EDUCATION REALTY TRUST, INC.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One) |
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2005 |
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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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
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20-1352180 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. 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 Class |
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Name of 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 twelve 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 o No þ
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) 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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated
filer o Accelerated
filer o Non-accelerated
filer þ
Indicate by check mark if the registrant is a shell company (as
defined by Rule 12b-2 of the Act).
Yes o No þ
As of June 30, 2005 the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was $399.9 million, based on the closing sale
price as reported on the New York Stock Exchange.
As of March 28, 2006, the Registrant had
26,225,000 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant incorporates by reference portions of its
Definitive Proxy Statement for the 2006 Annual Meeting of
Stockholders into Part III of this
Form 10-K to the
extent stated herein.
EDUCATION REALTY TRUST, INC.
Form 10-K
Year Ended December 31, 2005
1
FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K contains
forward-looking statements, including discussion and analysis of
the financial condition of Education Realty Trust, Inc., our
anticipated capital expenditures required to complete projects,
amounts of anticipated cash distributions to our stockholders in
the future and other matters. These forward-looking statements
are not historical facts but are the intent, belief or current
expectations of our management based on their knowledge and
understanding of the business and industry. 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. Factors that could cause actual results to
differ materially from any forward-looking statements made in
this Annual Report include changes in general economic
conditions, changes in real estate conditions, construction
costs that may exceed estimates, construction delays, increases
in interest rates,
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 the
Business Risk Factors section of this
Annual Report.
PART I
Our Company
Education Realty Trust, Inc. is a self-managed and self-advised
real estate investment trust, or REIT, organized in July 2004 to
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. (the EDR Predecessor), a company
with over 40 years of experience as an owner, manager and
developer of student housing. As of December 31, 2005, we
owned and operated 26 off-campus student housing communities
located in 17 states containing 19,501 beds in 6,186
apartment units located near 23 universities. As of
December 31, 2005, we provided third-party management
services for 17 student housing communities located in eleven
states containing 9,296 beds in 3,047 apartment units at
thirteen universities. We also provided third-party development
consulting services as requested by our clients. From 1964
through 2004, the EDR Predecessor owned and operated 26 student
housing communities located in 13 states containing over
16,000 beds and managed a total of 67 communities located in
21 states containing approximately 36,000 beds at 47
universities.
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 six 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. |
2
Initial Public Offering and Formation Transactions
On January 31, 2005, (the Closing Date), we
sold 21,850,000 shares of our common stock at an offering
price of $16.00 per share, including the sale of
2,850,000 shares in connection with the full exercise of
the over-allotment option by the underwriters of our initial
public offering (the Offering). J.P. Morgan
Securities Inc. and UBS Securities LLC were the joint
book-running managers for the Offering. Simultaneous with the
Offering, we completed our formation transactions, which
included the contribution of the student housing business of the
EDR Predecessor and its subsidiaries, purchase of the related
minority interests in the EDR Predecessor and its subsidiaries
and the acquisition of 14 student housing communities previously
owned by JPI Investment Company, L.P. and its affiliates
(JPI). The net proceeds of the Offering after
expenses were approximately $320.4 million. The Offering
proceeds were used as follows:
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approximately $121.2 million to pay the cash portion of our
formation transactions; |
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approximately $118.4 million to repay mortgage debt assumed
in the formation transactions, including prepayment fees of
approximately $3.7 million; |
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approximately $6.0 million to fund our revolving loan
commitment to an affiliate of JPI; |
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approximately $1.4 million to pay loan origination fees
relating to our $100 million revolving credit facility that
was obtained on January 31, 2005 and amended on
April 4, 2005; |
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approximately $59.6 million to purchase properties located
near the University of Mississippi in February 2005, the
University of South Carolina in March 2005, Middle Tennessee
State University in April 2005, the University of Florida in
June 2005, and Auburn University in July 2005; and |
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approximately $6.7 million was used for general corporate
purposes, including payment of distributions to our stockholders. |
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Our Structure Following the Closing Date |
Following the closing of our Offering and our formation
transactions, substantially 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., (our
Management Company) and Allen & OHara
Development Company, LLC, (our Development Company).
All of our operating expenses are borne by our Operating
Partnership, our Management Company or our Development Company,
as the case may be. For the year ended December 31, 2005,
we are governed by a five-member board of directors, four of
whom are classified under applicable New York Stock Exchange
listing standards as independent directors.
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 94.2% of the
outstanding partnership units of our Operating Partnership, and
4.9% of the partnership units of our Operating Partnership are
held by the former owners of our initial properties and assets
including members of our management team. Some of our officers
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.
Since the Closing Date, University Towers Operating Partnership,
LP, (the University Towers Partnership), which is
our affiliate, has held, owned and operated our University
Towers property located in Raleigh, North Carolina. We own 67%
of the units in the University Towers Partnership, and 33% of
the University Towers Partnership is held by the former owners
of our initial properties and assets including members of our
management team.
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Our Management Company and Our Development Company
We have elected to be taxed as a REIT for federal income tax
purposes commencing with our tax year ending December 31,
2005. 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
electing, together with us, to be treated as our taxable
REIT subsidiary or TRS. Our Management Company
is wholly owned and controlled by our Operating Partnership, and
our Management Company will wholly own our Development Company.
Our Development Company will be a disregarded entity for federal
income tax purposes and all assets owned and earned by our
Development Company will be deemed to be owned and earned by our
Management Company. Therefore, it will not be necessary to make
a separate election for our Development Company to be taxed as a
TRS.
Our 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 and
(ii) maximizing revenues from operations of our owned and
third-party managed properties through proactive and
goal-oriented property management strategies. In addition, we
plan to continue to grow our third-party management services
business and our development consulting services business and to
selectively develop properties for our own account.
Acquisition Strategy
We intend 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 will also seek to acquire
investments in student housing communities that possess sound
market fundamentals but are under-performing and would benefit
from renovation and/or improved property management. We will
consider the following property and market factors to identify
potential property acquisitions:
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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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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 of the property |
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access to a university-sponsored or public transportation line |
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parking availability |
After we identify a potential student housing acquisition, a due
diligence team consisting of in-house personnel and third
parties, such as outside legal counsel, environmental
consultants, structural engineers, investment bankers and
accountants, conducts detailed due diligence to assess the
potential investment.
Our senior 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. We are continuously active in
identifying and analyzing potential student housing
acquisitions. As a result of our intensive due diligence review
and selective criteria, we determine to pursue or complete only
a portion of these identified potential acquisitions following
our submission of a non-binding purchase offer. In addition to
the initial properties that we acquired on the Closing Date, we
acquired an additional five properties in individual
transactions throughout the 2005. The five transactions had an
aggregate purchase price of approximately $119.8 million
including the assumption of mortgage debt totaling
$48.7 million.
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; |
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negotiating utility and service-level pricing arrangements with
national and regional vendors and requiring corporate-level
approval of service agreements for each community; and |
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conducting an annual assessment of the costs and effectiveness
of each of our marketing strategies in order to place greater
emphasis on lower cost/high-impact initiatives. |
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 thoroughly 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. 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 each team with full 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 seek to
maintain and establish relationships with universities. 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
5
referrals to 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,
we also provide management and development consulting services
for third-party owners of student housing. Universities and
third-party owners are increasingly turning 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 University of Illinois, the California State University
System and the Pennsylvania State System of Higher Education.
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. The income earned by our
Management Company and our Development Company will be subject
to regular federal income tax and state and local income tax
where applicable and will therefore be subject to an additional
level of tax as compared to the income earned from our
properties.
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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 and information systems, and 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 five 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.
Performing third-party property management services in addition
to operating our owned student housing communities allows us to
earn additional revenue at a high degree of operational
efficiency and economy of scale. We also gain depth of
experience with management and maintenance of this specialized
property type. Our third-party management services provide us
with inroads into additional markets and an expanded
geographical and human resource infrastructure for the
management of our owned assets. In addition, we believe that our
success in securing third-party management contracts allows us
to expand our network of contacts in the student housing
industry and to increase our pipeline of potential property
acquisitions.
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For the years ended December 31, 2005 and 2004 our fees
from management services (excluding operating expense
reimbursements) represented 2.4% and 5.8%, respectively, of our
revenues. The following table presents certain summary
information regarding the student housing communities that we
managed for other owners as of December 31, 2005:
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Property |
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University |
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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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726 |
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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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576 |
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145 |
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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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University Village
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California State University San Marcos |
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471 |
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126 |
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Normal Hills Apartments
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Alabama A&M University |
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448 |
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240 |
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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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Arlington Park Apartments
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University of Northern Colorado |
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396 |
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180 |
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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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Billy Minardi Hall
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University of Louisville |
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38 |
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20 |
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Total on-campus
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4,515 |
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1,735 |
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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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The Reserve on Stinson
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University of Oklahoma |
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612 |
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204 |
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Illini Tower
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University of Illinois at Champaign |
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709 |
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175 |
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Stratford Heights
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University of Cincinnati |
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692 |
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174 |
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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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University Towers
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University of Texas |
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632 |
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184 |
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Total off-campus
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4,781 |
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1,312 |
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Totals (for both on- and off-campus)
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9,296 |
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3,047 |
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Third-party development consulting services |
We provide our third-party development consulting services to
universities seeking to modernize their on-campus student
housing communities. 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 benefit us by providing us with opportunities to
obtain additional third-party property management contracts. Of
the eleven student housing communities with respect to which we
have provided development-consulting services in the past five
years, the property owners have awarded us contracts for
third-party management services for ten of those student housing
communities. For the years ended December 31, 2005 and
December 31, 2004, our fees from development consulting
services, excluding operating expense reimbursements,
represented 2.1% and 1.7%, respectively, of our revenues.
In addition to the eleven student housing communities with
respect to which we have provided development consulting
services in the past five years, with aggregate development
costs (such as land and construction costs, developer fees and
interest) incurred by our clients of over $241 million, we
are currently providing development services for five additional
projects at the University of Alabama Birmingham,
Slippery Rock University, California University of Pennsylvania
and the University of Colorado Denver, and the
University of Louisville pursuant to signed definitive
contracts. The aggregate project cost of these five projects is
approximately $169.4 million. We are also providing
pre-development, construction and management consulting services
on a $43.7 million project at Indiana University of
Pennsylvania, but have not yet entered into a definitive
contract for the project. 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 our experience, definitive contracts for
these projects are typically not executed until the completion
of the project when the institutions governing body
formally approves the transaction.
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 full 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.
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 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, where
effective, 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 University
Towers, 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 individual bedrooms 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.
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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
recurring move-outs and renewals, our student housing community
occupancies remain stable throughout the academic year, but must
be entirely re-leased at the beginning of each academic
calendar. 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 1. 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.
Highlights of our standard lease agreement include:
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Rent typically covers all common area amenities and
water/sewer/trash removal. Internet and cable TV service are
included where required by market conditions. |
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Student residents pay a non-refundable service fee in addition
to an application fee. The service fee is used to recover the
costs of redecorating at the end of the academic year. |
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Units are inspected quarterly for damage or routine repairs. All
cited damages are repaired and immediately charged to the
resident account for collection. This procedure reduces
end-of-year repairs and
keeps the units in good order throughout the term of residency. |
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Subletting units is permitted with our written consent and for a
fee. |
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Student residents are responsible for any damages that their
visitors cause anywhere on the premises. |
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.
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.
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Competition
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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.
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Competition from private owners |
We compete with several regional and national owner-operators of
off-campus student housing. Two competitors, GMH Communities
Trust (GCT) and American Campus Communities, Inc. (ACC), have
recently completed their initial public offering and, in
connection therewith, have publicly disclosed their intention to
grow their student housing business. We also compete 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.
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Our competitive strengths |
We believe that we have the following competitive strengths that
will enable us to take advantage of the opportunities in the
student housing industry:
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Senior management team with over 160 years of collective
experience working together at the EDR Predecessor. |
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Property portfolio with modern unit plans and amenities and
average age of approximately six years. |
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Focused acquisition strategy. |
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Complementary third-party services business, including
third-party management and development consulting services. |
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Established marketing practices. |
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Focus on customer satisfaction and quality control. |
Employees
At December 31, 2005 we had approximately 1,038 employees,
including:
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975 on-site employees,
including 382 Community Assistants; |
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15 persons in our property management services department; |
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9 persons in our development consulting services
department; and |
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36 executive, corporate administration and financial personnel. |
Our senior management team has over 160 years of collective
experience working together in the EDR Predecessors
student housing business. The EDR Predecessor was a leader and
innovator in the student housing industry from 1964 until the
Closing Date, at which time we acquired the EDR
Predecessors student housing business. We believe that
this experience will allow us to continue to anticipate and
respond quickly to market changes and opportunities.
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. This history of working
together demonstrates our management teams extensive
experience in the student housing industry:
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Executive Officer |
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Number of Years | |
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Paul O. Bower
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Chairman, Chief Executive Officer and President |
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36 |
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Craig L. Cardwell
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Executive Vice President and Chief Investment Officer |
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34 |
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Thomas J. Hickey
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Senior Vice President of Operations |
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33 |
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Wallace L. Wilcox
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Vice President of Construction |
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William W. Harris
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Senior Vice President of Development |
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23 |
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Susan B. Arrison
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Vice President of Human Resources |
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Randall H. Brown
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Executive Vice President and Chief Financial Officer |
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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.
Available Information
The Company files annual and periodic reports with the
Securities and Exchange Commission. All filings made by the
Company 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 the Company does. The
website is http://www.sec.gov.
Additionally, a copy of this Annual Report on
Form 10-K, along
with the Companys Quarterly Reports on
Form 10-Q, Current
Reports on
Form 8-K and any
amendments to the aforementioned filings, are available on the
Companys website free of charge. The filings can be found
on the SEC Filings page. The Companys 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 also be found on the
Corporate Governance page. The Companys website address is
www.educationrealty.com. Reference to the Companys 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.
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Risks related to our properties and our business |
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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. 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 in 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. Furthermore, all of our properties must be
entirely re-leased each year, exposing us to increased leasing
risk. 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 limited leasing season
that begins in February 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.
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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. On the Closing Date, we
entered into a $75 million revolving credit facility to
fund future property acquisitions and for other working capital
needs, which may include the payment of distributions to our
stockholders. Subsequently, the credit facility was amended to
increase the availability to $100 million. The amount
available to us and our ability to borrow from time to time
under this facility is subject to certain conditions 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; 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. |
On March 30, 2006 the revolving credit facility was amended
and restated and the Operating Partnership entered into a
$50 million senior unsecured term loan. The amended credit
facility has substantially the same terms as the original
facility, including $100 million of availability and
customary affirmative and negative covenants.
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We are recently organized and have no operating history. |
We have been recently organized and had no operating history
until the Closing Date. Consequently, our historical operating
results and the financial data set forth in this Annual Report
on Form 10K may not be useful in assessing our likely
future performance. The operating performance of the properties
may decline under our management, and we may not be able to
generate sufficient revenue from operations to make anticipated
distributions. We will also be subject to the risks generally
associated with the formation of any new business. Our
management has no prior experience in running a public company.
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The consideration we paid for our initial assets may exceed
their fair market value. |
On the Closing Date, we acquired our initial properties and our
Management Company and Development Company in exchange for cash,
Operating Partnership units and University Towers Partnership
units. We did not obtain independent appraisals of the initial
properties or the management and development businesses. In
addition, the terms of the contribution and sale agreements
relating to the purchase of our College Station property and our
Management Company, which includes our Development Company as
its wholly owned subsidiary, were not negotiated at arms
length. Certain of our officers, specifically,
Messrs. Bower, Brown, Cardwell, Harris, Hickey and Wilcox,
received collectively through their ownership of interests in
properties held by the EDR Predecessor and our Management
Company and our Development Company, total consideration of
approximately $19.9 million, including Operating
Partnership units and University Towers Partnership units of
$17.2 million and cash of $2.7 million, which were
used to repay certain unaffiliated third-party loans incurred by
the EDR Predecessor. In addition, we paid approximately $800,000
in cash to an affiliate for certain office furniture and
equipment. It is possible that the consideration we provided in
exchange for these assets may exceed their fair market value and
that we could realize less value from the assets than we would
have realized if all of the contribution or sale agreements had
been entered into with an unrelated third party or if we had
obtained independent appraisals of the assets.
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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.
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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 project. In the intervening
period, we may incur significant pre-development and other costs
in the expectation that the development consulting services
contract will be executed. These costs generally range from
$300,000 to $500,000 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, be contingent
upon the project owners successful structuring and closing
of the project financing as well as the timing of construction.
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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. |
On the Closing Date, we issued Operating Partnership units as
partial or full consideration for our interests in two
properties in the JPI portfolio and University Towers
Partnership units for our interest in University Towers. So long
as the contributing owners of such properties hold at least 25%
of the Operating Partnership units or University Towers
Partnership units that they received on the Closing Date, 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.
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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.
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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 that meet our investment criteria, that we
will be successful in completing any acquisition we identify or
that any
15
acquisition we complete using the proceeds of our initial public
offering will produce a return on our investment. We will have
broad authority to invest in real estate investments that we
identify in the future.
Our future growth will be dependent upon our ability to
successfully acquire new properties 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 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.
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Risks related to the real estate industry |
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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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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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national, regional and local economic conditions; and |
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rising interest rates. |
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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.
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Certain losses may not be covered by insurance. |
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 terrorism
and 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, terrorism 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.
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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.
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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
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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.
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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 conducted Phase I
environmental site assessments on all of our initial properties.
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. Some of the
18
Phase I assessments did, however, test for radon and found
elevated radon levels at two properties. A radon mitigation
system was implemented at one of the properties and another
mitigation system will be needed at one additional property. In
addition, a limited Phase II study was conducted on four of
the properties and concluded that further investigation was not
warranted.
None of the 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.
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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 be
materially and adversely affected.
In June 2001, the United States Department of Justice, or DOJ,
notified JPI of an on-going investigation regarding possible
violations of the ADA and the FHAA at various residential
properties developed by JPI, mostly multi-family apartment
communities. Of the 14 student housing communities we acquired
from JPI on the Closing Date, one property is included in those
reviewed by the DOJ to date. 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 related to the JPI portfolio.
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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 actions for money damages. Furthermore,
existing requirements could change and require us to make
significant unanticipated expenditures that would materially and
adversely affect us.
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Our potential participation in joint ventures presents
additional risks. |
We may 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,
19
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.
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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 assure you
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.
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Risks related to our organization and structure |
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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.
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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. In
addition, we will be subject to income tax at regular corporate
rates to the extent that we distribute less than 100% of our net
taxable income, including any net capital gains. 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
20
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.
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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.
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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. |
21
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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.
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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.
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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.
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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 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.
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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, and Craig L. Cardwell, our Executive
Vice President and Chief Investment Officer. Messrs. Bower
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.
22
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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. |
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.
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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.
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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.
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Future distributions may include a significant portion as a
return of capital. |
Our distributions may 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.
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Item 1B. |
Unresolved Staff Comments. |
None.
General
As of December 31, 2005, our properties consisted of 26
communities located in 17 states containing 19,501 beds in
6,186 apartment units located near 23 universities. On
January 6, 2006 we completed the acquisition of the
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 Trust and then leased back the
properties and will operate them with the existing management
teams under a renewable, initial
five-year lease
agreement with the Trust.
Twenty-five of our 26 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 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 seven 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. |
24
Properties
The following tables provide certain summary information about
our properties as of December 31, 2005 and the EDR
Predecessors properties as of December 31, 2004:
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Year Ended |
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December 31, 2005 |
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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 |
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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(In thousands) |
NorthPointe
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University of 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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89.7 |
% |
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$ |
301 |
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$ |
330 |
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The Reserve at Athens
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University of Georgia |
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1999 |
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Jan 05 |
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612 |
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200 |
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95.6 |
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214 |
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350 |
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The Reserve at Clemson
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Clemson University |
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1999 |
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Jan 05 |
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590 |
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177 |
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95.4 |
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186 |
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316 |
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Players Club
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Florida State University |
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1994 |
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Jan 05 |
|
|
|
336 |
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|
|
84 |
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96.1 |
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125 |
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372 |
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The Gables
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Western Kentucky University |
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1996 |
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Jan 05 |
|
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290 |
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73 |
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89.2 |
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81 |
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278 |
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College Station
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Augusta State University |
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1989 |
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|
Jan 05 |
|
|
|
203 |
|
|
|
61 |
|
|
|
74.4 |
|
|
|
42 |
|
|
|
207 |
|
University Towers
|
|
|
North Carolina State University |
|
|
|
1989 |
|
|
|
Jan 05 |
|
|
|
953 |
|
|
|
251 |
|
|
|
73.9 |
|
|
|
432 |
(6) |
|
|
453 |
(6) |
The Pointe at South Florida
|
|
|
University of South Florida |
|
|
|
1999 |
|
|
|
Jan 05 |
|
|
|
1,002 |
|
|
|
336 |
|
|
|
96.1 |
|
|
|
411 |
|
|
|
442 |
|
Commons at Knoxville
|
|
|
University of Tennessee |
|
|
|
1999 |
|
|
|
|
|
|
|
708 |
|
|
|
211 |
|
|
|
94.8 |
|
|
|
281 |
|
|
|
396 |
|
The Commons
|
|
|
Florida State University |
|
|
|
1997 |
|
|
|
Jan 05 |
|
|
|
732 |
|
|
|
252 |
|
|
|
95.1 |
|
|
|
257 |
|
|
|
351 |
|
The Reserve on Perkins
|
|
|
Oklahoma State University |
|
|
|
1999 |
|
|
|
Jan 05 |
|
|
|
732 |
|
|
|
234 |
|
|
|
92.9 |
|
|
|
216 |
|
|
|
295 |
|
The Reserve at Star Pass
|
|
|
University of Arizona |
|
|
|
2001 |
|
|
|
Jan 05 |
|
|
|
1,020 |
|
|
|
336 |
|
|
|
93.1 |
|
|
|
325 |
|
|
|
319 |
|
The Pointe at Western
|
|
|
Western Michigan University |
|
|
|
2000 |
|
|
|
Jan 05 |
|
|
|
876 |
|
|
|
324 |
|
|
|
95.3 |
|
|
|
342 |
|
|
|
391 |
|
College Station at W. Lafayette
|
|
|
Purdue University |
|
|
|
2000 |
|
|
|
Jan 05 |
|
|
|
960 |
|
|
|
336 |
|
|
|
91.8 |
|
|
|
298 |
|
|
|
311 |
|
Commons on Kinnear
|
|
|
The Ohio State University |
|
|
|
2000 |
|
|
|
Jan 05 |
|
|
|
502 |
|
|
|
166 |
|
|
|
95.8 |
|
|
|
234 |
|
|
|
465 |
|
The Pointe
|
|
|
Pennsylvania State University |
|
|
|
1999 |
|
|
|
Jan 05 |
|
|
|
984 |
|
|
|
294 |
|
|
|
93.2 |
|
|
|
363 |
|
|
|
369 |
|
The Reserve at Columbia
|
|
|
University of Missouri |
|
|
|
2000 |
|
|
|
Jan 05 |
|
|
|
676 |
|
|
|
260 |
|
|
|
96.9 |
|
|
|
275 |
|
|
|
406 |
|
The Reserve on Frankford
|
|
|
Texas Tech University |
|
|
|
1997 |
|
|
|
Jan 05 |
|
|
|
737 |
|
|
|
243 |
|
|
|
86.9 |
|
|
|
252 |
|
|
|
342 |
|
The Village on Tharpe
|
|
|
Florida State University |
|
|
|
1995 |
|
|
|
Jan 05 |
|
|
|
1,554 |
|
|
|
486 |
|
|
|
94.7 |
|
|
|
533 |
|
|
|
343 |
|
The Lofts
|
|
|
University of Central Florida |
|
|
|
2002 |
|
|
|
Jan 05 |
|
|
|
730 |
|
|
|
254 |
|
|
|
96.3 |
|
|
|
404 |
|
|
|
553 |
|
The Reserve on West 31st
|
|
|
University of Kansas |
|
|
|
1998 |
|
|
|
Jan 05 |
|
|
|
720 |
|
|
|
192 |
|
|
|
89.8 |
|
|
|
215 |
|
|
|
299 |
|
Campus Creek
|
|
|
University of Mississippi |
|
|
|
2004 |
|
|
|
Feb 05 |
|
|
|
636 |
|
|
|
192 |
|
|
|
88.6 |
|
|
|
218 |
|
|
|
377 |
|
Pointe West
|
|
|
University of South Carolina |
|
|
|
2003 |
|
|
|
Mar 05 |
|
|
|
480 |
|
|
|
144 |
|
|
|
96.2 |
|
|
|
147 |
|
|
|
337 |
|
Campus Lodge
|
|
|
University of Florida |
|
|
|
2001 |
|
|
|
Jun 05 |
|
|
|
1,116 |
|
|
|
360 |
|
|
|
92.8 |
|
|
|
349 |
|
|
|
491 |
|
College Grove
|
|
|
Middle Tennessee State University |
|
|
|
1998 |
|
|
|
Apr 05 |
|
|
|
864 |
|
|
|
240 |
|
|
|
94.7 |
|
|
|
187 |
|
|
|
297 |
|
The Reserve on South College
|
|
|
Auburn University |
|
|
|
1999 |
|
|
|
Jul 05 |
|
|
|
576 |
|
|
|
180 |
|
|
|
92.4 |
|
|
|
90 |
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1998 |
(3) |
|
|
|
|
|
|
19,501 |
|
|
|
6,186 |
|
|
|
92.2 |
% |
|
$ |
6,778 |
|
|
$ |
366 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EDR Predecessor Year Ended | |
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Average | |
|
Monthly | |
|
Revenue per | |
|
|
|
|
Year | |
|
# of | |
|
# of | |
|
Occupancy | |
|
Total | |
|
Available | |
Name |
|
Primary University Served | |
|
Built | |
|
Beds | |
|
Units | |
|
Rate(4) | |
|
Revenue | |
|
Bed(5) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
(In thousands) | |
NorthPointe
|
|
|
University of Arizona |
|
|
|
1999 |
|
|
|
912 |
|
|
|
300 |
|
|
|
91.9 |
% |
|
$ |
465 |
|
|
$ |
371 |
|
The Reserve at Athens
|
|
|
University of Georgia |
|
|
|
1999 |
|
|
|
612 |
|
|
|
200 |
|
|
|
93.8 |
|
|
|
222 |
|
|
|
362 |
|
The Reserve at Clemson
|
|
|
Clemson University |
|
|
|
1999 |
|
|
|
590 |
|
|
|
177 |
|
|
|
95.0 |
|
|
|
193 |
|
|
|
327 |
|
Players Club
|
|
|
Florida State University |
|
|
|
1994 |
|
|
|
336 |
|
|
|
84 |
|
|
|
94.4 |
|
|
|
128 |
|
|
|
379 |
|
The Gables
|
|
|
Western Kentucky University |
|
|
|
1995 |
|
|
|
290 |
|
|
|
73 |
|
|
|
97.3 |
|
|
|
93 |
|
|
|
321 |
|
College Station
|
|
|
Augusta State University |
|
|
|
1989 |
|
|
|
203 |
|
|
|
61 |
|
|
|
88.4 |
|
|
|
51 |
|
|
|
253 |
|
University Towers(6)
|
|
|
North Carolina State University |
|
|
|
1989 |
|
|
|
953 |
|
|
|
251 |
|
|
|
75.9 |
|
|
|
465 |
(6) |
|
|
480 |
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1995 |
(3) |
|
|
3,896 |
|
|
|
1,146 |
|
|
|
89.2 |
% |
|
$ |
1,617 |
|
|
$ |
421 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Average of the physical month-end occupancy rates for the period
subsequent to acquisition through December 31, 2005. |
|
(2) |
Monthly revenue per available bed for 2005 is equal to total
revenue for the period subsequent to acquisition through
December 31, 2005 divided by the sum of the design beds
(including staff and model beds) at the property each month. |
|
(3) |
Represents average for all properties in portfolio. |
|
(4) |
Average of the physical month-end occupancy rates for the twelve
months ended December 31, 2004. |
|
(5) |
Monthly revenue per available bed for 2004 is equal to total
annual revenue divided by the sum of the design beds (including
staff and model beds) at the property each month. |
|
(6) |
Revenues and revenue per available bed for University Towers
excludes revenue from food service operations. |
26
Mortgage Indebtedness
The following table contains summary information concerning the
mortgage debt encumbering our properties as of December 31,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education Realty | |
|
|
|
|
|
|
|
|
Trust, Inc. | |
|
Contractual | |
|
|
|
|
|
|
Outstanding at | |
|
Fixed | |
|
|
|
|
|
|
December 31, | |
|
Interest | |
|
Maturity | |
|
|
Property |
|
2005 | |
|
Rate | |
|
Date | |
|
Amortization | |
|
|
| |
|
| |
|
| |
|
| |
University Towers
|
|
$ |
23,996 |
|
|
|
6.77% |
|
|
|
3/1/2008 |
|
|
|
30 Year |
|
The Reserve at Clemson
|
|
|
11,810 |
|
|
|
6.63% |
|
|
|
5/1/2007 |
|
|
|
30 Year |
|
The Gables
|
|
|
4,499 |
|
|
|
5.50% |
|
|
|
11/1/2013 |
|
|
|
30 Year |
|
NorthPointe
|
|
|
18,562 |
|
|
|
6.63% |
|
|
|
5/1/2007 |
|
|
|
30 Year |
|
The Pointe at S. Florida
|
|
|
23,900 |
|
|
|
5.48% |
|
|
|
7/7/2009 |
|
|
|
30 Year |
|
The Pointe at Western
|
|
|
21,600 |
|
|
|
5.48% |
|
|
|
7/7/2009 |
|
|
|
30 Year |
|
The Lofts
|
|
|
26,500 |
|
|
|
3.49% |
|
|
|
4/5/2007 |
|
|
|
30 Year |
|
The Reserve on Perkins/ The Commons at Knoxville
|
|
|
32,000 |
|
|
|
5.48% |
|
|
|
7/7/2009 |
|
|
|
30 Year |
|
The Pointe at Penn State/ The Reserve at Star Pass
|
|
|
50,740 |
|
|
|
5.48% |
|
|
|
7/7/2009 |
|
|
|
30 Year |
|
Campus Lodge
|
|
|
37,313 |
|
|
|
6.97% |
|
|
|
5/1/2012 |
|
|
|
30 Year |
|
Pointe West
|
|
|
11,148 |
|
|
|
4.92% |
|
|
|
8/1/2014 |
|
|
|
30 Year |
|
College Station at W. Lafayette
|
|
|
14,800 |
|
|
|
5.48% |
|
|
|
7/7/2009 |
|
|
|
30 Year |
|
The Commons on Kinnear
|
|
|
14,700 |
|
|
|
5.48% |
|
|
|
7/7/2009 |
|
|
|
30 Year |
|
The Reserve at Frankford
|
|
|
14,500 |
|
|
|
5.48% |
|
|
|
7/7/2009 |
|
|
|
30 Year |
|
The Reserve at Columbia
|
|
|
19,400 |
|
|
|
5.48% |
|
|
|
7/7/2009 |
|
|
|
30 Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt /weighted average rate
|
|
$ |
325,468 |
|
|
|
5.67% |
|
|
|
|
|
|
|
|
|
Unamortized premium/ (discount)
|
|
|
2,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans net of unamortized premium/(discount)
|
|
|
328,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion of long-term debt
|
|
|
(2,932 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net of current portion
|
|
$ |
325,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average interest rate of this mortgage indebtedness
is 5.67%. 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.
|
|
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, the liabilities, if any, in excess of
amounts provided or covered by insurance, 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.
NYSE Certifications
Our CEO certified to the New York Stock Exchange in 2005 that we
were in compliance with the NYSE listing standards. Our CEO and
CFO have executed the certification required by section 302
of the
27
Sarbanes-Oxley Act of 2002, which is contained herein as an
exhibit to this
Form 10-K for the
fiscal year ended December 31, 2005.
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
48 holders of record out of the 21,850,000 shares
outstanding on March 28, 2006. On the same day, our common
stock closed at $15.37. The following table provides information
on the high and low prices for our common stock on the NYSE and
the dividends declared for the eleven months from our initial
public offering on January 31 through December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions | |
|
|
High | |
|
Low | |
|
Declared | |
|
|
| |
|
| |
|
| |
Period from January 31 through March 31, 2005
|
|
$ |
17.66 |
|
|
$ |
16.00 |
|
|
|
|
|
Three months ended June 30, 2005
|
|
|
18.75 |
|
|
|
15.57 |
|
|
$ |
0.19 |
|
Three months ended September 30, 2005
|
|
|
20.34 |
|
|
|
16.40 |
|
|
$ |
0.30 |
|
Three months ended December 31, 2005
|
|
$ |
16.63 |
|
|
$ |
12.17 |
|
|
$ |
0.30 |
|
Initial Public Offering
On January 31, 2005, we sold 21,850,000 shares of our
common stock at an offering price of $16.00 per share,
including the sale of 2,850,000 shares in connection with
the full exercise of the over-allotment option by the
underwriters of the Offering. J.P. Morgan Securities Inc.
and UBS Securities LLC were the joint book-running managers for
the Offering. Simultaneous with the Offering, we completed our
formation transactions, which included the contribution of the
student housing business of the EDR Predecessor and its
subsidiaries, purchase of the related minority interests in the
EDR Predecessor and its subsidiaries and the acquisition of 14
student housing communities previously owned by JPI Investment
Company, L.P. and its affiliates (JPI). The net
proceeds of the Offering after expenses were approximately
$320.4 million. The Offering proceeds were used as follows:
|
|
|
|
|
approximately $121.2 million to pay the cash portion of our
formation transactions; |
|
|
|
approximately $118.4 million to repay mortgage debt assumed
in the formation transactions, including prepayment fees of
approximately $3.7 million; |
|
|
|
approximately $6.0 million to fund our revolving loan
commitment to an affiliate of JPI; |
|
|
|
approximately $1.4 million to pay loan origination fees
relating to our $100 million revolving credit facility that
was obtained on January 31, 2005 and amended on
April 4, 2005; |
|
|
|
approximately $59.6 million to purchase properties located
near the University of Mississippi in February 2005, the
University of South Carolina in March 2005, Middle Tennessee
State University in April 2005, the University of Florida in
June 2005, and Auburn University in July 2005; and |
|
|
|
approximately $6.7 million was used for general corporate
purposes, including payments of distributions to our
stockholders. |
Recent Sales of Unregistered Securities
Upon our formation on July 13, 2004, Paul O. Bower, our
Chief Executive Officer, President and Chairman of the Board of
Directors, was issued 100 shares of our common stock for
total consideration of
28
$1,000 in cash in order to provide our initial capitalization.
We repurchased these shares at cost on the Closing Date. The
issuance of all such shares were effected in reliance upon an
exemption from registration provided by Section 4(2) under
the Securities Act of 1933, as amended (Securities Act) and
Rule 506 of Regulation D thereunder. Mr. Bower is
an accredited investor as defined under
Regulation D of the Securities Act.
On the Closing Date, 1,376,471 units of limited partnership
interest in our Operating Partnership, having a value of
approximately $22.0 million, and 269,757 units of
limited partnership interest in the University Towers
Partnership, having a value of approximately $4.3 million,
were issued to a total of eight persons, including certain of
our directors and officers, in exchange for interests in our
initial properties and other assets. These units are convertible
after one year from the date of issuance into cash or, at our
election, shares of our common stock on a one-for-one basis. All
of such persons irrevocably committed to the transfer of such
interests and assets prior to the filing of the registration
statement for our initial public offering pursuant to certain
contribution agreements and merger agreements dated between
September 17, 2004 and September 24, 2004 and are
accredited investors as defined under
Regulation D of the Securities Act. The issuances of all
the units described above were made in reliance upon exemptions
from registration provided by Section 4(2) under the
Securities Act and Rule 506 of Regulation D thereunder.
Also on the Closing Date, we issued to JPI a warrant to
purchase 250,000 shares of our common stock at a price
equal to 103% of the initial public offering price. Pursuant to
a contract of sale/contribution dated September 17, 2004,
JPI irrevocably committed to the transfer of such interest in
exchange for the consideration provided for in the contract,
including the warrant. JPI is an accredited investor
as defined under Regulation D of the Securities Act. This
warrant will be exercisable beginning January 31, 2006 and
will expire on February 28, 2007 unless previously
exercised. The issuance of the warrant was made in reliance upon
an exemption from registration provided by Section 4(2)
under the Securities Act and Rule 506 of Regulation D
thereunder.
In addition, also on the Closing Date, we issued
170,000 restricted shares of our common stock with an
aggregate value of $2,890,000 that vest over five years, and
220,000 profits interest units representing an aggregate
1.1% interest in our Operating Partnership to our executive
officers, pursuant to the terms of their respective employment
agreements and to other employees at the discretion of our
board. The issuance of such shares was made in reliance upon an
exemption from registration under Rule 701 and
Section 4(2) of the Securities Act. In addition, each of
our independent directors received on the Closing Date an
initial grant of restricted stock representing 1,000 shares
of our common stock, which vested 180 days following the
Closing Date. The issuance of these restricted stock units was
made in reliance upon an exemption from registration under
Rule 701 and Section 4(2) of the Securities Act.
Subsequent to the Closing Date an additional
10,000 restricted shares of our common stock, which vests
over five years, and having an aggregate value of $167,800, and
25,000 profit interest units were issued to employees and
an additional 4,000 restricted shares of our common stock,
which vested immediately upon issue, were issued to our
independent directors.
On September 30, 2005, we completed a private placement of
4,375,000 shares of its common stock at a price of
$16.00 per share (the Private Placement). The
Private Placement raised net proceeds of approximately
$67.0 million, after offering expenses of approximately
$3.0 million. In connection with the Private Placement, we
also entered into a registration rights agreement with the
investors on September 22, 2005 (the Registration
Rights Agreement). Pursuant to the Registration Rights
Agreement, we agreed to file a registration statement covering
the shares and to cause the registration statement to be
declared effective within 180 days after the
September 30, 2005 closing date. These shares were
registered with the Securities and Exchange Commission on
January 25, 2006.
29
The following table provides information with respect to
compensation plans under which our equity securities are
authorized for issuance as of December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
Remaining Available for |
|
|
|
|
|
|
Future Issuance under |
|
|
Number of Securities to |
|
Weighted Average |
|
Equity Compensation |
|
|
be Issued upon Exercise |
|
Exercise Price of |
|
Plans (excluding |
|
|
of Outstanding Options, |
|
Outstanding Options |
|
securities reflected in |
|
|
Warrants and Rights |
|
Warrants and Rights |
|
column (a)) |
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
N/A |
|
|
|
N/A |
|
|
|
614,000 |
|
Equity compensation plans not approved by security holders
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
N/A |
|
|
|
N/A |
|
|
|
614,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6. |
Selected Financial Data. |
We have not presented historical information for the Trust prior
to the completion of the Offering because we did not have
material corporate operating activity during the period from our
formation until the closing of the Offering.
The following table sets forth selected financial and operating
data on a consolidated historical basis for the Trust and on a
combined historical basis for the EDR Predecessor. For the
periods presented prior to the Offering, the historical combined
financial information for the EDR Predecessor 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 the Trust for the year ended December 31,
2005.
30
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education Realty | |
|
EDR | |
|
|
Trust Inc. | |
|
Predecessor | |
|
|
| |
|
| |
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing revenue
|
|
$ |
75,877 |
|
|
$ |
17,896 |
|
|
$ |
17,095 |
|
|
$ |
19,139 |
|
|
$ |
13,084 |
|
|
Student housing food service revenue
|
|
|
3,491 |
|
|
|
3,137 |
|
|
|
2,879 |
|
|
|
|
|
|
|
|
|
|
Third-party development consulting services
|
|
|
1,759 |
|
|
|
392 |
|
|
|
691 |
|
|
|
1,444 |
|
|
|
305 |
|
|
Third-party management revenue
|
|
|
1,968 |
|
|
|
1,326 |
|
|
|
1,026 |
|
|
|
784 |
|
|
|
767 |
|
|
Operating expense reimbursements
|
|
|
6,694 |
|
|
|
5,223 |
|
|
|
4,438 |
|
|
|
3,345 |
|
|
|
2,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
89,789 |
|
|
|
27,974 |
|
|
|
26,129 |
|
|
|
24,712 |
|
|
|
17,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing operations
|
|
|
37,794 |
|
|
|
7,645 |
|
|
|
7,408 |
|
|
|
9,212 |
|
|
|
6,282 |
|
|
Student housing food service operations
|
|
|
3,275 |
|
|
|
2,899 |
|
|
|
2,645 |
|
|
|
|
|
|
|
|
|
|
Reimbursable operating expenses
|
|
|
6,694 |
|
|
|
5,223 |
|
|
|
4,438 |
|
|
|
3,345 |
|
|
|
2,947 |
|
|
General and administrative
|
|
|
12,549 |
|
|
|
3,545 |
|
|
|
3,425 |
|
|
|
3,242 |
|
|
|
2,111 |
|
|
Depreciation and amortization
|
|
|
28,168 |
|
|
|
3,120 |
|
|
|
3,061 |
|
|
|
3,324 |
|
|
|
1,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
89,480 |
|
|
|
22,432 |
|
|
|
20,977 |
|
|
|
19,123 |
|
|
|
12,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
309 |
|
|
|
5,542 |
|
|
|
5,152 |
|
|
|
5,589 |
|
|
|
4,427 |
|
Nonoperating expense
|
|
|
17,266 |
|
|
|
5,786 |
|
|
|
5,771 |
|
|
|
5,715 |
|
|
|
3,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in earnings of unconsolidated
entities
|
|
|
(16,957 |
) |
|
|
(244 |
) |
|
|
(619 |
) |
|
|
(126 |
) |
|
|
991 |
|
Equity in earnings of unconsolidated entities
|
|
|
880 |
|
|
|
1,002 |
|
|
|
629 |
|
|
|
128 |
|
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes and minority
interest
|
|
|
(16,077 |
) |
|
|
758 |
|
|
|
10 |
|
|
|
2 |
|
|
|
1,254 |
|
Taxes
|
|
|
497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interest
|
|
|
(16,574 |
) |
|
|
758 |
|
|
|
10 |
|
|
|
2 |
|
|
|
1,254 |
|
Minority interest
|
|
|
(1,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(15,534 |
) |
|
$ |
758 |
|
|
$ |
10 |
|
|
$ |
2 |
|
|
$ |
1,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
Education Realty | |
|
|
|
|
Trust, Inc. | |
|
EDR Predecessor | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing properties, net
|
|
$ |
620,305 |
|
|
$ |
83,785 |
|
|
$ |
86,388 |
|
|
$ |
88,900 |
|
|
$ |
49,357 |
|
|
Other assets, net
|
|
|
83,744 |
|
|
|
5,089 |
|
|
|
5,536 |
|
|
|
5,315 |
|
|
|
4,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
704,049 |
|
|
$ |
88,874 |
|
|
$ |
91,924 |
|
|
$ |
94,215 |
|
|
$ |
54,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable
|
|
$ |
328,335 |
|
|
$ |
81,111 |
|
|
$ |
82,204 |
|
|
$ |
82,959 |
|
|
$ |
52,150 |
|
|
Other liabilities
|
|
|
17,255 |
|
|
|
5,974 |
|
|
|
7,225 |
|
|
|
5,798 |
|
|
|
4,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
345,590 |
|
|
|
87,085 |
|
|
|
89,429 |
|
|
|
88,757 |
|
|
|
56,921 |
|
|
Minority interest
|
|
|
27,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (deficit)
|
|
|
330,533 |
|
|
|
1,789 |
|
|
|
2,495 |
|
|
|
5,458 |
|
|
|
(2,680 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
704,049 |
|
|
$ |
88,874 |
|
|
$ |
91,924 |
|
|
$ |
94,215 |
|
|
$ |
54,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
OTHER DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
Education Realty | |
|
|
|
|
Trust, Inc. | |
|
EDR Predecessor | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands except selected property information) | |
Funds from operations (FFO)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(15,534 |
) |
|
$ |
758 |
|
|
$ |
10 |
|
|
$ |
2 |
|
|
$ |
1,254 |
|
|
Plus student housing property depreciation and amortization of
lease intangibles
|
|
|
28,896 |
|
|
|
3,120 |
|
|
|
3,061 |
|
|
|
3,324 |
|
|
|
1,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations
|
|
$ |
13,362 |
|
|
$ |
3,878 |
|
|
$ |
3,071 |
|
|
$ |
3,326 |
|
|
$ |
2,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
|
$ |
18,373 |
|
|
$ |
3,068 |
|
|
$ |
4,309 |
|
|
$ |
3,992 |
|
|
$ |
2,807 |
|
|
Net cash used in investing
|
|
|
(200,157 |
) |
|
|
(181 |
) |
|
|
(925 |
) |
|
|
(42,982 |
) |
|
|
(25,939 |
) |
|
Net cash provided by (used in) financing
|
|
|
243,445 |
|
|
|
(2,480 |
) |
|
|
(3,658 |
) |
|
|
38,951 |
|
|
|
23,296 |
|
Per share and distribution data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$ |
(.67 |
) |
|
$ |
(2,220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions declared per share/unit
|
|
|
.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distribution declared
|
|
|
18,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected property information(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
6,186 |
|
|
|
1,146 |
|
|
|
1,146 |
|
|
|
1,146 |
|
|
|
669 |
|
|
Beds
|
|
|
19,501 |
|
|
|
3,896 |
|
|
|
3,896 |
|
|
|
3,896 |
|
|
|
2,394 |
|
|
Occupancy(3)
|
|
|
92.2 |
% |
|
|
89.2 |
% |
|
|
85.1 |
% |
|
|
87.6 |
% |
|
|
87.8 |
% |
|
Revenue per available bed(4)
|
|
$ |
366 |
|
|
$ |
421 |
|
|
$ |
406 |
|
|
$ |
400 |
|
|
$ |
465 |
|
|
|
(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 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. 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 26 owned
properties for 2005. The 2004 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. |
|
(3) |
Average of the month-end occupancy rates for rolling
twelve-month period. |
|
(4) |
Revenue per available bed is equal to the total twelve-month
rolling revenue divided by the sum of the design beds (including
staff and model beds) at the property each month. 2005 Revenue
per available bed is equal to revenue for the eleven months
ended December 31, 2005 divided by the sum of the available
beds for each of the eleven months then ended. |
33
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations. |
The following discussion should be read in conjunction with
the financial statements and notes thereto appearing elsewhere
in this report. Where appropriate, the following discussion
includes analysis of the effects of our Offering and the
formation transactions. We make statements in this section that
are forward-looking statements, see the section of this
Form 10-K report
entitled Forward-Looking Statements. Certain risk
factors may cause our actual results, performance or
achievements to differ materially from those expressed or
implied by the following discussion. For a discussion of such
risk factors, see the sections of this
Form 10-K report
entitled Risk Factors and Forward-Looking
Statements. All dollar amounts in this discussion, except
for per share data and operating statistics, are in
thousands.
Overview
We are a self-managed and self-advised REIT engaged in the
ownership, acquisition and management of high quality student
housing communities. We also provide student housing development
consulting services to universities, charitable foundations and
others. 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 were formed to continue and expand upon the student housing
business of the EDR Predecessor, which commenced in 1964. We did
not commence operations until the completion of our initial
public offering, which occurred on the Closing Date. The
historical operations prior to the Closing Date that are
described in this report refer to the operations of the EDR
Predecessor. We have described our operations in this report as
if the historical operations of the EDR Predecessor were
conducted by us. Where appropriate, the following discussion
includes an analysis of the completion of our initial public
offering and certain matters that have occurred following the
completion of our initial public offering.
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. While we manage the
properties we own, we do not recognize any fee income from their
management on a consolidated basis.
We will elect to be taxed as a REIT for federal income tax
purposes commencing with our tax year ending December 31,
2005.
We define business segments by their distinct customer base and
service provided. Management has identified three reportable
segments: student housing leasing, third party development
consulting services and third-party management services. We
evaluate each segments performance based on net operating
income, which is defined as income before depreciation,
amortization, interest expense and equity in earnings of
unconsolidated entities. 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 the
contractually stipulated amounts.
Student housing leasing revenue represented approximately 88.4%
of our revenue for the twelve months ended December 31,
2005. We include in student housing leasing revenue our revenue
from food service operations at University Towers, as well as
revenue from a contract pursuant to which we provide food
services at the Robert Louis Stevenson School in Pebble Beach,
California.
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
34
number of lease contracts that we administer is therefore
equivalent to the number of beds occupied instead of the number
of apartment units.
Due to our predominantly private bedroom accommodations, the
high level of student-oriented amenities offered at our
communities and 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 tend to offer
properties with fewer amenities.
Substantially all of our leases commence mid-August and
terminate the last day of July. These dates coincide with the
commencement of the universities fall academic term and
typically terminate at 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 2004 and
2005, approximately 64.7% and 69.9%, respectively, of our beds
were leased 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 February 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, which may be greater than the
fluctuation in occupancy rates upon expiration of traditional
apartment leases.
During the first two weeks of August, prior to the commencement
of each new lease period, we prepare the units for the new
incoming tenants. Other than revenue generated by in-place
leases for returning tenants, we do not generally recognize
lease revenue during this period, as we have no leases in place.
In addition, during this turnover period we incur significant
expenses, which we immediately recognize, making our units ready
for occupancy on or about August 15. Our August lease turnover
results in seasonality in our operating results during the third
quarter of each year.
|
|
|
Third-Party Management Services |
Revenue from our third-party management services, excluding
operating expense reimbursements, represented approximately 2.4%
of our revenue for the twelve months ended December 31,
2005. 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 third-party properties owners. These costs are
referred to as reimbursable operating expenses and are required
to be reimbursed to us by the third-party 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 our
management when analyzing the operating performance of our
third-party management services business.
|
|
|
Third-Party Development Consulting Services |
Revenue from our third-party development consulting services,
excluding operating expense reimbursements, represented
approximately 2.1% of our revenue for the twelve months ended
December 31, 2005. Fees for these services are typically
3-5% of the total project cost and are payable over the life of
the project, which is typically one to two years in length. At
times we will pay pre-development 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. 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 third-party development consulting services
business.
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
35
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.
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 third-party development
projects have completed construction in time for their targeted
occupancy dates.
We expect the general trends of increased university enrollment
and limited availability of on-campus housing 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 an overall increase in revenues from the
property. As a result, a decrease in occupancy rates may not be
material to our operations and may be offset by an increase in
rental rates. For the calendar years ended December 31,
2003 and 2004, we experienced a general trend of increasing
revenue per available bed for our garden style apartment
communities. However, in 2005 we experienced a drop in revenue
per available bed from the prior period. This decline is a
result of occupancy declines at two or our properties as well as
a one time drop in revenue related to the treatment of deferred
revenue in purchase accounting. Reported revenues for 2005 would
have generally been higher due to the recognition of deferred
revenue from the prior year had we owned all of our properties
since the beginning of the 2004-2005 term.
|
|
|
Integration Costs Related to the Acquisition of Additional
Properties |
Our acquisition of the 14 JPI properties on the Closing Date and
the subsequent acquisitions of five additional properties
resulted in a substantial increase in the number of student
housing communities managed by our Management Company and
management team. These acquisitions required us to enhance our
management information systems and add additional regional
management and corresponding support personnel in our corporate
office. We also experienced increased operating costs in the
first year related to enhanced student amenities and higher
maintenance (turn) expense necessary to appropriately position
the properties in our portfolio.
|
|
|
General and Administrative Costs |
As a result of becoming a public company in January 2005, we
experienced significant increases in salaries, legal and
accounting costs, director fees, costs related to communicating
with stockholders, including ongoing communications and
distribution of proxy statements in connection with stockholder
meetings, as well as other cost related to the significant
increase in our portfolio. Our general and administrative
expenses increased significantly as a result of costs associated
with being a public company.
|
|
|
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
36
materiality. It is possible that 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 activities
related to the leasing activities at the student housing
properties and includes revenues from the leasing of space,
parking lot rentals and certain ancillary services.
Students are required to execute lease contracts with payment
schedules that vary from single to monthly payments. Generally,
each executed contract must be accompanied by a nonrefundable
application fee, a nonrefundable service fee and a notarized
parental guarantee. Receivables are recorded when due, and
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.
|
|
|
Revenue and Cost Recognition of Third-Party 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. 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. 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. Since, as a REIT, we will be
required to distribute 90% of our 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 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.
|
|
|
Student Housing Property Acquisitions |
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 three to seven 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 results of
operations are included in the results of operations from the
respective dates of acquisition. Pre-acquisition costs, which
include legal and professional fees and other third party
37
costs related directly to the acquisition of the property, are
accounted for as part of the purchase price. Independent
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.
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 us to
maintain a reserve account for future repairs and capital
expenditures. These amounts are not available for current use.
|
|
|
Long Lived Assets Impairment |
Periodically, management is required to assess whether there are
any indicators that our real estate properties 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 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.
Results of Operations
|
|
|
Comparison of years ended December 31, 2005 and
December 31, 2004 |
The following table presents our results of operations for the
years ended December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005(1) | |
|
Year Ended December 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
Third-Party | |
|
|
|
|
|
Third-Party | |
|
|
|
|
Student | |
|
Development | |
|
Third-Party | |
|
|
|
Student | |
|
Development | |
|
Third-Party | |
|
|
|
|
Housing | |
|
Consulting | |
|
Management | |
|
|
|
Housing | |
|
Consulting | |
|
Management | |
|
|
|
|
Leasing | |
|
Services | |
|
Services | |
|
Adjustments | |
|
Total | |
|
Leasing | |
|
Services | |
|
Services | |
|
Adjustments | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing revenue
|
|
$ |
75,877 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
75,877 |
|
|
$ |
17,896 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
17,896 |
|
|
Student housing food service revenue
|
|
|
3,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,491 |
|
|
|
3,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,137 |
|
|
Third-party development consulting services
|
|
|
|
|
|
|
1,759 |
|
|
|
|
|
|
|
|
|
|
|
1,759 |
|
|
|
|
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
392 |
|
|
Third-party management revenue
|
|
|
|
|
|
|
|
|
|
|
1,968 |
|
|
|
|
|
|
|
1,968 |
|
|
|
|
|
|
|
|
|
|
|
1,326 |
|
|
|
|
|
|
|
1,326 |
|
|
Intersegment revenues
|
|
|
|
|
|
|
|
|
|
|
2,644 |
|
|
|
(2,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
973 |
|
|
|
(973 |
) |
|
|
|
|
|
Operating expense reimbursements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,694 |
|
|
|
6,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,223 |
|
|
|
5,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
79,368 |
|
|
|
1,759 |
|
|
|
4,612 |
|
|
|
4,050 |
|
|
|
89,789 |
|
|
|
21,033 |
|
|
|
392 |
|
|
|
2,299 |
|
|
|
4,250 |
|
|
|
27,974 |
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005(1) | |
|
Year Ended December 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
Third-Party | |
|
|
|
|
|
Third-Party | |
|
|
|
|
Student | |
|
Development | |
|
Third-Party | |
|
|
|
Student | |
|
Development | |
|
Third-Party | |
|
|
|
|
Housing | |
|
Consulting | |
|
Management | |
|
|
|
Housing | |
|
Consulting | |
|
Management | |
|
|
|
|
Leasing | |
|
Services | |
|
Services | |
|
Adjustments | |
|
Total | |
|
Leasing | |
|
Services | |
|
Services | |
|
Adjustments | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing operations
|
|
|
37,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,794 |
|
|
|
7,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,645 |
|
|
Student housing food service operations
|
|
|
3,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,275 |
|
|
|
2,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,899 |
|
|
General and administrative
|
|
|
|
|
|
|
2,245 |
|
|
|
3,969 |
|
|
|
|
|
|
|
6,214 |
|
|
|
|
|
|
|
1,329 |
|
|
|
2,216 |
|
|
|
|
|
|
|
3,545 |
|
|
Intersegment expenses
|
|
|
2,644 |
|
|
|
|
|
|
|
|
|
|
|
(2,644 |
) |
|
|
|
|
|
|
973 |
|
|
|
|
|
|
|
|
|
|
|
(973 |
) |
|
|
|
|
|
Reimbursable operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,694 |
|
|
|
6,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,223 |
|
|
|
5,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
43,713 |
|
|
|
2,245 |
|
|
|
3,969 |
|
|
|
4,050 |
|
|
|
53,977 |
|
|
|
11,517 |
|
|
|
1,329 |
|
|
|
2,216 |
|
|
|
4,250 |
|
|
|
19,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss)
|
|
|
35,655 |
|
|
|
(486 |
) |
|
|
643 |
|
|
|
|
|
|
|
35,812 |
|
|
|
9,516 |
|
|
|
(937 |
) |
|
|
83 |
|
|
|
|
|
|
|
8,662 |
|
Nonoperating expenses(2)
|
|
|
46,578 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
46,572 |
|
|
|
8,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in earnings of unconsolidated
entities, income taxes and minority interest
|
|
|
(10,923 |
) |
|
|
(480 |
) |
|
|
643 |
|
|
|
|
|
|
|
(10,760 |
) |
|
|
610 |
|
|
|
(937 |
) |
|
|
83 |
|
|
|
|
|
|
|
(244 |
) |
Equity in earnings of unconsolidated entities
|
|
|
|
|
|
|
880 |
|
|
|
|
|
|
|
|
|
|
|
880 |
|
|
|
|
|
|
|
1,002 |
|
|
|
|
|
|
|
|
|
|
|
1,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes and minority interest(3)
|
|
$ |
(10,923 |
) |
|
$ |
400 |
|
|
$ |
643 |
|
|
$ |
|
|
|
$ |
(9,880 |
) |
|
$ |
610 |
|
|
$ |
65 |
|
|
$ |
83 |
|
|
$ |
|
|
|
$ |
758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The information presented for the year ended December 31,
2005 represents the combined results of operations for Education
Realty Trust, Inc. (post Offering) and the EDR Predecessor (pre
Offering). |
|
(2) |
Non operating expenses include interest expense, interest income
and exit fees on early payment of debt, amortization of deferred
financing costs, depreciation, and amortization of intangibles. |
|
(3) |
The following is a reconciliation of the reportable
segments net income (loss) before income taxes and
minority interest to the Trusts consolidated net income
(loss) before income taxes and minority interest: |
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Net income (loss) before taxes and minority interest for
reportable segments
|
|
$ |
(9,880 |
) |
|
$ |
758 |
|
Unallocated corporate amounts:
|
|
|
|
|
|
|
|
|
|
Noncash compensation charge for PIUs and restricted stock
|
|
|
(4,679 |
) |
|
|
|
|
|
Other corporate expenses
|
|
|
(1,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes and minority interest
|
|
$ |
(16,077 |
) |
|
$ |
758 |
|
|
|
|
|
|
|
|
Revenue from student housing leasing increased by
$58.3 million to $79.4 million for the year ended
December 31, 2005. This increase was due largely to the
acquisition of the 14 JPI properties upon consummation of our
Offering and the incremental impact relating to five new
properties acquired since the Offering. As seen below our base
portfolio of EDR Predecessor properties experienced a decrease
in revenue per available bed over the comparable period of 2004.
Part of the decrease was due to a drop in occupancy at two of
our properties as a result of increased supply around the
universities. In addition we had a planned drop in rates at our
University Towers property designed to reverse a negative trend
in occupancy experienced during the
04-05
academic year. This rate adjustment along with a focused
39
marketing effort has successfully reversed the trend at
University Towers resulting in occupancy at the beginning of the
current lease term of approximately 95% compared to 88% a year
earlier.
Overall average physical occupancy and Revenue per Available Bed
(RevPAB) for the years ended December 31, 2005
and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Occupancy | |
|
Average RevPAB | |
|
Occupancy | |
|
Average RevPAB | |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2005 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
EDR Predecessor (excluding University Towers)
|
|
|
93.3% |
|
|
$ |
320 |
|
|
|
93.5 |
% |
|
$ |
348 |
|
University Towers
|
|
|
73.1% |
|
|
$ |
436 |
|
|
|
75.9 |
% |
|
$ |
488 |
|
Total EDR Predecessor
|
|
|
92.2% |
|
|
$ |
348 |
|
|
|
89.2 |
% |
|
$ |
383 |
|
JPI Portfolio(1)
|
|
|
93.8% |
|
|
$ |
369 |
|
|
|
|
|
|
|
|
|
New Acquisitions(1)
|
|
|
92.9% |
|
|
$ |
372 |
|
|
|
|
|
|
|
|
|
Total EDR Owned
|
|
|
92.2% |
|
|
$ |
365 |
|
|
|
89.2 |
% |
|
$ |
383 |
|
|
|
(1) |
Properties were not owned as December 31, 2004. |
Operating expenses of our student housing communities increased
$32.2 million to $43.7 million for the year ended
December 31, 2005. The majority of this increase was also
due to the addition of the 14 JPI properties and the incremental
impact relating to the five new properties as described above.
However, the growth in operating expenses outpaced revenue
growth year over year. Higher than anticipated utility costs,
turn costs, bad debt expense, and student amenity costs
contributed to operating expenses, excluding intersegment
charges, as a percentage of revenue to increase. The higher
utility costs are a result of current economic conditions,
however, management has begun instituting energy conservation
programs in an effort to control these costs as much as
possible. The increase in student amenities is mostly the result
of additional costs to meet student demand for better and faster
internet capabilities. Management anticipates continued
challenges managing these costs in the future. The increased
costs related to turn and bad debt expense are considered by
management to be one time issues related to acquired properties
and their assimilation into our operating structure. While
higher than normal bad debt charges were a cost of transitioning
the properties, management believes the additional turn costs
incurred were necessary to position the properties appropriately
in the market and view them as an investment in the future
leasing success of the properties.
|
|
|
Third-party development consulting services |
Third-party development services revenues increased by
$1.4 million to $1.8 million for the year ended
December 31, 2005 from $.4 million for the year ended
December 31, 2004. This increase relates to revenue
recognized on four projects in 2005 compared to one project
during the same period in 2004.
A portion of our third-party development consulting services
have been conducted through joint venture arrangements, and the
related fees recognized as equity in earnings of unconsolidated
entities. Equity in earnings of unconsolidated entities
decreased by $0.1 million to $0.9 million for the year
ended December 31, 2005 from $1.0 million for the year
ended December 31, 2004. This decrease was primarily due to
more of our projects being contracted directly with the
universities and is reflected in the increase in third-party
development services revenue. There were two projects with a
total of 1,160 beds under development through joint ventures
during 2005 compared to four projects with a total of 2,076 beds
during the same period in 2004.
General and administrative costs in the third-party development
consulting services increased $1.1 million to
$2.2 million for the year ended December 31, 2005.
General and administrative expenses increased as a result of the
higher volume of development projects and an expansion of the
department. Additional growth in general and administrative
expenses occurred due to a higher overhead burden as a result of
the overall growth of the company and its entry into the public
market.
40
|
|
|
Third-party management services |
Third-party management services revenues increased by
$2.3 million to $4.6 million for the year ended
December 31, 2005 from $2.3 million for the year ended
December 31, 2004. Revenue increased $1.7 million due
to intersegment charges to owned properties as a result of the
growth in our portfolio from seven to twenty-six properties.
Third-party revenue increased $0.6 million year over year
as a result of 2005 benefiting from a full year of management
fees on four managed properties consisting of 2,096 beds that
opened in Fall 2004, the opening of 3 new managed properties in
August and September of 2005 and a new management contract for a
632 bed facility at the University of Texas in September 2005.
General and administrative costs for our third-party management
services increased $1.8 million to $4.0 million for
the year ended December 31, 2005. This increase is a direct
result of the extraordinary growth in both our owned and managed
portfolios as discussed above. Our owned portfolio grew from
7 properties to 26 properties through our Offering and
Formation transactions as well as our 2005 acquisition program.
In addition the third-party management services group added a
total of eight new properties to its managed portfolio since
summer 2004. Additional growth in general and administrative
expenses occurred due to a higher overhead burden as a result of
the overall growth of the company and its entry into the public
market.
Nonoperating expenses increased $37.7 million to
$46.6 million for the year ended December 31, 2005.
The increase includes $1.1 million in defeasance fees on
the early retirement of debt but relates substantially to an
approximate $25.9 million increase in depreciation and
amortization and an approximate $10.7 million dollar
increase in mortgage interest expense as a result of the 14
property JPI acquisition and the acquisition of five additional
properties during the year.
41
|
|
|
Comparison of years ended December 31, 2004 and
December 31, 2003 |
The following table presents our results of operations for the
years ended December 31, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004(1) | |
|
Year Ended December 31, 2003 | |
|
|
| |
|
| |
|
|
|
|
Third-Party | |
|
|
|
|
|
Third-Party | |
|
|
|
|
Student | |
|
Development | |
|
Third-Party | |
|
|
|
Student | |
|
Development | |
|
Third-Party | |
|
|
|
|
Housing | |
|
Consulting | |
|
Management | |
|
|
|
Housing | |
|
Consulting | |
|
Management | |
|
|
|
|
Leasing | |
|
Services | |
|
Services | |
|
Adjustments | |
|
Total | |
|
Leasing | |
|
Services | |
|
Services | |
|
Adjustments | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing revenue
|
|
$ |
17,896 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
17,896 |
|
|
$ |
17,095 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
17,095 |
|
|
Student housing food service revenue
|
|
|
3,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,137 |
|
|
|
2,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,879 |
|
|
Third-party development consulting services
|
|
|
|
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
392 |
|
|
|
|
|
|
|
691 |
|
|
|
|
|
|
|
|
|
|
|
691 |
|
|
Third-party management revenue
|
|
|
|
|
|
|
|
|
|
|
1,326 |
|
|
|
|
|
|
|
1,326 |
|
|
|
|
|
|
|
|
|
|
|
1,026 |
|
|
|
|
|
|
|
1,026 |
|
|
Intersegment revenues
|
|
|
|
|
|
|
|
|
|
|
973 |
|
|
|
(973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
959 |
|
|
|
(959 |
) |
|
|
|
|
|
Operating expense reimbursements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,223 |
|
|
|
5,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,438 |
|
|
|
4,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
21,033 |
|
|
|
392 |
|
|
|
2,299 |
|
|
|
4,250 |
|
|
|
27,974 |
|
|
|
19,974 |
|
|
|
691 |
|
|
|
1,985 |
|
|
|
3,479 |
|
|
|
26,129 |
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing operations
|
|
|
7,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,645 |
|
|
|
7,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,559 |
|
|
Student housing food service operations
|
|
|
2,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,899 |
|
|
|
2,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,645 |
|
|
General and administrative
|
|
|
|
|
|
|
1,329 |
|
|
|
2,216 |
|
|
|
|
|
|
|
3,545 |
|
|
|
|
|
|
|
1,245 |
|
|
|
2,029 |
|
|
|
|
|
|
|
3,274 |
|
|
Intersegment expenses
|
|
|
973 |
|
|
|
|
|
|
|
|
|
|
|
(973 |
) |
|
|
|
|
|
|
959 |
|
|
|
|
|
|
|
|
|
|
|
(959 |
) |
|
|
|
|
|
Reimbursable operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,223 |
|
|
|
5,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,438 |
|
|
|
4,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
11,517 |
|
|
|
1,329 |
|
|
|
2,216 |
|
|
|
4,250 |
|
|
|
19,312 |
|
|
|
11,163 |
|
|
|
1,245 |
|
|
|
2,029 |
|
|
|
3,479 |
|
|
|
17,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss)
|
|
|
9,516 |
|
|
|
(937 |
) |
|
|
83 |
|
|
|
|
|
|
|
8,662 |
|
|
|
8,811 |
|
|
|
(554 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
8,213 |
|
Nonoperating expenses
|
|
|
8,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,906 |
|
|
|
8,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in earnings of unconsolidated
entities, income taxes and minority interest
|
|
|
610 |
|
|
|
(937 |
) |
|
|
83 |
|
|
|
|
|
|
|
(244 |
) |
|
|
(21 |
) |
|
|
(554 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
(619 |
) |
Equity in earnings of unconsolidated entities
|
|
|
|
|
|
|
1,002 |
|
|
|
|
|
|
|
|
|
|
|
1,002 |
|
|
|
|
|
|
|
629 |
|
|
|
|
|
|
|
|
|
|
|
629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes and minority interest
|
|
$ |
610 |
|
|
$ |
65 |
|
|
$ |
83 |
|
|
$ |
|
|
|
$ |
758 |
|
|
$ |
(21 |
) |
|
$ |
75 |
|
|
$ |
(44 |
) |
|
$ |
|
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We owned seven properties containing 3,896 beds during the years
ended December 31, 2004 and 2003. Revenue from student
housing leasing increased by $1.0 million, or 5%, to
$21.0 million for the year ended December 31, 2004
from $20.0 million for the year ended December 31,
2003. This increase is due largely to increased marketing
efforts at our University of Arizona and Clemson University
properties. Overall average physical occupancy was 89.2% and
85.1% for the years ended December 31, 2004 and
December 31, 2003, respectively, while our revenue per
available bed, including revenue from food services as described
above, increased to $421 from $406 for the comparable periods.
Operating expenses of our student housing communities increased
$0.3 million, or 3%, to $11.5 million for the year
ended December 31, 2004 from $11.2 million for the
year ended December 31, 2003. This increase was comprised
primarily of increases in turnover, utilities and real estate
taxes at our University of Arizona property and higher
marketing, staffing, turnover and maintenance expenses at our
Clemson University property.
42
|
|
|
Third-party development consulting services |
Third-party development services revenues decreased 43%, from
$0.7 million for the year ended December 31, 2003 to
$0.4 million for the year ended December 31, 2004.
This decrease was a result of our completion of the California
State University San Marcos project in Fall
2003 as a sole developer and our participation in five new
development projects throughout 2003 and 2004 through joint
venture development arrangements rather than as a sole
developer. Accordingly, the majority of related development
consulting service fees for the year ended December 31,
2004 was recognized as equity in earnings of unconsolidated
entities. Equity in earnings of unconsolidated entities for the
2004 calendar year was $1.0 million, a 59% increase as
compared to $.6 million for 2003 calendar year.
|
|
|
Third-party management services |
Third-party management services revenues increased from
$2.0 million for the year ended December 31, 2003, to
$2.3 million, or 16%, for the year ended December 31,
2004. This increase was primarily the result of the opening of
four new management contract properties in Fall 2004 consisting
of 2,096 beds and a full twelve months of operations of
management contracts consisting of 1,620 beds during 2004 that
commenced in Fall 2003.
|
|
|
General and administrative |
General and administrative costs increased 8%, from
$3.3 million for the year ended December 31, 2003 to
$3.5 million for the year ended December 31, 2004,
primarily as the result of additional corporate staff needed to
accommodate the growth in our management services business.
Liquidity and Capital Resources
|
|
|
Liquidity outlook and capital requirements |
We believe that our cash from operations, current leverage ratio
of 47.4% and the availability under our current
$100 million revolving credit facility provides sufficient
liquidity and access to financing to make future student housing
investments. There can be no assurance that we will make any
investments in any other properties that meet our investment
criteria.
Our liquidity needs include funds for distribution payments to
our stockholders, including those required to maintain our REIT
status and satisfy our current distribution policy, funds for
capital expenditures, funds for debt repayment and, potentially,
funds for new property acquisitions. We expect to meet our
short-term liquidity requirements generally through net cash
provided by operations. We expect our long-term liquidity
requirements to be satisfied through cash generated by
operations and external sources of debt and equity capital,
including public capital markets as well as private sources of
capital. To the extent that we are unable to maintain our
revolving credit facility 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.
We intend to invest in additional properties only as suitable
opportunities arise. In the short term, we intend to fund
acquisitions with working capital and borrowings under our
revolving credit facility. We intend to finance property
acquisitions over the longer term with the proceeds from
additional issuances of common or preferred stock, debt
financing and issuances of units of our Operating Partnership.
We anticipate that our existing working capital, availability of
our line of credit and cash from operations will be adequate to
meet our liquidity requirements for at least the next twelve
months.
43
The historical recurring capital expenditures at our
garden-style apartment communities, excluding University Towers
are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Total units
|
|
|
5,935 |
|
|
|
895 |
|
|
|
895 |
|
Total beds
|
|
|
18,548 |
|
|
|
2,943 |
|
|
|
2,943 |
|
Total recurring capital expenditures
|
|
$ |
1,637,810 |
|
|
$ |
166,363 |
|
|
$ |
184,913 |
|
Average per unit
|
|
$ |
275.96 |
|
|
$ |
185.88 |
|
|
$ |
206.61 |
|
Average per bed
|
|
$ |
88.30 |
|
|
$ |
56.53 |
|
|
$ |
62.83 |
|
Note: University Towers was excluded from this chart, as
the capital requirements of this traditional dormitory-style
property are not consistent with our standard garden-style
apartment communities. University Towers capital spend per
bed was $192.08, $204.79 and $333.41 in the comparable periods.
Capital expenditures associated with newly acquired or developed
properties are typically capitalized as part of their
acquisition price or development budget. As a result such
properties typically do not require capital expenditures until
their second year of operation or later.
Additionally, we are required by certain of our lenders to
contribute certain amounts annually to reserves for capital
repairs and improvements at the mortgaged properties. These
contributions may exceed the amount of capital expenditures
actually incurred during any given year at such properties.
|
|
|
Pre-development 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. We
typically obtain from the project owner a guarantee of repayment
of these predevelopment expenditures, but no assurance can be
given that we would be successful in collecting the amount
guaranteed in the event that a project financing is not obtained.
Commitments
The following table summarizes our contractual obligations as of
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than | |
|
1-3 | |
|
3-5 | |
|
After 5 | |
|
|
|
|
1 Year | |
|
Years | |
|
Years | |
|
Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt Obligations(1)
|
|
$ |
2,932 |
|
|
$ |
88,851 |
|
|
$ |
184,636 |
|
|
$ |
49,049 |
|
|
$ |
325,468 |
|
Contractual Fixed Interest Obligations(2)
|
|
|
18,644 |
|
|
|
30,219 |
|
|
|
11,542 |
|
|
|
5,823 |
|
|
|
66,228 |
|
Operating Lease Obligations(3)
|
|
|
437 |
|
|
|
863 |
|
|
|
353 |
|
|
|
|
|
|
|
1,653 |
|
Capital Reserve Obligations(4)
|
|
|
1,416 |
|
|
|
2,573 |
|
|
|
843 |
|
|
|
347 |
|
|
|
5,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
23,429 |
|
|
$ |
122,506 |
|
|
$ |
197,374 |
|
|
$ |
55,219 |
|
|
$ |
398,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes required monthly principal amortization and amounts due
at maturity on first mortgage debt secured by student housing
properties. |
44
|
|
(2) |
Includes contractual fixed rate interest payments. |
|
(3) |
Includes future minimum lease commitments under operating lease
obligations. |
|
(4) |
Includes future annual contributions to the capital reserve as
required by certain mortgage debt. |
Long-Term Indebtedness
In conjunction with the Formation Transactions, the Operating
Partnership assumed total fixed rate mortgage debt of $392,998
with an average interest rate of approximately 5.5%. Concurrent
with the closing of the Formation Transactions, the Operating
Partnership paid off $115,221 of the assumed debt. In connection
with managements decision to prepay certain debt
obligations, we recognized a charge of $1,084 in February 2005.
In March 2005, the Operating Partnership assumed an additional
$11,200 of mortgage debt with a fixed interest rate of 4.92% in
connection with the acquisition of a student housing property
located at the University of South Carolina. In June 2005, the
Operating Partnership assumed $37,526 of additional mortgage
debt with a fixed interest rate of 6.97% in connection with the
acquisition of a student housing property located near the
University of Florida.
At December 31, 2005, we had outstanding mortgage
indebtedness of $328,335 (net of unamortized debt premium of
$2,867). The scheduled future maturities of all outstanding
mortgage indebtedness at September 30, 2005 are as follows:
|
|
|
|
|
Year |
|
|
|
|
|
2006
|
|
$ |
2,932 |
|
2007
|
|
|
61,233 |
|
2008
|
|
|
27,618 |
|
2009
|
|
|
183,748 |
|
2010
|
|
|
888 |
|
Thereafter
|
|
|
49,049 |
|
|
|
|
|
Total
|
|
$ |
325,468 |
|
|
|
|
|
Debt premium
|
|
|
2,867 |
|
|
|
|
|
Outstanding as of December 31, 2005, net of debt premium
|
|
$ |
328,335 |
|
|
|
|
|
At December 31, 2005, the outstanding debt had a weighted
average interest rate of 5.67% and carried an average term to
maturity of 3.58 years. Our ratio of debt to total market
capitalization was approximately 47.4% at December 31, 2005.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Funds From Operations
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 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. 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
45
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.
The following table presents a reconciliation of our FFO to our
net income for the years ended December 31, 2005, 2004, and
2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net income (loss)
|
|
$ |
(15,534 |
) |
|
$ |
758 |
|
|
$ |
10 |
|
Plus student housing property depreciation and amortization of
lease intangibles
|
|
|
28,896 |
|
|
|
3,120 |
|
|
|
3,061 |
|
|
|
|
|
|
|
|
|
|
|
Funds from operations
|
|
$ |
13,362 |
|
|
$ |
3,878 |
|
|
$ |
3,071 |
|
|
|
|
|
|
|
|
|
|
|
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 2004, SFAS No. 153, Exchange
of Nonmonetary Assets, was issued.
SFAS No. 153 amends APB Opinion No. 29,
Accounting for Nonmonetary Transactions to
eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial
substance. That exception required that some nonmonetary
exchanges be recorded on a carryover basis versus
SFAS No. 153, which requires an entity record a
nonmonetary exchange at fair value and recognize any gain or
loss if the transaction has commercial substance. The standard
specifies that a nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change
significantly as a result of the exchange.
SFAS No. 153 is effective the fiscal year beginning
January 1, 2006. The Trust does not believe that the
adoption of SFAS No. 153 will have a significant
impact on our financial statements.
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement No. 123 (revised
December 2004), Share-Based Payment
(Statement 123(R)). Statement 123(R)
replaces FASB Statement No. 123, Accounting
for Stock-Based Compensation, and supersedes
APB Opinion No. 25, Accounting for Stock
Issued to Employees. Statement 123(R) will require
compensation costs related to share-based payment transactions
to be recognized in the financial statements. With limited
exceptions, the amount of compensation cost will be measured
based on the grant-date fair value of the equity instruments
issued. Compensation cost will be recognized over the period
that an employee provides
46
service in exchange for the award. Statement 123(R) is
effective as of the beginning of the first annual reporting
period that begins after June 15, 2005. The Trust will
adopt Statement 123(R) effective January 1, 2006, and
does not believe it will have a material impact on the
Trusts consolidated financial condition or results of
operations taken as a whole. In March 2005, the SEC issued
SAB 107 to provide public companies additional guidance in
applying the provisions of Statement 123(R). Among other
things, SAB 107 describes the SEC staffs expectations
in determining the assumptions that underlie the fair value
estimates and discusses the interaction of Statement 123(R)
with certain existing SEC guidance. The guidance is also
beneficial to users of financial statements in analyzing the
information provided under statement 123(R). SAB 107 will
be applied upon the adoption of Statement 123(R).
In March 2005, the FASB issued Interpretation No. 47,
Accounting for Conditional Asset Retirement
Obligations an interpretation of
FASB Statement No. 143
(Interpretation 47). Interpretation 47
clarifies that the term conditional asset retirement obligation
as used in FASB Statement No. 143, Accounting for
Asset Retirement Obligations,
(Statement 143) refers to a legal obligation to
perform an asset retirement activity in which the timing and/or
method of settlement are conditional on a future event that may
or may not be within the control of the entity.
Interpretation 47 is effective no later than the end of
fiscal years ending after December 15, 2005,
(December 31, 2005, for calendar-year enterprises).
Retrospective application for interim financial information is
permitted but is not required. The adoption of
Interpretation 47 did not have a material impact on the
Trusts consolidated financial condition or results of
operations taken as a whole.
In June 2005, the FASB ratified
EITF 04-5:
Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights
(EITF 04-5).
EITF 04-5 provides
a framework for determining whether a general partner is
required to consolidate limited partners. The new framework is
significantly different than the guidance in
SOP 78-9 and would
make it more difficult for a general partner to overcome the
presumption that it controls the limited partnership, requiring
the limited partner to have substantive
kick-out or
participating rights. Kick-out rights are the right
to dissolve or liquidate the partnership or to otherwise remove
the general partner without cause and participating rights are
the right to effectively participate in significant decisions
made in the ordinary course of the partnerships business.
EITF 04-5 became
effective immediately for all newly formed limited partnerships
and existing limited partnerships which are modified. The
guidance will become effective for existing limited partnerships
which are not modified the beginning of the first reporting
period in fiscal years beginning after December 15, 2005.
The Trust does not believe the adoption of
EITF 04-5 will
have a material impact on the Trusts consolidated
financial condition or results of operations taken as a whole.
|
|
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. All of the
outstanding principal amounts of our notes payable on the
properties we own have fixed interest rates with a weighted
average rate of 5.67%. As a result, we do not currently have
exposure to interest rate fluctuations. We may in the future use
derivative financial instruments to manage, or hedge, interest
rate risks related to such variable rate borrowings. 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.
|
|
Item 8. |
Financial Statements and Supplementary Data. |
The information required herein is included on
pages F-1 to
F-58 of this Annual
Report on
Form 10-K.
47
|
|
Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. |
None.
|
|
Item 9A. |
Controls and Procedures. |
Managements Evaluation of Disclosure Controls and
Procedures
The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed
in the Companys filings under the Securities Exchange Act
of 1934 (the Exchange Act) is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms, and to ensure that such information
is accumulated and communicated to the Companys
management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Management necessarily applied
its judgment in assessing the costs and benefits of such
controls and procedures which, by their nature, can provide only
reasonable assurance regarding managements control
objectives. The Company also has an investment in an
unconsolidated entity which is not under its control.
Consequently, the Companys disclosure controls and
procedures with respect to this entity are necessarily more
limited than those it maintains with respect to its considerable
subsidiaries.
Our management, with the participation of our principal
executive officer and financial officers has evaluated the
effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to
Rule 13a-15(e) and
15d-15(e) of the
Exchange Act. Based on their evaluation as of December 31,
2005, our Chief Executive Officer and Chief Financial Officer
have concluded that the Companys disclosure controls and
procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated
subsidiaries) that is required to be included in the
Companys Exchange Act filings.
Changes in Internal Control Over Financial Reporting
During the three months ended December 31, 2005, there were
no significant changes in the Companys internal control
over financial reporting that materially affected, or that are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
Item 9B. Other
Information.
None.
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant. |
The information required by this Item will be presented in the
Companys definitive proxy statement for the annual meeting
of stockholders to be held on May 24, 2006, which will be
filed with the Securities and Exchange Commission and is
incorporated herein by reference.
|
|
Item 11. |
Executive Compensation. |
The information required by this Item will be presented in the
Companys definitive proxy statement for the annual meeting
of stockholders to be held on May 24, 2006, which will be
filed with the Securities and Exchange Commission and is
incorporated herein by reference.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters. |
The information required by this Item will be presented in the
Companys definitive proxy statement for the annual meeting
of stockholders to be held on May 24, 2006, which will be
filed with the Securities and Exchange Commission and is
incorporated herein by reference.
48
|
|
Item 13. |
Certain Relationships and Related Transactions. |
The information required by this Item will be presented in the
Companys definitive proxy statement for the annual meeting
of stockholders to be held on May 24, 2006, which will be
filed with the Securities and Exchange Commission and is
incorporated herein by reference.
|
|
Item 14. |
Principal Accounting Fees and Services. |
The information required by this Item will be presented in the
Companys definitive proxy statement for the annual meeting
of stockholders to be held on May 24, 2006, which will be
filed with the Securities and Exchange Commission and is
incorporated herein by reference.
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules. |
(a) List of Documents Filed.
|
|
|
The list of the financial statements filed as part of this
Annual Report on
Form 10-K is set
forth on page F-1 herein. |
|
|
|
2. Financial Statement Schedules |
|
|
|
All schedules required are included in the financial statements
and notes thereto. |
|
|
|
The list of exhibits filed as part of this Annual Report on
Form 10-K is
submitted in the Exhibit Index following the financial
statements in response to Item 601 of
Regulation S-K. |
(b) Exhibits.
|
|
|
The exhibits filed in response to Item 601 of
Regulation S-K are
listed on the Exhibit Index attached hereto. |
(c) None
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
Education Realty Trust, Inc. |
|
|
|
|
|
Paul O. Bower |
|
President, Chief Executive Officer |
|
and Chairman of the Board of Directors |
Dated: March 31, 2006
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Paul O. Bower
Paul O. Bower |
|
President, Chief Executive Officer and Chairman of the Board of
Directors (Principal Executive Officer) |
|
March 31, 2006 |
|
/s/ Randall H. Brown
Randall H. Brown |
|
Executive Vice President, Chief Financial Officer, Treasurer and
Secretary (Principal Financial Officer) |
|
March 31, 2006 |
|
/s/ J. Drew Koester
J. Drew Koester |
|
Vice President and Chief Accounting Officer (Principal
Accounting Officer) |
|
March 31, 2006 |
|
/s/ Monte J. Barrow
Monte J. Barrow |
|
Director |
|
March 31, 2006 |
|
/s/ William J. Cahill, III
William J. Cahill, III |
|
Director |
|
March 31, 2006 |
|
/s/ Randall L. Churchey
Randall L. Churchey |
|
Director |
|
March 31, 2006 |
|
/s/ John L. Ford
John L. Ford |
|
Director |
|
March 31, 2006 |
50
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
Page |
|
|
|
Education Realty Trust, Inc. and EDR Predecessor
|
|
|
|
|
F-2 |
|
|
F-3 |
|
|
F-4 |
|
|
F-5 |
|
|
F-6 |
|
|
F-7 |
National Development/ Allen & OHara CUPA,
LLC
|
|
|
|
|
F-35 |
|
|
F-36 |
|
|
F-37 |
|
|
F-38 |
|
|
F-39 |
|
|
F-40 |
National Development/ Allen & OHara Clarion,
LLC
|
|
|
|
|
F-43 |
|
|
F-44 |
|
|
F-45 |
|
|
F-46 |
|
|
F-47 |
|
|
F-48 |
National Development/ Allen & OHara Lock
Haven, LLC
|
|
|
|
|
F-51 |
|
|
F-52 |
|
|
F-53 |
|
|
F-54 |
|
|
F-55 |
|
|
F-56 |
F-1
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, 2005 and 2004, and
the combined balance sheet of the Education Realty
Trust Predecessor (the EDR Predecessor as
defined in Note 1) as of December 31, 2004, and the
related consolidated statements of operations,
stockholders equity and cash flows for the Trust for the
year ended December 31, 2005 and the period July 12,
2004 (date of formation) through December 31, 2004 and the
combined statements of operations, owners equity, and cash
flows for the EDR Predecessor for the period January 1,
2005 through January 30, 2005 and the years ended
December 31, 2004 and 2003. These consolidated and combined
financial statements are the responsibility of the Trusts
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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. The Trust and EDR Predecessor are
not required to have, nor were we engaged to perform, an audit
of their internal control over financial reporting. Our audits
included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trusts
or EDR Predecessors internal control over financial
reporting. Accordingly, we express no such opinion. An audit
also includes 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, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated and combined financial
statements present fairly, in all material respects, the
consolidated financial position of the Trust at
December 31, 2005 and 2004 and the combined financial
position of the EDR Predecessor at December 31, 2004, and
the consolidated results of operations and cash flows of the
Trust for the year ended December 31, 2005 and the period
July 12, 2004 (date of formation) through December 31,
2004 and the combined results of operations and cash flows of
the EDR Predecessor for the period January 1, 2005 through
January 30, 2005 and the years ended December 31, 2004
and 2003 in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
March 31, 2006
F-2
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
CONSOLIDATED AND COMBINED BALANCE SHEETS
December 31, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Education | |
|
Education | |
|
|
|
|
Realty | |
|
Realty | |
|
EDR | |
|
|
Trust, Inc. | |
|
Trust, Inc. | |
|
Predecessor | |
|
|
Consolidated | |
|
Consolidated | |
|
Combined | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, except share | |
|
|
and per share data) | |
ASSETS |
Student housing properties, net
|
|
$ |
620,305 |
|
|
$ |
|
|
|
$ |
83,785 |
|
Corporate office furniture, net
|
|
|
991 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
61,662 |
|
|
|
1 |
|
|
|
2,883 |
|
Restricted cash
|
|
|
6,738 |
|
|
|
|
|
|
|
1,102 |
|
Student contracts receivable, net
|
|
|
470 |
|
|
|
|
|
|
|
87 |
|
Management fee receivable from third party
|
|
|
552 |
|
|
|
|
|
|
|
161 |
|
Goodwill and other intangibles, net
|
|
|
3,546 |
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
9,785 |
|
|
|
3,790 |
|
|
|
856 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
704,049 |
|
|
$ |
3,791 |
|
|
$ |
88,874 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS AND PREDECESSOR
OWNERS EQUITY |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net of unamortized premium/discount
|
|
$ |
328,335 |
|
|
$ |
|
|
|
$ |
81,111 |
|
Revolving line of credit
|
|
|
|
|
|
|
497 |
|
|
|
|
|
Note payable to affiliate
|
|
|
|
|
|
|
|
|
|
|
485 |
|
Accounts payable
|
|
|
2,075 |
|
|
|
|
|
|
|
262 |
|
Accrued expenses
|
|
|
7,295 |
|
|
|
|
|
|
|
1,380 |
|
Accounts payable affiliate
|
|
|
225 |
|
|
|
3,515 |
|
|
|
799 |
|
Deferred revenue
|
|
|
7,660 |
|
|
|
|
|
|
|
3,048 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
345,590 |
|
|
|
4,012 |
|
|
|
87,085 |
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
27,926 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders and predecessor owners equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 200,000,000 shares
authorized, 26,263,889 and 100 shares issued and
outstanding as of December 31, 2005 and 2004, respectively
|
|
|
263 |
|
|
|
|
|
|
|
|
|
Preferred shares, $0.01 par value, 50,000,000 shares
authorized, no shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned deferred compensation
|
|
|
(2,470 |
) |
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
354,134 |
|
|
|
1 |
|
|
|
|
|
Loan to unitholder
|
|
|
(5,996 |
) |
|
|
|
|
|
|
|
|
Warrants
|
|
|
375 |
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(15,773 |
) |
|
|
(222 |
) |
|
|
|
|
Predecessor owners equity
|
|
|
|
|
|
|
|
|
|
|
1,789 |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders and predecessor owners equity
|
|
|
330,533 |
|
|
|
(221 |
) |
|
|
1,789 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders and predecessor
owners equity
|
|
$ |
704,049 |
|
|
$ |
3,791 |
|
|
$ |
88,874 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated and combined
financial statements.
F-3
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education Realty Trust, Inc. | |
|
|
|
|
Consolidated | |
|
EDR Predecessor Combined | |
|
|
| |
|
| |
|
|
|
|
July 12 | |
|
January 1 | |
|
|
|
|
Year Ended | |
|
through | |
|
through | |
|
Year Ended | |
|
Year Ended | |
|
|
December 31, | |
|
December 31, | |
|
January 30, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, except share and per share data) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing revenue
|
|
$ |
74,374 |
|
|
$ |
|
|
|
$ |
1,503 |
|
|
$ |
17,896 |
|
|
$ |
17,095 |
|
Student housing food service revenue
|
|
|
3,222 |
|
|
|
|
|
|
|
269 |
|
|
|
3,137 |
|
|
|
2,879 |
|
Third-party development services
|
|
|
1,759 |
|
|
|
|
|
|
|
|
|
|
|
392 |
|
|
|
691 |
|
Third-party management services
|
|
|
1,865 |
|
|
|
|
|
|
|
103 |
|
|
|
1,326 |
|
|
|
1,026 |
|
Operating expense reimbursements
|
|
|
6,023 |
|
|
|
|
|
|
|
671 |
|
|
|
5,223 |
|
|
|
4,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
87,243 |
|
|
|
|
|
|
|
2,546 |
|
|
|
27,974 |
|
|
|
26,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing operations
|
|
|
37,270 |
|
|
|
|
|
|
|
524 |
|
|
|
7,645 |
|
|
|
7,408 |
|
Student housing food service operations
|
|
|
3,020 |
|
|
|
|
|
|
|
255 |
|
|
|
2,899 |
|
|
|
2,645 |
|
General and administrative
|
|
|
12,182 |
|
|
|
201 |
|
|
|
367 |
|
|
|
3,545 |
|
|
|
3,425 |
|
Depreciation and amortization
|
|
|
28,908 |
|
|
|
|
|
|
|
260 |
|
|
|
3,120 |
|
|
|
3,061 |
|
Reimbursable operating expenses
|
|
|
6,023 |
|
|
|
|
|
|
|
671 |
|
|
|
5,223 |
|
|
|
4,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
87,403 |
|
|
|
201 |
|
|
|
2,077 |
|
|
|
22,432 |
|
|
|
20,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(160 |
) |
|
|
(201 |
) |
|
|
469 |
|
|
|
5,542 |
|
|
|
5,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
16,186 |
|
|
|
21 |
|
|
|
479 |
|
|
|
5,623 |
|
|
|
5,597 |
|
Exit fees on early repayment of mortgages
|
|
|
1,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
163 |
|
|
|
174 |
|
Interest income
|
|
|
(1,303 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expenses
|
|
|
16,787 |
|
|
|
21 |
|
|
|
479 |
|
|
|
5,786 |
|
|
|
5,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in earnings of unconsolidated entities,
income taxes and minority interest
|
|
|
(16,947 |
) |
|
|
(222 |
) |
|
|
(10 |
) |
|
|
(244 |
) |
|
|
(619 |
) |
Equity in earnings of unconsolidated entities
|
|
|
853 |
|
|
|
|
|
|
|
27 |
|
|
|
1,002 |
|
|
|
629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest
|
|
|
(16,094 |
) |
|
|
(222 |
) |
|
|
17 |
|
|
|
758 |
|
|
|
10 |
|
Taxes
|
|
|
497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before minority interest
|
|
|
(16,591 |
) |
|
|
(222 |
) |
|
|
17 |
|
|
|
758 |
|
|
|
10 |
|
Minority interest
|
|
|
(1,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(15,551 |
) |
|
$ |
(222 |
) |
|
$ |
17 |
|
|
$ |
758 |
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted
|
|
$ |
(.67 |
) |
|
$ |
(2,220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and diluted
|
|
|
23,063,110 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions per common share
|
|
$ |
.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated and combined
financial statements.
F-4
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN
STOCKHOLDERS AND OWNERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Common Stock | |
|
Additional | |
|
Unearned | |
|
|
|
Loan to | |
|
Distributions | |
|
EDR | |
|
|
|
|
| |
|
Paid-In | |
|
Deferred | |
|
|
|
Unit | |
|
in Excess of | |
|
Predecessor | |
|
|
EDR Predecessor: |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Warrants | |
|
Holder | |
|
Net Income | |
|
Equity | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, except share and per share data) | |
Balance, December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,458 |
|
|
$ |
5,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54 |
|
|
|
54 |
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,027 |
) |
|
|
(3,027 |
) |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,495 |
|
|
|
2,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
40 |
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,504 |
) |
|
|
(1,504 |
) |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
758 |
|
|
|
758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,789 |
|
|
|
1,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,806 |
|
|
$ |
1,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Trust:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital, July 12, 2004
|
|
|
100 |
|
|
|
|
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(222 |
) |
|
|
|
|
|
|
(222 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
100 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222 |
) |
|
|
|
|
|
|
(221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance and registration of common shares The
Offering
|
|
|
21,850,000 |
|
|
$ |
219 |
|
|
|
320,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
320,419 |
|
Redemption of Promoters common shares simultaneous with
The Offering
|
|
|
(100 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
375 |
|
Loan to unit holder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(5,996 |
) |
|
|
|
|
|
|
|
|
|
|
(5,996 |
) |
Excess of purchase price of EDR Predecessor over fair value
related to Promoter carried over at historical cost
|
|
|
|
|
|
|
|
|
|
|
(17,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,382 |
) |
Restricted shares issued to officers and directors
|
|
|
|
|
|
|
|
|
|
|
3,126 |
|
|
$ |
(3,126 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
38,889 |
|
|
|
|
|
|
|
|
|
|
|
656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
656 |
|
Issuance of common shares private placement
|
|
|
4,375,000 |
|
|
|
44 |
|
|
|
66,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,955 |
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
(18,721 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,721 |
) |
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,551 |
) |
|
|
|
|
|
|
(15,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
26,263,889 |
|
|
$ |
263 |
|
|
$ |
354,134 |
|
|
$ |
(2,470 |
) |
|
$ |
375 |
|
|
$ |
(5,996 |
) |
|
$ |
(15,773 |
) |
|
|
|
|
|
$ |
330,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated and combined financial
statements.
F-5
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education Realty Trust, Inc. | |
|
|
|
|
Consolidated | |
|
EDR Predecessor Combined | |
|
|
| |
|
| |
|
|
|
|
July 12 | |
|
January 1 | |
|
|
|
|
Year Ended | |
|
through | |
|
through | |
|
Year Ended | |
|
Year Ended | |
|
|
December 31, | |
|
December 31, | |
|
January 30, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(15,551 |
) |
|
$ |
(222 |
) |
|
$ |
17 |
|
|
$ |
758 |
|
|
$ |
10 |
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
28,908 |
|
|
|
|
|
|
|
246 |
|
|
|
3,120 |
|
|
|
3,061 |
|
|
Deferred tax benefit
|
|
|
(209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of assets
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
820 |
|
|
|
|
|
|
|
14 |
|
|
|
163 |
|
|
|
174 |
|
|
Amortization of unamortized debt premiums/discounts
|
|
|
(364 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from unconsolidated entities
|
|
|
879 |
|
|
|
|
|
|
|
|
|
|
|
808 |
|
|
|
999 |
|
|
Noncash compensation expense related to PIUs and restricted stock
|
|
|
4,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated entities
|
|
|
(853 |
) |
|
|
|
|
|
|
(27 |
) |
|
|
(1,002 |
) |
|
|
(629 |
) |
|
Minority interest
|
|
|
(1,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities (net of acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student contracts receivable
|
|
|
(374 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
76 |
|
|
|
(27 |
) |
|
|
Management fees receivable
|
|
|
(284 |
) |
|
|
|
|
|
|
63 |
|
|
|
(52 |
) |
|
|
(47 |
) |
|
|
Other assets
|
|
|
868 |
|
|
|
|
|
|
|
(817 |
) |
|
|
330 |
|
|
|
(203 |
) |
|
|
Accounts payable and accrued expenses
|
|
|
3,069 |
|
|
|
|
|
|
|
712 |
|
|
|
(65 |
) |
|
|
238 |
|
|
|
Accounts payable affiliate
|
|
|
(3,729 |
) |
|
|
|
|
|
|
276 |
|
|
|
(471 |
) |
|
|
711 |
|
|
|
Deferred revenue
|
|
|
1,432 |
|
|
|
|
|
|
|
(320 |
) |
|
|
(597 |
) |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
18,373 |
|
|
|
(222 |
) |
|
|
158 |
|
|
|
3,068 |
|
|
|
4,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquisitions, net of cash acquired
|
|
|
(187,283 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
Deferred acquisition costs and earnest money deposits
|
|
|
(4,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of corporate furniture and fixtures
|
|
|
(1,093 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(1,725 |
) |
|
|
|
|
|
|
(2,348 |
) |
|
|
336 |
|
|
|
(376 |
) |
|
Insurance proceeds on property loss
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in student housing properties
|
|
|
(5,513 |
) |
|
|
|
|
|
|
|
|
|
|
(517 |
) |
|
|
(549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(200,157 |
) |
|
|
|
|
|
|
(2,373 |
) |
|
|
(181 |
) |
|
|
(925 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of mortgage notes
|
|
|
(115,782 |
) |
|
|
|
|
|
|
(98 |
) |
|
|
(1,093 |
) |
|
|
(955 |
) |
|
Borrowings of long-term debt
|
|
|
|
|
|
|
497 |
|
|
|
|
|
|
|
|
|
|
|
200 |
|
|
Debt issuance costs
|
|
|
(3,176 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(20 |
) |
|
Repayment of line of credit, net
|
|
|
(497 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan to unitholder
|
|
|
(5,996 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Offering and private placement
|
|
|
419,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of offering costs
|
|
|
(30,008 |
) |
|
|
(3,790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and distributions paid
|
|
|
(20,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,504 |
) |
|
|
(3,027 |
) |
|
Borrowing/(repayment) of notes payable affiliate
|
|
|
(483 |
) |
|
|
3,515 |
|
|
|
|
|
|
|
80 |
|
|
|
90 |
|
|
Equity contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
243,445 |
|
|
|
222 |
|
|
|
(98 |
) |
|
|
(2,480 |
) |
|
|
(3,658 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
61,661 |
|
|
|
|
|
|
|
(2,313 |
) |
|
|
407 |
|
|
|
(274 |
) |
Cash and cash equivalents, beginning of period
|
|
|
1 |
|
|
|
1 |
|
|
|
2,883 |
|
|
|
2,476 |
|
|
|
2,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
61,662 |
|
|
$ |
1 |
|
|
$ |
570 |
|
|
$ |
2,883 |
|
|
$ |
2,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
9,778 |
|
|
$ |
21 |
|
|
$ |
471 |
|
|
$ |
5,629 |
|
|
$ |
5,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$ |
357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid offering costs charged against equity
|
|
$ |
2,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units issued in the Formation Transactions
|
|
|
26,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in the Formation Transactions
|
|
|
375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt assumed in property acquisitions net of premium
|
|
|
444,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated and combined
financial statements.
F-6
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED 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 was formed to succeed to the business of a group of
entities collectively referred to herein as the Education Realty
Trust Predecessor (the EDR Predecessor). The
EDR Predecessor was not a legal entity, but rather a combination
of certain real estate entities under common management. The EDR
Predecessor consisted of the following limited liability
companies and limited partnerships:
|
|
|
|
|
Allen & OHara Education Services, LLC
(AOES) a Tennessee limited liability company
performing student housing management activities. |
|
|
|
Allen & OHara Development Company, LLC
(AODC), a limited liability company and formerly a
wholly owned subsidiary of AOES, providing development
consulting services for third party student housing properties. |
|
|
|
Allen & OHara Educational Properties LLC, a
limited liability company, previously holding the ownership
interests in the student housing property referred to as The
Gables Apartments (The Gables). |
|
|
|
Education Properties Trust, LLC (EPT), a Delaware
limited liability company, owned and managed the following four
garden-style student housing properties through four separate
wholly-owned limited liability companies: |
|
|
|
|
|
Players Club Apartments, Tallahassee, Florida |
|
|
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The Reserve at Athens, Athens, Georgia |
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The Reserve at Clemson, Clemson, South Carolina |
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NorthPointe Apartments, Tucson, Arizona |
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|
C Station, LLC, a Tennessee limited liability company, owned and
operated one garden-style student housing property referred to
as College Station. |
|
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|
University Towers Raleigh, LLC, a North Carolina limited
liability company, owned a student housing property referred to
as University Towers. |
Paul O. Bower (the Promoter) formed the Trust with
the intent to effect the Offering of the common stock of the
Trust. Concurrent with the Offering, the Trust contributed the
net proceeds from the offering for 100% of the general
partnership interests and a majority of the limited partnership
interests in a newly formed majority-owned Delaware limited
partnership, Education Realty Operating Partnership, LP (the
Operating Partnership). The Operating Partnership
together with Allen & OHara Education Services,
Inc. (the taxable REIT subsidiary or
TRS), and the partners and members of the affiliated
partnerships and limited liability companies of the EDR
Predecessor, engaged in the formation transactions described in
Note 2.
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
F-7
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
management, development and other advisory services through
subsidiaries of the Operating Partnership to third parties and
to joint ventures in which the Trust is invested.
The Trust is subject to the risks involved with the ownership
and operations of residential real estate near major
universities throughout the United States. These include, among
others, the risks 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. The Offering, the formation
transactions and the private placement
The Trust completed the Offering of its common stock on
January 31, 2005. The Trust sold 21,850,000 shares of
common stock, including 2,850,000 shares related to the
full exercise of the over-allotment option by the underwriters
of the Offering, at a price of $16.00 per share. The
Offering raised net proceeds of approximately
$320.4 million, after underwriting discounts and offering
expenses of approximately $29.2 million. The Trust
contributed the net proceeds of the Offering for 100% of the
general partnership interests and a majority of the limited
partnership interests in the Operating Partnership.
Concurrently, the Operating Partnership used approximately
$36.5 million of offering proceeds and issued units
approximating $18.3 million in estimated value to directly
or indirectly acquire the EDR Predecessor.
Simultaneous with the Offering, the Operating Partnership
together with its taxable REIT subsidiary engaged in the
following formation transactions (the Formation
Transactions):
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|
|
|
|
The Promoter and certain members of management contributed their
interests in AOES in exchange for $12,400 of units in the
Operating Partnership. AOES converted to a corporation and
elected to be treated as the taxable REIT subsidiary. AOES owns
100% of AODC. |
|
|
|
The Operating Partnership acquired all of the interests in EPT
from the previous owners for $26,661 in cash, $1,342 in units in
the Operating Partnership and the assumption of debt totaling
$50,134. As a result EPT became a wholly owned single member LLC
subsidiary of the Operating Partnership. |
|
|
|
The owners of The Gables contributed their interests in the
student housing property to a newly formed Delaware limited
partnership referred to as EDR BG, LP in exchange for all the
limited partnership interests of EDR BG LP. The Operating
Partnership acquired all of the ownership interests in EDR BG LP
for $1,043 in cash, $58 in units in the Operating Partnership
and the assumption of debt totaling $4,552. |
|
|
|
C Station LLC merged into a newly formed Delaware LLC, EDR C
Station LLC, which is a wholly owned subsidiary of the Operating
Partnership. The interests were contributed in exchange for the
issuance of $229 in units in the Operating Partnership and the
assumption of debt and notes payable to the Promoter totaling
$2,477. |
|
|
|
The University Towers Partnership acquired a 100% interest in
University Towers and in turn was acquired for $8,813 in cash,
$4,316 in units and the assumption of debt totaling $24,371. |
|
|
|
The Operating Partnership also acquired 14 properties referred
to as the JPI portfolio simultaneous with the Offering. The
purchase price of $401,975 was paid in cash of $82,105 the
issuance of $7,995 of units in the Operating Partnership, and
the assumption of first mortgage debt of $311,500, of which
$93,360 was repaid with the use of the net proceeds of the
offering. Additionally the Operating Partnership issued warrants
to JPI to purchase 250,000 shares of common stock at an |
F-8
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
|
|
|
|
|
exercise price per share of 103% of the Offering price. These
warrants have a value approximating $375. The warrants are
exercisable beginning January 31, 2006 and expire on
February 28, 2007. |
In connection with the Formation Transactions, the Trust paid
off certain mortgage indebtedness resulting in a prepayment
penalty of approximately $1.1 million.
On September 30, 2005, the Trust completed a private
placement of 4,375,000 shares of its common stock at a
price of $16.00 per share (the Private
Placement). The Private Placement raised net proceeds of
approximately $67 million, after offering expenses of
approximately $3 million. In connection with the Private
Placement, the Trust also entered into a registration rights
agreement with the investors on September 22, 2005 (the
Registration Rights Agreement). Pursuant to the
Registration Rights Agreement, the Trust agreed to file a
registration statement covering the shares and to cause the
registration statement to be declared effective within
180 days after the September 30, 2005 closing date.
These shares were registered with the Securities and Exchange
Commission on January 25, 2006.
|
|
3. |
Summary of significant accounting policies |
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|
|
Basis of presentation and principles of consolidation and
combination |
The accompanying consolidated and combined 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.
The accompanying combined financial statements of the EDR
Predecessor represent the assets and liabilities and operating
results of the entities comprising the EDR Predecessor. The
historical combined financial statements of the EDR Predecessor
are presented as the Promoter, either directly or indirectly
through his previous ownership in AOES, managed the EDR
Predecessor prior to the Trust acquiring those interests in
connection with the Formation Transactions. The Promoter has
other operations, which were not contributed to the Operating
Partnership or the Trust and, therefore, the combined financial
statements of EDR Predecessor are not intended to represent the
financial position and results of operations of all of the
Promoters investments.
All intercompany balances and transactions have been eliminated
in the accompanying consolidated and combined financial
statements.
Certain prior period amounts for the EDR Predecessor financial
statements have been reclassified to conform to the current
period presentation utilized by the Trust, which includes
balance sheets presented in an unclassified format. Additionally
changes in restricted cash balances have been presented as
investing activities in the statement of cash flows and all
previous periods presented in the same manner. These amounts for
the EDR Predecessor were previously segregated between investing
and operating activities depending on their nature. The changes
in classification resulted in an increase in investing
activities of $50 with a corresponding decrease in operating
activities for the year ending December 31, 2004 and a
F-9
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
decrease in investing activities of $174 with a corresponding
increase in operating activities for the year ending
December 31, 2003.
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 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, and in the
recording of the allowance for doubtful accounts. Actual results
could differ from those estimates.
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|
|
Cash and cash equivalents |
All highly liquid investments with a maturity of three months or
less when purchased are considered cash equivalents. Restricted
cash and short-term investments are excluded from cash for the
purpose of preparing the consolidated and combined statements of
cash flows. The Trust maintains cash balances in various banks.
At times the amounts of cash may exceed the $100,000 amount the
FDIC insures. The Trust does not believe it is exposed to any
significant credit risk on cash and cash equivalents.
Restricted cash includes escrow accounts held by lenders for the
purpose of paying taxes, insurance, principal and interest, and
to fund capital improvements.
The Trust pays regular quarterly cash distributions to
shareholders. 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 three to seven 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 results of
operations are included in the 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. Independent
appraisals, estimates of cash flows, and valuation techniques
are used to allocate the purchase
F-10
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
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.
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. As of
December 31, 2005, management determined that no indicators
of impairment existed.
|
|
|
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 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.
Deferred financing costs represent costs incurred in connection
with acquiring debt facilities. These costs are amortized over
the terms of the related debt using a method that approximates
the effective interest method.
Amortization expense approximated $820 for the Trust for the
year ended December 31, 2005 and $163 and $174 for the EDR
Predecessor for the years ended December 31, 2004 and 2003,
respectively. Accumulated amortization for the Trust at
December 31, 2005 approximated $820 and accumulated
amortization for the EDR Predecessor approximated $709 and $546
at December 31, 2004 and 2003, respectively. Deferred
financing costs, net of amortization, are included in other
assets on the accompanying consolidated and combined balance
sheets.
|
|
|
Offering and private placement costs |
Specific incremental costs directly attributable to the Offering
and the Private Placement 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.
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, 2005, the
Trust had net unamortized debt premiums of $2,867 and as of
December 31, 2004 the Trust and the EDR Predecessor had no
amounts related to unamortized debt premiums and discounts.
These amounts are included in mortgage loans in the accompanying
balance sheets.
The Trust qualified as a REIT under the Internal Revenue Code of
1986, as amended (the Code) for the taxable year
ended December 31, 2005. The Trust is generally not subject
to federal income tax to
F-11
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
the extent that it distributes at least 90% of its taxable
income for each tax year to its shareholders. 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.
No provision for income taxes has been recorded in the EDR
Predecessor combined financial statements, as the owners are
required to report their share of the EDR Predecessors
earnings in their respective income tax returns.
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, 2005, 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:
|
|
|
|
|
Operating Partnership units
|
|
|
1,376 |
|
University Towers Operating Partnership units
|
|
|
270 |
|
Restricted Stock (unvested shares)
|
|
|
147 |
|
Profits Interest Units
|
|
|
245 |
|
|
|
|
|
Total potentially dilutive securities
|
|
|
2,038 |
|
|
|
|
|
A reconciliation of the numerators and denominators for the
basic and diluted earnings per share computations is not
required.
|
|
|
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
and EDR Predecessor 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.
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|
|
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
F-12
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
frequently if events and circumstances indicate that the asset
might be impaired. An impairment loss is recognized to the
extent that the carrying amount exceeds the assets fair
value.
|
|
|
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 and EDR Predecessors 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. As of December 31, 2005 and 2004, the Trust and
the EDR Predecessor, respectively, had investments, directly or
indirectly, in the following unconsolidated joint ventures and
limited liability companies that are accounted for under the
equity method:
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|
Salisbury Student Apartment Developers Joint Venture, 33% owned
by AOES |
|
|
|
Salisbury Student Apartment Developers LLC, a Maryland limited
liability company, 33% owned by the Promoter |
|
|
|
University of Louisville Apartment Developers LLC, a Kentucky
limited liability company, 50% owned by the Promoter |
|
|
|
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 |
The Trust and EDR Predecessor recognize revenue related to
leasing activities at the student housing properties owned by
the Trust and EDR Predecessor, 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 by third party student
housing properties managed by the Trust and EDR Predecessor.
Student housing leasing revenue Student
housing leasing revenue is comprised of all activities related
to the leasing activities at the student housing properties and
includes revenues from the leasing of space, from parking lot
rentals, and from providing certain ancillary services. This
revenue is reflected in student housing leasing revenue in the
accompanying consolidated and combined statements of operations.
Students are required to execute lease contracts with payment
schedules that vary from single to monthly payments. Generally,
the Trust and EDR Predecessor require each executed leasing
contract to be
F-13
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
accompanied by a nonrefundable application fee and a signed
parental guarantee. Receivables are recorded when billed,
revenues and related lease incentives and nonrefundable
application fees are recognized on a straight-line basis over
the term of the contracts. The Trust and EDR Predecessor have no
contingent rental contracts. The future minimum rental income to
be received based on leases held as of December 31, 2005 is
approximately $50,019. At certain student housing facilities the
Trust and EDR Predecessor offer parking lot rentals to the
tenants. The related revenues are recognized on a straight-line
basis over the term of the related agreement.
Student housing food service revenue The
Trust and EDR Predecessor provide food service to an
unaffiliated secondary boarding school through a contract
covering a nine-month period. The contract requires a flat
weekly fee and the related revenues are recognized on a
straight-line basis over the contract period. Additionally, the
Trust and EDR Predecessor 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.
Third-party development consulting revenue
The Trust and EDR Predecessor provide development-consulting
services in an agency capacity with third parties whereby the
fee is determined based upon the total construction costs. A
portion of the fee is typically received upfront and varies from
3-5% of the total estimated costs. 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 the construction phases of the respective
projects.
Third-party management revenue The Trust and
EDR Predecessor enter 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.
Operating expense reimbursement revenue The
Trust and EDR Predecessor pay certain payroll and related costs
related to the operations of third party student housing
properties that are managed by the Trust and EDR Predecessor.
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.
Due to the nature of the Trust and EDR Predecessors
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 for the year
ended December 31, 2005 for the Trust, and the years ended
F-14
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
December 31, 2004 and 2003 for the EDR Predecessor. The
Trust had no allowance for doubtful accounts for the year ended
December 31, 2004.
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|
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|
|
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|
|
Education Realty | |
|
EDR | |
|
|
Trust, Inc. | |
|
Predecessor | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Balance, beginning of period
|
|
$ |
|
|
|
$ |
114 |
|
|
$ |
47 |
|
Provision for uncollectible accounts
|
|
|
2,306 |
|
|
|
152 |
|
|
|
125 |
|
Deductions
|
|
|
(1,896 |
) |
|
|
(169 |
) |
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
Balance end of period
|
|
$ |
410 |
|
|
$ |
97 |
|
|
$ |
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 balance sheets.
Advertising expenses are charged to income during the period
incurred. The Trust and EDR Predecessor do not use direct
response advertising. Advertising expense was $1,990 for the
Trust for the year ended December 31, 2005 and $587 and
$622 for the EDR Predecessor for the years ended
December 31, 2004 and 2003, respectively.
Minority interests in the Operating Partnership represent
limited partnership interests in the form of operating
partnership units and profit interest units. Income is allocated
to minority interests based on weighted average percentage
ownership each fiscal quarter.
The Trust and EDR Predecessor apply 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 and EDR Predecessor
have identified three reportable business segments: student
housing leasing, student housing development consulting
services, and student housing management services.
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 8. The Trust follows Accounting Principles Board
Opinion (APB) No. 25, Accounting for
Stock Issued to Employees, and related
interpretations, which requires the value of these awards be
recognized as an expense over the applicable vesting period. The
value is determined based on the market value of the
Trusts common stock on the grant date.
F-15
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
|
|
|
Fair value of financial instruments |
The Trust and EDR Predecessor follow 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 and EDR Predecessor do not hold or issue
financial instruments for trading purposes. The Trust and EDR
Predecessor consider the carrying amounts or 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 and EDR Predecessor have estimated the
fair value of the mortgage notes payable utilizing present value
techniques. At December 31, 2005, the carrying amount and
estimated fair value of the mortgage notes payable was $328,335
and $318,423, respectively. At December 31, 2004, the
carrying amount and estimated fair value of the mortgage notes
payable for the EDR Predecessor was $81,111 and $84,229,
respectively. The revolving credit facility bears interest at
variable rates and therefore cost approximates market value at
December 31, 2004.
|
|
|
Recent accounting pronouncements |
In December 2004, SFAS No. 153, Exchange of
Nonmonetary Assets, was issued. SFAS No. 153
amends APB Opinion No. 29, Accounting for
Nonmonetary Transactions to eliminate the exception
for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. That
exception required that some nonmonetary exchanges be recorded
on a carryover basis versus SFAS No. 153, which
requires an entity record a nonmonetary exchange at fair value
and recognize any gain or loss if the transaction has commercial
substance. The standard specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the
exchange. SFAS No. 153 is effective the fiscal year
beginning January 1, 2006. The Trust does not believe that
the adoption of SFAS No. 153 will have a significant
impact on our financial statements.
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement No. 123 (revised
December 2004), Share-Based Payment
(Statement 123(R)). Statement 123(R)
replaces FASB Statement No. 123, Accounting for
Stock-Based Compensation, and supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees.
Statement 123(R) will require compensation costs related to
share-based payment transactions to be recognized in the
financial statements. With limited exceptions, the amount of
compensation cost will be measured based on the grant-date fair
value of the equity instruments issued. Compensation cost will
be recognized over the period that an employee provides service
in exchange for the award. Statement 123(R) is effective as
of the beginning of the first annual reporting period that
begins after June 15, 2005. The Trust will adopt
Statement 123(R) effective January 1, 2006, and does
not believe it will have a material impact on the Trusts
consolidated financial condition or results of operations taken
as a whole. In March 2005, the SEC issued SAB 107 to
provide public companies additional guidance in applying the
provisions of Statement 123(R). Among other things,
SAB 107 describes the SEC staffs expectations in
determining the assumptions that underlie the fair value
estimates and discusses the interaction of Statement 123(R)
with certain existing SEC guidance. The guidance is also
beneficial to users of financial statements in analyzing the
information provided under statement 123(R). SAB 107
will be applied upon the adoption of Statement 123(R).
In March 2005, the FASB issued Interpretation No. 47,
Accounting for Conditional Asset Retirement
Obligations an interpretation of FASB Statement
No. 143 (Interpretation 47). Interpretation
47 clarifies that the term conditional asset retirement
obligation as used in FASB Statement No. 143, Accounting
for Asset Retirement Obligations,
(Statement 143) refers to a legal obligation to
perform an
F-16
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not
be within the control of the entity. Interpretation 47 is
effective no later than the end of fiscal years ending after
December 15, 2005, (December 31, 2005, for
calendar-year enterprises). Retrospective application for
interim financial information is permitted but is not required.
The adoption of Interpretation 47 did not have a material impact
on the Trusts consolidated financial condition or results
of operations taken as a whole.
In June 2005, the FASB ratified
EITF 04-5:
Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights
(EITF 04-5).
EITF 04-5 provides
a framework for determining whether a general partner is
required to consolidate limited partners. The new framework is
significantly different than the guidance in SOP 78-9 and
would make it more difficult for a general partner to overcome
the presumption that it controls the limited partnership,
requiring the limited partner to have substantive
kick-out or participating rights.
Kick-out rights are the right to dissolve or liquidate the
partnership or to otherwise remove the general partner without
cause and participating rights are the right to effectively
participate in significant decisions made in the ordinary course
of the partnerships business.
EITF 04-5 became
effective immediately for all newly formed limited partnerships
and existing limited partnerships which are modified. The
guidance will become effective for existing limited partnerships
which are not modified the beginning of the first reporting
period in fiscal years beginning after December 15, 2005.
The Trust does not believe the adoption of
EITF 04-5 will
have a material impact on the Trusts consolidated
financial condition or results of operations taken as a whole.
Upon formation, the TRS became subject to federal and state
income taxation and accordingly established deferred tax assets
and liabilities. The EDR Predecessor was not subject to income
taxes. The net deferred tax asset recorded upon the formation
was approximately $341.
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, 2005 are as follows:
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
Deferred revenue
|
|
$ |
458 |
|
Depreciation
|
|
|
39 |
|
Accrued expenses
|
|
|
109 |
|
Straight line rent
|
|
|
3 |
|
|
|
|
|
Total deferred tax assets
|
|
|
609 |
|
Deferred tax liability:
|
|
|
|
|
Amortization of management contracts intangible
|
|
|
(59 |
) |
|
|
|
|
Net deferred tax assets
|
|
$ |
550 |
|
|
|
|
|
F-17
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
Significant components of the income tax provision (benefit) for
the year ended December 31, 2005 are as follows:
|
|
|
|
|
Deferred:
|
|
|
|
|
Federal
|
|
$ |
(182 |
) |
State
|
|
|
(27 |
) |
|
|
|
|
Deferred benefit
|
|
|
(209 |
) |
|
|
|
|
Current:
|
|
|
|
|
Federal
|
|
|
525 |
|
State
|
|
|
181 |
|
|
|
|
|
Current expense
|
|
|
706 |
|
|
|
|
|
Total provision
|
|
$ |
497 |
|
|
|
|
|
TRS earnings subject to tax consisted of $1,121 income for the
year ended December 31, 2005. 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:
|
|
|
|
|
Tax provision at U.S. statutory rates on TRS income subject
to tax
|
|
$ |
381 |
|
State income tax, net of federal benefit
|
|
|
114 |
|
Other
|
|
|
2 |
|
|
|
|
|
Tax provision
|
|
$ |
497 |
|
|
|
|
|
|
|
5. |
Student housing acquisitions |
As discussed in Note 2, in connection with the Offering and
Formation Transactions, the Operating Partnership acquired the
entities comprising the EDR Predecessor as well as the 14
properties that comprised the JPI portfolio on January 31,
2005. Prior to the acquisition of the EDR Predecessor, the
Promoter, directly and indirectly, held ownership interests in
the predecessor entities. To the extent the Promoter exchanged
his ownership interests; the acquisition was accounted for at
historical cost. To the extent other ownership interests were
exchanged, the acquisition has been recorded at the estimated
fair value of the consideration exchanged. The following is a
summary of the estimated fair values of the assets
F-18
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
acquired and liabilities assumed in connection with the
Formation Transactions as of the date of acquisition:
|
|
|
|
|
|
|
|
|
|
|
EDR Predecessor | |
|
JPI Portfolio | |
|
|
| |
|
| |
Current assets and restricted cash
|
|
$ |
6,175 |
|
|
$ |
3,093 |
|
Student housing properties
|
|
|
117,587 |
|
|
|
403,380 |
|
Goodwill and other intangibles
|
|
|
4,225 |
|
|
|
3,562 |
|
Carryover basis at historical cost
|
|
|
17,382 |
|
|
|
|
|
Other
|
|
|
352 |
|
|
|
719 |
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
145,721 |
|
|
|
410,754 |
|
Current liabilities
|
|
|
(6,625 |
) |
|
|
(4,650 |
) |
Mortgage debt assumed net of premium/discount
|
|
|
(83,099 |
) |
|
|
(310,448 |
) |
Acquisition costs
|
|
|
(1,272 |
) |
|
|
(7,540 |
) |
|
|
|
|
|
|
|
Purchase price
|
|
$ |
54,725 |
|
|
$ |
88,116 |
|
|
|
|
|
|
|
|
Subsequent to the Offering, the Operating Partnership has
acquired student housing properties near the University of
Mississippi (February 2005), the University of South Carolina
(March 2005), Middle Tennessee State University (April 2005),
the University of Florida (June 2005), and Auburn University
(July 2005). The aggregate purchase price approximated
$119.8 million, including the assumption of mortgage debt
with a total contract value of $48.7 million. A summary
follows of the estimated fair values of the assets acquired and
the liabilities assumed as of the respective dates of the
acquisitions:
|
|
|
|
|
|
|
Preliminary allocation | |
|
|
student housing | |
|
|
acquisitions | |
|
|
| |
Current assets and restricted cash
|
|
$ |
791 |
|
Student housing properties
|
|
|
117,390 |
|
Goodwill and other intangibles
|
|
|
1,209 |
|
Other
|
|
|
443 |
|
|
|
|
|
Total assets acquired
|
|
|
119,833 |
|
Current liabilities
|
|
|
(1,668 |
) |
Mortgage debt assumed net of premium/discount
|
|
|
(51,408 |
) |
Acquisition costs
|
|
|
(1,231 |
) |
|
|
|
|
Purchase price
|
|
$ |
65,526 |
|
|
|
|
|
The purchase price allocations above are considered preliminary
and changes are expected as additional information becomes
available. The results of operations for each acquisition have
been included in our consolidated statements of operations from
the respective acquisition dates. In connection with the
acquisitions discussed above, $3,070 and $5,926 was allocated to
goodwill and other identifiable intangibles (in-place leases and
management contracts), respectively. In accordance with
SFAS No. 142, goodwill is not subject to amortization
and, therefore, the carrying value remains $3,070 at
December 31, 2005. In-place lease intangibles and
management contracts are amortized over the estimated life of
the remaining lease/contract term. Amortization expense totaled
$5,449 for the year ended December 31, 2005. Amortization
expense for fiscal 2006 is estimated to be $368 and $34 annually
in each of the four fiscal years following fiscal 2006.
F-19
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
The following unaudited pro forma financial information for the
years ended December 31, 2005 and 2004 gives effect to the
acquisitions as if the transactions had occurred at the
beginning of the respective period:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Pro forma revenue
|
|
$ |
101,157 |
|
|
$ |
93,375 |
|
Pro forma net loss
|
|
|
(15,362 |
) |
|
|
(12,169 |
) |
Loss per share
|
|
|
(.67 |
) |
|
|
|
|
All pro forma financial information presented in this note is
unaudited and is not necessarily indicative of the results that
actually would have occurred if the properties were purchased at
the beginning of the respective reporting period.
|
|
6. |
Student housing properties |
Student housing properties consist of the following at
December 31, 2005 and 2004 for the Trust and EDR
Predecessor, respectively (the Trust had no investment in
student housing properties at December 31, 2004):
|
|
|
|
|
|
|
|
|
|
|
Education Realty | |
|
EDR | |
|
|
Trust, Inc. | |
|
Predecessor | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Land
|
|
$ |
50,818 |
|
|
$ |
11,638 |
|
Land improvements
|
|
|
44,802 |
|
|
|
93 |
|
Construction in progress
|
|
|
542 |
|
|
|
|
|
Buildings
|
|
|
512,544 |
|
|
|
80,271 |
|
Furniture, fixtures and equipment
|
|
|
34,809 |
|
|
|
9,010 |
|
|
|
|
|
|
|
|
|
|
|
643,515 |
|
|
|
101,012 |
|
Less accumulated depreciation
|
|
|
(23,210 |
) |
|
|
(17,227 |
) |
|
|
|
|
|
|
|
Student housing properties, net
|
|
$ |
620,305 |
|
|
$ |
83,785 |
|
|
|
|
|
|
|
|
F-20
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
Following is certain information related to the Trusts
investment in student housing properties as of December 31,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost | |
|
|
|
Total Costs | |
|
|
|
|
|
|
|
|
| |
|
Cost | |
|
| |
|
|
|
|
|
|
|
|
|
|
Buildings and | |
|
|
|
Capitalized | |
|
|
|
Buildings and | |
|
|
|
Accumulated | |
|
Date of | |
Property(3) |
|
Encumbrances | |
|
Land | |
|
Improvements | |
|
Total | |
|
Subsequently | |
|
Land | |
|
Improvements | |
|
Total | |
|
Depreciation(4) | |
|
Acquisition | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
University Towers
|
|
$ |
23,996 |
|
|
$ |
2,195 |
|
|
$ |
31,035 |
|
|
$ |
33,230 |
|
|
$ |
223 |
|
|
$ |
2,195 |
|
|
$ |
31,258 |
|
|
$ |
33,453 |
|
|
$ |
1,372 |
|
|
|
01/31/05 |
|
The Gables
|
|
|
4,499 |
|
|
|
198 |
|
|
|
5,099 |
|
|
|
5,297 |
|
|
|
40 |
|
|
|
198 |
|
|
|
5,139 |
|
|
|
5,337 |
|
|
|
245 |
|
|
|
01/31/05 |
|
The Reserve at Athens
|
|
|
|
|
|
|
1,740 |
|
|
|
17,985 |
|
|
|
19,725 |
|
|
|
93 |
|
|
|
1,740 |
|
|
|
18,078 |
|
|
|
19,818 |
|
|
|
727 |
|
|
|
01/31/05 |
|
Players Club
|
|
|
|
|
|
|
727 |
|
|
|
7,498 |
|
|
|
8,225 |
|
|
|
67 |
|
|
|
727 |
|
|
|
7,565 |
|
|
|
8,292 |
|
|
|
304 |
|
|
|
01/31/05 |
|
College Station
|
|
|
|
|
|
|
244 |
|
|
|
2,190 |
|
|
|
2,434 |
|
|
|
80 |
|
|
|
244 |
|
|
|
2,270 |
|
|
|
2,514 |
|
|
|
160 |
|
|
|
01/31/05 |
|
The Reserve at Clemson
|
|
|
11,810 |
|
|
|
625 |
|
|
|
18,230 |
|
|
|
18,855 |
|
|
|
68 |
|
|
|
625 |
|
|
|
18,298 |
|
|
|
18,923 |
|
|
|
783 |
|
|
|
01/31/05 |
|
NorthPointe
|
|
|
18,562 |
|
|
|
2,498 |
|
|
|
27,323 |
|
|
|
29,821 |
|
|
|
151 |
|
|
|
2,498 |
|
|
|
27,474 |
|
|
|
29,972 |
|
|
|
1,061 |
|
|
|
01/31/05 |
|
The Pointe at South Florida
|
|
|
23,900 |
|
|
|
3,508 |
|
|
|
30,510 |
|
|
|
34,018 |
|
|
|
242 |
|
|
|
3,508 |
|
|
|
30,752 |
|
|
|
34,260 |
|
|
|
1,336 |
|
|
|
01/31/05 |
|
The Reserve on Perkins(1)
|
|
|
|
|
|
|
913 |
|
|
|
15,795 |
|
|
|
16,708 |
|
|
|
222 |
|
|
|
913 |
|
|
|
16,017 |
|
|
|
16,930 |
|
|
|
698 |
|
|
|
01/31/05 |
|
The Commons at Knoxville
|
|
|
32,000 |
|
|
|
4,630 |
|
|
|
18,386 |
|
|
|
23,016 |
|
|
|
166 |
|
|
|
4,630 |
|
|
|
18,552 |
|
|
|
23,182 |
|
|
|
789 |
|
|
|
01/31/05 |
|
The Reserve at Tallahassee
|
|
|
|
|
|
|
2,743 |
|
|
|
21,176 |
|
|
|
23,919 |
|
|
|
195 |
|
|
|
2,743 |
|
|
|
21,371 |
|
|
|
24,114 |
|
|
|
870 |
|
|
|
01/31/05 |
|
The Pointe at Western
|
|
|
21,600 |
|
|
|
1,096 |
|
|
|
30,647 |
|
|
|
31,743 |
|
|
|
118 |
|
|
|
1,096 |
|
|
|
30,765 |
|
|
|
31,861 |
|
|
|
1,264 |
|
|
|
01/31/05 |
|
College Station at W. Lafayette
|
|
|
14,800 |
|
|
|
1,887 |
|
|
|
19,528 |
|
|
|
21,415 |
|
|
|
93 |
|
|
|
1,887 |
|
|
|
19,621 |
|
|
|
21,508 |
|
|
|
923 |
|
|
|
01/31/05 |
|
The Commons on Kinnear
|
|
|
14,700 |
|
|
|
1,327 |
|
|
|
20,803 |
|
|
|
22,130 |
|
|
|
108 |
|
|
|
1,327 |
|
|
|
20,911 |
|
|
|
22,238 |
|
|
|
766 |
|
|
|
01/31/05 |
|
The Pointe at Penn State(2)
|
|
|
|
|
|
|
2,151 |
|
|
|
35,094 |
|
|
|
37,245 |
|
|
|
144 |
|
|
|
2,151 |
|
|
|
35,238 |
|
|
|
37,389 |
|
|
|
1,369 |
|
|
|
01/31/05 |
|
The Reserve at Star Pass
|
|
|
50,740 |
|
|
|
1,584 |
|
|
|
30,810 |
|
|
|
32,394 |
|
|
|
189 |
|
|
|
1,584 |
|
|
|
30,999 |
|
|
|
32,583 |
|
|
|
1,280 |
|
|
|
01/31/05 |
|
The Reserve at Columbia
|
|
|
19,400 |
|
|
|
1,071 |
|
|
|
26,134 |
|
|
|
27,205 |
|
|
|
112 |
|
|
|
1,071 |
|
|
|
26,246 |
|
|
|
27,317 |
|
|
|
975 |
|
|
|
01/31/05 |
|
The Reserve on Frankford
|
|
|
14,500 |
|
|
|
1,181 |
|
|
|
26,758 |
|
|
|
27,939 |
|
|
|
167 |
|
|
|
1,181 |
|
|
|
26,925 |
|
|
|
28,106 |
|
|
|
1,208 |
|
|
|
01/31/05 |
|
The Village on Tharpe
|
|
|
|
|
|
|
5,410 |
|
|
|
46,504 |
|
|
|
51,914 |
|
|
|
170 |
|
|
|
5,410 |
|
|
|
46,674 |
|
|
|
52,084 |
|
|
|
1,846 |
|
|
|
01/31/05 |
|
The Lofts
|
|
|
26,500 |
|
|
|
2,801 |
|
|
|
34,117 |
|
|
|
36,918 |
|
|
|
85 |
|
|
|
2,801 |
|
|
|
34,202 |
|
|
|
37,003 |
|
|
|
1,190 |
|
|
|
01/31/05 |
|
The Reserve on West 31st
|
|
|
|
|
|
|
1,896 |
|
|
|
14,920 |
|
|
|
16,816 |
|
|
|
501 |
|
|
|
1,896 |
|
|
|
15,421 |
|
|
|
17,317 |
|
|
|
667 |
|
|
|
01/31/05 |
|
Campus Creek
|
|
|
|
|
|
|
2,251 |
|
|
|
21,604 |
|
|
|
23,855 |
|
|
|
349 |
|
|
|
2,251 |
|
|
|
21,953 |
|
|
|
24,204 |
|
|
|
786 |
|
|
|
02/22/05 |
|
Pointe West
|
|
|
11,148 |
|
|
|
2,318 |
|
|
|
10,924 |
|
|
|
13,242 |
|
|
|
191 |
|
|
|
2,318 |
|
|
|
11,115 |
|
|
|
13,433 |
|
|
|
470 |
|
|
|
03/17/05 |
|
Campus Lodge
|
|
|
37,313 |
|
|
|
2,746 |
|
|
|
44,415 |
|
|
|
47,161 |
|
|
|
114 |
|
|
|
2,746 |
|
|
|
44,529 |
|
|
|
47,275 |
|
|
|
1,105 |
|
|
|
06/07/05 |
|
College Grove
|
|
|
|
|
|
|
1,334 |
|
|
|
19,270 |
|
|
|
20,604 |
|
|
|
767 |
|
|
|
1,334 |
|
|
|
20,037 |
|
|
|
21,371 |
|
|
|
738 |
|
|
|
04/27/05 |
|
The Reserve on South College
|
|
|
|
|
|
|
1,744 |
|
|
|
10,784 |
|
|
|
12,528 |
|
|
|
503 |
|
|
|
1,744 |
|
|
|
11,287 |
|
|
|
13,031 |
|
|
|
278 |
|
|
|
07/06/05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
325,468 |
|
|
$ |
50,818 |
|
|
$ |
587,539 |
|
|
$ |
638,357 |
|
|
$ |
5,158 |
|
|
$ |
50,818 |
|
|
$ |
592,697 |
|
|
$ |
643,515 |
|
|
$ |
23,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The Reserve on Perkins is cross collateralized with The Commons
at Knoxville against the $32.0 million outstanding loan. |
|
(2) |
The Pointe at Penn State is cross collateralized with The
Reserve at Star Pass against the $50.7 million outstanding
loan. |
|
(3) |
All properties are garden-style student housing communities
except for University Towers which is a traditional residence
hall. |
|
(4) |
Assets have useful lives ranging from 3 to 40 years. |
F-21
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
The following table reconciles the historical cost of the
Trusts investment in student housing properties for the
year ended December 31, 2005 and the EDR Predecessors
investment in student housing properties for the years ended
December 31, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education Realty | |
|
|
|
|
Trust, Inc. | |
|
EDR Predecessor | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Balance, beginning of the period
|
|
$ |
|
|
|
$ |
100,495 |
|
|
$ |
99,946 |
|
Student housing acquisitions
|
|
|
638,357 |
|
|
|
|
|
|
|
|
|
Additions
|
|
|
5,513 |
|
|
|
517 |
|
|
|
549 |
|
Disposals
|
|
|
(355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the period
|
|
$ |
643,515 |
|
|
$ |
101,012 |
|
|
$ |
100,495 |
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the accumulated depreciation of
the Trusts investment in student housing properties for
the year ended December 31, 2005 and the EDR
Predecessors investment in student housing properties for
the years ended December 31, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education Realty | |
|
|
|
|
Trust, Inc. | |
|
EDR Predecessor | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Balance, beginning of the period
|
|
$ |
|
|
|
$ |
14,107 |
|
|
$ |
11,046 |
|
Depreciation
|
|
|
23,219 |
|
|
|
3,120 |
|
|
|
3,061 |
|
Disposals
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the period
|
|
$ |
23,210 |
|
|
$ |
17,227 |
|
|
$ |
14,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7. |
Investments in unconsolidated entities |
The Trusts and EDR Predecessors ownership in SSAD,
SSAD LLC, ULAD LLC, Hines/ AOES LLC, CUPA LLC, Lock Haven LLC,
Clarion LLC, Bloomsburg LLC and AP LLC is accounted for under
the equity method. The following is a summary of financial
information for the Trusts and EDR Predecessors
unconsolidated joint ventures and limited liability companies at
December 31, 2005 and 2004 and for the years ended
December 31, 2005, 2004 and 2003. The Trust had no
unconsolidated joint ventures at December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
Education | |
|
|
|
|
Realty | |
|
EDR | |
|
|
Trust, Inc. | |
|
Predecessor | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Financial Position:
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
80 |
|
|
$ |
111 |
|
Total liabilities
|
|
|
340 |
|
|
|
375 |
|
|
|
|
|
|
|
|
Deficit
|
|
|
(260 |
) |
|
|
(264 |
) |
|
|
|
|
|
|
|
Trusts and EDR Predecessors investment in
unconsolidated entities
|
|
$ |
(130 |
) |
|
$ |
(124 |
) |
|
|
|
|
|
|
|
F-22
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education Realty | |
|
EDR Predecessor | |
|
|
Trust, Inc. | |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
1,770 |
|
|
$ |
2,272 |
|
|
$ |
1,523 |
|
Net income
|
|
|
1,720 |
|
|
|
2,167 |
|
|
|
1,378 |
|
Trusts and EDR Predecessors equity in earnings of
unconsolidated entities
|
|
$ |
853 |
|
|
$ |
1,002 |
|
|
$ |
629 |
|
These entities primarily provide development consulting services
to third party student housing owners in an agency capacity.
However, SSAD LLC serves as the primary obligor in the
development of University Park at Salisbury University. In this
capacity, SSAD LLC is responsible for excess development costs,
subject to force majeure, as defined in the ground lease
agreement. Subsequent to completion of the project, SSAD LLC is
required during the initial two years of operations to advance
the third party owner sufficient amounts to fund any shortfalls
between gross revenues and the sum of permitted expenses as
defined in the ground lease plus payments of project debt
principal and interest. The maximum amount to be advanced is
limited to the project development fees ($810). Additionally the
members of SSAD LLC have guaranteed the advances, if necessary,
and have also guaranteed the timely completion of this project.
As of December 31, 2005 and 2004, the project was completed
within the scheduled deadline, and no excess development costs
were paid by SSAD LLC.
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
(PIUs) to employees, directors and other key persons
providing services to the Company. The Trust has reserved
800,000 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.
Since the completion of the Offering, the Trust has issued
180,000 shares of restricted stock under the Plan, to
certain of its executive officers, which will vest ratably over
five years. The Trust also issued 6,000 shares of
restricted stock to its independent directors, which were all
fully vested at December 31, 2005. 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,
2005, unearned compensation totaled $2.5 million and is
recorded as a reduction of stockholders equity in the
accompanying consolidated balance sheet. The Trust recognizes
the value of these awards as an expense over the applicable
vesting period. The value is determined based on the market
value of the Trusts common stock on the grant date. Since
the completion of the Offering,
F-23
EDUCATION REALTY TRUST, INC. AND
SUBSIDIARIES AND EDUCATION REALTY TRUST PREDECESSOR
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Amounts in thousands, except share and per share data)
compensation expense of $.7 million was recognized in
general and administrative expense in the accompanying
consolidated statement of operations, related to the vesting of
restricted stock.
Additionally, the Trust granted 245,000 profits interest units
simultaneous with and subsequent to the completion of the
Offering that vested immediately and resulted in a compensation
charge (reflected in general and administrative expense) of
$4.1 million in the accompanying consolidated statement of
operations. 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