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(Registrant’s
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
iCommon
Stock, par value $.01 per share
iACC
iNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
iYes
☒
No
☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐
iNo
☒
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.
iYes
☒
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).
iYes
☒
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.
iLarge
accelerated filer
☒
Accelerated Filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
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. ☐
Indicate by check mark whether the
registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. i☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
i☐
No
☒
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was $i4,769,265,540
based on the last sale price of the common equity on June 30, 2021 which is the last business day of the Company’s most recently completed second quarter.
There were i139,156,913 shares of the Company’s common stock with a par value of $0.01
per share outstanding as of the close of business on February 18, 2022.
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. 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 is structured as an umbrella partnership REIT (“UPREIT”) and contributes all net proceeds from its various equity offerings to American Campus Communities Operating Partnership LP (“ACCOP” or “the Operating Partnership”). In return for those contributions, ACC receives a number of units of the Operating Partnership (“OP Units”) 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 American Campus Communities Holdings, LLC (“ACC Holdings”), the general partner of ACCOP, and the common shares issued to the public.
As used in this report, unless stated otherwise or the context otherwise requires, references to “ACC,”“the Company,”“we,”“us,” or “our” mean American Campus Communities, Inc., a Maryland corporation that has elected to be treated as a REIT under the Internal Revenue Code, and its consolidated subsidiaries,
including ACCOP.
As of December 31, 2021, our total owned and third-party managed portfolio included 203 properties with approximately 140,900 beds.
Business Objectives, Investment Strategies, and Operating Segments
Business Objectives
Our primary business objectives are to create long-term stockholder value by deploying capital to develop, redevelop, acquire, and operate student housing communities, and to sell communities when they no longer meet our long-term investment strategy and when
market conditions are favorable. We believe we can achieve these objectives by continuing to implement our investment strategies and successfully manage our operating segments, which are described in more detail below. Our business objectives align with our commitment to corporate responsibility, in which we focus on creating healthy, sustainable environments with a sense of community and connection, giving back to the communities we serve, and investing in our employees.
Investment Strategies
We seek to own high quality, well designed, and well located student housing properties. We seek to acquire or develop properties in markets that have stable or increasing student populations, are in submarkets with barriers to entry and provide opportunities for economic growth as a result of their product position and/or differentiated design
and close proximity to campuses, or through our superior operational capabilities. We believe that our reputation and established relationships with universities give us an advantage in sourcing acquisitions and developments and obtaining municipal approvals and community support for our development projects.
Our experienced development staff intends to continue to identify and acquire land parcels in close proximity to colleges and universities that offer location advantages or that allow for the development of unique products that offer a competitive advantage. We expect to continue to benefit from opportunities derived from our extensive network with colleges and universities as well as our relationship with certain developers with whom we have previously developed student housing properties.
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Operating
Segments
We define business segments by their distinct customer base and service provided. We have identified four reportable segments: Owned Properties, On-Campus Participating Properties, Development Services, and Property Management Services. For a detailed financial analysis of our segments’ results of operations and financial position, please refer to Note 16 in the accompanying Notes to Consolidated Financial Statements contained in Item 8.
Property Operations
Unique Leasing Characteristics: Student housing properties are typically leased by the bed on an individual lease liability basis, unlike multifamily housing where leasing is by the unit. Individual lease liability limits each resident’s liability to his
or her own rent without liability for a roommate’s rent. A parent or guardian is generally required to execute each lease as a guarantor unless the resident provides adequate proof of income or financial aid. The number of lease contracts that we administer is therefore approximately equivalent to the number of beds occupied and not the number of units. Leases at our off-campus properties typically require 12 monthly rental installments, whereas leases for our residence hall properties typically correspond to the university’s academic year and require ten monthly rental installments. Please refer to the property table contained in Item 2 – Properties for a listing of the typical rent payment terms at our properties. As an example, in the case of our typical off-campus leases, the commencement date coincides with the commencement of the respective university’s Fall academic
term, and the termination date is the last day of the subsequent summer school session. As such, we must re-lease each property in its entirety each year.
Management Philosophy: Our management philosophy is based upon meeting the following objectives:
•Satisfying the specialized needs of residents by providing the highest levels of customer service;
•Developing and maintaining an academically oriented environment via a premier residence life/student development program;
•Maintaining each project’s physical plant in top condition;
•Maximizing revenue through the
development and implementation of a strategic annual marketing plan and leasing administration program; and
•Maximizing cash flow through maximizing revenue coupled with prudent control of expenses.
Owned Properties: Our off-campus properties are generally located in close proximity to the school campus, generally with pedestrian, bicycle, or university shuttle access. Off-campus housing tends to offer more relaxed rules and regulations than on-campus housing, resulting in off-campus housing being generally more appealing to upper-classmen. We believe that the support of colleges and universities can be beneficial to the success of our owned properties. We actively seek to have these institutions recommend our facilities to their students or to provide us with mailing lists so that we may directly market
to students and parents. In some cases, the institutions actually promote our off-campus facilities in their recruiting and admissions literature. In cases where the educational institutions do not provide mailing lists or recommendations for off-campus housing, most provide comprehensive lists of suitable properties to their students, and we continually work to ensure that our properties are on these lists in each of the markets that we serve.
Off-campus housing is subject to competition for tenants with on-campus housing owned by colleges and universities, and vice versa. Colleges and universities can generally avoid real estate taxes and borrow funds at lower interest rates than us (and other private sector operators), thereby decreasing their operating costs. Residence halls owned and operated by the primary colleges and universities in the markets of our off-campus properties may charge
lower rental rates, but typically offer fewer amenities than we offer at our properties. Additionally, most universities are only able to house a small percentage of their overall enrollment and are therefore highly dependent upon the off-campus market to provide housing for their students. High-quality, well run off-campus student housing can be a critical component to an institution’s ability to attract and retain students. Therefore, developing and maintaining good relationships with educational institutions can result in a privately owned off-campus facility becoming, in effect, an extension of the institution’s housing program, with the institution providing highly valued references and recommendations to students and parents.
This segment also competes with national and regional owner-operators of off-campus student housing in a number of markets as well as with smaller local owner-operators. Therefore,
the performance of this segment could be affected by the construction of new on-campus or off-campus residences, increases or decreases in the general levels of rents for housing in competing communities, increases or decreases in the number of students enrolled at one or more of the colleges or universities in the market of a property, and other general economic conditions.
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American Campus Equity ("ACE®"): Included in our owned properties segment and branded and marketed to colleges and universities as the ACE® program, this transaction structure provides us with what we believe is a lower-risk opportunity compared to off-campus
projects, as our ACE® projects have premier on-campus locations with marketing and operational assistance from the university. The subject university substantially benefits by increasing its housing capacity with modern, well-amenitized student housing with no or minimal impacts to its own credit ratios, preserving the university’s credit capacity to fund academic and research facilities.
We have expanded our ACE® program to include the development of a ten-phase purpose-built housing project serving student interns participating in the highly competitive Disney College Program (“Disney College Program” or “DCP”). This project offers natural synergies with our other ACE® projects and exploits our core competency of housing college students.
The $614.6 million living-learning community includes ACC-designed units offering a variety of configurations and price points providing privacy and individuality for college student participants. The development also includes a centralized 25,000-square-foot Disney Education Center located on site, offering college accredited coursework allowing participants to earn credit hours transferable to their respective universities. As of December 31, 2021, we have completed construction on six phases of the project within the targeted delivery timeline, and the remaining phases are anticipated to be delivered in 2022 and 2023.
On-Campus Participating Properties: Our On-Campus Participating Properties ("OCPPs") segment includes six on-campus properties that are operated under long-term ground/facility leases with three university
systems. Under our ground/facility leases, we receive an annual distribution representing 50% of these properties’ net cash flows, as defined in the ground/facility lease agreements. We also manage these properties under long-term management agreements and are paid management fees equal to a percentage of defined gross receipts.
Our on-campus participating properties are susceptible to some of the same risks as our owned properties, including: (i) seasonality in rents; (ii) annual re-leasing that is highly dependent on marketing and university admission policies; and (iii) competition for tenants from other on-campus housing operated by educational institutions or other off-campus properties.
Third-Party Services
Our third-party services consist
of development services and management services and are typically provided to university and college clients. Fee revenue earned from this business segment allows us to develop strong and key relationships with colleges and universities. We believe these services continue to provide synergies with respect to our ability to identify, close, and successfully operate student housing properties. While management evaluates the operational performance of our third-party services based on the distinct segments identified below, at times we also evaluate these segments on a combined basis.
Development Services: Our Development Services segment consists of development and construction management services that we provide through one of our taxable REIT subsidiaries (“TRSs”) for student
housing properties owned by universities, 501(c)3 foundations, and others. Our clients have included some of the nation's most prominent systems of higher education. These services range from short-term consulting projects to long-term, full-scale development and construction projects. We typically provide these services to colleges and universities seeking to modernize their on-campus student housing properties, and we are sometimes retained to manage these properties following their opening. They look to us to bring our student housing experience and expertise to ensure they develop marketable, functional, and financially sustainable facilities. Educational institutions usually seek to build housing that will enhance their recruitment and retention of students while facilitating their academic objectives. Most of these development service contracts are awarded via a competitive
request for proposal (“RFP”) process that qualifies developers based on their overall capability to provide specialized student housing design, development, construction management, financial structuring, and property management services. Our development services typically include pre-development, design, and financial structuring services. Our pre-development services typically include feasibility studies for third-party owners and design services. Feasibility studies include an initial feasibility analysis, review of conceptual design, and assistance with master planning. Some of the documents produced in this process include the conceptual design documents, preliminary development and operating budgets, cash flow projections, and a preliminary market assessment. Our design services include coordination with the architect and other members of the design team, review of construction plans, and assistance with project due diligence and project budgets.
Construction
management services typically consist of hiring project professionals and a general contractor, coordinating and supervising the construction, equipping and furnishing the property, site visits, and full coordination and administration of all activities necessary for project completion in accordance with plans and specifications and with verification of adequate insurance.
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Our Development Services activities benefit our primary goal of owning and operating student housing properties in a number of ways. By providing these services to others, we are able to expand and refine our unit plan and community design, the operational efficiency of our material specifications, and our ability to determine market acceptance of unit and community amenities. Our
development and construction management personnel enable us to establish relationships with general contractors, architects, and project professionals throughout the nation. Through these services, we gain experience and expertise in residential and commercial construction methodologies under various labor conditions, including right-to-work labor markets, markets subject to prevailing wage requirements, and fully unionized environments. This segment is subject to competition from other specialized student housing development companies as well as from national real estate development companies.
Property Management Services: Our Property Management Services segment includes revenues generated from third-party management contracts in which we are typically responsible for all aspects
of operations, including marketing, leasing administration, facilities maintenance, business administration, accounts payable, accounts receivable, financial reporting, capital projects, and residence life student development. We provide these services pursuant to management agreements that have initial terms that range from one to five years.
There are several housing options that compete with our third-party managed properties including, but not limited to, multifamily housing, for-rent single family dwellings, other off-campus specialized student housing, and the aforementioned on-campus participating properties. We also compete with other regional and national providers of third-party management services.
Americans
with Disabilities Act and Federal Fair Housing Act
Many laws and governmental regulations are applicable to our properties and changes in the laws and regulations, or their interpretation by agencies and the courts, occur frequently. Our properties must comply with Title III of the Americans with Disabilities Act, or ADA, to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe that the existing properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. The
obligation to make readily achievable accommodations is an ongoing one, and we intend to continue to assess our properties and to make alterations as appropriate in this respect.
Under the federal and state fair housing laws, discrimination on the basis of certain protected classes is prohibited. Violation of these laws can result in significant damage awards to victims.
Our Commitment to Environmental, Social, and Governance (“ESG”) Factors
Corporate responsibility is fundamental to the Company’s mission to consistently
provide every resident and team member with an environment conducive to healthy living, personal growth, academic achievement, and professional success. This mission drives our ESG vision of creating healthy, sustainable environments with a sense of community and connection by giving back, investing in our employees, and driving long-term value for all stakeholders.
In 2021, we employed significant internal resources towards our ESG efforts, including appointing a new Executive Vice President and Chief Purpose and Inclusion Officer, Senior Vice President of Corporate Responsibility, and Director of ESG. We also have a multi-functional ESG Committee and Diversity and Inclusion Task Force to support and enhance our programs and goals and to ensure we execute on our ESG strategy. We regularly review our ESG initiatives with our Board of Directors, and maintain communication with ESG-focused stakeholders. Additional
information regarding the Company’s ESG initiatives, including a Letter of Commitment to ESG, may be found online at ESG.AmericanCampus.com. The information contained on our website, including the Letter of Commitment to ESG, is not a part of or incorporated into this report.
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Environmental Matters
Under various laws and regulations relating
to the protection of the environment, an owner of real estate may be held liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in its property. These laws often impose liability without regard to whether the owner was responsible for, or even knew of, the presence of such substances. The presence of such substances may adversely affect the owner’s ability to rent or sell the property or use the property as collateral. Independent environmental consultants conducted environmental site assessments on all acquired or developed owned properties and on-campus participating properties in our existing portfolio. We are not aware of any environmental conditions that management believes would have a material adverse effect on the Company. There is no assurance, however, that environmental site assessments or other investigations would reveal
all environmental conditions or that environmental conditions not known to us may exist now or in the future which would result in liability to the Company for remediation or fines, either under existing laws and regulations or future changes to such requirements.
From time to time, the United States Environmental Protection Agency, or EPA, designates certain sites affected by hazardous substances as “Superfund” sites pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA. Superfund sites can cover large areas, affecting many different parcels of land. Although CERCLA imposes joint and several liability for contamination on property owners and operators regardless of fault, the EPA may choose to pursue potentially responsible parties (“PRPs”) based
on their actual contribution to the contamination. PRPs are liable for the costs of responding to the hazardous substances. Each of Villas on Apache (disposed of in April 2011), The Village on University (disposed of in December 2006), and University Village at San Bernardino (disposed of in January 2005) are located within federal Superfund sites. The EPA designated these areas as Superfund sites because groundwater underneath these areas is contaminated. We have not been named, and do not expect to be named, as a PRP with respect to these sites. However, there can be no assurance regarding potential future developments concerning such sites.
Insurance
Our primary lines of insurance
coverage are property, liability, and workers’ compensation. We believe that our insurance coverages are of the type and amount customarily obtained on real property assets. We intend to obtain similar coverage for properties we acquire in the future. However, there are certain types of losses, generally of a catastrophic nature, such as losses from floods or earthquakes, which may be subject to limitations in certain areas. When not otherwise contractually stipulated, we exercise our judgment in determining amounts, coverage limits, and deductibles, in an effort to maintain appropriate levels of insurance on our investments. If we suffer a substantial loss, our insurance coverage may not be sufficient due to market conditions at the time or other unforeseen factors. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace a property after it has been
damaged or destroyed.
Human Capital Resources
As of December 31, 2021, we had approximately 3,006 employees, consisting of 371 corporate employees and 2,635 employees at our owned, managed, and on-campus participating properties.
Purpose and Culture: Our Company values are centered around people. We care deeply about our residents. Serving students well requires engaged, passionate, and diverse team members, so we’ve created an award-winning culture that fosters
growth and rewards achievement. Service is also deeply embedded into our culture: we give back to the communities in which we live and work.
In 2020, we earned a Great Places to Work™ certification with a total of 97% of the employees surveyed saying ACC is a great place to work. Our employee compensation and benefits packages are designed to competitively compensate all employees for their contributions, and our Culture Committee conducts regular internal communications, volunteer events, and activities that help to ensure we are attracting and retaining employees that share our passion. Our employees are not represented by a labor union.
Employee Engagement: In addition to promoting a leadership culture with an open-door policy for
all employees, ACC seeks to regularly engage with employees to promote communication and solicit valuable feedback on our efforts to create a healthy and meaningful work culture. We annually survey our employees regarding their satisfaction and views on the ACC workplace environment. We also regularly publish newsletters for both our corporate and property employees that welcome new team members, highlight employee advancements and accomplishments, celebrate life events, discuss operational best practices, and
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promote Company milestones, achievements, and initiatives. Our CEO also hosts “Bill’s Quarterly Call” where employee achievements are highlighted and any employee can ask questions regarding the
Company’s direction and the state of the industry.
Community and Social Impact: Our definition of “community” goes beyond our communities. We support youth in need with a focus on education through our charitable foundation, as well as encourage volunteerism by our corporate and property staff. For us, giving back means being good corporate citizens and making a positive difference for those in need. We encourage our employees and our properties to be involved in their communities and are proud of the vast varieties of philanthropic causes our employees and residents champion.
In alignment with our Core Value, “Give Back,” and in connection with the December 2021 closing of a joint venture transaction including properties in our Arizona State University (“ASU”) portfolio, we
made a commitment to donate $5.0 million to ASU for scholarships, programs that support student success, and sustainability.
We are also proud to support the mental health of both our employees and residents by expanding our long-term partnership with the Hi, How Are You Project (“HHAY”) and our continued staff training on peer-to-peer support at more than 200 communities across the country. As a part of our partnership with HHAY, we published a College Student Fall 2021 Mental Wellness Survey Report in November 2021 that included responses from approximately 9,000 college students who shared insights into their own current mental health state and overall wellbeing.
Diversity and Inclusion (“D&I”): We strive to have an inclusive culture where all know their unique voices will
be valued. ACC’s founding vision states, “Our people are our strength, achieving success through a dedication to excellence and integrity.” Our people are devoted to a culture of inclusion, diversity, and equality in the workplace and our communities. Our Company and our student communities are defined and strengthened by the belief that every individual and their experience adds value and enhances our position as an industry leader and university partner. We take responsibility to intentionally execute an evolving set of goals specific to inclusion, diversity, and accountability, driven by empathetic leadership and embraced by all.
We are proud that our ACC team represents the diversity of the residents and communities we serve, as more than half of our team members are minorities and half are female. In
addition, we are overseen by a Board of Directors, more than a third of whose members are diverse by race or gender. In 2021, our female and minority representation at the executive level increased with the appointment of our Chief Purpose and Inclusion Officer, who oversees our ESG efforts including our diversity and inclusion initiatives.
We have a Code of Conduct for employees that includes policies on diversity, inclusion, and antidiscrimination. Additionally, ACC is a signatory for the CEO Impact Pledge to further diversity, equity, and inclusion initiatives.
In 2020, ACC formed a diversity and inclusion task force to oversee the execution of our goals over the long term. Since then, we have engaged a third-party consultant to review our employment program with a focus on diversity and inclusion criteria, including vision,
goals, statement, and Company demographic breakdown. We also conducted consultant-facilitated “Unconscious Bias/Business Training” for ACC employees at the level of vice president and above, and are developing D&I training curricula for all employees and supervisors.
ACC has worked with our partners at Prairie View A&M University (“PVAMU”), our longest-running university relationship and a Historically Black College and University (“HBCU”), to establish both a scholarship endowment fund and an annual scholarship to assist graduating seniors. In the interest of promoting more diversity in the field of architecture, we have also created a specific scholarship geared towards architecture students at PVAMU.
In an effort to attract and support disadvantaged and underrepresented business owners, we developed
a neighborhood small business nurturing program for local retailers in our owned property portfolio. The pilot program at LightView in Boston was the genesis of the September 2021 opening of the Underground Café, a female and minority owned establishment that brings together food, art, culture, and community.
Safety: We have a comprehensive Safety Plan that includes safety-related work practices that apply to our student housing communities. We also require service contract agreements, which mandate that all contractors and subcontractors that perform work in facilities or on property controlled by ACC abide by all safety rules and follow safety procedures.
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Training
and Professional Development: We believe that in order to be successful and satisfied in their jobs, employees must have the training necessary to further their effectiveness and assist in career advancement and retention. Our management team supports a culture of developing future leaders from our existing workforce, enabling us to promote from within for many leadership positions.
We’ve built a comprehensive employee development program with opportunities at every career stage. We connect employees with plans tailored to their goals and offer a range of trainings, mentoring, and conferences through ACC University and other programs. Employees are auto-enrolled for the appropriate courses when they are hired for or promoted into new positions. In addition to our training designed to address regulatory and statutory matters (antiharassment, cybersecurity, data privacy,
etc.), our ACC University offers a catalog of more than 800 on-demand training courses.
Our Inside Track program provides top-performing, on-site team members with the development needed to become General Managers. Inside Track consists of an intensive training program and a four-month mentoring program emphasizing residence life, human resource management, business operations, marketing and leasing, facilities, and career development. In addition, ACC hosts several other employee development conferences including our annual Leadership Conference, Inside Track: Facilities and ACCelerate. We also provide numerous live training webinars that educate on current management issues and promote internal networking.
Offices
and Access to SEC Filings
Our principal executive offices are located at 12700 Hill Country Boulevard, Suite T-200 Austin, TX78738. Our telephone number at that location is (512) 732-1000.
We file our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other reports required by Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 with the SEC. The SEC maintains website
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is www.sec.gov.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Act of 1934, as amended, are available free of charge in the "Investor Relations" section of our website, www.americancampus.com, as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the SEC. Our website also contains copies of our Corporate Governance Guidelines and Code of Business Ethics as well as the charters of our Nominating and Corporate Governance, Audit, Compensation, Strategic Planning and Risk, and Capital Allocation committees. The information on our website is not part of this filing.
Forward-looking Statements
This report contains forward-looking
statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,”“believe,”“expect,”“intend,”“may,”“might,”“plan,”“estimate,”“project,”“should,”“will,”“result” and similar expressions, do not relate solely to historical matters and are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. We caution you that forward-looking statements are not guarantees of future performance and will be impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they were made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: general risks affecting the real estate industry; risks associated with changes in University admission
or housing policies; risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; risks and uncertainties affecting property development and
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construction; risks associated with downturns in the national and local economies, volatility in capital and credit markets, increases in interest rates, and volatility in the securities markets; costs of compliance with the Americans with Disabilities Act and other similar laws; potential liability for uninsured losses and environmental contamination; risks associated with our Company’s
potential failure to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”), as amended, and possible adverse changes in tax and environmental laws; and the other factors discussed in the “Risk Factors” contained in Item 1A of this report.
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Item 1A. Risk Factors
The following risk factors may contain defined terms that are different from those used in other sections of this report. Unless otherwise indicated, when used in this section, the terms “we” and “us” refer to American Campus Communities, Inc. and its subsidiaries,
including American Campus Communities Operating Partnership LP, our Operating Partnership, and the term “securities” refers to shares of common stock of American Campus Communities, Inc. and units of limited partnership interest in our Operating Partnership.
The factors described below represent our principal risks. Other factors may exist that we do not consider being significant based on information that is currently available or that we are not currently able to anticipate.
Risks Related to Our Properties, Our Business and the Real Estate Industry
Global health pandemics have materially affected and could continue to materially affect how we operate our business, and have impacted and could continue to impact our results of operations
and overall financial performance.
A pandemic, including the novel coronavirus disease (“COVID-19”), has adversely affected international, national and local economies and financial markets generally, and has had an unprecedented effect on many businesses including the student housing industry. Outbreaks have led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to mitigate the spread of disease, including restrictions on freedom of movement and business operations such as issuing guidelines, travel bans, border closings, business closures, quarantine orders, and orders not allowing the collection of rents, charging late fees or eviction of non-paying tenants. These restrictions have inhibited our ability to meet in person with existing and potential residents, which could adversely impact our
rental rate and occupancy levels.
A global pandemic could also result in the colleges or universities that our properties serve deciding to cancel in-person classes and/or requiring lower occupancy density in their on-campus residence halls. Additionally, our tenants could experience financial hardship due to deteriorating economic conditions, which could impact our provision for uncollectible accounts and ultimately our overall financial performance. Also, a global pandemic could impact our workforce, resulting in difficulty recruiting, retaining, training, motivating, and developing employees due to evolving health and safety protocols, changing worker expectations including those regarding flexible/remote work models, and restrictions on travel and employee mobility. We could also experience challenges in maintaining our strong corporate culture, which values communication, collaboration,
and professional connection.
The conditions caused by the ongoing pandemic continue to exist worldwide, and the ongoing effects remain difficult to predict due to numerous uncertainties, including the transmissibility, severity, duration and resurgence of the outbreak, new variants of the virus, the implementation and effectiveness of health and safety measures, and actions that are voluntarily adopted by the public or required by governments or public health authorities or universities, including vaccines and treatments. Due to these uncertainties, we are not able at this time to estimate with any degree of certainty the effect a pandemic or measures intended to curb its spread could have on our business, results of operations, financial condition or cash flows. Also, many of the other risk factors described within this Form 10-K could be more likely to impact us as a result of a pandemic or measures
intended to curb its spread.
Our results of operations are subject to risks inherent in the student housing industry, including a concentrated lease-up period and seasonal cash flows.
Leases at our off-campus properties typically require 12 monthly rental installments, whereas leases at our residence hall properties typically correspond to the university’s academic year and require ten monthly rental installments. As a result, we may experience significantly reduced cash flows during the summer months at our residence hall properties. Furthermore, all of our properties must be entirely re-leased each year during a limited leasing season. We are therefore highly dependent on the effectiveness of our marketing and leasing efforts and personnel during this season, exposing us to significant leasing risk. In addition, we are
subject to increased leasing risk on our properties under construction and future acquired properties based on our lack of experience leasing those properties and unfamiliarity with their leasing cycles. If we are unable to lease a substantial portion of our properties, or if the rental rates upon such leasing are significantly lower than expected rates, our cash flow from operations and our ability to make distributions to stockholders and service indebtedness could be adversely affected.
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Additionally, prior to the commencement of each new lease period, generally during the first two weeks of August, we prepare the units for new incoming residents. During this period (referred to as “turn”), we incur significant expenses making
our units ready for occupancy, which we recognize as incurred. We therefore experience seasonally decreased operating results and cash flows during the third quarter of each year as a result of expenses we incur during turn as well as lower revenue at our residence hall properties.
We rely on our relationships with universities, and changes in university personnel and/or policies could adversely affect our operating results.
In some cases, we rely on our relationships with colleges and universities for referrals of prospective student-tenants or for lists of prospective student-tenants and their parents. Many of these colleges and universities own and operate their own competing on-campus facilities. Any failure to maintain good relationships with these colleges and universities could therefore have a material adverse effect
on us. If colleges and universities refuse to make their lists of prospective student-tenants and their parents available to us or increase the costs of these lists, there could be a material adverse effect on us.
Changes in university admission policies could adversely affect us. For example, if a university reduces the number of student admissions or requires that a certain class of students, such as freshmen, live in a university-owned facility, the demand for our properties may be reduced and our occupancy rates may decline. While we may engage in marketing efforts to compensate for such changes in admission policy, we may not be able to affect such marketing efforts prior to the commencement of the annual lease-up period or at all.
A decrease in enrollment at the Universities at which our properties are located
could adversely affect our financial results.
University enrollment can be affected by a number of factors including, but not limited to, the current macroeconomic environment, students’ ability to afford tuition and/or the availability of student loans, competition for international students, the impact of visa requirements for international students, higher demand for distance education, budget constraints that could limit a University’s ability to attract and retain students, any degradation in a university’s reputation and reports of crime or other negative publicity regarding the safety of the students residing on, or near, the university. If a university’s enrollment were to significantly decline as a result of these or other factors, our ability to achieve our leasing targets and thus our properties’ financial performance could be adversely affected.
We
face significant competition from university-owned student housing and from other private student housing communities located within close proximity to universities.
On-campus student housing traditionally has certain inherent advantages over off-campus student housing because of, among other factors, closer physical proximity to the university campus and integration of on-campus facilities into the academic community. Colleges and universities can generally avoid real estate taxes, while we and other private sector owners are subject to full real estate tax rates. Also, colleges and universities may be able to borrow funds at lower interest rates than those available to us and other private sector owners. As a result, universities may be able to offer more convenient and/or less expensive student housing than we can, which may adversely affect our occupancy and rental rates. We also compete with
other national and regional owner-operators of off-campus student housing in a number of markets as well as with smaller local owner-operators. There are a number of purpose-built student housing properties that compete directly with us located near or in the same general vicinity of many of our student housing communities. Such competing student housing communities may be newer than our student housing communities, located closer to campus, charge less rent, possess more attractive amenities, or offer more services, shorter lease terms or more flexible leases. The construction of competing properties or decreases in the general levels of rents for housing at competing properties could adversely affect our rental income. We have recently seen a number of large new entrants in the student housing business and there may be additional new entrants with substantial financial and marketing resources. The entry of these companies has increased and may continue to increase
competition for students and for the acquisition, development and management of other student housing properties.
We may be unable to successfully complete and operate our properties or our third-party developed properties.
We intend to continue to develop and construct student housing. These activities include a number of risks, which may include the following:
•we may be unable to obtain financing on favorable terms or at all;
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•we may not complete development projects on schedule, within budgeted amounts
or in conformity with building plans and specifications, and if we fail to complete the construction of a property on schedule, we may be required to provide alternative housing to the students with whom we have signed leases, which would result in our incurring significant expenses, and may result in students attempting to terminate their leases, which may adversely affect occupancy at such property for the applicable academic year;
•we may encounter delays or refusals in obtaining all necessary zoning, land use, building, occupancy and other required governmental permits and authorizations;
•occupancy and rental rates at newly developed or renovated properties may fluctuate depending on a number of factors, including market and economic conditions, and may reduce or eliminate our return on investment;
•we
may become liable for injuries and accidents occurring during the construction process and for environmental liabilities, including off-site disposal of construction materials;
•we may decide to abandon our development efforts if we determine that continuing the project would not be in our best interests; and
•we may encounter strikes, weather, government regulations, difficulty and/or delays in obtaining labor and materials, including as a result of supply chain conditions, and other conditions beyond our control.
Our newly developed properties will be subject to risks associated with managing new properties, including lease-up and integration risks. In addition, new development activities, regardless of whether or not they are ultimately successful, typically
will require a substantial portion of the time and attention of our development and management personnel. Newly developed properties may not perform as expected.
We may in the future develop properties nationally, internationally or in geographic regions other than those in which we currently operate. We do not possess the same level of familiarity with development and related regulations in these new markets, which could adversely affect our ability to develop such properties successfully or at all or to achieve expected performance. Future development opportunities may not be available to us on terms that meet our investment criteria or we may be unsuccessful in capitalizing on such opportunities.
We typically provide guarantees of timely completion of projects that we develop for third parties. In
certain cases, our contingent liability under these guarantees may exceed our development fee from the project. Although we seek to mitigate this risk by, among other things, obtaining similar guarantees from the project contractor, we could sustain significant losses if development of a project were to be delayed or stopped and we were unable to cover our guarantee exposure with the guarantee received from the project contractor.
We may be unable to successfully acquire properties on favorable terms.
Our future growth will be in part dependent upon our ability to successfully acquire new properties on favorable terms. With respect to recently acquired properties, and as we acquire additional properties, we will continue to be subject to risks associated with managing new properties, including lease-up and integration risks. Acquired
properties may not perform as expected and may have characteristics or deficiencies unknown to us at the time of acquisition. Future acquisition opportunities may not be available to us on terms that meet our investment criteria or we may be unsuccessful in capitalizing on such opportunities. Our ability to acquire properties on favorable terms and successfully operate them involves the following significant risks:
•our potential inability to acquire a desired property may be caused by competition from other real estate investors;
•competition from other potential acquirers may significantly increase the purchase price and decrease expected yields;
•we may be unable to finance an acquisition on favorable terms or at all;
•we
may have to incur significant unexpected capital expenditures to improve or renovate acquired properties;
•we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations;
•market conditions may result in higher than expected costs and vacancy rates and lower than expected rental rates; and
•we may acquire properties subject to liabilities but without any recourse, or with only limited recourse, to the sellers, or with liabilities that are unknown to us, such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of our properties and claims for indemnification by members, directors,
officers and others indemnified by the former owners of our properties.
Our failure to acquire or finance property acquisitions on favorable terms, or operate acquired properties to meet our financial expectations, could adversely affect us.
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Difficulties of selling real estate could limit our flexibility.
We intend to evaluate the potential disposition of assets that may no longer meet our investment objectives. When we decide to sell an asset, we may encounter difficulty in finding buyers in a timely manner as real estate investments generally cannot be disposed of quickly, especially when market conditions
are poor. This may limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. In some cases, we may also determine that we will not recover the carrying value of the property upon disposition and might recognize an impairment charge. In addition, in order to maintain our status as a REIT, the Internal Revenue Code imposes restrictions on our ability to sell properties held fewer than two years, which may cause us to incur losses thereby reducing our cash flows and adversely impacting distributions to equity holders.
Our ownership of properties through ground leases may expose us to the loss of such properties upon the exercise by the lessors of purchase options or the breach or termination of the ground leases.
We have acquired an interest in certain of our properties by acquiring
a leasehold interest in the property on which the building is located (or under development), and we may acquire additional properties in the future through the purchase of interests in ground leases. We could lose our interests in a property if the ground lease is terminated, if a purchase option is exercised by the lessor or if we breach the ground lease, which could adversely affect our financial condition or results of operations.
The status of real estate tax exemptions or abatements could be overturned, resulting in diminished financial performance and cash flows at certain of our properties.
Certain of our properties, generally those located on the campuses of colleges and universities, are currently subject to full or partial exemptions or abatements from real estate taxes, and such exemptions were included
in the Company’s estimate of those properties’ financial returns upon development or acquisition. Should state or local taxing jurisdictions successfully challenge, overturn, or suspend such exemptions, the financial performance of such properties would be diminished, which would result in reduced cash flows and depending upon the magnitude, may adversely impact distributions to equity holders.
We face risks associated with land holdings.
We hold land for future development and may in the future acquire additional land holdings. The risks inherent in owning or purchasing and developing land increase as demand for student housing, or rental rates, decrease. As a result, we hold certain land and may in the future acquire additional
land in our development pipeline at a cost we may not be able to recover fully or on which we cannot build and develop into a profitable student housing project. Also, real estate markets are highly uncertain and, as a result, the value of undeveloped land has fluctuated significantly and may continue to fluctuate as a result of changing market conditions. In addition, carrying costs can be significant and can result in losses or reduced margins in a poorly performing project. If there are subsequent changes in the fair value of our land holdings that we determine is less than the carrying basis of our land holdings reflected in our financial statements plus estimated costs to sell, we may be required to take future impairment charges, which would reduce our net income.
We may not be able to recover pre-development costs for new developments.
University
systems and educational institutions typically award us development services contracts on the basis of a competitive award process, but such contracts are typically executed following the formal approval of the transaction by the institution’s governing body. In the intervening period, we may incur significant pre-development and other costs in the expectation that the development services contract will be executed. If an institution’s governing body does not ultimately approve our selection and the terms of the pending development contract, we may not be able to recoup these costs from the institution and
the resulting losses could be substantial. Also, we anticipate that we will, from time to time, elect not to proceed with ongoing development projects. If we elect not to proceed with a development project, the development costs associated therewith will ordinarily be charged against income for the then-current period. Any such charge could have a material adverse effect on our results of operations in the period in which the charge is taken.
Our awarded projects may not be successfully structured or financed and may delay our recognition of revenues.
The recognition and timing of revenues from our awarded development services projects will, among other things, be contingent upon successfully structuring and closing project financing as well as the timing of construction. The development projects that we have been awarded
have at times been delayed beyond the originally scheduled construction commencement
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date. If such delays were to occur with our current awarded projects, our recognition of expected revenues and receipt of expected fees from these projects would be delayed.
Tax laws may continue to change at any time, and any such legislative or other actions could have a negative effect on us.
Tax laws remain under constant review by persons involved in the legislative process, at the Internal Revenue Service and the U.S. Department of Treasury, and by various state and local tax authorities. Future changes in tax laws, including to the administrative
interpretations thereof or to the enacted tax rates, or new pronouncements relating to accounting for income taxes, could adversely affect us in a number of ways, including making it more difficult or more costly for us to qualify as a REIT.
We are subject to numerous other laws and regulations, changes to which could increase our costs and individually or in the aggregate adversely affect our business.
In addition to tax laws, we are subject to laws and regulations affecting our operations in a number of areas. Changes in these laws and regulations, including, among others, additional healthcare reform, employment law reform such as the enactment of federal overtime exemption regulations, and financial and disclosure reform such as revisions to the Dodd-Frank Act and related SEC rulemaking, or the enactment of new laws or
regulations, may increase our costs. Also, compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, which may further increase the cost of compliance and doing business. We cannot predict whether, when, in what forms, or with what effective dates, laws, regulations, and administrative interpretations applicable to us or our stockholders may be changed. Any such change may significantly affect our liquidity and results of operations, as well as the value of our shares. In addition, the properties in our portfolio are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we might incur governmental fines or private damage awards. Furthermore, existing requirements could change and require us to make significant unanticipated expenditures
that would materially and adversely affect us.
Our collection, processing, storage, use and transmission of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, differing views on data privacy or security breaches.
We collect, process, store, use and transmit a large volume of personal data, including, for example, to process lease transactions for our residents, and regarding or employees and our financial and strategic information. Personal data is increasingly subject to legal and regulatory protections, which vary widely in approach and which possibly conflict with one another. In recent years, for example, U.S. legislators and regulatory agencies such as the Federal Trade Commission, as well as U.S. states, have increased their focus on protecting personal
data by law and regulation, and have increased enforcement actions for violations of privacy and data protection requirements. The European Commission also has adopted the General Data Protection Regulation (GDPR). These data protection laws and regulations are intended to protect the privacy and security of personal data. Implementation of and compliance with these laws and regulations may be more costly or take longer than we anticipate, or could otherwise adversely affect our business operations, which could negatively impact our financial position or cash flows. We also risk exposure to potential liabilities and costs resulting from the compliance with, or any failure to comply with, applicable legal requirements, conflicts among these legal requirements or differences in approaches to privacy and security of personal data. Our business could be materially adversely affected by our inability, or the inability of our vendors who receive personal data from us, to comply
with legal obligations regarding the use of personal data and new data handling requirements that conflict with or negatively impact our business practices.
As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced to third party service providers. In addition, information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of cybercriminals who attempt to compromise our systems. We are periodically subject to these threats and intrusions, and sensitive or material information could be compromised as a result. The costs of any investigation of such incidents, as well as any remediation related to these incidents, may be material. The theft, destruction, loss, misappropriation or release of sensitive and/or confidential information
or intellectual property, or interference with our information technology systems or the technology systems of third-parties on which we rely, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of residents, potential liability and competitive disadvantage, any of which could result in a material adverse effect on our financial condition or results of operations.
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Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between our co-venturers and us.
We have co-invested, and may continue in the future to co-invest,
with third parties through partnerships, joint ventures or other entities, acquiring noncontrolling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other entity. In connection with joint venture investments, we do not have sole decision-making control regarding the property, partnership, joint venture or other entity. Investments in partnerships, joint ventures or other entities may, under certain circumstances, involve risks not present were a third-party not involved, including the possibility that our partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions. Our partners or co-venturers also may have economic or other business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our preferences, policies or objectives. Such investments also will have the potential risk of impasses
on decisions, such as a sale, because neither we nor our partners or co-venturers would have full control over the partnership or joint venture. Disputes between us and our partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort exclusively on our business. Consequently, actions by or disputes with our partners or co-venturers might result in subjecting properties owned by the partnership, joint venture or other entity to additional risk. In addition, we may in certain circumstances be liable for the actions of our partners or co-venturers.
Litigation risks could affect our business.
As a publicly traded owner of properties, we have become and in the future may become involved in legal proceedings, including
consumer, employment, tort or commercial litigation, that if decided adversely to or settled by us, and not adequately covered by insurance, could result in liability that is material to our financial condition or results of operations.
Our performance and value are subject to risks associated with real estate assets and with the real estate industry.
Our ability to satisfy our financial obligations and make expected distributions to our security holders depends on our ability to generate cash revenues in excess of expenses and capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond our control may decrease cash available for distribution and the value of our properties. These events include:
•general
economic conditions;
•rising level of interest rates;
•local oversupply, increased competition or reduction in demand for student housing;
•inability to collect rent from tenants;
•vacancies or our inability to rent beds on favorable terms;
•inability to finance property development and acquisitions on favorable terms;
•increased operating costs, including insurance premiums, utilities, and real estate taxes;
•costs of complying with changes in governmental regulations;
•the
relative illiquidity of real estate investments;
•decreases in student enrollment at particular colleges and universities;
•changes in university policies related to admissions and housing; and
•changing student demographics.
In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases, which would adversely affect us.
Potential losses may not be covered by insurance.
We
carry fire, earthquake, terrorism, business interruption, vandalism, malicious mischief, boiler and machinery, commercial general liability and workers’ compensation insurance covering all of the properties in our portfolio under various policies. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. There are, however, certain types of losses, such as property damage from generally unsecured losses such as riots, wars, punitive damage awards or acts of God that may be either uninsurable or not economically insurable. Some of our properties are insured subject to limitations involving large deductibles and policy limits that may not be sufficient to cover losses. In addition, we may discontinue earthquake, terrorism or other insurance on some or all of our properties in the
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future
if the cost of premiums from any of these policies exceeds, in our judgment, the value of the coverage discounted for the risk of loss. If we experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged and require substantial expenditures to rebuild or repair. In the event of a significant loss at one or more of our properties, the remaining insurance under our policies, if any, could be insufficient to adequately insure our other properties. In such event, securing additional insurance, if possible, could be significantly more expensive than our current policies.
Unionization or work
stoppages could have an adverse effect on us.
We are at times required to use unionized construction workers or to pay the prevailing wage in a jurisdiction to such workers. Due to the highly labor intensive and price competitive nature of the construction business, the cost of unionization and/or prevailing wage requirements for new developments could be substantial. Unionization and prevailing wage requirements could adversely affect a new development’s profitability. Union activity or a union workforce could increase the risk of a strike, which would adversely affect our ability to meet our construction timetables.
We could incur significant costs related to government regulation and private litigation over environmental matters.
Under various environmental
laws, including the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), a current or previous owner or operator of real property may be liable for contamination resulting from the release or threatened release of hazardous or toxic substances or petroleum at that property, and an entity that arranges for the disposal or treatment of a hazardous or toxic substance or petroleum at another property may be held jointly and severally liable for the cost to investigate and clean up such property or other affected property. Such parties are known as potentially responsible parties (“PRPs”). Such environmental laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and the costs of any required investigation or cleanup of these substances can be substantial. PRPs are liable to the government as well as to other PRPs who may have claims for contribution. The
liability is generally not limited under such laws and could exceed the property’s value and the aggregate assets of the liable party. The presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for personal injury or property damage, or adversely affect our ability to sell, lease or develop the real property or to borrow using the real property as collateral.
Environmental laws also impose ongoing compliance requirements on owners and operators of real property. Environmental laws potentially affecting us address a wide variety of matters, including, but not limited to, asbestos-containing building materials (“ACBM”), storage tanks, storm water and wastewater discharges, lead-based paint, wetlands, and hazardous wastes. Failure to comply with these laws could result in fines and penalties or expose us to third-party
liability. Some of our properties may have conditions that are subject to these requirements and we could be liable for such fines or penalties or liable to third parties.
Insurance carriers have reacted to awards or settlements related to lawsuits against owners and managers of residential properties alleging personal injury and property damage caused by the presence of mold in residential real estate by excluding mold related programs designed to minimize the existence of mold in any of our properties as well as guidelines for promptly addressing and resolving reports of mold to minimize any impact mold might have on residents or the property.
Environmental liability at any of our properties may have a material adverse effect on our financial condition, results of operations, cash flow, the trading price
of our stock or our ability to satisfy our debt service obligations and pay dividends or distributions to our security holders.
We may incur significant costs complying with the Americans with Disabilities Act and similar laws.
Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Additional federal, state and local laws also may require modifications to our properties, or restrict our ability to renovate our properties. For example, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. We have not conducted an audit or investigation of all of our properties to determine our compliance with present requirements. Noncompliance
with the ADA or FHAA could result in the imposition of fines or an award or damages to the government or private litigants and also could result in an order to correct any non-complying feature. Also, discrimination on the basis of certain protected classes can result in significant awards to victims. We cannot predict the ultimate amount of the cost of
15
compliance with the ADA, FHAA or other legislation. If we incur substantial costs to comply with the ADA, FHAA or any other legislation, we could be materially and adversely affected.
The impact of climate change and damage from catastrophic weather and other natural events may adversely affect our financial condition or results of operations.
Certain
of our properties are located in areas that have experienced and may in the future experience catastrophic weather and other natural events from time to time, including fires, snow or ice storms, windstorms, tornadoes, hurricanes, earthquakes, flooding or other severe weather. In addition, to the extent that climate change does occur and exacerbates extreme weather and changes in precipitation and temperature, we may experience physical damage or decrease in demand for properties located in these areas or affected by these conditions. These adverse weather or natural events could cause substantial damages or losses to our properties which could exceed our insurance coverage. Should the impacts be material in nature or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected. In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve
the energy efficiency of our existing properties and could also require us to spend more on our new development properties without a corresponding increase in revenue.
We are in the process of implementing an enterprise resource planning (“ERP”) system and problems with the design or implementation of this system could interfere with our business and operations.
We are engaged in a multi-year implementation of an ERP system, which includes certain functionality that is designed internally which is in the process of being deployed in phases. The new ERP system replaces multiple business systems and maintains books and records, records transactions and provides important information related to the operations of our business to our management. The implementation of the new ERP system has required, and will continue to require,
the investment of significant personnel and financial resources. While we have invested, and will continue to invest, significant resources in planning and project management, implementation issues may arise during the course of the full deployment of the new ERP system, and it is possible we may experience delays, increased costs and other difficulties not presently contemplated. Any disruptions, delays or deficiencies in the design and implementation of the new ERP system could have a material adverse effect on our financial condition and results of operations.
Our business could be impacted as a result of actions by activist shareholders or others.
We have been subject and in the future may be subject to legal and business challenges in our operations due to actions instituted by activist shareholders or others.
Responding to such actions have been and could continue to be costly and time-consuming, may not align with our business strategies and could divert the attention of our Board of Directors and senior management from the pursuit of our business strategies. Perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a change in the direction of the business or other instability and may affect our relationships with universities, vendors, tenants, prospective and current employees and others.
Corporate social responsibility, specifically related to environmental, social, and governance (“ESG”) issues, may impose additional costs and expose us to new risks.
Sustainability, social and governance evaluations remain highly important to investors and other stakeholders.
Certain organizations that provide corporate governance and other corporate risk advisory services to investors have developed scores and ratings to evaluate companies and investment funds based upon ESG metrics. Many investors focus on ESG-related business practices and scores when choosing to allocate their capital and may consider a company's score as a reputational or other factor in making an investment decision. Investors' increased focus and activism related to ESG and similar matters may affect our business operations or increase expenses. In addition, investors may decide to refrain from investing in us as a result of their assessment of our approach to and consideration of ESG factors. We may face reputational damage in the event our corporate responsibility procedures or standards do not meet the standards set by various constituencies. In addition, the criteria by which companies are rated for ESG efforts may change, which could cause us to receive lower
scores than in previous years. A low ESG score could result in a negative perception of the Company, exclusion of our securities from consideration by certain investors who may elect to invest with our competition instead and/or cause investors to reallocate their capital away from the Company, all of which could have an adverse impact on the price of our securities.
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Risks Associated with Our Indebtedness and Financing
We
depend heavily on the availability of debt and equity capital to fund our business.
In order to maintain our qualification as a REIT, we are required under the Internal Revenue Code to distribute annually at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain. To the extent that we satisfy this distribution requirement but distribute less than 100% of our net taxable income, including any net capital gains, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws. Because of these distribution requirements, REITs are largely unable to fund capital expenditures, such as acquisitions,
renovations, development and property upgrades from operating cash flow. Consequently, we will be largely dependent on the public equity and debt capital markets and private lenders to provide capital to fund our growth and other capital expenditures. We may not be able to obtain this financing on favorable terms or at all. Our access to equity and debt capital depends, in part, on:
•general market conditions;
•our current debt levels and the number of properties subject to encumbrances;
•our current performance and the market’s perception of our growth potential;
•our cash flow and cash distributions; and
•the
market price per share of our common stock.
If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, satisfy our debt service obligations or make cash distributions to our stockholders, including those necessary to maintain our qualification as a REIT.
Disruptions in the financial markets could adversely affect our ability to obtain debt financing or to issue equity and impact our acquisitions and dispositions.
Dislocations and liquidity disruptions in capital and credit markets could impact liquidity in the debt markets, resulting in financing terms that are less attractive to us and/or the unavailability of certain types of debt financing. Should the
capital and credit markets experience volatility and the availability of funds become limited, or be available only on unattractive terms, we will incur increased costs associated with issuing debt instruments. In addition, it is possible that our ability to access the capital and credit markets may be limited or precluded by these or other factors at a time when we would like, or need, to do so, which would adversely impact our ability to refinance maturing debt and/or react to changing economic and business conditions. Uncertainty in the capital and credit markets could negatively impact our ability to make acquisitions and make it more difficult or not possible for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing. Potential disruptions in the financial markets could also have other unknown adverse effects
on us or the economy generally and may cause the price of our securities to fluctuate significantly and/or to decline.
Our debt level reduces cash available for distribution and could have other important adverse consequences.
As of December 31, 2021, our total consolidated indebtedness was approximately $3.5 billion (excluding unamortized mortgage debt premiums and discounts and original issue discounts). Our debt service obligations expose us to the risk of default and reduce or eliminate cash resources that are available to operate our business or pay distributions that are necessary to maintain our qualification as a REIT. There is no limit on the amount of indebtedness that we may incur except as provided by the covenants in our corporate-level debt. We
may incur additional indebtedness to fund future property development, acquisitions and other working capital needs, which may include the payment of distributions to our security holders. The amount available to us and our ability to borrow from time to time under our corporate-level debt is subject to certain conditions and the satisfaction of specified financial and other covenants. If the income generated by our properties and other assets fails to cover our debt service, we would be forced to reduce or eliminate distributions to our stockholders and may experience losses.
In addition, the indenture governing our outstanding senior unsecured notes contains financial and operating covenants that among other things, restrict our ability to take specific actions, even if we believe them to be in
our best interest, including restrictions on our ability to consummate a merger, consolidation or sale of all or substantially all of our assets and incur secured and unsecured indebtedness.
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Our level of debt and the operating limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:
•we may default on our scheduled principal payments or other obligations as a result of insufficient cash flow or otherwise;
•with respect to debt secured by our properties, the lenders or mortgagees may foreclose on such
properties and receive an assignment of rents and leases, and foreclosures could create taxable income without accompanying cash proceeds, a circumstance that could hinder our ability to meet the REIT distribution requirements imposed by the Internal Revenue Code; and
•compliance with the provisions of our debt agreements, including the financial and other covenants, such as the maintenance of specified financial ratios, could limit our flexibility and a default in these requirements, if uncured, could result in a requirement that we repay indebtedness, which could severely affect our liquidity and increase our financing costs.
We may be unable to renew, repay or refinance our outstanding debt.
We are subject to the risk that our indebtedness
will not be able to be renewed, repaid or refinanced when due or that the terms of any renewal or refinancing will not be as favorable as the existing terms of such indebtedness. If we were unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of our properties on disadvantageous terms, which might result in losses to us. In addition, if a property is mortgaged to secure payment of indebtedness and income from such property is insufficient to pay that indebtedness, the property could be foreclosed upon by the mortgagee resulting in a loss of income and a decline in our total asset value. If any of the foregoing occurs, such losses could have a material adverse effect on us and our ability to make distributions to our equity holders and pay amounts due on our debt.
Our variable rate debt exposes us to risks associated with
rising interest rates, including as a result of the phase out of LIBOR, which could adversely affect our cash flows.
As of December 31, 2021, we had outstanding approximately $331.0 million of fixed and variable rate debt that was indexed to the London Interbank Offered Rate (“LIBOR”). In late 2021, it was announced the London Interbank Offered Rate (“LIBOR”) interest rates will cease publication altogether by June 30, 2023. To address the potential for LIBOR’s cessation, the Federal Reserve Board and the Federal Reserve Bank of New York (FRBNY), in coordination with multiple other regulators and large industry participants, convened the Alternative Reference Rates Committee (“ARRC”). The ARRC has identified the Secured Overnight Financing Rate (SOFR) as the preferred
successor rate for LIBOR. We intend to incorporate relatively standardized replacement rate provisions into our LIBOR-indexed debt documents, including a spread adjustment mechanism designed to equate to the current LIBOR “all in” rate. There is significant uncertainty with respect to the implementation of the phase out and what alternative indexes will be adopted which will ultimately be determined by the market as a whole. It therefore remains uncertain how such changes will be implemented and the effects such changes would have on us and the financial markets generally. These changes may have a material adverse impact on the availability of financing and on our financing costs. Also, increases in interest rates on variable rate debt would increase our interest expense and the cost of refinancing existing debt and incurring new debt, unless we make arrangements that hedge the risk of rising interest rates, which would adversely affect net income and cash available
for payment of our debt obligations and distributions to equity holders.
Failure to maintain our current credit ratings could adversely affect our cost of funds, liquidity and access to capital markets.
Moody’s and Standard & Poor’s, the major debt rating agencies, have evaluated our debt and have given us ratings of Baa2 and BBB, respectively. These ratings are based on a number of factors, which include their assessment of our financial strength, liquidity, capital structure, asset quality and sustainability of cash flow and earnings. Due to changes in market conditions, we may not be able to maintain our current credit ratings, which will adversely affect the cost of funds under our credit facilities, and could also adversely affect our liquidity and access to capital markets.
We
may incur losses on interest rate swap and hedging arrangements.
We may periodically enter into agreements to reduce the risks associated with increases in interest rates. Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to us if interest rates decline. If
18
an arrangement is not indexed to the same rate as the indebtedness that is hedged, we may be exposed to losses to the extent which the rate governing the indebtedness and the rate governing the hedging arrangement change independently of each other. Finally, nonperformance by the other party to the arrangement may subject us to increased credit risks.
Risks
Related to Our Organization and Structure
Our stock price will fluctuate.
The market price and volume of our common stock will fluctuate due not only to general stock market conditions but also to the risk factors discussed above and below and the following:
•operating results that vary from the expectations of securities analysts and investors;
•investor interest in our property portfolio;
•the reputation and performance of REITs;
•the attractiveness of REITs as compared to other investment vehicles;
•our
financial condition and the results of our operations;
•the perception of our growth and earnings potential;
•dividend payment rates and the form of the payment;
•increases in market interest rates, which may lead purchasers of our common stock to demand a higher yield;
•the issuance of ratings and scores related to corporate social responsibility and ESG reports and disclosures; and
•changes in financial markets and national economic and general market conditions.
To qualify as a REIT, we may be forced to limit the activities of a TRS.
To
qualify as a REIT, no more than 20% of the value of our total assets may consist of the securities of one or more taxable REIT subsidiaries, or TRSs. Certain of our activities, such as our third-party development, management and leasing services, must be conducted through a TRS for us to qualify as a REIT. In addition, certain non-customary services must be provided by a TRS or an independent contractor. If the revenues from such activities create a risk that the value of our TRS entities, based on revenues or otherwise, approaches the 20% threshold, we will be forced to curtail such activities or take other steps to remain under the 20% threshold. Since the threshold is based on value, it is possible that the IRS could successfully contend that the value of our TRS entities exceeds the threshold even if the TRS accounts for less than 20% of our consolidated revenues, income
or cash flow. Five of our six on-campus participating properties and our third-party services are held by a TRS. Consequently, income earned from five of our six on-campus participating properties and our third-party services will be subject to regular federal income taxation and state and local income taxation where applicable, thus reducing the amount of cash available for distribution to our security holders. Our TRS entities’ income tax returns are subject to examination by federal, state and local tax jurisdictions, and the methodology used in determining taxable income or loss for those subsidiaries is therefore subject to challenge in any such examination.
A TRS is not permitted to directly or indirectly operate or manage a “hotel, motel or other establishment more than one-half of the
dwelling units in which are used on a transient basis.” We believe that our method of operating our TRS entities will not be considered to constitute such an activity. Future Treasury Regulations or other guidance interpreting the applicable provisions might adopt a different approach, or the IRS might disagree with our conclusion. In such event we might be forced to change our method of operating our TRS entities, which could adversely affect us, or one of our TRS entities could fail to qualify as a taxable REIT subsidiary, which would likely cause us to fail to qualify as a REIT.
Failure to qualify as a REIT would have significant adverse consequences to us and the value of our securities.
We intend to operate in a manner that will allow us to qualify as a REIT for federal income tax purposes under
the Internal Revenue Code. If we lose our REIT status, we will face serious tax consequences that would substantially reduce or eliminate the funds available for investment and for distribution to security holders for each of the years involved, because:
•we would not be allowed a deduction for dividends to security holders in computing our taxable income and such amounts would be subject to federal income tax at regular corporate rates;
•we also could be subject to increased state and local taxes; and
•unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.
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In
addition, if we fail to qualify as a REIT, we will not be required to pay dividends to stockholders, and all dividends to stockholders will be subject to tax as ordinary income to the extent of our current and accumulated earnings and profits. As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and would adversely affect the value of our common stock.
Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury Regulations that have been promulgated under the Internal Revenue Code is greater in the case of a REIT that, like us, holds its assets through a partnership or a limited liability company. The determination
of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the composition of our assets and two “gross income tests”: (a) at least 75% of our gross income in any year must be derived from qualified sources, such as rents from real property, mortgage interest, dividends from other REITs and gains from sale of such assets, and (b) at least 95% of our gross income must be derived from sources meeting the 75% income test above, and other passive investment sources, such as other interest and dividends and gains from sale of securities. Also, we must pay dividends to stockholders aggregating annually at least 90% of our REIT taxable income, excluding any net capital gains. In addition, legislation, new regulations, administrative interpretations or court decisions may adversely affect our investors,
our ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.
Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer or if a TRS enters into agreements with us or our tenants on a basis that is determined to be other than an arm’s length basis.
Our charter contains restrictions on the ownership and transfer of our stock.
Our charter provides that, subject to certain exceptions, no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive
ownership provisions of the Internal Revenue Code, more than 9.8% (by value or by number of shares, whichever is more restrictive) of the outstanding shares of our common stock or more than 9.8% by value of all our outstanding shares, including both common and preferred stock. We refer to this restriction as the “ownership limit.” A person or entity that becomes subject to the ownership limit by virtue of a violative transfer that results in a transfer to a trust is referred to as a “purported beneficial transferee” if, had the violative transfer been effective, the person or entity would have been a record owner and beneficial owner or solely a beneficial owner of our stock, or is referred to as a “purported record transferee” if, had the violative transfer been effective, the person or entity would have been solely a record owner of our stock.
The constructive ownership
rules under the Internal Revenue Code are complex and may cause stock owned actually or constructively by a group of related individuals and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% of our stock (or the acquisition of an interest in an entity that owns, actually or constructively, our stock) by an individual or entity, could, nevertheless cause that individual or entity, or another individual or entity, to own constructively in excess of 9.8% of our outstanding stock and thereby subject the stock to the ownership limit. Our charter, however, requires exceptions to be made to this limitation if our board of directors determines that such exceptions will not jeopardize our tax status as a REIT. This ownership limit could delay, defer or prevent a change of control or other transaction that might involve a premium price for our common stock or otherwise be in the best interest of our security holders.
Certain
tax and anti-takeover provisions of our charter and bylaws may inhibit a change of our control.
Certain provisions contained in our charter and bylaws and the Maryland General Corporation Law may discourage a third-party from making a tender offer or acquisition proposal to us. If this were to happen, it could delay, deter or prevent a change in control or the removal of existing management. These provisions also may delay or prevent the security holders from receiving a premium for their securities over then-prevailing market prices. These provisions include:
•the REIT ownership limit described above;
•authorization of the issuance of our preferred shares with powers, preferences or rights to be determined by our board of directors;
•the right of our board of directors, without a stockholder vote, to increase our authorized shares and classify or reclassify unissued shares;
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•advance-notice requirements for stockholder nomination of directors and for other proposals to be presented to stockholder meetings; and
•the requirement that a majority vote of the holders of common stock is needed to remove a member of our board of directors for “cause.”
The Maryland business statutes also impose potential restrictions on a change of control of our Company.
Various Maryland laws may have the effect of discouraging offers to acquire us, even if the acquisition would be advantageous to security holders. Our bylaws exempt us from some of those laws, such as the control share acquisition provisions, but our board of directors can change our bylaws at any time to make these provisions applicable to us.
Our rights and
the rights of our security holders to take action against our directors and officers are limited.
Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believe to be in our best interests and with the care that an ordinary prudent person in a like position would use under similar circumstances. In addition, our charter eliminates our directors’ and officers’ liability to us and our stockholders for money damages except for liability resulting from actual receipt of an improper benefit in money, property or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action. Our bylaws require us to indemnify directors and officers
for liability resulting from actions taken by them in those capacities to the maximum extent permitted by Maryland law. As a result, we and our security holders may have more limited rights against our directors and officers than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by our directors and officers.
Item 1B. Unresolved Staff Comments
There were no unresolved comments from the staff of the SEC at December 31, 2021.
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Item
2. Properties
The following table presents certain summary information about our properties. Our properties generally are modern facilities, and amenities at most of our properties include a swimming pool and a large community center featuring a fitness center, computer center, study areas, and a recreation room with billiards and other games. Some properties also have a jacuzzi/hot tub, volleyball courts, tennis courts, in-unit washers and dryers, and food service facilities. Leases at our off-campus properties typically require 12 rental installments. Leases at our residence hall properties typically correspond to the university’s academic year and require nine or ten rental installments.
These properties are included in the Owned Properties and On-Campus Participating Properties segments discussed in
Item 1 and Note 16 in the accompanying Notes to Consolidated Financial Statements contained in Item 8. We own fee title to all of these properties except for properties subject to ground/facility leases and our on-campus participating properties, as discussed more fully in Note 2 and Note 14 in the accompanying Notes to Consolidated Financial Statements contained in Item 8. All dollar amounts in this table and others herein, except bed, unit, and per bed amounts, are stated in thousands unless otherwise indicated.
University Village & University Village Northwest at Prairie View
1998
Aug-98
Prairie View A&M University
9
$
11,916
$
693
648
2,064
University
Village at Laredo
1997
Aug-97
Texas A&M International University
9
1,793
732
84
250
University College at Prairie View
2001
Aug-00
Prairie
View A&M University
9
8,159
665
756
1,470
Cullen Oaks
2003
Aug-01
The University of Houston
9
4,936
916
411
879
College
Park
2014
Aug-14
West Virginia University
12
4,403
717
224
567
TOTAL - ON-CAMPUS PARTICIPATING PROPERTIES
$
31,207
$
719
2,123
5,230
GRAND
TOTAL- ALL PROPERTIES
$
918,292
$
787
36,546
111,904
(1)A number of our properties consist of two or more phases that are counted separately in the property portfolio numbers disclosed in Item 7 and Note 1 in the accompanying Notes to Consolidated
Financial Statements contained in Item 8.
(2)For properties with multiple phases, the year built represents the weighted average year based on the number of beds delivered each year.
(3)Includes base rental revenue and other income, which includes, but is not limited to, utility income, damages, parking income, summer conference rent, application fees, income from retail tenants, etc. Other income also includes the provision for uncollectible accounts.
(4)Average monthly rental revenue per bed is calculated based upon our base rental revenue earned during the year ended December 31, 2021 divided by average monthly occupied beds over the lease term.
(5)Our
same store owned portfolio represents properties that were owned and operated by us for the full years ended December 31, 2020 and 2021, which are not conducting or planning to conduct substantial development, redevelopment or repositioning activities, and are not classified as held for sale as of December 31, 2021.
(6)As rent at this property includes food services, revenue is not comparable to the other properties in this table.
(7)Includes 739 beds delivered as a part of Phase VI for which construction was substantially complete as of December 31, 2021, but were not occupied until January 2022.
(8)Excludes
revenues from three land parcels with non-student housing structures that were acquired by the Company with the intention of ultimately demolishing them in order to build student housing projects. These projects are currently in predevelopment and generated revenues of approximately $2.0 million during the year ended December 31, 2021.
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Occupancy information for our property portfolio for the year ended and as of December 31, 2021 is set forth below:
(1)Average occupancy is calculated based on the average number of occupied beds for the year ended December 31, 2021 divided by total beds. For properties with typical lease terms shorter than 12 months, average occupancy
includes the impact of significantly lower occupancy during the summer months. Average occupancy for properties which commenced operations during 2021 is calculated based on the period these properties were operational during 2021.
(2)Our same store owned portfolio represents properties that were owned and operated by us for the full years ended December 31, 2020 and 2021, which are not conducting or planning to conduct substantial development, redevelopment or repositioning activities, and are not classified as held for sale as of December 31, 2021.
(3)Reduced weighted average occupancy due to the recommencement of the Disney College Program in May 2021 as well as the staggered timing
of delivered phases of the project during 2021.
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Item 3. Legal Proceedings
We are subject to various claims, lawsuits, and legal proceedings that have not been fully resolved and that have arisen in the ordinary course of business. While it is not possible to ascertain the ultimate outcome of such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on our consolidated financial
position or results of operations. However, the outcome of claims, lawsuits, and legal proceedings brought against us are subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, the ultimate results of these matters cannot be predicted with certainty.
Refer to the Litigation section of Note 15 in the accompanying Notes to Consolidated Financial Statements contained in Item 8 for additional discussion.
Item 4. Mine Safety Disclosures
Not applicable.
PART
II
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters
The Company’s common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “ACC.” As of February 18, 2022, there were approximately 152 holders of record, 80,513 beneficial owners of the Company’s common stock and 139,156,913 shares of common stock outstanding. The number of holders does not
include individuals or entities who beneficially own shares that are held by a broker or clearing agency, but does include each such broker or clearing agency as one record holder.
We intend to continue to declare quarterly distributions on our common stock. The actual amount, timing and form of payment of distributions, however, will be at the discretion of our Board of Directors and will depend upon our financial condition in addition to the requirements of the Code, and no assurance can be given as to the amounts, timing, or form of payment of future distributions.
See Part III, Item 12, for a description of securities authorized for issuance under equity compensation plans.
Item
6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We are one of the largest owners, managers, and developers of high quality student housing properties in the United States. We are 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. Refer to Item 1 contained herein for additional information regarding our business objectives, investment strategies, and operating segments.
We believe that the ownership and operation of student housing communities in close proximity to selected colleges and universities presents an attractive long-term investment opportunity for our investors. We intend to continue to execute our strategy of identifying existing differentiated, typically highly amenitized, student housing communities or development opportunities in close proximity to university campuses with high barriers to entry which are projected to experience substantial increases in enrollment and/or are under-serviced in terms of existing on and/or off-campus student housing.
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Property
Portfolio
Below is a summary of our property portfolio as of December 31, 2021:
Property portfolio
Properties
Beds
Owned operating properties
Off-campus
properties
126
70,234
On-campus ACE®(1) (2) (3)
33
32,023
Subtotal – operating properties
159
102,257
Owned
properties under development
On-campus ACE® (2) (4)
1
4,417
Subtotal – properties under development
1
4,417
Total
owned properties
160
106,674
On-campus participating properties
6
5,230
Total owned property portfolio
166
111,904
Managed
properties
37
28,968
Total property portfolio
203
140,872
(1)Includes two properties at Prairie View A&M University that we ultimately expect to be refinanced under the existing on-campus participating structure.
(2)Includes 33 properties operated under ground/facility
leases with 16 university systems and one property operated under a ground/facility lease with Walt Disney World® Resort which consists of ten phases, six of which were delivered as of December 31, 2021, with the remainder anticipated to be delivered in 2022 and 2023.
(3)Includes 739 beds for which construction was substantially complete as of December 31, 2021 but were not open for occupancy until January 2022.
(4)The Walt Disney World®Resort project consists of one property with multiple phases delivered through 2023; as such, only the beds for remaining phases to be
completed are included in the beds for owned properties under development. Beds for any completed phases of this project are included in owned operating properties beds.
Leasing Results
Our financial results for the year ended December 31, 2021 are impacted by the results of our annual leasing process for the 2020/2021 and 2021/2022 academic years. As of September 30, 2020, the beginning of the 2020/2021 academic year, occupancy at our 2021 same store properties was 90.3% with a rental rate increase of 1.1% compared to the prior academic year, and occupancy at our total owned property portfolio (including two development properties completed in Fall 2020) was 89.9%. Our leasing results for the 2020/2021
academic year were negatively impacted by general uncertainty associated with COVID-19, with university policies affecting students’ housing decisions and preferences. However, leasing results for the 2021/2022 academic year for both our Company and the broader student housing sector improved significantly due to many universities reinstating on-campus housing policies and resuming in-person campus activities. As of September 30, 2021, the beginning of the 2021/2022 academic year, occupancy at our 2022 same store properties was 95.8% with a rental rate increase of 3.8% compared to the prior academic year.
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Owned
Development
The Company is in the process of constructing a ten-phase housing project under our ACE® structure with scheduled phase deliveries from 2020 to 2023 for Walt Disney World® Resort that will serve student interns participating in the highly competitive Disney College Program (“Disney College Program” or “DCP”). As of December 31, 2021, the Company has completed construction on six phases of the project within the targeted delivery timeline, and the remaining phases are anticipated to be delivered in 2022 and 2023. In May 2021,
Walt Disney World® Resort announced that it was recommencing the DCP in the summer of 2021 after temporarily suspending the program in 2020 due to the COVID-19 pandemic. As of December 31, 2021, occupancy at the completed phases of the project was approximately 83.4%.
Owned Development Projects Recently Completed
During the year ended December 31, 2021, the final stages of construction were completed for the following phases of the Disney College Program project as summarized in the table below:
University
/ Market Served
Project
Location
Beds
Total Project Cost
Construction Completed
Walt
Disney World® Resort
Disney College Program Phase III
Orlando, FL
984
$
54,400
January 2021
Disney College Program Phases IV
Orlando, FL
1,521
84,500
May
2021
Disney College Program Phases V (1)
Orlando, FL
1,152
71,900
July 2021
Disney College Program Phases VI (1) (2)
Orlando, FL
739
49,800
December
2021
4,396
$
260,600
(1)Beds and total project costs per phase amounts may vary from those previously disclosed due to early deliveries of beds at certain phases.
(2)Initial occupancy occurred in January 2022.
Owned
Development Project Under Construction
At December 31, 2021, we were in process of constructing the remaining phases of the Disney College Program project as summarized in the table below:
University
/ Market Served
Project
Location
Beds
Estimated Project Cost
Total Costs Incurred
Scheduled Completion
Walt
Disney World® Resort
Disney College Program Phases VII-VIII
Orlando, FL
2,208
$
122,800
$
113,587
May & Aug 2022
Disney College Program Phases IX-X
Orlando,
FL
2,209
122,700
99,164
Jan & May 2023
4,417
$
245,500
$
212,751
Third-Party
Development and Management Services
Through ACC’s TRS entities, we provide development and construction management services for student housing properties owned by colleges and universities, charitable foundations, and others. During the year ended December 31, 2021, the final stages of construction were completed on the property summarized in the following table:
University
/ Market Served
Project
Location
Beds
Total Fees
Construction Completed
University
of California, Riverside
North District Phase I
Riverside, CA
1,506
$
6,700
August 2021
As
of December 31, 2021, we were under contract on five third-party development projects that are currently under construction and whose fees total $17.9 million. As of December 31, 2021, fees of approximately $9.1 million remained to be earned by the Company with respect to these projects, which have scheduled completion dates in 2022 and 2023.
As of December 31, 2021, we also provided third-party management and leasing services for i37
properties that represented approximately i29,000 beds.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions in certain circumstances that affect amounts reported in our consolidated financial statements and related notes. In preparing these financial statements, management has utilized all available information, including its past history, industry standards, and the current economic environment, among other factors, in forming its estimates and judgments of certain amounts included in the consolidated financial statements, giving due consideration to materiality. It is possible that the ultimate outcome anticipated by management in formulating its estimates may not be realized. Application of the critical accounting policies below involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In addition, other companies in similar businesses may utilize different
estimation policies and methodologies, which may impact the comparability of our results of operations and financial condition to those companies.
Capital Expenditures
We capitalize costs during the development of owned assets. Capitalization begins when we determine that development of a future asset is probable and continues until the asset, or a portion of the asset, is delivered and is ready for its intended use. As such, our judgment of the date the project is substantially complete has a direct impact on our operating expenses for the period. We also capitalize pre-development costs incurred in pursuit of development of a property. These costs include legal fees, design fees, regulatory fees, and other related costs. Future development of these pursuits is dependent upon various factors, including zoning
and regulatory approval, rental market conditions, construction costs, and availability of capital. Pre-development costs incurred for pursuits for which future development is not yet considered probable are expensed as incurred. The determination of whether a project is probable requires judgment. If we determine that a project is probable, operating expenses could be materially different than if we determine the project is not probable. We also capitalize other costs that are directly identifiable with a specific development property, such as payroll costs associated with corporate staff who oversee such development activities. We also capitalize non-recurring expenditures for additions and betterments to buildings and land improvements. In addition, we generally capitalize expenditures for exterior painting, roofing, and other major maintenance projects that substantially extend the useful life of the existing assets. The cost of ordinary repairs and maintenance
that do not improve the value of an asset or extend its useful life are charged to expense when incurred.
For all owned predevelopment and development projects, as well as additions and betterments, the Company uses its professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. There may be a change in our operating expenses in the event that there are changes to the level of our owned development activities. For instance, if we reduce our owned development activities, there may be an increase in our operating expenses. The costs capitalized related to projects in the predevelopment phase for which construction has not yet commenced, are included in other assets on the consolidated balance sheets. Owned predevelopment project costs
capitalized during the years ended December 31, 2021, 2020, and 2019 were $8.1 million, $6.8 million, and $2.9 million, respectively. The costs capitalized related to owned development projects under construction, as well as additions and betterments, are reported on the consolidated balance sheets as investments in real estate, net of accumulated depreciation. Owned development project costs capitalized during the years ended December 31, 2021, 2020, and 2019 were $210.0 million, $357.7 million, and $487.8 million, respectively.
Impairment of Long-Lived Assets
Management
assesses on a property-by-property basis whether there are any indicators that the value of our real estate assets held for use may be impaired. This analysis is performed at least annually or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal, regulatory and environmental concerns, the Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties. A property’s value is considered impaired if management’s estimate of the aggregate future undiscounted cash flows to be generated by the property is less than the carrying value of the property. The estimation of expected future net cash flows uses estimates, including capitalization
rates and growth rates, which are inherently uncertain and rely on assumptions regarding current and future economics and market conditions. To the extent an impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the fair value of the property, thereby reducing our net income. Management also performs a periodic assessment to determine which of our properties are likely to be sold prior to the end of their estimated useful lives. The criteria for determining when a property is held for sale requires judgment and has potential financial statement impact as depreciation would cease and an impairment loss could occur upon determination of held
31
for sale status. For those probable sales, an impairment charge is recorded
for any excess of the carrying amount of the property over the estimated fair value less estimated selling costs, thereby reducing our net income.
The following table presents our results of operations for the years ended December 31, 2021
and 2020, including the amount and percentage change in these results between the two periods.
Net income attributable to ACC, Inc. and Subsidiaries common stockholders
$
35,489
$
72,803
$
(37,314)
(51.3)
%
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Same
Store and New Property Operations
We define our same store property portfolio as owned properties that were owned and operating for both of the full years ended December 31, 2021 and December 31, 2020, which are not conducting or planning to conduct substantial development, redevelopment, or repositioning activities, and are not classified as held for sale as of December 31, 2021. It also includes the full operating results of properties owned through joint ventures in which the Company has a controlling financial interest and which are consolidated for financial reporting purposes.
Same
store revenues are defined as revenues generated from our same store portfolio and consist of rental revenue earned from student leases as well as other income items such as utility income, damages, parking income, summer conference rent, application and administration fees, income from retail tenants, the provision for uncollectible accounts, and income earned by our taxable REIT subsidiaries (“TRS”) from ancillary activities such as the provision of food services.
Same store operating expenses are defined as operating expenses generated from our same store portfolio and include usual and customary expenses incurred to operate a property such as payroll, maintenance, utilities, marketing, general and administrative costs, insurance, and property taxes. Same store operating expenses also include an
allocation of payroll and other administrative costs related to corporate management and oversight.
A reconciliation of our same store, new property, and sold/other property operations to our consolidated statements of comprehensive income is set forth below:
(1)Property
count does not include the Walt Disney World® Resort project which is counted as one property under development and consists of ten phases, five of which were available for occupancy as of December 31, 2021, with the remaining phases anticipated to be available for occupancy in 2022 and 2023. Bed count includes the beds for the five phases of this project that were available for occupancy as of December 31, 2021.
(2)Does not include the allocation of payroll and other administrative costs related to corporate management and oversight. Includes professional fees related to the operation of consolidated joint ventures that are included in owned properties operating expenses in the accompanying consolidated statements of comprehensive
income.
(3)Does not include properties under construction or undergoing redevelopment.
Same Store Properties: The increase in revenues from our same store properties was primarily due to a decrease in COVID-19 related concessions provided during the year ended December 31, 2021 as compared to December 31, 2020, including rent forgiven as a part of our Resident Hardship Program, rent refunds provided to tenants at our on-campus ACE® properties and certain off-campus residence halls, and waived fees. The increase in revenues was also driven by an increase in rental rates and fee income, offset by a slight decrease in weighted average occupancy from 89.3%
for the year ended December 31, 2020 to 89.2% for the year ended December 31, 2021. Future revenues will be dependent on our ability to maintain our current leases in effect for the 2021/2022 academic year and our ability to obtain appropriate rental rates and desired occupancy for the 2022/2023 academic year at our properties.
The increase in operating expenses for our same store properties was primarily due to the normalization of the Company’s operations in 2021, as compared to the prior year which was significantly impacted by COVID-19. We anticipate that operating expenses for our same store property portfolio for 2022 will increase as compared to 2021 due to increases in property tax and insurance
expenses, payroll costs, and general inflationary factors.
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New Property Operations: Our new properties for the year ended December 31, 2021 include development properties that opened for occupancy in 2020 and 2021. These properties are summarized in the table below:
As of December 31, 2021, we had six on-campus participating properties containing 5,230 beds. Revenues from these properties increased by $1.3 million, from $29.9 million for the year ended December
31, 2020, to $31.2 million for the year ended December 31, 2021. The increase is primarily due to COVID-19 related concessions provided in 2020 as well as increases in rental rates, fee income, and summer camp and conference revenue. These increases were offset by a slight decrease in average occupancy from 67.8% for the year ended December 31, 2020, to 66.8% for the year ended December 31, 2021. Future revenues will be dependent on our ability to maintain our current leases in effect for the 2021/2022 academic year and our ability to obtain appropriate rental rates and desired occupancy for the 2022/2023 academic year at our OCPPs.
Operating expenses at these properties increased by $0.8 million, from $13.5 million for the year ended
December 31, 2020, to $14.3 million for the year ended December 31, 2021. This increase was primarily due to increases in maintenance and utilities expenses as a result of the normalization of operations during 2021. We anticipate that operating expenses for our OCPPs for 2022 will increase as compared to 2021 due to the continued normalization of operations as discussed above.
Third-Party Development Services Revenue
Third-party development services revenue increased by approximately $2.7 million, from $7.5 million during the year ended December 31, 2020, to $10.2 million for the year ended December 31, 2021.
The increase was primarily due to the commencement of construction of a second phase project at Concordia University, the Lake Campus Housing project at Princeton University, the Kelly Hall Renovation project at Drexel University and the closing of bond financing and commencement of construction of a fifth phase at University of California, Irvine during the current year, which contributed $6.5 million of revenue during the year ended December 31, 2021, as compared to the commencement of construction at the Capitol Campus Housing project at Georgetown University during the prior year which contributed approximately $1.8 million in revenue during the year ended December 31, 2020. This increase was partially offset by a $1.2 million decrease in incentive fees earned during the comparable periods related to cost savings from completed development projects and a $0.8 million
decrease related to continued development services revenues for projects that commenced construction in 2018, 2019, and 2020.
Development services revenues are dependent on our ability to successfully be awarded such projects, the amount of the contractual fee related to the project, and the timing and completion of the development and construction of the project. In addition, to the extent projects are completed under budget, we may be entitled to a portion of such savings, which are recognized as revenue when performance has been agreed upon by all parties, or when performance has been verified by an independent third-party. It is possible that projects for which we have deferred pre-development costs will not close and that we will not be reimbursed for such costs. The pre-development costs associated therewith will ordinarily be charged against income for the then-current period. We
anticipate that third-party development services revenue will increase in 2022 as compared to 2021 due to a large number of projects in our development pipeline that are anticipated to close and commence construction in 2022, including both newly awarded projects and/or projects previously delayed as a result of COVID-19.
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Third-Party Development and Management Services Expenses
Third-party development and management services expenses decreased by approximately $1.1 million, from $21.7 million during the year ended December 31, 2020, to $20.6 million for the year ended December
31, 2021. The decrease was primarily due to a decrease in payroll and security costs related to a decrease in the number of properties managed near Walt Disney World® Resort that are no longer managed, as well as a decrease in the provision for uncollectible accounts related to accounts receivable from third-party development and management projects. We anticipate third-party development and management services expenses will decrease in 2022 as compared to 2021 due to the decrease in the number of managed properties located near Walt Disney World® Resort, as Disney College Program participants transition to the Company's Flamingo Crossings owned development project.
General
and Administrative
General and administrative expenses increased by approximately $9.7 million, from $35.8 million during the year ended December 31, 2020, to $45.5 million for the year ended December 31, 2021. The increase was primarily due to the following items incurred during the year ended December 31, 2021: (i) $2.6 million in accelerated amortization of unvested restricted stock awards due to the retirement of the Company’s President in August 2021; (ii) a $1.3 million increase in consulting, legal, and other related costs incurred in relation to stockholder activism activities over the comparative periods; (iii) a $0.6 million increase in compensation
expense related to the appointment of three new Board of Directors members in January 2021; (iv) increases in insurance expense; (v) increases in incentive payroll expenses driven by improved operational performance in 2021; (vi) increases in expenses incurred in connection with enhancements to our operating systems platform; and (vii) other general inflationary factors. We anticipate general and administrative expenses will decrease in 2022 as compared to 2021 due to $4.2 million in expenses incurred in 2021 that were not in the ordinary course of business. This includes $2.6 million in accelerated amortization of unvested restricted stock awards due to the retirement of the Company's President in August 2021 and $1.6 million in consulting, legal, and other related costs incurred in relation to stockholder activism activities in preparation for the
Company's annual stockholders' meetings. Excluding any such items incurred in 2022 that are not in the ordinary course of business, the increase in general and administrative expenses in 2022 is anticipated to be inflationary.
Depreciation and Amortization
Depreciation and amortization increased by approximately $7.9 million, from $267.7 million during the year ended December 31, 2020, to $275.6 million for the year ended December 31, 2021. This increase was primarily due to an increase of $10.7 million related to the completion of construction and opening of owned development properties in 2020 and 2021. This increase was offset by a $2.0 million decrease in depreciation and amortization expense at our same
store properties due to assets that became fully amortized or depreciated during the year ended December 31, 2021 and a $0.6 million decrease in depreciation of corporate assets. We anticipate depreciation and amortization expense will decrease in 2022 as compared to 2021 as certain assets at our same store properties will become fully amortized during the year.
Ground/Facility Leases
Ground/facility leases expense increased by approximately $4.2 million from $13.5 million during the year ended December 31, 2020, to $17.7 million for the year ended December 31, 2021. The increase was primarily due to the additional expense incurred at our Disney College Program Project
as a result of the reinstatement of the Disney College Program in May 2021 and ACE® development projects that completed construction in 2020. We anticipate ground/facilities leases expense will increase in 2022 as compared to 2021 for the reasons discussed above.
Gain from Disposition of Real Estate
During the year ended December 31, 2020, we sold one owned property containing 901 beds, resulting in a gain from disposition of real estate of approximately $48.5 million. Refer to Note 6 in the accompanying Notes to Consolidated Financial Statements contained in Item 8 for additional details.
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Other
Operating Expenses
Other operating expenses for the year ended December 31, 2021, include a $2.5 million charitable donation to Arizona State University in December 2021 in connection with the joint venture transaction described in Note 6 of the accompanying Notes to Consolidated Financial Statements contained in Item 8 herein and a $2.0 million litigation settlement described in Note 15 of the accompanying Notes to Consolidated Financial Statements contained in Item 8 herein. Other operating expenses for the year ended December 31, 2020, include a $1.1 million litigation settlement. We do not anticipate similar expenses in 2022 as those incurred in 2021 were not in the ordinary course of business.
Interest
Income
Interest income decreased by approximately $1.5 million, from $2.9 million during the year ended December 31, 2020, to $1.4 million for the year ended December 31, 2021. The decrease was primarily due to the early repayment of a note receivable in October 2020. Refer to Note 2 in the accompanying Notes to the Consolidated Financial Statements contained in Item 8 for additional details regarding the early repayment of the note receivable. We anticipate interest income will remain constant in 2022 as compared to 2021.
Interest Expense
Interest expense increased by approximately $5.3 million, from $112.5 million during the year ended December
31, 2020, to $117.8 million for the year ended December 31, 2021. The increase was primarily due to $9.0 million of additional interest incurred related to our offerings of unsecured notes in January 2020, June 2020, and October 2021, which is net of a reduction in interest expense related to the early repayment of unsecured notes in January 2020 that were originally scheduled to mature in October 2020, as well as a $3.5 million decrease in capitalized interest, which is based on the timing of completion of our owned development pipeline. These items were offset by: (i) a $3.6 million decrease due to the pay-off of mortgage debt; (ii) a $2.8 million decrease in interest expense on our revolving credit facility due to a decrease in LIBOR rates and a decrease in the spread, which changed from 1.0% to 0.85% as a part of the renewal of the facility in May 2021; and (iii) a $0.6 million decrease related to our OCPPs
driven by the refinance of the mortgage loan on one OCPP property that was swapped to a fixed rate as well as scheduled principal payments on OCPP debt. We anticipate interest expense will increase in 2022 as compared to 2021 due to a full year of interest expense related to the unsecured notes issued in October 2021 and a decrease in capitalized interest related to the delivery of additional phases of our owned development project located at Walt Disney World® Resort.
Amortization of Deferred Financing Costs
Amortization of deferred financing costs increased by approximately $0.5 million, from $5.3 million during the year ended December 31, 2020, to $5.8 million for the year ended December
31, 2021. This increase was primarily due to an $0.8 million increase associated with the renewal of our revolving credit facility in May 2021, the issuance of unsecured notes in June 2020 and October 2021, and the refinance of a mortgage loan at one of our OCPPs in January 2021. We anticipate amortization of deferred financing costs will increase in 2022 as compared to 2021 due to the reason discussed above.
Loss from Extinguishment of Debt
During the year ended December 31, 2020, we recognized a $4.8 million loss on the extinguishment of debt related to the early redemption of our $400 million 3.35% Senior Notes due October 2020. The redemption was funded using net proceeds from the Operating Partnership’s closing of a $400 million offering of senior unsecured
notes under its existing shelf registration in January 2020. Refer to Note 8 in the accompanying Notes to the Consolidated Financial Statements contained in Item 8 for additional details regarding the Company's debt.
Other Nonoperating Income
Other nonoperating income decreased by approximately $3.2 million, from $3.5 million during the year ended December 31, 2020, to $0.3 million for the year ended December 31, 2021. This decrease was primarily due to a $2.1 million gain associated with the write-off of the unamortized discount due to the early repayment of a note receivable in October 2020 and a $1.1 million gain related
to the settlement of a litigation matter recognized during the year ended December 31, 2020.
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Net Loss Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests represents consolidated joint venture partners’ share of net loss, as well as net loss allocable to OP unitholders. Net loss attributable to noncontrolling interests decreased by $0.8 million, from $3.0 million for the year ended December 31, 2020, to $2.2 million for the year ended December 31, 2021. The decrease
in the net loss is due to improved operational performance at the properties in the joint ventures during the year ended December 31, 2021 compared to the year ended December 31, 2020 which was impacted by COVID-19. Refer to Note 10 in the accompanying Notes to Consolidated Financial Statements contained in Item 8 for additional details. In 2022, we anticipate net income attributable to noncontrolling interests as compared to a net loss attributable to noncontrolling interests in 2021 primarily due to the closing of an additional joint venture transaction on December 31, 2021, as described in Note 6 in the accompanying Notes to Consolidated Financial Statements contained in Item 8, as well as improved operating performance at the properties in previously existing joint ventures.
Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 32 through 36 of the Form 10-K for the fiscal year ended December 31, 2020 is incorporated herein by reference.
Liquidity and Capital Resources
Cash Balances and
Cash Flows
As of December 31, 2021, we had $134.7 million in cash, cash equivalents, and restricted cash as compared to $74.0 million in cash, cash equivalents, and restricted cash as of December 31, 2020. Restricted cash primarily consists of escrow accounts held by lenders and resident security deposits, as required by law in certain states, and funds held in escrow in connection with potential acquisition and development opportunities. The following discussion relates to changes in cash due to operating, investing and financing activities, which are presented in our accompanying consolidated statements of cash flows included in Item 8 herein.
Operating Activities: For the year
ended December 31, 2021, net cash provided by operating activities was approximately $334.8 million, as compared to approximately $351.1 million for the year ended December 31, 2020, a decrease of approximately $16.3 million. This decrease was due to the timing of the collection of receivables related to properties with master lease agreements and increases in receivables due to increased activity related to our third-party development projects. This decrease was partially offset by improved operating results at our properties during the year ended December 31, 2021, due to the normalization of operations at our owned properties, a decrease in COVID-19 related concessions, increases in occupancy and rental rates for the 2021/2022 academic year, and the recommencement of the Disney College Program in 2021.
Investing
Activities: Investing activities utilized approximately $239.4 million and $207.4 million for the years ended December 31, 2021 and 2020, respectively. The $32.0 million increase in cash utilized in investing activities was a result of the following: (i) $146.1 million in proceeds from the disposition of one property during the year ended December 31, 2020, as compared to no dispositions of properties during the year ended December 31, 2021; (ii) $45.4 million in cash proceeds from the early repayment of a note receivable in October 2020, as compared to no such repayments during the year ended December 31, 2021; and (iii) a $12.9 million increase in cash used for capital expenditures at our owned
and on-campus participating properties. These increases in cash utilized were partially offset by a $156.4 million decrease in cash used to fund the construction of our owned development properties and an $8.8 million decrease in cash paid to acquire land parcels.
Financing Activities: For the year ended December 31, 2021, net cash utilized by financing activities totaled approximately $34.7 million, as compared to net cash utilized by financing activities of $151.1 million for the year ended December 31, 2020. The $116.4 million decrease in cash utilized by financing activities was primarily due to the following: (i) a $268.2 million increase in contributions from noncontrolling partners primarily due to $273.6 million in proceeds related to the ACC / HS Joint
Venture Transaction during the year ended December 31, 2021, as compared to $5.4 million in proceeds from the Nashville Joint Venture transaction during the year ended December 31, 2020; (ii) a $77.2 million decrease in cash paid to purchase the remaining ownership interest in two properties held in a joint venture during the year ended December 31, 2020, as compared to no such purchase during the year ended December 31, 2021; (iii) $58.9 million in net proceeds from the sale of common stock during the year ended December 31, 2021; and (iv) a $24.7 million decrease in net pay-offs of mortgage debt. These decreases in cash utilized by financing activities were primarily offset by the following: (i) a $311.2 million decrease
in
37
net borrowings of unsecured debt and (ii) $1.4 million of transaction costs associated with the closing of the ACC / HS Joint Venture Transaction.
Liquidity Needs, Sources, and Uses of Capital
In May 2021, the Company renewed its $1.0 billion revolving credit facility ("Credit Facility"). The Credit Facility now matures in May 2025 and demonstrates the
Company’s commitment to Environmental, Social, and Governance (“ESG”) practices with sustainability-linked pricing, whereby the borrowing rate improves if the Company meets certain ESG performance targets. The Credit Facility also includes two 6-month extension options and an accordion feature that allows the Company to expand the Credit Facility by up to an additional $500 million, subject to the satisfaction of certain conditions. Borrowing rates float at a margin over LIBOR plus an annual facility fee with spreads reflecting current market terms. Both the margin and the facility fee are priced on a grid that is tied to the Company’s credit rating. Based on the
Company’s current Baa2/BBB rating, the annual facility fee is 20 basis points and the LIBOR margin is 85 basis points, a reduction of 15 basis points from previous pricing levels. Refer to Note 8 in the accompanying Notes to the Consolidated Financial Statements contained in Item 8 for additional information.
During the year ended December 31, 2021, the Company sold 1,216,600 shares of common stock under the ATM program at a weighted average price of $49.05 per share, for net proceeds of approximately $58.9 million. The proceeds were primarily used to repay borrowings on the Company’s Credit Facility. As of December 31,
2021, total gross proceeds of $59.7 million have been raised under the Company’s current ATM program, leaving approximately $440.3 million of capacity. Refer to Note 9 in the accompanying Notes to the Consolidated Financial Statements contained in Item 8 for additional information.
In October 2021, the Operating Partnership closed a $400 million offering of senior unsecured notes under its existing shelf registration. These seven-year notes were issued at 99.928% of par value with a coupon of 2.250% and are fully and unconditionally guaranteed by the Company. Interest on the notes is payable semi-annually on January 15 and July 15, with the first payment due and payable on January
15, 2022. The notes will mature on January 15, 2029. Net proceeds from the sale of the senior unsecured notes totaled approximately $394.4 million. The Company used the proceeds to repay borrowings under its Credit Facility.
As of December 31, 2021, our short-term and long-term liquidity needs included, but were not limited to, the following:
(i)scheduled interest payments on outstanding debt due in 2022 of approximately $119.8 million and approximately $505.2 million due beyond the next twelve months, assuming no modifications of the debt outstanding as of December 31,
2021;
(ii)estimated development costs of approximately $28.6 million in 2022 and approximately $4.1 million in 2023 related to the completion of construction of the Disney College Program development project;
(iii)debt maturities and scheduled principal payments as described in the debt maturities table in Note 8 of the accompanying Notes to the Consolidated Financial Statements contained in Item 8, assuming no modifications of the debt outstanding as of December 31, 2021;
(iv)the future minimum lease payments described in Note 14 of the accompanying Notes to the Consolidated Financial Statements contained in Item 8;
(v)interest on our Credit Facility,
which varies based on the timing of draws and paydowns as well as fluctuations in LIBOR, and had no balance at December 31, 2021;
(vi)funds for other owned development projects that could potentially commence construction;
(vii)potential future property or land acquisitions as well as potential joint venture transactions; and
(viii)recurring capital expenditures.
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We expect to meet our short-term and long-term liquidity requirements by:
(i)utilizing
current cash on hand and net cash provided by operations;
(ii)borrowing under our Credit Facility, which had availability of $1.0 billion as of December 31, 2021;
(iii)accessing the unsecured bond market;
(iv)exercising debt extension options to the extent they are available;
(v)refinance, renew, or modifying existing debt to more favorable terms;
(vi)issuing securities, including common stock, under our ATM Equity Program discussed more fully in Note 9 in the accompanying Notes to Consolidated Financial Statements contained in Item 8, or otherwise; and
(vii)potentially
disposing of properties and/or selling ownership interests in existing properties through joint venture arrangements, depending on market conditions.
Our ability to obtain additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to the real estate industry, our credit ratings, our credit capacity, and the perception of lenders regarding our long or short-term financial prospects.
We may seek additional funds to undertake initiatives not contemplated by our business plan or to obtain additional cushion against possible shortfalls. We also may pursue additional financing as opportunities arise. Future financings may include a range of different sizes or types of financing, including the incurrence of additional
secured debt and the sale of additional debt or equity securities. These funds may not be available on favorable terms or at all. Our ability to obtain additional financing depends on several factors, including future market conditions, our future creditworthiness, and restrictions contained in agreements with our investors or lenders, including the restrictions contained in the agreements governing our unsecured credit facility and unsecured notes. These financings could increase our level of indebtedness or result in dilution to our equity holders.
Distributions
We are required to distribute 90% of our REIT taxable income (excluding capital gains) on an annual basis in order to qualify
as a REIT for federal income tax purposes. Distributions to common stockholders are at the discretion of the Board of Directors. We may use borrowings under our unsecured revolving credit facility to fund distributions. The Board of Directors considers a number of factors when determining distribution levels, including market factors and our Company’s performance in addition to REIT requirements.
On January 24, 2022, our Board of Directors declared a distribution of $0.47 per share, which was paid on February 25, 2022, to all common stockholders of record as of February 4, 2022. Assuming similar dividend distributions for the remainder of 2022, our
annualized dividend rate would be $1.88 per share.
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Indebtedness
A summary of our consolidated indebtedness as of December 31, 2021 is as follows. Refer to Note 8 in the accompanying Notes to Consolidated Financial Statements contained in Item 8 for a detailed discussion of our indebtedness.
Amount
% of Total
Weighted
Average
Rates (1)
Weighted Average Maturities
Secured
$
536,506
15.2
%
4.1
%
6.6
Years
Unsecured
3,000,000
84.8
%
3.3
%
5.2 Years
Total consolidated debt
$
3,536,506
100.0
%
3.5
%
5.4
Years
Fixed rate debt
Secured
Project-based taxable
bonds
$
14,695
0.4
%
7.5
%
3.1 Years
Mortgage
520,888
14.7
%
4.0
%
6.6
years
Unsecured
April 2013 Notes
400,000
11.3
%
3.8
%
1.3 Years
June 2014 Notes
400,000
11.3
%
4.1
%
2.5
Years
October 2017 Notes
400,000
11.3
%
3.6
%
5.9 Years
June 2019 Notes
400,000
11.3
%
3.3
%
4.5
Years
January 2020 Notes
400,000
11.3
%
2.9
%
8.1 Years
June 2020 Notes
400,000
11.3
%
3.9
%
9.1
Years
October 2021 Notes
400,000
11.3
%
2.3
%
7.1 Years
Term loans
200,000
5.7
%
2.5
%
.5
Years
Total - fixed rate debt
3,535,583
99.9
%
3.5
%
5.4 Years
Variable rate debt
Secured
mortgage
923
0.1
%
2.6
%
23.6 years
Unsecured revolving credit facility (2)
—
—
%
—
%
3.4
Years
Total - variable rate debt
923
0.1
%
2.6
%
23.6 Years
Total consolidated debt
$
3,536,506
100.0
%
3.5
%
5.4
Years
(1)Represents stated interest rate and does not include the effect of the amortization of deferred financing costs, debt premiums and discounts, OIDs, and interest rate swap terminations.
(2)The Company's Credit Facility is excluded from the table above as the principal balance was zero as of December 31, 2021. Refer to Note 8 in the accompanying Notes to Consolidated Financial Statements contained
in Item 8 for further discussion.
Supplemental Guarantor Information
Effective January 4, 2021, the Securities and Exchange Commission (SEC) adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include certain credit enhancements. The Company adopted the new rules on January 4, 2021 which permit subsidiary issuers of obligations guaranteed by the parent to omit separate financial statements if the consolidated financial statements of the parent company
have been filed, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and the security is guaranteed fully and unconditionally by the parent. Accordingly, separate consolidated financial statements of the Operating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for the Operating Partnership as the assets, liabilities, and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such
summarized financial information would be repetitive and not provide incremental value to investors.
American Campus Communities Operating Partnership, LP (the “Subsidiary Issuer") has issued the unsecured notes described in the Unsecured Notes section of Note 8 in the accompanying Notes to Consolidated Financial Statements contained in Item 8. The Unsecured Notes are fully and unconditionally guaranteed by the Company, and the Subsidiary Issuer is 99.6% owned, directly or indirectly, by the Company. The guarantees are direct senior unsecured obligations of the Company and rank equally in right of payment with all other senior
unsecured indebtedness of the Company from time to time outstanding. Furthermore, the Company’s guarantees will be effectively subordinated in right of payment to all liabilities, whether secured or
40
unsecured, and any preferred equity of its subsidiaries (including the Operating Partnership and any entity the Company accounts for under the equity method of accounting). In addition, under the federal bankruptcy law and comparable
provisions of state fraudulent transfer laws, a guarantee, such as the guarantee provided by the Company, could be voided, and payment thereon could be required to be returned to the guarantor or to a fund for the benefit of the creditors of the guarantor, under certain circumstances.
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 December 31, 2021, the Operating Partnership was in compliance with all such covenants.
Capital
Expenditures
We distinguish between the following five categories of capital expenditures:
Non-recurring and other capital expenditures represent the addition of features or amenities that did not exist at the property but were deemed necessary to remain competitive within a specific market. This category also includes items considered infrequent or extraordinary in nature.
Recurring capital expenditures represent additions that are recurring in nature to maintain a property’s income, value, and competitive position within the market. Recurring capital expenditures typically include, but are not limited to, appliances, furnishings, carpeting, and flooring, HVAC equipment, and kitchen/bath
cabinets. Maintenance and repair costs incurred throughout the year, including those incurred during our annual turn process due to normal wear and tear by residents, are expensed as incurred.
Renovations and strategic repositioning capital expenditures are incurred to enhance the economic value and return of the property and undergo an investment return underwrite prior to being incurred.
Acquisition-relatedcapital expenditures represent additions identified upon acquiring a property and are considered part of the initial investment. These expenditures are intended to position the property to be consistent with our physical standards and are usually incurred within the first two and occasionally the third year
after acquisition.
Disposition-related capital expenditures represent capital improvements at properties disposed of during all years presented.
Additionally, we are required by certain of our lenders to contribute amounts to reserves for capital repairs and improvements at our mortgaged properties, which may exceed the amount of capital expenditures actually incurred by us during those periods.
Capital expenditures at our owned properties are set forth below:
(1)Includes
properties sold during 2020 and 2019. Also includes one property that was in receivership until July 2019 when it was transferred to the lender in settlement of the property’s mortgage loan that matured in August 2017. Historical capital expenditures for these properties have been reclassified for all periods presented.
(2)Does not include beds related to the disposed properties discussed above.
41
Funds From Operations (“FFO”)
The National Association of
Real Estate Investment Trusts (“NAREIT”) currently defines FFO as net income or loss attributable to common shares computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains or losses from depreciable operating property sales, impairment charges and real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We present FFO because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO excludes GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. We therefore believe
that FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, and interest costs, among other items, providing perspective not immediately apparent from net income. We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its December 2018 White Paper, which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs.
We also believe it is meaningful to present a measure we refer to as FFO-Modified ("FFOM"), which reflects certain adjustments related to the economic performance of our on-campus participating properties, and other items, as we determine in good faith that do not reflect our core operations on a comparative basis. Under our participating ground
leases, we and the participating university systems each receive 50% of the properties’ net cash available for distribution after payment of operating expenses, debt service (which includes significant amounts towards repayment of principal), and capital expenditures. A substantial portion of our revenues attributable to these properties is reflective of cash that is required to be used for capital expenditures and for the amortization of applicable property indebtedness. These amounts do not increase our economic interest in these properties or otherwise benefit us since our interest in the properties terminates upon the repayment of the applicable property indebtedness. Therefore, unlike the ownership of our owned properties, the unique features of our ownership interest in our on-campus participating properties cause the value of these properties to diminish over time. For example, since the ground/facility leases under which we operate the participating properties
require the reinvestment from operations of specified amounts for capital expenditures and for the repayment of debt while our interest in these properties terminates upon the repayment of the debt, such capital expenditures do not increase the value of the property to us and mortgage debt amortization only increases the equity of the ground lessor. Accordingly, we believe it is meaningful to modify FFO to exclude the operations of our on-campus participating properties and to consider their impact on our performance by including only that portion of our revenues from those properties that are reflective of our share of net cash flow and the management fees that we receive, both of which increase and decrease with the operating performance of the properties. This narrower measure of performance measures our profitability for these properties in a manner that is similar to the measure of our profitability from our third-party services business where we similarly incur
no initial or ongoing capital investment in a property and derive only consequential benefits from capital expenditures and debt amortization. We believe, however, that this narrower measure of performance is inappropriate in traditional real estate ownership structures where debt amortization and capital expenditures enhance the property owner’s long-term profitability from its investment.
Our FFOM may have limitations as an analytical tool because it reflects the contractual calculation of net cash flow from our on-campus participating properties, which is unique to us and is different from that of our owned off-campus properties. Companies that are considered to be in our industry may not have similar ownership structures; and therefore, those companies may not calculate FFOM in the same manner that we do, or at all, limiting its usefulness as a comparative measure. We compensate
for these limitations by relying primarily on our GAAP and FFO results and using FFOM only supplementally. Further, FFO and FFOM do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments and uncertainties. FFO and FFOM should not be considered as alternatives to net income or loss computed in accordance with GAAP as an indicator of our financial performance, or to cash flow from operating activities computed in accordance with GAAP as an indicator of our liquidity, nor are these measures indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.
42
The following table presents a
reconciliation of our net income attributable to common shareholders to FFO and FFOM:
Net
income attributable to ACC, Inc. and Subsidiaries common stockholders
$
35,489
$
72,803
$
84,969
Noncontrolling interests' share of net (loss) income
(2,205)
(2,955)
1,793
Joint
Venture ("JV") partners' share of FFO
JV partners' share of net loss (income)
2,382
3,259
(1,398)
JV partners' share of depreciation and amortization
(7,598)
(7,747)
(8,644)
(5,216)
(4,488)
(10,042)
(Gain)
loss from disposition of real estate, net
—
(48,525)
53
Elimination of provision for real estate impairment
—
—
3,201
Total depreciation and amortization
275,597
267,703
275,046
Corporate
depreciation (1)
(2,871)
(3,450)
(4,728)
FFO attributable to common stockholders and OP unitholders
300,794
281,088
350,292
Elimination
of operations of OCPPs
Net income from OCPPs
(4,922)
(3,716)
(6,587)
Amortization of investment in OCPPs
(8,039)
(8,015)
(8,380)
287,833
269,357
335,325
Modifications
to reflect operational performance of OCPPs
Our share of net cash flow (2)
2,026
1,359
3,067
Management fees and other
2,015
1,873
2,249
Contribution
from OCPPs
4,041
3,232
5,316
Transaction costs (3)
—
—
598
Elimination
of provision for impairment of intangible asset (4)
—
—
14,013
Elimination of FFO from property in receivership (5)
—
—
1,912
Elimination of loss (gain) from extinguishment
of debt, net (6)
—
4,827
(20,992)
Elimination of gain from early repayment of loan receivable
—
(2,136)
—
Executive retirement charges (7)
2,588
—
—
Elimination
of charitable donation (8)
2,500
—
—
Elimination of litigation settlements (9)
2,033
—
—
Stockholder engagement and other proxy advisory costs (10)
1,558
215
—
FFOM
attributable to common stockholders and OP unitholders
$
300,553
$
275,495
$
336,172
FFO per share – diluted
$
2.15
$
2.02
$
2.52
FFOM
per share – diluted
$
2.14
$
1.98
$
2.42
Weighted-average common shares outstanding -diluted
140,207,352
139,214,147
138,860,311
(1)Represents
depreciation on corporate assets not added back for purposes of calculating FFO.
(2)50% of the properties’ net cash available for distribution after payment of operating expenses, debt service (including repayment of principal), and capital expenditures which is included in ground/facility leases expense in the accompanying consolidated statements of comprehensive income. During the year ended December 31, 2020, the Company waived its right to one property's 50% share of the net cash flow for the 2019/2020 academic year, which resulted in a $0.6 million reversal of contribution from OCPPs.
(3)Represents transaction costs incurred in connection with the closing of presale development transactions.
(4)Represents
a non-cash impairment charge for an intangible asset related to a property tax incentive arrangement at one owned property.
(5)Represents FFO for an owned property that was transferred to the lender in July 2019 in settlement of the property's mortgage loan.
(6)The year ended December 31, 2020 amount represents the loss associated with the January 2020 redemption of the Company's $400 million 3.35% Senior Notes originally scheduled to mature in October 2020. The year ended December 31, 2019 amount represents the gain on the extinguishment of debt associated with a property that was transferred to the lender in settlement of the property's mortgage
loan in July 2019.
(7)Represents accelerated amortization of unvested restricted stock awards due to the retirement of the Company's President in August 2021, which is included in general and administrative expenses in the accompanying consolidated statements of comprehensive income.
(8)Represents a charitable donation to Arizona State University (ASU) in connection with the closing of a joint venture transaction in December 2021, which is included in other operating expenses in the accompanying consolidated statements of comprehensive income. Refer to Note 6 in the accompanying Notes to the Consolidated Financial Statements contained in Item 8 for additional information.
43
(9)Represents
expenses or gains associated with the settlement of litigation matters, which are included in other operating expenses and other nonoperating income, respectively, in the accompanying consolidated statements of comprehensive income.
(10)Represents consulting, legal, and other related costs incurred in relation to stockholder activism activities in preparation for the Company’s 2021 and 2022 annual stockholders' meetings, which are included in general and administrative expenses in the accompanying consolidated statements of comprehensive income.
Inflation
Our
student leases do not typically provide for rent escalations. However, they typically do not have terms that extend beyond 12 months. Accordingly, although on a short term basis we would be required to bear the impact of rising costs resulting from inflation, we have the opportunity to raise rental rates at least annually to offset such rising costs. However, a weak economic environment or declining student enrollment at our principal universities may limit our ability to raise rental rates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks inherent in our operations. These risks generally arise from transactions entered into in
the normal course of business. Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, and other market changes that affect market sensitive instruments. Our primary market risk exposure is to changes in interest rates on our borrowings. As of December 31, 2021, 30.5% of our total market capitalization consisted of debt borrowings. Our interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve this objective, we manage our exposure to fluctuations in market interest rates for borrowings through the use of fixed rate debt instruments and interest rate swaps, which mitigate our interest rate risk on a related financial instrument and effectively fix the interest rate on a portion of our variable debt or on future refinancings. We use
our best efforts to have our debt instruments mature across multiple years, which we believe limits our exposure to interest rate changes in any one year. We do not enter into derivative instrument agreements or other financial instrument agreements for trading or other speculative purposes. As of December 31, 2021, 99.9% of our outstanding debt was subject to fixed rates after considering related derivative instruments. We regularly review interest rate exposure on outstanding borrowings in an effort to minimize the risk of interest rate fluctuations. Refer to Notes 8 and 12 in the accompanying Notes to Consolidated Financial Statements contained in Item 8 for further discussion related to our debt and derivative instruments and hedging activities.
The table below provides information about our financial instruments that are sensitive
to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by contractual maturity dates for our debt obligations. Weighted average variable rates are based on rates in effect as of December 31, 2021.
2022
2023
2024
2025
2026
Total
Thereafter
Total / Weighted Average
Fair Value Liability
Long-term debt
Fixed rate (1)
$200,000
$406,485
$530,825
$6,345
$400,000
$1,991,928
$3,535,583
$3,669,267
(2)
Average
interest rate
2.5
%
3.8
%
4.2
%
7.6
%
3.7
%
3.3
%
3.5
%
Variable
rate (3)
—
—
—
—
—
$923
$923
$923
(4)
Average interest rate (5)
—
%
—
%
—
%
—
%
—
%
2.6
%
2.6
%
(1)Includes
variable rate debt that has been swapped to a fixed rate as of December 31, 2021. Also includes one $37.5 million variable rate mortgage loan with a stated interest rate of 2.61% (0.11% + 2.50% spread) that was swapped to a fixed rate until October 2022.
(2)For information on the methodology used to determine the fair value, refer to Note 13 in the accompanying Notes to Consolidated Financial Statements contained in Item 8 herein.
(3)At December 31, 2021, variable debt included the Company’s Credit Facility which had a zero principal balance and $0.9 million of mortgage debt at one of our on-campus participating properties.
(4)The
carrying value of variable rate debt approximates fair value due to the variable rate interest feature of the instruments.
(5)The facility fee associated with the Company's Credit Facility is excluded from the table above as the principal balance was zero as of December 31, 2021. Refer to Note 8 in the accompanying Notes to Consolidated Financial Statements contained in Item 8 for further discussion.
Item 8. Financial Statements and Supplementary Data
The information required herein is included
as set forth in Item 15 (a) – Financial Statements.
44
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures
We
have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As
required by SEC Rule 13a-15(b), we have carried out an evaluation, under the supervision of and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures for the period covered by this report were effective.
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We are continually monitoring and assessing our internal control environment to ensure that our controls continue to be designed effectively
and continue to operate effectively.
(b)Management’s Annual Report on Internal Control over Financial Reporting
The management of American Campus Communities, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. We have designed our internal control over financial reporting to provide reasonable assurance that our published financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles.
Our management is required by paragraph (c) of Rule 13a-15 of the Securities Exchange Act of 1934, as amended, to assess the effectiveness of our internal control over financial reporting as of the end of each fiscal year. In
making this assessment, our management used the Internal Control — Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Our management conducted the required assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021. Based upon this assessment, our management believes that our internal control over financial reporting is effective as of December 31, 2021. Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation report regarding the effectiveness of our internal control over financial
reporting, which is included herein.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
45
PART
III
Item 10. Directors, Executive Officers and Corporate Governance
Information with respect to this Item 10 is incorporated by reference from our definitive Proxy Statement, which we currently expect to file on or before March 31, 2022 in connection with the Annual Meeting of Stockholders expected to be held May 4, 2022.
Item 11. Executive Compensation
Information
with respect to this Item 11 is incorporated by reference from our definitive Proxy Statement, which we currently expect to file on or before March 31, 2022 in connection with the Annual Meeting of Stockholders expected to be held May 4, 2022.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information pertaining to security ownership of management and certain beneficial owners of the Company’s common stock with
respect to this Item 12 is incorporated by reference from our definitive Proxy Statement, which we currently expect to file on or before March 31, 2022 in connection with the Annual Meeting of Stockholders expected to be held May 4, 2022, to the extent not set forth below.
The Company maintains the American Campus Communities, Inc. Incentive Award Plan (the “Plan”), as discussed in more detail in Note 11 in the accompanying Notes to Consolidated Financial Statements in Item 8.
As of December 31, 2021, the total units and shares issued
under the Plan were as follows:
# of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights
Weighted-Average Exercise Price of Outstanding Options, Warrants,
and Rights
# of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity Compensation Plans Approved by Security Holders
1,210,876
(1)
n/a
2,202,059
Equity Compensation Plans Not Approved by Security Holders
n/a
n/a
n/a
(1)Consists
of restricted stock awards granted to executive officers and certain employees and common units of limited partnership interest in the Operating Partnership.
Item 13. Certain Relationships, Related Transactions, and Director Independence
Information with respect to this Item 13 is incorporated by reference from our definitive Proxy Statement, which we currently expect to file on or before March 31, 2022 in connection with the Annual Meeting of Stockholders expected to be held May 4, 2022.
Item
14. Principal Accountant Fees and Services
Information with respect to this Item 14 is incorporated by reference from our definitive Proxy Statement, which we currently expect to file on or before March 31, 2022 in connection with the Annual Meeting of Stockholders expected to be held May 4, 2022.
46
PART IV
Item
15. Exhibits and Financial Statement Schedules
(a) Financial Statements
The following consolidated financial information is included as a separate section of this Annual Report on Form 10-K:
Page No.
Reports of Independent Registered Public Accounting Firm (PCAOB ID: i42)
Articles of Amendment and Restatement of American Campus Communities, Inc. Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-11 (Registration No. 333-114813) of American Campus Communities, Inc.
American
Campus Communities, Inc. Articles Supplementary. Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on March 6, 2017.
Bylaws
of American Campus Communities, Inc. Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-11 (Registration No. 333-114813) of American Campus Communities, Inc.
Amendment to Bylaws of American Campus Communities, Inc. Incorporated by reference to Exhibit 3.1 to Current
Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on February 24, 2014.
Second Amendment to the Bylaws of American Campus Communities, Inc. Incorporated
by reference to Exhibit 3.2 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on March 6, 2017.
Third Amendment to the Bylaws
of American Campus Communities, Inc. Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on April 21, 2017.
Form of Certificate
for Common Stock of American Campus Communities, Inc. Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-11 (Registration No. 333-114813) of American Campus Communities, Inc.
Indenture, dated as of April 2, 2013, among American Campus Communities Operating Partnership
LP, as issuer, American Campus Communities, Inc., as guarantor, and U.S. Bank National Association, as trustee. Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on April 3, 2013.
First
Supplemental Indenture, dated as of April 2, 2013, among American Campus Communities Operating Partnership LP, as issuer, American Campus Communities, Inc., as guarantor, and U.S. Bank National Association, as trustee. Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on April 3, 2013.
Second
Supplemental Indenture, dated as of June 21, 2019, among American Campus Communities Operating Partnership LP, as issuer, American Campus Communities, Inc., as guarantor, and U.S. Bank National Association, as trustee. Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on June 21, 2019.
American
Campus Communities Operating Partnership LP 3.750% Senior Notes due 2023. Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on April 3, 2013.
American
Campus Communities Operating Partnership LP 4.125% Senior Notes due 2024. Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on June 25, 2014.
American
Campus Communities Operating Partnership LP 3.625% Senior Notes due 2027. Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on October 11, 2017.
American
Campus Communities Operating Partnership LP 3.300% Senior Note due 2026. Incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on June 21, 2019.
American
Campus Communities Operating Partnership LP 2.850% Senior Note due 2030. Incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on January 30, 2020.
American
Campus Communities Operating Partnership LP 3.875% Senior Note due 2031. Incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on June 11, 2020.
American
Campus Communities Operating Partnership LP 2.250% Senior Note due 2029. Incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) filed on October 7, 2021.
Form of
Guarantee of American Campus Communities, Inc. of Senior Debt Securities. Incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on April 3, 2013.
Form
of Registration Rights and Lock-Up Agreement, dated as of March 1, 2006, between American Campus Communities, Inc. and each of the persons who are signatory thereto. Incorporated by reference to Exhibit 99.3 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) filed on March 7, 2006.
Form
of Registration Rights and Lock-Up Agreement, dated as of September 14, 2012, between American Campus Communities, Inc., American Campus Communities Operating Partnership, L.P. and each of the persons who are signatories thereto. Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) for the quarter ended September 30, 2012.
Letter
Agreement Regarding Issuance of OP Units, dated September 26, 2013, between Hallmark Student Housing Lexington, LLC, on one hand, and ACC OP (Lexington) LLC and American Campus Communities Operating Partnership, L.P., on the other hand. Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) for the quarter ended September 30, 2013.
Form of Amended and Restated Partnership Agreement of American Campus Communities Operating Partnership LP. Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-11 (Registration No. 333-114813) of American Campus Communities, Inc.
Form
of First Amendment to Amended and Restated Agreement of Limited Partnership of American Campus Communities Operating Partnership LP, dated as of March 1, 2006, between American Campus Communities Holdings LLC and those persons who have executed such amendment as limited partners. Incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) filed on March 7, 2006.
American
Campus Communities, Inc. 2004 Incentive Award Plan. Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-11 (Registration No. 333-114813) of American Campus Communities, Inc.
Amendment No. 1 to American Campus Communities, Inc. 2004 Incentive Award Plan. Incorporated by reference to Exhibit 99.7 to Current Report on Form 8-K
of American Campus Communities, Inc. (File No. 001-32265) filed on November 5, 2007.
Amendment No. 2 to American Campus Communities, Inc. 2004 Incentive Award Plan. Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265)
filed on March 11, 2008.
American Campus Communities, Inc. 2010 Incentive Award Plan. Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) filed on May 7, 2010.
American
Campus Communities, Inc. 2018 Incentive Award Plan. Incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-8 (Registration No. 333-224656) of American Campus Communities, Inc.
American Campus Communities Services, Inc. Deferred Compensation Plan, as amended and restated, effective January 1, 2020. Incorporated
by reference to Exhibit 99.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on November 22, 2019.
Form of PIU Grant Notice (including Registration Rights). Incorporated
by reference to Exhibit 10.4 to the Registration Statement on Form S-11 (Registration No. 333-114813) of American Campus Communities, Inc.
Form of Indemnification Agreement between American Campus Communities, Inc. and certain of its directors and officers. Incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-11 (Registration No. 333-114813) of American Campus Communities, Inc.
Form
of Employment Agreement between American Campus Communities, Inc. and William C. Bayless, Jr.Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-11 (Registration No. 333-114813) of American Campus Communities, Inc.
Employment
Agreement, dated as of May 4, 2011, between William W. Talbot and American Campus Communities, Inc. Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on March 21, 2013.
First
Amendment to Employment Agreement, dated as of November 2, 2012, between William W. Talbot and American Campus Communities, Inc. Incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on March 21, 2013.
Employment
Agreement, dated as of May 4, 2011, between Daniel B. Perry and American Campus Communities, Inc. Incorporated by reference to Exhibit 10.24 to Annual Report on Form 10-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. (File No. 333-181102-01) for the year ended December 31, 2014.
First
Amendment to Employment Agreement, dated as of November 2, 2012, between Daniel B. Perry and American Campus Communities, Inc. Incorporated by reference to Exhibit 10.25 to Annual Report on Form 10-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. (File No. 333-181102-01) for the year ended December 31, 2014.
First
Amendment to Employment Agreement, dated as of January 10, 2017, between American Campus Communities, Inc. and Jennifer Beese. Incorporated by reference to Exhibit 10.28 to Annual Report on Form 10-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) for the year ended December 31, 2017.
Second
Amendment to Employment Agreement, dated as of August 24, 2021, between American Campus Communities, Inc. and Jennifer Beese. Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on August 26, 2021.
Form
of Confidentiality and Noncompetition Agreement. Incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-11 (Registration No. 333-114813) of American Campus Communities, Inc.
Sixth Amended and Restated Credit Agreement, dated as of May
12, 2021, among American Campus Communities Operating Partnership LP, as Borrower; American Campus Communities, Inc., as Parent Guarantor; any Additional Guarantors (as defined therein) acceding thereto pursuant to Section 7.05 thereof; the banks, financial institutions and other lenders listed on the signature pages thereof as the Initial Lenders, Initial Issuing Bank and Swing Line Bank; KeyBank National Association, as Administrative Agent; KeyBanc Capital Markets Inc., J.P. Morgan Securities LLC and Capital One National Association, as Joint Lead Arrangers; JPMorgan Chase Bank, N.A. and Capital One National Association, as Co-Syndication Agents; Bank of America, N.A., U.S. Bank National Association and Regions Bank, as Co-Documentation Agents; and PNC Capital Markets LLC, as Sustainability Agent. Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File
No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on May 14, 2021.
Form of Tax Matters Agreement, dated as of March
1, 2006, among American Campus Communities Operating Partnership LP, American Campus Communities, Inc., American Campus Communities Holdings LLC and each of the limited partners of American Campus Communities Operating Partnership LP who have executed a signature page thereto. Incorporated by reference to Exhibit 99.4 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) filed on March 7, 2006.
Equity
Distribution Agreement, dated May 3, 2021, between American Campus Communities, Inc., American Campus Communities Operating Partnership LP and American Campus Communities Holdings LLC, on one hand, and BofA Securities, Inc., on the other hand. Incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on May 7, 2021.
Equity
Distribution Agreement, dated May 3, 2021, between American Campus Communities, Inc., American Campus Communities Operating Partnership LP and American Campus Communities Holdings LLC, on one hand, and Deutsche Bank Securities Inc., on the other hand. Incorporated by reference to Exhibit 1.2 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on May 7, 2021.
Equity
Distribution Agreement, dated May 3, 2021, between American Campus Communities, Inc., American Campus Communities Operating Partnership LP and American Campus Communities Holdings LLC, on one hand, and J.P. Morgan Securities LLC, on the other hand. Incorporated by reference to Exhibit 1.3 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on May 7, 2021.
Equity
Distribution Agreement, dated May 3, 2021, between American Campus Communities, Inc., American Campus Communities Operating Partnership LP and American Campus Communities Holdings LLC, on one hand, and KeyBanc Capital Markets Inc., on the other hand. Incorporated by reference to Exhibit 1.4 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on May 7, 2021.
Cooperation
Agreement, date as of January 27, 2021, between American Campus Communities, Inc., on one hand, and Land & Buildings Capital Growth Fund, LP, L & B Real Estate Opportunity Fund, LP, Land & Buildings GP LP, L&B Opportunity Fund, LLC, Land & Buildings Investment Management, LLC and Jonathan Litt, on the other hand. Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K of American Campus Communities, Inc. (File No. 001-32265) and American Campus Communities Operating Partnership LP (File No. 333-181102-01) filed on January 28, 2021.
American Campus Communities, Inc. - Certification of Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
American
Campus Communities, Inc. - Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Cover
Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*
Indicates management compensation plan.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Report
of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of American Campus Communities, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of American Campus Communities, Inc. and Subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income, changes in
equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of Long-Lived Assets
Description of the Matter
As more fully described in Note 2 to the consolidated financial statements, on a periodic basis, management assessed whether there were any indicators that the value of the Company’s investments in real estate were impaired. Management
evaluated whether there was an impairment in the value of the Company’s investments in real estate when events or changes in circumstances indicated that the carrying amount of an asset may not be recoverable. The Company identified indicators of impairment for certain long-lived assets and thus, further analyzed such for impairment using an undiscounted cash flow model. Upon assessment, the Company concluded that aggregate future undiscounted cash flows to be generated by each property were greater than the respective carrying values. For the year ended December 31, 2021, the Company
determined that there were no impairments of the carrying values of its investments in real estate held for use.
Auditing the Company’s assessment of impairment indicators relating to its investments in real estate involved significant judgment in evaluating management’s identification of impairment indicators. Further, auditing the Company’s undiscounted cash flow model was especially challenging as estimates underlying the calculation, including capitalization rates and growth rates, were based on assumptions affected by expected future market and economic conditions.
F-1
How
We Addressed the Matter in Our Audit
We tested the design and operating effectiveness of controls over the Company’s process of identifying potential indicators of impairment of its real estate assets and of determining the recoverability of the carrying value of identified assets using the undiscounted cash flow model. For example, we tested controls over management’s identification of impairment indicators and review of the significant assumptions used in estimating the undiscounted cash flows, including qualitative and quantitative considerations such as economic and market factors and asset performance.
To test whether any indicators of impairment were present, our audit procedures included evaluating management’s analysis, including testing
the completeness and accuracy of the underlying data. In addition, we performed an independent assessment using both internally and externally available information to identify evidence that was either corroborative or contrary to management’s analysis. For example, we considered historical trends and current year property level performance such as net operating income, rental rate variances, and cost overruns for development properties and challenged management’s estimates by comparing to industry and market data. For the Company’s investments in real estate that were assessed by management using an undiscounted cash flow model, we inspected relevant industry and market outlook data to consider market conditions. Further, we also involved our valuation specialists to assist in testing that the significant assumptions utilized in estimating property level fair values, such as capitalization
rates and growth rates, were within an observable market range, as well as performed sensitivity analyses on such assumptions.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of American Campus Communities, Inc. and Subsidiaries
Opinion
on Internal Control over Financial Reporting
We have audited American Campus Communities, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)(the COSO criteria). In our opinion, American Campus Communities, Inc. and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December
31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 28, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The
Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
American
Campus Communities, Inc. and Subsidiaries stockholders’ equity
Common stock, $ii0.01/
par value, ii800,000,000/ shares authorized,
ii139,064,213/ and ii137,540,345/
shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively
Defeasance
costs related to early extinguishment of debt
i—
(i4,156)
i—
Proceeds
from revolving credit facility
i723,600
i1,902,600
i949,000
Paydowns
of revolving credit facility
(i1,094,700)
(i1,957,200)
(i910,600)
Proceeds
from construction loans
i—
i—
i31,611
Scheduled
principal payments on debt
(i10,004)
(i11,852)
(i11,938)
Debt
issuance costs
(i12,702)
(i9,614)
(i6,462)
Increase
in ownership of consolidated subsidiary
i—
(i77,200)
(i105,109)
Contribution
by noncontrolling interests
i273,597
i5,414
i1,174
Transaction
costs associated with change in ownership interest of consolidated subsidiary
(i1,407)
i—
i—
Taxes
paid on net-share settlements
(i5,989)
(i4,175)
(i3,975)
Distributions
paid to common and restricted stockholders
(i262,565)
(i260,771)
(i258,620)
Distributions
paid to noncontrolling interests
(i3,300)
(i5,356)
(i9,487)
Net
cash (used in) provided by financing activities
(i34,650)
(i151,061)
i20,592
Net
change in cash, cash equivalents, and restricted cash
i60,705
(i7,376)
(i25,169)
Cash,
cash equivalents, and restricted cash at beginning of period
i73,972
i81,348
i106,517
Cash,
cash equivalents, and restricted cash at end of period
$
i134,677
$
i73,972
$
i81,348
Reconciliation
of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents
$
i120,351
$
i54,017
$
i54,650
Restricted
cash
i14,326
i19,955
i26,698
Total
cash, cash equivalents, and restricted cash at end of period
$
i134,677
$
i73,972
$
i81,348
See
accompanying notes to consolidated financial statements.
F-7
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year
Ended December 31,
2021
2020
2019
Supplemental disclosure of non-cash investing and financing activities
Conversion
of common and preferred operating partnership units to common stock
$
i—
$
i—
$
i6,077
Non-cash
contribution from noncontrolling interest
$
i—
$
i696
$
i—
Accrued
development costs and capital expenditures
$
i13,191
$
i28,994
$
i37,260
Change
in fair value of redeemable noncontrolling interest
$
(i8,051)
$
i2,002
$
(i14,350)
Change
in ownership of consolidated subsidiary
$
(i157,805)
$
i—
$
i—
Initial
recognition of operating lease right of use assets
$
i1,559
$
i—
$
i463,445
Initial
recognition of operating lease liabilities
$
i1,559
$
i—
$
i462,495
Non-cash
extinguishment of debt, including accrued interest
$
i—
$
i—
$
(i34,570)
Net
assets surrendered in conjunction with extinguishment of debt
$
i—
$
i—
$
i13,578
Supplemental
disclosure of cash flow information
Interest paid, net of amounts capitalized
$
i119,188
$
i108,791
$
i114,450
Income
taxes paid
$
i1,200
$
i1,455
$
i3,041
See
accompanying notes to consolidated financial statements.
F-8
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. iOrganization
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, and 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 is structured as an umbrella partnership REIT (“UPREIT”) and contributes all net proceeds from its various equity offerings
to American Campus Communities Operating Partnership LP (“ACCOP” or “the Operating Partnership”). In return for those contributions, ACC receives a number of units of the Operating Partnership (“OP Units”) 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 American Campus Communities Holdings, LLC (“ACC Holdings”), the general partner of ACCOP, and the
common shares issued to the public.
As used in this report, unless stated otherwise or the context otherwise requires, references to “ACC,”“the Company,”“we,”“us,” or “our” mean American Campus Communities, Inc., a Maryland corporation that has elected to be treated as a REIT under the Internal Revenue Code, and its consolidated subsidiaries, including ACCOP.
As of December 31, 2021, the Company’s property portfolio contained i166
properties with approximately i111,900 beds. The Company’s property portfolio consisted of i126 owned off-campus student housing properties
that are in close proximity to colleges and universities, i34 American Campus Equity (“ACE®”) properties operated under ground/facility leases, and isix
on-campus participating properties ("OCPPs") operated under ground/facility leases with the related university systems. Of the i166 properties, ifour of i10
phases at ione property were under development as of December 31, 2021, and when completed will consist of a total of approximately i4,400
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 December 31, 2021, also through one of ACC’s TRSs, the Company
provided third-party management and leasing services for i37 properties that represented approximately i29,000 beds. Third-party management and leasing services are typically provided pursuant to management contracts
that have initial terms that range from ione year to ifive years. As of December 31, 2021, the
Company’s total owned and third-party managed portfolio included i203 properties with approximately i140,900 beds.
2. iSummary
of Significant Accounting Policies
i
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”). 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. 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 and per share amounts, are stated in thousands unless otherwise indicated.
i
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.
F-9
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
i
Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04 “Reference Rate Reform (Topic 848), Facilitation
of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. In March 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. In May 2021, the
Company modified its unsecured term loan credit agreement (“Term Loan”) to include LIBOR transition language and to conform the covenants and various administrative items from the agreement to those in the Company’s senior unsecured revolving credit facility agreement (the “Credit Facility”), which was also amended in May 2021. Refer to Note 8 for additional information regarding these modifications. As the changes to covenants and administrative items do not impact the contractual cash flows of the Term Loan, the LIBOR transition language qualifies for, and the Company elected to apply, the optional expedients in in ASC 848-20-15-2 through 15-11 which treat the amendment as a modification without additional analysis. The
Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
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 2020-06 “Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity"
In March 2020, the U.S. Securities and Exchange Commission (“SEC”) adopted rules that amended the financial disclosure requirements for subsidiary issuers and guarantors of registered debt securities in Rule 3-10 of Regulation S-X. Subsequently, in November 2020, the FASB issued ASU 2020-09 “Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762” which revises SEC paragraphs of the codification to reflect, as appropriate, the amended disclosure requirements mentioned above. The amended rules permit subsidiary issuers of obligations guaranteed by the parent to omit
separate financial statements if the consolidated financial statements of the parent company have been filed, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and the security is guaranteed fully and unconditionally by the parent. The amendments include requirements related to narrative and summarized financial information disclosures, as well as guidance on when the summarized financial information can be excluded by a filer. The Company adopted both rules on their effective date of January 4, 2021. Accordingly, separate consolidated financial statements of the Operating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company
has excluded the summarized financial information for the Operating Partnership as the assets, liabilities, and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors. The Company has addressed the required disclosures herein within Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In addition, on January
1, 2021, the Company adopted the following accounting pronouncement which did not have a material effect on the Company’s consolidated financial statements:
•ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes"
F-10
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
i
Prior Year Reclassifications
Certain prior period amounts were reclassified to conform to current presentation, which include:
•The resident services revenues financial statement line item on the statements of comprehensive income has been reclassified for all periods presented to the owned properties revenues financial statement line item.
•Litigation
settlement expenses previously reported in the general and administrative expenses line item on the statements of comprehensive income were reclassified for all applicable periods to the other operating expenses line item.
i
Investments in Real Estate
Capitalization Policy and Useful Lives
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 expensed as incurred. iDepreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:
i25 - i34
years (shorter of useful life or respective lease term)
Furniture, fixtures, and equipment
i3 - i7 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 $i8.6 million, $i12.1
million, and $i12.1 million was capitalized during the years ended December 31, 2021, 2020, and 2019, respectively.
Impairment Assessment
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 uses estimates, including capitalization rates and growth rates, which are inherently uncertain and rely 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 iino/
impairments of the carrying values of the Company’s investments in real estate during the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2019, concurrent with the classification of one owned property as held for sale, the Company recorded a $i3.2
million impairment charge which is included in provision for impairment within operating income on the accompanying consolidated statements of comprehensive income. Refer to Note 6 for additional information regarding the disposition.
Land Acquisitions
Land acquisitions are accounted for as asset acquisitions, as substantially all of the fair value of the acquisition is concentrated in a single identifiable asset. In an asset acquisition, assets acquired are measured based on the cost of the acquisition, which is the consideration transferred to the seller and direct transaction costs related to the acquisition.
/
F-11
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
i
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 December 31, 2021 and 2020.
i
Cash
and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains cash balances in various banks. At times, the Company’s balances may exceed the amount insured by the FDIC. As the Company only uses money-centered financial institutions, the Company does not believe it is exposed to any significant credit risk related to its cash and cash equivalents.
i
Restricted
Cash
Restricted cash consists of funds held in trusts that are 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 OCPPs. Additionally, restricted cash includes escrow accounts held by lenders and residents' 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.
i
Loans
Receivable
In 2013, as part of the settlement of a litigation matter related to a third-party management contract assumed in connection with the Company’s 2008 acquisition of GMH Communities Trust, the Company acquired a protective advance note and outstanding bond insurer claim (collectively, the “Loans Receivable”) from National Public Finance Guarantee Corporation for an aggregate of approximately$i52.8 million. The
Loans Receivable carried an interest rate of i5.12% and were secured by a lien on, and the cash flows from, itwo student housing properties
in close proximity to the University of Central Florida. In October 2020, the properties were recapitalized and, as a result, the Company received full repayment of the outstanding Loans Receivable balance plus accrued interest, totaling $i55.0 million. Upon repayment of the Loans Receivable, the remaining unamortized discount associated with the Loans Receivable of $i2.1 million
was recorded as a gain in other nonoperating income on the accompanying consolidated statements of comprehensive income.
/
i
Leases
When the Company enters into a contract
or amends an existing contract, it evaluates whether the contract meets the definition of a lease under ASC Topic 842 - Leases ("ASC 842"). To meet the definition of a lease, the contract must meet all three of the following criteria:
•One party (lessor) must hold an identified asset;
•The counterparty (lessee) must have the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of the contract;
and
•The counterparty (lessee) must have the right to direct the use of the identified asset throughout the period of the contract.
F-12
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2020, the FASB issued a Staff Question & Answer (“Q&A”) which was intended to reduce the challenges of evaluating the enforceable rights and obligations of leases for concessions
granted to lessees in response to the novel coronavirus disease (“COVID-19”), which was characterized on March 11, 2020 by the World Health Organization as a pandemic. Prior to this guidance, the Company was required to determine, on a lease by lease basis, if a lease concession should be accounted for as a lease modification, potentially resulting in any lease concessions granted being recorded as a reduction to revenue or ground lease expense, as applicable, on a straight-line basis over the remaining term of the lease. The Q&A allows both lessors and lessees to bypass this analysis and elect not to evaluate whether concessions provided in response to the COVID-19 pandemic are lease modifications. This relief is subject to certain conditions being met, including ensuring the total remaining lease payments are substantially
the same or less than the original lease payments prior to the concession being granted. The Company has elected to apply such relief and will therefore not evaluate if lease concessions that were granted in response to the COVID-19 pandemic meet the definition of a lease modification. Accordingly, the Company accounted for qualifying rent concessions as negative variable lease payments, which reduced revenue or ground lease expense from such leases in the period the concessions were granted. Refer to Note 14 for additional information.
As Lessee
The
Company classifies 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 authoritative guidance requires lessees to recognize right-of-use ("ROU") assets and related lease liabilities for leases with a term greater than 12 months regardless of their lease classification.
The Company, as lessee, has entered into ground/facility and office space lease agreements, which qualify as operating leases under ASC 842. These leases include leases entered into under the ACE®
program with university systems and Walt Disney World® Resort, leases with local and regional land owners for owned off-campus properties, leases for corporate office space, and leases under the on-campus participating property (“OCPP”) structure. Leases entered into under the ACE® program are used for the purpose of financing, constructing, and managing student housing properties. These leases are transferable and financeable, and the lessor has title to the land and in some cases any improvements placed thereon. Leases entered into under the OCPP structure are used for the purpose of developing, constructing, and operating student housing facilities on university campuses. Under the terms of these leases, title to the land and constructed facilities is held by the lessor and such lessor receives a de minimis base rent paid at inception and i50% of
defined net cash flows on an annual basis through the term of the lease. Under ground/facility leases, the lessors receive annual minimum base rent, variable rent based upon the operating performance of the property, or a combination thereof. The leases have initial terms, excluding extension options, ranging from iseven years to i102
years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company records base rent expense under the straight-line method over the term of the lease, and variable rent expense is recorded when the achievement of the target is considered probable. For properties under construction, straight-line rent is capitalized during the construction period and expensed upon the commencement of operations. For purposes of calculating the ROU asset and lease liability for such leases, extension options are not included in the lease term unless it is reasonably certain that the
Company will exercise the option, or the lessor has the sole ability to exercise the option. As most of the Company’s leases do not contain an implicit rate, the Company uses its incremental borrowing rate to determine the present value of the lease payments, which is the interest rate that the Company estimates it would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments. In determining this rate, we analyze Company-specific factors, such as credit risk, lease-specific factors such as lease term, lease payments, and collateral, as well as overall economic conditions. The weighted average incremental borrowing rate was i5.33%
as of December 31, 2021.
As Lessor
The Company classifies leases as either sales-type, direct financing, or operating leases. A lease will be treated as a sales-type lease if it is considered to transfer control of the underlying asset to the lessee. A lease will be classified as a direct-financing lease if risks and rewards are conveyed without the transfer of control. Otherwise, the lease is treated as an operating lease. The Company elected to adopt the practical expedient that allows lessors to not separate certain lease and non-lease components for common area maintenance and
the related rental revenue, as it determined that the timing and pattern of transfer is the same.
F-13
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating Leases
The Company’s primary business involves leasing properties to students under agreements that are classified as operating leases and have terms of 12 months or less. These student leases do not provide for variable
rent payments. The Company is also a lessor under commercial leases at certain owned properties, some of which provide for variable lease payments based upon tenant performance such as a percentage of sales.
The Company recognizes the base lease payments provided for under the leases on a straight-line basis over the lease term, and variable payments are recognized in the period in which the changes in facts and circumstances, on which the variable payments are based, occur. Refer to Note 7 for additional information on our owned real estate assets, which are the underlying assets under our operating leases. The Company expenses,
on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. These costs include internal leasing payroll costs, as well as certain legal expenses incurred when negotiating commercial leases. Additionally, the Company evaluates collectability of all operating lease payments in a contract at lease commencement and thereafter. The Company concludes that operating lease payments are probable of collection at lease commencement. If the operating lease payments are subsequently deemed not probable of collection, adjustments are recognized as a reduction to lease income and, subsequently, any lease revenue is only recognized when cash receipts are received. The
Company also maintains an allowance for uncollectible operating lease receivables. If, after lease commencement, the assessment of collectability on operating lease payments changes, the Company will determine whether the allowance adequately contemplated this change. Any changes to the provision for uncollectible accounts are presented as a reduction to revenue in the accompanying consolidated statements of comprehensive income. Determining the probability of collection is impacted by numerous factors including tenant creditworthiness, economic conditions, and the Company's historical experience with tenants.
Sales-type Leases
In
certain instances at ACE® properties, the ground lease agreement may require the Company to construct additional facilities desired by the ground lessor and subsequently lease those facilities to the ground lessor over a specified period. These facilities will ultimately be owned, managed, and funded by the ground lessors. Such spaces include but are not limited to dining, childcare, retail, academic, and office facilities. In this type of transaction, title to the facilities transfers to the ground lessor at the end of the lease term, and lease payments are structured to effectively reimburse the Company for the cost of constructing the additional facilities plus interest. As control of the underlying asset in these agreements transfers to the ground
lessor at the end of the lease term, the leases are classified as sales-type leases. At lease inception, the Company records a net investment in the lease, which is equal to the sum of the lease receivable and the unguaranteed residual asset, discounted at the rate implicit in the lease. Any difference between the fair value of the asset and the net investment in the lease is considered selling profit or loss. Due to the nature of these transactions, the net investment in the lease is equal to the sum of the lease receivable, discounted at the rate implicit in the lease, and therefore no selling profit or loss is recorded. The cash rent the Company receives from tenants is not entirely recorded as rental revenue, but rather a portion is recorded as interest income and a portion is recorded as a
reduction to the lease receivable, based on the effective interest method at a constant rate of return over the terms of the applicable leases. The Company's net investment in sales-type leases was $i18.5 million and $i18.6 million
as of December 31, 2021 and 2020, respectively, which is included in other assets in the accompanying consolidated balance sheets. The weighted average remaining term of these leases was i20.4 years as of December 31, 2021. The Company recorded $i1.0 million,
$i0.4 million, and $i0.4 million of interest income related to these leases for the years ended December 31,
2021, 2020, and 2019.
i
Intangible Assets
For acquired properties subject to an in-place property tax incentive arrangement, a portion of the purchase price is allocated to the present value of expected future property tax savings over the projected incentive arrangement period. Unamortized in-place property tax incentive arrangements as of December 31,
2021 and 2020 were approximately $i30.8 million and $i34.5 million, respectively, and are included in other
assets on the accompanying consolidated balance sheets. Amortization expense was approximately $i3.1 million, $i3.4 million, and $i3.5
million for the years ended December 31, 2021, 2020, and 2019, respectively, and is included in owned properties operating expense in the accompanying consolidated statements of comprehensive income. As of December 31, 2021, the remaining weighted average tax incentive arrangement period was i18.2 years. During the year ended December 31, 2019, the
Company recorded a $i14.0 million impairment charge associated with a tax incentive arrangement that was recorded upon acquisition of an owned property in 2015 due to facts and circumstances indicating that the originally assumed property tax savings will not materialize. This impairment charge is based on Level 3 inputs and is included in provision for impairment on the accompanying consolidated statements of comprehensive income.
/
F-14
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
i
Deferred Financing Costs
The Company defers financing costs and amortizes the costs over the terms of the related debt using the effective interest method. Upon repayment of
or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to earnings. When debt modifications do not include material changes to the terms of the underlying debt agreement, unamortized costs of the original instrument are added to the costs of the modification and amortized over the life of the modified debt using the effective interest method. Deferred financing costs, net of amortization, for the Company’s revolving credit facility are included in other assets on the accompanying consolidated balance sheets. Net deferred financing costs for the Company’s revolving credit facility as of December 31, 2021, and 2020 were approximately
$i7.3 million and $i1.9 million, respectively. Net deferred financing costs for the Company's secured
mortgage and bond debt, unsecured notes, and unsecured term loans are presented as a reduction to the unpaid principal balance of the respective debt in the accompanying consolidated balance sheets. Refer to Note 8 for additional information regarding these balances.
/
i
Redeemable Noncontrolling Interests
The
Company follows guidance issued by the FASB regarding the classification and measurement of redeemable securities. Under this guidance, securities that are redeemable for cash or other assets, at the option of the holder and not solely within the control of the issuer, must be classified outside of permanent equity as redeemable noncontrolling interests. The Company makes this determination based on terms in the applicable agreements, specifically in relation to redemption provisions. The Company initially records the redeemable noncontrolling interests at fair value. The carrying amount of the redeemable noncontrolling interest is subsequently adjusted to the redemption value (assuming the noncontrolling interest is redeemable at the balance sheet date), with the corresponding offset for
changes in fair value recorded in additional paid in capital. Reductions in fair value are recorded only to the extent that the Company has previously recorded increases in fair value above the redeemable noncontrolling interests’ initial basis. As the changes in redemption value are based on fair value, there is no effect on the Company’s earnings per share. Refer to Note 10 for a more detailed discussion of redeemable noncontrolling interests for both ACC and the Operating Partnership.
i
Joint
Ventures
The Company consolidates joint ventures when it exhibits financial or operational control, which is determined using accounting standards related to the consolidation of joint ventures and VIEs. For joint ventures that are defined as VIEs, the primary beneficiary consolidates the entity. The Company considers itself to be the primary beneficiary of a VIE when it has the power to direct the activities that most significantly impact the performance of the VIE, such as management of day-to-day operations, preparing and approving operating and capital budgets, and encumbering or selling the related properties. In instances where the
Company is not the primary beneficiary, it does not consolidate the joint venture for financial reporting purposes.
For joint ventures that are not defined as VIEs, where the Company is the general partner, but does not control the joint venture due to the other partners holding substantive participating rights, the Company uses the equity method of accounting. For joint ventures where the Company is a limited partner, management evaluates whether the Company holds substantive participating rights. In instances where the
Company holds substantive participating rights in the joint venture, the Company consolidates the joint venture; otherwise, it uses the equity method of accounting.
i
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 ACCOP, iseven joint ventures that own a total of i13
operating properties and itwo land parcels, and isix properties owned under the on-campus participating property structure ("OCPP"). The VIE assets and liabilities consolidated within the
Company's assets and liabilities are disclosed at the bottom of the accompanying consolidated balance sheets.
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F-15
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. As a part of the presale agreements, the Company has the option to elect not to purchase the asset, which would result in the Company paying a significant penalty. 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.
iMortgage Debt - Premiums and Discounts
Mortgage
debt premiums and discounts represent fair value adjustments to account for the difference between the stated rates and market rates of mortgage debt assumed in connection with the Company’s property acquisitions. The mortgage debt premiums and discounts are included in secured mortgage and bond debt, net on the accompanying consolidated balance sheets and are amortized to interest expense over the term of the related mortgage loans using the effective-interest method. The amortization of mortgage debt premiums and discounts resulted in a net decrease to interest expense of approximately $i1.2
million, $i4.7 million, and $i4.9 million for the years ended December 31,
2021, 2020, and 2019, respectively. As of December 31, 2021 and 2020, net unamortized mortgage debt premiums were approximately $i0.4 million and $i1.7
million, respectively.
i
Tenant Reimbursements
Reimbursements from tenants, consisting of amounts due from tenants for utilities, are recognized as revenue in the period the recoverable costs are incurred. Tenant reimbursements are recognized and recorded on a gross basis, as the Company is generally the primary obligor with respect to purchasing goods and services from third-party suppliers, has discretion
in selecting the supplier, and has credit risk.
i
Third-Party Development Services Revenue
The Company recognizes development and construction revenues over the life of the contract using a time-based measure of progress. An
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.
Third-Party Development Services and Owned Development Project 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 as 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, or a risk sharing agreement is executed, 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 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. Refer to Note 15 for details of the amount the Company has deferred in pre-development
costs related to third-party and owned development projects that have not yet commenced construction.
F-16
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Third-Party Management Services Revenue
Management fees are recognized when earned in accordance with each management contract. Incentive management 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. The Company evaluates the collectability of revenue earned from third-party management contracts and reserves any amounts deemed to be uncollectible based on the individual facts and circumstances of the projects and associated contracts.
i
Advertising
Costs
Advertising costs are expensed during the period incurred, or as the advertising takes place, depending on the nature and term of the specific advertising arrangements. Advertising expense approximated $i15.9 million, $i12.9
million, and $i15.7 million for the years ended December 31, 2021, 2020, and 2019, respectively, and is included in owned properties operating expenses on the accompanying consolidated statements of comprehensive income.
/
i
Derivative
Instruments and Hedging Activities
The Company records all derivative financial instruments on the balance sheet at fair value. Changes in fair value are recognized either in earnings or as other comprehensive income, depending on whether the derivative has been designated as a fair value or cash flow hedge and whether it qualifies as part of a hedging relationship, the nature of the exposure being hedged, and how effective the derivative is at offsetting movements in underlying exposure. The Company discontinues hedge accounting when: (i) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised;
(iii) it is no longer probable that the forecasted transaction will occur; or (iv) management determines that designating the derivative as a hedging instrument is no longer appropriate. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings. The Company uses interest rate swaps to effectively convert a portion of its floating rate debt to fixed rate, thus reducing the impact of rising interest rates on interest payments. These instruments are designated as cash flow hedges and the interest differential to be paid or received is accrued as interest expense. The
Company’s counter-parties are major financial institutions. See Note 12 for an expanded discussion on derivative instruments and hedging activities.
i
Common Stock Issuances and Costs
Specific incremental costs directly attributable to the Company’s equity offerings are deferred and charged against the gross proceeds of the offering. As such, underwriting commissions and other common stock
issuance costs are reflected as a reduction to additional paid in capital. See Note 9 for an expanded discussion on common stock issuances and costs.
iShare-Based Compensation
Compensation expense associated with share-based awards is recognized in the accompanying consolidated statements of comprehensive income based on the grant-date fair values and is adjusted as actual forfeitures
occur. Compensation expense is recognized over the period during which the employee is required to provide service in exchange for the award, which is generally the vesting period. See Note 11 for an expanded discussion of the Company’s share-based compensation awards.
i
Income Taxes
The
Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distributes at least 90% of its adjusted taxable income to its stockholders. As a REIT, the Company will generally not be subject to corporate level federal income tax on taxable income it currently distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax for tax years ending on or prior to December
31, 2017) and may not be able to qualify as a REIT for the subsequent four taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local income and excise taxes on its income and property, and to federal income and excise taxes on its undistributed income.
F-17
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company owns various TRSs, one of which manages the Company’s non-REIT activities and each of which is subject to federal, state and local income taxes.
3. iEarnings Per Share
Basic earnings per
share is computed using net income attributable to common shareholders 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 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.
i
The
following potentially dilutive securities were outstanding for the years ended December 31, 2021, 2020, and 2019, but were not included in the computation of diluted earnings per share because the effects of their inclusion would be anti-dilutive.
Net
loss (income) attributable to noncontrolling interests
i2,205
i2,955
(i1,793)
Net
income attributable to ACC, Inc. and Subsidiaries common stockholders
i35,489
i72,803
i84,969
Amount
allocated to participating securities
(i2,285)
(i2,142)
(i1,902)
Net
income attributable to common stockholders
$
i33,204
$
i70,661
$
i83,067
Denominator
Basic
weighted average common shares outstanding
i138,503,705
i137,588,964
i137,295,837
Unvested
restricted stock awards (Note 11)
i1,199,930
i1,121,466
i990,941
Diluted
weighted average common shares outstanding
i139,703,635
i138,710,430
i138,286,778
Earnings
per share
Net income attributable to common stockholders - basic
$
i0.24
$
i0.51
$
i0.61
Net
income attributable to common stockholders - diluted
$
i0.24
$
i0.51
$
i0.60
/
4.
iIncome Taxes
As mentioned in Note 2, the Company qualifies as a REIT under the Code. As a REIT, the Company is not subject to federal income tax as long as it distributes at least 90% of its taxable income to its shareholders each year. If the
Company’s taxable income exceeds its distributions for the year, the REIT tax rules allow the Company to designate distributions from a subsequent tax year in order to avoid current taxation on undistributed income. No provision for federal income taxes for the REIT has been included in the accompanying consolidated financial statements as the Company expects to meet the 90% annual distribution requirement. If the Company fails to qualify as a REIT, the Company will be subject to federal income tax on its taxable income and to federal income and excise taxes on its undistributed income. In addition, ACCOP is a flow-through
entity and is not subject to federal income taxes at the entity level. Historically, the Company has incurred only state and local income, franchise, and margin taxes.
F-18
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s TRSs are subject to federal, state, and local income taxes. As such, deferred income taxes result from temporary differences between the carrying
amounts of assets and liabilities of the TRSs for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using enacted tax rates in effect in the years in which those temporary differences are expected to reverse. Significant components of the deferred tax assets and liabilities of the TRSs are as follows:
TRS
earnings subject to tax consisted of an income of approximately $i4.4 million, a loss of approximately $i5.4
million, and income of approximately $i10.0 million for the years ended December 31, 2021, 2020, and 2019, respectively. iThe
reconciliation of income tax for the TRSs computed at the U.S. statutory rate to income tax provision is as follows:
Tax
benefit (provision) at U.S. statutory rates on TRS income subject to tax
$
i1,347
$
i1,536
$
(i789)
State
income tax, net of federal income tax benefit (provision)
i206
i278
(i57)
Effect
of permanent differences and other
(i53)
(i8)
i5
(Increase)
decrease in valuation allowance
(i1,500)
(i1,806)
i841
TRS
income tax provision
$
i—
$
i—
$
i—
At
December 31, 2021, the TRSs had net operating loss carryforwards (“NOLs”) of approximately $i29.8 million for income tax purposes that begin to expire in 2033. These NOLs may be used to offset future taxable income generated by each of the respective TRSs. Due to the various limitations to which the use of NOLs are subject, the Company has applied a valuation allowance to the NOLs given the likelihood that the NOLs will expire unused. The
Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states’ jurisdictions as required, and as of December 31, 2021, the 2020, 2019, and 2018 calendar tax years are subject to examination by the tax authorities.
F-19
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company
had iiino//
material unrecognized tax benefits for the years ended December 31, 2021, 2020, and 2019, and as of December 31, 2021, the Company does not expect to record any material unrecognized tax benefits. Because no material unrecognized tax benefits have been recorded, no related interest or penalties have been calculated.
i
A
schedule of per share distributions the Company paid and reported to its shareholders, which is unaudited, is set forth in the following table:
Year Ended December 31,
Tax Treatment of Distributions
2021
2020
2019
Ordinary
income
$
i0.4500
$
i1.1004
$
i0.6625
Long-term
capital gain (1)
i1.2248
i0.3560
i1.2075
Return
of capital
i0.2052
i0.4236
i—
Total
per common share outstanding
$
i1.8800
$
i1.8800
$
i1.8700
(1)Unrecaptured
Section 1250 gains of $i0.2560, $i0.2052, and $i0.3827
were reported for the years ended December 31, 2021, 2020, and 2019, respectively.
/
5. iAcquisitions and Joint
Venture Investments
Land Acquisitions
In November 2021, the Company acquired a land parcel near the University of Georgia for approximately $i1.0 million including transaction costs. The land was purchased as part of a planned redevelopment of a current asset.
In
May 2021, the Company acquired a land parcel near Arizona State University for approximately $i12.2 million including transaction costs. The land was purchased for the potential future development of a student housing facility.
In October 2020, the Company acquired a property containing
a commercial building near the University of Central Florida for approximately $i11.6 million including transaction costs. The land was purchased for future development of a student housing facility. The commercial building is currently leased and managed by a third party. The Company will receive the operating cash flows of the property until development commences.
Joint
Venture Transactions
In August 2020, the Company entered into a joint venture arrangement with a third-party partner to develop a property located in Nashville, TN (the “Nashville Joint Venture”). The Company’s contribution consisted of cash and pre-development expenditures totaling $i5.6 million
in exchange for a i50% ownership interest in the Nashville Joint Venture. Additionally, as part of the transaction, the Company financed the third-party partner’s contribution with a $i5.4 million,
itwo-year note receivable (the “Note”) at a i6.5% annual interest rate. The third-party partner contributed the proceeds from the Note as well as pre-development and transaction costs of
approximately $i0.7 million in exchange for a i50%
ownership interest in the Nashville Joint Venture. In September 2020, the Nashville Joint Venture purchased a land parcel for $i11.3 million including transaction costs.
The Nashville Joint Venture was determined to be a VIE with the Company being the primary beneficiary. As such, the Nashville Joint Venture is included in the
Company’s consolidated financial statements contained herein and the third-party partner’s ownership interest is accounted for as noncontrolling interest - partially owned properties.
Presale Development Projects
During the year ended December 31, 2019, itwo properties containing i783
beds and subject to presale agreements were completed and acquired by the Company for $i110.2 million. The purchase price included $i8.6
million related to the purchase of the land on which one of the properties is built. Additionally, upon acquisition, the third-party developer repaid an $i18.5 million mezzanine loan, including accrued interest, that the Company provided to one of the projects during the construction period.
As presale development properties are consolidated by the
Company from time of execution of the presale agreements with the developers, the closing of the transactions was accounted for as an increase in ownership of a consolidated subsidiary.
F-20
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. iDispositions
and Joint Venture Investments
Joint Venture Activity
In December 2021, the Company executed a joint venture agreement with an affiliate of Harrison Street Real Estate Capital, LLC (“HS”) for the ownership of the Company's existing ieight-property
Arizona State University student housing portfolio. The transaction (the "ACC / HS Joint Venture Transaction") is structured with a two-phase closing. The first phase of the transaction closed in December 2021 and included the sale of a i45% ownership interest in ithree
owned properties containing i4,272 beds for a sales price of approximately $i271.7 million. The second phase is
expected to close in late 2022 or early 2023 and will involve the sale of a i45% ownership interest in ifive
owned properties containing i3,915 beds for a sales price of approximately $i279.6 million, subject to customary
closing conditions, including no material adverse changes to these properties.
The joint venture was determined to be a VIE. As the Company retained control of the properties after the joint venture transaction through its i55% ownership interest, it was deemed the primary beneficiary. As such, the Company’s contribution of the
properties to the joint venture was recorded at net book value, and the joint venture is included in the Company’s consolidated financial statements contained herein. The joint venture partner’s ownership interest in the joint venture is accounted for as noncontrolling interest. The difference between the book value and the sales price of the i45% ownership interest purchased
by HS is reflected as Change in Ownership of Consolidated Subsidiary on the accompanying Consolidated Statements of Changes in Equity. Additionally, the book value of the i45% ownership interest purchased by HS is reflected as Contributions by Noncontrolling Interests – Partially Owned Properties on the accompanying Consolidated Statements of Changes in Equity.
Property Dispositions
In
March 2020, the Company sold The Varsity, an owned property located near University of Maryland in College Park, Maryland, containing i901 beds for $i148.0
million, resulting in net cash proceeds of approximately $i146.1 million. The net gain on this disposition totaled approximately $i48.5
million.
During the year ended December 31, 2019, the Company sold itwo owned properties containing i1,150
beds for approximately $i109.5 million, resulting in net cash proceeds of approximately $i108.6 million. Concurrent
with the classification of one of the sold properties as held for sale, the Company reduced the property’s carrying amount to its estimated fair value less estimated selling costs and recorded an impairment charge of $i3.2 million. The combined net loss on the dispositions was not material.
F-21
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. iInvestments in Real Estate
Owned Properties
i
Owned
properties, both wholly-owned and those owned through investments in VIEs, consisted of the following:
Our OCPP segment includes isix on-campus properties that are operated under long-term ground/facility leases with ithree
university systems. Under our ground/facility leases, we receive an annual distribution representing i50% of these properties’ net cash flows, as defined in the ground/facility lease agreements. We also manage these properties under long-term management agreements and are paid management fees equal to a percentage of defined gross receipts.
Unsecured
notes, net of unamortized OID and deferred financing costs (2)
i2,773,855
i2,375,603
Unsecured
term loan, net of unamortized deferred financing costs (3)
i199,824
i199,473
Unsecured
revolving credit facility
i—
i371,100
Total
debt, net
$
i3,509,515
$
i3,593,003
(1)The
creditors of mortgage loans payable and bonds payable related to OCPPs do not have recourse to the assets of the Company.
(2)Includes net unamortized original issue discount (“OID”) of $i5.3 million and $i5.8 million
at December 31, 2021 and 2020, respectively, and net unamortized deferred financing costs of $i20.8 million and $i18.6 million
at December 31, 2021 and 2020, respectively.
(3)Includes net unamortized deferred financing costs of $i0.2 million and $i0.5 million
at December 31, 2021 and 2020, respectively.
/
Mortgage Loans Payable
Mortgage loans payable generally feature either monthly interest and principal payments or monthly interest-only payments with balloon payments due at maturity. For purposes of classification in the following table, variable rate mortgage loans subject to interest rate swaps are deemed to be fixed rate, due to the Company having effectively fixed the interest rate for the underlying debt instrument.
i
Mortgage
loans payable, excluding debt premiums and discounts, consisted of the following as of December 31, 2021:
(1)Fixed rate mortgage loans payable mature on various dates from 2024 through 2045 and carry interest rates ranging from i2.79%
to i4.50% at December 31, 2021.
(2)Represents mortgage debt at one of our on-campus participating properties not subject to an interest rate swap contract. This property is included in the number of properties encumbered by mortgage loans above.
/
F-23
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
i
During the year ended December 31, 2021, the following transactions occurred:
(1)Balance excludes unamortized debt premiums and discounts.
(2)Represents pay-offs of mortgage notes payable secured by isix
properties.
/
In February 2021, the Company refinanced $i24.0 million of OCPP mortgage debt that was scheduled to mature in 2021, which extended the maturity to February 2028. Additionally, in February 2021, the
Company entered into itwo interest rate swap agreements to convert the refinanced mortgage loan to a fixed rate of i2.8%. Refer to Note 12 for information
related to derivatives.
Bonds Payable
iThree of the on-campus participating properties are i100%
financed with outstanding project-based taxable bonds. Under the terms of these financings, one of the Company’s special purpose subsidiaries publicly issued ithree series of taxable bonds and loaned the proceeds to ithree
special purpose subsidiaries that each hold a separate leasehold interest. The bonds encumbering the leasehold interests are non-recourse, subject to customary exceptions. Although a default in payment by these special purpose subsidiaries could result in a default under one or more series of bonds, indebtedness of any of these special purpose subsidiaries is not cross-defaulted or cross-collateralized with indebtedness of the Company, the Operating Partnership, or other special purpose subsidiaries. Repayment of principal
and interest on these bonds is insured by MBIA, Inc. Interest and principal are paid semi-annually and annually, respectively, through maturity. Covenants include, among other items, budgeted and actual debt service coverage ratios. As of December 31, 2021, the Company was in compliance with all such covenants.
In October 2021, the Operating Partnership closed a $i400 million offering of senior unsecured notes under its existing shelf registration. These i7-year notes were issued at
i99.928% of par value with a coupon of i2.250% and are fully and unconditionally guaranteed by the
Company. Interest on the notes is payable semi-annually on January 15 and July 15, with the first payment due and payable on January 15, 2022. The notes will mature on January 15, 2029. Net proceeds from the sale of the senior unsecured notes totaled approximately $i394.4 million. The Company used the proceeds to repay borrowings under its Credit Facility.
F-24
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021, the Operating Partnership has issued the following senior unsecured notes:
Date
Issued
Amount
% of Par Value
Coupon
Yield
Original Issue Discount
Term (Years)
April 2013
$
i400,000
i99.659
i3.750%
i3.791%
$
i1,364
i10
June
2014
i400,000
i99.861
i4.125%
i4.269%
(1)
i556
i10
October
2017
i400,000
i99.912
i3.625%
i3.635%
i352
i10
June
2019
i400,000
i99.704
i3.300%
i3.680%
(1)
i1,184
i7
January
2020
i400,000
i99.810
i2.850%
i2.872%
i760
i10
June
2020
i400,000
i99.142
i3.875%
i3.974%
i3,432
i10
October
2021
i400,000
i99.928
i2.250%
i2.261%
i288
i7
$
i2,800,000
$
i7,936
(1) The
yield includes the effect of amortization of interest rate swap terminations.
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 December 31, 2021, the Company was in compliance with all such covenants.
Unsecured
Revolving Credit Facility
In May 2021, the Company closed on the renewal of its existing $i1.0 billion Credit Facility which was previously scheduled to mature in March 2022. The renewed agreement contains an accordion feature that allows the Company to expand the Credit Facility by
up to an additional $i500 million, subject to the satisfaction of certain conditions. Additionally, a component of the interest rate is based on the achievement of specified environmental, social, and governance (“ESG”) targets which include the achievement of diversity rates among the Company’s independent board members and employees and completion of certifications or renovations that meet certain sustainability standards. The Credit Facility
matures in May 2025, and can be extended through two six-month extension options, subject to the satisfaction of certain conditions.
The Credit Facility bears interest at a variable rate, at the Company’s option, based upon a base rate of one-, 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, subject to adjustment based upon the achievement of ESG targets described above. Additionally, the Company is required to pay a facility fee of i0.20%
per annum on the $i1.0 billion Credit Facility. As of December 31, 2021, the Credit Facility had a izero balance and availability
under the Credit Facility totaled $i1.0 billion.
The terms of the 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 December 31, 2021, the Company was in compliance with all such covenants.
Unsecured Term Loan
The Company’s Term Loan totals $i200
million and matures in June 2022. The agreement has an accordion feature that allows the Company to expand the amount by up to an additional $i100 million, subject to the satisfaction of certain conditions. The Company is also currently party to itwo
interest rate swap contracts to hedge the variable rate cash flows associated with the LIBOR-based interest payments on the Term Loan. The weighted average annual rate on the Term Loan was i2.54% (i1.44%
+ i1.10% spread) at December 31, 2021. Refer to Note 12 for more information related to cash flow hedges of interest rate risk. The Term Loan Facility includes certain restrictions and covenants consistent with those of the unsecured revolving credit facility discussed above. As of December 31, 2021, the Company was in compliance with all such covenants.
F-25
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2021, the Company modified the Term Loan to include LIBOR transition language and to conform the covenants and various administrative items from the agreement to those in the Company’s Credit Facility which was also amended in May 2021.
Debt Maturities
i
The
following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt premiums and discounts, for each of the five years subsequent to December 31, 2021 and thereafter:
2022
$
i209,723
2023
i410,411
2024
i530,939
2025
i4,922
2026
i403,207
Thereafter
i1,977,304
$
i3,536,506
/
The
Company's payment of principal and interest were current at December 31, 2021. Certain of the mortgage notes and bonds payable are subject to prepayment penalties.
9. iStockholders’ Equity
In May 2021, the
Company renewed its 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 $i500.0 million. The shares that may be sold under this program include shares of common stock of the Company with an aggregate offering price of approximately
$i500.0 million that were not sold under the Company's previous ATM equity program that expired in May 2021. 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.
The Company has 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 11), 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 year ended December 31, 2021, i28,899
shares and i27,945 shares of vested stock were deposited into and withdrawn from the Deferred Compensation Plan, respectively. As of December 31, 2021, i92,700
shares of ACC's common stock were held in the Deferred Compensation Plan.
F-26
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. iNoncontrolling
Interests
Noncontrolling interests - partially owned properties: As of December 31, 2021, the Company consolidates isix joint ventures that own and operate i13
owned off-campus properties and ione land parcel, including the ACC / HS Joint Venture Transaction discussed in Note 6. The portion of net assets attributable to the third-party partners in these arrangements is classified as “noncontrolling interests - partially owned properties” within equity on the accompanying consolidated balance sheets.
Redeemable noncontrolling interests - OP Units: Included in redeemable noncontrolling interests on the accompanying consolidated balance sheets
are OP Units for which ACCOP is required, either by contract or securities law, to deliver registered shares of ACC’s common stock to the exchanging OP unitholder, or for which ACCOP has the intent or history of exchanging such units for cash. The units include Series A Preferred Units (“Preferred OP Units”) and Common OP Units. The value of OP Units 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.
Redeemable noncontrolling interests - partially owned properties: The noncontrolling interest holder in the Core Spaces / DRW Real Estate Investment joint ventures (the “Core Joint Ventures”), which were formed in 2017, had the option to redeem its noncontrolling interest in the entities through the exercise of put options. During the year ended December 31, 2020, the noncontrolling interest holder exercised its option to redeem its remaining ownership interest in the Core Joint Ventures, which reduced the redeemable noncontrolling interest by $i77.2 million. As
of December 31, 2021 and 2020, the Company had ii100/%
ownership interest in all iifive/
properties initially held by the Core Joint Ventures.
i
Below is a table summarizing the activity of redeemable noncontrolling interests for the years ended December 31, 2021, 2020, and 2019:
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. iIncentive Award Plan
The Company has an Incentive Award Plan (the “Plan”)
that provides for the grant of various stock-based incentive awards to selected employees and directors of the Company and the Company’s affiliates. The types of awards that may be granted under the Plan include incentive stock options, nonqualified stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), profits interest units (“PIUs”), and other stock-based awards. The Company has reserved a total i3.5
million shares of the Company’s common stock for issuance pursuant to the Plan, subject to certain adjustments for changes in the Company’s capital structure, as defined in the Plan. As of December 31, 2021, i2.2
million shares were available for issuance under the Plan.
Restricted Stock Awards
The Company awards RSAs to its executive officers and certain employees that vest in equal annual installments over a ifive year period. Unvested awards are forfeited upon the termination of an individual’s employment with
the Company under specified circumstances. Recipients of RSAs receive dividends, as declared by the Company’s Board of Directors, on unvested shares, provided that the recipient continues to be employed by the Company. iA
summary of the Company’s RSAs under the Plan for the years ended December 31, 2021 and 2020 is presented below:
(1) Includes
i95,690 shares withheld to satisfy tax obligations upon vesting for the year ended December 31, 2020.
(2) Includes i140,864
shares withheld to satisfy tax obligations upon vesting for the year ended December 31, 2021.
The fair value of RSAs is calculated based on the closing market value of the Company’s common stock on the date of grant. The fair value of these awards is amortized to expense over the vesting periods, which amounted to approximately $i18.4
million, $i14.4 million, and $i12.7 million for the years ended December 31,
2021, 2020, and 2019, respectively. The weighted-average grant date fair value for each RSA granted and forfeited during the year ended December 31, 2019 was $i44.08 and $i42.91,
respectively.
The total fair value of RSAs vested during the year ended December 31, 2021 was approximately $i18.4 million. Additionally, as of December 31, 2021, the
Company had approximately $i35.8 million of total unrecognized compensation cost related to granted RSAs, which is expected to be recognized over a remaining weighted-average period of i3.2
years.
Per the provisions of the Plan, an employee becomes retirement eligible when: (i) the sum of an employee’s full years of service (a minimum of i120 contiguous full months) and the employee’s age on the date of termination (a minimum of i50
years of age) equals or exceeds i70 years (hereinafter referred to as the “Rule of 70”); (ii) the employee gives at least isix
months prior written notice to the Company of his or her intention to retire; and (iii) the employee enters into a noncompetition agreement and a general release of all claims in a form that is reasonably satisfactory to the Company. As of December 31, 2021, i24 employees have met the Rule of 70, including the
Company’s Chief Executive Officer. A total of i375,756 unvested RSAs are held by such employees representing future amortization expense of $i12.0
million. Once the first two conditions of retirement eligibility are met, the unvested shares held by these employees will be subject to accelerated vesting.
F-28
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units
Upon initial appointment to the Board of Directors and reelection to the Board of Directors at each Annual Meeting of Stockholders, each independent member of the Board of Directors is granted RSUs. On the Settlement Date, the
Company will deliver to the recipients a number of shares of common stock or cash, as determined by the Compensation Committee of the Board of Directors, equal to the number of RSUs granted to the recipients. In addition, recipients of RSUs are entitled to dividend equivalents equal to the cash distributions paid by the Company on one share of common stock for each RSU issued, payable currently, or on the Settlement Date, as determined by the Compensation Committee of the Board of Directors.
Upon reelection to the Board of Directors in April 2021, all members of the Company’s Board of Directors were granted RSUs in accordance with the Plan. These RSUs were valued at $i170,000 for
the Chair of the Board of Directors and at $i122,500 for all other members. The number of RSUs was determined based on the fair market value of the Company’s stock on the date of grant, as defined in the Plan. All awards vested and settled immediately on the date of grant,
and the Company delivered shares of common stock and cash, as determined by the Compensation Committee of the Board of Directors.
In January 2021, the Company appointed ithree new members to the Board of Directors who were each granted RSUs valued at $i122,500.
i
A
summary of ACC’s RSUs under the Plan for the years ended December 31, 2021 and 2020 and activity during the years then ended is presented below:
The
Company recognized expense of approximately $i1.6 million, $i1.0 million, and $i0.9
million for the years ended December 31, 2021, 2020, and 2019, respectively, reflecting the fair value of the RSUs issued on the dates of grants disclosed above. The weighted-average grant-date fair value for each RSU granted during the year ended December 31, 2019 was $i47.34.
12. iDerivative
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.
F-29
AMERICAN CAMPUS
COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. These agreements containprovisions such that if the Company defaults on any of its indebtedness, regardless of whether the repayment of the indebtedness has been accelerated by the lender or not, then the Company could also be declared
in default on its derivative obligations. As of December 31, 2021, the Company was not in default on any of its indebtedness or derivative instruments.
The change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded outside of earnings in other comprehensive income (“OCI”) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction.
i
The
following table summarizes the Company’s outstanding interest rate swap contracts which are included in other assets and other liabilities on the accompanying consolidated balance sheets as of December 31, 2021, all of which have been designated as cash flow hedges and qualify for hedge accounting:
Hedged
Debt Instrument
Effective Date
Maturity Date
Pay Fixed Rate
Receive Floating Rate Index
Current Notional Amount
Fair Value
Park Point mortgage loan
iFeb
1, 2019
iJan 16, 2024
i2.7475%
iLIBOR
- 1 month
$
i70,000
$
(i2,716)
College
Park mortgage loan
iOct 16, 2019
iOct 16, 2022
i1.2570%
iLIBOR
- 1 month
i37,500
(i264)
Unsecured
term loan
iNov 4, 2019
iJun 27, 2022
i1.4685%
iLIBOR
- 1 month
i100,000
(i606)
Unsecured
term loan
iDec 2, 2019
iJun 27, 2022
i1.4203%
iLIBOR
- 1 month
i100,000
(i583)
Cullen
Oaks mortgage loan
iFeb 16, 2021
iFeb 15, 2028
i0.7850%
iLIBOR
- 1 month
i11,223
i231
Cullen
Oaks mortgage loan
iFeb 16, 2021
iFeb 15, 2028
i0.7850%
iLIBOR
- 1 month
i11,339
i233
Total
$
i330,062
$
(i3,705)
/
In
December 2018, the Company entered into ithree forward starting interest rate swap contracts with notional amounts totaling $i200.0
million designated to hedge the Company's exposure to increasing interest rates related to interest payments on an anticipated issuance of unsecured notes. In connection with the issuance of unsecured notes in June 2019, the Company terminated the swap contracts resulting in payments to counterparties totaling approximately $i13.2
million, which were recorded in accumulated other comprehensive loss and which will be amortized to interest expense over the term of the swap contracts based on the June 2019 issuance and expected additional issuances.
i
The table below presents the fair value of the
Company’s derivative financial instruments and their classification on the accompanying consolidated balance sheets as of December 31, 2021 and 2020:
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
i
The table below presents the effect of the Company’s derivative financial instruments on the accompanying consolidated statements of comprehensive income for the years ended December 31,
2021, 2020, and 2019:
Year Ended December 31,
Description
2021
2020
2019
Change
in fair value of derivatives and other recognized in other comprehensive income ("OCI")
$
i1,262
$
(i11,380)
$
(i723)
Swap
interest accruals reclassified to interest expense
i5,244
i3,844
i200
Termination
of interest rate swap payment recognized in OCI
i—
i—
(i13,159)
Amortization
of interest rate swap terminations (1)
i1,724
i1,705
i1,133
Total
change in OCI due to derivative financial instruments
$
i8,230
$
(i5,831)
$
(i12,549)
Interest
expense presented in the consolidated statements of comprehensive income in which the effects of cash flow hedges are recorded
$
i117,793
$
i112,507
$
i111,287
(1)Represents
amortization from OCI into interest expense.
/
As of December 31, 2021, the Company estimates that $i4.9 million
will be reclassified from OCI to interest expense over the next twelve months.
13. iFair Value Disclosures
Financial Instruments Carried at Fair Value
The Company follows the
authoritative guidance for financial assets and liabilities, which establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. The authoritative guidance requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy by which these assets and liabilities must be categorized, based on the significance of inputs.
In general, fair values determined by Level 1 inputs utilize unadjusted, quoted prices in active markets for identical assets or liabilities the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices
for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability, such as interest rates and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.
In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or liability.
F-31
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
i
The
following table presents information about the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2021 and 2020 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. There were no Level 1 measurements for the periods presented, and the Company had no transfers between Levels 1, 2, or 3 during the periods presented.
(1)Valued
using discounted cash flow analyses with observable market-based inputs of interest rate curves and option volatility, as well as credit valuation adjustments to reflect nonperformance risk.
(2)Represents the OP Unit component of redeemable noncontrolling interests which is based on the greater of fair value of the Company’s common stock or historical cost at the balance sheet date. Represents a quoted price for a similar asset in an active market. Refer to Note 10.
/
Financial Instruments Not Carried at Fair Value
As
of December 31, 2021 and December 31, 2020, the carrying values for the following instruments represent fair values due to the short maturity of the instruments: cash and cash equivalents, restricted cash, student contracts receivable, certain items in other assets (including receivables, deposits, and prepaid expenses), accounts payable and accrued expenses, and other liabilities.
As of December 31, 2021 and December 31, 2020, the carrying values for the following instruments represent fair values due to the variable interest rate feature of the instruments: the Credit Facility (which had no outstanding
balance as of December 31, 2021) and one variable rate mortgage loan payable.
i
The table below contains the estimated fair value and related carrying amounts for the Company’s financial instruments as of December 31, 2021 and 2020. There were no Level 1 or Level 3 measurements for the periods presented.
(1)Carrying
amounts disclosed include any applicable net unamortized OID, net unamortized deferred financing costs, and net unamortized debt premiums and discounts (see Note 8).
(2)Valued using interest rate and spread assumptions that reflect current creditworthiness and market conditions available for the issuance of unsecured notes with similar terms and remaining maturities.
(3)Does not include ione variable rate mortgage loan with a principal balance of $i0.9
million and $i2.1 million as of December 31, 2021 and 2020, respectively.
(4)Valued using the present value of the cash flows at current market interest rates through maturity that primarily fall within the Level 2 category.
(5)Valued using quoted prices in markets that are not active due to the unique characteristics of these financial
instruments.
(6)The Company is party to two interest rate swap contracts to hedge the variable rate cash flows associated with the LIBOR-based interest payments on the Term Loan (see Note 8). Valued using the present value of the cash flows at interpolated 1-month LIBOR swap rates through maturity that primarily fall within the Level 2 category.
/
F-32
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. iLeases
As Lessee
As discussed in Note 2, the Company as lessee has entered into lease
agreements with university systems and other third parties for the purpose of financing, constructing, and operating student housing properties. Under the terms of the ground/facility leases, the lessor may receive annual minimum rent, variable rent based upon the operating performance of the property, or a combination thereof.
In the accompanying consolidated statements of comprehensive income, rent expense for ACE® properties and OCPPs is included in ground/facility lease expense, and rent expense for owned off-campus properties is included in owned properties operating expenses. iTotal
straight-line rent expense, variable rent expense, and capitalized rent cost, were as follows:
Year Ended December 31,
Description
2021
2020
2019
Straight-line
rent expense
$
i18,528
$
i12,379
$
i10,009
Variable
rent expense (1)
$
i3,895
$
i5,761
$
i8,996
Capitalized
rent cost
$
i10,488
$
i15,772
$
i12,889
(1)Includes
impact of rent concessions received as discussed below.
During the years ended December 31, 2021 and 2020, the Company received rent concessions in the form of ground rent abatements at one ACE® property related to the effects of the novel coronavirus disease pandemic (“COVID-19”). iAs
discussed in Note 2, these concessions were recorded as a reduction to ground/facility leases expense in accordance with the FASB Staff Question & Answer “Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic” and are presented in the following table:
Year Ended December 31,
2021
2020
Ground
rent abatements
$
i7,279
$
i1,512
i
Future
minimum commitments over the life of all leases, which exclude variable rent payments, are as follows:
(1)The weighted average remaining lease term of leases with a lease liability, excluding extension options, as of December 31, 2021 was i61.1
years.
/
F-33
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As Lessor
As discussed in Note 2, the Company as lessor has entered into leases with both student and commercial tenants. iLease
income under both student and commercial leases is included in owned property revenues and on-campus participating properties revenues in the accompanying consolidated statements of comprehensive income and is presented in the following table:
Year Ended December 31,
Description
2021
2020
2019
Student
lease income
$
i861,252
$
i809,112
$
i851,992
Commercial
lease income
$
i12,059
$
i11,793
$
i13,211
During
the years ended December 31, 2021 and 2020, the Company provided various rent abatements and rent refunds to its tenants experiencing financial hardship due to COVID-19. In addition, during the year ended December 31, 2020, the Company also waived all late fees, online payment fees, and suspended financial related evictions during the spring and summer terms, and in certain cases continued to do so through the 2020/2021 academic year. As discussed in Note 2, these abatements and rent refunds were recorded as reductions to revenues in accordance with the FASB Staff Question & Answer “Accounting for Lease Concessions Related to the Effects of
the COVID-19 Pandemic” and are presented in the table below:
Year Ended December 31,
Description
2021
2020
Abatements through the Resident Hardship
Program (1)
$
i1,036
$
i14,275
Net
rent refunds through ACE® university partnerships (1) (2)
$
i2,811
$
i19,691
Net
rent refunds through OCPP university partnerships (3)
$
i—
$
i1,472
Abatements
provided to commercial tenants (1)
$
i—
$
i2,262
Reimbursements
from university partners (4)
$
(i2,527)
$
(i1,654)
(1)Recorded
as reductions to owned properties revenue.
(2)Net of reimbursements received from university partners of $i2.6 million and $i4.4 million
for the years ended December 31, 2021 and 2020, respectively.
(3)Recorded as reductions to OCPP revenue.
(4)Represents reimbursements received from university partners to assist in the financial impacts of dedensification requirements, recorded in owned properties revenue.
15. iCommitments
and Contingencies
Commitments
Construction Contract: As of December 31, 2021, the Company estimates additional costs to complete ione owned development project under
construction to be approximately $i32.7 million.
Charitable Donation: In connection with the ACC / HS Joint Venture Transaction described in Note 6, the Company committed to donate $i5.0 million
to Arizona State University for scholarships, programs that support student success, and sustainability. Upon the closing of the first phase of the transaction on December 31, 2021, the Company recorded a $i2.5 million expense, which is reflected in other operating expenses in the accompanying consolidated statements of comprehensive income. The remaining $i2.5 million
will be recorded upon the closing of the second phase of the transaction.
Contingencies
Development-related Guarantees: For certain of its third-party development projects, the Company commonly provides alternate housing and project cost guarantees, subject to force majeure. These guarantees are typically limited, on an aggregate basis, to the amount of the projects’ related development fees or a contractually agreed-upon maximum exposure amount. Alternate housing guarantees generally require the Company to provide substitute living quarters and transportation for students to and from the university if the project
is not complete by an agreed-upon completion date. These guarantees typically expire at the later of ifive days after completion of the project or once the Company has moved all students from the substitute living quarters into the project.
F-34
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Under project cost guarantees, the Company is responsible for the construction cost of a project in excess of an approved budget. The budget consists primarily of costs included in the general contractors’ guaranteed maximum price contract (“GMP”). In most cases, the GMP obligates the general contractor, subject to force majeure and approved change orders, to provide completion date guarantees and to cover cost overruns and liquidated damages. In order to mitigate risk due to change orders, all final development budgets also include a contingency line item. In addition, the GMP is in certain cases secured with payment and performance bonds. Project cost guarantees expire upon completion of certain
developer obligations, which are normally satisfied within ione year after completion of the project. The Company’s estimated maximum exposure amount under the above guarantees was approximately $i14.6
million as of December 31, 2021. As of December 31, 2021, management does not anticipate any material deviations from schedule or budget related to third-party development projects currently in progress.
As a part of the development agreement with Walt Disney World® Resort, the Company has guaranteed the completion of construction of approximately $i614.6
million to be delivered in phases from 2020 to 2023. As of December 31, 2021, the Company has completed construction on isix phases of the i10-phase
project within the targeted delivery timeline. In addition, the Company is subject to a development guarantee in the event that the substantial completion of a project phase is delayed beyond its respective targeted delivery date, except in circumstances resulting in unavoidable delays. The agreement dictates that the Company shall pay damages of $i20 per bed for each day
of delay for any Disney College Internship Program participant who was either scheduled to live in the delayed phase as well as any participant who was not able to participate in the program due to the lack of available housing and would have otherwise been housed in the delayed phase. Under the agreement, the maximum exposure related to the Disney project assuming all remaining beds are not delivered on their respective delivery dates is approximately $i0.1 million per day. The
Company anticipates completing all remaining phases within the targeted delivery timeline.
Conveyance to University: In August 2013, the Company entered into an agreement to convey fee interest in a parcel of land, on which one of the Company’s student housing properties resides (University Crossings), to Drexel University (the “University”). Concurrent with the land conveyance, the Company as lessee entered into a ground lease agreement with the University as lessor for an initial term of i40
years, with ithreei10-year extensions, at the Company’s option. The Company also agreed to convey the
building and improvements to the University at an undetermined date in the future and to pay real estate transfer taxes not to exceed $i2.4 million. The Company paid approximately $i0.6
million in real estate transfer taxes upon the conveyance of land to the University, leaving approximately $i1.8 million to be paid by the Company upon the transfer of the building and improvements.
Other Guarantee: In June 2019, the Company
entered into a purchase and sale agreement to buy a land parcel initially scheduled to close on or before June 30, 2021, with potential extensions at the Company’s option to June 1, 2022 or June 1, 2023. In February 2021, the Company provided notice in accordance with the purchase and sale agreement and elected to extend the scheduled close date to June 1, 2022. In connection with the execution of the agreement and the closing extension, the Company has made earnest money deposits totaling $i2.4
million which are included in restricted cash on the accompanying consolidated balance sheets. As a part of the agreement, within i60 days of certain conditions not being met, the seller of the property can either terminate the agreement or exercise an option to require the Company to purchase the undeveloped land, with the Company retaining all rights to fully own, develop, and utilize the land. If the option is exercised, the
Company must pay the agreed upon purchase price of $i28.7 million, a commission calculated as a percentage of the sales price, and demolition costs.
Pre-development expenditures: As discussed in the section Third-Party Development Services and Owned Development Project Costs in Note 2, the Company incurs pre-development expenditures with the
pursuit of third-party and owned development projects. The Company bears the risk of loss of these pre-development expenditures if financing cannot be arranged or the Company is unable to obtain the required permits and authorizations for the project. As of December 31, 2021, the Company has deferred approximately $i27.2
million in pre-development costs related to third-party and owned development projects that have not yet commenced construction. Such costs are net of any contractual arrangements through which the Company could be reimbursed by another party, and are included in other assets on the accompanying consolidated balance sheets.
F-35
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation: The
Company is subject to various claims, lawsuits, legal proceedings, and other matters that have not been fully resolved and that have arisen in the ordinary course of business. While it is not possible to ascertain the ultimate outcome of such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations of the Company. However, the outcome of claims, lawsuits and legal proceedings brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, the ultimate results of these matters cannot be predicted with certainty.
Litigation
Settlement: In June 2021, the Company entered into a Joint Stipulation and Settlement Agreement to end all outstanding litigation brought by an alleged class of certain current and former California-based employees alleging violations of statutory labor laws and regulations by the Company. As of December 31, 2021, the agreement was subject to final court approval. The Company agreed to pay an aggregate of $i2.0 million
to the plaintiffs, plus a portion of payroll taxes on the wage portion on the plaintiffs’ payment, in consideration of the settlement when the settlement agreement is formally approved by the court. The parties agreed the settlement was intended solely as a compromise of disputed claims and was not to be understood as a concession or determination that the Company has engaged in any wrongdoing. During the year ended December 31, 2021, the Company recorded litigation expense of $i2.0 million
to reflect the final amount owed under the settlement agreement, which is reflected in other operating expenses in the accompanying consolidated statements of comprehensive income.
16. iSegments
The Company defines business
segments by their distinct customer base and service provided. The Company has identified ifour reportable segments: Owned Properties, On-Campus Participating Properties, Development Services, and Property Management Services. Management evaluates each segment’s performance based on income before depreciation, amortization, and noncontrolling interests.
During the year ended December 31,
2019, the Company updated the presentation of certain items in the reconciliations section in the segment disclosures below by including additional detail in the reconciliation of segment income before depreciation and amortization to consolidated net income.
Operating
expenses before depreciation, amortization, and ground/facility lease expense
(i407,648)
(i378,454)
(i390,664)
Ground/facility
lease expense
(i15,647)
(i11,505)
(i11,084)
Interest
expense, net (1)
(i12,201)
(i12,413)
(i16,859)
Income
before depreciation and amortization
$
i454,563
$
i418,786
$
i462,575
Depreciation
and amortization
$
(i264,687)
$
(i256,238)
$
(i261,938)
Capital
expenditures
$
i228,122
$
i373,898
$
i515,208
Total
segment assets at December 31,
$
i7,344,318
$
i7,368,883
$
i7,346,625
On-Campus
Participating Properties
Rental revenues and other income
$
i31,207
$
i29,906
$
i36,346
Interest
income
i15
i31
i167
Total
revenues from external customers
i31,222
i29,937
i36,513
Operating
expenses before depreciation, amortization, and ground/facility lease expense
(i14,333)
(i13,521)
(i15,028)
Ground/facility
lease expense
(i2,026)
(i2,008)
(i3,067)
Interest
expense, net (1)
(i3,483)
(i4,146)
(i4,934)
Income
before depreciation and amortization
$
i11,380
$
i10,262
$
i13,484
Depreciation
and amortization
$
(i8,039)
$
(i8,015)
$
(i8,380)
Capital
expenditures
$
i4,308
$
i2,098
$
i2,898
Total
segment assets at December 31,
$
i81,815
$
i86,523
$
i97,561
Development
Services
Development and construction management fees
$
i10,191
$
i7,543
$
i13,051
Operating
expenses
(i9,207)
(i9,431)
(i8,658)
Income
(loss) before depreciation and amortization
$
i984
$
(i1,888)
$
i4,393
Total
segment assets at December 31,
$
i21,251
$
i13,887
$
i13,539
Property
Management Services
Property management fees from external customers
$
i11,959
$
i12,436
$
i12,936
Operating
expenses
(i11,406)
(i12,269)
(i11,257)
Income
before depreciation and amortization
$
i553
$
i167
$
i1,679
Total
segment assets at December 31,
$
i7,374
$
i8,390
$
i8,888
Reconciliations
Total
segment revenues and other income
$
i943,431
$
i871,074
$
i943,682
Unallocated
interest income earned on investments and corporate cash
i352
i2,449
i3,046
Total
consolidated revenues, including interest income
$
i943,783
$
i873,523
$
i946,728
Segment
income before depreciation and amortization
$
i467,480
$
i427,327
$
i482,131
Segment
depreciation and amortization
(i272,726)
(i264,253)
(i270,318)
Corporate
depreciation
(i2,871)
(i3,450)
(i4,728)
Net
unallocated expenses relating to corporate interest and overhead
(i147,209)
(i129,273)
(i117,529)
Gain
(loss) from disposition of real estate, net
i—
i48,525
(i53)
Net
other operating (expense) and nonoperating income
(i4,205)
i2,407
i—
Amortization
of deferred financing costs
(i5,824)
(i5,259)
(i5,012)
Provision
for impairment
i—
i—
(i17,214)
(Loss)
gain from extinguishment of debt, net
i—
(i4,827)
i20,992
Income
tax provision
(i1,361)
(i1,349)
(i1,507)
Net
income
$
i33,284
$
i69,848
$
i86,762
Total
segment assets
$
i7,454,758
$
i7,477,683
$
i7,466,613
Unallocated
corporate assets
i119,828
i53,477
i93,141
Total
assets at December 31,
$
i7,574,586
$
i7,531,160
$
i7,559,754
(1) Net
of capitalized interest and amortization of debt premiums.
/
F-36
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. iSubsequent
Events
Distributions: On January 24, 2022, the Company’s Board of Directors declared a distribution per share of $i0.47 which was paid on February 25, 2022 to all common stockholders of record as of February 4, 2022. At the same
time, the Operating Partnership paid an equivalent amount per unit to holders of Common Units, as well as the quarterly cumulative preferential distribution to holders of Series A Preferred Units (see Note 10).
F-37
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. iSchedule
of Real Estate and Accumulated Depreciation
Initial
Cost
Total Costs
Units
Beds
Land
Buildings and Improvements and Furniture, Fixtures, and Equipment
Costs Capitalized Subsequent
to Acquisition / Initial Development (1)
Land
Buildings and Improvements and Furniture, Fixtures, and Equipment
Total (2)
Accumulated Depreciation
Encumbrances (3)
Year
Built(4)
Owned
Properties (5)
The
Callaway House College Station
i173
i538
$
i5,081
$
i20,499
$
i8,397
$
i5,002
$
i28,975
$
i33,977
$
i16,514
$
i—
1999
The
Village at Science Drive
i192
i732
i4,673
i19,021
i8,036
i4,673
i27,057
i31,730
i13,607
i—
2000
University
Village at Boulder Creek
i82
i309
i1,035
i16,393
i1,666
i1,035
i18,059
i19,094
i8,811
i—
2002
University
Village
i105
i406
i929
i15,168
i970
i929
i16,138
i17,067
i7,148
i—
2004
University
Village
i220
i749
i—
i41,119
i2,366
i—
i43,485
i43,485
i19,756
i—
2004
University
Club Apartments
i94
i376
i1,416
i11,848
i1,720
i1,416
i13,568
i14,984
i5,887
i—
1999
City
Parc at Fry Street
i137
i420
i1,902
i17,678
i4,407
i1,902
i22,085
i23,987
i10,002
i—
2004
Entrada
Real
i98
i363
i1,475
i15,859
i2,250
i1,475
i18,109
i19,584
i8,234
i—
2000
University
Village at Sweethome
i269
i830
i2,473
i34,448
i3,930
i2,473
i38,378
i40,851
i15,956
i—
2005
University
Village
i217
i716
i4,322
i26,225
i5,940
i4,322
i32,165
i36,487
i13,938
i—
1991
Royal
Village
i118
i448
i2,386
i15,153
i7,368
i2,363
i22,544
i24,907
i9,321
i—
1996
Royal
Lexington
i94
i364
i2,848
i12,783
i4,351
i2,848
i17,134
i19,982
i7,414
i—
1994
Raiders
Pass
i264
i828
i3,877
i32,445
i5,689
i3,877
i38,134
i42,011
i16,135
i—
2001
Aggie
Station
i156
i450
i1,634
i18,821
i6,368
i1,634
i25,189
i26,823
i9,785
i—
2003
The
Outpost
i276
i828
i3,262
i36,252
i11,148
i3,262
i47,400
i50,662
i19,135
i—
2005
Callaway
Villas
i236
i704
i3,903
i31,953
i800
i3,903
i32,753
i36,656
i13,049
i—
2006
The
Village on Sixth Avenue
i248
i752
i2,763
i22,480
i9,887
i2,763
i32,367
i35,130
i13,299
i—
1999
Newtown
Crossing
i356
i942
i7,013
i53,597
i1,469
i7,013
i55,066
i62,079
i20,745
i—
2005
Olde
Towne University Square
i224
i550
i2,277
i24,614
(i314)
i2,277
i24,300
i26,577
i9,420
i—
2005
Peninsular
Place
i183
i478
i2,306
i16,559
i1,368
i2,306
i17,927
i20,233
i7,082
i—
2005
University
Centre
i234
i840
i—
i77,378
i910
i—
i78,288
i78,288
i28,980
i—
2007
The
Summit & Jacob Heights
i258
i930
i2,318
i36,464
i2,383
i2,318
i38,847
i41,165
i13,835
i—
2004
GrandMarc
Seven Corners
i186
i440
i4,491
i28,807
i2,055
i4,491
i30,862
i35,353
i10,848
i—
2000
Aztec
Corner
i180
i606
i17,460
i32,209
i6,347
i17,460
i38,556
i56,016
i13,119
i—
2001
The
Tower at Third
i188
i375
i1,145
i19,128
i13,131
i1,267
i32,137
i33,404
i13,310
i—
1973
Willowtree
Apartments and Tower
i473
i851
i9,807
i21,880
i4,634
i9,806
i26,515
i36,321
i10,487
i—
1970
University
Pointe
i204
i682
i989
i27,576
i3,934
i989
i31,510
i32,499
i12,292
i—
2004
University
Trails
i240
i684
i1,183
i25,173
i3,704
i1,183
i28,877
i30,060
i11,113
i—
2003
Campus
Trails
i156
i480
i1,358
i11,291
i7,901
i1,225
i19,325
i20,550
i6,617
i—
1991
University
Crossings (ACE)
i260
i1,016
i—
i50,668
i41,541
i—
i92,209
i92,209
i38,019
i—
2003
Vista
del Sol (ACE)
i613
i1,866
i—
i135,939
i7,912
i—
i143,851
i143,851
i53,098
i—
2008
Villas
at Chestnut Ridge
i196
i554
i2,756
i33,510
i1,538
i2,756
i35,048
i37,804
i12,308
i—
2008
Barrett
Honors College (ACE)
i604
i1,721
i—
i131,302
i23,777
i—
i155,079
i155,079
i55,886
i—
2009
Sanctuary
Lofts
i201
i485
i2,960
i18,180
i4,440
i2,959
i22,621
i25,580
i8,406
i—
2006
F-38
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Initial
Cost
Total Costs
Units
Beds
Land
Buildings and Improvements and Furniture, Fixtures, and Equipment
Costs Capitalized Subsequent
to Acquisition / Initial Development (1)
Land
Buildings and Improvements and Furniture, Fixtures, and Equipment
Total (2)
Accumulated Depreciation
Encumbrances (3)
Year
Built(4)
The
Edge - Charlotte
i180
i720
$
i3,076
$
i23,395
$
i9,335
$
i3,076
$
i32,730
$
i35,806
$
i13,508
$
i—
1999
University
Walk
i120
i480
i2,016
i14,599
i2,960
i2,016
i17,559
i19,575
i6,102
i—
2002
Uptown
i180
i528
i3,031
i21,685
i5,245
i3,031
i26,930
i29,961
i8,971
i—
2004
2nd
Avenue Centre
i274
i868
i4,434
i27,236
i5,089
i4,434
i32,325
i36,759
i10,781
i—
2008
Villas
at Babcock
i204
i792
i4,642
i30,901
i1,135
i4,642
i32,036
i36,678
i13,020
i—
2011
Lobo
Village (ACE)
i216
i864
i—
i42,490
i3,080
i—
i45,570
i45,570
i14,121
i—
2011
Villas
on Sycamore
i170
i682
i3,000
i24,640
i1,439
i3,000
i26,079
i29,079
i10,942
i—
2011
26
West
i367
i1,026
i21,396
i63,994
i9,378
i21,396
i73,372
i94,768
i23,205
i66,938
2008
Avalon
Heights
i210
i754
i4,968
i24,345
i16,120
i4,968
i40,465
i45,433
i14,547
i—
2002
University
Commons
i164
i480
i12,559
i19,010
i3,767
i12,559
i22,777
i35,336
i7,369
i—
2003
Casas
del Rio (ACE)
i283
i1,028
i—
i40,639
i3,819
i—
i44,458
i44,458
i19,397
i—
2012
The
Suites (ACE)
i439
i878
i—
i45,296
i1,530
i—
i46,826
i46,826
i16,143
i—
2013
Hilltop
Townhomes (ACE)
i144
i576
i—
i31,507
i1,126
i—
i32,633
i32,633
i12,271
i—
2012
U
Club on Frey
i216
i866
i8,703
i36,873
i3,643
i8,703
i40,516
i49,219
i13,605
i—
2013
Campus
Edge on UTA Boulevard
i128
i488
i2,661
i21,233
i2,210
i2,663
i23,441
i26,104
i8,794
i—
2012
U
Club Townhomes on Marion Pugh
i160
i640
i6,722
i26,546
i2,430
i6,722
i28,976
i35,698
i11,416
i—
2012
Villas
on Rensch
i153
i610
i10,231
i33,852
i1,841
i10,231
i35,693
i45,924
i12,791
i—
2012
The
Village at Overton Park
i163
i612
i5,262
i29,374
i1,824
i5,262
i31,198
i36,460
i12,103
i—
2012
Casa
de Oro (ACE)
i109
i365
i—
i12,362
i545
i—
i12,907
i12,907
i5,176
i—
2012
The
Villas at Vista del Sol (ACE)
i104
i400
i—
i20,421
i738
i—
i21,159
i21,159
i8,603
i—
2012
The
Block
i669
i1,555
i22,270
i141,430
i19,972
i22,572
i161,100
i183,672
i43,193
i94,117
2008
University
Pointe at College Station (ACE)
i282
i978
i—
i84,657
i2,943
i—
i87,600
i87,600
i34,329
i—
2012
309
Green
i110
i416
i5,351
i49,987
i4,912
i5,351
i54,899
i60,250
i15,352
i—
2008
The
Retreat
i187
i780
i5,265
i46,236
i4,610
i5,265
i50,846
i56,111
i14,862
i—
2012
Lofts54
i43
i172
i430
i14,741
i4,862
i430
i19,603
i20,033
i5,762
i—
2008
Campustown
Rentals
i264
i746
i2,382
i40,190
i7,263
i2,382
i47,453
i49,835
i14,975
i—
1982
Chauncey
Square
i158
i386
i2,522
i40,013
i3,046
i2,522
i43,059
i45,581
i11,969
i—
2011
Texan
& Vintage
i124
i311
i5,937
i11,906
i16,475
i5,962
i28,356
i34,318
i7,858
i18,796
2008
The
Castilian
i371
i623
i3,663
i59,772
i38,013
i3,663
i97,785
i101,448
i32,437
i46,052
1967
Bishops
Square
i134
i315
i1,206
i17,878
i3,163
i1,206
i21,041
i22,247
i6,770
i—
2002
Union
i54
i120
i169
i6,348
i1,257
i169
i7,605
i7,774
i2,439
i—
2006
922
Place
i132
i468
i3,363
i34,947
i4,193
i3,363
i39,140
i42,503
i12,156
i—
2009
Campustown
i452
i1,216
i1,818
i77,894
i16,509
i1,818
i94,403
i96,221
i26,035
i—
1997
River
Mill
i243
i461
i1,741
i22,806
i6,160
i1,741
i28,966
i30,707
i9,093
i—
1972
The
Province
i219
i696
i2,226
i48,567
i3,714
i2,226
i52,281
i54,507
i14,857
i—
2011
RAMZ
Apartments on Broad
i88
i172
i785
i12,303
i988
i785
i13,291
i14,076
i3,803
i—
2004
The
Lofts at Capital Garage
i36
i144
i313
i3,581
i1,089
i313
i4,670
i4,983
i1,544
i—
2000
F-39
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Initial
Cost
Total Costs
Units
Beds
Land
Buildings and Improvements and Furniture, Fixtures, and Equipment
Costs Capitalized Subsequent
to Acquisition / Initial Development (1)
Land
Buildings and Improvements and Furniture, Fixtures, and Equipment
Total (2)
Accumulated Depreciation
Encumbrances (3)
Year
Built(4)
25Twenty
i249
i562
$
i2,226
$
i33,429
$
i3,928
$
i2,226
$
i37,357
$
i39,583
$
i11,201
$
i—
2011
The
Province
i366
i858
i4,392
i63,068
i3,309
i4,392
i66,377
i70,769
i19,694
i—
2009
The
Province
i336
i816
i3,798
i70,955
i4,161
i3,798
i75,116
i78,914
i22,473
i—
2010
5
Twenty Four and 5 Twenty Five Angliana
i376
i1,060
i—
i60,448
i8,293
i5,214
i63,527
i68,741
i18,982
i—
2010
The
Province
i287
i947
i—
i52,943
i6,458
i—
i59,401
i59,401
i17,630
i—
2009
U
Pointe Kennesaw
i216
i797
i1,482
i61,654
i8,441
i1,482
i70,095
i71,577
i21,513
i—
2012
The
Cottages of Durham
i141
i619
i3,955
i41,421
i3,169
i3,955
i44,590
i48,545
i15,913
i—
2012
University
Edge
i201
i608
i4,500
i26,385
i2,276
i4,500
i28,661
i33,161
i7,995
i—
2012
The
Lodges of East Lansing
i364
i1,049
i6,472
i89,231
i4,882
i6,472
i94,113
i100,585
i26,458
i—
2012
7th
Street Station
i82
i309
i9,792
i16,472
i801
i9,792
i17,273
i27,065
i5,190
i—
2012
The
Callaway House - Austin
i219
i753
i—
i61,550
i2,258
i—
i63,808
i63,808
i20,705
i80,726
2013
Manzanita
Hall (ACE)
i241
i816
i—
i48,781
i1,773
i—
i50,554
i50,554
i17,974
i—
2013
University
View (ACE)
i96
i336
i—
i14,683
i472
i—
i15,155
i15,155
i5,164
i—
2013
U
Club Townhomes at Overton Park
i112
i448
i7,775
i21,483
i1,168
i7,775
i22,651
i30,426
i7,891
i—
2013
601
Copeland
i81
i283
i1,457
i26,699
i853
i1,457
i27,552
i29,009
i8,170
i—
2013
The
Townhomes at Newtown Crossing
i152
i608
i7,745
i32,074
i929
i7,745
i33,003
i40,748
i9,934
i—
2013
Chestnut
Square (ACE)
i220
i861
i—
i98,369
i3,471
i—
i101,840
i101,840
i32,039
i—
2013
Park
Point
i300
i924
i7,827
i73,495
i5,770
i7,827
i79,265
i87,092
i23,680
i70,000
2008
U
Centre at Fry Street
i194
i614
i2,902
i47,700
i3,427
i2,902
i51,127
i54,029
i13,510
i—
2012
Cardinal
Towne
i255
i545
i6,547
i53,809
i4,577
i6,547
i58,386
i64,933
i15,464
i—
2010
Merwick
Stanworth (ACE)
i325
i595
i—
i79,598
(i539)
i—
i79,059
i79,059
i15,965
i—
2014
Plaza
on University
i364
i1,313
i23,987
i85,584
i6,038
i23,987
i91,622
i115,609
i26,651
i—
2014
U
Centre at Northgate (ACE)
i196
i784
i—
i35,663
i810
i—
i36,473
i36,473
i10,988
i—
2014
University
Walk
i177
i526
i4,341
i29,073
i4,165
i4,341
i33,238
i37,579
i7,370
i—
2014
U
Club on Woodward
i236
i944
i16,350
i46,982
i1,416
i16,349
i48,399
i64,748
i14,790
i—
2014
Park
Point
i66
i226
i—
i25,725
i4,012
i—
i29,737
i29,737
i6,878
i—
2010
1200
West Marshall
i136
i406
i4,397
i33,908
i2,372
i4,397
i36,280
i40,677
i8,775
i—
2013
8
1/2 Canal Street
i160
i540
i2,797
i45,394
i2,659
i2,797
i48,053
i50,850
i10,658
i—
2011
Vistas
San Marcos
i255
i600
i586
i45,761
i7,923
i586
i53,684
i54,270
i15,939
i—
2013
Crest
at Pearl
i141
i343
i4,395
i36,268
i2,149
i4,491
i38,321
i42,812
i8,986
i23,372
2014
U
Club Binghamton
i326
i1,272
i15,858
i92,372
i3,824
i15,858
i96,196
i112,054
i17,732
i—
2005
160
Ross
i182
i642
i2,962
i38,478
i1,428
i2,962
i39,906
i42,868
i10,361
i—
2015
The
Summit at University City (ACE)
i351
i1,315
i—
i154,770
i2,964
i—
i157,734
i157,734
i32,762
i—
2015
2125
Franklin
i192
i734
i8,299
i55,716
i970
i8,299
i56,686
i64,985
i12,890
i—
2015
University
Crossings
i187
i546
i645
i36,838
i7,873
i645
i44,711
i45,356
i8,222
i—
2014
U
Club on 28th
i100
i398
i9,725
i45,788
i648
i9,725
i46,436
i56,161
i8,838
i—
2016
Currie
Hall (ACE)
i178
i456
i—
i49,987
i583
i—
i50,570
i50,570
i10,199
i—
2016
F-40
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Initial
Cost
Total Costs
Units
Beds
Land
Buildings and Improvements and Furniture, Fixtures, and Equipment
Costs Capitalized Subsequent
to Acquisition / Initial Development (1)
Land
Buildings and Improvements and Furniture, Fixtures, and Equipment
Total (2)
Accumulated Depreciation
Encumbrances (3)
Year
Built(4)
University
Pointe (ACE)
i134
i531
$
i—
$
i44,035
$
i453
$
i—
$
i44,488
$
i44,488
$
i8,605
$
i—
2016
Fairview
House (ACE)
i107
i633
i—
i38,144
i347
i—
i38,491
i38,491
i8,843
i—
2016
U
Club Sunnyside
i134
i534
i7,423
i41,582
i752
i7,423
i42,334
i49,757
i8,243
i—
2016
Stadium
Centre
i636
i1,723
i27,808
i158,189
i10,431
i27,808
i168,620
i196,428
i29,311
i60,824
2016
U
Point
i54
i163
i1,425
i17,325
i2,578
i1,425
i19,903
i21,328
i3,829
i—
2016
The
Arlie
i169
i598
i1,350
i43,352
i2,360
i1,350
i45,712
i47,062
i8,924
i—
2016
TWELVE
at U District
i283
i384
i13,013
i98,115
i4,046
i13,013
i102,161
i115,174
i13,380
i—
2014
The
515
i183
i513
i1,611
i68,953
i2,667
i1,611
i71,620
i73,231
i9,165
i—
2015
State
i220
i665
i3,448
i66,774
i3,015
i3,448
i69,789
i73,237
i10,550
i—
2013
Tooker
House (ACE)
i429
i1,594
i—
i103,897
i172
i—
i104,069
i104,069
i17,508
i—
2017
SkyView
(ACE)
i163
i626
i—
i57,578
i439
i—
i58,017
i58,017
i8,789
i—
2017
University
Square (ACE)
i143
i466
i—
i25,635
i141
i—
i25,776
i25,776
i4,372
i—
2017
U
Centre on Turner
i182
i718
i14,000
i55,456
i303
i14,001
i55,758
i69,759
i8,805
i—
2017
U
Pointe on Speight
i180
i700
i4,705
i46,160
i627
i4,705
i46,787
i51,492
i7,233
i—
2017
21Hundred
at Overton Park
i296
i1,204
i16,767
i64,057
i1,169
i16,767
i65,226
i81,993
i10,641
i—
2017
The
Suites at Third
i63
i251
i831
i22,384
i23
i831
i22,407
i23,238
i3,527
i—
2017
Callaway
House Apartments
i386
i915
i12,651
i78,220
i892
i12,651
i79,112
i91,763
i12,718
i—
2017
U
Centre on College
i127
i418
i—
i41,607
(i44)
i—
i41,563
i41,563
i6,126
i—
2017
The
James
i366
i850
i18,871
i118,096
i2,802
i18,871
i120,898
i139,769
i17,677
i—
2017
Bridges
@ 11th
i184
i258
i—
i58,825
i1,785
i—
i60,610
i60,610
i7,176
i—
2015
Hub
U District Seattle
i111
i248
i5,700
i56,355
i1,617
i5,700
i57,972
i63,672
i8,379
i—
2017
David
Blackwell Hall (ACE)
i412
i780
i—
i96,891
i861
i—
i97,752
i97,752
i10,778
i—
2018
Gladding
Residence Center (ACE)
i592
i1,524
i—
i94,368
i405
i—
i94,773
i94,773
i11,440
i—
2018
Irvington
House (ACE)
i197
i648
i—
i36,187
i44
i—
i36,231
i36,231
i4,471
i—
2018
Greek
Leadership Village (ACE)
i498
i957
i—
i69,351
i305
i—
i69,656
i69,656
i8,446
i—
2018
NAU
Honors College (ACE)
i318
i636
i—
i41,222
i415
i—
i41,637
i41,637
i5,345
i—
2018
U
Club Townhomes at Oxford
i132
i528
i5,115
i39,239
i97
i5,115
i39,336
i44,451
i4,934
i—
2018
Hub
Ann Arbor
i124
i310
i7,050
i42,865
i1,789
i7,050
i44,654
i51,704
i5,283
i—
2018
The
Jack
i198
i591
i5,397
i56,626
i867
i5,397
i57,493
i62,890
i6,817
i—
2018
Campus
Edge on Pierce
i289
i598
i6,881
i55,818
i1,579
i6,881
i57,397
i64,278
i7,327
i—
2018
191
College
i127
i495
i5,434
i55,844
i—
i5,434
i55,844
i61,278
i4,461
i—
2019
LightView
(ACE)
i214
i825
i—
i148,922
i1,088
i—
i150,010
i150,010
i12,227
i—
2019
University
of Arizona Honors College (ACE)
i319
i1,056
i—
i76,214
i405
i—
i76,619
i76,619
i6,854
i—
2019
959
Franklin
i230
i443
i5,026
i62,980
i—
i5,026
i62,980
i68,006
i4,493
i—
2019
Currie
Hall Phase II (ACE)
i95
i272
i—
i41,812
i—
i—
i41,812
i41,812
i1,929
i—
2020
Manzanita
Square (ACE)
i169
i597
i—
i127,413
i—
i—
i127,413
i127,413
i5,653
i—
2020
Disney
College Program Phases I-V (ACE)
i1,323
i5,284
i—
i365,566
i—
i—
i365,566
i365,566
i12,086
i—
2020-21
F-41
AMERICAN
CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Initial
Cost
Total Costs
Units
Beds
Land
Buildings and Improvements and Furniture, Fixtures, and Equipment
Costs Capitalized Subsequent
to Acquisition / Initial Development (1)
Land
Buildings and Improvements and Furniture, Fixtures, and Equipment
Total (2)
Accumulated Depreciation
Encumbrances (3)
Year
Built(4)
Properties
Under Development (6)
Disney College Program Phases VI-X (ACE) (7)
i1,291
i5,156
$
i—
$
i236,237
$
i—
$
i—
$
i236,237
$
i236,237
$
i—
$
i—
2022-23
Undeveloped
land parcels (8)
i—
i—
i90,828
i1,968
i—
i90,828
i1,968
i92,796
i1,612
i—
N/A
Subtotal
i34,423
i106,674
$
i672,730
$
i7,322,890
$
i592,587
$
i678,254
$
i7,909,953
$
i8,588,207
$
i1,911,396
$
i460,825
On-Campus
Participating Properties
University Village & University Village Northwest at
Prairie View
i648
i2,064
$
i—
$
i40,734
$
i11,529
$
i—
$
i52,263
$
i52,263
$
i43,162
$
i5,624
1998
University
Village at Laredo
i84
i250
i—
i5,844
i1,597
i—
i7,441
i7,441
i6,565
i861
1997
University
College at Prairie View
i756
i1,470
i—
i22,650
i8,174
i—
i30,824
i30,824
i24,041
i8,210
2001
Cullen
Oaks
i411
i879
i—
i33,910
i4,344
i—
i38,254
i38,254
i21,851
i22,562
2003
College
Park
i224
i567
i—
i43,634
i2,132
i—
i45,766
i45,766
i13,370
i38,424
2014
Subtotal
i2,123
i5,230
$
i—
$
i146,772
$
i27,776
$
i—
$
i174,548
$
i174,548
$
i108,989
$
i75,681
Total
i36,546
i111,904
$
i672,730
$
i7,469,662
$
i620,363
$
i678,254
$
i8,084,501
$
i8,762,755
$
i2,020,385
$
i536,506
(1)Includes
write-offs of fully depreciated assets.
(2)Total aggregate costs for federal income tax purposes is approximately $i9.7 billion.
(3)Total encumbrances exclude net unamortized debt premiums and deferred financing costs of approximately$i0.4
million and $i1.1 million, respectively, as of December 31, 2021.
(4)For properties with multiple phases, the year built represents the weighted average year based on the number of beds delivered each year.
(5)A number of our properties consist of two or more phases that are counted separately in the property portfolio numbers disclosed in Note 1.
(6)Initial
costs represent construction costs incurred to date associated with the development of these properties. Year built represents the scheduled completion date.
(7)Includes i739 beds delivered as a part of Phase VI for which construction was substantially complete as of December 31, 2021, but were not occupied until January 2022.
(8)Buildings
and improvements and furniture, fixtures, and equipment and accumulated depreciation amounts are related to buildings on ithree land parcels that will be demolished as part of development.
F-42
AMERICAN CAMPUS COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The changes in the Company’s investments in real estate and related accumulated depreciation for each of the years ended December 31, 2021, 2020, and 2019 are as follows: