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<TYPE>10-Q
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Section 1: 10-Q (10-Q)

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2019.

☐ 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)



(American Campus Communities, Inc.)	Maryland		76-0753089
(American Campus Communities Operating Partnership LP)	Maryland		56-2473181
	(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
	12700 Hill Country Blvd.,	Suite T-200	78738
	Austin,	TX	(Zip Code)
	(Address of Principal Executive Offices)

(512) 732-1000

Registrant’s 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	☒	No	☐



American Campus Communities Operating Partnership LP	Yes	☒	No	☐

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	☒	No	☐



American Campus Communities Operating Partnership LP	Yes	☒	No	☐

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	☒	Accelerated Filer ☐



Non-accelerated filer	☐	Smaller reporting company	☐



	Emerging growth company	☐

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. ☐

American Campus Communities Operating Partnership LP



Large accelerated filer	☐	Accelerated Filer	☐



Non-accelerated filer	☒ (Do not check if a smaller reporting company)	Smaller reporting company	☐



	Emerging growth company	☐

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	☐	No	☒



American Campus Communities Operating Partnership LP	Yes	☐	No	☒

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 137,402,359 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 July 26, 2019.

EXPLANATORY NOTE

This report combines the reports on Form 10-Q for the quarterly period ended June 30, 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:

The general partner of ACCOP is American Campus Communities Holdings, LLC (“ACC Holdings”), an entity that is wholly-owned by ACC. As of June 30, 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 June 30, 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 June 30, 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 June 30, 2019 (unaudited) and December 31, 2018	1

	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018 (all unaudited)	2

	Consolidated Statements of Changes in Equity for the three months ended March 31, 2019 and 2018 and June 30, 2019 and 2018 (all unaudited)	3

	Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (all unaudited)	5

	Consolidated Financial Statements of American Campus Communities Operating Partnership LP and Subsidiaries:

	Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018	7

	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018 (all unaudited)	8

	Consolidated Statements of Changes in Capital for the three months ended March 31, 2019 and 2018 and June 30, 2019 and 2018 (all unaudited)	9

	Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (all unaudited)	11

	Notes to Consolidated Financial Statements of American Campus Communities, Inc. and Subsidiaries and American Campus Communities Operating Partnership LP and Subsidiaries (unaudited)	13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	51

Item 4.	Controls and Procedures	51

PART II.

Item 1.	Legal Proceedings	52

Item 1A.	Risk Factors	52

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 3.	Defaults Upon Senior Securities	52

Item 4.	Mine Safety Disclosures	52

Item 5.	Other Information	52

Item 6.	Exhibits	53

SIGNATURES		54

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



	June 30, 2019			December 31, 2018
	(Unaudited)
Assets

Investments in real estate:
Owned properties, net	$	6,676,217		$	6,583,397
On-campus participating properties, net	77,390			77,637
Investments in real estate, net	6,753,607			6,661,034

Cash and cash equivalents	51,541			71,238
Restricted cash	37,185			35,279
Student contracts receivable	9,446			8,565
Other assets	531,118			262,730

Total assets	$	7,382,897		$	7,038,846

Liabilities and equity

Liabilities:
Secured mortgage, construction and bond debt, net	$	872,922		$	853,084
Unsecured notes, net	1,983,895			1,588,446
Unsecured term loans, net	198,945			198,769
Unsecured revolving credit facility	185,600			387,300
Accounts payable and accrued expenses	67,079			88,767
Operating lease liabilities	285,224			—
Other liabilities	162,437			191,233
Total liabilities	3,756,102			3,307,599

Commitments and contingencies (Note 13)

Redeemable noncontrolling interests	185,910			184,446

Equity:
American Campus Communities, Inc. and Subsidiaries stockholders’ equity:
Common stock, $0.01 par value, 800,000,000 shares authorized, 137,200,511 and 136,967,286 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	1,372			1,370
Additional paid in capital	4,460,412			4,458,240
Common stock held in rabbi trust, 75,535 and 69,603 shares at June 30, 2019 and December 31, 2018, respectively	(3,368		)	(3,092		)
Accumulated earnings and dividends	(1,059,633		)	(971,070		)
Accumulated other comprehensive loss	(18,784		)	(4,397		)
Total American Campus Communities, Inc. and Subsidiaries stockholders’ equity	3,379,999			3,481,051
Noncontrolling interests - partially owned properties	60,886			65,750
Total equity	3,440,885			3,546,801

Total liabilities and equity	$	7,382,897		$	7,038,846




Consolidated variable interest entities’ assets and debt included in the above balances:

Investments in real estate, net	$	1,061,651	$	1,042,585
Cash, cash equivalents and restricted cash	$	55,070	$	72,218
Other assets	$	18,922	$	11,918
Secured mortgage and construction debt, net	$	477,408	$	447,292
Accounts payable, accrued expenses and other liabilities	$	57,759	$	53,432

See accompanying notes to consolidated financial statements.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands, except share and per share data)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Owned properties	$	203,156		$	189,488		$	427,575		$	395,020
On-campus participating properties	6,396			6,182			17,844			16,625
Third-party development services	3,607			2,202			6,778			3,048
Third-party management services	3,465			2,452			5,776			5,183
Resident services	747			735			1,529			1,592
Total revenues	217,371			201,059			459,502			421,468

Operating expenses:
Owned properties	90,763			86,136			182,932			174,196
On-campus participating properties	3,806			3,730			7,763			7,155
Third-party development and management services	4,513			3,544			8,699			7,742
General and administrative	8,115			13,173			15,430			19,872
Depreciation and amortization	68,815			63,537			137,570			128,316
Ground/facility leases	3,236			2,733			6,785			5,575
Loss (gain) from disposition of real estate	282			(42,314		)	282			(42,314		)
Provision for real estate impairment	—			—			3,201			—
Other operating income	—			(2,648		)	—			(2,648		)
Total operating expenses	179,530			127,891			362,662			297,894

Operating income	37,841			73,168			96,840			123,574

Nonoperating income (expenses):
Interest income	969			1,243			1,895			2,466
Interest expense	(27,068		)	(23,338		)	(54,129		)	(47,022		)
Amortization of deferred financing costs	(1,218		)	(2,214		)	(2,350		)	(3,628		)
Loss from early extinguishment of debt	—			(784		)	—			(784		)
Total nonoperating expenses	(27,317		)	(25,093		)	(54,584		)	(48,968		)

Income before income taxes	10,524			48,075			42,256			74,606
Income tax provision	(314		)	(2,085		)	(678		)	(2,366		)
Net income	10,210			45,990			41,578			72,240
Net loss (income) attributable to noncontrolling interests	176			19			(1,552		)	(304		)
Net income attributable to ACC, Inc. and Subsidiaries common stockholders	$	10,386		$	46,009		$	40,026		$	71,936

Other comprehensive (loss) income
Change in fair value of interest rate swaps and other	(8,593		)	180			(14,387		)	645
Comprehensive income	$	1,793		$	46,189		$	25,639		$	72,581

Net income per share attributable to ACC, Inc. and Subsidiaries common shareholders
Basic and diluted	$	0.07		$	0.33		$	0.28		$	0.52

Weighted-average common shares outstanding:
Basic	137,268,696			136,677,255			137,185,576			136,599,816
Diluted	138,243,388			137,576,366			138,198,134			137,536,368

See accompanying notes to consolidated financial statements.

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	—		—		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
Adjustments to reflect redeemable noncontrolling interests at fair value	—		—		660			—	—			—			—			—			660
Amortization of restricted stock awards and vesting of restricted stock units	15,925		—		3,744			—	—			—			—			—			3,744
Vesting of restricted stock awards	—		2		(146		)	—	—			—			—			—			(144		)
Distributions to common and restricted stockholders and other ($0.47 per common share)	—		—		—			—	—			(64,978		)	—			—			(64,978		)
Contributions by noncontrolling interests - partially owned properties	—		—		—			—	—			—			—			79			79
Distributions to noncontrolling interests - partially owned properties	—		—		—			—	—			—			—			(3,037		)	(3,037		)
Change in fair value of interest rate swaps and other	—		—		—			—	—			—			4,566			—			4,566
Termination of interest rate swaps	—		—		—			—	—			—			(13,159		)	—			(13,159		)
Deposits to deferred compensation plan, net of withdrawals	(4,103	)	—		206			4,103	(206		)	—			—			—			—
Net income (loss)	—		—		—			—	—			10,386			—			(339		)	10,047
Equity, June 30, 2019	137,200,511		$	1,372	$	4,460,412		75,535	$	(3,368	)	$	(1,059,633	)	$	(18,784	)	$	60,886		$	3,440,885

See accompanying notes to consolidated financial statements.

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
Adjustments to reflect redeemable noncontrolling interests at fair value	—		—		(4,426		)	—		—			—			—			—			(4,426		)
Amortization of restricted stock awards and vesting of restricted stock units	21,590		—		3,604			—		—			—			—			—			3,604
Distributions to common and restricted stockholders and other ($0.46 per common share)	—		—		—			—		—			(63,252		)	—			—			(63,252		)
Contributions by noncontrolling interests - partially owned properties	—		—		—			—		—			—			—			198,021			198,021
Distributions to noncontrolling interests - partially owned properties	—		—		—			—		—			—			—			(151,224		)	(151,224		)
Change in ownership of consolidated subsidiary	—		—		175,529			—		—			—			—			—			175,529
Change in fair value of interest rate swaps and other	—		—		—			—		—			—			180			—			180
Deposits to deferred compensation plan, net of withdrawals	(6,985	)	—		275			6,985		(275		)	—			—			—			—
Net income (loss)	—		—		—			—		—			46,009			—			(363		)	45,646
Equity, June 30, 2018	136,615,244		$	1,366	$	4,507,453		69,603		$	(3,092	)	$	(889,524	)	$	(2,056	)	$	69,988		$	3,684,135

See accompanying notes to consolidated financial statements.

AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Six Months Ended June 30,
	2019			2018
Operating activities
Net income	$	41,578		$	72,240
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) from disposition of real estate	282			(42,314		)
Loss from early extinguishment of debt	—			784
Provision for real estate impairment	3,201			—
Depreciation and amortization	137,570			128,316
Amortization of deferred financing costs and debt premiums/discounts	53			979
Share-based compensation	7,509			7,047
Income tax provision	678			2,366
Amortization of interest rate swap terminations and other	268			204
Termination of interest rate swaps	(13,159		)	—
Changes in operating assets and liabilities:
Student contracts receivable	(970		)	886
Other assets	(4,723		)	(5,703		)
Accounts payable and accrued expenses	(22,416		)	10,060
Other liabilities	(1,492		)	(5,407		)
Net cash provided by operating activities	148,379			169,458