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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, 2019.   
 
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 LP)
 
AMERICAN CAMPUS COMMUNITIES, INC.
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP
(Exact name of registrant as specified in its charter)
 
 Maryland (American Campus Communities, Inc.)
Maryland (American Campus Communities Operating
Partnership LP)
 
 76-0753089 (American Campus Communities, Inc.)
56-2473181 (American Campus Communities Operating
Partnership LP)
 (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 LP
Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
American Campus Communities, Inc.
Yes x  No o
American Campus Communities Operating Partnership LP
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
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 LP
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 LP
Yes o  No x

Securities registered pursuant to Section 12(b) of the Act:                                                                                   
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common stock, par value $.01 per share
ACC
New York Stock Exchange

There were 137,260,121 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 26, 2019.
 



EXPLANATORY NOTE
 
This report combines the reports on Form 10-Q for the quarterly period ended March 31, 2019 of American Campus Communities, Inc. and American Campus Communities Operating Partnership LP.  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 LP, 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:
397780260_companyflowchart3312019.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, 2019, 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, 2019, ACC owned an approximate 99.5% 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, 2019
 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, 2019 (unaudited) and December 31, 2018
 
 
 
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018 (all unaudited)
 
 
 
 
Consolidated Statements of Changes in Equity for the three months ended March 31, 2019 and 2018 (all unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (all unaudited)
 
 
 
 
Consolidated Financial Statements of American Campus Communities Operating Partnership LP and Subsidiaries:
 
 
 
 
 
Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018
 
 
 
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018 (all unaudited)
 
 
 
 
Consolidated Statements of Changes in Capital for the three months ended March 31, 2019 and 2018 (all unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (all unaudited)
 
 
 
 
Notes to Consolidated Financial Statements of American Campus Communities, Inc. and Subsidiaries and American Campus Communities Operating Partnership LP 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, 2019
 
December 31, 2018
 
 
(Unaudited)
 
 
Assets
 
 
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
Owned properties, net
 
$
6,606,019

 
$
6,583,397

Owned property held for sale
 
9,258

 

On-campus participating properties, net
 
78,870

 
77,637

Investments in real estate, net
 
6,694,147

 
6,661,034

 
 
 
 
 
Cash and cash equivalents
 
46,166

 
71,238

Restricted cash
 
33,689

 
35,279

Student contracts receivable
 
14,056

 
8,565

Other assets
 
537,390

 
262,730

 
 
 
 
 
Total assets
 
$
7,325,448

 
$
7,038,846

 
 
 
 
 
Liabilities and equity
 
 

 
 

 
 
 
 
 
Liabilities:
 
 

 
 

Secured mortgage, construction and bond debt, net
 
$
864,070

 
$
853,084

Unsecured notes, net
 
1,589,096

 
1,588,446

Unsecured term loans, net
 
198,857

 
198,769

Unsecured revolving credit facility
 
457,400

 
387,300

Accounts payable and accrued expenses
 
58,439

 
88,767

Operating lease liabilities
 
282,550

 

Other liabilities
 
185,234

 
191,233

Total liabilities
 
3,635,646

 
3,307,599

 
 
 
 
 
Commitments and contingencies (Note 12)
 


 


 
 
 
 
 
Redeemable noncontrolling interests
 
186,695

 
184,446

 
 
 
 
 
Equity:
 
 

 
 

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

 
 

Common stock, $0.01 par value, 800,000,000 shares authorized, 137,188,689 and 136,967,286 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
 
1,370

 
1,370

Additional paid in capital
 
4,455,948

 
4,458,240

Common stock held in rabbi trust, 71,432 and 69,603 shares at March 31, 2019 and December 31, 2018, respectively
 
(3,162
)
 
(3,092
)
Accumulated earnings and dividends
 
(1,005,041
)
 
(971,070
)
Accumulated other comprehensive loss
 
(10,191
)
 
(4,397
)
Total American Campus Communities, Inc. and Subsidiaries stockholders’ equity
 
3,438,924

 
3,481,051

Noncontrolling interests - partially owned properties
 
64,183

 
65,750

Total equity
 
3,503,107

 
3,546,801

 
 
 
 
 
Total liabilities and equity
 
$
7,325,448

 
$
7,038,846

 
 
 
 
 
Consolidated variable interest entities’ assets and debt included in the above balances:
 
 
 
 
 
Investments in real estate, net
 
$
1,056,632

 
$
1,042,585

Cash, cash equivalents and restricted cash
 
$
52,282

 
$
72,218

Other assets
 
$
17,747

 
$
11,918

Secured mortgage and construction debt, net
 
$
465,744

 
$
447,292

Accounts payable, accrued expenses and other liabilities
 
$
47,981

 
$
53,432


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,
 
 
2019
 
2018
Revenues:
 
 
 
 
Owned properties
 
$
224,419

 
$
205,532

On-campus participating properties
 
11,448

 
10,443

Third-party development services
 
3,171

 
846

Third-party management services
 
2,311

 
2,731

Resident services
 
782

 
857

Total revenues
 
242,131

 
220,409

 
 
 
 
 
Operating expenses:
 
 

 
 

Owned properties
 
92,169

 
88,060

On-campus participating properties
 
3,957

 
3,425

Third-party development and management services
 
4,186

 
4,198

General and administrative
 
7,315

 
6,699

Depreciation and amortization
 
68,755

 
64,779

Ground/facility leases
 
3,549

 
2,842

Provision for real estate impairment
 
3,201

 

Total operating expenses
 
183,132

 
170,003

 
 
 
 
 
Operating income
 
58,999

 
50,406

 
 
 
 
 
Nonoperating income (expenses):
 
 

 
 

Interest income
 
926

 
1,223

Interest expense
 
(27,061
)
 
(23,684
)
Amortization of deferred financing costs
 
(1,132
)
 
(1,414
)
Total nonoperating expenses
 
(27,267
)
 
(23,875
)
 
 
 
 
 
Income before income taxes
 
31,732

 
26,531

Income tax provision
 
(364
)
 
(281
)
Net income
 
31,368

 
26,250

Net income attributable to noncontrolling interests
 
(1,728
)
 
(323
)
Net income attributable to ACC, Inc. and Subsidiaries common stockholders
 
$
29,640

 
$
25,927

 
 
 
 
 
Other comprehensive (loss) income
 
 

 
 

  Change in fair value of interest rate swaps and other
 
(5,794
)
 
465

Comprehensive income
 
$
23,846

 
$
26,392

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

 
 

Basic
 
$
0.21

 
$
0.19

Diluted
 
$
0.21

 
$
0.18

 
 
 
 
 
Weighted-average common shares outstanding:
 
 

 
 

Basic
 
137,101,535

 
136,525,557

Diluted
 
138,152,378

 
137,499,963

 

See accompanying notes to consolidated financial statements.

2

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 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, 2018
 
136,967,286

 
$
1,370

 
$
4,458,240

 
69,603

 
$
(3,092
)
 
$
(971,070
)
 
$
(4,397
)
 
$
65,750

 
$
3,546,801

Adjustments to reflect redeemable noncontrolling interests at fair value
 

 

 
(2,547
)
 

 

 

 

 

 
(2,547
)
Amortization of restricted stock awards and vesting of restricted stock units
 

 

 
3,765

 

 

 

 

 

 
3,765

Vesting of restricted stock awards
 
180,961

 

 
(3,831
)
 
 
 
 
 

 

 

 
(3,831
)
Distributions to common and restricted stockholders and other ($0.46 per common share)
 

 

 

 

 

 
(63,611
)
 

 

 
(63,611
)
Contributions by noncontrolling interests - partially owned properties
 

 

 

 

 

 

 
 
 
625

 
625

Distributions to noncontrolling interests - partially owned properties
 

 

 

 

 

 

 

 
(3,661
)
 
(3,661
)
Conversion of common and preferred operating partnership units to common stock
 
42,271

 

 
251

 

 

 

 

 

 
251

Change in fair value of interest rate swaps and other
 

 

 

 

 

 

 
(5,794
)
 

 
(5,794
)
Deposits to deferred compensation plan, net of withdrawals
 
(1,829
)
 

 
70

 
1,829

 
(70
)
 

 

 

 

Net income
 

 

 

 

 

 
29,640

 

 
1,469

 
31,109

Equity, March 31, 2019
 
137,188,689


$
1,370


$
4,455,948

 
71,432

 
$
(3,162
)

$
(1,005,041
)

$
(10,191
)

$
64,183


$
3,503,107


 

See accompanying notes to consolidated financial statements.

3

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 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 and other ($0.44 per common share)
 

 

 

 

 

 
(60,564
)
 

 

 
(60,564
)
Contributions by noncontrolling interests - partially owned properties
 

 

 

 

 

 

 

 
9,515

 
9,515

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

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.

4

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


 
 
Three Months Ended March 31,
 
 
2019
 
2018
Operating activities
 
 
 
 
   Net income
 
$
31,368

 
$
26,250

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

 
 

   Provision for real estate impairment
 
3,201

 

   Depreciation and amortization
 
68,755

 
64,779

   Amortization of deferred financing costs and debt premiums/discounts
 
(19
)
 
(16
)
   Share-based compensation
 
3,765

 
3,443

   Income tax provision
 
364

 
281

   Amortization of interest rate swap terminations and other
 
102

 
102

   Changes in operating assets and liabilities:
 


 


   Student contracts receivable
 
(5,491
)
 
(556
)
   Other assets
 
(7,723
)
 
2,100

   Accounts payable and accrued expenses
 
(30,595
)
 
(1,088
)
   Other liabilities
 
16,885

 
12,845

Net cash provided by operating activities
 
80,612

 
108,140

 
 
 
 
 
Investing activities
 
 

 
 

   Capital expenditures for owned properties
 
(10,751
)
 
(11,338
)
   Investments in owned properties under development
 
(104,768
)
 
(122,912
)
   Capital expenditures for on-campus participating properties
 
(230
)
 
(1,146
)
   Other investing activities
 
(1,123
)
 
(1,314
)
Net cash used in investing activities
 
(116,872
)
 
(136,710
)
 
 
 
 
 
Financing activities
 
 

 
 

   Pay-off of mortgage and construction loans
 

 
(10,375
)
   Proceeds from revolving credit facility
 
180,600

 
234,900

   Paydowns of revolving credit facility
 
(110,500
)
 
(144,500
)
   Proceeds from construction loans
 
14,174

 
32,966

   Scheduled principal payments on debt
 
(2,040
)
 
(2,248
)
   Debt issuance and assumption costs
 
(1,853
)
 

   Contribution by noncontrolling interests
 
625

 
854

   Taxes paid on net-share settlements
 
(3,831
)
 
(2,757
)
   Distributions paid to common and restricted stockholders
 
(63,611
)
 
(60,564
)
   Distributions paid to noncontrolling interests
 
(3,966
)
 
(491
)
Net cash provided by financing activities
 
9,598

 
47,785

 
 
 
 
 
Net change in cash, cash equivalents, and restricted cash
 
(26,662
)
 
19,215

Cash, cash equivalents, and restricted cash at beginning of period
 
106,517

 
64,772

Cash, cash equivalents, and restricted cash at end of period
 
$
79,855

 
$
83,987

 
 
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
 
 
 
 
Cash and cash equivalents
 
$
46,166

 
$
55,502

Restricted cash
 
33,689

 
28,485

Total cash, cash equivalents, and restricted cash at end of period
 
$
79,855

 
$
83,987

 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 

 
 

Conversion of common and preferred operating partnership units to
common stock
 
$
251

 
$
478

Non-cash contribution from noncontrolling interest
 
$

 
$
8,729

Change in accrued construction in progress
 
$
(13,915
)
 
$
12,118

Change in fair value of derivative instruments, net
 
$
(5,896
)
 
$
363

Adjustment to reflect redeemable noncontrolling interests at fair value
 
$
(2,547
)
 
$
4,526

Initial recognition of operating lease right of use assets
 
$
280,687

 
$

Initial recognition of operating lease liabilities
 
$
279,982

 
$

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Interest paid
 
$
20,912

 
$
17,911

 

See accompanying notes to consolidated financial statements.

5

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


 
 
March 31, 2019
 
December 31, 2018
 
 
(Unaudited)
 
 
Assets
 
 
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
Owned properties, net
 
$
6,606,019

 
$
6,583,397

Owned property held for sale
 
9,258

 

On-campus participating properties, net
 
78,870

 
77,637

Investments in real estate, net
 
6,694,147

 
6,661,034

 
 
 
 
 
Cash and cash equivalents
 
46,166

 
71,238

Restricted cash
 
33,689

 
35,279

Student contracts receivable
 
14,056

 
8,565

Other assets
 
537,390

 
262,730

 
 
 
 
 
Total assets
 
$
7,325,448

 
$
7,038,846

 
 
 
 
 
Liabilities and capital
 
 

 
 

 
 
 
 
 
Liabilities:
 
 

 
 

Secured mortgage, construction and bond debt, net
 
$
864,070

 
$
853,084

Unsecured notes, net
 
1,589,096

 
1,588,446

Unsecured term loans, net
 
198,857

 
198,769

Unsecured revolving credit facility
 
457,400

 
387,300

Accounts payable and accrued expenses
 
58,439

 
88,767

Operating lease liabilities
 
282,550

 

Other liabilities
 
185,234

 
191,233

Total liabilities
 
3,635,646

 
3,307,599

 
 
 
 
 
Commitments and contingencies (Note 12)
 


 


 
 
 
 
 
Redeemable limited partners
 
186,695

 
184,446

 
 
 
 
 
Capital:
 
 

 
 

Partners’ capital:
 
 

 
 

General partner - 12,222 OP units outstanding at both March 31, 2019 and December 31, 2018
 
52

 
55

Limited partner - 137,247,899 and 137,024,667 OP units outstanding at March 31, 2019 and December 31, 2018, respectively
 
3,449,063

 
3,485,393

Accumulated other comprehensive loss
 
(10,191
)
 
(4,397
)
Total partners’ capital
 
3,438,924

 
3,481,051

Noncontrolling interests - partially owned properties
 
64,183

 
65,750

Total capital
 
3,503,107

 
3,546,801

 
 
 
 
 
Total liabilities and capital
 
$
7,325,448

 
$
7,038,846

 
 
 
 
 
 
Consolidated variable interest entities’ assets and debt included in the above balances:
 
 
 
 
 
Investments in real estate, net
 
$
1,056,632

 
$
1,042,585

Cash, cash equivalents and restricted cash
 
$
52,282

 
$
72,218

Other assets
 
$
17,747

 
$
11,918

Secured mortgage and construction debt, net
 
$
465,744

 
$
447,292

Accounts payable, accrued expenses and other liabilities
 
$
47,981

 
$
53,432



See accompanying notes to consolidated financial statements.

6

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


 
 
Three Months Ended 
 March 31,
 
 
2019
 
2018
Revenues:
 
 
 
 
Owned properties
 
$
224,419

 
$
205,532

On-campus participating properties
 
11,448

 
10,443

Third-party development services
 
3,171

 
846

Third-party management services
 
2,311

 
2,731

Resident services
 
782

 
857

Total revenues
 
242,131

 
220,409

 
 
 
 
 
Operating expenses:
 
 

 
 

Owned properties
 
92,169

 
88,060

On-campus participating properties
 
3,957

 
3,425

Third-party development and management services
 
4,186

 
4,198

General and administrative
 
7,315

 
6,699

Depreciation and amortization
 
68,755

 
64,779

Ground/facility leases
 
3,549

 
2,842

Provision for real estate impairment
 
3,201

 

Total operating expenses
 
183,132

 
170,003

 
 
 
 
 
Operating income
 
58,999

 
50,406

 
 
 
 
 
Nonoperating income (expenses):
 
 

 
 

Interest income
 
926

 
1,223

Interest expense
 
(27,061
)
 
(23,684
)
Amortization of deferred financing costs
 
(1,132
)
 
(1,414
)
Total nonoperating expenses
 
(27,267
)
 
(23,875
)
Income before income taxes
 
31,732

 
26,531

Income tax provision
 
(364
)
 
(281
)
Net income
 
31,368

 
26,250

Net income attributable to noncontrolling interests – partially owned properties
 
(1,568
)
 
(114
)
Net income attributable to American Campus Communities Operating Partnership LP
 
29,800

 
26,136

Series A preferred units distributions
 
(31
)
 
(31
)
Net income attributable to common unitholders
 
$
29,769

 
$
26,105

 
 
 
 
 
Other comprehensive (loss) income
 
 

 
 

  Change in fair value of interest rate swaps and other
 
(5,794
)
 
465

Comprehensive income
 
$
23,975

 
$
26,570

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

 
 

Basic
 
$
0.21

 
$
0.19

Diluted
 
$
0.21

 
$
0.18

 
 
 
 
 
Weighted-average common units outstanding
 
 

 
 

Basic
 
137,696,323

 
137,482,493

Diluted
 
138,747,166

 
138,456,899

 

See accompanying notes to consolidated financial statements.

7

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 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, 2018
 
12,222

 
$
55

 
137,024,667

 
$
3,485,393

 
$
(4,397
)
 
$
65,750

 
$
3,546,801

Adjustments to reflect redeemable limited partners’ interest at fair value
 

 

 

 
(2,547
)
 

 

 
(2,547
)
Amortization of restricted stock awards and vesting of restricted stock units
 

 

 

 
3,765

 

 

 
3,765

Vesting of restricted stock awards
 

 

 
180,961

 
(3,831
)
 

 

 
(3,831
)
Distributions to common and restricted unit holders and other ($0.46 per common unit)
 

 
(6
)
 

 
(63,605
)
 

 

 
(63,611
)
Contribution by noncontrolling interests - partially owned properties
 

 

 

 

 

 
625

 
625

Distributions to noncontrolling joint venture partners
 

 

 

 

 

 
(3,661
)
 
(3,661
)
Conversion of common and preferred operating partnership units to common stock
 

 

 
42,271

 
251

 

 

 
251

Change in fair value of interest rate swaps and other
 

 

 

 

 
(5,794
)
 

 
(5,794
)
Net income
 

 
3

 

 
29,637

 

 
1,469

 
31,109

Capital, March 31, 2019
 
12,222

 
$
52

 
137,247,899

 
$
3,449,063

 
$
(10,191
)
 
$
64,183

 
$
3,503,107

























See accompanying notes to consolidated financial statements.

8

AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 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 to common and restricted unit holders and other ($0.44 per common unit)
 

 
(5
)
 

 
(60,559
)
 

 

 
(60,564
)
Contribution by noncontrolling interests - partially owned properties
 

 

 

 

 

 
9,515

 
9,515

Distributions to noncontrolling joint venture partners
 

 

 

 

 

 
(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

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.

9

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


 
 
Three Months Ended March 31,
 
 
2019
 
2018
Operating activities
 
 
 
 
Net income
 
$
31,368

 
$
26,250

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

 
 

   Provision for real estate impairment
 
3,201

 

   Depreciation and amortization
 
68,755

 
64,779

   Amortization of deferred financing costs and debt premiums/discounts
 
(19
)
 
(16
)
   Share-based compensation
 
3,765

 
3,443

   Income tax provision
 
364

 
281

   Amortization of interest rate swap terminations and other
 
102

 
102

   Changes in operating assets and liabilities:
 
 
 
 
   Student contracts receivable
 
(5,491
)
 
(556
)
   Other assets
 
(7,723
)
 
2,100

   Accounts payable and accrued expenses
 
(30,595
)
 
(1,088
)
   Other liabilities
 
16,885

 
12,845

Net cash provided by operating activities
 
80,612

 
108,140

 
 
 
 
 
Investing activities
 
 

 
 

   Capital expenditures for owned properties
 
(10,751
)
 
(11,338
)
   Investments in owned properties under development
 
(104,768
)
 
(122,912
)
   Capital expenditures for on-campus participating properties
 
(230
)
 
(1,146
)
   Other investing activities
 
(1,123
)
 
(1,314
)
Net cash used in investing activities
 
(116,872
)
 
(136,710
)
 
 
 
 
 
Financing activities
 
 

 
 

   Pay-off of mortgage and construction loans
 

 
(10,375
)
   Proceeds from revolving credit facility
 
180,600

 
234,900

   Paydowns of revolving credit facility
 
(110,500
)
 
(144,500
)
   Proceeds from construction loans
 
14,174

 
32,966

   Scheduled principal payments on debt
 
(2,040
)
 
(2,248
)
   Debt issuance and assumption costs
 
(1,853
)
 

   Contribution by noncontrolling interests
 
625

 
854

   Taxes paid on net-share settlements
 
(3,831
)
 
(2,757
)
   Distributions paid to common and preferred unitholders
 
(63,343
)
 
(60,502
)
   Distributions paid on unvested restricted stock awards
 
(573
)
 
(506
)
   Distributions paid to noncontrolling interests - partially owned properties
 
(3,661
)
 
(47
)
Net cash provided by financing activities
 
9,598

 
47,785

 
 
 
 
 
Net change in cash, cash equivalents, and restricted cash
 
(26,662
)
 
19,215

Cash, cash equivalents, and restricted cash at beginning of period
 
106,517

 
64,772

Cash, cash equivalents, and restricted cash at end of period
 
$
79,855

 
$
83,987

 
 
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
 
 
 
 
Cash and cash equivalents
 
$
46,166

 
$
55,502

Restricted cash
 
33,689

 
28,485

Total cash, cash equivalents, and restricted cash at end of period
 
$
79,855

 
$
83,987

 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 

 
 

Conversion of common and preferred operating partnership units to
common stock
 
$
251

 
$
478

Non-cash contribution from noncontrolling interest
 
$

 
$
8,729

Change in accrued construction in progress
 
$
(13,915
)
 
$
12,118

Change in fair value of derivative instruments, net
 
$
(5,896
)
 
$
363

Adjustment to reflect redeemable noncontrolling interests at fair value
 
$
(2,547
)
 
$
4,526

Initial recognition of operating lease right of use assets
 
$
280,687

 
$

Initial recognition of operating lease liabilities
 
$
279,982

 
$

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 

 
 

Interest paid
 
$
20,912

 
$
17,911

 

See accompanying notes to consolidated financial statements.

10

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP 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 LP (“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, 2019, 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, 2019, ACC owned an approximate 99.5% 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, 2019, the Company’s property portfolio contained 171 properties with approximately 109,400 beds.  The Company’s property portfolio consisted of 131 owned off-campus student housing properties that are in close proximity to colleges and universities, 34 American Campus Equity (“ACE®”) properties operated under ground/facility leases, and six on-campus participating properties operated under ground/facility leases with the related university systems.  Of the 171 properties, eight were under development as of March 31, 2019, and when completed will consist of a total of approximately 9,000 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, 2019, also through one of ACC’s TRSs, the Company provided third-party management and leasing services for 34 properties that represented approximately 24,300 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, 2019, the Company’s total owned and third-party managed portfolio included 205 properties with approximately 133,700 beds.
 
2. Summary of Significant Accounting Policies
 
Basis of Presentation and use of Estimates
 
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.


11

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
AMERICAN CAMPUS COMMUNITIES OPERATING PARTNERSHIP LP 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

The Company does not expect the following accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) to have a material effect on its consolidated financial statements:
Accounting Standards Update
 
Effective Date
 
 
 
ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract”
 
January 1, 2020
ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”
 
January 1, 2020
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
 
January 1, 2020

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-12”), “Leases (Topic 842): Amendments to the FASB Accounting Standards Codification.” ASU 2016-02 outlines principles for the recognition, measurement, presentation and disclosure of leases.  Subsequent to the issuance of ASU 2016-02, the FASB issued additional ASUs clarifying aspects of the new lease accounting standard, which are effective upon adoption of ASU 2016-02. These lease-related ASUs are collectively referred to as the “New Leases Standard.”

The Company adopted the New Leases Standard on January 1, 2019, utilizing the modified retrospective transition approach. Under this approach, the Company elected to apply the new standard to leases that were in place as of January 1, 2019. Results for reporting periods beginning January 1, 2019 are presented under the New Leases Standard.   Upon adoption, the Company did not record an adjustment to beginning retained earnings.

In addition, the Company adopted the following additional practical expedients available for implementation:

An entity need not reassess whether any existing or expired contracts are or contain leases;
An entity need not reassess lease classification for any existing or expired leases; and
An entity need not reassess initial direct costs for any existing leases.

As Lessee:

Under the New Leases Standard, lessees classify leases as either operating or finance leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized on a straight-line basis over the term of the lease (operating lease) or under the effective interest method (finance lease). In addition, the New Leases Standard requires lessees to recognize right-of-use assets and related lease liabilities for leases with a term greater than 12 months regardless of their lease classification.
Upon adoption of the New Leases Standard on January 1, 2019, the Company was a lessee under 28 ground leases and two corporate office headquarters leases for which it recorded $278.2 million in right of use assets (“ROU Assets”), which are included in other assets on the accompanying consolidated balance sheet, and $277.5 million of operating lease liabilities. 
Because the Company’s existing leases under which it is a lessee will continue to be classified as operating leases, the timing and pattern of lease expense recognition (straight-line basis) will remain unchanged. However, for any leases entered into or modified after January 1, 2019 the leases will need to be evaluated under the New Leases Standard and may be classified as finance leases depending on the terms of the transactions.

12

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



As Lessor:

Under the New Leases Standard, the accounting for lessors remained largely unchanged from current GAAP; however, ASU 2016-02 required that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. Under existing standards, these costs are capitalizable and therefore the New Leases Standard will result in certain of these costs being expensed as incurred after adoption. For the Company, these costs include internal leasing payroll costs incurred for owned and presale development projects, as well as certain legal expenses incurred when negotiating commercial leases. 
The New Leases Standard also required lessors to evaluate collectability of all operating lease payments in a contract at lease commencement and thereafter. If the operating lease payments are deemed not probable of collection, adjustments are recognized as a reduction to lease income. This resulted in the reclassification of the provision for uncollectible accounts from operating expenses to revenue. This adjustment is reflected on a prospective basis in the accompanying consolidated statements of comprehensive income, starting in the three months ended March 31, 2019. The adjustments to lease income for owned properties and on-campus participating properties were a $1.1 million reduction to income and a $0.8 million addition to income, respectively, for the three months ended March 31, 2019. 
The New Leases Standard provides a practical expedient that allows lessors to not separate certain lease and non-lease components if certain criteria are met. The Company assessed the criteria and determined that the timing and pattern of transfer for common area maintenance and the related rental revenue is the same. Therefore, the Company elected the practical expedient which resulted in no change to how revenue is currently recorded.

Other
In addition, on January 1, 2019, the Company adopted the following accounting pronouncements which did not have a material effect on the Company’s consolidated financial statements:

ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”
ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”

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, 2018.
 
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 $2.7 million and $3.0 million was capitalized during the three months ended March 31, 2019 and 2018.
 

13

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


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. In the case of any impairment, the valuation would be based on Level 3 inputs. There were no impairments of the carrying values of the Company's investments in real estate as of March 31, 2019, other than a $3.2 million impairment charge recorded on March 31, 2019 concurrent with the classification of one owned property as held for sale.

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 had one property classified as held for sale as of March 31, 2019.

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.

Consolidated VIEs

The Company has investments in various entities that qualify as VIEs for accounting purposes and for which the Company is the primary beneficiary and therefore includes the entities in its consolidated financial statements.  These VIEs include the Operating Partnership, six joint ventures that own a total of 15 operating properties, two properties subject to presale arrangements, and six properties owned under the on-campus participating property structure.  The VIE assets and liabilities consolidated within the Company's assets and liabilities are disclosed at the bottom of the 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

14

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


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, 2019 and 2018, 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,
 
 
 
2019
 
2018
 
Common OP Units (Note 7)
 
594,788

 
956,936

 
Preferred OP Units (Note 7)
 
64,361

 
77,513

 
Total potentially dilutive securities
 
659,149

 
1,034,449

 

 The following is a summary of the elements used in calculating basic and diluted earnings per share:
 
 
Three Months Ended 
 March 31,
 
 
2019
 
2018
Numerator – basic and diluted earnings per share:
 
 
 
 
Net income
 
$
31,368

 
$
26,250

Net income attributable to noncontrolling interests
 
(1,728
)
 
(323
)
Net income attributable to common stockholders
 
29,640

 
25,927

Amount allocated to participating securities
 
(573
)
 
(506
)
Net income attributable to common stockholders
 
$
29,067

 
$
25,421

 
 
 
 
 
Denominator:
 
 

 
 

Basic weighted average common shares outstanding
 
137,101,535

 
136,525,557

Unvested restricted stock awards (Note 8)
 
1,050,843

 
974,406

Diluted weighted average common shares outstanding
 
138,152,378

 
137,499,963

 
 
 
 
 
Earnings per share:
 
 
 
 
Net income attributable to common stockholders - basic
 
$
0.21

 
$
0.19

Net income attributable to common stockholders - diluted
 
$
0.21

 
$
0.18

 
 
 


15

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


Earnings per Unit – Operating Partnership
 
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,
 
 
2019
 
2018
Numerator – basic and diluted earnings per unit:
 
 
 
 
Net income
 
$
31,368

 
$
26,250

Net loss attributable to noncontrolling interests – partially owned properties
 
(1,568
)
 
(114
)
Series A preferred unit distributions
 
(31
)
 
(31
)
Amount allocated to participating securities
 
(573
)
 
(506
)
Net income attributable to common unitholders
 
$
29,196

 
$
25,599

 
 
 
 
 
Denominator:
 
 

 
 

Basic weighted average common units outstanding
 
137,696,323

 
137,482,493

Unvested restricted stock awards (Note 8)
 
1,050,843

 
974,406

Diluted weighted average common units outstanding
 
138,747,166

 
138,456,899

Earnings per unit:
 
 
 
 
Net income attributable to common unitholders - basic
 
$
0.21

 
$
0.19

Net income attributable to common unitholders - diluted
 
$
0.21

 
$
0.18


3. Acquisitions
  
Presale Development Projects: During the three months ended March 31, 2018, the Company entered into two presale agreements to purchase two properties under development that when completed will contain 783 beds. 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. As part of the presale agreement, the Company provided $15.6 million of mezzanine financing to one of the projects.

4. Investments in Owned Properties
 
Owned properties, both wholly-owned and those owned through investments in VIEs, consisted of the following: 
 
 
March 31, 2019
 
December 31, 2018
Land (1)
 
$
651,573

 
$
653,522

Buildings and improvements
 
6,471,752

 
6,486,106

Furniture, fixtures and equipment
 
371,556

 
371,429

Construction in progress
 
397,811

 
302,902

 
 
7,892,692

 
7,813,959

Less accumulated depreciation
 
(1,286,673
)
 
(1,230,562
)
Owned properties, net 
 
$
6,606,019

(2) 
$
6,583,397

(1) 
The land balance above includes undeveloped land parcels with book values of approximately $54.5 million as of both March 31, 2019 and December 31, 2018.  It also includes land totaling approximately $10.3 million as of both March 31, 2019 and December 31, 2018 related to properties under development.
(2) 
Excludes the net book value of one property classified as held for sale in the accompanying consolidated balance sheet at March 31, 2019.


16

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


5. Debt
 
A summary of the Company’s outstanding consolidated indebtedness, including unamortized debt premiums and discounts, is as follows: 
 
 
March 31, 2019
 
December 31, 2018
Debt secured by owned properties:
 
 
 
 
Mortgage loans payable:
 
 
 
 
Unpaid principal balance
 
$
725,606

 
$
727,163

Unamortized deferred financing costs
 
(1,961
)
 
(1,757
)
Unamortized debt premiums
 
10,333

 
11,579

 
 
733,978

 
736,985

Construction loans payable (1)
 
36,382

 
22,207

Unamortized deferred financing costs
 
(205
)
 
(480
)
 
 
770,155

 
758,712

Debt secured by on-campus participating properties:
 
 

 
 

Mortgage loans payable (2)
 
67,384

 
67,867

Bonds payable (2)
 
27,030

 
27,030

Unamortized deferred financing costs
 
(499
)
 
(525
)
 
 
93,915