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Section 1: 10-Q (10-Q)

Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2018.   
 
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 001-32265 (American Campus Communities, Inc.)
Commission file number 333-181102-01 (American Campus Communities Operating Partnership, L.P.)
 
AMERICAN CAMPUS COMMUNITIES, INC.
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
 
 Maryland (American Campus Communities, Inc.)
Maryland (American Campus Communities Operating
Partnership, L.P.)
 
 76-0753089 (American Campus Communities, Inc.)
56-2473181 (American Campus Communities Operating
Partnership, L.P.)
 (State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer Identification No.)
 
12700 Hill Country Blvd., Suite T-200
Austin, TX
(Address of Principal Executive Offices)
 
 
78738
(Zip Code)
 
(512) 732-1000
Registrants telephone number, including area code
 
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.
American Campus Communities, Inc.
Yes x  No o
American Campus Communities Operating Partnership, L.P.
Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
American Campus Communities, Inc.
Yes x  No o
American Campus Communities Operating Partnership, L.P.
Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
American Campus Communities, Inc.                                                                                                                                    
Large accelerated filer x  
Accelerated Filer o



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

American Campus Communities Operating Partnership, L.P.
Large accelerated filer o
Accelerated Filer o
Non-accelerated filer   x     (Do not check if a smaller reporting company) 
Smaller reporting company o
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
American Campus Communities, Inc.
Yes o  No x
American Campus Communities Operating Partnership, L.P
Yes o  No x
                                                                                           
There were 136,663,257 shares of the American Campus Communities, Inc.’s common stock with a par value of $0.01 per share outstanding as of the close of business on April 27, 2018.
 



EXPLANATORY NOTE
 
This report combines the reports on Form 10-Q for the quarterly period ended March 31, 2018 of American Campus Communities, Inc. and American Campus Communities Operating Partnership, L.P.  Unless stated otherwise or the context otherwise requires, references to “ACC” mean American Campus Communities, Inc., a Maryland corporation that has elected to be treated as a real estate investment trust (“REIT”) under the Internal Revenue Code, and references to “ACCOP” mean American Campus Communities Operating Partnership, L.P., a Maryland limited partnership.  References to the “Company,” “we,” “us” or “our” mean collectively ACC, ACCOP and those entities/subsidiaries owned or controlled by ACC and/or ACCOP.  References to the “Operating Partnership” mean collectively ACCOP and those entities/subsidiaries owned or controlled by ACCOP. The following chart illustrates the Company’s and the Operating Partnership’s corporate structure:
393350352_companyflowchart3312018.jpg 
The general partner of ACCOP is American Campus Communities Holdings, LLC (“ACC Holdings”), an entity that is wholly-owned by ACC. As of March 31, 2018, ACC Holdings held an ownership interest in ACCOP of less than 1%. The limited partners of ACCOP are ACC and other limited partners consisting of current and former members of management and nonaffiliated third parties.  As of March 31, 2018, ACC owned an approximate 99.3% limited partnership interest in ACCOP.  As the sole member of the general partner of ACCOP, ACC has exclusive control of ACCOP’s day-to-day management.  Management operates the Company and the Operating Partnership as one business. The management of ACC consists of the same members as the management of ACCOP. The Company is structured as an umbrella partnership REIT (“UPREIT”) and ACC contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, ACC receives a number of units of the Operating Partnership (“OP Units,” see definition below) equal to the number of common shares it has issued in the equity offering. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units in the Operating Partnership. Based on the terms of ACCOP’s partnership agreement, OP Units can be exchanged for ACC’s common shares on a one-for-one basis. The Company maintains a one-for-one relationship between the OP Units of the Operating Partnership issued to ACC and ACC Holdings and the common shares issued to the public. The Company believes that combining the reports on Form 10-Q of ACC and ACCOP into this single report provides the following benefits:
 
(1)
enhances investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
(2)
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
(3)
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.




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

To help investors understand the significant differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership. A single set of consolidated notes to such financial statements is presented that includes separate discussions for the Company and the Operating Partnership when applicable (for example, noncontrolling interests, stockholders’ equity or partners’ capital, earnings per share or unit, etc.).  A combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents discrete information related to each entity, as applicable. This report also includes separate Part I, Item 4 Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
 
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company operates its business through the Operating Partnership. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
 



FORM 10-Q
FOR THE QUARTER ENDED March 31, 2018
 TABLE OF CONTENTS
 
 
PAGE NO.
 
 
PART I.
 
 
 
 
Item 1.
Consolidated Financial Statements of American Campus Communities, Inc. and Subsidiaries:
 
 
 
 
 
Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017
 
 
 
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017 (all unaudited)
 
 
 
 
Consolidated Statement of Changes in Equity for the three months ended March 31, 2018 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (all unaudited)
 
 
 
 
Consolidated Financial Statements of American Campus Communities Operating Partnership, L.P. and Subsidiaries:
 
 
 
 
 
Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017
 
 
 
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017 (all unaudited)
 
 
 
 
Consolidated Statement of Changes in Capital for the three months ended March 31, 2018 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (all unaudited)
 
 
 
 
Notes to Consolidated Financial Statements of American Campus Communities, Inc. and Subsidiaries and American Campus Communities Operating Partnership, L.P. and Subsidiaries (unaudited)
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
PART II.
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
SIGNATURES
 


AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)



 
 
March 31, 2018
 
December 31, 2017
 
 
(Unaudited)
 
 
Assets
 
 
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
Owned properties, net
 
$
6,543,564

 
$
6,450,364

On-campus participating properties, net
 
81,008

 
81,804

Investments in real estate, net
 
6,624,572

 
6,532,168

 
 
 
 
 
Cash and cash equivalents
 
55,502

 
41,182

Restricted cash
 
28,485

 
23,590

Student contracts receivable, net
 
9,726

 
9,170

Other assets
 
288,667

 
291,260

 
 
 
 
 
Total assets
 
$
7,006,952

 
$
6,897,370

 
 
 
 
 
Liabilities and equity
 
 

 
 

 
 
 
 
 
Liabilities:
 
 

 
 

Secured mortgage, construction and bond debt, net
 
$
682,295

 
$
664,020

Unsecured notes, net
 
1,586,501

 
1,585,855

Unsecured term loans, net
 
647,414

 
647,044

Unsecured revolving credit facility
 
218,000

 
127,600

Accounts payable and accrued expenses
 
52,932

 
53,741

Other liabilities
 
212,754

 
187,983

Total liabilities
 
3,399,896

 
3,266,243

 
 
 
 
 
Commitments and contingencies (Note 12)
 


 


 
 
 
 
 
Redeemable noncontrolling interests
 
126,999

 
132,169

 
 
 
 
 
Equity:
 
 

 
 

American Campus Communities, Inc. and Subsidiaries stockholders’ equity:
 
 

 
 

Common stock, $0.01 par value, 800,000,000 shares authorized, 136,600,639 and 136,362,728 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively
 
1,366

 
1,364

Additional paid in capital
 
4,332,471

 
4,326,910

Common stock held in rabbi trust, 62,618 and 63,778 shares at March 31, 2018 and December 31, 2017, respectively
 
(2,817
)
 
(2,944
)
Accumulated earnings and dividends
 
(872,281
)
 
(837,644
)
Accumulated other comprehensive loss
 
(2,236
)
 
(2,701
)
Total American Campus Communities, Inc. and Subsidiaries stockholders’ equity
 
3,456,503

 
3,484,985

Noncontrolling interests - partially owned properties
 
23,554

 
13,973

Total equity
 
3,480,057

 
3,498,958

 
 
 
 
 
Total liabilities and equity
 
$
7,006,952

 
$
6,897,370

 


See accompanying notes to consolidated financial statements.

1

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands, except share and per share data)



 
 
Three Months Ended March 31,
 
 
2018

2017
Revenues:
 
 
 
 
Owned properties
 
$
205,532

 
$
178,831

On-campus participating properties
 
10,443

 
10,158

Third-party development services
 
846

 
456

Third-party management services
 
2,731

 
2,614

Resident services
 
857

 
879

Total revenues
 
220,409

 
192,938

 
 
 
 
 
Operating expenses:
 
 

 
 

Owned properties
 
88,060

 
74,957

On-campus participating properties
 
3,425

 
3,265

Third-party development and management services
 
4,198

 
4,083

General and administrative
 
6,699

 
6,734

Depreciation and amortization
 
64,779

 
52,323

Ground/facility leases
 
2,842

 
2,357

Total operating expenses
 
170,003

 
143,719

 
 
 
 
 
Operating income
 
50,406

 
49,219

 
 
 
 
 
Nonoperating income and (expenses):
 
 

 
 

Interest income
 
1,223

 
1,232

Interest expense
 
(23,684
)
 
(14,717
)
Amortization of deferred financing costs
 
(1,414
)
 
(1,028
)
Total nonoperating expense
 
(23,875
)
 
(14,513
)
 
 
 
 
 
Income before income taxes
 
26,531

 
34,706

Income tax provision
 
(281
)
 
(257
)
Net income
 
26,250

 
34,449

Net income attributable to noncontrolling interests
 
(323
)
 
(399
)
Net income attributable to ACC, Inc. and Subsidiaries common stockholders
 
$
25,927

 
$
34,050

 
 
 
 
 
Other comprehensive income
 
 

 
 

Change in fair value of interest rate swaps and other
 
465

 
484

Comprehensive income
 
$
26,392

 
$
34,534

 
 
 
 
 
Net income per share attributable to ACC, Inc. and Subsidiaries common stockholders
 
 

 
 

Basic
 
$
0.19

 
$
0.25

Diluted
 
$
0.18

 
$
0.25

 
 
 
 
 
Weighted-average common shares outstanding
 
 

 
 

Basic
 
136,525,557

 
133,052,444

Diluted
 
137,499,963

 
133,986,322

 
 
 
 
 
Distributions declared per common share
 
$
0.44

 
$
0.42

 

See accompanying notes to consolidated financial statements.

2

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited, in thousands, except share data)



 
 
Common
Shares
 
Par Value of
Common
Shares
 
Additional Paid
in Capital
 
Common Shares Held in Rabbi Trust
 
Common Shares Held in Rabbi Trust at Cost
 
Accumulated
Earnings and
Dividends
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interests –
Partially Owned
Properties
 
Total
Equity, December 31, 2017
 
136,362,728

 
$
1,364

 
$
4,326,910

 
63,778

 
$
(2,944
)
 
$
(837,644
)
 
$
(2,701
)
 
$
13,973

 
$
3,498,958

Adjustments to reflect redeemable noncontrolling interests at fair value
 

 

 
4,526

 

 

 

 

 

 
4,526

Amortization of restricted stock awards and vesting of restricted stock units
 
3,040

 

 
3,443

 

 

 

 

 

 
3,443

Vesting of restricted stock awards
 
165,263

 
1

 
(2,758
)
 


 


 

 

 

 
(2,757
)
Distributions to common and restricted stockholders
 

 

 

 

 

 
(60,564
)
 

 

 
(60,564
)
Distributions to noncontrolling interests - partially owned properties
 

 

 

 

 

 

 

 
(47
)
 
(47
)
Conversion of common and preferred operating partnership units to common stock
 
68,448

 
1

 
477

 

 

 

 

 

 
478

Change in fair value of interest rate swaps and other
 

 

 

 

 

 

 
465

 

 
465

Contributions by noncontrolling interests
 

 

 

 

 

 

 

 
9,515

 
9,515

Withdrawals from deferred compensation plan, net of deposits
 
1,160

 

 
(127
)
 
(1,160
)
 
127

 

 

 

 

Net income
 

 

 

 

 

 
25,927

 

 
113

 
26,040

Equity, March 31, 2018
 
136,600,639


$
1,366


$
4,332,471

 
62,618

 
$
(2,817
)

$
(872,281
)

$
(2,236
)

$
23,554


$
3,480,057

 


See accompanying notes to consolidated financial statements.

3

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) 


 
 
Three Months Ended March 31,
 
 
2018
 
2017
Operating activities
 
 
 
 
Net income
 
$
26,250

 
$
34,449

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
64,779

 
52,323

Amortization of deferred financing costs and debt premiums/discounts
 
(16
)
 
(901
)
Share-based compensation
 
3,443

 
4,256

Income tax provision
 
281

 
257

Amortization of interest rate swap terminations and other
 
102

 
102

Changes in operating assets and liabilities:
 
 

 
 

Student contracts receivable, net
 
(556
)
 
647

Other assets
 
2,100

 
(2,535
)
Accounts payable and accrued expenses
 
(1,088
)
 
(28,365
)
Other liabilities
 
12,845

 
5,731

Net cash provided by operating activities
 
108,140

 
65,964

 
 
 
 
 
Investing activities
 
 

 
 

Cash paid for land acquisitions
 

 
(12,225
)
Capital expenditures for owned properties
 
(11,338
)
 
(12,602
)
Investments in owned properties under development
 
(122,912
)
 
(116,052
)
Capital expenditures for on-campus participating properties
 
(1,146
)
 
(209
)
Purchase of corporate furniture, fixtures and equipment
 
(1,314
)
 
(2,480
)
Net cash used in investing activities
 
(136,710
)
 
(143,568
)
 
 
 
 
 
Financing activities
 
 

 
 

Proceeds from sale of common stock
 

 
63,453

Offering costs
 

 
(795
)
Pay-off of mortgage and construction loans
 
(10,375
)
 

Proceeds from revolving credit facility
 
234,900

 
191,800

Paydowns of revolving credit facility
 
(144,500
)
 
(105,100
)
Proceeds from construction loans
 
32,966

 

Scheduled principal payments on debt
 
(2,248
)
 
(2,567
)
Debt issuance and assumption costs
 

 
(4,582
)
Contributions by noncontrolling interests
 
854

 
8,158

Taxes paid on net-share settlements
 
(2,757
)
 
(4,283
)
Distributions to common and restricted stockholders
 
(60,564
)
 
(56,423
)
Distributions to noncontrolling interests
 
(491
)
 
(498
)
Net cash provided by financing activities
 
47,785

 
89,163

 
 
 
 
 
Net change in cash, cash equivalents, and restricted cash
 
19,215

 
11,559

Cash, cash equivalents, and restricted cash at beginning of period
 
64,772

 
46,957

Cash, cash equivalents, and restricted cash at end of period
 
$
83,987

 
$
58,516

 
 
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash to the Consolidated Balance Sheets
 
 
 
 
Cash and cash equivalents
 
$
55,502

 
$
34,130

Restricted cash
 
28,485

 
24,386

Total cash, cash equivalents, and restricted cash at end of period
 
$
83,987

 
$
58,516

 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 

 
 

Conversion of common and preferred operating partnership units to common stock
 
$
478

 
$

Non-cash contribution from noncontrolling interest
 
$
8,729

 
$
3,000

Non-cash consideration exchanged in purchase of land parcel
 
$

 
$
(2,014
)
Change in accrued construction in progress
 
$
12,118

 
$
10,170

Change in fair value of derivative instruments, net
 
$
363

 
$
382

Change in fair value of redeemable noncontrolling interests
 
$
4,526

 
$
2,243

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Cash paid for interest, net of amounts capitalized
 
$
17,911

 
$
14,443

 

See accompanying notes to consolidated financial statements.

4

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)



 
 
March 31, 2018
 
December 31, 2017
 
 
(Unaudited)
 
 
Assets
 
 
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
Owned properties, net
 
$
6,543,564

 
$
6,450,364

On-campus participating properties, net
 
81,008

 
81,804

Investments in real estate, net
 
6,624,572

 
6,532,168

 
 
 
 
 
Cash and cash equivalents
 
55,502

 
41,182

Restricted cash
 
28,485

 
23,590

Student contracts receivable, net
 
9,726

 
9,170

Other assets
 
288,667

 
291,260

 
 
 
 
 
Total assets
 
$
7,006,952

 
$
6,897,370

 
 
 
 
 
Liabilities and capital
 
 

 
 

 
 
 
 
 
Liabilities:
 
 

 
 

Secured mortgage, construction and bond debt, net
 
$
682,295

 
$
664,020

Unsecured notes, net
 
1,586,501

 
1,585,855

Unsecured term loans, net
 
647,414

 
647,044

Unsecured revolving credit facility
 
218,000

 
127,600

Accounts payable and accrued expenses
 
52,932

 
53,741

Other liabilities
 
212,754

 
187,983

Total liabilities
 
3,399,896

 
3,266,243

 
 
 
 
 
Commitments and contingencies (Note 12)
 


 


 
 
 
 
 
Redeemable limited partners
 
126,999

 
132,169

 
 
 
 
 
Capital:
 
 

 
 

Partners’ capital:
 
 

 
 

General partner - 12,222 OP units outstanding at both March 31, 2018 and December 31, 2017
 
64

 
67

Limited partner - 136,651,035 and 136,414,284 OP units outstanding at March 31, 2018 and December 31, 2017, respectively
 
3,458,675

 
3,487,619

Accumulated other comprehensive loss
 
(2,236
)
 
(2,701
)
Total partners’ capital
 
3,456,503

 
3,484,985

Noncontrolling interests - partially owned properties
 
23,554

 
13,973

Total capital
 
3,480,057

 
3,498,958

 
 
 
 
 
Total liabilities and capital
 
$
7,006,952

 
$
6,897,370

 


See accompanying notes to consolidated financial statements.

5

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands, except unit and per unit data)



 
 
Three Months Ended March 31,
 
 
2018
 
2017
Revenues:
 
 
 
 
Owned properties
 
$
205,532

 
$
178,831

On-campus participating properties
 
10,443

 
10,158

Third-party development services
 
846

 
456

Third-party management services
 
2,731

 
2,614

Resident services
 
857

 
879

Total revenues
 
220,409

 
192,938

 
 
 
 
 
Operating expenses:
 
 

 
 

Owned properties
 
88,060

 
74,957

On-campus participating properties
 
3,425

 
3,265

Third-party development and management services
 
4,198

 
4,083

General and administrative
 
6,699

 
6,734

Depreciation and amortization
 
64,779

 
52,323

Ground/facility leases
 
2,842

 
2,357

Total operating expenses
 
170,003

 
143,719

 
 
 
 
 
Operating income
 
50,406

 
49,219

 
 
 
 
 
Nonoperating income and (expenses):
 
 

 
 

Interest income
 
1,223

 
1,232

Interest expense
 
(23,684
)
 
(14,717
)
Amortization of deferred financing costs
 
(1,414
)
 
(1,028
)
Total nonoperating expense
 
(23,875
)
 
(14,513
)
Income before income taxes
 
26,531

 
34,706

Income tax provision
 
(281
)
 
(257
)
Net income
 
26,250

 
34,449

Net income attributable to noncontrolling interests – partially owned properties
 
(114
)
 
(105
)
Net income attributable to American Campus Communities Operating Partnership, L.P.
 
26,136

 
34,344

Series A preferred unit distributions
 
(31
)
 
(31
)
Net income attributable to common unitholders
 
$
26,105

 
$
34,313

 
 
 
 
 
Other comprehensive income
 
 

 
 

Change in fair value of interest rate swaps and other
 
465

 
484

Comprehensive income
 
$
26,570

 
$
34,797

 
 
 
 
 
Net income per unit attributable to common unitholders
 
 

 
 

Basic
 
$
0.19

 
$
0.25

Diluted
 
$
0.18

 
$
0.25

 
 
 
 
 
Weighted-average common units outstanding
 
 

 
 

Basic
 
137,482,493

 
134,081,575

Diluted
 
138,456,899

 
135,015,453

 
 
 
 
 
Distributions declared per Common Unit
 
$
0.44

 
$
0.42

 

See accompanying notes to consolidated financial statements.

6

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL
(unaudited, in thousands, except unit data)



 
 
 
 
 
 
 
 
 
 
Accumulated
 
Noncontrolling
 
 
 
 
 
 
 
 
Other
 
Interests -
 
 

 
 
General Partner
 
Limited Partner
 
Comprehensive
 
Partially Owned
 
 

 
 
Units
 
Amount
 
Units
 
Amount
 
Loss
 
Properties
 
Total
Capital, December 31, 2017
 
12,222

 
$
67

 
136,414,284

 
$
3,487,619

 
$
(2,701
)
 
$
13,973

 
$
3,498,958

Adjustments to reflect redeemable limited partners’ interest at fair value
 

 

 

 
4,526

 

 

 
4,526

Amortization of restricted stock awards and vesting of restricted stock units
 

 

 
3,040

 
3,443

 

 

 
3,443

Vesting of restricted stock awards
 

 

 
165,263

 
(2,757
)
 

 

 
(2,757
)
Distributions
 

 
(5
)
 

 
(60,559
)
 

 

 
(60,564
)
Distributions to noncontrolling interests - partially owned properties
 

 

 

 

 

 
(47
)
 
(47
)
Conversion of common and preferred operating partnership units to common stock
 

 

 
68,448

 
478

 

 

 
478

Change in fair value of interest rate swaps and other
 

 

 

 

 
465

 

 
465

Contributions by noncontrolling interests
 

 

 

 

 

 
9,515

 
9,515

Net income
 

 
2

 

 
25,925

 

 
113

 
26,040

Capital, March 31, 2018
 
12,222

 
$
64

 
136,651,035

 
$
3,458,675

 
$
(2,236
)
 
$
23,554

 
$
3,480,057

 
 

See accompanying notes to consolidated financial statements.

7

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) 


 
 
Three Months Ended March 31,
 
 
2018
 
2017
Operating activities
 
 
 
 
Net income
 
$
26,250

 
$
34,449

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
64,779

 
52,323

Amortization of deferred financing costs and debt premiums/discounts
 
(16
)
 
(901
)
Share-based compensation
 
3,443

 
4,256

Income tax provision
 
281

 
257

Amortization of interest rate swap terminations and other
 
102

 
102

Changes in operating assets and liabilities:
 
 

 
 

Student contracts receivable, net
 
(556
)
 
647

Other assets
 
2,100

 
(2,535
)
Accounts payable and accrued expenses
 
(1,088
)
 
(28,365
)
Other liabilities
 
12,845

 
5,731

Net cash provided by operating activities
 
108,140

 
65,964

 
 
 
 
 
Investing activities
 
 

 
 

Cash paid for land acquisitions
 

 
(12,225
)
Capital expenditures for owned properties
 
(11,338
)
 
(12,602
)
Investments in owned properties under development
 
(122,912
)
 
(116,052
)
Capital expenditures for on-campus participating properties
 
(1,146
)
 
(209
)
Purchase of corporate furniture, fixtures and equipment
 
(1,314
)
 
(2,480
)
Net cash used in investing activities
 
(136,710
)
 
(143,568
)
 
 
 
 
 
Financing activities
 
 

 
 

Proceeds from issuance of common units in exchange for contributions, net
 

 
62,658

Pay-off of mortgage and construction loans
 
(10,375
)
 

Proceeds from revolving credit facility
 
234,900

 
191,800

Paydowns of revolving credit facility
 
(144,500
)
 
(105,100
)
Proceeds from construction loans
 
32,966

 

Scheduled principal payments on debt
 
(2,248
)
 
(2,567
)
Debt issuance and assumption costs
 

 
(4,582
)
Contributions by noncontrolling interests
 
854

 
8,158

Taxes paid on net-share settlements
 
(2,757
)
 
(4,283
)
Distributions paid to common and preferred unitholders
 
(60,502
)
 
(56,419
)
Distributions paid on unvested restricted stock awards
 
(506
)
 
(468
)
Distributions paid to noncontrolling interests - partially owned properties
 
(47
)
 
(34
)
Net cash provided by financing activities
 
47,785

 
89,163

 
 
 
 
 
Net change in cash, cash equivalents, and restricted cash
 
19,215

 
11,559

Cash, cash equivalents, and restricted cash at beginning of period
 
64,772

 
46,957

Cash, cash equivalents, and restricted cash at end of period
 
$
83,987

 
$
58,516

 
 
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash to the Consolidated Balance Sheets
 
 
 
 
Cash and cash equivalents
 
$
55,502

 
$
34,130

Restricted cash
 
28,485

 
24,386

Total cash, cash equivalents, and restricted cash at end of period
 
$
83,987

 
$
58,516

 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 

 
 

Conversion of common and preferred operating partnership units to common stock
 
$
478

 
$

Non-cash contribution from noncontrolling interest
 
$
8,729

 
$
3,000

Non-cash consideration exchanged in purchase of land parcel
 
$

 
$
(2,014
)
Change in accrued construction in progress
 
$
12,118

 
$
10,170

Change in fair value of derivative instruments, net
 
$
363

 
$
382

Change in fair value of redeemable noncontrolling interests
 
$
4,526

 
$
2,243

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Cash paid for interest, net of amounts capitalized
 
$
17,911

 
$
14,443

 

See accompanying notes to consolidated financial statements.

8

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1. Organization and Description of Business
 
American Campus Communities, Inc. (“ACC”) is a real estate investment trust (“REIT”) that commenced operations effective with the completion of an initial public offering (“IPO”) on August 17, 2004.  Through ACC’s controlling interest in American Campus Communities Operating Partnership, L.P. (“ACCOP”), ACC is one of the largest owners, managers and developers of high quality student housing properties in the United States in terms of beds owned and under management.  ACC is a fully integrated, self-managed and self-administered equity REIT with expertise in the acquisition, design, financing, development, construction management, leasing and management of student housing properties.  ACC’s common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “ACC.”
 
The general partner of ACCOP is American Campus Communities Holdings, LLC (“ACC Holdings”), an entity that is wholly-owned by ACC.  As of March 31, 2018, ACC Holdings held an ownership interest in ACCOP of less than 1%. The limited partners of ACCOP are ACC and other limited partners consisting of current and former members of management and nonaffiliated third parties.  As of March 31, 2018, ACC owned an approximate 99.3% limited partnership interest in ACCOP.  As the sole member of the general partner of ACCOP, ACC has exclusive control of ACCOP’s day-to-day management.  Management operates ACC and ACCOP as one business.  The management of ACC consists of the same members as the management of ACCOP.  ACC consolidates ACCOP for financial reporting purposes, and ACC does not have significant assets other than its investment in ACCOP.  Therefore, the assets and liabilities of ACC and ACCOP are the same on their respective financial statements.  References to the “Company” means collectively ACC, ACCOP and those entities/subsidiaries owned or controlled by ACC and/or ACCOP.  References to the “Operating Partnership” mean collectively ACCOP and those entities/subsidiaries owned or controlled by ACCOP.  Unless otherwise indicated, the accompanying Notes to the Consolidated Financial Statements apply to both the Company and the Operating Partnership.
 
As of March 31, 2018, the Company’s property portfolio contained 171 properties with approximately 104,800 beds.  The Company’s property portfolio consisted of 134 owned off-campus student housing properties that are in close proximity to colleges and universities, 32 American Campus Equity (“ACE®”) properties operated under ground/facility leases with 15 university systems and five on-campus participating properties operated under ground/facility leases with the related university systems.  Of the 171 properties, 15 were under development as of March 31, 2018, and when completed will consist of a total of approximately 10,100 beds.  The Company’s communities contain modern housing units and are supported by a resident assistant system and other student-oriented programming, with many offering resort-style amenities.
 
Through one of ACC’s taxable REIT subsidiaries (“TRSs”), the Company also provides construction management and development services, primarily for student housing properties owned by colleges and universities, charitable foundations, and others.  As of March 31, 2018, also through one of ACC’s TRSs, the Company provided third-party management and leasing services for 36 properties that represented approximately 29,600 beds.  Third-party management and leasing services are typically provided pursuant to management contracts that have initial terms that range from one to five years.  As of March 31, 2018, the Company’s total owned and third-party managed portfolio included 207 properties with approximately 134,400 beds.
 
2. Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying consolidated financial statements, presented in U.S. dollars, are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and revenue and expenses during the reporting periods. The Company’s actual results could differ from those estimates and assumptions. All material intercompany transactions among consolidated entities have been eliminated. All dollar amounts in the tables herein, except share, per share, unit and per unit amounts, are stated in thousands unless otherwise indicated.


9

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Principles of Consolidation

The Company’s consolidated financial statements include its accounts and the accounts of other subsidiaries and joint ventures (including partnerships and limited liability companies) over which it has control. Investments acquired or created are evaluated based on the accounting guidance relating to variable interest entities (“VIEs”), which requires the consolidation of VIEs in which the Company is considered to be the primary beneficiary. If the investment is determined not to be a VIE, then the investment is evaluated for consolidation using the voting interest model.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-02 (“ASU 2016-02”), “Leases (Topic 842): Amendments to the FASB Accounting Standards Codification.” ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The guidance is effective for public business entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. Subsequent to the issuance of ASU 2016-02, the FASB issued an additional Accounting Standards Update clarifying aspects of the new lease accounting standard, which will be effective upon adoption of ASU 2016-02. The Company plans to adopt ASU 2016-02 as of January 1, 2019. While the Company is still evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures, it expects to recognize right-of-use assets and related lease liabilities on its consolidated balance sheets related to ground leases under which it is the lessee.

In addition, the Company does not expect the following accounting pronouncements to have a material effect on its consolidated financial statements:
Accounting Standards Update
 
Effective Date
 
 
 
ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”
 
January 1, 2019
ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”
 
January 1, 2019
ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
 
January 1, 2020

Recently Adopted Accounting Pronouncements

Accounting Standards Update 2016-18 (“ASU 2016-18”), “Statement of Cash Flows: Restricted Cash”

On January 1, 2018, the Company adopted ASU 2016-18. The amendments in this update require the change in restricted cash to be reported with cash and cash equivalents when reconciling between beginning and ending amounts in the statements of cash flows. The Company applied the amendments retrospectively to each period presented in our consolidated Statements of Cash Flows.

Prior to the adoption of ASU 2016-18, the Company reported the change in restricted cash within operating, investing, and financing activities in its consolidated statement of cash flows. As a result of the Company’s adoption of this standard and the retrospective application, cash and cash equivalents in the consolidated statements of cash flows for the quarter ended March 31, 2017 increased by approximately $24.4 million to reflect the inclusion of the restricted cash balance at the end of the period, net cash provided by operating activities decreased by approximately $1.0 million, net cash used in investing activities increased by approximately $0.2 million, and net cash provided by financing activities increased by approximately $0.8 million.

Accounting Standards Update 2014-09 (“ASU 2014-09”), “Revenue From Contracts With Customers (Topic 606)”

On January 1, 2018, the Company adopted ASU 2014-09 and all related clarifying Accounting Standards Updates associated with ASU 2014-09.  ASU 2014-09 provides a single comprehensive revenue recognition model for contracts with customers (excluding certain contracts, such as lease contracts) to improve comparability within industries.  ASU 2014-09 requires an entity to recognize revenue to reflect the transfer of goods or services to customers at an amount the entity expects to be paid in exchange for those

10

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


goods and services and provide enhanced disclosures, all to provide more comprehensive guidance for transactions such as service revenue and contract modifications. 
The Company adopted the new revenue standard using the modified retrospective approach, and elected to apply the practical expedient to only assess the recognition of revenue for open contracts during the transition period. The effect of adoption did not have a material impact on the Company’s consolidated financial statements and there was no adjustment to the opening balance of retained earnings at January 1, 2018. The comparative information has not been restated and continues to be reported under the accounting standards in effect for that period.
Under the new standard there was a change in the way the Company determines the unit of account for its third-party development projects. Under the previous guidance, the Company segmented revenue recognition between the development and construction phases of its contracts, recognizing each using the proportional performance method and the percentage of completion method, respectively. Under the new guidance, the entire development and construction contract represents a single performance obligation comprised of a series of distinct services to be satisfied over time, and a single transaction price to be recognized over the life of the contract using a time-based measure of progress. Any variable consideration included in the transaction price is estimated using the expected value approach and is only included to the extent that a significant revenue reversal is not likely to occur. The adoption of ASU 2014-09 resulted in differences in the timing and pattern of revenue recognition for such third-party development and construction management contracts; however, the change did not have a material impact on the Company’s consolidated financial statements. Third-party management services revenues consist of base fees earned as a result of managing all aspects of the property’s day-to-day operations, and incentive fees based on the managed property’s operating measures. There was no change in the Company’s recognition of base management fees. Incentive management fees were previously recognized when the incentive criteria had been met. Under the new guidance, incentive fees are estimated using the expected value approach and are included in the transaction price only to the extent that a significant revenue reversal is not likely to occur; however, the change did not have a material impact on the Company’s consolidated financial statements. There was no change to the Company’s revenue recognition methods for ancillary services and other non-lease related revenues as a result of the adoption of ASU 2014-09.
Rental income from leasing arrangements is specifically excluded from ASU 2014-09, and is being evaluated as part of the adoption of the lease accounting standard, ASU 2016-02, discussed above.

Accounting Standards Update 2017-05 (“ASU 2017-05”), “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”
On January 1, 2018, in conjunction with the adoption of ASU 2014-09, discussed above, the Company adopted ASU 2017-05. The purpose of this ASU is to eliminate the diversity in practice in accounting for derecognition of a nonfinancial asset and in-substance nonfinancial assets (only when the asset or asset group does not meet the definition of a business or the transaction is not a sale to a customer). The adoption of ASU 2017-05 did not have a material impact on the consolidated financial statements given the simplicity of the Company’s historical disposition transactions.
Other
In addition, on January 1, 2018, the Company adopted the following accounting pronouncements which did not have a material effect on the Company’s consolidated financial statements:

ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”
ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.”

Interim Financial Statements

The accompanying interim financial statements are unaudited, but have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all disclosures required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements of the Company for these interim periods have been included.  Because of the seasonal nature of the Company’s operations, the results of operations and cash flows for any interim period are not necessarily indicative of results for other interim periods or for the full year.  These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
 

11

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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, 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.  Actual results could differ from those estimates.
 
Investments in Real Estate
 
Investments in real estate are recorded at historical cost.  Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset.  The cost of ordinary repairs and maintenance are charged to expense when incurred.  Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:
Buildings and improvements
 
7-40 years
Leasehold interest - on-campus
   participating properties
 
25-34 years (shorter of useful life or respective lease term)
Furniture, fixtures and equipment
 
3-7 years
 
Project costs directly associated with the development and construction of an owned real estate project, which include interest, property taxes, and amortization of deferred financing costs, are capitalized as construction in progress.  Upon completion of the project, costs are transferred into the applicable asset category and depreciation commences.  Interest totaling approximately $3.0 million and $4.4 million was capitalized during the three months ended March 31, 2018 and 2017, respectively.
 
Management assesses whether there has been an impairment in the value of the Company’s investments in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Impairment is recognized when estimated expected future undiscounted cash flows are less than the carrying value of the property, or when a property meets the criteria to be classified as held for sale, at which time an impairment charge is recognized for any excess of the carrying value of the property over the expected net proceeds from the disposal.  The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions.  If such conditions change, then an adjustment to the carrying value of the Company’s long-lived assets could occur in the future period in which the conditions change.  To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings. The Company believes that there were no impairments of the carrying values of its investments in real estate as of March 31, 2018.

The Company evaluates each acquisition to determine if the integrated set of assets and activities acquired meet the definition of a business.  If either of the following criteria is met, the integrated set of assets and activities acquired would not qualify as a business:

Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or
The integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e. revenue generated before and after the transaction).

Property acquisitions deemed to qualify as a business are accounted for as business combinations, and the related acquisition costs are expensed as incurred. The Company allocates the purchase price of properties acquired in business combinations to net tangible and identified intangible assets based on their fair values.  Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, the Company’s own analysis of recently acquired and existing comparable properties in the Company’s portfolio, and other market data.  Information obtained about each property, as a result of due diligence, marketing, and leasing activities, is also considered.  The value allocated to land is generally based on the actual purchase price if acquired separately, or market research/comparables if acquired as part of an existing operating property.  The value allocated to building is based on the fair value determined on an “as-if vacant” basis, which is estimated using a replacement cost approach that relies upon assumptions that the Company believes are consistent with current market conditions for similar properties. The value allocated to furniture, fixtures, and equipment is based on an estimate of the fair value of the appliances and fixtures inside the units. The Company has determined these estimates are primarily based upon unobservable inputs and therefore are considered to be Level 3 inputs within the fair value hierarchy.

12

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Acquisitions of properties that do not meet the definition of a business are accounted for as asset acquisitions.  The accounting model for asset acquisitions is similar to the accounting model for business combinations except that the acquisition consideration (including transaction costs) is allocated to the individual assets acquired and liabilities assumed on a relative fair value basis.  The relative fair values used to allocate the cost of an asset acquisition are determined using the same methodologies and assumptions as those utilized to determine fair value in a business combination.

Long-Lived Assets–Held for Sale
 
Long-lived assets to be disposed of are classified as held for sale in the period in which all of the following criteria are met:

a.
Management, having the authority to approve the action, commits to a plan to sell the asset.

b.
The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.

c.
An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated.

d.
The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year.

e.
The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value.

f.
Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
  
Concurrent with this classification, the asset is recorded at the lower of cost or fair value less estimated selling costs, and depreciation ceases. The Company did not have any properties classified as held for sale as of March 31, 2018.

Restricted Cash
 
Restricted cash consists of funds held in trust and invested in low risk investments, generally consisting of government backed securities, as permitted by the indentures of trusts, which were established in connection with three bond issues for the Company’s on-campus participating properties.  Additionally, restricted cash includes escrow accounts held by lenders and resident security deposits, as required by law in certain states.  Restricted cash also consists of escrow deposits made in connection with potential property acquisitions and development opportunities.  These escrow deposits are invested in interest-bearing accounts at federally-insured banks.  Realized and unrealized gains and losses are not material for the periods presented.

Presale Development Projects

As part of its development strategy, the Company enters into presale agreements to purchase various properties. Under the terms of these agreements, the Company is obligated to purchase the property as long as certain construction completion deadlines and other closing conditions are met. The Company is typically responsible for leasing, management, and initial operations of the project while the third-party developer retains development risk during the construction period. The entity that owns the property is deemed to be a VIE, and the Company is deemed to be the primary beneficiary of the VIE. As such, upon execution of the purchase and sale agreement, the Company records the assets, liabilities and noncontrolling interest of the entity owning the property at fair value.

Third-Party Development Services Costs
 
Pre-development expenditures such as architectural fees, permits, and deposits associated with the pursuit of third-party and owned development projects are expensed as incurred, until such time that management believes it is probable that the contract will be executed and/or construction will commence, at which time the Company capitalizes the costs.  Because the Company frequently incurs these pre-development expenditures before a financing commitment and/or required permits and authorizations have been obtained, the Company bears the risk of loss of these pre-development expenditures if financing cannot ultimately be arranged on acceptable terms or the Company is unable to successfully obtain the required permits and authorizations.  As such, management

13

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


evaluates the status of third-party and owned projects that have not yet commenced construction on a periodic basis and expenses any deferred costs related to projects whose current status indicates the commencement of construction is unlikely and/or the costs may not provide future value to the Company in the form of revenues.  Such write-offs are included in third-party development and management services expenses (in the case of third-party development projects) or general and administrative expenses (in the case of owned development projects) on the accompanying consolidated statements of comprehensive income.  As of March 31, 2018, the Company has deferred approximately $7.3 million in pre-development costs related to third-party and owned development projects that have not yet commenced construction.  Such costs are included in other assets on the accompanying consolidated balance sheets.

 Earnings per Share – Company
 
Basic earnings per share is computed using net income attributable to common stockholders and the weighted average number of shares of the Company’s common stock outstanding during the period.  Diluted earnings per share reflects common shares issuable from the assumed conversion of American Campus Communities Operating Partnership Units (“OP Units”) and common share awards granted.  Only those items having a dilutive impact on basic earnings per share are included in diluted earnings per share.
 
The following potentially dilutive securities were outstanding for the three months ended March 31, 2018 and 2017, but were not included in the computation of diluted earnings per share because the effects of their inclusion would be anti-dilutive. 
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Common OP Units (Note 8)
 
956,936

 
1,029,131

Preferred OP Units (Note 8)
 
77,513

 
77,513

Total potentially dilutive securities
 
1,034,449

 
1,106,644


 The following is a summary of the elements used in calculating basic and diluted earnings per share:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Numerator – basic and diluted earnings per share:
 
 
 
 
Net income
 
$
26,250

 
$
34,449

Net income attributable to noncontrolling interests
 
(323
)
 
(399
)
Net income attributable to common stockholders
 
25,927

 
34,050

Amount allocated to participating securities
 
(506
)
 
(468
)
Net income attributable to common stockholders
 
$
25,421

 
$
33,582

 
 
 
 
 
Denominator:
 
 

 
 

Basic weighted average common shares outstanding
 
136,525,557

 
133,052,444

Unvested restricted stock awards (Note 9)
 
974,406

 
933,878

Diluted weighted average common shares outstanding
 
137,499,963

 
133,986,322

 
 
 
 
 
Earnings per share:
 
 
 
 
Net income attributable to common stockholders - basic
 
$
0.19

 
$
0.25

Net income attributable to common stockholders - diluted
 
$
0.18

 
$
0.25

 
 
 
Earnings per Unit – Operating Partnership

14

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


 
Basic earnings per OP Unit is computed using net income attributable to common unitholders and the weighted average number of common units outstanding during the period.  Diluted earnings per OP Unit reflects the potential dilution that could occur if securities or other contracts to issue OP Units were exercised or converted into OP Units or resulted in the issuance of OP Units and then shared in the earnings of the Operating Partnership.

The following is a summary of the elements used in calculating basic and diluted earnings per unit: 
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Numerator – basic and diluted earnings per unit:
 
 
 
 
Net income
 
$
26,250

 
$
34,449

Net loss attributable to noncontrolling interests – partially owned properties
 
(114
)
 
(105
)
Series A preferred unit distributions
 
(31
)
 
(31
)
Amount allocated to participating securities
 
(506
)
 
(468
)
Net income attributable to common unitholders
 
$
25,599

 
$
33,845

 
 
 
 
 
Denominator:
 
 

 
 

Basic weighted average common units outstanding
 
137,482,493

 
134,081,575

Unvested restricted stock awards (Note 9)
 
974,406

 
933,878

Diluted weighted average common units outstanding
 
138,456,899

 
135,015,453

Earnings per unit:
 
 
 
 
Net income attributable to common unitholders - basic
 
$
0.19

 
$
0.25

Net income attributable to common unitholders - diluted
 
$
0.18

 
$
0.25


3. Acquisitions and Joint Venture Investments
  
Land Acquisitions: During the three months ended March 31, 2017, the Company purchased two land parcels for a total purchase price of approximately $5.3 million. Total cash consideration was approximately $3.2 million. The difference between the fair value of the land and the cash consideration represents non-cash consideration. In addition, the Company made an initial investment of $9.0 million in a joint venture that holds a land parcel with fair value of $12.0 million.

Presale Development Projects: During the three months ended March 31, 2018, the Company entered into two presale agreements to purchase two properties under development. The Company is obligated to purchase the properties for approximately $107.3 million, which includes the contractual purchase price and the cost of elected upgrades, as long as the developer meets certain construction completion deadlines and other closing conditions.
Property
 
Location
 
Primary University Served
 
Project Type
 
Beds
 
Scheduled Completion
Stadium Centre Phase IV
 
Tallahassee, FL
 
Florida State University
 
Off-campus
 
340
 
August 2019
959 Franklin (1)
 
Eugene, OR
 
University of Oregon
 
Off-campus
 
443
 
September 2019
 
 
 
 
 
 

 
783
 

(1) 
As part of the presale agreement, the Company provided $15.6 million of mezzanine financing to the project.


15

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


4. Investments in Owned Properties
 
Owned properties, both wholly-owned and those owned through investments in VIEs, consisted of the following: 
 
 
March 31, 2018
 
December 31, 2017
 
 
Wholly-owned
 
VIE
 
Total
 
Wholly-owned
 
VIE
 
Total
Land (1)
 
$
586,170

 
$
65,687

 
$
651,857

 
$
586,170

 
$
60,821

 
$
646,991

Buildings and improvements
 
5,795,147

 
307,363

 
6,102,510

 
5,789,439

 
307,088

 
6,096,527

Furniture, fixtures and equipment
 
332,105

 
18,250

 
350,355

 
330,669

 
18,159

 
348,828

Construction in progress
 
387,529

 
145,647

 
533,176

 
293,542

 
99,503

 
393,045

 
 
7,100,951

 
536,947

 
7,637,898

 
6,999,820

 
485,571

 
7,485,391

Less accumulated depreciation
 
(1,044,786
)
 
(49,548
)
 
(1,094,334
)
 
(988,044
)
 
(46,983
)
 
(1,035,027
)
Owned properties, net 
 
$
6,056,165

 
$
487,399

 
$
6,543,564

 
$
6,011,776

 
$
438,588

 
$
6,450,364

(1) 
The land balance above includes undeveloped land parcels with book values of approximately $38.0 million as of March 31, 2018 and December 31, 2017.  It also includes land totaling approximately $34.7 million and $29.9 million as of March 31, 2018 and December 31, 2017, respectively, related to properties under development.

5. On-Campus Participating Properties
 
On-campus participating properties are as follows: 
 
 
 
 
 
 
Historical Cost
Lessor/University
 
Lease
Commencement
 
Required Debt
Repayment
 
March 31, 2018
 
December 31, 2017
Texas A&M University System / Prairie View A&M University (1)
 
2/1/1996
 
9/1/2023
 
$
44,563

 
$
44,364

Texas A&M University System / Texas A&M International
 
2/1/1996
 
9/1/2023
 
7,000

 
6,923

Texas A&M University System / Prairie View A&M University (2)
 
10/1/1999
 
8/31/2025
 
28,265

 
27,802

 
 
8/31/2028
 
 
University of Houston System / University of Houston (3)
 
9/27/2000
 
8/31/2035
 
36,084

 
36,062

West Virginia University System / West Virginia University
 
7/16/2013
 
7/16/2045
 
45,230

 
44,845

 
 
 
 
 
 
161,142

 
159,996

Accumulated amortization
 
 
 
 
 
(80,134
)
 
(78,192
)
On-campus participating properties, net
 
 
 
$
81,008

 
$
81,804

 
(1) 
Consists of three phases placed in service between 1996 and 1998.
(2) 
Consists of two phases placed in service in 2000 and 2003.
(3) 
Consists of two phases placed in service in 2001 and 2005.


16

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


6. Debt
 
A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows: 
 
 
March 31, 2018
 
December 31, 2017
 
Debt secured by owned properties:
 
 
 
 
 
Mortgage loans payable:
 
 
 
 
 
Unpaid principal balance
 
$
484,425

 
$
496,557

 
Unamortized deferred financing costs
 
(1,957
)
 
(2,144
)
 
Unamortized debt premiums
 
17,484

 
19,006

 
 
 
499,952

 
513,419

 
Construction loans payable (1)
 
84,746

 
51,780

 
Unamortized deferred financing costs
 
(1,650
)
 
(888
)
 
 
 
583,048

 
564,311

 
Debt secured by on-campus participating properties:
 
 

 
 

 
Mortgage loans payable (2)
 
69,285

 
69,776

 
Bonds payable
 
30,575

 
30,575

 
Unamortized deferred financing costs
 
(613
)
 
(642
)
 
 
 
99,247

 
99,709

 
Total secured mortgage, construction and bond debt
 
682,295

 
664,020

 
Unsecured notes, net of unamortized OID and deferred financing costs (3)
 
1,586,501

 
1,585,855

 
Unsecured term loans, net of unamortized deferred financing costs (4)
 
647,414

 
647,044

 
Unsecured revolving credit facility
 
218,000

 
127,600

 
Total debt, net
 
$
3,134,210

 
$
3,024,519

 
 
(1) 
Construction loans payable relates to construction loans partially financing the development of six presale development projects. These properties are owned by entities determined to be VIEs for which the Company is the primary beneficiary. The creditors of these construction loans do not have recourse to the assets of the Company.
(2) 
Mortgage loans payable related to on-campus participating properties do not have recourse to the assets of the Company.
(3) 
Includes net unamortized original issue discount (“OID”) of $1.9 million at March 31, 2018 and December 31, 2017, and net unamortized deferred financing costs of $11.6 million and $12.2 million at March 31, 2018 and December 31, 2017, respectively.
(4) 
Includes net unamortized deferred financing costs of $2.6 million and $3.0 million at March 31, 2018 and December 31, 2017, respectively.

Mortgage and Construction Loans Payable     

During the three months ended March 31, 2018, the Company paid off approximately $10.4 million of fixed rate mortgage debt secured by one owned property. During the three months ended March 31, 2017, the Company did not pay off any fixed rate mortgage debt.

In May 2017, the lender of the non-recourse mortgage loan secured by Blanton Common, a property located near Valdosta State University which was inherited as part of the GMH student housing transaction in 2008, sent a formal notice of default and initiated foreclosure proceedings. The property generated insufficient cash flow to cover the debt service on the mortgage, which had a balance of $27.4 million at default and a contractual maturity date of August 2017.  In May 2017, the lender began receiving the net operating cash flows of the property each month in lieu of scheduled monthly mortgage payments. In August 2017, the property transferred to receivership and a third-party manager began managing the property on behalf of the lender. As of March 31, 2018, the Company was cooperating with the lender to allow for a consensual foreclosure process upon which the property will be surrendered to the lender in satisfaction of the mortgage loan. In June 2017, the Company recorded an impairment charge for this property of $15.3 million.



17

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Unsecured Notes
 
The Company has issued the following senior unsecured notes:
Date Issued
 
Amount
 
% of Par Value
 
Coupon
 
Yield
 
Original Issue Discount
 
Term (Years)
April 2013
 
$
400,000

 
99.659
 
3.750
%
 
3.791
%
 
$
1,364

 
10
June 2014
 
400,000

 
99.861
 
4.125
%
 
4.269
%
(1) 
556

 
10
September 2015
 
400,000

 
99.811
 
3.350
%
 
3.391
%
 
756

 
5
October 2017
 
400,000

 
99.912
 
3.625
%
 
3.635
%
 
352

 
10
 
 
$
1,600,000

 
 
 
 
 
 
 
$
3,028

 
 
(1) 
The yield includes the effect of the amortization of interest rate swap terminations (see Note 10).

The notes are fully and unconditionally guaranteed by the Company.  Interest on the notes is payable semi-annually. The terms of the unsecured notes include certain financial covenants that require the Operating Partnership to limit the amount of total debt and secured debt as a percentage of total asset value, as defined.  In addition, the Operating Partnership must maintain a minimum ratio of unencumbered asset value to unsecured debt, as well as a minimum interest coverage level. As of March 31, 2018, the Company was in compliance with all such covenants.
  
Unsecured Revolving Credit Facility

In January 2017, the Company entered into the Fifth Amended and Restated Credit Agreement (the “Agreement”). Pursuant to the Agreement, the Company increased the size of its unsecured revolving credit facility from $500 million to $700 million, which may be expanded by up to an additional $500 million upon the satisfaction of certain conditions. In connection with the Agreement, the maturity date of the revolving credit facility was extended from March 2018 to March 2022.

The unsecured revolving credit facility bears interest at a variable rate, at the Company’s option, based upon a base rate of one-, two-, three- or six-month LIBOR, plus, in each case, a spread based upon the Company’s investment grade rating from either Moody’s Investor Services, Inc. or Standard & Poor’s Rating Group. Additionally, the Company is required to pay a facility fee of 0.20% per annum on the $700 million revolving credit facility.  As of March 31, 2018, the revolving credit facility bore interest at a weighted average annual rate of 3.00% (1.80% + 1.00% spread + 0.20% facility fee), and availability under the revolving credit facility totaled $482.0 million.

The terms of the unsecured credit facility include certain restrictions and covenants, which limit, among other items, the incurrence of additional indebtedness and liens.  The facility contains customary affirmative and negative covenants and also contains financial covenants that, among other things, require the Company to maintain certain maximum leverage ratios and minimum ratios of “EBITDA” (earnings before interest, taxes, depreciation and amortization) to fixed charges.  The financial covenants also include a minimum asset value requirement, a maximum secured debt ratio, and a minimum unsecured debt service coverage ratio.  As of March 31, 2018, the Company was in compliance with all such covenants.

Unsecured Term Loans

The Company has a $150 million unsecured term loan (“Term Loan I Facility”) which has an accordion feature that allows the Company to expand the amount by up to an additional $50 million, subject to the satisfaction of certain conditions. The maturity date of the Term Loan I Facility is March 2021. The weighted average annual rate on the Term Loan I Facility was 2.77% (1.67% + 1.10% spread) at March 31, 2018

In June 2017, the Company entered into an Unsecured Term Loan Credit Agreement (the “Term Loan II Facility”) totaling $200 million. The maturity date of the Term Loan II Facility is June 2022. The agreement has an accordion feature that allows the Company to expand the amount by up to an additional $100 million, subject to the satisfaction of certain conditions. The weighted average annual rate on the Term Loan II Facility was 2.77% (1.67% + 1.10% spread), at March 31, 2018.

In September 2017, the Company entered into an Unsecured Term Loan Credit Agreement (“Term Loan III Facility”) totaling $300 million. The maturity date of the Term Loan III Facility is September 2018, and can be extended for two one-year periods

18

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


at the Company’s option, subject to the satisfaction of certain conditions. The agreement has an accordion feature that allows the Company to expand the amount by up to an additional $100 million, subject to the satisfaction of certain conditions. The weighted average annual rate on this term loan was 2.77% (1.67% + 1.10% spread) at March 31, 2018.
The terms of the term loan facilities described above include certain restrictions and covenants consistent with those of the unsecured revolving credit facility discussed above. As of March 31, 2018, the Company was in compliance with all such covenants.

7. Stockholders’ Equity / Partners’ Capital
 
Stockholders’ Equity - Company

In June 2015, the Company established an at-the-market share offering program (the “ATM Equity Program”) through which the Company may issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $500 million.  Actual sales under the program will depend on a variety of factors, including, but not limited to, market conditions, the trading price of the Company’s common stock and determinations of the appropriate sources of funding for the Company.  

There was no activity under the Company’s ATM Equity Program during the three months ended March 31, 2018.  The following table presents activity under the Company’s ATM Equity Program during the three months ended March 31, 2017:
 
Three Months Ended 
 March 31, 2017
Total net proceeds
 
$
62,658

Commissions paid to sales agents
 
$
795

Weighted average price per share
 
$
49.70

Shares of common stock sold
 
1,276,721


As of March 31, 2018, the Company had approximately $233.0 million available for issuance under its ATM Equity Program.

In 2015, the Company established a Non-Qualified Deferred Compensation Plan (“Deferred Compensation Plan”) maintained for the benefit of certain employees and members of the Company’s Board of Directors, in which vested share awards (see Note 9), salary and other cash amounts earned may be deposited. Deferred Compensation Plan assets are held in a rabbi trust, which is subject to the claims of the Company’s creditors in the event of bankruptcy or insolvency. The shares held in the Deferred Compensation Plan are classified within stockholders’ equity in a manner similar to the manner in which treasury stock is classified. Subsequent changes in the fair value of the shares are not recognized. During the three months ended March 31, 20185,971 and 7,131 shares of vested restricted stock awards (“RSAs”) were deposited into and withdrawn from the Deferred Compensation Plan, respectively. As of March 31, 2017, 62,618 shares of ACC’s common stock were held in the Deferred Compensation Plan.

Partners’ Capital – Operating Partnership
 
In connection with the issuance of common shares under the ATM Equity Program discussed above, ACCOP issued a number of Common OP Units to ACC equivalent to the number of common shares issued by ACC.


19

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


8. Noncontrolling Interests

Interests in Consolidated Real Estate Joint Ventures and Presale Arrangements

Noncontrolling interests - partially owned properties: As of March 31, 2018, the Operating Partnership consolidates three joint ventures that own and operate three owned off-campus properties. Additionally, the Company has entered into three presale agreements to purchase three in-process development properties. The portion of net assets attributable to the third-party partners in these arrangements is classified as “noncontrolling interests - partially owned properties” within equity and capital on the accompanying consolidated balance sheets of ACC and the Operating Partnership, respectively.

Redeemable noncontrolling interests (ACC) / redeemable limited partners (Operating Partnership): As part of an agreement to acquire a portfolio of seven student housing properties from affiliates of Core Spaces and DRW Real Estate Investments (the “Core Transaction”), the Company entered into two joint ventures (the “Core Joint Ventures”) in the third quarter of 2017. The Company is consolidating these joint ventures and the noncontrolling interest holder in each of these consolidated joint ventures has the option to redeem its noncontrolling interest in the entities through the exercise of put options. The options will be exercisable in the third and fourth quarter of 2019, and the redemption price is based on the fair value of the properties at the time of option exercise. As the exercise of the options is outside of the Company’s control, the portion of net assets attributable to the third-party partner in each of the Core Joint Ventures is classified as “redeemable noncontrolling interests” and “redeemable limited partners” in the mezzanine section of the accompanying consolidated balance sheets of ACC and the Operating Partnership, respectively. During the three months ended March 31, 2018, there were no changes in the redemption value of redeemable noncontrolling interests that resulted from a change in the fair value of the net assets held by the Core Joint Ventures.

The third-party partners’ share of the income or loss of the joint ventures described above is calculated based on the partners’ economic interest in the joint ventures and is included in “net income attributable to noncontrolling interests” on the consolidated statements of comprehensive income of ACC, and is reported as “net income attributable to noncontrolling interests - partially owned properties” on the consolidated statements of comprehensive income of the Operating Partnership.

Operating Partnership Ownership

Also included in redeemable noncontrolling interests (ACC) / redeemable limited partners (Operating Partnership) are OP Units for which the Operating Partnership is required, either by contract or securities law, to deliver registered common shares of ACC to the exchanging OP unit holder, or for which the Operating Partnership has the intent or history of exchanging such units for cash. The units classified as such include Series A Preferred Units (“Preferred OP Units”) as well as Common OP Units. The value of redeemable noncontrolling interests (ACC) / redeemable limited partners (Operating Partnership) related to OP Units on the accompanying consolidated balance sheets is reported at the greater of fair value, which is based on the closing market value of the Company’s common stock at period end, or historical cost at the end of each reporting period. The OP Unitholders’ share of the income or loss of the Company is included in “net income attributable to noncontrolling interests” on the consolidated statements of comprehensive income of ACC.

As of March 31, 2018 and December 31, 2017, respectively, approximately 0.7% and 0.8% of the equity interests of the Operating Partnership were held by owners of Common OP Units and Preferred OP Units not held by ACC or ACC Holdings. During the three months ended March 31, 2018, 68,448 Common OP Units were converted into an equal number of shares of ACC’s common stock. During the year ended December 31, 2017, 22,000 Common OP Units were converted into an equal number of shares of ACC’s common stock.

Below is a table summarizing the activity of redeemable noncontrolling interests (ACC) / redeemable limited partners (Operating Partnership) for the three months ended March 31, 2018, which includes both the redeemable joint venture partners and OP Units discussed above: 
Balance, December 31, 2017
$
132,169

Net income
210

Distributions, net of contributions
(376
)
Conversion of OP Units into shares of ACC common stock
(478
)
Adjustments to reflect OP Units at fair value
(4,526
)
Balance, March 31, 2018
$
126,999

 

20

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


9. Incentive Award Plan

Restricted Stock Units (“RSUs”)

The Company appointed a new member to the Board of Directors in March 2018, and granted RSUs valued at $115,000. A compensation charge of approximately $0.1 million was recorded during the three months ended March 31, 2018 related to this award.

A summary of ACC’s RSUs under the American Campus Communities, Inc. 2010 Incentive Award Plan (the “Plan”) as of March 31, 2018 and activity during the three months then ended is presented below:
 
Number of RSUs
Outstanding at December 31, 2017

Granted
3,040

Settled in common shares
(3,040
)
Settled in cash

Outstanding at March 31, 2018


Restricted Stock Awards (“RSAs”)
 
A summary of RSAs under the Plan as of March 31, 2018 and activity during the three months then ended, is presented below:
 
Number of RSAs
Nonvested balance at December 31, 2017
810,870

Granted
352,404

Vested(1)
(240,845
)
Forfeited
(14,117
)
Nonvested balance at March 31, 2018
908,312

(1) Includes shares withheld to satisfy tax obligations upon vesting.
 
The fair value of RSAs is calculated based on the closing market value of ACC’s common stock on the date of grant.  The fair value of these awards is amortized to expense over the vesting periods. Amortization expense for the three months ended March 31, 2018 and 2017 amounted to approximately $3.3 million and $4.3 million, respectively.
 
10. Derivative Instruments and Hedging Activities
 
The Company is exposed to certain risks arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities.  The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.


21

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Cash Flow Hedges of Interest Rate Risk
 
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.  To accomplish this objective, the Company primarily uses interest rate swaps and forward starting swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  Forward starting swaps are used to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on a forecasted issuance of debt. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in other comprehensive income (outside of earnings) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. Ineffectiveness resulting from the derivative instruments was immaterial for both the three month periods ended March 31, 2018 and 2017. As of March 31, 2018, the Company had outstanding interest rate swap contracts with a notional amount of approximately $97.3 million. The fair value of such interest rate swap contracts was immaterial as of both March 31, 2018 and December 31, 2017.

11Fair Value Disclosures

Financial Instruments Carried at Fair Value

The following table presents information about the Company’s financial instruments measured at fair value on a recurring basis as of March 31, 2018