residence life and student personnel development designs and directs our
residence life program. Our programs are developed at the corporate level and implemented at each
community by our Community Assistants, together with our other on-site personnel. We provide
educational, social and recreational activities designed to help students achieve academic goals,
promote respect and harmony throughout the community, and help bridge interaction with the
respective university. Examples of our residence life and student development programs include:
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community-building and social activities geared to university-related
events, holidays, public safety and education; |
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study and attention skills counseling; |
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career development, resume writing and employment search skill
training; |
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sponsorship of intramural sport teams, academic clubs and alumni-based
activities; |
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parent and resident appreciation events; |
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community service activities including recycling, blood drives, food
drives and student volunteer committees; |
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lectures focused on social issues, including effective communication,
multi-cultural awareness and substance abuse; |
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university outreach activities; and |
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voter registration, enrollment and education. |
The Community Assistants perform key roles in the administrative functioning of the community and
interface with students through constructive programs, activities and listening to student
interests and concerns. Our on-site leadership selects students to serve as Community Assistants
who meet criteria established by our corporate director of residence life and student personnel
development.
8
Marketing
We begin our annual marketing campaign by thoroughly segmenting the student population attending
each of the
primary universities where our student housing communities are located, and compiling market
surveys of comparable student apartment properties. With this information in hand, we formulate a
marketing/sales strategy that consists of a renewal campaign for current residents and a broader
campaign directed at the eligible student population. We assess university regulations regarding
housing requirements to avoid targeting markets in which significant numbers of students are not
eligible to live off-campus until they achieve certain credit hour levels.
We typically begin our renewal campaign between November and January of each year. Signage, direct
mailings to the students and their parents, appreciation parties and staff selling incentives are
key elements of the renewal campaign. The Community Assistant team plays a key role in
communicating the renewal message throughout their assigned property area. We use a database of
current resident demographic data to direct sales information to primary feeder high schools,
particularly where new freshmen are eligible to live off-campus. Other database criteria include
gender, high school location, prior apartment community, academic class standing, field of study
and activity preferences.
We appeal to the greater university population through theme-based newspaper advertising campaigns,
open house activities, housing fairs conducted by the university, and web based advertising. Our
Community Assistant staff targets certain university-sponsored on-campus events to distribute
handouts displaying our logo and offering incentives to visit our sales center. Wherever possible,
our student housing communities appear on university websites in listings of off-campus housing
options, together with banner advertising where available.
Leasing
Our standard lease begins in August and runs for approximately 11.5 months, ending July 31 or early
August to coincide with the universitys fall academic term. The primary exception to our standard
lease term is our University Towers community, which we generally rent on nine-month academic year
leases. Our standard lease is an agreement between the student and parental guarantor, and the
specific student housing community. All leases are for a bed in a private or shared bedroom, with
rights to share common areas within the unit and throughout the community. The individual lease
is a strong selling attraction as it limits a students liability to the rental for one bedroom
instead of burdening the student with shared liability for the entire unit rental amount.
We lease our units by floor plan type using internally-generated occupancy spreadsheets to maximize
full leasing of entire units, avoiding spotty vacancies particularly in the four-bedroom units. We
offer roommate-matching services to facilitate full occupancy. We develop wait lists and monitor
popular floor plans that fill to capacity early in the leasing season. If any fully vacant units
remain available after the beginning of any academic semester, we seek to lease such units on a
temporary basis to university-related visitors and our tenants parents and family members, or keep
them available for future leasing to students.
Unlike conventional apartment communities that have monthly move-outs and renewals, our student
housing community occupancies remain relatively stable throughout the academic year, but must be
entirely re-leased at the beginning of each academic year. Because of the nature of leasing to
students, we are highly dependent upon the success of our marketing and leasing efforts during the
annual leasing season, generally November through August. Our leasing staff undergoes intensive
annual professional training to maximize the success of our leasing efforts.
We typically require rent to be paid in 12 equal monthly payments throughout the lease term, with
the first installment due on July 15. Residents of University Towers and residence halls that we
manage for third parties typically pay their annual rent in two installments on July 1 and December
1. We replace contracted students who fail to pay the first installment with students on our
waiting list or from walk-in traffic while the market is still active with students seeking housing
at the commencement of the academic year.
Strategic Relationships
We assign high priority to establishing and nurturing relationships with the administration of each
of the primary universities where our student housing communities are located. Our corporate staff
establishes this network, and on-site management then sustains it with follow-up by corporate staff
during routine visits to the community. As a result of our strategic relationships, universities
often refer their students to our properties, thus enhancing our leasing effort throughout the
year. These networks create goodwill for our student housing communities throughout the university
administration, including departments of admissions, student
affairs, public safety, athletics and international affairs.
9
Most universities promote off-campus housing alternatives to their student population. It is our
intention to be among the most preferred off-campus residences and for universities to include our
communities in listings and literature provided to students. We seek to obtain student mailing
lists and to be featured in Internet-based student housing listings wherever permitted by the
institution and incorporate these initiatives into our marketing efforts. Our Community Managers
make scheduled personal visits with academic departments to further our community exposure at this
level.
Our management team has developed long-standing relationships with developers, owners and brokers
of student housing properties that allow us to identify and capitalize on acquisition
opportunities. As a result, we have generated an internal database of contacts that we use to
identify and evaluate acquisition candidates. As it is our intention to develop a diverse portfolio
of student housing communities, we also develop strategic relationships with equity investors in
order to pursue acquisitions through joint venture arrangements. Acquisitions, through joint
venture arrangements, allow us to obtain a minority interest in student housing communities in
geographic markets where we are not currently present with less capital than if we acquired the
properties on our own.
Competition
Competition from universities
We compete for student tenants with the owners of on-campus student housing, which is generally
owned by educational institutions or charitable foundations. Educational institutions can generally
avoid real estate taxes and borrow funds at lower interest rates, while we and other private sector
operators pay full real estate tax rates and have higher borrowing costs. The competitive
advantages of on-campus student housing also include its physical proximity to the university
campus and captive student body. Many universities have policies requiring students to live in
their on-campus facilities during their freshman year.
On-campus housing is limited, however, and most universities are able to house only a small
percentage of their students. As a result, educational institutions depend upon, and may serve as
referral sources for, private providers of off-campus housing. In addition, off-campus housing
facilities tend to offer more relaxed rules and regulations than on-campus properties and therefore
tend to be more appealing to students. Off-campus student housing offers freedom from restrictions
such as quiet hours or gender visitation limitations, and is especially appealing to upperclassmen
who are transitioning towards their independence.
Competition from private owners
We compete with several regional and national owner-operators of off-campus student housing,
including one publicly-traded competitor, American Campus Communities, Inc. (ACC). We also compete
with privately held developers and other real estate firms and in a number of markets with smaller
local owner-operators. Currently, the industry is fragmented with no participant holding a dominant
market share. We believe that a number of other large national companies with substantial financial
resources may be potential entrants in the student housing business. The entry of one or more of
these companies could increase competition for students and for the acquisition, management and
development of student housing properties.
Employees
At December 31, 2008, we had approximately 1,259 employees, including:
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1,166 on-site employees, including 527 Community Assistants; |
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23 people in our property management services department; |
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13 people in our development consulting services department; and |
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57 executive, corporate administration and financial personnel. |
10
Our senior management team has over 200 years of collective experience working together in the
student housing business. Our management teams in-depth knowledge of the student housing industry
results from hands-on experiences. Several of our executive officers began their careers as
student-tenant employees or Community Managers responsible for managing individual student housing
communities. The following table demonstrates our management teams extensive experience in
the student housing industry:
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Number |
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Key Employees |
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Title |
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of Years |
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Paul O. Bower
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Chairman, Chief Executive Officer
and President
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39 |
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Craig L. Cardwell
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President of Allen & OHara
Education Services, Inc.
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37 |
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Thomas J. Hickey
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Senior Vice President of Operations
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36 |
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Thomas Trubiana
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Senior Vice President and Chief
Investment Officer
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32 |
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Wallace L. Wilcox
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Vice President of Construction and
Engineering
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28 |
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William W. Harris
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Senior Vice President of Development
and Senior Vice President of Allen &
OHara Development Company
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26 |
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Susan B. Arrison
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Vice President of Human Resources
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18 |
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Randall H. Brown
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Executive Vice President and Chief
Financial Officer
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9 |
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NYSE Certifications
Our CEO certified to the New York Stock Exchange in 2008 that we were in compliance with the NYSE
listing standards. Our CEO and CFO have executed the certifications required by section 302 of the
Sarbanes-Oxley Act of 2002, which are contained herein as exhibits to this Form 10-K for the fiscal
year ended December 31, 2008.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all employees. It is
available in the corporate governance section of our investor website at
www.educationrealty.com. Any waiver of the Code of Business Conduct and Ethics for an
executive officer or director will be promptly disclosed to stockholders in any manner that is
acceptable under New York Stock Exchange listing standards, including but not limited to,
distribution of a press release, disclosure on our website, or disclosure on Form 8-K. We intend
to satisfy our disclosure obligations under Item 5.05 of Form 8-K related to amendments or waivers
of the Code of Business Conduct and Ethics by posting such information on our website.
Available Information
EDR files annual, periodic and current reports with the Securities and Exchange Commission, or the
SEC. All filings made by EDR with the SEC may be copied or read at the SECs Public Reference Room
at 100 F Street NE, Washington, DC 20549. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC as EDR does. The website is http://www.sec.gov.
Additionally, a copy of this Annual Report on Form 10-K, along with EDRs Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and any amendments to the aforementioned filings, are available
on EDRs website, www.educationrealty.com, free of charge as soon as reasonably practicable after
EDR electronically files such reports or amendments with, or furnishes them to, the SEC. The
filings can be found in the SEC filings section of our website. EDRs website also contains its
Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters of the
committees of the Board of Directors. These items can be found in the Corporate Governance section
of our website. Reference to EDRs website does not constitute incorporation by reference of the
information contained on the site and should not be considered part of this document. All of the
aforementioned materials may also be obtained free of charge by contacting the Investor Relations
Department at Education Realty Trust, Inc., 530 Oak Court Drive, Suite 300, Memphis, Tennessee
38117.
11
Item 1A. Risk Factors.
Risks related to our properties, our business and the real estate industry
Adverse macroeconomic and business conditions may significantly and negatively affect our cash
flows, profitability and results of operations.
The United States is currently in a deep recession that has resulted in higher unemployment,
weakening of tenant financial condition, large-scale business failures and tight credit markets.
Our results of operations may be sensitive to changes in overall economic conditions that impact
tenant leasing practices. A continuation of ongoing adverse economic conditions affecting
disposable tenant income, such as employment levels, business conditions, interest rates, tax
rates, fuel and energy costs and other matters, could reduce overall tenant leasing or cause
tenants to shift their leasing practices. At this time, it is difficult to determine the breadth
and duration of the economic and financial market problems and the many ways in which they may
affect our tenants and our business in general. A general reduction in the level of tenant leasing
could adversely affect our growth and profitability.
We own, directly or indirectly, interests in student housing communities located near major
universities in the United States. Accordingly, we are dependant upon the levels of student
enrollment and the admission policies of the respective universities which attract a significant
portion of our leasing base. As a result of the overall market quality deterioration, many students
may be unable to obtain student loans on favorable terms. If student loans are not available or
their costs are prohibitively high, enrollment numbers for universities may decrease. The demand
for, occupancy rates at, rental income from and value of our properties would be adversely affected
if student enrollment levels become stagnant or decrease in the current environment. Accordingly,
a continuation or further worsening of these difficult financial and macroeconomic conditions could
have a significant adverse effect on our cash flows, profitability and results of operations.
Our results of operations are subject to the following risks inherent in the student housing
industry: annual leasing cycle, concentrated lease-up period, seasonal cash flows and increased
risk of student defaults during the summer months of a twelve-month lease.
We generally lease our properties under 11.5 month leases, but we may also lease for terms of nine
months or less. Furthermore, all of our properties must be entirely re-leased each year, exposing
us to increased leasing risk. We may not be able to relet the property on similar terms, if we are
able to relet the property at all. The terms of renewal or re-lease (including the cost of
required renovations and/or concessions to tenants) may be less favorable to us than the prior
lease. If we are unable to relet all or a substantial portion of our properties, or if the rental
rates upon such reletting are significantly lower than expected rates, our cash flow from
operations and our ability to make distributions to stockholders and service indebtedness could be
adversely affected. In addition, we are subject to increased leasing risk on properties that we
acquire that we have not previously managed due to our lack of experience leasing those properties
and unfamiliarity with their leasing cycles. Student housing communities are typically leased
during a leasing season that begins in November and ends in August of each year. We are therefore
highly dependent on the effectiveness of our marketing and leasing efforts and personnel during
this season. Prior to the commencement of each new lease period, mostly during the first two weeks
of August but also during September at some communities, we prepare the units for new incoming
tenants. Other than revenue generated by in-place leases for returning tenants, we do not generally
recognize lease revenue during this period referred to as Turn as we have no leases in place. In
addition, during Turn, we incur significant expenses making our units ready for occupancy, which we
recognize immediately. This lease Turn period results in seasonality in our operating results
during the third quarter of each year. As a result, we may experience significantly reduced cash
flows during the summer months at properties leased for terms shorter than twelve months. In
addition, students leasing under twelve-month leases may be more likely to default on their rental
payments during the summer months. Although we typically require a students parents to guarantee
the students lease, we may have to spend considerable effort and expense in pursuing payment upon
a defaulted lease, and our efforts may not be successful.
12
Broad market fluctuations could negatively impact the market price of our common stock.
As with other publicly traded equity securities, the value of
our common stock depends on various market conditions, which may change from time to time. The
stock market has recently experienced extreme price and volume fluctuations that have affected the
market price of many companies in industries similar or related to ours and that are outside of
managements control. These broad market fluctuations could adversely impact the market price of
our common stock. Accordingly, the market price of our common stock could change in ways that may
or may not be related to our business, our industry or our operating performance and financial
condition. Furthermore, our operating results and prospects may not meet the expectations of public
market analysts and investors or may not be comparable to companies within our industry and with
comparable market capitalizations. Any of these factors could lead to a material decline in the
market price of our common stock.
Our use of debt financing reduces cash available for distribution and may expose us to the risk of
default under our debt obligations.
Our charter and bylaws impose no limitation on the amount of debt we may incur. Our debt service
obligations expose us to the risk of default and reduce (or eliminate) cash resources that are
available to operate our business. We have an amended and restated revolving credit facility (the
Amended Revolver) that contains customary affirmative and negative covenants and provides for
potential availability of $100,000. The amount available to us and our ability to borrow from time
to time under this facility is subject to certain conditions which include a borrowing base
calculation that limits availability based on the underlying value of the collateral and the
satisfaction of specified financial covenants, which include limiting distributions to our
stockholders. If the income generated by our properties and other assets fails to cover our debt
service, we would be forced to reduce or eliminate distributions to our stockholders and may
experience losses. Our level of debt and the operating limitations imposed on us by our debt
agreements could have significant adverse consequences, including the following:
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we may be unable to borrow additional funds as needed or on favorable
terms; |
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we may be unable to refinance our indebtedness at maturity or the
refinancing terms may be less favorable than the terms of our original
indebtedness; |
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we may be forced to dispose of one or more of our properties, possibly
on disadvantageous terms; |
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we may default on our payment or other obligations as a result of
insufficient cash flow or otherwise, and the lenders or mortgagees may
foreclose on our properties that secure their loans and receive an
assignment of rents and leases; |
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we may cross default our Amended Revolver which would preclude further
availability; and |
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foreclosures could create taxable income without accompanying cash
proceeds, a circumstance that could hinder our ability to meet the
REIT distribution requirements. |
We face significant competition from university-owned student housing and from other private
student housing communities located within close proximity to universities.
Many students prefer on-campus housing to off-campus housing because of the closer physical
proximity to campus and integration of on-campus facilities into the academic community.
Universities can generally avoid real estate taxes and borrow funds at lower interest rates, while
we and other private-sector operators pay full real estate tax rates and have higher borrowing
costs. Consequently, universities often can offer more convenient and/or less expensive student
housing than we can, which can adversely affect our occupancy and rental rates.
We also compete with other national and regional owner-operators of off-campus student housing in a
number of markets as well as with smaller local owner-operators. There are a number of
purpose-built student housing properties that compete directly with us located near or in the same
general vicinity of many of our student housing communities. Such competing student housing
communities may be newer than our student housing communities, located closer to campus, charge
less rent, possess more attractive amenities, or offer more services, shorter lease terms or more
flexible leases. The construction of competing properties or decreases in the general levels of
rents for housing in competing properties could adversely affect our rental income.
We believe that a number of other large national companies may be potential entrants in the student
housing business. In some cases, these potential competitors possess substantially greater
financial and marketing resources than we do. The
entry of one or more of these companies could increase competition for student tenants and for the
acquisition, development and management of other student housing communities.
13
We may not be able to recover our costs for our development consulting services.
We typically are awarded development consulting services business on the basis of a competitive
award process, but definitive contracts are typically not executed until the formal approval of the
transaction by the institutions governing body at the completion of the process. In the
intervening period, we may incur significant predevelopment and other costs in the expectation that
the development consulting services contract will be executed. These costs could range up to $2,000
or more per project and typically include architects fees to design the property and contractors
fees to price the construction. We typically seek to enter into a reimbursement agreement with the
institution that requires the institution to provide a guarantee of our advances. However, we may
not be successful in negotiating such an agreement. In addition, if an institutions governing body
does not ultimately approve our selection and the underlying terms of a pending development, we may
not be able to recover these costs from the institution. In addition, when we are awarded
development consulting business, we generally receive 50% of our fees at the time the project is
financed, and the remainder is generally paid in monthly installments thereafter. As a result, the
recognition and timing of revenues will, among other things differ from the timing of payments and
be contingent upon the project owners successful structuring and closing of the project financing
as well as the timing of construction.
We may not be able to recover internal development costs.
When developing student housing communities for our ownership on University land, definitive
contracts are not executed until the formal approval of the transaction by the institutions
governing body at the completion of the process. In the intervening period, we may incur
significant predevelopment and other costs in the expectation that a ground lease will be executed.
These costs could range up to $1,000 or more and typically include architects fees to design the
property and third party fees related to other predevelopment services. If an institutions
governing body does not ultimately approve the lease we will not be able to recover these
predevelopment costs.
We may be unable to take advantage of certain disposition opportunities because of additional costs
we have agreed to pay if we sell certain of our properties in taxable transactions for a period of
five years.
Under the terms of the purchase agreement with Place Properties, the Trust remains a party to a tax
indemnification agreement whereby a payment could be required to be made to the former owner if any
properties are sold within five years of the purchase date. The contingency expires in January of
2011. We also issued University Towers Partnership units for our interest in University Towers. So
long as the contributing owners of such property hold at least 25% of the University Towers
Partnership units, we have agreed to maintain certain minimum amounts of debt on the properties so
as to avoid triggering gain to the contributing owners. If we fail to do this, we will owe to the
contributing owners the amount of taxes that they incur. In each case, the amount of tax is
computed assuming the highest federal and state rates. As a result, these agreements may preclude
us from selling the restricted properties at the optimal time.
We rely on our relationships with universities, and changes in university personnel and/or policies
could adversely affect our operating results.
In some cases, we rely on our relationships with universities for referrals of prospective tenants
or for mailing lists of prospective tenants and their parents. The failure to maintain good
relationships with personnel at these universities could therefore have a material adverse effect
on us. If universities refuse to make their lists of prospective student-tenants and their parents
available to us or increase the costs of these lists, the increased costs or failure to obtain such
lists could also have a material adverse effect on us.
We may be adversely affected by a change in university admission policies. For example, if a
university reduces the number of student admissions, the demand for our properties may be reduced
and our occupancy rates may decline. In addition, universities may institute a policy that a
certain class of students, such as freshmen, must live in a university-owned facility, which would
also reduce the demand for our properties. While we may engage in marketing efforts to compensate
for such policy changes, we may not be able to effect such marketing efforts prior to the
commencement of the annual lease-up period or at all.
14
Our growth will be dependent upon our ability to acquire and/or develop, lease, integrate and
manage additional student housing communities successfully.
We cannot assure you that we will be able to identify real estate investments, including joint
ventures, that meet our investment criteria, that we will be successful in completing any
acquisition we identify or that any acquisition we complete will produce a return on our
investment.
Our future growth will be dependent upon our ability to successfully acquire new properties and
enter into joint ventures on favorable terms, which may be adversely affected by the following
significant risks:
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we may be unable to acquire a desired property at all or at a desired
purchase price because of competition from other purchasers of student
housing; |
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many of our future acquisitions are likely to be dependent on external
financing, and we may be unable to finance an acquisition on favorable
terms or at all; |
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we may be required to incur significant capital expenditures to
improve or renovate acquired properties; |
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we may incur an increase in operating costs or may not have the
proceeds available to implement renovations or improvements at
existing properties which are necessary to attract and retain tenants; |
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we may be unable to quickly and efficiently integrate new
acquisitions, particularly acquisitions of portfolios of properties,
into our existing operations; |
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market conditions may result in higher than expected vacancy rates and
lower than expected rental rates; and |
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we may acquire properties subject to liabilities but without any
recourse, or with only limited recourse, to the sellers, or with
liabilities that are unknown to us, such as liabilities for
undisclosed environmental contamination, claims by tenants, vendors or
other persons dealing with the former owners of the properties and
claims for indemnification by members, directors, officers and others
indemnified by the former owners of the properties. |
As we acquire additional properties, we will be subject to risks associated with managing new
properties, including lease-up and integration risks. Newly acquired properties may not perform as
expected, and newly acquired properties may have characteristics or deficiencies unknown to us at
the time of acquisition.
Our performance and the value of our real estate assets are subject to risks associated with real
estate assets and with the real estate industry.
Our ability to make distributions to our stockholders depends on our ability to generate cash
revenues in excess of expenses, scheduled debt service obligations and capital expenditure
requirements. Events and conditions generally applicable to owners and operators of real property
that are beyond our control may decrease cash available for distribution and the value of our
properties.
These events include:
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local oversupply of student housing units, increased competition or
reduction in demand for student housing; |
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inability to collect rent from tenants; |
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vacancies or our inability to lease beds on favorable terms; |
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inability to finance property development and acquisitions on
favorable terms; |
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increased operating costs, including insurance premiums, utilities,
and real estate taxes; |
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costs of complying with changes in governmental regulations; |
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the relative illiquidity of real estate investments; |
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changing student demographics; |
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decreases in student enrollment at particular colleges and
universities; |
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changes in university policies related to admissions; |
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national, regional and local economic conditions; and |
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rising interest rates. |
15
We will depend heavily on the availability of equity and debt capital to fund our business.
In order to maintain our qualification as a REIT, we are required under the Internal Revenue Code
of 1986, as amended, which we refer to as the Code, to distribute annually at least 90% of our REIT
taxable income, determined without regard to distributions paid and excluding any net capital gain.
To the extent that we satisfy this distribution requirement, but distribute less than 100% of our
net taxable income, including any net capital gains, we will be subject to federal corporate income
tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible
excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than
a minimum amount specified under federal tax laws. Because of these distribution requirements,
REITs are largely unable to fund capital expenditures, such as acquisitions, renovations,
development and property upgrades from operating cash flow. Consequently, we will be largely
dependent on the public equity and debt capital markets and private lenders to provide capital to
fund our growth and other capital expenditures. We may not be able to obtain this financing on
favorable terms or at all. Our access to equity and debt capital depends, in part, on:
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general market conditions; |
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our current debt levels and the number of properties subject to
encumbrances; |
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our current performance and the markets perception of our growth
potential; |
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our cash flow and cash distributions; and |
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the market price per share of our common stock. |
If we cannot obtain capital from third-party sources, we may not be able to acquire properties when
strategic opportunities exist, satisfy our debt service obligations or make the cash distributions
to our stockholders, including those necessary to maintain our qualification as a REIT.
Additional issuances of equity securities may be dilutive to stockholders.
The interests of our stockholders could be diluted if we issue additional equity securities to
finance future developments or acquisitions or to repay indebtedness. Our Board of Directors may
authorize the issuance of additional equity securities without stockholder approval. Our ability
to execute our business strategy depends upon our access to an appropriate blend of debt financing,
including revolving credit facilities and other forms of secured and unsecured debt, and equity
financing, including the issuance of common equity.
We may reduce the amount of dividends declared on our common stock or elect to pay a portion of the
dividend in shares of our common stock.
In order for EDR to continue to qualify as a REIT, we are required to distribute annual dividends
equal to a minimum of 90% of our REIT taxable income, computed without regard to the dividends paid
deduction and our net capital gains. However, in the event of, among other factors, continued
material future deterioration in business conditions, or continuing tightening in the credit
markets, our Board of Directors may decide to further reduce the amount of our dividend while
ensuring compliance with the requirements of the Code related to REIT qualification.
Additionally, in December 2008, the IRS announced it would treat a cash option share dividend as
satisfying a public REITs distribution requirements for 2008 and 2009 so long as certain
requirements are met. We may elect to pay dividends during this period in part in shares of our
common stock which would cause dilution to our earnings per share given the additional shares
outstanding.
Current market conditions could affect our ability to refinance existing indebtedness or obtain
additional financing on acceptable terms and may have other adverse effects on us.
The United States credit markets have recently experienced significant dislocations and liquidity
disruptions, including the bankruptcy, insolvency or restructuring of certain financial
institutions. These circumstances have materially impacted liquidity in the debt markets, making
financing terms for borrowers less attractive, and in certain cases have resulted in the
unavailability of certain types of debt financing. Our Amended Revolver is due to mature on March
30, 2009; however, the Operating Partnership has met the extension requirements and has exercised
its option to extend the maturity date until March 30, 2010, under existing terms. As of December
31, 2008, we had $32,900 outstanding under this facility with an additional $16,663
16
available. Although we believe that our Amended Revolver is
sufficient for our current operations, any reductions in our available borrowing capacity, or our
inability to renew or replace this facility when required or when business conditions warrant,
could have a material adverse effect on our business, financial condition and results of
operations. Furthermore, if prevailing interest rates or other factors at the time of refinancing
result in higher interest rates upon refinancing, then the interest expense relating to that
refinanced indebtedness would increase. Higher interest rates on newly incurred debt may negatively
impact us as well. If interest rates increase, our interest costs and overall costs of capital will
increase, which could adversely affect our transaction and development activity, financial
condition, results of operation, cash flow, the market price of our stock, our ability to pay
principal and interest on our debt and our ability to pay dividends to our stockholders.
If we are unable to secure additional financing or refinancing on favorable terms or our operating
cash flow is insufficient, we may not be able to satisfy our outstanding financial obligations
under our mortgage and construction debt. Furthermore, if financing is not available when needed,
or is available on unfavorable terms, we may be unable to take advantage of business opportunities
or respond to competitive pressures, any of which could have a material adverse effect on our
business, financial condition and results of operations. A prolonged downturn in the credit markets may cause us to seek alternative sources of potentially
less attractive financing, which such sources may not then be available, and may require us to
adjust our business plan accordingly or significantly cutback or curtail operations and development
plans. In addition, these factors may make it more difficult for us to sell properties or may
adversely affect the price we receive for properties that we do sell as prospective buyers may
experience increased costs of debt financing or difficulties in obtaining debt financing.
In addition, we mortgage most of our properties to secure payment of indebtedness. In 2009,
$98,660, or 22.4%, of our mortgage debt reaches maturity. If we are unable to service the
mortgages, including in the event we are not successful in refinancing our mortgage debt upon
maturity, then the properties could be foreclosed upon or transferred to the mortgagee, or we might
be forced to dispose of some of our properties on disadvantageous terms, with a consequent loss of
income and asset value. A foreclosure of mortgaged properties could cause a cross default on our
Amended Revolver limiting its availability. A foreclosure or disadvantageous disposal on one or
more of our properties could adversely affect our financial condition, results of operations, cash
flow and ability to pay dividends on, and the market price of, our stock.
Our ownership of properties through ground leases exposes us to the loss of such properties upon
breach or termination of the ground leases.
We have acquired an interest in certain of our properties by acquiring a leasehold interest in the
property on which the building is located (or under development), and we may acquire additional
properties in the future through the purchase of interests in ground leases. As the lessee under a
ground lease, we are exposed to the possibility of losing the property (or building we may be
developing) upon termination of the ground lease or an earlier breach of the ground lease by us.
We have limited time to perform due diligence on many of our acquired properties, which could
subject us to significant unexpected liabilities and under-performance of the acquired properties.
When we enter into an agreement to acquire a property, we often have limited time to complete our
due diligence prior to acquiring the property. Because our internal resources are limited, we may
rely on third parties to conduct a portion of our due diligence. To the extent these third parties
or we underestimate or fail to identify risks and liabilities associated with the properties we
acquire, we may incur unexpected liabilities, or the property may fail to perform in accordance
with our projections. If, during the due diligence phase, we do not accurately assess the value of
and liabilities associated with a particular property, we may pay a purchase price that exceeds the
current fair value of the assets. As a result, material goodwill and other intangible assets would
be recorded, which could result in significant charges to earnings in future periods. These
charges, in addition to the financial impact of significant liabilities that we may assume, could
seriously harm our financial and operating results, as well as our ability to pay dividends.
17
Certain losses may not be covered by insurance or may be underinsured.
We carry insurance covering comprehensive liability, fire,
earthquake, terrorism, business interruption, vandalism and malicious mischief, extended coverage
perils, physical loss perils, commercial general liability, personal injury, workers compensation,
business, automobile, errors and omissions, employee dishonesty, employment practices liability and
rental loss with respect to all of the properties in our portfolio and the operation of our
Management Company and Development Company. We also carry insurance covering flood (when the
property is located in whole or in material part in a designated flood plain area) on some of our
properties. We believe the policy specifications and insured limits are appropriate and adequate
given the relative risk of loss, the cost of the coverage and industry practice. There are,
however, certain types of losses (such as property damage from riots or wars, employment
discrimination losses, punitive damage awards, or acts of God) that may be either uninsurable or
not economically insurable. Some of our policies are subject to large deductibles or co-payments
and policy limits that may not be sufficient to cover losses. In addition, we may discontinue
earthquake, terrorism or other insurance on some or all of our properties in the future if the cost
of premiums for these policies exceeds, in our judgment, the value of the coverage discounted for
the risk of loss. If we experience a loss that is uninsured or that exceeds policy limits, we could
lose the capital invested in the damaged properties as well as the anticipated future cash flows
from those properties. In addition, if the damaged properties are subject to recourse indebtedness,
we would continue to be liable for the indebtedness, even if these properties were irreparably
damaged.
Future terrorist attacks in the United States could harm the demand for and the value of our
student housing communities.
Future terrorist attacks in the United States, such as the attacks that occurred in New York and
Washington, D.C. on September 11, 2001, and other acts of terrorism or war, or threats of the same,
could harm the demand for and the value of our properties. A decrease in demand in our markets
would make it difficult for us to renew or re-lease our properties at rates equal to or above
historical rates.
Terrorist attacks also could directly affect the value of our properties through damage,
destruction, loss or increased security costs, and the availability or cost of insurance for such
acts. If we receive casualty proceeds, we may not be able to reinvest such proceeds profitably or
at all, and we may be forced to recognize taxable gain on the affected property.
We could incur significant costs related to government regulation and private litigation over
environmental matters.
Under various environmental laws, including the Comprehensive Environmental Response, Compensation
and Liability Act, or CERCLA, a current or previous owner or operator of real property may be
liable for contamination resulting from the release or threatened release of hazardous or toxic
substances or petroleum at that property, and an entity that arranges for the disposal or treatment
of a hazardous or toxic substance or petroleum at another property may be held jointly and
severally liable for the cost to investigate and clean up such property or other affected property.
Such parties are known as potentially responsible parties, or PRPs. Environmental laws often impose
liability without regard to whether the owner or operator knew of, or was responsible for, the
presence of the contaminants, and the costs of any required investigation or cleanup of these
substances can be substantial. PRPs are liable to the government as well as to other PRPs who may
have claims for contribution. The liability is generally not limited under such laws and could
exceed the propertys value and the aggregate assets of the liable party. The presence of
contamination or the failure to remediate contamination at our properties also may expose us to
third-party liability for personal injury or property damage, or adversely affect our ability to
sell, lease or develop the real property or to borrow using the real property as collateral. We do
not carry environmental insurance on any of the properties in our portfolio.
Environmental laws also impose ongoing compliance requirements on owners and operators of real
property. Environmental laws potentially affecting us address a wide variety of matters, including,
but not limited to, asbestos-containing building materials, storage tanks, storm water and
wastewater discharges, lead-based paint, wetlands and hazardous wastes. Failure to comply with
these laws could result in fines and penalties and/or expose us to third-party liability. Some of
our properties may have conditions that are subject to these requirements, and we could be liable
for such fines or penalties and/or liable to third parties for those conditions.
18
We could be exposed to liability and remedial costs related to environmental matters.
Certain properties in our portfolio may contain, or may have contained, asbestos-containing
building materials, or ACBMs. Environmental laws require that ACBMs be properly managed and
maintained, and may impose fines and penalties on building owners and operators for failure to
comply with these requirements. Also, certain properties may contain, or may have contained, or are
adjacent to or near other properties that have contained or currently contain storage tanks for the
storage of petroleum products or other hazardous or toxic substances. These operations create a
potential for the release of petroleum products or other hazardous or toxic substances. Certain
properties in our portfolio contain, or may have contained, elevated radon levels. Third parties
may be permitted by law to seek recovery from owners or operators for property damage and/or
personal injury associated with exposure to contaminants, including, but not limited to, petroleum
products, hazardous or toxic substances and asbestos fibers. Also, some of the properties may
contain regulated wetlands that can delay or impede development or require costs to be incurred to
mitigate the impact of any disturbance. Absent appropriate permits, we can be held responsible for
restoring wetlands and be required to pay fines and penalties.
Some of the properties in our portfolio may contain microbial matter such as mold and mildew. The
presence of microbial matter could adversely affect our results of operations. In addition, if any
property in our portfolio is not properly connected to a water or sewer system, or if the integrity
of such systems are breached, or if water intrusion into our buildings otherwise occurs, microbial
matter or other contamination can develop. When excessive moisture accumulates in buildings or on
building materials, mold growth may occur, particularly if the moisture problem remains
undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or
irritants. If this were to occur, we could incur significant remedial costs and we may also be
subject to material private damage claims and awards. Concern about indoor exposure to mold has
been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms,
including allergic or other reactions. If we become subject to claims in this regard, it could
materially and adversely affect us and our future insurability for such matters.
Independent environmental consultants conduct Phase I environmental site assessments on all of our
acquisitions. Phase I environmental site assessments are intended to evaluate information regarding
the environmental condition of the surveyed property and surrounding properties based generally on
visual observations, interviews and certain publicly available databases. These assessments do not
typically take into account all environmental issues including, but not limited to, testing of soil
or groundwater or the possible presence of asbestos, lead-based paint, radon, wetlands or mold. The
results of these assessments are addressed and could result in either a cancellation of the
purchase, the requirement of the seller to remediate issues, or additional costs on our part to
remediate the issue.
None of the previous site assessments revealed any past or present environmental liability that we
believe would be material to us. However, the assessments may have failed to reveal all
environmental conditions, liabilities or compliance concerns. Material environmental conditions,
liabilities or compliance concerns may have arisen after the assessments were conducted or may
arise in the future; and future laws, ordinances or regulations may impose material additional
environmental liability.
We cannot assure you that costs of future environmental compliance will not affect our ability to
make distributions or that such costs or other remedial measures will not be material to us.
We may incur significant costs complying with the Americans with Disabilities Act and similar laws.
Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations must meet
federal requirements related to access and use by disabled persons. Additional federal, state and
local laws also may require modifications to our properties, or restrict our ability to renovate
our properties. For example, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment
properties first occupied after March 13, 1990 to be accessible to the handicapped. We have not
conducted an audit or investigation of all of our properties to determine our compliance with
present ADA requirements. Noncompliance with the ADA or FHAA could result in the imposition of
fines or an award for damages to private litigants and also could result in an order to correct any
non-complying feature. We cannot predict the ultimate amount of the cost of compliance with the
ADA, FHAA or other legislation. If we incur substantial costs to comply with the ADA, FHAA or any
other legislation, we could
19
be materially and adversely affected.
In June 2001, the United States Department of Justice, or DOJ, notified the previous owner of one
of our properties of an on-going investigation regarding possible violations of the ADA and the
FHAA. The DOJ has reviewed the property plans for this property but has not issued a report
regarding its review. In October 2002, the DOJ indicated that the investigations were being delayed
for an undetermined period of time. This investigation has not been resolved and, at this point, no
conclusion can be reached regarding what will be required to conclude it or whether it will result
in a dispute or legal proceedings with the DOJ. Noncompliance with the ADA and the FHAA could
result in the imposition of injunctive relief, fines, awards of damages to private litigants or
additional capital expenditures to remedy such noncompliance. We are unable to predict the outcome
of the DOJs investigation.
We may incur significant costs complying with other regulations.
The properties in our portfolio are subject to various federal, state and local regulatory
requirements, such as state and local fire and life safety requirements. If we fail to comply with
these various requirements, we might incur governmental fines or be liable for private action money
damages. Furthermore, existing requirements could change and require us to make significant
unanticipated expenditures that would materially and adversely affect us.
Joint venture investments could be adversely affected by our lack of sole decision making
authority, our reliance on co-venturers financial condition and disputes between our co-venturers
and us.
We have co-invested and anticipate that we will continue to co-invest with third parties through
partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing
responsibility for managing the affairs of a property, partnership, joint venture or other entity.
In such event, we will not have sole decision-making authority regarding the property, partnership,
joint venture or other entity. Investments in partnerships, joint ventures or other entities may,
under certain circumstances, involve risks not present were a third party not involved, including
the possibility that partners or co-venturers may become bankrupt or fail to fund their share of
required capital contributions. Partners or co-venturers also may have economic or other business
interests or goals that are inconsistent with our business interests or goals and may be in a
position to take actions contrary to our preferences, policies or objectives. Such investments also
will have the potential risk of our reaching impasses with our partners or co-venturers on key
decisions, such as a sale, because neither we nor the partner or co-venturer would have full
control over the partnership or joint venture. Disputes between us and partners or co-venturers may
result in litigation or arbitration that would increase our expenses and prevent our management
team from focusing its time and effort exclusively on our business. In addition, we may in some
circumstances be liable for the actions of our third-party partners or co-venturers.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse
changes in the performance of our properties.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more
properties in our portfolio in response to changing economic, financial and investment conditions
is limited. The real estate market is affected by many factors, such as general economic
conditions, availability of financing, interest rates and other factors, including supply and
demand, that are beyond our control. We cannot predict whether we will be able to sell any property
for the price or on the terms set by us or whether any price or other terms offered by a
prospective purchaser would be acceptable to us. We also cannot predict the length of time needed
to find a willing purchaser and to close the sale of a property.
We may be required to expend funds to correct defects or to make improvements before a property can
be sold. We cannot ensure that we will have funds available to correct those defects or to make
those improvements. In acquiring a property, we may agree to transfer restrictions that materially
restrict us from selling that property for a period of time or impose other restrictions, such as a
limitation on the amount of debt that can be placed or repaid on that property. These transfer
restrictions would impede our ability to sell a property even if we deem it necessary or
appropriate.
20
Risks related to our organization and structure
To maintain our REIT status, we may be forced to limit the activities of our Management Company.
To maintain our status as a REIT, no more than 20% of the
value of our total assets may consist of the securities of one or more taxable REIT subsidiaries,
such as our Management Company. Some of our activities, such as our third-party management,
development consulting and food services, must be conducted through our Management Company and
Development Company for us to maintain our REIT qualification. In addition, certain non-customary
services such as cleaning, transportation, security and, in some cases, parking, must be provided
by a taxable REIT subsidiary or an independent contractor. If the revenues from such activities
create a risk that the value of our Management Company, based on revenues or otherwise, approaches
the 20% threshold, we will be forced to curtail such activities or take other steps to remain under
the 20% threshold. Because the 20% threshold is based on value, it is possible that the Internal
Revenue Service, or IRS, could successfully contend that the value of our Management Company
exceeds the 20% threshold even if our Management Company accounts for less than 20% of our
consolidated revenues, income or cash flow, in which case our status as a REIT could be
jeopardized.
Our charter contains restrictions on the ownership and transfer of our stock.
Our charter provides that, subject to certain exceptions, no person or entity may beneficially own,
or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more
than 9.8% (by value, by number of shares or by voting power, whichever is more restrictive) of the
outstanding shares of our common stock or more than 9.8% (by value, by number of shares or by
voting power, whichever is more restrictive) of all our outstanding shares, including both common
and preferred stock. We refer to this restriction as the ownership limit. Generally, if a
beneficial owner of our shares exceeds the ownership limit, such owner will be effectively divested
of all ownership rights with respect to shares exceeding the limit and may suffer a loss on his or
her investment.
The constructive ownership rules under the Code are complex and may cause stock owned actually or
constructively by a group of related individuals and/or entities to be owned constructively by one
individual or entity. As a result, the acquisition of less than 9.8% of our stock (or the
acquisition of an interest in an entity that owns, actually or constructively, our stock) by an
individual or entity, could, nevertheless cause that individual or entity, or another individual or
entity, to own constructively in excess of 9.8% of our outstanding stock and thereby subject
certain shares to the ramifications of exceeding the ownership limit. Our charter, however, permits
exceptions to be made to this limitation if our board of directors determines that such exceptions
will not jeopardize our tax status as a REIT. This ownership limit could delay, defer or prevent a
change of control or other transaction that might otherwise result in a premium price for our
common stock or otherwise be in the best interest of our stockholders.
Certain tax and anti-takeover provisions of our charter and bylaws may inhibit a change of our
control.
Certain provisions contained in our charter and bylaws and the Maryland General Corporation Law may
discourage a third party from making a tender offer or acquisition proposal to us, or could delay,
defer or prevent a change in control or the removal of existing management. These provisions also
may delay or prevent our stockholders from receiving a premium for their shares of common stock
over then-prevailing market prices. These provisions include:
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the REIT ownership limit described above; |
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authorization of the issuance of our preferred shares with powers,
preferences or rights to be determined by our board of directors; |
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the right of our board of directors, without a stockholder vote, to
increase our authorized shares and classify or reclassify unissued
shares; and |
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advance notice requirements for stockholder nomination of directors
and for other proposals to be presented at stockholder meetings. |
The Maryland business statutes also impose potential restrictions on a change of control of our
Company.
Various Maryland laws may have the effect of discouraging offers to acquire us, even if the
acquisition would be advantageous to our stockholders. Our bylaws exempt us from some of those
laws, such as the control share acquisition provisions, but our board of directors can change our
bylaws at any time to make these provisions applicable to us.
21
We have the right to change some of our policies that may be important to our stockholders without
stockholder consent.
Our major policies, including our policies with respect to investments, leverage, financing,
growth, debt and capitalization, are determined by our board of directors or those committees or
officers to whom our board of directors has delegated that authority. Our board of directors also
establishes the amount of any distributions that we make to our stockholders. Our board of
directors may amend or revise the foregoing policies, our distribution payment amounts and other
policies from time to time without a stockholder vote. Accordingly, our stockholders may not have
control over changes in our policies.
The ability of our board of directors to revoke our REIT election without stockholder approval may
cause adverse consequences to our stockholders.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT
election, without the approval of our stockholders, if it determines that it is no longer in our
best interests to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become
subject to federal income tax on our taxable income and would no longer be required to distribute
most of our taxable income to our stockholders, which may have adverse consequences on the total
return to our stockholders.
Our rights and the rights of our stockholders to take action against our directors and officers are
limited.
Maryland law provides that a director or officer has no liability in that capacity if he or she
performs his or her duties in good faith, in a manner he or she reasonably believes to be advisable
and in our best interests and with the care that an ordinarily prudent person in a like position
would use under similar circumstances. In addition, our charter eliminates our directors and
officers liability to us and our stockholders for money damages except for liability resulting
from actual receipt of an improper benefit in money, property or services or active and deliberate
dishonesty established by a final judgment and that is material to the cause of action. Our bylaws
require us to indemnify directors and officers for liability resulting from actions taken by them
in those capacitates to the maximum extent permitted by Maryland law. As a result, our stockholders
and we may have more limited rights against our directors and officers than might otherwise exist
under common law. In addition, we may be obligated to fund the defense costs incurred by our
directors and officers.
Our success depends on key personnel whose continued service is not guaranteed.
We depend upon the services of our key personnel, particularly Paul O. Bower, our Chairman, Chief
Executive Officer and President, Randall H. Brown, our Executive Vice President and Chief Financial
Officer, Thomas Trubiana, our Chief Investment Officer, and Craig L. Cardwell, our President of
Allen & OHara Education Services, Inc. Messrs. Bower, Trubiana and Cardwell each have been in the
student housing business for over 30 years, and each of them has developed a network of contacts
and a reputation that attracts business and investment opportunities and assists us in negotiations
with universities, lenders and industry personnel. In addition, Mr. Brown possesses detailed
knowledge of and experience with our financial and ancillary support operations that are critical
to our operations and financial reporting obligations as a public company. We will continue to need
to attract and retain qualified additional senior executive officers as we grow our business. The
loss of the services of any of our senior executive officers, or our inability to recruit and
retain qualified personnel could have a material adverse effect on our business and financial
results.
Federal income tax risks
Failure to qualify as a REIT would have significant adverse consequences to us and the value of our
stock.
We intend to operate in a manner that will allow us to qualify as a REIT for federal income tax
purposes under the Code. We have not requested and do not plan to request a ruling from the IRS
that we qualify as a REIT. If we lose our REIT status, we will face serious tax consequences that
could substantially reduce the funds available for distribution to our stockholders for each of the
years involved because:
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we would not be allowed a deduction for distributions to stockholders
in computing our taxable income, and such amounts would be subject to
federal income tax at regular corporate rates; |
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we also could be subject to the federal alternative minimum tax and
possibly increased state and local taxes; and |
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unless we are entitled to relief under applicable statutory
provisions, we could not elect to be taxed as a REIT for four taxable
years following the year during which we were disqualified. |
22
In addition, if we fail to qualify as a REIT, we will not be required to make distributions to
stockholders, and all distributions to stockholders will be subject to tax as ordinary income to
the extent of our current and accumulated earnings and profits. As a result of all these factors,
our failure to qualify as a REIT also could impair our ability to expand our business and raise
capital, and would adversely affect the value of our common stock.
Qualification as a REIT involves the application of highly technical and complex Code provisions
for which there are only limited judicial and administrative interpretations. The complexity of
these provisions and of the applicable Treasury Regulations that have been promulgated under the
Code is greater in the case of a REIT that, like us, holds its assets through a partnership or a
limited liability company. The determination of various factual matters and circumstances not
entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a
REIT, we must satisfy a number of requirements, including requirements regarding the composition of
our assets and two gross income tests: (a) at least 75% of our gross income in any year must be
derived from qualified sources, such as rents from real property, mortgage interest,
distributions from other REITs and gains from sale of such assets, and (b) at least 95% of our
gross income must be derived from sources meeting the 75% income test above, and other passive
investment sources, such as other interest and dividends and gains from sales of securities. Also,
we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable
income, excluding any net capital gains. In addition, new legislation, regulations, administrative
interpretations or court decisions may adversely affect our investors, our ability to qualify as a
REIT for federal income tax purposes or the desirability of an investment in a REIT relative to
other investments.
We may be subject to federal and state income taxes that would harm our financial condition.
Even if we qualify and maintain our status as a REIT, we may become subject to federal income taxes
and related state taxes. For example, if we have net income from a sale of dealer property or
inventory, or, if our Management Company enters into agreements with us or our tenants on a basis
that is determined to be other than an arms length basis, that income will be subject to a 100%
penalty tax. If we believe that a sale of a property might be treated as a prohibited transaction,
we will attempt to structure a sale through a taxable REIT subsidiary, in which case the gain from
the sale would be subject to corporate income tax but not the 100% prohibited transaction tax. We
cannot assure you, however, that the IRS would not assert successfully that sales of properties
that we make directly, rather than through a taxable REIT subsidiary, were sales of dealer
property or inventory, in which case the 100% penalty tax will apply. In addition, we may not be
able to make sufficient distributions to avoid corporate income tax and the 4% excise tax on
undistributed income. We may also be subject to state and local taxes on our income or property,
either directly or at the level of our Operating Partnership or the University Towers Partnership
or at a level of the other entities through which we indirectly own our properties that would
aversely affect our operating results.
An investment in our common stock has various tax risks, including the treatment of distributions
in excess of earnings and the inability to apply passive losses against distributions.
Distributions in excess of current and accumulated earnings and profits, to the extent that they
exceed the adjusted basis of an investors common stock, will be treated as long-term capital gain
(or short-term capital gain if the shares have been held for less than one year). Any gain or loss
realized upon a taxable disposition of shares by a stockholder who is not a dealer in securities
will be treated as a long-term capital gain or loss if the shares have been held for more than one
year, and otherwise will be treated as short-term capital gain or loss. Distributions that we
properly designate as capital gain distributions will be treated as taxable to stockholders as
gains (to the extent that they do not exceed our actual net capital gain for the taxable year) from
the sale or disposition of a capital asset held for greater than one year. Distributions we make
and gain arising from the sale or exchange by a stockholder of shares of our stock will not be
treated as passive income, meaning stockholders generally will not be able to apply any passive
losses against such income or gain.
23
Future distributions may include a significant portion as a return of capital.
Our distributions have historically and may continue to exceed the amount of our income as a REIT.
If so, the excess distributions will be treated as a return of capital to the extent of the
stockholders basis in our stock, and the stockholders basis in our stock will be reduced by such
amount. To the extent distributions exceed a stockholders basis in our stock, the stockholder will
recognize capital gain, assuming the stock is held as a capital asset.
Item 1B. Unresolved Staff Comments.
None.
24
Item 2. Properties.
General
As of December 31, 2008, our properties consisted of 40 communities located in 18 states containing
24,991 beds in 7,598 apartment units located near 34 universities. On January 6, 2006, we completed
the acquisition of 13 collegiate student housing communities with a combined total of 5,894 beds
from Place Properties, L.P. of Atlanta, Georgia. Under terms of the transaction, Place Properties
sold its owned portfolio to the Operating Partnership and then leased back the properties and
operated them with the existing management team under a renewable, initial five-year lease
agreement with the Trust. On February 1, 2008, the lease was terminated early, and we began
operating these properties.
In 2007, we acquired land in Carbondale, Illinois and began construction on a student housing
community near Southern Illinois University (referred to as The Reserve at Saluki Point). This
represents the first community EDR is developing and building for its own ownership since becoming
a public company. In 2008, we completed the development of the first phase of the property, which
opened in August of 2008, and began development on a second phase, which is scheduled to open in
August of 2009.
Thirty-nine of our 40 properties are modern apartment communities, with clusters of low-rise
buildings that consist of student housing units with private bedrooms and one or more bathrooms
centered around a common area consisting of a fully furnished living room, dining room and
fully-equipped kitchen. University Towers is a high-rise residence hall that has a cafeteria on the
premises and no individual kitchens in the units. We provide food services through our Management
Company to residents of University Towers. Our student housing communities typically contain a
swimming pool, recreational facilities and common areas, and each bedroom has individualized locks,
high-speed Internet access and telephone and cable television connections.
Our owned student housing communities typically have the following characteristics:
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located in close proximity to university campuses (within two miles or
less); |
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average age of approximately 10 years; |
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designed specifically for students with modern unit plans and
amenities; and |
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supported by our long-standing Community Assistant program and other
student-oriented activities and services that enhance the college
experience. |
25
Properties
The following tables provide certain summary information about our owned properties as of December
31, 2008 (dollars in thousands). All of our owned properties are owned in fee with the exception
of University Towers which is operated under a ground lease.
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Year Ended |
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December 31, 2008 |
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Average |
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Monthly |
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Revenue per |
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Year |
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Acquisition |
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# of |
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# of |
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Occupancy |
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Total |
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Available |
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Name |
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Primary University Served |
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Built |
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Date |
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Beds |
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Units |
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Rate(1) |
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Revenue |
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Bed(2) |
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Owned and Operated |
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NorthPointe |
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University of Arizona |
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Tucson, Arizona |
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1999 |
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Jan 05 |
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912 |
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300 |
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91.4 |
% |
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$ |
319 |
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$ |
350 |
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The Reserve at Athens |
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University of Georgia Athens, |
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|
Georgia |
|
|
1999 |
|
|
Jan 05 |
|
|
612 |
|
|
|
200 |
|
|
|
97.3 |
|
|
|
241 |
|
|
|
394 |
|
The Reserve at Clemson |
|
Clemson University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clemson, South Carolina |
|
|
1999 |
|
|
Jan 05 |
|
|
590 |
|
|
|
177 |
|
|
|
93.6 |
|
|
|
190 |
|
|
|
322 |
|
Players Club |
|
Florida State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tallahassee, Florida |
|
|
1994 |
|
|
Jan 05 |
|
|
336 |
|
|
|
84 |
|
|
|
98.3 |
|
|
|
146 |
|
|
|
434 |
|
The Gables |
|
Western Kentucky University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bowling Green, Kentucky |
|
|
1996 |
|
|
Jan 05 |
|
|
288 |
|
|
|
72 |
|
|
|
95.6 |
|
|
|
88 |
|
|
|
306 |
|
College Station |
|
Augusta State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Augusta, Georgia |
|
|
1989 |
|
|
Jan 05 |
|
|
203 |
|
|
|
61 |
|
|
|
58.4 |
|
|
|
35 |
|
|
|
171 |
|
University Towers (5) |
|
North Carolina State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raleigh, North Carolina |
|
|
1989 |
|
|
Jan 05 |
|
|
953 |
|
|
|
251 |
|
|
|
75.5 |
|
|
|
450 |
(4) |
|
|
472 |
(4) |
The Pointe at South Florida |
|
University of South Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tampa, Florida |
|
|
1999 |
|
|
Jan 05 |
|
|
1,002 |
|
|
|
336 |
|
|
|
85.8 |
|
|
|
370 |
|
|
|
369 |
|
Commons at Knoxville |
|
University of Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Knoxville, Tennessee |
|
|
1999 |
|
|
Jan 05 |
|
|
708 |
|
|
|
211 |
|
|
|
99.1 |
|
|
|
328 |
|
|
|
463 |
|
The Commons |
|
Florida State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tallahassee, Florida |
|
|
1997 |
|
|
Jan 05 |
|
|
732 |
|
|
|
252 |
|
|
|
84.9 |
|
|
|
249 |
|
|
|
340 |
|
The Reserve on Perkins |
|
Oklahoma State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stillwater, Oklahoma |
|
|
1999 |
|
|
Jan 05 |
|
|
732 |
|
|
|
234 |
|
|
|
96.6 |
|
|
|
244 |
|
|
|
334 |
|
The Reserve at Star Pass |
|
University of Arizona |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tucson, Arizona |
|
|
2001 |
|
|
Jan 05 |
|
|
1,020 |
|
|
|
336 |
|
|
|
92.7 |
|
|
|
384 |
|
|
|
376 |
|
The Pointe at Western |
|
Western Michigan University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kalamazoo, Michigan |
|
|
2000 |
|
|
Jan 05 |
|
|
876 |
|
|
|
324 |
|
|
|
87.7 |
|
|
|
298 |
|
|
|
341 |
|
College Station at W. Lafayette |
|
Purdue University West Lafayette, Indiana |
|
|
2000 |
|
|
Jan 05 |
|
|
960 |
|
|
|
336 |
|
|
|
94.7 |
|
|
|
351 |
|
|
|
366 |
|
Commons on Kinnear |
|
The Ohio State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbus, Ohio |
|
|
2000 |
|
|
Jan 05 |
|
|
502 |
|
|
|
166 |
|
|
|
98.1 |
|
|
|
239 |
|
|
|
476 |
|
The Pointe |
|
Pennsylvania State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State College, Pennsylvania |
|
|
1999 |
|
|
Jan 05 |
|
|
984 |
|
|
|
294 |
|
|
|
99.0 |
|
|
|
414 |
|
|
|
420 |
|
The Reserve at Columbia |
|
University of Missouri |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia, Missouri |
|
|
2000 |
|
|
Jan 05 |
|
|
676 |
|
|
|
260 |
|
|
|
97.8 |
|
|
|
249 |
|
|
|
369 |
|
The Reserve on Frankford |
|
Texas Tech University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lubbock, Texas |
|
|
1997 |
|
|
Jan 05 |
|
|
737 |
|
|
|
243 |
|
|
|
88.8 |
|
|
|
232 |
|
|
|
315 |
|
The Lofts |
|
University of Central Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orlando, Florida |
|
|
2002 |
|
|
Jan 05 |
|
|
730 |
|
|
|
254 |
|
|
|
98.3 |
|
|
|
444 |
|
|
|
609 |
|
The Reserve on West 31st |
|
University of Kansas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence, Kansas |
|
|
1998 |
|
|
Jan 05 |
|
|
720 |
|
|
|
192 |
|
|
|
95.6 |
|
|
|
242 |
|
|
|
336 |
|
Campus Creek |
|
University of Mississippi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxford, Mississippi |
|
|
2004 |
|
|
Feb 05 |
|
|
636 |
|
|
|
192 |
|
|
|
93.4 |
|
|
|
248 |
|
|
|
391 |
|
Pointe West |
|
University of South Carolina |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cayce, South Carolina |
|
|
2003 |
|
|
Mar 05 |
|
|
480 |
|
|
|
144 |
|
|
|
97.0 |
|
|
|
213 |
|
|
|
444 |
|
Campus Lodge |
|
University of Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gainesville, Florida |
|
|
2001 |
|
|
Jun 05 |
|
|
1,116 |
|
|
|
360 |
|
|
|
91.6 |
|
|
|
566 |
|
|
|
507 |
|
College Grove |
|
Middle Tennessee State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Murfreesboro, Tennessee |
|
|
1998 |
|
|
Apr 05 |
|
|
864 |
|
|
|
240 |
|
|
|
98.6 |
|
|
|
304 |
|
|
|
351 |
|
The Reserve on South College |
|
Auburn University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auburn, Alabama |
|
|
1999 |
|
|
Jul 05 |
|
|
576 |
|
|
|
180 |
|
|
|
93.7 |
|
|
|
203 |
|
|
|
353 |
|
The Avenue at Southern |
|
Georgia Southern University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statesboro, Georgia |
|
|
1993 |
|
|
Jun 06 |
|
|
624 |
|
|
|
214 |
|
|
|
84.2 |
|
|
|
193 |
|
|
|
309 |
|
The Reserve at Saluki Pointe |
|
Southern Illinois University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carbondale, Illinois |
|
|
2008 |
|
|
Aug 08 |
|
|
528 |
|
|
|
132 |
|
|
|
99.0 |
|
|
|
239 |
|
|
|
452 |
|
Troy Place (6) |
|
Troy State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troy, Alabama |
|
|
2000 |
|
|
Jan 06 |
|
|
408 |
|
|
|
108 |
|
|
|
95.7 |
|
|
|
141 |
|
|
|
346 |
|
The Reserve at Jacksonville (6) |
|
Jacksonville State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacksonville, Alabama |
|
|
2000 |
|
|
Jan 06 |
|
|
504 |
|
|
|
132 |
|
|
|
80.6 |
|
|
|
149 |
|
|
|
296 |
|
Macon Place (6) |
|
Macon State College |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macon, Georgia |
|
|
1999 |
|
|
Jan 06 |
|
|
336 |
|
|
|
84 |
|
|
|
84.6 |
|
|
|
104 |
|
|
|
311 |
|
Clayton Place (6) |
|
Clayton College & State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morrow, Georgia |
|
|
1999 |
|
|
Jan 06 |
|
|
854 |
|
|
|
221 |
|
|
|
68.4 |
|
|
|
255 |
|
|
|
298 |
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Monthly |
|
|
Revenue per |
|
|
|
|
|
Year |
|
|
Acquisition |
|
|
# of |
|
|
# of |
|
|
Occupancy |
|
|
Total |
|
|
Available |
|
Name |
|
Primary University Served |
|
Built |
|
|
Date |
|
|
Beds |
|
|
Units |
|
|
Rate(1) |
|
|
Revenue |
|
|
Bed(2) |
|
|
River Place (6) |
|
State University of West Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrollton, Georgia |
|
|
2000 |
|
|
Jan 06 |
|
|
504 |
|
|
|
132 |
|
|
|
77.5 |
|
|
|
143 |
|
|
|
285 |
|
The Chase at Murray (6) |
|
Murray State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Murray, Kentucky |
|
|
2000 |
|
|
Jan 06 |
|
|
408 |
|
|
|
108 |
|
|
|
83.8 |
|
|
|
113 |
|
|
|
276 |
|
Cape Place (6) |
|
Southeast Missouri State University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cape Girardeau, Missouri |
|
|
2000 |
|
|
Jan 06 |
|
|
360 |
|
|
|
96 |
|
|
|
97.4 |
|
|
|
116 |
|
|
|
321 |
|
Clemson Place (6) |
|
Clemson University |
|
|
1998 |
|
|
Jan 06 |
|
|
288 |
|
|
|
96 |
|
|
|
91.8 |
|
|
|
91 |
|
|
|
315 |
|
The Reserve at Martin (6) |
|
University of Tennessee at Martin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin, Tennessee |
|
|
2000 |
|
|
Jan 06 |
|
|
384 |
|
|
|
96 |
|
|
|
81.1 |
|
|
|
119 |
|
|
|
311 |
|
Berkeley Place (6) |
|
Clemson University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clemson, South Carolina |
|
|
1999 |
|
|
Jan 06 |
|
|
480 |
|
|
|
132 |
|
|
|
83.2 |
|
|
|
143 |
|
|
|
297 |
|
Carrollton Place (6) |
|
State University of West Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrollton, Georgia |
|
|
1998 |
|
|
Jan 06 |
|
|
336 |
|
|
|
84 |
|
|
|
95.8 |
|
|
|
110 |
|
|
|
327 |
|
The Pointe at Southern (6) |
|
Georgia Southern University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statesboro, Georgia |
|
|
1999 |
|
|
Jan 06 |
|
|
528 |
|
|
|
132 |
|
|
|
78.9 |
|
|
|
151 |
|
|
|
285 |
|
Western Place (6) |
|
Western Kentucky University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bowling Green, Kentucky |
|
|
2000 |
|
|
Jan 06 |
|
|
504 |
|
|
|
132 |
|
|
|
89.2 |
|
|
|
137 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owned and operated properties |
|
|
|
|
1999 |
(3) |
|
|
|
|
|
|
24,991 |
|
|
|
7,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Average of the physical month-end occupancy rates. |
|
(2) |
|
Monthly revenue per available bed for 2008 is equal to total revenue for the year ended December 31, 2008 divided
by the sum of the total beds (including staff and model beds) at the property each month. For properties acquired
during the year, monthly revenue per available bed equals total revenue for the period subsequent to acquisition
through December 31, 2008 divided by the sum of the total beds (including staff and model beds) at the property
each month while owned. |
|
(3) |
|
Represents average for all properties in portfolio. |
|
(4) |
|
Revenues and revenue per available bed for University Towers excludes revenue from food service operations. |
|
(5) |
|
During 2008, the Trust sold the parking garage and land associated with the University Towers residence hall and
subsequently entered into a 40-year ground lease. |
|
(6) |
|
During February 2008, the lease with Place Properties LLC was terminated, and EDR began operating these properties. |
27
Mortgage and Construction Indebtedness
The following table contains summary information concerning the mortgage and construction debt
encumbering our properties as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
Maturity |
|
|
|
|
Property |
|
2008 |
|
|
Interest Rate |
|
|
Date |
|
|
Amortization |
|
University Towers |
|
$ |
25,000 |
|
|
|
5.99 |
% |
|
|
7/1/2013 |
|
|
30 Year |
The Reserve at Clemson |
|
|
12,000 |
|
|
|
5.55 |
% |
|
|
3/1/2012 |
|
|
30 Year |
The Gables |
|
|
4,291 |
|
|
|
5.50 |
% |
|
|
11/1/2013 |
|
|
30 Year |
NorthPointe |
|
|
18,800 |
|
|
|
5.55 |
% |
|
|
3/1/2012 |
|
|
30 Year |
The Pointe at S. Florida/The Reserve at
Columbia/ The Commons at Knoxville/College
Grove |
|
|
60,263 |
|
|
|
6.02 |
% |
|
|
1/1/2019 |
|
|
30 Year |
The Reserve at Perkins |
|
|
15,492 |
|
|
|
5.99 |
% |
|
|
1/1/2014 |
|
|
30 Year |
The Lofts |
|
|
27,000 |
|
|
|
5.59 |
% |
|
|
5/1/2014 |
|
|
30 Year |
College Station at W. Lafayette/The Pointe at
Penn State/The Reserve at Star Pass |
|
|
72,106 |
|
|
|
6.02 |
% |
|
|
1/1/2016 |
|
|
30 Year |
Campus Lodge |
|
|
35,841 |
|
|
|
6.97 |
% |
|
|
5/1/2012 |
|
|
30 Year |
Pointe West |
|
|
10,637 |
|
|
|
4.92 |
% |
|
|
8/1/2014 |
|
|
30 Year |
The Pointe at Western/The Commons on
Kinnear/The Reserve on South College/The
Avenue at Southern |
|
|
42,854 |
|
|
|
3.91 |
% |
|
|
1/1/2014 |
|
|
30 Year |
The Reserve on Frankford |
|
|
7,020 |
|
|
|
3.81 |
% |
|
|
1/1/2014 |
|
|
30 Year |
Reserve at Saluki Pointe |
|
|
10,901 |
|
|
|
2.54 |
% |
|
|
6/28/2012 |
|
|
30 Year |
Syracuse University Development Project |
|
|
191 |
|
|
|
2.30 |
% |
|
|
9/29/2013 |
|
|
30 Year |
Troy Place |
|
|
9,440 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
The Reserve at Jacksonville |
|
|
11,120 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Macon Place |
|
|
7,440 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Clayton Place |
|
|
24,540 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
River Place |
|
|
13,680 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
The Chase at Murray |
|
|
6,800 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Cape Place |
|
|
8,520 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Clemson Place |
|
|
8,160 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
The Reserve at Martin |
|
|
8,960 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt /weighted average rate |
|
|
441,056 |
|
|
|
5.77 |
% |
|
|
|
|
|
|
|
|
Unamortized premium |
|
|
1,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans net of unamortized premium |
|
|
442,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion of mortgage debt |
|
|
(101,631 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net of current portion |
|
$ |
340,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average interest rate of the mortgage and construction indebtedness was 5.77%
at December 31, 2008. Each of these mortgages is a non-recourse obligation subject to customary
exceptions and has 30-year amortization. The loans generally do not allow prepayment prior to
maturity. However, prepayment is allowed in certain cases subject to prepayment penalties.
28
Item 3. Legal Proceedings.
In the normal course of business, we are subject to claims, lawsuits and legal proceedings. While
it is not possible to ascertain the ultimate outcome of such matters, in managements opinion, such
outcomes are not expected to have a material adverse effect on our financial position, results of
operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
29
PART II
Item 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Market Information
Our common stock began trading on the New York Stock Exchange under the symbol EDR on January 26,
2005. The initial public offering price of our common stock on such date was $16.00 per share.
There were approximately 938 holders of record of the 28,518,966 shares outstanding on March 10,
2009. On the same day, our common stock closed at $2.85. The following table provides information
on the high and low prices for our common stock on the NYSE and the dividends declared for 2007 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
|
High |
|
|
Low |
|
|
Declared |
|
Fiscal 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Quarter 1 |
|
$ |
15.48 |
|
|
$ |
13.99 |
|
|
$ |
0.210 |
|
Quarter 2 |
|
|
14.99 |
|
|
|
13.69 |
|
|
|
0.210 |
|
Quarter 3 |
|
|
14.39 |
|
|
|
11.83 |
|
|
|
0.210 |
|
Quarter 4 |
|
|
14.10 |
|
|
|
10.75 |
|
|
|
0.210 |
|
Fiscal 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Quarter 1 |
|
$ |
13.50 |
|
|
$ |
10.29 |
|
|
$ |
0.210 |
|
Quarter 2 |
|
|
14.31 |
|
|
|
11.65 |
|
|
|
0.210 |
|
Quarter 3 |
|
|
13.00 |
|
|
|
10.33 |
|
|
|
0.210 |
|
Quarter 4 |
|
|
10.83 |
|
|
|
2.60 |
|
|
|
0.103 |
|
Since our initial quarter as a publicly-traded REIT, we have made regular quarterly distributions
to our stockholders. We intend to continue to declare quarterly distributions. However, we cannot
provide any assurance as to the amount or timing of future distributions. For a description of
restrictions on EDR regarding the payment of distributions, see Item 7, Liquidity and Capital
Resources Revolving Credit Facility and Other Indebtedness, and Note 10, Debt, to the
accompanying Consolidated Financial Statements.
To the extent that we make distributions in excess of our earnings and profits, as computed for
federal income tax purposes, these distributions will represent a return of capital, rather than a
dividend, for federal income tax purposes. Distributions that are treated as a return of capital
for federal income tax purposes generally will not be taxable as a dividend to a U.S. stockholder,
but will reduce the stockholders basis in its shares (but not below zero) and therefore can result
in the stockholder having a higher gain upon a subsequent sale of such shares. Return of capital
distributions in excess of a stockholders basis generally will be treated as gain from the sale of
such shares for federal income tax purposes.
Direct stock purchase and dividend reinvestment plan
The Trust has amended and restated the dividend reinvestment and stock purchase plan which offers
the following:
|
|
|
automatic reinvestment of some or all of the cash distributions paid
on common stock, shares of other classes of stock that we might issue
in the future and units of limited partnership interest; |
|
|
|
|
an opportunity to make an initial purchase of our common stock and to
acquire additional shares over time; and |
|
|
|
|
safekeeping of shares and accounting for distributions received and
reinvested at no cost. |
Shares of common stock purchased under the Amended and Restated Dividend Reinvestment and Stock
Purchase Plan will be either issued by EDR or acquired directly from third parties in the open
market or in privately negotiated transactions. The purchase price per share of common stock
acquired on any particular investment date will not be less than 95% of the average high and low
sales price per share of the common stock on the NYSE on that particular day. We will determine the
source of shares available through the plan based on market conditions, relative transaction costs
and our need for additional capital. To the extent the plan acquires shares of common stock
directly from EDR, we will receive additional capital for general corporate purposes.
30
During the three months ended December 31, 2008, in connection with the plan, we directed the plan
administrator to purchase 2,211 shares of our common stock for $8 in
the open market pursuant to the dividend reinvestment component of
the plan with respect to
our dividend for the fourth quarter of 2008. We also directed the plan administrator to purchase
3,491 shares of our common stock for $16 in the open market for investors pursuant to the
direct stock purchase component of the plan. The following chart summarizes these purchases of our
common stock for the three months ended December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number (or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Value) of |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Yet Be |
|
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
|
Purchased |
|
|
|
Total Number |
|
|
Average Price Paid per |
|
|
Announced Plans or |
|
|
Under the Plans |
|
Period |
|
of Shares(1) |
|
|
Share |
|
|
Programs |
|
|
or Programs |
|
October 1-31, 2008 |
|
|
449 |
|
|
$ |
8.14 |
|
|
|
|
|
|
|
|
|
November 1-30, 2008 |
|
|
4,191 |
|
|
$ |
3.74 |
|
|
|
|
|
|
|
|
|
December 1-31, 2008 |
|
|
1,062 |
|
|
$ |
4.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,702 |
|
|
$ |
4.31 |
|
|
|
|
|
|
|
|
|
(1) |
|
All shares purchased in the open market pursuant to the terms of our Amended and Restated
Dividend Reinvestment and Stock Purchase Plan. |
31
COMPARISON OF 35 MONTH CUMULATIVE TOTAL RETURN *
Among Education Realty Trust Inc., The S&P 500 Index
And The MSCI US REIT Index
* |
|
$100 invested on 1/26/05 in stock or in index, including reinvestment of dividends. Fiscal year
ending December 31. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending |
|
Index |
|
01/26/05 |
|
|
06/30/05 |
|
|
12/31/05 |
|
|
06/30/06 |
|
|
12/31/06 |
|
|
06/30/07 |
|
|
12/31/07 |
|
|
06/30/08 |
|
|
12/31/08 |
|
Education Reality Trust, Inc |
|
|
100.00 |
|
|
|
112.57 |
|
|
|
82.17 |
|
|
|
110.59 |
|
|
|
101.28 |
|
|
|
98.90 |
|
|
|
81.68 |
|
|
|
87.59 |
|
|
|
41.82 |
|
S&P 500 |
|
|
100.00 |
|
|
|
102.31 |
|
|
|
108.21 |
|
|
|
111.14 |
|
|
|
125.30 |
|
|
|
134.02 |
|
|
|
132.18 |
|
|
|
116.44 |
|
|
|
83.28 |
|
MSCI US REIT |
|
|
100.00 |
|
|
|
115.39 |
|
|
|
121.67 |
|
|
|
138.07 |
|
|
|
165.37 |
|
|
|
154.71 |
|
|
|
137.57 |
|
|
|
132.82 |
|
|
|
85.33 |
|
We cannot assure you that your share performance will continue into the future with the same or
similar trends depicted in the graph above. We will not make or endorse any predictions as to
future share performance.
The performance comparisons noted in the graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Annual Report on Form 10-K into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that
we specifically incorporate this graph by reference, and shall not otherwise be deemed filed under
such acts.
32
The following table provides information with respect to compensation plans under which our equity
securities are authorized for issuance as of December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
|
|
|
|
Remaining Available for |
|
|
|
Number of Securities to |
|
|
Weighted Average |
|
|
Future Issuance under |
|
|
|
be Issued upon Exercise |
|
|
Exercise Price of |
|
|
Equity Compensation |
|
|
|
of Outstanding Options, |
|
|
Outstanding Options |
|
|
Plans (excluding |
|
Plan Category |
|
Warrants and Rights(1) |
|
|
Warrants and Rights(1) |
|
|
securities reflected in column (a)) |
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation
plans approved by
security holders |
|
|
N/A |
|
|
|
N/A |
|
|
|
832,000 |
(2) |
Equity compensation
plans not approved
by security holders |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
N/A |
|
|
|
N/A |
|
|
|
832,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include 208,000 shares of restricted stock that are subject
to vesting requirements and 275,000 PIUs which were issued through
EDRs 2004 Incentive Plan. |
|
(2) |
|
The 2004 Incentive Plan initially reserved 800,000 shares of our
common stock for issuance under the plan. The amount of shares may
be increased annually on January 1st of each year so that the total
number of shares reserved under the 2004 Incentive Plan is equal to 4%
of the aggregate number of shares outstanding on the last day of the
preceding fiscal year; provided that such annual increase generally
may not exceed 80,000 shares. |
Recent Sales of Unregistered Securities
For the year ended December 31, 2008, we issued 10,000 profits interest units to employees pursuant
to EDRs 2004 Incentive Plan. Profits Interest Units (PIUs) are units in Education Realty Limited
Partner, LLC, a limited liability company controlled by us that holds a special class of
partnership interests in Education Realty Operating Partnership, LP, our Operating Partnership.
PIUs will not initially have full parity with common units of our Operating Partnership with
respect to liquidating distributions. Upon the occurrence of specified capital equalization events,
PIUs may, over time, achieve full or partial parity with common units of our Operating Partnership
for all purposes and could accrete to an economic value equivalent to our shares of common stock on
a one-for-one basis. If such parity is reached, vested PIUs may be exchanged into an equal number
of shares of our common stock at any time. However, there are circumstances under which full parity
would not be reached. Until such parity is reached, the value, if any, that may be realized for
vested PIUs will be less than the value of an equal number of shares of our common stock. The
issuance of these units was made in reliance upon exemptions from registration provided by
Section 4(2) under the Securities Act.
Item 6. Selected Financial Data.
We have not presented historical information for EDR prior to the completion of the IPO because we
did not have material corporate operating activity during the period of time from our formation
until the closing of our IPO.
The following table sets forth selected financial and operating data on a consolidated historical
basis for EDR and on a combined historical basis for the legal entities that formerly made up the
predecessor of EDR. For the periods presented prior to our IPO, the historical combined financial
information for the predecessor of EDR includes:
|
|
|
the student housing operations of Education Properties Trust, LLC (including the properties referred to as
Northpointe, The Reserve at Athens, The Reserve at Clemson and Players Club); |
|
|
|
|
the student housing operations of the properties referred to as the Gables, College Station and University Towers; and |
|
|
|
|
the third party management and development consulting service operations and real estate operations of Allen & OHara
Education Services, LLC. |
The results of operations for the year ended December 31, 2005 represent the combined historical
operations of the EDR Predecessor
for the period January 1, 2005 through January 30, 2005 as well as the consolidated historical
operations of EDR for the year ended December 31, 2005.
33
The following information presented below does not provide all of the information contained in our
financial statements, including related notes. You should read the information below in conjunction
with the historical consolidated and combined financial statements and related notes and
Managements Discussion and Analysis of Financial Condition and Results of Operations included
elsewhere in this Annual Report on Form 10-K.
STATEMENT OF OPERATIONS DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EDR |
|
|
|
Education Realty Trust, Inc. |
|
|
Predecessor |
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands, except share and per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing
revenue |
|
$ |
107,566 |
|
|
$ |
85,651 |
|
|
$ |
81,202 |
|
|
$ |
70,010 |
|
|
$ |
17,896 |
|
Student housing food service
revenue |
|
|
2,378 |
|
|
|
2,359 |
|
|
|
3,634 |
|
|
|
3,491 |
|
|
|
3,137 |
|
Other leasing revenue |
|
|
7,145 |
|
|
|
13,811 |
|
|
|
14,012 |
|
|
|
|
|
|
|
|
|
Third-party development
consulting services |
|
|
8,303 |
|
|
|
5,411 |
|
|
|
3,773 |
|
|
|
1,759 |
|
|
|
392 |
|
Third-party management revenue |
|
|
3,672 |
|
|
|
3,391 |
|
|
|
2,796 |
|
|
|
1,968 |
|
|
|
1,326 |
|
Operating expense
reimbursements |
|
|
10,796 |
|
|
|
9,330 |
|
|
|
7,638 |
|
|
|
6,694 |
|
|
|
5,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
139,860 |
|
|
|
119,953 |
|
|
|
113,055 |
|
|
|
83,922 |
|
|
|
27,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing
operations |
|
|
55,569 |
|
|
|
41,215 |
|
|
|
39,503 |
|
|
|
34,758 |
|
|
|
7,645 |
|
Student housing food service
operations |
|
|
2,257 |
|
|
|
2,236 |
|
|
|
3,318 |
|
|
|
3,275 |
|
|
|
2,899 |
|
Reimbursable operating
expenses |
|
|
10,796 |
|
|
|
9,330 |
|
|
|
7,638 |
|
|
|
6,694 |
|
|
|
5,223 |
|
General and administrative |
|
|
16,348 |
|
|
|
14,561 |
|
|
|
12,331 |
|
|
|
12,549 |
|
|
|
3,545 |
|
Depreciation and amortization |
|
|
29,417 |
|
|
|
32,223 |
|
|
|
34,035 |
|
|
|
26,845 |
|
|
|
3,120 |
|
Loss on asset impairment |
|
|
2,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
116,408 |
|
|
|
99,565 |
|
|
|
96,825 |
|
|
|
84,121 |
|
|
|
22,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
23,452 |
|
|
|
20,388 |
|
|
|
16,230 |
|
|
|
(199 |
) |
|
|
5,542 |
|
Nonoperating expenses |
|
|
30,208 |
|
|
|
27,675 |
|
|
|
29,933 |
|
|
|
17,266 |
|
|
|
5,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in earnings of
unconsolidated entities |
|
|
(6,756 |
) |
|
|
(7,287 |
) |
|
|
(13,703 |
) |
|
|
(17,465 |
) |
|
|
(244 |
) |
Equity in earnings (losses) of
unconsolidated entities |
|
|
(196 |
) |
|
|
(277 |
) |
|
|
740 |
|
|
|
880 |
|
|
|
1,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and minority interest |
|
|
(6,952 |
) |
|
|
(7,564 |
) |
|
|
(12,963 |
) |
|
|
(16,585 |
) |
|
|
758 |
|
Taxes |
|
|
1,123 |
|
|
|
258 |
|
|
|
659 |
|
|
|
497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority
interest |
|
|
(8,075 |
) |
|
|
(7,822 |
) |
|
|
(13,622 |
) |
|
|
(17,082 |
) |
|
|
758 |
|
Minority interest benefit |
|
|
(128 |
) |
|
|
(39 |
) |
|
|
(404 |
) |
|
|
(1,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations |
|
|
(7,947 |
) |
|
|
(7,783 |
) |
|
|
(13,218 |
) |
|
|
(16,009 |
) |
|
|
758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of
discontinued operations |
|
|
|
|
|
|
788 |
|
|
|
973 |
|
|
|
475 |
|
|
|
|
|
Gain on sale of student
housing property |
|
|
|
|
|
|
1,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
|
|
|
|
2,367 |
|
|
|
973 |
|
|
|
475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(7,947 |
) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
|
$ |
(15,534 |
) |
|
$ |
758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EDR |
|
|
|
Education Realty Trust, Inc. |
|
|
Predecessor |
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands, except share and per share data) |
|
|
Earnings per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share
basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(0.28 |
) |
|
|
(0.28 |
) |
|
|
(0.50 |
) |
|
|
(0.69 |
) |
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
0.08 |
|
|
|
0.04 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share |
|
$ |
(0.28 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding basic and
diluted |
|
|
28,455,713 |
|
|
|
28,010,144 |
|
|
|
26,387,547 |
|
|
|
23,063,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions per common share |
|
$ |
0.82 |
|
|
$ |
0.82 |
|
|
$ |
1.10 |
|
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
|
|
|
EDR |
|
|
|
Education Realty Trust, Inc. |
|
|
Predecessor |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing properties, net |
|
$ |
733,507 |
|
|
$ |
732,979 |
|
|
$ |
804,759 |
|
|
$ |
620,305 |
|
|
$ |
83,785 |
|
Other assets, net |
|
|
44,140 |
|
|
|
34,481 |
|
|
|
30,699 |
|
|
|
83,744 |
|
|
|
5,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
777,647 |
|
|
$ |
767,460 |
|
|
$ |
835,458 |
|
|
$ |
704,049 |
|
|
$ |
88,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and construction
notes payable |
|
$ |
442,259 |
|
|
$ |
420,940 |
|
|
$ |
423,933 |
|
|
$ |
328,335 |
|
|
$ |
81,111 |
|
Other indebtedness |
|
|
32,900 |
|
|
|
11,500 |
|
|
|
69,400 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
20,559 |
|
|
|
19,080 |
|
|
|
19,837 |
|
|
|
17,255 |
|
|
|
5,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
495,718 |
|
|
|
451,520 |
|
|
|
513,170 |
|
|
|
345,590 |
|
|
|
87,085 |
|
Minority interest |
|
|
14,669 |
|
|
|
18,121 |
|
|
|
19,289 |
|
|
|
27,926 |
|
|
|
|
|
Equity |
|
|
267,260 |
|
|
|
297,819 |
|
|
|
302,999 |
|
|
|
330,533 |
|
|
|
1,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
777,647 |
|
|
$ |
767,460 |
|
|
$ |
835,458 |
|
|
$ |
704,049 |
|
|
$ |
88,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
OTHER DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
|
|
|
EDR |
|
|
|
Education Realty Trust, Inc. |
|
|
Predecessor |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands, except per share and selected property information) |
|
Funds from operations (FFO) (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(7,947 |
) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
|
$ |
(15,534 |
) |
|
$ |
758 |
|
Gain on sale of student
housing property, net of
minority interest |
|
|
|
|
|
|
(1,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of student
housing assets |
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing property
depreciation and amortization
of lease intangibles |
|
|
28,819 |
|
|
|
31,780 |
|
|
|
33,680 |
|
|
|
26,845 |
|
|
|
3,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity portion of real estate
depreciation and amortization
on equity investees |
|
|
496 |
|
|
|
424 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization
of discontinued operations |
|
|
|
|
|
|
711 |
|
|
|
2,048 |
|
|
|
2,323 |
|
|
|
|
|
Minority interest benefit |
|
|
(128 |
) |
|
|
(6 |
) |
|
|
(355 |
) |
|
|
(1,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations
available to all share and
unitholders |
|
$ |
21,752 |
|
|
$ |
25,914 |
|
|
$ |
23,182 |
|
|
$ |
12,594 |
|
|
$ |
3,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of impairment and
refinancing charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development cost write-off,
net of tax benefit |
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on asset impairment |
|
|
2,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt |
|
|
4,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of impairment and
refinancing charges |
|
|
6,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations-
adjusted available to all
share and unitholders |
|
$ |
28,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations |
|
$ |
26,011 |
|
|
$ |
26,806 |
|
|
$ |
25,187 |
|
|
$ |
18,373 |
|
|
$ |
3,068 |
|
Net cash provided by (used in)
investing |
|
|
(31,656 |
) |
|
|
33,399 |
|
|
|
(120,830 |
) |
|
|
(200,157 |
) |
|
|
(181 |
) |
Net cash provided by (used in)
financing |
|
|
10,614 |
|
|
|
(62,598 |
) |
|
|
40,408 |
|
|
|
243,445 |
|
|
|
(2,480 |
) |
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
|
|
|
EDR |
|
|
|
Education Realty Trust, Inc. |
|
|
Predecessor |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(In thousands, except per share and selected property information) |
|
Per share and distribution data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and
diluted |
|
$ |
(0.28 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.67 |
) |
|
$ |
(2,220 |
) |
Cash distributions declared
per share/unit |
|
|
0.82 |
|
|
|
0.82 |
|
|
|
1.10 |
|
|
|
0.79 |
|
|
|
|
|
Cash distributions declared |
|
|
25,797 |
|
|
|
22,985 |
|
|
|
29,114 |
|
|
|
18,721 |
|
|
|
|
|
Selected property information (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units |
|
|
7,598 |
|
|
|
5,913 |
|
|
|
5,913 |
|
|
|
5,699 |
|
|
|
1,146 |
|
Beds |
|
|
24,991 |
|
|
|
18,571 |
|
|
|
18,571 |
|
|
|
17,947 |
|
|
|
3,896 |
|
Occupancy (3) |
|
|
90.3 |
% |
|
|
93.6 |
% |
|
|
93.1 |
% |
|
|
92.0 |
% |
|
|
89.2 |
% |
Revenue per available bed (4) |
|
$ |
371 |
|
|
$ |
384 |
|
|
$ |
370 |
|
|
$ |
368 |
|
|
$ |
421 |
|
|
|
|
(1) |
|
As defined by the National Association of Real Estate Investment
Trusts (NAREIT), FFO represents net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from sales of
property, plus real estate-related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis. We
present FFO available to all stockholders and unitholders because we
consider it an important supplemental measure of our operating
performance and believe it is frequently used by securities analysts,
investors and other interested parties in the evaluation of REITs,
many of which present FFO when reporting their results. As such, we
also exclude the impact of minority interest in our calculation. FFO
is intended to exclude GAAP historical cost depreciation and
amortization of real estate and related assets, which assumes that the
value of real estate diminishes ratably over time. Historically,
however, real estate values have risen or fallen with market
conditions. Because FFO excludes depreciation and amortization unique
to real estate, gains and losses from property dispositions and
extraordinary items, it provides a performance measure that, when
compared year over year, reflects the impact to operations from trends
in occupancy rates, rental rates, operating costs, development
activities and interest costs, providing perspective not immediately
apparent from net income. |
|
(2) |
|
The selected property information represents all owned and operated
properties for 2008 (40), 2007 (26), 2006 (26) and 2005 (25) (2007,
2006 and 2005 exclude the Place portfolio). For 2004, the data
represents the seven properties owned by the EDR Predecessor, which
are NorthPointe, The Reserve at Athens, The Reserve at Clemson,
Players Club, The Gables, College Station and University Towers. This
information excludes property information related to Tharpe
(discontinued operations) for all years. |
|
(3) |
|
Average of the month-end occupancy rates for the period. |
|
(4) |
|
Revenue per available bed is equal to the total revenue divided by the
sum of the design beds (including staff and model beds) at the
property each month. Revenue and design beds for any acquired
properties are included prospectively from acquisition date. |
37
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
(Dollars in thousands, except selected property information and share and per share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
designed to provide a reader of our financial statements with a narrative from the perspective of
our management on our financial condition, results of operations, liquidity and certain other
factors that may affect our future results. Our MD&A is presented in eleven sections:
|
|
|
Critical Accounting Policies |
|
|
|
Liquidity and Capital Resources |
|
|
|
Off-Balance Sheet Arrangements |
|
|
|
Recent Accounting Pronouncements |
We believe our MD&A should be read in conjunction with the Consolidated Financial Statements and
related Notes included in Item 8, Financial Statements and Supplementary Data, and the Risk Factors
included in Item 1A. of this Annual Report on Form 10-K.
Unless otherwise noted, this MD&A relates only to results from continuing operations. The years
ended December 31, 2007 and 2006 reflect the classification of the Village on Tharpes financial
results as discontinued operations.
Overview
We are a self-managed and self-advised real estate investment trust (REIT) engaged in the
ownership, acquisition, development and management of high quality student housing communities. We
also provide student housing development consulting services and management services to
universities, charitable foundations and other third parties. We believe that we are one of the
largest private owners, developers and managers of high quality student housing communities in the
United States in terms of total beds owned and under management.
We earn income from rental payments we receive as a result of our ownership of student housing
properties. We also earn income by performing property management services and development
consulting services for third parties through AOES and AODC, respectively. While we manage 100% of
the properties we own, we do not recognize any fee income from their management on a consolidated
basis. Furthermore, we do not recognize development fee income on a consolidated basis for
properties that are being developed for ownership by the Trust.
We have elected to be taxed as a REIT for federal income tax purposes.
Our Business Segments
We define business segments by their distinct customer base and service provided. Management has
identified three reportable segments: student housing leasing, management services and development
consulting services. We evaluate each segments performance based on pre-tax net operating income,
which is defined as income before depreciation, amortization, impairment losses, interest expense,
equity in earnings of unconsolidated entities and discontinued operations. The accounting policies
of the reportable segments are described in more detail in the summary of significant accounting
policies in the footnotes to the financial statements. Inter-company fees are reflected at their
contractually stipulated amounts.
Student housing leasing
Student housing leasing revenue represented 87.4% of our revenue, excluding operating expense
reimbursements, for the year ended December 31, 2008. Our revenue related to food service
operations is included in this segment. Additionally, for all of 2007 and the first month of 2008,
this segment included other leasing revenue related to the Place lease which was terminated on
February 1, 2008.
Unlike multi-family housing where apartments are leased by the unit, student-housing communities
are typically leased by the bed on an individual lease liability basis. Individual lease
liability limits each residents liability to his or her own rent without liability for a
roommates rent. A parent or guardian is required to execute each lease as a guarantor unless the
resident provides adequate proof of income. The number of lease contracts that we administer is
therefore equivalent to the number of beds occupied instead of the number of apartment units.
38
Due to our predominantly private bedroom accommodations, the high level of student-oriented
amenities, the fact that units are furnished and in most cases rent includes utilities, cable TV
and internet service and because of the individual lease liability, we believe our properties can
typically command higher per-unit and per-square foot rental rates than most multi-family
properties in the same geographic markets. We are also typically able to command higher rental
rates than on-campus student housing, which tends to offer fewer amenities.
The majority of our leases commence mid-August and terminate the last day of July. These dates
generally coincide with the commencement of the universities fall academic term and the completion
of the subsequent summer school session. As such, we are required to re-lease each property in its
entirety each year, resulting in significant turnover in our tenant population from year to year.
In 2008 and 2007, approximately 69.3% and 68.5%, respectively, of our leased beds were to students
who were first-time residents at our properties. As a result, we are highly dependent upon the
effectiveness of our marketing and leasing efforts during the annual leasing season that typically
begins in November and ends in August of each year. Our properties occupancy rates are therefore
typically stable during the August to July academic year but are susceptible to fluctuation at the
commencement of each new academic year.
Prior to the commencement of each new lease period, mostly during the first two weeks of August but
also during September at some communities, we prepare the units for new incoming tenants. Other
than revenue generated by in-place leases for returning tenants, we do not generally recognize
lease revenue during this period referred to as Turn as we have no leases in place. In addition,
we incur significant expenses during Turn to make our units ready for occupancy. These expenses
are recognized immediately. This lease Turn period results in seasonality in our operating results
during the third quarter of each year.
In 2007, we began developing projects for our ownership and plan to increase self-development
activity going forward. During 2008, we opened our first wholly owned, self-developed property
servicing Southern Illinois University.
Management services
Revenue from our management services segment, excluding operating expense reimbursements,
represented approximately 6.0% of our revenue for the year ended December 31, 2008. These revenues
are typically derived from multi-year management agreements under which management fees are
typically 3-5% of leasing revenue. These agreements typically have an initial term of five to ten
years with a renewal option for an additional five years. As part of the management agreements,
there are certain payroll and related expenses we pay on behalf of the property owners. These costs
are included in reimbursable operating expenses and are required to be reimbursed to us by the
property owners. We recognize the expense and revenue related to these reimbursements when
incurred. These operating expenses are wholly reimbursable and therefore not considered by
management when analyzing the operating performance of our management services business.
Development consulting services
Revenue from our development consulting services segment, excluding operating expense
reimbursements, represented approximately 6.6% of our revenue for the year ended December 31, 2008.
Fees for these services are typically 3-5% of the total cost of a project and are payable over the
life of the project, which is typically one to two years in length. We incur expenses that are
reimbursable by a project when awarded. We recognize the expenses when incurred while the
reimbursement revenue is not recognized until the consulting contract is awarded. These operating
expenses are wholly reimbursable and therefore not considered by our management when analyzing the
operating performance of our development consulting services business. Also, at times, we will pay
pre-development project expenses such as architectural fees and permits if such are required prior
to the projects financing being in place. We typically obtain a guarantee from the owner for
repayment of these project specific costs.
We periodically enter into joint venture arrangements whereby we provide development consulting
services to third-party student housing owners in an agency capacity. We recognize
our portion of the earnings in each joint venture based on our ownership interest, which is
reflected as equity in earnings of unconsolidated entities after net operating income in our
statement of operations. Our revenue and operating expenses could fluctuate from period to period
based on the extent we utilize joint venture arrangements to provide third-party development
consulting services.
39
The amount and timing of future revenues from development consulting services will be contingent
upon our ability to successfully compete in public universities competitive procurement processes,
our ability to successfully structure financing of these projects and our ability to ensure
completion of construction within agreed construction timelines and budgets. To date, all of our
development projects have completed construction in time for their targeted occupancy dates.
Trends and Outlook
Rents and occupancy
We expect the general trend of limited on-campus housing availability to continue for the
foreseeable future, providing us with continued opportunities to maximize revenues through
increased occupancy and/or rental rates in our owned portfolio. We manage our properties to
maximize revenues, which are primarily determined by two components: rental rates and occupancy
rates. We customarily adjust rental rates in order to maximize revenues, which in some cases
results in a lower occupancy rate, but in most cases results in stable or increasing revenue from
the property. As a result, a decrease in occupancy may be offset by an increase in rental rates and
may not be material to our operations.
For the year ended December 31, 2008, same-community revenue per available bed increased to $390
and same-community physical occupancy decreased to 92.2% compared to revenue per available bed of
$384 and physical occupancy of 93.4% for the year ended December 31, 2007. The results represent
averages for the Trusts portfolio which are not necessarily indicative of every property in the
portfolio. As would be expected, individual properties can and do perform both above and below
these averages, and, at times, an individual property may show a decline in total revenue due to
local university and economic conditions. Our management focus is to assess these situations and
address them as quickly as possible in an effort to minimize the exposure and reverse any negative
trend.
On a same-community basis, the 2008-2009 lease year had an average rate growth of 4.9% and an
occupancy decline of approximately 1.0%, excluding three communities in the currently challenging
markets of Kalamazoo, Michigan, Gainesville, Florida, and Oxford, Mississippi. These three
communities have faced significant new supply in their respective markets while enrollment at each
school is flat or declining. Combined, these communities experienced a 13.8% decline in occupancy
and a 3.0% decline in rate for the 2008-2009 lease term. We will continue to focus on improving
occupancy at these communities, but it will take time for the imbalance to reach a level of
equilibrium. In total, including these three communities, same-community average rates for the
2008-2009 lease year grew about 3.4% and occupancy declined approximately 2.9%.
Student housing operating costs
For the year ended December 31, 2008, same-community operating expense per bed increased to $192
compared to $185 for the same period in the prior year. This increase is primarily attributable to
a rise in payroll related expenses, increased marketing expenses, higher utility costs, and a loss
on the sale of the land and parking garage at our University Towers community. Excluding the impact
of the land and parking garage sale, we experienced operating expense growth of over 4.5% in the
first, second and third quarters of 2008 and a decline in operating expenses of 5.6% in the fourth
quarter. Overall, excluding the impact of the land and parking garage sale, we had operating
expense growth of 3.4% for the year ended December 31, 2008 as compared to 2.4% for the same period
in 2007. We slowed the rate of expense growth in the fourth quarter with a targeted cost reduction
plan. Specifically, we put in place selective staff reductions, a hiring freeze and a moratorium on
wage increases at both the property and corporate levels. Furthermore, we curbed discretionary
spending as we worked to improve our margins and strengthen our communities during the current
volatile and unsettled US economic conditions.
General and administrative costs
In 2007, we experienced increases in salaries and staffing costs primarily related to the growth of
each business segment and due to new systems implementation efforts. This trend continued in 2008
mainly due to the termination of the Place
lease and the assumption of the management responsibilities over the Place Portfolio. In addition,
$706 of development costs were written off in 2008 related to a
project we are no longer pursuing as company owned.
However, as mentioned above, we have put in place certain cost cutting measures to improve
profitability going forward.
40
Termination of Place Lease
On February 1, 2008, the Trust terminated the lease with Place Properties, Inc. (Place) for 13
properties owned by the Trust but previously operated and managed by Place. Under the agreement,
the Trust received a lease termination fee of $6,000. As a result of the lease termination, the
Trust began managing these communities and began recognizing the results of operations for these
communities in the Trusts consolidated financial statements as of the lease termination date.
Previously, the Trust recognized base rental income of $13,740 annually for the lease and had the
right to receive Additional Rent annually if the communities exceeded certain criteria defined in
the lease agreement. In the near term, the net operating income received from these communities is
expected to be less than the rental income received under the lease; thus, potentially reducing our
net income from continuing operations over the next 2 to 3 years. The Place Portfolio achieved an
average occupancy of 81.9% compared to 87.8% for the prior lease year. During the year ended
December 31, 2008, the Place Portfolios net operating income (including the other lease revenue
received in January of 2008 of $1,145 prior to the termination) was $8,785 compared to other lease
revenue of $13,811 in 2007. The Trust negotiated the lease termination fee of $6,000 in part to
offset the expected shortfall in operating results of the communities. Over time, we expect to be
able to improve the operating results of the Place Portfolio through revenue growth driven by
improved marketing and customer service strategies. However, as with all its communities,
management continually assesses each community and their respective markets to determine if such
growth is achievable or if other alternatives should be pursued.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States (GAAP) requires management to make estimates and assumptions in certain
circumstances that affect amounts reported in our financial statements and related notes. In
preparing these financial statements, management has utilized all available information, including
its past history, industry standards and the current economic environment, among other factors, in
forming its estimates and judgments of certain amounts included in the financial statements, giving
due consideration to materiality. The ultimate outcome anticipated by management in formulating its
estimates may not be realized. Application of the critical accounting policies below involves the
exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual
results could differ from these estimates. In addition, other companies in similar businesses may
utilize different estimation policies and methodologies, which may impact the comparability of our
results of operations and financial condition to those companies.
Student housing leasing revenue recognition
Student housing leasing revenue is comprised of all revenue related to the leasing activities at
our student housing properties and includes revenues from the leasing of space, parking lot rentals
and certain ancillary services. Revenue from our food service operations is also included in this
segment. Additionally, this segment included, other leasing revenue related to the Place Portfolio
lease, which was terminated February 1, 2008. Additional information is included below regarding
revenue recognition for student housing food service and other leasing revenue.
Students are required to execute lease contracts with payment schedules that vary from annual to
monthly payments. Generally, a nonrefundable application fee, a nonrefundable service fee and a
notarized parental guarantee must accompany each executed contract. Receivables are recorded when
due. Leasing revenues and related lease incentives and nonrefundable application and service fees
are recognized on a straight-line basis over the term of the contracts. Balances are considered
past due when payment is not received on the contractual due date. Allowances for doubtful accounts
are established by management when it is determined that collection is doubtful.
Student housing food service revenue recognition
In 2006, we provided food service to an unaffiliated secondary boarding school through a contract
covering a nine-month period. The contract required a flat weekly fee and the related revenues were
recognized on a straight-line basis over the
contract period. This contract was terminated effective December 31, 2006. Additionally, we
maintain a dining facility at University Towers, which offers meal plans to the tenants as well as
dining to other third-party customers. The meal plans typically require upfront payment by the
tenant covering the school semester and the related revenue is recognized on a straight-line basis
over the corresponding semester.
41
Other leasing revenue recognition
Other leasing revenue relates to our leasing of 13 properties we acquired from Place on January 1,
2006. Simultaneous with the acquisition of the 13 properties, the Trust leased the assets to Place
and received base monthly rent of $1,145 and had the right to receive Additional Rent annually if
the properties exceeded certain criteria defined in the lease agreement. Base rent was recognized
on a straight-line basis over the lease term and Additional Rent was recognized only upon
satisfaction of the defined criteria. On February 1, 2008, the lease was terminated.
Revenue and cost recognition of development consulting services
Costs associated with the pursuit of third-party development consulting contracts are expensed as
incurred until such time as we have been notified of a contract award or reimbursement has been
otherwise guaranteed by the customer. At such time, the reimbursable portion of such costs is
recorded as a receivable. Development consulting revenues are recognized using the percentage of
completion method as determined by construction costs incurred relative to the total estimated
construction costs. Occasionally, our development consulting contracts include a provision whereby
we can participate in project savings resulting from our successful cost management efforts. We
recognize these revenues once all contractual terms have been satisfied and we have no future
performance requirements. This typically occurs after construction is complete. Costs associated
with development consulting services are expensed as incurred. We generally receive a significant
percentage of our fees for development consulting services upon closing of the project financing, a
portion of the fee over the construction period, and the balance upon substantial completion of
construction. Because revenue from these services is recognized for financial reporting purposes
utilizing the percentage of completion method, differences occur between amounts received and
revenues recognized. Differences also occur between amounts recognized for tax purposes and those
recognized from financial reporting purposes. Because REITs are required to distribute 90% of their
taxable income, our distribution requirement with respect to our income from third-party services
may exceed that reflected as net income for financial reporting purposes from such activities.
We also periodically enter into joint venture arrangements whereby we provide development
consulting services to third-party student housing owners in an agency capacity. We recognize our
portion of the earnings in each joint venture based on our ownership interest, which is reflected
after net operating income in our consolidated statement of operations as equity in earnings of
unconsolidated entities. Our revenue and operating expenses could fluctuate from period to period
based on the extent we utilize joint venture arrangements to provide third-party development
consulting services.
Student housing property acquisitions and dispositions
Land, land improvements, buildings and improvements, and furniture, fixtures and equipment are
recorded at cost. Buildings and improvements are depreciated over 30 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.
Property acquisitions are accounted for utilizing the purchase method in accordance with Statement
of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and accordingly, the
results of operations are included from the respective dates of acquisition. Pre-acquisition costs,
including legal and professional fees and other third party costs related directly to the
acquisition of the property, are accounted for as part of the purchase price. Appraisals, estimates
of cash flows and valuation techniques are used to allocate the purchase price of acquired property
between land, land improvements, buildings and improvements, furniture, fixtures and equipment and
other identifiable intangibles such as amounts related to in-place leases.
Student housing properties classified as held for sale are based on the criteria within SFAS
No. 144, Accounting for the Impairment and Disposal of Long Lived Assets. When a student housing
property is identified as held for sale, fair value less cost to sell is estimated. If fair value
less cost to sell
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 student housing property has met the held
for sale criteria. Operations of student housing properties that are sold or classified as held for
sale are recorded as part of discontinued operations for all periods presented. In 2007 and 2006
the operations pertaining to the Village on Tharpe were classified as discontinued operations as
the property was sold during 2007. No assets were held for sale during 2008.
42
Repairs and maintenance
The costs of ordinary repairs and maintenance are charged to operations when incurred. Major
improvements that extend the life of an asset beyond one year are capitalized and depreciated over
the remaining useful life of the asset. Planned major repair, maintenance and improvement projects
are capitalized when performed. In some circumstances, the lenders require us to maintain a reserve
account for future repairs and capital expenditures. These amounts are not available for current
use and are recorded as restricted cash on our consolidated balance sheet.
Long lived assets impairment
In accordance with SFAS No. 144, management is required to assess whether there are any indicators
that our real estate assets may be impaired. A propertys value is considered impaired if
managements estimate of the aggregate future cash flows (undiscounted and without interest
charges) to be generated by the property, based on its intended use, is less than the carrying
value of the property. These estimates of cash flows are based on factors such as expected future
operating income, trends and prospects, as well as the effects of demand, competition and other
factors. To the extent impairment has occurred, the loss will be measured as the excess of the
carrying amount of the property over the fair value of the property, thereby reducing our net
income. As a result of managements assessment during the fourth quarter of 2008, the Trust
recognized an impairment loss of $1,633.
Use of Estimates
Significant estimates and assumptions are used by management in determining the recognition of
third-party development consulting revenue under the percentage of completion method, useful lives
of student housing assets, the valuation of goodwill, the initial valuations and underlying
allocations of purchase price in connection with student housing property acquisitions, the
determination of fair value for impairment assessments, and in recording the allowance for doubtful
accounts. Actual results could differ from those estimates.
We review our assets, including our student housing properties, properties under development, and
goodwill for potential impairment indicators whenever events or circumstances indicate that the
carrying value might not be recoverable. Impairment indicators include, but are not limited to,
declines in our market capitalization, overall market factors, changes in cash flows, significant
decreases in net operating income and occupancies at our operating properties, changes in projected
completion dates of our development projects, and sustainability of development projects. Our
tests for impairment were based on the most current information available and if conditions change
or if our plans regarding our assets change, it could result in additional impairment charges in
the future. However, based on our plans with respect to our operating properties and those under
development, we believe the carrying amounts are recoverable.
Results of Operations for the Years Ended December 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
Year Ended December 31, 2007 |
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing revenue |
|
$ |
107,566 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
107,566 |
|
|
$ |
85,651 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
85,651 |
|
Student housing
food service
revenue |
|
|
2,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,378 |
|
|
|
2,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,359 |
|
Other leasing
revenue |
|
|
7,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,145 |
|
|
|
13,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,811 |
|
Third-party
development
consulting
services |
|
|
|
|
|
|
8,303 |
|
|
|
|
|
|
|
|
|
|
|
8,303 |
|
|
|
|
|
|
|
5,411 |
|
|
|
|
|
|
|
|
|
|
|
5,411 |
|
Third-party
management
services |
|
|
|
|
|
|
|
|
|
|
3,672 |
|
|
|
|
|
|
|
3,672 |
|
|
|
|
|
|
|
|
|
|
|
3,391 |
|
|
|
|
|
|
|
3,391 |
|
Intersegment
revenues |
|
|
|
|
|
|
661 |
|
|
|
4,306 |
|
|
|
(4,967 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,428 |
|
|
|
(3,428 |
) |
|
|
|
|
Operating expense
reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,796 |
|
|
|
10,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,330 |
|
|
|
9,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
117,089 |
|
|
|
8,964 |
|
|
|
7,978 |
|
|
|
5,829 |
|
|
|
139,860 |
|
|
|
101,821 |
|
|
|
5,411 |
|
|
|
6,819 |
|
|
|
5,902 |
|
|
|
119,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
Year Ended December 31, 2007 |
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing operations |
|
|
55,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,569 |
|
|
|
41,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,215 |
|
Student housing
food service
operations |
|
|
2,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,257 |
|
|
|
2,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,236 |
|
General and
administrative |
|
|
3 |
|
|
|
4,196 |
|
|
|
7,234 |
|
|
|
(337 |
) |
|
|
11,096 |
|
|
|
105 |
|
|
|
2,787 |
|
|
|
6,628 |
|
|
|
|
|
|
|
9,520 |
|
Intersegment
expenses |
|
|
4,306 |
|
|
|
|
|
|
|
|
|
|
|
(4,306 |
) |
|
|
|
|
|
|
3,428 |
|
|
|
|
|
|
|
|
|
|
|
(3,428 |
) |
|
|
|
|
Reimbursable
operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,796 |
|
|
|
10,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,330 |
|
|
|
9,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
62,135 |
|
|
|
4,196 |
|
|
|
7,234 |
|
|
|
6,153 |
|
|
|
79,718 |
|
|
|
46,984 |
|
|
|
2,787 |
|
|
|
6,628 |
|
|
|
5,902 |
|
|
|
62,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income (loss) |
|
|
54,954 |
|
|
|
4,768 |
|
|
|
744 |
|
|
|
(324 |
) |
|
|
60,142 |
|
|
|
54,837 |
|
|
|
2,624 |
|
|
|
191 |
|
|
|
|
|
|
|
57,652 |
|
Nonoperating
expenses(1) |
|
|
60,213 |
|
|
|
(76 |
) |
|
|
|
|
|
|
|
|
|
|
60,137 |
|
|
|
58,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before
equity in earnings
of unconsolidated
entities, income
taxes, minority
interest and
discontinued
operations |
|
|
(5,259 |
) |
|
|
4,844 |
|
|
|
744 |
|
|
|
(324 |
) |
|
|
5 |
|
|
|
(3,274 |
) |
|
|
2,624 |
|
|
|
191 |
|
|
|
|
|
|
|
(459 |
) |
Equity in earnings
of unconsolidated
entities |
|
|
(192 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(196 |
) |
|
|
(510 |
) |
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
(277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before
taxes, minority
interest and
discontinued
operations(2) |
|
$ |
(5,451 |
) |
|
$ |
4,840 |
|
|
$ |
744 |
|
|
$ |
(324 |
) |
|
$ |
(191 |
) |
|
$ |
(3,784 |
) |
|
$ |
2,857 |
|
|
$ |
191 |
|
|
$ |
|
|
|
$ |
(736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonoperating expenses include interest expense, interest income, exit fees on early payment of debt,
amortization of deferred financing costs, depreciation, amortization of intangibles and impairment
losses. |
|
(2) |
|
The following is a reconciliation of the reportable segments net income (loss) before income taxes,
minority interest and discontinued operations to EDRs consolidated net income (loss) before income
taxes, minority interest and discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Net loss before taxes, minority interest and discontinued operations for reportable segments |
|
$ |
(191 |
) |
|
$ |
(736 |
) |
Other unallocated corporate expenses |
|
|
(6,761 |
) |
|
|
(6,828 |
) |
|
|
|
|
|
|
|
Net loss before income taxes, minority interest and discontinued operations |
|
$ |
(6,952 |
) |
|
$ |
(7,564 |
) |
|
|
|
|
|
|
|
Student housing leasing
Student housing operating statistics for all owned and operated properties for 2008 and 2007 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
|
|
2008 |
|
|
2007 (9) |
|
|
Difference |
|
Occupancy |
|
|
|
|
|
|
|
|
|
|
|
|
Physical (1) |
|
|
90.3 |
% |
|
|
93.5 |
% |
|
|
(3.2 |
)% |
Economic (2) |
|
|
87.1 |
% |
|
|
90.9 |
% |
|
|
(3.8 |
)% |
NarPAB (3) |
|
$ |
349 |
|
|
$ |
360 |
|
|
$ |
(11 |
) |
Other income per avail. bed (4) |
|
$ |
22 |
|
|
$ |
24 |
|
|
$ |
(2 |
) |
RevPAB (5) |
|
$ |
371 |
|
|
$ |
384 |
|
|
$ |
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense per bed (6) (7) |
|
$ |
190 |
|
|
$ |
185 |
|
|
$ |
5 |
|
Operating margin |
|
|
48.8 |
% |
|
|
51.9 |
% |
|
|
(3.1 |
)% |
Design Beds (8) |
|
|
290,312 |
|
|
|
222,852 |
|
|
|
67,460 |
|
|
|
|
(1) |
|
Physical occupancy represents a weighted average of the month-end occupancies for the respective period. |
|
(2) |
|
Economic occupancy represents the effective occupancy calculated by taking net apartment rent accounted
for on a GAAP basis for the respective period divided by market rent for the respective period. |
44
|
|
|
(3) |
|
NarPAB represents GAAP net apartment rent for the respective period divided by the sum of the design
beds in the portfolio for each of the included months. Does not include food service revenue or other
leasing revenue. |
|
(4) |
|
Represents other GAAP-based income for the respective period divided by the sum of the design beds in
the portfolio for each of the included months. Other income includes service/app fees, late fees,
termination fees, parking fees, transfer fees, damage recovery, utility recovery, and other misc. |
|
(5) |
|
Represents total revenue (net apartment rent plus other income) for the respective period divided by
the sum of the design beds in the portfolio for each of the included months. |
|
(6) |
|
Represents property-level operating expense excluding management fees, depreciation and amortization divided by the sum of the design beds for each of the
included months. |
|
(7) |
|
For the year ended December 31, 2008, approximately $2 per bed related to the loss on the sale of land and the parking garage at University Towers (see
Note 5 in the consolidated financial statements) is excluded. |
|
(8) |
|
Represents the sum of the monthly design beds in the portfolio during the period. As of February 1, 2008, the design beds related to the Place Portfolio
were included in the total for year ended December 31, 2008 due to the termination of the lease with Place. |
|
(9) |
|
This information excludes property information related to Tharpe (discontinued operations). |
The community statistics shown above on a consolidated basis reflect a decline in physical
occupancy of 3.2%, a decline in RevPAB of 3.4% and a decline in margins of 310 basis points. These
results are not indicative of the year over year performance of our existing portfolio as they
include the impact of assuming management of the Place Portfolio, whose underlying economics are
currently different from our existing communities. For the year ended December 31, 2008, the Place
Portfolio had an average physical occupancy of 83.3%, RevPAB of $301, and operating margins of
39.2% compared to 92.2%, $390, and 50.8%, respectively, on a same community basis.
Student housing operating statistics for same-community properties for 2008 and 2007 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
|
|
2008 |
|
|
2007 (9) |
|
|
Difference |
|
Occupancy |
|
|
|
|
|
|
|
|
|
|
|
|
Physical (1) |
|
|
92.2 |
% |
|
|
93.4 |
% |
|
|
(1.2 |
)% |
Economic (2) |
|
|
89.2 |
% |
|
|
90.9 |
% |
|
|
(1.7 |
)% |
NarPAB (3) |
|
$ |
365 |
|
|
$ |
359 |
|
|
$ |
6 |
|
Other income per avail. bed (4) |
|
$ |
25 |
|
|
$ |
25 |
|
|
$ |
|
|
RevPAB (5) |
|
$ |
390 |
|
|
$ |
384 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense per bed (6) (7) |
|
$ |
192 |
|
|
$ |
185 |
|
|
$ |
7 |
|
Operating margin |
|
|
50.8 |
% |
|
|
51.9 |
% |
|
|
(1.1 |
)% |
Design Beds (8) |
|
|
222,838 |
|
|
|
222,852 |
|
|
|
(14 |
) |
|
|
|
(1) |
|
Physical occupancy represents a weighted average of the month-end occupancies for the respective period. |
|
(2) |
|
Economic occupancy represents the effective occupancy calculated by taking net apartment rent accounted
for on a GAAP basis for the respective period divided by market rent for the respective period. |
|
(3) |
|
NarPAB represents GAAP net apartment rent for the respective period divided by the sum of the design
beds in the portfolio for each of the included months. Does not include food service revenue or other
leasing revenue. |
|
(4) |
|
Represents other GAAP-based income for the respective period divided by the sum of the design beds in
the portfolio for each of the included months. Other income includes service/app fees, late fees,
termination fees, parking fees, transfer fees, damage recovery, utility recovery, and other misc. |
45
|
|
|
(5) |
|
Represents total revenue (net apartment rent plus other income) for the respective period
divided by the sum of the design beds in the portfolio for each of the included months. |
|
(6) |
|
Represents property-level operating expense excluding management fees, depreciation and
amortization divided by the sum of the design beds for each of the included months. |
|
(7) |
|
For the year ended December 31, 2008, approximately $2 per bed related to the loss on the sale
of land and the parking garage at University Towers (see Note 5 in the consolidated financial
statements) is excluded. |
|
(8) |
|
Represents the sum of the monthly design beds in the portfolio during the period. As of
February 1, 2008, the design beds related to the Place Portfolio were included in the total for
year ended December 31, 2008 due to the termination of the lease with Place. |
|
(9) |
|
This information excludes property information related to Tharpe (discontinued operations). |
Total revenue in the student housing leasing segment was $117,089 for the year ended December 31,
2008. This represents an increase of $15,268, or 15.0%, from the same period in 2007. Student
housing leasing revenue increased 25.6%, contributing $21,915 to the overall increase, while
student housing food service revenue contributed growth of $19. These increases were offset by a
decline in other leasing revenue of $6,666 as a result of the Place lease termination. Subsequent
to the termination in February 2008, we began managing the Place Portfolio and therefore the
majority of the increase in student housing leasing revenue is attributable to leasing revenues
related to the Place properties of $19,485 since the termination date. Other leasing revenue for
the year ended December 31, 2008 includes the lease termination fee revenue of $6,000 and January
2008 base rent of $1,145 compared to $13,811 of lease revenue recognized in the prior year.
Same-community revenue growth of 1.4% year over year contributed to a $1,237 increase in student
housing leasing revenue. The growth in same-community revenue for the period was driven by a 2.8%
improvement in rental rates, representing an increase of $2,427 that was offset by a 130 basis
point decline in occupancies, representing a decline of $1,138. Furthermore, same-community revenue
declined $80 due to more vacant days during the turn period in the current leasing year compared to
the prior leasing year. The Reserve at Saluki Point, which opened in August of 2008, also
contributed $1,193 to the increase in student housing leasing revenue.
Operating expenses in the student housing leasing segment increased $15,151, or 32.2%, to $62,135
for the year ended December 31, 2008, as compared to the same period in 2007. Student housing
leasing operations increased a total of $14,354, or 34.8%, over the prior year, with an increase of
$11,845, or 28.7%, attributable to operating expenses associated with managing the Place Portfolio
since the termination as discussed above. A 4.7% growth in same community operating expenses
contributed $1,930 of expense increase while $496 came from The Reserve at Saluki Point community
that opened in August of 2008. Furthermore, an additional $82 in pre-opening expenses were
incurred for properties under development.
The same-community operating expense growth of $1,930 includes the impact of a $225 real estate tax
refund in the first quarter of 2007 and a $512 loss on sale of the land and parking garage at the
University Towers community in February 2008. Excluding these two items same community operating
expenses grew $1,193, or 2.9%, for the year ended December 31, 2008. A trend of higher operating
expenses occurred in the first three quarters of 2008 across most expense categories. In response
to this trend management implemented cost containment measures to control discretionary spending
and took steps to solidify the Trusts cost structure through staff reduction, hiring freezes and
wage freezes. As a result, same community operating expenses were reduced during the fourth
quarter of 2008 and were $593 below the fourth quarter of 2007.
Since the lease termination on February 1, 2008, the Place Portfolio produced net operating income
of $7,640 for the eleven months ended December 31, 2008 on student housing leasing revenue of
$19,485 and operating expenses of $11,845. The net operating income of $7,640 for the eleven months
ended December 31, 2008, represents a $5,026 or $0.17 per share/unit decrease from the $12,666 of
other lease revenue received under the lease agreement with Place during the same eleven month
period ended December 31, 2007. The Trust negotiated the lease termination fee in part to offset
the expected shortfall in operating results of the communities. However, the noted shortfall
through December 31, 2008 was more than originally projected due to occupancy issues at several
communities that were more significant than expected. The Place Portfolio opened the 2008-2009
lease year with an average occupancy of 81.9% compared to 87.8% in the prior
year. Over time, the Trust expects to be able to improve the operating results of the Place
Portfolio through revenue growth driven by improved marketing and customer service strategies.
46
Nonoperating expenses increased $2,102 to $60,213 for the year ended December 31, 2008, as compared
to same period in 2007. This increase was primarily driven by a $4,360 loss on the early retirement
of debt, an impairment loss of $1,633 related to student housing assets and an impairment loss of
$388 related to goodwill. These impairment and refinancing charges were offset by $2,943 decline
in depreciation expense due primarily to fully depreciated assets that remain in service and a
$1,474 decline in interest expense. Interest expense benefited from a lower average outstanding
debt balance, an approximate 300 basis point drop in interest rates related to the Amended
Revolver, and capitalized interest of $439 related to ongoing development projects.
Equity in earnings of unconsolidated entities represents our share of the net income or loss
related to four investments in unconsolidated entities that own student housing communities. These
communities are also managed by the Trust. For the year ended December 31, 2008, equity in earnings
was a loss of $192 compared to a loss of $510 in the prior year. The improvement comes from a full
year of operations in our joint venture community in Greensboro, North Carolina as well as better
operating results from the three existing investments, which are a result of the management
companys focused efforts to improve performance for the joint venture
owners.
Development consulting services
The following table represents the development consulting projects that were active during the
years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized Earnings |
|
Project |
|
Beds |
|
|
Fee Type |
|
2008 |
|
|
2007 |
|
|
Difference |
|
Slippery Rock University Phase I |
|
|
1,390 |
|
|
Development fee |
|
$ |
|
|
|
$ |
46 |
|
|
$ |
(46 |
) |
Indiana University of Pennsylvania Phase I |
|
|
734 |
|
|
Development fee |
|
|
|
|
|
|
1,597 |
|
|
|
(1,597 |
) |
University of Michigan |
|
|
895 |
|
|
Development fee |
|
|
314 |
|
|
|
285 |
|
|
|
29 |
|
University of North Carolina Greensboro |
|
|
600 |
|
|
Construction oversight fee |
|
|
|
|
|
|
50 |
|
|
|
(50 |
) |
University of Alabama Tuscaloosa |
|
|
631 |
|
|
Development fee |
|
|
670 |
|
|
|
978 |
|
|
|
(308 |
) |
Slippery Rock University Phase II |
|
|
746 |
|
|
Development fee |
|
|
1,019 |
|
|
|
1,067 |
|
|
|
(48 |
) |
Indiana University of Pennsylvania Phase II |
|
|
1,102 |
|
|
Development fee |
|
|
2,341 |
|
|
|
1,378 |
|
|
|
963 |
|
Fontainebleu Renovation Project |
|
|
435 |
|
|
Development fee |
|
|
171 |
|
|
|
10 |
|
|
|
161 |
|
West Chester Phase I |
|
|
1,197 |
|
|
Development fee |
|
|
2,033 |
|
|
|
|
|
|
|
2,033 |
|
Indiana University of Pennsylvania Phase III |
|
|
1,084 |
|
|
Development fee |
|
|
1,339 |
|
|
|
|
|
|
|
1,339 |
|
Colorado State University Pueblo |
|
|
253 |
|
|
Development fee |
|
|
234 |
|
|
|
|
|
|
|
234 |
|
Auraria Higher Education System |
|
|
685 |
|
|
Development fee |
|
|
182 |
|
|
|
|
|
|
|
182 |
|
Southern Illinois University Carbondale |
|
|
528 |
|
|
Construction oversight fee |
|
|
199 |
|
|
|
|
|
|
|
199 |
|
Syracuse University |
|
|
432 |
|
|
Development fee |
|
|
462 |
|
|
|
|
|
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development consulting services |
|
|
|
|
|
|
|
$ |
8,964 |
|
|
$ |
5,411 |
|
|
$ |
3,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California University of Pennsylvania Phase
V |
|
|
354 |
|
|
Development fee |
|
$ |
|
|
|
$ |
124 |
|
|
$ |
(124 |
) |
University of North Carolina Greensboro |
|
|
600 |
|
|
Development fee |
|
|
|
|
|
|
118 |
|
|
|
(118 |
) |
University of Louisville Phase III |
|
|
359 |
|
|
Development fee |
|
|
|
|
|
|
(9 |
) |
|
|
9 |
|
Other |
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated
entities |
|
|
|
|
|
|
|
$ |
(4 |
) |
|
$ |
233 |
|
|
$ |
(237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development consulting services revenue increased $3,553, or 65.7%, to $8,964 for the year
ended December 31, 2008, as compared to the same period in 2007. The increase in revenue is
indicative of an increase in the number and size of projects as well as an increase in development
fee incentives earned by completing projects under budget. There were eight main projects
representing 6,237 beds and a renovation project active in 2008 compared to five active projects
representing 4,108 beds and a renovation project active in 2007. In 2008, approximately $852 of
contingent fees were recognized
related to the previously completed University of Alabama and Auraria Higher Education System
projects. The construction oversight fee and development fee recognized for Southern Illinois
University-Carbondale and Syracuse University, respectively, are intersegment revenue related to
projects developed for the Trusts ownership; therefore, they are eliminated in the accompanying
consolidated financial statements.
47
Equity in earnings of unconsolidated entities in the development consulting services segment
decreased $237 from the prior year to a loss of $4 in the current year. There were two joint
ventures with active development projects in 2007, and none in 2008, which reflects the Trusts
desire to provide third-party development services directly and not through joint venture
arrangements.
General and administrative costs in the third-party development consulting services segment
increased $1,409 to $4,196 for the year ended December 31, 2008, as compared to the same period in
2007. About $703, or 50% of the increase, is a result of increases in staffing and related
expenses and corporate overhead costs allocated to the segment to support the 65.7% growth in
revenue. The other 50% of the increase represents a $706 write off of development costs related to
a project we are no longer pursuing as company owned. As discussed under the student housing leasing section, management
has implemented certain cost control measures focused on reducing the rate of expense growth across
the company that are expected to impact general and administrative costs in the development
consulting services segment.
Nonoperating expenses included $76 of interest income, primarily related to the Trust advancing
predevelopment costs under predevelopment agreements, for which the Trust is reimbursed with
interest when the institutions governing body formally approves the final development contract and
project financing is put in place.
Management services
Total management services revenue increased by $1,159, or 17.0%, to $7,978 for the year ended
December 31, 2008, as compared to the same period in 2007. The addition of managing the Place
Portfolio as discussed under Student housing leasing above contributed to $878 of the increase by
way of intersegment revenue while third-party management fee revenue increased $281, or 8.3%, to
$3,672 for the year ended December 31, 2008. The increase in third-party fees consists of $48
related to two new management contracts entered into at various times during 2007, $108 related to
three new management contracts entered into in 2008, $91 related to one community that came out of
development in 2007 and $66 related to one community that came out of development in 2008. In
addition, a 6.4% increase in revenue from existing contracts contributed $183 of revenue growth.
These increases were partially offset by a decrease of $215 in third-party fees as a result of
three contracts that were terminated in 2007.
During 2008, the Trust also received notice of termination related to the management of a five
property portfolio in Michigan. The owner chose to take management in-house and terminated the
management agreement with the Trust effective October 8, 2008. On an annualized basis the Trust
recognized fees of approximately $420 or $248 on an after-tax basis. As the Trust received a
termination fee, the impact of the termination on 2008 operating results was minimal.
General and administrative costs for our third-party management services segment increased $606 to
$7,234 for the year ended December 31, 2008, as compared to the same period in 2007. This increase
is due to increases in staffing and related costs resulting from the management of the Place
Portfolio. As discussed under the student housing leasing section, management has implemented
certain cost control measures focused on reducing the rate of expense growth across the company
that are expected to impact general and administrative costs in the management services segment.
Unallocated corporate expenses
Unallocated corporate expenses represent general and administrative and nonoperating expenses that
are not allocated to any of our business segments. For the year ended December 31, 2008,
unallocated corporate expenses decreased $67, or 1.0%, to $6,761. The majority of this decrease is
due to an increase in interest income of $231 primarily related to an intercompany loan between the
Operating Partnership and the University Towers student housing community and a decrease in
deferred financing costs of $224 related to the write-off of deferred financing fees associated
with the Term Loan that was repaid in the second quarter of 2007. These favorable variances were
offset by higher salary and overhead costs related to growth driven increases in head count. As
discussed under the student housing leasing section, management has implemented certain cost
control measures
focused on reducing the rate of expense growth across the company.
48
Results of Operations for the Years Ended December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
|
Year Ended December 31, 2006 |
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing revenue |
|
$ |
85,651 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
85,651 |
|
|
$ |
81,202 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
81,202 |
|
Student housing
food service
revenue |
|
|
2,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,359 |
|
|
|
3,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,634 |
|
Other leasing
revenue |
|
|
13,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,811 |
|
|
|
14,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,012 |
|
Third-party
development
consulting
services |
|
|
|
|
|
|
5,411 |
|
|
|
|
|
|
|
|
|
|
|
5,411 |
|
|
|
|
|
|
|
3,773 |
|
|
|
|
|
|
|
|
|
|
|
3,773 |
|
Third-party
management
services |
|
|
|
|
|
|
|
|
|
|
3,391 |
|
|
|
|
|
|
|
3,391 |
|
|
|
|
|
|
|
|
|
|
|
2,796 |
|
|
|
|
|
|
|
2,796 |
|
Intersegment
revenues |
|
|
|
|
|
|
|
|
|
|
3,428 |
|
|
|
(3,428 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,298 |
|
|
|
(3,298 |
) |
|
|
|
|
Operating expense
reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,330 |
|
|
|
9,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,638 |
|
|
|
7,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
101,821 |
|
|
|
5,411 |
|
|
|
6,819 |
|
|
|
5,902 |
|
|
|
119,953 |
|
|
|
98,848 |
|
|
|
3,773 |
|
|
|
6,094 |
|
|
|
4,340 |
|
|
|
113,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing operations |
|
|
41,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,215 |
|
|
|
39,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,503 |
|
Student housing
food service
operations |
|
|
2,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,236 |
|
|
|
3,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,318 |
|
General and
administrative |
|
|
105 |
|
|
|
2,787 |
|
|
|
6,628 |
|
|
|
|
|
|
|
9,520 |
|
|
|
21 |
|
|
|
2,210 |
|
|
|
5,004 |
|
|
|
|
|
|
|
7,235 |
|
Intersegment
expenses |
|
|
3,428 |
|
|
|
|
|
|
|
|
|
|
|
(3,428 |
) |
|
|
|
|
|
|
3,298 |
|
|
|
|
|
|
|
|
|
|
|
(3,298 |
) |
|
|
|
|
Reimbursable
operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,330 |
|
|
|
9,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,638 |
|
|
|
7,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
46,984 |
|
|
|
2,787 |
|
|
|
6,628 |
|
|
|
5,902 |
|
|
|
62,301 |
|
|
|
46,140 |
|
|
|
2,210 |
|
|
|
5,004 |
|
|
|
4,340 |
|
|
|
57,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income (loss) |
|
|
54,837 |
|
|
|
2,624 |
|
|
|
191 |
|
|
|
|
|
|
|
57,652 |
|
|
|
52,708 |
|
|
|
1,563 |
|
|
|
1,090 |
|
|
|
|
|
|
|
55,361 |
|
Nonoperating
expenses(1) |
|
|
58,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,111 |
|
|
|
62,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before equity in
earnings of
unconsolidated
entities, income
taxes, minority
interest and
discontinued
operations |
|
|
(3,274 |
) |
|
|
2,624 |
|
|
|
191 |
|
|
|
|
|
|
|
(459 |
) |
|
|
(9,952 |
) |
|
|
1,563 |
|
|
|
1,090 |
|
|
|
|
|
|
|
(7,299 |
) |
Equity in earnings
of unconsolidated
entities |
|
|
(510 |
) |
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
(277 |
) |
|
|
(74 |
) |
|
|
814 |
|
|
|
|
|
|
|
|
|
|
|
740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before taxes,
minority interest
and discontinued
operations(2) |
|
$ |
(3,784 |
) |
|
$ |
2,857 |
|
|
$ |
191 |
|
|
$ |
|
|
|
$ |
(736 |
) |
|
$ |
(10,026 |
) |
|
$ |
2,377 |
|
|
$ |
1,090 |
|
|
$ |
|
|
|
$ |
(6,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonoperating expenses include interest expense, interest income, exit fees on early payment of
debt, amortization of deferred financing costs, depreciation, and amortization of intangibles. |
49
|
|
|
(2) |
|
The following is a reconciliation of the reportable segments net income (loss) before income
taxes, minority interest and discontinued operations to EDRs consolidated net income (loss) before
income taxes, minority interest and discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Net loss before taxes, minority interest and discontinued operations for reportable segments |
|
$ |
(736 |
) |
|
$ |
(6,559 |
) |
Other unallocated corporate expenses |
|
|
(6,828 |
) |
|
|
(6,404 |
) |
|
|
|
|
|
|
|
Net loss before income taxes, minority interest and discontinued operations |
|
$ |
(7,564 |
) |
|
$ |
(12,963 |
) |
|
|
|
|
|
|
|
Student housing leasing
Overall average physical occupancy and Revenue per Available Bed (RevPAB) for 2007 and 2006 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
Occupancy |
|
|
|
|
|
|
|
|
|
|
|
|
Physical (1) |
|
|
93.5 |
% |
|
|
93.1 |
% |
|
|
0.4 |
% |
Economic (2) |
|
|
90.9 |
% |
|
|
91.1 |
% |
|
|
(0.2 |
)% |
NarPAB (3) |
|
$ |
360 |
|
|
$ |
346 |
|
|
$ |
14 |
|
Other income per avail. bed (4) |
|
$ |
24 |
|
|
$ |
24 |
|
|
$ |
|
|
RevPAB (5) |
|
$ |
384 |
|
|
$ |
370 |
|
|
$ |
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense per bed (6) |
|
$ |
185 |
|
|
$ |
180 |
|
|
$ |
5 |
|
Operating margin |
|
|
51.9 |
% |
|
|
51.4 |
% |
|
|
0.5 |
% |
Design Beds (7) |
|
|
222,852 |
|
|
|
219,732 |
|
|
|
3,120 |
|
|
|
|
(1) |
|
Physical occupancy represents a weighted average of the month-end occupancies for the
respective period. |
|
(2) |
|
Economic occupancy represents the effective occupancy calculated by taking net apartment rent
accounted for on a GAAP basis for the respective period divided by market rent for the respective
period. |
|
(3) |
|
NarPAB represents GAAP net apartment rent for the respective period divided by the sum of the
design beds in the portfolio for each of the included months. Does not include food service
revenue or other leasing revenue. |
|
(4) |
|
Represents other GAAP-based income for the respective period divided by the sum of the design
beds in the portfolio for each of the included months. Other income includes service/app fees,
late fees, termination fees, parking fees, transfer fees, damage recovery, utility recovery, and
other misc. |
|
(5) |
|
Represents total revenue (net apartment rent plus other income) for the respective period
divided by the sum of the design beds in the portfolio for each of the included months. |
|
(6) |
|
Represents property-level operating expense excluding management fees, depreciation and
amortization divided by the sum of the design beds for each of the included months. |
|
(7) |
|
Represents the sum of the monthly design beds in the portfolio during the period, excluding
Place properties. |
Total revenue in the student housing leasing segment was $101,821 for 2007. This represents an
increase of $2,973 or 3.0% from the same period in 2006. Student housing leasing revenue increased
5.5%, contributing $4,449 to the overall increase. Student housing leasing revenue growth consisted
of
a $959 increase related to the acquisition of the Players Club located in Statesboro, Georgia in
June of 2006, and a $3,490
50
or 4.4% increase in same community revenue. Growth in same community revenue was driven by an
approximate 2.5% improvement in rates, 0.8% improvement in occupancy, 0.2% improvement in other
income and a 0.9% increase due to less vacant days during the turn period in the current leasing
year compared to the prior leasing year. Growth in rates and occupancy are a result of good
marketing campaigns, resident satisfaction, quality facilities and continued growth in the
underlying demographics of university enrollment and the college age population. Offsetting the
improvement in student housing leasing revenue was a $1,275 decline in student housing food service
revenue, which was the result of terminating a contract to provide food service to an unaffiliated
secondary boarding school in California on December 31, 2006. Other leasing revenue, which
represents revenue on a master lease of 13 properties to a third-party, decreased $201 in 2007
compared to the same period in 2006. The decrease in other leasing revenue is due to a decline in
the additional rent recognized for 2007 compared to 2006. This loss of additional rent is
reflective of declining performance at the properties, which was a leading factor in the lease
termination on February 1, 2008.
Operating expenses in the student housing leasing segment increased $844 or 1.8% to $46,984 for
2007, as compared to 2006. Student housing leasing operations increased a total of $1,712 or 4.3%
over the prior year, with $716 of the increase attributable to adding Players Club to the portfolio
midway through 2006 and $996 attributable to a 2.6% increase in same community expenses. Increases
in utility costs of $517, insurance costs of $215, credit card and collection related costs of $382
and repair and maintenance expenses of $307 were the main drivers of the increase in same community
expenses and were offset by decreases in marketing expenses and real estate taxes. The increase in
student housing leasing operations was offset by a $1,082 decline in student housing food service
operations related to the termination of the food service contract discussed above.
Equity in earnings in unconsolidated entities decreased $436 from 2006 to a loss of $510 for 2007.
This represents our share of the net income or loss related to four investments in unconsolidated
entities that own student housing communities. These communities are also managed by the Trust.
Development consulting services
Third-party development consulting services revenue increased by $1,638 or 43.4% to $5,411 for 2007
compared to 2006. During 2007, AODC was engaged in eight active development projects representing
6,487 beds. AODC initiated work on Slippery Rock University Phase II, Indiana University of
Pennsylvania Phase II and Fontainebleu Renovation Project and completed work on Slippery Rock Phase
I, California University of Pennsylvania Phase V, Indiana University of Pennsylvania Phase I,
University of North Carolina- Greensboro and University of Alabama- Tuscaloosa. During 2006,
revenue of $3,773 was recognized, which included development fee revenue on four projects and
construction oversight fees related to three other projects.
The increased volume in development consulting revenue is mainly due to an increase in the number
of projects being managed by AODC but also represents a shift in the percentage of new projects
AODC contracted directly. In previous years, the majority of our development services were
contracted through joint venture relationships with the profits from those services being
recognized through equity in earnings of unconsolidated entities. The shift to direct contracts
caused equity in earnings of unconsolidated entities in the third-party development consulting
services segment to decrease $581 or 71.4% from the prior year. There were four joint ventures with
active development projects in 2006, compared to two in 2007.
General and administrative costs in the third-party development consulting services segment
increased $577 to $2,787 for 2007, as compared to 2006. This increase is a result of the higher
volume of development projects; thus, increases in staffing and corporate overhead costs allocated
to the segment.
Management services
Total management services revenue increased by $725 or 11.9% to $6,819 for 2007, as compared to
2006. Growth in our owned portfolio period over period as discussed under student housing leasing
above contributed to $130 of the increase by way of intersegment revenue, while third-party
management fee revenue increased $595 or 21.3% to $3,391 for 2007. The increase in third-party fees
consists of $562 related to nine new management contracts entered into during 2007, $50 related to
a community that came out of
development in August of 2006, $387 related to four contracts entered into in the fall of 2006 to
manage properties for which we also have an ownership interest, and $38 related to revenue growth
in existing contracts. These increases were partially offset by a decrease of $442 in third-party
fees as a result of three terminated contracts, including one contract related to a property
purchased by one of the EDRs joint ventures and is included in the new contracts noted above.
51
General and administrative costs for our third-party management services segment increased $1,624
to $6,628 for 2007, as compared to 2006. The increase reflects incremental salaries and overhead
costs related to the approximate 50% growth in management contracts and the increase in
intersegment management revenue volume noted above, and increased travel and integration costs
related to the new contracts added in late 2006 and in 2007.
Nonoperating expenses
Nonoperating expenses decreased $4,549 to $58,111 for 2007, as compared to 2006. This decrease was
primarily driven by a $1,900 decline in depreciation expense due to fully depreciated assets that
remain in service and a $2,635 decline in interest expense. The decline in interest expense is
related to the repayment of the Term Loan and Amended Revolver, both defined below, during 2007 and
the capitalization of interest for the development of the student housing community in Carbondale,
Illinois in the amount of $58.
Unallocated corporate expenses
Unallocated corporate expenses represent general and administrative expenses that are not allocated
to any of our business segments. For 2007, unallocated corporate expenses were $6,828, an increase
of $424 or 6.6% over the prior year. The majority of this increase is due to higher salary and
overhead costs related to growth driven increases in head count over the prior year. These
increases were partially offset by a decrease in third-party service provider fees from 2006, which
included first year implementation costs of Sarbanes Oxley.
52
Liquidity and Capital Resources
Revolving credit facility and other indebtedness
The Operating Partnership has an amended and restated revolving credit facility. The Trust serves
as the guarantor for any funds borrowed by the Operating Partnership under the Amended Revolver.
Additionally, the Amended Revolver is secured by a cross-collateralized, first mortgage lien on six
otherwise unmortgaged properties. The Amended Revolver has a term of three years and matures on
March 31, 2009. However, the Operating Partnership has met the extension requirements and has
exercised its option to extend the maturity date until March 30, 2010, under existing terms. The
interest rate per annum applicable to the Amended Revolver is, at the Operating Partnerships
option, equal to a base rate or London InterBank Offered Rate (LIBOR) plus an applicable margin
based upon our leverage (2.78% at December 31, 2008).
There is a maximum of $100,000 available under the Amended Revolver; however, availability
under the Amended Revolver is limited to a borrowing base availability equal to the lesser of (i)
65% of the property asset value (as defined in the amended agreement) of the properties securing
the facility and (ii) the loan amount which would produce a debt service coverage ratio of no less
than 1.30, with debt service based on the greater of two different sets of conditions specified in
the amended agreement. As of December 31, 2008, our borrowing base was $51,075, we had $32,900
outstanding and we had a letter of credit outstanding of $1,512; thus, our borrowing base
availability was $16,663. We do, however, have additional unmortgaged properties that can be
pledged against the line to increase total availability.
The Amended Revolver contains customary affirmative and negative covenants and contains financial
covenants that, among other things, require the Trust and its subsidiaries to maintain certain
minimum ratios of EBITDA (earnings before payment or charges of interest, taxes, depreciation,
amortization or extraordinary items) as compared to interest expense and total fixed charges. The
financial covenants also include consolidated net worth and leverage ratio tests.
The Trust is prohibited from making distributions that exceed $1.20 per share unless prior to and
after giving effect to such action the total leverage ratio is less than or equal to 60%. The
amount of restricted payments permitted may be increased as long as either of the following
conditions is met: (a) after giving effect to the increased restricted payment, the total leverage
ratio shall remain less than or equal to 60%; or (b) the increased restricted payment, when
considered along with all other restricted payments for the last 3 quarters, does not exceed 95% of
funds from operations for the applicable period.
On March 3, 2008, mortgage debt in the amount of $22,977, secured by the student housing community
referred to as University Towers, bearing interest at an effective rate of 5.48%, matured and was
repaid by the Trust with additional borrowings on the Amended Revolver. On June 27, 2008, the Trust
refinanced the debt with a $25,000, interest only, fixed rate mortgage bearing interest at 5.99%
through June 30, 2013. After the initial maturity, the Trust has the option to extend the loan for
12 months with principal and interest equal to LIBOR plus a 250 basis point margin per annum being
repaid on a monthly basis. The Trust used the proceeds from the refinancing to pay down the Amended
Revolver.
On December 31, 2008, the Trust entered into a $222,000 secured credit facility and used initial
proceeds of approximately $197,735 to prepay approximately $185,557 of mortgage debt that was due
to mature in July of 2009. The remaining proceeds were used to pay $4,295 in defeasance costs and
other costs related to the early repayment of the debt, $2,052 in deferred financing costs, pay
down the Amended Revolver and pay for other corporate working capital needs. The Trust recognized
a loss of $4,360 on the early retirement of debt. The initial borrowings under the secured credit
facility consist of fixed rate loans of approximately $15,492, $72,106 and $60,263 with maturities
of five, seven and ten-year terms, respectively. The annual fixed interest rates are 5.99%, 6.02%
and 6.02%, respectively. The facility also provided five-year variable interest rate loans based on
30-day LIBOR totaling approximately $49,874. The variable rate loans are currently priced at a
weighted average of 3.90% per annum.
The Trust has approximately $98,660 of mortgage debt due to mature in December of 2009. Management
is currently engaged in negotiating replacement financing for this debt maturity. The ability to
find other replacement financing is not guaranteed and the cost of any such financing could be
substantially higher than current debt costs. At December 31, 2008, the Trust had ten properties
unencumbered by mortgage debt. Six of these ten properties have, however, been pledged
as collateral against any borrowing under our Amended Revolver.
53
Liquidity outlook and capital requirements
At December 31, 2008, we had $9,003 of cash, an increase of $4,969 from December 31, 2007. During
the year ended December 31, 2008, we generated $26,011 of cash from operations, received $2,578 of
proceeds from the sale of the land and parking garage at our University Towers property, and drew
$10,679 and $413 on the construction loans related to the company owned developments in Carbondale,
Illinois and Syracuse, New York, respectively. Furthermore, we drew down an additional $21,400 on
the Amended Revolver and increased mortgage debt by $12,178 as part of replacing $185,557 of
mortgages that were coming due in July of 2009. This allowed us to invest $22,576 in new
developments and distribute $25,797 to our stockholders and unitholders.
Our current liquidity needs include funds for distributions to our stockholders and unitholders,
including those required to maintain our REIT status and satisfy our current annual distribution
target of $0.41 per share/unit, funds for capital expenditures, funds for debt repayment and,
potentially, funds for new property acquisitions and development. We generally expect to meet our
short-term liquidity requirements through net cash provided by operations. Distributions for 2008
totaled $25,797 or $0.86 per weighted average share/unit, compared to cash provided by operations
of $26,011, or $.87 per weighted average share/unit for the same period. Excluding the $6,000 in
lease termination revenue recognized during 2008, cash provided by operations was $20,011 or $0.67
per weighted average share/unit. The Trusts Board of Directors lowered the annual dividend from
$0.82 to $0.41 per share/unit beginning in 2009. The 2009 dividend policy is expected to result in
the Trust retaining approximately $12,000 of cash, which will further strengthen liquidity.
Distributions for 2007 totaled $24,203 or $0.82 per weighted average share/unit, compared to cash
provided by operations of $26,806, or $0.91 per weighted average share/unit, for the same period.
We expect our long-term liquidity requirements to be satisfied through growth in cash generated by
operations and external sources of debt and equity capital, including our credit facility, public
capital markets as well as private sources of capital. To the extent that we are unable to maintain
our Amended Revolver or an equivalent source of debt financing, we will be more reliant upon the
public and private capital markets to meet our long-term liquidity needs. The stock market has
recently experienced extreme price and volume fluctuations. These broad market fluctuations could
adversely impact our ability to utilize the capital markets.
Based on our closing share price of $5.22 on December 31, 2008, our total enterprise value was
$628,656. With total debt outstanding on December 31, 2008 of $473,956, our current debt to
enterprise value was 75.4%. With gross assets outstanding on December 31, 2008 of $892,125, which
excludes accumulated depreciation of $114,090, our current debt to gross assets was 53.1%. We
believe our capital structure, current FFO targets and availability under our Amended Revolver
leaves us with sufficient liquidity and access to financing to fund current working capital needs
and limited future student housing investments. Additional external capital resources would be
necessary to fund significant future investments.
As noted earlier, we have $98.6 million of mortgage debt due to mature in December of 2009.
If capital and equity markets continued to erode significantly and we can not find replacement
financing, we would not have enough existing liquidity (from operations or the Amended Revolver) to
repay the debt. If that were to happen, management would pursue and expect to obtain an extension
from the current lender in order to provide additional time to obtain replacement financing. If we
are unable to find replacement financing, the nine encumbered communities would be turned over to
the lender and we could cross default our Amended Revolver. In response to this possible but
unlikely scenario, management has reviewed its cash uses and sources and has identified plans that
could be implemented to repay the outstanding balance on the Amended Revolver. These steps could
include elimination of or the payment in kind of the dividend, suspension of capital spend, cost
reductions, an equity raise and possible asset disposals. Additionally management has assessed
that the remaining assets in the portfolio would produce sufficient cash flows to fund operating
cash needs and meet remaining debt service requirements in the near term.
54
We intend to invest in additional properties only as suitable opportunities arise. We also plan to
develop properties for our ownership and management. In the short term, we intend to fund any
acquisitions or developments with working capital, borrowings under first mortgage, property
secured debt, construction loans or our Amended Revolver. We intend to
finance property acquisitions and self development projects over the longer term with the proceeds
from additional issuances of common or preferred stock, private capital in the form of joint
ventures, debt financing and issuances of units of our Operating Partnership. There can be no
assurance, however, that such financing will be obtained on reasonable terms, or at all,
particularly in light of current capital market conditions.
An additional source of capital is the possible disposition of non-strategic properties. We
continually assess all of our properties, the markets they are in and the universities they serve
to determine if any dispositions are necessary or appropriate. The sale of any unencumbered asset
would provide additional capital to most likely pay down debt or possibly finance
acquisition/development growth or other operational needs.
Predevelopment expenditures
Our third-party development consulting activities have historically required us to fund
predevelopment expenditures such as architectural fees, permits and deposits. Because the closing
of a development projects financing is often subject to third-party delay, we cannot always
predict accurately the liquidity needs of these activities. We frequently incur these
predevelopment expenditures before a financing commitment has been obtained and, accordingly, bear
the risk of the loss of these predevelopment expenditures if financing cannot ultimately be
arranged on acceptable terms. However, we typically obtain a guarantee of repayment of these
predevelopment expenditures from the project owner, but no assurance can be given that we would be
successful in collecting the amount guaranteed in the event that project financing is not obtained.
In 2007, we began developing projects for the Trusts ownership and plan to increase
self-development activity going forward. We opened the Trusts first wholly owned, self-developed
property in August of 2008 which serves Southern Illinois University. At December 31, 2008, costs
totaling $6,572 have also been capitalized related to the ongoing developments at Syracuse
University and a second phase at Southern Illinois University. As opposed to our third-party
development services, all risk, exposure and capital requirements for these developments remain
with the Trust. In 2008, costs totaling $706 were written off during the fourth quarter. These
were previously capitalized development costs related to a development project that we have elected
not to pursue for ownership.
Long-term liquidity requirements
Our long-term liquidity requirements consist primarily of funds necessary to pay scheduled debt
maturities, renovations, expansion and other non-recurring capital expenditures that need to be
made periodically to our properties. We expect to meet these needs through existing working
capital, cash provided by operations, additional borrowings under our Amended Revolver and the
issuance of equity instruments, including common or preferred stock, partnership units or
additional or replacement debt, if market conditions permit. We believe these sources of capital
will be sufficient to provide for our long-term capital needs. Current market conditions (or a
continuing deterioration in such conditions), however, may make additional capital more expensive
for us and could impact our access to the capital markets. There can be no assurance that we will
be able to obtain additional financing under satisfactory conditions or at all or that we will make
any investments in additional properties. Our Amended Revolver is a material source to satisfy our
long-term liquidity requirements. As such, compliance with the financial and operating debt
covenants is material to our liquidity. Non-compliance with the covenants would have a material
adverse effect on our financial condition and liquidity.
Capital expenditures
The historical recurring capital expenditures at our owned and managed communities, which in 2008
includes the 13 properties related to the Place Portfolio when management of these properties was
assumed by the Trust, are set forth as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Years Ended |
|
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Total units |
|
|
7,466 |
|
|
|
6,400 |
|
|
|
6,400 |
|
Total beds |
|
|
24,463 |
|
|
|
20,125 |
|
|
|
20,125 |
|
Total recurring capital
expenditures |
|
$ |
3,815 |
|
|
$ |
2,487 |
|
|
$ |
2,222 |
|
Average per unit |
|
$ |
510.98 |
|
|
$ |
388.56 |
|
|
$ |
347.25 |
|
Average per bed |
|
$ |
155.95 |
|
|
$ |
123.57 |
|
|
$ |
110.43 |
|
Recurring capital expenditures exclude capital spending on renovations, community repositioning or
other major periodic projects. Capital expenditures associated with newly developed properties are
typically capitalized as part of their
development costs. As a result such properties typically do not require recurring capital
expenditures until their second year of operation or later.
55
Additionally, we are required by certain of our lenders to contribute contractual amounts annually
to reserves for capital repairs and improvements at the mortgaged properties. These contributions
are typically less than but could exceed the amount of capital expenditures actually incurred
during any given year at such properties.
Commitments
The following table summarizes our contractual obligations as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
More than 5 |
|
|
|
|
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt Obligations(1) |
|
$ |
101,631 |
|
|
$ |
40,113 |
|
|
$ |
110,905 |
|
|
$ |
221,307 |
|
|
$ |
473,956 |
|
Contractual Fixed Interest
Obligations(2) |
|
|
25,105 |
|
|
|
37,658 |
|
|
|
28,694 |
|
|
|
25,312 |
|
|
|
116,769 |
|
Operating Lease and Future
Purchase Obligations(3) |
|
|
4,600 |
|
|
|
7,207 |
|
|
|
6,059 |
|
|
|
952 |
|
|
|
18,818 |
|
Capital Reserve Obligations(4) |
|
|
1,584 |
|
|
|
2,736 |
|
|
|
2,560 |
|
|
|
2,582 |
|
|
|
9,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
132,920 |
|
|
$ |
87,714 |
|
|
$ |
148,218 |
|
|
$ |
250,153 |
|
|
$ |
619,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes required monthly principal amortization and amounts due at maturity on first mortgage
debt secured by student housing properties and amounts due under Amended Revolver and Term Loan
agreements. The first mortgage debt does not include $1,203 of unamortized debt premium. |
|
(2) |
|
Includes contractual fixed-rate interest payments. |
|
(3) |
|
Includes future minimum lease commitments under operating lease obligations and future purchase
obligations for advertising. |
|
(4) |
|
Includes future annual contributions to the capital reserve as required by certain mortgage
debt. |
Long-term indebtedness
As of December 31, 2008, ten of our properties were unencumbered by mortgage debt. Six of these ten
properties have, however, been pledged as collateral against any borrowing under our Amended
Revolver.
At December 31, 2008, we had outstanding indebtedness of $475,159 (net of unamortized debt premium
of $1,203). The scheduled future maturities of all outstanding indebtedness at December 31, 2008
are as follows:
|
|
|
|
|
Year |
|
|
|
|
2009 |
|
$ |
101,631 |
|
2010 |
|
|
36,348 |
|
2011 |
|
|
3,765 |
|
2012 |
|
|
78,417 |
|
2013 |
|
|
32,488 |
|
Thereafter |
|
|
221,307 |
|
|
|
|
|
Total |
|
|
473,956 |
|
Debt premium |
|
|
1,203 |
|
|
|
|
|
Outstanding as of December 31, 2008, net of debt premium |
|
$ |
475,159 |
|
|
|
|
|
At December 31, 2008, the outstanding mortgage debt had a weighted average interest rate of 5.77%
and carried an average term to maturity of 4.81 years.
In 2009, $98,660 of the $101,631 scheduled debt payments represents maturing debt ($2,971 of
amortizing debt principal).
In addition to mortgage debt, the Trust also had $32,900 outstanding under the Amended Revolver.
The Amended Revolver has a term of three years and matures on March 31, 2009. However, the
Operating Partnership has met the extension requirements and has exercised its option to extend the
maturity date until March 30, 2010, under existing terms. The Amended Revolver requires interest
only payments through maturity. The interest rate per annum applicable to the Amended Revolver is,
at the Operating Partnerships option,
equal to a base rate or LIBOR plus an applicable margin based upon our leverage (2.78% at December
31, 2008).
56
Distributions
We are required to distribute 90% of our REIT taxable income (excluding capital gains) on an
annual basis in order to qualify as a REIT for federal income tax purposes. Accordingly, we intend
to make, but are not contractually bound to make, regular quarterly distributions to holders of our
common stock. All such distributions are authorized at the discretion of our board of directors. We
may be required to use borrowings under our revolving credit facility, if necessary, to meet REIT
distribution requirements and maintain our REIT status. We consider market factors and our
performance in addition to REIT requirements in determining distribution levels.
The Trusts Board of Directors lowered the annual dividend from $0.82 to $0.41 per share/unit
beginning in 2009. The 2009 dividend policy is expected to result in the Trust retaining
approximately $12.0 million of cash, which will further strengthen liquidity.
On January 5, 2009, we announced our fourth quarter distribution of $0.1025 per share of common
stock for the quarter ended on December 31, 2008. The distribution is payable on February 16, 2009
to stockholders of record at the close of business on January 30, 2009.
Off-Balance Sheet Arrangements
As discussed in note 8 to the consolidated financial statements, we hold investments in
unconsolidated entities. Three of these unconsolidated entities have third-party mortgage
indebtedness totaling $89,414 at December 31, 2008.
Additionally, on May 10, 2006, the Operating Partnership guaranteed $23,200 of construction debt
held by University Village-Greensboro LLC in order to receive a 25% ownership stake in the venture
with College Park Apartments. Construction was completed and the student housing community was
occupied in August 2007. The Operating Partnership has determined that it will not guarantee the
debt after the construction loan is refinanced which is expected to occur in December of 2009.
Funds From Operations (FFO)
As defined by the National Association of Real Estate Investment Trusts (NAREIT), FFO represents
net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of
property, plus real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures will be calculated to reflect funds from operations on the same basis. We present
FFO available to all stockholders and unitholders because we consider it an important supplemental
measure of our operating performance and believe it is frequently used by securities analysts,
investors and other interested parties in the evaluation of REITs, many of which present FFO when
reporting their results. As such, we also exclude the impact of minority interest in our
calculation. FFO is intended to exclude GAAP historical cost depreciation and amortization of real
estate and related assets, which assumes that the value of real estate diminishes ratably over
time. Historically, however, real estate values have risen or fallen with market conditions.
Because FFO excludes depreciation and amortization unique to real estate, gains and losses from
property dispositions and extraordinary items, it provides a performance measure that, when
compared year over year, reflects the impact to operations from trends in occupancy rates, rental
rates, operating costs, development activities and interest costs, providing perspective not
immediately apparent from net income.
We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its
March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the
methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs. Further, FFO does not represent amounts available for managements
discretionary use because of needed capital replacement or expansion, debt service obligations or
other commitments and uncertainties. FFO should not be considered as an alternative to net income
(loss) (computed in accordance with GAAP) as an indicator of our financial performance or to cash
flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity,
nor is it indicative of funds available to fund our cash needs, including our ability to make
distributions.
57
The following table presents a reconciliation of our FFO available to our stockholders and
unitholders to our net loss for the years ended December 31, 2008, 2007, and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,947 |
) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
Gain on sale of student housing property, net of minority interest |
|
|
|
|
|
|
(1,579 |
) |
|
|
|
|
Loss on sale of student housing assets |
|
|
512 |
|
|
|
|
|
|
|
|
|
Student housing property depreciation and amortization of lease
intangibles |
|
|
28,819 |
|
|
|
31,780 |
|
|
|
33,680 |
|
Equity portion of real estate depreciation and amortization on
equity investees |
|
|
496 |
|
|
|
424 |
|
|
|
54 |
|
Depreciation and amortization of discontinued operations |
|
|
|
|
|
|
711 |
|
|
|
2,048 |
|
Minority interest benefit |
|
|
(128 |
) |
|
|
(6 |
) |
|
|
(355 |
) |
|
|
|
|
|
|
|
|
|
|
Funds from operations available to all share and unit holders |
|
$ |
21,752 |
|
|
$ |
25,914 |
|
|
$ |
23,182 |
|
|
|
|
|
|
|
|
|
|
|
Inflation
Our student housing leases typically do not have terms that extend beyond twelve months.
Accordingly, although on a short-term basis we would be required to bear the impact of rising costs
resulting from inflation, we have the opportunity to raise rental rates at least annually to offset
such rising costs. However, our ability to raise rental rates may be limited by a weak economic
environment, increased competition from new student housing in our primary markets or a reduction
in student enrollment at our principal universities.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS 141R. SFAS 141R establishes principles and requirements for
how an acquirer recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. SFAS 141R is effective for financial statements
issued for fiscal years beginning after December 15, 2008. We are currently evaluating the impact
of adopting SFAS 141R on our consolidated financial condition and results of operations.
In December 2007, the FASB issued SFAS 160. SFAS 160 establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling interest, changes in a
parents ownership interest and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS 160 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. We are currently evaluating the impact of adopting SFAS 160 on
our consolidated financial condition and results of operations.
58
In March 2008, the FASB issued SFAS 161. SFAS 161 requires enhanced disclosure related to
derivatives and hedging activities and thereby seeks to improve the transparency of financial
reporting. Under SFAS 161, entities are required to provide enhanced disclosures relating to: (a)
how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge
items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133), and its related interpretations; and (c) how derivative instruments and
related hedged items affect an entitys financial position, financial performance and cash flows.
SFAS 161 must be applied prospectively to all derivative instruments and non-derivative instruments
that are
designated and qualify as hedging instruments and related hedged items accounted for under SFAS 133
for all financial statements issued for fiscal years beginning after November 15, 2008. We are
currently evaluating the impact of adopting SFAS 161 on our consolidated financial condition and
results of operations.
In April 2008, the FASB issued FSP 142-3. FSP 142-3 amends the factors to be considered in
developing renewal or extension assumptions used to determine the useful life of intangible assets
under SFAS No. 142, Goodwill and Other Intangible Assets. Its intent is to improve the consistency
between the useful life of an intangible asset and the period of expected cash flows used to
measure its fair value. This FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008. We are currently evaluating the impact of adopting FSP 142-3 on
our consolidated financial condition and results of operations.
In June 2008, the FASB issued FSP 03-6-1. FSP 03-6-1 clarifies that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and are to be included in the computation of earnings per
share under the two-class method described in SFAS No. 128, Earnings Per Share. This FSP is
effective for financial statements issued for fiscal years beginning after December 15, 2008 and
requires all presented prior-period earnings per share data to be adjusted retrospectively. We are
currently evaluating the impact of adopting FSP 03-6-1 on our consolidated financial condition and
results of operations.
59
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our future income, cash flows and fair values relevant to financial instruments are dependent upon
prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in
market prices and interest rates. The Trusts interest rate risk objective is to limit the impact
of interest rate fluctuations on earnings and cash flows and to lower its overall borrowing costs.
To achieve this objective, the Trust manages its exposure to fluctuations in market interest rates
for its borrowings through the use of fixed rate debt instruments to the extent that reasonably
favorable rates are obtainable.
For fixed rate debt, interest rate changes affect the fair market value but do not impact net
income to common stockholders or cash flows. Conversely, for floating rate debt, interest changes
generally do not affect the fair market value but do impact net income to common stockholders and
cash flows, assuming other factors are held constant. At December 31, 2008, we had fixed rate debt
of $380,090. Holding other variables constant a 100 basis point increase in interest rates would
cause a $14,239 decline in the fair value for our fixed rate debt. Conversely, a 100 basis point
decrease in interest rates would cause a $15,246 increase in the fair value of our fixed rate debt.
At December 31, 2008, 80.2% of the outstanding principal amounts of our mortgage notes payable on
the properties we own have fixed interest rates with a weighted average rate of 6.11% and an
average term to maturity of 4.82 years.
At December 31, 2008, we also had $32,900 outstanding on the Amended Revolver. The interest rate
per annum applicable to the Amended Revolver is, at the Operating Partnerships option, equal to a
base rate or LIBOR plus an applicable margin based upon our leverage.
At December 31, 2008, we had a $10,901 construction loan related to the development of a wholly
owned student apartment community near Southern Illinois University. The construction loan bears
interest equal to LIBOR plus a 110 basis point margin and is interest only through July 21, 2010.
Commencing with the quarter ended June 30, 2010, and annually thereafter, a debt service coverage
ratio calculated on a rolling 12 month basis, of not less than 1.25 to 1, must be maintained in
order to extend the loan until June 14, 2012, with principal and interest being repaid on a monthly
basis.
We borrowed $191, out of an available $14,300, related to the development of a wholly owned student
apartment community at Syracuse University. The construction loan bears interest equal to LIBOR
plus a 110 basis point margin and is interest only through September 29, 2011. Commencing with the
quarter ended June 30, 2011, and annually thereafter, a debt service coverage ratio calculated on a
rolling 12 months basis, of not less than 1.25 to 1, must be maintained in order to extend the loan
until September 29, 2013, with principal and interest being repaid on a monthly basis.
Additionally, in 2008, we borrowed $49,874 to refinance mortgage debt. The loans bear interest at
30-day LIBOR plus an applicable margin and mature on January 1, 2014. In order to hedge the
interest rate risk associated with these loans, the Operating Partnership purchased an interest
rate cap from the Royal Bank of Canada on December 22, 2008 for $120. The interest rate cap
effectively limits the interest rate on $49,874 of the refinanced mortgage debt at 7.0% per annum through
December 31, 2013. The Operating Partnership has chosen not to designate the cap as a hedge and
will recognize all gain or loss associated with this derivative instrument in earnings.
We do not, and do not expect to, use derivatives for trading or speculative purposes, and we expect
to enter into contracts only with major financial institutions.
60
Item 8. Financial Statements and Supplementary Data.
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under
the supervision and with the participation of our management, including our Chairman, Chief
Executive Officer, and Chief Financial Officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting as of December 31, 2008 based upon the guidelines
established in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Our internal control over financial reporting
includes policies and procedures that provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States of America.
Based on the results of our evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2008. We reviewed the results of managements
assessment with our Audit Committee.
The effectiveness of our internal control over financial reporting as of December 31, 2008 has been
audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in
their attestation report which appears on the following page.
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Education Realty Trust, Inc.
Memphis, Tennessee
We have audited the accompanying consolidated balance sheets of Education Realty Trust, Inc. and
subsidiaries (the Trust) as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2008. We also have audited the Trusts internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Trusts management is responsible for these financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying managements report on internal
control over financial reporting. Our responsibility is to express an opinion on these financial
statements and an opinion on the Trusts internal control over financial reporting based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Trust as of December 31, 2008 and 2007, and the
results of their operations and their cash flows for each of the three years in the period ended
December 31, 2008 in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, the Trust maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the criteria
established in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
/s/ DELOITTE & TOUCHE LLP
Memphis, Tennessee
March 16, 2009
62
CONSOLIDATED BALANCE SHEETS
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
(Amounts in thousands, except share |
|
|
|
and per share data) |
|
ASSETS
|
Assets: |
|
|
|
|
|
|
|
|
Student housing properties, net |
|
$ |
733,507 |
|
|
$ |
732,979 |
|
Assets under development |
|
|
6,572 |
|
|
|
5,675 |
|
Corporate office furniture, net |
|
|
1,465 |
|
|
|
1,693 |
|
Cash and cash equivalents |
|
|
9,003 |
|
|
|
4,034 |
|
Restricted cash |
|
|
5,595 |
|
|
|
8,188 |
|
Student contracts receivable, net |
|
|
533 |
|
|
|
329 |
|
Receivable from affiliate |
|
|
25 |
|
|
|
18 |
|
Receivable from managed third parties |
|
|
401 |
|
|
|
606 |
|
Goodwill and other intangibles, net |
|
|
3,111 |
|
|
|
3,531 |
|
Other assets |
|
|
17,435 |
|
|
|
10,407 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
777,647 |
|
|
$ |
767,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Mortgage and construction loans, net of unamortized premium/discount |
|
$ |
442,259 |
|
|
$ |
420,940 |
|
Revolving line of credit |
|
|
32,900 |
|
|
|
11,500 |
|
Accounts payable |
|
|
303 |
|
|
|
1,397 |
|
Accrued expenses |
|
|
10,302 |
|
|
|
9,695 |
|
Accounts payable affiliate |
|
|
|
|
|
|
60 |
|
Deferred revenue |
|
|
9,954 |
|
|
|
7,928 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
495,718 |
|
|
|
451,520 |
|
|
|
|
|
|
|
|
Minority interest |
|
|
14,669 |
|
|
|
18,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note 16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 200,000,000 shares authorized,
28,475,855 and 28,431,855 shares issued and outstanding as of
December 31, 2008 and 2007, respectively |
|
|
285 |
|
|
|
284 |
|
Preferred shares, $0.01 par value, 50,000,000 shares authorized, no
shares issued and outstanding |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
308,356 |
|
|
|
330,969 |
|
Warrants |
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
(41,381 |
) |
|
|
(33,434 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
267,260 |
|
|
|
297,819 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
777,647 |
|
|
$ |
767,460 |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
63
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(Amounts in thousands, except share and per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing revenue |
|
$ |
107,566 |
|
|
$ |
85,651 |
|
|
$ |
81,202 |
|
Student housing food service revenue |
|
|
2,378 |
|
|
|
2,359 |
|
|
|
3,634 |
|
Other leasing revenue |
|
|
7,145 |
|
|
|
13,811 |
|
|
|
14,012 |
|
Third-party development services |
|
|
8,303 |
|
|
|
5,411 |
|
|
|
3,773 |
|
Third-party management services |
|
|
3,672 |
|
|
|
3,391 |
|
|
|
2,796 |
|
Operating expense reimbursements |
|
|
10,796 |
|
|
|
9,330 |
|
|
|
7,638 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
139,860 |
|
|
|
119,953 |
|
|
|
113,055 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing operations |
|
|
55,569 |
|
|
|
41,215 |
|
|
|
39,503 |
|
Student housing food service operations |
|
|
2,257 |
|
|
|
2,236 |
|
|
|
3,318 |
|
General and administrative |
|
|
16,348 |
|
|
|
14,561 |
|
|
|
12,331 |
|
Depreciation and amortization |
|
|
29,417 |
|
|
|
32,223 |
|
|
|
34,035 |
|
Loss on impairment of student housing property |
|
|
1,633 |
|
|
|
|
|
|
|
|
|
Loss on impairment of goodwill |
|
|
388 |
|
|
|
|
|
|
|
|
|
Reimbursable operating expenses |
|
|
10,796 |
|
|
|
9,330 |
|
|
|
7,638 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
116,408 |
|
|
|
99,565 |
|
|
|
96,825 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
23,452 |
|
|
|
20,388 |
|
|
|
16,230 |
|
|
|
|
|
|
|
|
|
|
|
Nonoperating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
25,229 |
|
|
|
26,957 |
|
|
|
29,353 |
|
Amortization of deferred financing costs |
|
|
992 |
|
|
|
1,036 |
|
|
|
1,114 |
|
Loss on extinguishment of debt |
|
|
4,360 |
|
|
|
174 |
|
|
|
|
|
Interest income |
|
|
(373 |
) |
|
|
(492 |
) |
|
|
(534 |
) |
|
|
|
|
|
|
|
|
|
|
Total nonoperating expenses |
|
|
30,208 |
|
|
|
27,675 |
|
|
|
29,933 |
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in earnings of
unconsolidated entities, income taxes,
minority interest and discontinued operations |
|
|
(6,756 |
) |
|
|
(7,287 |
) |
|
|
(13,703 |
) |
Equity in earnings of unconsolidated entities |
|
|
(196 |
) |
|
|
(277 |
) |
|
|
740 |
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, minority interest
and discontinued operations |
|
|
(6,952 |
) |
|
|
(7,564 |
) |
|
|
(12,963 |
) |
Taxes |
|
|
1,123 |
|
|
|
258 |
|
|
|
659 |
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interest and
discontinued operations |
|
|
(8,075 |
) |
|
|
(7,822 |
) |
|
|
(13,622 |
) |
Minority interest |
|
|
(128 |
) |
|
|
(39 |
) |
|
|
(404 |
) |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(7,947 |
) |
|
|
(7,783 |
) |
|
|
(13,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net
of minority interest of $34 and $49,
respectively |
|
|
|
|
|
|
788 |
|
|
|
973 |
|
Gain on sale of student housing property,
net of minority interest of $65 |
|
|
|
|
|
|
1,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
|
|
|
|
2,367 |
|
|
|
973 |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,947 |
) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(0.28 |
) |
|
|
(0.28 |
) |
|
|
(0.50 |
) |
Discontinued operations |
|
|
|
|
|
|
0.08 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
Net loss per share |
|
$ |
(0.28 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
basic and diluted |
|
|
28,455,713 |
|
|
|
28,010,144 |
|
|
|
26,387,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions per common share |
|
$ |
0.82 |
|
|
$ |
0.82 |
|
|
$ |
1.10 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
64
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Unearned |
|
|
|
|
|
|
Loan to |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Deferred |
|
|
|
|
|
|
Unit |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Compensation |
|
|
Warrants |
|
|
Holder |
|
|
Deficit |
|
|
Total |
|
Balance, December 31, 2005 |
|
|
26,263,889 |
|
|
$ |
263 |
|
|
$ |
354,134 |
|
|
$ |
(2,470 |
) |
|
$ |
375 |
|
|
$ |
(5,996 |
) |
|
$ |
(15,773 |
) |
|
$ |
330,533 |
|
Reclassification of unearned
compensation upon adoption of
SFAS 123R |
|
|
|
|
|
|
|
|
|
|
(2,470 |
) |
|
|
2,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to
officers and directors |
|
|
6,000 |
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
Amortization of restricted stock |
|
|
36,000 |
|
|
|
|
|
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604 |
|
Operating unit conversion to
common stock |
|
|
99,056 |
|
|
|
1 |
|
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,390 |
|
Redemption of minority interest
to satisfy loan to unitholder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,996 |
|
|
|
|
|
|
|
5,996 |
|
Net proceeds from issuance of
common shares direct stock
purchase plan and dividend
reinvestment plan |
|
|
405,607 |
|
|
|
4 |
|
|
|
5,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,747 |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
(29,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,114 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,245 |
) |
|
|
(12,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
26,810,552 |
|
|
|
268 |
|
|
|
330,374 |
|
|
|
|
|
|
|
375 |
|
|
|
|
|
|
|
(28,018 |
) |
|
|
302,999 |
|
Common stock issued to officers
and directors |
|
|
8,000 |
|
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113 |
|
Amortization of restricted stock |
|
|
36,000 |
|
|
|
|
|
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604 |
|
Net proceeds from issuance of
common shares direct stock
purchase plan and dividend
reinvestment plan |
|
|
1,577,303 |
|
|
|
16 |
|
|
|
22,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,492 |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
(22,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,985 |
) |
Expiration of Warrants |
|
|
|
|
|
|
|
|
|
|
375 |
|
|
|
|
|
|
|
(375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
PIU Repurchase |
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,416 |
) |
|
|
(5,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
28,431,855 |
|
|
|
284 |
|
|
|
330,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,434 |
) |
|
|
297,819 |
|
Common stock issued to officers
and directors |
|
|
8,000 |
|
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101 |
|
Amortization of restricted stock |
|
|
36,000 |
|
|
|
1 |
|
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
605 |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
(23,379 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,379 |
) |
PIU Repurchase |
|
|
|
|
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,947 |
) |
|
|
(7,947 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
28,475,855 |
|
|
$ |
285 |
|
|
$ |
308,356 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(41,381 |
) |
|
$ |
267,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
65
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,947 |
) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
Adjustments to reconcile net loss to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
29,417 |
|
|
|
32,223 |
|
|
|
34,035 |
|
Depreciation included in discontinued operations |
|
|
|
|
|
|
711 |
|
|
|
2,048 |
|
Deferred tax expense (benefit) |
|
|
59 |
|
|
|
(178 |
) |
|
|
48 |
|
Loss on disposal of assets |
|
|
532 |
|
|
|
38 |
|
|
|
11 |
|
Gain on sale of student housing property |
|
|
|
|
|
|
(1,644 |
) |
|
|
|
|
Loss on impairment of student housing property |
|
|
1,633 |
|
|
|
|
|
|
|
|
|
Loss on impairment of goodwill |
|
|
388 |
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt |
|
|
4,360 |
|
|
|
138 |
|
|
|
|
|
Amortization of deferred financing costs |
|
|
992 |
|
|
|
1,036 |
|
|
|
1,114 |
|
Loss on interest rate cap |
|
|
38 |
|
|
|
|
|
|
|
|
|
Amortization of unamortized debt
premiums/discounts |
|
|
(470 |
) |
|
|
(583 |
) |
|
|
(559 |
) |
Distributions of earnings from unconsolidated
entities |
|
|
277 |
|
|
|
364 |
|
|
|
787 |
|
Noncash compensation expense related to PIUs
and restricted stock |
|
|
761 |
|
|
|
772 |
|
|
|
796 |
|
Equity in earnings of unconsolidated entities |
|
|
196 |
|
|
|
277 |
|
|
|
(740 |
) |
Minority interest in continuing operations |
|
|
(128 |
) |
|
|
(39 |
) |
|
|
(404 |
) |
Minority interest in discontinued operations |
|
|
|
|
|
|
99 |
|
|
|
49 |
|
Change in operating assets and liabilities (net
of acquisitions): |
|
|
|
|
|
|
|
|
|
|
|
|
Student contracts receivable |
|
|
(204 |
) |
|
|
(291 |
) |
|
|
259 |
|
Management fees receivable |
|
|
205 |
|
|
|
63 |
|
|
|
(117 |
) |
Other assets |
|
|
(5,678 |
) |
|
|
(1,104 |
) |
|
|
(1,272 |
) |
Accounts payable and accrued expenses |
|
|
(446 |
) |
|
|
509 |
|
|
|
697 |
|
Accounts payable affiliate |
|
|
(67 |
) |
|
|
411 |
|
|
|
(594 |
) |
Deferred revenue |
|
|
2,093 |
|
|
|
(580 |
) |
|
|
1,274 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
26,011 |
|
|
|
26,806 |
|
|
|
25,187 |
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Property acquisitions, net of cash acquired |
|
|
|
|
|
|
|
|
|
|
(112,717 |
) |
Purchase of corporate furniture and fixtures |
|
|
(317 |
) |
|
|
(1,348 |
) |
|
|
(86 |
) |
Restricted cash |
|
|
2,593 |
|
|
|
966 |
|
|
|
(40 |
) |
Insurance proceeds received from property damage |
|
|
613 |
|
|
|
|
|
|
|
184 |
|
Investment in student housing properties |
|
|
(13,986 |
) |
|
|
(8,463 |
) |
|
|
(4,858 |
) |
Proceeds from sale of assets |
|
|
2,578 |
|
|
|
|
|
|
|
|
|
Proceeds from sale of student housing properties |
|
|
|
|
|
|
48,942 |
|
|
|
|
|
Loan to equity investee |
|
|
|
|
|
|
(845 |
) |
|
|
|
|
Investment in assets under development |
|
|
(22,576 |
) |
|
|
(5,675 |
) |
|
|
|
|
Investments in joint ventures |
|
|
(561 |
) |
|
|
(178 |
) |
|
|
(3,313 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(31,656 |
) |
|
|
33,399 |
|
|
|
(120,830 |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payment of mortgage notes |
|
|
(212,038 |
) |
|
|
(60,158 |
) |
|
|
(2,503 |
) |
Borrowings under mortgage and construction loans |
|
|
233,827 |
|
|
|
57,800 |
|
|
|
|
|
Borrowings of long-term debt |
|
|
|
|
|
|
|
|
|
|
50,000 |
|
Repayments of long-term debt |
|
|
|
|
|
|
(47,000 |
) |
|
|
(3,000 |
) |
Debt issuance costs |
|
|
(2,363 |
) |
|
|
(551 |
) |
|
|
(1,352 |
) |
Debt extinguishment costs |
|
|
(4,295 |
) |
|
|
|
|
|
|
|
|
Interest rate cap issuance cost |
|
|
(120 |
) |
|
|
|
|
|
|
|
|
Borrowing (repayment) of line of credit, net |
|
|
21,400 |
|
|
|
(10,900 |
) |
|
|
22,400 |
|
Proceeds (payments) from issuance of common
stock |
|
|
|
|
|
|
22,414 |
|
|
|
5,994 |
|
Payment of offering costs |
|
|
|
|
|
|
|
|
|
|
(248 |
) |
Dividends and distributions paid |
|
|
(25,797 |
) |
|
|
(24,203 |
) |
|
|
(30,875 |
) |
Redemption of minority interest |
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
10,614 |
|
|
|
(62,598 |
) |
|
|
40,408 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
4,969 |
|
|
|
(2,393 |
) |
|
|
(55,235 |
) |
Cash and cash equivalents, beginning of period |
|
|
4,034 |
|
|
|
6,427 |
|
|
|
61,662 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
9,003 |
|
|
$ |
4,034 |
|
|
$ |
6,427 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
26,828 |
|
|
$ |
27,520 |
|
|
$ |
29,180 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
755 |
|
|
$ |
796 |
|
|
$ |
819 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Place acquisition costs paid in 2005 |
|
$ |
|
|
|
$ |
|
|
|
|
4,718 |
|
Redemption of minority interest from unitholder |
|
|
893 |
|
|
|
|
|
|
|
6,116 |
|
Warrants issued (expired) |
|
|
|
|
|
|
(375 |
) |
|
|
|
|
Common stock issued under the dividend
reinvestment plan |
|
|
|
|
|
|
78 |
|
|
|
|
|
Debt assumed in property acquisitions net of
premium |
|
|
|
|
|
|
|
|
|
|
98,660 |
|
See accompanying notes to the consolidated financial statements.
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
1. Organization and description of business
Education Realty Trust, Inc. (the Trust) was organized in the state of Maryland on July 12, 2004
and commenced operations as a real estate investment trust (REIT) effective with the initial
public offering (the Offering) that was completed on January 31, 2005. Under the Trusts 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 Trust operates primarily through a majority-owned Delaware limited partnership, Education
Realty Operating Partnership, LP (the Operating Partnership). The Operating Partnership owns,
directly or indirectly, interests in student housing communities located near major universities in
the United States.
The Trust also provides real estate facility management, development and other advisory services
through the following subsidiaries of the Operating Partnership:
|
|
|
Allen & OHara Education Services, Inc. (AOES), a Delaware
corporation performing student housing management activities. |
|
|
|
|
Allen & OHara Development Company, LLC (AODC), a Delaware limited
liability company providing development consulting services for third
party student housing properties. |
The Trust is subject to the risks involved with the ownership and operation of residential real
estate near major universities throughout the United States. The risks include, among others, those
normally associated with changes in the demand for housing by students at the related universities,
competition for tenants, creditworthiness of tenants, changes in tax laws, interest rate levels,
the availability of financing, and potential liability under environmental and other laws.
2. Summary of significant accounting policies
Basis of presentation and principles of consolidation
The accompanying 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 consolidated financial statements of the Trust represent the assets and
liabilities and operating results of the Trust and its majority owned subsidiaries.
The Trust, as the sole general partner of the Operating Partnership, has the responsibility and
discretion in the management and control of the Operating Partnership, and the limited partners of
the Operating Partnership, in such capacity, have no authority to transact business for, or
participate in the management activities of the Operating Partnership. Accordingly, the Trust
accounts for the Operating Partnership using the consolidation method.
All intercompany balances and transactions have been eliminated in the accompanying consolidated
financial statements.
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 period. Significant estimates and
assumptions are used by management in determining the recognition of third-party development
consulting services revenue under the percentage of completion method, useful lives of student
housing assets, the valuation of goodwill, the initial valuations and underlying allocations of
purchase price in connection with student property acquisitions, the determination of fair value
for impairment assessments, and in the recording of the allowance for doubtful accounts. 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 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 December 31, 2008, the Trust had $3,549 of cash on deposit that
was uninsured by the FDIC or in excess of the FDIC limits.
67
Restricted cash
Restricted cash includes escrow accounts held by lenders for the purpose of paying taxes,
insurance, principal and interest, and to fund capital improvements.
Distributions
The Trust pays regular quarterly cash distributions to stockholders. These distributions are
determined quarterly by the Board based on the operating results, economic conditions, capital
expenditure requirements, the Internal Revenue Codes REIT annual distribution requirements,
leverage covenants imposed by our revolving credit facility and other debt documents, and any other
matters the Board deems relevant.
Student housing properties
Land, land improvements, buildings and improvements, and furniture, fixtures and equipment are
recorded at cost. Buildings and improvements are depreciated over 30 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.
Acquisitions of student housing properties are accounted for utilizing the purchase method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and accordingly, the acquired student housing properties results of operations are
included in the Trusts results of operations from the respective dates of acquisition.
Pre-acquisition costs, which include legal and professional fees and other third-party costs
related directly to the acquisition of the property, are accounted for as part of the purchase
price. Appraisals, estimates of cash flows and 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.
Management assesses impairment of long-lived assets in accordance with SFAS No. 144, Accounting for
the Impairment and Disposal of Long-lived Assets. SFAS No. 144 requires that long-lived assets to
be held and used be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In accordance with SFAS No. 144,
management uses an estimate of future undiscounted cash flows of the related asset over the
remaining life in measuring whether the assets are recoverable.
Certain student housing properties may be classified as held for sale based on the criteria within
SFAS No. 144. When a student housing property is identified as held for sale, the net realizable
value of such asset is estimated. If the net realizable value of 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 student housing property has met the held for sale criteria.
Operations of student housing properties that are sold or classified as held for sale are recorded
as part of discontinued operations for all periods presented.
Deferred financing costs
Deferred financing costs represent costs incurred in connection with acquiring debt facilities. The
costs incurred during the years ended December 31, 2008, 2007 and 2006 were $2,363, $551 and
$1,352, respectively, and are being amortized over the terms of the related debt using a method
that approximates the effective interest method.
Amortization expense totaled $992, $1,036, and $1,114 for the years ended December 31, 2008, 2007
and 2006, respectively. At December 31 2008 and 2007, accumulated amortization totaled $3,415 and
$2,970, respectively. Deferred financing costs, net of amortization, are included in other assets
on the accompanying consolidated balance sheets (see Note 7).
Offering costs
Specific incremental costs directly attributable to the dividend reinvestment plan were deferred
and charged against the gross proceeds. Accordingly, underwriting commissions and other stock
issuance costs are reflected as a reduction of additional
paid-in capital.
68
Debt premiums/discounts
Differences between the estimated fair value of debt and the principal value of debt assumed in
connection with student 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 December 31, 2008
and 2007, the Trust had net unamortized debt premiums of $1,203 and $1,673, respectively. These
amounts are included in mortgage loans in the accompanying consolidated balance sheets.
Income taxes
The Trust qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the Code). The
Trust is generally not subject to federal income tax to the extent that it distributes at least 90%
of its taxable income for each tax year to its stockholders. REITs are subject to a number of
organizational and operational requirements. If the Trust fails to qualify as a REIT in any taxable
year, the Trust will be subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income and property and to federal income and excise taxes on its undistributed
income.
The Trust has elected to treat its management company, AOES, as a taxable REIT subsidiary (TRS).
The TRS is subject to federal, state and local income taxes. AOES manages the Trusts non-REIT
activities. The Trust follows SFAS No. 109, Accounting for Income Taxes, which requires the use of
the asset and liability method. 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 bases. 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 adopted Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1,
2007 with the adoption having no impact on the Trusts consolidated financial statements. The Trust
had no unrecognized tax benefits as of December 31, 2008 and 2007. As of December 31, 2008, the
Trust does not expect to record any unrecognized tax benefits. The Trust, or its subsidiaries, file
income tax returns in the U.S. federal jurisdiction and various states jurisdictions. As of
December 31, 2008, the Trusts tax years for 2005, 2006 and 2007 are subject to examination by the
tax authorities. The Trusts policy is to include interest and penalties related to unrecognized
tax benefits in general and administrative expenses. At December 31, 2008 and 2007, the Trust had
no interest or penalties recorded related to unrecognized tax benefits.
Earnings per share
The Trust calculates earnings per share in accordance with SFAS No. 128, Earnings Per Share. Basic
earnings per share is calculated by dividing net earnings available to common shares by weighted
average common shares outstanding. Diluted earnings per share is calculated similarly, except that
it includes the dilutive effect of the assumed exercise of potentially dilutive securities. At
December 31, 2008 and 2007, the following potentially dilutive securities were outstanding, but
were not included in the computation of diluted earnings per share because the effects of their
inclusion would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Operating Partnership units |
|
|
913,738 |
|
|
|
913,738 |
|
University Towers Operating Partnership units |
|
|
207,257 |
|
|
|
269,757 |
|
Restricted Stock (unvested shares) |
|
|
39,111 |
|
|
|
75,111 |
|
Profits Interest Units |
|
|
275,000 |
|
|
|
277,500 |
|
|
|
|
|
|
|
|
Total potentially dilutive securities |
|
|
1,435,106 |
|
|
|
1,536,106 |
|
|
|
|
|
|
|
|
A reconciliation of the numerators and denominators for the basic and diluted earnings per share
computations is not required as the Trust reported a loss from continuing operations for all
periods presented, and therefore the effect of the inclusion of all potentially dilutive securities
would be anti-dilutive when computing diluted earnings per share; thus, the computation for both
basic and diluted earnings per share is the same.
Repairs, maintenance, and major improvements
The costs of ordinary repairs and maintenance are charged to operations when incurred. Major
improvements that extend the life of an asset are capitalized and depreciated over the remaining
useful life of the asset. Planned major repair, maintenance and improvement projects are
capitalized when performed. In some circumstances, the lenders require the Trust to maintain a
reserve account for future repairs and capital expenditures. These amounts are classified as
restricted
cash as the funds are not available for current use.
69
Goodwill and other intangible assets
The Trust accounts for its goodwill and other intangible assets under SFAS No. 142, Goodwill and
Other Intangible Assets. Goodwill is tested annually for impairment, 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 assets fair
value. The carrying value of goodwill was $3,070 and $3,458 at December 31, 2008 and 2007,
respectively. During the fourth quarter of 2008, the Trust performed an impairment test that
indicated the carrying value of the goodwill recorded on the student housing leasing segment was
not recoverable. The Trust utilized the discounted cash flow present value technique to determine
the fair value of the reporting unit resulting in an impairment loss of $388. As of December 31,
2008, there is no goodwill recorded on the student housing leasing segment, $2,149 of goodwill
recorded on the management services segment and $921 of goodwill recorded on the development
consulting services segment. In accordance with FAS 142, goodwill is not subject to amortization.
Other intangible assets generally include in-place leases and management contracts 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 $41 and $73 at December 31, 2008 and 2007,
respectively.
Investment in unconsolidated joint ventures and limited liability companies
The Operating Partnership accounts for its investments in unconsolidated joint ventures and limited
liability companies using the equity method whereby the cost of an investment is adjusted for the
Trusts share of equity in earnings of the respective investment reduced by distributions received.
The earnings and distributions of the unconsolidated joint ventures and limited liability companies
are allocated based on each owners respective ownership interests. These investments are
classified as other assets in the accompanying consolidated balance sheets. As of December 31, 2008
and 2007, the Trust had investments, directly or indirectly, in the following unconsolidated joint
ventures and limited liability companies that are accounted for under the equity method:
|
|
|
Salisbury Student Apartment Developers Joint Venture, 33% owned by AOES |
|
|
|
|
Salisbury Student Apartment Developers LLC, a Maryland limited liability company 33% owned by AOES |
|
|
|
|
University of Louisville Apartment Developers LLC, a Kentucky limited liability company 50% owned by AOES |
|
|
|
|
Hines/ AOES LLC, an Alabama limited liability company, 50% owned by AOES |
|
|
|
|
National Development/ Allen & OHara CUPA, LLC, a Pennsylvania limited liability company, 50% owned by
Allen & OHara Development Company, LLC (AODC) |
|
|
|
|
National Development/ Allen & OHara Lock Haven, LLC, a Pennsylvania limited liability company, 50%
owned by AODC |
|
|
|
|
National Development/ Allen & OHara Clarion, LLC, a Pennsylvania limited liability company, 50% owned
by AODC |
|
|
|
|
Allen & OHara National Development Bloomsburg LLC, a Pennsylvania limited liability company, 50% owned
by AODC |
|
|
|
|
Allen & OHara/ Academic Privatization LLC, a Tennessee limited liability company, 50% owned by AODC |
|
|
|
|
University Village-Greensboro LLC, a Delaware limited liability company, 25% owned by EROP |
|
|
|
|
AODC/CPA, LLC, a Delaware limited liability company, 50% owned by AODC |
|
|
|
|
WEDR Riverside Investors V, LLC, a Delaware limited liability company, 10% owned by EROP |
|
|
|
|
APF EDR, LP, a Delaware limited partnership, 10% owned by EROP |
|
|
|
|
APF EDR Food Services, LP, a Delaware limited partnership, 10% owned by EROP |
|
|
|
|
WEDR Stinson Investors V, LLC, a Delaware limited liability company, 10% owned by EROP |
Revenue recognition
The Trust recognizes revenue related to leasing activities at the student housing properties owned
by the Trust, management fees related to managing third party student housing properties,
development consulting fees related to the general oversight of third party student housing
development and operating expense reimbursements for payroll and related expenses incurred for
third party student housing properties managed by the Trust.
70
Student housing leasing revenue Student housing leasing revenue is comprised of all activities
related to leasing and operating the student housing properties and includes revenues from leasing
apartments by the bed, parking lot rentals and providing certain ancillary services. This revenue
is reflected in student housing leasing revenue in the accompanying consolidated statements of
operations. Students are required to execute lease contracts with payment schedules that vary from
annual to monthly payments. Generally, the Trust requires each executed leasing contract to be
accompanied by nonrefundable application and service fees and a signed parental guarantee.
Receivables are recorded when billed. Revenues and related lease incentives and nonrefundable
application and service fees are recognized on a straight-line basis over the term of the
contracts. The Trust has no contingent rental contracts, except as noted below, related to other
leasing revenue. At certain student housing facilities, the Trust offers parking lot rentals to the
tenants. The related revenues are recognized on a straight-line basis over the term of the related
agreement.
Due to the nature of the Trusts business, accounts receivable result primarily from monthly
billings of student rents. Payments are normally received within 30 days. Balances are considered
past due when payment is not received on the contractual due date. Allowances for uncollectible
accounts are established by management when it is determined that collection is doubtful. Such
allowances are reviewed periodically based upon experience. The following table reconciles the
allowance for doubtful accounts as of and for the years ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Balance, beginning of period |
|
$ |
173 |
|
|
$ |
43 |
|
|
$ |
410 |
|
Provision for uncollectible accounts |
|
|
1,327 |
|
|
|
804 |
|
|
|
775 |
|
Deductions |
|
|
(1,359 |
) |
|
|
(674 |
) |
|
|
(1,142 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
141 |
|
|
$ |
173 |
|
|
$ |
43 |
|
|
|
|
|
|
|
|
|
|
|
Student housing food service revenue The Trust maintains a dining facility at University Towers,
which offers meal plans to the tenants as well as dining to other third-party customers. The meal
plans typically require upfront payment by the tenant covering the school semester, and the related
revenue is recognized on a straight-line basis over the corresponding semester. The Trust also
provided food service to an unaffiliated secondary boarding school though a contract covering a
nine-month period. The contract was terminated in 2006. The contract required a flat weekly rate
and the related revenues were recognized on a straight-line basis over the contract period.
Other leasing revenue Other leasing revenue relates to our leasing of the 13 properties (Place
Portfolio) we acquired from Place Properties, Inc. (Place) in January 2006. Simultaneous with
the acquisition of the Place Portfolio, the Trust leased the assets to Place and received base
monthly rent of $1,145 and had the right to receive Additional Rent annually if the properties
exceeded certain criteria defined in the lease agreement. Base rent was recognized on a
straight-line basis over the lease term and Additional Rent was recognized only upon satisfaction
of the defined criteria. The lease was terminated on February 1, 2008. In connection with the
termination of the lease, Place paid the Operating Partnership a lease termination fee of $6,000.
Third-party development services revenue The Trust provides development consulting services in an
agency capacity with third parties whereby the fee is determined based upon the total construction
costs. Total fees vary from 3-5% of the total estimated costs, and we typically receive a portion
of the fees up front. These fees, including the upfront fee, are recognized using the percentage of
completion method in proportion to the contract costs incurred by the owner over the course of
construction of the respective projects. Occasionally, the development consulting contracts
include a provision whereby the Trust can participate in project savings resulting from successful
cost management efforts. These revenues are recognized once all contractual terms have been
satisfied and no future performance requirements exist. This typically occurs after construction
is complete. For the years ended December 31, 2008 and 2007, contingent fees of $1,944 and $848,
respectively, were recognized related to cost savings agreements on development projects. There
was no revenue recognized related to cost savings in 2006.
Third-party management services revenue The Trust enters into management contracts to manage
third-party student housing facilities. Management revenues are recognized when earned in
accordance with each management contract. Incentive management fees are recognized when the
incentive criteria have been met.
71
Operating expense reimbursements The Trust pays certain payroll and related costs to operate
third-party student housing properties that are managed by the Trust. Under the terms of the
related management agreements, the third-party property owners reimburse these costs. The amounts
billed to the third-party owners are recognized as revenue in accordance with Emerging Issues Task
Force No. 01-14, Income Statement Characterization of Reimbursements Received for Out of Pocket
Expenses Incurred.
Costs related to third party development consulting services
Costs associated with the pursuit of development consulting contracts are expensed as incurred,
until such time that management has been notified of a contract award. At such time the
reimbursable costs are recorded as receivables and are reflected as other assets in the
accompanying consolidated balance sheets.
Advertising expense
Advertising expenses are charged to income during the period incurred. The Trust does not use
direct response advertising.
Advertising expense was $2,195, $1,627 and $1,871 for the years ended December 31, 2008, 2007 and
2006, respectively.
Minority interests
Minority interests in the Operating Partnership represent limited partnership interests in the form
of operating partnership units and profits interest units. Income is allocated to minority
interests based on weighted average percentage ownership each fiscal quarter. In the event the
Operating Partnership was terminated on December 31, 2008, the amount of consideration paid to the
minority interests holders would be in accordance with their positive capital account balances,
determined after taking into account all capital account adjustments for all prior periods and the
Operating Partnerships taxable year during which the termination occurs.
Segment information
The Trust applies SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which requires disclosure of certain operating and financial data with respect to
separate business activities within an enterprise. The Trust has identified three reportable
business segments: student housing leasing, student housing development consulting services and
student housing management services.
Stock-based compensation
The Trust adopted the Education Realty Trust, Inc. 2004 Incentive Plan (the Plan) effective upon
the closing of the Offering. The Plan is described more fully in Note 9. The Trust adopted SFAS
No. 123 (R), Share-Based Payment on January 1, 2006, which requires that compensation costs related
to share-based payments be recognized in financial statements.
Fair value of financial instruments
The Trust follows SFAS No. 107, Disclosure about the Fair Value of Financial Instruments, which
requires the disclosure of the fair value of financial instruments for which it is practicable to
estimate. The Trust does not hold or issue financial instruments for trading purposes. The Trust
considers the carrying amounts of cash and cash equivalents, restricted cash and short-term
investments, student contracts receivable, accounts payable and accrued expenses to approximate
fair value due to the short maturity of these instruments. The Trust has estimated the fair value
of the fixed rate mortgage notes payable utilizing present value techniques. At December 31, 2008,
the carrying amount and estimated fair value of the fixed rate mortgage notes payable was $380,090
and $380,099, respectively. At December 31, 2007, the carrying amount and estimated fair value of
the mortgage notes payable was $419,267 and $417,385, respectively. The revolving credit facility
bears interest at variable rates and therefore cost approximates market value at December 31, 2008
and 2007. Additionally, the Trust entered into variable rate mortgage
debt on December 31, 2008 with a carrying value of $60,996 which also approximates market value.
Recent accounting pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R).
SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial effects
of the business combination. SFAS 141R is effective for financial statements issued for fiscal
years beginning after December 15, 2008. The Trust is currently evaluating the impact of adopting
SFAS 141R on its consolidated financial condition and results of operations.
72
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160 establishes
accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of consolidated net
income attributable to the parent and to the noncontrolling interest, changes in a parents
ownership interest, and
the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15, 2008. The Trust is
currently evaluating the impact of adopting SFAS 160 on its consolidated financial condition and
results of operations.
In March 2008, the FASB issued SFAS 161. SFAS 161 requires enhanced disclosure related to
derivatives and hedging activities and thereby seeks to improve the transparency of financial
reporting. Under SFAS 161, entities are required to provide enhanced disclosures relating to: (a)
how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge
items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133), and its related interpretations; and (c) how derivative instruments and
related hedged items affect an entitys financial position, financial performance and cash flows.
SFAS 161 must be applied prospectively to all derivative instruments and non-derivative instruments
that are designated and qualify as hedging instruments and related hedged items accounted for under
SFAS 133 for all financial statements issued for fiscal years beginning after November 15, 2008. We
are currently evaluating the impact of adopting SFAS 161 on our consolidated financial condition
and results of operations.
In April 2008, the FASB issued FSP 142-3. FSP 142-3 amends the factors to be considered in
developing renewal or extension assumptions used to determine the useful life of intangible assets
under SFAS No. 142, Goodwill and Other Intangible Assets. Its intent is to improve the consistency
between the useful life of an intangible asset and the period of expected cash flows used to
measure its fair value. This FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008. We are currently evaluating the impact of adopting FSP 142-3 on
our consolidated financial condition and results of operations.
In June 2008, the FASB issued FSP 03-6-1. FSP 03-6-1 clarifies that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and are to be included in the computation of earnings per
share under the two-class method described in SFAS No. 128, Earnings Per Share. This FSP is
effective for financial statements issued for fiscal years beginning after December 15, 2008 and
requires all presented prior-period earnings per share data to be adjusted retrospectively. We are
currently evaluating the impact of adopting FSP 03-6-1 on our consolidated financial condition and
results of operations.
3. Income taxes
Deferred income taxes result from temporary differences between the carrying amounts of assets and
liabilities of the TRS for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the deferred tax assets and liabilities at December 31, 2008
and 2007, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
365 |
|
|
$ |
412 |
|
Accrued expenses |
|
|
178 |
|
|
|
182 |
|
Straight line rent |
|
|
110 |
|
|
|
136 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
653 |
|
|
|
730 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
(4 |
) |
|
|
(19 |
) |
Depreciation and amortization |
|
|
(12 |
) |
|
|
|
|
Amortization of management contracts intangible |
|
|
(15 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
622 |
|
|
$ |
681 |
|
|
|
|
|
|
|
|
73
Significant components of the income tax provision (benefit) for the years ended December 31, 2008,
2007 and 2006, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
26 |
|
|
$ |
(127 |
) |
|
$ |
40 |
|
State |
|
|
33 |
|
|
|
(51 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
Deferred expense (benefit) |
|
|
59 |
|
|
|
(178 |
) |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
802 |
|
|
|
377 |
|
|
|
498 |
|
State |
|
|
262 |
|
|
|
59 |
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
Current expense |
|
|
1,064 |
|
|
|
436 |
|
|
|
611 |
|
|
|
|
|
|
|
|
|
|
|
Total provision |
|
$ |
1,123 |
|
|
$ |
258 |
|
|
$ |
659 |
|
|
|
|
|
|
|
|
|
|
|
TRS earnings subject to tax consisted of $2,596, $666 and $1,606 for the years ended December 31,
2008, 2007 and 2006, respectively. The reconciliation of income tax attributable to income before
minority interest computed at the U.S. statutory rate to income tax provision is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Tax provision at U.S. statutory rates on TRS income subject to tax |
|
$ |
883 |
|
|
$ |
226 |
|
|
$ |
546 |
|
State income tax, net of federal benefit |
|
|
156 |
|
|
|
29 |
|
|
|
108 |
|
Other |
|
|
84 |
|
|
|
3 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Tax provision |
|
$ |
1,123 |
|
|
$ |
258 |
|
|
$ |
659 |
|
|
|
|
|
|
|
|
|
|
|
74
4. Acquisition of real estate investments
On January 1, 2006, the Operating Partnership acquired the 13 student housing properties referred
to as the Place Portfolio for a combination of cash, partnership units and assumed debt. The cash
contribution totaled approximately $105,200. The Operating Partnership also issued 36,954 Operating
Partnership units valued at approximately $500, and assumed liabilities of $800 and interest-only
mortgage debt of approximately $98,660. A summary follows of the fair values of the assets acquired
and the liabilities assumed as of the date of the acquisition:
|
|
|
|
|
|
|
Allocation |
|
|
|
Place Portfolio |
|
Current assets and restricted cash |
|
$ |
2,376 |
|
Student housing properties |
|
|
202,250 |
|
Other |
|
|
570 |
|
|
|
|
|
Total assets acquired |
|
|
205,196 |
|
Current liabilities |
|
|
(855 |
) |
Mortgage debt assumed net of premium/discount |
|
|
(98,660 |
) |
Acquisition costs |
|
|
(7,446 |
) |
|
|
|
|
Purchase price |
|
$ |
98,235 |
|
|
|
|
|
On June 15, 2006, the Operating Partnership acquired Players Club, an off-campus collegiate
community located near Georgia Southern University in Statesboro, Georgia (Statesboro), for
$12,900 in cash and assumed liabilities. A summary follows of the fair values of the assets
acquired and the liabilities assumed as of the date of the acquisition:
|
|
|
|
|
|
|
Allocation |
|
|
|
Statesboro |
|
Current assets and restricted cash |
|
$ |
77 |
|
Student housing properties |
|
|
12,703 |
|
Other |
|
|
159 |
|
|
|
|
|
Total assets acquired |
|
|
12,939 |
|
Current liabilities |
|
|
(115 |
) |
Mortgage debt assumed net of premium/discount |
|
|
|
|
Acquisition costs |
|
|
(65 |
) |
|
|
|
|
Purchase price |
|
$ |
12,759 |
|
|
|
|
|
The results of operations for each acquisition have been included in our consolidated statements of
operations from the respective acquisition dates.
On June 28, 2007, the Trust completed the acquisition of land in Carbondale, Illinois for $1,099 in
order to develop a wholly owned student apartment community near Southern Illinois University.
After the acquisition, we incurred an additional $20,580 ($4,576 during 2007) in costs to develop
the property. The first phase of the development opened in August of 2008 and as such these assets
have been reclassified from assets under development to student housing properties on the
consolidated balance sheet. During 2008 and 2007, respectively, we capitalized $386 and $58 of
interest cost related to the first phase of the development. The second phase of the development
started in 2008 and as of December 31, 2008 we have incurred approximately $327 in costs.
During 2008, the Trust also began development of a wholly owned student apartment property located
on the campus of Syracuse University. The Trust will own and manage the property under a long-term
ground lease from Syracuse University. As of December 31, 2008, the Trust has incurred $6,245 in
development costs including capitalized interest of $67.
All costs related to the development of student housing apartment communities are classified as
assets under development in the accompanying consolidated balance sheets until the development is
complete and opens.
75
5. Disposition of real estate investments and discontinued operations
On June 5, 2007, the Trust sold the Village on Tharpe (Tharpe) student housing property for a
sales price of $50,000, resulting in net proceeds of approximately $48,942. The net proceeds were
used to pay off $47,000 of long-term debt resulting in a loss on early extinguishment of $174
related to the write off of unamortized deferred financing costs. The resulting gain on disposition
of approximately $1,579, net of minority interest, is included in discontinued operations in the
accompanying consolidated statement of operations for the year ended December 31, 2007.
Accordingly, the results of operations of Tharpe are included in discontinued operations for the
years ended December 31, 2007 and 2006. In accordance with the provisions of SFAS No. 144, the
Trust ceased depreciation on the property when it met the held for sale criteria.
There were no discontinued operations for the year ended December 31, 2008. The following table
summarizes income from discontinued operations, net of minority interest, and the related realized
gains on sales of real estate from discontinued operations, net of minority interest, for the years
ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Student housing leasing revenue |
|
$ |
2,692 |
|
|
$ |
6,236 |
|
Student housing leasing operating expenses
|
|
|
(1,159 |
) |
|
|
(3,166 |
) |
Depreciation and amortization
|
|
|
(711 |
) |
|
|
(2,048 |
) |
Minority interest in Operating Partnership
|
|
|
(34 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
|
Income from discontinued operations (net of minority interest) |
|
$ |
788 |
|
|
$ |
973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of student housing property |
|
$ |
1,644 |
|
|
$ |
|
|
Minority interest in Operating Partnership |
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of student housing property (net of minority interest) |
|
$ |
1,579 |
|
|
$ |
|
|
|
|
|
|
|
|
|
During 2008, the Trust sold the parking garage and land associated with the University Towers
residence hall to a unit holder for a loss of $512. The Trust redeemed the unit holders units and
received cash valued at $2,616. The loss on the sale is included in the student housing leasing
operations expense in the consolidated statement of operations. The Trust subsequently entered into
a 40-year ground lease.
76
6. Student housing properties
Student housing properties consist of the following at December 31, 2008 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Land |
|
$ |
58,754 |
|
|
$ |
59,850 |
|
Land improvements |
|
|
51,837 |
|
|
|
53,250 |
|
Construction in progress |
|
|
2,453 |
|
|
|
1,749 |
|
Buildings |
|
|
691,451 |
|
|
|
667,120 |
|
Furniture, fixtures and equipment |
|
|
43,102 |
|
|
|
37,219 |
|
|
|
|
|
|
|
|
|
|
|
847,597 |
|
|
|
819,188 |
|
Less accumulated depreciation |
|
|
(114,090 |
) |
|
|
(86,209 |
) |
|
|
|
|
|
|
|
Student housing properties, net |
|
$ |
733,507 |
|
|
$ |
732,979 |
|
|
|
|
|
|
|
|
Following is certain information related to investment in student housing properties as of
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost |
|
|
Cost |
|
|
Total Costs |
|
|
|
|
|
|
Date of |
|
|
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
|
|
|
|
Capitalized |
|
|
|
|
|
|
Buildings and |
|
|
|
|
|
|
Accumulated |
|
|
Acquisition/ |
|
Property(4) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
Total |
|
|
Subsequently |
|
|
Land |
|
|
Improvements |
|
|
Total |
|
|
Depreciation(5) |
|
|
Construction |
|
University Towers |
|
$ |
25,000 |
|
|
$ |
|
|
|
$ |
28,652 |
|
|
$ |
28,652 |
|
|
$ |
1,632 |
|
|
$ |
|
|
|
$ |
30,284 |
|
|
$ |
30,284 |
|
|
$ |
5,251 |
|
|
|
01/31/05 |
|
The Gables |
|
|
4,291 |
|
|
|
198 |
|
|
|
5,099 |
|
|
|
5,297 |
|
|
|
283 |
|
|
|
198 |
|
|
|
5,382 |
|
|
|
5,580 |
|
|
|
961 |
|
|
|
01/31/05 |
|
The Reserve at Athens |
|
|
|
|
|
|
1,740 |
|
|
|
17,985 |
|
|
|
19,725 |
|
|
|
390 |
|
|
|
1,740 |
|
|
|
18,375 |
|
|
|
20,115 |
|
|
|
2,827 |
|
|
|
01/31/05 |
|
Players Club |
|
|
|
|
|
|
727 |
|
|
|
7,498 |
|
|
|
8,225 |
|
|
|
532 |
|
|
|
727 |
|
|
|
8,030 |
|
|
|
8,757 |
|
|
|
1,295 |
|
|
|
01/31/05 |
|
College Station |
|
|
|
|
|
|
244 |
|
|
|
2,190 |
|
|
|
2,434 |
|
|
|
218 |
|
|
|
244 |
|
|
|
2,408 |
|
|
|
2,652 |
|
|
|
545 |
|
|
|
01/31/05 |
|
The Reserve at Clemson |
|
|
12,000 |
|
|
|
625 |
|
|
|
18,230 |
|
|
|
18,855 |
|
|
|
598 |
|
|
|
625 |
|
|
|
18,828 |
|
|
|
19,453 |
|
|
|
3,200 |
|
|
|
01/31/05 |
|
NorthPointe |
|
|
18,800 |
|
|
|
2,498 |
|
|
|
27,323 |
|
|
|
29,821 |
|
|
|
908 |
|
|
|
2,498 |
|
|
|
28,231 |
|
|
|
30,729 |
|
|
|
4,465 |
|
|
|
01/31/05 |
|
The Pointe at South Florida (1) |
|
|
8,662 |
|
|
|
3,508 |
|
|
|
30,510 |
|
|
|
34,018 |
|
|
|
1,923 |
|
|
|
3,508 |
|
|
|
32,433 |
|
|
|
35,941 |
|
|
|
5,417 |
|
|
|
01/31/05 |
|
The Reserve on Perkins |
|
|
15,492 |
|
|
|
913 |
|
|
|
15,795 |
|
|
|
16,708 |
|
|
|
777 |
|
|
|
913 |
|
|
|
16,572 |
|
|
|
17,485 |
|
|
|
2,825 |
|
|
|
01/31/05 |
|
The Commons at Knoxville(1) |
|
|
21,774 |
|
|
|
4,630 |
|
|
|
18,386 |
|
|
|
23,016 |
|
|
|
729 |
|
|
|
4,630 |
|
|
|
19,115 |
|
|
|
23,745 |
|
|
|
3,191 |
|
|
|
01/31/05 |
|
The Reserve at Tallahassee |
|
|
|
|
|
|
2,743 |
|
|
|
21,176 |
|
|
|
23,919 |
|
|
|
993 |
|
|
|
2,743 |
|
|
|
22,169 |
|
|
|
24,912 |
|
|
|
3,596 |
|
|
|
01/31/05 |
|
The Pointe at Western (3) |
|
|
5,625 |
|
|
|
1,096 |
|
|
|
30,647 |
|
|
|
31,743 |
|
|
|
1,973 |
|
|
|
1,096 |
|
|
|
32,620 |
|
|
|
33,716 |
|
|
|
5,128 |
|
|
|
01/31/05 |
|
College Station at W. Lafayette (2) |
|
|
19,565 |
|
|
|
1,887 |
|
|
|
19,528 |
|
|
|
21,415 |
|
|
|
956 |
|
|
|
1,887 |
|
|
|
20,484 |
|
|
|
22,371 |
|
|
|
3,636 |
|
|
|
01/31/05 |
|
The Commons on Kinnear (3) |
|
|
15,000 |
|
|
|
1,327 |
|
|
|
20,803 |
|
|
|
22,130 |
|
|
|
582 |
|
|
|
1,327 |
|
|
|
21,385 |
|
|
|
22,712 |
|
|
|
3,145 |
|
|
|
01/31/05 |
|
The Pointe at Penn State(2) |
|
|
28,687 |
|
|
|
2,151 |
|
|
|
35,094 |
|
|
|
37,245 |
|
|
|
1,213 |
|
|
|
2,151 |
|
|
|
36,307 |
|
|
|
38,458 |
|
|
|
5,421 |
|
|
|
01/31/05 |
|
The Reserve at Star Pass(2) |
|
|
23,854 |
|
|
|
1,584 |
|
|
|
30,810 |
|
|
|
32,394 |
|
|
|
795 |
|
|
|
1,584 |
|
|
|
31,605 |
|
|
|
33,189 |
|
|
|
5,084 |
|
|
|
01/31/05 |
|
The Reserve at Columbia (1) |
|
|
15,003 |
|
|
|
1,071 |
|
|
|
26,134 |
|
|
|
27,205 |
|
|
|
788 |
|
|
|
1,071 |
|
|
|
26,922 |
|
|
|
27,993 |
|
|
|
3,958 |
|
|
|
01/31/05 |
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost |
|
|
Cost |
|
|
Total Costs |
|
|
|
|
|
|
Date of |
|
|
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
|
|
|
|
Capitalized |
|
|
|
|
|
|
Buildings and |
|
|
|
|
|
|
Accumulated |
|
|
Acquisition/ |
|
Property(4) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
Total |
|
|
Subsequently |
|
|
Land |
|
|
Improvements |
|
|
Total |
|
|
Depreciation(5) |
|
|
Construction |
|
The Reserve on Frankford |
|
|
7,020 |
|
|
|
1,181 |
|
|
|
26,758 |
|
|
|
27,939 |
|
|
|
717 |
|
|
|
1,181 |
|
|
|
27,475 |
|
|
|
28,656 |
|
|
|
4,881 |
|
|
|
01/31/05 |
|
The Lofts |
|
|
27,000 |
|
|
|
2,801 |
|
|
|
34,117 |
|
|
|
36,918 |
|
|
|
446 |
|
|
|
2,801 |
|
|
|
34,563 |
|
|
|
37,364 |
|
|
|
4,949 |
|
|
|
01/31/05 |
|
The Reserve on West 31st |
|
|
|
|
|
|
1,896 |
|
|
|
14,920 |
|
|
|
16,816 |
|
|
|
1,367 |
|
|
|
1,896 |
|
|
|
16,287 |
|
|
|
18,183 |
|
|
|
2,800 |
|
|
|
01/31/05 |
|
Campus Creek |
|
|
|
|
|
|
2,251 |
|
|
|
21,604 |
|
|
|
23,855 |
|
|
|
953 |
|
|
|
2,251 |
|
|
|
22,557 |
|
|
|
24,808 |
|
|
|
3,662 |
|
|
|
02/22/05 |
|
Pointe West |
|
|
10,637 |
|
|
|
2,318 |
|
|
|
10,924 |
|
|
|
13,242 |
|
|
|
400 |
|
|
|
2,318 |
|
|
|
11,324 |
|
|
|
13,642 |
|
|
|
2,132 |
|
|
|
03/17/05 |
|
Campus Lodge |
|
|
35,841 |
|
|
|
2,746 |
|
|
|
44,415 |
|
|
|
47,161 |
|
|
|
592 |
|
|
|
2,746 |
|
|
|
45,007 |
|
|
|
47,753 |
|
|
|
6,424 |
|
|
|
06/07/05 |
|
College Grove (1) |
|
|
14,824 |
|
|
|
1,334 |
|
|
|
19,270 |
|
|
|
20,604 |
|
|
|
1,826 |
|
|
|
1,334 |
|
|
|
21,096 |
|
|
|
22,430 |
|
|
|
3,963 |
|
|
|
04/27/05 |
|
The Reserve on South College (3) |
|
|
12,750 |
|
|
|
1,744 |
|
|
|
10,784 |
|
|
|
12,528 |
|
|
|
1,742 |
|
|
|
1,744 |
|
|
|
12,526 |
|
|
|
14,270 |
|
|
|
2,206 |
|
|
|
07/06/05 |
|
The Avenue at Southern(3) |
|
|
9,479 |
|
|
|
2,028 |
|
|
|
10,675 |
|
|
|
12,703 |
|
|
|
2,026 |
|
|
|
2,028 |
|
|
|
12,701 |
|
|
|
14,729 |
|
|
|
1,371 |
|
|
|
06/15/06 |
|
The Reserve at Saluki Pointe |
|
|
10,901 |
|
|
|
1,099 |
|
|
|
20,580 |
|
|
|
21,679 |
|
|
|
|
|
|
|
1,099 |
|
|
|
20,580 |
|
|
|
21,679 |
|
|
|
241 |
|
|
|
08/01/08 |
|
Troy Place |
|
|
9,440 |
|
|
|
523 |
|
|
|
12,404 |
|
|
|
12,927 |
|
|
|
507 |
|
|
|
523 |
|
|
|
12,911 |
|
|
|
13,434 |
|
|
|
1,471 |
|
|
|
01/01/06 |
|
The Reserve at Jacksonville |
|
|
11,120 |
|
|
|
628 |
|
|
|
14,532 |
|
|
|
15,160 |
|
|
|
440 |
|
|
|
628 |
|
|
|
14,972 |
|
|
|
15,600 |
|
|
|
1,685 |
|
|
|
01/01/06 |
|
The Pointe at Southern |
|
|
|
|
|
|
1,180 |
|
|
|
17,288 |
|
|
|
18,468 |
|
|
|
554 |
|
|
|
1,180 |
|
|
|
17,842 |
|
|
|
19,022 |
|
|
|
1,981 |
|
|
|
01/01/06 |
|
Macon Place |
|
|
7,440 |
|
|
|
340 |
|
|
|
9,856 |
|
|
|
10,196 |
|
|
|
313 |
|
|
|
340 |
|
|
|
10,169 |
|
|
|
10,509 |
|
|
|
1,165 |
|
|
|
01/01/06 |
|
Clayton Place |
|
|
24,540 |
|
|
|
4,291 |
|
|
|
28,843 |
|
|
|
33,134 |
|
|
|
379 |
|
|
|
4,291 |
|
|
|
27,588 |
|
|
|
31,879 |
|
|
|
3,036 |
|
|
|
01/01/06 |
|
Carrollton Place |
|
|
|
|
|
|
682 |
|
|
|
12,166 |
|
|
|
12,848 |
|
|
|
322 |
|
|
|
682 |
|
|
|
12,488 |
|
|
|
13,170 |
|
|
|
1,306 |
|
|
|
01/01/06 |
|
River Place |
|
|
13,680 |
|
|
|
837 |
|
|
|
17,746 |
|
|
|
18,583 |
|
|
|
434 |
|
|
|
837 |
|
|
|
18,180 |
|
|
|
19,017 |
|
|
|
2,035 |
|
|
|
01/01/06 |
|
The Chase at Murray |
|
|
6,800 |
|
|
|
550 |
|
|
|
8,864 |
|
|
|
9,414 |
|
|
|
651 |
|
|
|
550 |
|
|
|
9,515 |
|
|
|
10,065 |
|
|
|
1,168 |
|
|
|
01/01/06 |
|
Western Place |
|
|
|
|
|
|
660 |
|
|
|
16,332 |
|
|
|
16,992 |
|
|
|
255 |
|
|
|
660 |
|
|
|
16,587 |
|
|
|
17,247 |
|
|
|
1,814 |
|
|
|
01/01/06 |
|
Cape Place |
|
|
8,520 |
|
|
|
445 |
|
|
|
11,207 |
|
|
|
11,652 |
|
|
|
412 |
|
|
|
445 |
|
|
|
11,619 |
|
|
|
12,064 |
|
|
|
1,310 |
|
|
|
01/01/06 |
|
Clemson Place |
|
|
8,160 |
|
|
|
759 |
|
|
|
10,317 |
|
|
|
11,076 |
|
|
|
293 |
|
|
|
759 |
|
|
|
10,610 |
|
|
|
11,369 |
|
|
|
1,152 |
|
|
|
01/01/06 |
|
Berkeley Place |
|
|
|
|
|
|
1,048 |
|
|
|
18,497 |
|
|
|
19,545 |
|
|
|
243 |
|
|
|
1,048 |
|
|
|
18,740 |
|
|
|
19,788 |
|
|
|
2,005 |
|
|
|
01/01/06 |
|
The Reserve at Martin |
|
|
8,960 |
|
|
|
471 |
|
|
|
11,784 |
|
|
|
12,255 |
|
|
|
572 |
|
|
|
471 |
|
|
|
12,356 |
|
|
|
12,827 |
|
|
|
1,388 |
|
|
|
01/01/06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
440,865 |
|
|
$ |
58,754 |
|
|
$ |
758,896 |
|
|
$ |
817,650 |
|
|
$ |
30,734 |
|
|
$ |
58,754 |
|
|
$ |
785,801 |
|
|
$ |
847,597 |
|
|
$ |
114,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Pointe at South Florida, College Grove, The
Commons at Knoxville and The Reserve at Columbia are
cross collateralized against the $60,263 outstanding
loan discussed in Note 10. |
|
(2) |
|
The Pointe at Penn State, The Reserve at Star Pass and
College Station at West Lafayette are cross
collateralized against the $72,106 outstanding loan
discussed in Note 10.
|
|
(3) |
|
The Pointe at Western, The Commons on Kinnear, The Reserve on South
College and at The Avenue at Southern are cross collateralized against
the $49,874 outstanding loan discussed in Note 10. |
|
(4) |
|
All properties are garden-style student housing
communities except for University Towers which is a
traditional residence hall. |
|
(5) |
|
Assets have useful lives ranging from 3 to 40 years. |
78
The following table reconciles the historical cost of the Trusts investment in student
housing properties for the years ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Balance, beginning of period |
|
$ |
819,188 |
|
|
$ |
863,248 |
|
|
$ |
643,515 |
|
Student housing acquisitions or completed developments |
|
|
21,679 |
|
|
|
|
|
|
|
214,953 |
|
Student housing dispositions |
|
|
|
|
|
|
(52,406 |
) |
|
|
|
|
Impairment loss |
|
|
(1,633 |
) |
|
|
|
|
|
|
|
|
Additions |
|
|
13,986 |
|
|
|
8,463 |
|
|
|
4,860 |
|
Disposals |
|
|
(5,623 |
) |
|
|
(117 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
847,597 |
|
|
$ |
819,188 |
|
|
$ |
863,248 |
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the accumulated depreciation of the Trusts investment in student
housing properties for the years ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Balance, beginning of period |
|
$ |
86,209 |
|
|
$ |
58,489 |
|
|
$ |
23,210 |
|
Depreciation |
|
|
28,819 |
|
|
|
32,409 |
|
|
|
35,320 |
|
Disposals |
|
|
(938 |
) |
|
|
(77 |
) |
|
|
(41 |
) |
Student housing dispositions |
|
|
|
|
|
|
(4,612 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
114,090 |
|
|
$ |
86,209 |
|
|
$ |
58,489 |
|
|
|
|
|
|
|
|
|
|
|
During 2008, management determined that due to declining occupancy and trends at one student
housing community the carrying amount of the property may not be recoverable. In accordance with
SFAS No. 144, the fair value of the property was estimated and management recorded a $1,633
impairment loss in the accompanying consolidated statement of operations.
7. Corporate office furniture and other assets
As of December 31, 2008 and 2007, the Trust had corporate office furniture with a historical cost
of $2,938 and $2,621, respectively, and accumulated depreciation of $1,473 and $928, respectively.
Depreciation is computed using the straight-line method for financial reporting purposes over the
estimated useful lives of the related assets, generally 3 to 7 years. Depreciation expense totaled
$544, $407 and $316 for the years ended December 31, 2008, 2007 and 2006, respectively.
Other assets consist of the following at December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Accounts receivable related to development |
|
$ |
965 |
|
|
$ |
2,524 |
|
Refundable deposit |
|
|
7,162 |
|
|
|
|
|
Prepaid expenses |
|
|
371 |
|
|
|
1,027 |
|
Deferred tax asset |
|
|
653 |
|
|
|
730 |
|
Deferred financing costs |
|
|
3,306 |
|
|
|
1,918 |
|
Investments in unconsolidated entities |
|
|
2,759 |
|
|
|
2,671 |
|
Note receivable |
|
|
834 |
|
|
|
845 |
|
Other |
|
|
1,385 |
|
|
|
692 |
|
|
|
|
|
|
|
|
Total other assets |
|
$ |
17,435 |
|
|
$ |
10,407 |
|
|
|
|
|
|
|
|
8. Investments in unconsolidated entities
The Trusts ownership in SSAD, SSAD LLC, ULAD LLC, Hines/ AOES LLC, CUPA LLC, Lock Haven LLC,
Clarion LLC, Bloomsburg LLC, AP LLC, AODC/CPA, LLC, University Village-Greensboro LLC, WEDR
Riverside Investors V, LLC, WEDR Stinson Investors V, LLC, APF EDR, LP, and APF EDR Food Services,
LP is accounted for under the equity method. The following is a summary of financial information
for the Trusts unconsolidated joint ventures, limited liability companies and limited
partnerships.
Financial Position:
|
|
|
|
|
|
|
|
|
As of December 31, |
|
2008 |
|
|
2007 |
|
Total assets |
|
$ |
147,951 |
|
|
$ |
145,644 |
|
Total liabilities |
|
|
114,348 |
|
|
|
116,040 |
|
|
|
|
|
|
|
|
Equity |
|
|
33,603 |
|
|
|
29,604 |
|
|
|
|
|
|
|
|
|
Trusts and EDR Predecessors investment in unconsolidated entities |
|
$ |
2,759 |
|
|
$ |
2,671 |
|
|
|
|
|
|
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Revenues |
|
$ |
16,415 |
|
|
$ |
13,283 |
|
|
$ |
3,909 |
|
Net income (loss) |
|
|
(1,890 |
) |
|
|
(4,194 |
) |
|
|
1,013 |
|
Trusts and EDR Predecessors equity in earnings (losses) of unconsolidated entities |
|
$ |
(196 |
) |
|
$ |
(277 |
) |
|
$ |
740 |
|
These entities provide development consulting services to third party student housing owners in an
agency capacity or own student housing communities which are managed by the Trust.
79
9. Incentive plans
The Trust adopted the Education Realty Trust, Inc. 2004 Incentive Plan (the Plan) effective upon
the closing of the Offering. The Plan provides for the grant of stock options, restricted stock
units, stock appreciation rights, other stock-based incentive awards, and profits interest units to
employees, directors and other key persons providing services to the Trust. On December 31, 2008,
the Trust has reserved 832,000 shares of its common stock for issuance pursuant to the Plan,
subject to adjustments for changes in the Trusts capital structure, including share splits,
dividends and recapitalizations. The number of shares reserved under the Plan is also subject to an
annual adjustment, beginning on January 1, 2006, so that the total number of shares reserved under
the Plan is equal to 4% of the aggregate number of shares outstanding on the last day of the
preceding fiscal year; provided that such annual increase generally may not exceed 80,000 shares.
A restricted stock award is an award of the Trusts common stock that is subject to restrictions on
transferability and other restrictions as the Trusts compensation committee determines in its sole
discretion on the date of grant. The restrictions may lapse over a specified period of employment
or the satisfaction of pre-established criteria as our compensation committee may determine. Except
to the extent restricted under the award agreement, a participant awarded restricted shares will
have all of the rights of a stockholder as to those shares, including, without limitation, the
right to vote and the right to receive dividends or distributions on the shares. Restricted stock
is generally taxed at the time of vesting. At December 31, 2008 and 2007, unearned compensation
totaled $657 and $1,261, respectively, and will be recorded as expense over the applicable vesting
period. The value is determined based on the market value of the Trusts common stock on the grant
date. During each of the years ended December 31 2008, 2007 and 2006, compensation expense of $604
was recognized in the accompanying consolidated statements of operations, related to the vesting of
restricted stock.
Profits interest units, or PIUs, are units in a limited liability company controlled by the Trust
that holds a special class of partnership interests in the Operating Partnership. Each PIU will be
deemed equivalent to an award of one share of the Trusts common stock and
will entitle the owner of such unit to receive the same quarterly per unit distributions as one
common unit of the Operating Partnership. This treatment with respect to quarterly distributions is
similar to the expected treatment of restricted stock awards, which will generally receive full
dividends whether vested or not. PIUs will not initially have full parity with common units of the
Operating Partnership with respect to liquidating distributions.
Upon the occurrence of specified capital equalization events, PIUs may, over time, achieve full or
partial parity with common units of the Operating Partnership for all purposes, and could accrete
to an economic value equivalent to the Trusts common stock on a one-for-one basis. If such parity
is reached, vested PIUs may be exchanged into an equal number of the Trusts shares of common stock
at any time. However, there are circumstances under which full parity would not be reached. Until
such parity is reached, the value that may be realized for vested PIUs will be less than the value
of an equal number of shares of the Trusts common stock, if there is any value at all. The grant
or vesting of PIUs is not expected to be a taxable transaction to recipients. Conversely, we will
not receive any tax deduction for compensation expense from the grant of PIUs. PIUs are treated as
minority interests in the accompanying consolidated financial statements at an amount equal to the
holders ownership percentage of the net equity of the Operating Partnership.
Total compensation cost recognized in general and administrative expense in the accompanying
consolidated statements of operations for the years ended December 31, 2008, 2007 and 2006 was
$761, $772 and $796, respectively. The adoption of SFAS No. 123 (R) on January 1, 2006 had no
impact on the accompanying financial statements other than the reclassification of unearned
compensation of $2,470 to additional paid-in capital in the accompanying statement of changes in
stockholders equity.
Additionally during each of the years ended December 31, 2008 and 2007, the Trust issued 4,000
shares of common stock to an executive officer and 4,000 shares of common stock, collectively, to
its independent directors pursuant to the Plan.
80
A summary of the stock-based incentive plan activity as of and for the years ended December 31,
2008, 2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
|
|
|
|
PIUs |
|
|
Awards(1) |
|
|
Total |
|
Outstanding at December 31, 2005 |
|
|
245,000 |
|
|
|
186,000 |
|
|
|
431,000 |
|
Granted |
|
|
22,500 |
|
|
|
6,000 |
|
|
|
28,500 |
|
Retired |
|
|
(2,500 |
) |
|
|
|
|
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
|
265,000 |
|
|
|
192,000 |
|
|
|
457,000 |
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
17,500 |
|
|
|
8,000 |
|
|
|
25,500 |
|
Retired |
|
|
(5,000 |
) |
|
|
|
|
|
|
(5,000 |
) |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
277,500 |
|
|
|
200,000 |
|
|
|
477,500 |
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
10,000 |
|
|
|
8,000 |
|
|
|
18,000 |
|
Retired |
|
|
(12,500 |
) |
|
|
|
|
|
|
(12,500 |
) |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
275,000 |
|
|
|
208,000 |
|
|
|
483,000 |
|
|
|
|
|
|
|
|
|
|
|
Vested at December 31, 2008 |
|
|
275,000 |
|
|
|
168,889 |
|
|
|
443,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes restricted stock awards. |
10. Debt
Revolving credit facility
On March 31, 2006, the Operating Partnership amended and restated the revolving credit facility
(the Amended Revolver) dated January 31, 2005 to increase the maximum availability to $100,000.
Availability under the Amended Revolver is limited to a borrowing base availability equal to the
lesser of (i) 65% of the property asset value (as defined in the amended agreement) of the
properties securing the facility and (ii) the loan amount which would produce a debt service
coverage ratio of no less than 1.30, with debt service based on the greater of two different sets
of conditions specified in the amended agreement. As of December 31, 2008, our borrowing base was
$51,075, we had $32,900 outstanding and we had a letter of credit outstanding of $1,512 (see Note
16); thus, our remaining borrowing base availability was $16,663. We do, however, have additional
unmortgaged properties that can be pledged against the Amended Revolver to increase total
availability.
The Trust serves as the guarantor for any funds borrowed by the Operating Partnership
under the Amended Revolver. Additionally, the Amended Revolver is secured by a
cross-collateralized, first mortgage lien on six otherwise unmortgaged properties. The Amended
Revolver has a term of three years and matures on March 31, 2009. However, the Operating
Partnership has exercised its option to extend the maturity date until March 30, 2010, under
existing terms. The
interest rate per annum applicable to the Amended Revolver is, at the Operating Partnerships
option, equal to a base rate or London InterBank Offered Rate (LIBOR) plus an applicable margin
based upon our leverage (2.78% at December 31, 2008).
The Amended Revolver contains customary affirmative and negative covenants and contains financial
covenants that, among other things, require the Trust and its subsidiaries to maintain certain
minimum ratios of EBITDA (earnings before payment or charges of interest, taxes, depreciation,
amortization or extraordinary items) as compared to interest expense and total fixed charges. The
financial covenants also include consolidated net worth and leverage ratio tests.
The Trust is prohibited from making distributions that exceed $1.20 per share unless prior to and
after giving effect to such action the total leverage ratio is less than or equal to 60%. The
amount of restricted payments permitted may be increased as long as either of the following
conditions is met: (a) after giving effect to the increased restricted payment, the total leverage
ratio shall remain less than or equal to 60%; or (b) the increased restricted payment, when
considered along with all other restricted payments for the last 3 quarters, does not exceed 95% of
funds from operations for the applicable period.
During
2007 and 2006, the Trust issued 1,571,692 and 405,607 shares of
common stock, respectively, under the direct stock purchase
plan, raising net proceeds of approximately $22,530 and $5,994,
respectively, which were primarily used to pay down the
Amended Revolver.
81
Mortgage and construction debt
At December 31, 2008, the Trust had mortgage and construction notes payable consisting of the
following which were secured by the underlying student housing properties or leaseholds of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
Maturity |
|
|
|
|
Property |
|
2008 |
|
|
Interest Rate |
|
|
Date |
|
|
Amortization |
|
University Towers |
|
$ |
25,000 |
|
|
|
5.99 |
% |
|
|
7/1/2013 |
|
|
30 Year |
The Reserve at Clemson |
|
|
12,000 |
|
|
|
5.55 |
% |
|
|
3/1/2012 |
|
|
30 Year |
The Gables |
|
|
4,291 |
|
|
|
5.50 |
% |
|
|
11/1/2013 |
|
|
30 Year |
NorthPointe |
|
|
18,800 |
|
|
|
5.55 |
% |
|
|
3/1/2012 |
|
|
30 Year |
The Pointe at S. Florida/The Reserve at Columbia/ The Commons at Knoxville/College Grove |
|
|
60,263 |
|
|
|
6.02 |
% |
|
|
1/1/2019 |
|
|
30 Year |
The Res |