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 June 30, 2008
Or
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o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the transition period from to
Commission File Number: 001-32417
Education Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
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Maryland
(State or other jurisdiction of incorporation or organization)
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20-1352180
(I.R.S. Employer Identification No.) |
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|
530 Oak Court Drive, Suite 300, Memphis, Tennessee
(Address of principal executive offices)
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38117
(Zip Code) |
Registrants telephone number, including area code: (901) 259-2500
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company 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 July 31, 2008, the latest practicable date, the Registrant had outstanding 28,514,966 shares
of common stock, $.01 par value per share.
EDUCATION REALTY TRUST, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2008
TABLE OF CONTENTS
2
Part I Financial Information
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Item 1. |
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Financial Statements. |
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
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|
(Unaudited) |
|
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|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Student housing properties, net |
|
$ |
718,108 |
|
|
$ |
732,979 |
|
Assets under development |
|
|
17,084 |
|
|
|
5,675 |
|
Corporate office furniture, net |
|
|
1,583 |
|
|
|
1,693 |
|
Cash and cash equivalents |
|
|
27,322 |
|
|
|
4,034 |
|
Restricted cash |
|
|
8,977 |
|
|
|
8,188 |
|
Student contracts receivable, net |
|
|
701 |
|
|
|
329 |
|
Receivable from affiliate |
|
|
30 |
|
|
|
18 |
|
Management fee receivable from third party |
|
|
683 |
|
|
|
606 |
|
Goodwill and other intangibles, net |
|
|
3,518 |
|
|
|
3,531 |
|
Other assets |
|
|
10,618 |
|
|
|
10,407 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
788,624 |
|
|
$ |
767,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
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|
Liabilities: |
|
|
|
|
|
|
|
|
Mortgage and construction loans, net of unamortized premium/discount |
|
$ |
425,623 |
|
|
$ |
420,940 |
|
Revolving line of credit |
|
|
34,700 |
|
|
|
11,500 |
|
Accounts payable and accrued expenses |
|
|
12,368 |
|
|
|
11,092 |
|
Accounts payable affiliate |
|
|
120 |
|
|
|
60 |
|
Deferred revenue |
|
|
8,247 |
|
|
|
7,928 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
481,058 |
|
|
|
451,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Minority interest |
|
|
16,808 |
|
|
|
18,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Commitments and contingencies (see Note 6) |
|
|
|
|
|
|
|
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|
|
|
|
|
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Stockholders equity: |
|
|
|
|
|
|
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|
Common stock, $.01 par value, 200,000,000 shares authorized,
28,457,849 and 28,431,855 shares issued and outstanding at June 30,
2008 and December 31, 2007, respectively |
|
|
285 |
|
|
|
284 |
|
Preferred shares, $0.01 par value, 50,000,000 shares authorized, no
shares issued and outstanding |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
319,700 |
|
|
|
330,969 |
|
Accumulated deficit |
|
|
(29,227 |
) |
|
|
(33,434 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
290,758 |
|
|
|
297,819 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
788,624 |
|
|
$ |
767,460 |
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
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|
Six months |
|
|
Six months |
|
|
|
ended |
|
|
ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
Student housing leasing revenue |
|
$ |
53,158 |
|
|
$ |
43,003 |
|
Student housing food service revenue |
|
|
1,196 |
|
|
|
1,102 |
|
Other leasing revenue |
|
|
6,945 |
|
|
|
6,868 |
|
Third-party development services |
|
|
3,008 |
|
|
|
2,067 |
|
Third-party management services |
|
|
1,807 |
|
|
|
1,603 |
|
Operating expense reimbursements |
|
|
5,140 |
|
|
|
4,383 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
71,254 |
|
|
|
59,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Student housing leasing operations |
|
|
25,231 |
|
|
|
18,424 |
|
Student housing food service operations |
|
|
1,128 |
|
|
|
1,072 |
|
General and administrative |
|
|
7,850 |
|
|
|
7,050 |
|
Depreciation and amortization |
|
|
14,817 |
|
|
|
16,004 |
|
Reimbursable operating expenses |
|
|
5,140 |
|
|
|
4,383 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
54,166 |
|
|
|
46,933 |
|
|
|
|
|
|
|
|
Operating income |
|
|
17,088 |
|
|
|
12,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating expenses: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
12,213 |
|
|
|
14,386 |
|
Amortization of deferred financing costs |
|
|
487 |
|
|
|
548 |
|
Loss on early repayment of debt |
|
|
|
|
|
|
174 |
|
Interest income |
|
|
(190 |
) |
|
|
(251 |
) |
|
|
|
|
|
|
|
Total nonoperating expenses |
|
|
12,510 |
|
|
|
14,857 |
|
|
|
|
|
|
|
|
Income (loss) before equity in earnings (losses) of unconsolidated entities,
income taxes, minority interest and discontinued operations |
|
|
4,578 |
|
|
|
(2,764 |
) |
Equity in earnings (losses) of unconsolidated entities |
|
|
(27 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interest and discontinued operations |
|
|
4,551 |
|
|
|
(2,762 |
) |
Income tax expense (benefit) |
|
|
173 |
|
|
|
(49 |
) |
|
|
|
|
|
|
|
Net income (loss) before minority interest and discontinued operations |
|
|
4,378 |
|
|
|
(2,713 |
) |
Minority interest |
|
|
171 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
4,207 |
|
|
|
(2,709 |
) |
Discontinued operations: |
|
|
|
|
|
|
|
|
Income from discontinued operations, net of minority interest of $35 |
|
|
|
|
|
|
833 |
|
Gain on sale of student housing property, net of minority interest of $65 |
|
|
|
|
|
|
1,579 |
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
|
|
|
|
2,412 |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,207 |
|
|
$ |
(297 |
) |
|
|
|
|
|
|
|
Earnings per share information |
|
|
|
|
|
|
|
|
Income (loss) per share basic: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.15 |
|
|
$ |
(0.10 |
) |
Discontinued operations |
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
0.15 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
Income (loss) per share diluted: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.14 |
|
|
$ |
(0.10 |
) |
Discontinued operations |
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
0.14 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic |
|
|
28,444,497 |
|
|
|
27,592,873 |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted |
|
|
29,589,932 |
|
|
|
27,592,873 |
|
|
|
|
|
|
|
|
Distributions per common share |
|
$ |
0.410 |
|
|
$ |
0.410 |
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Three months |
|
|
|
ended |
|
|
ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
Student housing leasing revenue |
|
$ |
26,805 |
|
|
$ |
21,031 |
|
Student housing food service revenue |
|
|
541 |
|
|
|
522 |
|
Other leasing revenue |
|
|
5,000 |
|
|
|
3,434 |
|
Third-party development services |
|
|
1,221 |
|
|
|
1,024 |
|
Third-party management services |
|
|
832 |
|
|
|
721 |
|
Operating expense reimbursements |
|
|
2,521 |
|
|
|
2,227 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
36,920 |
|
|
|
28,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Student housing leasing operations |
|
|
13,146 |
|
|
|
9,402 |
|
Student housing food service operations |
|
|
495 |
|
|
|
511 |
|
General and administrative |
|
|
3,913 |
|
|
|
3,560 |
|
Depreciation and amortization |
|
|
7,224 |
|
|
|
7,924 |
|
Reimbursable operating expenses |
|
|
2,521 |
|
|
|
2,227 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
27,299 |
|
|
|
23,624 |
|
|
|
|
|
|
|
|
Operating income |
|
|
9,621 |
|
|
|
5,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating expenses: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
6,049 |
|
|
|
6,999 |
|
Amortization of deferred financing costs |
|
|
244 |
|
|
|
268 |
|
Loss on early repayment of debt |
|
|
|
|
|
|
174 |
|
Interest income |
|
|
(72 |
) |
|
|
(167 |
) |
|
|
|
|
|
|
|
Total nonoperating expenses |
|
|
6,221 |
|
|
|
7,274 |
|
|
|
|
|
|
|
|
Income (loss) before equity in earnings (losses) of unconsolidated entities,
income taxes, minority interest and discontinued operations |
|
|
3,400 |
|
|
|
(1,939 |
) |
Equity in earnings (losses) of unconsolidated entities |
|
|
(26 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interest and discontinued operations |
|
|
3,374 |
|
|
|
(1,980 |
) |
Income tax benefit |
|
|
(18 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
Net income (loss) before minority interest and discontinued operations |
|
|
3,392 |
|
|
|
(1,933 |
) |
Minority interest |
|
|
74 |
|
|
|
(123 |
) |
|
|
|
|
|
|
|
Income from continuing operations |
|
|
3,318 |
|
|
|
(1,810 |
) |
Discontinued operations: |
|
|
|
|
|
|
|
|
Income from discontinued operations, net of minority interest of $18 |
|
|
|
|
|
|
425 |
|
Gain on sale of student housing property, net of minority interest of $65 |
|
|
|
|
|
|
1,579 |
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
|
|
|
|
2,004 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,318 |
|
|
$ |
194 |
|
|
|
|
|
|
|
|
Earnings per share information |
|
|
|
|
|
|
|
|
Income (loss) per share basic: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.12 |
|
|
$ |
(0.06 |
) |
Discontinued operations |
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
0.12 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
Income (loss) per share diluted: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.11 |
|
|
$ |
(0.06 |
) |
Discontinued operations |
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
0.11 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic |
|
|
28,450,730 |
|
|
|
28,012,275 |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted |
|
|
29,571,724 |
|
|
|
28,012,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions per common share |
|
$ |
0.205 |
|
|
$ |
0.205 |
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months |
|
|
Six months |
|
|
|
ended |
|
|
ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,207 |
|
|
$ |
(297 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
14,817 |
|
|
|
16,004 |
|
Depreciation included in discontinued operations |
|
|
|
|
|
|
711 |
|
Deferred taxes |
|
|
(379 |
) |
|
|
(346 |
) |
Loss on disposal of assets |
|
|
525 |
|
|
|
|
|
Gain on sale of student housing property |
|
|
|
|
|
|
(1,644 |
) |
Loss on early repayment of debt |
|
|
|
|
|
|
138 |
|
Amortization of deferred financing costs |
|
|
487 |
|
|
|
548 |
|
Amortization of unamortized debt premiums/discounts |
|
|
(263 |
) |
|
|
(230 |
) |
Distributions of earnings from unconsolidated entities |
|
|
124 |
|
|
|
188 |
|
Noncash compensation expense related to PIUs and restricted stock |
|
|
396 |
|
|
|
394 |
|
Equity in earnings of unconsolidated entities |
|
|
27 |
|
|
|
(2 |
) |
Minority interest in continuing operations |
|
|
171 |
|
|
|
(4 |
) |
Minority interest in discontinued operations |
|
|
|
|
|
|
101 |
|
Change in operating assets and liabilities (net of student housing
acquisitions/disposals) |
|
|
1,388 |
|
|
|
(2,536 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
21,500 |
|
|
|
13,025 |
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Purchase of corporate furniture and fixtures |
|
|
(143 |
) |
|
|
(750 |
) |
Restricted cash |
|
|
(789 |
) |
|
|
1,024 |
|
Investment in student housing properties |
|
|
(3,954 |
) |
|
|
(2,784 |
) |
Proceeds from sale of assets |
|
|
2,578 |
|
|
|
|
|
Proceeds from sale of student housing properties |
|
|
|
|
|
|
48,942 |
|
Investment in assets under development |
|
|
(11,409 |
) |
|
|
(1,946 |
) |
Investment in joint ventures |
|
|
(169 |
) |
|
|
(62 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(13,886 |
) |
|
|
44,424 |
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Payment of mortgage notes |
|
|
(24,766 |
) |
|
|
(58,305 |
) |
Borrowings of mortgage notes and construction loan |
|
|
29,712 |
|
|
|
57,800 |
|
Repayment of term loan |
|
|
|
|
|
|
(47,000 |
) |
Borrowing (repayment) of line of credit, net |
|
|
23,200 |
|
|
|
(22,400 |
) |
Debt issuance costs |
|
|
(198 |
) |
|
|
(549 |
) |
Proceeds from issuance of common stock |
|
|
|
|
|
|
22,474 |
|
Dividends and distributions paid |
|
|
(12,274 |
) |
|
|
(11,815 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
15,674 |
|
|
|
(59,795 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
23,288 |
|
|
|
(2,346 |
) |
Cash and cash equivalents, beginning of period |
|
|
4,034 |
|
|
|
6,427 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
27,322 |
|
|
$ |
4,081 |
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
6
|
|
|
|
|
|
|
|
|
|
|
Six months |
|
|
Six months |
|
|
|
ended |
|
|
ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
12,878 |
|
|
$ |
14,509 |
|
Income taxes paid |
|
$ |
70 |
|
|
$ |
479 |
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash activities: |
|
|
|
|
|
|
|
|
Warrants expired |
|
$ |
|
|
|
$ |
375 |
|
Redemption of minority interest from unit holder |
|
|
893 |
|
|
|
|
|
Common stock issued under the dividend reinvestment plan |
|
|
|
|
|
|
78 |
|
See accompanying notes to the condensed consolidated financial statements.
7
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.
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
8
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
Form 10-K for the year ended December 31, 2007, as amended, filed with the Securities and Exchange
Commission (the SEC).
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Significant estimates and
assumptions are used by management in determining the recognition of third-party development
consulting services revenue under the percentage of completion method, useful lives of student
housing assets, the valuation of goodwill, the initial valuations and underlying allocations of
purchase price in connection with student property acquisitions and in the recording of the
allowance for doubtful accounts. Actual results could differ from those estimates.
Cash and cash equivalents
All highly liquid investments with a maturity of three months or less when purchased are considered
cash equivalents. Restricted cash is excluded from cash for the purpose of preparing the
consolidated 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 of Directors 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 of Directors deems relevant.
Student housing properties
Land, land improvements, buildings and improvements, and furniture, fixtures and equipment are
recorded at cost. Buildings and improvements are depreciated over 30 to 40 years, land improvements
are depreciated over 15 years and furniture, fixtures, and equipment are depreciated over 3 to 7
years. Depreciation is computed using the straight-line method for financial reporting purposes
over the estimated useful life.
Acquisitions of student housing properties are accounted for utilizing the purchase method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and accordingly, the acquired student housing properties results of operations are
included in the Trusts results of operations from the respective dates of acquisition.
Pre-acquisition costs, which include legal and professional fees and other third party costs
related directly to the acquisition of the property, are accounted for as part of the purchase
price. Appraisals, estimates of cash flows and valuation techniques are used to allocate the
purchase price of acquired property between land, land improvements, buildings and improvements,
furniture, fixtures and equipment and identifiable intangibles such as amounts related to in-place
leases.
Management assesses impairment of long-lived assets in accordance with SFAS No. 144, Accounting for
the Impairment and Disposal of Long-lived Assets. SFAS No. 144 requires that long-lived assets to
be held and used be reviewed for impairment whenever events
9
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 June 30, 2008, management
determined that no indicators of impairment existed.
Certain student housing properties may be classified as held for sale based on the criteria within
SFAS No. 144. When a student housing property is identified as held for sale, the net realizable
value of such asset is estimated. If the net realizable value of the asset is less than the
carrying amount of the asset an impairment charge is recorded for the estimated loss. Depreciation
expense is no longer recorded once a student housing property has met the held for sale criteria.
Operations of student housing properties that are sold or classified as held for sale are recorded
as part of discontinued operations for all periods presented. No impairment loss on student housing
properties held for sale was recognized in the accompanying condensed consolidated financial
statements.
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. These investments are classified as other assets in the accompanying condensed
consolidated balance sheets.
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. Deferred financing costs, net of amortization, are included in other
assets on the accompanying condensed consolidated balance sheets.
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 offset to interest expense 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.
10
The Trust has elected to treat its management company, AOES, as a taxable REIT subsidiary (TRS).
The TRS is subject to federal, state and local income taxes. AOES manages the Trusts non-REIT
activities. The Trust follows SFAS No. 109, Accounting for Income Taxes, which requires the use of
the asset and liability method. Deferred tax assets and liabilities are recognized based on the
difference between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect in the years in which those temporary differences are expected to reverse.
The Trust adopted Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1,
2007 with the adoption having no impact on the Trusts consolidated financial statements. The Trust had
no unrecognized tax benefits as of June 30, 2008 and 2007. As of June 30, 2008, the Trust does not
expect to record any unrecognized tax benefits. The Trust, or its subsidiaries, file income tax
returns in the U.S. Federal jurisdiction and various states jurisdictions. As of June 30, 2008,
open tax years generally include tax years 2004-2007. The Trusts policy is to include interest and
penalties related to unrecognized tax benefits in general and administrative expenses. At June 30,
2008, the Trust had no interest or penalties recorded related to unrecognized tax benefits.
Earnings per share
The Trust calculates earnings per share in accordance with SFAS No. 128, Earnings Per Share. Basic
earnings per share is calculated by dividing net earnings available to common shares by weighted
average common shares outstanding. Diluted earnings per share is calculated similarly, except that
it includes the dilutive effect of the assumed exercise of potentially dilutive securities. At June
30, 2008, unvested restricted stock of 57,117 and Profits Interest Units of 275,000 are excluded
from the computation of diluted earnings per share because the effects of their inclusion would be
anti-dilutive. The following reconciles the basic and diluted weighted average shares as of June
30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Six months |
|
|
ended June 30, |
|
ended June 30, |
|
|
2008 |
|
2008 |
Basic weighted average commons shares outstanding |
|
|
28,450,730 |
|
|
|
28,444,497 |
|
Operating Partnership units |
|
|
913,737 |
|
|
|
913,737 |
|
University Towers Operating Partnership units |
|
|
207,257 |
|
|
|
231,698 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
29,571,724 |
|
|
|
29,589,932 |
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2007, a reconciliation of the numerators and
denominators for the basic and diluted earnings per share computation is not presented, as the
Trust reported a loss from continuing operations, 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.
Goodwill and other intangible assets
The Trust accounts for its goodwill and other intangible assets under SFAS No. 142, Goodwill and
Other Intangible Assets. Goodwill is tested annually for impairment, and is tested for impairment
more frequently if events and circumstances indicate that the assets might be impaired. An
impairment loss is recognized to the extent that the carrying amount exceeds the assets fair
value. The carrying value of goodwill was $3,458 at June 30, 2008 and December 31, 2007. Other
intangible assets generally include in-place leases and management contracts acquired in connection
with acquisitions and are amortized over the estimated life of the lease/contract term.
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.
11
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 (Place
Portfolio) we acquired from Place Properties, Inc. (Place) in January 2006. Simultaneous with
the acquisition of the 13 properties, the Trust leased the assets to Place and received base
monthly rent of $1,145 and had the right to receive Additional Rent annually if the properties
exceeded certain criteria defined in the lease agreement. Base rent was recognized on a
straight-line basis over the lease term and Additional Rent was recognized only upon satisfaction
of the defined criteria. The lease was terminated on February 1, 2008. In connection with the
termination of the lease, Place paid the Operating Partnership a lease termination fee of $5,800,
of which $800 was recognized during the quarter ended March 31, 2008 and $5,000 during the quarter
ended June 30, 2008. Furthermore, Place may be required to provide additional consideration, not
to exceed $200, in the event there is a shortfall between the projected gross rentals of one
specific student housing property for the 2008/2009 lease year and $3,164.
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.
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.
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.
12
Recently adopted accounting pronouncements
In September 2006, the Financial Accounting Standards Board (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 adoption of
SFAS 157 did not have a material impact on the Trusts consolidated financial condition or 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
adoption of SFAS 159 did not have a material impact on the Trusts consolidated financial condition
or results of operations.
Recently issued accounting pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R).
SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial effects of the
business combination. SFAS 141R is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The Trust is currently evaluating the impact of adopting SFAS
141R on its consolidated financial condition and results of operations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held by parties other
than the parent, the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parents ownership interest and the valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes
disclosure requirements that clearly identify and distinguish between the interests of the parent
and the interests of the noncontrolling owners. SFAS 160 is effective for financial statements
issued for fiscal years beginning after December 15, 2008. The Trust is currently evaluating the
impact of adopting SFAS 160 on its consolidated financial condition and results of operations.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires enhanced
disclosure related to derivatives and hedging activities and thereby seeks to improve the
transparency of financial reporting. Under SFAS 161, entities are required to provide enhanced
disclosures relating to: (a) how and why an entity uses derivative instruments; (b) how derivative
instruments and related hedge items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133), and its related interpretations; and (c) how
derivative instruments and related hedged items affect an entitys financial position, financial
performance and cash flows. SFAS 161 must be applied prospectively to all derivative instruments
and non-derivative instruments that are designated and qualify as hedging instruments and related
hedged items accounted for under SFAS 133 for all financial statements issued for fiscal years
beginning after November 15, 2008. The Trust is currently evaluating the impact of adopting SFAS
161 on its consolidated financial condition and results of operations.
In April 2008, the FASB issued FASB Staff Position (FSP) No. 142-3, Determination of the Useful
Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors to be considered in
developing renewal or extension assumptions used to determine the useful life of intangible assets
under SFAS No. 142, Goodwill and Other Intangible Assets. Its intent is to improve the consistency
between the useful life of an intangible asset and the period of expected cash flows used to
measure its fair value. This FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The Trust is currently evaluating the impact of adopting FSP
142-3 on its consolidated financial condition and results of operations.
13
In June 2008, the FASB issued FSP No. Emerging Issues Task Force (EITF) 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities (FSP
03-6-1). FSP 03-6-1 clarifies that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities
and are to be included in the computation of earnings per share under the two-class method
described in SFAS No. 128, Earnings Per Share. This FSP is effective for financial statements
issued for fiscal years beginning after December 15, 2008 and requires all presented prior-period
earnings per share data to be adjusted retrospectively. The Trust is currently evaluating the
impact of adopting FSP 03-6-1 on its consolidated financial condition and results of operations.
3. Investments in unconsolidated entities
As of June 30, 2008, 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 Village-Greensboro LLC, a Delaware limited liability company, 25% owned by the Operating Partnership |
|
|
|
|
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 six months ended June 30, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
Results of Operations: |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
8,283 |
|
|
$ |
6,245 |
|
Net loss |
|
|
(614 |
) |
|
|
(1,567 |
) |
Equity in earnings (losses) of unconsolidated entities |
|
$ |
(27 |
) |
|
$ |
2 |
|
These entities provide development consulting services to third party student housing owners in an
agency capacity, provide food services to student housing communities which are managed by the
Trust or own student housing communities which are managed by the Trust. As of June 30, 2008 and
December 31, 2007, the Trusts investment in unconsolidated entities totaled $2,688 and $2,671,
respectively.
4. Debt
Revolving credit facility
On March 31, 2006, the Operating Partnership amended and restated the revolving credit facility
(the Amended Revolver) dated January 31, 2005 in the amount of $100,000. 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 June 30, 2008, there was $34,700 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 (4.78% at June 30, 2008).
Availability under the Amended Revolver is limited to a borrowing base availability equal to the
lesser of (i) 65% of the property asset value (as defined in the amended agreement) of the
properties securing the facility and (ii) the loan amount which would produce
14
a debt service
coverage ratio of no less than 1.30, with debt service based on the greater of two different sets
of conditions specified in the amended agreement.
The Amended Revolver contains customary affirmative and negative covenants and contains financial
covenants that, among other things, require the Trust and its subsidiaries to maintain certain
minimum ratios of EBITDA (earnings before payment or charges of interest, taxes, depreciation,
amortization or extraordinary items) as compared to interest expense and total fixed charges. The
financial covenants also include consolidated net worth and leverage ratio tests.
The Trust is prohibited from making distributions that exceed $1.20 per share unless prior to and
after giving effect to such action the total leverage ratio is less than or equal to 60%. The
amount of restricted payments permitted may be increased as long as either of the following
conditions is met: (a) after giving effect to the increased restricted payment, the total leverage
ratio shall remain less than or equal to 60%; or (b) the increased restricted payment, when
considered along with all other restricted payments for the last 3 quarters, does not exceed 95% of
funds from operations for the applicable period.
On March 3, 2008, mortgage debt in the amount of $22,977, secured by the student housing community
referred to as University Towers, bearing interest at an effective rate of 5.48%, matured and was
repaid by the Trust with additional borrowings on the Amended Revolver. On June 27, 2008, the
Trust refinanced the debt with a $25,000, interest only, fixed rate mortgage bearing interest at
5.99% through June 30, 2013. After the initial maturity, the Trust has the option to extend the
loan for 12 months with principal and interest equal to LIBOR plus a 250 basis point margin per
annum being repaid on a monthly basis. In connection with the refinancing, the Trust incurred $197
of financing costs. Subsequent to June 30, 2008, the Trust used the proceeds from the refinancing
to pay down the Amended Revolver.
Mortgage and construction debt
At June 30, 2008, the Trust had outstanding mortgage indebtedness of $420,911 (net of unamortized
debt premium of $1,410).
During the quarter ended June 30, 2008, the Trust also borrowed $4,712, out of an available
$11,000, related to the development of a wholly owned student apartment community near Southern
Illinois University (Note 7). The construction loan bears interest equal to LIBOR plus a 110 basis
point margin and is interest only through July 21, 2010. Commencing with the quarter ended June
30, 2010, and annually thereafter, a debt service coverage ratio calculated on a rolling 12 months
basis, of not less than 1.25 to 1, must be maintained in order to extend the loan until June 14,
2012, with principal and interest being repaid on a monthly basis.
The scheduled maturities of outstanding mortgage and construction indebtedness at June 30, 2008 are
as follows:
|
|
|
|
|
Fiscal Year Ending |
|
|
|
|
2008 (6 months ending December 31, 2008) |
|
$ |
1,716 |
|
2009 |
|
|
285,049 |
|
2010 |
|
|
931 |
|
2011 |
|
|
1,035 |
|
2012 |
|
|
69,895 |
|
Thereafter |
|
|
65,587 |
|
|
|
|
|
Total |
|
|
424,213 |
|
Unamortized debt premium/discounts |
|
|
1,410 |
|
|
|
|
|
Outstanding at June 30, 2008, net of unamortized premiums/discounts |
|
$ |
425,623 |
|
|
|
|
|
At June 30, 2008, the outstanding mortgage and construction debt had a weighted average interest
rate of 5.84% and carried a weighted average term to maturity of 2.3 years.
5. Segments
Business segments are defined by their distinct customer base and service provided. Three
reportable segments have been identified:
15
student housing leasing, third-party development consulting services and management services.
Management 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 six months ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 |
|
|
Six Months Ended June 30, 2007 |
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing revenue |
|
$ |
53,158 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
53,158 |
|
|
$ |
43,003 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
43,003 |
|
Student housing
food service
revenue |
|
|
1,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,196 |
|
|
|
1,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,102 |
|
Other leasing
revenue |
|
|
6,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,945 |
|
|
|
6,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,868 |
|
Third-party
development
consulting
services |
|
|
|
|
|
|
3,008 |
|
|
|
|
|
|
|
|
|
|
|
3,008 |
|
|
|
|
|
|
|
2,067 |
|
|
|
|
|
|
|
|
|
|
|
2,067 |
|
Third-party
management
services |
|
|
|
|
|
|
|
|
|
|
1,807 |
|
|
|
|
|
|
|
1,807 |
|
|
|
|
|
|
|
|
|
|
|
1,603 |
|
|
|
|
|
|
|
1,603 |
|
Intersegment
revenues |
|
|
|
|
|
|
|
|
|
|
2,089 |
|
|
|
(2,089 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,694 |
|
|
|
(1,694 |
) |
|
|
|
|
Operating expense
reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,140 |
|
|
|
5,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,383 |
|
|
|
4,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
61,299 |
|
|
|
3,008 |
|
|
|
3,896 |
|
|
|
3,051 |
|
|
|
71,254 |
|
|
|
50,973 |
|
|
|
2,067 |
|
|
|
3,297 |
|
|
|
2,689 |
|
|
|
59,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing operations |
|
|
25,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,231 |
|
|
|
18,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,424 |
|
Student housing
food service
operations |
|
|
1,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,128 |
|
|
|
1,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,072 |
|
General and
administrative |
|
|
3 |
|
|
|
1,454 |
|
|
|
3,579 |
|
|
|
|
|
|
|
5,036 |
|
|
|
86 |
|
|
|
1,271 |
|
|
|
3,347 |
|
|
|
|
|
|
|
4,704 |
|
Intersegment
expenses |
|
|
2,089 |
|
|
|
|
|
|
|
|
|
|
|
(2,089 |
) |
|
|
|
|
|
|
1,694 |
|
|
|
|
|
|
|
|
|
|
|
(1,694 |
) |
|
|
|
|
Reimbursable
operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,140 |
|
|
|
5,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,383 |
|
|
|
4,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
28,451 |
|
|
|
1,454 |
|
|
|
3,579 |
|
|
|
3,051 |
|
|
|
36,535 |
|
|
|
21,276 |
|
|
|
1,271 |
|
|
|
3,347 |
|
|
|
2,689 |
|
|
|
28,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income (loss) |
|
|
32,848 |
|
|
|
1,554 |
|
|
|
317 |
|
|
|
|
|
|
|
34,719 |
|
|
|
29,697 |
|
|
|
796 |
|
|
|
(50 |
) |
|
|
|
|
|
|
30,443 |
|
Nonoperating
expenses(1) |
|
|
26,898 |
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
26,857 |
|
|
|
29,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,762 |
|
Income (loss)
before equity in
earnings of
unconsolidated
entities, income
taxes, minority
interest and
discontinued
operations |
|
|
5,950 |
|
|
|
1,595 |
|
|
|
317 |
|
|
|
|
|
|
|
7,862 |
|
|
|
(65 |
) |
|
|
796 |
|
|
|
(50 |
) |
|
|
|
|
|
|
681 |
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 |
|
|
Six Months Ended June 30, 2007 |
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
Equity in earnings
of unconsolidated
entities |
|
|
(26 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
(205 |
) |
|
|
207 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before taxes,
minority interest
and discontinued
operations(2) |
|
$ |
5,924 |
|
|
$ |
1,594 |
|
|
$ |
317 |
|
|
$ |
|
|
|
$ |
7,835 |
|
|
$ |
(270 |
) |
|
$ |
1,003 |
|
|
$ |
(50 |
) |
|
$ |
|
|
|
$ |
683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment
assets, as of June
30, 2008 and
December 31, 2007 |
|
$ |
754,600 |
|
|
$ |
3,246 |
|
|
$ |
5,686 |
|
|
$ |
|
|
|
$ |
763,532 |
|
|
$ |
751,086 |
|
|
$ |
4,528 |
|
|
$ |
6,505 |
|
|
$ |
|
|
|
$ |
762,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 income (loss) before income taxes, minority interest and discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net income before income taxes, minority interest and discontinued operations for reportable segments |
|
$ |
7,835 |
|
|
$ |
683 |
|
Other unallocated corporate expenses |
|
|
(3,284 |
) |
|
|
(3,445 |
) |
|
|
|
|
|
|
|
Net income (loss) before income taxes, minority interest and discontinued operations |
|
$ |
4,551 |
|
|
$ |
(2,762 |
) |
|
|
|
|
|
|
|
The following table represents segment information for the three months ended June 30, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 |
|
|
Three Months Ended June 30, 2007 |
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing revenue |
|
$ |
26,806 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
26,806 |
|
|
$ |
21,031 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
21,031 |
|
Student housing
food service
revenue |
|
|
541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
541 |
|
|
|
522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
522 |
|
Other leasing
revenue |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
3,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,434 |
|
Third-party
development
consulting
services |
|
|
|
|
|
|
1,221 |
|
|
|
|
|
|
|
|
|
|
|
1,221 |
|
|
|
|
|
|
|
1,024 |
|
|
|
|
|
|
|
|
|
|
|
1,024 |
|
Third-party
management
services |
|
|
|
|
|
|
|
|
|
|
832 |
|
|
|
|
|
|
|
832 |
|
|
|
|
|
|
|
|
|
|
|
721 |
|
|
|
|
|
|
|
721 |
|
Intersegment
revenues |
|
|
|
|
|
|
|
|
|
|
1,047 |
|
|
|
(1,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
816 |
|
|
|
(816 |
) |
|
|
|
|
Operating expense
reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,521 |
|
|
|
2,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,227 |
|
|
|
2,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
32,347 |
|
|
|
1,221 |
|
|
|
1,879 |
|
|
|
1,474 |
|
|
|
36,921 |
|
|
|
24,987 |
|
|
|
1,024 |
|
|
|
1,537 |
|
|
|
1,411 |
|
|
|
28,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing operations |
|
|
13,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,146 |
|
|
|
9,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,402 |
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 |
|
|
Three Months Ended June 30, 2007 |
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
Student housing
food service
operations |
|
|
495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
495 |
|
|
|
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511 |
|
General and
administrative |
|
|
|
|
|
|
723 |
|
|
|
1,781 |
|
|
|
|
|
|
|
2,504 |
|
|
|
43 |
|
|
|
597 |
|
|
|
1,468 |
|
|
|
|
|
|
|
2,108 |
|
Intersegment
expenses |
|
|
1,047 |
|
|
|
|
|
|
|
|
|
|
|
(1,047 |
) |
|
|
|
|
|
|
816 |
|
|
|
|
|
|
|
|
|
|
|
(816 |
) |
|
|
|
|
Reimbursable
operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,521 |
|
|
|
2,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,227 |
|
|
|
2,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
14,688 |
|
|
|
723 |
|
|
|
1,781 |
|
|
|
1,474 |
|
|
|
18,666 |
|
|
|
10,772 |
|
|
|
597 |
|
|
|
1,468 |
|
|
|
1,411 |
|
|
|
14,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income (loss) |
|
|
17,659 |
|
|
|
498 |
|
|
|
98 |
|
|
|
|
|
|
|
18,255 |
|
|
|
14,215 |
|
|
|
427 |
|
|
|
69 |
|
|
|
|
|
|
|
14,711 |
|
Nonoperating
expenses(1) |
|
|
13,254 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
13,244 |
|
|
|
14,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,603 |
|
Income (loss)
before equity in
earnings of
unconsolidated
entities, income
taxes, minority
interest and
discontinued
operations |
|
|
4,405 |
|
|
|
508 |
|
|
|
98 |
|
|
|
|
|
|
|
5,011 |
|
|
|
(388 |
) |
|
|
427 |
|
|
|
69 |
|
|
|
|
|
|
|
108 |
|
Equity in earnings
of unconsolidated
entities |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26 |
) |
|
|
(108 |
) |
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before taxes,
minority interest
and discontinued
operations(2) |
|
$ |
4,379 |
|
|
$ |
508 |
|
|
$ |
98 |
|
|
$ |
|
|
|
$ |
4,985 |
|
|
$ |
(496 |
) |
|
$ |
494 |
|
|
$ |
69 |
|
|
$ |
|
|
|
$ |
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 income (loss) before income taxes, minority interest and discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net income before income taxes, minority interest and discontinued operations for reportable segments |
|
$ |
4,985 |
|
|
$ |
67 |
|
Other unallocated corporate expenses |
|
|
(1,611 |
) |
|
|
(2,047 |
) |
|
|
|
|
|
|
|
Net income (loss) before income taxes, minority interest and discontinued operations |
|
$ |
3,374 |
|
|
$ |
(1,980 |
) |
|
|
|
|
|
|
|
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 its 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
18
housing property at the University of Florida. The letter of credit
remains outstanding in the amount of $1,500 at June 30, 2008 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 debt
matures on May 10, 2009 with the option of extending the maturity date to May 10, 2011.
Construction was completed and the student housing community occupied in August 2007. The Operating
Partnership has determined that it will not guarantee the debt after the construction loan is
refinanced. The debt has an outstanding balance of $23,200 at June 30, 2008. The LLC received a 90
day waiver from the construction debt lender related to a technical default that occurred in March
2008, as a result of liens filed on the property. Subsequently, the waiver was extended through
September 15, 2008. In October of 2007, the Operating Partnership entered into a note receivable
with the LLC in the amount of $845. The note was interest only through December 31, 2007 and
accrued interest at 10% per annum. On January 1, 2008, the entire principal balance was converted
to a term loan maturing on January 1, 2028 with principal and interest of 10% per annum being
repaid on a monthly basis. On the maturity date all unpaid principal and interest are due in full.
As of June 30, 2008, the note has an outstanding balance of $840 and is subordinated to the
construction debt held by the LLC discussed above.
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.
Under the terms of the University Towers Partnership agreement, so long as the contributing owners
of such property hold at least 25% of the University Towers Partnership units, the Trust has agreed
to maintain certain minimum amounts of debt on the property to avoid triggering gain to the
contributing owners. If the Trust fails to do this, the Trust will owe to the contributing owners
the amount of taxes they incur.
After being awarded a development consulting contract, the Trust will enter into predevelopment
consulting contracts with educational institutions to develop student housing properties on their
behalf. The Trust will, at the same time, enter into reimbursement agreements that provide for the
Trust to be reimbursed for the predevelopment costs incurred prior to the institutions governing
body formally approving the final development contract. At June 30, 2008, the Trust has recorded
$264 of reimbursable predevelopment costs which are reflected in other assets in the accompanying
condensed consolidated balance sheet.
7. Acquisition of real estate investments
On June 28, 2007, the Trust completed the acquisition of land in Carbondale, Illinois for $1,098 in
order to develop a wholly owned student apartment community near Southern Illinois University.
Since the acquisition, the Trust has incurred an additional $14,789 in costs to develop the
community. During the six months ended June 30, 2008, the Trust capitalized $308 of interest cost
related to the development. Furthermore, as of June 30, 2008, the Trust has capitalized an
additional $1,197 of predevelopment costs related to other developments. All costs are classified
as assets under development on the condensed consolidated balance sheet.
19
8. Disposition of real estate investments and discontinued operations
During the six months ended June 30, 2008, the Trust sold the parking garage and land associated
with the University Towers residence hall to a unit holder for a loss of $512. The Trust redeemed
the unit holders units and received cash valued at $2,616. The loss on the sale is included in
student housing leasing operations expense in the condensed consolidated statement of operations.
The Trust subsequently entered into a 40 year ground lease.
There were no discontinued operations for the six months ended June 30, 2008. The following table
summarizes income from discontinued operations, net of minority interest, for the six months ended
June 30, 2007, related to the sale of the Village on Tharpe that occurred on June 5, 2007:
|
|
|
|
|
|
|
2007 |
|
Student housing leasing revenue |
|
$ |
2,692 |
|
Student housing leasing operating expenses |
|
|
(1,113 |
) |
Depreciation and amortization |
|
|
(711 |
) |
Minority interest |
|
|
(35 |
) |
|
|
|
|
Income from discontinued operations (net of minority interest) |
|
$ |
833 |
|
|
|
|
|
|
|
|
|
|
Gain on sale of student housing property |
|
$ |
1,644 |
|
Minority interest |
|
|
(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,
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 each
of the six months ended June 30, 2008 and 2007, the Trust issued 4,000 shares to an executive
officer and 4,000 shares to its independent directors.
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 June 30, 2008 and December 31, 2007, unearned
compensation totaled $959 and $1,261, respectively and will be recorded as expense over the
applicable vesting period. The value is determined based on the market value of the Trusts common
stock on the grant date. During the six months ended June 30, 2008 and 2007, compensation expense
of $302 was recognized 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
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
20
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.
A summary of incentive plan activity for the six months ended June 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
|
|
|
|
PIUs |
|
|
Awards (1) |
|
|
Total |
|
Outstanding at December 31, 2007 |
|
|
277,500 |
|
|
|
200,000 |
|
|
|
477,500 |
|
Granted |
|
|
2,500 |
|
|
|
4,000 |
|
|
|
6,500 |
|
Forfeited |
|
|
(2,500 |
) |
|
|
|
|
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008 |
|
|
277,500 |
|
|
|
204,000 |
|
|
|
481,500 |
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
4,000 |
|
|
|
4,000 |
|
Forfeited |
|
|
(2,500 |
) |
|
|
|
|
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
275,000 |
|
|
|
208,000 |
|
|
|
483,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at June 30, 2008 |
|
|
275,000 |
|
|
|
150,883 |
|
|
|
425,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes restricted stock awards. |
Total compensation cost recognized in general and administrative expense in the accompanying
condensed consolidated statements of operations for the six months ended June 30, 2008 and 2007 was
approximately $396 and $394, respectively.
10. Subsequent events
On July 10, 2008 our board of directors declared a second quarter distribution of $0.205 per share
of common stock for the quarter ending on June 30, 2008. The distribution is payable on August 15,
2008 to stockholders of record at the close of business on July 31, 2008.
21
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, 2007 as amended. 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 AOES and AODC, respectively. While we manage 100% 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, 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, 2007as amended. Intercompany fees are reflected at the contractually stipulated
amounts.
Student Housing Leasing
Student housing leasing revenue represented approximately 89.9% of our revenue, excluding operating
expense reimbursements, for the six months ended June 30, 2008. Our revenue related to food service
operations is included in this segment. Additionally, this segment includes other leasing revenue
related to the Place lease which was terminated on February 1, 2008.
Unlike multi-family housing where apartments are leased by the unit, student-housing communities
are typically leased by the bed on an individual lease liability basis. Individual lease liability
limits each residents liability to his or her own rent without liability for a roommates rent. A
parent or guardian is required to execute each lease as a guarantor unless the resident provides
adequate proof of income. The number of lease contracts that we administer is therefore equivalent
to the number of beds occupied instead of the
22
number of apartment units.
Due to our predominantly private bedroom accommodations, the high level of student-oriented
amenities, the fact that units are furnished and in most cases rent includes utilities, cable TV
and internet service and because of the individual lease liability, we believe our properties can
typically command higher per-unit and per-square foot rental rates than most multi-family
properties in the same geographic markets. We are also typically able to command higher rental
rates than on-campus student housing, which tends to offer fewer amenities.
The majority of our leases commence mid-August and terminate the last day of July. These dates
generally coincide with the commencement of the universities fall academic term and the completion
of the subsequent summer school session. As such, we are required to re-lease each property in its
entirety each year, resulting in significant turnover in our tenant population from year to year.
In 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.
In 2007, we began developing projects for the Trusts ownership and plan to increase
self-development activity going forward. We plan to open the Trusts first wholly owned,
self-developed property in August of 2008 servicing Southern Illinois University.
Management Services
Revenue from our management services, excluding operating expense reimbursements, represented
approximately 5.7% of our revenue for the six months ended June 30, 2008. These revenues are
typically derived from multi-year management agreements, under which management fees are typically
3-5% of leasing revenue. These agreements typically have an initial term of five to ten years with
a renewal option for an additional five years. As part of the management agreements, there are
certain payroll and related expenses we pay on behalf of the property owners. These costs are
included in reimbursable operating expenses and are required to be reimbursed to us by the property
owners. We recognize the expense and revenue related to these reimbursements when incurred. These
operating expenses are wholly reimbursable and therefore not considered by management when
analyzing the operating performance of our management services business.
Third-Party Development Consulting Services
Revenue from our third-party development consulting services, excluding operating expense
reimbursements, represented approximately 4.4% of our revenue for the six months ended June 30,
2008. Fees for these services are typically 3-5% of the total project cost and are payable over the
life of the project, which is typically one to two years in length. We incur expenses that are
reimbursable by a project when awarded. We recognize the expenses when incurred, while the
reimbursement revenue is not recognized until the consulting contract is awarded. These operating
expenses are wholly reimbursable and therefore not considered by our management when analyzing the
operating performance of our third-party development consulting services business. Also at times,
we will pay pre-development project expenses such as architectural fees and permits if such are
required prior to the projects financing being in place. We typically obtain a guarantee from the
owner for repayment of these project specific costs.
We periodically enter into joint venture arrangements whereby we provide development consulting
services to third-party student housing owners in an agency capacity. We recognize our portion of
the earnings in each joint venture based on our ownership interest,
23
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 six months ended June 30, 2008, same community revenue
per available bed increased to $395 and same community physical occupancy decreased to 92.4%
compared to revenue per available bed of $386 and physical occupancy of 93.1% for the six months
ended June 30, 2007. The results represent averages for the Trusts portfolio which are not
necessarily indicative of every property in the portfolio. As would be expected, individual
properties can and do perform both above and below these averages and at times an individual
property may show a decline in total revenue due to local university and economic conditions. Our
management focus is to assess these situations and address as quickly as possible to minimize the
Trusts exposure and reverse any negative trend.
We customarily adjust rental rates in order to maximize revenues, which in some cases results in a
lower occupancy rate, but in most cases results in stable or increasing revenues from the property.
As a result, a decrease in occupancy rates may be offset by an increase in rental rates and may not
be material to our operations.
General and Administrative Costs
In 2007, we experienced increases in salaries and staffing costs primarily related to the growth of
each business segment and due to new systems implementation efforts. This trend will continue in
2008 mainly due to the termination of the Place lease and the Trusts related assumption of the
management responsibilities over the Place Portfolio.
Termination of Lease with Place Properties, Inc.
On February 1, 2008, the Trust terminated the lease with Place Properties, Inc. (Place) for 13
properties owned by the Trust but previously operated and managed by Place. Under the agreement,
the Trust received a lease termination fee of $5,800 and has the possibility of receiving an
additional $200 if certain criteria in the agreement are not met (see note 2 to the condensed
consolidated financial statements). As a result of the lease termination, the Trust began
managing these properties and began recognizing the results of operations for these properties in
the Trusts consolidated financial statements as of the lease termination date. Previously, the
Trust recognized base rental income of $13,740 annually for the lease and had the right to receive
Additional Rent annually if the properties exceeded certain criteria defined in the lease
agreement. In the near term, the net operating income received from these properties may be less
than the rental income received under the lease; thus, reducing our net income from continuing
operations over the next 2 to 3 years.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States (GAAP)
24
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, which
was terminated February 1, 2008, 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
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 on January 1,
2006. Simultaneous with the acquisition of the 13 properties, the Trust leased the assets to Place
and received base monthly rent of $1,145 and had the right to receive Additional Rent annually if
the properties exceeded certain criteria defined in the lease agreement. Base rent was recognized
on a straight-line basis over the lease term and Additional Rent was recognized only upon
satisfaction of certain defined criteria. On February 1, 2008, the lease was terminated.
Revenue and Cost Recognition of Third-Party Development Consulting Services
Costs associated with the pursuit of third-party development consulting contracts are expensed as
incurred until such time as we have been notified of a contract award or reimbursement has been
otherwise guaranteed by the customer. At such time, the reimbursable portion of such costs is
recorded as a receivable. Development consulting revenues are recognized using the percentage of
completion method as determined by construction costs incurred relative to the total estimated
construction costs. Occasionally, our development consulting contracts include a provision whereby
we can participate in project savings resulting from our successful cost management efforts. We
recognize these revenues once all contractual terms have been satisfied and we have no future
performance requirements. This typically occurs after construction is complete. Costs associated
with development consulting services are expensed as incurred. We generally receive a significant
percentage of our fees for development consulting services upon closing of the project financing, a
portion of the fee over the construction period and the balance upon substantial completion of
construction. Because revenue from these services is recognized for financial reporting purposes
utilizing the percentage of completion method, differences occur between amounts received and
revenues recognized. Differences also occur between amounts recognized for tax purposes and those
recognized
25
for financial reporting purposes. Because REITs are required to distribute 90% of our taxable
income, our distribution requirement with respect to our income from third-party services may
exceed that reflected as net income for financial reporting purposes from such activities.
We periodically enter into joint venture arrangements whereby we provide development consulting
services to third-party student housing owners in an agency capacity. We recognize our portion of
the earnings in each joint venture based on our ownership interest, which is reflected after net
operating income in our statement of operations as equity in earnings of unconsolidated entities.
Our revenue and operating expenses could fluctuate from period to period based on the extent we
utilize joint venture arrangements to provide third-party development consulting services.
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 SFAS 141,
Business Combinations, and accordingly, the results of operations are included from the respective
dates of acquisition. Pre-acquisition costs, including legal and professional fees and other
third-party costs related directly to the acquisition of the property, are accounted for as part of
the purchase price. Appraisals, estimates of cash flows and valuation techniques are used to
allocate the purchase price of acquired property between land, land improvements, buildings and
improvements, furniture, fixtures and equipment and other identifiable intangibles such as amounts
related to in-place leases.
Student housing properties are classified as held for sale based on the criteria within SFAS No.
144, Accounting for the Impairment and Disposal of Long Lived Assets. When a student housing
property is identified as held for sale, fair value less cost to sell is estimated. If fair value
less cost to sell is less than the carrying amount of the asset an impairment charge is recorded
for the estimated loss. Depreciation expense is no longer recorded once a student housing property
has met the held for sale criteria. Operations of student housing properties that are sold or
classified as held for sale are recorded as part of discontinued operations for all periods
presented. For the six months ended June 30, 2008 and 2007, no impairment losses on student housing
properties held for sale were recognized.
Repairs and Maintenance
The costs of ordinary repairs and maintenance are charged to operations when incurred. Major
improvements that extend the life of an asset beyond one year are capitalized and depreciated over
the remaining useful life of the asset. Planned major repair, maintenance and improvement projects
are capitalized when performed. In some circumstances, the lenders require us to maintain a reserve
account for future repairs and capital expenditures. These amounts are not available for current
use and are recorded as restricted cash on our balance sheet.
Long Lived Assets Impairment
Management is required to assess whether there are any indicators that our real estate properties
may be impaired in accordance with SFAS No. 144. A propertys value is considered impaired if
managements estimate of the aggregate future cash flows (undiscounted and without interest
charges) to be generated by the property is less than the carrying value of the property. These
estimates of cash flows are based on factors such as expected future operating income, trends and
prospects, as well as the effects of demand, competition and other factors. To the extent
impairment has occurred, the loss will be measured as the excess of the carrying amount of the
property over the fair value of the property, thereby reducing our net income.
26
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS 141R. SFAS 141R establishes principles and requirements for
how an acquirer recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. SFAS 141R is effective for financial statements
issued for fiscal years beginning after December 15, 2008. We are currently evaluating the impact
of adopting SFAS 141R on its consolidated financial condition and results of operations.
In December 2007, the FASB issued SFAS 160. SFAS 160 establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling interest, changes in a
parents ownership interest and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS 160 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. We are currently evaluating the impact of adopting SFAS 160 on
its consolidated financial condition and results of operations.
In March 2008, the FASB issued SFAS 161. SFAS 161 requires enhanced disclosure related to
derivatives and hedging activities and thereby seeks to improve the transparency of financial
reporting. Under SFAS 161, entities are required to provide enhanced disclosures relating to: (a)
how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge
items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133), and its related interpretations; and (c) how derivative instruments and
related hedged items affect an entitys financial position, financial performance and cash flows.
SFAS 161 must be applied prospectively to all derivative instruments and non-derivative instruments
that are designated and qualify as hedging instruments and related hedged items accounted for under
SFAS 133 for all financial statements issued for fiscal years beginning after November 15, 2008. We
are currently evaluating the impact of adopting SFAS 161 on its consolidated financial condition
and results of operations.
In April 2008, the FASB issued FSP 142-3. FSP 142-3 amends the factors to be considered in
developing renewal or extension assumptions used to determine the useful life of intangible assets
under SFAS No. 142, Goodwill and Other Intangible Assets. Its intent is to improve the consistency
between the useful life of an intangible asset and the period of expected cash flows used to
measure its fair value. This FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008. We are currently evaluating the impact of adopting FSP 142-3 on
its consolidated financial condition and results of operations.
In June 2008, the FASB issued FSP 03-6-1. FSP 03-6-1 clarifies that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and are to be included in the computation of earnings per
share under the two-class method described in SFAS No. 128, Earnings Per Share. This FSP is
effective for financial statements issued for fiscal years beginning after December 15, 2008 and
requires all presented prior-period earnings per share data to be adjusted retrospectively. We are
currently evaluating the impact of adopting FSP 03-6-1 on its consolidated financial condition and
results of operations.
27
Results of Operations for the Six Months Ended June 30, 2008 and 2007
The following table presents the results of operations for Education Realty Trust, Inc. for the six
months ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 |
|
|
Six Months Ended June 30, 2007 |
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing revenue |
|
$ |
53,158 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
53,158 |
|
|
$ |
43,003 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
43,003 |
|
Student housing
food service
revenue |
|
|
1,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,196 |
|
|
|
1,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,102 |
|
Other leasing
revenue |
|
|
6,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,945 |
|
|
|
6,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,868 |
|
Third-party
development
consulting
services |
|
|
|
|
|
|
3,008 |
|
|
|
|
|
|
|
|
|
|
|
3,008 |
|
|
|
|
|
|
|
2,067 |
|
|
|
|
|
|
|
|
|
|
|
2,067 |
|
Third-party
management
services |
|
|
|
|
|
|
|
|
|
|
1,807 |
|
|
|
|
|
|
|
1,807 |
|
|
|
|
|
|
|
|
|
|
|
1,603 |
|
|
|
|
|
|
|
1,603 |
|
Intersegment
revenues |
|
|
|
|
|
|
|
|
|
|
2,089 |
|
|
|
(2,089 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,694 |
|
|
|
(1,694 |
) |
|
|
|
|
Operating expense
reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,140 |
|
|
|
5,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,383 |
|
|
|
4,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
61,299 |
|
|
|
3,008 |
|
|
|
3,896 |
|
|
|
3,051 |
|
|
|
71,254 |
|
|
|
50,973 |
|
|
|
2,067 |
|
|
|
3,297 |
|
|
|
2,689 |
|
|
|
59,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing operations |
|
|
25,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,231 |
|
|
|
18,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,424 |
|
Student housing
food service
operations |
|
|
1,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,128 |
|
|
|
1,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,072 |
|
General and
administrative |
|
|
3 |
|
|
|
1,454 |
|
|
|
3,579 |
|
|
|
|
|
|
|
5,036 |
|
|
|
86 |
|
|
|
1,271 |
|
|
|
3,347 |
|
|
|
|
|
|
|
4,704 |
|
Intersegment
expenses |
|
|
2,089 |
|
|
|
|
|
|
|
|
|
|
|
(2,089 |
) |
|
|
|
|
|
|
1,694 |
|
|
|
|
|
|
|
|
|
|
|
(1,694 |
) |
|
|
|
|
Reimbursable
operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,140 |
|
|
|
5,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,383 |
|
|
|
4,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
28,451 |
|
|
|
1,454 |
|
|
|
3,579 |
|
|
|
3,051 |
|
|
|
36,535 |
|
|
|
21,276 |
|
|
|
1,271 |
|
|
|
3,347 |
|
|
|
2,689 |
|
|
|
28,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income (loss) |
|
|
32,848 |
|
|
|
1,554 |
|
|
|
317 |
|
|
|
|
|
|
|
34,719 |
|
|
|
29,697 |
|
|
|
796 |
|
|
|
(50 |
) |
|
|
|
|
|
|
30,443 |
|
Nonoperating
expenses(1) |
|
|
26,898 |
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
26,857 |
|
|
|
29,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,762 |
|
Income (loss)
before equity in
earnings of
unconsolidated
entities, income
taxes, minority
interest and
discontinued
operations |
|
|
5,950 |
|
|
|
1,595 |
|
|
|
317 |
|
|
|
|
|
|
|
7,862 |
|
|
|
(65 |
) |
|
|
796 |
|
|
|
(50 |
) |
|
|
|
|
|
|
681 |
|
Equity in earnings
of unconsolidated
entities |
|
|
(26 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
(205 |
) |
|
|
207 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before taxes,
minority interest
and discontinued
operations(2) |
|
$ |
5,924 |
|
|
$ |
1,594 |
|
|
$ |
317 |
|
|
$ |
|
|
|
$ |
7,835 |
|
|
$ |
(270 |
) |
|
$ |
1,003 |
|
|
$ |
(50 |
) |
|
$ |
|
|
|
$ |
683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
(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 EDRs consolidated net income (loss) before income taxes, minority interest and discontinued operations
determined under generally accepted accounting principles: |
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Net income before taxes, minority interest and discontinued operations for reportable segments |
|
|
7,835 |
|
|
|
683 |
|
Other unallocated corporate expenses |
|
|
(3,284 |
) |
|
|
(3,445 |
) |
|
|
|
|
|
|
|
Net income (loss) before taxes, minority interest and discontinued operations |
|
$ |
4,551 |
|
|
$ |
(2,762 |
) |
|
|
|
|
|
|
|
Student housing leasing
Student housing operating statistics for all owned and operated properties for the six months ended
June 30, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months |
|
|
Six months |
|
|
|
|
|
|
ended |
|
|
ended |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
2008 |
|
|
2007(9) |
|
|
Difference |
|
Occupancy |
|
|
|
|
|
|
|
|
|
|
|
|
Physical (1) |
|
|
90.9 |
% |
|
|
93.1 |
% |
|
|
-2.2 |
% |
Economic (2) |
|
|
92.7 |
% |
|
|
95.4 |
% |
|
|
-2.7 |
% |
NARPAB (3) |
|
$ |
357 |
|
|
$ |
362 |
|
|
$ |
(5 |
) |
Other income per avail. bed (4) |
|
$ |
20 |
|
|
$ |
24 |
|
|
$ |
(4 |
) |
RevPAB (5) |
|
$ |
377 |
|
|
$ |
386 |
|
|
$ |
(9 |
) |
Operating expense per bed (6) (7) |
|
$ |
175 |
|
|
$ |
165 |
|
|
$ |
10 |
|
Operating margin (7) |
|
|
53.5 |
% |
|
|
57.2 |
% |
|
|
-3.7 |
% |
Design Beds (8) |
|
|
140,894 |
|
|
|
111,426 |
|
|
|
29,468 |
|
|
|
|
(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 expenses excluding management fees and depreciation and
amortization divided by the sum of the design beds for each of the included months. |
|
(7) |
|
For the six months ended June 30, 2008, approximately $4 per bed related to the loss on the sale of
land and the parking garage at University Towers (see Note 8 in the condensed consolidated financial
statements) is excluded. The loss of $512 is included in the statement of operations in the condensed
consolidated financial statements. |
29
|
|
|
(8) |
|
Represents the sum of the monthly design beds in the portfolio during the period. As of February 1,
2008, the design beds related to the Place Portfolio were included in the total for the six months
ended June 30, 2008 due to the termination of the lease with Place (see Note 2 in the condensed
consolidated financial statements). |
|
(9) |
|
This information excludes property information related to Tharpe (discontinued operations). |
Total revenue in the student housing leasing segment was $61,299 for the six months ended June 30,
2008. This represents an increase of $10,326 or 20.3% from the same period in 2007. Student housing
leasing revenue increased 23.6%, contributing to $10,155 of the overall increase, while student
housing food service revenue and other leasing revenue contributed growth of $94 and $77
respectively. A majority of the increase in student housing leasing revenue, $9,141, came from the
operating results of the Place Portfolio since the lease termination and takeover of operations in
February 2008 (see Note 2, Other leasing Revenue, in the condensed consolidated financial
statements). Same community revenue growth of 2.3% year over year contributed to a $1,010 increase
in student housing leasing revenue. Same community revenue growth for the period was driven by a
3.4% improvement in rental rates, representing an increase of $1,435, offset by a 70 basis point
decline in occupancies, and a 0.2% reduction in other student housing ancillary income, which
reduced the growth achieved in rates by $323 and $102 respectively. Student housing food service
revenue increased $94 over the prior period primarily as a result of passing through higher food
costs. Other leasing revenue increased $77 or 1.1% over the prior period as a result of the lease
termination fee revenue of $5,800 and January base rent of $1,145 being recognized during the six
months ended June 30, 2008 compared to $6,868 of base rent recognized in the prior year.
Operating expenses in the student housing leasing segment increased $7,175 or 33.7% to $28,451 for
the six months ended June 30, 2008, as compared to the same period in 2007. Student housing leasing
operations increased a total of $6,807 or 36.9% over the prior year, with an increase of $4,787 or
26.0% attributable to operating expenses associated with taking over the Place Portfolio as
discussed above. Same community operating expenses grew 10.3% contributing to $1,898 of the
growth. The increase in same community operating expenses was driven by an increase in real estate
taxes of $195, primarily caused by a tax refund received in 2007, a loss on sale of student housing
assets of $512 related to the sale of the University Towers land and parking garage (see Note 8 to
the condensed consolidated financial statements), higher marketing costs of $110, increases in
salary and related costs of $370, increases in general and administrative expenses of $250, higher
utilities of $218, increases in maintenance and repairs of $264, and higher turnover costs of $120.
These increases were offset by a decrease in insurance costs of $291 as a result of better
negotiated rates for 2008. Student housing food service operations increased $56 due mainly to
higher food costs.
Nonoperating expenses decreased $2,864 to $26,898 for the six months ended June 30, 2008, as
compared to same period in 2007. This decrease was primarily driven by a $1,262 decline in
depreciation expense due to fully depreciated assets that remain in service and a $1,634 decline in
interest expense. Interest expense benefited from a lower average outstanding debt balance, an
approximate 300 basis points drop in interest rates related to the Amended Revolver, and
capitalized interest of $324 related to ongoing development projects. These increases were offset
by a $43 decline in interest income.
The community statistics shown above on a consolidated basis reflect a decline in physical
occupancy of 2.2%, a decline in RevPAB of 2.3% and a decline in margins of 370 basis points. These
results are not indicative of the year over year performance of our existing portfolio as they
include the impact of adding the Place Portfolio, whose underlying economics are currently
different from our existing communities. For the six months ended June 30, 2008, the Place
Portfolio had an average physical occupancy of 85.3%, RevPAB of $311, and operating margins of
47.9% compared to 92.4%, $395, and 55.0% respectively on a same community basis.
Equity in earnings of unconsolidated entities represents our share of the net income or loss
related to four investments in unconsolidated entities that own student housing communities. These
communities are also managed by the Trust. For the six months ended June 30, 2008, equity in
earnings was a loss of $26 compared to a loss of $205 in the prior year. The improvement comes
from the addition of our investment in a new community in Greensboro, NC as well as better
operating results from the three existing investments, representing the continued stabilization of
those properties.
30
Third-party development consulting services
The following table represents the development consulting projects that were active during the six
months ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized Earnings |
|
Project |
|
Beds |
|
|
Fee Type |
|
|
2008 |
|
|
2007 |
|
|
Difference |
|
Slippery Rock University
Phase I |
|
|
1,390 |
|
|
Development fee |
|
$ |
|
|
|
$ |
38 |
|
|
$ |
(38 |
) |
Indiana University of
Pennsylvania Phase I |
|
|
734 |
|
|
Development fee |
|
|
|
|
|
|
634 |
|
|
|
(634 |
) |
University of Michigan |
|
|
896 |
|
|
Development fee |
|
|
170 |
|
|
|
133 |
|
|
|
37 |
|
University of North Carolina
Greensboro |
|
|
600 |
|
|
Construction oversight fee |
|
|
|
|
|
|
46 |
|
|
|
(46 |
) |
University of Alabama
Tuscaloosa |
|
|
631 |
|
|
Development fee |
|
|
670 |
|
|
|
875 |
|
|
|
(205 |
) |
Slippery Rock University
Phase II |
|
|
746 |
|
|
Development fee |
|
|
504 |
|
|
|
232 |
|
|
|
272 |
|
Indiana University of
Pennsylvania Phase II |
|
|
1,102 |
|
|
Development fee |
|
|
975 |
|
|
|
109 |
|
|
|
866 |
|
Fontainebleu Renovation Project |
|
|
435 |
|
|
Development fee |
|
|
52 |
|
|
|
|
|
|
|
52 |
|
West Chester Phase I |
|
|
1,197 |
|
|
Development fee |
|
|
497 |
|
|
|
|
|
|
|
497 |
|
Indiana University of
Pennsylvania Phase III |
|
|
1,084 |
|
|
Development fee |
|
|
140 |
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party development
consulting services |
|
|
|
|
|
|
|
|
|
$ |
3,008 |
|
|
$ |
2,067 |
|
|
$ |
941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California University of
Pennsylvania Phase V |
|
|
356 |
|
|
Development fee |
|
|
(1 |
) |
|
|
110 |
|
|
|
(111 |
) |
University of North Carolina
Greensboro |
|
|
600 |
|
|
Development fee |
|
|
|
|
|
|
105 |
|
|
|
(105 |
) |
University of Louisville
Phase III |
|
|
359 |
|
|
Development fee |
|
|
|
|
|
|
(8 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of
unconsolidated entities |
|
|
|
|
|
|
|
|
|
$ |
(1 |
) |
|
$ |
207 |
|
|
$ |
(208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party development consulting services revenue increased $941 or 45.5% to $3,008 for the six
months ended June 30, 2008, as compared to the same period in 2007. The fees recognized for West
Chester University of Pennsylvania of $497, Indiana University of Pennsylvania Phase III of $140
and Fontainebleu Renovation Project of $52, which were all initiated during the six months ended
June 30, 2008, and increases in the fees recognized for Indiana University of Pennsylvania Phase II
of $866, Slippery Rock University Phase II of $272, which recognized $250 of additional revenue in
cost savings participation, and University of Michigan of $37 contributed to the growth over the
same period in 2007. These increases were offset by declines in development fees for Slippery Rock
Phase I of $38, Indiana University of Pennsylvania Phase I of $634, University of North Carolina
Greensboro of $46 and University of Alabama Tuscaloosa of $205 all due to project completion.
Equity in earnings of unconsolidated entities in the third-party development consulting services
segment decreased $208 from the prior year to a loss of ($1) in the current year. There were two
joint ventures with active development projects in the first six months of 2007, and none in 2008,
which reflects the Trusts desire to provide third-party development services directly and not
through joint venture arrangements.
General and administrative costs in the third-party development consulting services segment
increased $183 to $1,454 for the six months ended June 30, 2008, as compared to the same period in
2007. This increase is a result of increases in staffing and related expenses and corporate
overhead costs allocated to the segment to support the growing revenue.
31
Nonoperating expenses included $41 of interest income, primarily related to the Trust fronting
predevelopment costs under a predevelopment agreement, for which the Trust is reimbursed with
interest when the institutions governing body formally approves the final development contract and
project financing is put in place.
Management services
Total third-party management services revenue increased by $599 or 18.2% to $3,896 for the six
months ended June 30, 2008, as compared to the same period in 2007. Growth in our owned portfolio
period over period as discussed under student housing leasing above contributed to $395 of the
increase by way of intersegment revenue, while third-party management fee revenue increased $204 or
12.7% to $1,807 for the six months ended June 30, 2008. The increase in third-party fees consisted
of $17 related to seven new management contracts entered into at various times during 2007, $25
related to three new management contracts entered into in 2008, $99 related to two communities that
came out of development in 2007 and $130 related to revenue growth in existing contracts. These
increases were partially offset by a decrease of $67 in third-party fees as a result of two
contracts terminated in 2007.
General and administrative costs for our third-party management services segment increased $232 to
$3,579 for the six months ended June 30, 2008, as compared to the same period in 2007. This
increase is a result of increases in staffing and related costs to support the growing revenue.
Unallocated corporate expenses
Unallocated corporate expenses represent general and administrative and nonoperating expenses that
are not allocated to any of our business segments. For the six months ended June 30, 2008,
unallocated corporate expenses were $3,284, a decrease of $161 or 4.7% compared to the prior year.
The majority of this decrease is due to an increase in interest income of $274, primarily related
to interest income of $332 for an intercompany loan. This decrease is offset by higher salary and
overhead costs related to growth driven increases in head count.
Results of Operations for the Three Months Ended June 30, 2008 and 2007
The following table presents the results of operations for Education Realty Trust, Inc. for the
three months ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 |
|
|
Three Months Ended June 30, 2007 |
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing revenue |
|
$ |
26,806 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
26,806 |
|
|
$ |
21,031 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
21,031 |
|
Student housing
food service
revenue |
|
|
541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
541 |
|
|
|
522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
522 |
|
Other leasing
revenue |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
3,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,434 |
|
Third-party
development
consulting
services |
|
|
|
|
|
|
1,221 |
|
|
|
|
|
|
|
|
|
|
|
1,221 |
|
|
|
|
|
|
|
1,024 |
|
|
|
|
|
|
|
|
|
|
|
1,024 |
|
Third-party
management
services |
|
|
|
|
|
|
|
|
|
|
832 |
|
|
|
|
|
|
|
832 |
|
|
|
|
|
|
|
|
|
|
|
721 |
|
|
|
|
|
|
|
721 |
|
Intersegment
revenues |
|
|
|
|
|
|
|
|
|
|
1,047 |
|
|
|
(1,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
816 |
|
|
|
(816 |
) |
|
|
|
|
Operating expense
reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,521 |
|
|
|
2,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,227 |
|
|
|
2,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 |
|
|
Three Months Ended June 30, 2007 |
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-Party |
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
|
Housing |
|
|
Consulting |
|
|
Management |
|
|
|
|
|
|
|
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
|
Leasing |
|
|
Services |
|
|
Services |
|
|
Adjustments |
|
|
Total |
|
Total revenues |
|
|
32,347 |
|
|
|
1,221 |
|
|
|
1,879 |
|
|
|
1,474 |
|
|
|
36,921 |
|
|
|
24,987 |
|
|
|
1,024 |
|
|
|
1,537 |
|
|
|
1,411 |
|
|
|
28,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student housing
leasing operations |
|
|
13,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,146 |
|
|
|
9,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,402 |
|
Student housing
food service
operations |
|
|
495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
495 |
|
|
|
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511 |
|
General and
administrative |
|
|
|
|
|
|
723 |
|
|
|
1,781 |
|
|
|
|
|
|
|
2,504 |
|
|
|
43 |
|
|
|
597 |
|
|
|
1,468 |
|
|
|
|
|
|
|
2,108 |
|
Intersegment
expenses |
|
|
1,047 |
|
|
|
|
|
|
|
|
|
|
|
(1,047 |
) |
|
|
|
|
|
|
816 |
|
|
|
|
|
|
|
|
|
|
|
(816 |
) |
|
|
|
|
Reimbursable
operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,521 |
|
|
|
2,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,227 |
|
|
|
2,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
14,688 |
|
|
|
723 |
|
|
|
1,781 |
|
|
|
1,474 |
|
|
|
18,666 |
|
|
|
10,772 |
|
|
|
597 |
|
|
|
1,468 |
|
|
|
1,411 |
|
|
|
14,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income (loss) |
|
|
17,659 |
|
|
|
498 |
|
|
|
98 |
|
|
|
|
|
|
|
18,255 |
|
|
|
14,215 |
|
|
|
427 |
|
|
|
69 |
|
|
|
|
|
|
|
14,711 |
|
Nonoperating
expenses(1) |
|
|
13,254 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
13,244 |
|
|
|
14,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,603 |
|
Income (loss)
before equity in
earnings of
unconsolidated
entities, income
taxes, minority
interest and
discontinued
operations |
|
|
4,405 |
|
|
|
508 |
|
|
|
98 |
|
|
|
|
|
|
|
5,011 |
|
|
|
(388 |
) |
|
|
427 |
|
|
|
69 |
|
|
|
|
|
|
|
108 |
|
Equity in earnings
of unconsolidated
entities |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26 |
) |
|
|
(108 |
) |
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before taxes,
minority interest
and discontinued
operations(2) |
|
$ |
4,379 |
|
|
$ |
508 |
|
|
$ |
98 |
|
|
$ |
|
|
|
$ |
4,985 |
|
|
$ |
(496 |
) |
|
$ |
494 |
|
|
$ |
69 |
|
|
$ |
|
|
|
$ |
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 EDRs consolidated net income (loss) before income taxes, minority interest and discontinued operations
determined under generally accepted accounting principles: |
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Net income before taxes, minority interest and discontinued operations for reportable segments |
|
|
4,985 |
|
|
|
67 |
|
Other unallocated corporate expenses |
|
|
(1,611 |
) |
|
|
(2,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before taxes, minority interest and discontinued operations |
|
$ |
3,374 |
|
|
$ |
(1,980 |
) |
|
|
|
|
|
|
|
33
Student housing leasing
Student housing operating statistics for all owned and operated properties for the three months
ended June 30, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Three months |
|
|
|
|
ended |
|
ended |
|
|
|
|
June 30, |
|
June 30, |
|
|
|
|
2008 |
|
2007(8) |
|
Difference |
Occupancy |
|
|
|
|
|
|
|
|
|
|
|
|
Physical (1) |
|
|
88.5 |
% |
|
|
91.0 |
% |
|
|
-2.5 |
% |
Economic (2) |
|
|
91.6 |
% |
|
|
94.9 |
% |
|
|
-3.3 |
% |
NARPAB (3) |
|
$ |
344 |
|
|
$ |
350 |
|
|
$ |
(6 |
) |
Other income per avail. bed (4) |
|
$ |
21 |
|
|
$ |
27 |
|
|
$ |
(6 |
) |
RevPAB (5) |
|
$ |
365 |
|
|
$ |
377 |
|
|
$ |
(12 |
) |
Operating expense per bed (6) |
|
$ |
179 |
|
|
$ |
169 |
|
|
$ |
10 |
|
Operating margin |
|
|
51.0 |
% |
|
|
55.3 |
% |
|
|
-4.3 |
% |
Design Beds (7) |
|
|
73,393 |
|
|
|
55,713 |
|
|
|
17,680 |
|
|
|
|
(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 expenses 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. As of February 1,
2008, the design beds related to the Place Portfolio were included in the total for the three months
ended June 30, 2008 due to the termination of the lease with Place Properties (see Note 2 in the
condensed consolidated financial statements). |
|
(8) |
|
This information excludes property information related to Tharpe (discontinued operations). |
Total revenue in the student housing leasing segment was $32,347 for the three months ended June
30, 2008. This represents an increase of $7,360 or 29.5% from the same period in 2007. Student
housing leasing revenue increased 27.5%, contributing to $5,775 of the overall increase. As a
result of the lease termination on February 1, 2008 (see Note 2 in the condensed consolidated
financial statements) the Trust recognized a full quarter of operating results for the Place
Portfolio, contributing $5,427 or 25.8% to the growth in student housing leasing revenue. The
remaining $343 of growth relates to a 1.6% increase in same community revenue, which was driven by
an approximate 3.4% improvement in rates, offset by a 130 basis point decline in occupancies and a
0.5% decline in other student housing ancillary income. Other leasing revenue, related to the
Place Portfolio lease, increased $1,566 as a result of the $5,000 termination fee recognized in the
period compared to $3,434 of recurring lease revenue in 2007.
Operating expenses in the student housing leasing segment increased $3,975 or 37.1% to $14,688 for
the three months ended June 30, 2008, as compared to the same period in 2007. Student housing
leasing operations increased a total of $3,744 or 39.8% over the prior year, with an increase of
$2,922 or 31.1% attributable to operating expenses associated with taking over the Place Portfolio
as discussed above. Same community operating expenses grew 8.0% contributing to $751 of the
growth. The increase in same community operating expenses was mainly driven by the following
increases: $110 in marketing costs, as a result of softening leasing
34
markets at several communities, $240 in payroll and related expenses, as a result of lower staff
turnover in 2008 and workers compensation insurance refunds received in 2007, $100 in general and
administrative expenses, mainly due to higher bad debt and credit card processing costs, $90 in
utilities costs, $170 in maintenance and repairs costs, mostly due to higher HVAC costs in the
Florida markets and several one-time repair events, and $96 in turn expenses, related to
communities taking advantage of opportunities to turn units ahead of our main turn period in
August. These increases were offset by a decrease in insurance costs of $154 as a result of better
negotiated rates for 2008.
The community statistics shown above on a consolidated basis reflect a decline in physical
occupancy of 2.5%, a decline in RevPAB of 3.2% and a decline in margins of 430 basis points. These
results are not indicative of the year over year performance of our existing portfolio as they
include the impact of adding the Place Portfolio, whose underlying economics are currently
different from our existing portfolio. For the three months ended June 30, 2008, the Place
Portfolio had an average physical occupancy of 84.7%, RevPAB of $307, and operating margins of
46.3% compared to 89.7%, $383, and 52.5% respectively on a same community basis.
Nonoperating expenses decreased $1,349 to $13,254 for the three months ended June 30, 2008, as
compared to same period in 2007. This decrease was primarily driven by a $715 decline in
depreciation expense due to fully depreciated assets that remain in service and a $667 decline in
interest expense. Interest expense declined primarily as a result of lower average debt balances
and lower interest rates in the second quarter of 2008 compared to the same quarter of 2007.
Additionally, interest in the amount of $172 was capitalized in the second quarter of 2008 related
to ongoing development projects.
Equity in earnings of unconsolidated entities represents our share of the net income or loss
related to four investments in unconsolidated entities that own student housing communities. These
communities are also managed by the Trust. For the three months ended June 30, 2008 equity in
earnings was a loss of $26 compared to a loss of $108 in the prior year. The improvement comes
from the addition of our investment in a new community in Greensboro, NC as well as better results
from the other three existing investments.
Third-party development consulting services
Third-party development consulting services revenue increased $197 or 19.2% to $1,221 for the three
months ended June 30, 2008, as compared to the same period in 2007. Fees recognized for West
Chester University of Pennsylvania of $302 and Indiana University of Pennsylvania Phase III of
$140, both of which were initiated during 2008, the increase in fees recognized for Indiana
University of Pennsylvania Phase II of $218 and Slippery Rock Phase II, primarily related to
participation in cost savings of $131, all contributed to the increase. The increase was offset by
a decline in revenue for Indiana University of Pennsylvania Phase I of $196 and University of
Alabama, Tuscaloosa of $440 due to project completion.
Equity in earnings of unconsolidated entities in the third-party development consulting services
segment decreased $67 from the prior year to zero. There were two joint ventures with active
development projects during the second quarter of 2007, and none in 2008, which reflects the
Trusts desire to provide development services directly and not through joint venture arrangements.
General and administrative costs in the third-party development consulting services segment
increased $126 to $723 for the three months ended June 30, 2008, as compared to the same period in
2007. This increase is a result of increases in staffing and related costs and corporate overhead
costs allocated to the segment to support the growing revenue.
Nonoperating expenses included $10 of interest income primarily related to the Trust fronting
predevelopment costs under a predevelopment agreement for which the Trust is reimbursed with
interest when the institutions governing body formally approves the final development contract and
project financing is put in place.
Management services
Total third-party management services revenue increased by $401 or 27.1% to $1,879 for the three
months ended June 30, 2008, as compared to the same period in 2007. Growth in our owned portfolio
period over period, as discussed under student housing leasing
35
above, contributed $231 of the increase by way of intersegment revenue, while third-party
management fee revenue increased $111 or 15.4% to $832 for the three months ended June 30, 2008.
The addition of six new management contracts since the second quarter of 2007, including the
addition of two new contracts during the second quarter of 2008, contributed to 10.7% of the
growth. In addition our management company achieved an 8.4% growth year over year in fees from
existing contracts. Both of these increases more than offset a decline in revenue related to a
contract the Trust exited in the third quarter of 2007.
General and administrative costs for our third-party management services segment increased $313 to
$1,781 for the three months ended June 30, 2008, as compared to the same period in 2007. This
increase is a result of increases in staffing to support the growing revenue.
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 June 30, 2008, unallocated corporate
expenses were $1,611, a decrease of $436 or 21.3% over the prior year. The majority of this
decrease is due to an increase in interest income of $164, primarily related to an intercompany
loan, a decrease in interest expense of $48, resulting from lower average debt balances and lower
interest rates, and a decrease in deferred financing costs of $199 related to the write-off of
deferred financing fees associated with the Term Loan that was repaid in the second quarter of
2007.
Funds from Operations (FFO)
As defined by the National Association of Real Estate Investment Trusts (NAREIT), Funds from
Operations, 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.
We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its
March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the
methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs. Further, FFO does not represent amounts available for managements
discretionary use because of needed capital replacement or expansion, debt service obligations or
other commitments and uncertainties. FFO should not be considered as an alternative to net income
(loss) (computed in accordance with GAAP) as an indicator of our financial performance or to cash
flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity,
nor is it indicative of funds available to fund our cash needs, including our ability to make
distributions.
The following table presents a reconciliation of our FFO available to our shareholders and
unitholders to our net income (loss) for the six months ended June 30, 2008 and 2007:
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income (loss) |
|
$ |
3,318 |
|
|
$ |
194 |
|
|
$ |
4,207 |
|
|
$ |
(297 |
) |
Less gain on sale of student housing
property, net of minority interest |
|
|
|
|
|
|
(1,579 |
) |
|
|
|
|
|
|
(1,579 |
) |
Plus loss on sale of student housing assets |
|
|
|
|
|
|
|
|
|
|
512 |
|
|
|
|
|
Plus student housing property depreciation
and amortization of lease intangibles |
|
|
7,094 |
|
|
|
7,811 |
|
|
|
14,545 |
|
|
|
15,809 |
|
Plus equity portion of real estate
depreciation and amortization on equity
investees |
|
|
123 |
|
|
|
92 |
|
|
|
248 |
|
|
|
190 |
|
Plus depreciation and amortization of
discontinued operations |
|
|
|
|
|
|
242 |
|
|
|
|
|
|
|
711 |
|
Plus minority interest |
|
|
74 |
|
|
|
(105 |
) |
|
|
171 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations |
|
$ |
10,609 |
|
|
$ |
6,655 |
|
|
$ |
19,683 |
|
|
$ |
14,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Revolving credit facility and other indebtedness
On March 31, 2006, the Operating Partnership amended and restated the revolving credit facility
(the Amended Revolver) dated January 31, 2005 in the amount of $100,000. The Trust serves as the
guarantor for any funds borrowed by the Operating Partnership under the Amended Revolver.
Additionally, the Amended Revolver is secured by a cross-collateralized, first mortgage lien on six
otherwise unmortgaged properties. The Amended Revolver has a term of three years and matures on
March 31, 2009, provided that the Operating Partnership may extend the maturity date for one year
subject to certain conditions. At June 30, 2008, there was $34,700 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 (4.78% at June 30, 2008).
Availability under the Amended Revolver is limited to a borrowing base availability equal to the
lesser of (i) 65% of the property asset value (as defined in the amended agreement) of the
properties securing the facility and (ii) the loan amount which would produce a debt service
coverage ratio of no less than 1.30, with debt service based on the greater of two different sets
of conditions specified in the amended agreement. As of June 30, 2008, our borrowing base
availability was $53,691. We do, however, have additional unmortgaged properties that can be
pledged against the line to increase total availability to $100,000.
The Amended Revolver contains customary affirmative and negative covenants and contains financial
covenants that, among other things, require the Trust and its subsidiaries to maintain certain
minimum ratios of EBITDA (earnings before payment or charges of interest, taxes, depreciation,
amortization or extraordinary items) as compared to interest expense and total fixed charges. The
financial covenants also include consolidated net worth and leverage ratio tests.
The Trust is prohibited from making distributions that exceed $1.20 per share unless prior to and
after giving effect to such action the total leverage ratio is less than or equal to 60%. The
amount of restricted payments permitted may be increased as long as either of the following
conditions is met: (a) after giving effect to the increased restricted payment, the total leverage
ratio shall remain less than or equal to 60%; or (b) the increased restricted payment, when
considered along with all other restricted payments for the last 3 quarters, does not exceed 95% of
funds from operations for the applicable period.
On March 3, 2008, mortgage debt in the amount of $22,977, secured by the student housing community
referred to as University Towers, bearing interest at an effective rate of 5.48%, matured and was
repaid by the Trust with additional borrowings on the Amended Revolver. On June 27, 2008, the
Trust refinanced the debt with a $25,000, interest only, fixed rate mortgage bearing interest at
5.99% through June 30, 2013. After the initial maturity, the Trust has the option to extend the
loan for 12 months with principal and interest equal to LIBOR plus a 250 basis point margin per
annum being repaid on a monthly basis. Subsequent to June 30, 2008, the Trust used the proceeds from the refinancing to pay down the Amended Revolver.
Liquidity outlook and capital requirements
At June 30, 2008, we had $27,322 of cash, an increase of $23,288 from December 31, 2007. As
mentioned above, the refinancing of the University Towers mortgage debt, that had previously been
repaid using the Amended Revolver, created $25,000 in cash at quarter end which was subsequently
used to pay down the Amended Revolver. During the six months ended June 30, 2008, we generated
37
$21,500 of cash from operations, received $2,578 of proceeds from the sale of the land and parking
garage at our University Towers property, and drew $4,712 on the construction loan related to the
company owned development in Carbondale Illinois. In addition to funding working capital and
capital expenditure needs, this allowed us to invest $11,409 in new developments and distribute
$12,274 to our shareholders and unitholders.
Our current liquidity needs include funds for distributions to our shareholders and unitholders,
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. Distributions for the
six months ended June 30, 2008 totaled $12,274 or $0.41 per weighted average share/unit compared to
cash provided by operations of $21,500 or $0.72 per weighted average share/unit for the same
period. Excluding the $5,800 in lease termination revenue recognized during the six months ended
June 30, 2008, cash provided by operations was $15,700 or $0.53 per weighted average share/unit.
Distributions for the six months ended June 30, 2007 totaled $11,893 or $0.41 per weighted average
share/unit compared to cash provided by operations of $13,025 or $0.45 per weighted average
share/unit for the same period. We expect our long-term liquidity requirements to be satisfied
through growth in cash generated by operations and external sources of debt and equity capital,
including our credit facility, public capital markets as well as private sources of capital. To the
extent that we are unable to maintain our Amended Revolver or an equivalent source of debt
financing, we will be more reliant upon the public and private capital markets to meet our
long-term liquidity needs.
Based on our closing share price of $11.65 on June 30, 2008 on the New York Stock Exchange, our
total enterprise value was $804,173. With total debt outstanding on June 30, 2008 of $458,914, our
debt to total enterprise value ratio was 57.1%. We believe our capital structure and current FFO
and distribution targets, along with availability under our $100,000 Amended Revolver, leaves us
with sufficient liquidity and access to financing to fund current working capital needs and make
future student housing investments.
We intend to invest in additional properties only as suitable opportunities arise. We also plan to
develop properties for our ownership and management. In the short term, we intend to fund any
acquisitions with working capital and borrowings under first mortgage, property secured debt or our
$100,000 Amended Revolver. We intend to finance property acquisitions and self development projects
over the longer term with the proceeds from additional issuances of common or preferred stock,
private capital in the form of joint ventures, debt financing and issuances of units of our
Operating Partnership. There can be no assurance, however, that such financing will be obtained on
reasonable terms, or at all, particularly in light of current capital market conditions.
An additional source of capital is the possible disposition of non-strategic properties. We
continually assess all of our properties, the markets they are in and the universities they serve
to determine if any dispositions are necessary or appropriate. The sale of any unencumbered asset
would provide additional capital to most likely pay down debt or possibly finance
acquisition/development growth or other operational needs.
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.
However, we typically obtain a guarantee of repayment of these predevelopment expenditures from the
project owner, but no assurance can be given that we would be successful in collecting the amount
guaranteed in the event that project financing is not obtained.
In 2007, we began developing projects for the Trusts ownership and plan to increase
self-development activity going forward. We plan to open the Trusts first wholly owned,
self-developed property in August of 2008 servicing Southern Illinois University. At June
38
30, 2008, costs totaling $1,197 have been capitalized related to other projects currently in the
development phase. As opposed to our third party development services all risk, exposure and
capital requirements for these developments remain with the Trust.
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. Current market conditions may make additional capital more expensive for
us and could impact our access to the capital markets. There can be no assurance that we will be
able to obtain additional financing under satisfactory conditions or at all or that we will make
any investments in additional properties.
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.
In 2009, $285,049 or 67.2% of the Trusts mortgage debt reaches maturity. Based on current
activity in the debt markets and managements initial review of refinancing options, we do not see
any issues surrounding the coming refinancing needs; however, there is no way to predict future
market conditions.
Commitments and Contractual obligations
The following table summarizes our contractual obligations as of June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
After 5 |
|
|
|
|
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contractual
Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt Obligations(1) |
|
$ |
1,716 |
|
|
$ |
285,980 |
|
|
$ |
70,930 |
|
|
$ |
65,587 |
|
|
$ |
424,213 |
|
Contractual Interest Obligations(2) |
|
|
15,838 |
|
|
|
27,377 |
|
|
|
13,039 |
|
|
|
3,694 |
|
|
|
59,948 |
|
Operating Lease and Future
Purchase Obligations (3) |
|
|
1,680 |
|
|
|
6,047 |
|
|
|
949 |
|
|
|
461 |
|
|
|
9,137 |
|
Capital Reserve Obligations(4) |
|
|
1,404 |
|
|
|
2,395 |
|
|
|
421 |
|
|
|
182 |
|
|
|
4,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
20,638 |
|
|
$ |
321,799 |
|
|
$ |
85,339 |
|
|
$ |
69,924 |
|
|
$ |
497,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes required monthly principal amortization and amounts due at maturity on first mortgage debt secured by student
housing properties. The first mortgage debt does not include $1,410 of unamortized debt premium. |
|
(2) |
|
Includes contractual interest payments. |
|
(3) |
|
Includes future minimum lease commitments under operating lease obligations and future purchase obligations for advertising. |
|
(4) |
|
Includes future annual contributions to the capital reserve as required by certain mortgage debt. |
At June 30, 2008, the outstanding mortgage and construction debt had a weighted average interest
rate of 5.84% and carried a weighted average term to maturity of 2.3 years.
As of June 30, 2008, fourteen of our properties were unencumbered by mortgage debt. Six of these
fourteen properties have, however, been pledged as collateral against any borrowing under our
$100,000 Amended Revolver.
39
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 Amended Revolver, 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 July 10, 2008 our board of directors declared a second quarter distribution of $0.205 per share
of common stock for the quarter ending on June 30, 2008. The distribution is payable on August 15,
2008 to stockholders of record at the close of business on July 31, 2008.
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 $88,387 at June 30, 2008. Additionally, on May 10, 2006, the Operating
Partnership guaranteed $23,200 of construction debt held by University Village-Greensboro LLC in
order to receive a 25% ownership stake in the venture with College Park Apartments. Construction
was completed and the student housing community was occupied in August 2007. The Operating
Partnership has determined that it will not guarantee the debt after the construction loan is
refinanced. The LLC received a 90 day waiver from the construction debt lender related to a
technical default that occurred in March 2008, as a result of liens filed on the property.
Subsequently, the waiver was extended through September 15, 2008.
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 June 30, 2008, we had fixed rate debt of
$419,501. Holding other variables constant a 100 basis point increase in interest rates would cause
a $8,204 decline in the fair value of our fixed rate debt. Conversely, a 100 basis point decrease
in interest rates would cause a $8,546 increase in the fair value of our fixed rate debt. At June
30, 2008, 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 5.86% and a weighted average term
to maturity of 2.28 years.
At June 30, 2008, we also had $34,700 outstanding on the Amended Revolver. The interest rate per
annum applicable to the Amended Revolver is, at the Operating Partnerships option, equal to a base
rate or LIBOR plus an applicable margin based upon our leverage. At June 30, 2008, we had a $4,712
construction loan related to the development of a wholly owned student apartment community near
Southern Illinois University (see note 7 of the condensed consolidated financial statements). The
construction loan bears interest
40
equal to LIBOR plus a 110 basis point margin and is interest only through July 21, 2010. Commencing with the quarter ended June
30, 2010, and annually thereafter, a debt service coverage ratio calculated on a rolling 12 month
basis, of not less than 1.25 to 1, must be maintained in order to extend the loan until June 14,
2012, with principal and interest being repaid on a monthly basis.
At June 30, 2008, 91.4% of the Trusts outstanding debt was subject to fixed rates. 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 June 30, 2008, 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 six months ended June 30, 2008, the Trust continued with 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).
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.
The discussion of the Trusts business and operations should be read together with the risk factors
contained in Item 1A of our annual report on Form 10-K for the year ended December 31, 2007, as
amended, 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. As of June 30, 2008,
there have been no material changes to the risk factors set forth in the Trusts annual report for the year ended December 31, 2007, as
amended.
41
|
|
|
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. |
On May 20, 2008, we held our 2008 annual meeting of stockholders at the Trusts corporate
headquarters in Memphis, Tennessee. During the meeting, our stockholders voted on the following two
proposals:
Proposal 1:
Director nominees Paul O. Bower, Monte J. Barrow, William J. Cahill, III, John L. Ford and
Wendell W. Weakley were elected to serve as directors by a plurality of votes cast at the meeting.
Shares on this proposal were voted as follows:
|
|
|
|
|
|
|
|
|
|
|
For |
|
|
Withheld |
|
Paul O. Bower |
|
|
23,787,946.64 |
|
|
|
546,251.62 |
|
Monte J. Barrow |
|
|
23,964,390.64 |
|
|
|
387,807.62 |
|
William J. Cahill, III |
|
|
23,957,148.24 |
|
|
|
395,050.03 |
|
John L. Ford |
|
|
23,965,979.64 |
|
|
|
386,218.62 |
|
Wendell W. Weakley |
|
|
23,964,212.64 |
|
|
|
387,985.62 |
|
Proposal 2:
Deloitte & Touche LLP was ratified as the Trusts independent registered public accounting
firm for the 2008 fiscal year by a majority of the shares represented at the meeting. Shares on
this proposal were voted as follows:
|
|
|
|
|
For |
|
Against |
|
Broker Non-Votes |
24,291,349.68
|
|
37,974.59
|
|
0 |
|
|
|
Item 5. |
|
Other Information. |
None.
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.
42
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.
|
|
|
|
|
|
EDUCATION REALTY TRUST, INC.
|
|
Date: July 31, 2008 |
By |
|
/s/ Paul O. Bower
|
|
|
|
|
Paul O. Bower |
|
|
|
|
President, Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer) |
|
|
|
|
|
Date: July 31, 2008 |
By |
|
/s/ Randall H. Brown
|
|
|
|
|
Randall H. Brown |
|
|
|
|
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial Officer) |
|
|
|
|
|
Date: July 31, 2008 |
By |
|
/s/ J. Drew Koester
|
|
|
|
|
J. Drew Koester |
|
|
|
|
Vice President and Chief Accounting Officer
(Principal Accounting Officer) |
|
43
EXHIBIT INDEX
|
|
|
|
|
3.1 |
|
|
Second Articles of Amendment and Restatement of Education Realty
Trust, Inc. (Incorporated by reference to Exhibit 3.1 to the Trusts
Amendment No. 2 to its Registration Statement on Form S-11 (File No.
333-119264), filed on December 10, 2004.) |
|
|
|
|
|
3.2 |
|
|
Bylaws of Education Realty Trust, Inc. (Incorporated by reference to
Exhibit 3.2 to the Trusts Registration Statement on Form S-11 (File
No. 333-119264), filed on September 24, 2004.) |
|
|
|
|
|
4.1 |
|
|
Form of Certificate for Common Stock of Education Realty Trust, Inc.
(Incorporated by reference to Exhibit 4.1 to the Trusts Amendment
No. 5 to its Registration Statement on Form S-11 (File No.
333-119264), filed on January 24, 2005.) |
|
|
|
|
|
4.2 |
|
|
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 Trusts
Registration Statement on Form S-11 (File No. 333-119264), filed on
September 24, 2004.) |
|
|
|
|
|
10.1 |
|
|
First Amendment to the Amended and Restated Limited Liability
Company Agreement of Education Realty Limited Partner, LLC, dated
June 11, 2008. |
|
|
|
|
|
10.2 |
|
|
First Amendment to the Amended and Restated Agreement of Limited
Partnership of Education Realty Operating Partnership, LP, dated
June 11, 2008. |
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
of the Securities Exchange Act, as amended. |
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
of the Securities Exchange Act, as amended. |
|
|
|
|
|
32.1* |
|
|
Section 906 Certification of Chief Executive Officer |
|
|
|
|
|
32.2* |
|
|
Section 906 Certification of Chief Financial Officer |
|
|
|
* |
|
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. |
44