EDUCATION REALTY TRUST, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2007
Or
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o |
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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, Memphis, Tennessee
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38117 |
(Address of principal executive offices)
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(Zip Code) |
(Registrants telephone number, including area code): (901)259-2500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer o
Accelerated filer
þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of November 5, 2007, the latest practicable date, the Registrant had outstanding 28,506,966
shares of common stock, $.01 par value per share.
EDUCATION REALTY TRUST, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2007
TABLE OF CONTENTS
1
Part I Financial Information
Item 1. Financial Statements.
EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
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September 30, 2007 |
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December 31, 2006 |
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(Unaudited) |
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Assets |
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Student housing properties, net |
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$ |
738,788 |
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$ |
804,759 |
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Assets under development |
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2,457 |
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Corporate office furniture, net |
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1,782 |
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752 |
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Cash and cash equivalents |
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3,171 |
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6,427 |
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Restricted cash |
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9,534 |
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9,154 |
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Student contracts receivable, net |
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185 |
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227 |
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Receivable from affiliate |
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428 |
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369 |
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Management fee receivable from third party |
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630 |
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669 |
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Goodwill and other intangibles, net |
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3,540 |
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3,649 |
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Other assets |
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10,127 |
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9,452 |
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Total assets |
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$ |
770,642 |
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$ |
835,458 |
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Liabilities and stockholders equity |
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Liabilities: |
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Mortgage loans, net of unamortized premium/discount |
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$ |
422,071 |
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$ |
423,933 |
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Term loan |
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47,000 |
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Revolving line of credit |
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2,200 |
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22,400 |
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Accounts payable and accrued expenses |
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14,423 |
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10,764 |
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Deferred revenue |
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10,997 |
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9,073 |
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Total liabilities |
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449,691 |
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513,170 |
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Minority interest |
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18,108 |
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19,289 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock, $.01 par value, 200,000,000 shares
authorized, 28,422,849 and 26,810,552 shares
issued and outstanding at September 30, 2007 and
December 31, 2006, respectively |
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284 |
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268 |
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Preferred shares, $0.01 par value, 50,000,000
shares authorized, no shares issued and
outstanding |
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Additional paid-in capital |
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336,676 |
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330,374 |
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Warrants |
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375 |
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Accumulated deficit |
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(34,117 |
) |
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(28,018 |
) |
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Total stockholders equity |
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302,843 |
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302,999 |
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Total liabilities and stockholders equity |
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$ |
770,642 |
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$ |
835,458 |
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See accompanying notes to the condensed consolidated financial statements.
2
EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(Unaudited)
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Nine months |
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Nine months |
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ended |
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ended |
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September 30, |
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September 30, |
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2007 |
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2006 |
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Revenues: |
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Student housing leasing revenue |
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$ |
62,381 |
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$ |
58,723 |
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Student housing food service revenue |
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1,744 |
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2,670 |
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Other leasing revenue |
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10,377 |
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10,577 |
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Third-party development services |
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3,354 |
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2,283 |
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Third-party management services |
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2,447 |
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2,051 |
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Operating expense reimbursements |
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7,055 |
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5,891 |
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Total revenues |
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87,358 |
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82,195 |
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Operating expenses: |
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Student housing leasing operations |
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31,227 |
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29,706 |
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Student housing food service operations |
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1,683 |
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2,427 |
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General and administrative |
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10,789 |
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9,037 |
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Depreciation and amortization |
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24,009 |
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25,904 |
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Reimbursable operating expenses |
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7,055 |
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5,891 |
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Total operating expenses |
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74,763 |
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72,965 |
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Operating income |
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12,595 |
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9,230 |
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Nonoperating expenses: |
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Interest expense |
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20,676 |
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21,682 |
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Amortization of deferred financing costs |
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792 |
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834 |
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Loss on early repayment of debt |
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174 |
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Interest income |
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(353 |
) |
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(439 |
) |
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Total nonoperating expenses |
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21,289 |
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22,077 |
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Loss before equity in earnings of unconsolidated entities, income taxes,
minority interest and discontinued operations |
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(8,694 |
) |
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(12,847 |
) |
Equity in earnings (losses) of unconsolidated entities |
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(245 |
) |
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573 |
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Loss before income taxes, minority interest and discontinued operations |
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(8,939 |
) |
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(12,274 |
) |
Income tax expense (benefit) |
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(103 |
) |
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463 |
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Net loss before minority interest and discontinued operations |
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(8,836 |
) |
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(12,737 |
) |
Minority interest |
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(341 |
) |
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(585 |
) |
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Loss from continuing operations |
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(8,495 |
) |
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(12,152 |
) |
Discontinued operations: |
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Income from discontinued operations, net of minority interest of $35 and
$36, respectively |
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817 |
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669 |
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Gain on sale of student housing property, net of minority interest of $65 |
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1,579 |
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Income from discontinued operations |
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2,396 |
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669 |
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Net loss |
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$ |
(6,099 |
) |
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$ |
(11,483 |
) |
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Earnings per share information |
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Income (loss) per share basic and diluted: |
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Continuing operations |
|
$ |
(0.30 |
) |
|
$ |
(0.46 |
) |
Discontinued operations |
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|
.08 |
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0.02 |
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Net loss per share |
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$ |
(0.22 |
) |
|
$ |
(0.44 |
) |
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Weighted average common shares outstanding basic and diluted |
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27,869,054 |
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26,336,343 |
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Distributions per common share |
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$ |
0.6150 |
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$ |
0.8925 |
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See accompanying notes to the condensed consolidated financial statements.
3
EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(Unaudited)
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Three months |
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Three months |
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ended |
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ended |
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September 30, |
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September 30, |
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2007 |
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2006 |
|
Revenues: |
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Student housing leasing revenue |
|
$ |
19,378 |
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$ |
18,166 |
|
Student housing food service revenue |
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|
642 |
|
|
|
895 |
|
Other leasing revenue |
|
|
3,509 |
|
|
|
3,709 |
|
Third-party development services |
|
|
1,287 |
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|
856 |
|
Third-party management services |
|
|
844 |
|
|
|
653 |
|
Operating expense reimbursements |
|
|
2,672 |
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|
|
2,146 |
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|
|
|
|
|
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|
Total revenues |
|
|
28,332 |
|
|
|
26,425 |
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|
|
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|
|
|
|
|
|
|
|
|
|
|
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Operating expenses: |
|
|
|
|
|
|
|
|
Student housing leasing operations |
|
|
12,803 |
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|
|
12,344 |
|
Student housing food service operations |
|
|
611 |
|
|
|
844 |
|
General and administrative |
|
|
3,739 |
|
|
|
2,872 |
|
Depreciation and amortization |
|
|
8,005 |
|
|
|
8,680 |
|
Reimbursable operating expenses |
|
|
2,672 |
|
|
|
2,146 |
|
|
|
|
|
|
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Total operating expenses |
|
|
27,830 |
|
|
|
26,886 |
|
|
|
|
|
|
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Operating income (loss) |
|
|
502 |
|
|
|
(461 |
) |
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|
|
|
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|
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|
|
|
|
|
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Nonoperating expenses: |
|
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|
|
|
|
|
|
Interest expense |
|
|
6,290 |
|
|
|
7,551 |
|
Amortization of deferred financing costs |
|
|
244 |
|
|
|
281 |
|
Interest income |
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|
(102 |
) |
|
|
(101 |
) |
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|
|
|
|
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|
Total nonoperating expenses |
|
|
6,432 |
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|
|
7,731 |
|
|
|
|
|
|
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Loss before equity in earnings of unconsolidated entities, income taxes, minority
interest and discontinued operations |
|
|
(5,930 |
) |
|
|
(8,192 |
) |
Equity in earnings (losses) of unconsolidated entities |
|
|
(247 |
) |
|
|
148 |
|
|
|
|
|
|
|
|
Loss before income taxes, minority interest and discontinued operations |
|
|
(6,177 |
) |
|
|
(8,044 |
) |
Income tax expense (benefit) |
|
|
(54 |
) |
|
|
381 |
|
|
|
|
|
|
|
|
Net loss before minority interest and discontinued operations |
|
|
(6,123 |
) |
|
|
(8,425 |
) |
Minority interest |
|
|
(337 |
) |
|
|
(471 |
) |
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(5,786 |
) |
|
|
(7,954 |
) |
Loss from discontinued operations, net of minority interest of $0 and $(13), respectively |
|
|
(16 |
) |
|
|
(235 |
) |
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,802 |
) |
|
$ |
(8,189 |
) |
|
|
|
|
|
|
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|
|
|
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Earnings per share information |
|
|
|
|
|
|
|
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Loss per share basic and diluted: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.20 |
) |
|
$ |
(0.30 |
) |
Discontinued operations |
|
|
(0.00 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
Loss per share |
|
$ |
(0.20 |
) |
|
$ |
(0.31 |
) |
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and diluted |
|
|
28,418,349 |
|
|
|
26,390,417 |
|
|
|
|
|
|
|
|
Distributions per common share |
|
$ |
0.2050 |
|
|
$ |
0.2975 |
|
|
|
|
|
|
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|
See accompanying notes to the condensed consolidated financial statements.
4
EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
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|
|
|
|
|
|
|
|
|
Nine months |
|
|
Nine months |
|
|
|
ended |
|
|
ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(6,099 |
) |
|
$ |
(11,483 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
24,009 |
|
|
|
25,904 |
|
Depreciation included in discontinued operations |
|
|
711 |
|
|
|
1,541 |
|
Deferred taxes |
|
|
(631 |
) |
|
|
249 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(10 |
) |
Gain on sale of student housing property |
|
|
(1,644 |
) |
|
|
|
|
Loss on early repayment of debt |
|
|
138 |
|
|
|
|
|
Amortization of deferred financing costs |
|
|
792 |
|
|
|
834 |
|
Amortization of unamortized debt premiums/discounts |
|
|
(407 |
) |
|
|
(413 |
) |
Distributions of earnings from unconsolidated entities |
|
|
339 |
|
|
|
658 |
|
Noncash compensation expense related to PIUs and restricted stock |
|
|
593 |
|
|
|
622 |
|
Equity in earnings of unconsolidated entities |
|
|
245 |
|
|
|
(573 |
) |
Minority interest in continuing operations |
|
|
(341 |
) |
|
|
(585 |
) |
Minority interest in discontinued operations |
|
|
100 |
|
|
|
35 |
|
Change in operating assets and liabilities (net of student housing
acquisitions/disposals) |
|
|
5,270 |
|
|
|
3,001 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
23,075 |
|
|
|
19,780 |
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Property acquisitions, net of cash acquired |
|
|
|
|
|
|
(112,694 |
) |
Deferred acquisition costs and earnest money deposits |
|
|
|
|
|
|
(468 |
) |
Purchase of corporate furniture and fixtures |
|
|
(1,380 |
) |
|
|
(63 |
) |
Restricted cash |
|
|
(380 |
) |
|
|
(2,593 |
) |
Insurance proceeds on property loss |
|
|
|
|
|
|
184 |
|
Investment in student housing properties |
|
|
(6,093 |
) |
|
|
(3,669 |
) |
Proceeds from sale of student housing property |
|
|
48,942 |
|
|
|
|
|
Investment in assets under development |
|
|
(2,457 |
) |
|
|
|
|
Investment in joint ventures |
|
|
(178 |
) |
|
|
(1,021 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
38,454 |
|
|
|
(120,324 |
) |
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Payment of mortgage notes |
|
|
(59,204 |
) |
|
|
(1,402 |
) |
Borrowings of mortgage notes |
|
|
57,800 |
|
|
|
|
|
Borrowing (repayment) of term loan |
|
|
(47,000 |
) |
|
|
50,000 |
|
Borrowing (repayment) of line of credit, net |
|
|
(20,200 |
) |
|
|
20,800 |
|
Debt issuance costs |
|
|
(549 |
) |
|
|
(1,350 |
) |
Proceeds (payments) from issuance of common stock |
|
|
22,428 |
|
|
|
(125 |
) |
Dividends and distributions paid |
|
|
(18,060 |
) |
|
|
(25,133 |
) |
Redemption of minority interest |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(64,785 |
) |
|
|
42,782 |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(3,256 |
) |
|
|
(57,762 |
) |
Cash and cash equivalents, beginning of period |
|
|
6,427 |
|
|
|
61,662 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
3,171 |
|
|
$ |
3,900 |
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
5
|
|
|
|
|
|
|
|
|
|
|
Nine months |
|
|
Nine months |
|
|
|
ended |
|
|
ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
20,965 |
|
|
$ |
21,501 |
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
632 |
|
|
$ |
855 |
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash activities: |
|
|
|
|
|
|
|
|
Prepaid acquisition costs |
|
$ |
|
|
|
$ |
4,718 |
|
Warrants expired |
|
|
375 |
|
|
|
|
|
Redemption of minority interest to satisfy loan to unitholder |
|
|
|
|
|
|
6,116 |
|
Common stock issued under the dividend
reinvestment plan |
|
|
78 |
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
6
EDUCATION REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
(Unaudited)
1. Organization and description of business
Education Realty Trust, Inc. (the Trust) was organized in the state of Maryland on
July 12, 2004 and commenced operations as a real estate investment trust (REIT) effective with
the initial public offering (the Offering) that was completed on January 31, 2005. Under the
Trusts Articles of Incorporation, as amended, the Trust is authorized to issue up to 200 million
shares of common stock and 50 million shares of preferred stock, each having a par value of $0.01
per share.
The Trust operates primarily through a majority owned Delaware limited partnership,
Education Realty Operating Partnership, LP (the Operating Partnership). The Operating Partnership
owns, directly or indirectly, interests in student housing communities located near major
universities in the United States.
The Trust also provides real estate facility management, development and other advisory
services through the following subsidiaries of the Operating Partnership:
|
|
|
Allen & OHara Education Services, Inc. (AOES), a Delaware corporation performing
student housing management activities. |
|
|
|
|
Allen & OHara Development Company, LLC (AODC), a Delaware limited liability company
providing development consulting services for third party student housing properties. |
The Trust is subject to the risks involved with the ownership and 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. Summary of significant accounting policies
Basis of presentation and principles of consolidation
The accompanying condensed consolidated financial statements have been prepared on the
accrual basis of accounting in conformity with accounting principles generally accepted in the
United States (GAAP). The accompanying condensed consolidated financial statements of the Trust
represent the assets and liabilities and operating results of the Trust and its majority owned
subsidiaries.
The Trust, as the sole general partner of the Operating Partnership, has the
responsibility and discretion in the management and control of the Operating Partnership, and the
limited partners of the Operating Partnership, in such capacity, have no authority to transact
business for, or participate in the management activities of the Operating Partnership.
Accordingly, the Trust accounts for the Operating Partnership using the consolidation method.
All intercompany balances and transactions have been eliminated in the accompanying
condensed consolidated financial statements.
Reclassifications
Certain prior period amounts in our segment information presented in Note 5 have been
reclassified to conform to the current period presentation. Interest expense of $2,982 related to
borrowings on our revolving line of credit that were used to acquire the Place Portfolio (see Note
7) was previously an unallocated corporate expense. This amount has been reclassified to the
student housing leasing segment for the nine months ended September 30, 2006.
Interim financial information
The accompanying unaudited interim financial statements include all adjustments,
consisting only of normal recurring adjustments, that in the opinion of management are necessary
for a fair presentation of the Trusts financial position, results of operations and cash flows for
such periods. Because of the seasonal nature of the business, the operating results and cash flows
are not necessarily indicative of results that may be expected for any other interim periods or for
the full fiscal year. These financial statements should be read in conjunction with the Trusts
consolidated financial statements and related notes, together with the Trusts annual report on
7
Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission.
Use of estimates
The preparation of financial statements in accordance with GAAP requires making estimates
and assumptions. Such estimates and assumptions affect the reported amounts of assets and
liabilities, as well as the disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting period.
Significant estimates and assumptions are used by management in determining the useful lives of
student housing assets, the valuation of goodwill, the initial valuations and underlying
allocations of purchase price in connection with student property acquisitions, and in the
recording of the allowance for doubtful accounts. Actual results could differ from those
estimates.
Cash and cash equivalents
All highly liquid investments with a maturity of three months or less when purchased are
considered cash equivalents. Restricted cash is excluded from cash for the purpose of preparing the
consolidated statements of cash flows. The Trust maintains cash balances in various banks. At
times, the amounts of cash may exceed the $100,000 amount the FDIC insures. The Trust does not
believe it is exposed to any significant credit risk on cash and cash equivalents.
Restricted cash
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, 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 September 30,
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, the net
realizable value of such asset is estimated. If the net realizable value of the asset is less than
the carrying amount of the asset an impairment charge is recorded for the estimated loss.
Depreciation expense is no longer recorded once a student housing property has met the held for
sale criteria. Operations of student housing properties that are sold or classified as held for
sale are recorded as part of discontinued operations for all periods presented. For the nine
months ended September 30, 2007, no impairment loss on student housing properties held for sale was
recognized.
8
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.
Investment in unconsolidated joint ventures, limited liability companies, and limited partnerships
The Operating Partnership accounts for its investments in unconsolidated joint ventures,
limited liability companies, and limited partnerships using the equity method whereby the cost of
an investment is adjusted for the Trusts share of earnings of the respective investment reduced by
distributions received. The earnings and distributions of the unconsolidated joint ventures,
limited liability companies, and limited partnerships are allocated based on each owners
respective ownership interests.
Deferred financing costs
Deferred financing costs represent costs incurred in connection with acquiring debt
facilities. These costs are amortized over the terms of the related debt using a method that
approximates the effective interest method.
Issuance costs
Specific incremental costs directly attributable to the issuance of common stock are
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 adjustment to interest using the effective interest method.
Income taxes
The Trust qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the
Code). The Trust is generally not subject to federal income tax to the extent that it distributes
at least 90% of its taxable income for each tax year to its 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.
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 September 30, 2007, the following potentially dilutive securities were outstanding,
but were not included in the computation of diluted earnings per share because the effects of their
inclusion would be anti-dilutive:
|
|
|
|
|
Operating Partnership units |
|
|
913,738 |
|
University Towers Operating Partnership units |
|
|
269,757 |
|
Restricted Stock (unvested shares) |
|
|
84,117 |
|
Profits Interest Units |
|
|
275,000 |
|
|
|
|
|
Total potentially dilutive securities |
|
|
1,542,612 |
|
|
|
|
|
|
|
|
|
|
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.
9
Goodwill and other intangible assets
The Trust accounts for its goodwill and other intangible assets under SFAS No. 142,
Goodwill and Other Intangible Assets. Goodwill is tested annually for impairment, and is tested for
impairment more frequently if events and circumstances indicate that the assets might be impaired.
An impairment loss is recognized to the extent that the carrying amount exceeds the assets fair
value.
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 month.
Comprehensive Income
The Trust follows SFAS No. 130, Reporting Comprehensive Income, which established standards
for reporting and display of comprehensive income and its components. For all periods presented,
comprehensive income (loss) is equal to net income (loss).
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 construction and operating expense reimbursements for payroll and related
expenses incurred for third party student housing properties managed by the Trust.
Student housing leasing revenue Student housing leasing revenue is comprised of all
activities related to leasing and operating the student housing properties and includes revenues
from leasing apartments by the bed, from parking lot rentals, and from providing certain ancillary
services. This revenue is reflected in student housing leasing revenue in the accompanying
condensed consolidated statements of operations. Students are required to execute lease contracts
with payment schedules that vary from annual to monthly payments. Generally, the Trust requires
each executed leasing contract to be accompanied by nonrefundable application and service fees and
a signed parental guarantee. Receivables are recorded when billed. Revenues and related lease
incentives and nonrefundable application and service fees are recognized on a straight-line basis
over the term of the contracts. The Trust has no contingent rental contracts except as noted below
related to other leasing revenue. At certain student housing facilities, the Trust offers parking
lot rentals to the tenants. The related revenues are recognized on a straight-line basis over the
term of the related agreement.
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.
Other leasing revenue Other leasing revenue relates to our leasing of the 13 properties
we acquired from Place Properties (Place). Simultaneous with the acquisition of the 13
properties, the Trust leased the assets to Place and receives base monthly rent of $1,145 and has
the right to receive Additional Rent annually if the properties exceed certain criteria defined
in the lease agreement. Base rent is recognized on a straight line basis over the lease term and
Additional Rent is recognized only upon satisfaction of the defined criteria.
Third-party management services revenue The Trust enters into management contracts to manage
third-party student housing facilities. Management revenues are recognized when earned in
accordance with each management contract. Incentive management fees are recognized when the
incentive criteria have been met.
Third-party development services revenue The Trust provides development consulting
services in an agency capacity with third parties whereby the fee is determined based upon the
total construction costs. Total fees vary from 3-5% of the total estimated costs, and we typically
receive a portion of the fees up front. These fees, including the upfront fee, are recognized using
the percentage of completion method in proportion to the contract costs incurred by the owner over
the course of construction of the respective projects.
Operating expense reimbursements The Trust pays certain payroll and related costs to
operate third-party student housing properties that are managed by the Trust. Under the terms of
the related management agreements, the third-party property owners reimburse these costs. The
amounts billed to the third-party owners are recognized as revenue in accordance with Emerging
Issues Task Force No. 01-14, Income Statement Characterization of Reimbursements Received for Out
of Pocket Expenses Incurred.
Recent accounting pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation
No. 48, Accounting for Uncertainty in
10
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 has no unrecognized tax benefits as of September 30, 2007. The Trust, or its
subsidiaries, file income tax returns in the U.S. Federal jurisdiction and various states
jurisdictions. Open tax years generally include tax years 2004-2006 as of the date of adoption.
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 is currently evaluating the impact of adopting SFAS 157 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 is currently evaluating the impact of adopting SFAS 159 on its consolidated financial
condition and results of operations.
3. Investments in unconsolidated entities
As of September 30, 2007, the Trust had investments, directly or indirectly, in the
following active unconsolidated joint ventures, limited liability companies and limited
partnerships that are accounted for under the equity method:
|
|
|
University of Louisville Apartment Developers LLC, a Kentucky limited liability company, 50% owned by AOES |
|
|
|
|
|
National Development/Allen & OHara CUPA, LLC, a Pennsylvania limited liability company, 50% owned by AODC |
|
|
|
|
University Village-Greensboro LLC, a Delaware limited liability company, 25% owned by the Operating Partnership |
|
|
|
|
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 the Operating Partnership |
|
|
|
|
APF EDR, LP, a Delaware limited partnership, 10% owned by the Operating Partnership |
|
|
|
|
APF EDR Food Services, LP, a Delaware limited partnership, 10% owned by the Operating Partnership |
|
|
|
|
WEDR Stinson Investors V, LLC, a Delaware limited liability company, 10% owned by the Operating Partnership |
The following is a summary of financial information for the Trusts unconsolidated joint
ventures, limited liability companies, and limited partnerships for the nine months ended September
30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Results of Operations: |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
8,871 |
|
|
$ |
1,418 |
|
Net income (loss) |
|
|
(3,590 |
) |
|
|
1,104 |
|
Equity in earnings (losses) of unconsolidated entities |
|
$ |
(245 |
) |
|
$ |
573 |
|
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.
4. Debt
Term loan 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 property discussed in Note 8. 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.
11
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 September 30, 2007, there was $2,200 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 (7.57% at September 30, 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.
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 will revert 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 September 30,
2007, and (ii) 95% of funds from operations for the applicable period thereafter.
During the nine months ended September 30, 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 September 30, 2007, the Trust had outstanding mortgage indebtedness of $422,071 (net
of unamortized debt premium of $1,849). During the nine months ended September 30, 2007, the Trust
refinanced $29,900 of maturing mortgage debt bearing interest at 6.63% and $26,500 of maturing
mortgage debt bearing interest at 3.49%. In connection with the refinancing, the Trust incurred
$549 of financing costs. 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. The scheduled maturities of outstanding
mortgage indebtedness at September 30, 2007 are as follows:
|
|
|
|
|
Fiscal Year Ending |
|
|
|
|
2007 (3 months ended December 31, 2007) |
|
$ |
954 |
|
2008 |
|
|
26,481 |
|
2009 |
|
|
285,050 |
|
2010 |
|
|
888 |
|
2011 |
|
|
947 |
|
Thereafter |
|
|
105,902 |
|
|
|
|
|
Total |
|
|
420,222 |
|
Unamortized debt premium/discounts |
|
|
1,849 |
|
|
|
|
|
Outstanding at September 30, 2007, net of unamortized premiums/discounts |
|
$ |
422,071 |
|
|
|
|
|
At September 30, 2007, the outstanding mortgage debt had a weighted average interest rate
of 5.90% and carried an average term to maturity of 2.72 years.
5. Segments
Business segments are defined by their distinct customer base and service provided. Three
reportable segments have been identified: student housing leasing, third-party development
consulting services and third-party management services. Management
12
evaluates each segments performance based on pretax income and net operating income, which is
defined as income before depreciation, amortization, interest expense, interest income and equity
in earnings of unconsolidated entities. Discontinued operations are not included in segment
reporting as management addresses these items on a corporate level. Intercompany fees are reflected
at the contractually stipulated amounts. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies. The following table
represents segment information for the nine months ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
|
Nine months ended September 30, 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 |
|
$ |
62,381 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
62,381 |
|
|
$ |
58,723 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
58,723 |
|
Student housing food service revenue |
|
|
1,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,744 |
|
|
|
2,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,670 |
|
Other leasing revenue |
|
|
10,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,377 |
|
|
|
10,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,577 |
|
Third-party development consulting services |
|
|
|
|
|
|
3,354 |
|
|
|
|
|
|
|
|
|
|
|
3,354 |
|
|
|
|
|
|
|
2,283 |
|
|
|
|
|
|
|
|
|
|
|
2,283 |
|
Third-party management revenue |
|
|
|
|
|
|
|
|
|
|
2,447 |
|
|
|
|
|
|
|
2,447 |
|
|
|
|
|
|
|
|
|
|
|
2,051 |
|
|
|
|
|
|
|
2,051 |
|
Intersegment revenues |
|
|
|
|
|
|
|
|
|
|
2,545 |
|
|
|
(2,545 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,470 |
|
|
|
(2,470 |
) |
|
|
|
|
Operating expense reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,055 |
|
|
|
7,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,891 |
|
|
|
5,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
74,502 |
|
|
|
3,354 |
|
|
|
4,992 |
|
|
|
4,510 |
|
|
|
87,358 |
|
|
|
71,970 |
|
|
|
2,283 |
|
|
|
4,521 |
|
|
|
3,421 |
|
|
|
82,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing operations |
|
|
31,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,227 |
|
|
|
29,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,706 |
|
Student housing food service operations |
|
|
1,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,683 |
|
|
|
2,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,427 |
|
General and administrative |
|
|
102 |
|
|
|
1,985 |
|
|
|
4,976 |
|
|
|
|
|
|
|
7,063 |
|
|
|
4 |
|
|
|
1,601 |
|
|
|
3,653 |
|
|
|
|
|
|
|
5,258 |
|
Intersegment expenses |
|
|
2,545 |
|
|
|
|
|
|
|
|
|
|
|
(2,545 |
) |
|
|
|
|
|
|
2,470 |
|
|
|
|
|
|
|
|
|
|
|
(2,470 |
) |
|
|
|
|
Reimbursable operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,055 |
|
|
|
7,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,891 |
|
|
|
5,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
35,557 |
|
|
|
1,985 |
|
|
|
4,976 |
|
|
|
4,510 |
|
|
|
47,028 |
|
|
|
34,607 |
|
|
|
1,601 |
|
|
|
3,653 |
|
|
|
3,421 |
|
|
|
43,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
38,945 |
|
|
|
1,369 |
|
|
|
16 |
|
|
|
|
|
|
|
40,330 |
|
|
|
37,363 |
|
|
|
682 |
|
|
|
868 |
|
|
|
|
|
|
|
38,913 |
|
Nonoperating
expenses(1) |
|
|
43,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,803 |
|
|
|
47,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
|
Nine months ended September 30, 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 |
|
Income (loss) before equity in earnings of unconsolidated entities, income
taxes, minority interest and discontinued operations |
|
|
(4,858 |
) |
|
|
1,369 |
|
|
|
16 |
|
|
|
|
|
|
|
(3,473 |
) |
|
|
(9,770 |
) |
|
|
682 |
|
|
|
868 |
|
|
|
|
|
|
|
(8,220 |
) |
Equity in earnings of unconsolidated entities |
|
|
(466 |
) |
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
(245 |
) |
|
|
(14 |
) |
|
|
587 |
|
|
|
|
|
|
|
|
|
|
|
573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes, minority interest and discontinued operations(3) |
|
$ |
(5,324 |
) |
|
$ |
1,590 |
|
|
$ |
16 |
|
|
$ |
|
|
|
$ |
(3,718 |
) |
|
$ |
(9,784 |
) |
|
$ |
1,269 |
|
|
$ |
868 |
|
|
$ |
|
|
|
$ |
(7,647 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets, as of September 30, 2007 and December 31, 2006 (2) |
|
$ |
755,685 |
|
|
$ |
3,873 |
|
|
$ |
7,645 |
|
|
$ |
|
|
|
$ |
767,203 |
|
|
$ |
818,832 |
|
|
$ |
2,082 |
|
|
$ |
5,567 |
|
|
$ |
|
|
|
$ |
826,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonoperating expenses include interest expense, interest income, amortization of deferred financing costs, depreciation, and amortization of intangibles. |
|
(2) |
|
The significant decrease in segment assets related to student housing leasing from that presented at December 31, 2006 relates to the disposition of the
student housing property known as the Village on Tharpe as described in Note 8 and normal depreciation in the first nine months of 2007. The increase
of $1,791 in segment assets related to third party development consulting services is due to an increase of approximately $531 in development fee
receivables and an increase of operating cash at the end of the
current quarter. |
|
(3) |
|
The following is a reconciliation of the reportable segments net income before income taxes, minority interest and discontinued operations to the
Trusts consolidated net loss before income taxes, minority interest and discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Net loss before income taxes, minority interest and discontinued operations for
reportable segments |
|
$ |
(3,718 |
) |
|
$ |
(7,647 |
) |
Other unallocated corporate expenses (4) |
|
|
(5,221 |
) |
|
|
(4,627 |
) |
|
|
|
|
|
|
|
Net loss before income taxes, minority interest and discontinued operations |
|
$ |
(8,939 |
) |
|
$ |
(12,274 |
) |
|
|
|
|
|
|
|
|
|
|
(4) |
|
Certain prior period amounts have been reclassified to conform to the current
period presentation. Interest expense of $2,982 related to borrowings on our
revolving line of credit that were used to acquire the Place Portfolio was
previously an unallocated corporate expense. This amount has been reclassified to
the student housing leasing segment for the nine months ended September 30, 2006. |
14
The following table represents segment information for the three months ended September 30, 2007
and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2007 |
|
|
Three months ended September 30, 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 |
|
$ |
19,378 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
19,378 |
|
|
$ |
18,166 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18,166 |
|
Student housing food service revenue |
|
|
642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
642 |
|
|
|
895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895 |
|
Other leasing revenue |
|
|
3,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,509 |
|
|
|
3,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,709 |
|
Third-party development consulting services |
|
|
|
|
|
|
1,287 |
|
|
|
|
|
|
|
|
|
|
|
1,287 |
|
|
|
|
|
|
|
856 |
|
|
|
|
|
|
|
|
|
|
|
856 |
|
Third-party management revenue |
|
|
|
|
|
|
|
|
|
|
844 |
|
|
|
|
|
|
|
844 |
|
|
|
|
|
|
|
|
|
|
|
653 |
|
|
|
|
|
|
|
653 |
|
Intersegment revenues |
|
|
|
|
|
|
|
|
|
|
851 |
|
|
|
(851 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
814 |
|
|
|
(814 |
) |
|
|
|
|
Operating expense reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,672 |
|
|
|
2,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,146 |
|
|
|
2,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
23,529 |
|
|
|
1,287 |
|
|
|
1,695 |
|
|
|
1,821 |
|
|
|
28,332 |
|
|
|
22,770 |
|
|
|
856 |
|
|
|
1,467 |
|
|
|
1,332 |
|
|
|
26,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing operations |
|
|
12,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,803 |
|
|
|
12,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,344 |
|
Student housing food service operations |
|
|
611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
611 |
|
|
|
844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
844 |
|
General and administrative |
|
|
16 |
|
|
|
714 |
|
|
|
1,629 |
|
|
|
|
|
|
|
2,359 |
|
|
|
|
|
|
|
547 |
|
|
|
1,141 |
|
|
|
|
|
|
|
1,688 |
|
Intersegment expenses |
|
|
851 |
|
|
|
|
|
|
|
|
|
|
|
(851 |
) |
|
|
|
|
|
|
814 |
|
|
|
|
|
|
|
|
|
|
|
(814 |
) |
|
|
|
|
Reimbursable operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,672 |
|
|
|
2,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,146 |
|
|
|
2,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
14,281 |
|
|
|
714 |
|
|
|
1,629 |
|
|
|
1,821 |
|
|
|
18,445 |
|
|
|
14,002 |
|
|
|
547 |
|
|
|
1,141 |
|
|
|
1,332 |
|
|
|
17,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
9,248 |
|
|
|
573 |
|
|
|
66 |
|
|
|
|
|
|
|
9,887 |
|
|
|
8,768 |
|
|
|
309 |
|
|
|
326 |
|
|
|
|
|
|
|
9,403 |
|
Nonoperating
expenses(1) |
|
|
14,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,041 |
|
|
|
16,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in earnings of unconsolidated entities, income
taxes, minority interest and discontinued operations |
|
|
(4,793 |
) |
|
|
573 |
|
|
|
66 |
|
|
|
|
|
|
|
(4,154 |
) |
|
|
(7,269 |
) |
|
|
309 |
|
|
|
326 |
|
|
|
|
|
|
|
(6,634 |
) |
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2007 |
|
|
Three months ended September 30, 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 |
|
Equity in earnings of unconsolidated entities |
|
|
(261 |
) |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
(247 |
) |
|
|
(14 |
) |
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes, minority interest and discontinued operations(2) |
|
$ |
(5,054 |
) |
|
$ |
587 |
|
|
$ |
66 |
|
|
$ |
|
|
|
$ |
(4,401 |
) |
|
$ |
(7,283 |
) |
|
$ |
471 |
|
|
$ |
326 |
|
|
$ |
|
|
|
$ |
(6,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonoperating expenses include interest expense, interest income, amortization of deferred financing costs, depreciation, and amortization of intangibles. |
|
(2) |
|
The following is a reconciliation of the reportable segments net income before income taxes, minority interest and discontinued operations to the
Trusts consolidated net loss before income taxes, minority interest and discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Net loss before income taxes, minority interest and discontinued operations for
reportable segments |
|
$ |
(4,401 |
) |
|
$ |
(6,486 |
) |
Other unallocated corporate expenses (3) |
|
|
(1,776 |
) |
|
|
(1,558 |
) |
|
|
|
|
|
|
|
Net loss before income taxes, minority interest and discontinued operations |
|
$ |
(6,177 |
) |
|
$ |
(8,044 |
) |
|
|
|
|
|
|
|
|
|
|
(3) |
|
Certain prior period amounts have been reclassified to conform to the current period
presentation. Interest expense of $1,282 related to borrowings on our revolving line of
credit that were used to acquire the Place Portfolio was previously an unallocated corporate
expense. This amount has been reclassified to the student housing leasing segment for the
three months ended September 30, 2006. |
6. Commitments and contingencies
In connection with one of the Trusts student housing portfolio acquisitions, the Trust
became aware of a June 2001 notification from the United States Department of Justice of an
on-going investigation regarding possible violations of the American Disabilities Act of 1990 and
the Fair Housing Amendments Act of 1988 related to one of the student housing properties. In
October 2002, the investigations were delayed for an undetermined period of time and therefore such
has not been fully resolved. Management does not believe the resolution of this matter will result
in a material adverse effect on the Trusts consolidated financial condition or results of
operations.
The Operating Partnership entered into a letter of credit agreement in conjunction with
the closing of the acquisition of a student housing property at the University of Florida. The
letter of credit remains outstanding in the amount of $1,500 at September 30, 2007 and is secured
by the Operating Partnerships existing revolving credit facility.
On May 10, 2006, the Operating Partnership guaranteed $23,200 of construction debt held
by University Village-Greensboro LLC in order to receive a 25% ownership stake in the venture with
College Park Apartments. 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 has determined that it will not guarantee the debt after the construction loan is
refinanced.
The Trust also has various operating lease commitments for corporate office space,
furniture and technology equipment.
As owners and operators of real estate, environmental laws impose ongoing compliance
requirements on the Trust. The Trust is not aware of any environmental matters or liabilities with
respect to the student housing properties that would have a material adverse effect on the Trusts
consolidated financial condition or results of operations.
In the normal course of business, the Trust is subject to claims, lawsuits, and legal
proceedings. While it is not possible to ascertain
the ultimate outcome of such matters, in managements opinion, the liabilities, if any, in excess
of amounts provided or covered by insurance, are not expected to have a material adverse effect on
our financial position, results of operations or liquidity.
16
7. Acquisition of real estate investments
During 2005, the Trust completed a private placement of 4,375,000 shares of its common stock
which raised net proceeds of approximately $67,000. These shares were registered with the
Securities and Exchange Commission on January 25, 2006. The proceeds were used to acquire 13
student housing properties from Place Properties L.P. (Place Portfolio) in January 2006.
Consideration for the acquisition included cash of $95,800, issuance of 36,954 partnership units
and the assumption of interest only mortgage debt of $98,700. The results of operations for the
acquisition have been included in the accompanying consolidated statements of operations from the
date of acquisition (January 1, 2006).
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 $511 in costs to develop the
community. All costs are classified as assets under development on the condensed consolidated
balance sheet.
8. 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 purchase 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 4). The resulting gain on disposition of
approximately $1,579, net of minority interest, is included in discontinued operations in the
accompanying condensed consolidated statement of operations for the nine months ended September 30,
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.
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 nine months ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Student housing leasing revenue |
|
$ |
2,692 |
|
|
$ |
4,699 |
|
Student housing leasing operating expenses |
|
|
(1,129 |
) |
|
|
(2,453 |
) |
Depreciation and amortization |
|
|
(711 |
) |
|
|
(1,541 |
) |
Minority interest in Operating Partnership |
|
|
(35 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
Income from discontinued operations (net of minority interest) |
|
$ |
817 |
|
|
$ |
669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
$ |
|
|
|
|
|
|
|
|
|
9. Incentive plan
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 the year ended December 31, 2006, the Trust issued 4,000 shares to its executive
officers and 2,000 shares to its independent directors. The 2006 issuances vested immediately.
During the nine months ended September 30, 2007, the Trust issued 4,000 shares to its executive
officers and 4,000 shares to its independent directors, which 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 dividends or distributions on the shares. Restricted stock
is generally taxed at the time of vesting. At September 30, 2007 and December 31, 2006, unearned
compensation totaled $1,412 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 the nine months ended September 30, 2007 and 2006, compensation
expense of $453 and $500, respectively, was recognized during each period in the accompanying
condensed consolidated statements of operations, related to the vesting of restricted stock.
Profits interest units, or PIUs, are units in a limited liability company controlled by
the Trust that holds a special class of partnership interests in the Operating Partnership. Each
PIU will be deemed equivalent to an award of one share of the Trusts
17
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 condensed 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 the 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. The adoption of SFAS No. 123 (R) had no impact on the accompanying
financial statements other than the reclassification of unearned compensation to additional paid-in
capital.
A summary of incentive plan activity for the nine months ended September 30, 2007 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
|
|
PIUs |
|
Stock |
|
Total |
Outstanding at December 31, 2006 |
|
|
265,000 |
|
|
|
192,000 |
|
|
|
457,000 |
|
Granted |
|
|
7,500 |
|
|
|
4,000 |
|
|
|
11,500 |
|
Redeemed |
|
|
(2,500 |
) |
|
|
|
|
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007 |
|
|
270,000 |
|
|
|
196,000 |
|
|
|
466,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
4,000 |
|
|
|
4,000 |
|
Redeemed |
|
|
(2,500 |
) |
|
|
|
|
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007 |
|
|
267,500 |
|
|
|
200,000 |
|
|
|
467,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
7,500 |
|
|
|
|
|
|
|
7,500 |
|
Redeemed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2007 |
|
|
275,000 |
|
|
|
200,000 |
|
|
|
475,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at September 30, 2007 |
|
|
275,000 |
|
|
|
115,883 |
|
|
|
390,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation cost recognized in general and administrative expense in the accompanying
condensed consolidated statements of operations for the nine months ended September 30, 2007 and
2006 was approximately $595 and $600, respectively.
10. Subsequent events
On October 9, 2007, our board of directors declared a third quarter distribution of
$0.205 per share of common stock for the quarter ending on September 30, 2007. The distribution is
payable on November 6, 2007 to shareholders of record at the close of business on October 23, 2007.
18
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
(Dollars in thousands, except selected property information and share data)
The following discussion should be read in conjunction with the financial statements and
notes thereto appearing elsewhere in this Quarterly Report. Certain statements contained in this
filing are forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, including but not limited to statements related to plans for future
acquisitions, our business and investment strategy, market trends and projected capital
expenditures. When used in this report, the words expect, anticipate, intend, plan,
believe, seek, estimate, would, could, should, and similar expressions are generally
intended to identify forward-looking statements. You should not place undue reliance on these
forward-looking statements, which reflect our opinions only as of the date of this Quarterly
Report. We assume no obligation to update or supplement forward-looking statements that become
untrue because of subsequent events. Forward-looking statements are subject to risks, uncertainties
and other factors that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. For further information about these and
other factors that could affect our future results, please see the Item 1A. Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2006. Investors are cautioned that any
forward-looking statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those contemplated by such
forward-looking statements.
Overview
We are a self-managed and self-advised real estate investment trust (REIT) engaged in
the ownership, acquisition and management of high quality student housing communities. We also
provide student housing development consulting services to universities, charitable foundations and
others. We believe that we are one of the largest private owners, developers and managers of
high-quality student housing communities in the United States in terms of both total beds owned and
under management.
We earn income from rental payments we receive as a result of our ownership of student
housing properties. We also earn income by performing property management services and development
consulting services for third parties through our Management Company and Development Company,
respectively. While we manage 67% of the properties we own, we will 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, interest income, 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 notes to the condensed consolidated
financial statements appearing elsewhere in this Quarterly Report and in our Annual Report on Form
10-K for the year ended December 31, 2006. Intercompany fees are reflected at the contractually
stipulated amounts.
Student Housing Leasing
Student housing leasing revenue represented approximately 92.8% of our revenue,
excluding operating expense reimbursements, for the nine months ended September 30, 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
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 and the individual lease liability, we
believe our properties can typically command higher per-unit and per-square foot rental rates than
most multi-family properties in the same geographic markets. We are also typically able to command
higher rental rates than on-campus student housing, which tends to offer fewer amenities.
19
The majority of our leases commence mid-August and terminate the last day of July. These
dates generally coincide with the commencement of the universities fall academic term and the
completion of the subsequent summer school session. As such, we are required to re-lease each
property in its entirety each year, resulting in significant turnover in our tenant population from
year to year. In 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 February and ends in August of each year. Our properties occupancy
rates are therefore typically stable during the August to July academic year but are susceptible to
fluctuation at the commencement of each new academic year.
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 3.0% of our revenue for the nine months ended September
30, 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 property owners. These costs are included in 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 4.2% of our revenue for the nine months ended
September 30, 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.
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 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. For the nine months ended September 30, 2007, same
community revenue per available bed increased to $376 and same community physical occupancy
increased to 93.3% compared to revenue per available bed of $359 and physical occupancy of 92.4%
for the nine months ended September 30, 2006.
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.
20
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.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States (GAAP) requires management to make estimates and
assumptions in certain circumstances that affect amounts reported in our financial statements and
related notes. In preparing these financial statements, management has utilized all available
information, including its past history, industry standards and the current economic environment,
among other factors, in forming its estimates and judgments of certain amounts included in the
financial statements, giving due consideration to materiality. The ultimate outcome anticipated by
management in formulating its estimates may not be realized. Application of the critical accounting
policies below involves the exercise of judgment and use of assumptions as to future uncertainties
and, as a result, actual results could differ from these estimates. In addition, other companies in
similar businesses may utilize different estimation policies and methodologies, which may impact
the comparability of our results of operations and financial condition to those companies.
Student Housing Leasing Revenue Recognition
Student housing leasing revenue is comprised of all revenue related to the leasing
activities at our student housing properties and includes revenues from the leasing of space,
parking lot rentals and certain ancillary services. Revenue from our food service operations is
also included in this segment. Additionally, 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 receives base monthly rent of $1,145 and has the right to
receive Additional Rent annually if the properties exceed certain criteria defined in the lease
agreement. Base rent is recognized on a straight-line basis over the lease term and Additional Rent
is recognized only upon satisfaction of the defined criteria.
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 near the end of the construction period. 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
21
received and revenues recognized. Differences also occur between amounts recognized for tax
purposes and those recognized from financial reporting purposes. Because as a REIT, we 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.
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.
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, the net
realizable value of such asset is estimated. If the net realizable value of the asset is less than
the carrying amount of the asset an impairment charge is recorded for the estimated loss.
Depreciation expense is no longer recorded once a student housing property has met the held for
sale criteria. Operations of student housing properties that are sold or classified as held for
sale are recorded as part of discontinued operations for all periods presented. For the nine
months ended September 30, 2007, no impairment loss on student housing properties held for sale was
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.
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, Accounting for the Impairment and
Disposal of Long Lived Assets. 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.
Recently Issued Accounting Pronouncements
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 has no unrecognized tax benefits as of September 30, 2007. The Trust,
or its subsidiaries, file income tax returns in the U.S. Federal jurisdiction and various states
jurisdictions. Open tax years generally include tax years 2004-2006 as of the date of adoption.
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.
22
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 lower priority in 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 is currently evaluating the impact of adopting SFAS 157 on its
consolidated financial position 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 is currently evaluating the impact of adopting SFAS 159 on its consolidated financial
condition and results of operations.
Results of Operations for the Nine Months Ended September 30, 2007 and 2006
The following table presents the results of operations for Education Realty Trust, Inc.
for the nine months ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
|
Nine months ended September 30, 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 |
|
$ |
62,381 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
62,381 |
|
|
$ |
58,723 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
58,723 |
|
Student housing food service revenue |
|
|
1,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,744 |
|
|
|
2,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,670 |
|
Other leasing revenue |
|
|
10,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,377 |
|
|
|
10,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,577 |
|
Third-party development consulting services |
|
|
|
|
|
|
3,354 |
|
|
|
|
|
|
|
|
|
|
|
3,354 |
|
|
|
|
|
|
|
2,283 |
|
|
|
|
|
|
|
|
|
|
|
2,283 |
|
Third-party management revenue |
|
|
|
|
|
|
|
|
|
|
2,447 |
|
|
|
|
|
|
|
2,447 |
|
|
|
|
|
|
|
|
|
|
|
2,051 |
|
|
|
|
|
|
|
2,051 |
|
Intersegment revenues |
|
|
|
|
|
|
|
|
|
|
2,545 |
|
|
|
(2,545 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,470 |
|
|
|
(2,470 |
) |
|
|
|
|
Operating expense reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,055 |
|
|
|
7,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,891 |
|
|
|
5,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
74,502 |
|
|
|
3,354 |
|
|
|
4,992 |
|
|
|
4,510 |
|
|
|
87,358 |
|
|
|
71,970 |
|
|
|
2,283 |
|
|
|
4,521 |
|
|
|
3,421 |
|
|
|
82,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing operations |
|
|
31,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,227 |
|
|
|
29,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,706 |
|
Student housing food service operations |
|
|
1,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,683 |
|
|
|
2,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,427 |
|
General and administrative |
|
|
102 |
|
|
|
1,985 |
|
|
|
4,976 |
|
|
|
|
|
|
|
7,063 |
|
|
|
4 |
|
|
|
1,601 |
|
|
|
3,653 |
|
|
|
|
|
|
|
5,258 |
|
Intersegment expenses |
|
|
2,545 |
|
|
|
|
|
|
|
|
|
|
|
(2,545 |
) |
|
|
|
|
|
|
2,470 |
|
|
|
|
|
|
|
|
|
|
|
(2,470 |
) |
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
|
Nine months ended September 30, 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 |
|
Reimbursable operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,055 |
|
|
|
7,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,891 |
|
|
|
5,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
35,557 |
|
|
|
1,985 |
|
|
|
4,976 |
|
|
|
4,510 |
|
|
|
47,028 |
|
|
|
34,607 |
|
|
|
1,601 |
|
|
|
3,653 |
|
|
|
3,421 |
|
|
|
43,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
38,945 |
|
|
|
1,369 |
|
|
|
16 |
|
|
|
|
|
|
|
40,330 |
|
|
|
37,363 |
|
|
|
682 |
|
|
|
868 |
|
|
|
|
|
|
|
38,913 |
|
Nonoperating
expenses(1) |
|
|
43,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,803 |
|
|
|
47,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in earnings of unconsolidated entities, income
taxes, minority interest and discontinued operations |
|
|
(4,858 |
) |
|
|
1,369 |
|
|
|
16 |
|
|
|
|
|
|
|
(3,473 |
) |
|
|
(9,770 |
) |
|
|
682 |
|
|
|
868 |
|
|
|
|
|
|
|
(8,220 |
) |
Equity in earnings of unconsolidated entities |
|
|
(466 |
) |
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
(245 |
) |
|
|
(14 |
) |
|
|
587 |
|
|
|
|
|
|
|
|
|
|
|
573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes, minority interest and discontinued operations(2) |
|
$ |
(5,324 |
) |
|
$ |
1,590 |
|
|
$ |
16 |
|
|
$ |
|
|
|
$ |
(3,718 |
) |
|
$ |
(9,784 |
) |
|
$ |
1,269 |
|
|
$ |
868 |
|
|
$ |
|
|
|
$ |
(7,647 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonoperating expenses include interest expense, interest income, amortization of deferred financing costs, depreciation, and amortization of intangibles. |
|
(2) |
|
The following is a reconciliation of the reportable segments net loss before income taxes, minority interest and discontinued operations to the Trusts
consolidated net loss before income taxes, minority interest and discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Net loss before income taxes, minority interest and discontinued operations for
reportable segments |
|
$ |
(3,718 |
) |
|
$ |
(7,647 |
) |
Other unallocated corporate expenses (3) |
|
|
(5,221 |
) |
|
|
(4,627 |
) |
|
|
|
|
|
|
|
Net loss before income taxes, minority interest and discontinued operations |
|
$ |
(8,939 |
) |
|
$ |
(12,274 |
) |
|
|
|
|
|
|
|
|
|
|
(3) |
|
Certain prior period amounts have been reclassified to conform to the current period
presentation. Interest expense of $2,982 related to borrowings on our revolving line of
credit that were used to acquire the Place Portfolio was previously an unallocated corporate
expense. This amount has been reclassified to the student housing leasing segment for the
nine months ended September 30, 2006. |
24
Student housing leasing
Student housing operating statistics for all owned and managed properties for the nine
months ended September 30, 2007 and 2006 were as follows (excludes Place properties):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months |
|
Nine months |
|
|
|
|
ended |
|
ended |
|
|
|
|
September 30, |
|
September 30, |
|
|
|
|
2007 |
|
2006 |
|
Difference |
Occupancy |
|
|
|
|
|
|
|
|
|
|
|
|
Physical (1) |
|
|
92.8 |
% |
|
|
92.2 |
% |
|
|
0.6 |
% |
Economic (2) |
|
|
92.2 |
% |
|
|
89.0 |
% |
|
|
3.2 |
% |
NarPAB (3) |
|
$ |
348 |
|
|
$ |
334 |
|
|
$ |
14 |
|
Other income per avail. bed (4) |
|
$ |
25 |
|
|
$ |
24 |
|
|
$ |
1 |
|
RevPAB (5) |
|
$ |
373 |
|
|
$ |
358 |
|
|
$ |
15 |
|
Operating expense per bed (6) |
|
$ |
187 |
|
|
$ |
181 |
|
|
$ |
6 |
|
Operating margin |
|
|
49.9 |
% |
|
|
49.4 |
% |
|
|
0.5 |
% |
Design Beds (7) |
|
|
167,139 |
|
|
|
164,019 |
|
|
|
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 potential 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 GAAP-based other 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/application fees, late fees,
termination fees, parking fees, transfer fees, damage recovery, utility recovery, and other miscellaneous
income. |
|
(5) |
|
RevPAB represents total revenue (net apartment rent plus other income) for the respective period divided by
the sum of the design beds for each of the included months. |
|
(6) |
|
Represents property-level operating expense excluding management fees and 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 $74,502 for the nine months ended
September 30, 2007. This represents an increase of $2,532 or 3.5% from the same period in 2006.
Student housing leasing revenue increased 6.2%, contributing $3,658 to the overall increase.
Student housing leasing revenue growth consisted of a $941 increase related to the acquisition of
the Players Club located in Statesboro, Georgia in June of 2006, and a $2,717 or 4.7% increase in
same community revenue. Growth in same community revenue was driven by an approximate 2.1%
improvement in rates, 1.1% improvement in occupancy, 0.4% improvement in other income and a 1.1%
increase due to less vacant days during the turn period in the current leasing year compared to
prior leasing year. Offsetting the improvement in student housing leasing revenue was a $926
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 $200 for the nine months ended September 30, 2007 compared to the same
period in 2006. The Trust has the right to receive Additional Rent annually if the properties
exceed certain criteria defined by the lease agreement. The decrease in other leasing revenue is
due to a decline in the additional rent recognized for the nine months ended September 30, 2007
compared to the same period in 2006.
Operating expenses in the student housing leasing segment increased $950 or 2.7% to
$35,557 for the nine months ended September 30, 2007, as compared to the same period in 2006.
Student housing leasing operations increased a total of $1,521 or 5.1% over the prior year, with
$633 of the increase attributable to adding Players Club to the portfolio and $888 attributable to
a 3.0% increase in same community expenses. Increases in utility costs of $419, insurance costs of
$169, and credit card and collection related costs of $360 were the main drivers of the increase in
same community expenses and were offset by decreases in payroll expenses, turn costs and real
estate taxes. The increase in student housing leasing operations was offset by a $744 decline in
student housing food service operations related to the termination of the food service contract
discussed above.
25
Equity in earnings in unconsolidated entities decreased $452 from the nine months ended
September 30, 2006 to a loss of $466 for the nine months ended September 30, 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. Three of the four
investments were acquired subsequent to September 30, 2006.
26
Third-party development consulting services
The following table represents the development consulting projects that were active
during the nine months ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized Earnings |
Project |
|
Beds |
|
Fee Type |
|
2007 |
|
2006 |
|
Difference |
Slippery Rock University Phase I |
|
|
1,390 |
|
|
Development fee |
|
$ |
46 |
|
|
$ |
1,264 |
|
|
$ |
(1,218 |
) |
Indiana University of Pennsylvania |
|
|
734 |
|
|
Development fee |
|
|
712 |
|
|
|
422 |
|
|
|
290 |
|
University of Michigan |
|
|
896 |
|
|
Development fee |
|
|
196 |
|
|
|
459 |
|
|
|
(263 |
) |
University of North Carolina Greensboro |
|
|
600 |
|
|
Construction oversight fee |
|
|
49 |
|
|
|
45 |
|
|
|
4 |
|
University of Louisville Phase III |
|
|
359 |
|
|
Construction oversight fee |
|
|
|
|
|
|
57 |
|
|
|
(57 |
) |
University of Alabama Birmingham |
|
|
753 |
|
|
Construction oversight fee |
|
|
|
|
|
|
36 |
|
|
|
(36 |
) |
University of Alabama Tuscaloosa |
|
|
631 |
|
|
Development fee |
|
|
978 |
|
|
|
|
|
|
|
978 |
|
Slippery Rock University Phase II |
|
|
746 |
|
|
Development fee |
|
|
713 |
|
|
|
|
|
|
|
713 |
|
Indiana University of Pennsylvania Phase II |
|
|
1,102 |
|
|
Development fee |
|
|
660 |
|
|
|
|
|
|
|
660 |
|
|
|
|
|
|
|
|
|
|
Third-party development consulting services |
|
|
|
|
|
|
|
$ |
3,354 |
|
|
$ |
2,283 |
|
|
$ |
1,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California University of Pennsylvania Phase
IV |
|
|
447 |
|
|
Development fee |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
California University of Pennsylvania Phase V |
|
|
356 |
|
|
Development fee |
|
|
118 |
|
|
|
225 |
|
|
|
(106 |
) |
University of North Carolina Greensboro |
|
|
600 |
|
|
Development fee |
|
|
112 |
|
|
|
105 |
|
|
|
7 |
|
University of Louisville Phase III |
|
|
359 |
|
|
Development fee |
|
|
(9 |
) |
|
|
124 |
|
|
|
(133 |
) |
University of Alabama Birmingham |
|
|
753 |
|
|
Development fee |
|
|
|
|
|
|
133 |
|
|
|
(133 |
) |
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated entities |
|
|
|
|
|
|
|
$ |
221 |
|
|
$ |
587 |
|
|
$ |
(366 |
) |
|
|
|
|
|
|
|
|
|
Third-party development consulting services revenue increased by $1,071 or 46.9% to $3,354 for
the nine months ended September 30, 2007, as compared to the same period in 2006. During the nine
months ended September 30, 2007, AODC was engaged in seven active development projects representing
6,099 beds, AODC initiated work on Slippery Rock University Phase II and Indiana University of
Pennsylvania Phase II 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 the same period in 2006, revenue of $2,283
was recognized, which included development fee revenue on three projects and construction oversight
fees related to three other projects.
The increased volume in development consulting revenue is mainly due to an increase in the
number of projects being managed by AODC but also represents a shift in the percentage of new
projects AODC contracted directly. In previous years, the majority of our development services were
contracted through joint venture relationships with the profits from those services being
recognized through equity in earnings of unconsolidated entities. The shift to direct contracts
caused equity in earnings of unconsolidated entities in the third-party development consulting
services segment to decrease $366 or 62.3% 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 $384 to $1,985 for the nine months ended September 30, 2007, as compared to the
same period in 2006. This increase is a result of the higher volume of development projects and
increases in staffing and corporate overhead costs allocated to the segment.
Third-party management services
Total third-party management services revenue increased by $471 or 10.4% to $4,992 for
the nine months ended September 30, 2007, as compared to the same period in 2006. Growth in our
owned portfolio period over period as discussed under student housing leasing above contributed to
$75 of the increase by way of intersegment revenue, while third-party management fee revenue
increased $396 or 19.3% to $2,447 for the nine months ended September 30, 2007. The increase in
third-party fees consists of $420 related to seven new management contracts entered into during the
first quarter of 2007, $49 related to a community that came out of development in August of 2006,
$301 related to four contracts entered into in the fall of 2006 to manage properties for which we
also
27
have an ownership interest, and $47 related to revenue growth in existing contracts. These
increases were partially offset by a decrease of $421 in third-party fees as a result of three
terminated contracts.
General and administrative costs for our third-party management services segment
increased $1,323 to $4,976 for the nine months ended September 30, 2007, as compared to the same
period in 2006. The increase reflects incremental salaries and overhead costs related to the
additional management contracts and 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 $3,330 to $43,803 for the nine months ended September 30,
2007, as compared to same period in 2006. This decrease is primarily driven by a $2,005 decline in
depreciation expense due to fully depreciated assets that remain in service and a $1,305 decline in
interest expense related to the repayment of the Term Loan and Amended Revolver during the nine
months ended September 30, 2007.
Unallocated corporate expenses
Unallocated corporate expenses represent general and administrative expenses that are not
allocated to any of our business segments. For the nine months ended September 30, 2007,
unallocated corporate expenses were $5,221, an increase of $594 or 12.8% 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.
Results of Operations for the Three Months Ended September 30, 2007 and 2006
The following table presents the results of operations for Education Realty Trust, Inc.
for the three months ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2007 |
|
|
Three months ended September 30, 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 |
|
$ |
19,378 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
19,378 |
|
|
$ |
18,166 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18,166 |
|
Student housing food service revenue |
|
|
642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
642 |
|
|
|
895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895 |
|
Other leasing revenue |
|
|
3,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,509 |
|
|
|
3,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,709 |
|
Third-party development consulting services |
|
|
|
|
|
|
1,287 |
|
|
|
|
|
|
|
|
|
|
|
1,287 |
|
|
|
|
|
|
|
856 |
|
|
|
|
|
|
|
|
|
|
|
856 |
|
Third-party management revenue |
|
|
|
|
|
|
|
|
|
|
844 |
|
|
|
|
|
|
|
844 |
|
|
|
|
|
|
|
|
|
|
|
653 |
|
|
|
|
|
|
|
653 |
|
Intersegment revenues |
|
|
|
|
|
|
|
|
|
|
851 |
|
|
|
(851 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
814 |
|
|
|
(814 |
) |
|
|
|
|
Operating expense reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,672 |
|
|
|
2,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,146 |
|
|
|
2,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
23,529 |
|
|
|
1,287 |
|
|
|
1,695 |
|
|
|
1,821 |
|
|
|
28,332 |
|
|
|
22,770 |
|
|
|
856 |
|
|
|
1,467 |
|
|
|
1,332 |
|
|
|
26,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing leasing operations |
|
|
12,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,803 |
|
|
|
12,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,344 |
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2007 |
|
|
Three months ended September 30, 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 |
|
Student housing food service operations |
|
|
611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
611 |
|
|
|
844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
844 |
|
General and administrative |
|
|
16 |
|
|
|
714 |
|
|
|
1,629 |
|
|
|
|
|
|
|
2,359 |
|
|
|
|
|
|
|
547 |
|
|
|
1,141 |
|
|
|
|
|
|
|
1,688 |
|
Intersegment expenses |
|
|
851 |
|
|
|
|
|
|
|
|
|
|
|
(851 |
) |
|
|
|
|
|
|
814 |
|
|
|
|
|
|
|
|
|
|
|
(814 |
) |
|
|
|
|
Reimbursable operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,672 |
|
|
|
2,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,146 |
|
|
|
2,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
14,281 |
|
|
|
714 |
|
|
|
1,629 |
|
|
|
1,821 |
|
|
|
18,445 |
|
|
|
14,002 |
|
|
|
547 |
|
|
|
1,141 |
|
|
|
1,332 |
|
|
|
17,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
9,248 |
|
|
|
573 |
|
|
|
66 |
|
|
|
|
|
|
|
9,887 |
|
|
|
8,768 |
|
|
|
309 |
|
|
|
326 |
|
|
|
|
|
|
|
9,403 |
|
Nonoperating
expenses(1) |
|
|
14,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,041 |
|
|
|
16,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in earnings of unconsolidated entities, income
taxes, minority interest and discontinued operations |
|
|
(4,793 |
) |
|
|
573 |
|
|
|
66 |
|
|
|
|
|
|
|
(4,154 |
) |
|
|
(7,269 |
) |
|
|
309 |
|
|
|
326 |
|
|
|
|
|
|
|
(6,634 |
) |
Equity in earnings of unconsolidated entities |
|
|
(261 |
) |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
(247 |
) |
|
|
(14 |
) |
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes, minority interest and discontinued operations(2) |
|
$ |
(5,054 |
) |
|
$ |
587 |
|
|
$ |
66 |
|
|
$ |
|
|
|
$ |
(4,401 |
) |
|
$ |
(7,283 |
) |
|
$ |
471 |
|
|
$ |
326 |
|
|
$ |
|
|
|
$ |
(6,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonoperating expenses include interest expense, interest income, amortization of deferred financing costs, depreciation, and amortization of intangibles. |
|
(2) |
|
The following is a reconciliation of the reportable segments net income before income taxes, minority interest and discontinued operations to the
Trusts consolidated net loss before income taxes, minority interest and discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Net loss before income taxes, minority interest and discontinued operations for
reportable segments |
|
$ |
(4,401 |
) |
|
$ |
(6,486 |
) |
Other unallocated corporate expenses (3) |
|
|
(1,776 |
) |
|
|
(1,558 |
) |
|
|
|
|
|
|
|
Net loss before income taxes, minority interest and discontinued operations |
|
$ |
(6,177 |
) |
|
$ |
(8,044 |
) |
|
|
|
|
|
|
|
|
|
|
(3) |
|
Certain prior period amounts have been reclassified to conform to the current period
presentation. Interest expense of $1,282 related to borrowings on our revolving line of
credit that were used to acquire the Place Portfolio was previously an unallocated corporate
expense. This amount has been reclassified to the student housing leasing segment for the
three months ended September 30, 2006. |
29
Student housing leasing
Student housing operating statistics for all owned and managed properties for the three
months ended September 30, 2007 and 2006 were as follows (excludes Place properties):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Three months |
|
|
|
|
ended |
|
ended |
|
|
|
|
September 30, |
|
September 30, |
|
|
|
|
2007 |
|
2006 |
|
Difference |
Occupancy |
|
|
|
|
|
|
|
|
|
|
|
|
Physical (1) |
|
|
92.2 |
% |
|
|
91.7 |
% |
|
|
0.5 |
% |
Economic (2) |
|
|
85.7 |
% |
|
|
80.7 |
% |
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
NarPAB (3) |
|
$ |
323 |
|
|
$ |
301 |
|
|
$ |
22 |
|
Other income per avail. bed (4) |
|
$ |
25 |
|
|
$ |
25 |
|
|
$ |
0 |
|
RevPAB (5) |
|
$ |
348 |
|
|
$ |
326 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense per bed (6) |
|
$ |
230 |
|
|
$ |
222 |
|
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
33.9 |
% |
|
|
32.0 |
% |
|
|
1.9 |
% |
Design Beds (7) |
|
|
55,713 |
|
|
|
55,713 |
|
|
|
|
|
|
|
|
(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 potential 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 GAAP-based other 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/application fees, late fees,
termination fees, parking fees, transfer fees, damage recovery, utility recovery, and other miscellaneous
income. |
|
(5) |
|
RevPAB represents total revenue (net apartment rent plus other income) for the respective period divided by
the sum of the design beds for each of the included months. |
|
(6) |
|
Represents property-level operating expense excluding management fees and 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 $23,529 for the three months ended
September 30, 2007. This represents an increase of $759 or 3.3% from the same period in 2006.
Student housing leasing revenue, which is all same community revenue for the quarter, contributed
an increase of $1,212 or 6.7% quarter over quarter. This same community revenue growth was driven
by an approximate 2.9% improvement in rates, 0.8% improvement in occupancy and a 3.0% increase in
revenue due to less vacant days during the turn period in the current leasing year compared to
prior leasing year. Offsetting the improvement in student housing leasing revenue was a $253
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, and a $200 decline in other lease revenue as a result of lower additional rent related to
the master lease of 13 properties referred to as the Place Portfolio to a third-party.
Operating expenses in the student housing leasing segment increased $279 or 1.9% to
$14,281 for the three months ended September 30, 2007, as compared to the same period in 2006.
Student housing leasing operations increased a total of $459 or 3.7% over the sane quarter in 2006.
Increases in general and administrative costs, mostly related to credit card and collection
related expenses, contributed to $362 of the increase, while student amenities, insurance costs and
real estate taxes contributed equally to a majority of the remaining increase. The increase in
student housing leasing expenses was offset by a $233 decline in student housing food service
operations related to the termination of the food service contract discussed above.
Equity in earnings in unconsolidated entities was a loss of $261 for the quarter ended
September 30, 2007 compared to a loss of $14 on the same quarter of 2006. 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. Three out of the
four investments occurred subsequent to September 30, 2006.
Third-party development consulting services
30
Third-party development consulting services revenue increased by $431 or 50.4% to $1,287
for the three months ended September 30, 2007, as compared to the same period in 2006. During the
quarter ended September 30, 2007, we were engaged in seven active development projects representing
6,099 beds. During the same period in 2006, revenues of $856 related to development fee revenue
recognized on three projects representing 2,973 beds 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 our development subsidiary AODC but also represents a shift in
the percentage of new projects AODC contracts 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. This shift
caused equity in earnings of unconsolidated entities in the third-party development consulting
services segment to decrease $148 or 91.4% from the third quarter of 2006.
General and administrative costs in the third-party development consulting services
segment increased $167 to $714 for the three months ended September 30, 2007, as compared to the
same period in 2006. This increase is a result of the higher volume of development projects and
increases in staffing and corporate overhead costs allocated to the segment.
Third-party management services
Total third-party management services revenue increased by $228 or 15.5% to $1,695 for
the three months ended September 30, 2007. Growth in our owned portfolio period over period as
discussed under student housing leasing above contributed to $37 of the increase by way of
intersegment revenue, while third-party management fee revenue increased $191 or 29.2% to $844 for
the three months ended September 30, 2007. The increase in third-party fees consists of $152
related to six new management contracts entered during the first quarter of 2007, $6 related to one
property that came out of third-party development and opened in the third quarter of 2006, and $112
related to four contracts to manage properties for which we also have an ownership interest. These
contracts were entered into in the fall of 2006; however, one of these contracts related to a
property that did not open until the third quarter of 2007. These increases were offset by $114 as
a result of two contracts that were terminated in the second half of 2006.
General and administrative costs for our third-party management services segment
increased $488 to $1,629 for the three months ended September 30, 2007. The increase reflects
incremental salaries and overhead costs related to the additional management contracts and
intersegment management revenue volume noted above and increased travel and integration costs
related to the new contracts added in 2007.
Nonoperating expenses
Nonoperating expenses decreased $1,996 to $14,041 for the three months ended September
30, 2007. This decrease is primarily driven by a $761 decline in depreciation expense due to fully
depreciated assets that remain in service and a $1,243 decline in interest expense related to the
repayment of the Term Loan in June of 2007.
Unallocated corporate expenses
Unallocated corporate expenses represent general and administrative expenses that are not
allocated to any of our business segments. For the three months ended September 30, 2007
unallocated corporate expenses were $1,776, an increase of $218 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 as well as additional costs related to an accounting system
implementation in the third quarter of 2007. 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.
Funds from Operations
As defined by the National Association of Real Estate Investment Trusts (NAREIT), FFO
represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from
sales of property, plus real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures will be calculated to reflect funds from operations on the same basis. We present
FFO 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.
31
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 loss for the three and nine months ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net loss |
|
$ |
(5,802 |
) |
|
$ |
(8,189 |
) |
|
$ |
(6,099 |
) |
|
$ |
(11,483 |
) |
Less gain on sale of student housing property, net of
minority interest |
|
|
|
|
|
|
|
|
|
|
(1,579 |
) |
|
|
|
|
Plus student housing property depreciation and amortization
of lease intangibles |
|
|
7,824 |
|
|
|
8,585 |
|
|
|
23,633 |
|
|
|
25,638 |
|
Plus equity portion of real estate depreciation and
amortization on equity investees |
|
|
149 |
|
|
|
5 |
|
|
|
340 |
|
|
|
5 |
|
Plus depreciation and amortization of discontinued operations |
|
|
|
|
|
|
526 |
|
|
|
711 |
|
|
|
1,541 |
|
Plus minority interest |
|
|
(337 |
) |
|
|
(485 |
) |
|
|
(306 |
) |
|
|
(550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations |
|
$ |
1,834 |
|
|
$ |
442 |
|
|
$ |
16,700 |
|
|
$ |
15,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
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 September 30, 2007, there was $2,200 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 (7.57% at September 30, 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.
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 greater
than 1.85:1.00 during the effective period, 1.87:1.00 for the nine months ended September 30, 2007,
the interest coverage ratio reverts 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 September 30,
2007, and (ii) 95% of funds from operations for the applicable period thereafter.
32
During the nine months ended September 30, 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 was
primarily used to pay down the Amended Revolver.
Liquidity outlook and capital requirements
At September 30, 2007, we had $3,171 of cash, a decrease of $3,256 from December 31,
2006. During the same period we reduced debt by $69,062, improving our overall leverage ratio from
54.2% at December 31, 2006 to 51.3% at September 30, 2007.
During the nine months ended September 30, 2007, we generated $23,075 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 $20,200 outstanding under the
Amended Revolver, invest $2,457 in a new development and distribute $18,060 to our stockholders.
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 nine months ended September 30, 2006 outpaced cash from operations
during the same period. The resulting operating cash shortfall of $5,353 was funded by draws on
our revolving line of credit. Distributions for the nine months ended September 30, 2007 totaled
$18,060 or $0.62 per weighted average share/unit compared to cash provided by operations of $23,075
or $0.83 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 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-core 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 the nine months ended
September 30, 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 paydown debt or possibly finance acquisitions or other operational needs.
Based on our closing share price of $13.50 on September 28, 2007, our total enterprise value
was $823,243. With total debt outstanding on September 30, 2007 of $422,422, our current debt to
total enterprise value was 51.3%. We believe our capital structure and current FFO and distribution
targets along with the $97,800 availability under our 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 and rising interest rates are expected to 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 financing under satisfactory conditions 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 million revolving credit facility. We intend to finance
property acquisitions over the longer term with the proceeds from additional issuances of common or
preferred stock, debt financing and issuances of units of our Operating Partnership.
We anticipate that our existing working capital 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 from the project owner a guarantee of repayment
of these predevelopment expenditures, but no assurance can be given that we would be successful in
collecting the amount guaranteed in the event that a project financing is not obtained. During the
nine months ended September 30, 2007, we purchased land for the development of 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.
33
Long-term liquidity requirements
Our long-term liquidity requirements consist primarily of funds necessary to pay
scheduled debt maturities, renovations, expansion and other non-recurring capital expenditures that
need to be made periodically to our properties. We expect to meet these needs through existing
working capital, cash provided by operations, additional borrowings under our Amended Revolver, and
the issuance of equity instruments, including common 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.
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 the nine months ended September 30, 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.
Commitments and Contractual obligations
The following table summarizes our contractual obligations as of September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
After 5 |
|
|
|
|
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Total |
|
Commitments and Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt Obligations(1) |
|
$ |
3,154 |
|
|
$ |
311,531 |
|
|
$ |
1,835 |
|
|
$ |
105,902 |
|
|
$ |
422,422 |
|
Contractual Interest Obligations(2) |
|
|
6,330 |
|
|
|
41,249 |
|
|
|
12,900 |
|
|
|
6,270 |
|
|
|
66,749 |
|
Operating Lease and Future Purchase
Obligations (3) |
|
|
774 |
|
|
|
4,279 |
|
|
|
3,213 |
|
|
|
852 |
|
|
|
9,118 |
|
Capital Reserve Obligations(4) |
|
|
1,573 |
|
|
|
2,418 |
|
|
|
421 |
|
|
|
182 |
|
|
|
4,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,831 |
|
|
$ |
359,477 |
|
|
$ |
18,369 |
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$ |
113,206 |
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$ |
502,883 |
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(1) |
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Includes required monthly principal amortization and amounts due at maturity on first mortgage debt secured by student
housing properties and principal amortization on the Amended Revolver and the Term Loan. The first mortgage debt does not
include $1,849 of unamortized debt premium. |
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(2) |
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Includes contractual interest payments. |
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(3) |
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Includes future minimum lease commitments under operating lease obligations and future purchase obligations for advertising. |
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(4) |
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Includes future annual contributions to the capital reserve as required by certain mortgage debt. |
At September 30, 2007, the outstanding mortgage debt had a weighted average interest rate
of 5.90% and carried an average term to maturity of 2.72 years.
As of September 30, 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.
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 October 9, 2007, our board of directors declared a third quarter distribution of
$0.205 per share of common stock for the quarter ending on September 30, 2007. The distribution is
payable on November 6, 2007 to shareholders of record at the close of business on October 23, 2007.
Off-Balance Sheet Arrangements
As discussed in Note 3 to the condensed consolidated financial statements we hold
investments in unconsolidated entities. Three of these unconsolidated entities have third party
mortgage indebtedness totaling $88,640 at September 30, 2007. Additionally, on May 10, 2006, the
Operating Partnership guaranteed $23,200 of construction debt held by University Village-Greensboro
LLC in
34
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 has determined that it
will not guarantee the debt after the construction loan is refinanced.
Inflation
Our student housing leases typically do not have terms that extend beyond 12 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.
Item 3. 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 September 30, 2007, we
had fixed rate debt of $420,222. Holding other variables constant a 100 basis point increase in
interest rates would cause a $8,985 decline in the fair value of our fixed rate debt. Conversely, a
100 basis point decrease in interest rates would cause a $9,359 increase in the fair value of our
fixed rate debt. At September 30, 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 2.7 years.
At September 30, 2007, we had $2,200 outstanding on the Amended Revolver. The interest
rate per annum applicable to the Amended Revolver is, at the Operating Partnerships option, equal
to a base rate or LIBOR plus an applicable margin based upon our leverage.
99% of the Trusts outstanding debt was subject to fixed rates at September 30, 2007.
In the future, we may draw down on the Amended Revolver, and we may use derivative financial
instruments to manage, or hedge, interest rate risks related to such a variable rate borrowing. We
do not, and do not expect to, use derivatives for trading or speculative purposes, and we expect to
enter into contracts only with major financial institutions.
Item 4. Controls and Procedures.
Managements Evaluation of Disclosure Controls and Procedures
The Trust maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Trusts filings under the Securities Exchange Act of
1934 (the Exchange Act) is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms, and to ensure that such information is accumulated and
communicated to the Trusts management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. The Trust also
has investments in unconsolidated entities which are not under its control. Consequently, the
Trusts disclosure controls and procedures with respect to these entities are necessarily more
limited than those it maintains with respect to its consolidated subsidiaries.
Our management, with the participation of our principal executive officer and financial
officers has evaluated the effectiveness of the design and operation of the Trusts disclosure
controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Exchange Act. Based on
their evaluation as of September 30, 2007, our Chief Executive Officer and Chief Financial Officer
have concluded that the Trusts disclosure controls and procedures were effective to ensure that
information required to be disclosed by the Trust in the Trusts Exchange Act filings is recorded,
processed, summarized and reported within the time periods specified in the applicable SEC rules
and forms.
Changes in Internal Control Over Financial Reporting
During the nine months ended September 30, 2007, the Trust implemented a new general ledger
system and began the implementation of a financial reporting analyses
package. There were no other changes in the Trusts internal control over financial reporting that
materially affected, or are reasonably likely to materially affect, the Trusts internal control
over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act).
35
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, we are subject to claims, lawsuits, and legal
proceedings. While it is not possible to ascertain the ultimate outcome of such matters, in
managements opinion, the liabilities, if any, in excess of amounts provided or covered by
insurance, are not expected to have a material adverse effect on our financial position, results of
operations or liquidity.
Item 1A. Risk factors
The following risk factors should be read together with the discussion of the Trusts
business and operations and the risk factors contained in Item 1A of our annual report on Form 10-K
for the year ended December 31, 2006, which describes various risks and uncertainties to which we
are or may be subject. These risks and uncertainties have the potential to affect the Trusts
business, financial condition, results of operations, cash flows and prospects in a material
adverse manner.
Financing our future growth plan or refinancing existing debt maturities could be 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. 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by
reference (as stated therein) as part of this Quarterly Report on Form 10-Q.
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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EDUCATION REALTY TRUST, INC. |
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Date: November 7, 2007
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By /s/ Paul O. Bower |
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Paul O. Bower
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President, Chief Executive Officer and |
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Chairman of the Board of Directors |
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(Principal Executive Officer) |
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Date: November 7, 2007
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By /s/ Randall H. Brown |
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Randall H. Brown
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Executive Vice President, Chief Financial |
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Officer, Treasurer and Secretary |
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(Principal Financial Officer) |
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Date: November 7, 2007
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By /s/ J. Drew Koester |
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J. Drew Koester
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Vice President and Chief Accounting Officer |
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(Principal Accounting Officer) |
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37
EXHIBIT INDEX
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3.1
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Second Articles of Amendment and Restatement of
Education Realty Trust, Inc. (Incorporated by
reference to Exhibit 3.1 to the Companys Amendment
No. 2 to its Registration Statement on Form S-11
(File No. 333-1192364), filed on December 10, 2004.) |
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3.2
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Bylaws of Education Realty Trust, Inc. (Incorporated
by reference to Exhibit 3.2 to the Companys
Registration Statement on Form S-11 (File
No. 333-119264), filed on September 24, 2004.) |
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4.1
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Form of Certificate for Common Stock of Education
Realty Trust, Inc. (Incorporated by reference to
Exhibit 4.1 to the Companys Amendment No. 5 to its
Registration Statement on Form S-11 (File
No. 333-1192364), filed on January 24, 2005.) |
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4.2
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Form of Registration Rights Agreement dated
January 31, 2005, by and among Education Realty
Trust, Inc., Education Realty Operating Partnership,
LP, JPI Investment Company, L.P. and the unit holders
whose names are set forth on the signature pages
thereto. (Incorporated by reference to Exhibit 4.3 to
the Companys Registration Statement on Form S-11
(File No. 333-119264), filed on September 24, 2004.) |
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Exhibit 31.1
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Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act, as
amended. |
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Exhibit 31.2
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Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act, as
amended. |
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Exhibit 32.1*
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Section 906 Certification of Chief Executive Officer |
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Exhibit 32.2*
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Section 906 Certification of Chief Financial Officer |
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* |
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In accordance with Release No. 34-47986, this Exhibit is hereby
furnished to the SEC as an accompanying document and is not deemed
filed for purposes of Section 18 of the Securities Exchange Act of
1934 or otherwise subject to the liabilities of that Section, nor
shall it be deemed incorporated by reference into any filing under the
Securities Act of 1933. |