EDUCATION REALTY TRUST, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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 |
For the fiscal year ended December 31, 2007
Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the transition period from to
Commission file number: 001-32417
Education Realty Trust, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Maryland
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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 |
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38117 |
Memphis Tennessee
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(Zip Code) |
(Address of principal executive offices)
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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 |
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 þ No o
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,
a non-accelerated filer or a smaller reporting company.
See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer þ |
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Non-accelerated filer o
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Smaller reporting company o |
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, 2007, the aggregate market value of the registrants common stock held by
non-affiliates of the registrant
was approximately $397 million, based on the closing sales price of $14.03 per share as reported on
the New York Stock Exchange. (For purposes of this calculation all of the registrants directors
and executive officers are deemed affiliates of the registrant.)
As of February 28, 2008, the Registrant had 28,506,966 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant incorporates by reference portions of its Definitive Proxy Statement for the 2008
Annual Meeting of Stockholders into Part III of this Form 10-K to the extent stated herein.
FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this document and in the documents that are or will be incorporated
by reference into this document contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements provide our current expectations or forecasts of
future events and are not statements of historical fact. These forward-looking statements include
information about possible or assumed future events, including, among other things discussion and
analysis of the financial condition of Education Realty Trust, Inc., our strategic plans and
objectives, anticipated capital expenditures required to complete projects, amounts of anticipated
cash distributions to our stockholders in the future and other matters. Words such as
anticipates, expects, intends, plans, believes, seeks, estimates and variations of
these words and similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks, uncertainties and
other factors, some of which are beyond our control, are difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in the forward-looking
statements.
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or
false. You are cautioned to not place undue reliance on forward-looking statements, which reflect
our managements view only as of the date of this Annual Report. We undertake no obligation to
update or revise forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results. 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 Item 1A Risk
Factors below.
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EDUCATION REALTY TRUST, INC. FISCAL 2007 FORM 10-K
3
PART I
Item 1. Business.
(Dollars in thousands, except selected property information and share data)
Our Company
Education Realty Trust, Inc., which we refer to as EDR or the Trust, is a self-managed and
self-advised real estate investment trust, or REIT, organized in July 2004 to develop, acquire, own
and manage high quality student housing communities located near university campuses. We were
formed to continue and expand upon the student housing business of Allen & OHara, Inc., or the EDR
Predecessor, a company with over 40 years of experience as an owner, manager and developer of
student housing. As of December 31, 2007, we own 39 student housing communities located in 17
states containing 24,463 beds in 7,466 apartment units located near 32 universities. As of
December 31, 2007, we provide third-party management services for 27 student housing communities
located in 11 states containing 15,453 beds in 4,750 apartment units at 20 universities. We also
provide third-party development consulting services on student housing development projects mostly
for universities but also for our own ownership and other third parties.
Initial Public Offering and Formation Transactions
On January 31, 2005, or 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, or
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, or JPI. The net proceeds of the Offering after
expenses were approximately $320,400.
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., which we refer to as our Management Company or AOES and
Allen & OHara Development Company, LLC, which we refer to as our Development Company or AODC. The
majority of our operating expenses are borne by our Operating Partnership, our Management Company
or our Development Company, as the case may be.
We are the sole general partner of our Operating Partnership. As a result, our board of directors
effectively directs all of our Operating Partnerships affairs. We own 96.0% of the outstanding
partnership units of our Operating Partnership, and 3.1% of the partnership units are held by the
former owners of our initial properties and assets, including members of our management team. Some
of our officers 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, or the University Towers
Partnership, which is our affiliate, has held, owned and operated our University Towers property
located in Raleigh, North Carolina. We own 67.0% of the units in the University Towers Partnership,
and 33.0% of the University Towers Partnership is held by the former owners of our initial
properties and assets including members of our management team.
REIT Status and Taxable REIT Subsidiary
We have elected to be taxed as a real estate investment trust, or REIT, for federal income tax
purposes. With the exception of income from our taxable REIT subsidiary or TRS, income earned
under the REIT is not subject to income taxes. In order to qualify as a REIT, a specified
percentage of our gross income must be derived from real property sources, which would
generally exclude our income from providing development and management services to third parties as
well as our income from certain services afforded to our student-tenants. In order to avoid
realizing such income in a manner that would adversely affect our ability to qualify as a REIT, we
provide some services through our Management Company and our Development Company, with our
Management Company electing, together with us, to be treated as our TRS. Our
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Management Company is
wholly owned and controlled by our Operating Partnership, and our Management Company wholly owns
our Development Company. Our Development Company is a disregarded entity for federal income tax
purposes and all assets owned and earned by our Development Company are deemed to be owned and
earned by our Management Company.
Business and Growth Strategy
Our primary business objectives are to maximize cash flow available for distribution to our
stockholders, and to achieve sustainable long-term growth in cash flow per share in order to
maximize long-term stockholder value. We intend to achieve these objectives by (i) acquiring
student housing communities nationwide that meet our focused investment criteria, (ii) maximizing
net operating income from the operation of our owned properties through proactive and goal-oriented
property management strategies, (iii) building our third-party business of management services and
development consulting services and (iv) selectively developing properties for our own account.
Acquisition Strategy
We seek to acquire high quality, well-designed and well-located properties, with a focus on
off-campus garden-style communities with modern floor plans and amenities. Our ideal acquisition
targets generally are located in markets that have stable or increasing student populations and an
insufficient supply of student housing. We also seek to acquire investments in student housing
communities that possess sound market fundamentals but are under-performing and would benefit from
re-positioning, renovation and/or improved property management. We consider the following property
and market factors to identify potential property acquisitions:
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university and campus reputation; |
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competitive admissions criteria; |
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limited number of on-campus beds and limited plans for expansion; |
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distance of property from campus; |
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property unit mix; |
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competition; |
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significant out-of-state enrollment; |
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past operating performance; |
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potential for improved management; |
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ownership and capital structure; |
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presence of desired amenities; |
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maintenance and condition of the property; |
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access to a university-sponsored or public transportation line; and |
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parking availability. |
In addition to the initial properties that we acquired on the Closing Date, we acquired an
additional five properties in individual transactions throughout 2005. The five transactions had an
aggregate purchase price of approximately $119,800 including the assumption of mortgage debt
totaling $48,700. In January 2006, we acquired 13 student housing properties referred to as the
Place Portfolio for $205,000, which includes the assumption of mortgage debt of $98,660, and in
June 2006, we also acquired the Players Club property in Statesboro, Georgia for a purchase price
of $12,900. Furthermore, in 2006 our senior management team utilized existing relationships with
equity investors to acquire University Village Towers in Riverside, California, The Reserve
on Stinson in Norman, Oklahoma and Fontainebleu in Santa Barbara, California through joint venture
arrangements. In 2007, the development and construction of University Village in Greensboro, North
Carolina was completed under a joint venture arrangement and the Trust will continue to hold an
interest in the property going forward. Under the joint venture agreements, we hold a minority
ownership interest in the properties and earn a fee for the management of the properties. This
strategy enables us to accretively diversify our portfolio by expanding into geographic markets
where we are not currently present with lower capital requirements than if we acquired the
properties on our own. We expect to continue pursuing these types of arrangements in the future.
Also in 2007, we acquired land in Carbondale, Illinois and began construction on a student housing
community near Southern Illinois University. This represents the first community EDR is developing
and building for its own ownership since becoming a public company.
Operating Strategy
We seek to maximize funds from the operations of the student
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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 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. This plan is closely monitored and adjusted, if need be, throughout the
leasing period. We intend to continue to market our properties to students, parents and
universities by emphasizing student-oriented living areas, state-of-the-art technology
infrastructure, a wide variety of amenities and services and close proximity to the campus.
Develop and retain personnel. We staff each student housing community that we own or manage with a
full-service on-site property management team. Each of our property management teams includes
community assistants who plan activities and interact with students, enhancing their
college experiences. We have developed policies and procedures to train each team of on-site
employees and to provide them with corporate-based support for each essential operating function.
To retain employees, we have developed an incentive-based compensation structure that is available
to all of our on-site personnel.
Maintain and develop strategic relationships. We believe that establishing and maintaining
relationships with universities is important to the ongoing success of our business. We believe
that these relationships will continue to provide us with referrals that enhance our leasing
efforts, opportunities for additional acquisitions of student housing communities and contracts for
third-party services.
Third-Party Services
In addition to managing our owned student housing communities and developing communities for our
ownership, we also provide management and development consulting services for third-parties.
Universities and other third-party owners 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, the Pennsylvania State System of Higher Education and the University of Alabama
System.
In order to comply with the rules applicable to our status as a REIT, we provide our third-party
services through our Management Company and our Development Company. Unlike the income earned from
our properties under the REIT, the income earned by our Management Company and our Development
Company is subject to regular federal income tax and state and local income taxes where applicable.
Third-party management services
We provide third-party management services for student housing communities owned by educational
institutions, charitable foundations and others. Our management services typically cover all
aspects of operations, including residence life and student development, marketing, leasing
administration, strategic relationships, information systems and accounting services. These
services are comparable to the services that we provide for our owned properties. We typically
provide these services pursuant to multi-year management contracts that have an initial term
between five and ten years. We believe that providing these services allows
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us to increase cash
flow with little incremental cost by leveraging our existing management expertise and
infrastructure. For the year ended December 31, 2007, our fees from third-party management
services, excluding operating expense reimbursements represented 3.1% 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, 2007:
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Property |
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University |
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# of Beds |
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# of Units |
On-campus properties |
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University Park Calhoun Street Apartments |
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University of Cincinnati |
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747 |
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288 |
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Reinhard Villages |
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Clarion University of Pennsylvania |
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656 |
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180 |
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University Park |
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Salisbury University (Maryland) |
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578 |
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145 |
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University Park Phase II |
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Salisbury University (Maryland) |
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312 |
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108 |
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Bettie Johnson Hall |
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University of Louisville |
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490 |
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224 |
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Herman & Heddy Kurz Hall |
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University of Louisville |
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402 |
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224 |
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Billy Minardi Hall |
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University of Louisville |
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38 |
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20 |
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Community Park |
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University of Louisville |
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358 |
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101 |
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University Village |
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California State University San Marcos |
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620 |
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126 |
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Arlington Park Apartments |
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University of Northern Colorado |
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394 |
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179 |
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Blazer Hall |
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University of Alabama Birmingham |
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753 |
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190 |
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Total on-campus |
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5,348 |
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1,785 |
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Off-campus properties |
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Granville Towers |
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University of North Carolina at Chapel Hill |
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1,321 |
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349 |
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Illini Tower |
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University of Illinois at Champaign |
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725 |
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206 |
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Honeysuckle Apartments |
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Bloomsburg University of Pennsylvania |
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407 |
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104 |
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Evergreen Commons |
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Lock Haven University of Pennsylvania |
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408 |
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108 |
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Campus Village |
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University of Colorado Denver |
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685 |
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210 |
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The College Inn |
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North Carolina State University |
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440 |
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121 |
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Village at Chandler Crossing I |
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Michigan State & Central Michigan University |
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732 |
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252 |
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Village at Chandler Crossing II |
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Michigan State & Central Michigan University |
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336 |
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84 |
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The Club at Chandler Crossing |
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Michigan State & Central Michigan University |
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768 |
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210 |
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Landing at Chandler Crossing |
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Michigan State & Central Michigan University |
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936 |
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306 |
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The Village at Bluegrass |
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Michigan State & Central Michigan University |
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744 |
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228 |
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Upper Eastside Lofts |
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Sacramento State University |
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408 |
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132 |
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University Village (1) |
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University of North Carolina - Greensboro |
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600 |
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203 |
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University Village Towers (1) |
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University of California - Riverside |
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548 |
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149 |
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The Reserve on Stinson (1) |
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University of Oklahoma |
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612 |
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204 |
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Fontainebleu (1) |
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University of California - Santa Barbara |
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435 |
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99 |
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Total off-campus |
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10,105 |
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2,965 |
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Totals (for both on- and off-campus) |
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15,453 |
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4,750 |
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(1) |
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EDR holds a minority interest in the community. |
Third-party development consulting services
We provide third-party development consulting services primarily to universities seeking to
modernize their on-campus student housing communities but also to other third-party investors. Our
development consulting services typically include the following:
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market analysis and evaluation of housing needs and options; |
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cooperation with university in architectural design; |
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negotiation of ground lease, development agreement, construction
contract, architectural contract and bond documents; |
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oversight of architectural design process; |
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coordination of governmental and university plan approvals; |
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oversight of construction process; |
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design, purchase and installation of furniture; |
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pre-opening marketing to students; and |
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obtaining final approvals of construction. |
By providing these services, we are able to observe emerging trends in student housing development
and market acceptance of unit and community amenities. Our development consulting services also
provide us with opportunities to obtain additional third-party property management contracts. Of
the 25 student housing communities we have provided development-consulting services to since 2000,
the property owners have awarded us third-party management services contracts for 15 with 10
universities electing to manage the communities in house under their existing infrastructure. In
2007, our fees from third-party development consulting services, excluding operating expense
reimbursements, represented 4.9% of our revenues.
Since 2000, we have provided third-party development consulting services to clients for projects
totaling over $1,000,000 in value. We are currently providing third-party development services to
Slippery Rock University of Pennsylvania, Indiana University of Pennsylvania, and to third parties
near the University of Michigan, Ann Arbor and the University of California Santa Barbara
pursuant to signed definitive contracts. The aggregate project cost of these four projects is
approximately $191,500. Additionally, we are providing pre-development, construction and management
consulting services on a new project at West Chester University of Pennsylvania and an additional
phase at Indiana University of Pennsylvania. In aggregate, these total approximately $154,000 in
project costs. We typically are notified that we have been awarded development consulting services
projects on the basis of a competitive award process and thereafter begin to work on the project.
In the case of tax exempt bond financed projects, definitive contracts are not executed until bond
closing.
Our Operations
We staff each of our owned and managed student housing communities with a full-service property
management team. We typically staff each property with one Community Manager, a marketing/leasing
manager, a student accounts manager, a resident services director, a maintenance supervisor, one
on-site resident Community Assistant for each 50-85 students and general office staff. Each
property management team markets, leases and manages the community with a focus on maximizing its
profitability. In addition, each property management team is trained to provide social and
developmental opportunities for students, enhancing the students college experiences as well as
the desirability of our communities.
We have developed policies and procedures to carefully select and develop each team of on-site
employees and to provide each team with corporate-based support for each essential operating area,
including lease administration, sales/marketing, community and university relations, student life
administration, maintenance and loss prevention, accounting, human resources/benefits
administration and information systems. The corporate level personnel responsible
for each of these areas support each community managers leadership role, and are available as a
resource to the community managers around the clock.
Residence Life and Student Development
Our corporate director of residence life and student personnel development designs and directs our
residence life program. Our programs are developed at the corporate level and implemented at each
community by our community assistants, together with our other on-site personnel. We
provide educational, social and recreational activities designed to help students achieve academic
goals, promote respect and harmony throughout the community, and help bridge interaction with the
respective university. Examples of our residence life and student development programs include:
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community-building and social activities geared to university-related
events, holidays, public safety and education; |
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study and attention skills counseling; |
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career development, resume writing and employment search skill
training; |
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sponsorship of intramural sport teams, academic clubs and alumni-based
activities; |
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parent and resident appreciation events; |
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community service activities including recycling, blood drives, food
drives and student volunteer committees; |
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lectures focused on social issues, including effective communication,
multi-cultural awareness and substance abuse; |
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university outreach activities; and |
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voter registration, enrollment and education. |
The Community Assistants perform key roles in the administrative functioning of the community and
interface with students through constructive programs, activities and listening to student
interests and concerns. Our on-site leadership selects students to serve as Community Assistants
who meet criteria established by our corporate director of residence life and student personnel
development.
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 our University Towers community, which we generally rent on nine-month academic year
leases. Our standard lease is an agreement between the student and parental guarantor, and the
specific student housing community. All leases are for a bed, in a private or shared bedroom, with
rights to share common areas within the unit and throughout the community. The individual lease
is a strong selling attraction as it limits a students liability to the rental for one bedroom
instead of burdening the student with shared liability for the entire unit rental amount.
We lease our units by floor plan type using internally-generated occupancy spreadsheets to maximize
full leasing of entire units, avoiding spotty vacancies particularly in the four-bedroom units. We
offer roommate-matching services to facilitate full occupancy. We develop wait lists and monitor
popular floor plans that fill to capacity early in the leasing season. If any fully vacant units
remain available after the beginning of any academic semester, we seek to lease such units on a
temporary basis to university-related visitors and our tenants parents and family members, or keep
them available for future leasing to students.
Unlike conventional apartment communities that have monthly move-outs and renewals, our student
housing community occupancies remain relatively stable throughout the academic year, but must be
entirely re-leased at the beginning of each academic year. Because of the nature of leasing to
students, we are highly dependent upon the success of our marketing and leasing efforts during the
annual leasing season, generally
9
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.
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.
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. As it is our intention to develop a diverse portfolio
of student housing communities, we also develop strategic relationships with equity investors in
order to pursue acquisitions through joint venture arrangements. Acquisitions, through joint
venture arrangements, allow us to obtain a minority interest in student housing communities in
geographic markets where we are not currently present with less capital than if we acquired the
properties on our own.
Competition
Competition from universities
We compete for student tenants with the owners of on-campus student housing, which is generally
owned by educational institutions or charitable foundations. Educational institutions can generally
avoid real estate taxes and borrow funds at lower interest rates, while we and other private sector
operators pay full real estate tax rates and have higher borrowing costs. The competitive
advantages of on-campus student housing also include its physical proximity to the university
campus and captive student body. Many universities have policies requiring students to live in
their on-campus facilities during their freshman year.
On-campus housing is limited, however, and most universities are able to house only a small
percentage of their students. As a result, educational institutions depend upon, and may serve as
referral sources for, private providers of off-campus housing. In addition, off-campus housing
facilities tend to offer more relaxed rules and regulations than on-campus properties and therefore
tend to be more appealing to students. Off-campus student housing offers freedom from restrictions
such as quiet hours or gender visitation limitations, and is especially appealing to upperclassmen
who are transitioning towards their independence.
Competition from private owners
We compete with several regional and national owner-operators of off-campus student housing,
including two publicly-traded competitors, GMH Communities Trust (GCT) and American Campus
Communities, Inc. (ACC). We also compete with privately held developers and other real estate firms
and in a number of markets with smaller local owner-operators. Currently, the industry is
fragmented with no participant holding a dominant market share. We believe that a number of other
large national companies with substantial financial resources may be potential entrants in the
student housing business. The entry of one or more of these companies could increase competition
for students and for the acquisition,
10
management and development of student housing properties.
Employees
At December 31, 2007, we had approximately 1,196 employees, including:
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1,110 on-site employees, including 448 Community Assistants; |
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17 people in our property management services department; |
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14 people in our development consulting services department; and |
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55 executive, corporate administration and financial personnel. |
Our senior management team has over 200 years of collective experience working together in the EDR
Predecessors student housing business. Our management teams in-depth knowledge of the student
housing industry results from hands-on experiences. Several of our executive officers began their
careers as student-tenant employees or community managers responsible for managing individual
student housing communities. The following table demonstrates our management teams extensive
experience in the student housing industry:
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Number |
Key Employees |
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Title |
|
of Years |
Paul O. Bower
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Chairman, Chief Executive
Officer and President
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38 |
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Craig L. Cardwell
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President of Allen & OHara
Education Services, Inc.
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36 |
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Thomas J. Hickey
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Senior Vice President of
Allen & OHara Education
Services, Inc.
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35 |
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Wallace L. Wilcox
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Vice President of Construction
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27 |
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William W. Harris
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President of Allen & OHara
Development Company
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25 |
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Thomas Trubiana
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Senior Vice President and
Chief Investment Officer
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31 |
|
Susan B. Arrison
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Vice President of Human
Resources
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17 |
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Randall H. Brown
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Executive Vice President and
Chief Financial Officer
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8 |
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NYSE Certifications
Our CEO certified to the New York Stock Exchange in 2007 that we were in compliance with the NYSE
listing standards. Our CEO and CFO have executed the certifications required by section 302 of the
Sarbanes-Oxley Act of 2002, which are contained herein as exhibits to this Form 10-K for the fiscal
year ended December 31, 2007.
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
EDR files annual and periodic reports with the Securities and Exchange Commission, or the SEC. All
filings made by EDR with the SEC may be copied or read at the SECs Public Reference Room at 100 F
Street NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC as the Company does. The website is http://www.sec.gov.
Additionally, a copy of this Annual Report on Form 10-K, along with EDRs Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and any amendments to the aforementioned filings, are available
on EDRs website, www.educationrealty.com, free of charge. The filings can be found in the SEC
filings section of our website. EDRs website also contains its Corporate Governance Guidelines,
Code of Business Conduct and Ethics and the charters of the committees of the Board of Directors.
These items can be found in the Corporate Governance section of our website. Reference to 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.
11
Item 1A. Risk Factors.
Risks related to our properties and our business
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 on their rental payments during the summer
months. Although we typically require a students parents to guarantee the students lease, we may
have to spend considerable effort and expense in pursuing payment upon a defaulted lease, and our
efforts may not be successful. 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 leasing season that begins in November and ends in August of each
year. We are therefore highly dependent on the effectiveness of our marketing and leasing efforts
and personnel during this season. Prior to the commencement of each new lease period, mostly during
the first two weeks of August but also during September at some communities, we prepare the units
for new incoming tenants. Other than revenue generated by in-place leases for returning tenants, we
do not generally recognize lease revenue during this period referred to as Turn as we have no
leases in place. In addition, during Turn we incur significant expenses making our units ready for
occupancy, which we recognize immediately. This lease Turn period results in seasonality in our
operating results during the third quarter of each year.
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 March 30, 2006, we amended and restated our revolving credit
facility and the Operating Partnership entered into a $50,000 senior unsecured term loan. On
June 8, 2007, we prepaid the entire balance outstanding on the unsecured term loan. The amended
credit facility has substantially the same terms as the original facility, including $100,000 of
availability and customary affirmative and negative covenants. 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. |
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
12
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.
We may not be able to recover our costs for our development consulting services.
We typically are awarded development consulting services business on the basis of a competitive
award process, but definitive contracts are typically not executed until the formal approval of the
transaction by the institutions governing body at the completion of the process. In the
intervening period, we may incur significant predevelopment and other costs in the expectation that
the development consulting services contract will be executed. These costs could range up to $2,000
or more per project and typically include architects fees to design the property and contractors
fees to price the construction. We typically seek to enter into a reimbursement agreement with the
institution that requires the institution to provide a guarantee of our advances. However, we may
not be successful in negotiating such an agreement. In addition, if an institutions governing body
does not ultimately approve our selection and the underlying terms of a pending development, we may
not be able to recover these costs from the institution. In addition, when we are awarded
development consulting business, we generally receive 50% of our fees at the time the project is
financed, and the
remainder is generally paid in monthly installments thereafter. As a result, the recognition and
timing of revenues will, among other things differ from the timing of payments and be contingent
upon the project owners successful structuring and closing of the project financing as well as the
timing of construction.
We may not be able to recover internal development costs.
When developing student housing communities for our ownership on University land, definitive
contracts are not executed until the formal approval of the transaction by the institutions
governing body at the completion of the process. In the intervening period, we may incur
significant predevelopment and other costs in the expectation that a ground lease will be executed.
These costs could range up to $1,000 or more and typically include architects fees to design the
property and third party fees related to other predevelopment services. If an institutions
governing body does not ultimately approve the lease we will not be able to recover these
predevelopment costs.
We may be unable to take advantage of certain disposition opportunities because of additional costs
we have agreed to pay if we sell certain of our properties in taxable transactions for a period of
five years.
On the Closing Date, we issued University Towers Partnership units for our interest in University
Towers. So long as the contributing owners of such property hold at least 25% of the University
Towers Partnership units 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.
13
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.
Our growth will be dependent upon our ability to acquire and/or develop, lease, integrate and
manage additional student housing communities successfully.
We cannot assure you that we will be able to identify real estate investments, including joint
ventures, that meet our investment criteria, that we will be successful in completing any
acquisition we identify or that any acquisition we complete will produce a return on our
investment.
Our future growth will be dependent upon our ability to successfully acquire new properties and
enter into joint ventures on favorable terms, which may be adversely affected by the following
significant risks:
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we may be unable to acquire a desired property at all or at a desired
purchase price because of competition from other purchasers of student
housing; |
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many of our future acquisitions are likely to be dependent on external
financing, and we may be unable to finance an acquisition on favorable
terms or at all; |
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we may be required to incur significant capital expenditures to
improve or renovate acquired properties; |
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we may 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.
Risks related to the real estate industry
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.
14
These events include:
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local oversupply of student housing units, increased competition or
reduction in demand for student housing; |
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inability to collect rent from tenants; |
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vacancies or our inability to lease beds on favorable terms; |
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inability to finance property development and acquisitions on
favorable terms; |
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increased operating costs, including insurance premiums, utilities,
and real estate taxes; |
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costs of complying with changes in governmental regulations; |
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the relative illiquidity of real estate investments; |
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changing student demographics; |
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decreases in student enrollment at particular colleges and
universities; |
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changes in university policies related to admissions; |
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national, regional and local economic conditions; and |
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rising interest rates. |
We will depend heavily on the availability of equity and debt capital to fund our business.
In order to maintain our qualification as a REIT, we are required under the Internal Revenue Code
of 1986, as amended, which we refer to as the Code, to distribute annually at least 90% of our REIT
taxable income, determined without regard to distributions paid and excluding any net capital gain.
To the extent that we satisfy this distribution requirement, but distribute less than 100% of our
net taxable income, including any net capital gains, we will be subject to federal corporate income
tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible
excise tax if the actual amount that we pay out to our shareholders in a calendar year is less than
a minimum amount specified under federal tax laws. Because of these distribution requirements,
REITs are largely unable to fund capital expenditures, such as acquisitions, renovations,
development and property upgrades from operating cash flow. Consequently, we will be largely
dependent on the public equity and debt capital markets and private lenders to provide capital to
fund our growth and other capital expenditures. We may not be able to obtain this financing on
favorable terms or at all. Our access to equity and debt capital depends, in part, on:
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general market conditions; |
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our current debt levels and the number of properties subject to
encumbrances; |
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our current performance and the markets perception of our growth
potential; |
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our cash flow and cash distributions; and |
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the market price per share of our common stock. |
If we cannot obtain capital from third-party sources, we may not be able to acquire properties when
strategic opportunities exist, satisfy our debt service obligations or make the cash distributions
to our stockholders, including those necessary to maintain our qualification as a REIT.
Financing our future growth plan or refinancing existing debt maturities could be adversely
impacted by negative capital market conditions.
Recently, domestic financial markets have experienced unusual volatility and uncertainty. While
this condition has occurred most visibly within the subprime mortgage lending sector of the
credit market, liquidity has tightened in overall domestic financial markets, including the
investment grade debt and equity capital markets. Consequently, there is greater uncertainty
regarding our ability to access the credit market in order to attract financing on reasonable
terms, if at all. Our ability to finance our pending or new acquisitions as well as our ability to
refinance debt maturities could be adversely affected by our inability to secure permanent
financing on reasonable terms, if at all.
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
15
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.
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 flood (when the property is located in whole or in
material part in a designated flood plain area) on some of our properties. We believe the policy
specifications and insured limits are appropriate and adequate given the relative risk of loss, the
cost of the coverage and industry practice. There are, however, certain types of losses (such as
property damage from riots or wars, employment discrimination losses, punitive damage awards, or
acts of God) that may be either uninsurable or not economically insurable. Some of our policies are
subject to large deductibles or co-payments and policy limits that may not be sufficient to cover
losses. In addition, we
may discontinue earthquake, terrorism or other insurance on some or all of our properties in the
future if the cost of premiums for these policies exceeds, in our judgment, the value of the
coverage discounted for the risk of loss. If we experience a loss that is uninsured or that exceeds
policy limits, we could lose the capital invested in the damaged properties as well as the
anticipated future cash flows from those properties. In addition, if the damaged properties are
subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if
these properties were irreparably damaged.
Future terrorist attacks in the United States could harm the demand for and the value of our
student housing communities.
Future terrorist attacks in the United States, such as the attacks that occurred in New York and
Washington, D.C. on September 11, 2001, and other acts of terrorism or war, or threats of the same,
could harm the demand for and the value of our properties. A decrease in demand in our markets
would make it difficult for us to renew or re-lease our properties at rates equal to or above
historical rates.
Terrorist attacks also could directly affect the value of our properties through damage,
destruction, loss or increased security costs, and the availability or cost of insurance for such
acts. If we receive casualty proceeds, we may not be able to reinvest such proceeds profitably or
at all, and we may be forced to recognize taxable gain on the affected property.
We could incur significant costs related to government regulation and private litigation over
environmental matters.
Under various environmental laws, including the Comprehensive Environmental Response, Compensation
and Liability Act, or CERCLA, a current or previous owner or operator of real property may be
liable for contamination resulting from the release or threatened release of hazardous or toxic
substances or petroleum at that property, and an entity that arranges for the disposal or treatment
of a hazardous or toxic substance or petroleum at another property may be held jointly and
severally liable for the cost to investigate and clean up such property or other affected property.
Such parties are known as potentially responsible parties, or PRPs. Environmental laws often impose
liability without regard to whether the owner or operator knew of, or was responsible for, the
presence of the contaminants, and the costs of any required investigation or cleanup of these
substances can be substantial. PRPs are liable to the government as well as to other PRPs who may
have claims for contribution. The liability is generally not limited under such laws and could
exceed the propertys value and the aggregate assets of the liable party. The presence of
contamination or the failure to remediate contamination at our properties also may expose us to
third-party liability for personal injury or property damage, or adversely affect our ability to
sell, lease or develop the real property or to borrow
16
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.
We could be exposed to liability and remedial costs related to environmental matters.
Certain properties in our portfolio may contain, or may have contained, asbestos-containing
building materials, or ACBMs. Environmental laws require that ACBMs be properly managed and
maintained, and may impose fines and penalties on building owners and operators for failure to
comply with these requirements. Also, certain properties may contain, or may
have contained, or are adjacent to or near other properties that have contained or currently
contain storage tanks for the storage of petroleum products or other hazardous or toxic substances.
These operations create a potential for the release of petroleum products or other hazardous or
toxic substances. Certain properties in our portfolio contain, or may have contained, elevated
radon levels. Third parties may be permitted by law to seek recovery from owners or operators for
property damage and/or personal injury associated with exposure to contaminants, including, but not
limited to, petroleum products, hazardous or toxic substances and asbestos fibers. Also, some of
the properties may contain regulated wetlands that can delay or impede development or require costs
to be incurred to mitigate the impact of any disturbance. Absent appropriate permits, we can be
held responsible for restoring wetlands and be required to pay fines and penalties.
Some of the properties in our portfolio may contain microbial matter such as mold and mildew. The
presence of microbial matter could adversely affect our results of operations. In addition, if any
property in our portfolio is not properly connected to a water or sewer system, or if the integrity
of such systems are breached, or if water intrusion into our buildings otherwise occurs, microbial
matter or other contamination can develop. When excessive moisture accumulates in buildings or on
building materials, mold growth may occur, particularly if the moisture problem remains
undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or
irritants. If this were to occur, we could incur significant remedial costs and we may also be
subject to material private damage claims and awards. Concern about indoor exposure to mold has
been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms,
including allergic or other reactions. If we become subject to claims in this regard, it could
materially and adversely affect us and our future insurability for such matters.
Independent environmental consultants conduct Phase I environmental site assessments on all of our
acquisitions. Phase I environmental site assessments are intended to evaluate information regarding
the environmental condition of the surveyed property and surrounding properties based generally on
visual observations, interviews and certain publicly available databases. These assessments do not
typically take into account all environmental issues including, but not limited to, testing of soil
or groundwater or the possible presence of asbestos, lead-based paint, radon, wetlands or mold. The
results of these assessments are addressed and could result in either a cancellation of the
purchase, the requirement of the seller to remediate issues, or additional costs on our part to
remediate the issue.
None of the previous site assessments revealed any past or present environmental liability that we
believe would be material to us. However, the assessments may have failed to reveal all
environmental conditions, liabilities or compliance concerns. Material environmental conditions,
liabilities or compliance concerns may have arisen after the assessments were conducted or may
arise in the future; and future laws, ordinances or regulations may impose material additional
environmental liability.
We cannot assure you that costs of future environmental compliance will not affect our ability to
make distributions or that such costs or other remedial measures will not be material to us.
17
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.
We may incur significant costs complying with other regulations.
The properties in our portfolio are subject to various federal, state and local regulatory
requirements, such as state and local fire and life safety requirements. If we fail to comply with
these various requirements, we might incur governmental fines or be liable for private action money
damages. Furthermore, existing requirements could change and require us to make significant
unanticipated expenditures that would materially and adversely affect us.
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, including the possibility that partners
or co-venturers may become bankrupt or fail to fund their share of required capital contributions.
Partners or co-venturers also may have economic or other business interests or goals that are
inconsistent with our business interests or goals and may be in a position to take actions contrary
to our preferences, policies or objectives. Such investments also will have the potential risk of
our reaching impasses with our partners or co-venturers on key decisions, such as a sale, because
neither we nor the partner or co-venturer would have full control over the partnership or joint
venture. Disputes between us and partners or co-venturers may result in litigation or arbitration
that would increase our expenses and prevent our management team from focusing its time and effort
exclusively on our business. In addition, we may in some circumstances be liable for the actions of
our third-party partners or co-venturers.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse
changes in the performance of our properties.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more
properties in our portfolio in response to changing economic, financial and investment conditions
is limited. The real estate market is affected by many factors, such as general economic
conditions, availability of financing, interest rates and other factors, including supply and
demand, that are beyond our control. We cannot predict whether we will be able to sell any property
for the price or
18
on the terms set by us or whether any price or other terms offered by a
prospective purchaser would be acceptable to us. We also cannot predict the length of time needed
to find a willing purchaser and to close the sale of a property.
We may be required to expend funds to correct defects or to make improvements before a property can
be sold. We cannot ensure that we will have funds available to correct those defects or to make
those improvements. In acquiring a property, we may agree to transfer restrictions that materially
restrict us from selling that property for a period of time or impose other restrictions, such as a
limitation on the amount of debt that can be placed or repaid on that property. These transfer
restrictions would impede our ability to sell a property even if we deem it necessary or
appropriate.
Risks related to our organization and structure
To maintain our REIT status, we may be forced to limit the activities of our Management Company.
To maintain our status as a REIT, no more than 20% of the value of our total assets may consist of
the securities of one or more taxable REIT subsidiaries, such as our Management Company. Some of
our activities, such as our third-party management, development consulting and food services, must
be conducted through our Management Company and Development Company for us to maintain our REIT
qualification. In addition, certain non-customary services such as cleaning, transportation,
security and, in some cases, parking, must be provided by a taxable REIT subsidiary or an
independent contractor. If the revenues from such activities create a risk that the value of our
Management Company, based on revenues or otherwise, approaches the 20% threshold, we will be forced
to curtail such activities or take other steps to remain under the 20% threshold. Because the 20%
threshold is based on value, it is possible that the Internal Revenue Service, or IRS, could
successfully contend that the value of our Management Company exceeds the 20% threshold even if our
Management Company accounts for less than 20% of our consolidated revenues, income or cash flow, in
which case our status as a REIT could be jeopardized.
Our charter contains restrictions on the ownership and transfer of our stock.
Our charter provides that, subject to certain exceptions, no person or entity may beneficially own,
or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more
than 9.8% (by value, by number of shares or by voting power, whichever is more restrictive) of the
outstanding shares of our common stock or more than 9.8% (by value, by number of shares or by
voting power, whichever is more restrictive) of all our outstanding shares, including both common
and preferred stock. We refer to this restriction as the ownership limit. Generally, if a
beneficial owner of our shares exceeds the ownership limit, such owner will be effectively divested
of all ownership rights with respect to shares exceeding the limit and may suffer a loss on his or
her investment.
The constructive ownership rules under the Code are complex and may cause stock owned actually or
constructively by a group of related individuals and/or entities to be owned constructively by one
individual or entity. As a result, the acquisition of less than 9.8% of our stock (or the
acquisition of an interest in an entity that owns, actually or constructively, our stock) by an
individual or entity, could, nevertheless cause that individual or entity, or another individual or
entity, to own constructively in excess of 9.8% of our outstanding stock and thereby subject
certain shares to the ramifications of exceeding the ownership limit. Our charter, however, permits
exceptions to be made to this limitation if our board of
directors determines that such exceptions will not jeopardize our tax status as a REIT. This
ownership limit could delay, defer or prevent a change of control or other transaction that might
otherwise result in a premium price for our common stock or otherwise be in the best interest of
our stockholders.
Certain tax and anti-takeover provisions of our charter and bylaws may inhibit a change of our
control.
Certain provisions contained in our charter and bylaws and the Maryland General Corporation Law may
discourage a third party from making a tender offer or acquisition proposal to us, or could delay,
defer or prevent a change in control or the removal of existing management. These provisions also
may delay or prevent our stockholders from receiving a premium for their shares of common stock
over then-prevailing market prices. These provisions include:
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the REIT ownership limit described above; |
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authorization of the issuance of our preferred shares with powers,
preferences or rights to be determined by our board of directors; |
19
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the right of our board of directors, without a stockholder vote, to
increase our authorized shares and classify or reclassify unissued shares; and |
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advance notice requirements for stockholder nomination of directors
and for other proposals to be presented at stockholder meetings. |
The Maryland business statutes also impose potential restrictions on a change of control of our
Company.
Various Maryland laws may have the effect of discouraging offers to acquire us, even if the
acquisition would be advantageous to our stockholders. Our bylaws exempt us from some of those
laws, such as the control share acquisition provisions, but our board of directors can change our
bylaws at any time to make these provisions applicable to us.
We have the right to change some of our policies that may be important to our stockholders without
stockholder consent.
Our major policies, including our policies with respect to investments, leverage, financing,
growth, debt and capitalization, are determined by our board of directors or those committees or
officers to whom our board of directors has delegated that authority. Our board of directors also
establishes the amount of any distributions that we make to our stockholders. Our board of
directors may amend or revise the foregoing policies, our distribution payment amounts and other
policies from time to time without a stockholder vote. Accordingly, our stockholders may not have
control over changes in our policies.
The ability of our board of directors to revoke our REIT election without stockholder approval may
cause adverse consequences to our stockholders.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT
election, without the approval of our stockholders, if it determines that it is no longer in our
best interests to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become
subject to federal income tax on our taxable income and would no longer be required to distribute
most of our taxable income to our stockholders, which may have adverse consequences on the total
return to our stockholders.
Our rights and the rights of our stockholders to take action against our directors and officers are
limited.
Maryland law provides that a director or officer has no liability in that capacity if he or she
performs his or her duties in good faith, in a manner he or she reasonably believes to be in our
best interests and with the care that an ordinarily prudent person in a like position would use
under similar circumstances. In addition, our charter eliminates our directors and officers
liability to us and our stockholders for money damages except for liability resulting from actual
receipt of an improper benefit in money, property or services or active and deliberate dishonesty
established by a final judgment and that is material to the cause of action. Our bylaws require us
to indemnify directors and officers for liability resulting from actions taken by them in those
capacitates to the maximum extent permitted by Maryland law. As a result, our stockholders and we
may have more limited rights against our directors and officers than might otherwise exist under
common law. In addition, we may be obligated to fund the defense costs incurred by our directors
and officers.
Our success depends on key personnel whose continued service is not guaranteed.
We depend upon the services of our key personnel, particularly Paul O. Bower, our Chairman, Chief
Executive Officer and President, Randall H. Brown, our Executive Vice President and Chief Financial
Officer, Thomas Trubiana, our Chief Investment Officer, and Craig L. Cardwell, our President of
Allen & OHara Education Services, Inc. Messrs. Bower, Trubiana and Cardwell each have been in the
student housing business for over 30 years, and each of them has developed a network of contacts
and a reputation that attracts business and investment opportunities and assists us in negotiations
with universities, lenders and industry personnel. In addition, Mr. Brown possesses detailed
knowledge of and experience with our financial and ancillary support operations that are critical
to our operations and financial reporting obligations as a public company. We will continue to need
to attract and retain qualified additional senior executive officers as we grow our business. The
loss of the services of any of our senior executive officers, or our inability to recruit and
retain qualified personnel could have a material adverse effect on our business and financial
results.
20
Federal income tax risks
Failure to qualify as a REIT would have significant adverse consequences to us and the value of our
stock.
We intend to operate in a manner that will allow us to qualify as a REIT for federal income tax
purposes under the Code. We have not requested and do not plan to request a ruling from the IRS
that we qualify as a REIT. If we lose our REIT status, we will face serious tax consequences that
could substantially reduce the funds available for distribution to our stockholders for each of the
years involved because:
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we would not be allowed a deduction for distributions to stockholders
in computing our taxable income, and such amounts would be subject to
federal income tax at regular corporate rates; |
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we also could be subject to the federal alternative minimum tax and
possibly increased state and local taxes; and |
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unless we are entitled to relief under applicable statutory
provisions, we could not elect to be taxed as a REIT for four taxable
years following the year during which we were disqualified. |
In addition, if we fail to qualify as a REIT, we will not be required to make distributions to
stockholders, and all distributions to stockholders will be subject to tax as ordinary income to
the extent of our current and accumulated earnings and profits. As a result of all these factors,
our failure to qualify as a REIT also could impair our ability to expand our business and raise
capital, and would adversely affect the value of our common stock.
Qualification as a REIT involves the application of highly technical and complex Code provisions
for which there are only limited judicial and administrative interpretations. The complexity of
these provisions and of the applicable Treasury Regulations that have been promulgated under the
Code is greater in the case of a REIT that, like us, holds its assets through a partnership or a
limited liability company. The determination of various factual matters and circumstances not
entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a
REIT, we must satisfy a number of requirements, including requirements regarding the composition of
our assets and two gross income tests: (a) at least 75% of our gross income in any year must be
derived from qualified sources, such as rents from real property, mortgage interest,
distributions from other REITs and gains from sale of such assets, and (b) at least 95% of our
gross income must be derived from sources meeting the 75% income test above, and other passive
investment sources, such as other interest and dividends and gains from sales of securities. Also,
we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable
income, excluding any net capital gains. In addition, new legislation, regulations, administrative
interpretations or court decisions may adversely affect our investors, our ability to qualify as a
REIT for federal income tax purposes or the desirability of an investment in a REIT relative to
other investments.
We may be subject to federal and state income taxes that would harm our financial condition.
Even if we qualify and maintain our status as a REIT, we may become subject to federal income taxes
and related state taxes. For example, if we have net income from a sale of dealer property or
inventory, or, if our Management Company enters into agreements with us or our tenants on a basis
that is determined to be other than an arms length basis, that income will be subject to a 100%
penalty tax. If we believe that a sale of a property might be treated as a prohibited transaction,
we will attempt to structure a sale through a taxable REIT subsidiary, in which case the gain from
the sale would be subject to corporate income tax but not the 100% prohibited transaction tax. We
cannot assure you, however, that the IRS would not assert successfully that sales of properties
that we make directly, rather than through a taxable REIT subsidiary, were sales of dealer
property or inventory, in which case the 100% penalty tax will apply. In addition, we may not be
able to make sufficient distributions to avoid corporate income tax and the 4% excise tax on
undistributed income. We may also be subject to state and local taxes on our income or property,
either directly or at the level of our Operating Partnership or the University Towers Partnership
or at a level of the other entities through which we indirectly own our properties that would
aversely affect our operating results.
21
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.
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.
Item 1B. Unresolved Staff Comments.
None.
22
Item 2. Properties.
General
As of December 31, 2007, our properties consisted of 39 communities located in 17 states containing
24,463 beds in 7,466 apartment units located near 32 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 Operating Partnership and then leased back the
properties and operated them with the existing management teams under a renewable, initial
five-year lease agreement with the Trust. On February 1, 2008, the lease was terminated early and
the Trust began operating these properties.
Thirty-eight of our 39 properties are modern apartment communities, with clusters of low-rise
buildings that consist of student housing units with private bedrooms and one or more bathrooms
centered around a common area consisting of a fully furnished living room, dining room and
fully-equipped kitchen. University Towers is a high-rise residence hall that has a cafeteria on the
premises and no individual kitchens in the units. We provide food services through our Management
Company to residents of University Towers. Our student housing communities typically contain a
swimming pool, recreational facilities and common areas, and each bedroom has individualized locks,
high-speed Internet access and telephone and cable television connections.
Our owned student housing communities typically have the following characteristics:
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located in close proximity to university campuses (within two miles or
less); |
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average age of approximately 9 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. |
Properties
The following tables provide certain summary information about our owned properties as of
December 31, 2007 and 2006:
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Year Ended |
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December 31, 2007 |
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Average |
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Monthly |
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Revenue per |
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Year |
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Acquisition |
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# of |
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# of |
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Occupancy |
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Total |
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Available |
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Name |
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Primary University Served |
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Built |
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Date |
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Beds |
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Units |
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Rate(1) |
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Revenue |
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Bed(2) |
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(In thousands) |
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Owned and Operated |
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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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93.2 |
% |
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$ |
326 |
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$ |
358 |
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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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99.6 |
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237 |
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387 |
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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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92.3 |
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185 |
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313 |
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Players Club |
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Florida State University |
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1994 |
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Jan 05 |
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336 |
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84 |
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97.7 |
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136 |
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405 |
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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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288 |
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72 |
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97.9 |
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88 |
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305 |
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College Station |
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Augusta State University |
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1989 |
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Jan 05 |
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203 |
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61 |
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68.7 |
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40 |
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195 |
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University Towers |
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North Carolina State University |
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1989 |
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Jan 05 |
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953 |
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251 |
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78.0 |
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444 |
(4) |
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466 |
(4) |
The Pointe at South Florida |
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University of South Florida |
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1999 |
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Jan 05 |
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1,002 |
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336 |
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92.3 |
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389 |
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388 |
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Commons at Knoxville |
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University of Tennessee |
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1999 |
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Jan 05 |
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708 |
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211 |
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98.0 |
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307 |
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433 |
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The Commons |
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Florida State University |
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1997 |
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Jan 05 |
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732 |
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252 |
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93.9 |
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248 |
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339 |
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The Reserve on Perkins |
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Oklahoma State University |
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1999 |
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Jan 05 |
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732 |
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234 |
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94.4 |
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229 |
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313 |
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The Reserve at Star Pass |
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University of Arizona |
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2001 |
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Jan 05 |
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1,020 |
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336 |
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94.2 |
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373 |
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366 |
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The Pointe at Western |
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Western Michigan University |
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2000 |
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Jan 05 |
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876 |
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324 |
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95.5 |
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335 |
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382 |
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College Station at
W. Lafayette |
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Purdue University |
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2000 |
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Jan 05 |
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960 |
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336 |
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95.2 |
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331 |
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345 |
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Commons on Kinnear |
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The Ohio State University |
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2000 |
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Jan 05 |
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502 |
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166 |
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96.0 |
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230 |
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459 |
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The Pointe |
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Pennsylvania State University |
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1999 |
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Jan 05 |
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984 |
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294 |
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98.8 |
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380 |
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386 |
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The Reserve at Columbia |
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University of Missouri |
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2000 |
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Jan 05 |
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676 |
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260 |
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92.7 |
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232 |
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343 |
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The Reserve on Frankford |
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Texas Tech University |
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1997 |
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Jan 05 |
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|
737 |
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243 |
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88.5 |
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232 |
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315 |
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Year Ended |
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December 31, 2007 |
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|
|
|
|
|
Average |
|
|
Monthly |
|
|
Revenue per |
|
|
|
|
|
Year |
|
|
Acquisition |
|
|
# of |
|
|
# of |
|
|
Occupancy |
|
|
Total |
|
|
Available |
|
Name |
|
Primary University Served |
|
Built |
|
|
Date |
|
|
Beds |
|
|
Units |
|
|
Rate(1) |
|
|
Revenue |
|
|
Bed(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
The Lofts |
|
University of Central Florida |
|
|
2002 |
|
|
Jan 05 |
|
|
730 |
|
|
|
254 |
|
|
|
98.2 |
|
|
|
426 |
|
|
|
584 |
|
The Reserve on West 31st |
|
University of Kansas |
|
|
1998 |
|
|
Jan 05 |
|
|
720 |
|
|
|
192 |
|
|
|
92.6 |
|
|
|
234 |
|
|
|
325 |
|
Campus Creek |
|
University of Mississippi |
|
|
2004 |
|
|
Feb 05 |
|
|
636 |
|
|
|
192 |
|
|
|
97.1 |
|
|
|
265 |
|
|
|
417 |
|
Pointe West |
|
University of South Carolina |
|
|
2003 |
|
|
Mar 05 |
|
|
480 |
|
|
|
144 |
|
|
|
99.8 |
|
|
|
207 |
|
|
|
432 |
|
Campus Lodge |
|
University of Florida |
|
|
2001 |
|
|
Jun 05 |
|
|
1,116 |
|
|
|
360 |
|
|
|
96.4 |
|
|
|
593 |
|
|
|
531 |
|
College Grove |
|
Middle Tennessee State University |
|
|
1998 |
|
|
Apr 05 |
|
|
864 |
|
|
|
240 |
|
|
|
97.8 |
|
|
|
285 |
|
|
|
329 |
|
The Reserve on South College |
|
Auburn University |
|
|
1999 |
|
|
Jul 05 |
|
|
576 |
|
|
|
180 |
|
|
|
96.2 |
|
|
|
203 |
|
|
|
352 |
|
Players Club |
|
Georgia Southern University |
|
|
1993 |
|
|
Jun 06 |
|
|
624 |
|
|
|
214 |
|
|
|
78.8 |
|
|
|
182 |
|
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total owned and operated |
|
|
|
|
1998 |
(3) |
|
|
|
|
|
|
18,569 |
|
|
|
5,913 |
|
|
|
93.6 |
(3) |
|
$ |
7,137 |
|
|
$ |
384 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and Leased Properties(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troy Place |
|
Troy State University |
|
|
2000 |
|
|
Jan 06 |
|
|
408 |
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacksonville Place |
|
Jacksonville State University |
|
|
2000 |
|
|
Jan 06 |
|
|
504 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Macon Place |
|
Macon State College |
|
|
1999 |
|
|
Jan 06 |
|
|
336 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Place |
|
Clayton College & State University |
|
|
1999 |
|
|
Jan 06 |
|
|
854 |
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
River Place |
|
State University of West Georgia |
|
|
2000 |
|
|
Jan 06 |
|
|
504 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Murray Place |
|
Murray State University |
|
|
2000 |
|
|
Jan 06 |
|
|
408 |
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cape Place |
|
Southeast Missouri State University |
|
|
2000 |
|
|
Jan 06 |
|
|
360 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Clemson Place |
|
Clemson University |
|
|
1998 |
|
|
Jan 06 |
|
|
288 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Place |
|
University of Tennessee at Martin |
|
|
2000 |
|
|
Jan 06 |
|
|
384 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Berkeley Place |
|
Clemson University |
|
|
1999 |
|
|
Jan 06 |
|
|
480 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrollton Place |
|
State University of West Georgia |
|
|
1998 |
|
|
Jan 06 |
|
|
336 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statesboro Place |
|
Georgia Southern University |
|
|
1999 |
|
|
Jan 06 |
|
|
528 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Place |
|
Western Kentucky University |
|
|
2000 |
|
|
Jan 06 |
|
|
504 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total owned and leased properties |
|
|
|
|
1999 |
(3) |
|
|
|
|
|
|
5,894 |
|
|
|
1,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owned properties |
|
|
|
|
1999 |
(3) |
|
|
|
|
|
|
24,463 |
|
|
|
7,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Average of the physical month-end occupancy rates. |
|
(2) |
|
Monthly revenue per available bed for 2007 is equal to total revenue for the year ended December 31, 2007 divided by the sum of the design beds (including staff and model beds) at the property each month. For properties
acquired during the year, monthly revenue per available bed equals total revenue for the period subsequent to acquisition through December 31, 2007 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) |
|
Revenues and revenue per available bed for University Towers excludes revenue from food service operations. |
|
(5) |
|
EDR did not operate the Place Portfolio during 2007, and therefore no operating statistics are presented. On February 1, 2008, the lease with Place Properties LLC was terminated and EDR began operating these properties. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Monthly |
|
|
Revenue per |
|
|
|
|
|
Year |
|
|
Acquisition |
|
|
# of |
|
|
# of |
|
|
Occupancy |
|
|
Total |
|
|
Available |
|
Name |
|
Primary University Served |
|
Built |
|
|
Date |
|
|
Beds |
|
|
Units |
|
|
Rate(1) |
|
|
Revenue |
|
|
Bed(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Owned and Operated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NorthPointe |
|
University of Arizona |
|
|
1999 |
|
|
Jan 05 |
|
|
912 |
|
|
|
300 |
|
|
|
89.1 |
% |
|
$ |
294 |
|
|
$ |
323 |
|
The Reserve at Athens |
|
University of Georgia |
|
|
1999 |
|
|
Jan 05 |
|
|
612 |
|
|
|
200 |
|
|
|
99.4 |
|
|
|
228 |
|
|
|
373 |
|
The Reserve at Clemson |
|
Clemson University |
|
|
1999 |
|
|
Jan 05 |
|
|
590 |
|
|
|
177 |
|
|
|
92.7 |
|
|
|
190 |
|
|
|
322 |
|
Players Club |
|
Florida State University |
|
|
1994 |
|
|
Jan 05 |
|
|
336 |
|
|
|
84 |
|
|
|
94.4 |
|
|
|
128 |
|
|
|
380 |
|
The Gables |
|
Western Kentucky University |
|
|
1996 |
|
|
Jan 05 |
|
|
288 |
|
|
|
72 |
|
|
|
96.2 |
|
|
|
86 |
|
|
|
298 |
|
College Station |
|
Augusta State University |
|
|
1989 |
|
|
Jan 05 |
|
|
203 |
|
|
|
61 |
|
|
|
63.1 |
|
|
|
35 |
|
|
|
174 |
|
University Towers |
|
North Carolina State University |
|
|
1989 |
|
|
Jan 05 |
|
|
953 |
|
|
|
251 |
|
|
|
82.9 |
|
|
|
432 |
(4) |
|
|
453 |
(4) |
The Pointe at South Florida |
|
University of South Florida |
|
|
1999 |
|
|
Jan 05 |
|
|
1,002 |
|
|
|
336 |
|
|
|
97.0 |
|
|
|
397 |
|
|
|
397 |
|
Commons at Knoxville |
|
University of Tennessee |
|
|
1999 |
|
|
Jan 05 |
|
|
708 |
|
|
|
211 |
|
|
|
97.3 |
|
|
|
291 |
|
|
|
411 |
|
The Commons |
|
Florida State University |
|
|
1997 |
|
|
Jan 05 |
|
|
732 |
|
|
|
252 |
|
|
|
93.4 |
|
|
|
252 |
|
|
|
345 |
|
The Reserve on Perkins |
|
Oklahoma State University |
|
|
1999 |
|
|
Jan 05 |
|
|
732 |
|
|
|
234 |
|
|
|
91.1 |
|
|
|
210 |
|
|
|
287 |
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Monthly |
|
|
Revenue per |
|
|
|
|
|
Year |
|
|
Acquisition |
|
|
# of |
|
|
# of |
|
|
Occupancy |
|
|
Total |
|
|
Available |
|
Name |
|
Primary University Served |
|
Built |
|
|
Date |
|
|
Beds |
|
|
Units |
|
|
Rate(1) |
|
|
Revenue |
|
|
Bed(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
The Reserve at Star Pass |
|
University of Arizona |
|
|
2001 |
|
|
Jan 05 |
|
|
1,020 |
|
|
|
336 |
|
|
|
93.0 |
|
|
|
333 |
|
|
|
327 |
|
The Pointe at Western |
|
Western Michigan University |
|
|
2000 |
|
|
Jan 05 |
|
|
876 |
|
|
|
324 |
|
|
|
96.6 |
|
|
|
331 |
|
|
|
378 |
|
College Station at
W. Lafayette |
|
Purdue University |
|
|
2000 |
|
|
Jan 05 |
|
|
960 |
|
|
|
336 |
|
|
|
91.0 |
|
|
|
315 |
|
|
|
328 |
|
Commons on Kinnear |
|
The Ohio State University |
|
|
2000 |
|
|
Jan 05 |
|
|
502 |
|
|
|
166 |
|
|
|
95.6 |
|
|
|
231 |
|
|
|
460 |
|
The Pointe |
|
Pennsylvania State University |
|
|
1999 |
|
|
Jan 05 |
|
|
984 |
|
|
|
294 |
|
|
|
96.7 |
|
|
|
357 |
|
|
|
363 |
|
The Reserve at Columbia |
|
University of Missouri |
|
|
2000 |
|
|
Jan 05 |
|
|
676 |
|
|
|
260 |
|
|
|
90.4 |
|
|
|
243 |
|
|
|
359 |
|
The Reserve on Frankford |
|
Texas Tech University |
|
|
1997 |
|
|
Jan 05 |
|
|
737 |
|
|
|
243 |
|
|
|
90.2 |
|
|
|
246 |
|
|
|
334 |
|
The Village on Tharpe(6) |
|
Florida State University |
|
|
1995 |
|
|
Jan 05 |
|
|
1,554 |
|
|
|
486 |
|
|
|
95.4 |
|
|
|
520 |
|
|
|
334 |
|
The Lofts |
|
University of Central Florida |
|
|
2002 |
|
|
Jan 05 |
|
|
730 |
|
|
|
254 |
|
|
|
97.5 |
|
|
|
407 |
|
|
|
558 |
|
The Reserve on West 31st |
|
University of Kansas |
|
|
1998 |
|
|
Jan 05 |
|
|
720 |
|
|
|
192 |
|
|
|
92.6 |
|
|
|
216 |
|
|
|
299 |
|
Campus Creek |
|
University of Mississippi |
|
|
2004 |
|
|
Feb 05 |
|
|
636 |
|
|
|
192 |
|
|
|
92.9 |
|
|
|
251 |
|
|
|
394 |
|
Pointe West |
|
University of South Carolina |
|
|
2003 |
|
|
Mar 05 |
|
|
480 |
|
|
|
144 |
|
|
|
99.2 |
|
|
|
180 |
|
|
|
375 |
|
Campus Lodge |
|
University of Florida |
|
|
2001 |
|
|
Jun 05 |
|
|
1,116 |
|
|
|
360 |
|
|
|
95.8 |
|
|
|
567 |
|
|
|
508 |
|
College Grove |
|
Middle Tennessee State University |
|
|
1998 |
|
|
Apr 05 |
|
|
864 |
|
|
|
240 |
|
|
|
96.8 |
|
|
|
260 |
|
|
|
301 |
|
The Reserve on South College |
|
Auburn University |
|
|
1999 |
|
|
Jul 05 |
|
|
576 |
|
|
|
180 |
|
|
|
95.0 |
|
|
|
184 |
|
|
|
319 |
|
Players Club |
|
Georgia Southern University |
|
|
1993 |
|
|
Jun 06 |
|
|
624 |
|
|
|
214 |
|
|
|
79.6 |
|
|
|
102 |
|
|
|
281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total owned and operated |
|
|
|
|
1998 |
(3) |
|
|
|
|
|
|
20,123 |
|
|
|
6,399 |
|
|
|
93.3 |
(3) |
|
$ |
7,286 |
|
|
$ |
367 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and Leased Properties(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troy Place |
|
Troy State University |
|
|
2000 |
|
|
Jan 06 |
|
|
408 |
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacksonville Place |
|
Jacksonville State University |
|
|
2000 |
|
|
Jan 06 |
|
|
504 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Macon Place |
|
Macon State College |
|
|
1999 |
|
|
Jan 06 |
|
|
336 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Clayton Place |
|
Clayton College & State University |
|
|
1999 |
|
|
Jan 06 |
|
|
854 |
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
River Place |
|
State University of West Georgia |
|
|
2000 |
|
|
Jan 06 |
|
|
504 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Murray Place |
|
Murray State University |
|
|
2000 |
|
|
Jan 06 |
|
|
408 |
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cape Place |
|
Southeast Missouri State University |
|
|
2000 |
|
|
Jan 06 |
|
|
360 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Clemson Place |
|
Clemson University |
|
|
1998 |
|
|
Jan 06 |
|
|
288 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Place |
|
University of Tennesse at Martin |
|
|
2000 |
|
|
Jan 06 |
|
|
384 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Berkeley Place |
|
Clemson University |
|
|
1999 |
|
|
Jan 06 |
|
|
480 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrollton Place |
|
State University of West Georgia |
|
|
1998 |
|
|
Jan 06 |
|
|
336 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statesboro Place |
|
Georgia Southern University |
|
|
1999 |
|
|
Jan 06 |
|
|
528 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Place |
|
Western Kentucky University |
|
|
2000 |
|
|
Jan 06 |
|
|
504 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total owned and leased properties |
|
|
|
|
1999 |
(3) |
|
|
|
|
|
|
5,894 |
|
|
|
1,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owned properties |
|
|
|
|
1999 |
(3) |
|
|
|
|
|
|
26,017 |
|
|
|
7,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Average of the physical month-end occupancy rates. |
|
(2) |
|
Monthly revenue per available bed for 2006 is equal to total revenue for the year ended December 31, 2006 divided by the sum of the design beds (including staff and model beds) at the property each month. For
properties acquired during the year, monthly revenue per available bed equals total revenue for the period subsequent to acquisition through December 31, 2006 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) |
|
Revenues and revenue per available bed for University Towers excludes revenue from food service operations. |
|
(5) |
|
EDR did not operate the Place Portfolio during 2006, and therefore no operating statistics are presented. On February 1, 2008, the lease with Place Properties LLC was terminated and EDR began operating these properties. |
|
(6) |
|
The Village on Tharpe was sold in 2007 as discussed in Note 6 to the consolidated financial statements. |
25
Mortgage Indebtedness
The following table contains summary information concerning the mortgage debt encumbering our
properties as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Contractual |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Fixed |
|
|
Maturity |
|
|
|
|
Property |
|
2007 |
|
|
Interest Rate |
|
|
Date |
|
|
Amortization |
|
University Towers |
|
$ |
23,099 |
|
|
|
6.77 |
% |
|
|
3/1/2008 |
|
|
30 Year |
The Reserve at Clemson |
|
|
12,000 |
|
|
|
5.55 |
% |
|
|
3/1/2012 |
|
|
30 Year |
The Gables |
|
|
4,364 |
|
|
|
5.50 |
% |
|
|
11/1/2013 |
|
|
30 Year |
NorthPointe |
|
|
18,800 |
|
|
|
5.55 |
% |
|
|
3/1/2012 |
|
|
30 Year |
The Pointe at S. Florida |
|
|
23,467 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Pointe at Western |
|
|
21,209 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Lofts |
|
|
27,000 |
|
|
|
5.59 |
% |
|
|
5/1/2014 |
|
|
30 Year |
The Reserve on Perkins/The Commons at Knoxville |
|
|
31,420 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Pointe at Penn State/The Reserve at Star Pass |
|
|
49,821 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
Campus Lodge |
|
|
36,362 |
|
|
|
6.97 |
% |
|
|
5/1/2012 |
|
|
30 Year |
Pointe West |
|
|
10,815 |
|
|
|
4.92 |
% |
|
|
8/1/2014 |
|
|
30 Year |
College Station at W. Lafayette |
|
|
14,531 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Commons on Kinnear |
|
|
14,434 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Reserve at Frankford |
|
|
14,237 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Reserve at Columbia |
|
|
19,048 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
Troy Place |
|
|
9,440 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Jacksonville Place |
|
|
11,120 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Macon Place |
|
|
7,440 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Clayton Place |
|
|
24,540 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
River Place |
|
|
13,680 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Murray Place |
|
|
6,800 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Cape Place |
|
|
8,520 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Clemson Place |
|
|
8,160 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Martin Place |
|
|
8,960 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt /weighted average rate |
|
|
419,267 |
|
|
|
5.90 |
% |
|
|
|
|
|
|
|
|
Unamortized premium |
|
|
1,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans net of unamortized premium |
|
|
420,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion of long-term debt |
|
|
(26,481 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net of current portion |
|
$ |
394,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average interest rate of the mortgage indebtedness was 5.90% and 5.85% at
December 31, 2007 and 2006, respectively. 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, such
outcomes are not expected to have a material adverse effect on our financial position, results of
operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
26
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 959 holders of record of the 28,506,966 shares outstanding on February 28,
2008. On the same day, our common stock closed at $12.96. The following table provides information
on the high and low prices for our common stock on the NYSE and the dividends declared for 2006 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
High |
|
Low |
|
Declared |
Fiscal 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Quarter 1
|
|
$ |
15.83 |
|
|
$ |
12.81 |
|
|
$ |
0.30 |
|
Quarter 2
|
|
|
16.65 |
|
|
|
14.02 |
|
|
|
0.30 |
|
Quarter 3
|
|
|
16.85 |
|
|
|
13.60 |
|
|
|
0.30 |
|
Quarter 4
|
|
|
16.15 |
|
|
|
14.41 |
|
|
|
0.21 |
|
Fiscal 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Quarter 1
|
|
$ |
15.48 |
|
|
$ |
13.99 |
|
|
$ |
0.21 |
|
Quarter 2
|
|
|
14.99 |
|
|
|
13.69 |
|
|
|
0.21 |
|
Quarter 3
|
|
|
14.39 |
|
|
|
11.83 |
|
|
|
0.21 |
|
Quarter 4
|
|
|
14.10 |
|
|
|
10.75 |
|
|
|
0.21 |
|
Direct stock purchase and dividend reinvestment plan
On July 31, 2006, we implemented the direct stock purchase and dividend reinvestment plan which
offers the following:
|
|
|
automatic reinvestment of some or all of the cash distributions paid
on common stock, shares of other classes of stock that we might issue
in the future and units of limited partnership interest; |
|
|
|
|
an opportunity to make an initial purchase of our common stock and to
acquire additional shares over time; and |
|
|
|
|
safekeeping of shares and accounting for distributions received and
reinvested at no cost. |
Shares of common stock purchased under the plan will be either issued by EDR or acquired directly
from third parties in the open market or in privately negotiated transactions. The purchase price
per share of common stock acquired on any particular investment date will not be less than 95% of
the average high and low sales price per share of the common stock on the NYSE on that particular
day. We will determine the source of shares available through the plan based on market conditions,
relative transaction costs and our need for additional capital. To the extent the plan acquires
shares of common stock directly from EDR, we will receive additional capital for general corporate
purposes.
27
COMPARISON OF 35 MONTH CUMULATIVE TOTAL RETURN *
Among Education Realty Trust, The S & P 500 Index
And The MSCI US REIT Index
*$100 invested on 1/26/05 in stock or index, including reinvestment of dividends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending |
Index |
|
01/26/05 |
|
06/30/05 |
|
12/31/05 |
|
06/30/06 |
|
12/31/06 |
|
06/30/07 |
|
12/31/07 |
|
Education Realty Trust, Inc. |
|
|
100.00 |
|
|
|
112.57 |
|
|
|
82.17 |
|
|
|
110.59 |
|
|
|
101.28 |
|
|
|
98.90 |
|
|
|
81.68 |
|
S&P 500 |
|
|
100.00 |
|
|
|
102.31 |
|
|
|
108.21 |
|
|
|
111.14 |
|
|
|
125.30 |
|
|
|
134.02 |
|
|
|
132.18 |
|
MSCI US REIT |
|
|
100.00 |
|
|
|
115.39 |
|
|
|
121.67 |
|
|
|
138.07 |
|
|
|
165.37 |
|
|
|
154.71 |
|
|
|
137.57 |
|
We cannot assure you that your share performance will continue into the future with the same or
similar trends depicted in the graph above. We will not make or endorse any predictions as to
future share performance.
The performance comparisons noted in the graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Annual Report on Form 10-K into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that
we specifically incorporate this graph by reference, and shall not otherwise be deemed filed under
such acts.
28
The following table provides information with respect to compensation plans under which our equity
securities are authorized for issuance as of December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
Number of Securities to |
|
Weighted Average |
|
Remaining Available for |
|
|
be Issued upon Exercise |
|
Exercise Price of |
|
Future Issuance under |
|
|
of Outstanding Options, |
|
Outstanding Options |
|
Equity Compensation |
|
|
Warrants and Rights(1) |
|
Warrants and Rights(1) |
|
Plans |
Equity compensation plans approved by security holders
|
|
N/A
|
|
N/A
|
|
|
760,000 |
|
Equity compensation plans not approved by security holders |
|
N/A
|
|
N/A
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Total
|
|
N/A
|
|
N/A
|
|
|
760,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include 200,000 shares of restricted stock that are subject
to vesting requirements and 277,500 PIUs which were issued through
EDRs 2004 Incentive Plan. |
Recent Sales of Unregistered Securities
For the year ended December 31, 2007, we issued 17,500 profits interest units to employees. The
issuance of these units was made in reliance upon exemptions from registration provided by Section
4(2) under the Securities Act and Rule 506 of Regulation D thereunder.
Item 6. Selected Financial Data.
We have not presented historical information for EDR prior to the completion of the IPO because we
did not have material corporate operating activity during the period from our formation until the
closing of our IPO.
The following table sets forth selected financial and operating data on a consolidated historical
basis for EDR and on a combined historical basis for the EDR Predecessor. For the periods presented
prior to our IPO, 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 EDR for the year ended December 31, 2005.
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.
29
STATEMENT OF OPERATIONS DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education Realty |
|
|
EDR |
|
|
|
Trust, Inc. |
|
|
Predecessor |
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands, except share and per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing
revenue |
|
$ |
85,651 |
|
|
$ |
81,202 |
|
|
$ |
70,010 |
|
|
$ |
17,896 |
|
|
$ |
17,095 |
|
Student housing food service
revenue |
|
|
2,359 |
|
|
|
3,634 |
|
|
|
3,491 |
|
|
|
3,137 |
|
|
|
2,879 |
|
Other leasing revenue |
|
|
13,811 |
|
|
|
14,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party development
consulting services |
|
|
5,411 |
|
|
|
3,773 |
|
|
|
1,759 |
|
|
|
392 |
|
|
|
691 |
|
Third-party management revenue |
|
|
3,391 |
|
|
|
2,796 |
|
|
|
1,968 |
|
|
|
1,326 |
|
|
|
1,026 |
|
Operating expense
reimbursements |
|
|
9,330 |
|
|
|
7,638 |
|
|
|
6,694 |
|
|
|
5,223 |
|
|
|
4,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
119,953 |
|
|
|
113,055 |
|
|
|
83,922 |
|
|
|
27,974 |
|
|
|
26,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing
operations |
|
|
41,215 |
|
|
|
39,503 |
|
|
|
34,758 |
|
|
|
7,645 |
|
|
|
7,408 |
|
Student housing food service
operations |
|
|
2,236 |
|
|
|
3,318 |
|
|
|
3,275 |
|
|
|
2,899 |
|
|
|
2,645 |
|
Reimbursable operating
expenses |
|
|
9,330 |
|
|
|
7,638 |
|
|
|
6,694 |
|
|
|
5,223 |
|
|
|
4,438 |
|
General and administrative |
|
|
14,561 |
|
|
|
12,331 |
|
|
|
12,549 |
|
|
|
3,545 |
|
|
|
3,425 |
|
Depreciation and amortization |
|
|
32,223 |
|
|
|
34,035 |
|
|
|
26,845 |
|
|
|
3,120 |
|
|
|
3,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
99,565 |
|
|
|
96,825 |
|
|
|
84,121 |
|
|
|
22,432 |
|
|
|
20,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
20,388 |
|
|
|
16,230 |
|
|
|
(199 |
) |
|
|
5,542 |
|
|
|
5,152 |
|
Nonoperating expenses |
|
|
27,675 |
|
|
|
29,933 |
|
|
|
17,266 |
|
|
|
5,786 |
|
|
|
5,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in earnings of
unconsolidated entities |
|
|
(7,287 |
) |
|
|
(13,703 |
) |
|
|
(17,465 |
) |
|
|
(244 |
) |
|
|
(619 |
) |
Equity in earnings (losses) of
unconsolidated entities |
|
|
(277 |
) |
|
|
740 |
|
|
|
880 |
|
|
|
1,002 |
|
|
|
629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and minority interest |
|
|
(7,564 |
) |
|
|
(12,963 |
) |
|
|
(16,585 |
) |
|
|
758 |
|
|
|
10 |
|
Taxes |
|
|
258 |
|
|
|
659 |
|
|
|
497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority
interest |
|
|
(7,822 |
) |
|
|
(13,622 |
) |
|
|
(17,082 |
) |
|
|
758 |
|
|
|
10 |
|
Minority interest |
|
|
(39 |
) |
|
|
(404 |
) |
|
|
(1,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations |
|
|
(7,783 |
) |
|
|
(13,218 |
) |
|
|
(16,009 |
) |
|
|
758 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of
discontinued operations |
|
|
788 |
|
|
|
973 |
|
|
|
475 |
|
|
|
|
|
|
|
|
|
Gain on sale of student
housing property |
|
|
1,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
2,367 |
|
|
|
973 |
|
|
|
475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
|
$ |
(15,534 |
) |
|
$ |
758 |
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education Realty |
|
|
EDR |
|
|
|
Trust, Inc. |
|
|
Predecessor |
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands, except share and per share data) |
|
Earnings per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(0.28 |
) |
|
|
(0.50 |
) |
|
|
(0.69 |
) |
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
0.08 |
|
|
|
0.04 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share |
|
$ |
(0.20 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and
diluted |
|
|
28,010,144 |
|
|
|
26,387,547 |
|
|
|
23,063,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions per common share |
|
$ |
0.82 |
|
|
$ |
1.10 |
|
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
Education Realty |
|
|
EDR |
|
|
|
Trust, Inc. |
|
|
Predecessor |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing properties, net |
|
$ |
732,979 |
|
|
$ |
804,759 |
|
|
$ |
620,305 |
|
|
$ |
83,785 |
|
|
$ |
86,388 |
|
Other assets, net |
|
|
34,481 |
|
|
|
30,699 |
|
|
|
83,744 |
|
|
|
5,089 |
|
|
|
5,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
767,460 |
|
|
$ |
835,458 |
|
|
$ |
704,049 |
|
|
$ |
88,874 |
|
|
$ |
91,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable |
|
$ |
420,940 |
|
|
$ |
423,933 |
|
|
$ |
328,335 |
|
|
$ |
81,111 |
|
|
$ |
82,204 |
|
Other indebtedness |
|
|
11,500 |
|
|
|
69,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
19,080 |
|
|
|
19,837 |
|
|
|
17,255 |
|
|
|
5,974 |
|
|
|
7,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
451,520 |
|
|
|
513,170 |
|
|
|
345,590 |
|
|
|
87,085 |
|
|
|
89,429 |
|
Minority interest |
|
|
18,121 |
|
|
|
19,289 |
|
|
|
27,926 |
|
|
|
|
|
|
|
|
|
Equity |
|
|
297,819 |
|
|
|
302,999 |
|
|
|
330,533 |
|
|
|
1,789 |
|
|
|
2,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
767,460 |
|
|
$ |
835,458 |
|
|
$ |
704,049 |
|
|
$ |
88,874 |
|
|
$ |
91,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
Education Realty |
|
EDR |
|
|
Trust, Inc. |
|
Predecessor |
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|
(In thousands, except per share and selected property information) |
Funds from operations (FFO)
(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
|
$ |
(15,534 |
) |
|
$ |
758 |
|
|
$ |
10 |
|
Gain on sale of student
housing property, net of
minority interest |
|
|
(1,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing property
depreciation and
amortization of lease
intangibles |
|
|
31,780 |
|
|
|
33,680 |
|
|
|
26,845 |
|
|
|
3,120 |
|
|
|
3,061 |
|
Equity portion of real
estate depreciation and
amortization on equity
investees |
|
|
424 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
Education Realty |
|
EDR |
|
|
Trust, Inc. |
|
Predecessor |
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|
(In thousands, except per share and selected property information) |
Depreciation and
amortization of
discontinued operations |
|
|
711 |
|
|
|
2,048 |
|
|
|
2,323 |
|
|
|
|
|
|
|
|
|
Minority interest benefit |
|
|
(6 |
) |
|
|
(355 |
) |
|
|
(1,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations
available to all share
and unitholders |
|
$ |
25,914 |
|
|
$ |
23,182 |
|
|
$ |
12,594 |
|
|
$ |
3,878 |
|
|
$ |
3,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operations |
|
$ |
26,806 |
|
|
$ |
25,187 |
|
|
$ |
18,373 |
|
|
$ |
3,068 |
|
|
$ |
4,309 |
|
Net cash provided by
(used in) investing |
|
|
33,399 |
|
|
|
(120,830 |
) |
|
|
(200,157 |
) |
|
|
(181 |
) |
|
|
(925 |
) |
Net cash provided by
(used in) financing |
|
|
(62,598 |
) |
|
|
40,408 |
|
|
|
243,445 |
|
|
|
(2,480 |
) |
|
|
(3,658 |
) |
Per share and distribution
data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic
and diluted |
|
$ |
(0.20 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.67 |
) |
|
$ |
(2,220 |
) |
|
$ |
|
|
Cash distributions
declared per share/unit |
|
|
0.82 |
|
|
|
1.10 |
|
|
|
0.79 |
|
|
|
|
|
|
|
|
|
Cash distributions
declared |
|
|
22,985 |
|
|
|
29,114 |
|
|
|
18,721 |
|
|
|
|
|
|
|
|
|
Selected property information
(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units |
|
|
5,913 |
|
|
|
5,913 |
|
|
|
5,699 |
|
|
|
1,146 |
|
|
|
1,146 |
|
Beds |
|
|
18,571 |
|
|
|
18,571 |
|
|
|
17,947 |
|
|
|
3,896 |
|
|
|
3,896 |
|
Occupancy (3) |
|
|
93.6 |
% |
|
|
93.1 |
% |
|
|
92.0 |
% |
|
|
89.2 |
% |
|
|
85.1 |
% |
Revenue per available
bed (4) |
|
$ |
384 |
|
|
$ |
370 |
|
|
$ |
368 |
|
|
$ |
421 |
|
|
$ |
406 |
|
|
|
|
(1) |
|
As defined by the National Association of Real Estate Investment
Trusts (NAREIT), FFO represents net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from sales of
property, plus real estate-related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis. We
present FFO available to all shareholders and unitholders because we
consider it an important supplemental measure of our operating
performance and believe it is frequently used by securities analysts,
investors and other interested parties in the evaluation of REITs,
many of which present FFO when reporting their results. As such, we
also exclude the impact of minority interest in our calculation. FFO
is intended to exclude GAAP historical cost depreciation and
amortization of real estate and related assets, which assumes that the
value of real estate diminishes ratably over time. Historically,
however, real estate values have risen or fallen with market
conditions. Because FFO excludes depreciation and amortization unique
to real estate, gains and losses from property dispositions and
extraordinary items, it provides a performance measure that, when
compared year over year, reflects the impact to operations from trends
in occupancy rates, rental rates, operating costs, development
activities and interest costs, providing perspective not immediately
apparent from net income. |
|
(2) |
|
The selected property information represents all 26, 26 and 25 owned
and operated properties for 2007 and 2006 (both excluding the Place
Portfolio) and 2005, respectively. Prior to 2004 the data represents
the seven properties owned by the EDR Predecessor, which are
NorthPointe, The Reserve at Athens, The Reserve at Clemson, Players
Club, The Gables, College Station and University Towers. This
information excludes property information related to Tharpe
(discontinued operations) for all years. |
|
(3) |
|
Average of the month-end occupancy rates for the period. |
|
(4) |
|
Revenue per available bed is equal to the total revenue divided by the
sum of the design beds (including staff and model beds) at the
property each month. Revenue and design beds for any acquired property
is included prospectively from acquisition date. |
32
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
(Dollars in thousands, except selected property information and share and per share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
designed to provide a reader of our financial statements with a narrative from the perspective of
our management on our financial condition, results of operations, liquidity and certain other
factors that may affect our future results. Our MD&A is presented in ten sections:
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Overview |
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Our Business Segments |
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|
Trends and Outlook |
|
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|
Critical Accounting Policies |
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|
Results of Operations |
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|
|
Liquidity and Capital Resources |
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|
Off-Balance Sheet Arrangements |
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|
Funds From Operations |
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|
|
Inflation |
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|
|
|
Recent Accounting Pronouncements |
We believe our MD&A should be read in conjunction with the Consolidated Financial Statements and
related Notes included in Item 8, Financial Statements and Supplementary Data, and the Risk Factors
included in Item 1A of this Annual Report on Form 10-K.
Unless otherwise noted, this MD&A relates only to results from continuing operations. The years
ended December 31, 2006 and 2005 reflect the classification of the Village on Tharpes financial
results as discontinued operations.
Overview
We are a self-managed and self-advised REIT engaged in the ownership, acquisition, development and
management of high quality student housing communities. We also provide student housing development
consulting services and management services to universities, charitable foundations and other third
parties. We believe that we are one of the largest private owners, developers and managers of high
quality student housing communities in the United States in terms of total beds owned and under
management.
We 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 January 31, 2005.
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 most of the properties we own, we do not
recognize any fee income from their management on a consolidated basis.
We have elected to be taxed as a REIT for federal income tax purposes.
Our Business Segments
We define business segments by their distinct customer base and service provided. Management has
identified three reportable segments: student housing leasing, third-party management services and
third-party development consulting services. We evaluate each segments performance based on net
operating income, which is defined as income before depreciation, amortization, interest expense,
equity in earnings of unconsolidated entities and discontinued operations. The accounting policies
of the reportable segments are described in more detail in the summary of significant accounting
policies in the footnotes to the financial statements. Inter-company fees are reflected at the
contractually stipulated amounts.
Student housing leasing
Student housing leasing revenue represented approximately 92.0% of our revenue, excluding operating
expense reimbursements, for the twelve months ended December 31, 2007. Our revenue related to food
service operations is included in this segment. Additionally this segment includes other leasing
revenue related to the Place Portfolio lease.
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
33
resident provides adequate proof of income. The number of lease contracts that we administer is
therefore equivalent to the number of beds occupied instead of the number of apartment units.
Due to our predominantly private bedroom accommodations, the high level of student-oriented
amenities offered at our communities, the fact that units are furnished and in most cases rent
includes utilities, cable TV and internet service and because of the individual lease liability, we
believe our properties typically command higher per-unit and per-square foot rental rates than most
multi-family properties in the same geographic markets. We are also typically able to command
higher rental rates than on-campus student housing, which tends to offer fewer amenities.
The majority of our leases commence mid-August and terminate the last day of July. These dates
coincide with the commencement of the universities fall academic term and the completion of the
subsequent summer school session. As such, we are required to re-lease each property in its
entirety each year, resulting in significant turnover in our tenant population from year to year.
In 2007 and 2006, approximately 68.5% and 68.3%, 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 November and ends in August. Our properties occupancy rates are therefore typically
stable during the August to July academic year but are susceptible to fluctuation at the
commencement of each new academic year.
Prior to the commencement of each new lease period, mostly during the first two weeks of August but
also during September at some communities, we prepare the units for new incoming tenants. Other
than revenue generated by in-place leases for returning tenants, we do not generally recognize
lease revenue during this period referred to as Turn as we have no leases in place. In addition,
during Turn we incur significant expenses making our units ready for occupancy, which we recognize
immediately. This lease Turn period results in seasonality in our operating results during the
third quarter of each year.
Third-party management services
Revenue from our third-party management services, excluding operating expense reimbursements,
represented approximately 3.1% of our revenue for 2007. 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 4.9% of our revenue for 2007. 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. We incur expenses that are reimbursable by a project when
awarded. We recognize the expenses when incurred, while the reimbursement revenue is not recognized
until the consulting contract is awarded. These operating expenses are wholly reimbursable and
therefore not considered by our management when analyzing the operating performance of our
third-party development consulting services business. Also, at times we will pay pre-development
project expenses such as architectural fees and permits if such are required prior to the projects
financing being in place. We typically obtain a guarantee from the owner for repayment of these
project specific costs.
We periodically enter into joint venture arrangements whereby we provide development consulting
services to third-party student housing owners in an agency capacity. We recognize our portion of
the earnings in each joint venture based on our ownership interest, which is reflected as equity in
earnings of unconsolidated entities after net operating income in our statement of operations. Our
revenue and operating expenses could fluctuate from period to period based on the extent we utilize
joint venture arrangements to provide third-party development consulting services.
The amount and timing of future revenues from development consulting services will be contingent
upon our ability to
34
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.
Trends and Outlook
Rents and occupancy
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. In 2007, same community revenue per available bed increased to
$388 and same community physical occupancy increased to 94.1% compared to revenue per available bed
of $371 and physical occupancy of 93.4% for 2006. The results represent averages for the Companys
portfolio which is not necessarily indicative of every property in the portfolio. As would be
expected, individual properties can and do perform both above and below these averages and at times
an individual property may show a decline in total revenue due to local university and economic
conditions. Our management focus is to assess these situations and address as quickly as possible
to minimize the Companys exposure and reverse any negative trend.
We customarily adjust rental rates in order to maximize revenues, which in some cases results in a
lower occupancy rate, but in most cases results in stable or increasing revenues from the property.
As a result, a decrease in occupancy rates may be offset by an increase in rental rates and may not
be material to our operations.
General and administrative costs
In 2006, we experienced additional payroll costs related to growth and costs associated with
formulating and documenting our internal control systems to comply with the Sarbanes Oxley Act of
2002. In 2007, we have continued to experience increases in salaries and staffing costs primarily
related to the growth of each business segment and due to new systems implementation efforts. This
trend is expected into 2008 mainly due to the rumination of the Place lease and the Companys
related assumption of the management responsibilities over the portfolio.
Termination of lease with Place Properties, Inc.
On February 1, 2008, the Trust terminated the lease with Place Properties, Inc. (Place) for 13
properties owned by the Trust but previously operated and managed by Place. Under the agreement,
the Trust will receive a lease termination fee of $5,800 with the possibility of receiving an
additional $200 if certain criteria in the agreement are not met (see note 18 to the consolidated
financial statements). As a result of the lease termination, the Trust began managing these
properties and began recognizing the results of operations for these properties in the Trusts
consolidated financial statements as of the lease termination date. Previously, the Trust
recognized base rental income of $13,740 annually for the lease and had the right to receive
Additional Rent annually if the properties exceeded certain criteria defined in the lease
agreement. In the near term, the net operating income received from these properties is expected
to be less than the rental income received under the lease; thus, reducing our net income from
continuing operations over the next 2 to 4 years.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States (GAAP) requires management to make estimates and assumptions in certain
circumstances that affect amounts reported in our financial statements and related notes. In
preparing these financial statements, management has utilized all available information, including
its past history, industry standards and the current economic environment, among other factors, in
forming its estimates and judgments of certain amounts included in the financial statements, giving
due consideration to materiality. 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.
35
Student housing leasing revenue recognition
Student housing leasing revenue is comprised of all revenue related to the leasing activities at
our student housing properties and includes revenues from the leasing of space, parking lot rentals
and certain ancillary services. Revenue from our food service operations is also included in this
segment. Additionally, we include other leasing revenue related to the Place Portfolio lease in
this segment.
Students are required to execute lease contracts with payment schedules that vary from annual to
monthly payments. Generally, a nonrefundable application fee, a nonrefundable service fee and a
notarized parental guarantee must accompany each executed contract. Receivables are recorded when
due. Leasing revenues and related lease incentives and nonrefundable application and service fees
are recognized on a straight-line basis over the term of the contracts. Balances are considered
past due when payment is not received on the contractual due date. Allowances for doubtful accounts
are established by management when it is determined that collection is doubtful.
Student housing food service revenue recognition
In 2006, we provided food service to an unaffiliated secondary boarding school through a contract
covering a nine-month period. The contract required a flat weekly fee and the related revenues were
recognized on a straight-line basis over the contract period. This contract was terminated
effective December 31, 2006. Additionally, we maintain a dining facility at University Towers,
which offers meal plans to the tenants as well as dining to other third-party customers. The meal
plans typically require upfront payment by the tenant covering the school semester and the related
revenue is recognized on a straight-line basis over the corresponding semester.
Other leasing revenue recognition
Other leasing revenue relates to our leasing of 13 properties we acquired from Place Properties
(Place) on January 1, 2006. Simultaneous with the acquisition of the 13 properties, the Trust
leased the assets to Place and received base monthly rent of $1,145 and had the right to receive
Additional Rent annually if the properties exceeded certain criteria defined in the lease
agreement. Base rent was recognized on a straight-line basis over the lease term and Additional
Rent was recognized only upon satisfaction of the defined criteria. On February 1, 2008, the lease
was terminated.
Revenue and cost recognition of 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 or reimbursement has been
otherwise guaranteed by the customer. At such time, the reimbursable portion of such costs is
recorded as a receivable. Development consulting revenues are recognized using the percentage of
completion method as determined by construction costs incurred relative to the total estimated
construction costs. Occasionally, our development consulting contracts include a provision whereby
we can participate in project savings resulting from our successful cost management efforts. We
recognize these revenues once all contractual terms have been satisfied and we have no future
performance requirements. This typically occurs after construction is complete. Costs associated
with development consulting services are expensed as incurred. We generally receive a significant
percentage of our fees for development consulting services upon closing of the project financing, a
portion of the fee over the construction period, and the balance upon substantial completion of
construction. Because revenue from these services is recognized for financial reporting purposes
utilizing the percentage of completion method, differences occur between amounts received and
revenues recognized. Differences also occur between amounts recognized for tax purposes and those
recognized from financial reporting purposes. Because REITs are required to distribute 90% of 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 after net
operating income in our statement of operations as equity in earnings of unconsolidated entities.
Our revenue and operating expenses could fluctuate from period to period based on the extent we
utilize joint venture arrangements to provide third-party development consulting services.
36
Student housing property acquisitions and dispositions
Land, land improvements, buildings and improvements, and furniture, fixtures and equipment are
recorded at cost. Buildings and improvements are depreciated over 30 to 40 years, land improvements
are depreciated over 15 years and furniture, fixtures, and equipment are depreciated over 3 to 7
years. Depreciation is computed using the straight-line method for financial reporting purposes.
Property acquisitions are accounted for utilizing the purchase method in accordance with Statement
of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and accordingly, the
results of operations are included from the respective dates of acquisition. Pre-acquisition costs,
including legal and professional fees and other third party costs related directly to the
acquisition of the property, are accounted for as part of the purchase price. 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.
Student housing properties are classified as held for sale based on the criteria within SFAS No.
144, Accounting for the Impairment and Disposal of Long Lived Assets. When a student housing
property is identified as held for sale, fair value less cost to sell is estimated. If fair value
less cost to sell is less than the carrying amount of the asset an impairment charge is recorded
for the estimated loss. Depreciation expense is no longer recorded once a student housing property
has met the held for sale criteria. Operations of student housing properties that are sold or
classified as held for sale are recorded as part of discontinued operations for all periods
presented. In 2007, no impairment losses on student housing properties held for sale were
recognized.
Repairs and maintenance
The costs of ordinary repairs and maintenance are charged to operations when incurred. Major
improvements that extend the life of an asset beyond one year are capitalized and depreciated over
the remaining useful life of the asset. Planned major repair, maintenance and improvement projects
are capitalized when performed. In some circumstances, the lenders require us to maintain a reserve
account for future repairs and capital expenditures. These amounts are not available for current
use and are recorded as restricted cash on our balance sheet.
Long lived assets impairment
Management is required to assess whether there are any indicators that our real estate properties
may be impaired in accordance with SFAS No. 144. 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 for the Years Ended December 31, 2007 and 2006
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
|
Year Ended December 31, 2006 |
|
|
|
|
|
|
|
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 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing revenue |
|
$ |
85,651 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
85,651 |
|
|
$ |
81,202 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
81,202 |
|
Student housing
food service
revenue |
|
|
2,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,359 |
|
|
|
3,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,634 |
|
Other leasing
revenue |
|
|
13,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,811 |
|
|
|
14,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,012 |
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
|
Year Ended December 31, 2006 |
|
|
|
|
|
|
|
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 |
|
Third-party
development
consulting
services |
|
|
|
|
|
|
5,411 |
|
|
|
|
|
|
|
|
|
|
|
5,411 |
|
|
|
|
|
|
|
3,773 |
|
|
|
|
|
|
|
|
|
|
|
3,773 |
|
Third-party
management
services |
|
|
|
|
|
|
|
|
|
|
3,391 |
|
|
|
|
|
|
|
3,391 |
|
|
|
|
|
|
|
|
|
|
|
2,796 |
|
|
|
|
|
|
|
2,796 |
|
Intersegment
revenues |
|
|
|
|
|
|
|
|
|
|
3,428 |
|
|
|
(3,428 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,298 |
|
|
|
(3,298 |
) |
|
|
|
|
Operating expense
reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,330 |
|
|
|
9,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,638 |
|
|
|
7,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
101,821 |
|
|
|
5,411 |
|
|
|
6,819 |
|
|
|
5,902 |
|
|
|
119,953 |
|
|
|
98,848 |
|
|
|
3,773 |
|
|
|
6,094 |
|
|
|
4,340 |
|
|
|
113,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing operations |
|
|
41,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,215 |
|
|
|
39,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,503 |
|
Student housing
food service
operations |
|
|
2,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,236 |
|
|
|
3,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,318 |
|
General and
administrative |
|
|
105 |
|
|
|
2,787 |
|
|
|
6,628 |
|
|
|
|
|
|
|
9,520 |
|
|
|
21 |
|
|
|
2,210 |
|
|
|
5,004 |
|
|
|
|
|
|
|
7,235 |
|
Intersegment
expenses |
|
|
3,428 |
|
|
|
|
|
|
|
|
|
|
|
(3,428 |
) |
|
|
|
|
|
|
3,298 |
|
|
|
|
|
|
|
|
|
|
|
(3,298 |
) |
|
|
|
|
Reimbursable
operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,330 |
|
|
|
9,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,638 |
|
|
|
7,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
46,984 |
|
|
|
2,787 |
|
|
|
6,628 |
|
|
|
5,902 |
|
|
|
62,301 |
|
|
|
46,140 |
|
|
|
2,210 |
|
|
|
5,004 |
|
|
|
4,340 |
|
|
|
57,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income (loss) |
|
|
54,837 |
|
|
|
2,624 |
|
|
|
191 |
|
|
|
|
|
|
|
57,652 |
|
|
|
52,708 |
|
|
|
1,563 |
|
|
|
1,090 |
|
|
|
|
|
|
|
55,361 |
|
Nonoperating
expenses(1) |
|
|
58,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,111 |
|
|
|
62,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before equity in
earnings of
unconsolidated
entities, income
taxes, minority
interest and
discontinued
operations |
|
|
(3,274 |
) |
|
|
2,624 |
|
|
|
191 |
|
|
|
|
|
|
|
(459 |
) |
|
|
(9,952 |
) |
|
|
1,563 |
|
|
|
1,090 |
|
|
|
|
|
|
|
(7,299 |
) |
Equity in earnings
of unconsolidated
entities |
|
|
(510 |
) |
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
(277 |
) |
|
|
(74 |
) |
|
|
814 |
|
|
|
|
|
|
|
|
|
|
|
740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before taxes,
minority interest
and discontinued
operations(2) |
|
$ |
(3,784 |
) |
|
$ |
2,857 |
|
|
$ |
191 |
|
|
$ |
|
|
|
$ |
(736 |
) |
|
$ |
(10,026 |
) |
|
$ |
2,377 |
|
|
$ |
1,090 |
|
|
$ |
|
|
|
$ |
(6,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonoperating expenses include interest expense, interest income, exit fees on early payment of
debt, amortization of deferred financing costs, depreciation, and amortization of intangibles. |
|
(2) |
|
The following is a reconciliation of the reportable segments net income (loss) before income
taxes, minority interest and discontinued operations to EDRs consolidated net income (loss)
before income taxes, minority interest and discontinued operations determined under generally
accepted accounting principles: |
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Net loss before taxes, minority interest and discontinued operations for reportable segments |
|
$ |
(736 |
) |
|
$ |
(6,559 |
) |
Other unallocated corporate expenses |
|
|
(6,828 |
) |
|
|
(6,404 |
) |
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Net loss before income taxes, minority interest and discontinued operations |
|
$ |
(7,564 |
) |
|
$ |
(12,963 |
) |
|
|
|
|
|
|
|
Student housing leasing
Overall average physical occupancy and Revenue per Available Bed (RevPAB) for 2007 and 2006 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
2007 |
|
2006 |
|
Difference |
Occupancy
|
|
|
|
|
|
|
|
|
|
|
|
|
Physical (1) |
|
|
93.6 |
% |
|
|
93.1 |
% |
|
|
0.5 |
% |
Economic (2) |
|
|
93.5 |
% |
|
|
91.1 |
% |
|
|
2.4 |
% |
NarPAB (3) |
|
$ |
360 |
|
|
$ |
346 |
|
|
$ |
14 |
|
Other income per avail. bed (4) |
|
$ |
24 |
|
|
$ |
24 |
|
|
$ |
|
|
RevPAB (5) |
|
$ |
384 |
|
|
$ |
370 |
|
|
$ |
14 |
|
|
Operating expense per bed (6) |
|
$ |
185 |
|
|
$ |
180 |
|
|
$ |
5 |
|
Operating margin |
|
|
51.9 |
% |
|
|
51.4 |
% |
|
|
0.5 |
% |
Design Beds (7) |
|
|
222,852 |
|
|
|
219,732 |
|
|
|
3,120 |
|
|
|
|
(1) |
|
Physical occupancy represents a weighted average of the month-end occupancies for the respective period. |
|
(2) |
|
Economic occupancy represents the effective occupancy calculated by taking net apartment rent accounted
for on a GAAP basis for the respective period divided by market rent for the respective period. |
|
(3) |
|
NarPAB represents GAAP net apartment rent for the respective period divided by the sum of the design
beds in the portfolio for each of the included months. Does not include food service revenue or other
leasing revenue. |
|
(4) |
|
Represents other GAAP-based income for the respective period divided by the sum of the design beds in
the portfolio for each of the included months. Other income includes service/app fees, late fees,
termination fees, parking fees, transfer fees, damage recovery, utility recovery, and other misc. |
|
(5) |
|
Represents total revenue (net apartment rent plus other income) for the respective period divided by
the sum of the design beds in the portfolio for each of the included months. |
|
(6) |
|
Represents property-level operating expense excluding management fees, depreciation and amortization divided by the sum of the design beds for each of the included
months. |
|
(7) |
|
Represents the sum of the monthly design beds in the portfolio during the period, excluding Place properties. |
Total revenue in the student housing leasing segment was $101,821 for 2007. This represents
an increase of $2,973 or 3.0% from the same period in 2006. Student housing leasing revenue
increased 5.5%, contributing $4,449 to the overall increase. Student housing leasing revenue growth
consisted of a $959 increase related to the acquisition of the Players Club located in Statesboro,
Georgia in June of 2006, and a $3,490 or 4.4% increase in same community revenue. Growth in same
community revenue was driven by an approximate 2.5% improvement in rates, 0.8% improvement in
occupancy, 0.2% improvement in other income and a 0.9% increase due to less vacant days during the
turn period in the current leasing year compared to the prior leasing year. Growth in rates and
occupancy are a result of good marketing campaigns, resident satisfaction, quality facilities and
continued growth in the underlying demographics of university enrollment and the college age
population. Offsetting the improvement in student housing leasing revenue was a $1,275 decline in
student housing food service revenue, which was the result of terminating a contract to provide
food service to an unaffiliated secondary boarding school in California on December 31, 2006. Other
leasing revenue, which represents revenue on a master lease of 13 properties to a third-party,
decreased $201 in 2007 compared to the same period in 2006. The decrease in other leasing revenue
is due to a decline in the additional rent recognized for 2007 compared to 2006. This loss of
additional rent is reflective of declining performance at the properties, which was a leading
factor in the lease termination on February 1, 2008 as discussed in note 18 to the consolidated
financial statements.
Operating expenses in the student housing leasing segment increased $844 or 1.8% to $46,984 for
2007, as compared to 2006. Student housing leasing operations increased a total
39
of $1,712 or 4.3% over the prior year, with $716 of the increase attributable to adding Players
Club to the portfolio midway through 2006 and $996 attributable to a 2.6% increase in same
community expenses. Increases in utility costs of $517, insurance costs of $215, credit card and
collection related costs of $382 and repair and maintenance expenses of $307 were the main drivers
of the increase in same community expenses and were offset by decreases in marketing expenses and
real estate taxes. The increase in student housing leasing operations was offset by a $1,082
decline in student housing food service operations related to the termination of the food service
contract discussed above.
Equity in earnings in unconsolidated entities decreased $436 from 2006 to a loss of $510 for 2007.
This represents our share of the net income or loss related to four investments in unconsolidated
entities that own student housing communities. These communities are also managed by the Trust.
Third-party development consulting services
The following table represents the development consulting projects that were active during the
years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized Earnings |
|
Project |
|
Beds |
|
|
Fee Type |
|
|
2007 |
|
|
2006 |
|
|
Difference |
|
|
Slippery Rock University Phase I |
|
|
1,390 |
|
|
Development fee |
|
$ |
46 |
|
|
$ |
1,787 |
|
|
$ |
(1,741 |
) |
Indiana University of Pennsylvania Phase I |
|
|
734 |
|
|
Development fee |
|
|
1,597 |
|
|
|
924 |
|
|
|
673 |
|
University of Michigan |
|
|
849 |
|
|
Development fee |
|
|
285 |
|
|
|
567 |
|
|
|
(282 |
) |
University of North Carolina Greensboro |
|
|
600 |
|
|
Construction oversight fee |
|
|
50 |
|
|
|
105 |
|
|
|
(55 |
) |
University of Louisville Phase III |
|
|
359 |
|
|
Construction oversight fee |
|
|
|
|
|
|
59 |
|
|
|
(59 |
) |
University of Alabama Birmingham |
|
|
753 |
|
|
Construction oversight fee |
|
|
|
|
|
|
61 |
|
|
|
(61 |
) |
University of Alabama Tuscaloosa |
|
|
631 |
|
|
Development fee |
|
|
978 |
|
|
|
257 |
|
|
|
721 |
|
Slippery Rock University Phase II |
|
|
746 |
|
|
Development fee |
|
|
1,067 |
|
|
|
|
|
|
|
1,067 |
|
Indiana University of Pennsylvania Phase
II |
|
|
1,102 |
|
|
Development fee |
|
|
1,378 |
|
|
|
|
|
|
|
1,378 |
|
Fontainebleu Renovation Project |
|
|
435 |
|
|
Development fee |
|
|
10 |
|
|
|
|
|
|
|
10 |
|
Other |
|
|
|
|
|
Consulting fee |
|
|
|
|
|
|
13 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
Third-party development consulting
services |
|
|
|
|
|
|
|
|
|
$ |
5,411 |
|
|
$ |
3,773 |
|
|
$ |
1,638 |
|
|
|
|
|
|
|
|
|
|
|
|
California University of Pennsylvania
Phase IV |
|
|
447 |
|
|
Development fee |
|
$ |
|
|
|
$ |
173 |
|
|
$ |
(173 |
) |
California University of Pennsylvania
Phase V |
|
|
354 |
|
|
Development fee |
|
|
124 |
|
|
|
143 |
|
|
|
(19 |
) |
University of North Carolina Greensboro |
|
|
600 |
|
|
Development fee |
|
|
118 |
|
|
|
240 |
|
|
|
(122 |
) |
University of Louisville Phase III |
|
|
359 |
|
|
Development fee |
|
|
(9 |
) |
|
|
126 |
|
|
|
(135 |
) |
University of Alabama Birmingham |
|
|
753 |
|
|
Development fee |
|
|
|
|
|
|
132 |
|
|
|
(132 |
) |
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated
entities |
|
|
|
|
|
|
|
|
|
$ |
233 |
|
|
$ |
814 |
|
|
$ |
(581 |
) |
|
|
|
|
|
|
|
|
|
|
|
Third-party development consulting services revenue increased by $1,638 or 43.4% to $5,411
for 2007 compared to 2006. During 2007, AODC was engaged in eight active development projects
representing 6,487 beds. AODC initiated work on Slippery Rock University Phase II, Indiana
University of Pennsylvania Phase II and Fontainebleu Renovation Project and completed work on
Slippery Rock Phase I, California University of Pennsylvania Phase V, Indiana University of
Pennsylvania Phase I, University of North Carolina- Greensboro and University of Alabama-
Tuscaloosa. During 2006, revenue of $3,773 was recognized, which included development fee revenue
on four projects and construction oversight fees related to three other projects.
The increased volume in development consulting revenue is mainly due to an increase in the number
of projects being managed by AODC but also represents a shift in the percentage of new projects
AODC contracted directly. In previous years, the majority of our development services were
contracted through joint venture relationships with the profits
40
from those services being recognized through equity in earnings of unconsolidated entities. The
shift to direct contracts caused equity in earnings of unconsolidated entities in the third-party
development consulting services segment to decrease $581 or 71.4% from the prior year. There were
four joint ventures with active development projects in 2006, compared to two in 2007.
General and administrative costs in the third-party development consulting services segment
increased $577 to $2,787 for 2007, as compared to 2006. This increase is a result of the higher
volume of development projects; thus, increases in staffing and corporate overhead costs allocated
to the segment.
Third-party management services
Total third-party management services revenue increased by $725 or 11.9% to $6,819 for 2007, as
compared to 2006. Growth in our owned portfolio period over period as discussed under student
housing leasing above contributed to $130 of the increase by way of intersegment revenue, while
third-party management fee revenue increased $595 or 21.3% to $3,391 for 2007. The increase in
third-party fees consists of $562 related to nine new management contracts entered into during
2007, $50 related to a community that came out of development in August of 2006, $387 related to
four contracts entered into in the fall of 2006 to manage properties for which we also have an
ownership interest, and $38 related to revenue growth in existing contracts. These increases were
partially offset by a decrease of $442 in third-party fees as a result of three terminated
contracts, including one contract related to a property purchased by one of the Companys joint
ventures and is included in the new contracts noted above.
General and administrative costs for our third-party management services segment increased $1,624
to $6,628 for 2007, as compared to 2006. The increase reflects incremental salaries and overhead
costs related to the approximate 50% growth in management contracts and the increase in
intersegment management revenue volume noted above, and increased travel and integration costs
related to the new contracts added in late 2006 and in 2007.
Nonoperating expenses
Nonoperating expenses decreased $4,549 to $58,111 for 2007, as compared to 2006. This decrease was
primarily driven by a $1,900 decline in depreciation expense due to fully depreciated assets that
remain in service and a $2,635 decline in interest expense. The decline in interest expense is
related to the repayment of the Term Loan and Amended Revolver, both defined below, during 2007 and
the capitalization of interest for the development of the student housing community in Carbondale,
Illinois in the amount of $58.
Unallocated corporate expenses
Unallocated corporate expenses represent general and administrative expenses that are not allocated
to any of our business segments. For 2007, unallocated corporate expenses were $6,828, an increase
of $424 or 6.6% over the prior year. The majority of this increase is due to higher salary and
overhead costs related to growth driven increases in head count over the prior year. These
increases were partially offset by a decrease in third-party service provider fees from 2006, which
included first year implementation costs of Sarbanes Oxley.
41
Results of Operations for the years ended December 31, 2006 and 2005
The following table presents our results of operations for Education Realty Trust, Inc. for the
year ended December 31, 2006 and the combined results of operations for Education Realty Trust,
Inc. (post Offering) and the EDR Predecessor (pre Offering) for the year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
|
Year Ended December 31, 2005 |
|
|
|
|
|
|
|
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 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing revenue |
|
$ |
81,202 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
81,202 |
|
|
$ |
70,010 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
70,010 |
|
Student housing
food service
revenue |
|
|
3,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,634 |
|
|
|
3,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,491 |
|
Other leasing
revenue |
|
|
14,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party
development
consulting
services |
|
|
|
|
|
|
3,773 |
|
|
|
|
|
|
|
|
|
|
|
3,773 |
|
|
|
|
|
|
|
1,759 |
|
|
|
|
|
|
|
|
|
|
|
1,759 |
|
Third-party
management
services |
|
|
|
|
|
|
|
|
|
|
2,796 |
|
|
|
|
|
|
|
2,796 |
|
|
|
|
|
|
|
|
|
|
|
1,968 |
|
|
|
|
|
|
|
1,968 |
|
Intersegment
revenues |
|
|
|
|
|
|
|
|
|
|
3,298 |
|
|
|
(3,298 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,418 |
|
|
|
(2,418 |
) |
|
|
|
|
Operating expense
reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,638 |
|
|
|
7,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,694 |
|
|
|
6,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
98,848 |
|
|
|
3,773 |
|
|
|
6,094 |
|
|
|
4,340 |
|
|
|
113,055 |
|
|
|
73,501 |
|
|
|
1,759 |
|
|
|
4,386 |
|
|
|
4,276 |
|
|
|
83,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing operations |
|
|
39,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,503 |
|
|
|
34,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,758 |
|
Student housing
food service
operations |
|
|
3,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,318 |
|
|
|
3,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,275 |
|
General and
administrative |
|
|
21 |
|
|
|
2,210 |
|
|
|
5,004 |
|
|
|
|
|
|
|
7,235 |
|
|
|
|
|
|
|
2,245 |
|
|
|
3,969 |
|
|
|
|
|
|
|
6,214 |
|
Intersegment
expenses |
|
|
3,298 |
|
|
|
|
|
|
|
|
|
|
|
(3,298 |
) |
|
|
|
|
|
|
2,418 |
|
|
|
|
|
|
|
|
|
|
|
(2,418 |
) |
|
|
|
|
Reimbursable
operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,638 |
|
|
|
7,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,694 |
|
|
|
6,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
46,140 |
|
|
|
2,210 |
|
|
|
5,004 |
|
|
|
4,340 |
|
|
|
57,694 |
|
|
|
40,451 |
|
|
|
2,245 |
|
|
|
3,969 |
|
|
|
4,276 |
|
|
|
50,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income (loss) |
|
|
52,708 |
|
|
|
1,563 |
|
|
|
1,090 |
|
|
|
|
|
|
|
55,361 |
|
|
|
33,050 |
|
|
|
(486 |
) |
|
|
417 |
|
|
|
|
|
|
|
32,981 |
|
Nonoperating
expenses(1) |
|
|
62,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,660 |
|
|
|
44,255 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
44,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before equity in
earnings of
unconsolidated
entities, income
taxes, minority
interest and
discontinued
operations |
|
|
(9,952 |
) |
|
|
1,563 |
|
|
|
1,090 |
|
|
|
|
|
|
|
(7,299 |
) |
|
|
(11,205 |
) |
|
|
(480 |
) |
|
|
417 |
|
|
|
|
|
|
|
(11,268 |
) |
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
|
Year Ended December 31, 2005 |
|
|
|
|
|
|
|
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 |
|
Equity in earnings
of unconsolidated
entities |
|
|
(74 |
) |
|
|
814 |
|
|
|
|
|
|
|
|
|
|
|
740 |
|
|
|
|
|
|
|
880 |
|
|
|
|
|
|
|
|
|
|
|
880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before taxes,
minority interest
and discontinued
operations(2) |
|
$ |
(10,026 |
) |
|
$ |
2,377 |
|
|
$ |
1,090 |
|
|
$ |
|
|
|
$ |
(6,559 |
) |
|
$ |
(11,205 |
) |
|
$ |
400 |
|
|
$ |
417 |
|
|
$ |
|
|
|
$ |
(10,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonoperating expenses include interest expense, interest income, exit fees on early payment of debt,
amortization of deferred financing costs, depreciation, and amortization of intangibles. |
|
(2) |
|
The following is a reconciliation of the reportable segments net income (loss) before income taxes,
minority interest and discontinued operations to EDRs consolidated net income (loss) before income
taxes, minority interest and discontinued operations determined under generally accepted accounting
principles: |
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
Net loss before income taxes, minority interest and discontinued operations for reportable segments
|
|
$ |
(6,559 |
) |
|
$ |
(10,388 |
) |
Other unallocated corporate expenses
|
|
|
(6,404 |
) |
|
|
(6,197 |
) |
|
|
|
|
|
|
|
|
|
Net loss before income taxes, minority interest and discontinued operations
|
|
$ |
(12,963 |
) |
|
$ |
(16,585 |
) |
|
|
|
|
|
|
|
|
|
Student housing leasing
Revenue from student housing leasing increased $25,347 to $98,848 for 2006. This 34.5% increase in
revenue from the same period in 2005 was attributable to a significant increase in beds by way of
acquisition and the addition of other leasing revenue related to the 13 property Place Portfolio
lease discussed below. Aggregate design beds for 2006 increased 29,471 beds or 15.5% over the same
period in 2005 to 219,732 beds. At current RevPAB rates this acquisition driven increase in beds
represented about $10,900 of the increased revenue for 2006, while growth in same community revenue
contributed approximately $400. In January 2006, we completed the acquisition of a 13 property
portfolio from Place Properties. Simultaneous with the acquisition, we entered into a lease
agreement under which Place Properties leased and operated the properties. The lease was terminated
on February 1, 2008. Other leasing revenue related to the lease contributed $14,012 of revenue for
the year ended December 31, 2006, including the recognition of $274 of Additional Rent, as
defined in the lease agreement. Student housing food service revenue was relatively flat at about
$3,600. Approximately $1,400 of student housing food service revenue was related to a contract to
provide food service to a secondary boarding school in California. This contract was terminated
effective December 31, 2006.
Operating expenses of our student housing communities increased $5,689 to $46,140 for 2006. Expense
growth of approximately $4,800 was attributable to increased beds by way of acquisition as
discussed above. Same store operating expenses year-over-year were held relatively flat mainly as a
result of improvements in turn costs and bad debt expense along with other improvements that
combined to offset higher utility costs and property taxes for the period. Intersegment expenses,
which represent management fees paid to our management company increased approximately $900 as a
result of acquired beds and higher revenue.
The net impact of the growth in revenue and expenses noted above was a 59.5% rise in net operating
income for the segment to $52,708 for 2006. As noted a majority of the growth came through
acquisition and the addition of other leasing revenue related to the Place Portfolio which drove an
increase in operating margins from 45.0% to 53.3% for the segment.
Excluding the 13 properties leased to Place Properties, our operating margins also improved from
50.3% to 51.4%.
Third-party development consulting services
Third-party development services revenues increased by $2,014 to $3,773 for 2006 from $1,759 for
2005. During
43
2006, we were engaged in four active development projects representing 3,604 beds and recognized
construction oversight fees on an additional three projects. During the same period in 2005, we
recognized development fees on two projects, recognized $306 of purchasing fees related to a third
project, and recognized construction oversight fees on another two projects. The increased volume
in development consulting revenue was mainly due to an increase in the number of projects being
managed by AODC but also represented a shift in the percentage of new projects AODC contracted
directly. In previous years, the majority of our development services were contracted through joint
venture relationships with the profits from those services being recognized through equity in
earnings of unconsolidated entities.
Equity in earnings of unconsolidated entities remained flat at just over $800 for the years ended
December 31, 2006 and 2005. During 2006, there were five projects underway representing 2,513 beds
while four projects representing 1,996 beds were being managed through joint ventures in 2005.
General and administrative costs in the third-party development consulting services was held
relatively flat year-over-year at just over $2,200 for 2006 and 2005.
Third-party management services
Third-party management services revenues increased $828 to $2,796 for 2006 from $1,968 for 2005.
Growth in our owned portfolio year-over-year contributed approximately $900 of the increase by way
of intersegment revenue. Aggregate design beds in our owned portfolio for 2006 were 219,732 which
was an increase of 29,471 aggregate beds from the prior year. The opening of three new managed
properties in August and September of 2005 and the addition of a new management contract in
September 2005 contributed $378 of additional revenue year-over-year. Three third-party development
communities opened during the summer of 2006 added $328 to 2006 revenue. Management services
provided to three properties acquired in the fall of 2006 through joint venture arrangements
contributed $67 of management fees in 2006 and our management company subsidiary earned
approximately $100 in preopening management support fees related to two communities while under
development. Offsetting these increases was a decline of $150 as a result of the termination of two
management agreements during the summer of 2006.
General and administrative costs for our third-party management services increased $1,035 to $5,004
for 2006. This increase was a direct result of the growth in both our owned and managed portfolios
as discussed above. Our owned portfolio grew from 20 properties at the start of 2005 to 26
properties at the end of 2006. In addition the third-party management services group added a total
of ten new properties to its managed portfolio from the spring of 2005 through December 31, 2006,
while two contracts were terminated during that time. Additional growth in general and
administrative expenses occurred due to a higher overhead burden as a result of our overall growth.
Nonoperating expenses
Nonoperating expenses increased $18,405 to $62,660 for 2006. The increase was driven by
approximately $12,453 of additional interest expense and $7,105 of additional depreciation and
amortization related mainly to the acquisition of the 13 properties from Place Properties in
January 2006 and a full twelve months of expense in 2006 related to acquisitions made during 2005.
These increases were partially offset by a $1,100 decline in amortization of deferred financing
costs as a result of prepayment penalties on early retirement of debt that was incurred in the
first quarter of 2005.
Unallocated corporate expenses
Other unallocated corporate expenses represent general and administrative expenses that are not
allocated to the third-party development consulting and third-party management services segments.
Intersegment management fees are charged to the student housing leasing segment so it is not
allocated any corporate expenses. For 2006 other corporate expenses were $6,404, an increase of
$207 over the prior year. General and administrative expenses increased approximately $2,800
mainly due to increased salaries and staffing costs and $850 related to the first year costs of
implementing the Sarbanes-Oxley Act of 2002. Corporate related net interest expense was
approximately $300 in 2006 compared to net interest income of approximately $900 in 2005. The
change is a result of higher than usual interest income in the second half of 2005 related to
uninvested funds from our private equity offering in September 2005. In 2006, the private equity
offering funds were used in the acquisition of the Place Portfolio and additional interest expense
was incurred as funds were drawn
44
on our revolving credit facility to partially fund distributions to our shareholders. These
increases were offset by a decrease in noncash compensation expense of $3,883. Noncash compensation
includes the amortization of restricted stock awards over their vesting period and the applicable
cost of any awards that were immediately vested upon date of grant. The decrease of $3,883 in 2006
from 2005 was due to a one-time charge related to our Offering that occurred in January 2005 when
fully vested awards were granted.
Liquidity and Capital Resources
Revolving credit facility and other indebtedness
On March 31, 2006, the Operating Partnership amended and restated the revolving credit facility
(the Amended Revolver) dated January 31, 2005 in the amount of $100,000 and entered into a senior
unsecured term loan facility (the Term Loan) in the amount of $50,000. On June 8, 2007, the Trust
paid off the Term Loan with the proceeds received from the sale of the student housing property
referred to as Tharpe.
The Trust serves as the guarantor for any funds borrowed by the Operating Partnership under the
Amended Revolver. Additionally, the Amended Revolver is secured by a cross-collateralized, first
mortgage lien on six unmortgaged properties. The Amended Revolver has a term of three years and
matures on March 31, 2009, provided that the Operating Partnership may extend the maturity date for
one year subject to certain conditions. At December 31, 2007, there was $11,500 outstanding on the
Amended Revolver. The interest rate per annum applicable to the Amended Revolver is, at the
Operating Partnerships option, equal to a base rate or London InterBank Offered Rate (LIBOR)
plus an applicable margin based upon our leverage (6.95% at December 31, 2007).
Availability under the Operating Partnerships Amended Revolver is limited to a borrowing base
availability equal to the lesser of (i) 65% of the property asset value (as defined in the amended
credit agreement) of the properties securing the facility and (ii) the loan amount which would
produce a debt service coverage ratio of no less than 1.30, with debt service based on the greater
of two different sets of conditions specified in the amended credit agreement. At December 31, 2007
we had a borrowing base availability of $55,653 under the Amended Revolver.
The Operating Partnerships Amended Revolver contains customary affirmative and negative covenants
and contains financial covenants that, among other things, require the Trust and its subsidiaries
to maintain certain minimum ratios of EBITDA (earnings before payment or charges of interest,
taxes, depreciation, amortization or extraordinary items) as compared to interest expense and total
fixed charges. The financial covenants also include consolidated net worth and leverage ratio
tests. In January 2007, the Trust determined it would be in violation of its interest coverage
ratio covenant related to the Amended Revolver. On February 27, 2007, the Trust entered into an
amendment to the Amended Revolver (First Amendment), whereby the interest coverage ratio was
adjusted from 1.85:1.00, to not less than 1.70:1.00 at all times from December 31, 2006 until March
31, 2008. However, due to the fact the Trust attained an interest coverage ratio of 1.87:1.00 for
the nine months ended September 30, 2007; the interest coverage ratio reverted back to 1.85:1.00 on
a prospective basis.
The Trust is prohibited from making distributions that exceed $1.20 per share unless prior to and
after giving effect to such action the total leverage ratio is less than or equal to 60%. The
amount of restricted payments permitted may be increased as long as either of the following
conditions is met: (a) after giving effect to the increased restricted payment, the total leverage
ratio shall remain less than or equal to 60%; or (b) the increased restricted payment, when
considered along with all other restricted payments for the last 3 quarters, does not exceed (i)
100% of funds from operations for the applicable period through and including December 31, 2007,
and (ii) 95% of funds from operations for the applicable period thereafter.
Liquidity outlook and capital requirements
At December 31, 2007, we had $4,034 of cash, a decrease of approximately $2,393 from December 31,
2006. During 2007, we generated $26,806 cash from operations, received $48,942 of proceeds from
the sale of Tharpe and received $22,530 in proceeds from our direct stock purchase plan. In
addition to funding working capital needs, this allowed us to repay the remaining $47,000
outstanding under the Term Loan, pay down $10,900 outstanding under the Amended Revolver, invest
$5,675 in a new development and distribute $24,203 to our stockholders and unitholders.
45
Our current liquidity needs include funds for distributions to our stockholders and unit holders,
including those required to maintain our REIT status and satisfy our current annual distribution
target of $0.82 per share/unit, funds for capital expenditures, funds for debt repayment and,
potentially, funds for new property acquisitions and development. We generally expect to meet our
short-term liquidity requirements through net cash provided by operations. However, distributions
for the years ended December 31, 2006 and 2005 outpaced cash from operations during the same
periods. The resulting operating cash shortfalls of $5,688 and $1,682, respectively, were funded by
draws on our revolving line of credit. Distributions for 2007 totaled $24,203 or $0.82 per weighted
average share/unit compared to cash provided by operations of $26,806 or $0.91 per weighted average
share/unit for the same period. We expect our long-term liquidity requirements to be satisfied
through growth in cash generated by operations and external sources of debt and equity capital,
including our credit facility, public capital markets as well as private sources of capital. To the
extent that we are unable to maintain our 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.
An additional source of capital is the possible disposition of non-strategic properties. We
continually assess all of our properties, the markets they are in, and the universities they serve
to determine if any dispositions are necessary or appropriate. During 2007, a student housing
property located in Tallahassee, Florida was sold for proceeds of $48,942. These proceeds were
first used to repay the Term Loan and the remainder was used to pay down the Amended Revolver. The
sale of any unencumbered asset would provide additional capital to most likely pay down debt or
possibly finance acquisition/development growth or other operational needs.
Based on our closing share price of $11.24 on December 31, 2007, our total enterprise value was
$764,488. With total debt outstanding on December 31, 2007 of $430,767, our current debt to total
enterprise value was 56.3%. We believe our capital structure and current FFO and distribution
targets, along with our availability under our $100,000 Amended Revolver, leaves us with sufficient
liquidity and access to financing to fund current working capital needs and make future student
housing investments. Current market conditions may make additional capital more expensive for us
and could impact our access to the capital markets. There can be no assurance that we will be able
to obtain additional financing under satisfactory conditions or at all or that we will make any
investments in additional properties.
We intend to invest in additional properties only as suitable opportunities arise. In the short
term, we intend to fund any acquisitions with working capital and borrowings under first mortgage
property secured debt or our $100,000 revolving credit facility. We intend to finance property
acquisitions over the longer term with the proceeds from additional issuances of common or
preferred stock, private capital in the form of joint ventures, debt financing and issuances of
units of our Operating Partnership. There can be no assurance, however, that such financing will be
obtained on reasonable terms, or at all, particularly in light of current capital market
conditions.
We anticipate that our existing working capital and cash from operations will be adequate to meet
our liquidity requirements for at least the next twelve months.
Predevelopment expenditures
Our third-party development consulting activities have historically required us to fund
predevelopment expenditures such as architectural fees, permits and deposits. Because the closing
of a development projects financing is often subject to third-party delay, we cannot always
predict accurately the liquidity needs of these activities. We frequently incur these
predevelopment expenditures before a financing commitment has been obtained and, accordingly, bear
the risk of the loss of these predevelopment expenditures if financing cannot ultimately be
arranged on acceptable terms. We typically obtain a guarantee of repayment of these predevelopment
expenditures from the project owner, but no assurance can be given that we would be successful in
collecting the amount guaranteed in the event that project financing is not obtained.
During 2007, we purchased land and began development on a student housing property in Carbondale,
Illinois. This is the first property that will be developed with the intent of ownership by the
Trust; thus, increasing our exposure and capital requirements related to development.
Long-term liquidity requirements
Our long-term liquidity requirements consist primarily of funds necessary to pay scheduled debt
maturities, renovations, expansion and other non-recurring capital expenditures that need to be
made periodically to our properties. We expect to
46
meet these needs through existing working capital, cash provided by operations, additional borrowings under our Amended Revolver, the sale of
non-strategic assets, and the issuance of equity instruments, including common stock, or additional
or replacement debt, if market conditions permit. We believe these sources of capital will be
sufficient to provide for our long-term capital needs. There can be no assurance, however, that
such financing will be obtained on reasonable terms, or at all, particularly in light of current
capital market conditions. Our Amended Revolver is a material source to satisfy our long-term
liquidity requirements. As such, compliance with the financial and operating debt covenants is
material to our liquidity. Non-compliance with the covenants would have a material adverse effect
on our financial condition and liquidity.
During 2007, we refinanced $29,900 of maturing mortgage debt bearing interest of 6.63% and $26,500
of maturing mortgage debt bearing interest at 3.49%. The new mortgages are interest only at a fixed
rate of 5.55% through March 1, 2012 and 5.59% through May 1, 2014, respectively.
Capital expenditures
The historical recurring capital expenditures at our owned and managed communities, excluding the
13 properties leased to Place Properties, are set forth as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Years Ended |
|
|
December 31, |
|
|
2007 |
|
2006 |
|
2005 |
Total units |
|
|
6,400 |
|
|
|
6,400 |
|
|
|
5,935 |
|
Total beds |
|
|
20,125 |
|
|
|
20,125 |
|
|
|
18,548 |
|
Total recurring capital
expenditures |
|
$ |
2,487 |
|
|
$ |
2,222 |
|
|
$ |
1,638 |
|
Average per unit |
|
$ |
388.56 |
|
|
$ |
347.25 |
|
|
$ |
275.96 |
|
Average per bed |
|
$ |
123.57 |
|
|
$ |
110.43 |
|
|
$ |
88.30 |
|
Recurring capital expenditures exclude capital spending on renovations, community repositioning, or
other major periodic projects. Capital expenditures associated with newly developed properties are
typically capitalized as part of their development costs. As a result such properties typically do
not require recurring capital expenditures until their second year of operation or later.
Additionally, we are required by certain of our lenders to contribute contractual amounts annually
to reserves for capital repairs and improvements at the mortgaged properties. These contributions
may be less than or exceed the amount of capital expenditures actually incurred during any given
year at such properties.
Commitments
The following table summarizes our contractual obligations as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
After 5 |
|
|
|
|
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Total |
|
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt Obligations(1) |
|
$ |
26,481 |
|
|
$ |
297,437 |
|
|
$ |
66,262 |
|
|
$ |
40,587 |
|
|
$ |
430,767 |
|
Contractual Fixed Interest
Obligations(2) |
|
|
23,729 |
|
|
|
23,999 |
|
|
|
9,749 |
|
|
|
2,942 |
|
|
|
60,419 |
|
Operating Lease and Future
Purchase Obligations(3) |
|
|
3,394 |
|
|
|
4,430 |
|
|
|
2,593 |
|
|
|
485 |
|
|
|
10,902 |
|
Capital Reserve Obligations(4) |
|
|
1,404 |
|
|
|
2,395 |
|
|
|
421 |
|
|
|
182 |
|
|
|
4,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
55,008 |
|
|
$ |
328,261 |
|
|
$ |
79,025 |
|
|
$ |
44,196 |
|
|
$ |
506,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes required monthly principal amortization and amounts due at maturity on first
mortgage debt secured by student housing properties and amounts due under Amended Revolver and Term
Loan agreements. The first mortgage debt does not include $1,673 of unamortized debt premium. |
|
(2) |
|
Includes contractual fixed rate interest payments. |
|
(3) |
|
Includes future minimum lease commitments under operating lease obligations and future
purchase obligations for advertising. |
|
(4) |
|
Includes future annual contributions to the capital reserve as required by certain mortgage
debt. |
47
Long-term indebtedness
As of December 31, 2007, thirteen of our properties were unencumbered by mortgage debt. Six of
these thirteen
properties have, however, been pledged as collateral against any borrowing under our $100,000
revolving credit facility.
At December 31, 2007, we had outstanding indebtedness of $432,440 (net of unamortized debt premium
of $1,673). The scheduled future maturities of all outstanding indebtedness at December 31, 2007
are as follows:
|
|
|
|
|
Year |
|
|
|
|
2008 |
|
$ |
26,481 |
|
2009 |
|
|
285,049 |
|
2010 |
|
|
12,388 |
|
2011 |
|
|
947 |
|
2012 |
|
|
65,315 |
|
Thereafter |
|
|
40,587 |
|
|
|
|
|
Total |
|
|
430,767 |
|
Debt premium |
|
|
1,673 |
|
|
|
|
|
Outstanding as of December 31, 2007, net of debt premium |
|
$ |
432,440 |
|
|
|
|
|
At December 31, 2007, the outstanding mortgage debt had a weighted average interest rate of 5.90%
and carried an average term to maturity of 2.47 years. Our ratio of mortgage debt to total market
capitalization was approximately 54.8% at December 31, 2007.
In 2009, $285,049 or 66.0% of the Trusts debt reaches maturity. Based on current activity in the
debt markets, we do not see any issues surrounding the coming refinancing needs, however, there is
no way to predict future market conditions.
In addition to mortgage debt, the Trust also had $11,500 outstanding under the Amended Revolver.
The Amended Revolver has a term of three years and matures on March 31, 2009, provided that the
Operating Partnership may extend the maturity date for one year subject to certain conditions. The
Amended Revolver requires interest only payments through maturity. The interest rate per annum
applicable to the Amended Revolver is, at the Operating Partnerships option, equal to a base rate
or LIBOR plus an applicable margin based upon our leverage (6.95% at December 31, 2007).
Distributions
We are required to distribute 90% of our REIT taxable income (excluding capital gains) on an
annual basis in order to qualify as a REIT for federal income tax purposes. Accordingly, we intend
to make, but are not contractually bound to make, regular quarterly distributions to holders of our
common stock. All such distributions are at the discretion of our board of directors. We may be
required to use borrowings under our revolving credit facility, if necessary, to meet REIT
distribution requirements and maintain our REIT status. We consider market factors and our
performance in addition to REIT requirements in determining distribution levels.
On January 8, 2008, we announced our fourth quarter distribution of $0.205 per share of common
stock for the quarter ended on December 31, 2007. The distribution is payable on February 5, 2008
to stockholders of record at the close of business on January 22, 2008.
Off-Balance Sheet Arrangements
As discussed in note 8 to the consolidated financial statements, we hold investments in
unconsolidated entities. Three of these unconsolidated entities have third party mortgage
indebtedness totaling $88,555 at December 31, 2007. Additionally, the Operating Partnership
guaranteed $23,200 of construction debt held by University Village-Greensboro LLC in order to
receive a 25% ownership stake in the venture with College Park Apartments. The construction debt is
expected to be refinanced in September of 2008 after construction is complete and the student
housing community is occupied. The Operating Partnership will not guarantee the debt after the
construction loan is refinanced.
Funds From Operations (FFO)
As defined by the National Association of Real Estate Investment Trusts (NAREIT), FFO represents
net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of
property, plus real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures will be calculated to reflect funds from operations on the same basis. We present
FFO available to all shareholders and unitholders because we consider it an important supplemental
measure of our operating performance and believe it is frequently used
48
by
securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when
reporting their results. As such, we also exclude the impact of minority interest in our
calculation. FFO is intended to exclude GAAP historical cost depreciation and amortization of real
estate and related assets, which assumes that the value of real estate diminishes ratably over
time. Historically, however, real estate values have risen or fallen with market conditions.
Because FFO excludes depreciation and amortization unique to real estate, gains and losses from
property dispositions and extraordinary items, it provides a performance measure that, when
compared year over year, reflects the impact to operations from trends in occupancy rates, rental
rates, operating costs, development activities and interest costs, providing perspective not
immediately apparent from net income.
We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its
March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the
methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs. Further, FFO does not represent amounts available for managements
discretionary use because of needed capital replacement or expansion, debt service obligations or
other commitments and uncertainties. FFO should not be considered as an alternative to net income
(loss) (computed in accordance with GAAP) as an indicator of our financial performance or to cash
flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity,
nor is it indicative of funds available to fund our cash needs, including our ability to make
distributions.
The following table presents a reconciliation of our FFO available to our shareholders and
unitholders to our net income for the years ended December 31, 2007, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Net income (loss) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
|
$ |
(15,534 |
) |
Gain on sale of student housing property, net of minority interest |
|
|
(1,579 |
) |
|
|
|
|
|
|
|
|
Student housing property depreciation and amortization of lease
intangibles |
|
|
31,780 |
|
|
|
33,680 |
|
|
|
26,845 |
|
Equity portion of real estate depreciation and amortization on
equity investees |
|
|
424 |
|
|
|
54 |
|
|
|
|
|
Depreciation and amortization of discontinued operations |
|
|
711 |
|
|
|
2,048 |
|
|
|
2,323 |
|
Minority interest benefit |
|
|
(6 |
) |
|
|
(355 |
) |
|
|
(1,040 |
) |
|
|
|
|
|
|
|
|
|
|
Funds from operations available to all share and unit holders |
|
$ |
25,914 |
|
|
$ |
23,182 |
|
|
$ |
12,594 |
|
|
|
|
|
|
|
|
|
|
|
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 September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157
does not address what to measure at fair value; instead, it addresses how to measure fair
value. SFAS 157 applies (with limited exceptions) to existing standards that require assets or
liabilities to be measured at fair value. SFAS 157 establishes a fair value hierarchy, giving the
highest priority to quoted prices in active markets and the lowest priority to unobservable data
and requires new disclosures for assets and liabilities measured at fair value based on their level
in the hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007. The Trust has evaluated SFAS 157 and determined the adoption will not have
a material impact on its consolidated financial condition and results of operations.
49
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159), which permits the option to measure financial instruments and
certain other items at fair value, with changes in fair value recorded in earnings. SFAS 159 is
effective for financial statements issued for fiscal years beginning after November 15, 2007. The
Trust has evaluated SFAS 159 and determined the adoption will not have a material impact on its
consolidated financial condition and results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R).
SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial effects
of the business combination. SFAS 141R is effective for financial statements issued for fiscal
years beginning after December 15, 2008. The Trust is currently evaluating the impact of adopting
SFAS 141R on its consolidated financial condition and results of operations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held by parties other
than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parents ownership
interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS 160 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The Trust is currently evaluating the impact of adopting SFAS
160 on its consolidated financial condition and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our future income, cash flows and fair values relevant to financial instruments are dependent upon
prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in
market prices and interest rates. The Trusts interest rate risk objective is to limit the impact
of interest rate fluctuations on earnings and cash flows and to lower its overall borrowing costs.
To achieve this objective, the Trust manages its exposure to fluctuations in market interest rates
for its borrowings through the use of fixed rate debt instruments to the extent that reasonably
favorable rates are obtainable.
For fixed rate debt, interest rate changes affect the fair market value but do not impact net
income to common shareholders or cash flows. Conversely, for floating rate debt, interest changes
generally do not affect the fair market value but do impact net income to common stockholders and
cash flows, assuming other factors are held constant. At December 31, 2007, we had fixed rate debt
of $419,267. Holding other variables constant a 100 basis point increase in interest rates would
cause a $8,844 decline in the fair value for our fixed rate debt. Conversely, a 100 basis point
decrease in interest rates would cause a $9,215 increase in the fair value of our fixed rate debt.
At December 31, 2007, all of the outstanding principal amounts of our mortgage notes payable on the
properties we own have fixed interest rates with a weighted average rate of 5.90% and an average
term to maturity of 2.47 years.
At December 31, 2007, we had $11,500 drawn on the Amended Revolver. The interest rate per annum
applicable to the Amended Revolver is, at the Operating Partnerships option, equal to a base rate
or LIBOR plus an applicable margin based upon our leverage.
Approximately 97% of the Trusts outstanding debt was subject to fixed rates at December 31, 2007.
We may in the future use derivative financial instruments to manage, or hedge, interest rate risks
related to our 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.
50
Item 8. Financial Statements and Supplementary Data.
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under
the supervision and with the participation of our management, including our Chairman, Chief
Executive Officer, and Chief Financial Officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting as of December 31, 2007 based on the guidelines
established in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Our internal control over financial reporting
includes policies and procedures that provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States of America.
Based on the results of our evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2007. We reviewed the results of managements
assessment with our Audit Committee.
The effectiveness of our internal control over financial reporting as of December 31, 2007 has been
audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in
their attestation report which appears on the following page.
51
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, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2007 and the combined statements of operations, owners equity, and cash
flows for Education Realty Trust Predecessor (the EDR Predecessor, as defined in note 1) for the
period January 1, 2005 through January 30, 2005. We also have audited the Trusts internal control
over financial reporting as of December 31, 2007, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Trusts management is responsible for these financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying managements report on
internal control over financial reporting. Our responsibility is to express an opinion on these
financial statements and an opinion on the Trusts internal control over financial reporting based
on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Trust at December 31, 2007 and 2006, and the
results of their operations and their cash flows for each of the three years in the period ended
December 31, 2007, and the combined results of operations and cash flows of the EDR Predecessor for
the period January 1, 2005 through January 30, 2005 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the Trust maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2007,
based on the criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
/s/ DELOITTE & TOUCHE LLP
Memphis, Tennessee
March 3, 2008
52
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
(Amounts in thousands, except share |
|
|
|
and per share data) |
|
ASSETS
|
Assets: |
|
|
|
|
|
|
|
|
Student housing properties, net |
|
$ |
732,979 |
|
|
$ |
804,759 |
|
Assets under development |
|
|
5,675 |
|
|
|
|
|
Corporate office furniture, net |
|
|
1,693 |
|
|
|
752 |
|
Cash and cash equivalents |
|
|
4,034 |
|
|
|
6,427 |
|
Restricted cash |
|
|
8,188 |
|
|
|
9,154 |
|
Student contracts receivable, net |
|
|
329 |
|
|
|
227 |
|
Receivable from affiliate |
|
|
18 |
|
|
|
369 |
|
Receivable from managed third parties |
|
|
606 |
|
|
|
1,055 |
|
Goodwill and other intangibles, net |
|
|
3,531 |
|
|
|
3,649 |
|
Other assets |
|
|
10,407 |
|
|
|
9,066 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
767,460 |
|
|
$ |
835,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Mortgage loans, net of unamortized premium/discount |
|
$ |
420,940 |
|
|
$ |
423,933 |
|
Other long-term debt |
|
|
|
|
|
|
47,000 |
|
Revolving line of credit |
|
|
11,500 |
|
|
|
22,400 |
|
Accounts payable |
|
|
1,397 |
|
|
|
696 |
|
Accrued expenses |
|
|
9,695 |
|
|
|
10,153 |
|
Accounts payable affiliate |
|
|
60 |
|
|
|
|
|
Deferred revenue |
|
|
7,928 |
|
|
|
8,988 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
451,520 |
|
|
|
513,170 |
|
|
|
|
|
|
|
|
Minority interest |
|
|
18,121 |
|
|
|
19,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note 16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 200,000,000 shares
authorized, 28,431,855 and 26,810,552 shares
issued and outstanding as of December 31, 2007 and
2006, respectively |
|
|
284 |
|
|
|
268 |
|
Preferred shares, $0.01 par value, 50,000,000
shares authorized, no shares issued and
outstanding |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
330,969 |
|
|
|
330,374 |
|
Warrants |
|
|
|
|
|
|
375 |
|
Accumulated deficit |
|
|
(33,434 |
) |
|
|
(28,018 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
297,819 |
|
|
|
302,999 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
767,460 |
|
|
$ |
835,458 |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated and combined financial statements.
53
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EDR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Education Realty Trust, Inc. |
|
|
Combined |
|
|
|
Consolidated |
|
|
January 1 |
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
through |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
January 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
(Amounts in thousands, except share and per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing revenue |
|
$ |
85,651 |
|
|
$ |
81,202 |
|
|
$ |
68,507 |
|
|
$ |
1,503 |
|
Student housing food service
revenue |
|
|
2,359 |
|
|
|
3,634 |
|
|
|
3,222 |
|
|
|
269 |
|
Other leasing revenue |
|
|
13,811 |
|
|
|
14,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party development
services |
|
|
5,411 |
|
|
|
3,773 |
|
|
|
1,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party management services |
|
|
3,391 |
|
|
|
2,796 |
|
|
|
1,865 |
|
|
|
103 |
|
Operating expense
reimbursements |
|
|
9,330 |
|
|
|
7,638 |
|
|
|
6,023 |
|
|
|
671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
119,953 |
|
|
|
113,055 |
|
|
|
81,376 |
|
|
|
2,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing
operations |
|
|
41,215 |
|
|
|
39,503 |
|
|
|
34,234 |
|
|
|
524 |
|
Student housing food service
operations |
|
|
2,236 |
|
|
|
3,318 |
|
|
|
3,020 |
|
|
|
255 |
|
General and administrative |
|
|
14,561 |
|
|
|
12,331 |
|
|
|
12,182 |
|
|
|
367 |
|
Depreciation and amortization |
|
|
32,223 |
|
|
|
34,035 |
|
|
|
26,585 |
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursable operating expenses |
|
|
9,330 |
|
|
|
7,638 |
|
|
|
6,023 |
|
|
|
671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
99,565 |
|
|
|
96,825 |
|
|
|
82,044 |
|
|
|
2,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
20,388 |
|
|
|
16,230 |
|
|
|
(668 |
) |
|
|
469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
26,957 |
|
|
|
29,353 |
|
|
|
16,186 |
|
|
|
479 |
|
Exit fees on early repayment
of debt |
|
|
174 |
|
|
|
|
|
|
|
1,084 |
|
|
|
|
|
Amortization of deferred
financing costs |
|
|
1,036 |
|
|
|
1,114 |
|
|
|
820 |
|
|
|
|
|
Interest income |
|
|
(492 |
) |
|
|
(534 |
) |
|
|
(1,303 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expenses |
|
|
27,675 |
|
|
|
29,933 |
|
|
|
16,787 |
|
|
|
479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in earnings
of unconsolidated entities,
income taxes, minority
interest and discontinued
operations |
|
|
(7,287 |
) |
|
|
(13,703 |
) |
|
|
(17,455 |
) |
|
|
(10 |
) |
Equity in earnings of
unconsolidated entities |
|
|
(277 |
) |
|
|
740 |
|
|
|
853 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes, minority interest and
discontinued operations |
|
|
(7,564 |
) |
|
|
(12,963 |
) |
|
|
(16,602 |
) |
|
|
17 |
|
Taxes |
|
|
258 |
|
|
|
659 |
|
|
|
497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated and combined financial statements.
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EDR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Education Realty Trust, Inc. |
|
|
Combined |
|
|
|
Consolidated |
|
|
January 1 |
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
through |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
January 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
(Amounts in thousands, except share and per share data) |
|
Income (loss) before minority
interest and discontinued
operations |
|
|
(7,822 |
) |
|
|
(13,622 |
) |
|
|
(17,099 |
) |
|
|
17 |
|
Minority interest |
|
|
(39 |
) |
|
|
(404 |
) |
|
|
(1,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(7,783 |
) |
|
|
(13,218 |
) |
|
|
(16,026 |
) |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations, net of minority
interest of $34, $49 and
$33, respectively |
|
|
788 |
|
|
|
973 |
|
|
|
475 |
|
|
|
|
|
Gain on sale of student
housing property, net of
minority interest of $65 |
|
|
1,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations |
|
|
2,367 |
|
|
|
973 |
|
|
|
475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
|
$ |
(15,551 |
) |
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share
basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(0.28 |
) |
|
|
(0.50 |
) |
|
|
(0.69 |
) |
|
|
|
|
Discontinued operations |
|
|
0.08 |
|
|
|
0.04 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share |
|
$ |
(0.20 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding basic and
diluted |
|
|
28,010,144 |
|
|
|
26,387,547 |
|
|
|
23,063,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions per common share |
|
$ |
0.82 |
|
|
$ |
1.10 |
|
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated and combined financial statements.
55
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN
STOCKHOLDERS AND OWNERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Unearned |
|
|
|
|
|
|
Loan to |
|
|
|
|
|
|
EDR |
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Deferred |
|
|
|
|
|
|
Unit |
|
|
Accumulated |
|
|
Predecessor |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Compensation |
|
|
Warrants |
|
|
Holder |
|
|
Deficit |
|
|
Equity |
|
|
Total |
|
|
|
(Amounts in thousands, except share and per share data) |
|
EDR Predecessor: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2004 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,789 |
|
|
$ |
1,789 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 30,
2005 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,806 |
|
|
$ |
1,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Trust: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Reclassification of
unearned compensation
upon adoption of SFAS
123R |
|
|
|
|
|
|
|
|
|
|
(2,470 |
) |
|
|
2,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares
issued to officers
and directors |
|
|
6,000 |
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
Amortization of
restricted stock |
|
|
36,000 |
|
|
|
|
|
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604 |
|
Operating unit
conversion to common
stock |
|
|
99,056 |
|
|
|
1 |
|
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,390 |
|
Redemption of
minority interest to
satisfy loan to
unitholder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,996 |
|
|
|
|
|
|
|
|
|
|
|
5,996 |
|
See accompanying notes to the consolidated and combined financial statements.
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Unearned |
|
|
|
|
|
|
Loan to |
|
|
|
|
|
|
EDR |
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Deferred |
|
|
|
|
|
|
Unit |
|
|
Accumulated |
|
|
Predecessor |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Compensation |
|
|
Warrants |
|
|
Holder |
|
|
Deficit |
|
|
Equity |
|
|
Total |
|
|
|
(Amounts in thousands, except share and per share data) |
|
Net proceeds from
issuance of common
shares -direct stock
purchase plan and
dividend reinvestment
plan |
|
|
405,607 |
|
|
|
4 |
|
|
|
5,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,747 |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
(29,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,114 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,245 |
) |
|
|
|
|
|
|
(12,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2006 |
|
|
26,810,552 |
|
|
|
268 |
|
|
|
330,374 |
|
|
|
|
|
|
|
375 |
|
|
|
|
|
|
|
(28,018 |
) |
|
|
|
|
|
|
302,999 |
|
Restricted shares
issued to officers
and directors |
|
|
8,000 |
|
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113 |
|
Amortization of
restricted stock |
|
|
36,000 |
|
|
|
|
|
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604 |
|
Net proceeds from
issuance of common
shares direct stock
purchase plan and
dividend reinvestment
plan |
|
|
1,577,303 |
|
|
|
16 |
|
|
|
22,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,492 |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
(22,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,985 |
) |
Expiration of Warrants |
|
|
|
|
|
|
|
|
|
|
375 |
|
|
|
|
|
|
|
(375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PIU Repurchase |
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,416 |
) |
|
|
|
|
|
|
(5,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2007 |
|
|
28,431,855 |
|
|
$ |
284 |
|
|
$ |
330,969 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(33,434 |
) |
|
$ |
|
|
|
$ |
297,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated and combined financial statements.
57
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EDR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Education Realty Trust, Inc. |
|
|
Combined |
|
|
|
Consolidated |
|
|
January 1 |
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
through |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
January 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(5,416 |
) |
|
$ |
(12,245 |
) |
|
$ |
(15,551 |
) |
|
$ |
17 |
|
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
32,223 |
|
|
|
34,035 |
|
|
|
26,585 |
|
|
|
246 |
|
Depreciation included in
discontinued operations |
|
|
711 |
|
|
|
2,048 |
|
|
|
2,323 |
|
|
|
|
|
Deferred tax expense (benefit) |
|
|
(178 |
) |
|
|
48 |
|
|
|
(209 |
) |
|
|
|
|
Loss on disposal of assets |
|
|
38 |
|
|
|
11 |
|
|
|
18 |
|
|
|
|
|
Gain on sale of student housing
property |
|
|
(1,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early repayment of debt |
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing
costs |
|
|
1,036 |
|
|
|
1,114 |
|
|
|
820 |
|
|
|
14 |
|
Amortization of unamortized debt
premiums/discounts |
|
|
(583 |
) |
|
|
(559 |
) |
|
|
(364 |
) |
|
|
|
|
Distributions of earnings from
unconsolidated entities |
|
|
364 |
|
|
|
787 |
|
|
|
879 |
|
|
|
|
|
Noncash compensation expense
related to PIUs and restricted
stock |
|
|
772 |
|
|
|
796 |
|
|
|
4,783 |
|
|
|
|
|
Equity in earnings of
unconsolidated entities |
|
|
277 |
|
|
|
(740 |
) |
|
|
(853 |
) |
|
|
(27 |
) |
Minority interest in continuing
operations |
|
|
(39 |
) |
|
|
(404 |
) |
|
|
(1,073 |
) |
|
|
|
|
Minority interest in discontinued
operations |
|
|
99 |
|
|
|
49 |
|
|
|
33 |
|
|
|
|
|
Change in operating assets and
liabilities (net of acquisitions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student contracts receivable |
|
|
(291 |
) |
|
|
259 |
|
|
|
(374 |
) |
|
|
(5 |
) |
Management fees receivable |
|
|
63 |
|
|
|
(117 |
) |
|
|
(284 |
) |
|
|
63 |
|
Other assets |
|
|
(1,104 |
) |
|
|
(1,272 |
) |
|
|
868 |
|
|
|
(818 |
) |
Accounts payable and accrued
expenses |
|
|
509 |
|
|
|
697 |
|
|
|
3,069 |
|
|
|
712 |
|
Accounts payable affiliate |
|
|
411 |
|
|
|
(594 |
) |
|
|
(3,729 |
) |
|
|
276 |
|
Deferred revenue |
|
|
(580 |
) |
|
|
1,274 |
|
|
|
1,432 |
|
|
|
(320 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
26,806 |
|
|
|
25,187 |
|
|
|
18,373 |
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquisitions, net of cash
acquired |
|
|
|
|
|
|
(112,717 |
) |
|
|
(187,283 |
) |
|
|
(25 |
) |
Deferred acquisition costs and
earnest money deposits |
|
|
|
|
|
|
|
|
|
|
(4,718 |
) |
|
|
|
|
Purchase of corporate furniture and
fixtures |
|
|
(1,348 |
) |
|
|
(86 |
) |
|
|
(1,093 |
) |
|
|
|
|
Restricted cash |
|
|
966 |
|
|
|
(40 |
) |
|
|
(1,725 |
) |
|
|
(2,348 |
) |
Insurance proceeds on property loss |
|
|
|
|
|
|
184 |
|
|
|
175 |
|
|
|
|
|
Investment in student housing
properties |
|
|
(8,463 |
) |
|
|
(4,858 |
) |
|
|
(5,513 |
) |
|
|
|
|
Proceeds from sale of student
housing properties |
|
|
48,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated and combined financial statements.
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EDR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Education Realty Trust, Inc. |
|
|
Combined |
|
|
|
Consolidated |
|
|
January 1 |
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
through |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
January 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
Loan to equity investee |
|
|
(845 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in assets under
development |
|
|
(5,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Investments in joint ventures |
|
|
(178 |
) |
|
|
(3,313 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
|
33,399 |
|
|
|
(120,830 |
) |
|
|
(200,157 |
) |
|
|
(2,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of mortgage notes |
|
|
(60,158 |
) |
|
|
(2,503 |
) |
|
|
(115,782 |
) |
|
|
(98 |
) |
Borrowings of mortgage notes |
|
|
57,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt |
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(47,000 |
) |
|
|
(3,000 |
) |
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
(551 |
) |
|
|
(1,352 |
) |
|
|
(3,176 |
) |
|
|
|
|
Borrowing (repayment) of line of
credit, net |
|
|
(10,900 |
) |
|
|
22,400 |
|
|
|
(497 |
) |
|
|
|
|
Loan to unit holder |
|
|
|
|
|
|
|
|
|
|
(5,996 |
) |
|
|
|
|
Proceeds (payments) from issuance
of common stock |
|
|
22,414 |
|
|
|
5,994 |
|
|
|
419,600 |
|
|
|
|
|
Payment of offering costs |
|
|
|
|
|
|
(248 |
) |
|
|
(30,008 |
) |
|
|
|
|
Dividends and distributions paid |
|
|
(24,203 |
) |
|
|
(30,875 |
) |
|
|
(20,213 |
) |
|
|
|
|
Borrowing/(repayment) of notes
payable affiliate |
|
|
|
|
|
|
|
|
|
|
(483 |
) |
|
|
|
|
Redemption of minority interest |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
|
(62,598 |
) |
|
|
40,408 |
|
|
|
243,445 |
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents |
|
|
(2,393 |
) |
|
|
(55,235 |
) |
|
|
61,661 |
|
|
|
(2,313 |
) |
Cash and cash equivalents, beginning of
period |
|
|
6,427 |
|
|
|
61,662 |
|
|
|
1 |
|
|
|
2,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
4,034 |
|
|
$ |
6,427 |
|
|
$ |
61,662 |
|
|
$ |
570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow
information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
27,520 |
|
|
$ |
29,180 |
|
|
$ |
9,778 |
|
|
$ |
471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
796 |
|
|
$ |
819 |
|
|
$ |
357 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Place acquisition costs paid in 2005 |
|
$ |
|
|
|
$ |
4,718 |
|
|
$ |
|
|
|
|
|
|
Redemption of minority interest to
satisfy loan to unitholder |
|
|
|
|
|
|
6,116 |
|
|
|
|
|
|
|
|
|
Prepaid offering costs charged
against equity |
|
|
|
|
|
|
|
|
|
|
2,218 |
|
|
|
|
|
Units issued in the Formation
Transactions |
|
|
|
|
|
|
|
|
|
|
26,340 |
|
|
|
|
|
Warrants issued (expired) |
|
|
(375 |
) |
|
|
|
|
|
|
375 |
|
|
|
|
|
Common stock issued under the
dividend reinvestment plan |
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt assumed in property
acquisitions net of premium |
|
|
|
|
|
|
98,660 |
|
|
|
444,964 |
|
|
|
|
|
See accompanying notes to the consolidated and combined financial statements.
59
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 |
|
|
|
|
The Reserve at Athens, Athens, Georgia |
|
|
|
|
The Reserve at Clemson, Clemson, South Carolina |
|
|
|
|
NorthPointe Apartments, Tucson, Arizona |
|
|
|
C Station, LLC, a Tennessee limited liability company, owned and operated one
garden-style student housing property referred to as College Station. |
|
|
|
|
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
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
60
the Offering, at a price of $16.00 per share.
The Offering raised net proceeds of approximately $320,400, after underwriting discounts and
offering expenses of approximately $29,200. 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 $36,500 of
offering proceeds and issued units approximating $18,300 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):
|
|
|
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 exercise price per share of 103% of the Offering
price. These warrants have a value approximating $375. The warrants
were exercisable beginning January 31, 2006 and expired on
February 28, 2007. In connection with the acquisition, the Operating
Partnership entered into an agreement to provide to the seller a
revolving loan commitment secured by a pledge of the Operating
Partnership units (499,688 units) issued to the seller in the purchase
transaction. On April 10, 2006, the Trust redeemed 400,632 Operating
Partnership units (minority interest) in full satisfaction of the
$5,996 note receivable and accrued interest of $120. The redemption of
minority interest was recorded in accordance with SFAS No. 141,
Business Combinations , which resulted in additional goodwill of $388.
The seller was released from the pledge of the remaining 99,056
Operating Partnership units. On April 26, 2006, the seller converted
the remaining units to the Trusts common stock. |
In connection with the Formation Transactions, the Trust paid off certain mortgage indebtedness
resulting in a prepayment penalty of approximately $1,100, which is reflected in nonoperating
expenses in the accompanying consolidated statement of operations for the year ended December 31,
2005.
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 $67,000, after offering expenses of
approximately $3,000. 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
61
Commission on January 25, 2006.
3. Summary of significant accounting policies
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 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.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
As of December 31, 2006, the deferred charge resulting from the straight lining of our rent expense
for our corporate headquarters, in the amount of $85, was reclassified from deferred revenue to
accrued expenses and $386 of other third party managed receivables was reclassified from other
assets to receivable from managed third parties. In 2006, $21 of general and administrative
expenses incurred by Place Portfolio was reclassified from other corporate expenses to student
housing leasing expenses in the segment reporting discussed in Note 11.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Significant estimates and
assumptions are used by management in determining the recognition of third-party development
consulting services revenue under the percentage of completion method, useful lives of student
housing assets, the valuation of goodwill, the initial valuations and underlying allocations of
purchase price in connection with student property acquisitions and in the recording of the
allowance for doubtful accounts. Actual results could differ from those estimates.
Cash and cash equivalents
All highly liquid investments with a maturity of three months or less when purchased are considered
cash equivalents. Restricted cash is excluded from cash for
the purpose of preparing the consolidated and combined statements of cash flows. The Trust
maintains cash balances in various banks. At times, the amounts of cash may exceed the $100
amount the FDIC insures. The Trust does not believe it is exposed to any significant credit risk on
cash and cash equivalents.
Restricted cash
Restricted cash includes escrow accounts held by lenders for the purpose of paying taxes,
insurance, principal and interest, and to fund capital improvements.
Distributions
The Trust pays regular quarterly cash distributions to shareholders. These distributions are
determined quarterly by the Board based on the operating results, economic conditions,
62
capital expenditure requirements, the Internal Revenue Codes REIT annual distribution requirements,
leverage covenants imposed by our revolving credit facility and other debt documents, and any other
matters the Board deems relevant.
Student housing properties
Land, land improvements, buildings and improvements, and furniture, fixtures and equipment are
recorded at cost. Buildings and improvements are depreciated over 30 to 40 years, land improvements
are depreciated over 15 years and furniture, fixtures, and equipment are depreciated over 3 to
7 years. Depreciation is computed using the straight-line method for financial reporting purposes
over the estimated useful life.
Acquisitions of student housing properties are accounted for utilizing the purchase method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and accordingly, the acquired student housing properties results of operations are
included in the Trusts results of operations from the respective dates of acquisition.
Pre-acquisition costs, which include legal and professional fees and other third party costs
related directly to the acquisition of the property, are accounted for as part of the purchase
price. 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 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, 2007, management
determined that no indicators of impairment existed.
Certain student housing properties are classified as held for sale based on the criteria within
SFAS No. 144. When a student housing property is identified as held for sale, fair value less cost
to sell of such asset is estimated. If fair value less cost to sell is less than the carrying
amount of the asset an impairment charge is recorded for the estimated loss. Depreciation expense
is no longer recorded once a student housing property has met the held for sale criteria.
Operations of student housing properties that are sold or classified as held for sale are recorded
as part of discontinued operations for all periods presented. No impairment loss on student housing
properties held for sale was recognized in the accompanying consolidated financial statements.
Deferred financing costs
Deferred financing costs represent costs incurred in connection with acquiring debt facilities. The
costs incurred during 2007 and 2006 were $551 and $1,352, respectively, and are being amortized
over the terms of the related debt using a method that approximates the effective interest method.
Amortization expense totaled $1,036, $1,114 and $820 for the Trust for 2007, 2006 and 2005,
respectively. Accumulated amortization for the Trust at December 31, 2007, 2006 and 2005, was
$2,970, $1,934 and $820, respectively. Deferred financing costs, net of
amortization, are included in other assets on the accompanying consolidated balance sheets.
Offering costs
Specific incremental costs directly attributable to the Offering, the Private Placement and the
dividend reinvestment plan were deferred and charged against the gross proceeds. Accordingly,
underwriting commissions and other stock issuance costs are reflected as a reduction of additional
paid-in capital.
Debt premiums/discounts
Differences between the estimated fair value of debt and the principal value of debt assumed in
connection with student housing property acquisitions are amortized over the term of the related
debt as an offset to interest expense using the effective interest method. As of December 31, 2007
and 2006, the Trust had net unamortized debt premiums of $1,673 and $2,308, respectively. These
amounts are included in mortgage loans in the accompanying consolidated balance sheets.
Income taxes
63
The Trust qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the Code). The
Trust is generally not subject to federal income tax to the extent that it distributes at least 90%
of its taxable income for each tax year to its 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 Predecessors combined financial
statements, as the owners are required to report their share of the EDR Predecessors earnings in
their respective income tax returns.
Earnings per share
The Trust calculates earnings per share in accordance with SFAS No. 128, Earnings Per Share. Basic
earnings per share is calculated by dividing net earnings available to common shares by weighted
average common shares outstanding. Diluted earnings per share is calculated similarly, except that
it includes the dilutive effect of the assumed exercise of potentially dilutive securities. At
December 31, 2007 and 2006, 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:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Operating Partnership units |
|
|
913,738 |
|
|
|
913,738 |
|
University Towers Operating Partnership units |
|
|
269,757 |
|
|
|
269,757 |
|
Restricted Stock (unvested shares) |
|
|
75,111 |
|
|
|
111,111 |
|
Profits Interest Units |
|
|
277,500 |
|
|
|
265,000 |
|
|
|
|
|
|
|
|
|
|
Total potentially dilutive securities |
|
|
1,536,106 |
|
|
|
1,559,606 |
|
|
|
|
|
|
|
|
|
|
A reconciliation of the numerators and denominators for the basic and diluted earnings per share
computations is not required as the Trust reported a loss from continuing operations for all
periods presented, and therefore the effect of the inclusion of all potentially dilutive securities
would be anti-dilutive when computing diluted earnings per share; thus, the computation for both
basic and diluted earnings per share is the same.
Repairs, maintenance, and major improvements
The costs of ordinary repairs and maintenance are charged to operations when incurred. Major
improvements that extend the life of an asset are capitalized and depreciated over the remaining
useful life of the asset. Planned major repair, maintenance and
improvement projects are capitalized when performed. In some circumstances, the lenders require the
Trust to maintain a reserve account for future repairs and capital expenditures. These amounts are
classified as restricted cash as the funds are not available for current use.
Goodwill and other intangible assets
The Trust accounts for its goodwill and other intangible assets under SFAS No. 142, Goodwill and
Other Intangible Assets. Goodwill is tested annually for impairment, and is tested for impairment
more frequently if events and circumstances indicate that the 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 share of equity in earnings of the respective investment reduced by distributions received.
The earnings and distributions of the unconsolidated joint ventures and limited liability companies
are allocated based on each owners respective ownership interests. These investments are
classified as other assets in the accompanying balance sheet. As of December 31, 2007 and 2006, the
Trust had investments, directly or indirectly, in the following unconsolidated joint ventures and
limited liability companies
64
that are accounted for under the equity method:
|
|
|
Salisbury Student Apartment Developers Joint Venture, 33% owned by AOES |
|
|
|
|
|
Salisbury Student Apartment Developers LLC, a Maryland limited
liability company 33% owned by AOES |
|
|
|
|
|
University of Louisville Apartment Developers LLC, a Kentucky limited
liability company 50% owned by AOES |
|
|
|
|
Hines/ AOES LLC, an Alabama limited liability company, 50% owned by
AOES |
|
|
|
|
|
National Development/ Allen & OHara CUPA, LLC, a Pennsylvania limited
liability company, 50% owned by Allen & OHara Development Company,
LLC (AODC) |
|
|
|
|
|
National Development/ Allen & OHara Lock Haven, LLC, a Pennsylvania
limited liability company, 50% owned by AODC |
|
|
|
|
|
National Development/ Allen & OHara Clarion, LLC, a Pennsylvania
limited liability company, 50% owned by AODC |
|
|
|
|
|
Allen & OHara National Development Bloomsburg LLC, a Pennsylvania
limited liability company, 50% owned by AODC |
|
|
|
|
|
Allen & OHara/ Academic Privatization LLC, a Tennessee limited
liability company, 50% owned by AODC |
|
|
|
|
University Village-Greensboro LLC, a Delaware limited liability
company, 25% owned by EROP |
|
|
|
|
|
AODC/CPA, LLC, a Delaware limited liability company, 50% owned by AODC |
|
|
|
|
|
WEDR Riverside Investors V, LLC, a Delaware limited liability company,
10% owned by EROP |
|
|
|
|
|
APF EDR, LP, a Delaware limited partnership, 10% owned by EROP |
|
|
|
|
|
APF EDR Food Services, LP, a Delaware limited partnership, 10% owned
by EROP |
|
|
|
|
|
WEDR Stinson Investors V, LLC, a Delaware limited liability company,
10% owned by EROP |
Revenue recognition
The Trust recognizes revenue related to leasing activities at the student housing properties owned
by the Trust, management fees related to managing third party student housing properties,
development consulting fees related to the general oversight of third party student housing
development and operating expense reimbursements for payroll and related expenses incurred by third
party student housing properties managed by the Trust.
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 requires each executed
leasing contract to be 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 has no contingent rental contracts except as noted below related to other
leasing revenue. The future minimum rental income to be received based on leases held as of
December 31, 2007 is approximately $50,436. At certain student housing facilities, the Trust
offered 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 maintains a dining facility at University Towers,
which offers meal plans to the tenants as well as dining to other third party customers. The meal
plans typically require upfront payment by the tenant covering the school semester and the related
revenue is recognized on a straight-line basis over the corresponding semester. The Trust provided
food service to an unaffiliated secondary boarding school through a contract covering a nine-month
period. This contract was terminated in 2006. The contract required a flat weekly fee and the
related revenues were recognized on a straight-line basis over the contract
65
period.
Other leasing revenue Other leasing revenue relates to our leasing of the 13 properties we
acquired from Place Properties (Place) on January 1, 2006 as discussed in Note 5. Simultaneous
with the acquisition of the 13 properties, the Trust leased the assets to Place and received base
monthly rent of $1,145 and had the right to receive Additional Rent annually if the properties
exceed certain criteria defined in the lease agreement. Base rent was recognized on a straight-line
basis over the lease term and Additional Rent was recognized only upon satisfaction of the defined
criteria. The lease was terminated on February 1, 2008 as discussed in Note 18.
Third-party development consulting revenue The Trust provides development-consulting services in
an agency capacity with third parties whereby the fee is determined based upon the total
construction costs. 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 enters into management contracts to manage third party
student housing facilities. Management revenues are recognized when earned in accordance with each
management contract. Incentive management fees are recognized when the incentive criteria have been
met.
Operating expense reimbursement revenue The Trust pays certain payroll and related costs related
to the operations of third party student housing properties that are managed by the Trust. Under
the terms of the related management agreements, the third party property owners reimburse these
costs. The amounts billed to the third party owners are recognized as revenue in accordance with
Emerging Issues Task Force No. 01-14, Income Statement Characterization of Reimbursements Received
for Out of Pocket Expenses Incurred.
Due to the nature of the Trusts business, accounts receivable result primarily from monthly
billings of student rents. Payments are normally received within 30 days. Balances are considered
past due when payment is not received on the contractual due date. Allowances for uncollectible accounts are
established by management when it is determined that collection is doubtful. Such allowances are
reviewed periodically based upon experience. The following table reconciles the allowance for
doubtful accounts as of and for the years ended December 31, 2007, 2006 and 2005, for the Trust.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Balance, beginning of period |
|
$ |
43 |
|
|
$ |
410 |
|
|
$ |
|
|
Provision for uncollectible accounts |
|
|
804 |
|
|
|
775 |
|
|
|
2,306 |
|
Deductions |
|
|
(674 |
) |
|
|
(1,142 |
) |
|
|
(1,896 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
173 |
|
|
$ |
43 |
|
|
$ |
410 |
|
|
|
|
|
|
|
|
|
|
|
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 expense
Advertising expenses are charged to income during the period incurred. The Trust does not use
direct response advertising. Advertising expense was $1,627, $1,871 and $1,990 for 2007, 2006 and
2005, respectively.
Minority interests
Minority interests in the Operating Partnership represent limited partnership interests in the form
of operating partnership units and profits interest units. Income is allocated to minority
interests based on weighted average percentage ownership each fiscal quarter. In the event the
Operating Partnership was terminated on December 31, 2007, the amount of consideration paid to the
minority interests holders would be in accordance with their positive capital account balances,
determined after taking into account all capital account adjustments for all prior periods and the
Operating Partnerships taxable year during which the termination occurs.
Segment information
The Trust applies SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which requires disclosure of certain operating and financial data with respect to
separate business activities within an enterprise. The Trust has identified three reportable
business segments: student housing leasing, student housing development consulting services, and
66
student housing management services.
Stock-based compensation
The Trust adopted the Education Realty Trust, Inc. 2004 Incentive Plan (the Plan) effective upon
the closing of the Offering. The Plan is described more fully in Note 9. The Trust adopted SFAS
No. 123 (R), Share-Based Payment on January 1, 2006, which requires that compensation costs
related to share-based payments be recognized in financial statements. Prior to January 1, 2006,
the Trust applied the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations.
Fair value of financial instruments
The Trust follows SFAS No. 107, Disclosure about the Fair Value of Financial Instruments, which
requires the disclosure of the fair value of financial instruments for which it is practicable to
estimate. The Trust does not hold or issue financial instruments for trading purposes. The Trust
considers the carrying amounts of cash and cash equivalents, restricted cash and short-term
investments, student contracts receivable, accounts payable and accrued expenses to approximate
fair value due to the short maturity of these instruments. The Trust has estimated the fair value
of the mortgage notes payable utilizing present value techniques. At December 31, 2007, the
carrying amount and estimated fair value of the mortgage notes payable was $419,267 and $417,385,
respectively. At December 31, 2006, the carrying amount and estimated fair value of the mortgage
notes payable was $423,933 and $404,240, respectively. The revolving credit facility bears interest
at variable rates and therefore cost approximates market value at December 31, 2007 and 2006.
Recent accounting pronouncements
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108
(SAB 108), which becomes effective for fiscal years ending after November 15, 2006. SAB 108
provides guidance on the consideration of the effects of prior period misstatements in quantifying
current year misstatements for the purpose of a materiality assessment. SAB 108 requires an entity
to evaluate the impact of correcting all misstatements, including both the carryover and reversing
effects of prior year misstatements, on current year financial statements. If a misstatement is
material to the current year financial statements, the prior year financial statements should also
be corrected, even though such revision was, and continues to be, immaterial to the prior year
financial statements. Correcting prior year financial statements for immaterial errors would not
require previously filed reports to be amended. Such correction should be made in the current
period filings. The adoption of SAB 108 did not have a material impact on the Trusts consolidated
financial condition or results of operations taken as a whole.
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a companys financial
statements and prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. The Interpretation also provides guidance on description, classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN 48 became effective on
January 1, 2007. The Trust had no unrecognized tax benefits as of the date of adoption through
December 31, 2007. As of December 31, 2007, the Trust does not expect to record any unrecognized
tax benefits during 2008. The Trust, or its subsidiaries, file income tax returns in the U.S.
Federal jurisdiction and various states jurisdictions. As of December 31, 2007, open tax years
generally include tax years 2004-2007. The Trusts policy is to include interest and penalties
related to unrecognized tax benefits in general and administrative expenses. At December 31, 2007,
the Trust had no interest or penalties recorded related to unrecognized tax benefits. The adoption
of FIN 48 did not have a material impact on the Trusts consolidated financial condition or results
of operations taken as a whole.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157
does not address what to measure at fair value; instead, it addresses how to measure fair
value. SFAS 157 applies (with limited exceptions) to existing standards that require assets or
liabilities to be measured at fair value. SFAS 157 establishes a fair value hierarchy, giving the
highest priority to quoted prices in active markets and the lowest priority to unobservable data
and requires new disclosures for assets and liabilities measured at fair value based on their level
in the hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007. The Trust has evaluated SFAS 157 and determined the adoption will not have
a
67
material impact on its consolidated financial condition and results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159), which permits the option to measure financial instruments and
certain other items at fair value, with changes in fair value recorded in earnings. SFAS 159 is
effective for financial statements issued for fiscal years beginning after November 15, 2007. The
Trust has evaluated SFAS 159 and determined the adoption will not have a material impact on its
consolidated financial condition and results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R).
SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial effects
of the business combination. SFAS 141R is effective for financial statements issued for fiscal
years beginning after December 15, 2008. The Trust is currently evaluating the impact of adopting
SFAS 141R on its consolidated financial condition and results of operations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held by parties other
than the parent, the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parents ownership interest, and
the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15, 2008. The Trust is
currently evaluating the impact of adopting SFAS 160 on its consolidated financial condition and
results of operations.
4. Income taxes
Deferred income taxes result from temporary differences between the carrying amounts of assets and
liabilities of the TRS for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the deferred tax assets and liabilities at December 31, 2007
and 2006, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Deferred revenue |
|
$ |
(19 |
) |
|
$ |
49 |
|
Depreciation and amortization |
|
|
412 |
|
|
|
335 |
|
Accrued expenses |
|
|
182 |
|
|
|
132 |
|
Straight line rent |
|
|
136 |
|
|
|
30 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
711 |
|
|
|
546 |
|
Deferred tax liability: |
|
|
|
|
|
|
|
|
Amortization of management
contracts intangible |
|
|
(30 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
681 |
|
|
$ |
502 |
|
|
|
|
|
|
|
|
Significant components of the income tax provision (benefit) for the years ended December 31, 2007,
2006 and 2005, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(127 |
) |
|
$ |
40 |
|
|
$ |
(182 |
) |
State |
|
|
(51 |
) |
|
|
8 |
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred expense (benefit) |
|
|
(178 |
) |
|
|
48 |
|
|
|
(209 |
) |
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
377 |
|
|
|
498 |
|
|
|
525 |
|
State |
|
|
59 |
|
|
|
113 |
|
|
|
181 |
|
|
|
|
|
|
|
|
|
|
|
Current expense |
|
|
436 |
|
|
|
611 |
|
|
|
706 |
|
|
|
|
|
|
|
|
|
|
|
Total provision |
|
$ |
258 |
|
|
$ |
659 |
|
|
$ |
497 |
|
|
|
|
|
|
|
|
|
|
|
TRS earnings subject to tax consisted of $666, $1,606 and $1,121 for 2007, 2006 and 2005
respectively. The reconciliation of income tax attributable to income before minority interest
computed at the U.S. statutory rate to income tax provision is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Tax provision at U.S. statutory rates on TRS
income subject to tax |
|
$ |
226 |
|
|
$ |
546 |
|
|
$ |
381 |
|
State income tax, net of federal benefit |
|
|
29 |
|
|
|
108 |
|
|
|
114 |
|
Other |
|
|
3 |
|
|
|
5 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Tax provision |
|
$ |
258 |
|
|
$ |
659 |
|
|
$ |
497 |
|
|
|
|
|
|
|
|
|
|
|
68
5. Acquisition of real estate investments
On June 28, 2007, the Trust completed the acquisition of land in Carbondale, Illinois for $1,946 in
order to develop a wholly owned student apartment community near Southern Illinois University.
Since the acquisition, we have incurred an additional $3,729 in costs to develop the community.
During 2007, we capitalized $58 of interest cost related to the development. All costs are
classified as assets under development in the accompanying consolidated balance sheet.
On January 1, 2006, the Operating Partnership acquired the 13 student housing properties referred
to as the Place Portfolio for a combination of cash, partnership units and assumed debt. The cash
contribution totaled approximately $105,200. The Operating Partnership also issued 36,954 Operating
Partnership units valued at approximately $500, and assumed liabilities of $800 and interest-only
mortgage debt of approximately $98,660. A summary follows of the fair values of the assets acquired
and the liabilities assumed as of the date of the acquisition:
|
|
|
|
|
|
|
Allocation |
|
|
|
Place Portfolio |
|
Current assets and restricted cash |
|
$ |
2,376 |
|
|
|
|
|
Student housing properties |
|
|
202,250 |
|
Other |
|
|
570 |
|
|
|
|
|
Total assets acquired |
|
|
205,196 |
|
Current liabilities |
|
|
(855 |
) |
Mortgage debt assumed net of
premium/discount |
|
|
(98,660 |
) |
Acquisition costs |
|
|
(7,446 |
) |
|
|
|
|
Purchase price |
|
$ |
98,235 |
|
|
|
|
|
On June 15, 2006, the Operating Partnership acquired Players Club, an off-campus collegiate
community located near Georgia Southern University in Statesboro, Georgia (Statesboro), for
$12,900 in cash and assumed liabilities. A summary follows of the fair values of the assets
acquired and the liabilities assumed as of the date of the acquisition:
|
|
|
|
|
|
|
Allocation |
|
|
|
Statesboro |
|
Current assets and restricted cash |
|
$ |
77 |
|
|
|
|
|
Student housing properties |
|
|
12,703 |
|
Other |
|
|
159 |
|
|
|
|
|
Total assets acquired |
|
|
12,939 |
|
Current liabilities |
|
|
(115 |
) |
Mortgage debt assumed net of premium/discount |
|
|
|
|
Acquisition costs |
|
|
(65 |
) |
|
|
|
|
Purchase price |
|
$ |
12,759 |
|
|
|
|
|
The results of operations for each acquisition have been included in our consolidated statements of
operations from the respective acquisition dates. In connection with the acquisitions that occurred
during 2005, $3,070 and $5,926 was allocated to goodwill and other identifiable intangibles
(in-place leases and management contracts), respectively. In connection with the Statesboro
acquisition discussed above, $159 was allocated to other identifiable intangibles (in-place
leases). In-place lease intangibles and management contracts are amortized over the estimated life
of the remaining lease/contract term. Accumulated amortization was $6,012 and $5,894 as of December
31, 2007 and 2006, respectively. Amortization expense totaled $118, $445 and $5,449 for 2007, 2006
and 2005, respectively. All in-place leases were fully amortized as of December 31, 2007.
Amortization expense for management contracts for 2008, 2009 and 2010 is estimated to be $35, $35
and $4, respectively, with all management contracts fully amortized in 2010.
In accordance with SFAS No. 142, goodwill is not subject to amortization. The carrying value of
goodwill is $3,458 (including the addition of $388 related to the redemption of minority interest
discussed in Note 2) at December 31, 2007 and 2006.
6. Disposition of real estate investments and discontinued operations
On June 5, 2007, the Trust sold the Village on Tharpe (Tharpe) student housing property for a
sales price of $50,000, resulting in net proceeds of approximately $48,942. The net proceeds where
used to pay off the Term Loan (see Note 10). The resulting gain on disposition of approximately
$1,579, net of minority interest, is included in discontinued operations in the accompanying
consolidated statement of operations for the year ended December 31, 2007. Accordingly, the results
of operations of Tharpe are included in discontinued operations for all periods presented. In
accordance with the provisions of SFAS No. 144, the Trust ceased depreciation on the property when
it met the held for sale criteria.
69
The following table summarizes income from discontinued operations, net of minority interest, and
the related realized gains on sales of real estate from discontinued operations, net of minority
interest, for the years ended December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Student housing leasing revenue |
|
$ |
2,692 |
|
|
$ |
6,236 |
|
|
$ |
5,867 |
|
Student housing leasing operating expenses |
|
|
(1,159 |
) |
|
|
(3,166 |
) |
|
|
(3,036 |
) |
Depreciation and amortization |
|
|
(711 |
) |
|
|
(2,048 |
) |
|
|
(2,323 |
) |
Minority interest in Operating Partnership |
|
|
(34 |
) |
|
|
(49 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations (net of minority interest) |
|
$ |
788 |
|
|
$ |
973 |
|
|
$ |
475 |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of student housing property |
|
$ |
1,644 |
|
|
$ |
|
|
|
$ |
|
|
Minority interest in Operating Partnership |
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of student housing property (net of minority interest) |
|
$ |
1,579 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
7. Student housing properties
Student housing properties consist of the following at December 31, 2007 and 2006 for the Trust,
respectively:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Land |
|
$ |
59,850 |
|
|
$ |
65,260 |
|
Land improvements |
|
|
53,250 |
|
|
|
54,825 |
|
Construction in progress |
|
|
1,749 |
|
|
|
88 |
|
Buildings |
|
|
667,120 |
|
|
|
705,802 |
|
Furniture, fixtures and equipment |
|
|
37,219 |
|
|
|
37,273 |
|
|
|
|
|
|
|
|
|
|
|
819,188 |
|
|
|
863,248 |
|
Less accumulated depreciation |
|
|
(86,209 |
) |
|
|
(58,489 |
) |
|
|
|
|
|
|
|
Student housing properties, net |
|
$ |
732,979 |
|
|
$ |
804,759 |
|
|
|
|
|
|
|
|
Following is certain information related to the Trusts investment in student housing properties as
of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
23,099 |
|
|
$ |
2,195 |
|
|
$ |
31,035 |
|
|
$ |
33,230 |
|
|
$ |
1,221 |
|
|
$ |
2,195 |
|
|
$ |
32,256 |
|
|
$ |
34,451 |
|
|
$ |
4,438 |
|
|
|
01/31/05 |
|
The Gables |
|
|
4,364 |
|
|
|
198 |
|
|
|
5,099 |
|
|
|
5,297 |
|
|
|
146 |
|
|
|
198 |
|
|
|
5,245 |
|
|
|
5,443 |
|
|
|
775 |
|
|
|
01/31/05 |
|
The Reserve at
Athens |
|
|
|
|
|
|
1,740 |
|
|
|
17,985 |
|
|
|
19,725 |
|
|
|
279 |
|
|
|
1,740 |
|
|
|
18,264 |
|
|
|
20,004 |
|
|
|
2,237 |
|
|
|
01/31/05 |
|
Players Club |
|
|
|
|
|
|
727 |
|
|
|
7,498 |
|
|
|
8,225 |
|
|
|
377 |
|
|
|
727 |
|
|
|
7,875 |
|
|
|
8,602 |
|
|
|
992 |
|
|
|
01/31/05 |
|
College Station |
|
|
|
|
|
|
244 |
|
|
|
2,190 |
|
|
|
2,434 |
|
|
|
157 |
|
|
|
244 |
|
|
|
2,347 |
|
|
|
2,591 |
|
|
|
422 |
|
|
|
01/31/05 |
|
The Reserve at
Clemson |
|
|
12,000 |
|
|
|
625 |
|
|
|
18,230 |
|
|
|
18,855 |
|
|
|
398 |
|
|
|
625 |
|
|
|
18,628 |
|
|
|
19,253 |
|
|
|
2,467 |
|
|
|
01/31/05 |
|
NorthPointe |
|
|
18,800 |
|
|
|
2,498 |
|
|
|
27,323 |
|
|
|
29,821 |
|
|
|
569 |
|
|
|
2,498 |
|
|
|
27,892 |
|
|
|
30,390 |
|
|
|
3,416 |
|
|
|
01/31/05 |
|
The Pointe at South
Florida |
|
|
23,467 |
|
|
|
3,508 |
|
|
|
30,510 |
|
|
|
34,018 |
|
|
|
1,126 |
|
|
|
3,508 |
|
|
|
31,636 |
|
|
|
35,144 |
|
|
|
4,272 |
|
|
|
01/31/05 |
|
The Reserve on
Perkins(1) |
|
|
|
|
|
|
913 |
|
|
|
15,795 |
|
|
|
16,708 |
|
|
|
501 |
|
|
|
913 |
|
|
|
16,296 |
|
|
|
17,209 |
|
|
|
2,225 |
|
|
|
01/31/05 |
|
The Commons at
Knoxville |
|
|
31,420 |
|
|
|
4,630 |
|
|
|
18,386 |
|
|
|
23,016 |
|
|
|
416 |
|
|
|
4,630 |
|
|
|
18,802 |
|
|
|
23,432 |
|
|
|
2,506 |
|
|
|
01/31/05 |
|
The Reserve at
Tallahassee |
|
|
|
|
|
|
2,743 |
|
|
|
21,176 |
|
|
|
23,919 |
|
|
|
645 |
|
|
|
2,743 |
|
|
|
21,821 |
|
|
|
24,564 |
|
|
|
2,811 |
|
|
|
01/31/05 |
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
The Pointe at
Western |
|
|
21,208 |
|
|
|
1,096 |
|
|
|
30,647 |
|
|
|
31,743 |
|
|
|
452 |
|
|
|
1,096 |
|
|
|
31,099 |
|
|
|
32,195 |
|
|
|
3,997 |
|
|
|
01/31/05 |
|
College Station at
W. Lafayette |
|
|
14,532 |
|
|
|
1,887 |
|
|
|
19,528 |
|
|
|
21,415 |
|
|
|
339 |
|
|
|
1,887 |
|
|
|
19,867 |
|
|
|
21,754 |
|
|
|
2,900 |
|
|
|
01/31/05 |
|
The Commons on
Kinnear |
|
|
14,434 |
|
|
|
1,327 |
|
|
|
20,803 |
|
|
|
22,130 |
|
|
|
246 |
|
|
|
1,327 |
|
|
|
21,049 |
|
|
|
22,376 |
|
|
|
2,436 |
|
|
|
01/31/05 |
|
The Pointe at Penn
State(2) |
|
|
|
|
|
|
2,151 |
|
|
|
35,094 |
|
|
|
37,245 |
|
|
|
372 |
|
|
|
2,151 |
|
|
|
35,466 |
|
|
|
37,617 |
|
|
|
4,299 |
|
|
|
01/31/05 |
|
The Reserve at Star
Pass |
|
|
49,821 |
|
|
|
1,584 |
|
|
|
30,810 |
|
|
|
32,394 |
|
|
|
531 |
|
|
|
1,584 |
|
|
|
31,341 |
|
|
|
32,925 |
|
|
|
4,019 |
|
|
|
01/31/05 |
|
The Reserve at
Columbia |
|
|
19,048 |
|
|
|
1,071 |
|
|
|
26,134 |
|
|
|
27,205 |
|
|
|
511 |
|
|
|
1,071 |
|
|
|
26,645 |
|
|
|
27,716 |
|
|
|
3,071 |
|
|
|
01/31/05 |
|
The Reserve on
Frankford |
|
|
14,237 |
|
|
|
1,181 |
|
|
|
26,758 |
|
|
|
27,939 |
|
|
|
534 |
|
|
|
1,181 |
|
|
|
27,292 |
|
|
|
28,473 |
|
|
|
3,788 |
|
|
|
01/31/05 |
|
The Lofts |
|
|
27,000 |
|
|
|
2,801 |
|
|
|
34,117 |
|
|
|
36,918 |
|
|
|
313 |
|
|
|
2,801 |
|
|
|
34,430 |
|
|
|
37,231 |
|
|
|
3,775 |
|
|
|
01/31/05 |
|
The Reserve on West
31st |
|
|
|
|
|
|
1,896 |
|
|
|
14,920 |
|
|
|
16,816 |
|
|
|
862 |
|
|
|
1,896 |
|
|
|
15,782 |
|
|
|
17,678 |
|
|
|
2,139 |
|
|
|
01/31/05 |
|
Campus Creek |
|
|
|
|
|
|
2,251 |
|
|
|
21,604 |
|
|
|
23,855 |
|
|
|
528 |
|
|
|
2,251 |
|
|
|
22,132 |
|
|
|
24,383 |
|
|
|
2,719 |
|
|
|
02/22/05 |
|
Pointe West |
|
|
10,815 |
|
|
|
2,318 |
|
|
|
10,924 |
|
|
|
13,242 |
|
|
|
320 |
|
|
|
2,318 |
|
|
|
11,244 |
|
|
|
13,562 |
|
|
|
1,643 |
|
|
|
03/17/05 |
|
Campus Lodge |
|
|
36,362 |
|
|
|
2,746 |
|
|
|
44,415 |
|
|
|
47,161 |
|
|
|
409 |
|
|
|
2,746 |
|
|
|
44,824 |
|
|
|
47,570 |
|
|
|
4,880 |
|
|
|
06/07/05 |
|
College Grove |
|
|
|
|
|
|
1,334 |
|
|
|
19,270 |
|
|
|
20,604 |
|
|
|
1,408 |
|
|
|
1,334 |
|
|
|
20,678 |
|
|
|
22,012 |
|
|
|
3,051 |
|
|
|
04/27/05 |
|
The Reserve on
South College |
|
|
|
|
|
|
1,744 |
|
|
|
10,784 |
|
|
|
12,528 |
|
|
|
1,186 |
|
|
|
1,744 |
|
|
|
11,970 |
|
|
|
13,714 |
|
|
|
1,566 |
|
|
|
07/06/05 |
|
Statesboro Players
Club |
|
|
|
|
|
|
2,028 |
|
|
|
10,675 |
|
|
|
12,703 |
|
|
|
1,594 |
|
|
|
2,028 |
|
|
|
12,269 |
|
|
|
14,297 |
|
|
|
679 |
|
|
|
06/15/06 |
|
Troy Place |
|
|
9,440 |
|
|
|
523 |
|
|
|
12,404 |
|
|
|
12,927 |
|
|
|
559 |
|
|
|
523 |
|
|
|
12,963 |
|
|
|
13,486 |
|
|
|
994 |
|
|
|
01/01/06 |
|
Jacksonville Place |
|
|
11,120 |
|
|
|
628 |
|
|
|
14,532 |
|
|
|
15,160 |
|
|
|
99 |
|
|
|
628 |
|
|
|
14,631 |
|
|
|
15,259 |
|
|
|
1,140 |
|
|
|
01/01/06 |
|
Statesboro Place |
|
|
|
|
|
|
1,180 |
|
|
|
17,288 |
|
|
|
18,468 |
|
|
|
218 |
|
|
|
1,180 |
|
|
|
17,506 |
|
|
|
18,686 |
|
|
|
1,336 |
|
|
|
01/01/06 |
|
Macon Place |
|
|
7,440 |
|
|
|
340 |
|
|
|
9,856 |
|
|
|
10,196 |
|
|
|
141 |
|
|
|
340 |
|
|
|
9,997 |
|
|
|
10,337 |
|
|
|
792 |
|
|
|
01/01/06 |
|
Clayton Place |
|
|
24,540 |
|
|
|
4,291 |
|
|
|
28,843 |
|
|
|
33,134 |
|
|
|
79 |
|
|
|
4,291 |
|
|
|
28,922 |
|
|
|
33,213 |
|
|
|
2,083 |
|
|
|
01/01/06 |
|
Carrollton Place |
|
|
|
|
|
|
682 |
|
|
|
12,166 |
|
|
|
12,848 |
|
|
|
133 |
|
|
|
682 |
|
|
|
12,299 |
|
|
|
12,981 |
|
|
|
873 |
|
|
|
01/01/06 |
|
River Place |
|
|
13,680 |
|
|
|
837 |
|
|
|
17,746 |
|
|
|
18,583 |
|
|
|
248 |
|
|
|
837 |
|
|
|
17,994 |
|
|
|
18,831 |
|
|
|
1,384 |
|
|
|
01/01/06 |
|
Murray Place |
|
|
6,800 |
|
|
|
550 |
|
|
|
8,864 |
|
|
|
9,414 |
|
|
|
241 |
|
|
|
550 |
|
|
|
9,105 |
|
|
|
9,655 |
|
|
|
807 |
|
|
|
01/01/06 |
|
Western Place |
|
|
|
|
|
|
660 |
|
|
|
16,332 |
|
|
|
16,992 |
|
|
|
74 |
|
|
|
660 |
|
|
|
16,406 |
|
|
|
17,066 |
|
|
|
1,243 |
|
|
|
01/01/06 |
|
Cape Place |
|
|
8,520 |
|
|
|
445 |
|
|
|
11,207 |
|
|
|
11,652 |
|
|
|
213 |
|
|
|
445 |
|
|
|
11,420 |
|
|
|
11,865 |
|
|
|
893 |
|
|
|
01/01/06 |
|
Clemson Place |
|
|
8,160 |
|
|
|
759 |
|
|
|
10,317 |
|
|
|
11,076 |
|
|
|
137 |
|
|
|
759 |
|
|
|
10,454 |
|
|
|
11,213 |
|
|
|
789 |
|
|
|
01/01/06 |
|
Berkeley Place |
|
|
|
|
|
|
1,048 |
|
|
|
18,497 |
|
|
|
19,545 |
|
|
|
59 |
|
|
|
1,048 |
|
|
|
18,556 |
|
|
|
19,604 |
|
|
|
1,366 |
|
|
|
01/01/06 |
|
Martin Place |
|
|
8,960 |
|
|
|
471 |
|
|
|
11,784 |
|
|
|
12,255 |
|
|
|
151 |
|
|
|
471 |
|
|
|
11,935 |
|
|
|
12,406 |
|
|
|
938 |
|
|
|
01/01/06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
419,267 |
|
|
$ |
59,850 |
|
|
$ |
741,546 |
|
|
$ |
801,396 |
|
|
$ |
17,792 |
|
|
$ |
59,850 |
|
|
$ |
759,338 |
|
|
$ |
819,188 |
|
|
$ |
86,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Reserve on Perkins is cross collateralized with The Commons at Knoxville against the $32,000 outstanding loan. |
|
|
|
|
71
|
|
|
(2) |
|
The Pointe at Penn State is cross collateralized with The Reserve at Star Pass against the $50,740 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. |
The following table reconciles the historical cost of the Trusts investment in student
housing properties for the years ended December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Balance, beginning of
period |
|
$ |
863,248 |
|
|
$ |
643,515 |
|
|
$ |
|
|
Student housing
acquisitions |
|
|
|
|
|
|
214,953 |
|
|
|
638,357 |
|
Student housing
dispositions |
|
|
(52,406 |
) |
|
|
|
|
|
|
|
|
Additions |
|
|
8,463 |
|
|
|
4,860 |
|
|
|
5,513 |
|
Disposals |
|
|
(117 |
) |
|
|
(80 |
) |
|
|
(355 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
819,188 |
|
|
$ |
863,248 |
|
|
$ |
643,515 |
|
|
|
|
|
|
|
|
|
| |
The following table reconciles the accumulated depreciation of the Trusts investment in student
housing properties for the years ended December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Balance, beginning of period |
|
$ |
58,489 |
|
|
$ |
23,210 |
|
|
$ |
|
|
Depreciation |
|
|
32,409 |
|
|
|
35,320 |
|
|
|
23,219 |
|
Disposals |
|
|
(77 |
) |
|
|
(41 |
) |
|
|
(9 |
) |
Student housing dispositions |
|
|
(4,612 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
86,209 |
|
|
$ |
58,489 |
|
|
$ |
23,210 |
|
|
|
|
|
|
| |
|
| |
8. Investments in unconsolidated entities
The Trusts ownership in SSAD, SSAD LLC, ULAD LLC, Hines/ AOES LLC, CUPA LLC, Lock Haven LLC,
Clarion LLC, Bloomsburg LLC, AP LLC, AODC/CPA, LLC, University Village-Greensboro LLC, WEDR
Riverside Investors V, LLC, WEDR Stinson Investors V, LLC, APF EDR, LP, and APF EDR Food Services,
LP is accounted for under the equity method. The following is a summary of financial information
for the Trusts unconsolidated joint ventures, limited liability companies, and limited
partnerships at December 31, 2007 and 2006 and for 2007, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Financial Position: |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
145,644 |
|
|
$ |
126,626 |
|
Total liabilities |
|
|
116,040 |
|
|
|
92,528 |
|
|
|
|
|
|
|
|
Equity (deficit) |
|
|
29,604 |
|
|
|
34,098 |
|
|
|
|
|
|
|
|
Trusts and EDR Predecessors
investment in unconsolidated
entities |
|
$ |
2,671 |
|
|
$ |
3,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Results of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
13,283 |
|
|
$ |
3,909 |
|
|
$ |
1,770 |
|
Net income (loss) |
|
|
(4,194 |
) |
|
|
1,013 |
|
|
|
1,720 |
|
Trusts and EDR
Predecessors equity
in earnings of
unconsolidated
entities |
|
$ |
(277 |
) |
|
$ |
740 |
|
|
$ |
853 |
|
These entities provide development consulting services to third party student housing owners in an
agency capacity or own student housing communities which are managed by the Trust.
9. Incentive plans
The Trust adopted the Education Realty Trust, Inc. 2004 Incentive Plan (the Plan) effective upon
the closing of the Offering. The Plan provides for the grant of stock options, restricted stock
units, stock appreciation rights, other stock-based incentive awards, and profits interest units to
employees, directors and other key persons providing services to the Trust. 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.
During 2007 and 2006, the Trust issued 4,000 shares of restricted stock each year to an executive
officer and 4,000 and 2,000 shares, respectively, to its independent directors. The 2007 and 2006
issuances vested immediately. 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
72
dividends or distributions on the shares. Restricted stock
is generally taxed at the time of vesting. At December 31, 2007 and 2006, unearned compensation
totaled $1,261 and $1,866, respectively, and will be recorded as expense over the applicable
vesting period. The value is determined based on the market value of the Trusts common stock on
the grant date. During 2007, 2006 and 2005, compensation expense of $691, $604 and $500,
respectively, was recognized in the accompanying consolidated statement of operations, related to
the vesting of restricted stock.
Additionally, the Trust granted 245,000 profits interest units in 2005 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 $4,100 in the accompanying consolidated
statements of operations for the year ended December 31, 2005. Profits interest units, or PIUs, are
units in a limited liability company controlled by the Trust that holds a special class of
partnership interests in the Operating Partnership. Each PIU will be deemed equivalent to an award
of one share of the Trusts common stock and will entitle the owner of such unit to receive the
same quarterly per unit distributions as one common unit of the Operating Partnership. This
treatment with respect to quarterly distributions is similar to the expected treatment of
restricted stock awards, which will generally receive full dividends whether vested or not. PIUs
will not initially have full parity with common units of the Operating Partnership with respect to
liquidating distributions.
Upon the occurrence of specified capital equalization events, PIUs may, over time, achieve full or
partial parity with common units of the Operating Partnership for all purposes, and could accrete
to an economic value equivalent to the Trusts common stock on a one-for-one basis. If such parity
is reached, vested PIUs may be exchanged into an equal number of the Trusts shares of common stock
at any time. However, there are circumstances under which full parity would not be reached. Until
such parity is reached, the value that may be realized for vested PIUs will be less than the value
of an equal number of shares of the Trusts common stock, if there is any value at all. The grant
or vesting of PIUs is not expected to be a taxable transaction to recipients. Conversely, we will
not receive any tax deduction for compensation expense from the grant of PIUs. PIUs are treated as
minority interests in the accompanying consolidated financial statements at an amount equal to the
holders ownership percentage of the net equity of the Operating Partnership.
Effective January 1, 2006, the Trust adopted the provisions of SFAS No. 123 (R) using the modified
prospective transition method. This pronouncement requires that compensation costs related to
share-based payments be recognized in financial statements. Prior to January 1, 2006, the Trust
applied the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Total compensation cost recognized in general and administrative expense in the
accompanying consolidated statements of operations for 2007, 2006 and 2005 was $772, $796 and
$4,600, respectively. The adoption of SFAS No. 123 (R) had no impact on the accompanying financial
statements other than the reclassification of unearned compensation of $2,470 to additional paid-in
capital in the accompanying statement of changes in stockholders equity.
A summary of the Trusts stock-based incentive plan activity as of and for the years ended
December 31, 2007, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
|
|
PIUs |
|
Stock |
|
Total |
Initial issuance |
|
|
220,000 |
|
|
|
174,000 |
|
|
|
394,000 |
|
Granted |
|
|
25,000 |
|
|
|
12,000 |
|
|
|
37,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2005 |
|
|
245,000 |
|
|
|
186,000 |
|
|
|
431,000 |
|
Granted |
|
|
22,500 |
|
|
|
6,000 |
|
|
|
28,500 |
|
Retired |
|
|
(2,500 |
) |
|
|
|
|
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2006 |
|
|
265,000 |
|
|
|
192,000 |
|
|
|
457,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
17,500 |
|
|
|
8,000 |
|
|
|
25,500 |
|
Retired |
|
|
(5,000 |
) |
|
|
|
|
|
|
(5,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2007 |
|
|
277,500 |
|
|
|
200,000 |
|
|
|
477,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at
December 31, 2007 |
|
|
277,500 |
|
|
|
124,889 |
|
|
|
402,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Debt
Notes payable and revolving credit facility
On March 31, 2006, the Operating Partnership amended and restated the revolving credit facility
(the Amended Revolver) dated January 31, 2005 in the amount of $100,000 and entered into a senior
unsecured term loan facility (the Term Loan) in the amount of $50,000. On June 8, 2007, the Trust
prepaid the entire balance outstanding on the Term Loan with the proceeds received from the sale of
the student housing
73
property discussed in Note 6. In conjunction with this prepayment, the Trust
recognized a loss from early extinguishment of debt totaling $174 consisting of the write-off of
unamortized deferred financing costs.
The Trust serves as the guarantor for any funds borrowed by the Operating Partnership under the
Amended Revolver. Additionally, the Amended Revolver is secured by a cross-collateralized, first
mortgage lien on six unmortgaged properties. The Amended Revolver has a term of three years and
matures on March 31, 2009, provided that the Operating Partnership may extend the maturity date for
one year subject to certain conditions. At December 31, 2007, there was $11,500 outstanding on the
Amended Revolver. The interest rate per annum applicable to the Amended Revolver is, at the
Operating Partnerships option, equal to a base rate or London InterBank Offered Rate (LIBOR)
plus an applicable margin based upon our leverage (6.95% at December 31, 2007).
Availability under the Operating Partnerships Amended Revolver is limited to a borrowing base
availability equal to the lesser of (i) 65% of the property asset value (as defined in the amended
credit agreement) of the properties securing the facility and (ii) the loan amount which would
produce a debt service coverage ratio of no less than 1.30, with debt service based on the greater
of two different sets of conditions specified in the amended credit agreement. At December 31,
2007 the Trust had $55,653 available under the Amended Revolver.
The Operating Partnerships Amended Revolver contains customary affirmative and negative covenants
and contains financial covenants that, among other things, require the Trust and its subsidiaries
to maintain certain minimum ratios of EBITDA (earnings before payment or charges of interest,
taxes, depreciation, amortization or extraordinary items) as compared to interest expense and total
fixed charges. The financial covenants also include consolidated net worth and leverage ratio
tests. During January 2007, the Trust determined it would be in violation of its interest coverage
ratio covenant related to the Amended Revolver. On February 27, 2007, the Trust entered into an
amendment to the Amended Revolver (First Amendment), whereby the interest coverage ratio was
adjusted from 1.85:1.00, to not less than 1.70:1.00 at all times from December 31, 2006 until
March 31, 2008. However, the First Amendment states that if the Trust attains an interest coverage
ratio greater than 1.85:1.00 during the effective period of the First Amendment, the interest
coverage ratio reverts back to 1.85:1.00 on a prospective basis. At September 30, 2007, the Trust
attained an interest coverage ratio of 1.87:1.00. Accordingly, the interest coverage ratio covenant
reverted back to 1.85:1.00 on a prospective basis.
The Trust is prohibited from making distributions that exceed $1.20 per share unless prior to and
after giving effect to such action the total leverage ratio is less than or equal to 60%. The
amount of restricted payments permitted may be increased as long as either of the following
conditions is met: (a) after giving effect to the increased restricted payment, the total leverage
ratio shall remain less than or equal to 60%; or (b) the increased restricted payment, when
considered along with all other restricted payments for the last 3 quarters, does not exceed
(i) 100% of funds from operations for the applicable period through and including December 31,
2007, and (ii) 95% of funds from operations for the applicable period thereafter.
During 2007, the Trust issued 1,571,692 shares of common stock under the direct stock purchase
plan, raising net proceeds of approximately $22,530 which were primarily used to pay down the
Amended Revolver.
Mortgage debt
At December 31, 2007, the Trust had mortgage notes payable consisting of the following notes which
were secured by the underlying student housing properties or leaseholds consisting of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Contractual Fixed |
|
|
Maturity |
|
|
|
|
Property |
|
2007 |
|
|
Interest Rate |
|
|
Date |
|
|
Amortization |
|
University Towers |
|
$ |
23,099 |
|
|
|
6.77 |
% |
|
|
3/1/2008 |
|
|
30 Year |
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Contractual Fixed |
|
|
Maturity |
|
|
|
|
Property |
|
2007 |
|
|
Interest Rate |
|
|
Date |
|
|
Amortization |
|
The Reserve at Clemson |
|
|
12,000 |
|
|
|
5.55 |
% |
|
|
3/1/2012 |
|
|
30 Year |
The Gables |
|
|
4,364 |
|
|
|
5.50 |
% |
|
|
11/1/2013 |
|
|
30 Year |
NorthPointe |
|
|
18,800 |
|
|
|
5.55 |
% |
|
|
3/1/2012 |
|
|
30 Year |
The Pointe at S. Florida |
|
|
23,467 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Pointe at Western |
|
|
21,209 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Lofts |
|
|
27,000 |
|
|
|
5.59 |
% |
|
|
5/1/2014 |
|
|
30 Year |
The Reserve on Perkins/The Commons at Knoxville |
|
|
31,420 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Pointe at Penn State/The Reserve at Star Pass |
|
|
49,821 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
Campus Lodge |
|
|
36,362 |
|
|
|
6.97 |
% |
|
|
5/1/2012 |
|
|
30 Year |
Pointe West |
|
|
10,815 |
|
|
|
4.92 |
% |
|
|
8/1/2014 |
|
|
30 Year |
College Station at W. Lafayette |
|
|
14,531 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Commons on Kinnear |
|
|
14,434 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Reserve at Frankford |
|
|
14,237 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Reserve at Columbia |
|
|
19,048 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
Troy Place |
|
|
9,440 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Jacksonville Place |
|
|
11,120 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Macon Place |
|
|
7,440 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Clayton Place |
|
|
24,540 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
River Place |
|
|
13,680 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Murray Place |
|
|
6,800 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Cape Place |
|
|
8,520 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Clemson Place |
|
|
8,160 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
Martin Place |
|
|
8,960 |
|
|
|
6.44 |
% |
|
|
12/9/2009 |
|
|
30 Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt /weighted average rate |
|
|
419,267 |
|
|
|
5.90 |
% |
|
|
|
|
|
|
|
|
Unamortized premium |
|
|
1,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans net of unamortized premium |
|
|
420,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion of mortgage debt |
|
|
(26,481 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net of current portion |
|
$ |
394,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, the Trust had mortgage notes payable consisting of the following notes which
were secured by the underlying student housing properties or leaseholds consisting of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Contractual Fixed |
|
|
Maturity |
|
|
|
|
Property |
|
2006 |
|
|
Interest Rate |
|
|
Date |
|
|
Amortization |
|
University Towers |
|
$ |
23,563 |
|
|
|
6.77 |
% |
|
|
3/1/2008 |
|
|
30 Year |
The Reserve at Clemson |
|
|
11,651 |
|
|
|
6.63 |
% |
|
|
5/1/2007 |
|
|
30 Year |
The Gables |
|
|
4,433 |
|
|
|
5.50 |
% |
|
|
11/1/2013 |
|
|
30 Year |
NorthPointe |
|
|
18,312 |
|
|
|
6.63 |
% |
|
|
5/1/2007 |
|
|
30 Year |
The Pointe at S. Florida |
|
|
23,779 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Pointe at Western |
|
|
21,490 |
|
|
|
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 |
|
|
31,838 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Pointe at Penn State/The Reserve at Star Pass |
|
|
50,482 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
Campus Lodge |
|
|
36,854 |
|
|
|
6.97 |
% |
|
|
5/1/2012 |
|
|
30 Year |
Pointe West |
|
|
10,986 |
|
|
|
4.92 |
% |
|
|
8/1/2014 |
|
|
30 Year |
College Station at W. Lafayette |
|
|
14,725 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Commons on Kinnear |
|
|
14,625 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |
The Reserve at Frankford |
|
|
14,426 |
|
|
|
5.48 |
% |
|
|
7/7/2009 |
|
|
30 Year |