Edgar Filing: Education Realty Trust, Inc.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended June 30, 2017



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-32417

Education Realty Trust, Inc.

Education Realty Operating Partnership, LP

(Exact Name of Registrant as Specified in Its Charter)



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



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

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

Not Applicable

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Education Realty Trust, Inc. Yes x No o

Education Realty Operating Partnership, LP Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Education Realty Trust, Inc. Yes x No o

Education Realty Operating Partnership, LP Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Education Realty Trust, Inc.



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

Education Realty Operating Partnership, LP



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

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Education Realty Trust, Inc. Yes o No x

Education Realty Operating Partnership, LP Yes o No x

As of July 28, 2017, Education Realty Trust, Inc. had 73,196,482 shares of common stock outstanding.

EXPLANATORY NOTE

This report combines the reports on Form 10-Q for the quarterly period ended June 30, 2017 of Education Realty Trust, Inc. and Education Realty Operating Partnership, LP. Unless stated otherwise or the context otherwise requires, references to “EdR” mean only Education Realty Trust, Inc. a Maryland corporation, and references to “EROP” mean only Education Realty Operating Partnership, LP, a Delaware limited partnership. References to the "Trust," "we," "us," or "our" mean collectively EdR, EROP and those entities/subsidiaries owned or controlled by EdR and/or EROP. References to the "Operating Partnership" mean collectively EROP and those entities/subsidiaries owned or controlled by EROP. The following chart illustrates our corporate structure:

The general partner of EROP is Education Realty OP GP, Inc. (the “OP GP”), an entity that is wholly-owned by EdR. As of June 30, 2017, OP GP held an ownership interest in EROP of less than 1%. The limited partners of EROP are Education Realty OP Limited Partner Trust, a wholly-owned subsidiary of EdR, and other limited partners consisting of current and former members of management. The OP GP, as the sole general partner of EROP, has the responsibility and discretion in the management and control of the Operating Partnership, and the limited partners of EROP, in such capacity, have no authority to transact business for, or participate in the management activities of the Operating Partnership. Management operates EdR and the Operating Partnership as one business. The management of EdR consists of the same members as the management of the Operating Partnership.

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

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


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


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


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

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

To help investors understand the significant differences between the Trust and the Operating Partnership, this report provides separate condensed consolidated financial statements for the Trust and the Operating Partnership. A single set of consolidated notes to such financial statements is presented that includes separate discussions for the Trust and the Operating Partnership when applicable (for example, noncontrolling interests, stockholders’ equity or partners’ capital, earnings per share or unit, etc.). A combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents discrete information related to each entity, as applicable.

In order to highlight the differences between the Trust and the Operating Partnership, the separate sections in this report for the Trust and the Operating Partnership specifically refer to the Trust and the Operating Partnership. In the sections that combine disclosure of the Trust and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Trust. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Trust is appropriate because the Trust operates its business through the Operating Partnership. The separate discussions of the Trust and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Trust on a consolidated basis and how management operates the Trust.

Education Realty Trust, Inc.

Education Realty Operating Partnership, LP

Form 10-Q

For the Quarter Ended June 30, 2017

Table of Contents



		Page Number
PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements of Education Realty Trust, Inc. and Subsidiaries:
	Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	1
	Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2017 and 2016	2
	Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2017 and 2016	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016	5
Condensed Consolidated Financial Statements of Education Realty Operating Partnership, LP and Subsidiaries:
	Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	7
	Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2017 and 2016	8
	Condensed Consolidated Statements of Changes in Partners' Capital and Noncontrolling Interests for the six months ended June 30, 2017 and 2016	10
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016	11
Notes to Condensed Consolidated Financial Statements		13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.		38
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		60
Item 4. Controls and Procedures.		61

PART II - OTHER INFORMATION
Item 1. Legal Proceedings.		63
Item 1A. Risk Factors.		63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		63
Item 3. Defaults Upon Senior Securities.		64
Item 4. Mine Safety Disclosures.		64
Item 5. Other Information.		64
Item 6. Exhibits.		64
Signatures.		65

PART I - Financial Information

Item 1. Financial Statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)



	June 30, 2017			December 31, 2016
Assets:
Collegiate housing properties, net	$	2,179,060		$	2,108,706
Assets under development	517,011			289,942
Cash and cash equivalents	33,496			34,475
Restricted cash	8,073			7,838
Other assets	65,303			65,224
Total assets	$	2,802,943		$	2,506,185

Liabilities:
Mortgage and construction loans, net of unamortized deferred financing costs	$	29,751		$	62,520
Unsecured revolving credit facility	345,000			20,000
Unsecured term loan, net of unamortized deferred financing costs	186,385			186,738
Unsecured senior notes, net of unamortized deferred financing costs	248,069			247,938
Accounts payable and accrued expenses	162,819			127,872
Deferred revenue	12,560			20,727
Total liabilities	984,584			665,795

Commitments and contingencies (see Note 7)	—			—

Redeemable noncontrolling interests	51,184			38,949

Equity:
Common stock, $0.01 par value per share, 200,000,000 shares authorized, 73,194,924 and 73,075,455 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively	732			731
Preferred shares, $0.01 par value per share, 50,000,000 shares authorized, no shares issued and outstanding	—			—
Additional paid-in capital	1,767,951			1,802,852
Retained earnings	—			—
Accumulated other comprehensive loss	(2,851		)	(3,564		)
Total Education Realty Trust, Inc. stockholders’ equity	1,765,832			1,800,019
Noncontrolling interests	1,343			1,422
Total equity	1,767,175			1,801,441
Total liabilities and equity	$	2,802,943		$	2,506,185

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share data)

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Revenues:
Collegiate housing leasing revenue	$	70,071		$	61,690		$	150,856		$	131,873
Third-party development consulting services	1,156			467			2,971			950
Third-party management services	831			697			1,776			1,591
Operating expense reimbursements	1,984			2,286			4,237			4,105
Total revenues	74,042			65,140			159,840			138,519
Operating expenses:
Collegiate housing leasing operations	30,338			26,166			59,215			51,055
Development and management services	2,775			2,728			5,676			5,249
General and administrative	3,338			3,079			6,765			6,188
Depreciation and amortization	24,520			19,099			50,359			36,615
Ground lease expense	2,462			2,296			6,022			5,605
Other operating expense	—			—			500			—
Reimbursable operating expenses	1,984			2,286			4,237			4,105
Total operating expenses	65,417			55,654			132,774			108,817

Operating income	8,625			9,486			27,066			29,702

Nonoperating expenses (income) :
Interest expense, net of capitalized interest	3,062			3,635			6,090			8,298
Amortization of deferred financing costs	358			457			779			937
Interest income	(17		)	(200		)	(49		)	(274		)
Loss on extinguishment of debt	—			216			22			10,136
Total nonoperating expenses	3,403			4,108			6,842			19,097
Income before equity in earnings (losses) of unconsolidated entities, income taxes and gain on sale of collegiate housing properties	5,222			5,378			20,224			10,605
Equity in earnings (losses) of unconsolidated entities	129			107			384			(137		)
Income before income taxes and gain on sale of collegiate housing properties	5,351			5,485			20,608			10,468
Income tax expense (benefit)	353			89			(532		)	140
Income before gain on sale of collegiate housing properties	4,998			5,396			21,140			10,328
Gain on sale of collegiate housing properties	691			12,083			691			23,956
Net income	5,689			17,479			21,831			34,284
Less: Net loss attributable to the noncontrolling interests	(371		)	(176		)	(386		)	(40		)
Net income attributable to Education Realty Trust, Inc.	$	6,060		$	17,655		$	22,217		$	34,324

See accompanying notes to the condensed consolidated financial statements.



	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Comprehensive income:
Net income	$	5,689		$	17,479		$	21,831		$	34,284
Other comprehensive loss:
(Loss) gain on cash flow hedging derivatives	(365		)	(1,042		)	713			(4,488		)
Comprehensive income	5,324			16,437			22,544			29,796
Less: Comprehensive loss attributable to the noncontrolling interests	(371		)	(176		)	(386		)	(40		)
Comprehensive income attributable to Education Realty Trust, Inc.	$	5,695		$	16,613		$	22,930		$	29,836

Earnings per share information:
Net income attributable to Education Realty Trust, Inc. common stockholders per share – basic	$	0.07		$	0.26		$	0.29		$	0.53
Net income attributable to Education Realty Trust, Inc. common stockholders per share – diluted	$	0.07		$	0.26		$	0.28		$	0.52

Distributions per share of common stock	$	0.38		$	0.37		$	0.76		$	0.74

Weighted average common shares outstanding:
Weighted average common shares outstanding – basic	73,623			68,025			73,566			65,352
Weighted average common shares outstanding – diluted	73,841			68,293			73,795			65,629

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands, except shares)

(Unaudited)



	Common Stock				Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
	Shares		Amount		Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
Balance, December 31, 2015	56,879,003		$	569	$	1,263,603		$	(21,998	)	$	(5,475	)	$	8,171		$	1,244,870
Proceeds from issuance of common stock, net of offering costs	14,866,378		149		567,322			—			—			—			567,471
Amortization of restricted stock and long-term incentive plan awards	3,956		—		1,431			—			—			—			1,431
Common stock issued to officers and directors	10,800		—		450			—			—			—			450
Cash dividends	—		—		(35,538		)	(12,326		)	—			(125		)	(47,989		)
Contributions from noncontrolling interests	—		—		—			—			—			10,073			10,073
Purchase of noncontrolling interests	—		—		(4,253		)	—			—			(4,211		)	(8,464		)
Adjustments to reflect redeemable noncontrolling interests at fair value	—		—		(2,001		)	—			—			—			(2,001		)
Comprehensive income (loss)	—		—		—			34,324			(4,488		)	(146		)	29,690
Balance, June 30, 2016	71,760,137		$	718	$	1,791,014		$	—		$	(9,963	)	$	13,762		$	1,795,531


Balance, December 31, 2016	73,075,455		$	731	$	1,802,852		$	—		$	(3,564	)	$	1,422		$	1,801,441
Proceeds from issuance of common stock, net of offering costs	110,092		1		403			—			—			—			404
Amortization of long-term incentive plan awards	6		—		1,538			—			—			—			1,538
Surrender of shares to cover taxes on vesting of restricted shares	(3,283	)	—		(2,564		)	—			—			—			(2,564		)
Common stock issued to officers and directors	12,654		—		480			—			—			—			480
Cash dividends	—		—		(33,555		)	(22,217		)	—			—			(55,772		)
Adjustments to reflect redeemable noncontrolling interests at fair value	—		—		4			—			—			—			4
Accretion of redeemable noncontrolling interests	—		—		(1,207		)	—			—			—			(1,207		)
Comprehensive income (loss)	—		—		—			22,217			713			(79		)	22,851
Balance, June 30, 2017	73,194,924		$	732	$	1,767,951		$	—		$	(2,851	)	$	1,343		$	1,767,175

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



	Six months ended June 30,
	2017			2016
Operating activities:
Net income	$	21,831		$	34,284
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	50,359			36,615
Deferred tax expense	1,078			—
Excess tax benefit related to the vesting of restricted stock	(1,610		)	—
Loss on disposal of assets	—			20
Gain on sale of collegiate housing properties	(691		)	(23,956		)
Noncash rent expense related to the straight-line adjustment for long-term ground leases	2,349			2,373
Loss on extinguishment of debt	22			10,136
Amortization of deferred financing costs	779			937
Amortization of unamortized debt premiums	—			(49		)
Distributions of earnings from unconsolidated entities	287			178
Noncash compensation expense related to stock-based incentive awards	1,893			2,021
Equity in (earnings) losses of unconsolidated entities	(384		)	137
Change in operating assets and liabilities	(6,695		)	(2,553		)
Net cash provided by operating activities (net of acquisitions)	69,218			60,143

Investing activities:
Property acquisitions	(127,647		)	(210,649		)
Purchase of corporate assets	(1,028		)	(585		)
Restricted cash	(235		)	1,110
Investment in collegiate housing properties	(7,549		)	(13,782		)
Proceeds from sale of collegiate housing properties	17,738			94,951
Collections on notes receivable	—			1,667
Earnest money deposits	(750		)	(530		)
Investment in assets under development	(194,491		)	(133,286		)
Distributions from unconsolidated entities	128			266
Net cash used in investing activities	(313,834		)	(260,838		)

See accompanying notes to the condensed consolidated financial statements.



	Six months ended June 30,
	2017			2016
Financing activities:
Payment of mortgage and construction loans	(32,950		)	(134,231		)
Borrowings under construction loans	146			28,083
Debt issuance costs	(493		)	(92		)
Debt extinguishment costs	—			(10,290		)
Borrowings on line of credit	328,000			—
Repayments of line of credit	(3,000		)	—
Proceeds from issuance of common stock	—			567,257
Payment of offering costs	(335		)	(574		)
Purchase and return of equity to noncontrolling interests	—			(11,374		)
Contributions from noncontrolling interests	11,054			7,112
Dividends and distributions paid to common and restricted stockholders	(55,772		)	(47,864		)
Dividends and distributions paid to noncontrolling interests	(450		)	(357		)
Repurchases of common stock for payments of restricted stock tax withholding	(2,563		)	(315		)
Net cash provided by financing activities	243,637			397,355
Net (decrease) increase in cash and cash equivalents	(979		)	196,660
Cash and cash equivalents, beginning of period	34,475			33,742
Cash and cash equivalents, end of period	$	33,496		$	230,402

Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized	$	5,815		$	8,891
Income taxes paid	$	195		$	142

Supplemental disclosure of noncash activities:
Redemption of redeemable noncontrolling interests from unit holder to shares of common stock	$	1,138		$	938
Capital expenditures in accounts payable and accrued expenses related to developments	$	69,390		$	36,544

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except unit data)

(Unaudited)



	June 30, 2017			December 31, 2016
Assets:
Collegiate housing properties, net	$	2,179,060		$	2,108,706
Assets under development	517,011			289,942
Cash and cash equivalents	33,496			34,475
Restricted cash	8,073			7,838
Other assets	65,303			65,224
Total assets	$	2,802,943		$	2,506,185

Liabilities:
Mortgage and construction loans, net of unamortized deferred financing costs	$	29,751		$	62,520
Unsecured revolving credit facility	345,000			20,000
Unsecured term loans, net of unamortized deferred financing costs	186,385			186,738
Unsecured senior notes, net of unamortized deferred financing costs	248,069			247,938
Accounts payable and accrued expenses	162,819			127,872
Deferred revenue	12,560			20,727
Total liabilities	984,584			665,795

Commitments and contingencies (see Note 7)	—			—

Redeemable limited partner units	6,007			6,789

Redeemable noncontrolling interests	45,177			32,160

Partners' capital:
General partner - 6,920 units outstanding as of June 30, 2017 and December 31, 2016	176			178
Limited partners - 73,188,004 and 73,068,535 units issued and outstanding as of June 30, 2017 and December 31, 2016, respectively	1,768,507			1,803,405
Accumulated other comprehensive loss	(2,851		)	(3,564		)
Total partners' capital	1,765,832			1,800,019
Noncontrolling interests	1,343			1,422
Total capital	1,767,175			1,801,441
Total liabilities and partners' capital	$	2,802,943		$	2,506,185

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Amounts in thousands, except per unit data)

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Revenues:
Collegiate housing leasing revenue	$	70,071		$	61,690		$	150,856		$	131,873
Third-party development consulting services	1,156			467			2,971			950
Third-party management services	831			697			1,776			1,591
Operating expense reimbursements	1,984			2,286			4,237			4,105
Total revenues	74,042			65,140			159,840			138,519
Operating expenses:
Collegiate housing leasing operations	30,338			26,166			59,215			51,055
Development and management services	2,775			2,728			5,676			5,249
General and administrative	3,338			3,079			6,765			6,188
Depreciation and amortization	24,520			19,099			50,359			36,615
Ground lease expense	2,462			2,296			6,022			5,605
Other operating expense	—			—			500			—
Reimbursable operating expenses	1,984			2,286			4,237			4,105
Total operating expenses	65,417			55,654			132,774			108,817

Operating income	8,625			9,486			27,066			29,702

Nonoperating (income) expenses:
Interest expense, net of capitalized interest	3,062			3,635			6,090			8,298
Amortization of deferred financing costs	358			457			779			937
Interest income	(17		)	(200		)	(49		)	(274		)
Loss on extinguishment of debt	—			216			22			10,136
Total nonoperating expenses	3,403			4,108			6,842			19,097
Income before equity in earnings (losses) of unconsolidated entities, income taxes and gain on sale of collegiate housing properties	5,222			5,378			20,224			10,605
Equity in earnings (losses) of unconsolidated entities	129			107			384			(137		)
Income before income taxes and gain on sale of collegiate housing properties	5,351			5,485			20,608			10,468
Income tax expense (benefit)	353			89			(532		)	140
Income before gain on sale of collegiate housing properties	4,998			5,396			21,140			10,328
Gain on sale of collegiate housing properties	691			12,083			691			23,956
Net income	5,689			17,479			21,831			34,284
Less: Net loss attributable to the noncontrolling interests	(381		)	(229		)	(431		)	(151		)
Net income attributable to Education Realty Operating Partnership L.P.	$	6,070		$	17,708		$	22,262		$	34,435

See accompanying notes to the condensed consolidated financial statements.



	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Comprehensive income (loss):
Net income	$	5,689		$	17,479		$	21,831		$	34,284
Other comprehensive income:
(Loss) gain on cash flow hedging derivatives	(365		)	(1,042		)	713			(4,488		)
Comprehensive income	5,324			16,437			22,544			29,796
Less: Comprehensive loss attributable to the noncontrolling interests	(381		)	(229		)	(431		)	(151		)
Comprehensive income attributable to unitholders	$	5,705		$	16,666		$	22,975		$	29,947

Earnings per unit information:
Net income attributable to unitholders – basic	$	0.07		$	0.26		$	0.29		$	0.53
Net income attributable to unitholders - diluted	$	0.07		$	0.26		$	0.29		$	0.52

Distributions per unit	$	0.38		$	0.37		$	0.76		$	0.74

Weighted average units outstanding:
Weighted average units outstanding – basic	73,755			68,224			73,709			65,560
Weighted average units outstanding – diluted	73,841			68,293			73,795			65,629

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

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

(Amounts in thousands, except units)

(Unaudited)



	General Partner				Limited Partners					Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
	Units	Amount			Units		Amount			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
Balance, December 31, 2015	6,920	$	184		56,872,083		$	1,241,990		$	(5,475	)	$	8,171		$	1,244,870
Vesting of restricted stock and restricted stock units	—	—			10,800		450			—			—			450
Issuance of units in exchange for contributions of equity offering proceeds and redemption of units	—	—			14,866,378		567,471			—			—			567,471
Amortization of restricted stock and long-term incentive plan awards	—	—			3,956		1,431			—			—			1,431
Distributions	—	(3		)	—		(47,861		)	—			(125		)	(47,989		)
Contributions from noncontrolling interests	—	—			—		—			—			10,073			10,073
Purchase of noncontrolling interests	—	—			—		(4,253		)	—			(4,211		)	(8,464		)
Adjustments to reflect redeemable noncontrolling interests at fair value	—	—			—		(2,001		)	—			—			(2,001		)
Comprehensive income (loss)	—	2			—		34,322			(4,488		)	(146		)	29,690
Balance, June 30, 2016	6,920	$	183		71,753,217		$	1,791,549		$	(9,963	)	$	13,762		$	1,795,531


Balance, December 31, 2016	6,920	$	178		73,068,535		$	1,803,405		$	(3,564	)	$	1,422		$	1,801,441
Vesting of restricted stock and restricted stock units	—	—			12,654		480			—			—			480
Issuance of units in exchange for contributions of equity offering proceeds and redemption of units	—	—			110,092		404			—			—			404
Amortization of long-term incentive plan awards	—	—			6		1,538			—			—			1,538
Surrender of shares to cover taxes on vesting of restricted shares	—	—			(3,283	)	(2,564		)	—			—			(2,564		)
Distributions	—	(3		)	—		(55,769		)	—			—			(55,772		)
Adjustments to reflect redeemable noncontrolling interests at fair value	—	—			—		4			—			—			4
Accretion of redeemable noncontrolling interests	—	—			—		(1,207		)	—			—			(1,207		)
Comprehensive income (loss)	—	1			—		22,216			713			(79		)	22,851
Balance, June 30, 2017	6,920	$	176		73,188,004		$	1,768,507		$	(2,851	)	$	1,343		$	1,767,175

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



	Six months ended June 30,
	2017			2016
Operating activities:
Net income	$	21,831		$	34,284
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	50,359			36,615
Deferred tax expense	1,078			—
Excess tax benefit related to the vesting of restricted stock	(1,610		)	—
Loss on disposal of assets	—			20
Gain on sale of collegiate housing properties	(691		)	(23,956		)
Noncash rent expense related to the straight-line adjustment for long-term ground leases	2,349			2,373
Loss on extinguishment of debt	22			10,136
Amortization of deferred financing costs	779			937
Amortization of unamortized debt premiums	—			(49		)
Distributions of earnings from unconsolidated entities	287			178
Noncash compensation expense related to stock-based incentive awards	1,893			2,021
Equity in (earnings) losses of unconsolidated entities	(384		)	137
Change in operating assets and liabilities	(6,695		)	(2,553		)
Net cash provided by operating activities (net of acquisitions)	69,218			60,143

Investing activities:
Property acquisitions	(127,647		)	(210,649		)
Purchase of corporate assets	(1,028		)	(585		)
Restricted cash	(235		)	1,110
Investment in collegiate housing properties	(7,549		)	(13,782		)
Proceeds from sale of collegiate housing properties	17,738			94,951
Collections on notes receivable	—			1,667
Earnest money deposits	(750		)	(530		)
Investment in assets under development	(194,491		)	(133,286		)
Distributions from unconsolidated entities	128			266
Net cash used in investing activities	(313,834		)	(260,838		)

Financing activities:
Payment of mortgage and construction loans	(32,950		)	(134,231		)
Borrowings under construction loans	146			28,083
Debt issuance costs	(493		)	(92		)
Debt extinguishment costs	—			(10,290		)
Borrowings on line of credit	328,000			—
Repayments of line of credit	(3,000		)	—
Proceeds from issuance of common units in exchange for contributions	—			567,257
Payment of offering costs	(335		)	(574		)
Purchase and return of equity to noncontrolling interests	—			(11,374		)

See accompanying notes to the condensed consolidated financial statements.



	Six months ended June 30,
	2017			2016
Contributions from noncontrolling interests	11,054			7,112
Distributions paid on unvested restricted stock and long-term incentive plan awards	(279		)	(176		)
Distributions paid to unitholders	(55,493		)	(47,688		)
Distributions paid to noncontrolling interests	(450		)	(357		)
Repurchases of units for payments of restricted stock tax withholding	(2,563		)	(315		)
Net cash provided by financing activities	243,637			397,355
Net (decrease) increase in cash and cash equivalents	(979		)	196,660
Cash and cash equivalents, beginning of period	34,475			33,742
Cash and cash equivalents, end of period	$	33,496		$	230,402

Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized	$	5,815		$	8,891
Income taxes paid	$	195		$	142

Supplemental disclosure of noncash activities:
Redemption of redeemable noncontrolling interests from unit holder to shares of common stock	$	1,138		$	938
Capital expenditures in accounts payable and accrued expenses related to developments	$	69,390		$	36,544

See accompanying notes to the condensed consolidated financial statements.

EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES

EDUCATION REALTY OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and description of business

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

The sole general partner of EROP is Education Realty OP GP, Inc. (“OP GP”), an entity that is wholly-owned by EdR. As of June 30, 2017, OP GP held an ownership interest in EROP of less than 1%. The limited partners of EROP are Education Realty OP Limited Partner Trust, a wholly-owned subsidiary of EdR, and other limited partners consisting of current and former members of management. OP GP, as the sole general partner of EROP, has the responsibility and discretion in the management and control of EROP, and the limited partners of EROP, in such capacity, have no authority to transact business for, or participate in the management activities of EROP. Management operates the Trust and the Operating Partnership as one business. The management of the Trust consists of the same members as the management of the Operating Partnership. EdR consolidates the Operating Partnership for financial reporting purposes, and EdR does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Trust and the Operating Partnership are the same on their respective financial statements. Unless otherwise indicated, the accompanying Notes to the Condensed Consolidated Financial Statements apply to both the Trust and the Operating Partnership.

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

2. Summary of significant accounting policies

Basis of presentation

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

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

Principles of consolidation

The Trust evaluates its interest in partnerships, joint ventures and other similar entities under the variable interest entity (“VIE”) guidance. Under the VIE model, the Trust consolidates an entity when it has control to direct the activities of the VIE and where it is determined to be the primary beneficiary. If it is determined that the legal entity qualifies for a VIE scope exception or the legal entity is not subject to the VIE model, the voting interest model is applied. Under the voting interest model, the Trust consolidates an entity when it controls the entity through the ownership of a majority voting interest.

All of the Trust's property ownership, development and related business operations are conducted through the Operating Partnership. See the assets and liabilities of the Operating Partnership in the accompanying condensed consolidated financial statements.

Interim financial information

The accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the Trust's financial position, results of operations and cash flows for such periods. Because of the seasonal nature of the business, the operating results and cash flows are not necessarily indicative of results that may be expected for any other interim periods or for the full fiscal year. These financial statements should be read in conjunction with the Trust's consolidated financial statements and related notes included in the Trust's Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission (the "SEC") on February 28, 2017.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Collegiate housing properties

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

The Trust capitalizes interest based on the weighted average interest cost of the total debt and internal development costs while developments are ongoing as assets under development. When the property opens, these costs, along with other direct costs of the development, are transferred into the applicable asset category and depreciation commences.

Acquired collegiate housing communities’ results of operations are included in the Trust’s results of operations from the respective dates of acquisition. Appraisals, estimates of cash flows and other valuation techniques are used to allocate the purchase price of acquired property between land, land improvements, buildings and improvements, furniture, fixtures and equipment and identifiable intangibles, such as amounts related to in-place leases. Acquisition costs are expensed as incurred for acquisitions completed prior to the adoption of Accounting Standards Update ("ASU") 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business" ("ASU 2017-01") and are included in general and administrative expenses in the accompanying condensed consolidated statements of income and comprehensive income. The Trust adopted ASU 2017-01 prospectively on January 1, 2017. Acquisition costs have been capitalized for subsequent acquisitions that are not deemed to be business combinations.

Management assesses impairment of long-lived assets to be held and used whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management uses an estimate of future undiscounted cash flows of the related asset based on its intended use to determine whether the carrying value is recoverable. If the Trust determines that the carrying value of an asset is not recoverable, the fair value of the asset is estimated and an impairment loss is recorded to the extent the carrying value exceeds estimated fair value. Management estimates fair value using discounted cash flow models, market appraisals if available and other market participant data. During the six months ended June 30, 2017 and 2016, there were no impairment losses recognized.

When a collegiate housing community has met the criteria to be classified as held for sale, the fair value less cost to sell such asset is estimated. If the fair value less cost to sell the asset is less than the carrying amount of the asset, an impairment charge is recorded for the estimated loss. Depreciation expense is no longer recorded once a collegiate housing community has met the held for sale criteria. Dispositions that represent a strategic shift in the business will qualify for treatment as discontinued operations. The property disposition during the six months ended June 30, 2017 did not qualify for treatment as discontinued operations and, as a result, the operations of the property are included in continuing operations in the accompanying condensed consolidated statements of income and comprehensive income.

During August 2016, the Trust committed and finalized plans to demolish and redevelop Players Club, an off-campus community that serves Florida State University. Depreciation estimates were revised to reflect the shortened remaining useful life. The Trust recorded $1.1 million and $2.9 million of accelerated depreciation during the three and six months ended June 30, 2017, respectively, related to the change in estimate. The impact on net income attributable to EdR common stockholders per share - basic and diluted for the three and six months ended June 30, 2017 was $0.02 and $0.04, respectively. The depreciable assets were fully depreciated and subsequently written off when demolition began in the second quarter of 2017.

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

The Trust follows the guidance issued by the Financial Accounting Standards Board ("FASB") regarding the classification and measurement of redeemable securities. The Trust classifies redeemable noncontrolling interests, which include redeemable interests in consolidated joint ventures with puts exercisable by the joint venture partners and units of limited partnership interest in University Towers Operating Partnership, LP and in the Operating Partnership in the mezzanine section of the accompanying condensed consolidated balance sheets.

The Trust accounts for certain noncontrolling interests with embedded put and call features with fixed exercise prices and exercise dates as a financing arrangement, and these amounts are recorded as accrued liabilities in the accompanying condensed consolidated balance sheets. The liability is initially measured at present value of the fixed price settlement amount. Subsequently, the liability is accreted to the fixed price over the term of the contract, with the resulting expense recognized as interest expense.

The Trust also has certain noncontrolling interests with put options at substantially fixed prices. These noncontrolling interests are accounted for as noncontrolling interests redeemable at other than fair value. The Trust accounts for the change in redemption value through the use of an accretion model from the date of inception to the expected redemption date. Changes in redemption value are recorded in equity, either through retained earnings or additional paid-in capital (absent any retained earnings). The impact of the changes in redemption value (accretion) is included in earnings per share using the two-class method.

In the accompanying condensed consolidated balance sheets of the Operating Partnership, the redeemable units of limited partnership in the Operating Partnership are classified as redeemable limited partners, and the redeemable interests in consolidated joint ventures with puts exercisable by the joint venture partners and units of limited partnership interest in University Towers Operating Partnership, LP are classified as redeemable noncontrolling interests. The redeemable noncontrolling interests / redeemable limited partner units are adjusted to the greater of carrying value or fair market value based on the price per share of EdR's common stock or redemption value at the end of each respective reporting period.

Common stock issuances and offering costs

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

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

Income taxes

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

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

The Trust had no unrecognized tax benefits as of June 30, 2017 and December 31, 2016. The Trust and its subsidiaries file federal and state income tax returns. As of June 30, 2017, open tax years generally included tax years for 2013, 2014, 2015 and 2016. The Trust’s policy is to include interest and penalties related to unrecognized tax benefits in general and administrative expenses. For the three and six months ended June 30, 2017 and 2016, the Trust had no interest or penalties recorded related to unrecognized tax benefits.

Goodwill and other intangible assets

Goodwill is tested annually for impairment as of December 31, and is tested for impairment more frequently if events and circumstances indicate that the carrying value of the assets might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The accumulated impairment loss recorded is $0.4 million. No additional impairment has been recorded through June 30, 2017. The carrying value of goodwill was $3.1 million as of June 30, 2017 and December 31, 2016, of which $2.1 million was recorded on the management services reportable segment and $0.9 million was recorded on the development consulting services reportable segment. Goodwill is not subject to amortization.

Other intangible assets generally include in-place leases acquired in connection with acquisitions of collegiate housing properties. As of June 30, 2017 and December 31, 2016, gross in-place leases totaled $12.2 million and $7.4 million, respectively, and are being amortized over the life of the remaining lease term, which is generally less than one year. Amortization expense totaled $3.0 million and $0.8 million for the three months ended June 30, 2017 and 2016, respectively. Amortization expense totaled $6.4 million and $0.9 million for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017 and December 31, 2016, accumulated amortization totaled $10.0 million and $3.6 million, respectively. The carrying value of other intangible assets was $2.2 million and $3.8 million as of June 30, 2017 and December 31, 2016, respectively.

Investment in unconsolidated entities

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

Earnings per share

Earnings per Share - The Trust

Basic earnings per share is calculated by dividing net income available to common stockholders after accretion of redeemable noncontrolling interests by weighted average shares of common stock outstanding, including outstanding units in the Operating Partnership designated as LTIP Units ("LTIP Units"). Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed exercise of potentially dilutive securities and the shares issuable upon settlement of the Forward Agreements using the treasury stock method. The Trust follows the authoritative guidance regarding the determination of whether certain instruments are participating securities. All unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are included in the computation of earnings per share under the two-class method. This results in shares of unvested restricted stock and LTIP Units being included in the computation of basic earnings per share for all periods presented. When noncontrolling interests are redeemable at other than fair value, increases or decreases in the carrying amount of the redeemable noncontrolling interests are reflected in earnings per share using the two-class method.

Earnings per OP Unit - EROP

Basic earnings per unit is calculated by dividing net income available to unitholders after accretion of redeemable noncontrolling interests by the weighted average number of OP Units and LTIP Units outstanding. Diluted earnings per unit is calculated similarly, except that it includes the dilutive effect of the assumed exercise of potentially dilutive securities and the shares issuable upon settlement of the Forward Agreements using the treasury stock method. EROP follows the authoritative guidance regarding the determination of whether certain instruments are participating securities.

Recent accounting pronouncements

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" ("ASU 2016-18"). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows, and transfers between cash and cash equivalents and restricted cash are no longer presented within the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Trust anticipates retrospectively adopting this guidance on January 1, 2018. The Trust's initial analysis indicates the adoption of this ASU will result in the change in restricted cash to no longer be presented in the statement of cash flows as an investing cash flow.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"). ASU 2016-15 addresses eight specific cash flow issues and intends to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows and will be applied retrospectively. This guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted. The Trust adopted ASU 2016-15 effective January 1, 2017. As a result of this adoption, there was no impact to the condensed consolidated statements of cash flows for either period presented.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years, on a modified prospective basis. The Trust's primary revenue is collegiate housing rental income; as such, the Trust is a lessor on a significant number of leases. The Trust is continuing to evaluate the potential impact of the ASU and believes it will continue to account for its leases in substantially the same manner due to the short-term nature (less than 12 months) of the leases. The most significant change for the Trust relates to ground lease agreements, which could result in recording the right-of-use asset and related liability on the balance sheet. The Trust plans to adopt ASU 2016-02 effective January 1, 2019 and is continuing to evaluate and quantify the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"), as amended by ASU 2015-04 to defer the effective date. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including the guidance on real estate derecognition for most transactions. ASU 2014-09 provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years and permits the use of either the retrospective or cumulative effect transition method. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. Since the issuance of ASU 2014-09, the FASB has issued ASU 2016-08 that is intended to improve the understandability of the implementation guidance regarding principal versus agent considerations and has issued ASU 2016-10 to clarify the identification of performance obligations and the implementation guidance related to licensing. The effective dates of these amendments are the same as ASU 2014-09. The Trust does not expect the adoption of this standard to have a material impact on its consolidated financial statements, as a substantial portion of its revenue consists of rental income from leasing arrangements, which is specifically excluded from this ASU. The Trust's initial analysis of its non-lease related revenue contracts, which comprise less than 15% of consolidated revenues, indicates the adoption of this ASU will not have a material effect on the consolidated financial statements; however, the Trust is still in the process of evaluating this ASU.

3. Acquisition and development of real estate investments

Acquisition of collegiate housing properties

2017 Acquisitions

During the six months ended June 30, 2017, the Trust completed the following two collegiate housing property acquisitions, which were determined to be asset acquisitions under ASU 2017-01:



Name	Primary University Served	Acquisition Date	# of Beds	# of Units	Contract Price (in thousands)
Retreat at Corvallis	Oregon State University, Oregon	January 2017	1,016	330	$	99,450
319 Bragg	Auburn University, Alabama	February 2017	305	86	$	28,500

Below is the allocation of the purchase price as of the date of the acquisition (in thousands):



	Retreat at Corvallis			319 Bragg			Total
Collegiate housing property	$	95,785		$	27,475		$	123,260
In-place leases	3,780			1,055			4,835
Other assets	617			2			619
Current liabilities	(936		)	(131		)	(1,067		)
Total net assets acquired	$	99,246		$	28,401		$	127,647

The $0.3 million difference between the aggregate contracted price of $128.0 million and the net assets set forth in the table above represents working capital and other liabilities that were not part of the contractual purchase price, but were acquired.

2016 Acquisitions

During the year ended December 31, 2016, the Trust completed the following five collegiate housing property acquisitions:



Name	Primary University Served	Acquisition Date	# of Beds	# of Units	Contract Price (in thousands)
Lokal	Colorado State University, Colorado	March 2016	194	79	$	24,600
The Hub at Madison	University of Wisconsin, Wisconsin	May 2016	1,038	341	$	188,500
Pura Vida Place	Colorado State University, Colorado	August 2016	100	52	$	12,000
Carriage House	Colorado State University, Colorado	August 2016	94	54	$	12,000
Urbane	University of Arizona, Arizona	September 2016	311	104	$	50,000

These acquisitions were accounted for as business combinations as they occurred prior to the adoption of ASU 2017-01.

Below is the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):



	Lokal			The Hub at Madison			Pura Vida Place			Carriage House			Urbane			Total
Collegiate housing property	23,653			189,832			11,498			11,528			47,999			$	284,510
In-place leases	849			3,588			502			472			1,984			7,395
Other assets	3			87			5			4			18			117
Current liabilities	(148		)	(7,442		)	(144		)	(67		)	(584		)	(8,385		)
Total net assets acquired	$	24,357		$	186,065		$	11,861		$	11,937		$	49,417		$	283,637

The $3.5 million difference between the contracted price of $287.1 million and the net assets set forth in the table above includes contingent consideration related to the acquisition of The Hub at Madison, which was initially estimated at $5.3 million and represents additional purchase price related to future operating performance of the applicable property and future tax assessments. Of this amount, $3.1 million was paid out during 2016. As of June 30, 2017 and December 31, 2016, $2.3 million was estimated and recorded as a contingent consideration liability, based upon probability of achieving certain operating performance metrics. The estimated range of possible outcomes is between $0.0 million and $4.5 million. The remaining difference between the contracted price and the net assets set forth above represents working capital and other liabilities that were not part of the contractual purchase price, but were acquired.

In connection with the acquisition of Urbane, the Trust formed a limited liability company to acquire an interest in the legal entity owning the collegiate housing property. In addition to the $10.0 million capital contribution, the Trust advanced $23.6 million to the seller. Under the terms of the agreement, the Trust has a call exercisable on September 8, 2017 to acquire the remaining ownership interest from the seller and the seller similarly has a put to sell their interests to the Trust. The exercise price is substantially fixed and the exercise dates are within one month of each other. The Trust evaluated the LLC as a VIE and determined it was the primary beneficiary because it directs the activities that most significantly impact the economic performance of the entity. Therefore, the Trust has consolidated the VIE since the date of acquisition. The put and call arrangement was evaluated, and it was determined the noncontrolling interests represent a liability because of the substantially fixed exercise prices and stated exercise dates; therefore, the economic substance is a financing arrangement. The Trust has recorded the liability at the present value of the fixed price settlement amount ($14.9 million reflected in accounts payable and accrued expenses) and will accrete the liability to the fixed price over the contractual term. The amount recorded at June 30, 2017 and December 31, 2016 approximates the redemption or settlement amount due to the short term of the contractual period. No earnings have been attributed to noncontrolling interests in the accompanying condensed consolidated statements of net income and comprehensive income.

The Trust is also obligated to pay the seller contingent consideration of up to $1.5 million if certain performance conditions are met for the 2017/2018 lease year. Conversely, if the operating performance of the property does not achieve certain performance metrics, the seller is required to reimburse the Trust for up to $1.5 million of the purchase price. Based on the assessment of the probability of achieving the performance metrics as of the acquisition date, no contingent consideration was initially recorded at the acquisition date. As of June 30, 2017 and December 31, 2016, $1.5 million and $1.0 million, respectively, were estimated and recorded as a contingent consideration liability, based upon probability of achieving certain operating performance metrics.

The unaudited pro forma information for the 2016 acquisitions presented below for the six months ended June 30, 2016 and 2015 assumes an acquisition date of January 1, 2015 and is not necessarily indicative of results that would have occurred or which may occur (in thousands, except per share and per unit amounts):



	Six months ended June 30,
	2016 ⁽¹⁾		2015 ⁽¹⁾⁽²⁾
Total revenue attributable to the Trust and EROP	$	140,476	$	121,961
Net income attributable to the Trust	$	32,634	$	9,992
Net income per share attributable to common shareholders - basic and diluted	$	0.50	$	0.21

Net income attributable to EROP	$	32,740	$	10,041
Net income per unit attributable to unitholders - basic and diluted	$	0.50	$	0.21

⁽¹⁾As Urbane first opened for the 2016/2017 lease year (August 2016), supplemental pro forma revenue and net income information is not included for the six months ended June 30, 2016 and 2015.

⁽²⁾As the Lokal, the Hub at Madison and Carriage House first opened for the 2015/2016 lease year (August 2015), supplemental pro forma revenue and net income information is not included for the six months ended June 30, 2015.

For the six months ended June 30, 2016, actual revenue and net loss from the 2016 property acquisitions included in the accompanying condensed consolidated statements of income and comprehensive income since the respective dates of acquisition is $1.6 million and $0.8 million, respectively.

Development of collegiate housing properties

During 2016, the Trust completed the development of the following communities, all of which opened for the 2016/2017 lease year. The costs incurred to date for the Trust's owned communities represent the balance capitalized in collegiate housing properties, net as of December 31, 2016 (dollars in thousands):



Name	Primary University Served	Bed Count	Costs Incurred as of December 31, 2016		Internal Development Costs Capitalized		Interest Costs Capitalized		Internal Development Costs Capitalized		Interest Costs Capitalized
Name	Primary University Served	Bed Count	Costs Incurred as of December 31, 2016		Six months ended June 30, 2016				Three months ended June 30, 2016
Holmes Hall and Boyd Hall	University of Kentucky	1,141	$	85,691	$	162	$	1,421	$	79	$	788
Retreat at Blacksburg - Phase I & II	Virginia Tech	829	64,549		74		554		42		346
Retreat at Oxford - Phase II	University of Mississippi	350	26,745		40		448		19		253
Total		2,320	$	176,985	$	276	$	2,423	$	140	$	1,387

The following represents a summary of active developments as of June 30, 2017, including internal development costs and interest

costs capitalized (dollars in thousands):



Name	Costs Incurred as of June 30, 2017		Internal Development Costs Capitalized				Interest Costs Capitalized				Internal Development Costs Capitalized				Interest Costs Capitalized
			Six months ended June 30,				Six months ended June 30,				Three months ended June 30,				Three months ended June 30,
			2017		2016		2017		2016		2017		2016		2017		2016
University Flats	$	73,536	$	133	$	103	$	1,266	$	331	$	75	$	52	$	628	$	214
Lewis Hall	29,856		129		104		401		28		71		33		227		26
Boise State University	37,493